November 10, 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 September 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 October 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 September 30, 2008; Three Months Ended September 30, 2007 (Restated); Six Months Ended September 30, 2008; May 16, 2007 Through September 30, 2007 (Restated); and April 1, 2007 Through May 15, 2007	2
		Condensed Consolidated Balance Sheets (unaudited) As of September 30, 2008 and March 31, 2008 (Restated)	3
		Condensed Consolidated Statements of Cash Flows (unaudited) Six Months Ended September 30, 2008; May 16, 2007 Through September 30, 2007 (Restated); and April 1, 2007 Through May 15, 2007	4
		Condensed Consolidated Statement of Shareholders Equity (unaudited) Six Months Ended September 30, 2008 (Restated as to opening balance)	6
		Notes to the Condensed Consolidated Financial Statements (unaudited)	7
	Item 2.	Managements Discussion and Analysis of Financial Condition and Results of Operations	51
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	90
	Item 4.	Controls and Procedures	94

	PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	96
	Item 6.	Exhibits	98
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION


Item 1.	*Financial Statements*

Novelis Inc.

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


	Three Months						Six Months			May 16, 2007			April 1, 2007
	Ended						Ended			Through			Through
	September 30,						September 30,			September 30,			May 15,
	2008			2007			2008			2007			2007
				(Restated)						(Restated)
	Successor			Successor			Successor			Successor			Predecessor
Net sales	$	2,959		$	2,821		$	6,062		$	4,368		$	1,281

Cost of goods sold (exclusive of depreciation and amortization shown below)		2,791			2,555			5,622			3,991			1,205
Selling, general and administrative expenses		89			88			173			130			95
Depreciation and amortization		107			103			223			156			28
Research and development expenses		10			10			22			23			6
Interest expense and amortization of debt issuance costs net		41			56			81			81			26
(Gain) loss on change in fair value of derivative instruments net		185			30			119			16			(20	)
Equity in net (income) loss of non-consolidated affiliates		(2	)		(20	)					(19	)		(1	)
Sale transaction fees														32
Other (income) expenses net		10			(2	)		32			9			4

		3,231			2,820			6,272			4,387			1,375

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		(272	)		1			(210	)		(19	)		(94	)
Provision (benefit) for taxes on income (loss)		(169	)		20			(134	)		47			4

Income (loss) before minority interests share		(103	)		(19	)		(76	)		(66	)		(98	)
Minority interests share								(2	)		2			1

Net income (loss)		(103	)		(19	)		(78	)		(64	)		(97	)

Other comprehensive income (loss):
Currency translation adjustment		(73	)		27			(63	)		14			31
Change in fair value of effective portion of hedges		(16	)		2			3			4			(1	)
Postretirement benefit plans:
Amortization of net actuarial loss														(1	)
Change in pension and other benefits		2						2

Other comprehensive income (loss) before income tax effect		(87	)		29			(58	)		18			29
Income tax (expense) benefit related to items of other comprehensive income (loss)		6			2			(2	)		12			4

Other comprehensive income (loss) net of tax		(81	)		31			(60	)		30			33

Comprehensive income (loss)	$	(184	)	$	12		$	(138	)	$	(34	)	$	(64	)

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
	September 30,			March 31,
	2008			2008
				(Restated)
	Successor			Successor

ASSETS
Current assets
Cash and cash equivalents	$	219		$	326
Accounts receivable (net of allowances of $1 as of September 30, 2008 and March 31, 2008)
third parties		1,347			1,248
related parties		24			31
Inventories		1,413			1,455
Prepaid expenses and other current assets		75			58
Current portion of fair value of derivative instruments		237			203
Deferred income tax assets		186			125

Total current assets		3,501			3,446
Property, plant and equipment net		3,032			3,357
Goodwill		1,864			1,869
Intangible assets net		827			888
Investment in and advances to non-consolidated affiliates		924			946
Fair value of derivative instruments net of current portion		46			21
Deferred income tax assets		10			12
Other long-term assets
third parties		91			102
related parties		29			41

Total assets	$	10,324		$	10,682


LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Current portion of long-term debt	$	14		$	15
Short-term borrowings		351			115
Accounts payable
third parties		1,418			1,582
related parties		57			55
Accrued expenses and other current liabilities		965			850
Deferred income tax liabilities		34			39

Total current liabilities		2,839			2,656
Long-term debt net of current portion		2,544			2,560
Deferred income tax liabilities		557			701
Accrued postretirement benefits		420			421
Other long-term liabilities		457			672

		6,817			7,010

Commitments and contingencies

Minority interests in equity of consolidated affiliates		122			149

Shareholders equity
Common stock, no par value; unlimited number of shares authorized; 77,459,658 shares issued and outstanding as of September 30, 2008 and March 31, 2008
Additional paid-in capital		3,497			3,497
Retained earnings (Accumulated deficit)		(98	)		(20	)
Accumulated other comprehensive income (loss)		(14	)		46

Total shareholders equity		3,385			3,523

Total liabilities and shareholders equity	$	10,324		$	10,682

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

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in millions)


	Six Months			May 16, 2007			April 1, 2007
	Ended			Through			Through
	September 30,			September,			May 15,
	2008			2007			2007
				(Restated)
	Successor			Successor			Predecessor
OPERATING ACTIVITIES
Net income (loss)	$	(78	)	$	(64	)	$	(97	)
Adjustments to determine net cash provided by (used in) operating activities:
Depreciation and amortization		223			156			28
(Gain) loss on change in fair value of derivative instruments net		119			16			(20	)
Deferred income taxes		(183	)					(18	)
Amortization of debt issuance costs		3			7			1
Write-off and amortization of fair value adjustments net		(124	)		(82	)
Foreign exchange remeasurement on non-working capital items net		17			(2	)
Gain on reversal of accrued legal claim		(26	)
Provision for uncollectible accounts receivable					1
Equity in net (income) loss of non-consolidated affiliates					(19	)		(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 and business net		(2	)
Changes in assets and liabilities:
Accounts receivable
third parties		(183	)		54			(21	)
Inventories		(71	)		105			(76	)
Prepaid expenses and other current assets		(25	)		(2	)		(7	)
Other long-term assets		9			(2	)		(1	)
Accounts payable
third parties		(33	)		(124	)		(62	)
related parties		9			3
Accrued expenses and other current liabilities		(74	)		(57	)		42
Accrued postretirement benefits		22			8			1
Other long-term liabilities		4			7			(2	)

Net cash provided by (used in) operating activities		(390	)		3			(230	)

INVESTING ACTIVITIES
Capital expenditures		(70	)		(57	)		(17	)
Proceeds from sales of property, plant and equipment		2			1
Changes to investment in and advances to non-consolidated affiliates		13			3			1
Proceeds from loans receivable net related parties		13			10
Net proceeds from settlement of derivative instruments		94			72			18

