UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-32312

Novelis Inc.

(Exact name of registrant as specified in its charter)

Canada		98-0442987
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
3560 Lenox Road, Suite 2000		30326
Atlanta, Georgia		(Zip Code)
(Address of principal executive offices)

Telephone: (404) 760-4000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90  days.   Yes þ     No o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).  Yes o     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

As of January 31, 2011, the registrant had 1,000 shares of common stock, no par value, outstanding. All of the registrant’s outstanding shares were held indirectly by Hindalco Industries Ltd., the registrant’s parent company.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements			3
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2010 and 2009 (unaudited)			3
		Condensed Consolidated Balance Sheets as of December 31, 2010 and March 31, 2010 (unaudited)			4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2010 and 2009 (unaudited)			5
		Condensed Consolidated Statement of Shareholder’s Equity for the Nine Months Ended December 31, 2010 (unaudited)			6
		Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended December 31, 2010 and 2009 (unaudited)			7
		Notes to the Condensed Consolidated Financial Statements (unaudited)			8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			37
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			53
Item 4.		Controls and Procedures			56
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings			59
Item 1A.		Risk Factors			59
Item 6.		Exhibits			60
EX-4.5
EX-4.6
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In millions)

		Three Months								Nine Months
		Ended								Ended
		December 31,								December 31,
		2010				2009				2010				2009
Net sales		$	2,560			$	2,112			$	7,617			$	6,253
Cost of goods sold (exclusive of depreciation and amortization)			2,232				1,795				6,628				5,066
Selling, general and administrative expenses			94				92				272				243
Depreciation and amortization			100				93				307				285
Research and development expenses			9				10				27				27
Interest expense and amortization of debt issuance costs			46				44				125				131
Interest income			(4	)			(2	)			(10	)			(8	)
Gain on change in fair value of derivative instruments, net			(30	)			(40	)			(58	)			(192	)
Loss on early extinguishment of debt			74				—				74				—
Restructuring charges, net			20				1				35				7
Equity in net (gain) loss of non-consolidated affiliates			5				(8	)			11				12
Other (income) expense, net			16				(2	)			5				(21	)
			2,562				1,983				7,416				5,550
Income (loss) before income taxes			(2	)			129				201				703
Income tax provision			33				48				104				247
Net income (loss)			(35	)			81				97				456
Net income attributable to noncontrolling interests			11				13				31				50
Net income (loss) attributable to our common shareholder		$	(46	)		$	68			$	66			$	406

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(In millions, except number of shares)

		December 31,				March 31,
		2010				2010
ASSETS
Current assets
Cash and cash equivalents		$	297			$	437
Accounts receivable (net of allowances of $6 and $4 as of December 31, 2010 and March 31, 2010)
— third parties			1,180				1,143
— related parties			16				24
Inventories			1,301				1,083
Prepaid expenses and other current assets			47				39
Fair value of derivative instruments			168				197
Deferred income tax assets			17				12
Total current assets			3,026				2,935
Property, plant and equipment, net			2,490				2,632
Goodwill			611				611
Intangible assets, net			707				749
Investment in and advances to non-consolidated affiliates			683				709
Fair value of derivative instruments, net of current portion			20				7
Long-term deferred income tax assets			14				5
Other long-term assets
— third parties			178				93
— related parties			19				21
Total assets		$	7,748			$	7,762
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Current portion of long-term debt		$	21			$	116
Short-term borrowings			121				75
Accounts payable
— third parties			1,104				1,076
— related parties			45				53
Fair value of derivative instruments			105				110
Accrued expenses and other current liabilities			441				436
Deferred income tax liabilities			36				34
Total current liabilities			1,873				1,900
Long-term debt, net of current portion			4,060				2,480
Long-term deferred income tax liabilities			519				497
Accrued postretirement benefits			517				499
Other long-term liabilities			357				376
Total liabilities			7,326				5,752
Commitments and contingencies
Shareholder’s equity
Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of December 31, 2010 and March 31, 2010			—				—
Additional paid-in capital			1,830				3,530
Accumulated deficit			(1,492	)			(1,558	)
Accumulated other comprehensive loss			(88	)			(103	)
Total Novelis shareholder’s equity			250				1,869
Noncontrolling interests			172				141
Total equity			422				2,010
Total liabilities and shareholder’s equity		$	7,748			$	7,762

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In millions)

		Nine Months
		Ended
		December 31,
		2010				2009
OPERATING ACTIVITIES
Net income		$	97			$	456
Adjustments to determine net cash provided by (used in) operating activities:
Depreciation and amortization			307				285
Gain on change in fair value of derivative instruments, net			(58	)			(192	)
Loss on extinguishment of debt			74				—
Deferred income taxes			12				230
Write-off and amortization of fair value adjustments, net			8				(139	)
Equity in net loss of non-consolidated affiliates			11				12
Foreign exchange remeasurement of debt			—				(17	)
Gain on sale of assets			(11	)			—
Gain on reversal of accrued legal claim			—				(3	)
Other, net			3				8
Changes in assets and liabilities:
Accounts receivable			(37	)			107
Inventories			(220	)			(218	)
Accounts payable			22				34
Other current assets			(7	)			9
Other current liabilities			21				35
Other noncurrent assets			(8	)			(16	)
Other noncurrent liabilities			4				39
Net cash provided by operating activities			218				630
INVESTING ACTIVITIES
Capital expenditures			(132	)			(74	)
Proceeds from sales of assets, third parties			18				4
Proceeds from sales of assets, related parties			10				—
Changes to investment in and advances to non-consolidated affiliates			1				3
Proceeds from related party loans receivable, net			8				15
Net proceeds (outflow) from settlement of derivative instruments			81				(432	)
Net cash used in investing activities			(14	)			(484	)
FINANCING ACTIVITIES
Proceeds from issuance of debt, third parties			3,985				177
Proceeds from issuance of debt, related parties			—				4
Principal payments, third parties			(2,486	)			(20	)
Principal payments, related parties			—				(95	)
Short-term borrowings, net			49				(211	)
Return of capital to our common shareholder			(1,700	)			—
Dividends, noncontrolling interest			(18	)			(13	)
Debt issuance costs			(174	)			(1	)
Net cash used in financing activities			(344	)			(159	)
Net decrease in cash and cash equivalents			(140	)			(13	)
Effect of exchange rate changes on cash balances held in foreign currencies			—				17
Cash and cash equivalents — beginning of period			437				248
Cash and cash equivalents — end of period		$	297			$	252

