August 14, 2008 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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
		For the quarterly period ended June 30, 2008
		or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number: 001-32312

Novelis Inc.

(Exact name of registrant as specified in its charter)


Canada (State or other jurisdiction of incorporation or organization)		98-0442987 (I.R.S. employer identification number)

3399 Peachtree Road NE, Suite 1500 Atlanta, Georgia (Address of principal executive offices)		30326 (Zip Code)

Telephone: (404) 814-4200

(Registrants 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 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 July 31, 2008, the registrant had 77,459,658 common shares outstanding. All of the Registrants outstanding shares were held indirectly by Hindalco Industries Ltd., the Registrants parent company.

TABLE OF CONTENTS


	PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) Three Months Ended June 30, 2008; May 16, 2007 Through June 30, 2007 (Restated); and April 1, 2007 Through May 15, 2007	2
		Condensed Consolidated Balance Sheets (unaudited) As of June 30, 2008 and March 31, 2008 (Restated)	3
		Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Ended June 30, 2008; May 16, 2007 Through June 30, 2007 (Restated); and April 1, 2007 Through May 15, 2007	4
		Condensed Consolidated Statement of Shareholders Equity (unaudited) Three Months Ended June 30, 2008 (Restated as to opening balance)	5
		Notes to the Condensed Consolidated Financial Statements (unaudited)	6
	Item 2.	Managements Discussion and Analysis of Financial Condition and Results of Operations	44
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	71
	Item 4.	Controls and Procedures	75

	PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	77
	Item 6.	Exhibits	79
EX-10.1 EMPLOYMENT LETTER
EX-10.2 FORM OF NOVELIS LONG-TERM INCENTIVE PLAN
EX-31.1 SECTION CERTIFICATION OF PEO
EX-31.2 SECTION 302 CERTIFICATION OF PFO
EX-32.1 SECTION 906 CERTIFICATION OF PEO
EX-32.2 SECTION 906 CERTIFICATION OF PFO

PART I. FINANCIAL INFORMATION


Item 1.	*Financial Statements*

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (unaudited)
(in millions)


	Three Months			May 16, 2007			April 1, 2007
	Ended			Through			Through
	June 30, 2008			June 30, 2007			May 15, 2007
				(Restated)(A)
	Successor			Successor			Predecessor
Net sales	$	3,103		$	1,547		$	1,281

Cost of goods sold (exclusive of depreciation and amortization shown below)		2,831			1,436			1,205
Selling, general and administrative expenses		84			42			95
Depreciation and amortization		116			53			28
Research and development expenses		12			13			6
Interest expense and amortization of debt issuance costs net		40			25			26
(Gain) loss on change in fair value of derivative instruments net		(66	)		(14	)		(20	)
Equity in net (income) loss of non-consolidated affiliates		2			1			(1	)
Sale transaction fees								32
Other (income) expenses net		22			11			4

		3,041			1,567			1,375

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		62			(20	)		(94	)
Provision (benefit) for taxes on income (loss)		35			27			4

Income (loss) before minority interests share		27			(47	)		(98	)
Minority interests share		(2	)		2			1

Net income (loss)		25			(45	)		(97	)

Other comprehensive income (loss) net of tax
Currency translation adjustment		10			(2	)		35
Change in fair value of effective portion of hedges net		11			1			(1	)
Amortization of net actuarial loss for postretirement benefit plans								(1	)

Other comprehensive income (loss) net of tax		21			(1	)		33

Comprehensive income (loss)	$	46		$	(46	)	$	(64	)


(A)		See Note 2 Restatement of Financial Statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Novelis Inc.

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


	As of
	June 30,		March 31,
	2008		2008
			(Restated)(A)
	Successor		Successor

ASSETS
Current assets
Cash and cash equivalents	$	296	$	326
Accounts receivable (net of allowances of $1 as of June 30, 2008 and March 31, 2008)
third parties		1,577		1,248
related parties		27		31
Inventories		1,577		1,455
Prepaid expenses and other current assets		86		58
Current portion of fair value of derivative instruments		198		203
Deferred income tax assets		111		125

Total current assets		3,872		3,446
Property, plant and equipment net		3,253		3,357
Goodwill		1,868		1,869
Intangible assets net		868		888
Investment in and advances to non-consolidated affiliates		938		946
Fair value of derivative instruments net of current portion		32		21
Deferred income tax assets		9		12
Other long-term assets
third parties		92		102
related parties		37		41

Total assets	$	10,969	$	10,682


LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Current portion of long-term debt	$	14	$	15
Short-term borrowings		430		115
Accounts payable
third parties		1,613		1,582
related parties		61		55
Accrued expenses and other current liabilities		805		850
Deferred income tax liabilities		46		39

Total current liabilities		2,969		2,656
Long-term debt net of current portion		2,553		2,560
Deferred income tax liabilities		695		701
Accrued postretirement benefits		435		421
Other long-term liabilities		599		672

		7,251		7,010

Commitments and contingencies
Minority interests in equity of consolidated affiliates		149		149

Shareholders equity
Common stock, no par value; unlimited number of shares authorized; 77,459,658 shares issued and outstanding as of June 30, 2008 and March 31, 2008
Additional paid-in capital		3,497		3,497
Retained earnings (Accumulated deficit)		5		(20	)
Accumulated other comprehensive income (loss)		67		46

Total shareholders equity		3,569		3,523

Total liabilities and shareholders equity	$	10,969	$	10,682


(A)		See Note 2 Restatement of Financial Statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Novelis Inc.

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


	Three Months			May 16, 2007			April 1, 2007
	Ended			Through			Through
	June 30, 2008			June 30, 2007			May 15, 2007
	(Restated)(A)
	Successor			Successor			Predecessor
OPERATING ACTIVITIES
Net income (loss)	$	25		$	(45	)	$	(97	)
Adjustments to determine net cash provided by (used in) operating activities:
Depreciation and amortization		116			53			28
(Gain) loss on change in fair value of derivative instruments net		(66	)		(14	)		(20	)
Deferred income taxes		10			14			(18	)
Amortization of debt issuance costs		1						1
Write-off and amortization of fair value adjustments net		(64	)		(6	)
Equity in net (income) loss of non-consolidated affiliates		2			1			(1	)
Dividends from non-consolidated affiliates								4
Minority interests share		2			(2	)		(1	)
Impairment charges on long-lived assets		1
(Gain) loss on sales of property, plant and equipment net		(1	)
Changes in assets and liabilities:
Accounts receivable
third parties		(337	)		(59	)		(21	)
related parties		(2	)
Inventories		(129	)		70			(76	)
Prepaid expenses and other current assets		(29	)		5			(7	)
Other long-term assets		8			(1	)		(1	)
Accounts payable
third parties		63						(62	)
related parties		11			1
Accrued expenses and other current liabilities		(5	)		(78	)		42
Accrued postretirement benefits		16			5			1
Other long-term liabilities		27			12			(2	)

Net cash provided by (used in) operating activities		(351	)		(44	)		(230	)

INVESTING ACTIVITIES
Capital expenditures		(33	)		(22	)		(17	)
Proceeds from sales of property, plant and equipment		1			1
Changes to investment in and advances to non-consolidated affiliates		6			1			1
Proceeds from loans receivable net related parties		8			4
Net proceeds from settlement of derivative instruments		34			29			18

Net cash provided by (used in) investing activities		16			13			2

FINANCING ACTIVITIES
Proceeds from issuance of common stock					92
Proceeds from issuance of debt								150
Principal repayments		(4	)		(46	)		(1	)
Short-term borrowings net		313			83			60
Dividends minority interests					(1	)		(7	)
Debt issuance costs					(13	)		(2	)
Proceeds from the exercise of stock options								1

Net cash provided by (used in) financing activities		309			115			201

Net increase (decrease) in cash and cash equivalents		(26	)		84			(27	)
Effect of exchange rate changes on cash balances held in foreign currencies		(4	)					1
Cash and cash equivalents beginning of period		326			102			128

Cash and cash equivalents end of period	$	296		$	186		$	102

Supplemental disclosures of cash flow information:
Interest paid	$	17		$	14		$	13
Income taxes paid	$	55		$	12		$	9
Supplemental schedule of non-cash investing and financing activities related to the Acquisition of Novelis Common Stock (See Note 1):
Property, plant and equipment				$	(1,244	)
Goodwill				$	(1,866	)
Intangible assets				$	(859	)
Investment in and advances to non-consolidated affiliates				$	(610	)
Debt				$	66


(A)		See Note 2 Restatement of Financial Statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (unaudited)
(in millions, except number of shares)


						Retained			Accumulated
				Additional		Earnings			Other
	Common Stock			Paid-in		(Accumulated			Comprehensive
	Shares		Amount	Capital		Deficit)			Income (Loss)		Total

*Successor*
Balance as of March 31, 2008 (Restated)(A)		77,459,658	$	$	3,497	$	(20	)	$	46	$	3,523
Net income (loss)							25					25
Currency translation adjustment										10		10
Change in fair value of effective portion of hedges net										11		11

Balance as of June 30, 2008		77,459,658	$	$	3,497	$	5		$	67	$	3,569


(A)		See Note 2 Restatement of Financial Statements.

The accompanying notes are an integral part of these 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. References herein to 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 worlds 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 construction and industrial, beverage and food cans, foil products and transportation markets. As of June 30, 2008, we had operations on four continents: North America; Europe; Asia and South America, through 32 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, alumina refining, primary aluminum smelting and power generation facilities that are integrated with our rolling plants in Brazil.

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/A for the year ended March 31, 2008 filed with the United States Securities and Exchange Commission (SEC) on August 11, 2008. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to SEC Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading.

Acquisition of Novelis Common Stock and Predecessor and Successor Reporting

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 Companys 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.

Our acquisition by Hindalco was recorded in accordance with Staff Accounting Bulletin No. 103, Push Down Basis of Accounting Required in Certain Limited Circumstances (SAB No. 103). In the accompanying condensed consolidated balance sheets, the consideration and related costs paid by Hindalco in connection with the acquisition have been pushed down to us and have been allocated to the assets acquired and liabilities assumed in accordance with Financial Accounting Standards Board (FASB) Statement No. 141, Business Combinations. Due to the impact of push down accounting, the Companys condensed consolidated financial statements and certain note presentations for the three months ended June 30, 2007 are presented in two distinct periods to indicate the application of two different bases of accounting between the periods presented: (1) the period up to, and including, the acquisition date (April 1, 2007 through May 15, 2007, labeled Predecessor) and (2) the period after that date (May 16, 2007 through June 30, 2007, labeled Successor). The accompanying condensed consolidated financial statements include a black line division which indicates that the Predecessor and Successor reporting entities shown are not comparable.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Interim Reporting

The unaudited results of operations for the interim periods shown in these condensed consolidated financial statements, including the periods shown as Predecessor and Successor, are not necessarily indicative of operating results for the entire fiscal year. In the opinion of management, the accompanying unaudited condensed consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our consolidated financial position as of June 30, 2008 and March 31, 2008; the consolidated results of our operations and consolidated cash flows for (1) the three months ended June 30, 2008 and (2) the periods from May 16, 2007 through June 30, 2007 (as restated); and from April 1, 2007 through May 15, 2007; and changes in our consolidated shareholders equity for the three months ended June 30, 2008.

