Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

February 17, 2009

Table of Contents

 
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 December 31, 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
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
As of January 31, 2009, the registrant had 77,459,658 common shares outstanding. All of the Registrant’s outstanding shares were held indirectly by Hindalco Industries Ltd., the Registrant’s parent company.
 


 

 
TABLE OF CONTENTS
 
                 
      FINANCIAL INFORMATION        
      Financial Statements        
        Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) Three Months Ended December 31, 2008; Three Months Ended December 31, 2007 (Restated); Nine Months Ended December 31, 2008; May 16, 2007 Through December 31, 2007 (Restated); and April 1, 2007 Through May 15, 2007     2  
        Condensed Consolidated Balance Sheets (unaudited) as of December 31, 2008 and March 31, 2008 (Restated)     3  
        Condensed Consolidated Statements of Cash Flows (unaudited) Nine Months Ended December 31, 2008; May 16, 2007 Through December 31, 2007 (Restated); and April 1, 2007 Through May 15, 2007     4  
        Condensed Consolidated Statement of Shareholder’s Equity (unaudited) Nine Months Ended December 31, 2008 (Restated as to opening balance)     6  
        Notes to the Condensed Consolidated Financial Statements (unaudited)     7  
      Management’s Discussion and Analysis of Financial Condition and Results of Operations     55  
      Quantitative and Qualitative Disclosures About Market Risk     89  
      Controls and Procedures     93  
             
  PART II.     OTHER INFORMATION        
      Legal Proceedings     95  
      Risk Factors     95  
      Exhibits     96  
 EX-10.1
 EX-10.2
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


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PART I. FINANCIAL INFORMATION
 
Item 1.   Financial Statements
 
Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (unaudited)
(in millions)
 
                                           
    Three Months
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
          (Restated)
          (Restated)
         
    Successor     Successor     Successor     Successor       Predecessor  
Net sales
  $ 2,176     $ 2,735     $ 8,238     $ 7,103       $ 1,281  
                                           
Cost of goods sold (exclusive of depreciation and amortization shown below)
    2,023       2,474       7,645       6,465         1,205  
Selling, general and administrative expenses
    73       99       246       229         95  
Depreciation and amortization
    107       108       330       264         28  
Research and development expenses
    11       11       33       34         6  
Interest expense and amortization of debt issuance costs, net
    44       47       125       128         26  
(Gain) loss on change in fair value of derivative instruments, net
    405       56       524       72         (20 )
Impairment of goodwill
    1,340       —       1,340       —         —  
Restructuring charges, net
    15       1       14       2         1  
Equity in net (income) loss of non-consolidated affiliates
    166       3       166       (16 )       (1 )
Sale transaction fees
    —       —       —       —         32  
Other (income) expenses, net
    20       (17 )     53       (9 )       3  
                                           
      4,204       2,782       10,476       7,169         1,375  
                                           
Loss before income taxes and minority interests’ share
    (2,028 )     (47 )     (2,238 )     (66 )       (94 )
Income tax provision (benefit)
    (199 )     26       (333 )     73         4  
                                           
Loss before minority interests’ share
    (1,829 )     (73 )     (1,905 )     (139 )       (98 )
Minority interests’ share
    9       —       7       2         1  
                                           
Net loss
    (1,820 )     (73 )     (1,898 )     (137 )       (97 )
                                           
Other comprehensive income (loss):
                                         
Currency translation adjustment
    —       36       (63 )     50         31  
Change in fair value of effective portion of hedges
    (27 )     1       (24 )     5         (1 )
Postretirement benefit plans:
                                         
Amortization of net actuarial loss
    —       —       —       —         (1 )
Change in pension and other benefits
    (17 )     —       (15 )     —         —  
                                           
Other comprehensive income (loss) before income tax effect
    (44 )     37       (102 )     55         29  
Income tax provision (benefit) related to items of other comprehensive income (loss)
    11       (3 )     13       (15 )       (4 )
                                           
Other comprehensive income (loss), net of tax
    (55 )     40       (115 )     70         33  
                                           
Comprehensive loss
  $ (1,875 )   $ (33 )   $ (2,013 )   $ (67 )     $ (64 )
                                           
 
See accompanying notes to the condensed consolidated financial statements.


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Novelis Inc.
 
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except number of shares)
 
                 
    December 31,
    March 31,
 
    2008     2008  
          (Restated)
 
    Successor     Successor  
 
ASSETS
Current assets
               
Cash and cash equivalents
  $ 176     $ 326  
Accounts receivable (net of allowances of $1 as of December 31 and March 31, 2008)
               
— third parties
    1,069       1,248  
— related parties
    22       31  
Inventories
    1,170       1,455  
Prepaid expenses and other current assets
    73       58  
Fair value of derivative instruments
    328       203  
Deferred income tax assets
    274       125  
                 
Total current assets
    3,112       3,446  
Property, plant and equipment, net
    2,920       3,357  
Goodwill
    584       1,930  
Intangible assets, net
    816       888  
Investment in and advances to non-consolidated affiliates
    752       946  
Fair value of derivative instruments, net of current portion
    71       21  
Deferred income tax assets
    4       6  
Other long-term assets
               
— third parties
    87       102  
— related parties
    25       41  
                 
Total assets
  $ 8,371     $ 10,737  
                 
 
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
               
Current portion of long-term debt
  $ 22     $ 15  
Short-term borrowings
    292       115  
Accounts payable
               
— third parties
    970       1,582  
— related parties
    51       55  
Fair value of derivative instruments
    996       148  
Accrued expenses and other current liabilities
    597       704  
Deferred income tax liabilities
    —       39  
                 
Total current liabilities
    2,928       2,658  
Long-term debt, net of current portion
    2,540       2,560  
Deferred income tax liabilities
    520       754  
Accrued postretirement benefits
    432       421  
Other long-term liabilities
    335       672  
                 
      6,755       7,065  
                 
Commitments and contingencies
               
                 
Minority interests in equity of consolidated affiliates
    106       149  
                 
Shareholder’s equity
               
Common stock, no par value; unlimited number of shares authorized; 77,459,658 shares issued and outstanding as of December 31, 2008 and March 31, 2008
    —       —  
Additional paid-in capital
    3,497       3,497  
Accumulated deficit
    (1,918 )     (20 )
Accumulated other comprehensive income (loss)
    (69 )     46  
                 
Total shareholder’s equity
    1,510       3,523  
                 
Total liabilities and shareholder’s equity
  $ 8,371     $ 10,737  
                 
 
See accompanying notes to the condensed consolidated financial statements.