Net cash provided by (used in) investing activities		52			29			2

(Continued)

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in millions) (Continued)


	Six Months			May 16, 2007			April 1, 2007
	Ended			Through			Through
	September 30,			September 30,			May 15,
	2008			2007			2007
				(Restated)
	Successor			Successor			Predecessor
FINANCING ACTIVITIES
Proceeds from issuance of common stock					92
Proceeds from issuance of debt					960			150
Principal repayments		(7	)		(905	)		(1	)
Short-term borrowings net		263			(65	)		60
Dividends minority interests		(5	)		(1	)		(7	)
Debt issuance costs					(35	)		(2	)
Proceeds from the exercise of stock options								1

Net cash provided by (used in) financing activities		251			46			201

Net increase (decrease) in cash and cash equivalents		(87	)		78			(27	)
Effect of exchange rate changes on cash balances held in foreign currencies		(20	)		1			1
Cash and cash equivalents beginning of period		326			102			128

Cash and cash equivalents end of period	$	219		$	181		$	102

Supplemental disclosures of cash flow information:
Interest paid	$	82		$	102		$	13
Income taxes paid	$	67		$	31		$	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

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)		77,459,658	$	$	3,497	$	(20	)	$	46		$	3,523
Net income (loss)							(78	)					(78	)
Currency translation adjustment net										(65	)		(65	)
Change in fair value of effective portion of hedges net										2			2
Postretirement benefit plans:
Change in pension and other benefits net										3			3

Balance as of September 30, 2008		77,459,658	$	$	3,497	$	(98	)	$	(14	)	$	3,385

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 September 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. 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 six months ended September 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 September 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 September 30, 2008 and March 31, 2008 (as restated); the consolidated results of our operations for (1) the three months ended September 30, 2008, (2) the six months ended September 30, 2008, (3) the three months ended September 30, 2007 (as restated), and (4) the periods from May 16, 2007 through September 30, 2007 (as restated) and (5) from April 1, 2007 through May 15, 2007; our consolidated cash flows for (1) the six months ended September 30, 2008, and (2) the periods from May 16, 2007 through September 30, 2007 (as restated) and from April 1, 2007 through May 15, 2007; and changes in our consolidated shareholders equity for the six months ended September 30, 2008 (restated as to opening balance).

Reclassifications

Certain reclassifications of the prior period amounts and presentation have been made to conform to the presentation adopted for the current periods. The following reclassifications and presentation changes were made to the prior periods condensed consolidated statements of cash flows to conform to the current period presentation: (a) certain amounts previously presented in Accounts payable third parties were reclassified to Foreign exchange remeasurement on non-working capital items net. These reclassifications have no effect on total assets, total shareholders equity, net income (loss) or total cash flows as previously presented.

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 six months ended September 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

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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 13 Fair Value Measurements regarding our adoption of this standard.

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 September 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.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

FASB Statement No. 161 permits, but does not require, comparative disclosures for earlier periods upon initial adoption. As FASB Statement No. 161 only requires enhanced disclosures, this standard will have no impact on our consolidated financial position, results of operations and cash flows.

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 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

We have restated our 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. We also corrected other miscellaneous adjustments 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 8 Debt). See our Annual Report on Form 10-K/A filed with the SEC on August 11, 2008 for details of these corrections, including the effects of the restatement on our March 31, 2008 balance sheet. Items in the accompanying condensed consolidated financial statements and related notes that have been restated are marked accordingly.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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

Our condensed consolidated statement of operations and comprehensive income (loss) for the three months ended September 30, 2007 is restated as follows (in millions).


	Three Months
	Ended
	September 30, 2007
	As Previously						As
	Reported			Restatements			Restated
	Successor						Successor

Net sales	$	2,821		$			$	2,821

Cost of goods sold (exclusive of depreciation and amortization shown below)		2,555						2,555
Selling, general and administrative expenses		88						88
Depreciation and amortization		102			1			103
Research and development expenses		10						10
Interest expense and amortization of debt issuance costs net		56						56
(Gain) loss on change in fair value of derivative instruments net		36			(6	)		30
Equity in net (income) loss of non-consolidated affiliates		4			(24	)		(20	)
Other (income) expenses net		(7	)		5			(2	)

		2,844			(24	)		2,820

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		(23	)		24			1
Provision (benefit) for taxes on income (loss)		(36	)		56			20

Income (loss) before minority interests share		13			(32	)		(19	)
Minority interests share

Net income (loss)		13			(32	)		(19	)

Other comprehensive income (loss):
Currency translation adjustment		27						27
Change in fair value of effective portion of hedges net		2						2

Other comprehensive income (loss) before income tax effect		29						29
Income tax (expense) benefit related to items of other comprehensive income (loss)		2						2

Other comprehensive income (loss) net of tax		31						31

Comprehensive income (loss)	$	44		$	(32	)	$	12

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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


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

Net sales	$	4,368		$			$	4,368

Cost of goods sold (exclusive of depreciation and amortization shown below)		3,991						3,991
Selling, general and administrative expenses		130						130
Depreciation and amortization		155			1			156
Research and development expenses		23						23
Interest expense and amortization of debt issuance costs net		81						81
(Gain) loss on change in fair value of derivative instruments net		22			(6	)		16
Equity in net (income) loss of non-consolidated affiliates		5			(24	)		(19	)
Other (income) expenses net		4			5			9

		4,411			(24	)		4,387

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		(43	)		24			(19	)
Provision (benefit) for taxes on income (loss)					47			47

Income (loss) before minority interests share		(43	)		(23	)		(66	)
Minority interests share		2						2

Net income (loss)		(41	)		(23	)		(64	)

Other comprehensive income (loss):
Currency translation adjustment		14						14
Change in fair value of effective portion of hedges net		4						4

Other comprehensive income (loss) before income tax effect		18						18
Income tax (expense) benefit related to items of other comprehensive income (loss)		12						12

Other comprehensive income (loss) net of tax		30						30

Comprehensive income (loss)	$	(11	)	$	(23	)	$	(34	)

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 September 30, 2007 is restated as follows (in millions).


