UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨
Commission File Number 001-35931
Constellium N.V.
(Exact Name of Registrant as Specified in its Charter)
(Translation of Registrant’s name into English)
The Netherlands
(Jurisdiction of incorporation or organization)
Tupolevlaan 41-61,
1119 NW Schiphol-Rijk
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Name of each exchange on which registered
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report:
104,918,946 Class A Ordinary Shares, Nominal Value €0.02 per share
108,109 Class B Ordinary Shares, Nominal Value €0.02 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes x No
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨
International Financial Reporting Standards as issued by the International Accounting Standards
Board x
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
TABLE OF CONTENTS
Special Note About Forward-Looking Statements
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on the Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other than Equity Securities
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains “forward-looking statements” with respect to our business, results of operations and financial condition, and our expectations or beliefs concerning future events and conditions. You can identify certain forward-looking statements because they contain words such as, but not limited to, “believes,” “expects,” “may,” “should,” “approximately,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “likely,” “will,” “would,” “could” and similar expressions (or the negative of these terminologies or expressions). All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our business and operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward-looking statements contained in this annual report on Form 20-F.
Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements are disclosed under “Item 3. Key Information–D. Risk Factors” and elsewhere in this annual report on Form 20-F, including, without limitation, in conjunction with the forward-looking statements included in this annual report on Form 20-F and including with respect to our estimated and projected earnings, income, equity, assets, ratios and other estimated financial results. All forward-looking statements in this annual report on Form 20-F and subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could materially affect our results include:
We caution you that the foregoing list may not contain all of the factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this annual report on Form 20-F may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.
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Not applicable.
A. Selected Financial Data
The following tables set forth our selected historical financial and operating data.
On January 4, 2011, Omega Holdco B.V., which later changed its name to Constellium Holdco B.V., and then again to Constellium N.V. (“Constellium” or the “Successor”) acquired the Alcan Engineered Aluminum Products business unit (the “AEP Business” or the “Predecessor”) from affiliates of Rio Tinto, a leading international mining group (the “Acquisition”). For comparison purposes, our results of operations for the years ended December 31, 2011, 2012, 2013 and 2014 are presented alongside the results of operations of the Predecessor for the year ended December 31, 2010. However, our Successor and Predecessor periods are not directly comparable due to the impact of the application of purchase accounting and the preparation of the Predecessor accounts on a carve-out basis. The financial position, results of operations and cash flows of the Predecessor do not necessarily reflect what our financial position or results of operations would have been if we had been operated as a standalone entity during the periods covered by the Predecessor financial statements and are not indicative of our future results of operations and financial position.
The selected historical financial information of the Predecessor as of and for the year ended December 31, 2010 has been prepared to present the assets, liabilities, revenues and expenses of the combined AEP Business on a standalone basis up to the date of divestment from Rio Tinto.
The selected historical financial information as of and for the years ended December 31, 2012, 2013 and 2014 has been derived from our audited consolidated financial statements included elsewhere in this Annual Report.
The audited consolidated financial statements included elsewhere in this Annual Report have been prepared in accordance with the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”), and as endorsed by the European Union (“EU”).
The selected historical financial information as of and for the year ended December 31, 2011 and 2010 has been derived from our unaudited accounting records and the unaudited accounting records of our Predecessor.
Effective January 1, 2013, we have adopted IAS 19 “Employee Benefits” (revised) (IAS 19) in our audited consolidated financial statements as of and for the year ended December 31, 2013 and in accordance with transition rules in IAS 19 we have retrospectively applied this standard to the two years ending December 31, 2012 and 2011. We have not restated our audited combined financial statements for the year ended December 31, 2010 as the impact of this revised standard is not material to our results of operations and financial position.
References to “tons” throughout this Annual Report are to metrics tons.
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References to the Wise Acquisition refer to our January 5, 2015 acquisition of Wise Metals Intermediate Holdings LLC and its subsidiaries, which companies we refer to collectively as “Wise.” The transaction is therefore not included in the Group’s consolidated financial statements as of December 31, 2014. The discussion in this report relates to a period prior to our acquisition of Wise and, except as otherwise noted, does not give effect to such acquisition.
Statement of income data:
Revenue
Gross profit
Income from operations
Net income/(loss) for the period—continuing operations
Net income/(loss) for the period
Earnings/(loss) per share—basic
Earnings/(loss) per share—diluted
Earnings/(loss) per share—basic—continuing operations
Earnings/(loss) per share—diluted—continuing operations
Weighted average number of shares outstanding
Dividends per ordinary share (euro)(1)
Balance sheet data:
Total assets
Net liabilities or total invested equity
Share capital
Other operational and financial data (unaudited):
Net trade working capital(2)
Capital expenditure
Volumes (in kt)
Revenue per ton (€ per ton)
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
D. Risk Factors
Risks Related to Our Business
If we fail to implement our business strategy, including our productivity and cost reduction initiatives, our financial condition and results of operations could be materially adversely affected.
Our future financial performance and success depend in large part on our ability to successfully implement our business strategy, including investing in high-return opportunities in our core markets, focusing on higher-
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margin, technologically advanced products, differentiating our products, expanding our strategic relationships with customers in selected international regions, fixed-cost containment and cash management, and executing on our Lean manufacturing program, which is described in “Item 4. Information on the Company–B. Business Overview.” We cannot assure you that we will be able to successfully implement our business strategy or be able to continue improving our operating results. For example, we announced the intention to create a joint venture in the United States to serve the growing demand for BiW in North America. Any inability to create or execute on our strategy with respect to the joint venture may adversely affect our operations.
Implementation of our business strategy could be affected by a number of factors beyond our control, such as increased competition, legal and regulatory developments, general economic conditions (including slower or lower than expected growth in North America for BiW aluminium rolled products), or an increase in operating costs. Any failure to successfully implement our business strategy could adversely affect our financial condition and results of operations. In addition, we may decide to alter or discontinue certain aspects of our business strategy at any time. Although we have undertaken and expect to continue to undertake productivity and cost reduction initiatives to improve performance, such as the Lean manufacturing program, we cannot assure you that all of these initiatives will be completed or that any estimated cost savings from such activities will be fully realized. Even when we are able to generate new efficiencies in the short- to medium-term, we may not be able to continue to reduce costs and increase productivity over the long term.
Aluminium may become less competitive with alternative materials, which could reduce our share of industry sales, lower our selling prices and reduce our sales volumes.
Our fabricated aluminium products compete with products made from other materials—such as steel, glass, plastics and composites—for various applications. Higher aluminium prices relative to substitute materials tend to make aluminium products less competitive with these alternative materials. Environmental and other regulations may also increase our costs and may be passed on to our customers, and may restrict the use of chemicals needed to produce aluminium products. These regulations may make our products less competitive as compared to materials that are subject to fewer regulations.
Customers in our end-markets, including the aerospace, automotive and can sectors, use and continue to evaluate the further use of alternative materials to aluminium in order to reduce the weight and increase the efficiency of their products. Although trends in “light-weighting” have generally increased rates of using aluminium as a substitution of other materials, the willingness of customers to accept substitutions for aluminium, or the ability of large customers to exert leverage in the marketplace to reduce the pricing for fabricated aluminium products, could adversely affect the demand for our products, and thus materially adversely affect our financial position, results of operations and cash flows.
The cyclical and seasonal nature of the metals industry, our end-use markets and our customers’ industries could negatively affect our financial condition and results of operations.
The metals industry is generally cyclical in nature, and these cyclical fluctuations tend to directly correlate with changes in general and local economic conditions. These conditions include the level of economic growth, financing availability, the availability of affordable energy sources, employment levels, interest rates, consumer confidence and housing demand. Historically, in periods of recession or periods of minimal economic growth, metals companies have often tended to underperform other sectors. In addition, economic downturns in regional and global economies, including in Europe, or a prolonged recession in our principal industry segments, have had a negative impact on our operations in the past and could have a negative impact on our future financial condition or results of operations. Although we continue to seek to diversify our business on a geographic and end-market basis, we cannot assure you that diversification would mitigate the effect of cyclical downturns.
We are particularly sensitive to cycles in the aerospace, defense, automotive, other transportation, building and construction and general engineering end-markets, which are highly cyclical. During recessions or periods of
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low growth, these industries typically experience major cutbacks in production, resulting in decreased demand for aluminium products. This leads to significant fluctuations in demand and pricing for our products and services. Because our operations are capital intensive and we generally have high fixed costs and may not be able to reduce costs and production capacity on a sufficiently rapid basis, our near-term profitability may be significantly affected by decreased processing volumes. Accordingly, reduced demand and pricing pressures may significantly reduce our profitability and materially adversely affect our financial condition, results of operations and cash flows.
In particular, we derive a significant portion of our revenues from products sold to the aerospace industry, which is highly cyclical and tends to decline in response to overall declines in the general economy. The commercial aerospace industry is historically driven by the demand from commercial airlines for new aircraft. Demand for commercial aircraft is influenced by airline industry profitability, trends in airline passenger traffic, the state of the U.S. and global economies and numerous other factors, including the effects of terrorism. A number of major airlines have undergone Chapter 11 bankruptcy or comparable insolvency proceedings and experienced financial strain from volatile fuel prices. The aerospace industry also suffered significantly in the wake of the events of September 11, 2001, resulting in a sharp decrease globally in new commercial aircraft deliveries and order cancellations or deferrals by the major airlines. Despite existing backlogs, continued financial uncertainty in the industry, inadequate liquidity of certain airline companies, production issues and delays in the launch of new aircraft programs at major aircraft manufacturers, stock variations in the supply chain, terrorist acts or the increased threat of terrorism may lead to reduced demand for new aircraft that utilize our products, which could materially adversely affect our financial position, results of operations and cash flows.
Further, the demand for our automotive extrusions and rolled products and many of our general engineering and other industrial products is dependent on the production of cars, light trucks, and heavy duty vehicles and trailers. The automotive industry is highly cyclical, as new vehicle demand is dependent on consumer spending and is tied closely to the strength of the overall economy. We note that the demand for luxury vehicles in China has become significant over the past several years and therefore fluctuations in the Chinese economy may adversely affect the demand for our products. Production cuts by manufacturers may adversely affect the demand for our products. Many automotive-related manufacturers and first tier suppliers are burdened with substantial structural costs, including pension, healthcare and labor costs that have resulted in severe financial difficulty, including bankruptcy, for several of them. A worsening of these companies’ financial condition or their bankruptcy could have further serious effects on the conditions of the markets, which directly affects the demand for our products. In addition, the loss of business with respect to, or a lack of commercial success of, one or more particular vehicle models for which we are a significant supplier could have a materially adverse impact on our financial position, results of operations and cash flows.
Customer demand in the aluminium industry is also affected by holiday seasons, weather conditions, economic and other factors beyond our control. Our volumes are impacted by the timing of the holiday seasons in particular, with August and December typically being the lowest months and January to June being the strongest months. Our business is also impacted by seasonal slowdowns and upturns in certain of our customers’ industries. Historically, the can industry is strongest in the spring and summer season, whereas the automotive and construction sectors encounter slowdowns in both the third and fourth quarters of the calendar year. Therefore, our quarterly financial results could fluctuate as a result of climatic or other seasonal changes, and a prolonged period of unusually cool summers in different regions in which we conduct our business could have a negative effect on our financial results and cash flows.
We may not be able to compete successfully in the highly competitive markets in which we operate, and new competitors could emerge, which could negatively impact our share of industry sales, sales volumes and selling prices.
We are engaged in a highly competitive industry. We compete in the production and sale of rolled aluminium products with a number of other aluminium rolling mills, including large, single-purpose sheet mills,
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continuous casters and other multi-purpose mills, some of which are larger and have greater financial and technical resources than we do. Producers with a different cost basis may, in certain circumstances, have a competitive pricing advantage. Our competitors may be better able to withstand reductions in price or other adverse industry or economic conditions.
In addition, a current or new competitor may also add or build new capacity, which could diminish our profitability by decreasing equilibrium prices in our marketplace. New competitors could emerge from within Europe or North America or globally, including from China, Russia and the Middle East, and could include existing producers and sellers of steel products that may seek to compete in our industry. Emerging or transitioning markets in these regions with abundant natural resources, low-cost labor and energy, and lower environmental and other standards may pose a significant competitive threat to our business. Our competitive position may also be affected by exchange rate fluctuations that may make our products less competitive. Changes in regulation that have a disproportionately negative effect on us or our methods of production may also diminish our competitive advantage and industry position. In addition, technological innovation is important to our customers who require us to lead or keep pace with new innovations to address their needs. If we do not compete successfully, our share of industry sales, sales volumes and selling prices may be negatively impacted.
In addition, the aluminium industry has experienced consolidation over the past years and there may be further industry consolidation in the future. Although industry consolidation has not yet had a significant negative impact on our business, if we do not have sufficient market presence or are unable to differentiate ourselves from our competitors, we may not be able to compete successfully against other companies. If as a result of consolidation, our competitors are able to obtain more favorable terms from suppliers or otherwise take actions that could increase their competitive strengths, our competitive position and therefore our business, results of operations and financial condition may be materially adversely affected.
Our business involves significant activity in Europe, and adverse conditions and disruptions in European economies could have a material adverse effect on our operations or financial performance.
A material portion of our sales are generated by customers located in Europe. The financial markets remain concerned about the ability of certain European countries to finance their deficits and service growing debt burdens amidst difficult economic conditions. This loss of confidence has led to rescue measures by Eurozone countries and the International Monetary Fund. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations, the overall stability of the euro and the suitability of the euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries. In addition, the actions required to be taken by those countries as a condition to rescue packages, and by other countries to mitigate similar developments in their economies, have resulted in increased political discord within and among Eurozone countries. The interdependencies among European economies and financial institutions have also exacerbated concern regarding the stability of European financial markets generally. These concerns could lead to the re-introduction of individual currencies in one or more Eurozone countries, or, in more extreme circumstances, the possible dissolution of the euro currency entirely. Should the euro dissolve entirely, the legal and contractual consequences for holders of euro-denominated obligations would be determined by laws in effect at such time. These potential developments, or market perceptions concerning these and related issues, could materially adversely affect the value of the Company’s euro-denominated assets and obligations. In addition, concerns over the effect of this financial crisis on financial institutions in Europe and globally could have a material adverse impact on the capital markets generally. Persistent disruptions in the European financial markets, the overall stability of the euro and the suitability of the euro as a single currency or the failure of a significant European financial institution, could have a material adverse impact on our operations or financial performance.
In addition, there can be no assurance that the actions we have taken or may take in response to global economic conditions may be sufficient to counter any continuation or reoccurrence of the downturn or
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disruptions. A significant global economic downturn or disruptions in the financial markets would have a material adverse effect on our financial position, results of operations and cash flows.
Adverse changes in currency exchange rates could negatively affect our financial results.
The financial condition and results of operations of some of our operating entities are reported in various currencies and then translated into euros at the applicable exchange rate for inclusion in our consolidated financial statements. As a result, the appreciation of the euro against the currencies of our operating local entities may have a negative impact on reported revenues and operating profit, and the resulting accounts receivable, while depreciation of the euro against these currencies may generally have a positive effect on reported revenues and operating profit. We do not hedge translation of forecasted results or actual results.
In addition, while the majority of costs incurred are denominated in local currencies, a portion of the revenues are denominated in U.S. dollars and other currencies. As a result, appreciation in the U.S. dollar may have a positive impact on earnings while depreciation of the U.S. dollar may have a negative impact on earnings. While we engage in significant hedging activity to attempt to mitigate this foreign transactions currency risk, this may not fully protect us from adverse effects due to currency fluctuations on our business, financial condition or results of operations.
A portion of our revenues is derived from our international operations, which exposes us to certain risks inherent in doing business globally.
We have operations primarily in the United States, Germany, France, Slovakia, Switzerland, the Czech Republic and China and primarily sell our products across Europe, Asia and North America. We also continue to explore opportunities to expand our international operations, particularly in other parts of Asia. Our operations generally are subject to financial, political, economic and business risks in connection with our global operations, including:
The occurrence of any of these events could cause our costs to rise, limit growth opportunities or have a negative effect on our operations and our ability to plan for future periods. In certain emerging markets, the degree of these risks may be higher due to more volatile economic conditions, less developed and predictable legal and regulatory regimes and increased potential for various types of adverse governmental action.
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We are dependent on a limited number of suppliers for a substantial portion of our aluminium supply and a failure to successfully renew, renegotiate or re-price our long-term agreements or related arrangements with our suppliers may adversely affect our results of operations, financial condition and cash flows.
Our ability to produce competitively priced aluminium products depends on our ability to procure competitively priced supply of aluminium in a timely manner and in sufficient quantities to meet our production needs. We have supply arrangements with a limited number of suppliers for aluminium and other raw materials. Our top 10 suppliers accounted for approximately 45% of our total purchases for the year ended December 31, 2014. Increasing aluminium demand levels have caused regional supply constraints in the industry, and further increases in demand levels could exacerbate these issues. We maintain long-term contracts for a majority of our supply requirements, and for the remainder we depend on annual and spot purchases. There can be no assurance that we will be able to renew, or obtain replacements for, any of our long-term contracts or any related arrangements when they expire on terms that are as favorable as our existing agreements or at all. Additionally, if any of our key suppliers is unable to deliver sufficient quantities of this material on a timely basis, our production may be disrupted and we could be forced to purchase primary metal and other supplies from alternative sources, which may not be available in sufficient quantities or may only be available on terms that are less favorable to us. As a result, an interruption in key supplies required for our operations could have a material adverse effect on our ability to produce and deliver products on a timely or cost-efficient basis and therefore on our financial condition, results of operations and cash flows. In addition, a significant downturn in the business or financial condition of our significant suppliers exposes us to the risk of default by the supplier on our contractual agreements, and this risk is increased by weak and deteriorating economic conditions on a global, regional or industry sector level.
We depend on scrap aluminium for our operations and acquire our scrap inventory from numerous sources. Our suppliers generally are not bound by long-term contracts and have no obligation to sell scrap metal to us. In periods of low inventory prices, suppliers may elect to hold scrap until they are able to charge higher prices. In addition, a decrease in the supply of used beverage containers (“UBCs”) available to us resulting from a decrease in the rate at which consumers consume or recycle products contained or packaged in aluminium beverage cans could negatively impact our supply of aluminium. For example, the slowdown in industrial production and consumer consumption during the recent economic crisis reduced and may continue to reduce the supply of scrap metal available. If an adequate supply of scrap metal is not available to us, we would be unable to recycle metals at desired volumes and our results of operation, financial condition and cash flows could be materially adversely affected.
In addition, we seek to take advantage of the lower price of scrap aluminium compared to primary aluminium to provide a cost-competitive product. A decrease in the supply of scrap aluminium could increase its cost per pound. To the extent the discount between the primary aluminium price and scrap price narrows, our competitive advantage may be reduced. We cannot make use of financial markets to effectively hedge against reductions in this discount as this market is not readily available. If the difference between the price of primary and scrap aluminium is narrow for a considerable period of time, it could adversely affect our business, financial condition and results of operations.
Our financial results could be adversely affected by the volatility in aluminium prices.
The overall price of primary aluminium consists of several components: 1) the underlying base metal component, which is typically based on quoted prices from the London Metal Exchange (“LME”); 2) the regional premium, which represents an incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g. the Midwest premium for metal sold in the U.S. or the Rotterdam premium for metal sold in Europe); and 3) the product premium, which represents a separate incremental price for receiving physical metal in a particular shape (e.g. billet, slab, rod, etc.), alloy, or purity. Each of these three components has its own drivers of variability. The LME price is typically driven by macroeconomic factors, global supply and demand of aluminium, including expectations for growth and contraction and the level of global inventories). Regional premiums tend to vary based on the supply and demand
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for metal in a particular region and associated transportation costs. Product premiums generally are a function of supply and demand for a given primary aluminium shape and alloy combination in a particular region.
Speculative trading in aluminium has increased in recent years, contributing to higher levels of price volatility. In 2013, the LME price of aluminium reached a high of $2,123 per metric ton and a low of $1,695 per metric ton. During 2013 and 2014, regional premiums reached levels substantially higher than historical averages. The Rotterdam regional premium increased from an average of 3% of the LME base price in the period from 2000 to 2009 to 22% of the LME base price in November 2014. The Midwest regional premium increased from 6% of the LME base price to 26% of the LME base price during the same period. New LME warehousing rules, which took effect in February 2015, could lead to an increase in the supply of aluminium entering the physical market and in turn cause regional premiums to decrease, however, there is no assurance as to if or when these new rules will have an actual impact on premium prices. Sustained high aluminium prices, increases in aluminium prices, the inability to meaningfully hedge our exposure to aluminium prices, or an increase in regional premiums or product premiums could have a material adverse effect on our business, financial condition, and results of operations and cash flow.
If we are unable to adequately mitigate the cost of price increases of our raw materials, including aluminium, our profitability could be adversely affected.
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 a “margin over metal price” basis, if prices increase we may not be able to pass on the entire cost of the increases to our customers. There could also be a time lag between when changes in prices under our purchase contracts are effective and the point when we can implement corresponding changes under our sales contracts with our customers. As a result, we are exposed to fluctuations in raw materials prices, including metal, since during this time lag we may have to temporarily bear the additional cost of the price change under our purchase contracts. Further, although most of our contracts allow us to pass through metal prices to our customers, we have certain contracts that are based on fixed metal pricing where pass through is not available. A related risk is that a sustained significant increase in raw materials prices may cause some of our customers to substitute our products with other materials. We attempt to mitigate these risks, including through hedging, but we may not be able to successfully reduce or eliminate any resulting negative impact, which could have a material adverse effect on our profitability and financial results.
Our results of operations, cash flows and liquidity could be adversely affected if we are unable to execute on our hedging policy, if counterparties to our derivative instruments fail to honor their agreements or if we are unable to purchase derivative instruments.
We purchase and sell LME and other forwards, futures and options contracts as part of our efforts to reduce our exposure to changes in currency exchange rates, aluminium prices and other raw materials prices. Our ability to realize the benefit of our hedging program is dependent upon many factors, including factors that are beyond our control. For example, our foreign exchange hedges are scheduled to mature on the expected payment date by the customer; therefore, if the customer fails to pay an invoice on time and does not warn us in advance, we may be unable to reschedule the maturity date of the foreign exchange hedge, which could result in an outflow of foreign currency that will not be offset until the customer makes the payment. We may realize a gain or a loss in unwinding such hedges. In addition, our metal-price hedging programs depend on our ability to match our monthly exposure to sold and purchased metal, which can be made difficult by seasonal variations in metal demand, unplanned changes in metal delivery dates by either us or by our customers and other disruptions to our inventories, including for maintenance.
We may also be exposed to losses if the counterparties to our derivative instruments fail to honor their agreements. Further, if major financial institutions continue to consolidate and are forced to operate under more restrictive capital constraints and regulations, there could be less liquidity in the derivative markets, which could have a negative effect on our ability to hedge and transact with creditworthy counterparties.
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To the extent our hedging transactions fix prices or exchange rates and primary aluminium prices, energy costs or foreign exchange rates are below the fixed prices or rates established by our hedging transactions, our income and cash flows will be lower than they otherwise would have been. Similarly, if we do not adequately hedge for prices and premiums of our aluminium and other raw materials, our financial results may also be negatively impacted. Further, we do not apply hedge accounting to our forwards, futures or option contracts. As a result, unrealized gains and losses on our derivative financial instruments must be reported in our consolidated results of operations. The inclusion of such unrealized gains and losses in earnings may produce significant period to period earnings volatility that is not necessarily reflective of our underlying operating performance. In addition, in certain scenarios when market price movements result in a decline in value of our current derivatives position, our mark-to-market expense may exceed our credit line and counterparties may request the posting of cash collateral which, in turn, can be a significant demand on our liquidity.
At certain times, hedging instruments may simply be unavailable or not available on terms acceptable to us. In addition, recent legislation has been adopted to increase the regulatory oversight of over-the-counter derivatives markets and derivative transactions. The companies and transactions that are subject to these regulations may change. If future regulations subject us to additional capital or margin requirements or other restrictions on our trading and commodity positions, they could have an adverse effect on our financial condition and results of operations.
We are subject to unplanned business interruptions that may materially adversely affect our business.
Our operations may be materially adversely affected by unplanned events such as explosions, fires, war or terrorism, inclement weather, accidents, equipment, information technology systems and process failures, electrical blackouts or outages, transportation interruptions and supply interruptions. Operational interruptions at one or more of our production facilities could cause substantial losses and delays in our production capacity or increase our operating costs. In addition, replacement of assets damaged by such events could be difficult or expensive, and to the extent these losses are not covered by insurance or our insurance policies have significant deductibles, our financial position, results of operations and cash flows may be materially adversely affected by such events. For example, in 2008, a stretcher at Constellium’s Ravenswood, West Virginia facility was damaged due to a defect in its hydraulic system, causing a substantial outage at that facility that had a material impact on our production volumes at this facility and on our financial results for the affected period. In 2014, Constellium’s Ravenswood facility suffered outages that had an adverse impact on earnings for the first and fourth quarters of 2014.
Furthermore, because customers may be dependent on planned deliveries from us, customers that have to reschedule their own production due to our delivery delays may be able to pursue financial claims against us, and we may incur costs to correct such problems in addition to any liability resulting from such claims. Interruptions may also harm our reputation among actual and potential customers, potentially resulting in a loss of business.
If we were to lose order volumes from any of our largest customers, our sales volumes, revenues and cash flows would be reduced.
Our business is exposed to risks related to customer concentration. Our ten largest customers accounted for approximately 46% of our consolidated revenues for the year ended December 31, 2014. A significant downturn in the business or financial condition of our significant customers exposes us to the risk of default on contractual agreements and trade receivables, and this risk is increased by weak and deteriorating economic conditions on a global, regional or industry sector level.
If we fail to successfully renew, renegotiate or re-price our long-term agreements or related arrangements with our largest customers, including as a result of customers of Wise (as defined below) exercising change of control rights in connection with the Wise Acquisition, our results of operations, financial condition and cash flows could be materially adversely affected.
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We have long-term contracts and related arrangements with a significant number of our customers, some of which are subject to renewal, renegotiation or re-pricing at periodic intervals or upon changes in competitive and regulatory supply conditions. They also provide certain termination rights to our customers. In addition, change of control provisions in certain contracts may give customers the right to terminate or change the terms of those contracts as a result of the Wise Acquisition. Our failure to successfully renew, renegotiate or re-price such agreements, at all or on terms as favorable as our existing contracts and arrangements, or a material deterioration in or termination of these customer relationships, 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, financial condition and cash flows could be materially adversely affected.
In addition, our strategy of having dedicated facilities and arrangements with customers subjects us to the inherent risk of increased dependence on a single or a few customers with respect to these facilities. In such cases, the loss of such a customer, or the reduction of that customer’s business at one or more of our facilities, could negatively affect our financial condition and results of operations, and we may be unable to timely replace, or replace at all, lost order volumes and revenue.
The price volatility of energy costs may adversely affect our profitability.
Our operations use natural gas and electricity, which represent the third largest component of our cost of sales, after metal and labor costs. We purchase part of our natural gas and electricity on a spot-market basis. The volatility in costs of fuel, principally natural gas, and other utility services, principally electricity, used by our production facilities affect operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our control, such as supply and demand for fuel and utility services in both local and regional markets as well as governmental regulation and imposition of further taxes on energy. Although we have secured some of our natural gas and electricity under fixed price commitments or long-term contracts with suppliers, future increases in fuel and utility prices, or disruptions in energy supply, may have an adverse effect on our financial position, results of operations and cash flows.
Regulations regarding carbon dioxide emissions, and unfavorable allocation of rights to emit carbon dioxide or other air emission related issues, as well as other environmental laws and regulations, could have a material adverse effect on our business, financial condition and results of operations.
Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. Measures to reduce carbon dioxide and other greenhouse gas emissions that could directly or indirectly affect us or our suppliers are currently being developed or may be developed in the future. Substantial quantities of greenhouse gases are released as a consequence of our operations. Compliance with regulations governing such emissions tend to become more stringent over time and could lead to a need for us to further reduce such greenhouse gas emissions, to purchase rights to emit from third parties, or to make other changes to our business, all of which could result in significant additional costs or could reduce demand for our products. In addition, we are a significant purchaser of energy. Existing and future regulations relating to the emission of carbon dioxide by our energy suppliers could result in materially increased energy costs for our operations, and we may be unable to pass along these increased energy costs to our customers, which could have a material adverse effect on our business, financial condition and results of operations. For example, a revised European emissions trading system or a successor to the Kyoto Protocol under the United Nations Framework Convention on Climate Change, could have a material adverse effect on our business, financial condition and results of operations.
Our fabrication process is subject to regulations that may hinder our ability to manufacture our products. Some of the chemicals we use on our fabrication processes are subject to government regulation, such as REACH (“Registration, Evaluation, Authorisation, and Restriction of Chemicals substances”) in the EU. Under REACH, we are required to register some of our products with the European Chemicals Agency, and this process
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could cause significant delays or costs. If we fail to comply with these or similar laws and regulations, we may be required to make significant expenditures to reformulate the chemicals that we use in our products and materials or incur costs to register such chemicals to gain and/or regain compliance, and we may lose customers or revenue as a result. Additionally, we could be subject to significant fines or other civil and criminal penalties should we not achieve such compliance. To the extent that other nations in which we operate also require chemical registration, potential delays similar to those in Europe may delay our entry into these markets. Any failure to obtain or delay in obtaining regulatory approvals for chemical products used in our facilities could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to successfully develop and implement new technology initiatives and other strategic investments in a timely manner.
We have invested in, and are involved with, a number of technology and process initiatives, including the development of new aluminium-lithium products. Being at the forefront of technological development is important to remain competitive. Several technical aspects of certain of these initiatives are still unproven and/or the eventual commercial outcomes and feasibility cannot be assessed with any certainty. Even if we are successful with these initiatives, we may not be able to bring them to market as planned before our competitors or at all, and the initiatives may end up costing more than expected. As a result, the costs and benefits from our investments in new technologies and the impact on our financial results may vary from present expectations.
In addition, we have undertaken and may continue to undertake growth, streamlining and productivity initiatives to improve performance. For example, following completion of the Wise Acquisition we anticipate additional capital expenditures in the U.S. of up to $750 million by 2022 to increase our current hot mill capacity to over 700 kt and build 200 kt of dedicated BiW finishing capacity. We cannot assure you that these initiatives will be completed or that they will have their intended benefits. Capital investments in debottlenecking or other organic growth initiatives may not produce the returns we anticipate. Even if we are able to generate new efficiencies successfully in the short- to medium-term, we may not be able to continue to reduce cost and increase productivity over the long term.
Our business requires substantial capital investments that we may be unable to fulfill.
Our operations are capital intensive. Our total capital expenditures were €199 million for the year ended December 31, 2014 and €144 million and €126 million for the years ended December 31, 2013 and 2012, respectively. We further anticipate additional capital expenditures in the U.S. of up to $750 million by 2022 following completion of the Wise Acquisition to increase our current hot mill capacity to over 700 kt and build 200 kt of dedicated BiW finishing capacity. We may not generate sufficient operating cash flows and our external financing sources may not be available in an amount sufficient to enable us to make anticipated capital expenditures, service or refinance our indebtedness or fund other liquidity needs. If we are unable to make upgrades or purchase new plants and equipment, our financial condition and results of operations could be materially adversely affected by higher maintenance costs, lower sales volumes due to the impact of reduced product quality, and other competitive factors.
As part of our ongoing evaluation of our operations, we may undertake additional restructuring efforts in the future which could in some instances result in significant severance-related costs and other restructuring charges.
We recorded restructuring charges of €12 million for the year ended December 31, 2014, €8 million for the year ended December 31, 2013 and €25 million for the year ended December 31, 2012. Restructuring costs in 2014 and 2013 were primarily related to corporate and other European sites restructuring operations. The 2012 costs were primarily in relation to an efficiency improvement program ongoing at our Sierre, Switzerland facility and corporate restructuring. We may pursue additional restructuring activities in the future, which could result in
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significant severance-related costs, impairment charges, restructuring charges and related costs and expenses, including resulting labor disputes, which could materially adversely affect our profitability and cash flows.
A deterioration in our financial position or a downgrade of our ratings by a credit rating agency could increase our borrowing costs and our business relationships could be adversely affected.
On October 7, 2014, following our announcement that we had entered into the Unit Purchase Agreement, Moody’s placed Constellium’s credit rating under review for downgrade, stating that the Wise Acquisition could result in a material increase of Constellium’s indebtedness on a pro forma basis and a significant increase in capital expenditures in the next few years. On October 10, 2014, S&P also placed Constellium’s credit rating under review for downgrade. On December 4, 2014, Moody’s downgraded Constellium from Ba3 to B1 and S&P downgraded Constellium from BB- to B. A deterioration of our financial position or a downgrade of our credit ratings for any reason could increase our borrowing costs and have an adverse effect on our business relationships with customers, suppliers and hedging counterparties. As discussed above, we enter into various forms of hedging arrangements against currency, interest rate or metal price fluctuations and trade metal contracts on the LME. Financial strength and credit ratings are important to the availability and 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 changes to our level of indebtedness may make it more difficult or costly for us to engage in hedging and trading activities in the future.
In addition, a downgrade could adversely affect our existing financing, limit access to the capital or credit markets, or otherwise adversely affect the availability of other new financing on favorable terms, if at all, result in more restrictive covenants in agreements governing the terms of any future indebtedness that we incur, increase our borrowing costs, or otherwise impair our business, financial condition and results of operations.
Our indebtedness could materially adversely affect our ability to invest in or fund our operations, limit our ability to react to changes in the economy or our industry or force us to take alternative measures.
Our indebtedness impacts our flexibility in operating our business and could have important consequences for our business and operations, including the following: (i) it may make us more vulnerable to downturns in our business or the economy; (ii) a substantial portion of our cash flows from operations will be dedicated to the repayment of our indebtedness and will not be available for other purposes; (iii) it may restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities; and (iv) it may adversely affect the terms under which suppliers provide goods and services to us. As further described in “Item 10. Additional Information–C. Material Contracts,” our indebtedness has materially increased as a result of the Wise Acquisition. By increasing our indebtedness, we have made ourselves more susceptible to the risks discussed above.
If we are unable to meet our debt service obligations, including our obligations under our Notes and pay our expenses, we may be forced to reduce or delay business activities and capital expenditures, sell assets, obtain additional debt or equity capital, restructure or refinance all or a portion of our debt before maturity or take other measures. Such measures may materially adversely affect our business. If these alternative measures are unsuccessful, we could default on our obligations, which could result in the acceleration of our outstanding debt obligations and could have a material adverse effect on our business, results of operations and financial condition.
The terms of our indebtedness contain covenants that restrict our current and future operations, and a failure by us to comply with those covenants may materially adversely affect our business, results of operations and financial condition.
Our indebtedness and the indebtedness of Wise that we have assumed in connection with the Wise Acquisition contain, and any future indebtedness we may incur would likely contain, a number of restrictive
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covenants that will impose significant operating and financial restrictions on our ability to, among other things: (i) incur or guarantee additional debt; (ii) pay dividends and make other restricted payments and investments; (iii) create or incur certain liens; (iv) make certain loans, acquisitions or investments; (v) engage in sales of assets and subsidiary stock; (vi) enter into transactions with affiliates; (vii) transfer all or substantially all of our assets or enter into merger or consolidation transactions; and (viii) enter into sale and lease-back transactions. In addition, after giving effect to the amendment to our senior unsecured revolving credit facility entered into in May 2014 (the “Unsecured Revolving Credit Facility”), at any time that loans under the Unsecured Revolving Credit Facility are (a) borrowed, to the extent that immediately after giving effect to such borrowing, loans in excess of 30% of the total commitments under the Unsecured Revolving Credit Facility would be outstanding, or (b) outstanding on the last day of our fiscal quarter, the Unsecured Revolving Credit Facility will require us to (x) maintain a consolidated total net leverage ratio of no more than 4.50 to 1.00, (y) maintain a minimum fixed charge coverage ratio of not less than 2.50 to 1.00, and (z) ensure that, taken together, the Company and the guarantors of the Unsecured Revolving Credit Facility have (i) assets representing not less than 60% of the consolidated total assets of the Company and its subsidiaries (excluding Wise and its subsidiaries while the Wise Notes or the Wise ABL Facility prohibit Wise or such subsidiary from guaranteeing the obligations under the Unsecured Revolving Credit Facility) and (ii) EBITDA representing not less than 75% of the consolidated EBITDA of the Company and its restricted subsidiaries (excluding Wise and its subsidiaries while the Wise Notes or the Wise ABL Facility prohibit Wise or such subsidiary from guaranteeing the obligations under the Unsecured Revolving Credit Facility). Additionally, our European Factoring Agreements contain a group level minimum liquidity covenant that is tested quarterly and requires us to maintain minimum liquidity of at least $50 million.
A failure to comply with our debt covenants could result in an event of default that, if not cured or waived, could have a material adverse effect on our business, results of operations and financial condition. If we default under our indebtedness, we may not be able to borrow additional amounts and our lenders could elect to declare all outstanding borrowings, together with accrued and unpaid interest and fees, to be due and payable, or take other remedial actions. Our indebtedness also contains cross-default provisions, which means that if an event of default occurs under certain material indebtedness, such event of default may trigger an event of default under our other indebtedness. If our indebtedness were to be accelerated, we cannot assure you that our assets would be sufficient to repay such indebtedness in full and our lenders could foreclose on our pledged assets. See “Item 10. Additional Information–C. Material Contracts.”
Our existing, and any future, variable rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.
A portion of our indebtedness is, and our future indebtedness may be, subject to variable rates of interest, exposing us to interest rate risk. See “Item 10. Additional Information–C. Material Contracts.” If interest rates increase, our debt service obligations on the variable rate indebtedness would increase, resulting in a reduction of our net income that could be significant, even though the principal amount borrowed would remain the same.
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 and Switzerland, unfunded pension benefits in France and Germany, and lump sum indemnities payable to our employees in France and Germany upon retirement or termination. Our pension plan assets consist primarily of funds invested in listed stocks and bonds. Our estimates of liabilities and expenses for pensions and other post-retirement benefits incorporate a number of assumptions, including interest rates used to discount future benefits. Our results of operations, liquidity or shareholders’ equity in a particular period could be materially adversely affected by capital market returns that are less than their assumed long-term rate of return or a decline in 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
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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, our newly-acquired subsidiary Wise provides benefits under a defined benefit pension plan that was frozen in 2007. Declines in interest rates or the value of pension assets or certain other changes could affect the level and timing of required contributions to the pension plan in the future. If future contributions are insufficient to fund the pension plan adequately to cover Wise’s future pension obligations, we could incur cash expenditures and costs materially higher than anticipated. Wise’s pension obligation is calculated annually and is based on several assumptions, including then prevailing conditions, which may change from year to year. In any year, if these assumptions are inaccurate, we could be required to expend greater amounts than anticipated.
Wise also participates in various “multi-employer” pension plans administered by labor unions representing some of its employees. Wise’s withdrawal liability for any multi-employer plan would depend on the extent of the plan’s funding of vested benefits. In the ordinary course of Wise’s renegotiation of collective bargaining agreements with labor unions that maintain these plans, Wise could decide to discontinue participation in a plan, and in that event Wise could face a withdrawal liability. Wise could also be treated as withdrawing from participation in one of these plans if the number of its employees participating in these plans is reduced to a certain degree over certain periods of time. Such reductions in the number of Wise’s employees participating in these plans could occur as a result of changes in Wise’s business operations, such as facility closures or consolidations. Any withdrawal liability could have an adverse effect on our results of operations.
A substantial percentage of our workforce is unionized or covered by collective bargaining agreements that may not be successfully renegotiated.
A significant number of our employees (approximately 80% of our total headcount) are represented by unions or equivalent bodies or are covered by collective bargaining or similar agreements that are subject to periodic renegotiation. Although we believe that we will be able to successfully negotiate new collective bargaining agreements when the current agreements expire, these negotiations may not prove successful, and may result in a significant increase in the cost of labor, or may break down and result in the disruption or cessation of our operations.
We could experience labor disputes and work stoppages that could disrupt our business and have a negative impact on our financial condition and results of operations.
From time to time, we may experience labor disputes and work stoppages at our facilities. For example, we experienced work stoppages and labor disturbances at our Ravenswood facility in 2012 in conjunction with the renegotiation of the collective bargaining agreement. Additionally, we experienced work stoppages and labor disturbances at our Issoire and Neuf-Brisach facilities in November 2013 and resumed normal operations in early December 2013. Existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future. Any such stoppages or disturbances may have a negative impact on our financial condition and results of operations by limiting plant production, sales volumes, profitability and operating costs.
The loss of certain members of our management team may have a material adverse effect on our operating results.
Our success will depend, in part, on the efforts of our senior management and other key employees. These individuals possess sales, marketing, engineering, technical, manufacturing, financial and administrative skills that are critical to the operation of our business. If we lose or suffer an extended interruption in the services of one or more of our senior officers or other key employees, our ability to operate and expand our business, improve our operations, develop new products, and, as a result, our financial condition and results of operations, may be negatively affected. Moreover, the pool of qualified individuals is highly competitive, and we may not be
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able to attract and retain qualified personnel to replace or succeed members of our senior management or other key employees, should the need arise.
In addition, in light of demographic trends in the labor markets where we operate, we expect that our factories will be confronted with high levels of natural attrition in the coming years due to retirements. Strategic workforce planning will be a challenge to ensure a controlled exit of skills and competencies and the timely acquisition of new talent and competencies, in line with changing technological and industrial needs.
If we do not adequately maintain and continue to evolve our financial reporting and internal controls (which could result in higher operating costs), we may be unable to accurately report our financial results or prevent fraud.
We will need to continue to improve existing, and implement new, financial reporting and management systems, procedures and controls to manage our business effectively and support our growth in the future, especially because we lack a long history of operations as a standalone entity. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures and controls, or the obsolescence of existing financial control systems, could harm our ability to accurately forecast sales demand and record and report financial and management information on a timely and accurate basis.
Although Wise, as a private company, was not subject to reporting under the Sarbanes-Oxley Act of 2002, during its prior audits through 2014, Wise concluded that it had a material weakness starting in 2006 relating to the financial close and review process and sufficiency and training of its financial reporting staff, which remained through 2014. During its 2014 audit, Wise concluded that it had an additional material weakness relating to inadequate and non-timely communication between its operations and accounting departments. A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Wise engaged in ongoing remediation of the material weaknesses by hiring additional financial staff, and reviewed and updated scheduling and planning protocols to ensure compliance with financial reporting deadlines. However, as of December 31, 2014, all these weaknesses were not yet remediated. There can be no assurance as to when or whether we will able to remediate any remaining material weaknesses in Wise’s internal control over financial reporting.
We could also suffer a loss of confidence in the reliability of our financial statements if our independent registered public accounting firm reports a material weakness in our internal controls, if we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could result in a decline in the trading price of our ordinary shares. In addition, if we fail to remedy any material weakness, our financial statements may be inaccurate, we may face restricted access to the capital markets and the price of our ordinary shares may be materially adversely affected.
We may not be able to adequately protect proprietary rights to our technology.
Our success depends in part upon our proprietary technology and processes. We believe that our intellectual property has significant value and is important to the marketing of our products and maintaining our competitive advantage. Although we attempt to protect our intellectual property rights both in the United States and in foreign countries through a combination of patent, trademark, trade secret and copyright laws, as well as through confidentiality and nondisclosure agreements and other measures, these measures may not be adequate to fully protect our rights. For example, we have a presence in China, which historically has afforded less protection to intellectual property rights than the United States. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.
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We have applied for patent protection relating to certain existing and proposed products and processes. While we generally apply for patents in those countries where we intend to make, have made, use or sell patented products, we may not accurately predict all of the countries where patent protection will ultimately be desirable. If we fail to timely file a patent application in any such country, we may be precluded from doing so at a later date. Furthermore, we cannot assure you that any of our patent applications will be approved. We also cannot assure you that the patents issuing as a result of our foreign patent applications will have the same scope of coverage as our United States patents. The patents we own could be challenged, invalidated or circumvented by others and may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Further, we cannot assure you that competitors will not infringe our patents, or that we will have adequate resources to enforce our patents.
We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.
We rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.
We may institute or be named as a defendant in litigation regarding our intellectual property and such litigation may be costly and divert management’s attention and resources.
Any attempts to enforce our intellectual property rights, even if successful, could result in costly and prolonged litigation, divert management’s attention and resources, and materially adversely affect our results of operations and cash flows. The unauthorized use of our intellectual property may adversely affect our results of operations as our competitors would be able to utilize such property without having had to incur the costs of developing it, thus potentially reducing our relative profitability.
Furthermore, we may be subject to claims that we have infringed the intellectual property rights of another. Even if without merit, such claims could result in costly and prolonged litigation, cause us to cease making, licensing or using products or technologies that incorporate the challenged intellectual property, require us to redesign, reengineer or rebrand our products, if feasible, divert management’s attention and resources, and materially adversely affect our results of operations and cash flows. We may also be required to enter into licensing agreements in order to continue using technology that is important to our business, or we may be unable to obtain license agreements on acceptable terms, either of which could negatively affect our financial position, results of operations and cash flows.
Interruptions in or failures of our information systems, or failure to protect our information systems against cyber-attacks or information security breaches, could have a material adverse effect on our business.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our business, data, accounting, financial reporting, communications, supply chain, order entry and fulfillment and other business processes. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in
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transaction errors, processing inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer.
In addition, Wise recently completed the implementation of an SAP system, which replaced its old accounting and management systems. This implementation poses several challenges relating to, among other things, training of personnel, communication of new rules and procedures, changes in corporate culture, migration of data and the potential instability of the new system. There can be no assurances that the new SAP system will be successful or result in the anticipated benefits to our business operations or that it will be successfully integrated into our information systems.
Information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. A failure in or breach of our information systems as a result of cyber-attacks or information security breaches could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs or cause losses. As cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures or to investigate and remediate any information security vulnerabilities.
Current liabilities under, as well as the cost of compliance with, environmental, health and safety laws could increase our operating costs and negatively affect our financial condition and results of operations.
Our operations are subject to federal, state and local laws and regulations in the jurisdictions where we do business, which govern, among other things, air emissions, wastewater discharges, the handling, storage and disposal of hazardous substances and wastes, the remediation of contaminated sites, and employee health and safety. At December 31, 2014, we had close-down and environmental restoration costs provisions of €47 million. Future environmental regulations or more aggressive enforcement of existing regulations could impose stricter compliance requirements on us and on the industries in which we operate. Additional pollution control equipment, process changes, or other environmental control measures may be needed at some of our facilities to meet future requirements. If we are unable to comply with these laws and regulations, we could incur substantial costs, including fines and civil or criminal sanctions, or costs associated with upgrades to our facilities or changes in our manufacturing processes in order to achieve and maintain compliance. Additionally, evolving regulatory standards and expectations can result in increased litigation and/or increased costs. There are also no assurances that newly discovered conditions, or new or more aggressive enforcement of applicable environmental requirements, or any failure by counterparties to perform indemnification obligations, will not have a material adverse effect on our business.
Financial responsibility for contaminated property can be imposed on us where current operations have had an environmental impact. Such liability can include the cost of investigating and remediating contaminated soil or ground water, financial assurance, fines and penalties sought by environmental authorities, and damages arising out of personal injury, contaminated property and other toxic tort claims, as well as lost or impaired natural resources. Certain environmental laws impose strict, and in certain circumstances joint and several, liability for certain kinds of matters, such that a person can be held liable without regard to fault for all of the costs of a matter regardless of legality at the time of conduct and even though others were also involved or responsible.
Our newly acquired subsidiary Wise is subject to or party to certain environmental claims and matters and there can be no assurances that those matters will be resolved favorably or that such matters will not adversely affect our business, financial condition and results of operations.
We have accrued, and expect to accrue, costs relating to the above matters that are reasonably expected to be incurred based on available information. However, it is possible that actual costs may differ, perhaps significantly, from the amounts expected or accrued. Similarly, the timing of those expenditures may occur faster
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than anticipated. These differences could negatively affect our financial position, results of operations and cash flows.
Other legal proceedings or investigations, or changes in applicable laws and regulations, could increase our operating costs and negatively affect our financial condition and results of operations.