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Novelis Inc.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
 
                           
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Through
      Through
 
    December 31,
    December 31,
      May 15,
 
    2008     2007       2007  
          (Restated)
         
    Successor     Successor       Predecessor  
OPERATING ACTIVITIES
                         
Net loss
  $ (1,898 )   $ (137 )     $ (97 )
Adjustments to determine net cash provided by (used in) operating activities:
                         
Depreciation and amortization
    330       264         28  
(Gain) loss on change in fair value of derivative instruments, net
    524       72         (20 )
Deferred income taxes
    (404 )     22         (18 )
Amortization of debt issuance costs
    4       8         1  
Write-off and amortization of fair value adjustments, net
    (178 )     (156 )       —  
Impairment of goodwill
    1,340       —         —  
Equity in net (income) loss of non-consolidated affiliates
    166       (16 )       (1 )
Foreign exchange remeasurement on non-working capital items, net
    21       —         —  
Gain on reversal of accrued legal claim
    (26 )     —         —  
Provision for uncollectible accounts receivable
    —       1         —  
Inventory reserves and adjustments
    38       —         —  
Dividends from non-consolidated affiliates
    —       —         4  
Minority interests’ share
    (7 )     (2 )       (1 )
Impairment charges on long-lived assets
    1       —         —  
(Gain) loss on sales of property, plant and equipment and business, net
    (1 )     —         —  
Changes in assets and liabilities:
                         
Accounts receivable
                         
— third parties
    85       76         (21 )
— related parties
    —       1         —  
Inventories
    98       190         (76 )
Prepaid expenses and other current assets
    (25 )     (1 )       (7 )
Other long-term assets
    8       (4 )       (1 )
Accounts payable
                         
— third parties
    (459 )     (260 )       (62 )
— related parties
    4       7         —  
Accrued expenses and other current liabilities
    (45 )     (53 )       42  
Accrued postretirement benefits
    23       —         1  
Other long-term liabilities
    (33 )     17         (2 )
                           
Net cash provided by (used in) operating activities
    (434 )     29         (230 )
                           
INVESTING ACTIVITIES
                         
Capital expenditures
    (107 )     (120 )       (17 )
Net proceeds from settlement of derivative instruments
    180       56         18  
Proceeds from sales of property, plant and equipment and business
    4       4         —  
Changes to investment in and advances to non-consolidated affiliates
    17       5         1  
Proceeds from related parties loans receivable, net
    18       12         —  
                           
Net cash provided by (used in) investing activities
    112       (43 )       2  
                           
 
(Continued)


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Novelis Inc.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions) — (Continued)
 
                           
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Through
      Through
 
    December 31,
    December 31,
      May 15,
 
    2008     2007       2007  
          (Restated)
         
    Successor     Successor       Predecessor  
FINANCING ACTIVITIES
                         
Proceeds from issuance of common stock
    —       92         —  
Proceeds from issuance of debt
    8       1,100         150  
Principal repayments
    (11 )     (1,005 )       (1 )
Short-term borrowings, net
    193       (103 )       60  
Dividends — minority interests
    (5 )     (1 )       (7 )
Debt issuance costs
    —       (37 )       (2 )
Proceeds from the exercise of stock options
    —       —         1  
                           
Net cash provided by financing activities
    185       46         201  
                           
Net increase (decrease) in cash and cash equivalents
    (137 )     32         (27 )
Effect of exchange rate changes on cash balances held in foreign currencies
    (13 )     (3 )       1  
Cash and cash equivalents at beginning of period
    326       102         128  
                           
Cash and cash equivalents at end of period
  $ 176     $ 131       $ 102  
                           
Supplemental disclosures of cash flow information:
                         
Interest paid
  $ 101     $ 122       $ 13  
Income taxes paid
  $ 87     $ 50       $ 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
          $ (1,346 )          
Goodwill
          $ (1,645 )          
Intangible assets
          $ (883 )          
Investment in and advances to non-consolidated affiliates
          $ (775 )          
Debt
          $ 66            
 
See accompanying notes to the condensed consolidated financial statements.


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Novelis Inc.
 
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY (unaudited)
(in millions, except number of shares)
 
                                                 
                            Accumulated
       
                Additional
          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 loss
    —       —       —       (1,898 )     —       (1,898 )
Currency translation adjustment, net of tax
    —       —       —       —       (90 )     (90 )
Change in fair value of effective portion of hedges, net of tax
    —       —       —       —       (17 )     (17 )
Postretirement benefit plans:
                                               
Change in pension and other benefits, net of tax
    —       —       —       —       (8 )     (8 )
                                                 
Balance as of December 31, 2008
    77,459,658     $ —     $ 3,497     $ (1,918 )   $ (69 )   $ 1,510  
                                                 
 
See accompanying notes to the condensed consolidated financial statements.


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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 world’s leading aluminum rolled products producer based on shipment volume. We produce aluminum sheet and light gauge products where the end-use destination of the products includes the construction and industrial, beverage and food cans, foil products and transportation markets. As of December 31, 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. Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of judgment relate to derivative financial instruments, impairment of long-lived assets including goodwill and intangible assets and income taxes.
 
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 Company’s common shares was $3.4 billion and Hindalco also assumed $2.8 billion of Novelis’ debt for a total transaction value of $6.2 billion. Subsequent to completion of the Arrangement on May 15, 2007, all of our common shares were indirectly held by Hindalco.
 