Dividends

Our board of directors has declared no dividends since October 26, 2006. Future dividends are at the discretion of the board of directors and will depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments governing our indebtedness, being in compliance with the appropriate indentures and covenants under the instruments that govern our indebtedness that would allow us to legally pay dividends and other relevant factors.

Recently Adopted Accounting Standards

The following accounting standards have been adopted by us during the three months ended June 30, 2008.

On April 1, 2008, we adopted FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities including an amendment of FASB Statement No. 115 (FASB Statement No. 159). FASB Statement No. 159 permits entities to choose to measure financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the fair value option) with changes in fair value reported in earnings each reporting period. The fair value option enables some companies to reduce the volatility in reported earnings caused by measuring related assets and liabilities differently without applying the complex hedge accounting requirements under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (FASB Statement No. 133), to achieve similar results. We already record our derivative contracts and hedging activities at fair value in accordance with FASB Statement No. 133. We did not elect the fair value option for any other financial instruments or certain other financial assets and liabilities that were not previously required to be measured at fair value.

On April 1, 2008, we adopted FASB Statement No. 157, Fair Value Measurements (FASB Statement No. 157), as it relates to financial assets and financial liabilities. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, which delayed our required adoption date of FASB Statement No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis, until April 1, 2009. Also in February 2008, the FASB issued FASB Staff Position No. FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which states that FASB Statement No. 13, Accounting for Leases, and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under FASB Statement No. 13 are excluded from the provisions of FASB Statement No. 157, except for assets and liabilities related to leases assumed in a business combination that are required to be measured at fair value under FASB Statement No. 141 or FASB Statement No. 141 (Revised), Business Combinations. See Note 15 Fair Value Measurements regarding our adoption of this standard.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

On April 1, 2008, we adopted FASB Staff Position (FSP) No. FIN 39-1, Amendment of FASB Interpretation No. 39, (FSP FIN 39-1). FSP FIN 39-1 amends FASB Statement No. 39, Offsetting of Amounts Related to Certain Contracts, by permitting entities that enter into master netting arrangements as part of their derivative transactions to offset in their financial statements net derivative positions against the fair value of amounts (or amounts that approximate fair value) recognized for the right to reclaim cash collateral or the obligation to return cash collateral under those arrangements. Our adoption of this standard did not have a material impact on our consolidated financial position, results of operations and cash flows.

Recently Issued Accounting Standards

The following new accounting standards have been issued, but have not yet been adopted by us as of June 30, 2008, as adoption is not required until future reporting periods.

In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (FASB Statement No. 162). FASB Statement No. 162 defines the order in which accounting principles that are generally accepted should be followed. FASB Statement No. 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We have not yet commenced evaluating the potential impact, if any, of the adoption of FASB Statement No. 162 on our consolidated financial position, results of operations and cash flows.

In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination of Useful Life of Intangible Assets, (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited. We have not yet commenced evaluating the potential impact, if any, of the adoption of FSP FAS 142-3 on our consolidated financial position, results of operations and cash flows.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (FASB Statement No. 161), an amendment of FASB Statement No. 133. FASB Statement No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and its related interpretations and (iii) how derivative instruments and related hedged items affect an entitys financial position, results of operations and cash flows. FASB Statement No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption permitted. FASB Statement No. 161 permits, but does not require, comparative disclosures for earlier periods upon initial adoption. We have not yet commenced evaluating the potential impact, if any, of the adoption of FASB Statement No. 161 on our consolidated financial position, results of operations, cash flows or disclosures related to derivative instruments and hedging activities.

In December 2007, the FASB issued Statement No. 141 (Revised), Business Combinations, (FASB Statement No. 141(R)) which establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FASB Statement No. 141(R) also requires acquirers to estimate the acquisition-date fair value of any contingent consideration and to recognize any subsequent changes in the fair value of contingent

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

consideration in earnings. We will be required to apply this new standard prospectively to business combinations for which the acquisition date is on or after the beginning of the annual reporting period beginning on or after December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. FASB Statement No. 141(R) amends certain provisions of FASB Statement No. 109, Accounting for Income Taxes, such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of FASB Statement No. 141(R) would also apply the provisions of FASB Statement No. 141(R). Early adoption is prohibited. We are currently evaluating the effects that FASB Statement No. 141(R) may have on our consolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (FASB Statement No. 160), which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within shareholders equity, but separate from the parents equity; (ii) the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and (iii) changes in a parents ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently. FASB Statement No. 160 applies to fiscal years beginning after December 15, 2008. Earlier adoption is prohibited. We have not yet commenced evaluating the potential impact, if any, of the adoption of FASB Statement No. 160 on our consolidated financial position, results of operations and cash flows.

We have determined that all other recently issued accounting standards will not have a material impact on our consolidated financial position, results of operations or cash flows, or do not apply to our operations.


2.	Restatement of Financial Statements

The Company has restated its consolidated financial statements as of March 31, 2008 and for the period from May 16, 2007 through March 31, 2008. This restatement corrects non-cash errors relating to our application of purchase accounting associated with an equity method investment which led to a misstatement of our provision for income taxes during the period we were finalizing our purchase accounting. The impact of the restatement on the period from May 16, 2007 through June 30, 2007 represented the correction of other miscellaneous adjustments related to an overstatement of deferred income tax expense that were deemed to be not material by management, either individually or in the aggregate. These adjustments do not have an impact on our compliance with the financial covenants under our 7.25% Senior Notes or under our New Senior Secured Credit Facilities (see Note 9 Debt to our accompanying condensed consolidated financial statements). See our Form 10-K/A filed with the SEC on August 11, 2008 for details of these corrections, including the effects of the restatement on the March 31, 2008 balance sheet.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

The following tables highlight the financial statement effect related to the above corrections for the period from May 16, 2007 through June 30, 2007.

Our condensed consolidated statement of operations and comprehensive income (loss) for the period from May 16, 2007 through June 30, 2007 is restated as follows (in millions).


	May 16, 2007 Through June 30, 2007
	As Previously						As
	Reported			Restatements			Restated
	Successor						Successor

Net sales	$	1,547		$			$	1,547

Cost of goods sold (exclusive of depreciation and amortization shown below)		1,436						1,436
Selling, general and administrative expenses		42						42
Depreciation and amortization		53						53
Research and development expenses		13						13
Interest expense and amortization of debt issuance costs net		25						25
(Gain) loss on change in fair value of derivative instruments net		(14	)					(14	)
Equity in net (income) loss of non-consolidated affiliates		1						1
Other (income) expenses net		11						11

		1,567						1,567

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		(20	)					(20	)
Provision (benefit) for taxes on income (loss)		36			(9	)		27

Income (loss) before minority interests share		(56	)		9			(47	)
Minority interests share		2						2

Net income (loss)		(54	)		9			(45	)

Other comprehensive income (loss) net of tax
Currency translation adjustment		(2	)					(2	)
Change in fair value of effective portion of hedges net		1						1

Other comprehensive income (loss) net of tax		(1	)					(1	)

Comprehensive income (loss)	$	(55	)	$	9		$	(46	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Our condensed consolidated statement of cash flows for the period from May 16, 2007 through June 30, 2007 is restated as follows (in millions).


	May 16, 2007 Through June 30, 2007
	As Previously						As
	Reported			Restatements			Restated
	Successor						Successor

OPERATING ACTIVITIES
Net income (loss)	$	(54	)	$	9		$	(45	)
Adjustments to determine net cash provided by (used in) operating activities:
Depreciation and amortization		53						53
(Gain) loss on change in fair value of derivative instruments net		(14	)					(14	)
Deferred income taxes		23			(9	)		14
Write-off and amortization of fair value adjustments net		(6	)					(6	)
Equity in net (income) loss of non-consolidated affiliates		1						1
Minority interests share		(2	)					(2	)
Changes in assets and liabilities (net of effects from acquisitions and divestitures):
Accounts receivable third parties		(59	)					(59	)
Inventories		70						70
Prepaid expenses and other current assets		5						5
Other long-term assets		(1	)					(1	)
Accounts payable related parties		1						1
Accrued expenses and other current liabilities		(78	)					(78	)
Accrued postretirement benefits		5						5
Other long-term liabilities		12						12

Net cash provided by (used in) operating activities		(44	)					(44	)

INVESTING ACTIVITIES
Capital expenditures		(22	)					(22	)
Proceeds from sales of assets		1						1
Changes to investment in and advances to non-consolidated affiliates		1						1
Proceeds from loans receivable net related parties		4						4
Net proceeds from settlement of derivative instruments		29						29

Net cash provided by (used in) investing activities		13						13
FINANCING ACTIVITIES
Proceeds from issuance of common stock		92						92
Principal repayments		(46	)					(46	)
Short-term borrowings net		83						83
Dividends minority interests		(1	)					(1	)
Debt issuance costs		(13	)					(13	)

Net cash provided by (used in) financing activities		115						115

Net increase (decrease) in cash and cash equivalents		84						84
Effect of exchange rate changes on cash balances held in foreign currencies
Cash and cash equivalents beginning of period		102						102

Cash and cash equivalents end of period	$	186		$			$	186

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


3.	Restructuring Programs

The following table summarizes the activity in our restructuring reserves (in millions).


										Other Exit
	Severance Reserves									Related Reserves								Total
				North									North					Restructuring
	Europe			America			Total			Europe			America		Total			Reserves

*Successor:*
Balance as of March 31, 2008	$	4		$	3		$	7		$	16		$	1	$	17		$	24
Provisions (recoveries) net					(1	)		(1	)										(1	)
Cash payments		(1	)					(1	)		(1	)				(1	)		(2	)
Adjustments other					2			2											2

Balance as of June 30, 2008	$	3		$	4		$	7		$	15		$	1	$	16		$	23


4.	Inventories

Inventories consist of the following (in millions).


	As of
	June 30, 2008			March 31, 2008
	Successor			Successor

Finished goods	$	355		$	357
Work in process		609			638
Raw materials		526			386
Supplies		88			75

		1,578			1,456
Allowances		(1	)		(1	)

Inventories	$	1,577		$	1,455


5.	Property, Plant and Equipment

Property, plant and equipment net, consists of the following (in millions).