We may from time-to-time be involved in, or be the subject of, disputes, proceedings and investigations with respect to a variety of matters, including matters related to personal injury, intellectual property, employees, taxes, contracts, anti-competitive or anti-corruption practices as well as other disputes and proceedings that arise in the ordinary course of business. It could be costly to address these claims or any investigations involving them, whether meritorious or not, and legal proceedings and investigations could divert management’s attention as well as operational resources, negatively affecting our financial position, results of operations and cash flows. Additionally, as with the environmental laws and regulations, other laws and regulations which govern our business are subject to change at any time. Compliance with changes to existing laws and regulations could have a material adverse effect on our financial position, results of operations and cash flows.
Product liability claims against us could result in significant costs and could materially adversely affect our reputation and our business.
If any of the products that we sell are defective or cause harm to any of our customers, we could be exposed to product liability lawsuits and/or warranty claims. If we were found liable under product liability claims or are obligated under warranty claims, we could be required to pay substantial monetary damages. Even if we successfully defend ourselves against these types of claims, we could still be forced to spend a substantial amount of money in litigation expenses, our management could be required to devote significant time and attention to defending against these claims, and our reputation could suffer, any of which could harm our business.
Our operations present significant risk of injury or death.
Because of the heavy industrial activities conducted at our facilities, there exists a risk of injury or death to our employees or other visitors, notwithstanding the safety precautions we take. Our operations are subject to regulation by national, state and local agencies responsible for employee health and safety, which has from time to time levied fines against us for certain isolated incidents. While such fines have not been material and we have in place policies to minimize such risks, we may nevertheless be unable to avoid material liabilities for any employee death or injury that may occur in the future, and any such incidents may materially adversely impact our reputation.
The insurance that we maintain may not fully cover all potential exposures.
We maintain property, casualty and workers’ compensation insurance, but such insurance does not cover all risks associated with the hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We may incur losses beyond the limits, or outside the coverage, of our insurance policies, including but not limited to, liabilities for breach of contract, environmental compliance or remediation. In addition, from time to time, various types of insurance for companies in our industries have not been available on commercially acceptable terms or, in some cases, have not been available at all. In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain.
Increases in our effective tax rate and exposures to additional income tax liabilities due to audits could materially adversely affect our business.
We operate in multiple tax jurisdictions and pay tax on our income according to the tax laws of these jurisdictions. Various factors, some of which are beyond our control, determine our effective tax rate and/or the
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amount we are required to pay, including changes in or interpretations of tax laws in any given jurisdiction, our ability to use net operating loss and tax credit carry forwards and other tax attributes, changes in geographical allocation of income and expense, and our judgment about the realizability of deferred tax assets. Such changes to our effective tax rate could materially adversely affect our financial position, liquidity, results of operations and cash flows.
In addition, due to the size and nature of our business, we are subject to ongoing reviews by taxing jurisdictions on various tax matters, including challenges to positions we assert on our income tax and withholding tax returns. We accrue income tax liabilities and tax contingencies based upon our best estimate of the taxes ultimately expected to be paid after considering our knowledge of all relevant facts and circumstances, existing tax laws, our experience with previous audits and settlements, the status of current tax examinations and how the tax authorities view certain issues. Such amounts are included in income taxes payable, other non-current liabilities or deferred income tax liabilities, as appropriate, and updated over time as more information becomes available. We record additional tax expense in the period in which we determine that the recorded tax liability is less than the ultimate assessment we expect. We are currently subject to audit and review in a number of jurisdictions in which we operate, and further audits may commence in the future.
Our historical financial information presented in this report may not be representative of future results and our relatively short history operating as a standalone company may pose some challenges.
Due to 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 as past performance is not necessarily an indicator of future performance. In addition, we have a relatively short history operating as a standalone company which may pose some operational challenges to our management. Our management team has faced and could continue to face operational and organizational challenges and costs related to operating as a standalone company, such as continuing to establish various corporate functions, formulating policies, preparing standalone financial statements and continued integration of the management team. These challenges may divert their attention from running our core business or otherwise materially adversely affect our operating results.
We are a foreign private issuer under the U.S. securities laws within the meaning of the New York Stock Exchange (“NYSE”) rules. As a result, we qualify for and rely on exemptions from certain corporate governance requirements and may rely on other exemptions available to us in the future.
As a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act, we are permitted to follow our home country practice in lieu of certain corporate governance requirements of the NYSE, including the NYSE requirements that (i) a majority of the board of directors consists of independent directors; (ii) the nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and (iii) the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. Foreign private issuers are also exempt from certain U.S. securities law requirements applicable to U.S. domestic issuers, including the requirement to file quarterly reports on Form 10-Q and to distribute a proxy statement pursuant to Exchange Act Section 14 in connection with the solicitation of proxies for shareholder meetings.
We rely on the exemptions for foreign private issuers and follow Dutch corporate governance practices in lieu of some of the NYSE corporate governance rules specified above. We currently rely on exemptions from the requirements set out in (i), (ii) and (iii) above, but in the future, we may change what home country corporate governance practices we follow, and, accordingly, which exemptions we rely on from the NYSE requirements. So long as we qualify as a foreign private issuer, you may not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements.
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We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses. If we were to lose our foreign private issuer status, the regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer could be significantly more than costs we incur as a foreign private issuer.
If we were not a foreign private issuer, we would be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, including proxy statements pursuant to Section 14 of the Exchange Act. These SEC disclosure requirements are more detailed and extensive than the forms available to a foreign private issuer. In addition, our directors, officers and 10% owners would become subject to insider short-swing profit disclosure and recovery rules under Section 16 of the Exchange Act. We could also be required to modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion and modifications would involve additional costs.
In addition, we would lose our ability to rely upon exemptions from certain NYSE corporate governance requirements that are available to foreign private issuers. In particular, within six months of losing our foreign private issuer status we would be required to have a majority of independent directors and a nominating/corporate governance committee and a compensation committee comprised entirely of independent directors, unless other exemptions are available under the NYSE rules. Any of these changes would likely increase our regulatory and compliance costs and expenses, which could have a material adverse effect on our business and financial results.
We do not comply with all the provisions of the Dutch Corporate Governance Code which could affect your rights as a shareholder.
We are subject to the Dutch Corporate Governance Code, which applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including the NYSE and Euronext Paris. The Dutch Corporate Governance Code contains principles and best practice provisions for boards of directors, shareholders and general meetings of shareholders, financial reporting, auditors, disclosure, compliance and enforcement standards. The Dutch Corporate Governance Code is based on a “comply or explain” principle. Accordingly, companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the provisions of the Dutch Corporate Governance Code and, if they do not comply with those provisions, to give the reasons for such noncompliance. The principles and best practice provisions apply to the board (relating to, among other matters, the board’s role and composition, conflicts of interest and independence requirements, board committees and remuneration), shareholders and the general meeting of shareholders (for example, regarding anti-takeover protection and obligations of a company to provide information to its shareholders), and financial reporting (such as external auditor and internal audit requirements). We have decided not to comply with a number of the provisions of the Dutch Corporate Governance Code because such provisions conflict, in whole or in part, with the corporate governance rules of NYSE and U.S. securities laws that apply to our company whose ordinary shares are traded on the NYSE, or because such provisions do not reflect best practices of global companies listed on the NYSE. This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the Dutch Corporate Governance Code. See “Item 16G. Corporate Governance—Dutch Corporate Governance Code.”
The market price of our ordinary shares may fluctuate significantly, and you could lose all or part of your investment.
The market price of our ordinary shares may be influenced by many factors, some of which are beyond our control and could result in significant fluctuations, including: (i) the failure of financial analysts to cover our ordinary shares, changes in financial estimates by analysts or any failure by us to meet or exceed any of these estimates; (ii) actual or anticipated variations in our operating results; (iii) announcements by us or our
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competitors of significant contracts or acquisitions; (iv) the recruitment or departure of key personnel; (v) regulatory and litigation developments; (vi) developments in our industry; (vii) future sales of our ordinary shares; and (viii) investor perceptions of us and the industries in which we operate.
In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has been instituted against these companies. If any such litigation is instituted against us, it could materially adversely affect our business, results of operations and financial condition.
Our transformation into a public company may significantly increase our operating costs and disrupt the regular operations of our business.
Prior to our IPO in May 2013, our business historically operated as a privately owned company, and therefore we have since incurred and expect to continue to incur significant additional legal, accounting, reporting and other expenses as a result of having publicly traded ordinary shares. We have incurred and will continue to incur increased costs or costs that we have not incurred previously, including, but not limited to, costs and expenses for directors’ fees, directors and officers liability insurance, investor relations and various other costs of a public company. The additional demands associated with being a public company may also disrupt the regular operations of our business by diverting the attention of our senior management team away from revenue producing activities to management and administrative oversight, adversely affecting our ability to identify and complete business opportunities and increasing the difficulty we face in both retaining professionals and managing and growing our businesses. Any of these effects could materially harm our business, results of operations and financial condition.
We also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as amended, as well as rules implemented by the SEC and the NYSE. We expect these rules and regulations to increase our legal and financial compliance costs and make some management and corporate governance activities more time-consuming and costly. For example, these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have a material adverse impact on our ability to recruit and bring on qualified independent directors.
Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales may occur, could cause the market price of our ordinary shares to decline.
Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales may occur, could cause the market price of our ordinary shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. In addition, the sale of our ordinary shares by our officers and directors in the public market, or the perception that such sales may occur, could cause the market price of our ordinary shares to decline. Prior to the completion of our IPO, we amended our memorandum and articles of association (the “Amended and Restated Articles of Association”) to provide authorization to issue up to 398,500,000 Class A ordinary shares and 1,500,000 Class B ordinary shares. A total of 104,918,946 Class A ordinary shares and 108,109 Class B ordinary shares are outstanding as of December 31, 2014. We may issue ordinary shares or other securities from time to time as consideration for, or to finance, future acquisitions and investments or for other capital needs. We cannot predict the size of future issuances of our shares or the effect, if any, that future sales and issuances of shares would have on the market price of our ordinary shares. If any such acquisition or investment is significant, the number of ordinary shares or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial and may result in
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additional dilution to our shareholders. We may also grant registration rights covering ordinary shares or other securities that we may issue in connection with any such acquisitions and investments.
Any shareholder acquiring 30% or more of our voting rights may be required to make a mandatory takeover bid or be subject to voting restrictions.
Under Dutch law, if a party directly or indirectly acquires control of a Dutch company, all or part of whose shares are admitted to trading on a regulated market, that party may be required to make a public offer for all other shares of the company (mandatory takeover bid). “Control” is defined as the ability to exercise, whether or not in concert with others, at least 30% of the voting rights at a general meeting of shareholders. Controlling shareholders existing before an offering are generally exempt from this requirement, unless their controlling interest drops below 30% and then increases again to 30% or more. The purpose of this requirement is to protect the interests of minority shareholders. Any shareholder acquiring 30% or more of our voting rights may be limited in its ability to vote on our ordinary shares.
Provisions of our organizational documents and applicable law may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their ordinary shares or to make changes in our board of directors.
Several provisions of our Amended and Restated Articles of Association and the laws of the Netherlands could make it difficult for our shareholders to change the composition of our board of directors, thereby preventing them from changing the composition of our management. In addition, the same provisions may discourage, delay or prevent a merger, consolidation or acquisition that shareholders may consider favorable. Provisions of our Amended and Restated Articles of Association impose various procedural and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. These anti-takeover provisions could substantially impede the ability of our shareholders to benefit from a change in control and, as a result, may materially adversely affect the market price of our ordinary shares and your ability to realize any potential change of control premium.
Our general meeting of shareholders has empowered our board of directors to issue shares and restrict or exclude preemptive rights on those shares for a period of five years. Accordingly, an issue of new shares may make it more difficult for a shareholder to obtain control over our general meeting of shareholders.
In addition, because certain of our products may have applications in the defense sector, we may be subject to rules and regulations in France and other jurisdictions that could impede or discourage a takeover or other change in control of Constellium or its subsidiaries. In particular, Constellium supplies aluminium alloy products, such as plates, sheets, profiles, tubes and castings, and related services and R&D activities in connection with aerospace and defense programs in France. As a result, a controlling investment in Constellium or certain of its French subsidiaries, or the purchase of assets constituting a business that produces products or provides services with applications in the defense sector, by a company or individual that is considered to be foreign or non-resident in France may be subject to the French Monetary and Financial Code, which requires prior authorization of the French Ministry of Economy.
United States civil liabilities may not be enforceable against us.
We are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside of the United States. In addition, certain directors, officers and experts named herein reside outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such other persons residing outside the United States, or to enforce outside the United States judgments obtained against such persons in U.S. courts in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be difficult for investors to enforce, in
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original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S. federal securities laws.
There is no treaty between the United States and the Netherlands for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be enforceable in the Netherlands unless the underlying claim is re-litigated before a Dutch court. However, under current practice, the courts of the Netherlands may be expected to render a judgment in accordance with the judgment of the relevant United States court, provided that such judgment (i) is a final judgment and has been rendered by a court which has established its jurisdiction on the basis of internationally accepted grounds of jurisdictions, (ii) has not been rendered in violation of elementary principles of fair trial, (iii) is not incompatible with (a) a prior judgment of a Netherlands court rendered in a dispute between the same parties, or (b) a prior judgment of a foreign court rendered in a dispute between the same parties, concerning the same subject matter and based on the same cause of action, provided that such prior judgment is not capable of being recognized in the Netherlands. It is uncertain whether this practice extends to default judgments as well.
Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors, officers or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
In addition, there is doubt as to whether a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certain experts named herein in an original action predicated solely upon the U.S. federal securities laws brought in a court of competent jurisdiction in the Netherlands against us or such members, officers or experts, respectively.
The rights of our shareholders may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.
Our corporate affairs are governed by our Amended and Restated Articles of Association and by the laws governing companies incorporated in the Netherlands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Dutch law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. See “Item 16G. Corporate Governance—Dutch Corporate Governance Code.”
Although shareholders have the right to approve legal mergers or demergers, Dutch law does not grant appraisal rights to a company’s shareholders who wish to challenge the consideration to be paid upon a legal merger or demerger of a company. In addition, if a third party is liable to a Dutch company, under Dutch law shareholders generally do not have the right to bring an action on behalf of the company or to bring an action on their own behalf to recover damages sustained as a result of a decrease in value, or loss of an increase in value, of their stock. Only in the event that the cause of liability of such third party to the company also constitutes a tortious act directly against such stockholder and the damages sustained are permanent, may that stockholder have an individual right of action against such third party on its own behalf to recover damages. The Dutch Civil Code provides for the possibility to initiate such actions collectively. A foundation or an association whose objective, as stated in its articles of association, is to protect the rights of persons having similar interests, may institute a collective action. The collective action cannot result in an order for payment of monetary damages but may result in a declaratory judgment (verklaring voor recht), for example, declaring that a party has acted wrongfully or has breached a fiduciary duty. The foundation or association and the defendant are permitted to
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reach (often on the basis of such declaratory judgment) a settlement that provides for monetary compensation for damages. A designated Dutch court may declare the settlement agreement binding upon all the injured parties with an opt-out choice for an individual injured party. An individual injured party, within the period set by the court, may also individually institute a civil claim for damages if such injured party is not bound by a collective agreement.
The provisions of Dutch corporate law and our Amended and Restated Articles of Association have the effect of concentrating control over certain corporate decisions and transactions in the hands of our board of directors. As a result, holders of our shares may have more difficulty in protecting their interests in the face of actions by members of the board of directors than if we were incorporated in the United States.
Exchange rate fluctuations may adversely affect the foreign currency value of the ordinary shares and any dividends.
The ordinary shares are quoted in U.S. dollars on the NYSE and in euros on Euronext Paris. Our financial statements are prepared in euros. Fluctuations in the exchange rate between euros and the U.S. dollar will affect, among other matters, the U.S. dollar value and the euro value of the ordinary shares and of any dividends.
If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our ordinary shares depends in part on the research and reports that securities or industry analysts publish about us, our business or our industry. We may have limited, and may never obtain significant, research coverage by securities and industry analysts. If no additional securities or industry analysts commence coverage of our company, the trading price for our shares could be negatively affected. In the event we obtain additional securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our stock, our share price will likely decline. If one or more of these analysts, or those who currently cover us, ceases to cover us or fails to publish regular reports on us, interest in the purchase of our shares could decrease, which could cause our stock price or trading volume to decline.
We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could subject U.S. investors in our ordinary shares to significant adverse U.S. federal income tax consequences.
A foreign corporation will be a passive foreign investment company for U.S. federal income tax purposes (a “PFIC”) in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable “look-through rules,” either (i) at least 75% of its gross income is “passive income,” or (ii) at least 50% of its assets produce or are held for the production of “passive income.” For this purpose, “passive income” generally includes dividends, interest, royalties and rents and certain other categories of income, subject to certain exceptions. We believe that we will not be a PFIC for the current taxable year and that we have not been a PFIC for prior taxable years and we expect that we will not become a PFIC in the foreseeable future, although there can be no assurance in this regard. The determination of whether we are a PFIC is a fact-intensive determination that includes ascertaining the fair market value (or, in certain circumstances, tax basis) of all of our assets on a quarterly basis and the character of each item of income we earn. This determination is made annually and cannot be completed until the close of a taxable year. It depends upon the portion of our assets (including goodwill) and income characterized as passive under the PFIC rules. Accordingly, it is possible that we may become a PFIC due to changes in our income or asset composition or a decline in the market value of our equity. Because PFIC status is a fact-intensive determination, no assurance can be given that we are not, have not been, or will not become, classified as a PFIC.
If we were to be classified as a PFIC in any taxable year, U.S. Holders (as defined in “Item 10. Additional information—E. Material U.S. Federal Income Tax Consequences”) generally would be subject to special tax
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rules that could result in materially adverse U.S. federal income tax consequences. Further, prospective investors should assume that a “qualified electing fund” election, which, if made, could serve as an alternative to the general PFIC rules and could reduce any adverse consequences to U.S. Holders if we were to be classified as a PFIC, will not be available because we do not intend to provide U.S. Holders with the information needed to make such an election. A mark-to-market election may be available, however, if our ordinary shares are regularly traded. For more information, see “Item 10. Additional information—E. Material U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Consequences” and consult your tax advisor concerning the U.S. federal income tax consequences of acquiring, owning or disposing of our ordinary shares if we are or become classified as a PFIC.
Risks Relating to the Wise Acquisition
We may fail to achieve the estimated synergies and other expected benefits of the Wise Acquisition and/or to integrate Wise successfully.
We may be unable to achieve the strategic, operational, financial and other benefits, and/or the resulting estimated synergies, contemplated with respect to the Wise Acquisition to the full extent expected or in a timely manner. The integration of Wise into our operations will be a complex and lengthy endeavor, and to the extent that we are not as successful as expected in integrating Wise, the cost savings, synergies, accretion to earnings, increased shipments and other anticipated benefits and opportunities from the Wise Acquisition may not be fully realized or may take longer to realize than expected.
The process of integrating Wise into our operations will be time-consuming and expensive and may disrupt the business of the combined company. Difficulties, costs and delays could be encountered with respect to:
We may experience or be exposed to unknown or unanticipated issues, expenses, and liabilities as a result of the Wise Acquisition.
As a result of the Wise Acquisition, we may be exposed to unknown or unanticipated costs or liabilities, such as undisclosed liabilities of Wise, including those relating to environmental matters, for which we, as successor owner, may be responsible. Such unknown or unanticipated issues, expenses, and liabilities could have an adverse effect on our business, financial results and cash flows.
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As a result of the Wise Acquisition, we may not be able to retain key personnel or recruit additional qualified personnel and may experience disruptions and uncertainty surrounding our relationships with existing and future customers and suppliers.
We are highly dependent on the continuing efforts of our senior management team and other key personnel. As a result of the Wise Acquisition, our current and prospective employees, including Wise employees, could experience uncertainty about their future roles and relationships with Constellium and Wise. This uncertainty may adversely affect our ability to attract and retain current and prospective key management, sales, marketing and technical personnel, and may cause disruptions in our relationships with existing and future customers and suppliers. Any failure to attract and retain key personnel, including Wise employees, or disruption in our relationships with customers and suppliers, including customers and suppliers of Wise, could have a material adverse effect on our business after consummation of the Wise Acquisition. We do not maintain “key person” insurance covering any member of our management team.
The consummation of the Wise Acquisition could also cause disruptions in and create uncertainty surrounding our and Wise’s relationships with existing and future customers and suppliers. Such customers and suppliers may, in response to the consummation of the Wise Acquisition, delay or defer contracting decisions, or may not remain as customers and suppliers following the completion of the Wise Acquisition. Change of control provisions in certain of Wise’s contracts may have given customers the right to terminate or change the terms of those contracts as a result of the Wise Acquisition. The loss of significant customers or suppliers could have a material and adverse effect on our business prospects, results of operations and financial condition.
The beverage can sheet industry is competitive, and Wise’s competitors have greater resources and product and geographic diversity than Wise does.
The market for beverage can sheet products is competitive. Wise’s competitors have market presence, operating capabilities and financial and other resources that are greater than those of Wise. They also have greater product and geographic diversity than Wise. Because of their greater resources and product and geographic diversity, these competitors may have an advantage over Wise in their abilities to research and develop technology, pursue acquisition, investment and other business opportunities, market and sell their products and services, capitalize on market opportunities, enter new markets and withstand business interruptions or adverse global economic conditions. There are no assurances that we will be able to compete successfully in these circumstances.
In addition, Wise is subject to competition from non-aluminium sources of packaging, such as plastics and glass. Consumer demand and preferences also impact customer selection of packaging materials. While we believe that the recyclability of aluminium, coupled with increasing consumer focus on resource conservation, may reduce the impact of competition from certain alternative packaging sources, there is no guaranty that such competition will be reduced.
A. History and Development of the Company
Constellium Holdco B.V. (formerly known as Omega Holdco B.V.) was incorporated as a Dutch private limited liability company on May 14, 2010. Constellium Holdco B.V. was formed to serve as the holding company for various entities comprising the Alcan Engineered Aluminum Products business unit (the “AEP Business”), which Constellium acquired from affiliates of Rio Tinto on January 4, 2011 (the “Acquisition”). On May 21, 2013, Constellium Holdco B.V. was converted into a Dutch public limited liability company and renamed Constellium N.V. Any references to Dutch law and the Amended and Restated Articles of Association are references to Dutch law and the articles of association of the Company as applicable following the conversion. On May 29, 2013, we completed our initial public offering.
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The business address (head office) of Constellium N.V. is Tupolevlaan 41-61, 1119 NW Schiphol-Rijk, the Netherlands, and our telephone number is +31 20 654 97 80. The address for our agent for service of process in the United States is Corporation Service Company, 80 State Street, Albany, NY 12207-2543, and its telephone number is (518) 433-4740.
B. Business Overview
The Company
Overview
We are a global leader in the design and manufacture of a broad range of innovative specialty rolled and extruded aluminium products, serving primarily the aerospace, packaging and automotive end-markets. We have a strategic footprint of manufacturing facilities located in the United States, Europe and China. Our business model is to add value by converting aluminium into semi-fabricated products. We believe we are the supplier of choice to numerous blue-chip customers for many value-added products with performance-critical applications. Our product portfolio commands higher margins as compared to less differentiated, more commoditized fabricated aluminium products, such as common alloy coils, paintstock, foilstock and soft alloys for construction and distribution.
As of December 31, 2014, we operated 22 production facilities, 10 administrative and commercial sites, one R&D center and are building one new facility in our joint venture with UACJ in Bowling Green, USA. We have approximately 8,900 employees. We believe our portfolio of flexible and integrated facilities is among the most technologically advanced in the industry. It is our view that our established presence in the United States and Europe and our presence in China strategically position us to service our global customer base. We believe our well-invested facilities combined with more than 50 years of manufacturing experience, quality and innovation and pre-eminent R&D capabilities have put us in a leadership position in our core markets.
We seek to sell to end-markets that have attractive characteristics for aluminium, including (i) higher margin products, (ii) stability through economic cycles, and (iii) favorable growth fundamentals supported by customer order backlogs in aerospace and substitution trends in automotive and European can sheet. As of 2014, we are the leading global supplier of aluminium aerospace plates, believe that we are the second largest provider of aluminium automotive structures globally, and a leading European supplier of can body stock. Our unique platform has enabled us to develop a stable and diversified customer base and to enjoy long-standing relationships with our largest customers. Our relationships with our top 20 customers average over 25 years. Our customer base includes market leading firms in aerospace, automotive, and packaging, such as Airbus, Boeing, Rexam PLC (“Rexam”), Ball Corporation, Crown Holdings, Inc. and several premium automotive original equipment manufacturers (“OEMs”), including BMW AG, Mercedes-Benz and Volkswagen AG. We believe that we are a “mission critical” supplier to many of our customers due to our technological and R&D capabilities as well as the long and complex qualification process required for many of our products. Our core products require close collaboration and, in many instances, joint development with our customers.
Our business also features relatively countercyclical cash flows. During an economic downturn, lower demand causes our sales volumes to decrease, which results in a corresponding reduction in our inventory levels, a reduction in our working capital requirements and a positive impact on our operating cash flows. We believe this helps to drive robust free cash flow across cycles and provides significant downside protection for our liquidity position in the event of a downturn.
For the years ended December 31, 2014, 2013 and 2012, we shipped approximately 1,062kt, 1,025kt and 1,033 kt of finished products, generated revenues of €3,666 million, €3,495 million and €3,610 million, generated net income of €54 million, €100 million and €141 million, respectively, and generated Adjusted EBITDA of €275 million, €280 million and €223 million, respectively. The financial performance for the year ended December 31, 2014 represented a 4% increase in shipments, a 5% increase in revenues and a 2%
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decrease in Adjusted EBITDA from the prior year. Please see the reconciliation of Adjusted EBITDA in “Item 5. Operating and Financial Review and Prospects–Segment Results.”
Our objective is to expand our leading position as a supplier of high value-added, technologically advanced products in which we believe that we have a competitive advantage through the following business strategies:
Recent Developments
On October 3, 2014, we announced that Constellium had signed an agreement (the “Unit Purchase Agreement”) to acquire (the “Wise Acquisition”) from Wise Metals Holdings LLC (the “Seller”) all of the issued and outstanding membership interests of Wise Metals Intermediate Holdings LLC (“Wise”). Wise is a major producer of aluminium beverage can sheet in North America, serving some of the largest brewers and soft drink bottlers in North America and shipping to the largest North American can manufacturers. Its business strategy seeks to capitalize on its technologically-advanced, low-cost and efficient five million square foot facility in Muscle Shoals, Alabama, which is one of only five beverage can sheet facilities in North America. Wise currently has an estimated 530 kt of annual aluminium sheet capacity based on its current product mix and specifications. The Wise Acquisition closed on January 5, 2015.
During the year ended December 31, 2014, Wise shipped 392 kt of beverage can sheet and trailer roof coil to its customers and generated net sales of $1,322 million. Had the acquisition of Wise taken place as of January 1, 2014, our revenues and shipments for the year ended December 31, 2014 would have been €4,663 million and 1,454 kt, respectively on a combined basis.
In April 2015, the Company announced its decision to build a second Body-in-White finishing line in North America to further support the growing demand for aluminium from the U.S. automotive industry. The investment is expected to reach $160 million and is part of our anticipated $750 million strategic investment plan to increase Constellium’s BiW production capacity by 2022. The location of the 100,000 metric tons BiW finishing line which is due to start production in early 2018 has not yet been decided and will be announced in due course, pending final business considerations.
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Table: Overview of Operating Segments (as of December 31, 2014)
Aerospace &
Transportation
Packaging & Automotive
Rolled Products
Automotive Structures &
Industry
• 12 (France, United States, Switzerland, Italy, China, Japan, South Korea, Singapore)
• 3 (France, Germany, Switzerland)
• 15 (France, Germany, Switzerland, Czech Republic, Slovakia, United States, China)
• 3,681
• 1,978
• 2,494
• Aerospace plates and sheets
• Aerospace wingskins
• Plates for general engineering
• Sheets for transportation applications
• Can Body Stock
• Can End Stock
• Closure Stock
• Auto Body Sheet
• Heat Exchangers
• Specialty reflective sheet (Bright)
• Extruded products including:
• Soft alloys
• Hard alloys
• Large profiles
• Automotive structures
• Aerospace: Airbus, Boeing, Embraer, Dassault, Bombardier, Lockheed Martin
• Transportation, Industry and Defense: Ryerson, ThyssenKrupp, FreightCar America, Amari
• Packaging: Rexam, Can-Pack, Ball, Crown, Amcor, Ardagh Group, Thyssen
• Automotive: Daimler, Audi, Volkswagen, Valeo, Peugeot S.A.
• Automotive: Audi, BMW Group, Daimler, Porsche, General Motors, Ford, Benteler, Peugeot S.A., Chrysler, Fiat, JLR, Opel
• Rail: Stadler, CAF
• Ravenswood (USA)
• Issoire (FR)
• Sierre (CH)
• Neuf-Brisach (FR)
• Singen (DE)
• Děčín (CZ)
• Levice (SK)
• Gottmadingen(DE)
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Our Operating Segments
Our business is organized into three operating segments: (i) Aerospace & Transportation, (ii) Packaging & Automotive Rolled Products, and (iii) Automotive Structures & Industry.
Operating
Segment
Products
Description
The following charts present our revenues by operating segment and geography for the year ended December 31, 2014:
Aerospace & Transportation Operating Segment
Our Aerospace & Transportation operating segment has market leadership positions in technologically advanced aluminium and specialty materials products with wide applications across the global aerospace, defense, transportation, and industrial sectors. We offer a wide range of products including plate, sheet,
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extrusions and precision casting products which allows us to offer tailored solutions to our customers. We seek to differentiate our products and act as a key partner to our customers through our broad product range, advanced R&D capabilities, extensive recycling capabilities and portfolio of plants with an extensive range of capabilities across Europe and North America. In order to reinforce the competitiveness of our metal solutions, we design our processes and alloys with a view to optimizing our customers’ operations and costs. This includes offering services such as customizing alloys to our customers’ processing requirements, processing short lead time orders and providing vendor managed inventories or tolling arrangements. The Aerospace & Transportation operating segment accounted for 32% of our revenues and 33% of Adjusted EBITDA for the year ended December 31, 2014.
Seven of our manufacturing facilities produce products that are sold via our Aerospace & Transportation operating segment. Our aerospace plate manufacturing facilities in Ravenswood (West Virginia, United States), Issoire (France) and Sierre (Switzerland) offer the full spectrum of plate required by the aerospace industries (alloys, temper, dimensions, pre-machined) and have unique capabilities such as producing some wide and very high gauge plates required for some aerospace programs (civil and commercial).
Downstream aluminium products for the aerospace market require relatively high levels of R&D investment and advanced technological capabilities, and therefore tend to command higher margins compared to more commoditized products. We work in close collaboration with our customers to develop highly engineered solutions to fulfill their specific requirements. For example, we developed AIRWARE®, a lightweight specialty aluminium-lithium alloy, for our aerospace customers to address increasing demand for lighter and more environmentally sound aircraft.
Aerospace products are typically subject to long development and supply lead times and the majority of our contracts with our largest aerospace customers have a term of five years or longer, which provides excellent volume and profitability visibility. In addition, demand for our aerospace products typically correlates directly with aircraft backlogs and build rates. As of December 2014, the backlog reported by Airbus and Boeing for commercial aircraft reached 12,175 units on a combined basis, representing approximately 9 years of production at the current build rates.
Additionally, aerospace products are generally subject to long qualification periods. Aerospace production sites are regularly audited by external certification organizations including the National Aerospace and Defense Contractors Accreditation Program (“NADCAP”) and/or the International Organization for Standardization. NADCAP is a cooperative organization of numerous aerospace OEMs that defines industry-wide manufacturing standards. NADCAP appoints private auditors who grant suppliers like Constellium a NADCAP certification, which customers tend to require. New products or alloys are certified by the OEM that uses the product. Our sites have been qualified by external certification organizations and our products have been qualified by our customers. We are typically able to obtain qualification within 6 months to one year. We believe we are able to obtain such qualifications within that time frame for two main reasons. First, some new product qualifications depend on having older qualifications regarding their alloy, temper or shape which we have already obtained through our long history of working with the main aircraft OEMs. This range of qualifications includes in excess of 100 specifications, some of which we obtained during programs dating back to the 1960s. Second, over the course of the decades that we have been working with the aerospace OEMs, we have invested in a number of capital intensive equipment and R&D programs to be able to qualify to the current industry norms and standards.
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The following table summarizes our volume, revenues and Adjusted EBITDA for our Aerospace & Transportation operating segment for the periods presented:
(€ in millions, unless otherwise noted)
Aerospace & Transportation:
Segment Revenues
Segment Shipments (kt)
Segment Revenues (€/ton)
Segment Adjusted EBITDA(1)
Segment Adjusted EBITDA(€/ton)
Segment Adjusted EBITDA margin
Packaging & Automotive Rolled Products Operating Segment
In our Packaging & Automotive Rolled Products operating segment, we produce and develop customized aluminium sheet and coil solutions. Approximately 80% of operating segment volume for the year ended December 31, 2014 was in packaging rolled products, which primarily include beverage and food can stock as well as closure stock and foil stock. Twenty percent of operating segment volume for that period was in automotive and specialty and other thin-rolled products, which include technologically advanced products for the automotive and industrial sectors. Our Packaging & Automotive Rolled Products operating segment accounted for 43% of revenues and 43% of Adjusted EBITDA for the year ended December 31, 2014.
As of December 2014, we are the leading European supplier of can body stock and the leading worldwide supplier of closure stock. We are also a major European player in automotive rolled products for Auto Body Sheet (the structural framework of a car), and heat exchangers. We have a diverse customer base, consisting of many of the world’s largest beverage and food can manufacturers, specialty packaging producers, leading automotive firms and global industrial companies. Our customer base includes Rexam, Audi AG, Daimler AG, Peugeot S.A., Ball Corporation, Can-Pack S.A., Crown Holdings, Inc., Alanod GmbH & Co. KG, Ardagh Group S.A., Amcor Ltd. and ThyssenKrupp AG. Our automotive contracts are usually valid for the lifetime of a model, which is typically six to seven years.
We have two integrated rolling operations located in Europe’s industrial heartland. Neuf-Brisach, our facility on the border of France and Germany, is, in our view, a uniquely integrated aluminium rolling and finishing facility. Singen, located in Germany, is specialized in high-margin niche applications and has an integrated hot/cold rolling line and high-grade cold mills with special surfaces capabilities that facilitate unique metallurgy and lower production costs. We believe Singen has enhanced our reputation in many product areas, most notably in the area of functional high-gloss surfaces for the automotive, lighting, solar and cosmetic industries, other decorative applications, closure stock, paintstock and foilstock.
Our Packaging & Automotive Rolled Products operating segment has historically been relatively resilient during periods of economic downturn and has had relatively limited exposure to economic cycles and periods of financial instability. According to CRU International Limited (“CRU”), during the 2008-2009 economic crisis, can stock volumes decreased by 10% in 2009 versus 2007 levels as compared to a 24% decline for flat rolled
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aluminium products volumes in aggregate during the same period. This demonstrates that demand for beverage cans tends to be less correlated with general economic cycles. In addition, we believe European can body stock has an attractive long-term growth outlook due to the following trends: (i) end-market growth in beer, soft drinks and energy drinks, (ii) increasing use of cans versus glass in the beer market, (iii) increasing use of aluminium in can body stock in the European market, at the expense of steel, and (iv) increasing consumption in Eastern Europe linked to purchasing power growth.
The following table summarizes our volume, revenues and Adjusted EBITDA for our Packaging & Automotive Rolled Products operating segment for the periods presented:
Packaging & Automotive Rolled Products:
Automotive Structures & Industry Operating Segment
Our Automotive Structures & Industry operating segment produces (i) technologically advanced structures for the automotive industry including crash management systems (CMS), side impact beams, body structures and cockpit carriers and (ii) soft and hard alloy extrusions and large profiles for automotive, rail, road, energy, building and industrial applications. We complement our products with a comprehensive offering of downstream technology and services, which include pre-machining, surface treatment, R&D and technical support services. Our Automotive Structures & Industry operating segment accounted for 24% of revenues and 27% of Adjusted EBITDA for the year ended December 31, 2014.
We believe that we are the second largest provider of aluminium automotive structures globally and the leading supplier of hard alloys and large structural profiles for rail, industrial and other transportation markets in Europe. We manufacture automotive structures products for some of the largest European and North American car manufacturers supplying a global market, including Daimler AG, BMW AG, Audi AG, Chrysler Group LLC and Ford Motor Co. We also have a strong presence in soft alloys in France and Germany, with customized solutions for a diversity of end-markets. We recently successfully expanded our Constellium Automotive USA, LLC plant, located in Michigan, which is producing highly innovative crash-management systems for the automotive market. We are also operating a joint venture, Engley Automotive Structures Co., Ltd., which is currently producing aluminium crash-management systems in China.
In early 2014, we launched new aluminium high-strength (CMS) technology designed for the front and the rear of a vehicle for enhanced structural protection in the event of a collision. Our innovative technology enables the production of aluminium CMS that are 15 percent lighter or 10 percent stronger than the current aluminium CMS on the market. The new-generation CMS combine the properties of the 6xxx aluminium alloy family – formability, corrosion resistance, energy absorption, recyclability – with high-strength mechanical performance.
Fifteen of our manufacturing and engineering facilities, located in Germany, the United States, the Czech Republic, Slovakia, France, Switzerland and China, produce products sold in our Automotive Structures & Industry operating segment. We believe our local presence, downstream services and industry leading cycle times help to ensure that we respond to our customer demands in a timely and consistent fashion. Our two
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integrated remelt and casting centers in Switzerland and the Czech Republic both provide security of metal supply and contribute to our recycling efforts.
The following table summarizes our volume, revenues and Adjusted EBITDA for our Automotive Structures & Industry operating segment for the periods presented:
Automotive Structures & Industry:
For information on the seasonality of our business, see “Item 5. Operating and Financial Review and Prospects—A. Key Factors Influencing Constellium’s Financial Conditions and Results of Operations—Seasonality.”
Our Industry
Aluminium Sector Value Chain
The global aluminium industry consists of (i) mining companies that produce bauxite, the ore from which aluminium is ultimately derived, (ii) primary aluminium producers that refine bauxite into alumina and smelt alumina into aluminium, (iii) aluminium semi-fabricated products manufacturers, including aluminium casters, recyclers, extruders and flat rolled products producers, and (iv) integrated companies that are present across multiple stages of the aluminium production chain.
The price of aluminium, quoted on the LME, is subject to global supply and demand dynamics and moves independently of the costs of many of its inputs. Producers of primary aluminium have limited ability to manage the volatility of aluminium prices and can experience a high degree of volatility in their cash flows and profitability. We do not smelt aluminium, nor do we participate in other upstream activities such as mining or refining bauxite. We recycle aluminium, both for our own use and as a service to our customers.
Rolled and extruded aluminium product prices are generally based on the price of metal plus a conversion fee (i.e., the cost incurred to convert the aluminium into its semi-finished product). The price of aluminium is not a significant driver of our financial performance, in contrast to the more direct relationship of the price of aluminium to the financial performance of primary aluminium producers. Instead, the financial performance of producers of rolled and extruded aluminium products, such as Constellium, is driven by the dynamics in the end markets that they serve, their relative positioning in those markets and the efficiency of their industrial operations.
Aluminium Rolled Products Overview
Aluminium rolled products, i.e., sheet, plate and foil, are semi-finished products that provide the raw material for the manufacture of finished goods ranging from packaging to automotive body panels. The packaging industry is a major consumer of the majority of sheet and foil for making beverage cans, foil containers and foil wrapping. Sheet is also used extensively in transport for airframes, road and rail vehicles, in
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marine applications, including offshore platforms, and superstructures and hulls of boats and in building for roofing and siding. Plate is used for airframes, military vehicles and bridges, ships and other large vessels and as tooling plate for the production of plastic products. Foil applications outside packaging include electrical equipment, insulation for buildings, lithographic plate and foil for heat exchangers.
Independent aluminium rolled products producers and integrated aluminium companies alike participate in this market. Our rolling process consists of passing aluminium through a hot-rolling mill and then transferring it to a cold-rolling mill, which can gradually reduce the thickness of the metal down to approximately 0.2-6 mm for sheet or plates, which are thicker than 6 mm.
There are three sources of input metal for aluminium rolled or extruded products:
We buy various types of metal, including primary metal from smelters in the form of ingots, rolling slabs or extrusion billets, remelted metal from external casthouses (in addition to our own casthouses) in the form of rolling slabs or extrusion billets, production scrap from our customers, and end of life scrap.
Primary aluminium and sheet ingot can generally be purchased at prices set on the LME plus a premium that varies by geographic region on delivery, alloying material, form (ingot or molten metal) and purity.
Recycled aluminium is also an important source of input material and is tied to the LME pricing (typically sold at discounts of up to 20%). Aluminium is indefinitely recyclable and recycling it requires only approximately 5% of the energy required to produce primary aluminium. As a result, in regions where aluminium is widely used, manufacturers and customers are active in setting up collection processes in which used beverage cans and other end-of-life aluminium products 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.
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The following charts illustrate expected global demand for aluminium extruded and rolled products. The expected growth between 2014 and 2019 for the extruded products market and the flat rolled products market is 5.2% and 5.3%, respectively.
Projected Aluminium Demand 2014-2019 (in thousand tons)
The market for aluminium rolled products tends to be less subject to demand cyclicality than the markets for primary aluminium and sheet ingot, which are affected by commodity price movements. A significant share of aluminium rolled products is used in the production of consumer staples, which have historically experienced relatively stable demand characteristics. These factors combine to create an industry that has lower cyclicality than the primary aluminium industry.
As the aluminium rolled products industry is characterized by economies of scale, significant capital investments required to achieve and maintain technological capabilities and demanding customer qualification standards. The service and efficiency demands of large customers have encouraged consolidation among suppliers of aluminium rolled products.
The supply of aluminium rolled products has historically been affected by production capacity, alternative technology substitution and trade flows between regions. The demand for aluminium rolled products has historically been affected by economic growth, substitution trends, down-gauging, cyclicality and seasonality.
Aluminium Extrusions Overview
Aluminium extrusion is a technique used to transform aluminium billets into objects with a definitive cross-sectional profile for a wide range of uses. In the extrusion process, heated aluminium is forced through a die. Extrusions can be manufactured in many sizes and in almost any shape for which a die can be created. The extrusion process makes the most of aluminium’s unique combination of physical characteristics. Its malleability allows it to be easily machined and cast, and yet aluminium is one-third the density and stiffness of steel so the resulting products offer strength and stability, particularly when alloyed with other metals.
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Extruded profiles can be produced in solid or hollow form, while additional complexities can be applied using advanced die designs. After the extrusion process, a variety of options are available to adjust the color, texture and brightness of the aluminium’s finish. This may include aluminium anodizing or painting.
Today, aluminium extrusion is used for a wide range of purposes, including components of the transportation and industrial markets. Virtually every type of vehicle contains aluminium extrusions, including cars, boats, bicycles and trains. Home appliances and tools take advantage of aluminium’s excellent strength-to-weight ratio. The increased focus on green building is also leading contractors and architects to use more extruded aluminium products, as aluminium extrusions are flexible and corrosion-resistant. These diverse applications are possible due to the advantageous attributes of aluminium, from its particular blend of strength and ductility to its conductivity, its non-magnetic properties and its ability to be recycled repeatedly without loss of integrity. All of these capabilities make aluminium extrusions a viable and adaptable solution for a growing number of manufacturing needs.
Our Key End-markets
We have a significant presence in the can sheet and packaging end-markets, which have proved to be relatively stable and recession-resilient and the aerospace end-market, which is driven by global demand trends rather than regional trends. Our automotive products are predominantly used in premium models manufactured by the German OEMs, which are not as dependent on the European economy and continue to benefit from rising demand in developing economies, particularly China. For example, CRU International Limited reports that the consumption of automotive body sheet between 2014 and 2024 will have a growth of 28% per annum in North America, 30% per annum in China and 14% per annum in Europe.
Aerospace
Demand for aerospace plates is primarily driven by the build rate of aircrafts, which we believe will be supported for the foreseeable future by (i) necessary replacement of aging fleets by airline operators, particularly in the United States and Western Europe, (ii) increasing global passenger air traffic (the aerospace industry publication The Airline Monitor estimates that global revenue passenger miles will grow at a compound annual growth rate (“CAGR”) of approximately 5.6% from 2014 to 2020) and (iii) “light-weighting” (the substitution for lighter metals) to improve fuel efficiency and address increasingly rigorous environmental requirements. In 2014, Boeing and Airbus predicted respectively approximately 37,000 and 31,000 new aircraft over the next 20 years across all categories of large commercial aircraft. Boeing estimates that between 2013 and 2033, 37% of sales of new airplanes will be to Asia Pacific, 20% to Europe and 21% to North America. By early 2015, both Boeing and Airbus announced they will increase their single aisle build rates from a current 42 aircraft per month to nearly 50 to 60 monthly units by 2018.
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Rigid Packaging
Aluminium beverage cans represented approximately 15% of the total European aluminium flat rolled demand by volume in 2014. Aluminium is a preferred material for beverage packaging as it allows drinks to chill faster, can be stacked for transportation and storage more densely than competing formats (such as glass bottles), is highly formable for unique or differentiated branding, and offers the environmental advantage of easy, cost- and energy-efficient recycling. As a result of these benefits, aluminium is displacing glass as the preferred packaging material in certain markets, such as beer. In our core European market, aluminium is replacing steel as the standard for beverage cans. Between 2001 and 2014, we believe that aluminium’s penetration of the European can stock market versus tinplate increased from 58% to 79%. In addition, we are benefitting from increased consumption in Eastern Europe and growth in high margin products such as the specialty cans used for energy drinks.
In addition to expected growth, demand for can sheet has been highly resilient across economic cycles. Between 2007 and 2009, during the economic crisis, European can body stock volumes decreased by less than 9% as compared to a 24% decline for total European flat rolled products volumes.
According to CRU, the aluminium demand for the can stock market in Western and Eastern Europe is expected to grow by 3.1% per year between 2014 and 2019.
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Automotive
We supply the automotive sector with flat rolled products out of our Packaging & Automotive Rolled Products operating segment and extrusions and automotive structures out of our Automotive Structures & Industry operating segment.
In our view, the main drivers of automotive sales are overall economic growth, credit availability, consumer prices and consumer confidence. According to I.H.S., light vehicle production is expected to grow from 87 million units in 2014 to 107 million units in 2021 in Europe, Asia and North America. I.H.S. reports that in 2014, 51% of global light vehicles were produced in Asia, 23% were sold in Europe and 19% in North America.
Within the automotive sector, the demand for aluminium has been increasing faster than the underlying demand for light vehicles due to recent growth in the use of aluminium products in automotive applications. We believe a main reason for this is aluminium’s high strength-to-weight ratio in comparison to steel. This light-weighting facilitates better fuel economy and improved emissions performance. As a result, manufacturers are seeking additional applications where aluminium can be used in place of steel and an increased number of cars are being manufactured with aluminium panels and crash management systems. We believe that this trend will continue as increasingly stringent EU and U.S. regulations relating to reductions in carbon emissions, as well as high fuel prices, will force the automotive industry to increase its use of aluminium to “lightweight” vehicles. European Union legislation sets mandatory emission reduction targets for new cars. The EU fleet average target of 130g/km has been set to an average of 65% of each manufacturer’s newly registered cars in 2012. This has risen to 100% in 2015. A shorter phase in period will apply to the target of 95g/km: 95% of each manufacturer’s new cars will have with the limit value curve in 2020, increasing to 100% in 2021. We expect that EU and U.S. regulations requiring reductions in carbon emissions and fuel efficiency, as well as relatively high fuel prices, will continue to drive aluminium demand in the automotive industry. Whereas growth in aluminium use in vehicles has historically been driven by increased use of aluminium castings, we anticipate that future growth will be primarily in the kinds of extruded and rolled products that we supply to the OEMs.
We believe that Constellium is one of only a limited number of companies that is able to produce the quality and quantity required by car manufacturers for both flat rolled products and automotive structures, and that we are therefore well positioned to take advantage of these market trends.
Our R&D-focused approach led to the development of a number of innovative automotive product solutions; for example, Constellium worked with Mercedes-Benz to develop an all-aluminium crash management system that reduced the system’s weight by 50%. In 2015, Constellium provides Ford Motor Co. with aluminium structural parts for the all-new Ford F-150 pickup truck that extensively uses high-strength, military-grade,
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aluminium alloy as a build material (announced after December 31, 2014). In addition, increasing demand for European luxury cars in emerging markets, particularly in China, is expected to enhance the long-term growth prospects for our automotive products given our strong established relationships with the major German car manufacturers, who are particularly well placed in this region.