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY (unaudited)
(In millions, except number of shares)

		Novelis Inc. Shareholder
																		Accumulated
																		Other
										Additional								Comprehensive				Non-
		Common Stock								Paid-in				Accumulated				Loss				controlling				Total
		Shares				Amount				Capital				Deficit				(AOCI)				Interests				Equity
Balance as of March 31, 2010			1,000			$	—			$	3,530			$	(1,558	)		$	(103	)		$	141			$	2,010
Net loss attributable to our common shareholder			—				—				—				66				—				—				66
Net income attributable to noncontrolling interests			—				—				—				—				—				31				31
Currency translation adjustment, net of tax provision of $— million included in Accumulated other comprehensive income			—				—				—				—				5				1				6
Change in fair value of effective portion of cash flow hedges, net of tax provision of $11 included in Accumulated other comprehensive income			—				—				—				—				21				—				21
Postretirement benefit plans:
Change in pension and other benefits, net of tax provision of $6 included in Accumulated other comprehensive income			—				—				—				—				(11	)			—				(11	)
Return of capital to our common shareholder			—				—				(1,700	)			—				—				—				(1,700	)
Noncontrolling interests dividends			—				—				—				—				—				(1	)			(1	)
Balance as of December 31, 2010			1,000			$	—			$	1,830			$	(1,492	)		$	(88	)		$	172			$	422

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(In millions)

		Three Months Ended												Three Months Ended
		December 31, 2010												December 31, 2009
		Attributable to				Attributable to								Attributable to				Attributable to
		Our Common				Noncontrolling								Our Common				Noncontrolling
		Shareholder				Interests				Total				Shareholder				Interests				Total
Net income (loss)		$	(46	)		$	11			$	(35	)		$	68			$	13			$	81
Other comprehensive income (loss):
Currency translation adjustment			(33	)			—				(33	)			(21	)			2				(19	)
Net change in fair value of effective portion of cash flow hedges			22				—				22				3				—				3
Postretirement benefit plans:
Change in pension and other benefits			(17	)			—				(17	)			7				—				7
Other comprehensive income (loss) before income tax effect			(28	)			—				(28	)			(11	)			2				(9	)
Income tax provision related to items of other comprehensive income (loss)			(2	)			—				(2	)			3				—				3
Other comprehensive income, net of tax			(26	)			—				(26	)			(14	)			2				(12	)
Comprehensive income		$	(72	)		$	11			$	(61	)		$	54			$	15			$	69

		Nine Months Ended												Nine Months Ended
		December 31, 2010												December 31, 2009
		Attributable to				Attributable to								Attributable to				Attributable to
		Our Common				Noncontrolling								Our Common				Noncontrolling
		Shareholder				Interests				Total				Shareholder				Interests				Total
Net income		$	66			$	31			$	97			$	406			$	50			$	456
Other comprehensive income (loss):
Currency translation adjustment			5				1				6				109				16				125
Net change in fair value of effective portion of cash flow hedges			32				—				32				(1	)			—				(1	)
Postretirement benefit plans:
Change in pension and other benefits			(17	)			—				(17	)			13				—				13
Other comprehensive income before income tax effect			20				1				21				121				16				137
Income tax provision related to items of other comprehensive income (loss)			5				—				5				9				—				9
Other comprehensive income, net of tax			15				1				16				112				16				128
Comprehensive income		$	81			$	32			$	113			$	518			$	66			$	584

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.   BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

References herein to “Novelis,” the “Company,” “we,” “our,” or “us” refer to Novelis Inc. and its subsidiaries unless the context specifically indicates otherwise. References herein to “Hindalco” refer to Hindalco Industries Limited. In October 2007, the Rio Tinto Group purchased all the outstanding shares of Alcan, Inc. and became Rio Tinto Alcan Inc. References herein to “Rio Tinto Alcan” refer to Rio Tinto Alcan Inc.