Our acquisition by Hindalco was recorded in accordance with Staff Accounting Bulletin No. 103, Push Down Basis of Accounting Required in Certain Limited Circumstances (SAB 103). In the accompanying condensed consolidated balance sheets, the consideration and related costs paid by Hindalco in connection with the acquisition have been “pushed down” to us and have been allocated to the assets acquired and liabilities assumed in accordance with Financial Accounting Standards Board (FASB) Statement No. 141, Business Combinations (FASB 141). Due to the impact of push down accounting, the Company’s condensed consolidated financial statements and certain note presentations for the nine months ended December 31, 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 December 31, 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.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
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 reclassification and presentation changes were made to the prior periods’ condensed consolidated balance sheets to conform to the current period presentation: Fair value of derivative instruments were reclassified from Accrued expenses and other current liabilities to a separate line item. The amount of the reclassification was $148 million at March 31, 2008. This reclassification had no effect on total assets, total shareholder’s equity, net income (loss) or cash flows as previously presented.
 
During the quarter ended December 31, 2008, we reclassified $6 million from Deferred income tax assets, $2 million from Accrued expenses and other current liabilities, and $53 million from Deferred income tax liabilities to Goodwill due to a misclassification on the opening balance sheet of the Successor company. The impact of this reclassification increased total assets and total liabilities by $55 million, but had no effect on total shareholder’s equity, net income (loss) or cash flows as previously presented and is not considered material to the March 31, 2008 financial statements.
 
Recently Adopted Accounting Standards
 
The following accounting standards have been adopted by us during the nine months ended December 31, 2008.
 
During the quarter ended December 31, 2008, we adopted FASB Staff Position (FSP) No. FAS 140-4 and FASB Interpretation No. 46(R)-8 (FIN 46(R)-8), Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities. FIN 46(R)-8 calls for enhanced disclosures by public entities about interests in variable interest entities (VIE) and provides users of the financial statements with greater transparency about an enterprise’s involvement with variable interest entities. As FIN 46(R)-8 only requires enhanced disclosures, this FSP will have no impact on our consolidated financial position, results of operations and cash flows. See Note 8 — Consolidation of Variable Interest Entities for these expanded disclosures.
 
During the quarter ended December 31, 2008, we adopted FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (FASB 162). FASB 162 defines the order in which accounting principles that are generally accepted should be followed. Due to the nature of FASB 162, this standard will have no impact on our consolidated financial position, results of operations and cash flows.
 
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 159). FASB 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 133), to achieve similar results. We already record our derivative contracts and hedging activities at fair value in accordance with FASB 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 157), as it relates to financial assets and financial liabilities. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, which delayed our required adoption date of FASB 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair


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Table of Contents

 
Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
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 (FASB 13), 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 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 141 or FASB Statement No. 141 (Revised), Business Combinations. See Note 16 — Fair Value Measurements regarding our adoption of this standard.
 
On April 1, 2008, we adopted FASB Staff Position 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 December 31, 2008, as adoption is not required until future reporting periods.
 
On December 30, 2008, the FASB issued FSP No. 132(R)-1, Employers’ Disclosures about Pensions and Other Postretirement Benefits (FSP No. 132(R)-1). FSP No. 132(R)-1 requires that an employer disclose the following information about the fair value of plan assets: 1) how investment allocation decisions are made, including the factors that are pertinent to understanding of investment policies and strategies; 2) the major categories of plans assets; 3) the inputs and valuation techniques used to measure the fair value of plan assets; 4) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and 5) significant concentrations of risk within plan assets. FSP No. 132(R)-1 will be effective for fiscal years ending after December 15, 2009, with early application permitted. At initial adoption, application of FSP No. 132(R)-1 would not be required for earlier periods that are presented for comparative purposes. We have not yet commenced evaluating the potential impact, if any, of the adoption of FSP No. 132(R)-1 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, an amendment of FASB Statement No. 133 (FASB 161). FASB 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 133 and its related interpretations and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. FASB 161 is effective for financial statements issued for fiscal years and interim periods beginning after


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Table of Contents

 
Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
November 15, 2008, with early adoption permitted. FASB 161 permits, but does not require, comparative disclosures for earlier periods upon initial adoption. As FASB 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 141(R)). FASB 141(R) 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 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 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 141(R) would also apply the provisions of FASB 141(R). Early adoption is prohibited. We are currently evaluating the effects that FASB 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 160). FASB 160 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 shareholder’s equity, but separate from the parent’s 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 parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently. FASB 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 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.   Impact of Market Conditions on our Business
 
The deterioration of global economic conditions combined with rapidly declining aluminum prices from a peak of $3,292 per tonne in July 2008 to $1,455 per tonne on December 31, 2008 have placed pressure on our short-term liquidity. However, we believe we have sufficient long-term financing in place, with only $22 million of our long-term debt due within the next 12 months.
 
Demand for flat rolled products decreased in our third fiscal quarter by 13% as compared to the prior year. While we have begun taking cost reduction measures, due to the capital intensive nature of our business, we have been unable to make corresponding short term adjustments to our capacity and fixed cost structure to fully address these demand issues. These circumstances decrease cash generated by operations and increase the effect of timing issues related to our settlement of aluminum forward contracts versus cash collection from our customers. Looking forward, we have uncertainty regarding customer credit due to the weakening demand as a result of the global recession in certain of our customers’ end markets, particularly the construction and automotive markets.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
We enter into derivative instruments to hedge forecasted purchases and sales of aluminum. Based on the aluminum price forward curve as of December 31, 2008, we expect approximately $580 million of cash outflows related to settlement of these derivative instruments through the end of fiscal 2010, including $260 million during the fourth fiscal quarter of 2009. Except for approximately $160 million of cash outflows related to hedges of our exposure to metal price ceilings, we expect all of these outflows will be recovered through collection of customer accounts receivable, typically on a 30-60 day lag. Accordingly, this difference in timing will place pressure on our short term liquidity outlook.
 
In the near term, our forecast indicates our liquidity position will be tight, but adequate as we settle our outstanding derivative positions. However, our liquidity needs could increase due to the unpredictability of current market conditions and their potential effect on customer credit, future derivative settlements, future sales volume or other matters. We cannot be assured that in the event of such deteriorating conditions we would have adequate liquidity. As a result, management has undertaken a number of activities to generate cash in the near term as well implement changes in our cost structure that will benefit our liquidity in the long-term.
 