According to the CRU, the aluminium consumption for the Auto Body market in Western Europe and North America is expected to grow by 23% between 2014 and 2022.1
Managing Our Metal Price Exposure
Our business model is to add value by converting aluminium into semi-fabricated products. It is our policy not to speculate on metal price movements.
For all contracts, we continuously seek to minimize the impact of aluminium price fluctuations in order to protect our net income and cash flows against the London Metal Exchange (the “LME”) price variations of aluminium that we buy and sell, with the following methods:
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We mark-to-market derivatives at the period end giving rise to unrealized gains or losses which are classified as “other gains/(losses)—net”. These unrealized gains/losses have no bearing on the underlying performance of the business and are removed when calculating Adjusted EBITDA.
Sales and Marketing
Our sales force is based in Europe (France, Germany, Czech Republic, United Kingdom, Switzerland and Italy), the United States and Asia (Tokyo, Shanghai, Seoul, and Singapore). We serve our customers either directly or through distributors.
Raw Materials and Supplies
Our primary metal supply is secured through long-term contracts with several upstream companies, including affiliates of Rio Tinto. In addition, approximately two-thirds of our slab supply is produced in our casthouses. All of our top 10 suppliers have been long-standing suppliers to our plants (in many cases for more than 10 years) and in aggregate accounted for approximately 45% of our total purchases for the year ended December 31, 2014. We typically enter into multi-year contracts with these metal suppliers pursuant to which we purchase various types of metal, including:
Our operations use natural gas and electricity, which represent the third largest component of our cost of sales, after metal and labor costs. We purchase part of our natural gas and electricity on a spot-market basis. However, in an effort to acquire the most favorable energy costs, we have secured some of our natural gas and electricity pursuant to fixed-price commitments. To reduce the risks associated with our natural gas and electricity requirements, we use financial futures or forward contracts with our suppliers to fix the price of energy cost. Furthermore, in our longer-term sales contracts, we try to include indexation clauses on energy prices.
Our Customers
Our customer base includes some of the largest leading manufacturers in the aerospace, packaging and automotive end-markets. We have a relatively diverse customer base with our 10 largest customers representing approximately 46% of our revenues and approximately 51% of our volumes for the year ended December 31, 2014. The average length of our relationships with each of our top 20 customers exceeds 25 years, and in some cases goes back as far as 40 years, particularly with our aerospace and packaging customers.
Most of our major packaging, aerospace and automotive customers have multi-year contracts with us (i.e., contracts with terms of three to five years). We estimate that approximately 58% of our volumes for 2014 were generated under multi-year contracts, more than 53% were governed by contracts valid until 2015 or later and more than 43% were governed by contracts valid until 2016 or later. In addition, more than 57% of our packaging volumes are contracted through 2017. This provides us with significant visibility into our future volumes and earnings.
We see our relationships with our customers as partnerships where we work together to find customized solutions to meet their evolving requirements. In addition, we collaborate with our customers to complete a rigorous process for qualifying our products in each of our end-markets, which requires substantial time and
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investment and creates high switching costs, resulting in longer-term, mutually beneficial relationships with our customers. For example, in the packaging industry, where qualification happens on a plant-by-plant basis, we are currently the exclusive qualified supplier to several facilities of our customers.
Our product portfolio is predominantly focused on high value-added products, which we believe we are particularly well-suited to developing and manufacturing for our customers. These products tend to require close collaboration with our customers to develop tailored solutions, as well as significant effort and investment to adhere to rigorous qualification procedures, which enables us to foster long-term relationships with our customers. Our products typically command higher margins than more commoditized products, and are supplied to end-markets that we believe have highly attractive characteristics and long-term growth trends.
We believe that there are significant opportunities to improve the services and quality that we provide to our customers and to reduce our manufacturing costs by implementing Lean manufacturing initiatives. “Lean manufacturing” is a production practice that improves efficiency of operations by identifying and removing tasks and process steps that do not contribute to value creation for the end customer. We continually evaluate debottlenecking opportunities globally through modifications of and investments in existing equipment and processes. We aim to establish best-in-class operations and achieve cost reductions by standardizing manufacturing processes and the associated upstream and downstream production elements where possible, while still allowing the flexibility to respond to local market demands and volatility.
To focus our efforts, we launched a Lean manufacturing program designed to improve the flow of value to customers by eliminating waste in both processes and resources. We measure operational success of this program in six key areas: (i) safety, (ii) quality, (iii) acceleration of the flows and working capital reduction, (iv) delivery performance, (v) equipment efficiency and (vi) innovation. Our Lean manufacturing program is overseen by a dedicated team, headed by Yves Mérel. Mr. Mérel reports directly to our Chief Executive Officer, Pierre Vareille. Mr. Vareille and Mr. Mérel have long track records of successfully implementing Lean manufacturing programs at other companies they have managed together in the past.
The first phase of our Lean program aimed to establish a culture of continuous improvement to accelerate our performance, increase our capacity and build a robust company; Constellium sites achieved this by improving on various areas as standardization of visual management tools, management routines or customer satisfaction. Henceforth, to move forward, we choose to pursue with a second phase which put quality, delivery performance, safety along with employee development at the top of the agenda. Phase 2 of the program will last until the end of 2019.
Competition
The worldwide aluminium industry is highly competitive and we expect this dynamic to continue for the foreseeable future. We believe the most important competitive factors in our industry are: product quality, price, timeliness of delivery and customer service, geographic coverage and product innovation. Aluminium competes with other materials such as steel, plastic, composite materials and glass for various applications. Our key competitors in our Aerospace & Transportation operating segment are Alcoa Inc., Aleris International, Inc., Kaiser Aluminum Corp., Austria Metall AG, and Universal Alloy Corporation. Our key competitors in our Packaging & Automotive Rolled Products operating segment are Novelis Inc., Norsk Hydro ASA, Alcoa, Inc., and Sapa AB. Our key competitors in our Automotive Structures & Industry operating segment are Norsk Hydro ASA, Sapa AB, Alcoa, Inc., Sankyo Tateyama, Inc., Eural Gnutti S.p.A., Otto Fuchs KG, Impol Aluminium Corp., Benteler International AG and YKK.
Research and Development
We believe that our research and development capabilities coupled with our integrated, long-standing customer relationships create a distinctive competitive advantage versus our competition. Our R&D center is based in Voreppe, France and provides services and support to all of our facilities. The R&D center focuses on product and process development, provides technical assistance to our plants and works with our customers to
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develop new products. In developing new products, we focus on increased performance that aims to lower the total cost of ownership for the end users of our products, for example, by developing materials that decrease maintenance costs of aircraft or increase fuel efficiency in cars. As of December 31, 2014, the research and development center employs 251 employees, including approximately 89 scientists and 84 technicians.
Within the Voreppe facility, we also focus on the development, improvement, and testing of processes used in our plants such as melting, casting, rolling, extruding, finishing and recycling. We also develop and test technologies used by our customers, such as friction stir welding and automotive hoods bumping and provide technological support to our customers.
The key contributors to our success in establishing our R&D capabilities include:
We invested €38 million in research and development in the year ended December 31, 2014, €36 million in the year ended December 31, 2013, and €36 million in the year ended December 31, 2012.
Trademarks, Patents, Licenses and IT
In connection with the Acquisition, Rio Tinto assigned or licensed to us certain patents, trademarks and other intellectual property rights. In connection with our collaborations with universities such as the École Polytechnique Fédérale de Lausanne and other third parties, we occasionally obtain royalty-bearing licenses for the use of third party technologies in the ordinary course of business.
We actively review intellectual property arising from our operations and our research and development activities and, when appropriate, apply for patents in the appropriate jurisdictions. We currently hold approximately 160 active patent families and regularly apply for new ones. While these patents and patent applications are important to the business on an aggregate basis, we do not believe any single patent family or patent application is critical to the business.
We are from time to time involved in opposition and re-examination proceedings that we consider to be part of the ordinary course of our business, in particular at the European Patent Office, the U.S. Patent and Trademark Office, and the State Intellectual Property Office of the People’s Republic of China. We believe that the outcome of existing proceedings would not have a material adverse effect on our financial position, results of operations or cash flows.
Insurance
We have implemented a corporate-wide insurance program consisting of both corporate-wide master policies with worldwide coverage and local policies where required by applicable regulations. Our insurance coverage includes: (i) property damage and business interruption; (ii) general liability including operation, professional, product and environment liability; (iii) aviation product liability; (iv) marine cargo (transport); (v) business travel and personal accident; (vi) construction all risk (EAR/CAR); (vii) automobile liability and motor contingency (France); (viii) trade credit; and (ix) other specific coverages for executive risk, crime, employment and business practice liability.
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We believe that our insurance coverage terms and conditions are customary for a business such as Constellium and are sufficient to protect us against catastrophic losses.
We also purchase and maintain insurance on behalf of our directors and officers (D&O).
Governmental Regulations and Environmental, Health and Safety Matters
Our operations are subject to a number of federal, state and local regulations relating to the protection of the environment and to workplace health and safety. Our operations involve the use, handling, storage, transportation and disposal of hazardous substances, and accordingly we are subject to extensive federal, state and local laws and regulations governing emissions to air, discharges to water emissions, the generation, storage, transportation, treatment or disposal of hazardous materials or wastes and employee health and safety matters. In addition, prior operations at certain of our properties have resulted in contamination of soil and groundwater which we are required to investigate and remediate pursuant to applicable environmental, health and safety (“EH&S”) laws. Environmental compliance at our key facilities is overseen by the Direction Régionale de l’Environnement de l’Aménagement et du Logement in France, the Umweltbundesamt in Germany, the Service de la Protection de l’Environnement du Canton du Valais in Switzerland, the West Virginia Department of Environmental Protection and the Kentucky Department for Environmental Protection in the United States, the Regional Authority of the Usti Region in the Czech Republic, the Slovenká Inšpekcia životného prostredia in Slovakia, and the Environmental Monitoring Agency in China. Violations of EH&S laws, and remediation obligations arising under such laws, may result in restrictions being imposed on our operating activities as well as fines, penalties, damages or other costs. Accordingly, we have implemented EH&S policies and procedures to protect the environment and ensure compliance with these laws, and incorporate EH&S considerations into our planning for new projects. We perform regular risk assessments and EH&S reviews. We closely and systematically monitor and manage situations of noncompliance with EH&S laws and cooperate with authorities to redress any noncompliance issues. We believe that we have made adequate reserves with respect to our remediation obligations. Nevertheless, new regulations or other unforeseen increases in the number of our non-compliant situations may impose costs on us that may have a material adverse effect on our financial condition, results of operations or liquidity.
Our operations also result in the emission of substantial quantities of carbon dioxide, a greenhouse gas that is regulated under the EU’s Emissions Trading System (“ETS”). Although compliance with ETS to date has not resulted in material costs to our business, compliance with ETS requirements currently being developed for the 2013-2020 period, and increased energy costs due to ETS requirements imposed on our energy suppliers, could have a material adverse effect on our business, financial condition or results of operations. We may also be liable for personal injury claims or workers’ compensation claims relating to exposure to hazardous substances. In addition, we are, from time to time, subject to environmental reviews and investigations by relevant governmental authorities.
Additionally, some of the chemicals we use in our fabrication processes are subject to REACH in the EU. Under REACH, we are required to register some of our products with the European Chemicals Agency, and this process could cause significant delays or costs. We are currently compliant with REACH, and expect to stay in compliance, but if the nature of the regulation changes in the future, we may be required to make significant expenditures to reformulate the chemicals that we use in our products and materials or incur costs to register such chemicals to gain and/or regain compliance. Future noncompliance could also subject us to significant fines or other civil and criminal penalties. Obtaining regulatory approvals for chemical products used in our facilities is an important part of our operations.
We accrue for costs associated with environmental investigations and remedial efforts when it becomes probable that we are liable and the associated costs can be reasonably estimated. The aggregate close down and environmental restoration costs provisions at December 31, 2014 were €47 million. All accrued amounts have
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been recorded without giving effect to any possible future recoveries. With respect to ongoing environmental compliance costs, including maintenance and monitoring, we expense the costs when incurred.
We have incurred, and in the future will continue to incur, operating expenses related to environmental compliance. As part of the general capital expenditure plan, we expect to incur capital expenditures for other capital projects that may, in addition to improving operations, reduce certain environmental impacts.
Litigation and Legal Proceedings
From time to time, we are party to a variety of claims and legal proceedings that arise in the ordinary course of business. The Company is currently not involved, nor has it been involved during the twelve-month period immediately prior to the date of this Annual Report, in any governmental, legal or arbitration proceedings which may have or have had a significant effect on the Company’s business, financial position or profitability, and the Company is not aware of any such proceedings which are currently pending or threatened. From time to time, asbestos-related claims are also filed against us, relating to historic asbestos exposure in our production process. Constellium has implemented internal controls to comply with applicable environmental law. We have made reserves for potential occupational disease claims in France of €6 million as of December 31, 2014, which we believe are adequate. It is not anticipated that any of our currently pending litigation and proceedings will have a material effect of on the future results of the Company.
C. Organizational Structure
The following diagram summarizes our corporate entity structure as of December 31, 2014, including our significant subsidiaries. The diagram also includes subsidiaries acquired or created in connection with the Wise Acquisition on January 5, 2015:
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D. Property, Plants and Equipment
At December 31, 2014, we operated 22 production sites serving both global and local customers, including six major facilities, and one world class R&D center. Our top six sites (Ravenswood, Neuf-Brisach, Issoire, Singen, Děčín and Sierre) make up a total of approximately 990,000 square meters. A summary of the six major facilities and our R&D center is provided below:
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Our production facilities are listed below by operating segment:
Operating Segment
The production capacity and utilization rate for our main plants are listed below as of December 31, 2014:
Plant
Neuf-Brisach
Singen
Issoire
Ravenswood
Sierre
Děčín
For information concerning the material plans to construct expand or improve facilities, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
None.
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The following discussion and analysis is based principally on our audited consolidated financial statements as of and for the years ended December 31, 2014, 2013 and 2012 which appear elsewhere in this Annual Report. The following discussion is to be read in conjunction with “Item 3. Key Information—A. Selected Financial Data” and our audited consolidated financial statements and the notes thereto, which appear elsewhere in this Annual Report.
The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report. See in particular “Special Note About Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors.”
Introduction
The following discussion and analysis is provided to supplement the audited consolidated financial statements and the related notes included elsewhere in this Annual Report to help provide an understanding of our financial condition, changes in financial condition and results of our operations. This section is organized as follows:
Company Overview
We are a global leader in the development, manufacture and sale of a broad range of highly engineered, value-added specialty rolled and extruded aluminium products to the aerospace, packaging, automotive, other transportation and industrial end-markets. Our leadership positions include a joint number one position in global aerospace plates and a number one position in European can sheet. This global leadership is supported by our well-invested facilities in Europe and the United States, as well as more than 50 years of proven manufacturing quality and innovation, a global sales network and pre-eminent R&D capabilities.
As of December 31, 2014, we had approximately 8,900 employees and 22 state-of-the-art, integrated production facilities, 10 administrative and commercial sites, and one R&D center.
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Our product portfolio is predominantly focused on high value-added, technologically advanced specialty products that command higher margins than less differentiated aluminium products. This portfolio serves a broad range of end-markets that exhibit attractive growth trends in future periods such as aerospace or automotive. Our technological advantage and relationship with our customers is driven by our pre-eminent R&D capabilities. We believe that our R&D capabilities are a key attraction for our customers. Many projects are designed to support specific commercial opportunities at the request of our customers and are carried out in partnership with them.
This regular interaction and partnership with our customers also help us maintain our leading market positions. We have long-standing, established relationships with some of the largest companies in the aerospace, packaging, automotive and other transportation industries including Boeing, Airbus, Rexam, Crown, Ball and Amcor, as well as a number of leading automotive firms. The average length of our customer relationships with our top 20 customers exceeds 25 years.
Our primary metal supply is secured through long-term contracts with several upstream companies, including affiliates of Rio Tinto. In addition, a material portion of our slab and billet supply is produced in our own casthouses.
The table below presents our revenue, net income from continuing operations and Adjusted EBITDA in the year ended December 31, 2014, 2013 and 2012. Please see the reconciliation of the net income from continuing operations to Adjusted EBITDA in “—Segment Results.”
Net income from continuing operations
Adjusted EBITDA
We serve a diverse set of customers across a broad range of end-markets with very different product needs, specifications and requirements. As a result, we have organized our business into the following three segments to better serve our customer base:
Aerospace & Transportation Segment
Our global Aerospace & Transportation segment has market leadership positions in technologically advanced aluminium and specialty materials products with wide applications across the global aerospace, defense, transportation, and industrial sectors. We offer a wide range of products including plate and sheet which allows us to offer tailored solutions to our customers. We seek to differentiate our products and act as a key partner to our customers through our broad product range, advanced R&D capabilities, extensive recycling capabilities and portfolio of plants with an extensive range of capabilities across Europe and North America. In order to reinforce the competitiveness of our metal solutions, we design our processes and alloys with a view to optimizing our customers’ operations and costs. This includes offering services such as customizing alloys to our customers’ processing requirements, processing short lead time orders and providing vendor managed inventories or tolling arrangements. Aerospace & Transportation accounted for 32% of our revenues and 33% of Adjusted EBITDA for the year ended December 31, 2014.
Packaging & Automotive Rolled Products Segment
In our Packaging & Automotive Rolled Products segment, we produce and develop customized aluminium sheet and coil solutions. Approximately 80% of segment volume for the year ended December 31, 2014 was in
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packaging applications, which primarily include beverage and food can stock as well as closure stock and foil stock. Twelve percent of segment volume for that period was in automotive rolled products. Our Packaging & Automotive Rolled Products segment accounted for 43% of revenues and 43% of Adjusted EBITDA for the year ended December 31, 2014.
Automotive Structures & Industry Segment
Our Automotive Structures & Industry segment produces (i) technologically advanced structures for the automotive industry, including crash management systems, side impact beams and cockpit carriers and (ii) soft and hard alloy extrusions and large extruded profiles for automotive, rail, road, energy, building and industrial applications. We complement our products with a comprehensive offering of downstream technology and service activities, which include pre-machining, surface treatment, R&D and technical support services. Our Automotive Structures & Industry segment accounted for 24% of revenues and 27% of Adjusted EBITDA for the year ended December 31, 2014.
Discontinued Operations and Disposals
At December 30, 2011, we disposed of the vast majority of our specialty chemicals and raw materials supply chain services division, AIN. As at December 31, 2012, we ceased operations in the remaining entities, therefore abandoning them.
In the year ended December 31, 2013, we sold two of our soft alloy plants in France, Ham and Saint Florentin, which did not meet the criteria of discontinued operations in accordance with IFRS and therefore have not been classified or disclosed as such. We have excluded the revenue or shipments from these plants in some of our analysis, where indicated, to allow comparison of period-on-period production.
In the year ended December 31, 2013, the investment in Alcan Strojmetal Aluminium Forging s.r.o., previously accounted for under the equity method, was sold, generating a €3 million disposal gain.
In the year ended December 31, 2014, the sale of our Tarascon-sur-Ariège (Sabart) plant in France was completed generating a €7 million loss on disposal. This operation did not meet the criteria of discontinued operations in accordance with IFRS and therefore has not been classified or disclosed as such.
Key Factors Influencing Constellium’s Financial Condition and Results from Operations
The Aluminium Industry
We participate in select segments of the aluminium semi-fabricated products industry, including rolled and extruded products. Aluminium is lightweight, has a high strength-to-weight ratio and is resistant to corrosion. It compares favorably to several alternative materials, such as steel, in these respects. Aluminium is also unique in the respect that it recycles repeatedly without any material decline in performance or quality. The recycling of aluminium delivers energy and capital investment savings relative to the cost of producing both primary aluminium and many other competing materials. Due to these qualities, the penetration of aluminium into a wide variety of applications continues to increase. We believe that long-term growth in aluminium consumption generally, and demand for those products we produce specifically, will be supported by factors that include growing populations, continued urbanization in emerging markets and increasing focus globally on sustainability and environmental issues. Aluminium is increasingly seen as the material of choice in a number of applications, including packaging, aerospace and automotive.
We do not mine bauxite, refine alumina, or smelt primary aluminium as part of our business. Our industry is cyclical and is affected by global economic conditions, industry competition and product development.
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The financial performance of our operations is dependent on several factors, the most critical of which are as follows:
Volumes
The profitability of our businesses is determined, in part, by the volume of tons invoiced and processed. Increased production volumes will result in lower per unit costs, while higher invoiced volumes will result in additional revenues and associated margins.
Price and Margin
For all contracts, we continuously seek to minimize the impact of aluminium price fluctuations in order to protect our net income and cash flows against the LME price variations of aluminium that we buy and sell, with the following methods:
We do not apply hedge accounting for the derivative instruments we enter into in connection with our on-going commercial activities and therefore any mark-to-market movements for these instruments are recognized in “other gains/(losses)—net” (note that we did apply hedge accounting to the derivative instruments we entered into in connection with the Wise Acquisition). Our risk management practices aim to reduce, but do not eliminate, our exposure to changing primary aluminium prices and, while we have limited our exposure to unfavorable price changes, we have also limited our ability to benefit from favorable price changes.
In addition, our operations require that a significant amount of inventory be kept on hand to meet future production requirements. The value of the base level of inventory is also susceptible to changing primary aluminium prices. In order to reduce these exposures, we focus on reducing inventory levels and offsetting future physical purchases and sales.
We refer to the timing difference between the price of primary aluminium included in our revenues and the price of aluminium impacting our cost of sales as “metal price lag.”
Also included in our results is the impact of differences between changes in the prices of primary and scrap aluminium. As we price our product using the prevailing price of primary aluminium but purchase large amounts of scrap aluminium to produce our products, we benefit when primary aluminium price increases exceed scrap price increases. Conversely, when scrap price increases exceed primary aluminium price increases, our results will be negatively impacted. The difference between the price of primary aluminium and scrap prices is referred to as the “scrap spread” and is impacted by the effectiveness of our scrap purchasing activities, the supply of scrap available and movements in the terminal commodity markets.
The price we pay for aluminium also includes regional premiums, such as the Rotterdam premium for metal purchased in Europe or the Midwest premium for metal purchased in the U.S. The regional premiums which had historically been fairly stable have recently become more volatile. Notably, regional premiums increased significantly in 2013 and 2014, with the Rotterdam premium and the Midwest premium reaching unprecedented levels in the fourth quarter of 2014. Although our business model seeks to minimize the impact of aluminium
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price fluctuations on our net income and cash flows, we are not always able to pass-through the cost of regional premiums to our customers or adequately hedge the impact of regional premium differentials.
Seasonality
Customer demand in the aluminium industry is cyclical due to a variety of factors, including holiday seasons, weather conditions, economic and other factors beyond our control. Our volumes are impacted by the timing of the holiday seasons in particular, with August and December typically being the lowest months and January to June being the strongest months. Our business is also impacted by seasonal slowdowns and upturns in certain of our customers’ industries. Historically, the can industry is strongest in the spring and summer seasons, whereas the automotive and construction sectors encounter slowdowns in both the third and fourth quarters of the calendar year. In response to this seasonality, we seek to scale back and may even temporarily close some operations to reduce our operating costs during these periods.
Economic Conditions, Markets and Competition
We are directly affected by the economic conditions which impact our customers and the markets in which they operate. General economic conditions in the geographic regions in which our customers operate—such as the level of disposable income, the level of inflation, the rate of economic growth, the rate of unemployment, exchange rates and currency devaluation or revaluation—influence consumer confidence and consumer purchasing power. These factors, in turn, influence the demand for our products in terms of total volumes and the price that can be charged. In some cases we are able to mitigate the risk of a downturn in our customers’ businesses by building committed minimum volume thresholds into our commercial contracts. We further seek to mitigate the risk of a downturn by utilizing a temporary workforce for certain operations, which allows us to match our resources with the demand for our services. We are also seeking to purchase transportation and logistics services from third parties, to the extent possible, in order to limit capital expenditure and manage our fixed cost base.
Although the metals industry and our end-markets are cyclical in nature and expose us to related risks, we believe that our portfolio is relatively resistant to these economic cycles in each of our three main end-markets (aerospace, packaging and automotive):
In addition to the counter-cyclicality of our key end-markets, we believe our cash flows are also largely protected from variations in LME prices due to the fact that we hedge our sales based on their replacement cost, by setting the maturity of our futures on the delivery date to our customers. As a result, when LME prices increase, we have limited additional cash requirements to finance the increased replacement cost of our
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inventory. Aluminium prices are determined by worldwide forces of supply and demand, and, as a result, aluminium prices are volatile. The average LME transaction price per ton of primary aluminium in 2012, 2013 and 2014 was €1,569, €1,390 and €1,410, respectively.
The average quarterly LME per ton using U.S. dollar prices converted to euros using the applicable European Central Bank rates are presented in the following table:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Average for the year
A portion of our revenues are denominated in U.S. dollars while the majority of our costs incurred are denominated in local currencies. We engage in significant hedging activity to attempt to mitigate the effects of foreign transaction currency fluctuations on our profitability.
We mark-to-market derivatives at the period end giving rise to unrealized gains or losses which are classified as “other gains/(losses)—net”. These unrealized gains or losses have no bearing on the underlying performance of the business and are removed when calculating Adjusted EBITDA.
Currency
We are a global company with operations as of December 31, 2014 in France, the United States, Germany, Switzerland, the Czech Republic, Slovakia and China. As a result, our revenue and earnings have exposure to a number of currencies, primarily the U.S. dollar, the euro and the Swiss Franc. Our consolidated revenue and results of operations are affected by fluctuations in the exchange rates of the currencies of the countries in which we operate. We have implemented a strategy from mid-2011 onwards to hedge all highly probable or committed foreign currency cash flows. As we have multiple-year sale agreements for the sale of fabricated metal products in U.S. dollars, the Company has entered into derivative contracts to forward sell U.S. dollars to match these future sales. Hedge accounting is not applied and therefore the mark-to-market impact is recorded in “other gains/(losses)—net.”
Personnel Costs
Our operations are labor intensive and, as a result, our personnel costs represent 21% and 20% of our cost of sales, selling and administrative expenses and research and development expenses for the years ended December 31, 2014 and 2013, respectively. Personnel costs generally increase and decrease proportionately with the expansion, addition or closing of operating facilities. Personnel costs include the salaries, wages and benefits of our employees, as well as costs related to temporary labor. During our seasonal peaks and especially during summer months, we have historically increased our temporary workforce to compensate for staff on holiday and increased volume of activity.
Presentation of Financial Information
The financial information presented in this section is derived from our audited consolidated financial statements for the years ended December 31, 2014, 2013 and 2012. Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB and as endorsed by the EU. Our presentation currency is the euro.
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Results of Operations
Description of Key Line Items of the Historical Consolidated Statements of Income
Set forth below is a brief description of the composition of the key line items of our historical consolidated statements of income for continuing operations:
Income taxes. Income tax represents the aggregate amount included in the determination of profit or loss for the year in respect of current tax and deferred tax. Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit/ (loss) for a year. Deferred tax represents the
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amounts of income taxes payable/ (recoverable) in future periods in respect of taxable (deductible) temporary differences and unused tax losses.
Continuing operations
Cost of sales
Selling and administrative expenses
Research and development expenses
Restructuring costs
Other (losses)/gains net
Other expenses
Finance costs net
Share of (loss)/profit of joint ventures
Income before income taxes
Income tax
Net income/(loss) from discontinued operations
Net income
Results of Operations for the years ended December 31, 2014 and 2013
Other losses net
Finance costs, net
Share of (losses)/ profits of joint ventures
Net income from discontinued operations
Net income/(loss)
Shipment volumes (in kt)
Gross profit margin
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Revenue from continuing operations increased by 5% or €171 million to €3,666 million for the year ended December 31, 2014, from €3,495 million for the year ended December 31, 2013. This increase can be attributed to a 4% increase in volumes shipped and stable average LME prices. On a like-for-like basis, revenues increased by 5%, excluding the impact of changes in LME metal prices, premiums and currency exchange rates, when compared to the full year 2013. Revenues per ton were stable at €3,452 per ton in the year ended December 31, 2014 compared to €3,410 per ton in the year ended December 31, 2013.
Our volumes increased by 4%, or 37kt, to 1,062 kt for the year ended December 31, 2014 compared to shipments of 1,025 kt for the year ended December 31, 2013. The increase reflects higher shipment volumes from our P&ARP and AS&I segment, despite the sale of Ham and Saint-Florentin, two of our soft alloy plants in France.
Revenues in our A&T segment was stable, at €1,192 million for the year ended December 31, 2014, from €1,197 million for the year ended December 31, 2013. Our volumes decreased by 2%, or 6 kt, to 238 kt for the year ended December 31, 2014 from 244 kt for the year ended December 31, 2013, mostly attributable to a 4kt decrease in shipments of our aerospace rolled products. Excluding the impact of LME and foreign exchange, our revenue decreased by 1% over the period, in line with the decrease in shipments and following the adverse impact of a less favorable sales mix in aerospace and competitive pressure in our non-aerospace applications. Revenue per ton increased by 2% to €5,008/ton for the year ended December 31, 2014, from €4,906/ton for the year ended December 31, 2013.
Revenues in our P&ARP segment increased by 7%, or €96 million, to €1,568 million in the year ended December 31, 2014, from €1,472 million for the year ended December 31, 2013. Excluding the impact of LME and foreign exchange variations, our revenue would have increased by 6% over the period. Shipments increased by 4% or 25 kt, to 620 kt for the year ended December 31, 2014, from 595kt for the year ended December 31, 2013, driven by a 20kt or 36% increase in shipments of automotive rolled products as our BiW projects ramped up which contributed €63 million to the revenue increase. Stable packaging shipments contributed an additional €22 million to revenue as a result of increased average selling prices, with P&ARP revenue per ton increasing by 2% to €2,529/ton for the year ended December 31, 2014, from €2,474/ton for the year ended December 31, 2013.
Revenues in our AS&I segment increased by 9%, or €70 million, to €875 million for the year ended December 31, 2014, from €805 million for the year ended December 31, 2013. On a like-for-like basis, revenues for AS&I increased by 7% in 2014, adjusting for the sale of two of our soft alloy plants in 2013 and excluding the favorable effect of LME metal prices, premiums, and foreign exchange impacts. Our segment volumes increased by 9% or 17kt to 208kt for the year ended December 31, 2014, from 191 kt for the year ended December 31, 2013, driven by an additional 19kt shipped in automotive extruded products. Revenue per ton was stable at €4,207 per ton for the year ended December 31, 2014.
Our segment revenues are discussed in more detail in the “—Segment Results” section.
Cost of Sales and Gross Profit
Cost of sales increased by 5%, or €159 million, to €3,183 million for the year ended December 31, 2014 from €3,024 million for the year ended December 31, 2013, in line with the increase in shipments and aluminium prices. Higher LME prices and premiums contributed to a 5%, or €92 million, increase in raw materials and consumable expenses to €1,952 million for the year ended December 31, 2014, as compared to €1,860 million in the year ended December 31, 2013.
On a per ton basis, cost of sales increased by 2% to €2,997 per ton in the year ended December 31, 2014, from €2,950 per ton in the year ended December 31, 2013, due primarily to higher spot prices for aluminium and premiums. Our raw materials cost per ton increased by 1% to €1,838 per ton in 2014.
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Our gross profit benefitted from our accounting for inventory under the weighted average cost method. Due to LME price movements and the timing of transfers from inventory to cost of sales the metal lag effect improved our gross profit by €27 million in the year ended December 31, 2014 compared to a negative impact of €29 million in the year ended December 31, 2013.
Employee benefit expenses recorded in cost of sales increased by 7% or €36 million, to €548 million for the year ended December 31, 2014, from €512 million for the year ended December 31, 2013, reflecting increases in salaries and in headcount.
Depreciation and impairment increased by €17 million to €49 million for the year ended December 31, 2014, from €32 million for the year ended December 31, 2013, reflecting our level of investments. As a result of the combination of the multiple factors described above, gross profit increased by €12 million or 3%, to €483 million for the year ended December 31, 2014 from €471 million for the year ended December 31, 2013. Our gross profit margin remained stable at 13% of revenues in the year ended December 31, 2014 and 2013.
Selling and Administrative Expenses
Selling and administrative expenses decreased by 5%, or €10 million, to €200 million for the year ended December 31, 2014 from €210 million for the year ended December 31, 2013.
Consulting and audit fees decreased by 20%, or €10 million, to €40 million for the year ended December 31, 2014, from €50 million for the year ended December 31, 2013. External consulting expenses related primarily to costs incurred in preparing for and operating as a publicly traded company following our IPO in May 2013.
Other selling & administrative expenses, including personnel expenses recorded in selling and administrative expenses, were stable at €160 million in both years ended December 31, 2014 and 2013, reflecting our continuous efforts to contain our costs.
Research and Development Expenses
Research and development expenses increased by 6% or €2 million, to €38 million in the year ended December 31, 2014, from €36 million in the year ended December 31, 2013.
Restructuring Costs
Restructuring expenses increased by 50% or €4 million, to €12 million for the year ended December 31, 2014, from €8 million for the year ended December 31, 2013.
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Other (losses)/gains—Net
Realized losses on derivatives
Unrealized (losses)/gains on derivatives at fair value through profit and loss—net
Unrealized exchange (losses)/gains from the remeasurement of monetary assets and liabilities— net
Ravenswood pension plan amendment
Swiss pension plan settlement
Income tax contractual reimbursements
Loss on disposal
Wise acquisition costs
Other—net
Total other losses net
Other losses—net were €83 million for the year ended December 31, 2014 compared to €8 million for the year ended December 31, 2013.
Other losses-net for the year ended December 31, 2014 included €34 million costs in connection with our acquisition of Wise which was finalized in January 2015.
Unrealized (losses)/gains on derivatives held at fair value through profit and loss were a loss of €53 million in the year ended December 31, 2014 compared to a gain of €12 million in the year ended December 31, 2013. Of these, unrealized losses on LME derivatives were €7 million in the year ended December 31, 2014 compared to €7 million in the year ended December 31, 2013. Unrealized gains and losses on foreign exchange derivatives relate primarily to the exposure on a multiple year sale agreement for products sold in U.S. dollars and the appreciation of the U.S. dollar compared to the euro in 2014 led to unrealized losses on foreign exchange derivatives of €41 million compared to a gain of €21 million in the year ended December 31, 2013.
Realized losses on derivatives decreased by €18 million, to €13 million for the year ended December 31, 2014, from €31 million for the year ended December 31, 2013. Of these, realized losses on LME derivatives were nil in the year ended December 31, 2014 compared to €29 million in the year ended December 31, 2013. Realized losses on foreign exchange derivatives were a loss of €12 million in the year ended December 31, 2014 compared to a loss of €1 million in the year ended December 31, 2013.
In the years ended December 31, 2014 and 2013, we recognized a €9 million and €11 million gain, respectively, associated with amendments to our Ravenswood pension benefit plans reducing employee benefits and resulting in recognition of negative past service cost. In the year ended December 31, 2014, we recognized an €8 million gain related to certain contractual reimbursements of income tax from a previous shareholder.
Loss on disposal in the year ended December 31, 2014 and 2013 relates primarily to the disposal of our Tarascon sur Ariege plant in October 2014 and our Saint Florentin and Ham plants in May 2013 and amounted to €5 million in both periods.
Other Expenses
Other expenses were €27 million in the year ended December 31, 2013 (nil in the year ended December 31, 2014) and related to fees incurred in connection with our IPO in May 2013, amounting to €24 million, and with our secondary public offerings, amounting to €3 million.
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Finance Cost-Net
Finance costs—net increased by 16%, or €8 million, to €58 million for the year ended December 31, 2014, from €50 million in the year ended December 31, 2013.
Finance costs increased by €21 million, or 31%, to €88 million for the year ended December 31, 2014, from €67 million for the year ended December 31, 2013 as a result of our refinancings.
Interest expense on borrowings increased by €10 million to €32 million for the year ended December 31, 2014, from €22 million for the year ended December 31, 2013, mainly attributable to the Senior Notes we issued in May 2014 and December 2014. In the year ended December 31, 2014, we recognized:
Interest expense on our factoring arrangements were stable over the period, being €9 million for the year ended December 31, 2014, and €10 million for the year ended December 31, 2013.
Our realized and unrealized gains and losses on debt derivatives at fair value—net relate to the cross currency swap which was settled when the 2013 Term Loan was repaid and represent a €29 million gain for the year ended December 31, 2014 and a €9 million loss for the year ended December 31, 2013. We also recognized an €11 million gain—net related to unrealized and realized exchange gains on financing activities during the year ended December 31, 2013 compared to a €27 million loss for the year ended December 31, 2014, reflecting the strengthening of the U.S. dollar over the period.
Income Tax
Income tax expenses decreased by 5% or €2 million, to €37 million for the year ended December 31, 2014, from €39 million for the year ended December 31, 2013. Our effective tax rate increased by 12 percentage points from 29% for the year ended December 31, 2013 to 41% for the year ended December 31, 2014. This 12 percentage point increase in our effective tax rate reflects the following:
Net Income for the Year from Continuing Operations
Net income from continuing operations was €54 million for the year ended December 31, 2014 compared to €96 million for the year ended December 31, 2013, representing a decrease of €42 million. Gross profit margin remained stable and the decrease was primarily attributable to unrealized losses on derivatives of €53 million in
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fiscal year 2014 compared to unrealized gains on derivatives of €12 million in fiscal year 2013. In addition, fiscal year 2014 was impacted by €34 million of transaction costs related to the acquisition of Wise Metals while the fiscal year 2013 had been impacted by €27 million of expenses related to our IPO and subsequent offerings.
Discontinued Operations
Net income from discontinued operations of €4 million in the year ended December 31, 2013 (nil in the year ended December 31, 2014) represented the impact of the agreement reached with the acquirer of our former AIN business.
Results of Operations for the years ended December 31, 2013 and December 31, 2012
Other (losses) /gains —net
Share of profit / (losses) of joint ventures
Income tax expense
Net Income for the year from continuing operations
Net Income/(Loss) for the year
Revenue from continuing operations decreased by 3%, or €115 million, to €3,495 million for the year ended December 31, 2013, from €3,610 million for the year ended December 31, 2012. This decrease can be attributed to declining LME prices across all of our segments, coupled with a marginal decline in volumes shipped. The disposal of two soft alloy plants in France in May 2013 led to a 19 kt decrease in volumes shipped in our AS&I segment. Revenues per ton decreased by 2%, or €85 per ton, to €3,410 per ton, in the year ended December 31, 2013, from €3,495 per ton for the year ended December 31, 2012.
Lower LME prices in the year ended December 31, 2013 decreased our revenues by approximately €138 million after excluding the revenue generated by our two soft alloy plants sold in May 2013. In the year ended December 31, 2013, the average spot rate for LME per ton was €1,390 per ton in comparison to €1,569 per ton for the corresponding period of 2012.
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After adjusting for constant LME prices, exchange rates and the divestiture of the two soft alloy plants in France, estimated revenues on a comparable basis were 4% ahead of the prior year or €3,473 million in 2013 compared to €3,330 million in 2012.
A significant portion of our aerospace revenues are invoiced in U.S. dollars therefore in addition to declining LME prices, the weakening of the U.S. dollar had a €47 million negative impact on our 2013 revenue excluding the revenue generated by our two soft alloy plants subsequently sold. The average € to U.S. dollar exchange rate for the year was 1.3271 compared to 1.2847 in 2012.
Our volumes remained stable as shipments marginally decreased by 1%, or 8 kt, to 1,025 kt for the year ended December 31, 2013, as compared to shipments of 1,033 kt for the year ended December 31, 2012. The decrease reflects higher shipment volumes in our A&T segment marginally offset by lower volumes in our P&ARP segment and the impact of the sale of Ham and Saint-Florentin, two of our soft alloy plants in France.
Our A&T segment increased production during the year ended December 31, 2013 with a 9%, or 20 kt, increase in shipment volumes as a result of increased shipments to our customers in the aerospace industry and by our new multi-year contract with Airbus. Segment revenue increased by €15 million, or 1%, however revenue per ton decreased by 7% to €4,906 per ton in the year ended December 31, 2013, from €5,277 per ton in the year ended December 31, 2012. This decrease was attributable to a less favorable sales mix in aerospace and competitive pressure in non-aerospace as well as the effect of declining LME prices and a weakening of the U.S dollar. After adjusting for constant LME prices and exchange rates, our A&T segment revenue increased by 5%.
AS&I volumes and revenues were impacted by the disposal of two plants. Excluding production from our disposed soft alloy plants, shipment volumes increased by 2% and revenue increased by 3% compared to the same period in 2012. Segment revenue per ton for our AS&I segment increased to €4,215 per ton in the year ended December 31, 2013 from €4,180 per ton for the year ended December 31, 2012, benefiting from an increase in sales of higher priced products in our Automotive Structures applications.
Our P&ARP volumes and revenues decreased over the period with revenues declining by €82 million or 5% to €1,472 million for the year ended December 31, 2013. This decline was due to shipments decreasing by 2%, or 11kt, the effect of lower LME prices and, to a lesser extent the weakening of the U.S dollar. After adjusting for constant LME prices and exchange rates, our P&ARP segment revenue increased by 2%. Our P&ARP segment revenue per ton decreased to €2,474 per ton in the year ended December 31, 2013 from €2,564 per ton in the year ended December 31, 2012.
Cost of sales decreased by 4%, or €112 million, to €3,024 million for the year ended December 31, 2013, from €3,136 million for the year ended December 31, 2012, in line with the lower input prices of metal. Falling LME prices contributed to a 6%, or €127 million, decrease in raw materials and consumable expenses to €1,860 million in the year ended December 31, 2013, as compared to €1,987 million in the year ended December 31, 2012.
Depreciation and impairment increased by €18 million to €32 million for the year ended December 31, 2013, from €14 million for the year ended December 31, 2012, reflecting our level of investments.
On a per ton basis, cost of sales decreased by 3% to €2,950 per ton in the year ended December 31, 2013, from €3,036 per ton in the year ended December 31, 2012, due to lower spot prices for aluminium. Our raw materials cost per ton decreased by 6% to €1,815 per ton in 2013. The cost of energy increased by €10 million due to inflationary factors and higher taxes on energy in Germany, despite the cost saving impact of our productivity initiatives.
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Gross profit remained stable at €471 million for the year ended December 31, 2013, from €474 million for the year ended December 31, 2012. While we gained from the decrease in LME prices, this positive impact was offset by the weakening of the U.S dollar and the increase in depreciation and impairment. Our gross profit margin remained stable at 13% of revenues in the year ended December 31, 2013 and 2012.
Our gross profit margin was also impacted by our accounting for inventory under the weighted average cost method. Due to LME price movements and the timing of transfers from inventory to cost of sales this metal lag effect negatively impacted our gross profit by €29 million in the year ended December 31, 2013 compared to a negative impact of €16 million in the year ended December 31, 2012. This was partially offset by the impact of cost reduction initiatives which contributed to the reduction of our repairs and maintenance expenses from €91 million in the year ended December 31, 2012 to €80 million in the year ended December 31, 2013.
Selling and administrative expenses decreased by 1%, or €2 million, to €210 million for the year ended December 31, 2013, from €212 million for the year ended December 31, 2012.
Consulting and audit fees increased by 16%, or €7 million, to €50 million for the year ended December 31, 2013, from €43 million for the year ended December 31, 2012. External consulting expenses related primarily to costs incurred in preparing for and operating as a publicly traded company.
Other selling & administrative expenses decreased by 5%, or €9 million, to €160 million for the year ended December 31, 2013, from €169 million for the year ended December 31, 2012. This decrease reflects our continuing efforts to rationalize our support functions.
Research and development expenses were stable at €36 million for both years ended December 31, 2013 and December 31, 2012, which reflects the continuity of our investment effort in all our segments with €25 million and €16 million expensed in A&T and P&ARP, respectively for the year ended December 31, 2013.
Research and development expenses in the year ended December 31, 2012 were primarily incurred in our A&T segment of which €24 million was in relation to further development of our AIRWARE® product. Our P&ARP segment incurred €12 million across a number of various development projects which are ongoing and our AS&I segment reduced its research and development spend by €2 million as part of its cost efficiency program.
Restructuring expenses decreased by 68%, or €17 million, to €8 million for the year ended December 31, 2013, from €25 million for the year ended December 31, 2012 as the restructuring initiatives have either been completed or are in their final phase. Our expense in the year ended December 31, 2013 was in relation to continued restructuring initiatives at a corporate level and to an extent at our segment level. Our expenses in the year ended December 31, 2012 were due to initiatives at our sites, primarily in Sierre, Switzerland, where we incurred €7 million during the period, as well as restructuring in other sites and at our corporate support services location in Paris.
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Other (losses) / gains—Net
Unrealized gains on derivatives at fair value through profit and loss—net
Unrealized exchange gains / (losses) from the remeasurement of monetary assets and liabilities— net
Ravenswood CBA renegotiation
Total other (losses) / gains—net
Other losses—net were €8 million for the year ended December 31, 2013, compared to a gain of €62 million for the year ended December 31, 2012.
Unrealized gains on derivatives held at fair value through profit and loss decreased by €49 million to €12 million in the year ended December 31, 2013, from €61 million for the year ended December 31, 2012. Unrealized gains in the year ended December 31, 2013 included €21 million of unrealized gains on foreign exchange derivatives and €7 million of unrealized losses on LME derivatives compared to €35 million of unrealized gains on foreign exchange derivatives and €25 million of unrealized gains on LME derivatives in the year ended December 31, 2012, reflecting the volatility in LME prices and the weakening of the U.S. dollar against the euro.
Realized losses on derivatives decreased by €14 million to €31 million loss in the year ended December 31, 2013 from €45 million loss for the year ended December 31, 2012. Realized losses on derivatives for the year ended December 31, 2013 included realized losses on LME derivatives for €29 million and realized losses on foreign exchange derivatives for €1 million compared to realized losses on LME derivatives for €29 million and realized losses on foreign exchange derivatives for €15 million in the year ended December 31, 2012. Realized losses on LME derivatives in the years ended December 31, 2013 and 2012 reflect the decrease of LME prices over the period and offset reductions in the underlying purchases of aluminium in cost of sales. Realized losses on foreign exchange derivatives relate primarily to forward sales of U.S. Dollars entered into in connection with multi-year sales agreements denominated in U.S. Dollars and offset increases of the underlying sales recorded in revenue.
In the year ended December 31, 2013, we recognized an €11 million gain and in the year ended December 31, 2012, a €58 million gain associated with amendments to our Ravenswood pension plan reducing employee benefits resulting in recognition of negative past service cost. In the year ended December 31, 2012, we recognized an €8 million loss related to the transfer of our Swiss pension plans to a new foundation and adjustments of assets and employee benefits. This led to a partial liquidation and triggered a settlement.
During the third quarter of 2012, the collective bargaining agreement (CBA) regulating working conditions at Ravenswood was renegotiated and a new five-year CBA was put in place. Costs of €7 million were incurred during these renegotiations, related to professional fees including legal expenses and bonuses related to the successful resolution of this renewed five-year agreement.
Loss on disposal in the year ended December 31, 2013 relates primarily to the disposal of our Saint Florentin and Ham plants.
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Other expenses were €27 million in the year ended December 31, 2013 as compared to €3 million expenses in the year ended December 31, 2012. In the year ended December 31, 2013 these expenses related to fees incurred in connection with our IPO in May 2013, amounting to €24 million, and with our secondary public offerings, amounting to €3 million.
Finance costs—net decreased by 17%, or €10 million, to €50 million in the year ended December 31, 2013, from €60 million for the year ended December 31, 2012.
Finance costs increased by €3 million, or 5%, to €67 million for the year ended December 31, 2013, from €64 million for the year ended December 31, 2012.
Interest expense on borrowings and factoring arrangements and exit and unamortized arrangement fees increased by €14 million, or 36%, to €53 million for the year ended December 31, 2013, from €39 million for the year ended December 31, 2012, due to the New Term Loan we entered into in March 2013. Our New Term Loan replaced the Original Term Loan entered into in May 2012 which in turn repaid our Shareholder Loan. In the year ended December 31, 2013, we recognized €8 million and €13 million of unamortized exit and arrangement fees, respectively, on the termination of the Original Term Loan. In the year ended December 31, 2012, we recognized €5 million of unamortized fees associated with the termination of the Shareholder Loan.
Over the period, the expenses associated with the amortization of our factoring arrangements were stable at €3 million for each of the years ended December 31, 2012 and 2013.