	As of
	June 30, 2008			March 31, 2008
				(Restated)
	Successor			Successor

Land and property rights	$	260		$	258
Buildings		844			826
Machinery and equipment		2,481			2,460

		3,585			3,544
Accumulated depreciation and amortization		(413	)		(331	)

		3,172			3,213
Construction in progress		81			144

Property, plant and equipment net	$	3,253		$	3,357

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Total depreciation expense is shown in the table below (in millions). We had no material interest capitalized on construction projects related to property, plant and equipment for the periods presented.

Three Months

May 16, 2007

April 1, 2007

Ended

Through

June 30, 2008

June 30, 2007

May 15, 2007

Successor

Predecessor

Depreciation expense related to property, plant and equipment

$103

$49

$28


6.	Goodwill and Intangible Assets

Goodwill

Goodwill by operating segment is as follows (in millions).


	As of					As of
Operating Segment	March 31, 2008		Adjustments			June 30, 2008
	(Restated)
	Successor					Successor

North America	$	1,093	$	(1	)(A)	$	1,092
Europe		515					515
Asia
South America		261					261

	$	1,869	$	(1	)	$	1,868


(A)		Adjustment for final payment related to the transfer of pension plans in Canada for employees who elected to transfer their past service to Novelis. Plan assets transferred exceeded plan liabilities assumed by $1 million (See Note 12 Postretirement Benefit Plans).

Intangible Assets

The following table summarizes the components of intangible assets (in millions).


	As of
	June 30, 2008									March 31, 2008
	Successor									Successor
								Weighted									Weighted
								Average									Average
	Gross					Net		Estimated		Gross					Net		Estimated
	Carrying		Accumulated			Carrying		Useful		Carrying		Accumulated			Carrying		Useful
	Amount		Amortization			Amount		Life		Amount		Amortization			Amount		Life

Tradenames	$	152	$	(9	)	$	143		20 years	$	152	$	(6	)	$	146		20 years
Technology		169		(13	)		156		15 years		169		(10	)		159		15 years
Customer-related intangible assets		482		(27	)		455		20 years		484		(21	)		463		20 years
Favorable energy supply contract		124		(17	)		107		9.5 years		124		(13	)		111		9.5 years
Other favorable contracts		15		(8	)		7		3.3 years		15		(6	)		9		3.3 years

	$	942	$	(74	)	$	868		17.2 years	$	944	$	(56	)	$	888		17.2 years

Our favorable energy supply contract and other favorable contracts are amortized over their estimated useful lives using methods that reflect the pattern in which the economic benefits are expected to be

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

consumed. All other intangible assets are amortized using the straight-line method over their estimated useful lives.

The components of amortization expense related to intangible assets are as follows (in millions):


	Three Months		May 16, 2007		April 1, 2007
	Ended		Through		Through
	June 30, 2008		June 30, 2007		May 15, 2007
	Successor		Successor		Predecessor
Total Amortization expense related to intangible assets	$	18	$	7	$
Less: Amortization expense related to intangible assets included in Cost of goods sold(A)		5		3

Amortization expense related to intangible assets included in Depreciation and amortization	$	13	$	4	$


(A)		Relates to amortization of favorable energy and other supply contracts.

Estimated total amortization expense related to intangible assets for each of the five succeeding fiscal years is as follows (in millions). Actual amounts may differ from these estimates due to such factors as customer turnover, raw material consumption patterns, impairments, additional intangible asset acquisitions and other events.


Fiscal Year Ending March 31,

2009 (remaining nine months)	$	46
2010		60
2011		56
2012		55
2013		55


7.	Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions

The following table summarizes the ownership structure and our ownership percentage of the non-consolidated affiliates in which we have an investment as of June 30, 2008, and which we account for using the equity method. We have no material investments in affiliates that we account for using the cost method.


		Ownership
Affiliate Name	Ownership Structure	Percentage

Aluminium Norf GmbH	Corporation		50	%
Consorcio Candonga	Unincorporated Joint Venture		50	%
MiniMRF LLC	Limited Liability Company		50	%
Deutsche Aluminium Verpackung Recycling GmbH	Corporation		30	%
France Aluminium Recyclage S.A.	Public Limited Company		20	%

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

The following table summarizes the condensed results of operations of our equity method affiliates (on a 100% basis, in millions) on a historical basis of accounting. These results do not include the incremental depreciation and amortization expense that we record in our equity method accounting, which arises as a result of the amortization of fair value adjustments we made to our investments in non-consolidated affiliates due to the Arrangement. For the three months ended June 30, 2008 and the period from May 16, 2007 through June 30, 2007, we recorded incremental depreciation and amortization expense, net of tax of $9 million and $3 million, respectively, as part of our equity method accounting for these affiliates.


	Three Months		May 16, 2007		April 1, 2007
	Ended		Through		Through
	June 30, 2008		June 30, 2007		May 15, 2007

Net sales	$	157	$	85	$	45
Costs, expenses and provisions for taxes on income		142		81		43

Net income	$	15	$	4	$	2

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. We earned less than $1 million of interest income on a loan due from Aluminum Norf GmbH during each of the following periods: the three months ended June 30, 2008; the period from May 16, 2007 through June 30, 2007 and the period from April 1, 2007 through May 15, 2007. The following table describes the nature and amounts of significant transactions that we had with related parties (in millions).


	Three Months		May 16, 2007		April 1, 2007
	Ended		Through		Through
	June 30, 2008		June 30, 2007		May 15, 2007
	Successor		Successor		Predecessor
Purchases of tolling services and electricity
Aluminium Norf GmbH(A)	$	71	$	41	$	21
Consorcio Candonga(B)		3		2		1

Total purchases from related parties	$	74	$	43	$	22


(A)		We purchase tolling services (the conversion of customer-owned metal) from Aluminium Norf GmbH.

(B)		We purchase electricity from Consorcio Candonga for our operations in South America.

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


	As of
	June 30, 2008		March 31, 2008
	Successor		Successor

Accounts receivable(A)	$	27	$	31
Other long-term receivables(A)	$	37	$	41
Accounts payable(B)	$	61	$	55


(A)		The balances represent current and non-current portions of a loan due from Aluminium Norf GmbH.

(B)		We purchase tolling services from Aluminium Norf GmbH and electricity from Consorcio Candonga.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


8.	Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are comprised of the following (in millions).


	As of
	June 30, 2008		March 31, 2008
	Successor		Successor

Accrued compensation and benefits	$	125	$	141
Accrued settlement of legal claim		39		39
Accrued interest payable		41		15
Accrued income taxes		8		35
Current portion of fair value of unfavorable sales contracts		233		242
Current portion of fair value of derivative instruments		120		148
Other current liabilities		239		230

Accrued expenses and other current liabilities	$	805	$	850


9.	Debt

Debt consists of the following (in millions).


				As of
				June 30, 2008									March 31, 2008
							Unamortized									Unamortized
	Interest						Fair Value			Carrying						Fair Value			Carrying
	Rates(A)			Principal			Adjustments(B)			Value			Principal			Adjustments(B)			Value
							Successor									Successor

Novelis Inc.
7.25% Senior Notes, due February 2015		7.25	%	$	1,399		$	65		$	1,464		$	1,399		$	67		$	1,466
Floating rate Term Loan facility, due July 2014		4.79	%		297						297			298						298
Novelis Corporation
Floating rate Term Loan facility, due July 2014		4.79	%(C)		653						653			655						655
Novelis Switzerland S.A.
Capital lease obligation, due January 2020 (Swiss francs (CHF) 53 million)		7.50	%		52			(3	)		49			54			(4	)		50
Capital lease obligation, due August 2011 (CHF 3 million)		2.49	%		3						3			3						3
Novelis Korea Limited
Bank loan, due October 2010		5.44	%		100						100			100						100
Bank loans, due September 2008 through June 2011 (KRW 1 billion)		3.56	%(D)											1						1
Other
Other debt, due April 2008 through December 2012		1.64	%(D)		1						1			2						2

Total debt					2,505			62			2,567			2,512			63			2,575
Less: current portion					(14	)					(14	)		(15	)					(15	)

Long-term debt net of current portion				$	2,491		$	62		$	2,553		$	2,497		$	63		$	2,560

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


(A)		Interest rates are as of June 30, 2008 and exclude the effects of accretion/amortization of fair value adjustments as a result of the Arrangement.

(B)		Debt was recorded at fair value as a result of the Arrangement.

(C)		Excludes the effect of any related interest rate swaps. See New Senior Secured Credit Facilities.

(D)		Weighted average interest rate.

New Senior Secured Credit Facilities

On July 6, 2007, we entered into new senior secured credit facilities with a syndicate of lenders led by affiliates of UBS and ABN AMRO (New Credit Facilities) providing for aggregate borrowings of up to $1.76 billion. The New Credit Facilities consist of (1) a $960 million seven-year Term Loan facility (Term Loan facility) and (2) an $800 million five year multi-currency asset-based revolving credit line and letter of credit facility (ABL facility).

We incurred debt issuance costs on our New Credit Facilities totaling $32 million. These fees are included in Other long-term assets third parties and are being amortized over the life of the related borrowing in Interest expense and amortization of debt issuance costs net using the effective interest amortization method for the Term Loan facility and the straight-line method for the ABL facility. The unamortized amount of these costs was $25 million and $27 million as of June 30, 2008 and March 31, 2008, respectively.

During the quarter ended December 31, 2007, we entered into interest rate swaps to fix the variable LIBOR interest rate for up to $600 million of our floating rate Term Loan facility at effective weighted average interest rates and amounts expiring as follows: (i) 4.1% on $600 million through September 30, 2008, (ii) 4.0% on $500 million through March 31, 2009 and (iii) 4.0% on $400 million through March 31, 2010. We are still obligated to pay any applicable margin, as defined in our New Credit Facilities, in addition to these interest rates.

7.25% Senior Notes

On February 3, 2005, we issued $1.4 billion aggregate principal amount of senior unsecured debt securities (Senior Notes). The Senior Notes were priced at par, bear interest at 7.25% and mature on February 15, 2015.

As a result of the Arrangement, the Senior Notes were recorded at their fair value of $1.474 billion based on their market price of 105.25% of $1,000 face value per bond as of May 14, 2007. The incremental fair value of $74 million is being amortized to interest income over the remaining life of the Senior Notes in Interest expense and amortization of debt issuance costs net using the effective interest amortization method. Due to the change in the market price of our senior notes from 105.25% as of May 14, 2007 to 94.25% as of June 30, 2008, the estimated fair value of this debt has decreased $155 million to $1.318 billion.

Short-Term Borrowings and Lines of Credit

As of June 30, 2008, our short-term borrowings were $430 million consisting of (1) $359 million of short-term loans under our ABL facility, (2) a $40 million short-term loan in Korea and (3) $31 million in bank overdrafts. As of June 30, 2008, $30 million of our ABL facility was utilized for letters of credit and we had $411 million in remaining availability under this revolving credit facility.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

As of June 30, 2008, we had an additional $158 million under letters of credit in Korea not included in our revolving credit facility. The weighted average interest rate on our total short-term borrowings was 3.63% and 4.12% as of June 30, 2008 and March 31, 2008, respectively.