In February 2009, we entered into an unsecured credit facility of $100 million with a scheduled maturity date of January 15, 2015 from a company affiliated with the Aditya Birla group, and we have drawn down $75 million of this facility to increase our cash position. We have also implemented cost cutting initiatives, cut capital expenditures, reduced inventory, and begun to restructure a number of facilities and overhead staff, which will improve our long-term liquidity position. Further, we are continuing to explore other possible near term cash generation activities, including accelerating certain customer payments to match the timing of the settlement of forward metal purchases to improve our short-term liquidity position.
 
3.   Restatement of Financial Statements
 
We have restated our consolidated balance sheet as of March 31, 2008 and our consolidated statements of operations and comprehensive income (loss) and of cash flows for the period from May 16, 2007 through December 31, 2007 to correct non-cash accounting errors in our application of purchase accounting for 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 did 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 11 — 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.


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Table of Contents

 
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 December 31, 2007. Our condensed consolidated statement of operations and comprehensive loss for the three months ended December 31, 2007 is restated as follows (in millions).
 
                         
    Three Months
 
    Ended
 
    December 31, 2007  
    As Previously
          As
 
    Reported     Restatements     Restated  
    Successor           Successor  
 
Net sales
  $ 2,735     $ —     $ 2,735  
                         
Cost of goods sold (exclusive of depreciation and amortization shown below)
    2,475       (1 )     2,474  
Selling, general and administrative expenses
    99       —       99  
Depreciation and amortization
    105       3       108  
Research and development expenses
    11       —       11  
Interest expense and amortization of debt issuance costs, net
    47       —       47  
Loss on change in fair value of derivative instruments, net
    50       6       56  
Restructuring charges, net
    1       —       1  
Equity in net (income) loss of non-consolidated affiliates
    4       (1 )     3  
Other income, net
    (12 )     (5 )     (17 )
                         
      2,780       2       2,782  
                         
Loss before income taxes and minority interests’ share
    (45 )     (2 )     (47 )
Income tax provision
    4       22       26  
                         
Loss before minority interests’ share
    (49 )     (24 )     (73 )
Minority interests’ share
    —       —       —  
                         
Net loss
    (49 )     (24 )     (73 )
                         
Other comprehensive income:
                       
Currency translation adjustment
    36       —       36  
Change in fair value of effective portion of hedges, net
    1       —       1  
                         
Other comprehensive income before income tax effect
    37       —       37  
Income tax benefit related to items of other comprehensive income
    (3 )     —       (3 )
                         
Other comprehensive income, net of tax
    40       —       40  
                         
Comprehensive loss
  $ (9 )   $ (24 )   $ (33 )
                         


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Table of Contents

 
Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
Our condensed consolidated statement of operations and comprehensive loss for the period from May 16, 2007 through December 31, 2007 is restated as follows (in millions).
 
                         
    May 16, 2007
 
    Through
 
    December 31, 2007  
    As Previously
          As
 
    Reported     Restatements     Restated  
    Successor           Successor  
 
Net sales
  $ 7,103     $ —     $ 7,103  
                         
Cost of goods sold (exclusive of depreciation and amortization shown below)
    6,466       (1 )     6,465  
Selling, general and administrative expenses
    229       —       229  
Depreciation and amortization
    260       4       264  
Research and development expenses
    34       —       34  
Interest expense and amortization of debt issuance costs, net
    128       —       128  
Loss on change in fair value of derivative instruments, net
    72       —       72  
Restructuring charges, net
    2       —       2  
Equity in net (income) loss of non-consolidated affiliates
    9       (25 )     (16 )
Other income, net
    (9 )     —       (9 )
                         
      7,191       (22 )     7,169  
                         
Income (loss) before provision for taxes on loss and minority interests’ share
    (88 )     22       (66 )
Income tax provision
    4       69       73  
                         
Loss before minority interests’ share
    (92 )     (47 )     (139 )
Minority interests’ share
    2       —       2  
                         
Net loss
    (90 )     (47 )     (137 )
                         
Other comprehensive income:
                       
Currency translation adjustment
    50       —       50  
Change in fair value of effective portion of hedges, net
    5       —       5  
                         
Other comprehensive income before income tax effect
    55       —       55  
Income tax benefit related to items of other comprehensive income
    (15 )     —       (15 )
                         
Other comprehensive income, net of tax
    70       —       70  
                         
Comprehensive loss
  $ (20 )   $ (47 )   $ (67 )
                         


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Table of Contents

 
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 December 31, 2007 is restated as follows (in millions).
 
                         
    May 16, 2007
 
    Through
 
    December 31, 2007  
    As Previously
          As
 
    Reported     Restatements     Restated  
    Successor           Successor  
 
OPERATING ACTIVITIES
                       
Net loss
  $ (90 )   $ (47 )   $ (137 )
Adjustments to determine net cash provided by (used in) operating activities:
                       
Depreciation and amortization
    260       4       264  
Loss on change in fair value of derivative instruments, net
    72       —       72  
Deferred income taxes
    (46 )     68       22  
Amortization of debt issuance costs
    8       —       8  
Write-off and amortization of fair value adjustments, net
    (156 )     —       (156 )
Provision for uncollectible accounts receivable
    1       —       1  
Equity in net (income) loss of non-consolidated affiliates
    9       (25 )     (16 )
Minority interests’ share
    (2 )     —       (2 )
Changes in assets and liabilities (net of effects from acquisitions and divestitures):
                       
Accounts receivable
                       
— third parties
    76       —       76  
— related parties
    1       —       1  
Inventories
    190       —       190  
Prepaid expenses and other current assets
    (1 )     —       (1 )
Other long-term assets
    (4 )     —       (4 )
Accounts payable
                       
— third parties
    (260 )     —       (260 )
— related parties
    7       —       7  
Accrued expenses and other current liabilities
    (53 )     —       (53 )
Accrued postretirement benefits
    2       (2 )     —  
Other long-term liabilities
    17       —       17  
                         