This increase in finance costs was offset by the decrease in realized and unrealized losses on debt derivatives at fair value which we entered into to minimize our exposure to foreign exchange rate volatility on the U.S. Dollar portion of our Term Loan. The realized and unrealized gains and losses for the year ended December 31, 2013 was a net loss of €9 million (€4 million gain and €13 million loss, respectively), in comparison to a loss of €18 million for the year ended December 31, 2012, reflecting the changes in fair value of our cross currency interest rate swaps. We also recognized a €11 million unrealized and realized exchange gain on our foreign currency derivatives in the year ended December 31, 2013 (nil in the year ended December 31, 2012).
An income tax charge of €39 million was recognized for the year ended December 31, 2013, from €46 million for the year ended December 31, 2012. Our effective tax rate increased by 5 percentage points from 24% for the year ended December 31, 2012 to 29% for the year ended December 31, 2013. This 5 percentage point increase in our effective tax rate reflects the following:
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Net income from continuing operations was €96 million for the year ended December 31, 2013, compared to €149 million for the year ended December 31, 2012, representing a decrease of €53 million. Gross profit margin remained stable and net income was impacted by €24 million of IPO related expenses and the €49 million decrease in unrealized gains and losses on derivatives at fair value. Our net income from continuing operations for the year ended December 31, 2012 also included a €58 million gain relating to the amendment of our Ravenswood other post-employment benefits (“OPEB”) plan.
Net income from discontinued operations of €4 million in the year ended December 31, 2013 represented the impact of the agreement reached with the buyer of our AIN business.
Losses from discontinued operations of €8 million were incurred in the year ended December 31, 2012 in respect of our AIN business and is mostly related to restructuring, separation and completion costs. All operations were ceased in 2012.
Segment Results
Segment Revenue
The following table sets forth the revenues for our operating segments for the periods presented:
A&T
P&ARP
AS&I
Holdings and Corporate
Total revenues from continuing operations
A&T. Revenues in our A&T segment was stable, at €1,192 million for the year ended December 31, 2014, from €1,197 million for the year ended December 31, 2013. Our volumes decreased by 2%, or 6 kt, to 238 kt for the year ended December 31, 2014 from 244 kt for the year ended December 31, 2013, mostly attributable to a 4kt decrease in shipments of our aerospace rolled products. Excluding the impact of LME and foreign exchange, our revenue decreased by 1% over the period, in line with the decrease in shipments and following the adverse impact of a less favorable sales mix in aerospace and competitive pressure in our non-aerospace applications. Revenue per ton increased by 2% to €5,008 / ton for the year ended December 31, 2014, from €4,906 / ton for the year ended December 31, 2013.
Revenues in our A&T segment increased by 1%, or €15 million, to €1,197 million for the year ended December 31, 2013 compared to €1,182 million for the year ended December 31, 2012. Our volumes increased by 9%, or 20 kt, to 244 kt for the year ended December 31, 2013 from 224 kt for the year ended December 31, 2012 mainly in our aerospace applications at Issoire and Ravenswood. Revenues were negatively affected by lower LME prices and the weakening of the U.S dollar which had a combined €44 million negative impact, as well as, a less favorable sales mix in aerospace and competitive pressure in our non-aerospace applications. Revenue per ton decreased by 7% from €5,277 per ton for the year ended December 31, 2012 to €4,906 per ton for the year ended December 31, 2013.
P&ARP. Revenues in our P&ARP segment increased by 7%, or €96 million, to €1,568 million in the year ended December 31, 2014, from €1,472 million for the year ended December 31, 2013. Excluding the impact of
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LME and foreign exchange variations, our revenue would have increased by 6% over the period. Shipments increased by 4% or 25 kt, to 620 kt for the year ended December 31, 2014, from 595kt for the year ended December 31, 2013, driven by a 20kt or 36% increase in shipments of automotive rolled products as our BiW projects ramped up which contributed €63 million to the revenue increase. Stable packaging shipments contributed an additional €22 million to revenue as a result of increased average selling prices, with segment revenue per ton increasing by 2% to €2,529 / ton for the year ended December 31, 2014, from €2,474 / ton for the year ended December 31, 2013.
Revenues in our P&ARP segment decreased by 5%, or €82 million, to €1,472 million for the year ended December 31, 2013 from €1,554 million for the year ended December 31, 2012. Volumes decreased by 2% or 11 kt, mainly in our packaging applications and despite the 27% increase in shipments in our Body-in-White applications. Lower LME prices and foreign exchange variations had a combined negative impact of €107 million over the period. Revenue per ton decreased by 4%, or €90 per ton to €2,474 per ton for the year ended December 31, 2013, from €2,564 per ton as our improved product mix did not fully offset the decline in LME prices.
AS&I. Revenues in our AS&I segment increased by 9%, or €70 million, to €875 million for the year ended December 31, 2014, from €805 million for the year ended December 31, 2013. On a like-for-like basis, revenues for AS&I increased by 7% in 2014, adjusting for the sale of two of our soft alloy plants in 2013 and excluding the favorable effect of LME metal prices, premiums, and foreign exchange impacts. Our segment volumes increased by 9% or 17kt to 208kt for the year ended December 31, 2014, from 191 kt for the year ended December 31, 2013, driven by an additional 19kt shipped in automotive extruded products. Revenue per ton was stable at €4,207 per ton for the year ended December 31, 2014.
Revenues in our AS&I segment decreased by 7%, or €56 million, to €805 million for the year ended December 31, 2013, from €861 million in the year ended December 31, 2012. Our segment volumes decreased by 7% to 191 kt for the year ended December 31, 2013 from 206 kt for the year ended December 31, 2012. If volumes are adjusted to reflect the disposal of our two soft alloy plants in France, shipment volumes increased by 2%, and revenue increased by 3% compared to the same period in 2012. Our automotive structures shipments increased by 15% for the year ended December 31, 2013 from the equivalent period in 2012 due to the ramp up of projects. This was offset by lower soft alloy volumes as competitive pressures remained strong. Lower LME prices and foreign exchange variations had a combined negative impact of €33 million over the period. Our revenue per ton increased by 1%, or €35 per ton, to €4,215 per ton in the year ended December 31, 2013, from €4,180 per ton in the year ended December 31, 2012, driven by the good performance of the automotive structures applications.
Holdings and Corporate.Revenues in the Holdings and Corporate segment for the years ended December 31, 2014 and 2013 related primarily to metal sales to our former soft alloy plants. Revenues in the Holdings and Corporate segment for the years ended December 31, 2012 included revenues generated by our forging businesses.
In considering the financial performance of the business, management analyzes the primary financial performance measure of Adjusted EBITDA in all of our business segments as defined and required under the covenants contained in our financing facilities. Adjusted EBITDA is not a measure defined by IFRS. The most directly comparable IFRS measure to Adjusted EBITDA is our profit or loss for the relevant period.
We believe Adjusted EBITDA, as defined below, is useful to investors as it excludes items which do not impact our day-to-day operations and which management in many cases does not directly control or influence. Similar concepts of adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in their evaluation of our company and in comparison to other companies, many of which present an adjusted EBITDA-related performance measure when reporting their results.
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Adjusted EBITDA is defined as profit for the period from continuing operations before results from joint venture, net financial expenses, income taxes and depreciation, amortization and impairment as adjusted to exclude losses on disposal of property, plant and equipment, acquisition and separation costs, restructuring costs and unrealized gains or losses on derivatives and on foreign exchange differences, favorable (unfavorable) metal price lag, exceptional consulting costs, effects of purchase accounting adjustments, Apollo management fees, exceptional employee bonuses in relation to cost saving implementation and targets, and certain exceptional or incremental costs.
Adjusted EBITDA has limitations as an analytical tool. It is not a recognized terms under IFRS and therefore does not purport to be an alternative to operating profit as a measure of operating performance or to cash flows from operating activities as a measure of liquidity.
Adjusted EBITDA is not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider these performance measures in isolation from, or as a substitute analysis for, our results of operations.
The following table shows Constellium’s consolidated Adjusted EBITDA for the years ended December 31, 2014, 2013 and 2012:
Total Adjusted EBITDA
Total Adjusted EBITDA for the year ended December 31, 2014 was €275 million, a slight decrease compared to €280 million of total adjusted EBITDA for the year ended December 31, 2013. This decrease reflected an unfavorable impact of higher metal premiums of €23 million, partially compensated by a positive foreign exchange rates effect of €12 million as well as strong performance in our P&ARP and AS&I segments offset by weaker performance in our A&T segment as a result of operational challenges and capacity constraints.
A&T. Adjusted EBITDA in our A&T segment decreased by 24%, or €29 million, for the year ended December 31, 2014 to €91 million, compared to €120 million for the year ended December 31, 2013. Adjusted EBITDA in our A&T segment decreased to €380 per ton for the year ended December 31, 2014 from €491 per ton for the year ended December 31, 2013. This decrease reflected the lower shipments for €7 million and a negative price and mix effect for €28 million, including €8 million related to the increase in premiums throughout the year. The performance of our A&T segment for the year ended December 31, 2014, was also impacted by capacity constraints and operational issues, including significant unplanned equipment outages at our Ravenswood facility in the first and fourth quarters. This was partially offset by lower costs for €2 million and the positive impact of the strengthening of the U.S. dollar for €8 million.
Adjusted EBITDA in our A&T segment increased by 13%, or €14 million, for the year ended December 31, 2013 to €120 million, compared to €106 million for the year ended December 31, 2012. Adjusted EBITDA in our A&T segment increased by 4% or €19 per ton to €491 per ton for the year ended December 31, 2013 from €472 per ton for the year ended December 31, 2012. This increase reflected the €58 million positive effect of increased shipments mainly associated with the aerospace sector, notably as a result of the new multi-year contract entered into with Airbus. This positive trend was partly offset by a less favorable product mix within aerospace and pressure on prices in non-aerospace applications representing €41 million for the period. Costs and
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inflationary effects increased by a further €13 million, following the increase in shipments while foreign exchange variations had a limited impact.
P&ARP. Adjusted EBITDA in our P&ARP segment increased by 12%, or €13 million, to €118 million for the year ended December 31, 2014, from €105 million for the year ended December 31, 2013. Adjusted EBITDA per ton increased by 8% over the same period, to €190 per ton for the year ended December 31, 2014, from €176 per ton for the year ended December 31, 2013, driven by increases across all product categories. Increased shipments in automotive rolled products contributed to a €14 million increase while price and mix had a limited negative effect of €1 million as the impact of a richer mix was offset by €6 million of increase in premiums not passed through to customers. Costs and inflation led to a €7 million decrease, mostly associated with labor inflation, while foreign exchange had a €4 million positive impact.
Adjusted EBITDA in our P&ARP segment increased by 14%, or €13 million, to €105 million for the year ended December 31, 2013, from €92 million for the year ended December 31, 2012. Drivers of the increase in Adjusted EBITDA the improved pricing and product mix in our rigid packaging and Body in White solutions contributing €11 million as well as improved productivity and cost saving initiatives which offset inflationary effects on labor and energy, representing a further €2 million and foreign exchange variations which led to another additional €3 million. The 2% decrease in shipments over the period had a €5 million effect on Adjusted EBITDA. Adjusted EBITDA per ton increased by 15% or €23 per ton, from €153 per ton for the year ended December 31, 2012 to €176 per ton for the year ended December 31, 2013.
AS&I. Adjusted EBITDA in our AS&I segment increased by 26%, or €15 million, for the year ended December 31, 2014 to €73 million, compared to €58 million for the year ended December 31, 2013. Adjusted EBITDA per ton in our AS&I segment increased by 16% to €351 per ton for the year ended December 31, 2014 from €311 per ton for the year ended December 31, 2013, driven by positive contributions from all product lines. The 9% increase in shipments represented a further €24 million, partially offset by €13 million incremental costs and inflation, mainly related to labor inflation, a €1 million negative price and mix effect including €9 million impact of the increase in premiums which were not passed through to customers, and €1 million associated with the unfavorable change in foreign exchange.
Adjusted EBITDA in our AS&I segment increased by 26%, or €12 million, for the year ended December 31, 2013 to €58 million, compared to €46 million for the year ended December 31, 2012. Adjusted EBITDA in our AS&I segment increased to €311 per ton for the year ended December 31, 2013 from €225 per ton for the year ended December 31, 2012. This increase reflects the €13 million impact of the increase in shipments from our automotive structures application combined with a €4 million reduction in our costs partially offset by negative pricing in Soft Alloys, deteriorating mix in Extrusions and inflationary factors effects amounting to a combined €10 million. Foreign exchange variations contributed €2 million to Adjusted EBITDA over the period.
Holdings and Corporate. Our Holdings and Corporate segment generated Adjusted EBITDA losses of €7 million, €3 million and €21 million in the years ended December 31, 2014, 2013 and 2012. Our Holdings and Corporate costs increased in the year ended December 31, 2014 compared to the previous year reflecting primarily the additional support and administrative costs needed to operate as a public company for a full year. Holdings and Corporate costs decreased in the year ended December 31, 2013 compared to the previous year reflecting primarily our efforts to reduce the higher support and administrative costs that were necessary in the years following our formation in January 2011.
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The following table reconciles our profit or loss for the period from continuing operations to our Adjusted EBITDA for the years presented:
Profit for the period from continuing operations
Other expenses(a)
Finance costs—net
Share of profit from joint ventures
Depreciation and amortization
Impairment charges
Restructuring costs(b)
Unrealized exchange losses / (gains) from the remeasurement of monetary assets and liabilities
Unrealized (gains) / losses on derivatives at fair value
Swiss pension settlements(c)
Ravenswood benefit plan amendment(d)
Ravenswood CBA renegotiation(e)
Losses on disposals and assets classified as held for sale(f)
Metal price lag(g)
Apollo management fee(h)
Transition, start-up and development costs(i)
Exceptional employee bonuses in relation to cost savings and turnaround plans(j)
Other(k)
Represents the financial impact of the timing difference between when aluminium prices included within our revenues are established and when aluminium purchase prices included in our cost of sales are established. We account for inventory using a weighted average price basis and this adjustment is to remove the effect of volatility in aluminium prices. This lag will, generally, increase our earnings in times of rising
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Quarterly Financial Information
The table below presents summary financial and operating data for our quarters in the fiscal years ended December 31, 2013 and 2014:
Statement of income data (continuing operations):
Net Income/(Loss) for the year from continuing operations
Other operational and financial data:
Net trade working capital
Change in net trade working capital
Adjusted EBITDA per ton (€ per ton)*
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Continuing operations*
Share of (profit)/loss from joint ventures
Depreciation and impairment
Unrealized/(gains) losses on derivatives at fair value and exchange gains from the remeasurement of monetary assets and liabilities
Pension settlement and amendment
Losses /(gains) on disposals and assets held for sale
Metal price lag
Apollo management fee
Transition, start-up and development costs
Other
Covenant Compliance
Our debt agreements contain customary covenants and events of default that, among other things, restrict, subject to certain exceptions, our ability and the ability of our subsidiaries, to incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations and make dividends and other restricted payments.
Our ABL Facility described in “Item 10. Additional Information––C. Material Contracts”—the “ABL Facility”, contains a financial maintenance covenant that requires Constellium Rolled Products Ravenswood, LLC to maintain excess availability of the greater of (i) $10 million and (ii) 10% of the aggregate revolving loan commitments. Constellium Rolled Products Ravenswood, LLC is currently in compliance with this financial maintenance covenant. The ABL Facility also contains customary negative covenants on liens, investments and restricted payments related to Ravenswood, LLC.
We were in compliance with our covenants throughout 2014 and 2013 and as of December 31, 2014 and 2013.
Liquidity and Capital Resources
Our primary sources of cash flow have historically been cash flows from operating activities and funding or borrowings from external parties and related parties.
As part of our cash flow management, we have improved our net working capital through procurement initiatives designed to leverage economies of scale and improve terms of payment to suppliers, as well as through
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collection initiatives designed to improve our billings and collections processes to reduce outstanding receivables. Our net working capital as a percentage of annual revenue decreased from 8% in 2012 to 6% in 2013 and 2014. We define net working capital days, days of inventories, days of payables and days of sales outstanding as net trade working capital, inventories, trade payables and trade receivables divided by revenues for the last quarter, multiplied by 90, respectively. Net trade working capital is inventories plus trade receivables net, less trade payables. We believe this measure helps users of the financial statements compare our cash management from period to period and against our peers in respect to our efficiency of working capital employed and the ability to provide sufficient liquidity in the short and long term.
Based on our current and anticipated levels of operations, and the condition in our markets and industry, we believe that our cash on hand, cash flows from operations, and availability under our Term Loan and revolving credit facilities will enable us to meet our working capital, capital expenditures, debt service and other funding requirements for the foreseeable future. However, our ability to fund working capital needs, debt payments and other obligations, and to comply with the financial covenants in the Term Loan Agreement, depends on our future operating performance and cash flows and many factors outside of our control, including the costs of raw materials, the state of the overall industry and financial and economic conditions and other factors, including those described under “Item 3. Key Information––D. Risk Factors.”
It is our policy to hedge all highly probable or committed foreign currency operating cash flows. As we have significant third party future receivables denominated in U.S. dollars, we enter into combinations of forward contracts and currency options with financial institutions, selling forward U.S. dollars against euros. In addition, as discussed in “Item 4. Information on the Company—B. Business Overview—Managing our Metal Price Exposure,” when we are unable to align the price and quantity of physical aluminium purchases with that of physical aluminium sales, we enter into derivative financial instruments to pass through the exposure to metal price fluctuations to financial institutions at the time the price is set. As the U.S. dollar appreciates versus the euro or the LME price for aluminium falls, the derivative contracts entered into with financial institution counterparties have a negative mark-to-market. Our financial institution counterparties may require margin calls should our negative mark-to-market exceed a pre-agreed contractual limit. In order to protect the Company from the potential margin calls for significant market movements, we hold a significant liquidity buffer in cash or in availability under our various borrowing facilities, we enter into derivatives with a large number of financial counterparties and we monitor margin requirements on a daily basis for adverse movements in the U.S. dollar versus the euro and in aluminium prices.
At December 31, 2014, the margin requirement related to aluminium hedges was zero (as of December 31, 2013, margin posted on aluminium hedges was also zero). As of December 31, 2014, the margin requirement related to foreign exchange hedges was zero (as of December 31, 2013, margin posted on foreign exchange hedges was €11 million). Throughout the year 2014, there were no margins posted related to foreign exchange derivatives. The highest margin posted in 2013 related to foreign exchange derivatives was €20 million on January 3, 2013.
At December 31, 2014, we had €1,300 million of total liquidity, comprised of €989 million in cash and cash equivalents, €42 million of undrawn credit facilities under our ABL Facility, €120 million available under our Unsecured Revolving Credit Facility, and €149 million available under our factoring arrangements. Our liquidity position was reinforced by the $400 million and €240 million bond offerings completed in December, 2014.
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Cash Flows
The following table summarizes our operating, investing and financing activities for the years ended December 31, 2012, 2013 and 2014:
Net cash provided by / (used) in:
Operating activities
Investing activities
Financing activities
Net increase in cash and cash equivalents
Net cash from operating activities
Net cash from operating activities increased by €28 million, from an inflow of €184 million in the year ended December 31, 2013, to an inflow of €212 million for the year ended December 31, 2014. Net working capital days decreased by 5 days to 20 days for the year ended December 31, 2014, from 25 days for the year ended December 31, 2013. The increase in LME prices and foreign exchange drove all components of trade working capital up, especially inventories and in our A&T segment. Payables were also impacted by the expenses related to the Wise acquisition which were incurred in Q4 2014.
Net cash from operating activities decreased by €62 million, from an inflow of €246 million in the year ended December 31, 2012, to an inflow of €184 million for the year ended December 31, 2013. This reflected the €53 million decrease in cash generated from net income from continuing operations of €149 million in the year ended December 31, 2012 compared to €96 million in the year ended December 31, 2013. The unrealized gains on derivatives and from remeasurement of monetary assets and liabilities were €14 million for the year ended December 31, 2013 compared to €60 million for the year ended December 31, 2012. Net working capital days decreased by 7 days to 25 days for the year ended December 31, 2013, from 32 days for the year ended December 31, 2012. Of the decrease in net working capital days, a 6-day decrease was driven by lower inventories across all of our segments.
Net cash from investing activities
Cash flows used in investing activities increased by €84 million to €216 million for the year ended December 31, 2014, from €132 million for the year ended December 31, 2013, mainly driven by a €55 million increase in capital expenditures, to €199 million for the year ended December 31, 2014, from €144 million for the year ended December 31, 2013. Our capital expenditures for the year included €36 million related to the ramp up of our body-in-white projects in our PA&RP segment, a further €12 million spent on projects related to Airware and major maintenance in our A&T segment. Cash flows used in investing activities also included €19 million related to our investment in Quiver Ventures LLC which was created during the fourth quarter of 2014.
Cash flows used in investing activities increased by €1 million to €132 million for the year ended December 31, 2013, from €131 million for the year ended December 31, 2012. Cash flows used in investing activities for the year ended December 31, 2013 related to €144 million of capital expenditure and €13 million proceeds received from the disposal of our Saint Florentin and Ham plants and other European assets, including Alcan Strojmetal Aluminium Forging. Our capital expenditures projects for the year ended December 31, 2013 included assets reflected in construction and work in progress. Our significant projects included €14 million spent in Neuf-Brisach for a heat treatment and conversion line, €6 million spent on our new Singen press line which started production in May 2013 and €11 million spent on Automotive Structures projects.
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For further details on capital expenditures projects, see the “—Financing Arrangements—Historical Capital Expenditures” section below.
Net cash from financing activities
Net cash provided by financing activities was an inflow of €753 million for the year ended December 31, 2014, compared to an inflow of €43 million for the year ended December 31, 2013. Net cash provided by financing activities in the year ended December 31, 2014 reflected the €1,153 million of proceeds from the issuance of Senior Notes in May and October, partially used to repay €331 million of the New Term Loan. Net cash provided by financing activities also included €27 million cash outflows related to payment of deferred financing costs and €34 million of other financing activities.
Net cash used in financing activities was an outflow of €86 million for the year ended December 31, 2012 and an inflow of €43 million for the year ended December 31, 2013. Net cash provided by financing activities in the year ended December 31, 2013 reflected the €162 million of proceeds received from the issuance of ordinary shares in our IPO and the €351 million proceeds from the New Term Loan offset by €147 million of dividends and €103 million of share premium distributed to our shareholders as well as repayments of the Original Term Loan amounting to €156 million.
Historical Capital Expenditures
The following table provides a breakdown of the historical capital expenditures for property, plant and equipment by segment for the periods indicated:
Intersegment and Other
Total from continuing operations
Capital expenditure in the Company predominantly relates to development, maintenance and health & safety expenditures.
Main projects undertaken during the period included the Singen press line which started operations in May 2013 and the new casthouse in Decin which became fully operational in June 2014. Our significant projects in progress include the Body-in-White capacity extension in P&ARP, the new press in AS&I and the Airware casthouse in A&T.
Capital expenditures increased by €55 million, or 38%, to €199 million for the year ended December 31, 2014, from €144 million in the year ended December 31, 2013, as a result of the continuation of existing projects and a number of new projects, including €36 million spent on Body-in-White projects and €12 million spent on Airware-related projects.
Capital expenditures increased by €18 million, or 14%, to €144 million in the year ended December 31, 2013 from €126 million in the year ended December 31, 2012, as a result of the continuation of existing projects and a number of new projects, including €11 million spent on Automotive Structures projects, €14 million relating to a heat treatment and conversion line at our Neuf-Brisach plant and €6 million spent on our new Singen press line.
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As at December 31, 2014, we had €183 million of construction in progress which relates to our continued modernization and rebuilding projects at our Neuf Brisach, Issoire, Van Buren, Ravenswood and Singen sites.
Our principal capital expenditures are expected to total approximately €508 million, for the years ended December 31, 2015 and 2016 in the aggregate. We currently expect all of our capital expenditures to be financed internally.
Off-Balance Sheet Arrangements
As of December 31, 2014, we have no significant off-balance sheet arrangements.
Contractual Obligations
The following table summarizes our estimated material contractual cash obligations and other commercial commitments at December 31, 2014:
Borrowings(1)
Interest(2)
Derivatives relating to currencies and metal(3)
Operating lease obligations(4)
Capital expenditures
Finance leases(5)
Total(6)
Interests under the December 2014 Senior Notes accrue at a rate of 8.00% per annum on the U.S. Dollar Notes and 7.00% on the Euro Notes.
Environmental Contingencies
Our operations, like those of other basic industries, are subject to federal, state, local and international laws, regulations and ordinances. These laws and regulations (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as waste handling and disposal practices and (ii) impose liability for costs of cleaning up, and certain damages resulting from, spills, disposals or other releases or regulated materials. From time to time, our operations have resulted, or may result, in certain noncompliance with applicable requirements under such environmental laws. To date, any such noncompliance with such environmental laws has not had a material adverse effect on our financial position or results of operations.
Pension Obligations
Constellium operates various pension plans for the benefit of its employees across a number of countries. Some of these plans are defined benefit plans and others are defined contribution plans. The largest of these plans
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are in the United States, Switzerland, Germany and France. Pension benefits are generally based on the employee’s service and highest average eligible compensation before retirement, and are periodically adjusted for cost of living increases, either by practice, collective agreement or statutory requirement.
We also provide health and life insurance benefits to retired employees and in some cases to their beneficiaries and covered dependents. These plans are predominantly in the United States.
United States pensions and healthcare plans
In the United States, we operate defined benefit plans, which, as of December 31, 2014, covered 1,000 active participants, 337 deferred participants and 1,535 retired employees.
There is a defined contribution (401(k)) savings plan and an unfunded post-employment benefit scheme.
Switzerland
In 2012, and as part of the separation agreement with Rio Tinto, we withdrew from the foundation that previously had administered our employee benefit plans in Switzerland and joined a new commercial multi-employee foundation for our Swiss employees. This change led to a partial liquidation of the previous scheme which triggered a settlement. At the same time there was a change in employee benefit entitlements that resulted in a decrease in past service costs. The net effect of the settlement and the change in benefits resulted in a €8 million loss recorded within other gains/losses in the income statement. As of December 31, 2014, there were 777 employees and 89 retired employees in the Swiss pension plan.
Germany
In Germany, there are a number of defined benefit and defined contribution pension schemes, which, as of December 31, 2014, covered a total of 1,456 active participants, 442 deferred participants and 2,768 retired employees.
France
In France, there are unfunded defined benefit pension plans, which, as of December 31, 2014, covered 3,886 active participants and 586 retired employees.
Our pension liabilities and other post-retirement healthcare obligations are reviewed regularly by a firm of qualified external actuaries and are revalued taking into account changes in actuarial assumptions and experience. The assumptions include assumed discount rates on plan liabilities and expected rates of return on plan assets. Both of these require estimates and projections on a variety of factors and these can fluctuate from period to period.
For the year ended December 31, 2014, the total expense recognized in the income statement in relation to all our pension and post-retirement benefits was €30 million (compared to €29 million for the year ended December 31, 2013). At December 31, 2014, the fair value of the plans assets was €330 million (compared to €277 million as of December 31, 2013), compared to a present value of our obligations of €984 million (compared to €784 million as of December 31, 2013), resulting in an aggregate plan deficit of €654 million (compared to €507 million as of December 31, 2013). Contributions to pension plans totaled €34 million for the year ended December 31, 2014 (compared to €27 million for the year ended December 31, 2013). Contributions for other benefits totaled €15 million for the year ended December 31, 2014 (compared to €16 million for the year ended December 31, 2013).
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For the year ended December 31, 2013, the total expense recognized in the income statement in relation to all our pension and post-retirement benefits was €29 million (compared to a gain of €2 million for the year ended December 31, 2012). At December 31, 2013, the fair value of the plans assets was €277 million (compared to €267 million as of December 31, 2012), compared to a present value of our obligations of €784 million (compared to €878 million as of December 31, 2012), resulting in an aggregate plan deficit of €507 million (compared to €611 million as of December 31, 2012). Contributions to pension plans totaled €27 million for the year ended December 31, 2013 (compared to €26 million for the year ended December 31, 2012). Contributions for other benefits totaled €16 million for the year ended December 31, 2013 (compared to €14 million for the year ended December 31, 2012).
Our estimated funding for our funded pension plans and other post-retirement benefit plans is based on actuarial estimates using benefit assumptions for discount rates, rates of compensation increases, and health care cost trend rates. The deficit in the pension plan and the unfunded post-retirement healthcare obligation as of December 31, 2014 were €282 million and €372 million, respectively. The deficit in the pension plan and the unfunded post-retirement healthcare obligation as of December 31, 2013 were €208 million and €299 million, respectively. Estimating when the obligations will require settlement is not practicable and therefore these have not been included in the Contractual Obligations table above.
Quantitative and Qualitative Disclosures about Market Risk
In addition to the risks inherent in our operations, we are exposed to a variety of financial risks, such as market risk (including foreign currency exchange, interest rate and commodity price risk), credit risk and liquidity risk, and further information can be found in Note 24 to our audited consolidated financial statements contained elsewhere in this Annual Report.
Principal Accounting Policies, Critical Accounting Estimates and Key Judgments
Our principal accounting policies are set out in Note 2 to the audited consolidated financial statements which appear elsewhere in this Annual Report. New standards and interpretations not yet adopted are also disclosed in Note 2.c to our audited consolidated financial statements.
A. Directors and Senior Management
The following table provides information regarding our executive officers and the members of our board of directors as of the date of this Annual Report (ages are given as of April 20, 2015). The business address of each of our executive officers and directors listed below is c/o Constellium, Tupolevlaan 41-61, 1119 NW Schiphol-Rijk, the Netherlands.
Name
Position
Date of
Appointment
Richard Evans
Pierre Vareille
Guy Maugis
Matthew Nord
Philippe Guillemot
Werner Paschke
Michiel Brandjes
Peter Hartman
John Ormerod
Lori Walker
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Pursuant to a shareholders agreement between the Company and Bpifrance, Mr. Maugis was selected to serve as a director by Bpifrance.
Richard B. Evans. Mr. Evans has served as our Chairman since December 2012. Mr. Evans is currently an independent director of Noranda Aluminum Holding Corporation and an independent director of CGI, an IT consulting and outsourcing company. Mr. Evans retired in May 2013 as Non-Executive Chairman of Resolute Forest Products, a Forest Products company based in Montreal. He retired in April 2009 as an Executive Director of London-based Rio Tinto plc and Melbourne-based Rio Tinto Ltd., and as Chief Executive Officer of Rio Tinto Alcan Inc., a wholly owned subsidiary of Rio Tinto. Previously, Mr. Evans was President and Chief Executive Officer of Montreal based Alcan Inc. from March 2006 to October 2007, and led the negotiation of the acquisition of Alcan by Rio Tinto in October 2007. He was Alcan’s Executive Vice President and Chief Operating Officer from September 2005 to March 2006. Prior to joining Alcan in 1997, he held various senior management positions with the Kaiser Aluminum and Chemical Company during his 27 years with that company. He is a past Chairman of the International Aluminum Institute (IAI) and is a past Chairman of the Washington, DC-based U.S. Aluminum Association. He previously served as Co-Chairman of the Environmental and Climate Change Committee of the Canadian Council of Chief Executives and as a member of the Board of USCAP, a Washington, DC-based coalition concerned with climate change.
Pierre Vareille. Mr. Vareille has been the Chief Executive Officer of Constellium since March 2012. Prior to joining Constellium, Mr. Vareille was Chairman and Chief Executive Officer of FCI, a world-leading manufacturer of connectors. Mr. Vareille is a graduate of the French engineering school Ecole Centrale de Paris and the Sorbonne University (economics and finance). He started his career in 1982 with Vallourec, holding various positions in manufacturing, controlling, sales and strategy before being appointed Chief Executive Officer of several subsidiaries. From 1995 to 2000 Mr. Vareille was Chairman and Chief Executive Officer of GFI Aerospace (now LISI Aerospace), after which he joined Faurecia as a member of the executive committee and Chief Executive Officer of the Exhaust Systems business. In 2002, he moved to Pechiney as a member of the executive committee in charge of the aluminium conversion sector and as Chairman and Chief Executive Officer of Rhenalu. He was then named in 2004 as Group Chief Executive of Wagon Automotive, a company listed on the London Stock Exchange, where he served until 2008. Mr. Vareille has been a member of the Societe Bic board of directors since 2009.
Guy Maugis. Mr. Maugis has been the President of Robert Bosch France SAS since January 2004. The French subsidiary covers all the activities of the Bosch Group, a leader in the domains of the Automotive Equipments, Industrial Techniques and Consumer Goods and Building Techniques. Mr. Maugis is a former graduate of Ecole Polytechnique, Engineer of “Corps des Ponts et Chaussées” and worked for several years at the Equipment Ministry. At Pechiney, he managed the flat rolled products factory of Rhenalu Neuf-Brisach. At PPG Industries, he became President of the European Flat Glass activities. With the purchase of PPG Glass Europe by ASAHI Glass, Mr. Maugis assumed the function of Vice-President in charge of the business development and European activities of the automotive branch of the Japanese group.
Matthew H. Nord. Mr. Nord is a partner of Apollo Global Management, LLC, having joined Apollo in 2003. Prior to that time, Mr. Nord was a member of the Investment Banking division of Salomon Smith Barney Inc. Mr. Nord serves on the board of directors of Presidio, Inc., Novitex Enterprise Solutions, Affinion Group Inc. and Noranda Aluminum Holding Corporation. Mr. Nord also serves on the Board of Trustees of Montefiore Health System and on the Board of Overseers of the University of Pennsylvania’s School of Design. Mr. Nord graduated summa cum laude with a BS in Economics from the University of Pennsylvania’s Wharton School of Business. Mr. Nord has over 12 years of experience in financing, analyzing and investing in public and private companies, including significant experience making and managing private equity investments on behalf of Apollo Funds. He has worked on numerous metals industry transactions at Apollo, particularly in the aluminium sector.
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Philippe Guillemot. Mr. Guillemot is Chief Operating Officer of Alcatel-Lucent. He has nearly thirty years of experience in quality control and management, particularly with automotive components manufacturers and power distribution product manufacturers. From April 2010 to February 2012, he served as Chief Executive Officer of Europcar Group, the leading provider of car rental services in Europe with a presence in 150 countries. Mr. Guillemot served as Chairman and CEO of Areva T&D from 2004 to 2010, and previously served in management positions at Valeo and Faurecia. Mr. Guillemot began his career at Michelin, where he was initially responsible for production quality and plant quality at sites in Canada, France and Italy. He was a member of Booz Allen Hamilton’s Automotive Practice from 1991 to 1993 before returning to Michelin to serve as an operations manager, director of Michelin Group’s restructuring in 1995-1996, Group Quality Executive Vice-President, and Chief Information Officer. Mr. Guillemot received his undergraduate degree in 1982 from Ecole des Mines in Nancy and received his MBA from Harvard University in Cambridge, MA in 1991.
Werner P. Paschke. Mr Paschke is an independant Director of several companies, currently at Braas Monier Building Group SA, where he chairs the Audit Committee, and at Schustermann & Borenstein GmbH. In previous years he served on the Supervisory Boards of Conergy Aktiengesellschaft and Coperion GmbH. Between 2003 and 2006, Mr. Paschke served as Managing Director and Chief Financial Officer of Demag Holding in Luxemburg, where he was responsible for actively enhancing the value of seven former Siemens and Mannesmann units. From 1992 to 2003 he worked for Continental AG, since 1994 as ‘Generalbevollmächtigter’ for corporate controlling, plus later accounting. From 1988 to 1992 he served as Chief Financial Officer for General Tire Inc., Akron, Ohio, USA. From 1973 to 1987 he held different positions at Continental AG in finance, distribution, marketing and controlling. Mr Paschke studied economics at Universities Hannover, Hamburg and Munster/Westphalia and is a 1993 graduate of the International Senior Management Program at Harvard University.
Michiel Brandjes. Mr. Brandjes serves as Company Secretary and General Counsel Corporate of Royal Dutch Shell plc since 2005. Mr. Brandjes formerly served as Company Secretary and General Counsel Corporate of Royal Dutch Petroleum Company. He served for 25 years on numerous legal and non-legal jobs in the Shell Group within the Netherlands and abroad, including as head of the legal department in Singapore and as head of the legal department for North East Asia based in Beijing and Hong Kong. Before he joined Shell, Mr. Brandjes worked at a law firm in Chicago after graduating from law school at the University of Rotterdam and at Berkeley, California. He has published a number of articles on legal and business topics, is a regular speaker on corporate legal and governance topics and serves in a number of advisory and non-executive director positions not related to Shell.
Peter F. Hartman. Mr. Hartman serves as Vice Chairman of Air France KLM since July 2013. He also serves as member of the supervisory boards of Fokker Technologies Group B.V since 2013, Royal Ten Cate N.V. since 2013, Air France KLM S.A. since 2010 and Texel Airport N.V. since mid-2013. Mr. Hartman is also Chairman of ACARE (Advisory Council for Aviation Research and Innovation in Europe). Mr. Hartman served as President and CEO of KLM Royal Dutch Airlines from 2007 to 2013, and as member of the supervisory boards of Kenya Airways from 2004 to 2013, Stork B.V. from 2008 to 2013, and CAI Compagnia Aerea Italiana s.p.A. from 2009 to January 2014 and Delta Lloyd Group N.V. from 2010 to May 2014. Mr. Hartman received a degree in Mechanical Engineering from HTS Amsterdam, Amsterdam and a Master in Business Economics from Erasmus University, Rotterdam.
John Ormerod. Mr. Ormerod is a chartered accountant and has worked for over 30 years in public accounting firms. He served for 32 years at Arthur Andersen, serving in various client service and management positions, with last positions held from 2001 to 2002 serving as Regional Managing Partner UK and Ireland, and Managing Partner (UK). From 2002 to 2004, he was Practice Senior Partner for London at Deloitte (UK) and was member of the UK executives and Board. Mr. Ormerod is a graduate of Oxford University. Mr. Ormerod currently serves in the following director positions: since 2006, as Non-executive director and Chairman of the Audit Committee of Gemalto N.V., and as member of the compensation committee; since 2008, as Non-executive director of ITV plc, as member of the remuneration and nominations committees and was appointed
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Chairman of the Audit Committee in 2010; and, since 2009, as Non-executive director of Tribal Group plc., and as a member of the audit, remuneration and nominations committee. He was appointed Chairman of the board in 2010. Mr. Ormerod also served as Non-executive director and Chairman of the Audit Committee of Computacenter plc., and as member of the remuneration and nominations committees until April 1, 2015.
Lori A. Walker. Ms. Walker is Member of the Board of Directors of Southwire, an industrial manufacturer of wire and cable. Ms. Walker previously served as Chief Financial Officer and Senior Vice President of The Valspar Corporation from 2008 to 2013, where she led the Finance, IT and Communications teams. Prior to that position, Ms. Walker served as Valspar’s Vice President, Controller and Treasurer from 2004 to 2008, and as Vice President and Controller from 2001 to 2004. Prior to joining Valspar, Ms. Walker held a number of roles with progressively increasing responsibility at Honeywell Inc. during a 20-year tenure, with her last position there serving as Director of Global Financial Risk Management. Ms. Walker holds a Bachelor of Science of Finance from Arizona State University and attended the Executive Institute Program and the Director’s College at Stanford University.
The following persons are our officers as of the date of this Annual Report (ages are given as of April 20, 2015):
Title
Didier Fontaine
Laurent Musy
Paul Warton
Jun Tao
Marc Boone
Jeremy Leach
Nicolas Brun
Yves Merel
Simon Laddychuk
The following paragraphs set forth biographical information regarding our officers:
Didier Fontaine. Mr. Fontaine has been the Chief Financial Officer of Constellium since September 2012. Prior to joining Constellium, Mr. Fontaine was from March 2009 Executive Vice President and Chief Financial Officer and Information Technology Director of the Plastic Omnium, a world-leading automotive supplier present in 27 countries with over 20,000 employees, which is listed on Euronext Paris and is part of the CAC Mid 60. Mr. Fontaine was also a member of the executive committee during his time at Plastic Omnium and was instrumental in orchestrating the company’s post-2008 recovery by generating a strong cash position and operating margin. In 2010, Plastic Omnium was recognized as the company with the highest share price improvement on Euronext Paris. Mr. Fontaine started his career in 1987 with Credit Lyonnais, holding various positions in Canada, France and Brazil in corporate and structured finance. From 1995 to 2001, he worked for the Schlumberger Group where he held various positions in the Treasury and Controller departments. In 2001, he joined Faurecia Exhaust System as Vice President of Finance and IT and managed the South American and South African operations up to 2004. In 2005, Mr. Fontaine joined Inergy Automotive System, a fuel tank business and a joint venture between Solvay Group and Plastic Omnium as the Chief Financial Officer and IT director (and was also a member of the company’s executive committee). Mr. Fontaine is a graduate of L’Institut d’Etudes Politiques of Paris “Sciences Po” (with a major in finance and tax) and has a master’s degree in econometrics from Lyon University.
Laurent Musy. Mr. Musy is President, Aerospace & Transportation since December 2014. Previously, he has served as President, Packaging & Automotive Rolled Products from January 2011 to December 2014, and had held the same position at Alcan Engineered products since April 2008. Prior to that, Mr. Musy worked in the
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upstream aluminium industry, including as General Manager of the Pechinery St-Jean smelter in France, CEO of Tomago Aluminium in Australia and President of Alcan Bauxite & Alumina’s Atlantic Operations. He led the worldwide integration of Rio Tinto and Alcan in bauxite and alumina. Earlier in his career, he worked for Bull Japan, Saint-Gobain and McKinsey. At the EAA, Mr. Musy is currently the chairman of both the packaging board and the rollers’ division. He chairs Constellium’s sustainability council. Mr. Musy is a graduate of the Ecole des Mines de Paris and holds an MBA from INSEAD.
Paul Warton. Mr. Warton has served as our President, Automotive Structures & Industry since January 2011, and previously held the same role at Alcan Engineered Products since November 2009. Mr. Warton joined Alcan Engineered Aluminum Products in November 2009. Following manufacturing, sales and management positions in the automotive and construction industries, he has spent 17 years managing aluminium extrusion companies across Europe and in China. He has held the positions of President Sapa Building Systems & President Sapa North Europe Extrusions during the integration process with Alcoa soft alloy extrusions. Mr. Warton served on the Building Board of the European Aluminum Association (EAA) and was Chairman of the EAA Extruders Division. He holds an MBA from London Business School.
Jun Tao. Mr. Tao is Vice President, Strategy and Business Development for Constellium since May 2014. He was previously the Managing Director of CITIC Capital Partners, responsible for the overall development and leadership of their Portfolio of Operating companies in China. Prior to joining this private equity firm, Mr. Tao was with American Securities LLC. As a senior member, he was in charge of their Portfolio Operating Group in China for 5 years. Before that, Mr. Tao spent 14 years with General Electric in America and China, where he worked in various manufacturing and business management positions in the Healthcare, Aircraft Engines and Power Systems divisions. Mr. Tao holds a MBA from the Marquette University, a M.Sc. in Material Science & Engineering from the University of Michigan, and a B.Sc. in Material Science & Engineering from Shanghai Jiaotong University.
Marc Boone. Mr. Boone joined Constellium in June 2011 as Vice-President, Human Resources. From 2003 through 2010, Mr. Boone served as the Human Resources Director at Uniq plc, and prior to 2003 held human resources and change management positions in industrial and service companies such as Alcatel Mietec, Johnson Controls, MasterCard, General Electric and KPMG.
Jeremy Leach. Mr. Leach joined Constellium as Vice President and Group General Counsel and Secretary to the Board of Constellium since January 2011 and previously was Vice President and General Counsel at Alcan Engineered Products. Mr. Leach joined Pechiney in 1991 from the international law firm Richards Butler (now Reed Smith). Prior to becoming General Counsel at Alcan Engineered Products, he was the General Counsel of Alcan Packaging and has held various senior legal positions in Rio Tinto, Alcan and Pechiney. He has been admitted in a number of jurisdictions, holds a law degree from Oxford University (MA Jurisprudence) and an MBA from the London Business School.
Nicolas Brun. Mr. Brun has served as our Vice President, Communications in January 2011, and previously held the same role at Alcan Engineered Products since June 2008. From 2005 through June 2008, Mr. Brun served in the roles of Vice President, Communications for Thales Alenia Space and also as Head of Communications for Thales’ Space division. Prior to 2005, Mr. Brun held senior global communications positions as Vice President External Communications with Alcatel, Vice President Communications Framatome ANP/AREVA, and with the Carlson Wagonlit Travel Group. Mr. Brun attended University of Paris-La Sorbonne and received a degree in economics and also has a master’s degree in corporate communications from Ecole Française des Attachés de Presse and also a certificate in marketing management for distribution networks from the Ecole Supérieure de Commerce in Paris.
Yves Mérel. Mr. Merel has served as our Vice President, EHS and Lean Transformation, since August 2012. Prior to that, Mr. Merel led several Lean Transformation programs with impressive improvement track records in the automotive and electronic industries. Mr. Merel discovered the Lean principles during his 10 years at Valeo,
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mostly as Plant Manager and has since implemented Lean within more than 21 countries and cultures. From May 2008 until he joined Constellium he served as Group Lean Director and then as Vice President Industrial Development at FCI. He also extends his Lean expertise to functions out of the usual EHS, Quality, Supply Chain and Production areas, such as to Engineering, Purchasing, Human Resource, Finance and Sales. Mr. Merel holds an Engineering degree from Compiegne University of Technology and a degree from Harvard Business School’s General Management Program.
Simon Laddychuk. A practiced leader with over 20 years of years experience gained in the metals industry, Simon Laddychuk is the Vice President and Chief Technical Officer for Constellium. In this role he oversees the Research and Development, Technology and group Engineering activities. Prior to his current role he was the Vice President of Manufacturing for the Aerospace and Transportation Business Unit a global leader serving key aerospace customers with advanced aluminium solutions for current and future aircraft and other value-added market applications. Born in South Wales, United Kingdom, Simon graduated in the UK. He holds a number of Engineering qualifications, a Bachelor of Science Degree in Materials Science and an MBA. He is a member of the Institute of Materials. He joined Alcan Engineered Products in 1991, where he has held operational and corporate management positions in different sectors in packaging and aluminium conversion in Europe and North America. Throughout his career, Simon has always shown his active personal involvement in health, safety and the environment, sustainability and climate issues between 2003—2007 personally leading the development and implementation of Alcan’s strategy for Sustainability and EHS.
There are no family relationships between the executive officers and the members of our board of directors.
B. Compensation
Non-Employee Director Compensation
For 2014, each of our non- executive directors was paid an annual retainer of €60,000 and received €2,000 for each meeting of the board they attended in person and €1,000 for each meeting they attended by telephone. In addition, the Chairman of the Audit Committee received an annual retainer of €15,000, and the Chairman of each of the Remuneration and the Nominating and Governance Committees received an annual retainer of €8,000.
Mr. Evans, as Chairman of the Board, was paid an additional €60,000 per year for his services, a position to which he was appointed on December 6, 2012.
In May 2013, each of Messrs. Guillemot and Paschke were granted an award of restricted stock units with an aggregate grant date value of €50,000, 50% of which vested in May 2014. The restricted stock unit awards vest in equal installments on each of the first and second anniversaries of the grant date, subject to the recipient continuously being a member of our board of directors through each such anniversary.
In June 2014, upon being newly appointed as Board members Ms. Walker and Messrs. Brandjes, Hartman and Ormerod received an award of restricted stock units with an aggregate grant date value of €50,000. The restricted stock unit awards vest in equal installments on each of the first and second anniversaries of the grant date, subject to the recipient continuously being a member of our board of directors through each such anniversary.
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The following table sets forth the approximate remuneration paid or payable in respect of our 2014 fiscal year to our non-employee directors:
Richard B. Evans
Pieter Oosthoek(1)
Werner P. Paschke
Peter F. Hartman
Matthew H. Nord
Lori A. Walker
Officer Compensation
The table below sets forth the approximate remuneration paid during our 2014 fiscal year to certain of our executive officers, including Pierre Vareille, our Chief Executive Officer, Didier Fontaine, our Chief Financial Officer, Laurent Musy, formerly our President, Packaging & Automotive Rolled Products and appointed in December 2014 as President, Aerospace & Transportation, Paul Warton, our President, Automotive Structures & Industry, and Jean-Christophe Figueroa, our former President of Aerospace and Transportation. Mr. Figueroa resigned effective November 2014. The remuneration information for our executive officers other than Mr. Vareille is presented on an aggregate basis in the row labeled “Other Executive Officers” in the table below.