Description of Business and Basis of Presentation

Novelis Inc., formed in Canada on September 21, 2004, and its subsidiaries, is the world’s leading aluminum rolled products producer based on shipment volume. We produce aluminum sheet and light gauge products where the end-use destination of the products includes the beverage and food can, transportation, construction and industrial, and foil products markets. As of December 31, 2010, we had operations on four continents: North America, Europe, Asia and South America, through 30 operating plants, one research facility and several market-focused innovation centers in 11 countries. In addition to aluminum rolled products plants, our South American businesses include bauxite mining, primary aluminum smelting and power generation facilities.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes in our Annual Report on Form 10-K for the year ended March 31, 2010 filed with the United States Securities and Exchange Commission (SEC) on May 27, 2010. Management believes that all adjustments necessary for the fair statement of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of judgment relate to (1) the fair value of derivative financial instruments; (2) impairment of goodwill; (3) impairments of long-lived assets, intangible assets and equity investments; (4) actuarial assumptions related to pension and other postretirement benefit plans; (5) income tax reserves and valuation allowances and (6) assessment of loss contingencies, including environmental, litigation and other tax reserves.

Acquisition of Novelis Common Stock

On May 15, 2007, the Company was acquired by Hindalco through its indirect wholly-owned subsidiary pursuant to a plan of arrangement (the Arrangement) at a price of $44.93 per share. The aggregate purchase price for all of the Company’s common shares was $3.4 billion and Hindalco also assumed $2.8 billion of Novelis’ debt for a total transaction value of $6.2 billion. Subsequent to completion of the Arrangement on May 15, 2007, all of our common shares were indirectly held by Hindalco.

Amalgamation of AV Aluminum Inc. and Novelis Inc.

Effective September 29, 2010, in connection with an internal restructuring transaction, pursuant to articles of amalgamation under the Canadian Business Corporations Act, we were amalgamated (the “Amalgamation”) with our direct parent AV Aluminum Inc., a Canadian corporation (AV Aluminum), to form an amalgamated corporation named Novelis Inc., also a Canadian corporation.

As a result of the Amalgamation, we and AV Aluminum continue our corporate existence, the amalgamated Novelis Inc. remains liable for all of our and AV Aluminum’s obligations and we continue to own all of our respective property. Since AV Aluminum was a holding company whose sole asset was the shares of the pre-amalgamated Novelis, our business, management, board of directors and corporate governance procedures following the Amalgamation are identical to those of Novelis immediately prior to the Amalgamation. Novelis Inc., like AV Aluminum, remains an indirect, wholly-owned subsidiary of Hindalco. We have retrospectively recast all periods presented to reflect the amalgamated companies.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) —
(Continued)

As of March 31, 2010, the Amalgamation increased the Company’s previously reported Additional paid-in capital by $33 million, and reduced Accumulated deficit by $33 million. The Amalgamation had no impact on our condensed consolidated statements of operations for the three and nine months ended December 31, 2010 and 2009 or our condensed consolidated statements of cash flows for the nine months ended December 31, 2010 and 2009.

Consolidation Policy

Our consolidated financial statements include the assets, liabilities, revenues and expenses of all wholly-owned subsidiaries, majority-owned subsidiaries over which we exercise control and entities in which we have a controlling financial interest or are deemed to be the primary beneficiary. We eliminate all significant intercompany accounts and transactions from our consolidated financial statements.

Reclassifications and Adjustment

Certain reclassifications of prior period amounts and presentation have been made to conform to the presentation adopted for the current period.

For the three and nine months ended December 31, 2009, we reclassified $7 million and $17 million, respectively, from Selling, general and administrative expenses to Costs of goods sold (exclusive of depreciation and amortization) to conform to the current year presentation.

In the condensed consolidated balance sheet as of March 31, 2010, we reclassified $3 million of capitalized software from Property, plant and equipment, net to Intangible assets. The reclassification had no impact on total assets, total liabilities, total equity, net income (loss) or cash flows as previously reported.

Recently Adopted Accounting Standards

Effective April 1, 2010, we adopted authoritative guidance in the Accounting Standards Update (ASU) No. 2009-17, Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. ASU No. 2009-17 was intended (1) to address the effects on certain provisions of the accounting standard dealing with consolidation of variable interest entities, as a result of the elimination of the qualifying special-purpose entity concept in ASU No. 2009-16, Transfers and Servicing: Accounting for Transfers of Financial Assets, and (2) to clarify questions about the application of certain key provisions related to consolidation of variable interest entities. This standard had no impact on our consolidated financial position, results of operations and cash flow, but did require certain additional footnote disclosures. These disclosures are included in Note 4 — Consolidation of Variable Interest Entities.

Recently Issued Accounting Standards

We have determined that recently issued accounting standards will not have a material impact on our consolidated financial position, results of operations and cash flow.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) —
(Continued)

2.   RESTRUCTURING PROGRAMS

Restructuring charges, net of $35 million on the condensed consolidated statement of operations for the nine months ended December 31, 2010, includes $7 million of items that were not reflected in the movement of the restructuring accrual, as they affected other accounts. The following table summarizes our restructuring accrual activity by region (in millions).

						North								South								Restructuring
		Europe				America				Asia				America				Corporate				Reserves
Balance as of March 31, 2010		$	28			$	10			$	—			$	—			$	—			$	38
Provisions, net			17				11				—				8				6				42
Cash payments			(7	)			(14	)			—				(3	)			(1	)			(25	)
Balance as of December 31, 2010		$	38			$	7			$	—			$	5			$	5			$	55

Europe

During the three months ended December 31, 2010, we announced that our foil rolling activities and part of our packaging business at our Bridgnorth, England facility will cease operation by April 2011. The closure and subsequent consolidation of the business into other plants in our European system aims to improve the competitiveness of the company’s overall foil and packaging production system in response to over-capacity in the European foil market and increasing competition from manufacturers in low-cost countries. We recorded $17 million of restructuring expense during the current period for employee termination, asset impairment and certain contract termination costs for this site, of which $5 million were non-cash items not reflected in the restructuring accrual table above.