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

OPERATING ACTIVITIES
Net income (loss)	$	(41	)	$	(23	)	$	(64	)
Adjustments to determine net cash provided by (used in) operating activities:
Depreciation and amortization		155			1			156
(Gain) loss on change in fair value of derivative instruments net		22			(6	)		16
Deferred income taxes		(46	)		46
Amortization of debt issuance costs		7						7
Write-off and amortization of fair value adjustments net		(82	)					(82	)
Foreign exchange remeasurement on non-working capital items net		(2	)					(2	)
Provision for uncollectible accounts receivable		1						1
Equity in net (income) loss of non-consolidated affiliates		5			(24	)		(19	)
Minority interests share		(2	)					(2	)
Changes in assets and liabilities (net of effects from acquisitions and divestitures):
Accounts receivable third parties		54						54
Inventories		105						105
Prepaid expenses and other current assets		(2	)					(2	)
Other long-term assets		(2	)					(2	)
Accounts payable third parties		(124	)					(124	)
Accounts payable related parties		3						3
Accrued expenses and other current liabilities		(57	)					(57	)
Accrued postretirement benefits		8						8
Other long-term liabilities		7						7

Net cash provided by (used in) operating activities		9			(6	)		3

INVESTING ACTIVITIES
Capital expenditures		(57	)					(57	)
Proceeds from sales of assets		1						1
Changes to investment in and advances to non-consolidated affiliates		3						3
Proceeds from loans receivable net related parties		10						10
Net proceeds from settlement of derivative instruments		66			6			72

Net cash provided by (used in) investing activities		23			6			29

FINANCING ACTIVITIES
Proceeds from issuance of common stock		92						92
Proceeds from issuance of debt		960						960
Principal repayments		(905	)					(905	)
Short-term borrowings net		(65	)					(65	)
Dividends minority interests		(1	)					(1	)
Debt issuance costs		(35	)					(35	)

Net cash provided by (used in) financing activities		46						46

Net increase (decrease) in cash and cash equivalents		78						78
Effect of exchange rate changes on cash balances held in foreign currencies		1						1
Cash and cash equivalents beginning of period		102						102

Cash and cash equivalents end of period	$	181		$			$	181

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
Cash payments					(2	)		(2	)		(2	)				(2	)		(4	)
Adjustments other		(2	)					(2	)		(1	)				(1	)		(3	)

Balance as of September 30, 2008	$	1		$	2		$	3		$	12		$	1	$	13		$	16


4.	Inventories

Inventories consist of the following (in millions).


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

Finished goods	$	330		$	357
Work in process		570			638
Raw materials		428			386
Supplies		87			75

		1,415			1,456
Allowances		(2	)		(1	)

Inventories	$	1,413		$	1,455

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


5.	Property, Plant and Equipment

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


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

Land and property rights	$	235		$	258
Buildings		805			826
Machinery and equipment		2,431			2,460

		3,471			3,544
Accumulated depreciation and amortization		(518	)		(331	)

		2,953			3,213
Construction in progress		79			144

Property, plant and equipment net	$	3,032		$	3,357

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

Three Months

Six Months

May 16, 2007

April 1, 2007

Ended

Through

September 30,

May 15,

2008

2007

2008

2007

(Restated)

Successor

Predecessor

Depreciation expense related to property, plant and equipment

203

142

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


	Three Months						Six Months			May 16, 2007			April 1, 2007
	Ended						Ended			Through			Through
	September 30,						September 30,			September 30,			May 15,
	2008			2007			2008			2007			2007
	Successor			Successor			Successor			Successor			Predecessor
Total Amortization expense related to intangible assets	$	15		$	15		$	30		$	22		$
Less: Amortization expense related to intangible assets included in Cost of goods sold(A)		(5	)		(5	)		(10	)		(8	)

Amortization expense related to intangible assets included in Depreciation and amortization	$	10		$	10		$	20		$	14		$


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

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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

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 and six months ended September 30, 2008, we recorded $9 million and $18 million, respectively, for the incremental depreciation and amortization expense, net of tax, as part of our equity method accounting for these investments. For the three months ended September 30, 2007, we recorded incremental depreciation and amortization expense of $8 million, which was more than offset by $24 million of tax benefits associated with this amortization and a statutory tax rate change, as part of our equity method accounting for these investments. For the period from May 16, 2007 through September 30, 2007, we recorded incremental depreciation and amortization expense of $11 million, which was more than offset by $24 million of tax benefits associated with this amortization and a statutory tax rate change, as part of our equity method accounting for these investments.


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

Net sales	$	167	$	138	$	324	$	223	$	45
Costs, expenses and provisions for taxes on income		146		130		288		211		43

Net income	$	21	$	8	$	36	$	12	$	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 Aluminium

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Norf GmbH during each of the periods presented in the table below. The following table describes the nature and amounts of significant transactions that we had with related parties (in millions).


	Three Months				Six Months		May 16, 2007		April 1, 2007
	Ended				Ended		Through		Through
	September 30,				September 30,		September 30,		May 15,
	2008		2007		2008		2007		2007
	Successor		Successor		Successor		Successor		Predecessor
Purchases of tolling services and electricity
Aluminium Norf GmbH(A)	$	74	$	66	$	147	$	106	$	21
Consorcio Candonga(B)		10		3		13		6		1

Total purchases from related parties	$	84	$	69	$	160	$	112	$	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
	September 30, 2008		March 31, 2008
	Successor		Successor

Accounts receivable(A)	$	24	$	31
Other long-term receivables(A)	$	29	$	41
Accounts payable(B)	$	57	$	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.


7.	Accrued Expenses and Other Current Liabilities

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


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

Accrued compensation and benefits	$	122	$	141
Accrued settlement of legal claim				39
Accrued interest payable		18		15
Accrued income taxes		3		35
Current portion of fair value of unfavorable sales contracts		225		242
Current portion of fair value of derivative instruments		385		148
Other current liabilities		212		230

Accrued expenses and other current liabilities	$	965	$	850

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


8.	Debt

Debt consists of the following (in millions).


				As of
				September 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		$	63		$	1,462		$	1,399		$	67		$	1,466
Floating rate Term Loan facility, due July 2014		5.88	%		296						296			298						298
Novelis Corporation
Floating rate Term Loan facility, due July 2014		5.88	%(C)		652						652			655						655
Novelis Switzerland S.A.
Capital lease obligation, due January 2020 (Swiss francs (CHF) 52 million)		7.50	%		47			(3	)		44			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 2010 through June 2011 (Korean won (KRW) 400 million)		3.50	%(D)											1						1
Other
Other debt, due April 2009 through December 2012		1.40	%(D)		1						1			2						2

Total debt					2,498			60			2,558			2,512			63			2,575
Less: current portion					(14	)					(14	)		(15	)					(15	)

Long-term debt net of current portion				$	2,484		$	60		$	2,544		$	2,497		$	63		$	2,560


(A)		Interest rates are as of September 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 related interest rate swaps.

(D)		Weighted average interest rate.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Due to the change in the market price of our 7.25% Senior Notes from 105.25% of par value as of May 14, 2007 to 86% of par value as of September 30, 2008, the estimated fair value of this debt has decreased $270 million to $1.203 billion.