The Executive Performance Award Plan (the “EPA”) bonuses paid in March 2014 to certain of our executive officers were paid in respect of 2013 EPA awards granted to such officers. In addition, each such executive officer was granted a restricted stock unit award under the Constellium N.V. 2013 Equity Incentive Plan pursuant to a shareholding retention program implemented by our remuneration committee. See “—Shareholding Retention Program” below.
Name and PrincipalPosition
Pierre Vareille, CEO
Other Executive Officers
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The total remuneration paid to such executive officers, including Messrs. Vareille and Fontaine, during our 2014 fiscal year amounted to €4,077,836, consisting of (i) an aggregate base salary of €2,294,329, (ii) aggregate short-term incentive compensation of €1,335,124, and (iii) aggregate benefits in kind in an amount equal to €448,383. The total amount contributed to the value of the pensions for such executive officers, including Messrs. Vareille and Fontaine, during our 2014 fiscal year was €363,469.
Below is a brief description of the compensation and benefit plans in which our officers participate.
Executive Performance Award Plan
Each of our officers participates in the EPA. The EPA is an annual cash bonus plan intended to provide performance-related award opportunities to employees who contribute substantially to the success of Constellium. Under the EPA, participants are granted opportunities to earn cash bonuses (expressed as a percentage of base salary) based on the level of achievement of certain financial metrics established by our remuneration committee for the applicable annual performance period, environmental, health and safety (“EHS”) performance objectives approved by our audit committee and individual and team objectives established by the applicable participant’s supervisor. The level of attainment of awards granted under the EPA is generally determined to be 70% based on the level of attainment of the applicable financial metrics, 10% based on the level of attainment of EHS performance objectives and 20% based on the level of attainment of individual and team objectives. Awards are paid (generally subject to continued service through the end of the applicable annual performance period) in the year following the year for which such awards were granted.
Long Term Incentive Cash Plan
The Long Term Incentive Cash Plan is intended to motivate and retain certain key senior employees of Constellium who are not eligible to participate in our management equity plan described below. Approximately 60 of our senior employees were selected by our remuneration committee to receive grants of cash awards under the Long Term Incentive Cash Plan. Participants’ award opportunities are based on job grade, with the amount earned in respect of such awards based on the level of attainment of the applicable performance criteria for the applicable measurement years. Awards earned under the plan are generally paid in the third year following the applicable measurement year, with the awards generally vesting based on continued service through the end of the year preceding the year in which payment of the award is made. There were no payments made under this plan in 2014. There was a payment made in 2015 and the Long Term Incentive Cash Plan has been terminated and no other payments will be made under this plan. In addition, there is no other cash plan currently in effect.
Constellium N.V. 2013 Equity Incentive Plan
The Company has adopted the Constellium N.V. 2013 Equity Incentive Plan (the “Constellium 2013 Equity Plan”). The principal purposes of this plan are to focus directors, officers and other employees and consultants on business performance that creates shareholder value, to encourage innovative approaches to the business of the Company and to encourage ownership of our ordinary shares by directors, officers and other employees and consultants.
The Constellium 2013 Equity Plan provides for a variety of awards, including “incentive stock options” (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”)) (“ISOs”), nonqualified stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance units, other stock-based awards or any combination of those awards. The Constellium 2013 Equity Plan provides that awards may be made under the plan for ten years. We have reserved 5,292,291 ordinary shares for issuance under the Constellium 2013 Equity Plan, subject to adjustment in certain circumstances to prevent dilution or enlargement.
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Administration
The Constellium 2013 Equity Plan is administered by our remuneration committee. The board of directors or the remuneration committee may delegate administration to one or more members of our board of directors. The remuneration committee has the power to interpret the Constellium 2013 Equity Plan and to adopt rules for the administration, interpretation and application of the Constellium 2013 Equity Plan according to its terms. The remuneration committee determines the number of our ordinary shares that will be subject to each award granted under the Constellium 2013 Equity Plan and may take into account the recommendations of our senior management in determining the award recipients and the terms and conditions of such awards. Subject to certain exceptions as may be required pursuant to Rule 16b-3 under the Exchange Act, if applicable, our board of directors may at any time and from time to time exercise any and all rights and duties of the remuneration committee under the Constellium 2013 Equity Plan.
Eligibility
Certain directors, officers, employees and consultants are eligible to be granted awards under the Constellium 2013 Equity Plan. Our remuneration committee determines:
Our remuneration committee has the discretion, subject to the limitations of the Constellium 2013 Equity Plan and applicable laws, to grant stock options, SARs and rights to acquire restricted stock (except that only our employees may be granted ISOs).
Stock Options
Subject to the terms and provisions of the Constellium 2013 Equity Plan, stock options to purchase our ordinary shares may be granted to eligible individuals at any time and from time to time as determined by our remuneration committee. Stock options may be granted as ISOs, which are intended to qualify for favorable treatment to the recipient under U.S. federal tax law, or as nonqualified stock options, which do not qualify for this favorable tax treatment. Subject to the limits provided in the Constellium 2013 Equity Plan, our remuneration committee has the authority to determine the number of stock options granted to each recipient. Each stock option grant is evidenced by a stock option agreement that specifies the stock option exercise price, whether the stock options are intended to be incentive stock options or nonqualified stock options, the duration of the stock options, the number of shares to which the stock options pertain and such additional limitations, terms and conditions as our remuneration committee may determine.
Our remuneration committee determines the exercise price for each stock option granted, except that the stock option exercise price may not be less than 100% of the fair market value of an ordinary share on the date of grant. All stock options granted under the Constellium 2013 Equity Plan expire no later than ten years from the date of grant. Stock options are nontransferable except by will or by the laws of descent and distribution or, in the case of nonqualified stock options, as otherwise expressly permitted by our remuneration committee. The granting of a stock option does not accord the recipient the rights of a shareholder, and such rights accrue only after the exercise of a stock option and the registration of ordinary shares in the recipient’s name.
Stock Appreciation Rights
Our remuneration committee in its discretion may grant SARs under the Constellium 2013 Equity Plan. SARs may be “tandem SARs,” which are granted in conjunction with a stock option, or “free-standing SARs,”
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which are not granted in conjunction with a stock option. A SAR entitles the holder to receive from us, upon exercise, an amount equal to the excess, if any, of the aggregate fair market value of a specified number of our ordinary shares to which such SAR pertains over the aggregate exercise price for the underlying shares. The exercise price of a free-standing SAR may not be less than 100% of the fair market value of an ordinary share on the date of grant.
A tandem SAR may be granted at the grant date of the related stock option. A tandem SAR may be exercised only at such time or times and to the extent that the related stock option is exercisable and has the same exercise price as the related stock option. A tandem SAR terminates or is forfeited upon the exercise or forfeiture of the related stock option, and the related stock option terminates or is forfeited upon the exercise or forfeiture of the tandem SAR.
Each SAR is evidenced by an award agreement that specifies the exercise price, the number of ordinary shares to which the SAR pertains and such additional limitations, terms and conditions as our remuneration committee may determine. We may make payment of the amount to which the participant exercising the SARs is entitled by delivering ordinary shares, cash or a combination of stock and cash as set forth in the award agreement relating to the SARs. SARs are not transferable except by will or the laws of descent and distribution or, with respect to SARs that are not granted in “tandem” with a stock option, as expressly permitted by our remuneration committee.
Restricted Stock
The Constellium 2013 Equity Plan provides for the award of ordinary shares that are subject to forfeiture and restrictions on transferability to the extent permitted by applicable law and as set forth in the Constellium 2013 Equity Plan, the applicable award agreement and as may be otherwise determined by our remuneration committee. Except for these restrictions and any others imposed by our remuneration committee to the extent permitted by applicable law, upon the grant of restricted stock, the recipient will have rights of a shareholder with respect to the restricted stock, including the right to vote the restricted stock and to receive all dividends and other distributions paid or made with respect to the restricted stock on such terms as set forth in the applicable award agreement. During the restriction period set by our remuneration committee, the recipient is prohibited from selling, transferring, pledging, exchanging or otherwise encumbering the restricted stock to the extent permitted by applicable law.
Restricted Stock Units
The Constellium 2013 Equity Plan authorizes our remuneration committee to grant restricted stock units. Restricted stock units are not ordinary shares and do not entitle the recipient to the rights of a shareholder, although the award agreement may provide for rights with respect to dividend equivalents. The recipient may not sell, transfer, pledge or otherwise encumber restricted stock units granted under the Constellium 2013 Equity Plan prior to their vesting. Restricted stock units may be settled in cash, ordinary shares or a combination thereof as provided in the applicable award agreement, in an amount based on the fair market value of an ordinary share on the settlement date.
Performance Units
The Constellium 2013 Equity Plan provides for the award of performance units that are valued by reference to a designated amount of cash or to property other than ordinary shares. The payment of the value of a performance unit is conditioned upon the achievement of performance goals set by our remuneration committee in granting the performance unit and may be paid in cash, ordinary shares, other property or a combination thereof. Any terms relating to the termination of a participant’s employment will be set forth in the applicable award agreement.
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Other Stock-Based Awards
The Constellium 2013 Equity Plan also provides for the award of ordinary shares and other awards that are valued by reference to our ordinary shares, including unrestricted stock, dividend equivalents and convertible debentures.
Performance Goals
The Constellium 2013 Equity Plan provides that performance goals may be established by our remuneration committee in connection with the grant of any award under the Constellium 2013 Equity Plan.
Termination without Cause Following a Change in Control
Upon a termination of employment of a plan participant occurring upon or during the two years immediately following the date of a “change in control” (as defined in the Constellium 2013 Equity Plan) by the Company without “cause” (as defined in the Constellium 2013 Equity Plan), unless otherwise provided in the applicable award agreement, (i) all awards held by such participant will vest in full (in the case of any awards that are subject to performance goals, at target) and be free of restrictions, and (ii) any option or SAR held by the participant as of the date of the change in control that remains outstanding as of the date of such termination of employment may thereafter be exercised until (A) in the case of ISOs, the last date on which such ISOs would otherwise be exercisable or (B) in the case of nonqualified options and SARs, the later of (x) the last date on which such nonqualified option or SAR would otherwise be exercisable and (y) the earlier of (I) the second anniversary of such change in control and (II) the expiration of the term of such nonqualified option or SAR.
Amendments
Our board of directors or our remuneration committee may amend, alter or discontinue the Constellium 2013 Equity Plan, but no amendment, alteration or discontinuation will be made that would materially impair the rights of a participant with respect to a previously granted award without such participant’s consent, unless such an amendment is made to comply with applicable law, including, without limitation, Section 409A of the Code, stock exchange rules or accounting rules. In addition, no such amendment will be made without the approval of the Company’s shareholders to the extent such approval is required by applicable law or the listing standards of the applicable stock exchange.
Free Share Program
In connection with our IPO, our remuneration committee approved a free share program for all employees (other than short-term employees) situated in the United States, France, Germany, Switzerland, and the Czech Republic. Under this program, each eligible employee received an award of 25 restricted stock units under the Constellium 2013 Equity Plan in May 2013 that will vest and be settled in ordinary shares on the second anniversary of our IPO, subject to the applicable employee remaining employed by the Company or its subsidiaries through that date.
Shareholding Retention Program
In October 2013, our remuneration committee approved a shareholding retention program to encourage critical members of our senior management team to maintain a significant portion of their current investment under the Company’s Management Equity Plan (the “MEP”) (described in “—Management Equity Plan” below), if applicable, and to focus such individuals on business performance that creates shareholder value. Pursuant to this program, certain members of our senior management team were awarded a one-time retention award under the Constellium 2013 Equity Plan consisting of a grant of restricted stock units with a grant date value equal to a specified percentage of the recipient’s annual base salary. The restricted stock units will vest and be settled for
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our ordinary shares on the second anniversary of the date of grant, subject to the recipient remaining continuously employed with the Company through that date, and for any recipient who is an MEP participant, subject to his or her retaining at least 75% of his or her interest in our ordinary shares under the MEP (including any interest in ordinary shares that becomes vested following the date of grant), and his or her compliance with the protocol to be established by the Company for the orderly liquidation of shares held in the MEP.
Co-investment Award Program
Also in October 2013, our remuneration committee approved a co-investment award program for certain critical members of our senior management team for 2014. Each participant in this program was given the opportunity to invest in our ordinary shares, between 30% and 50% of the gross annual bonus he or she earns under the EPA in respect of 2013. Participants who opted to invest under this program will be granted performance-based restricted stock units under the Constellium 2013 Equity Plan (“performance RSUs”) in an amount equal to a specified multiple of the ordinary shares invested. The performance RSUs will vest and be settled for our ordinary shares on the second anniversary of the date of grant, subject to the achievement of certain performance goals based on total shareholder return, the participant remaining continuously employed with the Company through that date, his or her retaining at least 75% of his or her interest in our ordinary shares under the MEP (including any interest in ordinary shares that becomes vested following the date of grant), if applicable, and 100% of his or her investment under this program, and his or her compliance with the protocol to be established by the Company for the orderly liquidation of shares held in the MEP, if applicable.
Employment and Service Arrangements
We are party to employment or services agreements with each of our officers. We may terminate certain officers’ employment with or services to us for “cause” upon advance written notice, without compensation, for certain acts of the officer. Each officer may terminate his or her employment at any time upon advance written notice to us. In the event that the officer’s employment or service is terminated by us without cause or, in the case of certain executives, by him for “good reason,” the officer is entitled to certain payments as provided by applicable laws or collective bargaining agreements or as otherwise provided under the applicable employment or services agreements. Except for the foregoing, our officers are not entitled to any severance payments upon the termination of their employment or services for any reason.
Under such employment and services agreements, each of our officers has also agreed not to engage or participate in any business activities that compete with us or solicit our employees or customers for (depending on the officer) up to two years after the termination of his employment or services. They have further agreed not to use or disseminate any confidential information concerning us as a result of performing their duties or using our resources during their employment with or services to us.
C. Board Practices
Our board of directors currently consists of ten directors, less than a majority of whom are citizens or residents of the United States.
We maintain a one-tier board of directors consisting of both executive directors and non-executive directors (each a “director”). Under Dutch law, the board of directors is responsible for our policy and day-to-day management. The non-executive directors supervise and provide guidance to the executive directors. Each director owes a duty to us to properly perform the duties assigned to him and to act in our corporate interest. Under Dutch law, the corporate interest extends to the interests of all corporate stakeholders, such as shareholders, creditors, employees, customers and suppliers.
The Management and Supervision Act (Wet bestuur en toezicht), effective as of January 1, 2013, strives for a balanced composition of management and supervisory boards of “large” companies, such as Constellium, to the
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effect that at least 30% of the positions on the management and supervisory boards of such companies are held by women and at least 30% by men. There is no legal sanction if the composition of such company’s board is not balanced in accordance with the Act. An appointment contrary to these rules will therefore not be null and void. However, in such case, the company must explain any noncompliance with the 30% criteria in its annual report. The explanation must include the reasons for noncompliance and the actions the company intends to take in order to comply in the future. These rules will expire on January 1, 2016, but may be extended prior to this date.
Our Articles of Association provide that our shareholders acting at a general meeting (a “General Meeting”) appoint directors upon a binding nomination by the board of directors. The General Meeting may at all times overrule the binding nature of such nomination by a resolution adopted by a majority of at least two-thirds of the votes cast, provided that such majority represents more than 50% of our issued share capital. If the binding nomination is overruled, the non-executive directors may then make a new nomination. If such a nomination has not been made or has not been made in time, this shall be stated in the notice and the General Meeting shall be free to appoint a director in its discretion. Such a resolution of the General Meeting must be adopted by at least two-thirds of the votes cast, provided that such majority represents more than 50% of our issued share capital.
The members of our board of directors may be suspended or dismissed at any time by the General Meeting. A resolution to suspend or dismiss a director must be adopted by at least two-thirds of the votes cast, provided that such majority represents more than 50% of our issued share capital. If, however, the proposal to suspend or dismiss the directors is made by the board of directors, the proposal must be adopted by simple majority of the votes cast at the General Meeting. An executive director can at all times be suspended by the board of directors.
Director Independence
As a foreign private issuer under the NYSE rules, we are not required to have independent directors on our board of directors, except to the extent that our audit committee is required to consist of independent directors. However, our board of directors has determined that, under current NYSE listing standards regarding independence (which we are not currently subject to), and taking into account any applicable committee standards, Messrs. Brandjes, Guillemot, Hartman, Maugis, Ormerod and Paschke and Ms. Walker are independent directors.
Committees
Audit Committee
As of December 31, 2014, our audit committee consisted of the following independent directors under the NYSE requirements: Werner Paschke (Chair), Philippe Guillemot, Guy Maugis, John Ormerod and Lori Walker. Our board of directors has determined that at least one member is an “audit committee financial expert” as defined by the SEC and also meets the additional criteria for independence of audit committee members set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended.
The principal duties and responsibilities of our audit committee are to oversee and monitor the following:
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Remuneration Committee
As of December 31, 2014, our remuneration committee consisted of three directors: Matthew Nord (Chair), Richard Evans and Peter Hartman. The principal duties and responsibilities of the remuneration committee are as follows:
Nominating/Governance Committee
As of December 31, 2014, our nominating/corporate governance committee consisted of three directors: Richard Evans (Chair), Michiel Brandjes and Matthew Nord. The principal duties and responsibilities of the nominating/corporate governance committee are as follows:
D. Employees
As of December 31, 2014, we employed approximately 8,900 employees of which approximately 85% were engaged in production and maintenance activities and approximately 15% were employed in support functions. Approximately 44% of our employees were employed in France, 22% in Germany, 15% in the United States, 9% in Switzerland, and 11% in Eastern Europe and other regions. As of December 31, 2013 and 2012, we employed approximately 8,600 and 8,845 employees, respectively.
The vast majority of non-U.S. employees and approximately 53% of U.S. employees are covered by collective bargaining agreements. These agreements are negotiated on site, regionally or on a national level and are of different durations. Except in connection with prior negotiations completed during the fourth quarter of 2011, around our plan to restructure our plant in Ham, France (which has since been disposed of), we have not experienced a prolonged labor stoppage in any of our production facilities in the past 10 years.
In addition to our employees, we employed 691, 1,031 and 600 temporary employees, respectively, as of December 31, 2012, 2013, and 2014.
E. Share Ownership
Information with respect to share ownership of members of our board of directors and our senior management is included in “Item 7. Major Shareholders and Related Party Transactions.”
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Management Equity Plan
Following the Acquisition, a management equity plan (the “MEP”) was established effective from February 4, 2011, to facilitate investments by our officers and other members of management in Constellium. In connection with the MEP, a German limited partnership, Omega Management GmbH & Co. KG (“Management KG”), was formed. As of December 31, 2014, Management KG held approximately 2.55% of the issued share capital of Constellium, consisting of 2,675,809 Class A ordinary shares.
The indirect owners of the shares in Constellium held by Management KG are current and former directors, officers and employees of Constellium (the “MEP Participants”), and Stichting Management Omega, a foundation under Dutch law. In acquiring limited partnership interests in Management KG (and thereby indirectly investing in Constellium), the MEP Participants invested a total amount of approximately $5,330,539 as of December 31, 2012.
Certain of our executive officers, including our Chief Executive Officer, Mr. Vareille, and our Chief Financial Officer, Mr. Fontaine, each participate in the MEP. As of December 31, 2014, the MEP investment of Mr. Vareille represented 972,080 Class A ordinary shares; and the MEP investment of Mr. Fontaine represented 131,985 Class A ordinary shares.
During November 2013, limited partners of Management KG (other than the limited partners who were former employees of Constellium or who were to imminently become former employees of Constellium) were offered the opportunity to participate in trading plans to be established by Management KG under Rule 10b5-1 promulgated under the Exchange Act (the “MEP Trading Plans”) for the orderly liquidation of shares held in the MEP. The first such plan was established on December 13, 2013 and a total of 30 limited partners elected to participate in such plan, which commenced trading on January 13, 2014. A second such trading plan was established on June 13, 2014 and a total of 33 limited partners elected to participate in such plan, which commenced trading on July 14, 2014. As of December 31, 2014, 497,759 Class A ordinary shares have been sold pursuant to the MEP Trading Plans.
Once a MEP Participant invests in the MEP and becomes vested in his or her Management KG limited partnership interests, if applicable, he or she becomes eligible to receive the economic benefits relating to a certain proportion of shares held by Management KG attributable to his or her limited partnership interest, such as dividends (if any) on the shares, the Management KG’s annual profits and residual profits, and proceeds of sales of shares held by Management KG upon dissolution of the MEP. A MEP Participant’s benefits may be terminated if, for instance, his or her employment with Constellium terminates. A leaver, either a “good leaver” or “bad leaver” for the purpose of the MEP, may be obliged to sell his or her Management KG limited partnership interests to Stichting Management Omega. The amount paid for those limited partnership interests depends upon, among other things, the reason for the MEP Participant’s termination and the length of his or her investment and the performance of Constellium.
Management KG limited partnership interests held by MEP Participants in respect of Class B ordinary shares are granted in service- and performance-vesting tranches, in an amount solely in the discretion of the MEP Board (as defined below). The service-vesting tranche vests in 20% increments on each of the first, second, third, fourth, and fifth anniversaries of a MEP Participant’s effective investment date if the MEP Participant continues employment with Constellium through the applicable vesting date. The performance-vesting tranches generally vest in 20% increments in respect of the financial year that includes the MEP Participant’s effective investment date and each of the following four financial years only if the MEP Participant continues employment with Constellium through the end of the applicable year and Constellium attains certain Adjusted EBITDA targets in respect of that financial year (as shown by the audited accounts for the relevant financial year), which targets may be adjusted to account for the impact of certain non-ordinary-course transactions. If the Adjusted EBITDA targets with respect to a financial year are not attained, the performance-vesting sub-tranches that were eligible to vest during such year remain eligible to vest based on the level of Adjusted EBITDA attainment in the following
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year, and performance-vesting sub-tranches eligible to vest in a future year may vest earlier based on the level of Adjusted EBITDA attainment during the year prior to the scheduled vesting year, in each case subject to certain terms and conditions set forth in the partnership agreement of Management KG. Because Constellium achieved the Adjusted EBITDA targets for the years 2011, 2012 and 2013, the relevant performance-vesting tranches in respect of those years vested.
The general partner of Management KG is Omega MEP GmbH (“GP GmbH”), a German limited liability company, which is wholly owned by Stichting Management Omega. The main terms and conditions of the MEP are set out in the partnership agreement of Management KG, effective as of May 21, 2013, as amended from time to time. An overview of the corporate structure of the MEP is set out below.
At the level of GP GmbH, an advisory board consisting of representatives appointed by our board of directors (the “MEP Board”) administers the MEP. Employees and officers who invested in the MEP (either directly or through one or more investment vehicles) hold a limited partnership interest in Management KG that corresponds to a portion of the shares in Constellium held by Management KG. In connection with our IPO, the MEP Board determined that the MEP would be frozen to future participation and that no other employees, officers or directors of Constellium would be invited to become MEP Participants.
The main function of Stichting Management Omega is to act as a “warehousing” entity following a situation in which MEP Participants cease to be employed by Constellium. In such a circumstance, Stichting Management Omega is entitled to acquire all or part of the limited partnership interest in Management KG attributable to a departing MEP Participant under the conditions of the MEP. Our board of directors has the power to appoint the board of Stichting Management Omega.
In connection with our IPO, our board of directors approved the reacquisition and our shareholders approved the cancellation of all the Constellium shares attributable to the Management KG interests held by Stichting Management Omega, and all such shares were reacquired by us prior to the consummation of the IPO. As a result of this reacquisition, the Management KG interests held by Stichting Management Omega ceased to have economic value, and Stichting Management Omega ceased to be an indirect owner of our ordinary shares.
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Following the completion of the IPO, Stichting Management Omega continues to be a limited partner of Management KG and remains entitled to acquire all or part of the limited partnership interests in Management KG attributable to any MEP Participant who ceases to be employed by Constellium. If Stichting Management Omega acquires all or a portion of such limited partnership interests, the shares held by Management KG in respect of the acquired limited partnership interests will be sold in the market and/or reacquired and cancelled by Constellium to fund the price payable to such MEP Participant.
In connection with our IPO, the MEP was frozen for future participation and it is now contemplated that the MEP will be terminated, with any future equity incentive awards to be granted under the Constellium 2013 Equity Plan. In connection with the contemplated termination of the MEP, our board of directors approved the accelerated vesting of the unvested limited partnership interests held by MEP participants and the corresponding conversion of the Class B ordinary shares held by Management KG in respect of those limited partnership interests into Class A ordinary shares which was also approved at our 2014 general meeting of shareholders.
Equity Incentive Plan
The Company adopted the Constellium 2013 Equity Plan under which certain of our directors, officers, employees, and consultants are eligible to receive equity awards. See “—Constellium N.V. 2013 Equity Incentive Plan” above.
A. Major Shareholders
The following table sets forth the principal shareholders of Constellium N.V. (each person or group of affiliated persons who is known to be the beneficial owner of more than 5% of ordinary shares) and the number and percentage of ordinary shares owned by each such shareholder, in each case as of April 20, 2015.
Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of such securities as to which such person has voting or investment power.
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The beneficial ownership percentages in this table have been calculated on the basis of the total number of Class A ordinary shares and Class B ordinary shares.
Name of beneficial owner
Bpifrance Participations
Blackrock, Inc.
Wellington Management Group LLP
Ontario Teachers’ Pension Plan Board
Prudential Financial, Inc.
Jennison Associates LLC
Barclays PLC
Directors and Senior Management
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None of our principal shareholders have voting rights different from those of our other shareholders.
Over the last three years, the only significant changes of which we have been notified in the percentage ownership of our shares by our major shareholders described above were that prior to the IPO, immediately following the completion of the purchase of the AEP Business: Apollo Funds held 51% of our Class A ordinary shares, Rio Tinto held 39% of our Class A ordinary shares, and Bpifrance (f/k/a FSI) held 10% of our Class A ordinary shares. As of the date of this Annual Report, Apollo Funds holds 0% of our Class A ordinary shares, Rio
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Tinto holds ten shares of our Class A ordinary shares and Bpifrance holds 12.2% of our class A ordinary shares, respectively. See “Item 4. Information on the Company—A. History and Development of the Company.”
B. Related Party Transactions
Pre-IPO Shareholders Agreement
In connection with the Acquisition, Apollo Omega, Rio Tinto, Bpifrance and the other parties thereto entered into a pre-IPO Shareholders Agreement, dated as of January 4, 2011 (the “Pre-IPO Shareholders Agreement”). The Pre-IPO Shareholders Agreement provided for, among other items, certain restrictions on the transferability of equity ownership in Constellium as well as certain tag-along rights, drag-along rights, and piggy-back registration rights. We amended and restated the Pre-IPO Shareholders Agreement in connection with the IPO. See “—Amended and Restated Shareholders Agreement.”
Amended and Restated Shareholders Agreement
The Company, Apollo Omega, Rio Tinto and Bpifrance entered into an amended and restated shareholders agreement on May 29, 2013 (the “Shareholders Agreement”). The Shareholders’ Agreement terminated with respect to Apollo Omega and Rio Tinto in connection with certain of their respective sales of our ordinary shares described elsewhere in this Annual Report. The Shareholders’ Agreement provides for, among other things, piggyback registration rights and demand registration rights for Bpifrance for so long as Bpifrance owns any of our ordinary shares.
In addition, the Shareholders Agreement provides that, except as otherwise required by applicable law, Bpifrance will be entitled to designate for binding nomination one director to our board of directors so long as its percentage ownership interest is equal to or greater than 4% or it continues to hold all of the ordinary shares it subscribed for at the closing of the Acquisition (such share number adjusted for the pro rata share issuance). Our directors will be elected by our shareholders acting at a general meeting upon a binding nomination by the board of directors as described in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.” A shareholder’s percentage ownership interest is derived by dividing (i) the total number of ordinary shares owned by such shareholder and its affiliates by (ii) the total number of outstanding ordinary shares (but excluding ordinary shares issued pursuant to the MEP).
The Company has agreed to share financial and other information with Bpifrance to the extent reasonably required to comply with its tax, investor or regulatory obligations and with a view to keeping Bpifrance properly informed about the financial and business affairs of the Company. The Shareholders Agreement contains provisions to the effect that Bpifrance is obliged to treat all information provided to it as confidential, and to comply with all applicable rules and regulations in relation to the use and disclosure of such information.
Investments by our officers and directors in Constellium were facilitated by their participation in a management equity plan (the “MEP”), Management KG (a German limited partnership), which subscribed for Class A and Class B ordinary shares in Constellium. Our board of directors has the power to appoint the board of Stichting Management Omega, a foundation under Dutch law, which is a limited partner of Management KG and wholly owns Omega MEP GmbH, the general partner of Management KG. The main function of Stichting Management Omega is to act as a “warehousing” entity following a situation in which participants in the MEP cease to be employed by Constellium. In such a circumstance, Stichting Management Omega is entitled to acquire all or part of the limited partnership interest in Management KG attributable to a departing participant in the MEP under the conditions of the MEP. See also “—Stichting Reacquisition.”
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Stichting Reacquisition
Prior to our IPO, Rio Tinto, Apollo Omega, Bpifrance, Constellium and Stichting Management Omega had entered into an agreement (the “Funding Agreement”), effective as of July 1, 2011, that provided that limited partnership interests in Management KG held by Stichting Management Omega would be so held for the pro rata benefit and risk of Rio Tinto, Apollo Omega, and Bpifrance. In connection with the freezing of the MEP, our board of directors approved the reacquisition and our shareholders approved the cancellation of all Class A ordinary shares and Class B2 ordinary shares attributable to the Management KG interests held by Stichting Management Omega, and all such shares were reacquired by us prior to the completion of the IPO for an acquisition amount of approximately €900,000. As a result of this reacquisition, the Management KG interests held by Stichting Management Omega ceased to have economic value, and Stichting Management Omega ceased to be an indirect owner of our ordinary shares. In connection with the IPO, the Funding Agreement was amended to provide that any limited partnership interests in Management KG acquired by Stichting Management Omega following the completion of the IPO will be held for the benefit of Constellium.
Share Sales by Management KG
C. Interests of Experts and Counsel
A. Consolidated Statements and Other Financial Information
Our consolidated financial statements as of December 31, 2013 and 2014 and for the years ended December 31, 2012, 2013 and 2014 are included in this Annual Report at “Item 18. Financial Statements.”
Legal Proceedings
Legal proceedings are disclosed in “Item 4. Information on the Company––B. Business Overview––Litigation and Legal Proceedings.”
Dividend Policy
Our board of directors periodically explores the potential adoption of a dividend program; however, no assurances can be made that any future dividends will be paid on the ordinary shares. Any declaration and payment of future dividends to holders of our ordinary shares will be at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory future prospects and contractual restrictions applying to the payment of dividends and other considerations that our board of directors deems relevant. In general, any payment of dividends must be made in accordance with our Amended and Restated Articles of Association and the requirements of Dutch law.
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Under Dutch law, payment of dividends and other distributions to shareholders may be made only if our shareholders’ equity exceeds the sum of our called up and paid-in share capital plus the reserves required to be maintained by law and by our Amended and Restated Articles of Association.
Generally, we rely on dividends paid to Constellium N.V., or funds otherwise distributed or advanced to Constellium N.V., by its subsidiaries to fund the payment of dividends, if any, to our shareholders. In addition, restrictions contained in the agreements governing our outstanding indebtedness limit our ability to pay dividends on our ordinary shares and limit the ability of our subsidiaries to pay dividends to us. Future indebtedness that we may incur may contain similar restrictions.
B. Significant Changes
On January 5, 2015, we completed the Wise Acquisition. With the closing of the Wise Acquisition, Constellium now has access to 450,000 metric tons (kt) of hot mill capacity from the widest strip mill in North America, reinforcing its position on the can market and positioning Constellium to continue to grow in the North American Body-in-White market.
A. Offer and Listing Details
Price history of stock
The table below sets forth, for the periods indicated, the reported high and low market prices of our shares on the NYSE (source: Bloomberg). Our ordinary shares are also listed on the professional segment of Euronext Paris; however, due to an insufficient volume of trading in our ordinary shares on Euronext Paris, information regarding high and low trading prices is not reported.
Calendar period
Monthly
April 2015 (through April 23)
March 2015
February 2015
January 2015
2014
First quarter
Second quarter
Third quarter
Fourth quarter
Full year
2013
Second quarter (beginning May 23, 2013)
B. Plan of Distribution
Not applicable
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C. Markets
We began trading on the NYSE on May 23, 2013 and on the professional segment of Euronext Paris on May 27, 2013 through a public offering in the United States. Trading on the NYSE is under the symbol “CSTM.” For more information on our shares see “Item 10. Additional Information—B. Memorandum and Articles of Association.”
D. Selling Shareholders
E. Dilution
F. Expenses of the issue
A. Share Capital
B. Memorandum and Articles of Association
The information called for by this Item has been reported previously in our Registration Statement on Form F-1 (File No. 333-188556), filed with the SEC on May 22, 2013, as amended, under the heading “Description of Capital Stock,” and is incorporated by reference into this Annual Report.
C. Material Contracts
The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we are a party, for the two years immediately preceding the date of this Annual Report:
May 2014 Notes
On May 7, 2014, the Company completed a private offering of $400 million in aggregate principal amount of 5.750% Senior Notes due 2024 (the “2024 U.S. Dollar Notes”) and €300 million in aggregate principal amount of 4.625% Senior Notes due 2021 (the “2021 Euro Notes”, and together with the 2024 U.S. Dollar Notes, the “May 2014 Notes”) pursuant to indentures among the Company, the guarantors party thereto, and Deutsche
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Bank Trust Company Americas, as trustee. A portion of the net proceeds of the May 2014 Notes were used to repay amounts outstanding under our senior secured term loan B facility, including related transaction fees, expenses, and prepayment premium thereon. We used the remaining net proceeds for general corporate purposes, including to put additional cash on our balance sheet.
Interest on the 2024 U.S. Dollar Notes and 2021 Euro Notes accrues at rates of 5.750% and 4.625% per annum, respectively, and is payable semi-annually beginning November 15, 2014. The 2024 U.S. Dollar Notes mature on May 15, 2024, and the 2021 Euro Notes mature on May 15, 2021.
Prior to May 15, 2019, we may redeem some or all of the 2024 U.S. Dollar Notes at a price equal to 100% of the principal amount of the 2024 U.S. Dollar Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after May 15, 2019, we may redeem the 2024 U.S. Dollar Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 102.875% during the twelve-month period commencing on May 15, 2019, 101.917% during the twelve-month period commencing on May 15, 2020, 100.958% during the twelve-month period commencing on May 15, 2021, and par on or after May 15, 2022, in each case plus accrued and unpaid interest, if any, to the redemption date.
Prior to May 15, 2017, we may redeem some or all of the 2021 Euro Notes at a price equal to 100% of the principal amount of the 2021 Euro Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after May 15, 2017, we may redeem the 2021 Euro Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 102.313% during the twelve-month period commencing on May 15, 2017, 101.156% during the twelve-month period commencing on May 15, 2018, and par on or after May 15, 2019, in each case plus accrued and unpaid interest, if any, to the redemption date.
In addition, at any time or from time to time prior to May 15, 2017, we may, within 90 days of a qualified equity offering, redeem May 2014 Notes of either series in an aggregate amount equal to up to 35% of the original aggregate principal amount of the May 2014 Notes of the applicable series (after giving effect to any issuance of additional May 2014 Notes of such series) at a redemption price equal to 100% of the principal amount thereof plus a premium (expressed as a percentage of the principal amount thereof) equal to 5.750% for the 2024 U.S. Dollar Notes and 4.625% for the 2021 Euro Notes, plus accrued and unpaid interest thereon (if any) to the redemption date, with the net cash proceeds of such qualified equity offering, provided that at least 50% of the original aggregate principal amount of May 2014 Notes of the series being redeemed would remain outstanding immediately after giving effect to such redemption.
Within 30 days of the occurrence of specific kinds of changes of control, the Company is required to make an offer to purchase all outstanding May 2014 Notes at a price in cash equal to 101% of the principal amount of the May 2014 Notes, plus accrued and unpaid interest, if any, to the purchase date.
The May 2014 Notes are senior unsecured obligations of Constellium and are guaranteed on a senior unsecured basis by each of its restricted subsidiaries that guarantees indebtedness under the Unsecured Revolving Credit Facility (as defined below). Each of Constellium’s existing or future restricted subsidiaries (other than receivables subsidiaries) that guarantees certain indebtedness of Constellium or certain indebtedness of any of the guarantors of the May 2014 Notes must also guarantee the May 2014 Notes. None of Wise or its direct or indirect subsidiaries currently guarantees our obligations under the May 2014 Notes, and none will to the extent that such action would violate the restrictive covenants in the agreements governing their existing indebtedness. If such covenant restrictions cease to apply, or if the provision of a guarantee would otherwise no longer violate such restrictive covenants, then Wise and its direct and indirect subsidiaries will provide a guarantee of the May 2014 Notes to the extent required by the indentures governing the May 2014 Notes.
The indentures governing the May 2014 Notes contain customary terms and conditions, including, among other things, negative covenants limiting our and our restricted subsidiaries’ ability to incur debt, grant liens,
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enter into sale and lease-back transactions, make investments, loans and advances, make acquisitions, sell assets, pay dividends and other restricted payments, prepay certain debt, merge, consolidate or amalgamate and engage in affiliate transactions.
The indentures governing the May 2014 Notes also contain customary events of default.
December 2014 Notes
On December 19, 2014, the Company completed a private offering of $400 million in aggregate principal amount of 8.00% Senior Notes due 2023 (the “2023 U.S. Dollar Notes”) and €240 million in aggregate principal amount of 7.00% Senior Notes due 2023 (the “2023 Euro Notes”, and together with the 2023 U.S. Dollar Notes, the “December 2014 Notes”) pursuant to indentures among the Company, the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. A portion of the net proceeds of the December 2014 Notes were used to finance the Wise Acquisition, including related transaction fees and expenses. We used the remaining net proceeds for general corporate purposes.
Interest on the 2023 U.S. Dollar Notes and 2023 Euro Notes accrues at rates of 8.00% and 7.00% per annum, respectively, and is payable semi-annually beginning July 15, 2015. The 2023 U.S. Dollar Notes and 2023 Euro Notes mature on January 15, 2023.
Prior to January 15, 2018, we may redeem some or all of the 2023 U.S. Dollar Notes at a price equal to 100% of the principal amount of the 2023 U.S. Dollar Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after January 15, 2018, we may redeem the 2023 U.S. Dollar Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 106.000% during the twelve-month period commencing on January 15, 2018, 104.000% during the twelve-month period commencing on January 15, 2019, 102.000% during the twelve-month period commencing on January 15, 2020, and par on or after January 15, 2021, in each case plus accrued and unpaid interest, if any, to the redemption date.
Prior to January 15, 2018, we may redeem some or all of the 2023 Euro Notes at a price equal to 100% of the principal amount of the 2023 Euro Notes redeemed plus accrued and unpaid interest, if any, to the redemption date plus a “make-whole” premium. On or after January 15, 2018, we may redeem the 2023 Euro Notes at redemption prices (expressed as a percentage of the principal amount thereof) equal to 105.250% during the twelve-month period commencing on January 15, 2018, 103.500% during the twelve-month period commencing on January 15, 2019, 101.750% during the twelve-month period commencing on January 15, 2020, and par on or after January 15, 2021, in each case plus accrued and unpaid interest, if any, to the redemption date.
In addition, at any time or from time to time prior to January 15, 2018, we may, within 90 days of a qualified equity offering, redeem December 2014 Notes of either series in an aggregate amount equal to up to 35% of the original aggregate principal amount of the December 2014 Notes of the applicable series (after giving effect to any issuance of additional December 2014 Notes of such series) at a redemption price equal to 100% of the principal amount thereof plus a premium (expressed as a percentage of the principal amount thereof) equal to 8.00% for the 2023 U.S. Dollar Notes and 7.00% for the 2023 Euro Notes, plus accrued and unpaid interest thereon (if any) to the redemption date, with the net cash proceeds of such qualified equity offering, provided that at least 50% of the original aggregate principal amount of December 2014 Notes of the series being redeemed would remain outstanding immediately after giving effect to such redemption.
Within 30 days of the occurrence of specific kinds of changes of control, the Company is required to make an offer to purchase all outstanding December 2014 Notes at a price in cash equal to 101% of the principal amount of the December 2014 Notes, plus accrued and unpaid interest, if any, to the purchase date.
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The December 2014 Notes are senior unsecured obligations of Constellium and are guaranteed on a senior unsecured basis by each of its restricted subsidiaries that guarantees indebtedness under the Unsecured Revolving Credit Facility. Each of Constellium’s existing or future restricted subsidiaries (other than receivables subsidiaries) that guarantees certain indebtedness of Constellium or certain indebtedness of any of the guarantors of the December 2014 Notes must also guarantee the December 2014 Notes. None of Wise or its direct or indirect subsidiaries currently guarantees our obligations under the December 2014 Notes, and none will to the extent that such action would violate the restrictive covenants in the agreements governing their existing indebtedness. If such covenant restrictions cease to apply, or if the provision of a guarantee would otherwise no longer violate such restrictive covenants, then Wise and its direct and indirect subsidiaries will provide a guarantee of the December 2014 Notes to the extent required by the indentures governing the December 2014 Notes. If Wise Intermediate Holdings LLC or any of its direct or indirect subsidiaries guarantees certain indebtedness of Constellium N.V. or any of the guarantors of the December 2014 Notes in an amount exceeding €50 million in the aggregate, then Wise Intermediate Holdings LLC and/or any such direct or indirect subsidiary will guarantee the December 2014 Notes.
The indentures governing the December 2014 Notes contain customary terms and conditions, including, among other things, negative covenants limiting our and our restricted subsidiaries’ ability to incur debt, grant liens, enter into sale and lease-back transactions, make investments, loans and advances, make acquisitions, sell assets, pay dividends and other restricted payments, prepay certain debt, merge, consolidate or amalgamate and engage in affiliate transactions.
The indentures governing the December 2014 Notes also contain customary events of default.
Unsecured Revolving Credit Facility
On May 7, 2014, the Company entered into a new senior unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”) pursuant to a credit agreement among the Company, as borrower, the lenders from time to time party thereto and Deutsche Bank AG New York Branch, as administrative agent. The Company amended the Unsecured Revolving Credit Facility on December 5, 2014 and February 5, 2015 to, among other things, increase the total commitments and extend the maturity date thereunder, permit the consummation of the Wise Acquisition without Wise guaranteeing the obligations thereunder, permit the Wise ABL Facility to remain outstanding in an amount of up to $450 million following the consummation of the Wise Acquisition, and amend certain financial covenants thereunder. As amended, the Unsecured Revolving Credit Facility provides for total commitments of up to €145 million, with a maturity date of January 5, 2018. The proceeds of the Unsecured Revolving Credit Facility will be used for working capital and general corporate purposes of the Company and its subsidiaries. In addition, we may increase commitments under our Unsecured Revolving Credit Facility in an aggregate amount of up to €5 million, with such additional commitments having terms identical to those of the existing commitments under the Unsecured Revolving Credit Facility.
Interest under the Unsecured Revolving Credit Facility is calculated based on the adjusted eurocurrency rate plus 2.50% per annum.
In addition to paying interest on outstanding loans under the Unsecured Revolving Credit Facility, we are required to pay (a) commitment fees equal to 1.00% per annum times the undrawn portion of the commitments under the facility and (b) utilization fees equal to (i) if the daily average drawn portion of the commitments under the facility (the “Drawn Amount”) is less than 50.0% of the aggregate commitments, 0.25% per annum times the Drawn Amount or (ii) if the Drawn Amount is greater than or equal to 50.0% of the aggregate commitments, 0.50% per annum times the Drawn Amount.
Subject to customary “breakage” costs, borrowings under the Unsecured Revolving Credit Facility may be repaid from time to time without premium or penalty.
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Our obligations under the Unsecured Revolving Credit Facility are guaranteed by Constellium Holdco II B.V., Constellium France Holdco S.A.S., Constellium France S.A.S., Constellium Finance S.A.S., Constellium Neuf Brisach S.A.S., Constellium Germany Holdco GmbH & Co. KG, Constellium Deutschland GmbH, Constellium Singen GmbH, Constellium Switzerland AG, Constellium US Holdings I, LLC, and Constellium Rolled Products Ravenswood, LLC. None of Wise or its direct or indirect subsidiaries currently guarantees our obligations under the Unsecured Revolving Credit Facility, and none will to the extent that such action would violate the restrictive covenants in the agreements governing Wise’s existing indebtedness. If such covenant restrictions cease to apply, or if the provision of a guarantee would otherwise no longer violate such restrictive covenants, then Wise and its direct and indirect subsidiaries will provide a guarantee of the Unsecured Revolving Credit Facility to the extent required by the Unsecured Revolving Credit Facility.
The Unsecured Revolving Credit Facility contains customary terms and conditions, including, among other things, negative covenants limiting our and our restricted subsidiaries’ ability to incur debt, grant liens, enter into sale and lease-back transactions, make investments, loans and advances, make acquisitions, sell assets, pay dividends and other restricted payments, prepay certain debt, merge, consolidate or amalgamate and engage in affiliate transactions.
In addition, at any time that loans are (a) borrowed, to the extent that immediately after giving effect to such borrowing, loans in excess of 30% of the total commitments under the Unsecured Revolving Credit Facility would be outstanding, or (b) outstanding on the last day of our fiscal quarter, the Unsecured Revolving Credit Facility requires us to (x) maintain a consolidated total net leverage ratio of no more than 4.50 to 1.00, (y) maintain a minimum fixed charge coverage ratio of not less than 2.20 to 1.00, and (z) ensure that, taken together, the Company and the guarantors of the Unsecured Revolving Credit Facility have (i) assets representing not less than 60% of the consolidated total assets of the Company and its subsidiaries and (ii) EBITDA representing not less than 75% of the consolidated EBITDA of the Company and its subsidiaries (the requirement in the foregoing clause (z), the “Guarantor Coverage Test”). Wise and its subsidiaries are excluded from the calculation of the Guarantor Coverage Test while the Wise Notes or the Wise ABL Facility prohibit Wise or such subsidiary from guaranteeing the obligations under the Unsecured Revolving Credit Facility.
The Unsecured Revolving Credit Facility also contains customary events of default.
U.S. Revolving Credit Facility
On May 25, 2012, Constellium Rolled Products Ravenswood, LLC (“Ravenswood, LLC”) entered into a $100 million asset-based revolving credit facility (the “U.S. Revolving Credit Facility”), with the lenders from time to time party thereto and Deutsche Bank Trust Company Americas as administrative agent (the “U.S. Administrative Agent”) and collateral agent. Ravenswood, LLC amended the U.S. Revolving Credit Facility on October 1, 2013 to, among other things, extend the maturity to October 2018 and reduce pricing. As amended, the U.S. Revolving Credit Facility has sublimits of $25 million for letters of credit and 10% of the revolving credit facility commitments for swingline loans. The U.S. Revolving Credit Facility provides Ravenswood, LLC a working capital facility for its operations.
Ravenswood, LLC’s ability to borrow under the U.S. Revolving Credit Facility is limited to a borrowing base equal to the sum of (a) 85% of eligible accounts receivable plus (b) up to the lesser of (i) 80% of the lesser of cost or market value of eligible inventory and (ii) 85% of the net orderly liquidation value of eligible inventory minus (c) applicable reserves, and is subject to other conditions, limitations and reserve requirements.
Interest under the U.S. Revolving Credit Facility is calculated, at Ravenswood, LLC’s election, based on either the LIBOR or base rate (as calculated by the U.S. Administrative Agent in accordance with the U.S. Revolving Credit Facility). LIBOR loans accrue interest at a rate of LIBOR plus a margin of 1.50-2.00% per annum (determined based on average quarterly excess availability). Base rate loans accrue interest at the base rate plus a margin of 0.50-1.00% per annum (determined based on average quarterly excess availability).
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Ravenswood, LLC is required to pay a commitment fee on the unused portion of the U.S. Revolving Credit Facility of 0.25% or 0.375% per annum (determined on a ratio of unutilized revolving credit commitments to available revolving credit commitments).
Subject to customary “breakage” costs with respect to LIBOR loans, borrowings under the U.S. Revolving Credit Facility may be repaid from time to time without premium or penalty.