Net cash provided by (used in) operating activities
    31       (2 )     29  
                         
INVESTING ACTIVITIES
                       
Capital expenditures
    (120 )     —       (120 )
Net proceeds from settlement of derivative instruments
    56       —       56  
Proceeds from sales of property, plant and equipment and business
    4       —       4  
Changes to investment in and advances to non-consolidated affiliates
    5       —       5  
Proceeds from related parties loans receivable, net
    12       —       12  
                         
Net cash used in investing activities
    (43 )     —       (43 )
                         
FINANCING ACTIVITIES
                       
Proceeds from issuance of common stock
    92       —       92  
Proceeds from issuance of debt
    1,100               1,100  
Principal repayments
    (1,005 )     —       (1,005 )
Short-term borrowings, net
    (103 )     —       (103 )
Dividends — minority interests
    (1 )     —       (1 )
Debt issuance costs
    (37 )     —       (37 )
                         
Net cash provided by financing activities
    46       —       46  
                         
Net increase (decrease) in cash and cash equivalents
    34       (2 )     32  
Effect of exchange rate changes on cash balances held in foreign currencies
    (3 )     —       (3 )
Cash and cash equivalents at beginning of period
    102       —       102  
                         
Cash and cash equivalents at end of period
  $ 133     $ (2 )   $ 131  
                         


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Table of Contents

 
Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
4.   Impairment of Goodwill and Investment in Affiliate
 
In accordance with FASB Statement No. 142, Goodwill and Intangible Assets (FASB 142), we evaluate the carrying value of goodwill for potential impairment annually during the fourth fiscal quarter of each year or on an interim basis if an event occurs or circumstances change that indicate that the fair value of a reporting unit is likely to be below its carrying value. During the third fiscal quarter of 2009, we concluded that interim impairment testing was required due to the recent deterioration in the global economic environment and the resulting significant decrease in both the market capitalization of our parent company and the valuation of our publicly traded 7.25% Senior Notes.
 
We test consolidated goodwill for impairment using a fair value approach at the reporting unit level. We use our operating segments as our reporting units and perform our goodwill impairment test in two steps. Step one compares the fair value of each reporting unit (operating segment) to its carrying amount. If step one indicates that an impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value.
 
For purposes of our step one analysis, our estimate of fair value for each reporting unit is based on a combination of (1) quoted market prices/relationships (the “market approach”), (2) discounted cash flows (the “income approach”) and (3) a stock price build-up approach (the “build-up approach”). Under the market approach, the fair value of each reporting unit is determined based upon comparisons to public companies engaged in similar businesses. Under the income approach, the fair value of each reporting unit was based on the present value of estimated future cash flows. The income approach is dependent on a number of significant management assumptions including estimated demand in each geographic market and the discount rate. The discount rate is commensurate with the risk inherent in the projected cash flows and reflects the rate of return required by an investor in the current economic conditions. Under the build-up approach, which is a variation of the market approach, we estimate the fair value of each reporting unit based on the estimated contribution of each of the reporting units to Hindalco’s total business enterprise value. The estimated fair value for each reporting unit is within the range of fair values yielded under each approach. The results of our step one test indicated a potential impairment.
 
Due to the complexities involved in determining the implied fair value of the goodwill of each reporting unit, we have not finalized our evaluation as of the filing of this Quarterly Report on Form 10-Q for the third quarter of fiscal 2009. However, based upon the work performed to date, we have concluded that an impairment is probable and can be reasonably estimated. Accordingly, we have recorded a $1.3 billion charge representing our best estimate of the impairment of consolidated goodwill for the quarter ended December 31, 2008. We also evaluated the carrying value of our investment in Aluminium Norf GmbH for impairment. This resulted in an impairment charge of $160 million, which is reported in Equity in net (income) loss of non-consolidated affiliates on the condensed consolidated statement of operations.
 
The table below summarizes goodwill by reporting unit (in millions).
 
                                 
    March 31,
          Other
    December 31,
 
Reporting Unit
  2008(A)     Impairments     Adjustments(B)     2008  
    (Restated)
                   
    Successor                 Successor  
 
North America
  $ 1,149     $ (860 )   $ (1 )   $ 288  
Europe
    518       (330 )     (5 )     183  
South America
    263       (150 )     —       113  
                                 
    $ 1,930     $ (1,340 )   $ (6 )   $ 584  
                                 


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Table of Contents

 
Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
 
(A) See Note 1 — Business and Summary of Significant Accounting Policies (“Reclassifications”) for discussion of goodwill balance reclassification at March 31, 2008.
 
(B) Other adjustments include: (1) an adjustment in North America for final payment related to the transfer of pension plans in Canada for employees who elected to transfer their past service to Novelis during the quarter ended June 30, 2008 and (2) adjustments in Europe related to tax audits during the quarters ended September 30, 2008 and December 31, 2008.
 
We expect to finalize our goodwill impairment testing during the fourth quarter of fiscal 2009. Any adjustments to our estimates recorded in the third quarter as a result of completing this evaluation will be recorded in our financial statements for the quarter ended March 31, 2009.
 
5.   Inventories
 
We recorded charges of $34 million and $38 million related to the write down of aluminum inventory to the lower of cost or market for the three and nine months ended December 31, 2008, respectively. Inventories consist of the following (in millions).
 
                 
    December 31, 2008     March 31, 2008  
    Successor     Successor  
 
Finished goods
  $ 290     $ 381  
Work in process
    408       638  
Raw materials
    387       362  
Supplies
    88       75  
                 
      1,173       1,456  
Allowances
    (3 )     (1 )
                 
Inventories
  $ 1,170     $ 1,455  
                 
 
6.   Property, Plant and Equipment
 
Property, plant and equipment, net, consists of the following (in millions).
 