We recorded a $10 million gain on asset sales to Hindalco related to the previously announced closure of our Rogerstone facility. Also, we recorded an additional $5 million of restructuring expense for severance and environmental costs related to restructuring actions initiated in prior years at other European plants. For the nine months ended December 31, 2010, we made $4 million in severance payments and $3 million in payments for environmental remediation.

North America

We recorded $11 million of restructuring expense for the nine months ended December 31, 2010, related to the relocation of our North American headquarters from Cleveland to Atlanta, and made $14 million in payments related to this move.

South America

We recorded $8 million of restructuring expense for the current period for employee termination, contract termination and certain environmental remediation costs related to the closure of our primary aluminum smelter at Aratu, Brazil. The closure was in response to high operating costs and lack of competitive priced energy supply. The closure affected approximately 300 workers and was completed by December 31, 2010.

Corporate

We recorded $5 million of restructuring expense for the nine months ended December 31, 2010, related to lease termination costs incurred in the relocation of our Corporate headquarters to a new facility in Atlanta and $1 million in other contract termination fees. The $5 million of lease termination costs includes a $1 million deferred credit on the former facility.

3.   INVENTORIES

Inventories consisted of the following (in millions).

		December 31,				March 31,
		2010				2010
Finished goods		$	264			$	270
Work in process			463				431
Raw materials			474				295
Supplies			107				93
			1,308				1,089
Allowances			(7	)			(6	)
Inventories		$	1,301			$	1,083

4.    CONSOLIDATION OF VARIABLE INTEREST ENTITIES (VIE)

          The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. Prior to March 31, 2010, the primary beneficiary was the entity that would absorb a majority of the economic risks and rewards of the VIE based on an analysis of projected probability-weighted cash flows. In accordance with the new accounting guidance on consolidation of VIEs effective April 1, 2010 (see Note 1), an entity is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

          We have a joint interest in Logan Aluminum Inc. (Logan) with ARCO Aluminum, Inc. (ARCO). Logan processes metal received from Novelis and ARCO and charges the respective partner a fee to cover expenses. Logan is thinly capitalized and relies on the regular reimbursement of costs and expenses by Novelis and ARCO to fund its operations. This reimbursement is considered a variable interest as it constitutes a form of financing of the activities of Logan. Other than these contractually required reimbursements, we do not provide other material support to Logan. Logan’s creditors do not have recourse to our general credit.

          Novelis has a majority voting right on Logan’s board of directors and has the ability to direct the majority of Logan’s production operations. We also have the ability to take the majority share of production and associated costs. These facts qualify Novelis as Logan’s primary beneficiary and this entity is consolidated for all periods presented. All significant intercompany transactions and balances have been eliminated.

          The following table summarizes the carrying value and classification of assets and liabilities owned by the Logan joint venture and consolidated on our condensed consolidated balance sheets (in millions). There are significant other assets used in the operations of Logan that are not part of the joint venture, as they are directly owned and consolidated by Novelis or ARCO.

		December 31,				March 31,
		2010				2010
Assets
Current assets
Cash and cash equivalents		$	3			$	3
Accounts receivable			28				29
Inventories, net			37				31
Prepaid expenses and other current assets			1				1
Total current assets			69				64
Property, plant and equipment, net			11				10
Goodwill			12				12
Deferred income taxes			52				41
Other long-term assets			3				3
Total assets		$	147			$	130
Liabilities
Current liabilities
Accounts payable		$	27			$	23
Accrued expenses and other current liabilities			14				12
Total current liabilities			41				35
Accrued postretirement benefits			118				97
Other long-term liabilities			2				3
Total liabilities		$	161			$	135

5.     INVESTMENT IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY TRANSACTIONS

          The following table summarizes our share of the condensed results of operations of our equity method affiliates. These results include the incremental depreciation and amortization expense that we record in our equity method accounting as a result of fair value adjustments made to our investments in non-consolidated affiliates due to the Arrangement.

          Included in the accompanying condensed consolidated financial statements are transactions and balances arising from business we conduct with these non-consolidated affiliates, which we classify as related party transactions and balances. The following table also describes the nature and amounts of significant transactions that we had with our non-consolidated affiliates (in millions). The results for the three months ended December 31, 2009 also include a $10 million after tax benefit from the refinement of our methodology of recording depreciation and amortization on the step up in our basis in the underlying assets of an investee.

		Three Months								Nine Months
		Ended								Ended
		December 31,								December 31,
		2010				2009				2010				2009
Net sales		$	52			$	63			$	167			$	183
Costs, expenses and provisions for taxes on income			57				55				178				195
Net income (loss)		$	(5	)		$	8			$	(11	)		$	(12	)
Purchase of tolling services from Aluminium Norf GmbH (Norf)		$	51			$	61			$	166			$	181

          We earned less than $1 million of interest income on a loan due from Norf during each of the periods presented in the table above.

          The following table describes the period-end account balances that we had with these non-consolidated affiliates, shown as related party balances in the accompanying condensed consolidated balance sheets (in millions). We had no other material related party balances.

		December 31,				March 31,
		2010				2010
Accounts receivable		$	16			$	24
Other long-term receivables		$	19			$	21
Accounts payable		$	45			$	53

          On December 17, 2010, we paid a dividend of $1.7 billion to our shareholder as a return of capital.