10.	Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) is comprised of the following (in millions).


	Three Months			May 16, 2007			April 1, 2007
	Ended			Through			Through
	June 30,			June 30,			May 15,
	2008			2007			2007
	Successor			Successor			Predecessor
Net change in foreign currency translation adjustments	$	10		$	(13	)	$	31
Net change in fair value of effective portion of hedges		19			2			(1	)
Amortization of net actuarial loss for postretirement benefit plans								(1	)

Net other comprehensive income (loss), before income tax effect		29			(11	)		29
Income tax effect		(8	)		10			4

Other comprehensive income (loss)	$	21		$	(1	)	$	33

Accumulated other comprehensive income (loss), net of income tax effects, is comprised of the following (in millions).


	As of
	June 30, 2008			March 31, 2008
				(Restated)
	Successor			Successor

Foreign currency translation adjustments	$	69		$	59
Fair value of effective portion of hedges net		11
Postretirement benefit plans:
Pension and other benefits		(13	)		(13	)

Accumulated other comprehensive income (loss)	$	67		$	46


11.	Share-Based Compensation

Novelis Long-Term Incentive Plan

In June 2008, our board of directors authorized the Novelis Long-Term Incentive Plan FY 2009 FY 2012 (2009 LTIP) covering the performance period from April 1, 2008 through March 31, 2012. Under the 2009 LTIP, phantom stock appreciation rights (SARs) are to be granted to certain of our executive officers and key employees. The SARs will vest at the rate of 25% per year, subject to performance criteria (see below) 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 compared to the date of exercise, converted from Indian rupees to U.S. dollars at the time of exercise. The amount of cash paid would be limited to (i) 2.5 times the target payout if exercised within one year of vesting or (ii) 3 times the target payout if exercised after one year of vesting. The SARs do not transfer any shareholder rights in Hindalco to a participant. As of June 30, 2008, no SARs have been awarded.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

The performance criterion for vesting is based on the actual overall Novelis Operating Earnings before Interest, Depreciation, Amortization and Taxes (Operating EBITDA, as defined in the 2009 LTIP) compared to the target Operating EBITDA established and approved each fiscal year. The minimum threshold for vesting each year is 75% of each annual target Operating EBITDA, at which point 75% of the SARs for that period would vest, with an equal pro rata amount of SARs vesting through 100% achievement of the target.

Pre-Acquisition Share-Based Compensation Expense

As a result of our acquisition by Hindalco on May 15, 2007, all of our share-based compensation awards (except for our Recognition Awards) were accelerated to vest, cancelled and settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction. Compensation expense resulting from the accelerated vesting of plan awards, totaling $45 million is included in Selling, general and administrative expenses in our condensed consolidated statement of operations for the period from April 1, 2007 through May 15, 2007.

Total Share-Based Compensation Expense 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.

Three Months

May 16, 2007

April 1, 2007

Ended

Through

June 30, 2008

June 30, 2007

May 15, 2007

Successor

Predecessor

Recognition Awards

0.1

0.4

1.5

Novelis 2006 Incentive Plan (stock options)

n.a.

14.5

Novelis 2006 Incentive Plan (SARs)

n.a.

5.6

Novelis Conversion Plan of 2005

n.a.

23.8

Stock Price Appreciation Unit Plan

n.a.

(0.5

)

Deferred Share Unit Plan for Non-Executive Directors

n.a.

0.2

Novelis Founders Performance Awards

n.a.

0.1

Total Share-Based Compensation Expense

0.1

0.4

45.2

n.a. not applicable

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


12.	Postretirement Benefit Plans

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


	Pension Benefit Plans									Other Postretirement Benefit Plans
	Three Months			May 16, 2007			April 1, 2007			Three Months			May 16, 2007		April 1, 2007
	Ended			Through			Through			Ended			Through		Through
	June 30, 2008			June 30, 2007			May 15, 2007			June 30, 2008			June 30, 2007		May 15, 2007
	Successor			Successor			Predecessor			Successor			Successor		Predecessor
Service cost	$	10		$	6		$	6		$	2		$	1	$	1
Interest cost		15			6			6			3			1		1
Expected return on assets		(13	)		(5	)		(5	)
Curtailment/settlement losses		1									(2	)

Net periodic benefit cost	$	13		$	7		$	7		$	3		$	2	$	2

The expected long-term rate of return on plan assets is 6.9% in fiscal 2009.

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 Alcan plans that cover our employees (in millions).


	Three Months		May 16, 2007		April 1, 2007
	Ended		Through		Through
	June 30, 2008		June 30, 2007		May 15, 2007
	Successor		Successor		Predecessor
Funded pension plans	$	4	$	4	$	4
Unfunded pension plans		4		2		2
Savings and defined contribution pension plans		5		2		2

Total contributions	$	13	$	8	$	8

During the remainder of fiscal 2009, we expect to contribute an additional $31 million to our funded pension plans, $13 million to our unfunded pension plans and $13 million to our savings and defined contribution plans.

During the quarter ended June 30, 2008, we finalized the pension transfer in Canada for those employees who elected to transfer their past service from Alcan to Novelis. During the quarter, Alcan transferred pension assets of $50 million and past service liability of $49 million to the Novelis Pension Plan (Canada). We recorded the $1 million difference between transferred plan assets and liabilities as an adjustment to Goodwill (see Note 6 Goodwill and Intangible Assets).

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


13.	Currency Losses (Gains)

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


	Three Months			May 16, 2007			April 1, 2007
	Ended			Through			Through
	June 30, 2008			June 30, 2007			May 15, 2007
	Successor			Successor			Predecessor
Net loss (gain) on change in fair value of currency derivative instruments(A)	$	(32	)	$	(16	)	$	(10	)
Net loss (gain) on translation of monetary assets and liabilities(B)		20			7			4

	$	(12	)	$	(9	)	$	(6	)


(A)		Included in (Gain) loss on change in fair value of derivative instruments net.

(B)		Included in Other (income) expenses net.

The following currency gains (losses) are included in Accumulated other comprehensive income (loss) in the accompanying condensed consolidated balance sheets (net of tax effect and in millions).


	Three Months		May 16, 2007
	Ended		Through
	June 30, 2008		March 31, 2008
			(Restated)
	Successor		Successor

Cumulative currency translation adjustment beginning of period	$	59	$
Effect of changes in exchange rates		10		59

Cumulative currency translation adjustment end of period	$	69	$	59


14.	Financial Instruments and Commodity Contracts

In conducting our business, we use various derivative and non-derivative instruments to manage the risks arising from fluctuations in exchange rates, interest rates, aluminum prices and energy prices. Such instruments are used for risk management purposes only. We may be exposed to losses in the future if the counterparties to the contracts fail to perform. We are satisfied that the risk of such non-performance is remote, due to our monitoring of credit exposures.

Certain contracts are designated as hedges of either net investment or cash flows. For these contracts we recognize the change in fair value of the ineffective portion of the hedge as a gain or loss in our current period results of operations. We include the change in fair value of the effective and interest portions of these hedges in Accumulated other comprehensive income (loss) within Shareholders equity in the accompanying condensed consolidated balance sheets.

Our condensed consolidated statement of operations for the three months ended June 30, 2008 includes a gain of $22 million presented in Other comprehensive income (loss) net of tax for the change in fair value of the effective portion of our cash flow hedges. As of June 30, 2008, we expect to realize $3 million of effective net gains during the next twelve months. The maximum period over which we have hedged our exposure to cash flow variability is through November 2016.

For the three months ended June 30, 2008, we recognized gains of $38 million presented in Other comprehensive income (loss) net of tax for the change in fair value of the effective portion of our net investment hedges. As of June 30, 2008, we expect to realize $10 million of effective net losses during the next twelve months. The maximum period over which we have hedged our exposure to net investment variability is through February 2015.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

The fair values of our financial instruments and commodity contracts as of June 30, 2008 and March 31, 2008 were as follows (in millions).


		As of June 30, 2008
	Maturity Dates						Net Fair
	(Fiscal Year)	Assets		Liabilities			Value

*Successor:*
Foreign exchange forward contracts	2009 through 2012	$	50	$	(77	)	$	(27	)
Cross-currency swaps	2009 through 2015		7		(159	)		(152	)
Interest rate currency swaps	2009 through 2011		14					14
Interest rate swaps	2009 through 2010				(5	)		(5	)
Aluminum forward contracts	2009 through 2011		122		(28	)		94
Aluminum options	2009 through 2011		6		(4	)		2
Electricity swap	2017		22					22
Embedded derivative instruments	2009				(4	)		(4	)
Natural gas swaps	2009 through 2010		9					9

Total fair value			230		(277	)		(47	)
Less: current portion(A)			198		(120	)		78

Noncurrent portion(A)		$	32	$	(157	)	$	(125	)


		As of March 31, 2008
	Maturity Dates						Net Fair
	(Fiscal Year)	Assets		Liabilities			Value

*Successor:*
Foreign exchange forward contracts	2009 through 2012	$	47	$	(116	)	$	(69	)
Cross-currency swaps	2009 through 2015		19		(189	)		(170	)
Interest rate currency swaps	2009 through 2011		4					4
Interest rate swaps	2009 through 2010				(15	)		(15	)
Aluminum forward contracts	2009 through 2011		134		(9	)		125
Aluminum options	2009 through 2011		1					1
Electricity swap	2017		14					14
Embedded derivative instruments	2009				(20	)		(20	)
Natural gas swaps	2009 through 2010		5					5

Total fair value			224		(349	)		(125	)
Less: current portion(A)			203		(148	)		55

Noncurrent portion(A)		$	21	$	(201	)	$	(180	)


(A)		The amounts of the current and long-term portions of fair values under assets are each presented on the face of our accompanying condensed consolidated balance sheets. The amounts of the current and noncurrent portions of fair values under liabilities are included in Accrued expenses and other current liabilities and Other long-term liabilities, respectively, in the accompanying condensed consolidated balance sheets.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


15.	Fair Value Measurements

FASB Statement No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions. Our adoption of FASB Statement No. 157 on April 1, 2008 resulted in (1) a gain of less than $1 million which is included in (Gain) loss on change in fair value of derivative instruments net in our condensed consolidated statement of operations, (2) a $1 million decrease to the fair value of effective portion of hedges net included in Accumulated other comprehensive income (loss) and (3) a $35 million increase to the foreign currency translation adjustment included in Accumulated other comprehensive income (loss) in our condensed consolidated balance sheet during the quarter ended June 30, 2008. These adjustments are primarily due to the inclusion of nonperformance risk (i.e., credit spreads) in our valuation models related to certain of our cross-currency swap derivative instruments (see Note 14 Financial Instruments and Commodity Contracts).