                 
    December 31, 2008     March 31, 2008  
          (Restated)
 
    Successor     Successor  
 
Land and property rights
  $ 224     $ 258  
Buildings
    751       826  
Machinery and equipment
    2,461       2,460  
                 
      3,436       3,544  
Accumulated depreciation and amortization
    (612 )     (331 )
                 
      2,824       3,213  
Construction in progress
    96       144  
                 
Property, plant and equipment, net
  $ 2,920     $ 3,357  
                 


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Table of Contents

 
Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
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
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
          (Restated)
          (Restated)
         
    Successor     Successor     Successor     Successor       Predecessor  
Depreciation expense related to property, plant and equipment
  $ 96     $ 97     $ 299     $ 239       $ 28  
 
The components of amortization expense related to intangible assets are as follows (in millions):
 
                                           
    Three Months
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
    Successor     Successor     Successor     Successor       Predecessor  
Total Amortization expense related to intangible assets
  $ 16     $ 17     $ 46     $ 39       $ —  
Less: Amortization expense related to intangible assets included in Cost of goods sold(A)
    (5 )     (6 )     (15 )     (14 )       —  
                                           
Amortization expense related to intangible assets included in Depreciation and amortization
  $ 11     $ 11     $ 31     $ 25       $ —   
                                           
 
 
(A) Relates to amortization of favorable energy and other supply contracts.
 
7.   Restructuring Programs
 
The following table summarizes the activity in our restructuring reserves (in millions).
 
                                                                 
                            Other Exit
       
    Severance Reserves     Related Reserves     Total
 
          North
    Corporate
                North
          Restructuring
 
    Europe     America     and Other     Total     Europe     America     Total     Reserves  
 
Successor:
                                                               
Balance as of March 31, 2008
  $ 4     $ 3     $ —     $ 7     $ 16     $ 1     $ 17     $ 24  
Provisions (recoveries), net
    —       11       3       14       —       —       —       14  
Cash payments
    (1 )     (3 )     —       (4 )     (4 )     —       (4 )     (8 )
Other adjustments
    (2 )     2       —       —       (2 )     —       (2 )     (2 )
                                                                 
Balance as of December 31, 2008
  $ 1     $ 13     $ 3     $ 17     $ 10     $ 1     $ 11     $ 28  
                                                                 
 
For the quarter ended December 31, 2008, we recorded $15 million severance charge related to voluntary and involuntary separation programs for salaried employees in North America and Corporate aimed at reducing staff levels.
 
8.   Consolidation of Variable Interest Entities
 
FASB Interpretation No. 46 (Revised) (FIN 46(R)) addresses the consolidation of business enterprises to which the usual condition (ownership of a majority voting interest) of consolidation does not apply. FIN 46(R)


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
requires a variable interest entity (VIE) to be consolidated if a party with an ownership, contractual or other financial interest in the VIE (1) is obligated to absorb a majority of the expected losses from the VIE’s activities, (2) is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of the VIE’s losses), or (3) both, even if the company does not have clear voting control. Variable interests in a variable interest entity are contractual, ownership, or other interests in an entity that change with change in the fair value of the entity’s net assets exclusive of variable interests. In December 2008, the FASB issued FSP No. FIN 46(R)-8 which requires enhanced disclosures about interests in VIEs.
 
As of December 31, 2008, we have a variable interest in Logan Aluminum, Inc. (Logan) and consolidate the entity pursuant to FIN 46(R). All significant intercompany transactions and balances have been eliminated.
 
Logan Organization and Operations
 
In 1985, Alcan purchased an interest in Logan to provide tolling services jointly with ARCO Aluminum, Inc. (ARCO). Logan also produces approximately one-third of the can sheet utilized in the U.S. can sheet market. According to the joint venture agreements between Alcan and ARCO, Alcan owned 40 shares of Class A common stock and ARCO owned 60 shares of Class B common stock in Logan. Each share provides its holder with one vote, regardless of class. However, Class A shareholders have the right to select four directors, and Class B shareholders have the right to select three directors. Generally, a majority vote is required for the Logan board of directors to take action. In connection with our spin-off from Alcan in January 2005, Alcan transferred all of its rights and obligations under a joint venture agreement and subsequent ancillary agreements (collectively, the JV Agreements) to us. On May 24, 2007, ARCO filed a complaint against us regarding a perceived dispute over management and control of Logan following Hindalco’s acquisition of Novelis (see “ARCO Aluminum Complaint” in Note 19 — Commitments and Contingencies).
 
Logan processes metal received from Novelis and ARCO and charges the respective partner a fee to cover expenses. Logan has no equity and relies on the regular reimbursement of costs and expenses by Novelis and ARCO to fund its operations. This reimbursement is considered a variable interest as it constitutes a form of financing of the activities of Logan. Other than these contractually required reimbursements, we do not provide other additional support to Logan. We are obligated to absorb a majority of the risk of loss; however, Logan’s creditors do not have recourse to our general credit.
 
Primary Beneficiary
 
A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities and non-controlling interests at fair value. Generally, the primary beneficiary is the reporting enterprise with a variable interest in the entity that is obligated to absorb the majority (greater than 50%) of the VIE’s expected loss.
 
In a 1989 restructuring program, Alcan acquired the right to use the excess capacity that existed on the hot mill at Logan. To utilize this excess capacity, in 1992 Alcan installed a cold mill that ARCO did not participate in. Subsequent to the installation of the cold mill, we gained the ability to take the majority share of production and costs, which qualifies Novelis as Logan’s primary beneficiary under FIN 46(R).


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
Carrying Value
 
The following table summarizes the carrying value and classification of assets and liabilities on our condensed consolidated balance sheets owned by the Logan joint venture and consolidated under FIN 46(R). There are significant other assets used in the operations of Logan that are not part of the joint venture (in millions).
 
                 
    December 31, 2008     March 31, 2008  
    Successor     Successor  
 
Current assets
  $ 36     $ 35  
Total assets
  $ 63     $ 60  
Current liabilities
  $ (26 )   $ (21 )
Total liabilities
  $ (71 )   $ (57 )
Net carrying value
  $ (8 )   $ 3  
 
9.   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 December 31, 2008, and which we account for using the equity method. We have no material investments in affiliates that we account for using the cost method.
 