6.     DEBT

          Debt consists of the following (in millions).

		December 31, 2010																March 31, 2010
										Unamortized												Unamortized
		Interest								Fair Value				Carrying								Fair Value				Carrying
		Rates(A)				Principal				Adjustments(B)				Value				Principal				Adjustments(B)				Value
Third party debt:
Short term borrowings			2.74	%		$	121			$	—			$	121			$	75			$	—			$	75
Novelis Inc.
Floating rate Term Loan Facility, due December 2016			5.25	%			1,500				(44	)			1,456				—				—				—
Floating rate Term Loan Facility, due July 2014			—	%(C)			—				—				—				292				—				292
8.375% Senior Notes, due December 2017			8.375	%			1,100				—				1,100				—				—				—
8.75% Senior Notes, due December 2020			8.75	%			1,400				(1	)			1,399				—				—				—
11.5% Senior Notes, due February 2015			—	%(C)			—				—				—				185				(3	)			182
7.25% Senior Notes, due February 2015			7.25	%(C)			74				3				77				1,124				41				1,165
Novelis Corporation
Floating rate Term Loan Facility, due July 2014			—	%(C)			—				—				—				859				(46	)			813
Novelis Switzerland S.A.
Capital lease obligation, due December 2019 (Swiss francs (CHF) 46 million)			7.50	%			48				(3	)			45				45				(3	)			42
Capital lease obligation, due August 2011 (CHF 1 million)			2.49	%			1				—				1				1				—				1
Novelis Korea Limited
Bank loan, due October 2010			—	%			—				—				—				100				—				100
Other
Other debt, due December 2011 through November 2015			4.16	%			3				—				3				1				—				1
Total debt — third parties							4,247				(45	)			4,202				2,682				(11	)			2,671
Less: Short term borrowings							(121	)			—				(121	)			(75	)			—				(75	)
Current portion of long term debt							(21	)			—				(21	)			(116	)			—				(116	)
Long-term debt, net of current portion — third parties:						$	4,105			$	(45	)		$	4,060			$	2,491			$	(11	)		$	2,480

          Principal repayment requirements for our total debt over the next five years and thereafter (excluding unamortized fair value adjustments and using rates of exchange as of December 31, 2010 for our debt denominated in foreign currencies) are as follows (in millions).

As of December 31, 2010		Amount
Within one year		$	142
2 years			20
3 years			20
4 years			20
5 years			95
Thereafter			3,950
Total		$	4,247

     Refinancing

          During the three months ended December 31, 2010, we commenced a cash tender offer and consent solicitations for our 7.25% Senior Notes due 2015 (the “7.25% Notes”) and our 11.50% Senior Notes due 2015 (the “11.50% Notes,”). The entire $185 million aggregate outstanding principal amount of the 11.50% Notes was tendered and redeemed. Of the $1,124 million aggregate principal amount of the 7.25% Notes, $74 million was not redeemed and is expected to remain outstanding through maturity in February 2015. The 7.25% Notes that remain outstanding no longer contain substantially all of the restrictive covenants and certain events of default originally included in the indenture for the 7.25% Notes.

          On December 17, 2010 we completed a series of refinancing transactions. The refinancing transactions consisted of the sale of $1.1 billion in aggregate principal amount of 8.375% Senior Notes Due 2017 (the “2017 Notes”) and $1.4 billion in aggregate principal amount of 8.75% Senior Notes Due 2020 (the “2020 Notes” and together with the 2017 Notes, the “Notes”) and a new $1.5 billion secured term loan credit facility (the “2010 Term Loan Facility”).

          The proceeds from the refinancing transactions were used to repay our prior secured term loan credit facility, to fund our tender offers and related consent solicitations for our 7.25% Senior Notes and our 11.50% Senior Notes and to pay premiums, fees and expenses associated with the refinancing. In addition, a portion of the proceeds were used to fund a distribution of $1.7 billion as a return of capital to our shareholder.

          In addition, we replaced our existing $800 million asset based loan (“ABL”) facility with a new $800 million ABL facility (the “2010 ABL Facility”). We refer to the 2010 Term Loan Facility and the 2010 ABL Facility collectively as our “new senior secured credit facilities.”

          We paid tender premiums, fees and other costs of $174 million associated with the refinancing transactions, including fees paid to lenders, arrangers, and outside professionals such as attorneys and rating agencies. In accordance with Financial Accounting Standards Board Accounting Standards Codification Number 470 Debt, we performed an analysis to determine whether the old debt had been extinguished or modified. This analysis determines the treatment of fees paid in connection with the transaction and any existing unamortized fees, discounts and fair value adjustments associated with the old debt. As a result of that analysis, we recorded a Loss on early extinguishment of debt of $74 million. The remaining new fees and existing unamortized fees, discounts and fair value adjustments associated with the old debt of $125 million were capitalized and will be amortized as an increase to interest expense over the term of the related debt.

     2017 Notes and 2020 Notes

          Interest on the Notes is payable on June 15 and December 15 of each year, commencing on June 15, 2011. The Notes will mature on December 15, 2017 and 2020, respectively. Upon a change of control, we must offer to purchase the Notes at 101% of the principal amount, plus accrued and unpaid interest to the purchase date.