Ravenswood, LLC’s obligations under the U.S. Revolving Credit Facility are guaranteed by Constellium U.S. Holdings I, LLC (“U.S. Holdings I”) and Constellium Holdco II B.V. (“Holdco II”). Ravenswood, LLC’s obligations under the U.S. Revolving Credit Facility are not guaranteed by the Company, Wise Intermediate Holdings LLC or any of its subsidiaries or any of Holdco II’s subsidiaries organized outside of the United States. Ravenswood, LLC’s obligations under the U.S. Revolving Credit Facility are, subject to certain permitted liens, secured on a first priority basis by substantially all assets of Ravenswood, LLC. Ravenswood, LLC’s obligations under the U.S. Revolving Credit Facility are not secured by any assets of Wise Intermediate Holdings LLC or any of its subsidiaries or the Company or any of its subsidiaries organized outside of the United States. The guarantee by Holdco II of the U.S. Revolving Credit Facility is unsecured.
The U.S. Revolving Credit Facility contains customary terms and conditions, including, among other things, negative covenants limiting Ravenswood, LLC’s ability to incur debt, grant liens, enter into sale and lease-back transactions, make investments, loans and advances (including to other Constellium group companies), make acquisitions, sell assets, pay dividends and other restricted payments, prepay certain debt, merge, consolidate or amalgamate and engage in affiliate transactions. The negative covenants contained in the U.S. Revolving Credit Facility do not apply to Wise Intermediate Holdings LLC or any of its subsidiaries or the Company or any of its subsidiaries organized outside of the United States.
The U.S. Revolving Credit Facility also contains a minimum availability covenant that requires Ravenswood, LLC to maintain excess availability under the U.S. Revolving Credit Facility of at least the greater of (a) $10 million and (b) 10% of the aggregate revolving loan commitments.
The U.S. Revolving Credit Facility also contains customary events of default.
European Factoring Agreements
On January 4, 2011, certain of our French subsidiaries (the “French Sellers”) entered into a factoring agreement with GE Factofrance S.A.S., as factor (the “French Factor”), which has been amended from time to time, including on January 31, 2014 (the “French Factoring Agreement”). On December 16, 2010, certain of our German and Swiss subsidiaries (the “German/Swiss Sellers” together with the French Sellers, the “European Factoring Sellers”) entered into factoring agreements with GE Capital Bank AG, as factor (the “German/Swiss Factor” together with the French Factor, the “European Factors”), which have been amended from time to time (the “German/Swiss Factoring Agreements,” and together with the French Factoring Agreement, the “European Factoring Agreements”). The European Factoring Agreements provide for the sale by the European Factoring Sellers to the European Factors of receivables originated by the European Factoring Sellers, subject to a maximum financing amount of €235 million available to the French Sellers under the French Factoring Agreement and €115 million available to the German/Swiss Sellers under the German/Swiss Factoring Agreements. The European Factoring Agreements have a termination date of June 4, 2017. The funding made available to the European Factoring Sellers by the European Factors is used by the Sellers for general corporate purposes.
Generally speaking, receivables sold to the European Factors under the European Factoring Agreements are with limited recourse to the European Factoring Sellers in the event of a payment default by the relevant
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customer, in the case of the French factoring agreement, to the extent that such receivables are covered by credit insurance purchased for the benefit of the European Factor. The European Factors are entitled to claim the repayment of any amount financed by them in respect of a receivable by withdrawing the financing provided against such assigned receivable or requiring the European Factoring Sellers to repurchase/unwind the purchase of such receivable under certain circumstances, including when (i) the non-payment of that receivable arises from a dispute between a European Factoring Seller and the relevant customer, (ii) in relation to the French Factoring Agreement only, the French Factor cannot recover from a credit insurer for such non-payment or (iii) the receivable proves not to have satisfied the eligibility criteria set forth in the European Factoring Agreements. The European Factoring Agreements allow the European Factoring Sellers to sell some receivables on a non-recourse basis.
The German/Swiss Factoring Agreements are without recourse to the German/Swiss Sellers, respectively, for any credit risk resulting from the inability of a debtor to meet its payment obligations under the receivables sold to the German/Swiss Factor.
Constellium Holdco II B.V. has provided a performance guaranty for the Sellers’ obligations under the European Factoring Agreements.
Subject to some exceptions, the European Factoring Sellers will collect the transferred receivables on behalf of the European Factors pursuant to a receivables collection mandate under the European Factoring Agreements. The receivables collection mandate may be terminated upon the occurrence of certain events. In the event that the receivables collection mandate is terminated, the European Factors will be entitled to notify the account debtors of the assignment of receivables and collect directly from the account debtors the assigned receivables.
The European Factoring Agreements contain customary fees, including (i) a financing fee on the outstanding amount financed in respect of the assigned receivables, (ii) a non-utilization fee on the portion of the facilities not utilized by the European Factors and (iii) a factoring fee on all assigned receivables. In addition, the European Factoring Sellers incur the cost of maintaining the necessary credit insurance (as stipulated in the European Factoring Agreements) on assigned receivables.
The European Factoring Agreements contain certain affirmative and negative covenants, including relating to the administration and collection of the assigned receivables, the terms of the invoices and the exchange of information, but do not contain restrictive financial covenants other than a group level minimum liquidity covenant that is tested quarterly. As of and for the fiscal quarter ended December 31, 2014, the European Factoring Sellers were in compliance with all applicable covenants under the European Factoring Agreements.
Wise Senior Secured Notes
On December 11, 2013, Wise Metals Group LLC and Wise Alloys Finance Corporation issued $650 million in aggregate principal amount of 8.75% Senior Secured Notes due 2018 (the “Wise Senior Secured Notes”) pursuant to an indenture among Wise Metals Group LLC and Wise Alloys Finance Corporation, the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee and collateral agent. Wise used a portion of the proceeds from the offering of the Wise Senior Secured Notes to repay all outstanding indebtedness under a $400 million term loan and a $70 million delayed draw term loan owed to the Employees’ Retirement System of Alabama and the Teachers’ Retirement System of Alabama (collectively, the “RSA”) and to redeem all of the
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outstanding cumulative-convertible 10% paid-in-kind preferred membership interests in Wise Metals Group LLC held by the RSA.
Interest on the Wise Senior Secured Notes accrues at a rate of 8.75% per annum and is payable semi-annually in arrears on June 15 and December 15 of each year.
The Wise Senior Secured Notes are guaranteed by certain of Wise Metals Group LLC’s existing and future 100% owned domestic restricted subsidiaries. The Wise Senior Secured Notes and related guarantees are secured on a first-priority basis, subject to certain exceptions and permitted liens, by a lien on substantially all of the issuers’ and guarantors’ existing and after-acquired material domestic real estate, equipment, stock of subsidiaries, intellectual property and substantially all of the issuers’ and guarantors’ other assets that do not secure the Wise ABL Facility on a first-priority basis, other than the Specified Mill Assets Collateral (as defined below), which have been pledged to secure the Wise Senior Secured Notes and the related guarantees, as well as certain obligations to Rexam under the Rexam Advance Agreement, on a first-priority, equal and ratable basis. The Wise Senior Secured Notes and related guarantees are secured on a second-priority basis by a lien on all of the issuers’ and guarantors’ domestic assets that consist of ABL Priority Collateral (as defined below).
Prior to June 15, 2016, the Wise Senior Secured Notes may be redeemed in whole or in part at a redemption price equal to 100% of the principal amount of the Wise Senior Secured Notes redeemed plus an applicable make-whole premium and accrued and unpaid interest to, but not including, the redemption date. Prior to June 15, 2016, up to 35% of the aggregate principal amount of Wise Senior Secured Notes outstanding may be redeemed with the net proceeds of specified equity offerings at 108.750% of the principal amount of the Wise Senior Secured Notes to be redeemed plus accrued and unpaid interest, if any, to the date of redemption.
On or after June 15, 2016, the Wise Senior Secured Notes may be redeemed in whole or in part at redemption prices (expressed as percentages of principal amount) of 104.375% for the twelve-month period beginning on June 15, 2016, 102.188% for the twelve-month period beginning on June 15, 2017, and par on or after June 15, 2018, in each case plus accrued and unpaid interest to the date of redemption.
In addition, upon certain events constituting a “Change of Control” (as defined in the indenture governing the Wise Senior Secured Notes), the issuers of the Wise Senior Secured Notes must make an offer (a “Senior Secured Notes Offer to Purchase”) to repurchase all outstanding Wise Senior Secured Notes at a purchase price equal to 101% of the aggregate principal amount of Wise Senior Secured Notes so repurchased, plus accrued and unpaid interest to the date of repurchase.
The Wise Senior Secured Notes contain customary covenants including, among other things, limitations and restrictions on Wise’s ability to: Incur additional indebtedness; make dividend payments or other restricted payments; create liens; sell assets; sell securities of subsidiaries; agree to payment restrictions affecting Wise’s restricted subsidiaries; designate subsidiaries as unrestricted subsidiaries; enter into certain types of transactions with affiliates; and enter into mergers, consolidations or certain asset sales.
On October 10, 2014, Constellium, on behalf of the issuers of the Wise Senior Secured Notes, solicited consents from the holders of the Wise Senior Secured Notes to certain amendments (the “Proposed Amendments”) to the indenture governing the Wise Senior Secured Notes. The Proposed Amendments provided that the Wise Acquisition would not constitute a “Change of Control.” On October 17, 2014, Constellium obtained the requisite consents to the Proposed Amendments and the issuers and guarantors of the Wise Senior Secured Notes and Wells Fargo Bank, National Association, as trustee and collateral agent, entered into a supplemental indenture to the indenture governing the Wise Senior Secured Notes. Pursuant to the terms of the supplemental indenture, the Proposed Amendments became operative immediately prior to the effective time of the Wise Acquisition. Accordingly, the issuers of the Wise Senior Secured Notes were not required to make a Senior Secured Notes Offer to Purchase in connection with the Wise Acquisition.
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Wise Senior PIK Toggle Notes
On April 16, 2014, Wise and Wise Holdings Finance Corporation issued $150 million in aggregate principal amount of 9.75% / 10.50% Senior PIK Toggle Notes due 2019 (the “Wise Senior PIK Toggle Notes”, and together with the Wise Senior Secured Notes, the “Wise Notes”) pursuant to an indenture among Wise, Wise Holdings Finance Corporation, and Wilmington Trust, National Association, as trustee. Wise used a portion of the proceeds from the offering of the Wise Senior PIK Toggle Notes to fund payments to the holders of equity interests in its parent company, Wise Metals Holdings LLC, that elected (i) to have Wise Metals Holdings LLC repurchase their equity interests or (ii) to take a loan from Wise Metals Holdings LLC in proportion to such holders’ ownership in Wise Metals Holdings LLC. Wise used the remainder of such proceeds for general corporate purposes, including the repayment of $22.5 million of outstanding indebtedness under the Wise ABL Facility.
Interest on the Wise Senior PIK Toggle Notes is payable semi-annually in arrears on June 15 and December 15 of each year. The issuers must pay the first and last interest payments on the Wise Senior PIK Toggle Notes in cash. For each other interest period, the issuers are required to pay interest in cash unless certain conditions described in the indenture governing the Wise Senior PIK Toggle Notes are met, in which case the issuers may pay interest by increasing the principal amount of outstanding notes or by issuing new notes as payment-in-kind interest (“PIK Interest”). Cash interest on the Wise Senior PIK Toggle Notes accrues at a rate of 9.75% per annum, and PIK Interest accrues at a rate of 10.50% per annum.
The Wise Senior PIK Toggle Notes are senior unsecured obligations of the issuers and are not guaranteed by any of Wise’s subsidiaries.
Prior to June 15, 2016, the Wise Senior PIK Toggle Notes may be redeemed in whole or in part at a redemption price equal to 100% of the principal amount of the Wise Senior PIK Toggle Notes redeemed plus a make-whole premium and accrued and unpaid interest to, but not including, the redemption date. In addition, prior to June 15, 2016, up to 35% of the aggregate principal amount of the Wise Senior PIK Toggle Notes outstanding may be redeemed with the net proceeds of specified equity offerings at 109.750% of the principal amount of the Wise Senior PIK Toggle Notes to be redeemed plus accrued and unpaid interest, if any, to the date of redemption.
On or after June 15, 2016, the Wise Senior PIK Toggle Notes may be redeemed in whole or in part at redemption prices (expressed as percentages of principal amount) of 104.875% for the twelve-month period beginning on June 15, 2016, 102.438% for the twelve-month period beginning on June 15, 2017, and par on or after June 15, 2018, in each case plus accrued and unpaid interest to the date of redemption.
In addition, upon certain events constituting a “Change of Control” (as defined in the indenture governing the Wise Senior PIK Toggle Notes), the issuers of the Wise Senior PIK Toggle Notes must offer to repurchase all outstanding Wise Senior PIK Toggle Notes at a purchase price equal to 101% of the aggregate principal amount of Wise Senior PIK Toggle Notes so repurchased, plus accrued and unpaid interest to the date of repurchase (such offer, a “PIK Notes Change of Control Offer”). On January 7, 2015, in connection with the Wise Acquisition, Constellium made a PIK Notes Change of Control Offer, which expired on February 6, 2015 with no Wise Senior PIK Toggle Notes having been tendered for repurchase.
The Wise Senior PIK Toggle Notes contain customary covenants including, among other things, limitations and restrictions on Wise’s ability to: Incur additional indebtedness; make dividend payments or other restricted payments; create liens; sell assets; sell securities of subsidiaries; agree to payment restrictions affecting certain subsidiaries; enter into certain types of transactions with affiliates; and enter into mergers, consolidations or certain asset sales.
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Wise ABL Facility
On December 11, 2013, Wise Alloys LLC, as borrower, and Wise Metals Group LLC, Listerhill Total Maintenance Center, LLC (“TMC”), Wise Alloys Finance Corporation, and Alabama Electric Motor Services, LLC (“AEM”), as guarantors, entered into a $320 million asset-based revolving credit facility (as amended, the “Wise ABL Facility”) with the lenders from time to time party thereto and General Electric Capital Corporation as administrative agent (the “Wise ABL Facility Agent”). As described below, the Wise ABL Facility was subsequently amended in connection with the Wise Acquisition.
Wise Alloys LLC has the option to increase the commitments under the Wise ABL Facility from time to time by up $100 million in the aggregate for all such increases. Any increase of the commitments under the Wise ABL Facility is subject to the commitment of one or more lenders to such increased amount and the satisfaction of certain customary conditions, including the absence of any default under the Wise ABL Facility and, to the extent otherwise required under the Wise ABL Facility at the time of the proposed increase, compliance with the financial covenant (as described below) on a pro forma basis.
Wise Alloys LLC’s ability to borrow under the Wise ABL Facility is limited to a borrowing base equal to the sum of (a) 85% of net book value of Wise Alloys LLC’s, AEM’s, and TMC’s eligible accounts receivable (other than any accounts receivable from certain foreign account debtors (“Eligible Foreign Account Debtors”) and other ineligible account debtors (or 90% of the net book value of Wise Alloys LLC’s, AEM’s, and TMC’s eligible accounts receivable from Coca-Cola), plus (b) the lesser of (i) 85% of the net book value of Wise Alloys LLC’s, AEM’s, and TMC’s eligible accounts receivable from Eligible Foreign Account Debtors and (ii) $12.5 million, plus (c) the lesser of (i) 75% of the value of Wise Alloys LLC’s eligible raw materials, work-in-progress and finished goods inventory and (ii) 85% of the net orderly liquidation value of Wise Alloys LLC’s eligible raw materials, work-in-progress and finished goods inventory, plus (d) the lesser of (i) 5% of the value of Wise Alloys LLC’s eligible raw materials, work-in-progress and finished goods inventory and (ii) 5% of the net orderly liquidation value of Wise Alloys LLC’s eligible raw materials, work-in-process and finished goods inventory; provided that, in the case of each of clause (i) and (ii), such amount shall not exceed $10 million, minus (e) the excess, if any, of the aggregate amount of TMC’s and AEM’s eligible accounts receivable included in the borrowing base pursuant to the foregoing clause (a) over $1.5 million (which may, at the Wise ABL Facility Agent’s sole discretion after completion of a collateral audit, be increased to an amount not to exceed $5 million) minus (f) the aggregate amount of reserves, if any, established by the Wise ABL Facility Agent. Wise Alloys LLC’s ability to borrow under the Wise ABL Facility is also subject to other conditions and limitations. As of December 31, 2014, there was $94 million available for borrowings under the Wise ABL Facility (as in effect as of that date).
Interest rates under the Wise ABL Facility are based, at Wise Alloys LLC’s election, on either the LIBOR rate or a base rate, plus a spread that ranges from 1.75% to 2.25% for LIBOR loans and 0.75% to 1.25% for base rate loans. The spread is determined on the basis of a pricing grid that results in a higher spread as Wise Alloys LLC’s average quarterly borrowing availability under the Wise ABL Facility declines, and, in each case, are based upon the borrowing base calculation delivered to the Wise ABL Facility Agent for the last calendar month (or, in certain instances, week) of the immediately preceding fiscal quarter.
Letters of credit under the Wise ABL Facility are subject to a fee payable to the lenders equal to the current margin applicable to LIBOR loans multiplied by the daily balance of the undrawn amount of all outstanding letters of credit, payable in cash monthly in arrears.
Unused commitments under the Wise ABL Facility are subject to an unused commitment fee equal to the aggregate amount of such unused commitments multiplied by a rate equal to 0.375% per annum, payable in cash monthly in arrears, of the average available but unused borrowing capacity under the Wise ABL Facility.
Subject to customary “breakage” costs with respect to LIBOR loans, borrowings under the Wise ABL Facility may be repaid from time to time without premium or penalty.
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The obligations of Wise Alloys LLC under the Wise ABL Facility are secured by (i) a first priority (subject to certain specified permitted liens), perfected security interest in all of Wise Alloys LLC and the guarantors’ (other than Constellium Holdco II B.V.) present and future assets and properties consisting of ABL Priority Collateral, (ii) a second priority (subordinate only to the security interest and liens under the Wise Senior Secured Notes and subject to certain specified permitted liens), perfected security interest in all of Wise Alloys LLC and the guarantors’ (other than Constellium Holdco II B.V.) present and future assets and properties, other than ABL Priority Collateral and the Specified Mill Assets Collateral, and (iii) a second priority (subordinate only to the security interest under the Wise Senior Secured Notes and the Rexam Advance Agreement and subject to certain specified permitted liens), perfected security interest in all of Wise Alloys LLC and the guarantors’ present and future assets and properties consisting of Specified Mill Assets Collateral.
“ABL Priority Collateral” consists of (i) accounts and payment intangibles, (ii) inventory, (iii) deposit accounts and securities accounts, including all monies, uncertificated securities and other funds held in or on deposit therein (including all cash, marketable securities and other funds held in or on deposit in either of the foregoing), (iv) all investment property, equipment, general intangibles, books and records pertaining to the ABL Priority Collateral, documents, instruments, chattel paper, letter-of-credit rights, supporting obligations related to the foregoing, business interruption insurance, commercial tort claims, and (v) all proceeds of the foregoing, in each case subject to certain exceptions.
“Specified Mill Assets Collateral” consists of the equipment and fixtures of Wise Alloys LLC and the guarantors constituting the three-stand mill located in Muscle Shoals, Alabama which are being financed pursuant to the Rexam Advance Agreement and related assets.
The Wise ABL Facility contains customary terms and conditions, including, among other things, negative covenants limiting Wise Alloys LLC, the guarantors, and their respective restricted subsidiaries’ ability to incur debt, grant liens, make investments, loans and advances, make acquisitions, sell assets, pay dividends and other restricted payments, prepay certain debt, merge, consolidate or amalgamate and engage in affiliate transactions.
The Wise ABL Facility provides that if borrowing availability thereunder drops below a threshold amount equal to the greater of (a) 10% of the aggregate commitments under the Wise ABL Facility and (b) $20 million, Wise Alloys LLC will be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0, calculated on a trailing twelve month basis until such time as borrowing availability has been at least equal to the greater of $20 million and 10% of the aggregate commitments under the Wise ABL Facility for thirty consecutive days.
The Wise ABL Facility also contains customary events of default, including an event of default triggered by certain changes of control. The Wise Acquisition constituted such a change of control.
In connection with the Wise Acquisition, we amended the Wise ABL Facility to, among other things, (i) provide that the consummation of the Wise Acquisition does not constitute an event of default, (ii) remove from the collateral securing the Wise ABL Facility the receivables of a single obligor that will be sold under the RPA (as defined below), (iii) permit transactions between Wise and its subsidiaries on the one hand and Constellium and its subsidiaries on the other, subject to certain conditions, and (iv) on the effective date of the RPA (as defined below), reduce the size of the facility to $200 million. As amended, the Wise ABL Facility also provides for Constellium Holdco II B.V. to guarantee the obligations thereunder.
Receivables Purchase Agreement
On March 23, 2015, Wise Alloys LLC entered into a Receivables Purchase Agreement (the “RPA”) with Wise Alloys Funding LLC (the “Seller”) and HSBC Bank USA, National Association (the “Purchaser”), providing for the sale of certain receivables of Wise Alloys LLC to the Purchaser in an amount not to exceed $100 million in the aggregate outstanding at any time. Receivables under the agreement will be sold at a discount based on a rate equal to a LIBOR rate plus 0.80-3.50% (based on the credit rating of the account debtor) per
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annum. Wise Alloys Funding LLC is also required to pay the Purchaser a commitment fee on the unused portion of the commitments under the RPA of 0.40-1.75% (based on the credit rating of the account debtor) per annum.
Subject to certain customary exceptions, each purchase under the RPA is made without recourse to the Seller, and the Seller has no liability to the Purchaser and the Purchaser is solely responsible for the account debtor’s failure to pay any purchased receivable when it is due and payable under the terms applicable thereto. Constellium Holdco II B.V. has provided a guaranty for the Seller’s obligations under the RPA.
The RPA contains customary covenants and termination events, including a termination event triggered by certain changes of control. The RPA is expected to terminate on March 23, 2016, unless it is otherwise extended prior to such time.
Metal Supply Agreements
In connection with the Acquisition, Constellium Switzerland, a wholly owned indirect subsidiary of Constellium N.V., entered into certain agreements dated as of January 4, 2011 with Rio Tinto Alcan Inc. (“Rio Tinto Alcan”), Aluminium Pechiney and Alcan Holdings Switzerland AG (“AHS”), each of which is an affiliate of Rio Tinto, which provide for, among other things, the supply of metal by Rio Tinto affiliates to Constellium Switzerland, the provision of certain technical assistance and other services relating to aluminium-lithium, a covenant by Rio Tinto Alcan to refrain from producing, supplying or selling aluminium-lithium alloys to third parties and certain cost reimbursement obligations of AHS. Constellium has provided a guarantee to Rio Tinto Alcan and Aluminium Pechiney in respect of Constellium Switzerland’s obligations under the supply agreements. Constellium Switzerland and Rio Tinto Alcan have a multi-year supply agreement for the supply of sheet ingot. The agreement provides for certain representations and warranties, audit and inspection rights, on-time shipment requirements and other customary terms and conditions. Each party is required to pay certain penalty or reimbursement amounts in the event it fails or is unable to purchase or supply, as applicable, specified minimum annual quantities of metal.
D. Exchange Controls
There are no limits under the laws of the Netherlands or in our Amended and Restated Articles of Association on non-residents of the Netherlands holding or voting our ordinary shares. Currently, there are no exchange controls under the laws of the Netherlands on the conduct of our operations or affecting the remittance of dividends.
French exchange control regulations currently do not limit the amount of payments that we may remit to non-residents of France, subject to any restrictions that may be applicable by reason of embargos or similar measures in force with respect to certain countries and/or persons. Laws and regulations concerning foreign exchange controls do require, however, that all payments or transfers of funds made by a French resident to a non-resident be handled by an accredited intermediary.
E. Taxation
Material U.S. Federal Income Tax Consequences
The following discussion describes the material U.S. federal income tax consequences relating to acquiring, owning and disposing of our ordinary shares by a U.S. Holder (as defined below) and will hold the ordinary shares as “capital assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). This discussion is based upon existing U.S. federal income tax law, including the Code, U.S. Treasury regulations thereunder, rulings and court decisions, all of which are subject to differing interpretations or change, possibly with retroactive effect. No ruling from the Internal Revenue Service (the “IRS”) has been sought with respect to any U.S. federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position.
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This discussion does not address all aspects of U.S. federal income taxation that may be relevant to particular investors in light of their individual circumstances, including investors subject to special tax rules (for example, financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships or other pass-through entities for U.S. federal income tax purposes and their partners and investors, tax-exempt organizations (including private foundations), investors who are not U.S. Holders, U.S. Holders who own (directly, indirectly or constructively) 10% or more of our stock (by vote or value), U.S. Holders that acquire their ordinary shares pursuant to any employee share option or otherwise as compensation, U.S. Holders that will hold their ordinary shares as part of a straddle, hedge, conversion, wash sale, constructive sale or other integrated transaction for U.S. federal income tax purposes or U.S. Holders that have a functional currency other than the U.S. dollar, all of whom may be subject to tax rules that differ significantly from those summarized below). In addition, this discussion does not discuss any U.S. federal estate, gift or alternative minimum tax consequences, any tax consequences of the Medicare tax on certain investment income pursuant to the Health Care and Education Reconciliation Act of 2010, or any non-U.S. tax consequences. Each U.S. Holder is urged to consult its tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax considerations of an investment in our ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ordinary shares that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the law of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a U.S. person under the Code.
If a partnership (or other pass-through entity for U.S. federal income tax purposes) is a beneficial owner of our ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Partnerships holding our ordinary shares, and partners in such partnerships, are urged to consult their own tax advisors regarding their investment in our ordinary shares.
Passive Foreign Investment Company Consequences
We believe that we will not be a “passive foreign investment company” for U.S. federal income tax purposes (“PFIC”) for the current taxable year and that we have not been a PFIC for prior taxable years and we expect that we will not become a PFIC in the foreseeable future, although there can be no assurance in this regard. A foreign corporation will be a PFIC in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable “look-through rules,” either (i) at least 75% of its gross income is “passive income,” or (ii) at least 50% of its assets produce or are held for the production of “passive income.” For this purpose, “passive income” generally includes dividends, interest, royalties and rents and certain other categories of income, subject to certain exceptions. The determination of whether we are a PFIC is a fact-intensive determination that includes ascertaining the fair market value (or, in certain circumstances, tax basis) of all of our assets on a quarterly basis and the character of each item of income we earn. This determination is made annually and cannot be completed until the close of a taxable year. It depends upon the portion of our assets (including goodwill) and income characterized as passive under the PFIC rules, as described above. Accordingly, it is possible that we may become a PFIC due to changes in our income or asset composition or a decline in the market value of our equity. Because PFIC status is a fact-intensive determination, no assurance can be given that we are not, have not been, or will not become, classified as a PFIC.
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If we are a PFIC for any taxable year, U.S. Holders generally will be subject to special tax rules that could result in materially adverse U.S. federal income tax consequences. In such event, a U.S. Holder may be subject to U.S. federal income tax at the highest applicable ordinary income tax rates on (i) any “excess distribution” that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ordinary shares), or (ii) any gain realized on the disposition of our ordinary shares. In addition, a U.S. Holder may be subject to an interest charge on such tax. Furthermore, the favorable dividend tax rates that may apply to certain U.S. Holders on our dividends will not apply if we are a PFIC during the taxable year in which such dividend was paid, or the preceding taxable year.
As an alternative to the foregoing rules, a U.S. Holder may make a mark-to-market election with respect to our ordinary shares, provided that the ordinary shares are regularly traded. Although no assurances may be given, we expect that our ordinary shares should qualify as being regularly traded. If a U.S. Holder makes a valid mark-to-market election, the U.S. Holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of our ordinary shares held at the end of the taxable year over the adjusted tax basis of such ordinary shares and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ordinary shares over the fair market value of such ordinary shares held at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s tax basis in the ordinary shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. Gain on the sale or other disposition of our ordinary shares would be treated as ordinary income, and loss on the sale or other disposition of our ordinary shares would be treated as an ordinary loss, but only to the extent of the amount previously included in income as a result of the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC. Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investment held by us that is treated as an equity interest in a PFIC for U.S. federal income tax purposes.
Subject to certain limitations, a U.S. Holder may make a “qualified electing fund” election (“QEF election”), which serves as a further alternative to the foregoing rules, with respect to its investment in a PFIC in which the U.S. Holder owns shares (directly or indirectly) of the PFIC. In order for a U.S. Holder to be able to make a QEF election, we must provide such U.S. Holders with certain information. Because we do not intend to provide U.S. Holders with the information needed to make such an election, prospective investors should assume that the QEF election will not be available.
Each U.S. Holder is advised to consult its tax advisor concerning the U.S. federal income tax consequences of acquiring, owning or disposing of our ordinary shares if we are or become classified as a PFIC, including the possibility of making a mark-to-market election.
The remainder of the discussion below assumes that we are not a PFIC, have not been a PFIC and will not become a PFIC in the future.
Distributions
The gross amount of distributions with respect to our ordinary shares (including the amount of any non-U.S. withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such distributions will be includable in a U.S. Holder’s gross income as ordinary dividend income on the day actually or constructively received by the U.S. Holder. Such dividends will not be eligible for the dividends-received deduction allowed to corporations under the Code.
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To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax principles, the distribution will be treated first as a tax-free return of a U.S. Holder’s tax basis in our ordinary shares, and to the extent the amount of the distribution exceeds the U.S. Holder’s tax basis, the excess will be taxed as capital gain recognized on a sale or exchange. Because we do not expect to determine our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect that a distribution will generally be reported as a dividend for U.S. federal income tax purposes, even if that distribution would otherwise be treated as a tax-free return of capital or as capital gain under the rules described above.
With respect to non-corporate U.S. Holders, certain dividends received from a qualified foreign corporation may be subject to reduced rates of U.S. federal income taxation. A non-U.S. corporation is treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares that are readily tradable on an established securities market in the United States. We believe our ordinary shares, which are listed on the NYSE, are considered to be readily tradable on an established securities market in the United States, although there can be no assurance that this will continue to be the case in the future. Non-corporate U.S. Holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss, or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code, will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, even if the minimum holding period requirement has been met, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. You should consult your own tax advisors regarding the application of these rules given your particular circumstances.
In the event that a U.S. Holder is subject to non-U.S. withholding taxes on dividends paid to such U.S. Holder with respect to our ordinary shares, such U.S. Holder may be eligible, subject to certain conditions and limitations, to claim a foreign tax credit for such non-U.S. withholding taxes against the U.S. Holder’s U.S. federal income tax liability or otherwise deduct such non-U.S. withholding taxes in computing such U.S. Holder’s U.S. federal income tax liability. Dividends paid to a U.S. Holder with respect to our ordinary shares are expected to constitute “foreign source income” and to be treated as “passive category income” or, in the case of some U.S. Holders, “general category income,” for purposes of the foreign tax credit. The rules governing the foreign tax credit and ability to deduct such non-U.S. withholding taxes are complex and involve the application of rules that depend upon your particular circumstances. You are urged to consult your own tax advisors regarding the availability of the foreign tax credit or deduction under your particular circumstances.
Sale, Exchange or Other Disposition
For U.S. federal income tax purposes, a U.S. Holder generally will recognize taxable gain or loss on any sale, exchange or other taxable disposition of our ordinary shares in an amount equal to the difference between the amount realized for our ordinary shares and the U.S. Holder’s tax basis in such ordinary shares. Such gain or loss will generally be capital gain or loss. Capital gains of individuals derived with respect to capital assets held for more than one year generally are eligible for reduced rates of U.S. federal income taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by a U.S. Holder will generally be treated as U.S. source gain or loss. You are urged to consult your tax advisors regarding the tax consequences if a non-U.S. tax is imposed on a sale, exchange or other disposition of our ordinary shares, including the availability of the foreign tax credit or deduction under your particular circumstances.
Information Reporting and Backup Withholding
Pursuant to recently enacted legislation, a U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our ordinary shares, unless such shares were held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRS if the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable
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year (or such higher dollar amount as may be prescribed by applicable IRS guidance). You should consult your own tax advisor as to the possible obligation to file such information reports in light of your particular circumstances.
Moreover, information reporting generally will apply to dividends in respect of our ordinary shares and the proceeds from the sale, exchange or other disposition of our ordinary shares that are paid to a U.S. Holder within the United States (and in certain cases, outside the United States), unless the U.S. Holder is an exempt recipient. Backup withholding (currently at a rate of 28%) may also apply to such payments if the U.S. Holder fails to provide an appropriate certification with such U.S. Holder’s taxpayer identification number or certification of exempt status. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS. You should consult your tax advisors regarding the application of the U.S. information reporting and backup withholding rules to your particular circumstances.
US Foreign Account Tax Compliance Act
Provisions under the Code and Treasury regulations thereunder, commonly referred to as “FATCA,” may impose 30% withholding on certain payments made by a “foreign financial institution” (as defined in the Code) that has entered into an agreement with the Internal Revenue Service to perform certain diligence and reporting obligations with respect to the foreign financial institution’s accounts (each such foreign financial institution, a “Participating Foreign Financial Institution”). If we were treated as a foreign financial institution and if we become a Participating Foreign Financial Institution, such withholding may be imposed on payments on our ordinary shares (to the extent such payments are considered “foreign passthru payments”) to any foreign financial institution (including an intermediary through which a holder may hold ordinary shares) that is not a Participating Foreign Financial Institution or any other investor who does not provide information sufficient to establish that the investor is not subject to withholding under FATCA, unless such foreign financial institution or investor is otherwise exempt from FATCA. The term “foreign passthru payment” is not yet defined and it is therefore not clear whether or to what extent payments on our ordinary shares would be considered foreign passthru payments. Withholding on foreign passthru payments would not be required with respect to payments made before January 1, 2017. You should consult your tax advisor regarding the potential impact of FATCA, or any intergovernmental agreement or non-US legislation implementing FATCA, on your investment in our ordinary shares. FATCA IS PARTICULARLY COMPLEX AND ITS APPLICATION TO US, OUR ORDINARY SHARES AND HOLDERS OF OUR SHARES IS SUBJECT TO CHANGE. EACH HOLDER OF OUR SHARES SHOULD CONSULT ITS OWN TAX ADVISOR TO OBTAIN A MORE DETAILED EXPLANATION OF FATCA AND TO LEARN HOW FATCA MIGHT AFFECT EACH HOLDER IN ITS PARTICULAR CIRCUMSTANCE.
Material Dutch Tax Consequences
The information set out below is a summary of certain material Dutch tax consequences in connection with the acquisition, ownership and transfer of our ordinary shares. This summary does not purport to be a comprehensive description of all the Dutch tax considerations that may be relevant to a particular holder of our ordinary shares. Such holders may be subject to special tax treatment under any applicable law and this summary is not intended to be applicable in respect of all categories of holders of our ordinary shares.
This summary is based on the tax laws of the Netherlands as in effect on January 1, 2015, as well as regulations, rulings and decisions of the Netherlands or of its taxing and other authorities available on or before such date and now in effect, and as applied and interpreted by Netherlands courts, without prejudice to any amendments introduced at a later date and implemented with or without retroactive effect. All of the foregoing is subject to change, which change could apply retroactively and could affect the continued validity of this summary.
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Because it is a general summary, prospective holders of our ordinary shares should consult their own tax advisors as to the Dutch or other tax consequences of the acquisition, holding and transfer of the ordinary shares including, in particular, the application to their particular situations of the tax considerations discussed below, as well as the application of foreign or other tax laws.
This summary does not describe any tax consequences arising under the laws of any taxing jurisdiction other than the Netherlands in connection with the acquisition, ownership and transfer of our ordinary shares. The Netherlands means the part of the Kingdom of the Netherlands located in Europe.
Any reference hereafter made to a treaty for the avoidance of double taxation concluded by the Netherlands, includes the Tax Arrangement for the Kingdom of the Netherlands (Belastingregeling voor het Koninkrijk) and the Tax Arrangement for the country of the Netherlands (Belastingregeling voor het land Nederland).
Dividend Withholding Tax
Dividends paid on our ordinary shares to a holder of ordinary shares are generally subject to withholding tax of 15% imposed by the Netherlands. Generally, the dividend withholding tax will not be borne by us, but we will withhold from the gross dividends paid on our ordinary shares. The term “dividends” for this purpose includes, but is not limited to:
A holder of our ordinary shares who is, or who is deemed to be, a resident of the Netherlands can generally credit the withholding tax against his Dutch income tax or Dutch corporate income tax liability and is generally entitled to a refund of dividend withholding taxes exceeding his aggregate Dutch income tax or Dutch corporate income tax liability, provided certain conditions are met, unless such holder of our ordinary shares is not considered to be the beneficial owner of the dividends.
A holder of our ordinary shares who is the recipient of dividends (the “Recipient”) will not be considered the beneficial owner of the dividends for this purpose if:
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With respect to a holder of our ordinary shares, who is not and is not deemed to be a resident of the Netherlands for purposes of Dutch taxation and who is considered to be a resident of a country other than the Netherlands under the provisions of a double taxation convention the Netherlands has concluded with such country, the following may apply. Such holder of our ordinary shares may, depending on the terms of and subject to compliance with the procedures for claiming benefits under such double taxation convention, be eligible for a full or partial exemption from or a reduction or refund of Dutch dividend withholding tax.
In addition, an exemption from Dutch dividend withholding tax will generally apply to dividends distributed to certain qualifying entities, provided that the following tests are satisfied:
The exemption from Dutch dividend withholding tax is not available if pursuant to a provision for the prevention of fraud or abuse included in a double taxation treaty between the Netherlands and the country of residence of the non-resident holder of our ordinary shares, such holder would not be entitled to the reduction of tax on dividends provided for by such treaty. Furthermore, the exemption from Dutch dividend withholding tax will only be available to the beneficial owner of the dividend.
Furthermore, certain entities that are resident in another EU member state or in a designated state that is a party to the Agreement on the European Economic Area (currently Iceland, Norway and Liechtenstein) and that are not subject to taxation levied by reference to profits in their state of residence, may be entitled to a refund of Dutch dividend withholding tax, provided:
Dividend distributions to a U.S. holder of our ordinary shares (with an interest of less than 10% of the voting rights in us) are subject to 15% dividend withholding tax, which is equal to the rate such U.S. holder may be entitled to under the Convention Between the Kingdom of the Netherlands and the United States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, executed in Washington on December 18, 1992, as amended from time to time (the “Netherlands-U.S. Convention”). As such, there is no need to claim a refund of the excess of the amount withheld over the tax treaty rate.
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On the basis of article 35 of the Netherlands-U.S. Convention, qualifying U.S. pension trusts are under certain conditions entitled to a full exemption from Dutch dividend withholding tax. Such qualifying exempt U.S. pension trusts must provide us form IB 96 USA, along with a valid certificate, for the application of relief at source from dividend withholding tax. If we receive the required documentation prior to the relevant dividend payment date, then we may apply such relief at source. If a qualifying exempt U.S. pension trust fails to satisfy these requirements prior to the payment of a dividend, then such qualifying exempt pension trust may claim a refund of Dutch withholding tax by filing form IB 96 USA with the Dutch tax authorities. On the basis of article 36 of the Netherlands-U.S. Convention, qualifying exempt U.S. organizations are under certain conditions entitled to a full exemption from Dutch dividend withholding tax. Such qualifying exempt U.S. organizations are not entitled to claim relief at source, and instead must claim a refund of Dutch withholding tax by filing form IB 95 USA with the Dutch tax authorities.
The concept of Dividend Stripping, described above, may also be applied to determine whether a holder of our ordinary shares may be eligible for a full or partial exemption from, reduction or refund of Dutch dividend withholding tax, as described in the preceding paragraphs.
In general, we will be required to remit all amounts withheld as Dutch dividend withholding tax to the Dutch tax authorities. However, in connection with distributions received by us from our foreign subsidiaries, we are allowed, subject to certain conditions, to reduce the amount to be remitted to Dutch tax authorities by the lesser of:
For purposes of determining the 3% threshold under (i) above, a distribution by us is not taken into account in case the Dutch dividend withholding tax withheld in respect thereof may be fully refunded, unless the recipient of such distribution is a qualifying entity that is not subject to corporate income tax.
Although this reduction reduces the amount of Dutch dividend withholding tax that we are required to pay to Dutch tax authorities, it does not reduce the amount of tax that we are required to withhold from dividends.
Tax on Income and Capital Gains
The description of taxation set out in this section of this Annual Report is not intended for any holder of our ordinary shares, who:
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Generally a holder of our ordinary shares will have a substantial interest in us in the meaning of paragraph (v) above if he holds, alone or together with his partner (statutorily defined term), whether directly or indirectly, the ownership of, or certain other rights over shares representing 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our shares), or rights to acquire shares, whether or not already issued, which represent at any time 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our shares) or the ownership of certain profit participating certificates that relate to 5% or more of the annual profit and/or to 5% or more of the liquidation proceeds of us. A holder of our ordinary shares will also have a substantial interest in us if one of certain relatives of that holder or of his partner (a statutory defined term) has a substantial interest in us.
If a holder of our ordinary shares does not have a substantial interest, a deemed substantial interest will be present if (part of) a substantial interest has been disposed of, or is deemed to have been disposed of, without recognizing taxable gain.
Residents of the Netherlands
Individuals
An individual who is resident or deemed to be resident in the Netherlands, or who opts to be taxed as a resident of the Netherlands for purposes of Dutch taxation (a “Dutch Resident Individual”) will be subject to Netherlands income tax on income and/or capital gains derived from our ordinary shares at the progressive rate (up to 52%; rate for 2014) if:
If conditions (i) and (ii) above do not apply, any holder of our ordinary shares who is a Dutch Resident Individual will be subject to Netherlands income tax on a deemed return regardless of the actual income and/or capital gains derived from our ordinary shares. This deemed return has been fixed at a rate of 4% of the individual’s yield basis (rendementsgrondslag) insofar as this exceeds a certain threshold (heffingsvrijvermogen). The individual’s yield basis is determined as the fair market value of certain qualifying assets (including, as the case may be, the ordinary shares) held by the Dutch Resident Individual less the fair market value of certain qualifying liabilities, both determined on January 1 of the relevant year. The deemed return of 4% will be taxed at a rate of 30% (rate for 2014).
Entities
An entity that is resident or deemed to be resident in the Netherlands (a “Dutch Resident Entity”) will generally be subject to Netherlands corporate income tax with respect to income and capital gains derived from the ordinary shares. The Netherlands corporate income tax rate is 20% for the first €200,000 of the taxable amount, and 25% for the excess of the taxable amount over €200,000 (rates applicable for 2014).
Non-Residents of the Netherlands
A person who is neither a Dutch Resident Individual nor Dutch Resident Entity (a “Non-Dutch Resident”) and who holds our ordinary shares is generally not subject to Netherlands income tax or corporate income tax
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(other than dividend withholding tax described above) on the income and capital gains derived from the ordinary shares, provided that:
A Non-Dutch Resident that nevertheless falls under any of the paragraphs (i) through (iii) mentioned above, may be subject to Netherlands income tax or corporate income tax on income and capital gains derived from our ordinary shares. In case such holder of our ordinary shares is considered to be a resident of a country other than the Netherlands under the provisions of a double taxation convention the Netherlands has concluded with such country, the following may apply. Such holder of ordinary shares may, depending on the terms of and subject to compliance with the procedures for claiming benefits under such double taxation convention, be eligible for a full or partial exemption from Netherlands taxes (if any) on (deemed) income or capital gains in respect of the ordinary shares, provided such holder is entitled to the benefits of such double taxation convention.
Gift or Inheritance Tax
No Netherlands gift or inheritance taxes will be levied on the transfer of our ordinary shares by way of gift by or on the death of a holder of our ordinary shares, who is neither a resident nor deemed to be a resident of the Netherlands for the purpose of the relevant provisions, unless:
For purposes of Netherlands gift and inheritance tax, an individual who is of Dutch nationality will be deemed to be a resident of the Netherlands if he has been a resident in the Netherlands at any time during the ten years preceding the date of the gift or his death.
For purposes of Netherlands gift tax, an individual will, irrespective of his nationality, be deemed to be resident of the Netherlands if he has been a resident in the Netherlands at any time during the 12-months preceding the date of the gift.
Value Added Tax
No Netherlands value added tax will be payable by a holder of our ordinary shares in consideration for the offer of our ordinary shares (other than value added taxes on fees payable in respect of services not exempt from Netherlands value added tax).
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Other Taxes or Duties
No Netherlands registration tax, custom duty, stamp duty or any other similar tax or duty, other than court fees, will be payable in the Netherlands by a holder of our ordinary shares in respect of or in connection with the acquisition, ownership and disposition of the ordinary shares.
F. Dividends and Paying Agents
G. Statement of Experts
H. Documents on Display
You may read and copy any reports or other information that we file at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.
We also make available on our website, free of charge, our annual reports on Form 20-F and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website address is www.constellium.com. The information contained on our website is not incorporated by reference in this document.
I. Subsidiary Information
Refer to the information set forth under the Notes to the consolidated financial statements at “Item 18. Financial Statements”:
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A. Material Modifications to the Rights of Security Holders
B. Use of Proceeds
A. Disclosure Controls and Procedures
Our Chief Executive Officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Form 20-F, have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that material information relating to Constellium was timely made known to them by others within the Group.
B. Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of the Registered Public Accounting Firm
The management of the Company, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in the Securities Exchange Act of 1934, as amended, Rule 13a-15(f).
The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU).
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate.
Constellium’s management has assessed the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2014 based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and, based on such criteria, Constellium’s management has concluded that, as of December 31, 2014, the Company´s internal control over financial reporting is effective.
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C. Attestation report of the registered public accounting firm.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers Audit, an independent registered public accounting firm, as stated in their report which appears herein.
D. Changes in Internal Control over Financial Reporting
During the period covered by this report, we have not made any change to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our board of directors has determined that Messrs. Brandjes, Guillemot, Hartman, Maugis, Ormerod and Paschke and Ms. Walker satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act. Our board of directors has also determined that each of Messrs. Paschke and Ormerod and Ms. Walker is an “audit committee financial expert” as defined in Item 16A of Form 20-F under the Exchange Act.
We have adopted a Worldwide Code of Employee and Business Conduct that applies to all our employees, officers and directors, including our principal executive, principal financial and principal accounting officers. Our Worldwide Code of Employee and Business Conduct addresses, among other things, competition and fair dealing, conflicts of interest, financial integrity, government relations, confidentiality and corporate opportunity requirements and the process for reporting violations of the Worldwide Code of Business Conduct and Ethics, employee misconduct, conflicts of interest or other violations. Our Worldwide Code of Employee and Business Conduct is intended to meet the definition of “code of ethics” under Item 16B of Form 20-F under the Exchange Act.
A copy of our Worldwide Code of Employee and Business Conduct is available on our website at www.constellium.com. Any amendments to the Worldwide Code of Employee and Business Conduct, or any waivers of its requirements, will be disclosed on our website.
PricewaterhouseCoopers Audit has served as our independent registered public accounting firm for each of the fiscal years in the three-year period ended December 31, 2014.
The following table sets out the aggregate fees for professional services and other services rendered to us by PricewaterhouseCoopers in the years ended December 31, 2014 and 2013, and breaks down these amounts by category of service:
Audit fees
Audit-related fees
Tax fees
All other fees
Total
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Audit Fees
Audit fees consist of fees related to the annual audit of our consolidated financial statements, the audit of the statutory financial statements of our subsidiaries, other audit or interim review services provided in connection with statutory and regulatory filings or engagements.
Audit-Related Fees
Audit-related fees consist of fees rendered for assurance and related services that are reasonably related to the performance of the audit or review of the company’s financial statements, or that are traditionally performed by the independent auditor, and include consultations concerning financial accounting and reporting standards; advice and assistance in connection with local statutory accounting requirements and due diligence related to acquisitions or disposals.
Tax Fees
Tax fees relate to tax compliance, including the preparation of tax returns, tax advice, including assistance with tax audits, and tax services regarding statutory, regulatory or administrative developments.
Pre-Approval Policies and Procedures
The advance approval of the Audit Committee or members thereof, to whom approval authority has been delegated, is required for all audit and non-audit services provided by our auditors.
Dutch Corporate Governance Code
Since we are a public company and listed our shares on Euronext Paris, a regulated market, we are subjected to comply with the Dutch Corporate Governance Code (the “Dutch Code”). The Dutch Code, as amended, became effective on January 1, 2009, and applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere.