Interest Rate Swaps

During the quarter ended December 31, 2007, we entered into interest rate swaps to fix the variable London Interbank Offered Rate (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) 4.0% on $500 million through March 31, 2009 and (ii) 4.0% on $400 million through March 31, 2010. An interest rate swap at an interest rate of 4.1% on $100 million of our Term Loan facility expired on September 30, 2008. We are still obligated to pay any applicable margin, as defined in our New Credit Facilities, in addition to these interest rates.

As of September 30, 2008 approximately 76% of our debt was fixed rate and approximately 24% was variable rate.

Short-Term Borrowings and Lines of Credit

As of September 30, 2008, our short-term borrowings were $351 million consisting of (1) $328 million of short-term loans under our ABL facility, (2) a $10 million short-term loan in Italy and (3) $13 million in bank overdrafts. As of September 30, 2008, $20 million of our ABL facility was utilized for letters of credit and we had $364 million in remaining availability under this revolving credit facility.

The New Credit Facilities include customary affirmative and negative covenants. Under the ABL facility, if our excess availability, as defined under the borrowing, is less than 10% of the borrowing base, we are required to maintain a minimum fixed charge coverage ratio of 1 to 1. As of September 30, 2008, our fixed charge coverage ratio is less than 1 to 1. As a result, our borrowing availability is limited to 90% of the available borrowing base to avoid potential default of our financial covenants, resulting in a reduction of availability under our ABL facility of $80 million.

As of September 30, 2008, we had an additional $170 million outstanding 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 5.60% and 4.12% as of September 30, 2008 and March 31, 2008, respectively.


9.	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, 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 the date the plan was authorized by the board. 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 the participants payroll currency 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 September 30, 2008, no SARs have been awarded.

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

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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.

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. Compensation expense of $1 million was recognized during the period from May 16, 2007 through September 30, 2007.

On October 29, 2008, the board of directors approved an amendment to the 2009 LTIP (Amended 2009 LTIP). The design elements of the Amended 2009 LTIP are largely unchanged from the original 2009 LTIP. However, the Amended 2009 LTIP now specifies that (a) the plan shall be administered by the Compensation Committee of the Board of Directors, (b) all payments shall be made in cash upon exercise (less applicable withholdings), and (c) the Compensation Committee has the authority to make adjustments in the number and price of SARs covered by the plan in order to prevent dilution or enlargement of the rights of employees that would otherwise result from a change in the capital structure of the Company (e.g., dividends, stock splits, rights issuances, reorganizations, liquidation of assets, etc.).

For each of the three and six months ended September 30, 2008 and for the three months ended September 30, 2007, compensation expense related to share-based awards was less than $1 million.


10.	Postretirement Benefit Plans

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


	Three Months						Six Months			May 16, 2007			April 1, 2007
	Ended						Ended			Through			Through
	September 30,						September 30,			September 30,			May 15,
	2008			2007			2008			2007			2007
	Successor			Successor			Successor			Successor			Predecessor
Pension Benefit Plans
Service cost	$	11		$	12		$	21		$	18		$	6
Interest cost		15			12			30			18			6
Expected return on assets		(13	)		(11	)		(26	)		(16	)		(5	)
Amortization prior service cost		(1	)					(1	)
Curtailment/settlement losses								1

Net periodic benefit cost	$	12		$	13		$	25		$	20		$	7

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


	Three Months				Six Months			May 16, 2007		April 1, 2007
	Ended				Ended			Through		Through
	September 30,				September 30,			September 30,		May 15,
	2008		2007		2008			2007		2007
	Successor		Successor		Successor			Successor		Predecessor
Other Postretirement Benefit Plans
Service cost	$	1	$	1	$	3		$	2	$	1
Interest cost		2		2		5			3		1
Amortization actuarial losses		1				1
Curtailment/settlement losses						(2	)

Net periodic benefit cost	$	4	$	3	$	7		$	5	$	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 (in millions).


	Three Months				Six Months		May 16, 2007		April 1, 2007
	Ended				Ended		Through		Through
	September 30,				September 30,		September 30,		May 15,
	2008		2007		2008		2007		2007
	Successor		Predecessor		Successor		Successor		Predecessor
Funded pension plans	$	7	$	11	$	11	$	16	$	4
Unfunded pension plans		4		4		8		6		2
Savings and defined contribution pension plans		4		4		9		6		2

Total contributions	$	15	$	19	$	28	$	28	$	8

During the remainder of fiscal 2009, we expect to contribute an additional $24 million to our funded pension plans, $9 million to our unfunded pension plans and $8 million to our savings and defined contribution plans. For the six months ended September 30, 2008, actual returns for our worldwide funded pension plans were significantly below our expected rate of return of 6.9% due to adverse conditions in the equity markets. Continued actual returns below our expected rate may unfavorably impact the amount and timing of future contributions to funded plans.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


11.	Currency (Gains) Losses

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


	Three Months						Six Months			May 16, 2007			April 1, 2007
	Ended						Ended			Through			Through
	September 30,						September 30,			September 30,			May 15,
	2008			2007			2008			2007			2007
				(Restated)						(Restated)
	Successor			Successor			Successor			Successor			Predecessor
Net (gain) loss on change in fair value of currency derivative instruments(A)	$	(7	)	$	(2	)	$	(39	)	$	(18	)	$	(10	)
Net (gain) loss on translation of monetary assets and liabilities(B)		36			8			56			15			4

	$	29		$	6		$	17		$	(3	)	$	(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).


	Six Months			May 16, 2007
	Ended			Through
	September 30, 2008			March 31, 2008
				(Restated)
	Successor			Successor

Cumulative currency translation adjustment beginning of period	$	59		$
Effect of changes in exchange rates		(65	)		59

Cumulative currency translation adjustment end of period	$	(6	)	$	59


12.	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. Our maximum potential loss may exceed the amount recognized in the accompanying September 30, 2008 condensed consolidated balance sheet.

The decision of whether and when to execute derivative instruments, along with the duration of the instrument, can vary from period to period depending on market conditions, the relative costs of the instruments and capacity to hedge. The duration is always linked to the timing of the underlying exposure, with the connection between the two being regularly monitored.