FASB Statement No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. FASB Statement No. 157 will be the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in FASB Statement No. 13, for purposes of lease classification or measurement. FASB Statement No. 157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under FASB Statement No. 157 are described as follows:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 Inputs that are unobservable for the asset or liability.

The following section describes the valuation methodologies we used to measure our various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified:

Derivative contracts

For certain of our derivative contracts whose fair values are based upon trades in liquid markets, such as aluminum forward contracts and options, valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy.

The majority of our derivative contracts are valued using industry-standard models that use observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices for foreign exchange rates. We generally classify these instruments within Level 2 of the valuation hierarchy. Such derivatives include interest rate swaps, cross currency swaps, foreign currency forward contracts and certain energy-related forward contracts (e.g., natural gas).

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

We classify derivative contracts that are valued based on models with significant unobservable market inputs as Level 3 of the valuation hierarchy. These derivatives include certain of our energy-related forward contracts (e.g., electricity) and certain foreign currency forward contracts. Models for these fair value measurements include inputs based on estimated future prices for periods beyond the term of the quoted prices.

FASB Statement No. 157 requires that for Level 2 and 3 of the fair value hierarchy, where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations (nonperformance risk).

The following table presents our assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of June 30, 2008 (in millions).


	Fair Value Measurements Using
	Level 1	Level 2			Level 3			Total

*Successor:*
Assets Derivative Instruments	$	$	208		$	22		$	230
Liabilities Derivative Instruments	$	$	(270	)	$	(7	)	$	(277	)

Financial instruments classified as Level 3 in the fair value hierarchy represent derivative contracts (primarily energy-related and certain foreign currency forward contracts) in which at least one significant unobservable input is used in the valuation model. The following table presents a reconciliation of activity for such derivative contracts on a net basis (in millions).

Net

Realized/

Net Realized/

Net Change in

Unrealized

Unrealized Gains

Beginning

Gains

(Losses) Included

Purchases,

Transfers

Ending

(Losses) Relating to

Balance

(Losses)

in Other

Issuances

in and/or

Balance

Instruments Still

April 1,

Included in

Comprehensive

and

(Out) of

June 30,

Held at June 30,

2008

Earnings(B)

Income (Loss)(C)

Settlements

Level 3

2008

2008(D)

Successor:

Derivative instruments(A)

$11

$(1

)

$(5

)

$15


(A)		Represents derivative assets net of derivative liabilities.

(B)		Included in (Gain) loss on change in fair value of derivative instruments net.

(C)		Included in Change in fair value of effective portion of hedges net in the accompanying condensed consolidated statement of shareholders equity.

(D)		Represents unrealized gains (losses) relating to assets and liabilities classified as Level 3 included in (Gain) loss on change in fair value of derivative instruments net.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


16.	Other (Income) Expenses Net

Other (income) expenses net is comprised of the following (in millions).


	Three Months			May 16, 2007		April 1, 2007
	Ended			Through		Through
	June 30, 2008			June 30, 2007		May 15, 2007
	Successor			Successor		Predecessor
Exchange (gains) losses net	$	20		$	7	$	4
Restructuring charges (recoveries) net		(1	)		1		1
Impairment charges on long-lived assets		1
(Gain) loss on disposal of property, plant and equipment net		(1	)
Other net		3			3		(1	)

Other (income) expenses net	$	22		$	11	$	4


17.	Income Taxes

We provide for income taxes using the liability method in accordance with FASB Statement No. 109, Accounting for Income Taxes. In accordance with APB Opinion No. 28, Interim Financial Reporting, and FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods, the provision for taxes on income recognizes our estimate of the effective tax rate expected to be applicable for the full fiscal year, adjusted for the impact of any discrete events, which are reported in the period in which they occur. Each quarter, we re-evaluate our estimated tax expense for the year and make adjustments for changes in the estimated tax rate. Additionally, we evaluate the realizability of our deferred tax assets on a quarterly basis. Our evaluation considers all positive and negative evidence and factors, such as the scheduled reversal of temporary differences, historical and projected future taxable income or losses, and prudent and feasible tax planning strategies.

The Provision (benefit) for taxes on income (loss) for the three months ended June 30, 2008 was based on the estimated effective tax rates applicable for the fiscal year ending March 31, 2009, after considering items specifically related to the interim period. The Provision (benefit) for taxes on income (loss) for (1) the periods from May 16, 2007 through June 30, 2007 (Successor) (as restated) and April 1, 2007 through May 15, 2007 (Predecessor) were based on the estimated effective tax rates applicable for the year ended March 31, 2008, after considering items specifically related to the interim periods.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

A reconciliation of the Canadian statutory tax rates to our effective tax rates is as follows (in millions).


	Three Months			May 16, 2007			April 1, 2007
	Ended			Through			Through
	June 30, 2008			June 30, 2007			May 15, 2007
				(Restated)
	Successor			Successor			Predecessor
Pre-tax income (loss) before equity in net (income) loss of non-consolidated affiliates and minority interests share	$	64		$	(19	)	$	(95	)

Canadian statutory tax rate		31	%		33	%		33	%

Provision (benefit) at the Canadian statutory rate	$	20		$	(6	)	$	(31	)
Increase (decrease) for taxes on income (loss) resulting from:
Exchange translation items		9			19			23
Exchange remeasurement of deferred income taxes		20			3			3
Change in valuation allowances		3			21			13
Expense/income items with no tax effect net		(4	)		(11	)		(9	)
Enacted tax rate changes					(3	)
Tax rate differences on foreign earnings		(14	)		2			2
Uncertain tax positions		1
Other net					2			3

Provision (benefit) for taxes on income (loss)	$	35		$	27		$	4

Effective tax rate		55	%		(142	)%		(4	)%

Our effective tax rate differs from the Canadian statutory rate primarily due to the following factors: (1) pre-tax foreign currency gains or losses with no tax effect and the tax effect of U.S. dollar denominated currency gains or losses with no pre-tax effect, which is shown above as exchange translation items; (2) the remeasurement of deferred income taxes due to foreign currency changes, which is shown above as exchange remeasurement of deferred income taxes; (3) changes in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses; and (4) differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions shown above as tax rate differences on foreign earnings.

Tax Uncertainties

Adoption of FASB Interpretation No. 48

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

During the quarter ended June 30, 2008, our unrecognized tax benefits increased less than $1 million as a result of tax positions taken during a prior period. Our reserves for uncertain tax positions totaled $61 million as of both June 30, 2008 and March 31, 2008. As of both June 30, 2008 and March 31, 2008, the total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future periods based on anticipated settlement dates is $44 million.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Tax authorities are currently examining certain of our prior years tax returns for 1999-2006. We are evaluating potential adjustments related to certain items and we anticipate that it is reasonably possible that settlement of the examinations will result in a payment in the range of up to $4 million and a corresponding decrease in unrecognized tax benefits by March 31, 2009.

Separately, we are awaiting a court ruling regarding the utilization of certain operating losses. We anticipate that it is reasonably possible that this ruling will result in a $14 million decrease in unrecognized tax benefits by March 31, 2009 related to this matter. We have fully funded this contingent liability through a judicial deposit, which is included in Other long-term assets third parties since January 2007.

With the exception of the ongoing tax examinations described above, we are no longer subject to any income tax examinations by any tax authorities for years before 2001. With few exceptions, tax returns for all jurisdictions for all tax years after 2000 are subject to examination by taxing authorities.

Our continuing practice and policy is to record potential interest and penalties related to unrecognized tax benefits in our Provision (benefit) for taxes on income (loss). As of June 30, 2008 and March 31, 2008, we had $16 million and $14 million accrued for potential interest on income taxes, respectively. For the three months ended June 30, 2008 and for the periods from May 16, 2007 through June 30, 2007; and from April 1, 2007 through May 15, 2007; our Provision (benefit) for taxes on income (loss) included a charge for an additional $2 million, $2 million and less than $1 million of potential interest, respectively.


18.	Commitments and Contingencies

Primary Supplier

Alcan is our primary supplier of metal inputs, including prime and sheet ingot. The table below shows our purchases from Alcan as a percentage of our total combined metal purchases.

Three Months

May 16, 2007

April 1, 2007

Ended

Through

June 30, 2008

June 30, 2007

May 15, 2007

Successor

Predecessor

Purchases from Alcan as a percentage of total metal
purchases in kt(A)


(A)		One kilotonne (kt) is 1,000 metric tonnes. One metric tonne is equivalent to 2,204.6 pounds.

Legal Proceedings

Reynolds Boat Case. As previously disclosed, we and Alcan were defendants in a case in the United States District Court for the Western District of Washington, in Tacoma, Washington, case number C04-0175RJB. Plaintiffs were Reynolds Metals Company, Alcoa, Inc. and National Union Fire Insurance Company of Pittsburgh PA. The case was tried before a jury beginning on May 1, 2006 under implied warranty theories, based on allegations that from 1998 to 2001 we and Alcan sold certain aluminum products that were ultimately used for marine applications and were unsuitable for such applications. The jury reached a verdict on May 22, 2006 against us and Alcan for approximately $60 million, and the court later awarded Reynolds and Alcoa approximately $16 million in prejudgment interest and court costs.

The case was settled during July 2006 as among us, Alcan, Reynolds, Alcoa and their insurers for $71 million. We contributed approximately $1 million toward the settlement, and the remaining $70 million was funded by our insurers. Although the settlement was substantially funded by our insurance carriers, certain of them have reserved the right to request a refund from us, after reviewing details of the plaintiffs damages to determine if they include costs of a nature not covered under the insurance contracts. Of the $70 million

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

funded, $39 million is in dispute with and under further review by certain of our insurance carriers. In the quarter ended September 30, 2006, we posted a letter of credit in the amount of approximately $10 million in favor of one of those insurance carriers, while we resolve the extent of coverage of the costs included in the settlement. On October 8, 2007, we received a letter from these insurers stating that they have completed their review and they are requesting a refund of the $39 million plus interest. We reviewed the insurers position, and on January 7, 2008, we sent a letter to the insurers rejecting their position that Novelis is not entitled to insurance coverage for the judgment against Novelis.

Since our fiscal 2005 Annual Report on Form 10-K was not filed until August 25, 2006, we recognized a liability for the full settlement amount of $71 million on December 31, 2005, included in Accrued expenses and other current liabilities on our consolidated balance sheet, with a corresponding charge against earnings. We also recognized an insurance receivable included in Prepaid expenses and other current assets on our consolidated balance sheet of $31 million, with a corresponding increase to earnings. Although $70 million of the settlement was funded by our insurers, we only recognized an insurance receivable to the extent that coverage was not in dispute. This resulted in a net charge of $40 million during the quarter ended December 31, 2005.