The Dutch Code is based on a “comply or explain” principle. Accordingly, companies are required to disclose in their annual report filed in the Netherlands whether or not they are complying with the various rules of the Dutch Code that are addressed to the board of directors or, if any, the supervisory board of the company and, if they do not apply those provisions, to give the reasons for such non-application. The Dutch Code contains principles and best practice provisions for managing boards, supervisory boards, shareholders and general meetings of shareholders, financial reporting, auditors, disclosure, compliance and enforcement standards.
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We acknowledge the importance of good corporate governance. The board of directors agrees with the general approach and with the majority of the provisions of the Dutch Code. However, considering our interests and the interest of our stakeholders, at this stage, we do not apply a limited number of best practice provisions either because such provisions conflict with or are inconsistent with the corporate governance rules of the NYSE and U.S. securities laws that apply to us, or because such provisions do not reflect best practices of global companies listed on the NYSE.
The best practice provisions we do not apply include the following:
Our board of directors will adopt a policy with respect to the number of additional board memberships that a board member will have. We will comply with applicable NYSE and SEC rules and the relevant provisions of Dutch law.
We believe that our remuneration policy helps to focus directors, officers and other employees and consultants on business performance that creates shareholder value, to encourage innovative approaches to the business of the Company and to encourage ownership of our shares by directors, officers and other employees and consultants. Aspects of our remuneration policy may deviate from the Dutch Code to comply with applicable NYSE and SEC rules.
We have a policy on conflicts of interests and related party transactions. The policy provides that the determination of whether a conflict of interests exists will be made in accordance with Dutch law and on a case-by-case basis. We believe that it is not in the interest of the Company to provide for deemed conflicts of interests.
We may need to deviate from the Dutch Code’s independence definition for board members either because such provisions conflict with or are inconsistent with the corporate governance rules of the NYSE and U.S. securities laws that apply to us, or because such provisions do not reflect best practices of global companies listed on the NYSE.
Mr. Evans has served as our Chairman since December 2012. Mr. Evans also served as our interim chief executive officer from December 2011 until the appointment of Mr. Pierre Vareille in March 2012. We believe the deviation from the Dutch Code is justified considering the short interim period during which Mr. Evans acted as executive board member.
We intend to comply with certain corporate governance requirements of the NYSE in lieu of the Dutch Code. Under the corporate governance requirements of the NYSE, we are not required to appoint a
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vice-chairman. If the chairman of our board of directors is absent, the directors that are present will elect a non-executive board member to chair the meeting.
The Company believes that board members should not be further limited by internal regulations in addition to the rules and restrictions under applicable securities laws.
Seven non-executive members of our 10 member board are independent. It is our view that given the nature of our business and the practice in our industry and considering our shareholder structure, it is justified that only seven non-executive directors are independent. We may need to deviate from the Dutch Code’s independence definition for board members either because such provisions conflict with or are inconsistent with the corporate governance rules of the NYSE and U.S. securities laws that apply to us, or because such provisions do not reflect best practices of global companies listed on the NYSE, or because such provisions do not reflect best practices of global companies listed on the NYSE. We may need to further deviate from the Dutch Code’s independence definition for board members when looking for the most suitable candidates. For example, a current board member or future board candidate may have particular knowledge of, or experience in, the downstream aluminium rolled and extruded products and related businesses, but may not meet the definition of independence in the Dutch Code. As such background is very important to the efficacy of our board of directors in managing a highly technical business, and because our industry has relatively few participants, our board may decide to nominate candidates for appointment who do not fully comply with the criteria as listed under best practice provision III.2.2 of the Dutch Code.
We will not formulate an “outline policy on bilateral contacts” with the shareholders. We will comply with applicable NYSE and SEC rules and the relevant provisions of applicable law with respect to contacts with our shareholders. We believe that all contacts with our shareholders should be assessed on a case-by-case basis.
On June 11, 2014 Mr. Paschke and Mr. Guillemot were reappointed for the first time as non-executive board members for a period of one year. Messrs. Hartman, Brandjes and Ormerod and Ms. Walker were on June 11, 2014 appointed as new non-executive board members also for a period of one year. This deviation gives the shareholders the possibility to vote on a possible reappointment of a director after one year instead of four years.
As (most) of our non-executive board members are (re)appointed for one year, there is no retirement schedule.
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The NYSE requires that we disclose to investors any significant ways in which our corporate governance practices differ from those followed by U.S. domestic companies under NYSE requirements.
Among these differences, shareholder approval is required by the NYSE prior to the issuance of ordinary stock:
Under Dutch rules, shareholders can delegate this approval to the Board of Directors at the annual shareholders meeting. In the past, our shareholders have delegated this approval power to our Board at our annual meeting.
In some situations, NYSE rules are more stringent, and in others the Dutch rules are. Other significant differences include:
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The audited consolidated financial statements as required under Item 18 are attached hereto starting on page F-1 of this Annual Report. The audit report of PricewaterhouseCoopers Audit, an independent registered public accounting firm, is included herein preceding the audited consolidated financial statements.
The following exhibits are filed as part of this Annual Report:
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EXHIBIT INDEX
The following documents are filed as part of this registration statement:
131
132
133
134
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
Date: April 24, 2015
135
Report of Independent Registered Public Accounting Firm
To the board of directors and shareholders of
In our opinion, the accompanying consolidated statements of financial position and the related consolidated statement of income, comprehensive income / (loss), changes in equity and cash flows present fairly, in all material respects, the financial position of Constellium N.V. and its subsidiaries at December 31, 2014 and December 31, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our audits which was an integrated audit in 2014. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Neuilly-sur-Seine, France
PricewaterhouseCoopers Audit
/s/ Olivier Lotz
Olivier Lotz
Partner
March 25, 2015
F-1
CONSOLIDATED INCOME STATEMENT
(in millions of Euros)
Notes
Other (losses) / gains—net
Finance income
Finance costs
Share of (loss) / profit of joint-ventures
Income before income tax
Net Income from continuing operations
Discontinued operations
Net Income / (Loss) from discontinued operations
Net Income for the period
Net Income attributable to:
Owners of the Company
Non-controlling interests
Net Income
F-2
Earnings per share attributable to the equity holders of the Company
(in Euros per share)
From continuing and discontinued operations
Basic
Diluted
From continuing operations
From discontinued operations
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME / (LOSS)
Other Comprehensive (Loss) / Income
Items that will not be reclassified subsequently in the Consolidated Income Statement
Remeasurement on post-employment benefit obligations
Deferred tax on remeasurement on post-employment benefit obligations
Cash flow hedges
Deferred tax on cash flow hedges
Items that may be reclassified subsequently in the Consolidated Income Statement
Currency translation differences
Total Comprehensive (Loss) / Income
Attributable to:
F-4
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Assets
Non-current assets
Intangible assets (including goodwill)
Property, plant and equipment
Investments in joint ventures
Deferred income tax assets
Trade receivables and other
Other financial assets
Current assets
Inventories
Cash and cash equivalents
Assets classified as held for sale
Total Assets
Equity
Share premium
Retained deficit and other reserves
Equity attributable to owners of the Company
Liabilities
Non-current liabilities
Borrowings
Trade payables and other
Deferred income tax liabilities
Pension and other post-employment benefit obligations
Other financial liabilities
Provisions
Current liabilities
Income taxes payable
Liabilities classified as held for sale
Total Liabilities
Total Equity and Liabilities
F-5
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at January 1, 2012
Other comprehensive loss
Total Comprehensive Income
Transactions with the Owners
Share equity plan
As at December 31, 2012
As at January 1, 2013
Other comprehensive income
Share premium distribution(A)
MEP shares changes
Prorata share issuance
Interim dividend distribution(A)
IPO Primary offering
IPO Over-allotment
IPO Fees
Transactions with non-controlling interests
As at December 31, 2013
As at January 1, 2014
Total Comprehensive Loss
As at December 31, 2014
F-6
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from / (used in) operating activities
Adjustments
Changes in working capital:
Trade receivables
Margin calls
Trade payables
Other working capital
Changes in other operating assets and liabilities:
Income tax paid
Pension liabilities and other post-employment benefit obligations
Net cash flows from operating activities
Cash flows (used in) / from investing activities
Purchases of property, plant and equipment
Proceeds from disposals, including joint-venture
Investment in joint-venture
Proceeds from finance lease
Other investing activities
Net cash flows used in investing activities
Cash flows from / (used in) financing activities
Net proceeds received from issuance of share
Interim dividend paid
Withholding tax reimbursed / (paid)
Distribution of share premium to owners of the Company
Interest paid
Net cash flows used in factoring
Proceeds received from Term Loan and Senior Notes
Repayment of Term Loan
Proceeds of other loans
Payment of deferred financing costs
Other financing activities
Net cash flows from / (used in) financing activities
Cash and cash equivalents—beginning of period
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents—end of period
Less: Cash and cash equivalents classified as held for sale
Cash and cash equivalents as reported in the Statement of Financial Position
F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—GENERAL INFORMATION
Constellium is a global leader in the design and manufacture of a broad range of innovative specialty rolled and extruded aluminium products, serving primarily the aerospace, packaging and automotive end-markets. The Group has a strategic footprint of manufacturing facilities located in the United States, Europe and China, operates 22 production facilities, 10 administrative and commercial sites and one R&D center and has approximately 8,900 employees.
In connection with the initial public offering explained hereafter, the Company was converted from a private company with limited liability (Constellium Holdco B.V.) into a public company with limited liability (Constellium N.V.). On May 16, 2013, the Group increased its shares nominal value from €0.01 to €0.02 per share.
The business address (head office) of Constellium N.V. is Tupolevlaan 41-61, 1119 NW Schiphol-Rijk, the Netherlands.
Unless the context indicates otherwise, when we refer to “we”, “our”, “us”, “Constellium”, the “Group” and the “Company” in this document, we are referring to Constellium N.V. and its subsidiaries.
Initial public offering
On May 22, 2013, Constellium completed an initial public offering (the “IPO”) of Class A ordinary shares; the shares began trading on the New York Stock Exchange on May 23, 2013, and on the professional segment of NYSE Euronext on May 27, 2013.
Constellium offered a total of 13,333,333 of its Class A ordinary shares, nominal value €0.02 per share and the selling shareholders offered 8,888,889 of Class A ordinary shares, nominal value €0.02 per share. The underwriters exercised their over-allotment option to purchase an additional 2,251,306 Class A ordinary shares at a public offering price of $15.00 per share. The exercise of the IPO over-allotment option brought the total number of Class A ordinary shares sold in the initial public offering to 24,473,528.
The total proceeds received by the Company from the IPO were €179 million. Fees related to the IPO amounted to €44 million, of which €17 million were accounted for as a deduction to share premium and €27 million expensed of which €24 million were recognized in Other expenses.
Secondary public offerings
On November 11, 2013, Constellium completed a public offering of Class A ordinary shares. The selling shareholders offered a total of 17,500,000 Class A ordinary shares at a price of $17.00 per share. 16,691,355 of the Class A ordinary shares were sold by an affiliate of Rio Tinto Plc. and 808,645 by Omega management GmbH & co. KG. The underwriters have exercised their option to purchase an additional 2,625,000 Class A ordinary shares from an affiliate of Rio Tinto Plc. bringing the total number of Class A ordinary shares sold in this offering to 20,125,000.
On December 12, 2013, Constellium completed a public offering of Class A ordinary shares by an affiliate of Rio Tinto Plc.
Constellium offered 8,345,713 Class A ordinary shares at a price of $19.80 per share. The underwriters have exercised their option to purchase an additional 1,251,847 Class A ordinary shares. The exercise of the option brought the total number of Class A ordinary shares sold in this offering to 9,597,560.
F-8
The Company did not receive any of the proceeds from these offerings of ordinary shares (including any ordinary shares sold pursuant to the underwriters’s option to purchase additional ordinary shares). The total number of outstanding ordinary shares did not change as a result of the offering. Fees related to these offerings amounted to €3 million in 2013 and recognized in Other expenses.
On February 10, 2014, Constellium completed a third secondary public offering of 25,000,000 of our Class A ordinary shares at a price to the public of $22.50 per share. The shares were offered by Apollo Funds.
On March 10, 2014, Constellium completed a fourth secondary public offering of 12,561,475 of our Class A ordinary shares at a price to the public of $27.75 per share. The shares were offered by Apollo Funds. After this offering, Apollo Funds ceased to hold any of Constellium ordinary shares.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Statement of compliance
The consolidated financial statements of Constellium N.V. and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU). The Group’s application of IFRS results in no difference between IFRS as issued by the IASB and IFRS as endorsed by the EU. (http://ec.europa.eu/internal_market/accounting/ias/index_en.htm)
The consolidated financial statements have been authorized for issue by the Board of Directors at its meeting held on March 11, 2015.
b. Application of new and revised International Financial Reporting Standards (IFRS)
Standards and Interpretations with an application date for the Group as of January 1, 2014:
F-9
c. New standards and interpretations not yet mandatorily applicable
The Group has not applied the following new, revised and amended standards and interpretations that have been issued but are not yet effective and which could affect the Group’s future consolidated financial statements:
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. Modifications introduced by IFRS 9 relate primarily to:
The standard is effective for accounting periods beginning on or after January 1, 2018.
IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for accounting periods beginning on or after January 1, 2017.
The impact of these standards on the Group’s results and financial situation is currently being evaluated.
d. Presentation of the operating performance of each operating segment and of the Group
In accordance with IFRS 8 “Operating Segments”, operating segments are based upon product lines, markets and industries served, and are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (“CODM”). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer.
The profitability and financial performance of the operating segments is measured based on Adjusted EBITDA, as it illustrates the underlying performance of continuing operations by excluding non-recurring and non-operating items.
Adjusted EBITDA is defined in NOTE 4—Operating Segment Information.
e. Principles governing the preparation of the consolidated financial statements
Basis of consolidation
These consolidated financial statements include all the assets, liabilities, equity, revenues, expenses and cash flows of the entities and businesses controlled by Constellium.
Subsidiaries are entities over which the Group has control. The Group controls an entity when the Group has power over the investee, is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
Investments in joint arrangements are classified as either joint ventures or joint operations depending on the contractual rights and obligations of each investor. The Group accounts for its investments in joint ventures under the equity method.
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Acquisitions
The Group applies the acquisition method to account for business combinations.
The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities assumed and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The amount of non-controlling interest is determined for each business combination and is either the fair value (full goodwill method) or the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets, resulting in recognition of only the share of goodwill attributable to equity holders of the parent (partial goodwill method).
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the amount of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized as a gain in Other gains / (losses)—net in the Consolidated Income Statement.
On acquisition, the Group recognizes the identifiable acquired assets, liabilities and contingent liabilities (identifiable net assets) of the subsidiaries on the basis of fair value at the acquisition date. Recognized assets and liabilities may be adjusted during a maximum of 12 months from the acquisition date, depending on new information obtained about the facts and circumstances existing at the acquisition date.
Significant assumptions used in determining allocation of fair value include the following valuation approaches: the cost approach, the income approach and the market approach which are determined based on cash flow projections and related discount rates, industry indices, market prices regarding replacement cost and comparable market transactions.
Cash-generating units
The reporting units (which generally correspond to an industrial site), the lowest level of the Group’s internal reporting, have been identified as its cash-generating units.
Goodwill
Goodwill arising on a business combination is carried at cost as established at the date of the business combination less accumulated impairment losses, if any.
Goodwill is allocated and monitored at the operating segment level which are the groups of cash-generating units that are expected to benefit from the synergies of the combination. The operating segments represent the lowest level within the Group at which the goodwill is monitored for internal management purposes.
On disposal of the relevant cash-generating units, the attributable amount of goodwill is included in the determination of the gain on disposal.
Impairment of goodwill
A cash-generating unit or a group of cash-generating units to which goodwill is allocated is tested for impairment annually, or more frequently when there is an indication that the unit (or group of units) may be impaired.
The net carrying value of the cash-generating unit (or the group of cash-generating units) is compared to its recoverable amount, which is the higher of the value in use and the fair value less cost to sell.
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Value in use calculations use cash flow projections based on financial budgets approved by management and covering usually a 5 year period. Cash flows beyond this period are estimated using a perpetual long-term growth rate for the subsequent years.
The value in use is the sum of discounted cash flows and the terminal residual value. Discount rates are determined using the weighted-average cost of capital of each operating segment.
Any impairment loss of goodwill is recognized for the amount by which the cash-generating unit’s (or group of units) carrying amount exceeds its recoverable amount.
The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of cash-generating units) and then, to the other assets of the unit (or group of units) pro rata on the basis of the carrying amount of each asset in the unit (or group of units).
Any impairment loss is recognized in Other gains / (losses)—net in the Consolidated Income Statement. An impairment loss recognized for goodwill cannot be reversed in subsequent periods.
Non-current assets (and disposal groups) classified as held for sale & Discontinued operations
IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” defines a discontinued operation as a component of an entity that (i) generates cash flows that are largely independent from cash flows generated by other components, (ii) is held for sale or has been sold, and (iii) represents a separate major line of business or geographic areas of operations.
Assets and liabilities are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition.
Assets and liabilities are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use.
Assets and liabilities held for sale are reflected in separate line items in the Consolidated Statement of Financial Position of the period during which the decision to sell is made.
The results of discontinued operations are shown separately in the Consolidated Income Statement.
Foreign currency transactions and foreign operations
Functional currency
Items included in the consolidated financial statements of each of the entities and businesses of Constellium are measured using the currency of the primary economic environment in which each of them operates (their functional currency).
Foreign currency transactions:
Transactions denominated in currencies other than the functional currency are converted to the functional currency at the exchange rate in effect at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.
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Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented within Finance costs—net.
Foreign exchange gains and losses that relate to commercial transactions are presented in Costs of Sales.
All other foreign exchange gains and losses, including those that relate to foreign currency derivatives hedging commercial transactions, are presented within Other gains / (losses)—net.
Foreign operations: presentation currency and foreign currency translation
In the preparation of the consolidated financial statements, the year-end balances of assets, liabilities and components of equity of Constellium’s entities and businesses are translated from their functional currencies into Euros, the presentation currency of the Group, at the respective year-end exchange rates; and the revenues, expenses and cash flows of Constellium’s entities and businesses are translated from their functional currencies into Euros using average exchange rates for the period.
The net differences arising from exchange rate translation are recognized in the Other Comprehensive Income.
The following table summarizes the main exchange rates used for the preparation of the consolidated financial statements of the Group:
Foreign exchangerate for 1 Euro
US Dollars
Swiss Francs
Czech Koruna
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable.
Revenue from product sales, net of trade discounts, allowances and volume-based incentives, is recognized once delivery has occurred provided that persuasive evidence exists that all of the following criteria are met:
The Group also enters into tolling agreements whereby the clients loan the metal which the Group will then manufacture for them. In these circumstances, revenue is recognized when services are provided as of the date of redelivery of the manufactured metal.
Amounts billed to customers in respect of shipping and handling are classified as revenue where the Group is responsible for carriage, insurance and freight. All shipping and handling costs incurred by the Group are recognized in cost of sales.
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Deferred tooling revenue and related costs
Certain automotive long term contracts include the design and manufacture of customized parts. To manufacture such parts, certain specialized or customized tooling is required. The Group accounts for the tooling revenue and related costs provided by third party manufacturers in accordance with the provisions of IAS 11 “Construction Contracts”, i.e. revenue and expenses are recognized on the basis of percentage of completion of the contract.
Research and development costs
Research expenditures are recognized as expenses in the Consolidated Income Statement as incurred. Costs incurred on development projects are recognized as intangible assets when the following criteria are met:
Where development expenditures do not meet these criteria, they are recognized as expenses in the Consolidated Income Statement when incurred. Development costs previously recognized as expenses are not recognized as an asset in a subsequent period.
Other gains / (losses)—net
Other gains / (losses)—net include realized and unrealized gains and losses on derivatives accounted for at fair value through profit or loss and unrealized exchange gains and losses from the remeasurement of monetary assets and liabilities.
Other gains / (losses)—net separately identifies other unusual, infrequent or non-recurring items. Such items are those that in management’s judgment need to be disclosed by virtue of their size, nature or incidence. In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. This is consistent with the way that financial performance is measured by management and reported to the Board of Directors and Executive Committee and assists in providing a meaningful analysis of the trading results of the Group. The directors believe that this presentation aids the readers understanding of the Group’s financial performance.
Interest income and expense
Interest income is recorded using the effective interest rate method on loans receivable and on the interest bearing components of cash and cash equivalents.
Interest expense on short and long-term financing is recorded at the relevant rates on the various borrowing agreements.
Borrowing costs (including interest) incurred for the construction of any qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use.
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Share-based payment arrangements
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting year, the Group revises its estimate of the number of equity instruments expected to vest.
Recognition and measurement
Property, plant and equipment acquired by the Company is recorded at cost, which comprises the purchase price (including import duties and non-refundable purchase taxes), any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the estimated close down and restoration costs associated with the asset. Borrowing costs directly attributable to the acquisition or construction of a Property, plant and equipment are included in the cost. Subsequent to the initial recognition, property, plant and equipment is measured at cost less accumulated depreciation and impairment, if any. Costs are capitalized into construction work in progress until such projects are completed and the assets are available for use.
Subsequent costs
Enhancements and replacements are capitalized as additions to property, plant and equipment only when it is probable that future economic benefits associated with them will flow to the Company and the cost of the item can be measured with reliability. Ongoing regular maintenance costs related to property, plant and equipment are expensed as incurred.
Depreciation
Property, plant and equipment are depreciated over the estimated useful lives of the related assets using the straight-line method as follows:
Impairment tests for property, plant and equipment and intangible assets
Property, plant and equipment and intangible assets subject to depreciation and amortization are reviewed for impairment if there is any indication that the carrying amount of the asset (or group of assets to which it belongs) may not be recoverable. The recoverable amount is based on the higher of fair value less costs to sell (market value) and value in use (determined using estimates of discounted future net cash flows of the asset or group of assets to which it belongs). Assets that are not subject to depreciation or amortization (such as goodwill) are tested for impairment at least annually.
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Financial instruments
(i) Financial assets
Financial assets are classified as follows: (a) at fair value through profit or loss, and (b) loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of Constellium’s financial assets at initial recognition.
(a) At fair value through profit or loss: these are financial assets held for trading. A financial asset is classified in this category if it is acquired principally for the purpose of selling in the short term. Derivatives are also categorized as held for trading except when they are designated as hedging instruments in a hedging relationship that qualifies for hedge accounting in accordance with IAS 39. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current. Financial assets carried at fair value through profit or loss, are initially recognized at fair value and transaction costs are expensed in the Consolidated Income Statement.
(b) Loans and receivables: these are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current or non-current assets based on their maturity date. Loans and receivables are comprised of trade receivables and other and non-current and current loans receivable in the Consolidated Statement of Financial Position. Loans and receivables are carried at amortized cost using the effective interest method, less any impairment.
(ii) Financial liabilities
Borrowings and other financial liabilities (excluding derivative liabilities) are recognized initially at fair value, net of transaction costs incurred and directly attributable to the issuance of the liability. These financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Any difference between the amounts originally received (net of transaction costs) and the redemption value is recognized in the Consolidated Income Statement using the effective interest method.
(iii) Derivative financial instruments
Derivatives that are classified as held for trading are initially recognized at their fair value on the date at which the derivative contract is entered into and are subsequently remeasured to their fair value at the date of each Consolidated Statement of Financial Position, with the changes in fair value included in Other gains / (losses)—net (see NOTE 8—Other gains / (losses)—net). The Group has no derivatives designated for hedge accounting treatment, except for forward derivatives contracted to hedge the foreign currency risk on the estimated U.S dollar purchase price of the Wise entities (see NOTE 3—Acquisition of Wise entities). These foreign currency derivatives are designated as a hedge in a cash flow hedge relationship that qualifies for hedge accounting in accordance with IAS 39. The portion of the gain or loss on the hedging instrument that is determined to be an effective cash flow hedge is recognized in Other Comprehensive Income and the ineffective portion is recognized in Other gains / (losses)—net.
(iv) Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, relevant market prices are used to determine fair values. The Group periodically estimates the impact of credit risk on its derivatives instruments aggregated by counterparties.
Credit Value Adjustments are calculated for asset derivatives at fair value. Debit Value Adjustments are calculated for credit derivatives at fair value.
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The fair value method used is based on historical probability of default, provided by leading rating agencies.
(v) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.
Leases
Constellium as the lessee
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Various buildings, machinery and equipment from third parties are leased under operating lease agreements. Under such operating lease agreements, the total lease payments are recognized as rent expense on a straight-line basis over the term of the lease agreement, and are included in Cost of sales or Selling and administrative expenses, depending on the nature of the leased assets.
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Various equipment from third parties are leased under finance lease agreements. Under such finance leases, the asset financed is recognized in Property, Plant and Equipment and the financing is recognized as a financial liability.
Constellium as the lessor
Certain land, buildings, machinery and equipment are leased to third parties under finance lease agreements. During the period of lease inception, the net book value of the related assets is removed from property, plant and equipment and a finance lease receivable is recorded at the lower of the fair value and the aggregate future cash payments to be received from the lessee computed at an interest rate implicit in the lease. As the finance lease receivable from the lessee is due, interest income is recognized.
Inventories are valued at the lower of cost and net realizable value, primarily on a weighted-average cost basis.
Weighted-average costs for raw materials, stores, work in progress and finished goods are calculated using the costs experienced in the current period based on normal operating capacity (and include the purchase price of materials, freight, duties and customs, the costs of production, which includes labor costs, materials and other expenses which are directly attributable to the production process and production overheads).
Trade accounts receivable
Trade accounts receivable are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment (if any).
Impairment
An impairment allowance of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due. Indicators of impairment would include financial difficulties of the debtor, likelihood of the debtor’s insolvency, late payments, default or a significant deterioration in creditworthiness. The amount of the provision is the difference between the assets’ carrying value and the present
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value of the estimated future cash flows, discounted at the original effective interest rate. The expense (income) related to the increase (decrease) of the impairment allowance is recognized in the Consolidated Income Statement. When a trade receivable is deemed uncollectible, it is written off against the impairment allowance account. Subsequent recoveries of amounts previously written off are credited in the Consolidated Income Statement.
Factoring arrangements
In a non-recourse factoring arrangement, where the Group has transferred substantially all the risks and rewards of ownership of the receivables, the receivables are de-recognized from the statement of financial position. Where trade accounts receivable are sold with limited recourse, and substantially all the risks and rewards associated with these receivables are retained, receivables continue to be included in the Consolidated Statement of Financial Position. Inflows and outflows from factoring agreements in which the Group does not derecognize receivables are presented on a net basis as cash flows from financing activities. Arrangements in which the Group derecognizes receivables result in changes in trade receivables which are reflected as cash flows from operating activities.
Cash and cash equivalents are comprised of cash in bank accounts and on hand, short-term deposits held on call with banks and other short-term highly liquid investments with original maturities of three months or less that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value, less bank overdrafts that are repayable on demand, provided there is a right of offset.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Trade payables are initially recorded at fair value and classified as current liabilities if payment is due in one year or less.
Provisions are recorded for the best estimate of expenditures required to settle liabilities of uncertain timing or amount when management determines that a legal or constructive obligation exists as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and such amounts can be reasonably estimated. Provisions are measured at the present value of the expected expenditures to be required to settle the obligation.
The ultimate cost to settle such liabilities is uncertain, and cost estimates can vary in response to many factors. The settlement of these liabilities could materially differ from recorded amounts. In addition, the expected timing of expenditure can also change. As a result, there could be significant adjustments to provisions, which could result in additional charges or recoveries affecting future financial results.
Types of liabilities for which the Group establishes provisions include:
Close down and restoration costs
Estimated close down and restoration costs are accounted for in the year when the legal or constructive obligation arising from the related disturbance occurs and it is probable that an outflow of resources will be
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required to settle the obligation. These costs are based on the net present value of estimated future costs. Provisions for close down and restoration costs do not include any additional obligations which are expected to arise from future disturbance. The costs are estimated on the basis of a closure plan including feasibility and engineering studies, are updated annually during the life of the operation to reflect known developments (e.g. revisions to cost estimates and to the estimated lives of operations) and are subject to formal review at regular intervals each year.
The initial closure provision together with subsequent movements in the provisions for close down and restoration costs, including those resulting from new disturbance, updated cost estimates, changes to the estimated lives of operations and revisions to discount rates are capitalized within Property, plant and equipment. These costs are then depreciated over the remaining useful lives of the related assets. The amortization or “unwinding” of the discount applied in establishing the net present value of the provisions is charged to the Consolidated Income Statement as a financing cost in each accounting year.
Environmental remediation costs
Environmental remediation costs are accounted for based on the estimated present value of the costs of the Group’s environmental clean-up obligations. Movements in the environmental clean-up provisions are presented as an operating cost within Cost of sales. Remediation procedures may commence soon after the time at which the disturbance, remediation process and estimated remediation costs become known, and can continue for many years depending on the nature of the disturbance and the technical remediation.
Provisions for restructuring are recorded when Constellium’s management is demonstrably committed to the restructuring plan and where such liabilities can be reasonably estimated. The Group recognizes liabilities that primarily include one-time termination benefits, or severance, and contract termination costs, primarily related to equipment and facility lease obligations. These amounts are based on the remaining amounts due under various contractual agreements, and are periodically adjusted for any anticipated or unanticipated events or changes in circumstances that would reduce or increase these obligations. These costs are charged to restructuring costs in the Consolidated Income Statement.
Legal, tax and other potential claims
Provisions for legal claims are made when it is probable that liabilities will be incurred and when such liabilities can be reasonably estimated. For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an unfavorable outcome based on many factors such as the nature of the matter, available defenses and case strategy, progress of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals, process and outcomes of similar historical matters, amongst others. Once an unfavorable outcome is considered probable, management weights the probability of possible outcomes and the most reasonable loss is recorded. Legal matters are reviewed on a regular basis to determine if there have been changes in management’s judgment regarding the likelihood of an unfavorable outcome or the estimate of a potential loss. Depending on their nature, these costs may be charged to Cost of sales or Other gains / (losses)—net in the Consolidated Income Statement. Included in other potential claims are provisions for product warranties and guarantees to settle the net present value portion of any settlement costs for potential future legal actions, claims and other assertions that may be brought by Constellium’s customers or the end-users of products. Provisions for product warranty and guarantees are charged to Cost of sales in the Consolidated Income Statement. In the accounting year when any legal action, claim or assertion related to product warranty or guarantee is settled, the net settlement amount incurred is charged against the provision established in the Consolidated Statement of Financial Position. The outstanding provision is reviewed periodically for adequacy and reasonableness by Constellium management.
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Management establishes tax reserves and accrues interest thereon, if deemed appropriate; in expectation that certain tax return positions may be challenged and that the Group might not succeed in defending such positions, despite management’s belief that the positions taken were fully supportable.
Pension, other post-employment healthcare plans and other long term employee benefits
Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions. Constellium’s contributions to defined contribution pension plans are charged to the Consolidated Income Statement in the year to which the contributions relate. This expense is included in Cost of sales, Selling and administrative expenses or Research and development costs, depending on its nature.
For defined benefit plans, the retirement benefit obligation recognized in the Consolidated Statement of Financial Position represents the present value of the defined benefit as reduced by the fair value of plan assets. The effects of changes in actuarial assumptions and experience adjustments are charged or credited to Other comprehensive income / (loss).
The amount charged to the Consolidated Income Statement in respect of these plans (including the service costs and the effect of any curtailment or settlement, net interest costs) is included within the income / (loss) from operations.
The defined benefit obligations are assessed in accordance with the advice of qualified actuaries. The most significant assumption used in accounting for pension plans is the discount rate.
Post-employment benefit plans relate to health and life insurance benefits to retired employees and in some cases to their beneficiaries and covered dependants. Eligibility for coverage is dependent upon certain age and service criteria. These benefit plans are unfunded and are accounted for as defined benefit obligations, as described above.
Other long term employee benefits include jubilees and other long-term disability benefits. For these plans, actuarial gains and losses arising in the year are recognized immediately in the Consolidated Income Statement.
Taxation
The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the Consolidated Statement of Financial Position date in the countries where the Company and its subsidiaries operate and generate taxable income.
The Group is subject to income taxes in the Netherlands, France, and numerous other jurisdictions. Certain of Constellium’s businesses may be included in consolidated tax returns within the Company. In certain circumstances, these businesses may be jointly and severally liable with the entity filing the consolidated return, for additional taxes that may be assessed.
Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This approach also requires the recognition of deferred income tax assets for operating loss carryforwards and tax credit carryforwards.
The effect on deferred tax assets and liabilities of a change in tax rates and laws is recognized as tax income in the year when the rate change is substantively enacted. Deferred income tax assets and liabilities are measured using tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on the tax rates and laws that have been enacted or substantively enacted at the date of the Consolidated Statement
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of Financial Position. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Presentation of financial statements
The consolidated financial statements are presented in millions of Euros. Certain reclassifications may have been made to prior year amounts to conform to the current year presentation.
f. Judgments in applying accounting policies and key sources of estimation uncertainty
Many of the amounts included in the consolidated financial statements involve the use of judgment and/or estimation. These judgments and estimates are based on management’s best knowledge of the relevant facts and circumstances, giving consideration to previous experience. However, actual results may differ from the amounts included in the consolidated financial statements. Key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year include the items presented below.
Pension, other post-employment benefits and other long-term employee benefits
The present value of the defined benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the defined benefit obligations and net pension costs include the discount rate and the rate of future compensation increases. In making these estimates and assumptions, management considers advice provided by external advisers, such as actuaries.
Any material changes in these assumptions could result in a significant change in employee benefit expense recognized in the Consolidated Income Statement, actuarial gains and losses recognized in equity and prepaid and accrued benefits. Details of the key assumptions applied are set out in NOTE 21—Pension liabilities and Other Post-employment Benefit Obligations.
Taxes
Significant judgment is sometimes required in determining the accrual for income taxes as there are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were recorded, such differences will impact the current and deferred income tax provisions, results of operations and possibly cash flows in the year in which such determination is made.
Management judgment is required to determine the extent to which deferred tax assets can be recognized. In assessing the recognition of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be utilized. The deferred tax assets will be ultimately utilized to the extent that sufficient taxable profits will be available in the periods in which the temporary differences become deductible. This assessment is conducted through a detailed review of deferred tax assets by jurisdiction and takes into account the scheduled reversals of taxable and deductible temporary differences, past, current and expected future performance deriving from the budget, the business plan and tax planning strategies. Deferred tax assets are not recognized in the jurisdictions where it is less likely than not that sufficient taxable profits will be available against which the deductible temporary differences can be utilized.
Provisions have been recorded for: (a) close-down and restoration costs; (b) environmental remediation and monitoring costs; (c) restructuring programs; (d) legal and other potential claims including provisions for product
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income tax risks, warranty and guarantees, at amounts which represent management’s best estimates of the expenditure required to settle the obligation at the date of the Consolidated Statement of Financial Position. Expectations will be revised each year until the actual liability is settled, with any difference accounted for in the year in which the revision is made. Main assumptions used are described in NOTE 22—Provisions.
Purchase Accounting
Business combinations are recorded in accordance with IFRS 3 using the acquisition method. Under this method, upon the initial consolidation of an entity over which the Group has acquired exclusive control, the identifiable assets acquired and the liabilities assumed are recognized at their fair value on the acquisition date.
Therefore, through a number of different approaches and with the assistance of external independent valuation experts, the Group identified what it believes is the fair value of the assets and liabilities at the acquisition date. These valuations include a number of assumptions, estimations and judgments. Quantitative and qualitative information is further disclosed in NOTE 3—Acquisition of Wise Entities.
Significant assumptions which were used in determining the allocation of fair value included the following valuation approaches: the cost approach, the income approach and the market approach which were determined based on cash flow projections and related discount rates, industry indices, market prices regarding replacement cost and comparable market transactions. While the Company believes that the estimates and assumptions underlying the valuation methodologies were reasonable, different assumptions could have resulted in different fair values.
NOTE 3—ACQUISITION OF WISE ENTITIES
On October 3, 2014, Constellium announced that it had signed a definitive agreement to acquire 100% of Wise Metals Intermediate Holdings LLC (“Wise”), a private aluminium sheet producer located in Muscle Shoals, Alabama, United States of America. The closing of the acquisition took place on January 5, 2015. The transaction is therefore not included in the Group’s consolidated financial statements as of December 31, 2014. In accordance with IFRS 3, Constellium will recognize the assets acquired and liabilities assumed, measured at fair value at the acquisition date, in its 2015 consolidated financial statements.
The cash consideration amounts to €345 million, including expected contractual price adjustments.
On November 19, 2014, Constellium contracted forward derivatives to hedge the foreign currency risk on the estimated U.S. dollar purchase price. These derivatives have been designated within a cash-flow hedge relationship that qualifies for hedge accounting in accordance with IAS 39. As a result, the fair value of these instruments, classified in Other Comprehensive Income for €9 million as of December 31, 2014, reduced the purchase price by €14 million at the acquisition date.
With the assistance of an independent expert, Constellium has performed the preliminary valuation studies necessary to estimate, on a preliminary basis, the fair values as of January 5, 2015 of the assets acquired and liabilities assumed. These estimated fair values are subject to change, for a maximum 12 month period from the acquisition date, based upon management’s final determination of the assets acquired and liabilities assumed.
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The following table reflects the preliminary goodwill arising as a result of the preliminary allocation of purchase price to the Wise assets acquired and liabilities assumed as of January 5, 2015:
Intangible assets
Net deferred tax assets
Total assets acquired
Provisions and contingent liabilities
Total liabilities assumed
Net assets acquired at fair value
Preliminary goodwill
Total cash consideration net of hedge impact
The preliminary valuation has resulted in the recognition of new intangible assets: customer relationships and technology. Property, Plant and Equipment, Inventories, Provisions and Borrowings have been remeasured at fair value.
The resulting and preliminary goodwill amounts to €333 million and is mainly supported by the leading position in the can and growing automotive markets in North America, and by the expected synergies between Wise and other existing Constellium activities, in particular in terms of production capacity, commercial base and purchasing, R&D and manufacturing functions.
Had the acquisition of Wise taken place as of January 1, 2014, Constellium would have recognized a combined revenue of €4,663 million and a combined net income of €45 million for the year 2014.
Acquisition costs were recognized as expenses in the line “Other gains / (losses)—net” of the Group’s consolidated income statement (€34 million as of December 31, 2014, of which €1 million was paid in 2014).
NOTE 4—OPERATING SEGMENT INFORMATION
Management has defined Constellium’s operating segments based upon product lines, markets and industries it serves, and prepares and reports operating segment information to the Constellium chief operating decision maker (CODM) (see NOTE 2—Summary of Significant Accounting Policies) on that basis. Effective January 1, 2014, we changed the measure of profitability for our segments under IFRS 8—Operating segments from Management Adjusted EBITDA to Adjusted EBITDA. The Group’s operating segments are described below.
Aerospace and Transportation (A&T)
A&T focuses on thick-gauge rolled high value-added products for customers in the aerospace, marine, automotive and mass-transportation markets and engineering industries. A&T operates eight facilities in three countries.
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Packaging and Automotive Rolled Products (P&ARP)
P&ARP produces and provides thin-gauge rolled products for customers in the beverage and closures, automotive, customized industrial sheet solutions and high-quality bright surface product markets. P&ARP operates two facilities in two countries.
Automotive Structures and Industry (AS&I)
AS&I focuses on specialty products and supplies a variety of hard and soft alloy extruded products, including technically advanced products, to the automotive, industrial, energy, electrical and building industries, and to manufacturers of mass transport vehicles and shipbuilders. AS&I operates fifteen facilities in seven countries.
Holdings & Corporate
Holdings & Corporate include the net cost of Constellium’s head office and corporate support functions.
Intersegment elimination
Intersegment trading is conducted on an arm’s length basis and reflects market prices.
The accounting principles used to prepare the Company’s operating segment information are the same as those used to prepare the Group’s consolidated financial statements.
Holdings & Corporate(A)
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Reconciliation of Adjusted EBITDA to Net Income
Metal price lag(A)
Wise acquisition costs(B)
Start-up and development costs(C)
Gains on Ravenswood OPEB plan amendments
Ravenswood CBA renegociation
Swiss pension plan settlements
Apollo management fees
Share equity plans
Losses on disposal
Unrealized (losses) / gains on derivatives
Unrealized exchange gains / (loss) from the remeasurement of monetary assets and liabilities—net
Net income / (loss) from discontinued operations
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Entity-wide information about product and services
Aerospace rolled products
Transportation, Industry and other rolled products
Packaging rolled products
Automotive rolled products
Specialty and other thin-rolled products
Automotive extruded products
Other extruded products
Total revenue
Segment capital expenditure
Segment assets
Segment assets are comprised of total assets of Constellium by segment, less investments in joint-ventures, deferred tax assets, other financial assets (including cash and cash equivalents) and assets of the disposal group classified as held for sale.
Segment Assets
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Unallocated:
Adjustments for investments in joint-ventures
Other financial assets (including cash and cash equivalents)
Assets of disposal group classified as held for sale
Information about major customers
Included in revenue arising from the P&ARP segment for the year ended December 31, 2014, is revenue of approximately €406 million (year ended December 31, 2013: €378 million; year ended December 31, 2012: €441 million) which arose from sales to the Group’s largest customer. No other single customers contributed 10% or more to the Group’s revenue for 2014, 2013 and 2012.
NOTE 5—INFORMATION BY GEOGRAPHIC AREA
The Group reports information by geographic area as follows: revenues from third and related parties are based on destination of shipments and property, plant and equipment are based on the physical location of the assets.
Revenue–third and related parties
United Kingdom
Other Europe
United States
Canada
Asia and Other Pacific
All Other
Czech Republic
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NOTE 6—EXPENSES BY NATURE
Raw materials and consumables used(A)
Employee benefit expenses
Energy costs
Repairs and maintenance expenses
Sub-contractors
Freight out costs
Consulting and audit fees
Operating supplies (non capitalized purchases of manufacturing consumables)
Operating lease expenses
Total Cost of sales, Selling and administrative expenses and Research and development expenses
These expenses are split as follows:
NOTE 7—EMPLOYEE BENEFIT EXPENSES
Wages and salaries(A)
Pension costs—defined benefit plans
Other post-employment benefits
Share equity plan expenses
Total Employee benefit expenses
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NOTE 8—OTHER GAINS / (LOSSES)—NET
Unrealized (losses) / gains on derivatives at fair value through Profit and Loss—net(A)
Unrealized exchange gains / (losses) from the remeasurement of monetary assets and liabilities—net
Ravenswood OPEB pension plan amendments
Ravenswood CBA renegotiation(B)
Losses on disposal(C)
Total Other (losses) / gains—net
NOTE 9—CURRENCY GAINS / (LOSSES)
The currency gains and losses are included in the consolidated financial statements as follows:
Consolidated income statement
Included in Cost of sales
Included in Other (losses) / gains—net
Included in Finance costs
Realized exchange losses on foreign currency derivatives—net
Unrealized exchange (losses) / gains on foreign currency derivatives—net
Exchange (losses) / gains from the remeasurement of monetary assets and liabilities—net
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Foreign currency translation reserve
Foreign currency translation reserve—January 1
Effect of exchange rate changes—net
Foreign currency translation reserve—December 31
See NOTE 24—Financial Risk Management and NOTE 25—Financial Instruments for further information regarding the Company’s foreign currency derivatives and hedging activities.
NOTE 10—FINANCE COSTS—NET
Finance income:
Realized and unrealized gains on debt derivatives at fair value(D)
Realized and unrealized exchange gains on financing activities—net
Other finance income
Total Finance income
Finance costs:
Interest expense on borrowings(A)
Interest expense on factoring arrangements(B)
Exit fees and unamortized arrangement fees(C)
Realized and unrealized losses on debt derivatives at fair value(D)
Realized and unrealized exchange losses on financing activities—net(D)
Other finance expense
Total Finance costs
Includes at December 31, 2013: (i) €3 million of interests expensed during the year related to the 2012 term loan and €17 million of interests accrued during the year related to the 2013 term loan; (ii) €2 million of interest expenses related to the U.S. Revolving Credit Facility.
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Includes at December 31, 2012: (i) €6 million of interests expensed during the year related to the 2011 term loan and €9 million of interests expensed during the year related to the 2012 term loan; (ii) €2 million of interest expenses related to the U.S. Revolving Credit Facility.
During the first quarter of 2013, Constellium issued the 2013 term loan facility and repaid the 2012 term loan. Arrangement fees of the 2012 term loan which were not amortized under the effective rate method, and exit fees, were fully recognized as financial expenses during this period. As of December 31, 2013, exit and arrangement fees amounted respectively to €8 million and €13 million.
During the second quarter of 2012, Constellium issued the 2012 term loan facility and repaid the 2011 term loan. Arrangement fees of the 2011 term loan which were not amortized under the effective rate method, and exit fees, were fully recognized as financial expenses during this period. As of December 31, 2012, exit and arrangement fees amounted respectively to €5 million and €2 million.
In addition, the Group hedged the dollar exposure relating to the principal of the U.S. Dollar Senior Notes. The principal of the U.S. Dollar Senior Notes is hedged by using floating-floating cross currency basis swaps indexed on floating Euro and U.S. Dollar interest rates. Changes in the fair value of hedges related to this translation exposure were recognized within finance income in the consolidated income statement and offset the unrealized losses related to U.S. Dollar Senior Notes revaluation.
NOTE 11—INCOME TAX
The current and deferred components of income tax are as follows:
Current tax expense
Deferred tax expense
Total income tax expense
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Using a composite statutory income tax rate applicable by tax jurisdiction, the income tax can be reconciled as follows:
Composite statutory income tax rate applicable by tax jurisdiction
Income tax expense calculated at composite statutory tax rate applicable by tax jurisdiction
Tax effect of:
Changes in recognized and unrecognized deferred tax assets
Other(A)
Effective income tax rate
Our composite statutory income tax rate of 31.0% in the year ended December 31, 2014, 36.0% in the year ended December 31, 2013 and of 38.6% in the year ended December 31, 2012 resulted from the statutory tax rates (i) in France of 38.0% in 2014 and in 2013 and 36.1% in 2012, (ii) in the United States of 43% in 2014, 40.1% in 2013 and 41.2% in 2012, (iii) in Germany of 29% in 2014, in 2013 and in 2012, (iv) in the Netherlands of 25% in 2014, in 2013 and in 2012 and (v) in Czech Republic of 19% in 2014, in 2013 and in 2012. The 5.0% decrease in our composite tax rate from 2013 to 2014 and the 2.6% decrease in our composite tax rate from 2012 to 2013 resulted from a lower weight of profits in higher tax rate jurisdictions most notably France and in the United States combined with a higher weight of profits in lower tax rate jurisdictions most notably in Czech Republic in 2014.
NOTE 12—EARNINGS PER SHARE
Earnings
Earnings used to calculate basic and diluted earnings per share from continuing operations
Earnings used to calculate basic and diluted earnings per share from discontinued operations
Earnings attributable to equity holders of the parent used to calculate basic and diluted earnings per share
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Number of shares—see NOTE 18—Share Capital
Weighted average number of ordinary shares used to calculate basic earnings per share(A)
Effect of other dilutive potential ordinary shares(B)
Weighted average number of ordinary shares used to calculate diluted earnings per share
Earnings per share attributable to the equity holders of the company
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NOTE 13—INTANGIBLE ASSETS (including GOODWILL)
Goodwill in the amount of €11 million (relating solely to the acquisition of the entities and business of Rio Tinto Engineered Aluminium Products on January 4, 2011) has been allocated to the Group’s operating segment Aerospace and Transportation (“A&T”) €5 million, Packaging and Automotive Rolled Products (“P&ARP”) €4 million and Automotive Structures and Industry (“AS&I”) €2 million.
During the years ended December 31, 2014 and 2013, no other material movements occurred in intangible assets, including goodwill.
Impairment tests for goodwill
As of December 31, 2014, 2013 and 2012, the recoverable amount of the operating segments has been determined based on value-in-use calculations and significantly exceeded their carrying value.
NOTE 14—PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment balances and movements are comprised as follows:
Net balance at January 1, 2014
Additions
Disposals
Depreciation expense
Impairment losses
Transfer during the year
Exchange rate movements
Net balance at December 31, 2014
At December 31, 2014
Cost
Less accumulated depreciation and impairment
Net balance at January 1, 2013
Reclassified as Assets held for sale
Net balance at December 31, 2013
At December 31, 2013
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Building, machinery and equipment includes the following amounts where the Group is a lessee under a finance lease:
Buildings under finance lease
Machinery and equipment under Finance lease
In 2014, the Group contracted two finance leases under a sale-leaseback transaction in Constellium Automotive USA, LLC, in order to finance specific equipment in Novi and the expansion of Van Buren buildings for respectively €10 million and €16 million.