The current and noncurrent portions of derivative assets are presented on the face of our accompanying condensed consolidated balance sheets. The current and noncurrent portions of derivative 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)

The fair values of our financial instruments and commodity contracts as of September 30, 2008 and March 31, 2008 are as follows (in millions):


	As of September 30, 2008
	Assets				Liabilities						Net Fair Value
	Current		Noncurrent		Current			Noncurrent			Assets/(Liabilities)
Successor

Derivatives designated as hedging instruments:
Cross-currency swaps	$		$		$			$	(65	)	$	(65	)
Interest rate swaps									(4	)		(4	)
Electricity swap				6								6

Total derivatives designated as hedging instruments				6					(69	)		(63	)

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts		43		1		(50	)		(16	)		(22	)
Cross-currency swaps		12				(9	)					3
Interest rate currency swaps				23								23
Aluminum forward contracts		126		11		(297	)		(7	)		(167	)
Aluminum options		2		5		(22	)		(7	)		(22	)
Embedded derivative instruments		54										54
Natural gas swaps						(7	)					(7	)

Total derivatives not designated as hedging instruments		237		40		(385	)		(30	)		(138	)

Total derivative fair value	$	237	$	46	$	(385	)	$	(99	)	$	(201	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


	As of March 31, 2008
	Assets				Liabilities						Net Fair Value
	Current		Noncurrent		Current			Noncurrent			Assets/(Liabilities)
Successor

Derivatives designated as hedging instruments:
Cross-currency swaps	$		$		$			$	(184	)	$	(184	)
Interest rate swaps						(3	)		(12	)		(15	)
Electricity swap		3		11								14

Total derivatives designated as hedging instruments		3		11		(3	)		(196	)		(185	)

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts		43		4		(112	)		(4	)		(69	)
Cross-currency swaps		19				(4	)		(1	)		14
Interest rate currency swaps		2		2								4
Aluminum forward contracts		130		4		(9	)					125
Aluminum options		1										1
Embedded derivative instruments						(20	)					(20	)
Natural gas swaps		5										5

Total derivatives not designated as hedging instruments		200		10		(145	)		(5	)		60

Total derivative fair value	$	203	$	21	$	(148	)	$	(201	)	$	(125	)

Net Investment Hedges

We use cross-currency swaps to manage our exposure to fluctuating exchange rates arising from our loans to and investments in our European operations. We have designated these as net investment hedges. The effective portion of gain or loss on the derivative is included in Other comprehensive income (loss). The ineffective portion of gain or loss on the derivative is included in (Gain) loss on change in fair value of derivative instruments net.

The following table summarizes the amount of gain (loss) we recognized in Other comprehensive income (loss) related to our net investment hedge derivatives (in millions).

Three Months

Six Months

May 16, 2007

April 1, 2007

Ended

Through

September 30,

May 15,

2008

2007

2008

2007

Successor

Predecessor

Cross-currency swaps

(28

)

120

(28

)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Cash Flow Hedges

We own an interest in an electricity swap which we have designated as a cash flow hedge against our exposure to fluctuating electricity prices. The effective portion of gain or loss on the derivative is included in Other comprehensive income (loss) and reclassified into (Gain) loss on change in fair value of derivatives net in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

We use interest rate swaps to manage our exposure to changes in the benchmark LIBOR interest rate arising from our variable rate debt. We have designated these as cash flow hedges. The effective portion of gain or loss on the derivative is included in Other comprehensive income (loss) and reclassified into Interest expense and amortization of debt issuance costs net in our accompanying condensed consolidated statements of operations and comprehensive income (loss).

For all derivatives designated as cash flow hedges, gains or losses representing hedge ineffectiveness are recognized in (Gain) loss on change in fair value of derivative instruments net in our current period earnings. If at any time during the life of a cash flow hedge relationship we determine that the relationship is no longer effective, the derivative will be de-designated as a cash flow hedge. This could occur if the underlying hedged exposure is determined to no longer be probable, or if our ongoing assessment of hedge effectiveness determines that the hedge relationship no longer meets the measures we have established at the inception of the hedge. Gains or losses recognized to date in Accumulated other comprehensive income (loss) would be immediately reclassified into current period earnings, as would any subsequent changes in the fair value of any such derivative.

During the next twelve months we expect to realize $1 million in effective net gains from our cash flow hedges. The maximum period over which we have hedged our exposure to cash flow variability is through 2017.

The following table summarizes the (1) the amount of gain or (loss) recognized in Other comprehensive income (loss) (OCI), (2) the amount of gain or (loss) reclassified from Accumulated OCI into income and (3) the amount of gain or (loss) recognized in income (ineffective portion) related to our cash flow hedge derivatives (in millions).

Three Month Comparison:

Amount of Gain or (Loss)

Recognized in Income on

Amount of Gain or (Loss)

Reclassified from Accumulated

Derivative (Ineffective Portion

Recognized in OCI on Derivative

OCI into Income

and Amount Excluded from

(Effective Portion)

Effectiveness Testing)

Three Months

Ended

September 30,

2008

2007

2008

2007

2008

2007

Successor

Electricity swap

(12

)

Interest rate swaps

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Six Month Comparison:

Amount of Gain or (Loss)

Recognized in Income

Amount of Gain or (Loss) Recognized

Amount of Gain or (Loss)

on Derivative

in OCI on Derivative

Reclassified from Accumulated

(Ineffective Portion and Amount

(Effective Portion)

OCI into Income (Effective Portion)

Excluded from Effectiveness Testing)

Six Months

Ended

September 30,

2008

Successor

Electricity swap

)

Interest rate swaps

Amount of Gain or (Loss)

Recognized in Income on Derivative

Recognized in OCI on

Reclassified from Accumulated

(Ineffective Portion and Amount

Derivative (Effective Portion)

OCI into Income (Effective Portion)

Excluded from Effectiveness Testing)

May 16, 2007

April 1, 2007

May 16, 2007

April 1, 2007

May 16, 2007

April 1, 2007

Through

September 30,

May 15,

September 30,

May 15,

September 30,

May 15,

2007

Successor

Predecessor

Successor

Predecessor

Successor

Predecessor

Foreign exchange forward contracts

)

Electricity swap

Derivative Instruments Not Designated as Hedges

We use foreign exchange forward contracts and cross currency swaps to manage our exposure to changes in exchange rates. These exposures arise from recorded assets and liabilities, firm commitments and forecasted cash flows denominated in currencies other than the functional currency of certain of our operations.

We use aluminum forward contracts and options to hedge our exposure to changes in the London Metal Exchange (LME) price of aluminum. These exposures arise from firm commitments to sell aluminum in future periods at fixed or capped prices, the forecasted output of our smelter operations in South America, and the forecasted metal price lag associated with firm commitments to sell aluminum in future periods at prices based on the LME.

We have an embedded derivative which arises from a contractual relationship with a customer that entitles us to pass-through the economic effect of trading positions that we take with other third parties on their behalf.

We use natural gas swaps to manage our exposure to fluctuating energy prices in North America.

While each of these derivatives is intended to be effective in helping us manage risk, they have not been designated as hedging instruments under FASB Statement No. 133. The change in fair value of these derivatives is included in (Gain) loss on change in fair value of derivative instruments net in the condensed consolidated statement of operations and comprehensive income (loss).