In July 2006, we contributed and paid $1 million to our insurers who subsequently paid the entire settlement amount of $71 million to the plaintiffs. Accordingly, during the quarter ended September 30, 2006, we reversed the previously recorded insurance receivable of $31 million and reduced our recorded liability by the same amount plus the $1 million contributed by us. The remaining liability of $39 million represents the amount of the settlement claim that was funded by our insurers but is still in dispute with and under further review by the parties as described above. The $39 million liability is included in Accrued expenses and other current liabilities in our condensed consolidated balance sheets as of June 30, 2008 and March 31, 2008.

While the ultimate resolution of the nature and extent of any costs not covered under our insurance contracts cannot be determined with certainty or reasonably estimated at this time, if there is an adverse outcome with respect to insurance coverage, and we are required to reimburse our insurers, it could have a material impact on our cash flows in the period of resolution. Alternatively, the ultimate resolution could be favorable, such that insurance coverage is in excess of the net expense that we have recognized to date. This would result in our recording a non-cash gain in the period of resolution, and this non-cash gain could have a material impact on our results of operations during the period in which such a determination is made.

Coca-Cola Lawsuits. A lawsuit was commenced against Novelis Corporation on February 15, 2007 by Coca-Cola Bottlers Sales and Services Company LLC (CCBSS) in state court in Georgia. In addition, a lawsuit was commenced against Novelis Corporation and Alcan Corporation on April 3, 2007 by Coca-Cola Enterprises Inc., Enterprises Acquisition Company, Inc., The Coca-Cola Company and The Coca-Cola Trading Company, Inc. (collectively CCE) in federal court in Georgia. Novelis intends to defend these claims vigorously.

CCBSS is a consortium of Coca-Cola bottlers across the United States, including Coca-Cola Enterprises Inc. CCBSS alleges that Novelis Corporation breached an aluminum can stock supply agreement between the parties, and seeks monetary damages in an amount to be determined at trial and a declaration of its rights under the agreement. The agreement includes a most favored nations provision regarding certain pricing matters. CCBSS alleges that Novelis Corporation breached the terms of the most favored nations provision. The dispute will likely turn on the facts that are presented to the court by the parties and the courts finding as to how certain provisions of the agreement ought to be interpreted. If CCBSS were to prevail in this litigation, the amount of damages would likely be material. Novelis Corporation has filed its answer and the parties are proceeding with discovery.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

The claim by CCE seeks monetary damages in an amount to be determined at trial for breach of a prior aluminum can stock supply agreement between CCE and Novelis Corporation, successor to the rights and obligations of Alcan Aluminum Corporation under the agreement. According to its terms, that agreement with CCE terminated in 2006. The CCE supply agreement included a most favored nations provision regarding certain pricing matters. CCE alleges that Novelis Corporations entry into a supply agreement with Anheuser-Busch, Inc. breached the most favored nations provision of the CCE supply agreement. Novelis Corporation moved to dismiss the complaint and on March 26, 2008, the U.S. District Court for the Northern District of Georgia issued an order granting Novelis Corporations motion to dismiss CCEs claim. On April 24, 2008, CCE filed a notice of appeal of the courts order with the United States Court of Appeals for the Eleventh Circuit and filed its appellate brief on July 11, 2008. On August 13, 2008, Novelis Corporation filed its response brief with the United States Court of Appeals for the Eleventh Circuit. If CCE were to ultimately prevail in this appeal and litigation, the amount of damages would likely be material. We have not recorded any reserves for these matters.

Anheuser-Busch Litigation. On September 19, 2006, Novelis Corporation filed a lawsuit against Anheuser-Busch, Inc. (Anheuser-Busch) in federal court in Ohio. Anheuser-Busch subsequently filed suit against Novelis Corporation and the Company in federal court in Missouri. On January 3, 2007, Anheuser-Buschs suit was transferred to the Ohio federal court.

Novelis Corporation alleged that Anheuser-Busch breached the existing multi-year aluminum can stock supply agreement between the parties, and sought monetary damages and declaratory relief. Among other claims, we asserted that since entering into the supply agreement, Anheuser-Busch has breached its confidentiality obligations and there has been a structural change in market conditions that requires a change to the pricing provisions under the agreement.

In its complaint, Anheuser-Busch asked for a declaratory judgment that Anheuser-Busch is not obligated to modify the supply agreement as requested by Novelis Corporation, and that Novelis Corporation must continue to perform under the existing supply agreement.

On January 18, 2008, Anheuser-Busch filed a motion for summary judgment. On May 22, 2008, the court granted Anheuser-Buschs motion for summary judgment. Novelis Corporation filed a notice of appeal with the United States Court of Appeals for the Sixth Circuit on June 20, 2008. Novelis Corporation has continued to perform under the supply agreement during the litigation.

ARCO Aluminum Complaint. On May 24, 2007, Arco Aluminum Inc. (ARCO) filed a complaint against Novelis Corporation and Novelis Inc. in the United States District Court for the Western District of Kentucky. ARCO and Novelis are partners in a joint venture rolling mill located in Logan, Kentucky. In the complaint, ARCO seeks to resolve a perceived dispute over management and control of the joint venture following Hindalcos acquisition of Novelis.

ARCO alleges that its consent was required in connection with Hindalcos acquisition of Novelis. Failure to obtain consent, ARCO alleges, has put us in default of the joint venture agreements, thereby triggering certain provisions in those agreements. The provisions include a reversion of the production management at the joint venture to Logan Aluminum from Novelis, and a reduction of the board of directors of the entity that manages the joint venture from seven members (four appointed by Novelis and three appointed by ARCO) to six members (three appointed by each of Novelis and ARCO).

ARCO seeks a court declaration that (1) Novelis and its affiliates are prohibited from exercising any managerial authority or control over the joint venture, (2) Novelis interest in the joint venture is limited to an economic interest only and (3) ARCO has authority to act on behalf of the joint venture. Or, alternatively, ARCO is seeking a reversion of the production management function to Logan Aluminum, and a change in the composition of the board of directors of the entity that manages the joint venture. Novelis filed its answer to the complaint on July 16, 2007.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

On July 3, 2007, ARCO filed a motion for partial summary judgment with respect to one of the counts of its complaint relating to the claim that Novelis breached the joint venture agreement by not seeking ARCOs consent. On July 30, 2007, Novelis filed a motion to hold ARCOs motion for summary judgment in abeyance (pending further discovery), along with a demand for a jury. On February 14, 2008, the judge issued an order granting our motion to hold ARCOs summary judgment motion in abeyance. Pursuant to this ruling, management and the board of the joint venture are conducting their activities as normal.

Environmental Matters

The following describes certain environmental matters relating to our business. None of the environmental matters include government sanctions of $100,000 or more.

We are involved in proceedings under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, also known as CERCLA or Superfund, or analogous state provisions regarding liability arising from the usage, storage, treatment or disposal of hazardous substances and wastes at a number of sites in the United States, as well as similar proceedings under the laws and regulations of the other jurisdictions in which we have operations, including Brazil and certain countries in the European Union. Many of these jurisdictions have laws that impose joint and several liability, without regard to fault or the legality of the original conduct, for the costs of environmental remediation, natural resource damages, third party claims, and other expenses, on those persons who contributed to the release of a hazardous substance into the environment. In addition, we are, from time to time, subject to environmental reviews and investigations by relevant governmental authorities.

As described further in the following paragraph, we have established procedures for regularly evaluating environmental loss contingencies, including those arising from such environmental reviews and investigations and any other environmental remediation or compliance matters. We believe we have a reasonable basis for evaluating these environmental loss contingencies, and we believe we have made reasonable estimates of the costs that are likely to be borne by us for these environmental loss contingencies. Accordingly, we have established reserves based on our reasonable estimates for the currently anticipated costs associated with these environmental matters. We estimate that the undiscounted remaining clean-up costs related to all of our known environmental matters as of June 30, 2008 will be approximately $47 million. Of this amount, $33 million is included in Other long-term liabilities, with the remaining $14 million included in Accrued expenses and other current liabilities in our condensed consolidated balance sheet as of June 30, 2008. Management has reviewed the environmental matters, including those for which we assumed liability as a result of our spin-off from Alcan. As a result of this review, management has determined that the currently anticipated costs associated with these environmental matters will not, individually or in the aggregate, materially impair our operations or materially adversely affect our financial condition, results of operations or liquidity.

With respect to environmental loss contingencies, we record a loss contingency on a non-discounted basis whenever such contingency is probable and reasonably estimable. The evaluation model includes all asserted and unasserted claims that can be reasonably identified. Under this evaluation model, the liability and the related costs are quantified based upon the best available evidence regarding actual liability loss and cost estimates. Except for those loss contingencies where no estimate can reasonably be made, the evaluation model is fact-driven and attempts to estimate the full costs of each claim. Management reviews the status of, and estimated liability related to, pending claims and civil actions on a quarterly basis. The estimated costs in respect of such reported liabilities are not offset by amounts related to cost-sharing between parties, insurance, indemnification arrangements or contribution from other potentially responsible parties unless otherwise noted.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Brazil Tax Matters

Primarily as a result of legal proceedings with Brazils Ministry of Treasury regarding certain taxes in South America, as of June 30, 2008 and March 31, 2008, we had cash deposits aggregating approximately $42 million and $36 million, respectively, in judicial depository accounts pending finalization of the related cases. The depository accounts are in the name of the Brazilian government and will be expended towards these legal proceedings or released to us, depending on the outcome of the legal cases. These deposits are included in Other long-term assets third parties in our accompanying condensed consolidated balance sheets. In addition, we are involved in several disputes with Brazils Minister of Treasury about various forms of manufacturing taxes and social security contributions, for which we have made no judicial deposits but for which we have established reserves ranging from $8 million to $105 million as of June 30, 2008. In total, these reserves approximate $128 million and $111 million as of June 30, 2008 and March 31, 2008, respectively, and are included in Other long-term liabilities in our accompanying condensed consolidated balance sheets.

On July 16, 2008, the second instance court in Brazil ruled in favor of the Ministry of Treasury in the amount of $5.5 million in one of these tax disputes. We have 30 days to file a notice of appeal with the court and are currently reviewing the courts order to understand the reasoning behind the decision and evaluate our grounds for appeal.

Guarantees of Indebtedness

We have issued guarantees on behalf of certain of our subsidiaries and non-consolidated affiliates, including:


		certain of our wholly-owned subsidiaries and

		Aluminium Norf GmbH, which is a fifty percent (50%) owned joint venture that does not meet the requirements for consolidation under FASB Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities.