The future aggregate minimum lease payments under non-cancellable finance leases are as follows:
Less than 1 year
1 to 5 years
More than 5 years
The present value (“PV”) of future aggregate minimum lease payments under non-cancellable finance leases are as follows:
Depreciation expense and impairment losses
Total depreciation expense and impairment losses relating to property, plant and equipment are included in the Consolidated Income Statement as follows:
The amount of contractual commitments for the acquisition of property, plant and equipment is disclosed in NOTE 28—Commitments.
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NOTE 15—INVENTORIES
Inventories are comprised of the following:
Finished goods
Work in progress
Raw materials
Stores and supplies
Net realizable value adjustment
Total inventories
Constellium records inventories at the lower of cost and net realizable value. Increases / (decreases) in the net realizable value adjustment on inventories are included in Cost of sales in the Consolidated Income Statement.
NOTE 16—TRADE RECEIVABLES AND OTHER
Trade receivables and other are comprised of the following:
Trade receivables—third parties—gross
Impairment allowance
Trade receivables—third parties—net
Trade receivables—related parties
Total Trade receivables—net
Finance lease receivables
Deferred financing costs—net of amounts amortized
Deferred tooling related costs
Current income tax receivables
Other taxes
Restricted cash(A)
Total Other receivables
Total Trade receivables and Other
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Aging
The aging of total trade receivables-net is as follows:
Current
1–30 days past due
31–60 days past due
61–90 days past due
Greater than 91 days past due
The Group periodically reviews its customers’ account aging, credit worthiness, payment histories and balance trends in order to evaluate trade accounts receivable for impairment. Management also considers whether changes in general economic conditions and in the industries in which the Group operates in particular, are likely to impact the ability of the Group’s customers to remain within agreed payment terms or to pay their account balances in full.
Revisions to the impairment allowance arising from changes in estimates are included as either additional allowance or recoveries, with the corresponding expense or income included in Selling and administrative expenses. An impairment allowance amounting to €0.5 million was recognized during the year ended December 31, 2014 (€0.1 million during the year ended December 31, 2013).
None of the other amounts included in Other receivables was deemed to be impaired.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable shown above. The Group does not hold any collateral from its customers or debtors as security.
Currency concentration
The composition of the carrying amounts of total Trade receivables—net by currency is shown in Euro equivalents as follows:
Euro
U.S. Dollar
Swiss Franc
Other currencies
The Group entered into factoring arrangements with third parties for the sale of certain of the Group’s accounts receivable in Germany, Switzerland and France.
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Under these programs, Constellium agrees to sell to the factor eligible accounts receivable, for working capital purposes, up to a maximum financing amount of €350 million, allocated as follows:
Under these arrangements, most of accounts receivable are sold with recourse. Sales of most of these receivables do not qualify for derecognition under IAS 39 “Financial Instruments: Recognition and Measurement”, as the Group retains substantially all of the associated risks and rewards. Where the Group has transferred substantially all the risks and rewards of ownership of the receivable, the receivables are derecognized from the statement of financial position.
Under the agreements, as of December 31, 2014, the total carrying amount of the original assets factored is €323 million (December 31, 2013: €259 million) of which:
As at December 31, 2014 and December 31, 2013, there was no amount due to the factor relating to trade account receivables sold.
Interest costs and other fees
Under both the Germany/Switzerland and France factoring agreements, interest is charged at the three-month EURIBOR (Euro Interbank Offered Rate) or LIBOR (London Interbank Offered Rate) rate plus 1.95% from November 8, 2013, (previously 2.25%) and is payable monthly. Other fees include an unused facility fee of 1% per annum (calculated based on the unused amount of the net position, as defined in the agreements). Additional factoring commissions and administration fees (based on the volume of sold receivables) are also assessed and payable monthly.
During the year ended December 31, 2014, Constellium incurred €9 million in interest and other fees (€10 million during the year ended December 31, 2013) from these arrangements that are included as finance costs (see NOTE 10—Finance Costs—Net).
Additionally, under each of the factoring agreements, the Group paid a one-time, up-front arrangement fee of 2.25% of the initial aggregate maximum financing amount of €300 million (for both agreements), which totaled €7 million. These arrangement fees plus an additional €7 million in legal and other fees related to the factoring agreements are being amortized as finance costs over a period of five years (see NOTE 10—Finance Costs—Net). During the year ended December 31, 2014, €2 million of such costs was amortized as finance costs (€3 million during the years ended December 31, 2013, and December 31, 2012). At December 31, 2014, the Group had €3 million (€5 million as at December 31, 2013, and €8 million as at December 31, 2012) in unamortized up-front and legal fees related to the factoring arrangements (included in deferred financing costs).
Covenants
The factoring arrangements contain certain affirmative and negative covenants, including relating to the administration and collection of the assigned receivables, the terms of the invoices and the exchange of information, but do not contain restrictive financial covenants other than a Group level minimum liquidity
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covenant that is tested quarterly. The Group was in compliance with all applicable covenants as of and for the years ended December 31, 2014 and 2013.
Intercreditor agreement
On January 4, 2011, the Group entered into an Intercreditor Agreement between the French, German and Swiss sellers of the Group’s receivables under the various accounts receivable factoring programs described above and the purchasers of those receivables.
In accordance with the requirements of the Intercreditor Agreement, the parent company of the sellers has guaranteed amounts sold under the factoring program to the purchasers of such accounts receivable with recourse.
The Intercreditor Agreement remains in effect for any seller of receivables until all of the factoring agreements for such seller are terminated.
Deferred financing costs
The Group incurs certain financing costs with third parties associated with its factoring arrangements and U.S. Revolving Credit facility. Amortization of these deferred finance costs is included in Finance costs—net in the Consolidated Income Statement.
Costs incurred and amortization recognized throughout the periods presented are shown in the table below.
Financing costs incurred and deferred
Up-front facility arrangement fees
Other direct expenses
Total incurred and deferred
Less: amounts amortized during the year
2012
2011
Deferred financing costs at December 31
The Company is the lessor on certain finance leases with third parties for certain of its property, plant and equipment located in Sierre, Switzerland and up to June 2013 in Teningen, Germany. The following table shows
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the reconciliation of the Group’s gross investments in the leases to the net investment in the leases as at December 31, 2012, 2013 and 2014.
Within 1 year
Between 1 and 5 years
Later than 5 years
Total Finance lease receivables
Interest received in the year ended December 31, 2014, totaled €1 million (€1 million for the year ended December 31, 2013, and €2 million for the year ended December 31, 2012).
NOTE 17—CASH AND CASH EQUIVALENTS
Cash in bank and on hand
Deposits
Total Cash and cash equivalents
As at December 31, 2014, cash in bank and on hand includes a total of €8 million held by subsidiaries that operate in countries where capital control restrictions prevent the balances from being available for general use by the Group (€6 million as at December 31, 2013).
As at December 31, 2014, deposits include proceeds drawn under the Senior Notes issued in December 2014, to be used for the acquisition of Wise entities (See Note 3—Acquisition of Wise entities) and Body In White growth projects.
NOTE 18—SHARE CAPITAL
As at December 31, 2014, authorized share capital consists of 398,500,000 Class A ordinary shares and 1,500,000 Class B ordinary shares.
As of January 1, 2014
Shares converted
Shares cancelled
As of December 31, 2014
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According to Dutch law and the articles of association of Constellium N.V., the following characterizations, rights and obligations are attached to the shares:
On May 16, 2013, the Group issued preference shares to existing shareholders and repurchased them for no consideration after dividend payment. All the preference shares were cancelled in August 2014.
During 2014, 842,228 Class B ordinary shares were converted to Class A ordinary shares, of which 749,417 related to Management Equity Plan accelerated vesting implemented during the second quarter of 2014.
On July 8, 2014, Constellium N.V. repurchased the 108,109 Class B shares from Omega Management Gmbh & Co K.G, which may be subsequently cancelled.
Free Float
Apollo Funds
Bpifrance
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NOTE 19— BORROWINGS
19.1. Analysis by nature
2013 Term Loan Facility(A)
In U.S. Dollar
In Euro
Constellium N.V. and Constellium France SAS
Senior Notes
In U.S. Dollar (due 2024)(B)
In Euro (due 2021)(B)
In U.S. Dollar (due 2023)(C)
In Euro (due 2023)(C)
U.S. Revolving Credit Facility(D)
Constellium Rolled Products Ravenswood, LLC
Unsecured Credit Facility(E)
Others(F)
Total Borrowings
Of which:
Non-current
Represents amounts drawn under the “Senior Notes”. On December 19, 2014, Constellium N.V. issued a $400 million Senior Notes due 2023 (the “U.S. Dollar Notes” equivalent to €330 million at the year-end
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19.2. Currency concentration
The composition of the carrying amounts of total non-current and current borrowings (net of unamortized arrangement fees) in Euro equivalents is denominated in the currencies shown below:
Total borrowings net of unamortized debt financing costs
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19.3 Movements in borrowings
Balance at the opening
Repayments of Term Loan(A)
Proceeds received from Term Loan and Senior Notes(B)
Proceeds received from U.S. Revolving Credit Facility
Deferred arrangement fees(C)
Unamortized arrangement fees(D)
Movement in interests accrued
Translation differences
Movement in other financial debt(E)
Balance at the closing
19.4. Main features of the Group’s borrowings
Interest
2013 Term Loan
The interest rate under both U.S. Dollar term loan facilities is the applicable U.S. Dollar interest rate (U.S. Dollar Libor) for the interest period subject to a floor of 1.25% per annum, plus a margin of 4.75% per annum. The interest rate under both Euro term loan facilities is the applicable Euro interest rate (Euribor) for the interest period subject to a floor of 1.25% per annum, plus a margin of 5.25% per annum.
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Interest under Senior Notes issued in May 2014 accrues at a rate of 5.750% per annum on the U.S. Dollar Notes (Due 2024) and 4.625% per annum on the Euro Notes (Due 2021) and will be paid semi-annually on May 15 and November 15 of each year, starting on November 15, 2014.
Interest under Senior Notes issued in December 2014 accrues at a rate of 8.00% per annum on the U.S. Dollar Notes (Due 2023) and 7.00% per annum on the Euro Notes (Due 2023) and will be paid semi-annually on January 15 and July 15 of each year, starting on July 15, 2015.
Under the ABL Facility, interest charged is dependent upon the type of loan as follows:
(a) Base Rate Loans will bear interest at an annual rate equal to the sum of the British Banker Association LIBOR Rate (U.S. Dollar LIBOR) plus an applicable margin comprised between 0.5% and 1.0% of the base rate, which is the greater of: (i) the prime rate in effect on any given day and (ii) the federal funds rate in effect on any given day plus 0.5%.
(b) Eurodollar Rate Loans will bear interest at an annual rate equal to the sum of the Eurodollar Rate (essentially U.S. Dollar LIBOR) plus the applicable margin comprised between 1.5% and 2.0%;
Unsecured Credit Facility
Borrowings under the Unsecured Credit Facility will bear interest at the Eurocurrency rate plus a margin of 2.50% per annum. Accrued interest on each borrowings shall be payable on demand and in the event of any repayment or prepayment of any loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment.
Foreign exchange Exposure
It is the Group policy to hedge all non-functional currency loans and deposits. In line with this policy the U.S. Dollar loans were hedged through cross currency interest rate swaps and rolling foreign exchange forwards. The notional amount of the cross-currency interest rate swaps amounted to $308 million on December 31, 2013. The remaining balance of the term loan was hedged by simple rolling foreign exchange forwards. The cross currency swaps had a negative fair value of €26 million at December 31, 2013. Changes in the fair value of hedges related to this translation exposure were recognized within financial costs in the consolidated income statement.
The cross currency swaps associated with this repaid term loan was settled in 2014 for €26 million and is presented in Other Financing Activities in the cash flow statement.
The notional amount of the Dollar Notes issued in May 2014 is hedged through cross currency swaps and rolling foreign exchange forwards. The notional amount of the cross currency basis swaps amounted to $320 million on December 31, 2014. The remaining balance of the U.S. Dollar Notes is hedged by simple rolling foreign exchange forwards. Changes in the fair value of hedges related to this translation exposure are recognized within financial costs in the consolidated income statement. The positive fair value of hedging instrument is €29 million as of December 31, 2014.
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The notional amount of the U.S. Dollar Notes issued in December 2014 was placed in U.S. Dollar short term deposits.
Financing cost
A $2 million (equivalent to €1 million at the issue date of the term loan) and €1 million original issue discount (OID) were deducted from the Term Loan at inception. Constellium N.V. received a net amount of $209 million (€162 million at the issue date of the Term Loan) and €45 million. Constellium France received a net amount of $149 million (€115 million at the issue date of the Term Loan) and €30 million. In addition, the Group incurred debt fees of €8 million. Debt fees and OID are integrated into the effective interest rate of the term loan. Interest expenses are included in finance costs.
As of December 31, 2014 and due to the early payment of the 2013 term loan, the Group incurred exit fees of $6 million (equivalent to €4 million at the issue date of the private offering) and €2 million. Exit fees are included in finance costs.
A $16 million (equivalent to €13 million at December 31, 2014 and net of amount amortized) and €11 million arrangement fees net of amount amortized were deducted from the private offerings.
Arrangement fees are integrated in the effective interest rate calculation of the private offerings.
The €3 million U.S. Revolving Credit Facility expenses incurred in 2012 were included in Deferred financing costs and are amortized as interest expense in Finance costs – net.
A fronting fee of 0.125% per annum of the face amount of each letter of credit is expensed as incurred and payable in arrears on the last day of each calendar quarter after the letter of credit issuance.
As of December 31, 2014, transaction costs related to the Unsecured Revolving Facility are capitalized and amortized over the maturity of the credit facility (May 2017). The related fees are amortized over 36 months as a finance expense.
In addition, the Group incurs commitment fees related to the Unsecured Credit Facility, equal to (i) the average of the daily difference between the commitments and the aggregate principal amount of all outstanding loans; times (ii) 1.00% per annum.
The private offerings contain customary terms and conditions, including amongst other things, limitation on incurring or guaranteeing additional indebtness, on paying dividends, on making other restricted payments, on creating restriction on dividend and other payments to us from certain of our subsidiaries, on incurring certain liens, on selling assets and subsidiary stock, and on merging.
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The Group was in compliance with all applicable affirmative covenants as of and for the period ended December 31, 2014.
This facility contains a minimum availability covenant that requires Constellium Rolled Products Ravenswood, LLC to maintain excess availability of at least the greater of (a) $10 million and (b) 10% of the aggregate revolving loan commitments. It also contains customary events of default.
Constellium Rolled Products Ravenswood, LLC was in compliance with all applicable covenants as of and for the period ended December 31, 2014.
Factoring Facilities
The factoring facility has a minimum liquidity covenant. As of December 31, 2014 the Company was in compliance.
NOTE 20—TRADE PAYABLES AND OTHER
Third parties
Related parties
Total Trade payables
Other payables
Employees’ entitlements
Deferred revenue
Taxes payable other than income tax
Total Other
Total Trade payables and Other
NOTE 21—PENSION AND OTHER POST-EMPLOYMENT BENEFIT OBLIGATIONS
For the years ended December 31, 2014 and 2013, actuarial valuations were performed with the support of an independent expert and are reflected in the consolidated financial statements as described in NOTE 2.e—Principles governing the preparation of the consolidated financial statements.
Description of the plans
The Group operates a number of pensions, other post-employment benefits and other long-term employee benefit plans. Some of these plans are defined contribution plans and some are defined benefit plans, with assets held in separate trustee-administered funds. Benefits paid through pension trusts are sufficiently funded to ensure the payment of benefits to retirees when they become due.
Pension plans
Constellium’s pension obligations are in the U.S., Switzerland, Germany, and France. Pension benefits are generally based on the employee’s service and highest average eligible compensation before retirement and are periodically adjusted for cost of living increases, either by company practice, collective agreement or statutory requirement.
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Other post-employment benefits (OPEB)
The Group provides health care and life insurance benefits to retired employees and in some cases to their beneficiaries and covered dependents, mainly in the U.S. Eligibility for coverage is dependent upon certain age and service criteria. These benefit plans are unfunded.
Other long-term employee benefits
Other long term employee benefits include jubilees in France and Switzerland, other long-term disability benefits in the U.S. and medical care in France.
Description of risks
Our pension plan assets consist primarily of funds invested in listed stocks and bonds. Our estimates of liabilities and expenses for pensions and other post-employment benefits incorporate a number of assumptions, including discount rate, longevity estimate and inflation rate.
The defined benefit plans expose the Group to actuarial risks such as: investment risk, interest rate risk, longevity risk and change in law governing the employee benefit obligations.
Investment risk
The present value of funded defined benefit obligations is calculating using a discount rate determined by reference to high quality corporate bond yields. If the return on plan asset is below this rate, it will increase the plan deficit.
Interest risk
A decrease in the discount rate will increase the defined benefit obligation. As at December 31, 2014, impacts of the change on the defined benefit obligation of a 0.50% increase / decrease in the discount rates are calculated by using a proxy based on the duration of each scheme, as follows:
Total sensitivity on Defined benefit obligations
Longevity risk
The present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality of plan participants. An increase in the life expectancy of the plan participants will increase the plan’s liability.
Main events (related impact being recorded in Other gains / (losses)—net, see NOTE 8)
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U.S.
Hourly pension
Salaried pension
OPEB(A)
Retirements
Other benefits
For both pension and healthcare plans, the post-employment mortality assumptions allow for future improvements in life expectancy.
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Amounts recognized in the Consolidated Statement of Financial Position
Present value of funded obligation
Fair value of plan assets
Deficit of funded plans
Present value of unfunded obligation
Net liability arising from defined benefit obligations
Movements in the present value of the Defined Benefit Obligations
Defined Benefit Obligations at beginning of year
Net decrease in liabilities from disposals
Current service cost
Interest cost
Actual plan participants’ contributions
Past service cost
Immediate recognition of (losses) / gains arising over the year
Actual benefits paid out
Remeasurement due to changes in demographic assumptions
Remeasurement due to changes in financial assumption
Experience gain / (loss)
Exchange rate (loss) / gain
Classified as held for sale
Defined Benefit Obligations at end of year
Funded
Unfunded
Movements in the fair value of plan assets
Plan assets at beginning of year
Remeasurement return on plan assets
Interests income
Actual employer contributions
Actual administrative expenses paid
Exchange rate gain / (loss)
Fair value of plan assets at end of year
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Variation of the net pension liabilities
Net (liability) recognized at beginning of year
Total amounts recognized in the Consolidated Income Statement
Total amounts recognized in the SoCI
Net decrease from disposals
Net (liability) recognized at end of year
Amounts recognized in the Consolidated Income Statement
Service cost
(Losses) arising from plan settlements
Net interests
Immediate recognition of (losses) / gains arising over the period
Administrative expense
Total (costs) / income recognized in the Consolidated Income Statement
The expenses shown in this table are included as employee costs in the Consolidated Income Statement within employee benefit expense and in Other gains/(losses)—net (See NOTE 7—Employee Benefit Expenses and NOTE 8—Other Gains / (Losses)—Net).
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Analysis of amounts recognized in the Consolidated Statement of Comprehensive Income (SoCI)
Cumulative amount of losses recognized in the SoCI at beginning of year
Liability losses due to changes in assumptions
Liability losses / (gains) due to changes in financial assumptions
Liability experience (gains) / losses arising during the year
Asset (gains) arising during the year
Exchange rate losses / (gains)
Total losses / (gains) recognized in SoCI
Cumulative amount of losses recognized in the SoCI at end of year
Defined benefit obligations by countries
Defined Benefit Obligations
Value of plan assets at year end by major classes of assets
The following table shows the fair value of plans’ assets classified under the appropriate level of the fair value hierarchy:
Equities
Bonds
Property
Total fair value of plan assets
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The actual return on plan assets was €21 million in 2014 (€17 million in 2013).
Government bonds
Corporate bonds
Other investments
Real estate
Hedge fund
Insurance contracts
Contributions to plans
Contributions to pension plans totaled €34 million for the year ended December 31, 2014 (€27 million for the year ended December 31, 2013).
Contributions to other benefits totaled €15 million for the year ended December 31, 2014 (€16 million for the year ended December 31, 2013).
Expected contributions to pension for the year ending December 31, 2015 amount to €29 million and other post-employment benefits (healthcare obligations) amount to €16 million.
Benefit payments
Benefit payments expected to be paid to pension, other post-employment benefit plans’ participants and other benefits, are as follows:
Year ended December 31,
2015
2016
2017
2018
2019 to 2024
OPEB amendments
During the third quarter of 2012, the Group implemented certain plan amendments that had the effect of reducing benefits of the participants in the Constellium Rolled Products Ravenswood Retiree Medical and Life Insurance Plan. In February 2013, five Constellium retirees and the United Steelworkers union filed a class action lawsuit against Constellium Rolled Products Ravenswood, LLC in a federal district court in West Virginia, alleging that Constellium Rolled Products Ravenswood, LLC improperly modified retiree health benefits.
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The Group believes that these claims are unfounded, and that Constellium Rolled Products Ravenswood, LLC had a legal and contractual right to make the applicable modification.
NOTE 22—PROVISIONS
At January 1, 2014
Additional provisions
Amounts used
Unused amounts reversed
Unwinding of discounts
Total Provisions
At January 1, 2013
Others
Close down, environmental and restoration costs
The Group records provisions for the estimated present value of the costs of its environmental clean-up obligations and close down and restoration efforts based on the net present value of estimated future costs of the dismantling and demolition of infrastructure and the removal of residual material of disturbed areas, using an average discount rate of 1.21%. A change in the discount rate of 0.50% would impact the provision by €2 million.
It is expected that these provisions will be settled over the next 40 years depending on the nature of the disturbance and the technical remediation plans.
The Group records provisions for restructuring costs when management has a detailed formal plan, is demonstrably committed to its execution and can reasonably estimate the associated liabilities. The related expenses are included in Restructuring costs in the Consolidated Income Statement.
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Legal claims, tax and other costs
Maintenance and customers related provisions(A)
Litigations(B)
Disease claims(C)
NOTE 23—CASH FLOWS
Restructuring costs and other provisions
Defined benefit pension costs
Unrealized losses / (gains) on derivatives—net and from remeasurement of monetary assets and liabilities—net
Losses on disposal and assets classified as held for sale
Share of (profit) / loss of joint-ventures
Total Adjustments
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Changes in working capital
Total Changes in working capital
Changes in other operating assets and liabilities
Total Changes in other operating assets and liabilities
NOTE 24—FINANCIAL RISK MANAGEMENT
The Group’s financial risk management strategy focuses on minimizing the cost and cash flow impacts of volatility in foreign currency exchange rates, metal prices and interest rates, while maintaining the financial flexibility the Group requires in order to successfully execute the Group’s business strategies.
Due to Constellium’s capital structure and the nature of its operations, the Group is exposed to the following financial risks: (1) market risk (including foreign exchange risk, commodity price risk and interest rate risk); (2) credit risk and (3) liquidity and capital management risk.
a. Market risk
(i) Foreign exchange risk
Net assets, earnings and cash flows are influenced by multiple currencies due to the geographic diversity of sales and the countries in which the Group operates. The Euro and the U.S. dollar are the currencies in which the majority of sales are denominated. Operating costs are influenced by the currencies of those countries where Constellium’s operating plants are located and also by those currencies in which the costs of imported equipment and services are determined. The Euro and U.S. dollar are the most important currencies influencing operating costs.
The policy of the Group is to hedge committed and highly probable forecasted foreign currency operational transactions. The Group uses foreign exchange forwards for this purpose.
In June 2011, the Group entered into a multiple-year frame agreement with a major customer for the sale of fabricated metal products in U.S. Dollars. In line with its hedging policy, the Group entered into significant foreign exchange derivative transactions to forward sell U.S. dollars versus the euro following the signing of the multiple-year frame agreement to match these future sales.
As at December 31, 2014, our largest foreign exchange derivative transactions related to this contract.
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The notional principal amounts of the outstanding foreign exchange contracts at December 31, 2014—with maturities ranging between 2015 and 2018—were as follows:
CHF
CZK
EUR
GBP
JPY
SGD
USD
A negative balance represents a net currency sale, whereas a positive balance represents a net currency purchase.
Except for limited non-recurring transactions, hedge accounting is not applied and therefore the mark-to-market impact is recorded in Other gains/(losses)—net.
In the year ended December 31, 2013, the impact of the Group’s hedging strategy in relation to foreign currency led to unrealized gains on derivatives of €21 million which related primarily to the exposure on the multiple year sale agreement for fabricated products in U.S. dollars by a euro functional subsidiary of the group. In the year ended December 31, 2014, the impact of these derivatives was an unrealized loss of €41 million as the U.S. dollar appreciated against the euro in the second half of 2014. The offsetting gain related to the forecasted sales are not visible due to the sales not yet being recorded in the books of the Group.
As the U.S. dollar appreciates against the euro, the derivative contracts entered into with financial institutions have a negative mark-to-market. Our financial derivative counterparties require margin should our mark-to-market exceed a pre-agreed contractual limit. In order to protect from the potential margin calls for significant market movements, the Group holds a significant liquidity buffer in cash or in availability under its various borrowing facilities, enters into derivatives with a large number of financial counterparties and monitors margin requirements on a daily basis for adverse movements in the U.S. dollar versus the euro.
At December 31, 2014, the margin requirement related to foreign exchange hedges amounted to zero (€11 million at December 31, 2013).
Throughout the year 2014, there were no margins posted related to foreign exchange hedges.
During 2012, the Group has decided to limit the liquidity risk arising from potential margin calls on operational hedges by entering into a portfolio of foreign exchange zero cost collars (combinations of bought calls and sold puts). As of December 31, 2014, the Group still had $198 million of these collars (as of December 31, 2013: $398 million), with maturities ranging between 2015 and 2016.
Borrowings are principally in U.S. dollars and euros (see NOTE 19 – Borrowings). It is the policy of the Group to hedge all non-functional currency debt and cash. The Group entered into cross currency basis swaps to hedge the foreign exchange inherent in our financing. As of December 31, 2014, the notional outstanding on the cross currency basis swaps was $320 million (€233 million). The unrealized gain related to the economic hedges of the USD loans amounted to €30 million during the year ended December 31, 2014.
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Foreign exchange sensitivity: Risks associated with exposure to financial instruments
A 10% weakening in the December 31, 2014, closing Euro exchange rate against U.S. Dollar on the value of financial instruments held by the Group at December 31, 2014, would have decreased earnings (before tax effect) as shown in the table below (excluding Wise purchase hedging result):
Cash and cash equivalents and restricted cash
Metal derivatives (net)
Foreign exchange derivatives (net)(A)
Cross currency swaps
The amounts shown in the table above may not be indicative of future results since the balances of financial assets and liabilities may change.
A 10% weakening in the December 31, 2014, closing Euro exchange rate against Swiss Franc on the value on trade receivable is €1 million and on trade payable is €(6) million.
A 10% change in the closing Euro exchange rate against currencies other than U.S. Dollar or Swiss Franc does not have a material impact on earnings.
(ii) Commodity price risk
The Group is subject to the effects of market fluctuations in the price of aluminium, which is the Group’s primary metal input and a significant component of its output. The Group is also exposed to silver, copper and natural gas in a less significant way. The Group has entered into derivatives contracts to manage these risks and carries those instruments at their fair values on the Consolidated Statement of Financial Position.
As of December 31, 2014, the notional principal amount of aluminium derivatives outstanding was 133,875 tons (approximately $269 million)—129,350 tons at December 31, 2013, (approximately $247 million)—with maturities ranging from 2015 to 2019, copper derivatives outstanding was 3,000 tons (approximately $24 million)—4,200 tons at December 31, 2013 (approximately $33 million)—with maturities ranging from 2015 to 2016, silver derivatives 270,027 ounces (approximately $6 million)—261,785 ounces at December 31, 2013 (approximately $6 million)—with maturities in 2015, and 3,465,000 MMBtu of natural gas futures (approximately $13 million)—900,000 MMBtu at December 31, 2013 (approximately $3 million) with maturities from 2015 to 2016.
The value of the contracts will fluctuate due to changes in market prices but is intended to help protect the Group’s margin on future conversion and fabrication activities. At December 31, 2014, these contracts are directly with external counterparties.
When the Group is unable to align the price and quantity of physical aluminium purchases with that of physical aluminium sales, it enters into derivative financial instruments to pass through the exposure to metal price fluctuations to financial institutions at the time the price is set. Therefore, the Group has purchased fixed
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price aluminium forwards to offset the exposure of LME volatility on its fixed price sales agreements for the supply of metal. The Group does not apply hedge accounting and therefore any mark-to-market movements are recognized in Other gains / (losses)—net.
In the year ended December 31, 2013, €7 million of unrealized losses were recorded in relation to LME futures due to a decline in the LME price of aluminium. In the year ended December 31, 2014, €7 million of unrealized losses were recorded in relation to LME futures due to a decline in the LME price of aluminium, with the revaluation of the underlying transaction continuing partially off- balance sheet for the sales which had not yet been invoiced and recognized as revenue.
As the LME price for aluminium falls, the derivative contracts entered into with financial institution counterparties have a negative mark-to-market. The Group’s financial institution counterparties may require margin calls should the negative mark-to-market exceed a pre-agreed contractual limit. In order to protect from the potential margin calls for significant market movements, the Group enters into derivatives with a large number of financial counterparties and monitors margin requirements on a daily basis for adverse movements in aluminium prices.
As of December 31, 2014, the margin requirement related to aluminium hedges was zero (as of December 31, 2013, margin posted on aluminium hedges was also zero).
Throughout the year 2014, there was no margin posted related to aluminium hedges.
Commodity price sensitivity: risks associated with derivatives
The net impact on earnings and equity of a 10% increase or decrease in the market price of aluminium, based on the aluminium derivatives held by the Group at December 31, 2014 (before tax effect), with all other variables held constant was estimated to €20 million gains or losses (€17 million at December 31, 2013). The balances of such financial instruments may change in future periods however, and therefore the amounts shown may not be indicative of future results.
(iii) Interest rate risk
Interest rate risk refers to the risk that the value of financial instruments held by the Group and that are subject to variable rates will fluctuate, or the cash flows associated with such instruments will be impacted due to changes in market interest rates. The Group’s interest rate risk arises principally from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents deposits (including short-term investments) earning interest at variable interest rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
Interest rate sensitivity: risks associated with variable-rate financial instruments
The impact (before tax effect) on profit (loss) for the period of a 50 basis point increase or decrease in the LIBOR or EURIBOR interest rates, based on the variable rate financial instruments held by the Group at December 31, 2014, with all other variables held constant, was estimated to be less than €1 million for the periods ended December 31, 2014 and December 31, 2013. The balances of such financial instruments may not remain constant in future periods however, and therefore the amounts shown may not be indicative of future results.
b. Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk with financial institutions and
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other parties as a result of cash-in-bank, cash deposits and the mark-to-market on derivative transactions and from customer trade receivables arising from Constellium’s operating activities. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset as described in NOTE 25—Financial Instruments. The Group does not generally hold any collateral as security.
Credit risk related to deposits with financial institutions
Credit risk with financial institutions is managed by the Group’s Treasury department in accordance with a Board approved policy. Constellium management is not aware of any significant risks associated with financial institutions as a result of cash and cash equivalents deposits (including short-term investments) and financial derivative transactions.
The number of financial counterparties is tabulated below showing our exposure to the counterparty by rating type (Parent company ratings from Moody’s Investor Services).
Rated Aa or better
Rated A
Rated Baa
Credit risks related to customer trade receivables
The Group has a diverse customer base geographically and by industry. The responsibility for customer credit risk management rests with Constellium management. Payment terms vary and are set in accordance with practices in the different geographies and end-markets served. Credit limits are typically established based on internal or external rating criteria, which take into account such factors as the financial condition of the customers, their credit history and the risk associated with their industry segment. Trade accounts receivable are actively monitored and managed, at the business unit or site level. Business units report credit exposure information to Constellium management on a regular basis. Over 80% of the Group’s trade account receivables are insured by insurance companies rated A34 or better. In situations where collection risk is considered to be above acceptable levels, risk is mitigated through the use of advance payments, bank guarantees or letters of credit. Historically we have a very low level of customer default as a result of long history of dealing with our customer base and an active credit monitoring function.
See NOTE 16—Trade Receivables and Other for the aging of trade receivables.
c. Liquidity and capital risk management
The Group’s capital structure includes shareholder’s equity, borrowings from related parties and various third-party financing arrangements (such as credit facilities and factoring arrangements). Constellium’s total capital is defined as total equity plus net debt. Net debt includes borrowings due to third parties less cash and cash equivalents.
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Constellium’s overriding objectives when managing capital are to safeguard the business as a going concern, to maximize returns for its owners and to maintain an optimal capital structure in order to minimize the weighted cost of capital.
All activities around cash funding, borrowings and financial instruments are centralized within Constellium’s Treasury department. Direct external funding or transactions with banks at the operating plant entity level are generally not permitted, and exceptions must be approved by Constellium’s Treasury department.
The liquidity requirements of the overall Company are funded by drawing on available credit facilities, while the internal management of liquidity is optimized by means of cash pooling agreements and/or intercompany loans and deposits between the Company’s operating entities and central Treasury.
The contractual agreements that the Group has with derivative financial counterparties require the posting of collateral once a certain threshold has been reached. In order to protect the Group from the potential margin calls for significant market movements, the Group holds a significant liquidity buffer in cash or availability under its various borrowing facilities, enters into derivatives with a large number of financial counterparties, entered into a series of zero cost collars (see section 24.a (i)) and monitors margin requirements on a daily basis for adverse movements in the U.S. dollar versus the euro and in aluminium prices.
The table below shows undiscounted contractual values by relevant maturity groupings based on the remaining period from December 31, 2014, and December 31, 2013, to the contractual maturity date.
Financial assets:
Cross currency interest rate swaps
Financial liabilities:
Borrowings(A)
Net cash flows from derivatives liabilities related to currencies and metal(B)
Trade payables and other (excludes deferred revenue)
See NOTE 19—Borrowings, for further details on borrowings and credit facilities.
See NOTE 16—Trade receivables and others, for further details on factoring arrangements.
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Derivative financial instruments
The Group enters into derivative contracts to manage operating exposure to fluctuations in foreign currency, aluminium, copper, silver and natural gas prices. The tables below show the undiscounted contractual values and terms of derivative instruments.
Assets—Derivative Contracts(A)
Aluminium future contracts
Currency derivative contracts
Cross currency interest rate swap(B)
Liabilities—Derivative Contracts(A)
Copper future contracts
Silver and natural gas future contracts
Cross currency interest rate swaps(B)
The principal of the U.S. Dollar loans issued in March 2013 were hedged through cross currency interest rate swaps and rolling foreign exchange forwards. The cross currency swaps had a negative fair value of €27 million (undiscounted amount) at December 31, 2013.
NOTE 25—FINANCIAL INSTRUMENTS
The tables below show the classification of financial assets and liabilities, which includes all third and related party amounts.
Financial assets and liabilities by categories
Trade receivables and Finance Lease receivables
Total financial assets
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Total financial liabilities
Other financial assets and Other financial liabilities are detailed as follows:
Derivatives
Other(B)
Fair values
All the derivatives are presented at fair value in the balance sheet.
The carrying value of the Group’s borrowings is the redemption value at maturity. The fair value of the ABL and December 2014 Senior Notes is approximately the carrying value. The fair value of the May 2014 Senior Notes accounts for 87.0% of the carrying value and amounts to €540 million as of December 31, 2014.
The fair values of other financial assets and liabilities approximate their carrying values, as a result of their liquidity or short maturity.
Constellium Finance SAS and Constellium Switzerland AG entered into agreements with some financial institutions in order to define applicable rules with regards to the setting-up of derivative trading accounts. On a daily or weekly basis (depending on the arrangement with each financial institution), all open currency or metal derivative contracts are revalued to the current market price. When the change in fair value reaches a certain threshold (positive or negative), a margin call occurs resulting in the Group making or receiving back a cash payment to/from the financial institution.
The cash deposit related to margin calls made by the Group is nil as of December 31, 2014 (€11 million at December 31, 2013).
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Valuation hierarchy
The following table provides an analysis of financial instruments measured at fair value, grouped into blevels based on the degree to which the fair value is observable:
NOTE 26—INVESTMENTS IN JOINT VENTURES
As at January 1
Group share in profit / (loss)
Change in consolidation scope
Effects of changes in foreign exchange rates
As at December 31
The Group holds a 49.85% interest in a joint-venture named Rhenaroll S.A. (located in Biesheim, France), specialized in the chrome-plating, grinding and repairing of rolling mills’ rolls and rollers. As of December 31, 2014, the revenue of Rhenaroll amounted to €3 million (€3 million as of December 31, 2013). The entity’s net income was immaterial both in 2014 and 2013.
Quiver Ventures LLC, a joint-venture in which Constellium holds a 51% interest, was created during the fourth quarter of 2014. This joint-venture will supply Body-in-White aluminium sheet to the North American automotive industry through a facility located in Bowling Green, Kentucky. The joint venture did not operate in 2014, production being scheduled to start in the first half of 2016.
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These investments in joint ventures are accounted for under the equity method. Rhenaroll S.A. and Quiver Ventures LLC are private companies and there are no quoted market prices available for their shares.
Rhenaroll S.A.
Quiver Ventures LLC
NOTE 27—DEFERRED INCOME TAXES
Shown in the Consolidated Statement of Financial Position:
Net deferred income tax assets
The following table shows the changes in net deferred income tax assets (liabilities) for the years ended December 31, 2014 and 2013.
Balance at beginning of year
Net deferred income tax assets acquired
Deferred income taxes recognized in the Consolidated Income Statement
Effects of changes in foreign currency exchange rates
Deferred income taxes recognized directly in other comprehensive income
Balance at end of year
Year ended December 31, 2014
Deferred tax (liabilities) / assets in relation to:
Long-term assets
Pensions
Derivative valuation
Tax losses Carried forward
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Year ended December 31, 2013
Year ended December 31, 2012
Based on the expected taxable income of the entities, the Group believes that it is more likely than not that a total of € 599 million (€ 516 million at December 31, 2013; € 497 million at December 31, 2012) of deductible temporary differences, unused tax losses and unused tax credits will not be used. Consequently, net deferred tax assets have not been recognized. The related tax impact of € 193 million (€ 153 million at December 31, 2013; € 175 million at December 31, 2012) is attributable to the following:
Tax losses
In 2014
In 2015
In 2016
In 2017
In 2018
In 2019 and after (limited)
Unlimited
Unused tax credits
Deductible temporary differences
Depreciation and Amortization
Pensions(A)
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Substantially all of the tax losses not expected to be used reside in the Netherlands, in France and in Switzerland.
The holding companies in the Netherlands have been generating tax losses over the past three years, and these holding companies are not expected to generate sufficient taxable profits in the foreseeable future to utilize these tax losses before they expire in the years from 2018 to 2021.
The tax losses not expected to be utilized in France relate to losses generated by certain of our French companies prior to joining the tax consolidation group created on January 1, 2012. Although tax losses do not expire in France and although the French tax consolidation group is profitable, tax losses generated prior to joining the tax group by loss-generating companies can only be utilized on a stand-alone basis. It is more likely than not that these loss-making companies will not be able to utilize their losses on a stand-alone basis in the foreseeable future. Consequently, the related deferred tax assets have not been recognized.
The tax losses not expected to be utilized in Switzerland relate to losses, generated by one of our Swiss entities, that will expire in the years from 2019 to 2021. Due to the adverse consequences of certain 2014 agreements which will terminate beyond 2019, this Swiss entity is not expected to generate sufficient taxable profits over the next coming years to utilize these losses before they expire.
Substantially all the unrecognized deferred tax assets on deductible temporary differences on pension relate to the United States and to the Swiss entity. In assessing the recoverability of these deferred tax assets we have carefully considered the available positive and negative evidence, and determined that the positive evidence (such as recent profits, which were positively impacted by non-recurring favorable items) is less objectively verifiable and still carries less weight than the negative evidence (such as long history of operating losses, specific unfavorable agreements and lack of long term visibility on future operating profits) in the assessment of long term deferred tax asset recognition.
NOTE 28—COMMITMENTS
Non-cancellable operating leases commitments
The Group leases various buildings, machinery, and equipment under operating lease agreements. Total rent expense was €19 million for the year ended December 31, 2014 (€17 million for the year ended December 31, 2013).
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Total non-cancellable operating leases minimum payments
Capital expenditure commitments
Property, Plant and equipment
Total capital expenditure commitments
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NOTE 29—RELATED PARTY TRANSACTIONS
The following table describes the nature and amounts of related party transactions included in the Consolidated Income Statement.
Revenue(A)
Metal supply(B)
Exit fees
Interest expense(C)
Realized exchange loss on other financial items
Unrealized exchange (loss) on financing activities
Realized gains on derivatives
Other Gains—net
Direct expenses related to acquisition, separation and IPO(D)
The following table describes the nature and year-end related party balances of amounts included in the Consolidated Statement of Financial Position, none of which is secured by pledged assets or collateral.
Transactions with Rio Tinto are unrelated since December 12, 2013 (see NOTE 1—General information).
NOTE 30—KEY MANAGEMENT REMUNERATION
The Group’s key management comprises the Board members and the Executive committee members effectively present during 2014.
The Board members have been included for the period they were considered as Board member or member of the Executive Committee.
Key management personnel referred above as Executive committee members are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly including Vice-Presidents of key activities of the Group.
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The costs reported below are the compensation and benefits incurred for the Key management:
As a result, the aggregate compensation for the Group’s key management is comprised of the following:
Short-term employee benefits
Directors fees
Share based payments
Post-employment benefits
Termination benefits
Employer social contributions
NOTE 31—SUBSIDIARIES AND OPERATING SEGMENTS
The following is a list of the Group’s principal subsidiaries. They are wholly-owned subsidiaries of Constellium and are legal entities for which all or a substantial portion of the operations, assets, liabilities, and cash flows are included in the continuing operations of the consolidated reporting Group as of December 31, 2014.
Entity
Country
Cross Operating Segment
Constellium France S.A.S. (A&T, P&ARP and Holdings & Corporate)
Constellium Singen GmbH (AS&I and P&ARP)
Constellium Valais S.A. (AS&I and A&T)
Constellium Automotive USA, LLC
Constellium Engley (Changchun) Automotive Structures Co Ltd.
Constellium Extrusions Decin S.r.o.
Constellium Extrusions Deutschland GmbH
Constellium Extrusions France S.A.S.
Constellium Extrusions Levice S.r.o.
Constellium Aviatube
Constellium China
Constellium Italy S.p.A
Constellium Japan KK
Constellium Property and Equipment Company, LLC
Constellium South East Asia
Constellium Ussel S.A.S.
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Constellium Deutschland GmbH
Constellium Neuf Brisach S.A.S.
C-TEC Constellium Technology Center
Constellium Finance S.A.S.
Constellium France Holdco S.A.S.
Constellium Germany Holdco GmbH & Co. KG
Constellium Germany Holdco Verwaltungs GmbH
Constellium Holdco II B.V.
Constellium Holdco III B.V.
Constellium Paris S.A.S.
Constellium UK Limited
Constellium U.S. Holdings I, LLC
Constellium U.S. Holdings II, LLC
Constellium Switzerland AG
Constellium W S.A.S.
Engineered Products International S.A.S.
Refer to NOTE 4—Operating Segment Information for definition and description of operating segments.
NOTE 32—SHARE EQUITY PLANS
Share based payment
Management equity plan (“MEP”)
The Company implemented a MEP for Constellium management in order to align their interests with the ones of the shareholders and to enable the selected managers to participate in the long-term growth of Constellium.
The MEP was implemented at the beginning of 2011, with an effective date of 4 February 2011, through the establishment of a management investment company, Omega Management GmbH & Co. KG (“Management KG”). The selected managers were invited to invest as limited partners in Management KG to have the opportunity to hold interests in the Company’s shares indirectly through this limited partnership. As a consequence, the selected Company Management is holding partnership interests in due proportion to their initial investment.
These MEP interests (related to ordinary B shares) are definitely acquired and vested by tranche according to year of service and performance:
In 2014, the accelerated vesting of the remaining non-vested portion of the Class B ordinary shares was approved. As a consequence, the fully vested Class B ordinary shares that were held through the management
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investment company, Omega Management GmbH & Co. KG (“Management KG”) have been converted into Class A ordinary shares.
In accordance with IFRS 2 “Share based payments”, the difference between the fair value at the grant date and the acquisition amount of the Class B ordinary shares is accounted for, over the vesting period of the related MEP partnership interests, in the consolidated income statement, with a corresponding increase in equity.
As of December 31, 2014, Management KG held 2.55% of the overall share capital of Constellium, consisting of 2,675,809 Class A ordinary shares.
Restricted stock unit (“RSU”) plans
Free share program
In 2013, a free share program was granted to all employees in the U.S., France, Germany, Switzerland and the Czech Republic. Under this program, each eligible employee was granted an award of 25 RSU under the Constellium 2013 Equity Plan that will vest and be settled in Class A ordinary shares on the second anniversary of our initial public offering, subject to the applicable employee remaining employed by the Company or its subsidiaries through that date.
In 2013, a shareholding retention program was implemented in order to encourage critical members of our senior management team to maintain a significant portion of their current investment under the Company’s MEP.
Beneficiaries of the MEP were awarded a one-time retention award under the Constellium 2013 Equity plan consisting of a grant of RSU with a grant date value equal to a specified percentage of the recipient’s annual base salary. The RSU will vest and be settled for our Class A ordinary shares on the second anniversary of the date of grant, subject to the recipient remaining continuously employed with the Group through that date and, for MEP participants, subject to the retention of at least 75% of interest in Class A ordinary shares under the MEP.
Equity Awards Plan
In May 2013, two non-employee directors were granted an award of 8,816 RSU with an aggregate grant date value of €0.1 million. The service vesting tranche vests 50% on each anniversary date of the equity award grant date.
In March and May 2014, three employees were granted 51,000 restricted stock units with an aggregate grant date value of €1.3 million. These RSU will vest 100% after a 2 year period if the employees are continuously employed from the grant date through the end of the 2 year period.
In June 2014, four board members were granted an award of 2,205 RSU each with an aggregate grant date value of €0.2 million. The service vesting tranche vests 50% on each anniversary date of the equity award grant date.
In September 2014, seven employees were granted 33,000 RSU with an aggregate grant date value of €0.7 million. These RSU will vest 100% after a 2 year period if the employees are continuously employed from the grant date through the end of the 2 year period.
Co-investment Plan
In March 2014, the company provided the opportunity to selected managers to invest part of their 2013 bonus paid in 2014 and to enter into a co-investment plan.
The selected managers who effectively decided to invest part of their bonus into ordinary shares, were granted performance based RSU in an amount equal to a specified multiple (“the vesting multiplier”) of ordinary
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shares (71,490) invested as part of this plan. These performance RSU will vest after a two year period from grant date if the three following conditions are simultaneously met:
Expense recognized during the year
In accordance with IFRS 2, an expense is recognized over the vesting period. The estimate of this expense is based upon the fair value of a Class A ordinary share at the grant date.
The total expense related to Share Equity Plans for the year ended December 31, 2014 and 2013, amounted to €4 million and €2 million respectively.
Movements in the number of potential shares:
Granted
Forfeited
Exercised
Expired
Potential shares are summarized as follows:
2013–05
2013–10
Total atDecember 31, 2013
2014–03
2014–05
2014–06
2014–09
Total atDecember 31, 2014
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NOTE 33—DISPOSALS, DISPOSALS GROUP CLASSIFIED AS HELD FOR SALE
Trade receivable and other
Cash and Cash equivalents
Liabilities of disposal group classified as held for sale
Pensions and other post-employment benefit obligations
Trade payable and other
NOTE 34—SUBSEQUENT EVENTS
On January 5, 2015, Constellium N.V. completed its acquisition of Wise Metals Intermediate Holdings LLC (“Wise”), a private aluminium sheet producer located in Muscle Shoals, Alabama. With the closing of the acquisition, Constellium now has access to 450,000 metric tons (kt) of hot mill capacity from the widest strip mill in North America, reinforcing its position on the can market and positioning Constellium to continue to grow in the North American Body-in-White market. (See NOTE 3—Acquisition of Wise entities).
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