          The Notes are our senior unsecured obligations and rank equally with all of our existing and future unsecured senior indebtedness. The Notes are guaranteed, jointly and severally, on a senior unsecured basis, by all of our existing and future Canadian and U.S. restricted subsidiaries, certain of our existing foreign restricted subsidiaries and our other restricted subsidiaries that guarantee debt in the future under any credit facilities, provided that the borrower of such debt is a Canadian or a U.S. subsidiary (the “Guarantors”). The Notes and the guarantees effectively rank junior to our secured debt and the secured debt of the guarantors (including debt under our new senior secured credit facilities), to the extent of the value of the assets securing that debt.

          Prior to December 15, 2013 in the case of the 2017 Notes and prior to December 15, 2015 in the case of the 2020 Notes, the Company, at its option and from time to time, may redeem all or a portion of the Notes by paying a “make-whole” premium calculated under the Indenture. At any time on or after December 15, 2013 in the case of the 2017 Notes and on or after December 15, 2015 in the case of the 2020 Notes, the Company, at its option and from time to time, may redeem all or a portion of the applicable Notes. The redemption prices for the Notes are calculated based on a percentage of the principal amount of the Notes being redeemed, plus accrued and unpaid interest, if any, to the redemption date, and are dependent on the date on which the Notes are redeemed. These percentages range from between 100.000% and 106.281% in the case of the 2017 Notes and from between 100.000% and 104.375% in the case of the 2020 Notes. At any time prior to December 15, 2013, the Company may also redeem up to 35% of the original aggregate principal amount of each series of the Notes with the proceeds of certain equity offerings, at a redemption price equal to 108.375% of the principal amount of the Notes being redeemed (in the case of the 2017 Notes) and 108.75% of the principal amount of the Notes being redeemed (in the case of the 2020 Notes), plus, in each case, accrued and unpaid interest, if any, to the redemption date, provided that at least 65% of the original aggregate principal amount of the applicable series of Notes issued remains outstanding after the redemption.

          The Notes contain customary covenants and events of default that will limit our ability and, in certain instances, the ability of certain of our subsidiaries to (1) incur additional debt and provide additional guarantees, (2) pay dividends beyond certain amounts and make other restricted payments, (3) create or permit certain liens, (4) make certain asset sales, (5) use the proceeds from the sales of assets and subsidiary stock, (6) create or permit restrictions on the ability of certain of the Company’s subsidiaries to pay dividends or make other distributions to the Company, (7) engage in certain transactions with affiliates, (8) enter into sale and leaseback transactions, (9) designate subsidiaries as unrestricted subsidiaries and (10) consolidate, merge or transfer all or substantially all of the our assets and the assets of certain of our subsidiaries. During any future period in which either Standard & Poor’s Ratings Group, Inc., a division of the McGraw-Hill Companies, Inc. or Moody’s Investors Service, Inc. have assigned an investment grade credit rating to the Notes and no default or event of default under the Indenture has occurred and is continuing, most of the covenants will be suspended.

     Registration Rights Agreements

          The Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), but include registration rights. The Notes were sold to qualified institutional buyers pursuant to Rule 144A and, outside the United States, pursuant to Regulation S of the Securities Act.

          In connection with the issuance of the Notes, Novelis Inc. and the Guarantors entered into registration rights agreements, dated as of December 17, 2010, with the initial purchasers of the Notes (the “Registration Rights Agreements”), obligating us to:

•

use reasonable effort to file a registration statement with respect to an exchange offer within 180 days after the issue date of the Notes and cause the registration statement to be declared effective under the Securities Act within 365 days after the issue date of the Notes;

•

commence the exchange offer as soon as practicable after the effectiveness of the registration statement; and

•

keep the exchange offer open for not less than 30 days after the date notice of the exchange offer is mailed to the holders of the Notes.

If we fail to satisfy its obligations under the Registration Rights Agreements we may be required to pay additional interest on the Notes.

     New Senior Secured Credit Facilities

          Our new senior secured credit facilities consist of (1) the $1.5 billion six-year 2010 Term Loan Facility that may be increased in minimum amounts of $50 million per increase provided that the senior secured net leverage ratio shall not, on a proforma basis, exceed 2.5 to 1 and (2) the $800 million five-year New ABL Facility that may be increased by an additional $200 million. Scheduled principal amortization payments under the 2010 Term Loan Facility are $3.75 million per calendar quarter. Any unpaid principal will be due in full in December 2016. Borrowings under the 2010 ABL Facility are subject to certain limitations, generally based on 85% of the book value of eligible North American and certain eligible European accounts receivable; plus up to the lesser of (i) 75% of the net book value of all eligible North American and U.K. inventory or (ii) 85% of the appraised net orderly liquidation value of all eligible North American and U.K. inventory; minus such reserves as the agent bank may establish in good faith in accordance with such agent banks’ permitted discretion. Substantially all of our assets are pledged as collateral under the new senior secured credit facilities. The new senior secured credit facilities are guaranteed by substantially all of our restricted subsidiaries that guarantee the Notes. Generally, for both the 2010 Term Loan Facility and 2010 ABL Facility, interest rates reset periodically and interest is payable on a periodic basis depending on the type of loan. We may prepay borrowings under the new senior secured credit facilities, if certain minimum prepayment amounts and breakage costs are satisfied.