In the case of our wholly-owned subsidiaries, the indebtedness guaranteed is for trade accounts payable to third parties. Some of the guarantees have annual terms while others have no expiration and have termination notice requirements. Neither we nor any of our subsidiaries or non-consolidated affiliates holds any assets of any third parties as collateral to offset the potential settlement of these guarantees.

Since we consolidate wholly-owned and majority-owned subsidiaries in our condensed consolidated financial statements, all liabilities associated with trade payables and short-term debt facilities for these entities are already included in our condensed consolidated balance sheets.

The following table discloses information about our obligations under guarantees of indebtedness of others as of June 30, 2008 (in millions). We did not have any obligations under guarantees of indebtedness related to our majority-owned subsidiaries as of June 30, 2008.


	Maximum		Liability
	Potential		Carrying
Type of Entity	Future Payment		Value

Wholly-owned subsidiaries	$	83	$	60
Aluminium Norf GmbH	$	16	$

We have no retained or contingent interest in assets transferred to an unconsolidated entity or similar entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


19.	Segment and Major Customer Information

Segment Information

Due in part to the regional nature of supply and demand of aluminum rolled products and in order to best serve our customers, we manage our activities on the basis of geographical areas and are organized under four operating segments: North America, Europe, Asia and South America.

We measure the profitability and financial performance of our operating segments, based on Segment Income, in accordance with FASB Statement No. 131, Disclosure About the Segments of an Enterprise and Related Information. Segment Income provides a measure of our underlying segment results that is in line with our portfolio approach to risk management. We define Segment Income as earnings before: (a) interest expense and amortization of debt issuance costs net; (b) unrealized gains (losses) on change in fair value of derivative instruments net; (c) realized gains (losses) on corporate derivative instruments net; (d) depreciation and amortization; (e) impairment charges on long-lived assets; (f) minority interests share; (g) adjustments to reconcile our proportional share of Segment Income from non-consolidated affiliates to income as determined on the equity method of accounting; (h) restructuring recoveries (charges) net; (i) gains or losses on sales of property, plant and equipment and businesses net; (j) corporate selling, general and administrative expenses; (k) other costs net; (l) litigation settlement net of insurance recoveries; (m) sale transaction fees; (n) provision or benefit for taxes on income (loss) and (o) cumulative effect of accounting change net of tax.

Net sales and expenses are measured in accordance with the policies and procedures described in Note 1 Business and Summary of Significant Accounting Policies to our consolidated and combined financial statements included in our Annual Report on Form 10-K/A for the year ended March 31, 2008.

We do not treat all derivative instruments as hedges under FASB Statement No. 133. Accordingly, changes in fair value are recognized immediately in earnings, which results in the recognition of fair value as a gain or loss in advance of the contract settlement. In the accompanying condensed consolidated statements of operations, changes in fair value of derivative instruments not accounted for as hedges under FASB Statement No. 133 are recognized in (Gain) loss on change in fair value of derivative instruments net. These gains or losses may or may not result from cash settlement. For Segment Income purposes we only include the impact of the derivative gains or losses to the extent they are settled in cash (i.e. realized) during that period.

The following is a description of our operating segments:


		North America. Headquartered in Cleveland, Ohio, this segment manufactures aluminum sheet and light gauge products and operates 11 plants, including two fully dedicated recycling facilities, in two countries.

		Europe. Headquartered in Zurich, Switzerland, this segment manufactures aluminum sheet and light gauge products and operates 14 plants, including one recycling facility, in six countries.

		Asia. Headquartered in Seoul, South Korea, this segment manufactures aluminum sheet and light gauge products and operates three plants in two countries.

		South America. Headquartered in Sao Paulo, Brazil, this segment comprises bauxite mining, alumina refining, smelting operations, power generation, carbon products, aluminum sheet and light gauge products and operates four plants in Brazil.

Adjustment to Eliminate Proportional Consolidation. The financial information for our segments includes the results of our non-consolidated affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. However, under GAAP, these non-consolidated affiliates are accounted for using the equity method of accounting. Therefore, in order to reconcile the financial information for the segments shown in the tables below to the relevant GAAP-based measures, we

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

must remove our proportional share of each line item that we included in the segment amounts. See Note 7 Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these non-consolidated affiliates.

The tables below show selected segment financial information (in millions). The Corporate and Other column in the tables below includes functions that are managed directly from our corporate office, which focuses on strategy development and oversees governance, policy, legal compliance, human resources and finance matters. It also includes consolidating and other elimination accounts.

Selected Segment Financial Information


									Adjustment to
									Eliminate
	North						South		Proportional			Corporate
Total Assets	America		Europe		Asia		America		Consolidation			and Other		Total

(Successor)
June 30, 2008	$	3,996	$	4,231	$	1,129	$	1,544	$	(193	)	$	262	$	10,969
March 31, 2008 (Restated)	$	3,888	$	4,171	$	1,081	$	1,478	$	(199	)	$	263	$	10,682


									Adjustment to
									Eliminate
Selected Operating Results	North						South		Proportional			Corporate
Three Months Ended June 30, 2008	America		Europe		Asia		America		Consolidation			and Other		Total

(Successor)
Net sales (to third parties)	$	1,083	$	1,218	$	510	$	295	$	(3	)	$		$	3,103
Intersegment sales				1		1				(2	)
Segment Income (Loss)		42		111		31		47							231
Depreciation and amortization		42		63		15		17		(22	)		1		116
Capital expenditures		7		19		5		6		(4	)				33


										Adjustment to
										Eliminate
Selected Operating Results	North							South		Proportional			Corporate
May 16, 2007 Through June 30, 2007	America		Europe		Asia			America		Consolidation			and Other			Total

(Successor)
Net sales (to third parties)	$	574	$	593	$	246		$	134	$			$			$	1,547
Intersegment sales		1				3			16					(20	)
Segment Income (Loss)		23		43		(2	)		22								86
Depreciation and amortization		21		22		8			7		(5	)					53
Capital expenditures		5		12		4			3		(3	)		1			22


										Adjustment to
										Eliminate
Selected Operating Results	North							South		Proportional			Corporate
April 1, 2007 Through May 15, 2007	America			Europe		Asia		America		Consolidation			and Other			Total

(Predecessor)
Net sales (to third parties)	$	446		$	510	$	216	$	109	$			$			$	1,281
Intersegment sales							1		7					(8	)
Segment Income (Loss)		(24	)		32		6		18								32
Depreciation and amortization		7			11		7		5		(3	)		1			28
Capital expenditures		4			8		4		3		(3	)		1			17

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

The following table shows the reconciliation from Total Segment Income to Net income (loss) (in millions).


	Three Months			May 16, 2007			April 1, 2007
	Ended			Through			Through
	June 30, 2008			June 30, 2007			May 15, 2007
				(Restated)
	Successor			Successor			Predecessor
Total Segment Income	$	231		$	86		$	32
Interest expense and amortization of debt issuance costs net		(40	)		(25	)		(26	)
Unrealized gains (losses) on change in fair value of derivative instruments net(A)		21			(15	)		5
Realized gains (losses) on corporate derivative instruments net					8			(3	)
Depreciation and amortization		(116	)		(53	)		(28	)
Impairment charges on long-lived assets		(1	)
Minority interests share		(2	)		2			1
Adjustment to eliminate proportional consolidation(B)		(18	)		(9	)		(7	)
Restructuring recoveries (charges) net		1			(1	)		(1	)
Gain (loss) on sales of property, plant and equipment and businesses net		1
Corporate selling, general and administrative expenses		(14	)		(8	)		(35	)
Other costs net		(3	)		(3	)		1
Sale transaction fees								(32	)
Benefit (provision) for taxes on income (loss)		(35	)		(27	)		(4	)

Net income (loss)	$	25		$	(45	)	$	(97	)


(A)		Unrealized gains (losses) on change in fair value of derivative instruments net represents the portion of gains (losses) that were not settled in cash during the period. Total realized and unrealized gains (losses) are shown in the table below and are included in the aggregate each period in (Gain) loss on change in fair value of derivative instruments net on our condensed consolidated statements of operations.


	Three Months			May 16, 2007			April 1, 2007
	Ended			Through			Through
	June 30, 2008			June 30, 2007			May 15, 2007
	Successor			Successor			Predecessor
(Gains) losses on change in fair value of derivative instruments net:
Realized and included in Segment Income		$(45	)		$(21	)		$(18	)
Realized on corporate derivative instruments					(8	)		3
Unrealized		(21	)		15			(5	)

(Gains) losses on change in fair value of derivative instruments net		$(66	)		$(14	)		$(20	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


(B)		Our financial information for our segments (including Segment Income) includes the results of our non-consolidated affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. However, under GAAP, these non-consolidated affiliates are accounted for using the equity method of accounting. Therefore, in order to reconcile Total Segment Income to Net income (loss), the proportional Segment Income of these non-consolidated affiliates is removed from Total Segment Income, net of our share of their net after-tax results, which is reported as Equity in net (income) loss of non-consolidated affiliates on our condensed consolidated statements of operations. See Note 7 Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these non-consolidated affiliates.

Information about Major Customers

All of our operating segments had Net sales to Rexam Plc (Rexam), our largest customer. The table below shows our net sales to Rexam as a percentage of total Net sales.

Three Months

May 16, 2007

April 1, 2007

Ended

Through

June 30, 2008

June 30, 2007

May 15, 2007

Successor

Predecessor

Net sales to Rexam as a percentage of total net sales

15.7

15.8

13.5


20.	Supplemental Guarantor Information

In connection with the issuance of our Senior Notes, certain of our wholly-owned subsidiaries provided guarantees of the Senior Notes. These guarantees are full and unconditional as well as joint and several. The guarantor subsidiaries (the Guarantors) are comprised of the majority of our businesses in Canada, the U.S., the U.K., Brazil and Switzerland, as well as certain businesses in Germany. Certain Guarantors may be subject to restrictions on their ability to distribute earnings to Novelis Inc. (the Parent). The remaining subsidiaries (the Non-Guarantors) of the Parent are not guarantors of the Senior Notes.