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

The following table summarizes the gains (losses) recognized in current period earnings (in millions).


	Three Months						Six Months			May 16, 2007			April 1, 2007
	Ended						Ended			Through			Through
	September 30,						September 30,			September 30,			May 15,
	2008			2007			2008			2007			2007
	Successor			Successor			Successor			Successor			Predecessor
Derivative Instruments Not Designated as Hedges
Foreign exchange forward contracts	$	17		$	(4	)	$	7		$	12		$	11
Interest rate currency swaps		15			(2	)		24			(2	)		(1	)
Aluminum forward contracts		(207	)		(30	)		(191	)		(34	)		9
Aluminum options		(27	)					(25	)		1
Embedded derivative instruments		53			15			58			12			2
Natural gas swaps		(16	)		(2	)		(9	)		(3	)		1
Cross currency swaps		(25	)		(9	)		8			(6	)		(3	)

Gain (loss) recognized		(190	)		(32	)		(128	)		(20	)		19
Derivative Instruments Designated as Cash Flow Hedges
Electricity swap		5			2			9			4			1

Gain (loss) on change in fair value of derivative instruments net	$	(185	)	$	(30	)	$	(119	)	$	(16	)	$	20


13.	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 for the three months ended June 30, 2008, 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) 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 12 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

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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).

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 September 30, 2008 (in millions).


	Fair Value Measurements Using
	Level 1	Level 2			Level 3			Total
Successor:

Assets Derivative instruments	$	$	277		$	6		$	283
Liabilities Derivative instruments	$	$	(468	)	$	(16	)	$	(484	)

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. We incurred $22 million of unrealized losses related to Level 3 financial instruments that were still held as of September 30, 2008. These unrealized losses are

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

included in (Gain) loss on change in fair value of derivative instruments net. The following table presents a reconciliation of activity for Level 3 derivative contracts on a net basis (in millions).

Net Realized/

Unrealized

Gains (Losses)

Beginning

Gains

Included

Ending

Balance

(Losses)

in Other

Net Purchases,

Net Transfers

Balance

April 1,

Included in

Comprehensive

Issuances and

in and/or

September 30,

2008

Earnings(B)

Income (Loss)(C)

Settlements

(out) of Level 3

2008

Successor:

Derivative instruments(A)

)

(10

)


(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.


14.	Other (Income) Expenses Net

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


	Three Months						Six Months			May 16, 2007			April 1, 2007
	Ended						Ended			Through			Through
	September 30,						September 30,			September 30,			May 15,
	2008			2007			2008			2007			2007
				(Restated)						(Restated)
	Successor			Successor			Successor			Successor			Predecessor
Exchange (gains) losses net	$	36		$	8		$	56		$	15		$	4
(Gain) loss on reversal of accrued legal claim(A)		(26	)					(26	)
(Gain) loss on partial reversal of accrued social contribution tax					(14	)					(14	)
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	)					(2	)
Other net		1			4			4			7			(1	)

Other (income) expenses net	$	10		$	(2	)	$	32		$	9		$	4


(A)		See Note 16 Commitments and Contingencies for a discussion regarding the settlement of the Reynolds Boat Case.


15.	Income Taxes

The Provision (benefit) for taxes on income (loss) for the three and six months ended September 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 the periods from May 16, 2007 through September 30, 2007 (as restated) and April 1, 2007 through May 15, 2007 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, except percentages).


	Three Months						Six Months			May 16, 2007			April 1, 2007
	Ended						Ended			Through			Through
	September 30,						September 30,			September 30,			May 15,
	2008			2007			2008			2007			2007
				(Restated)						(Restated)
	Successor			Successor			Successor			Successor			Predecessor
Pre-tax income (loss) before equity in net (income) loss of non-consolidated affiliates and minority interests share	$	(274	)	$	(19	)	$	(210	)	$	(38	)	$	(95	)

Canadian statutory tax rate		31	%		33	%		31	%		33	%		33	%

Provision (benefit) at the Canadian statutory rate		(85	)		(6	)		(65	)		(13	)		(31	)
Increase (decrease) for taxes on income (loss) resulting from:
Exchange translation items		(22	)		30			(13	)		49			23
Exchange remeasurement of deferred income taxes		(41	)		4			(21	)		7			3
Change in valuation allowances		15			19			18			41			13
Expense (income) items not subject to tax		10			(5	)		6			(19	)		(9	)
Enacted statutory tax rate changes		2			(25	)		2			(25	)
Tax rate differences on foreign earnings		(54	)		(2	)		(68	)					2
Uncertain tax positions								1
Other net		6			5			6			7			3

Provision (benefit) for taxes on income (loss)	$	(169	)	$	20		$	(134	)	$	47		$	4

Effective tax rate		62	%		(105	)%		64	%		(124	)%		(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.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

During the quarter ended September 30, 2008, our unrecognized tax benefits decreased $7 million as a result of tax positions taken during a prior period and settlements with taxing authorities. Our reserves for uncertain tax positions totaled $54 million and $61 million as of September 30, 2008 and March 31, 2008, respectively. As of September 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 was $46 million and $47 million, respectively.

Tax authorities are currently examining certain of our prior years tax returns for 2004-2006. We are evaluating potential adjustments related to these examinations and do not anticipate that settlement of the examinations will result in a material payment.

During the quarter ended September 30, 2008, taxing authorities in Germany concluded their audit of the tax years 1999-2003. As a result of this settlement, we reduced our unrecognized tax benefits by $10 million including cash payments to taxing authorities of $6 million and a reduction to Goodwill of $4 million.

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 $12 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 not currently under examination by any income tax authorities for years before 2004. With few exceptions, our tax returns for all tax years before 2001 are no longer 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 September 30, 2008 and March 31, 2008, we had $12 million and $14 million (as restated) accrued for potential interest on income taxes, respectively. For the three and six months ended September 30, 2008, our Provision (benefit) for taxes on income (loss) included an additional charge of $1 and $2 million of potential interest, respectively. For the three months ended September 30, 2007 and the periods from May 16, 2007 through September 30, 2007 and from April 1, 2007 through May 15, 2007, our Provision (benefit) for taxes on income (loss) included charges for an additional $1 million, $3 million and $1 million of potential interest, respectively.


16.	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

Six Months

May 16, 2007

April 1, 2007

Ended

Through

September 30,

May 15,

2008

2007

2008

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-

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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 funded, $39 million was 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 sought to 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 had completed their review and they were 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 at September 30, 2006 represented the amount of the settlement claim that was funded by our insurers but was still in dispute with and under review by the parties as described above. The $39 million liability was included in Accrued expenses and other current liabilities in our condensed consolidated balance sheet for all periods through and as of June 30, 2008.