             
        Ownership
 
Affiliate Name
  Ownership Structure   Percentage  
 
Aluminium Norf GmbH
  Corporation     50 %
Consorcio Candonga
  Unincorporated Joint Venture     50 %
MiniMRF LLC
  Limited Liability Company     50 %
Deutsche Aluminium Verpackung Recycling GmbH
  Corporation     30 %
France Aluminium Recyclage S.A. 
  Public Limited Company     20 %
 
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. These results also do not include the $160 million impairment charge to reduce the carrying value of our investment in Aluminium Norf GmbH. (See Note 4 — Impairment of Goodwill and Investment in Affiliate.)
 
                                         
    Three Months
    Nine Months
    May 16, 2007
    April 1, 2007
 
    Ended
    Ended
    Through
    Through
 
    December 31,     December 31,
    December 31,
    May 15,
 
    2008     2007     2008     2007     2007  
 
Net sales
  $ 115     $ 161     $ 439     $ 384     $ 45  
Costs, expenses and provisions for taxes on income
    112       137       400       348       43  
                                         
Net income
  $ 3     $ 24     $ 39     $ 36     $ 2  
                                         


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
The table below summarizes our incremental depreciation and amortization expense on our equity method investments due to the Arrangement.
 
                                           
    Three Months
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
    Successor     Successor     Successor     Successor       Predecessor  
Incremental depreciation and amortization expense
  $ 12     $ 15     $ 38     $ 27       $ —  
Tax benefit(A)
    (4 )     (1 )     (12 )     (25 )       —  
                                           
Incremental depreciation and amortization expense, net
  $ 8     $ 14     $ 26     $ 2       $ —   
                                           
 
 
(A) The tax benefits for the three months ended December 31, 2007 and the period from May 16, 2007 through December 31, 2007 includes tax benefits associated with amortization and a statutory tax rate change recorded as part of our equity method accounting for these investments. There were no such statutory tax rate changes in the other periods noted in the table above.
 
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 payable to us from Aluminium 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
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
    Successor     Successor     Successor     Successor       Predecessor  
Purchases of tolling services and electricity
                                         
Aluminium Norf GmbH(A)
  $ 56     $ 77     $ 203     $ 182       $ 21  
Consorcio Candonga(B)
    2       4       15       9         1  
                                           
Total purchases from related parties
  $ 58     $ 81     $ 218     $ 191       $ 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.
 
                 
    December 31, 2008     March 31, 2008  
    Successor     Successor  
 
Accounts receivable(A)
  $ 22     $ 31  
Other long-term receivables(A)
  $ 25     $ 41  
Accounts payable(B)
  $ 51     $ 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.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
 
10.   Accrued Expenses and Other Current Liabilities
 
Accrued expenses and other current liabilities are comprised of the following (in millions).
 
                 
    December 31, 2008     March 31, 2008  
    Successor     Successor  
 
Accrued compensation and benefits
  $ 97     $ 141  
Accrued settlement of legal claim
    —       39  
Accrued interest payable
    41       15  
Accrued income taxes
    39       37  
Current portion of fair value of unfavorable sales contracts
    208       242  
Other current liabilities
    212       230  
                 
Accrued expenses and other current liabilities
  $ 597     $ 704  
                 
 
11.   Debt
 
Debt consists of the following (in millions).
 
                                                         
    December 31, 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     $ 61     $ 1,460     $ 1,399     $ 67     $ 1,466  
Floating rate Term Loan facility, due July 2014(E)
    3.44 %     295       —       295       298       —       298  
Novelis Corporation
                                                       
Floating rate Term Loan facility, due July 2014(E)
    3.44 %(C)     650       —       650       655       —       655  
Novelis Switzerland S.A.
                                                       
Capital lease obligation, due January 2020 (Swiss francs (CHF) 52 million)
    7.50 %     48       (3 )     45       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 loan, due May 2009 (Korean won (KRW) 10 billion)
    7.47 %     8       —       8       —       —       —  
Bank loans, due September 2010 through June 2011 (KRW 400 million)
    3.50 %(D)     —       —       —       1       —       1  
Other
                                                       
Other debt, due April 2009 through December 2012
    1.08 %(D)     1       —       1       2       —       2  
                                                         
Total debt
            2,504       58       2,562       2,512       63       2,575  
Less: current portion
            (22 )     —       (22 )     (15 )     —       (15 )
                                                         
Long-term debt, net of current portion
          $ 2,482     $ 58     $ 2,540     $ 2,497     $ 63     $ 2,560  
                                                         


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
 
(A) Interest rates are as of December 31, 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.
 
(E) On July 6, 2007, we entered into new senior secured credit facilities with a syndicate of lenders led by affiliates of UBS and ABN AMRO (New Senior Secured Credit Facilities) providing for aggregate borrowings of up to $1.76 billion. The New Senior Secured Credit Facilities consist of (1) a $960 million seven-year Term Loan facility (Term Loan facility) and (2) an $800 million five year multi-currency asset-based revolving credit line and letter of credit facility (ABL facility).
 
Due to the change in the market price of our 7.25% Senior Notes from 89.25% of par value as of March 31, 2008 to 57.5% of par value as of December 31, 2008, the estimated fair value of this debt has decreased $444 million to $805 million.
 
Interest Rate Swaps
 
During the three months ended December 31, 2007, we entered into interest rate swaps to fix the variable London Interbank Offered Rate (LIBOR) interest rate for up to $500 million of our floating rate Term Loan facility at effective weighted average interest rates and amounts 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 4.38% 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 Senior Secured Credit Facilities in addition to these interest rates.
 
In January 2009, we entered into two interest rate swaps to fix the variable LIBOR interest rate on an additional $300 million of our floating Term Loan facility at a rate of 1.49%, plus any applicable margin. These interest rate swaps are effective from March 31, 2009 through March 31, 2011.
 
As of December 31, 2008 approximately 75% of our debt was fixed rate and approximately 25% was variable rate.
 