          The new senior secured credit facilities include various customary covenants and events of default, including limitations on our ability to 1) make certain restricted payments, 2) incur additional indebtedness, 3) sell certain assets, 4) enter into sale and leaseback transactions, 5) make investments, loans and advances, 6) pay dividends and distributions beyond certain amounts, 7) engage in mergers, amalgamations or consolidations, 8) engage in certain transactions with affiliates, and 9) prepay certain indebtedness. In addition, under the New ABL Facility, if (a) our excess availability under the New ABL Facility is less than the greater of (i) 12.5% of the lesser of (x) the total New ABL Facility commitment at any time and (y) the then applicable borrowing base and (ii) $90 million, at any time or (b) any event of default has occurred and is continuing, we are required to maintain a minimum fixed charge coverage ratio of at least 1.1 to 1 until (1) such excess availability has subsequently been at least the greater of (i) 12.5% of the lesser of (x) the total New ABL Facility commitments at such time and (y) the then applicable borrowing base for 30 consecutive days and (ii) $90 million and (2) no default is outstanding during such 30 day period. As of December 31, 2010 our excess availability under the New ABL Facility was $573 million, or 72% of the lender commitments.

          Further, under the New Term Loan Facility we may not permit our total net leverage ratio as of the last day of our four consecutive quarters ending with any fiscal quarter to be greater than the ratio set forth below opposite the period in the table below during which the last day of such period occurs:

		Total Net
Period		Leverage Ratio
March 30, 2011 through March 31, 2012		4.75 to 1.0
April 1, 2012 through March 31, 2013		4.50 to 1.0
April 1, 2013 through March 31, 2014		4.375 to 1.0
April 1, 2014 through March 31, 2015		4.25 to 1.0
April 1, 2015 and thereafter		4.0 to 1.0

          The new senior secured credit facilities also contains various affirmative covenants, including covenants with respect to our financial statements, litigation and other reporting requirements, insurance, payment of taxes, employee benefits and (subject to certain limitations) causing new subsidiaries to pledge collateral and guaranty our obligations. As of December 31, 2010, we were compliant with these covenants.

     Short-Term Borrowings and Lines of Credit

          As of December 31, 2010, our short-term borrowings were $121 million consisting of bank overdrafts and borrowings under the 2010 ABL Facility. As of December 31, 2010, $28 million of the ABL Facility was utilized for letters of credit, and we had $573 million in remaining availability under this revolving credit facility. The weighted average interest rate on our total short-term borrowings was 2.74% and 1.71% as of December 31, 2010 and March 31, 2010, respectively.

          As of December 31, 2010, we had $121 million of outstanding letters of credit in Korea which are not related to the ABL Facility.

     Interest Rate Swaps

          We use interest rate swaps to manage our exposure to changes in the benchmark LIBOR interest rate which impacts our variable-rate debt. Prior to the completion of the December 17, 2010 refinancing transactions, these swaps were designated as cash flow hedges. Upon completion of the refinancing transaction, our exposure to changes in the benchmark LIBOR interest rate was limited. The 2010 Term Loan Facility contains a floor feature of the higher of LIBOR or 150 basis points applied to a spread of 3.75%. As of December 31, 2010, this floor feature was in effect, changing our variable rate debt to fixed rate debt. As a result, we ceased hedge accounting for these swaps. As of March 31, 2010, we had $520 million of interest rate swaps, of which $510 million were designated as cash flow hedges. No interest rate swaps were designated as of December 31, 2010.

          We had a cross-currency interest rate swap in Korea to convert our $100 million variable rate bank loan to KRW 92 billion at a fixed rate of 5.44%. On October 25, 2010, at maturity, we repaid this $100 million loan. The swap expired concurrent with the maturity of the loan.

7.     SHARE-BASED COMPENSATION

          The board of directors has authorized three long term incentive plans as follows:

•

The Novelis Long-Term Incentive Plan FY 2009 — FY 2012 (2009 LTIP) was authorized in June 2008. Under the 2009 LTIP, phantom stock appreciation rights (SARs) were granted to certain of our executive officers and key employees.

•

The Novelis Long-Term Incentive Plan FY 2010 — FY 2013 (2010 LTIP) was authorized in June 2009. Under the 2010 LTIP, SARs were granted to certain of our executive officers and key employees.

•

The Novelis Long-Term Incentive Plan FY 2011- FY 2014 (2011 LTIP) was authorized in May 2010. The 2011 LTIP provides for SARs and phantom restricted stock units (RSUs).

          Under all three plans, SARs vest at the rate of 25% per year, subject to performance criteria and expire seven years from their grant date. Each SAR is to be settled in cash based on the difference between the market value of one Hindalco share on the date of grant and the market value on the date of exercise, subject to a maximum payout as defined by the plan. The RSUs under the 2011 LTIP vest in full three years from the grant date and are not subject to performance criteria. The payout on the RSUs is limited to three times the grant price.

          Total compensation expense related to the long term incentive plans for the respective periods is presented in the table below (in millions). These amounts are included in Selling, general and administrative expenses in our condensed consolidated statements of operations. As the performance criteria for fiscal years 2012, 2013 and 2014 have not yet been established, measurement periods for SARs relating to those periods have not yet commenced. As a result, only compensation expense for vested and current year SARs has been recorded for the three and nine months ended December 31, 2010 and 2009.

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
2009 LTIP		$	1			$	2			$	4			$	3
2010 LTIP			1				1				7				2
2011 LTIP			2				—				3				—
Total compensation expense		$	4			$	3			$	14			$	5

          The tables below show the RSUs activity under our 2011 LTIP and the SARs activity under our 2011 LTIP, 2010 LTIP and 2009 LTIP.