On September 4, 2008, Novelis, our insurers, and Alcan entered into a settlement agreement to resolve the insurance coverage dispute related to the Reynolds boat case. Pursuant to that settlement agreement, we paid approximately $13 million to our insurers on September 8, 2008 and recognized a non-cash pre-tax gain of $26 million included in Other (income) expenses net upon the reversal of our previously recorded $39 million liability. Our insurers returned our letter of credit that had been on deposit pending the outcome of settlement discussions. This concludes the Reynolds Boat Case insurance coverage matter.

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.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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.

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. CCE filed its response on September 5, 2008.

On October 24, 2008, the United States Court of Appeals for the Eleventh Circuit affirmed the decision of the U.S. District Court for the Northern District of Georgia to dismiss CCEs lawsuit against Novelis Corporation for breach of the most favored nations clause.

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.

On August 18, 2008, Novelis and Anheuser-Busch entered into an agreement to terminate the litigation between the parties. Pursuant to the litigation termination agreement, Anheuser-Busch agreed to drop its claims against Novelis in consideration for the withdrawal of our appeal. The parties then filed a Notice of Withdrawal with the United States Court of Appeals for the Sixth Circuit on August 19, 2008. This concludes the Anheuser-Busch litigation matter.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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.

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 September 30, 2008 will be approximately $43 million. Of this amount,

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

$33 million is included in Other long-term liabilities, with the remaining $10 million included in Accrued expenses and other current liabilities in our condensed consolidated balance sheet as of September 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 (PRPs) unless otherwise noted.

Butler Tunnel Site. Novelis Corporation was a party in a 1989 U.S. Environmental Protection Agency (EPA) lawsuit before the U.S. District Court for the Middle District of Pennsylvania involving the Butler Tunnel Superfund site, a third-party disposal site. In May 1991, the Court granted summary judgment against Novelis Corporation for alleged disposal of hazardous waste. After unsuccessful appeals, Novelis Corporation paid the entire judgment plus interest.

The EPA filed a second cost recovery action against Novelis Corporation seeking recovery of expenses associated with the installation of an early warning and response system for potential future releases from the Butler Tunnel site. In January 2008, Novelis Corporation and the Department of Justice, on behalf of the EPA, entered into a consent decree whereby Novelis Corporation agreed to pay $1.9 million in three installments in settlement of its liability with the U.S. government.

Prior to the execution of the Novelis Corporation consent decree, the EPA entered into consent decrees with the other Butler Tunnel PRPs to finance and construct the early warning and response system. On October 30, 2008, the trustee for the PRPs provided a detailed analysis of the past and future costs associated with the implementation of the early warning system and advised us of their intention to file a contribution action against us. Given the success of these types of civil claims in environmental cases and our prior adverse court rulings, we have recognized a liability for $3.8 million reflecting our portion of the previous and remaining costs to complete the early warning and response system.

Brazil Tax Matters

Primarily as a result of legal proceedings with Brazils Ministry of Treasury regarding certain taxes in South America, as of September 30, 2008 and March 31, 2008, we had cash deposits aggregating approximately $33 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 $7 million to $94 million as of September 30, 2008. In total, these reserves approximate $113 million and $111 million as of September 30,

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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. On August 11, 2008, we requested a clarification of the courts order to better understand the reasoning behind the decision and prepare our appeal. The request for clarification suspends the deadline for appeal, which usually must be filed within 30 days of receiving the order. While we are fully reserved for these disputed credits, we must make a judicial deposit of $5.5 million at the time we file the 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 September 30, 2008 (in millions). We did not have any obligations under guarantees of indebtedness related to our majority-owned subsidiaries as of September 30, 2008.


	Maximum		Liability
	Potential		Carrying
Type of Entity	Future Payment		Value

Wholly-owned subsidiaries	$	89	$	63
Aluminium Norf GmbH	$	14	$

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.


17.	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.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

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 must remove our proportional share of each line item that we included in the segment amounts. See Note 6 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)

September 30, 2008	$	4,003	$	3,775	$	985	$	1,486	$	(191	)	$	266	$	10,324
March 31, 2008 (Restated)	$	3,888	$	4,171	$	1,081	$	1,478	$	(199	)	$	263	$	10,682

Comparison of Three Month Data:


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

Net sales (to third parties)	$	1,111	$	1,097	$	458		$	300	$	(7	)	$			$	2,959
Intersegment sales		2		4										(6	)
Segment Income		2		62		(3	)		48								109
Depreciation and amortization		41		54		13			19		(20	)					107
Capital expenditures		10		17		6			9		(6	)		1			37

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


									Adjustment to
									Eliminate
Selected Operating Results	North						South		Proportional			Corporate
Three Months Ended September 30, 2007	America		Europe		Asia		America		Consolidation			and Other			Total
(Successor)

Net sales (to third parties)	$	1,050	$	1,092	$	438	$	241	$			$			$	2,821
Intersegment sales		2		1		4		11					(18	)
Segment Income (Restated)		89		68		18		46								221
Depreciation and amortization (Restated)		40		47		16		15		(15	)					103
Capital expenditures		8		16		6		7		(3	)		1			35

Comparison of Six Month Data:


									Adjustment to
									Eliminate
Selected Operating Results	North						South		Proportional			Corporate
Six Months Ended September 30, 2008	America		Europe		Asia		America		Consolidation			and Other			Total
(Successor)

Net sales (to third parties)	$	2,194	$	2,315	$	968	$	595	$	(10	)	$			$	6,062
Intersegment sales		2		5		1							(8	)
Segment Income		44		173		28		95								340
Depreciation and amortization		83		117		28		36		(42	)		1			223
Capital expenditures		17		36		11		15		(10	)		1			70


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

Net sales (to third parties)	$	1,624	$	1,686	$	683	$	375	$			$			$	4,368
Intersegment sales		3		1		6		27					(37	)
Segment Income (Restated)		112		111		16		68								307
Depreciation and amortization (Restated)		61		72		24		22		(23	)					156
Capital expenditures		14		25		11		8		(3	)		2			57