The following information presents condensed consolidating statements of operations, consolidating balance sheets and consolidating statements of cash flows of the Parent, the Guarantors, and the Non-Guarantors. Investments include investment in and advances to non-consolidated affiliates as well as investments in net assets of divisions included in the Parent, and have been presented using the equity method of accounting.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Statement of Operations

(In millions)


	Three Months Ended June 30, 2008 (Successor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	395		$	2,582		$	836		$	(710	)	$	3,103

Cost of goods sold (exclusive of depreciation and amortization shown below)		387			2,377			777			(710	)		2,831
Selling, general and administrative expenses					62			22						84
Depreciation and amortization		6			89			21						116
Research and development expenses		8			3			1						12
Interest expense and amortization of debt issuance costs net		7			29			4						40
(Gain) loss on change in fair value of derivative instruments net					(62	)		(4	)					(66	)
Equity in net (income) loss of affiliates		(32	)		2						32			2
Other (income) expenses net		(7	)		13			16						22

		369			2,513			837			(678	)		3,041

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		26			69			(1	)		(32	)		62
Provision (benefit) for taxes on income (loss)		1			33			1						35

Income (loss) before minority interests share		25			36			(2	)		(32	)		27
Minority interests share								(2	)					(2	)

Net income (loss)	$	25		$	36		$	(4	)	$	(32	)	$	25

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Statement of Operations

(In millions)


	May 16, 2007 Through June 30, 2007 (Successor)
							Non-
Restated	Parent			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	245		$	1,347		$	419		$	(464	)	$	1,547

Cost of goods sold (exclusive of depreciation and amortization shown below)		247			1,251			402			(464	)		1,436
Selling, general and administrative expenses		5			25			12						42
Depreciation and amortization		3			38			12						53
Research and development expenses		2			7			4						13
Interest expense and amortization of debt issuance costs net		3			20			2						25
(Gain) loss on change in fair value of derivative instruments net		(13	)		(4	)		3						(14	)
Equity in net (income) loss of affiliates		25			1						(25	)		1
Other (income) expenses net		(4	)		14			1						11

		268			1,352			436			(489	)		1,567

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		(23	)		(5	)		(17	)		25			(20	)
Provision (benefit) for taxes on income (loss)		22			5									27

Income (loss) before minority interests share		(45	)		(10	)		(17	)		25			(47	)
Minority interests share								2						2

Net income (loss)	$	(45	)	$	(10	)	$	(15	)	$	25		$	(45	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Statement of Operations

(In millions)


	April 1, 2007 Through May 15, 2007 (Predecessor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	129		$	1,020		$	359		$	(227	)	$	1,281

Cost of goods sold (exclusive of depreciation and amortization shown below)		131			961			340			(227	)		1,205
Selling, general and administrative expenses		29			51			15						95
Depreciation and amortization		2			18			8						28
Research and development expenses		5			1									6
Interest expense and amortization of debt issuance costs net		3			20			3						26
(Gain) loss on change in fair value of derivative instruments net		(2	)		(19	)		1						(20	)
Equity in net (income) loss of non-affiliates		29			(1	)					(29	)		(1	)
Sale transaction fees		32												32
Other (income) expenses net		(3	)		9			(2	)					4

		226			1,040			365			(256	)		1,375

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		(97	)		(20	)		(6	)		29			(94	)
Provision (benefit) for taxes on income (loss)					3			1						4

Income (loss) before minority interests share		(97	)		(23	)		(7	)		29			(98	)
Minority interests share								1						1

Net income (loss)	$	(97	)	$	(23	)	$	(6	)	$	29		$	(97	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Balance Sheet

(In millions)


	As of June 30, 2008 (Successor)
					Non-
	Parent		Guarantors		Guarantors			Eliminations			Consolidated

ASSETS
Current assets
Cash and cash equivalents	$	14	$	161	$	121		$			$	296
Accounts receivable net of allowances
third parties		46		1,055		476						1,577
related parties		515		290		24			(802	)		27
Inventories		66		1,058		453						1,577
Prepaid expenses and other current assets		4		61		21						86
Current portion of fair value of derivative instruments				183		22			(7	)		198
Deferred income tax assets				105		6						111

Total current assets		645		2,913		1,123			(809	)		3,872
Property, plant and equipment net		172		2,430		651						3,253
Goodwill				1,679		189						1,868
Intangible assets net				868								868
Investments		3,652		937		1			(3,652	)		938
Fair value of derivative instruments net of current portion				22		10						32
Deferred income tax assets		8				1						9
Other long-term assets		1,318		152		130			(1,471	)		129

Total assets	$	5,795	$	9,001	$	2,105		$	(5,932	)	$	10,969


LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Current portion of long-term debt	$	3	$	10	$	1		$			$	14
Short-term borrowings
third parties				359		71						430
related parties		5		358		20			(383	)
Accounts payable
third parties		77		926		610						1,613
related parties		112		236		125			(412	)		61
Accrued expenses and other current liabilities		64		613		138			(10	)		805
Deferred income tax liabilities				46								46

Total current liabilities		261		2,548		965			(805	)		2,969
Long-term debt net of current portion
third parties		1,758		694		101						2,553
related parties				1,202		273			(1,475	)
Deferred income tax liabilities				674		21						695
Accrued postretirement benefits		23		303		109						435
Other long-term liabilities		184		392		23						599

		2,226		5,813		1,492			(2,280	)		7,251

Commitments and contingencies

Minority interests in equity of consolidated affiliates						149						149



Shareholders equity
Common stock
Additional paid-in capital		3,497										3,497
Retained earnings/(accumulated deficit)/owners net investment		5		3,108		559			(3,667	)		5
Accumulated other comprehensive income (loss)		67		80		(95	)		15			67

Total shareholders equity		3,569		3,188		464			(3,652	)		3,569

Total liabilities and shareholders equity	$	5,795	$	9,001	$	2,105		$	(5,932	)	$	10,969

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Balance Sheet

(In millions)


	As of March 31, 2008 (Successor)
						Non-
Restated	Parent			Guarantors		Guarantors			Eliminations			Consolidated

ASSETS
Current assets
Cash and cash equivalents	$	12		$	177	$	137		$			$	326
Accounts receivable net of allowances
third parties		38			818		392						1,248
related parties		518			289		34			(810	)		31
Inventories		57			993		405						1,455
Prepaid expenses and other current assets		4			35		19						58
Current portion of fair value of derivative instruments					186		30			(13	)		203
Deferred income tax assets					121		4						125

Total current assets		629			2,619		1,021			(823	)		3,446
Property, plant and equipment net		175			2,458		724						3,357
Goodwill					1,680		189						1,869
Intangible assets net					888								888
Investments		3,629			945		1			(3,629	)		946
Fair value of derivative instruments net of current portion					18		3						21
Deferred income tax assets		10					2						12
Other long-term assets		1,328			160		135			(1,480	)		143

Total assets	$	5,771		$	8,768	$	2,075		$	(5,932	)	$	10,682


LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Current portion of long-term debt	$	3		$	11	$	1		$			$	15
Short-term borrowings
third parties					70		45						115
related parties		5			370		25			(400	)
Accounts payable
third parties		84			925		573						1,582
related parties		110			233		88			(376	)		55
Accrued expenses and other current liabilities		39			699		129			(17	)		850
Deferred income tax liabilities					39								39

Total current liabilities		241			2,347		861			(793	)		2,656
Long-term debt net of current portion
third parties		1,761			698		101						2,560
related parties					1,206		304			(1,510	)
Deferred income tax liabilities		1			680		20						701
Accrued postretirement benefits		23			297		101						421
Other long-term liabilities		222			431		19						672

		2,248			5,659		1,406			(2,303	)		7,010

Commitments and contingencies

Minority interests in equity of consolidated affiliates							149						149



Shareholders equity
Common stock
Additional paid-in capital		3,497											3,497
Retained earnings/(accumulated deficit)/owners net investment		(20	)		3,075		564			(3,639	)		(20	)
Accumulated other comprehensive income (loss)		46			34		(44	)		10			46

Total shareholders equity		3,523			3,109		520			(3,629	)		3,523

Total liabilities and shareholders equity	$	5,771		$	8,768	$	2,075		$	(5,932	)	$	10,682

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Statement of Cash Flows

(In millions)


	Three Months Ended June 30, 2008 (Successor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	4		$	(313	)	$	(7	)	$	(35	)	$	(351	)

INVESTING ACTIVITIES
Capital expenditures		(1	)		(25	)		(7	)					(33	)
Proceeds from sales of property, plant and equipment					1									1
Changes to investment in and advances to non-consolidated affiliates					6									6
Proceeds from loans receivable net related parties					8									8
Net proceeds from settlement of derivative instruments					21			13						34

Net cash provided by (used in) investing activities		(1	)		11			6						16

FINANCING ACTIVITIES
Principal repayments
third parties		(1	)		(2	)		(1	)					(4	)
related parties					5			(30	)		25
Short-term borrowings net
third parties					288			25						313
related parties					(5	)		(5	)		10

Net cash provided by (used in) financing activities		(1	)		286			(11	)		35			309

Net increase (decrease) in cash and cash equivalents		2			(16	)		(12	)					(26	)
Effect of exchange rate changes on cash balances held in foreign currencies								(4	)					(4	)
Cash and cash equivalents beginning of period		12			177			137						326

Cash and cash equivalents end of period	$	14		$	161		$	121		$			$	296

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Statement of Cash Flows

(In millions)


	May 16, 2007 Through June 30, 2007 (Successor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	14		$	(23	)	$	(35	)				$	(44	)

INVESTING ACTIVITIES
Capital expenditures		(2	)		(18	)		(2	)					(22	)
Proceeds from sales of property, plant and equipment								1						1
Changes to investment in and advances to non-consolidated affiliates		(40	)		1						40			1
Proceeds from loans receivable net related parties					4									4
Net proceeds from settlement of derivative instruments		6			22			1						29

Net cash provided by (used in) investing activities		(36	)		9						40			13

FINANCING ACTIVITIES
Proceeds from issuance of common stock		92			40						(40	)		92
Principal repayments		(7	)		(39	)								(46	)
Short-term borrowings net
third parties		(10	)		72			21						83
related parties		(19	)		8			11
Dividends
minority interests								(1	)					(1	)
Debt issuance costs		(13	)											(13	)

Net cash provided by (used in) financing activities		43			81			31			(40	)		115

Net increase (decrease) in cash and cash equivalents		21			67			(4	)					84
Effect of exchange rate changes on cash balances held in foreign currencies
Cash and cash equivalents beginning of period		8			74			20						102

Cash and cash equivalents end of period	$	29		$	141		$	16		$			$	186

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Statement of Cash Flows

(In millions)


	April 1, 2007 Through May 15, 2007 (Predecessor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations	Consolidated

OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	(21	)	$	(181	)	$	(28	)	$	$	(230	)

INVESTING ACTIVITIES
Capital expenditures		(1	)		(10	)		(6	)			(17	)
Changes to investment in and advances to non-consolidated affiliates					1							1
Net proceeds from settlement of derivative instruments		(5	)		23							18

Net cash provided by (used in) provided by investing activities		(6	)		14			(6	)			2

FINANCING ACTIVITIES
Proceeds from issuance of debt					150							150
Principal repayments					(1	)						(1	)
Short-term borrowings net
third parties		45			9			6				60
related parties		(15	)		11			4
Dividends
minority interests								(7	)			(7	)
Debt issuance costs		(2	)									(2	)
Proceeds from the exercise of stock options		1										1

Net cash provided by (used in) financing activities		29			169			3				201

Net increase (decrease) in cash and cash equivalents		2