Aggregate

Grant Date Fair

Intrinsic

Number of

Value

Value (USD

2011 LTIP

RSUs

(in Indian Rupees)

in millions)

RSUs outstanding as of March 31, 2010

—

—

$

—

Granted

905,704

147.78

3

Forfeited/Cancelled

(7,140

)

147.10

RSUs outstanding as of December 31, 2010

898,564

147.78

$

5

Aggregate

Remaining

Intrinsic

Number of

Exercise Price

Contractual Term

Value (USD

2011 LTIP

SARs

(in Indian Rupees)

(In years)

in millions)

SARs outstanding as of March 31, 2010

—

—

—

$

—

Granted

7,114,877

147.78

Forfeited/Cancelled

(56,088

)

147.10

SARs outstanding as of December 31, 2010

7,058,789

147.78

6.40

$

16

						Weighted				Weighted Average				Aggregate
						Average				Remaining				Intrinsic
		Number of				Exercise Price				Contractual Term				Value (USD
2010 LTIP		SARs				(in Indian Rupees)				(In years)				in millions)
SARs outstanding as of March 31, 2010			13,680,431				87.68				6.24			$	29
Granted			32,278				125.33
Exercised			(1,965,238	)			86.19
Forfeited/Cancelled			(635,894	)			85.79
SARs outstanding as of December 31, 2010			11,111,577				88.45				5.48			$	25

														Aggregate
										Remaining				Intrinsic
		Number of				Exercise Price				Contractual Term				Value (USD
2009 LTIP		SARs				(in Indian Rupees)				(In years)				in millions)
SARs outstanding as of March 31, 2010			11,371,399				60.50				5.25			$	18
Exercised			(1,637,230	)			60.50
Forfeited/Cancelled			(718,626	)			60.50
SARs outstanding as of December 31, 2010			9,015,543				60.50				4.47			$	14

          The fair value of each SAR is based on the difference between the fair value of a long call and a short call option. The fair value of each of these call options was determined using the Monte Carlo Simulation model. We used historical stock price volatility data of Hindalco on the National Stock Exchange of India to determine expected volatility assumptions. The fair value of each SAR under the 2011 LTIP, 2010 LTIP and 2009 LTIP was estimated as of December 31, 2010 using the following assumptions:

		2011 LTIP		2010 LTIP		2009 LTIP
Risk-free interest rate		7.54 — 7.83%		7.55 — 7.84%		7.17 — 7.44%
Dividend yield		0.55%		0.55%		0.55%
Volatility		48.39%		51.25%		52.91%
Time interval (in years)		0.004		0.004		0.004

          The fair value of the SARs is being recognized over the requisite performance and service period of each tranche, subject to the achievement of any performance criterion. As of December 31, 2010, 3,570,835 SARs were exercisable.

          Unrecognized compensation expense related to the non-vested SARs (assuming all future performance criteria are met) is $31 million which is expected to be realized over a weighted average period of 2.34 years. Unrecognized compensation expense related to the RSU’s is $4 million and will be recognized over the vesting period of three years.

8.     POSTRETIREMENT BENEFIT PLANS

          Our pension obligations relate to funded defined benefit pension plans in the U.S., Canada, Switzerland and the U.K.; unfunded pension plans in Germany; unfunded lump sum indemnities in France, Malaysia and Italy; and partially funded lump sum indemnities in South Korea. Our other postretirement obligations (Other Benefits, as shown in certain tables below) include unfunded healthcare and life insurance benefits provided to retired employees in Canada, the U.S. and Brazil.

          Components of net periodic benefit cost for all of our significant postretirement benefit plans are shown in the tables below (in millions).

		Pension Benefit Plans
		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Service cost		$	9			$	8			$	27			$	24
Interest cost			16				15				48				43
Expected return on assets			(14	)			(10	)			(42	)			(30	)
Amortization — losses			2				3				8				9
Net periodic benefit cost		$	13			$	16			$	41			$	46

		Other Benefits
		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Service cost		$	2			$	2			$	6			$	5
Interest cost			2				2				6				8
Net periodic benefit cost		$	4			$	4			$	12			$	13

          The expected long-term rate of return on plan assets is 6.8% in fiscal 2011.

     Employer Contributions to Plans

          For pension plans, our policy is to fund an amount required to provide for contractual benefits attributed to service to-date, and amortize unfunded actuarial liabilities typically over periods of 15 years or less. We also participate in savings plans in Canada and the U.S., as well as defined contribution pension plans in the U.S., U.K., Canada, Germany, Italy, Switzerland, Malaysia and Brazil. We contributed the following amounts to all plans, including the Rio Tinto Alcan plans that cover our employees (in millions).

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Funded pension plans		$	15			$	10			$	32			$	22
Unfunded pension plans			3				3				9				11
Savings and defined contribution pension plans			4				4				13				11
Total contributions		$	22			$	17			$	54			$	44

          During the remainder of fiscal 2011, we expect to contribute an additional $8 million to our funded pension plans, $3 million to our unfunded pension plans and $5 million to our savings and defined contribution plans.

9.     CURRENCY (GAINS) LOSSES

          The following currency (gains) losses are included in the accompanying condensed consolidated statements of operations (in millions).

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Net gain on change in fair value of currency derivative instruments(A)		$	(42	)		$	(15	)		$	(53	)		$	(66	)
Net (gain) loss on remeasurement and transaction gains or losses(B)			11				(2	)			10				(9	)
Net currency gain		$	(31	)		$	(17	)		$	(43	)		$	(75	)