										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		(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						Six Months			May 16, 2007			April 1, 2007
	Ended						Ended			Through			Through
	September 30,						September 30,			September 30,			May 15,
	2008			2007			2008			2007			2007
				(Restated)						(Restated)
	Successor			Predecessor			Successor			Successor			Predecessor
Total Segment Income	$	109		$	221		$	340		$	307		$	32
Interest expense and amortization of debt issuance costs net		(41	)		(56	)		(81	)		(81	)		(26	)
Unrealized gains (losses) on change in fair value of derivative instruments net(A)		(221	)		(87	)		(200	)		(102	)		5
Realized gains (losses) on corporate derivative instruments net					30						38			(3	)
Depreciation and amortization		(107	)		(103	)		(223	)		(156	)		(28	)
Impairment charges on long-lived assets								(1	)
Minority interests share								(2	)		2			1
Adjustment to eliminate proportional consolidation(B)		(18	)		7			(36	)		(2	)		(7	)
Restructuring recoveries (charges) net								1			(1	)		(1	)
Gain (loss) on sales of property, plant and equipment and businesses net		1						2
Corporate selling, general and administrative expenses		(16	)		(16	)		(30	)		(24	)		(35	)
Other costs net(C)		21			5			18			2			1
Sale transaction fees														(32	)
Benefit (provision) for taxes on income (loss)		169			(20	)		134			(47	)		(4	)

Net income (loss)	$	(103	)	$	(19	)	$	(78	)	$	(64	)	$	(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.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)


	Three Months						Six Months			May 16, 2007			April 1, 2007
	Ended						Ended			Through			Through
	September 30,						September 30,			September 30,			May 15,
	2008			2007			2008			2007			2007
				(Restated)						(Restated)
	Successor			Successor			Successor			Successor			Predecessor
(Gains) losses on change in fair value of derivative instruments net:
Realized and included in Segment Income	$	(36	)	$	(27	)	$	(81	)	$	(48	)	$	(18	)
Realized on corporate derivative instruments					(30	)					(38	)		3
Unrealized		221			87			200			102			(5	)

(Gains) losses on change in fair value of derivative instruments net	$	185		$	30		$	119		$	16		$	(20	)


(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 6 Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these non-consolidated affiliates.

(C)		Other costs net includes a $26 million gain on the reversal of a legal accrual for the Reynolds Boat Case during the three and six months ended September 30, 2008. See Note 16 * Commitments and Contingencies* for additional discussion.

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		Six Months	May 16, 2007	April 1, 2007
	Ended		Ended	Through	Through
	September 30,		September 30,	September 30,	May 15,
	2008	2007	2007	2007	2007
	Successor	Successor	Successor	Successor	Predecessor
Net sales to Rexam as a percentage of total net sales	16.9%	15.6%	16.2%	14.7%	13.5%


18.	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.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

The following information presents condensed consolidating statements of operations, balance sheets and 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.

Condensed Consolidating Statement of Operations

(In millions)


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

Net sales	$	389		$	2,482		$	767		$	(679	)	$	2,959

Cost of goods sold (exclusive of depreciation and amortization shown below)		384			2,364			722			(679	)		2,791
Selling, general and administrative expenses		6			62			21						89
Depreciation and amortization		6			77			24						107
Research and development expenses		7			3									10
Interest expense and amortization of debt issuance costs net		7			31			3						41
(Gain) loss on change in fair value of derivative instruments net		3			197			(15	)					185
Equity in net (income) loss of affiliates		81			(2	)					(81	)		(2	)
Other (income) expenses net		(3	)		(22	)		35						10

		491			2,710			790			(760	)		3,231

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		(102	)		(228	)		(23	)		81			(272	)
Provision (benefit) for taxes on income (loss)		1			(165	)		(5	)					(169	)

Income (loss) before minority interests share		(103	)		(63	)		(18	)		81			(103	)
Minority interests share

Net income (loss)	$	(103	)	$	(63	)	$	(18	)	$	81		$	(103	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Statement of Operations

(In millions)


	Three Months Ended September 30, 2007 (Successor)
							Non-
Restated	Parent			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	369		$	2,340		$	736		$	(624	)	$	2,821

Cost of goods sold (exclusive of depreciation and amortization shown below)		365			2,117			697			(624	)		2,555
Selling, general and administrative expenses		8			62			18						88
Depreciation and amortization		5			75			23						103
Research and development expenses		7			2			1						10
Interest expense and amortization of debt issuance costs net		15			35			6						56
(Gain) loss on change in fair value of derivative instruments net		1			21			8						30
Equity in net (income) loss of affiliates		(9	)		(20	)					9			(20	)
Other (income) expenses net		(8	)		7			(1	)					(2	)

		384			2,299			752			(615	)		2,820

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		(15	)		41			(16	)		(9	)		1
Provision (benefit) for taxes on income (loss)		4			15			1						20

Income (loss) before minority interests share		(19	)		26			(17	)		(9	)		(19	)
Minority interests share

Net income (loss)	$	(19	)	$	26		$	(17	)	$	(9	)	$	(19	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Statement of Operations

(In millions)


	Six Months Ended September 30, 2008 (Successor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	784		$	5,064		$	1,603		$	(1,389	)	$	6,062

Cost of goods sold (exclusive of depreciation and amortization shown below)		771			4,741			1,499			(1,389	)		5,622
Selling, general and administrative expenses		6			124			43						173
Depreciation and amortization		12			166			45						223
Research and development expenses		15			6			1						22
Interest expense and amortization of debt issuance costs net		14			60			7						81
(Gain) loss on change in fair value of derivative instruments net		3			135			(19	)					119
Equity in net (income) loss of affiliates		49									(49	)
Other (income) expenses net		(10	)		(9	)		51						32

		860			5,223			1,627			(1,438	)		6,272

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		(76	)		(159	)		(24	)		49			(210	)
Provision (benefit) for taxes on income (loss)		2			(132	)		(4	)					(134	)

Income (loss) before minority interests share		(78	)		(27	)		(20	)		49			(76	)
Minority interests share								(2	)					(2	)

Net income (loss)	$	(78	)	$	(27	)	$	(22	)	$	49		$	(78	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited) (Continued)

Novelis Inc.

Condensed Consolidating Statement of Operations

(In millions)


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

Net sales	$	614		$	3,687		$	1,155		$	(1,088	)	$	4,368

Cost of goods sold (exclusive of depreciation and amortization shown below)		612			3,368			1,099			(1,088	)		3,991
Selling, general and administrative expenses		13			87			30						130
Depreciation and amortization		8			113			35						156
Research and development expenses		9			9			5						23
Interest expense and amortization of debt issuance costs net		18			55			8						81
(Gain) loss on change in fair value of derivative instruments net		(12	)		17			11						16
Equity in net (income) loss of affiliates		16			(19	)					(16	)		(19	)
Other (income) expenses net		(12	)		21									9

		652			3,651			1,188			(1,104	)		4,387

Income (loss) before provision (benefit) for taxes on income (loss) and minority interests share		(38	)		36			(33	)		16			(19	)
Provision (benefit) for taxes on income (loss)		26			20			1						47

Income (loss) before minority interests share		(64	)		16			(34	)		16			(66	)
Minority interests share								2						2

Net income (loss)	$	(64	)	$	16		$	(32	)	$	16		$	(64	)

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