Short-Term Borrowings and Lines of Credit
 
As of December 31, 2008, our short-term borrowings were $292 million consisting of (1) $235 million of short-term loans under our ABL facility, (2) an $11 million short-term loan in Italy, (3) a $24 million short-term loan in Korea and (4) $22 million in bank overdrafts. As of December 31, 2008, $35 million of our ABL facility was utilized for letters of credit and we had $323 million in remaining availability under this revolving credit facility before the covenant related restriction discussed below.
 
The New Senior Secured Credit Facilities include customary affirmative and negative covenants. Under the ABL facility, if our excess availability, as defined under the borrowing, is less than $80 million, we are required to maintain a minimum fixed charge coverage ratio of 1 to 1. As of December 31, 2008, our fixed charge coverage ratio is less than 1 to 1, resulting in a reduction of availability under our ABL facility of $80 million.
 
As of December 31, 2008, we had an additional $176 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 4.15% and 4.12% as of December 31, 2008 and March 31, 2008, respectively.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
Subsequent event
 
In February 2009, we entered into a credit facility of $100 million with a scheduled maturity date of January 15, 2015 on an unsecured basis from a company affiliated with the Aditya Birla group, and we have drawn down $75 million of this facility.
 
12.   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 (every June 19th) 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 participant’s 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. SARs that do not vest as a result of failure to achieve a performance criterion will be cancelled. Generally, all vested SARs expire 90 days after termination of employment, except (1) in the case of death or disability, when any unvested SARs will vest immediately and expire within one year and (2) in the case of retirement, when, if retirement occurs more than one year from the grant date, the SARs would continue to vest and expire three years following retirement. All awards vest upon a change in control of the Company (as defined in the 2009 LTIP).
 
The performance criterion for vesting is based on the actual overall Novelis Operating Earnings before Interest, Depreciation, Amortization and Taxes (Operating EBITDA, as defined in the 2009 LTIP) compared to the target Operating EBITDA established and approved each fiscal year. The minimum threshold for vesting each year is 75% of each annual target Operating EBITDA, at which point 75% of the SARs for that period would vest, with an equal pro rata amount of SARs vesting through 100% achievement of the target. This performance condition has no impact on the fair value of the SARs.
 
On October 29, 2008, our board of directors approved an amendment to the 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.).
 
On November 19, 2008, grants totaling 21,534,619 SARs at an exercise price of 60.50 Indian Rupees ($1.23 at the December 31, 2008 exchange rate) per SAR were made to our executive officers and key employees. There were no forfeitures during the three months ended December 31, 2008.
 
At December 31, 2008, for outstanding SARs, the average remaining contractual term is 6.5 years and the aggregate intrinsic value is zero as the market value of a share of Hindalco stock was less than the SAR exercise price. No SARs were exercisable at December 31, 2008.
 
The fair value of each SAR is based on the difference between the fair value of a long call and a short call option. The fair value of each of these call options was determined using the Black-Scholes valuation method. We used historical stock price volatility data of Hindalco on the Bombay Stock Exchange to


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
determine expected volatility assumptions. The annual expected dividend yield is based on Hindalco dividend payments of $0.04 (1.85 Indian Rupees) per annum. Risk-free interest rates are based on treasury yields in India, consistent with the expected remaining lives of the SARs. Because we do not have a sufficient history of SAR exercise or cancellation, we estimated the expected remaining life of the SARs based on an extension of the “simplified method” as prescribed by Staff Accounting Bulletin No. 107, Share-Based Payment.
 
The fair value of each SAR under the 2009 LTIP was estimated as of December 31, 2008 using the following assumptions:
 
     
 
Expected volatility
  46.9 — 51.9%
Weighted average volatility
  48.9%
Dividend yield
  3.6%
Risk-free interest rate
  5.3 — 5.4%
Expected life
  3.5 — 5.0 years
 
The fair value of the SARs is being recognized over the requisite performance and service period of each tranche, subject to the achievement of any performance criterion. As of December 31, 2008, management believes that the annual performance criterion for the 2009 fiscal year is unlikely to be met. Accordingly, no compensation expense for this performance period has been recorded in the three and nine months ended December 31, 2008. Additionally, since the performance criteria for the fiscal years 2010 to 2012 have not yet been established and therefore, no measurement periods have commenced, no expense has been recorded for those tranches in the three and nine month periods ended December 31, 2008.
 
Unrecognized compensation expense related to the non-vested SARs (assuming all future performance criteria are met except for the 2009 performance period) is $3 million which is expected to be realized over a weighted average period of 3.5 years.
 
Recognition Awards
 
On September 25, 2006, we entered into Recognition Agreements and granted Recognition Awards to certain executive officers and other key employees (Executives) to retain and reward them for continued dedication towards corporate objectives. Under the terms of these agreements, Executives who remained continuously employed by us through the vesting dates of December 31, 2007 and 2008, were entitled to receive one-half of their total Recognition Awards on each vesting date. The number of Recognition Awards payable under the agreements varied by Executive. As a result of the Arrangement, all Recognition awards were payable in cash at a value of $44.93 per share upon vesting.
 
On December 31, 2007, one-half of the outstanding Recognition Awards vested and were settled for approximately $3 million in cash in January 2008. On December 31, 2008, the remaining outstanding Recognition Awards vested and were settled for approximately $2 million in cash in January 2009.
 
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 December 31, 2007.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
For each of the three and nine months ended December 31, 2008 and for the three months ended December 31, 2007, compensation expense related to share-based awards was less than $1 million.
 
13.   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
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
          (Restated)
          (Restated)
         
    Successor     Successor     Successor     Successor       Predecessor  
Pension Benefit Plans
                                         
Service cost
  $ 11     $ 10     $ 32     $ 28       $ 6  
Interest cost
    16       12       46       30         6  
Expected return on assets
    (14 )     (11 )     (40 )     (27 )       (5 )
Amortization — prior service cost
    —       —       (1 )     —         —  
Curtailment/settlement losses
    —       1       1       1         —  
                                           
Net periodic benefit cost
  $ 13     $ 12     $ 38     $ 32       $ 7  
                                           
 
                                           
    Three Months
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
    Successor     Successor     Successor     Successor       Predecessor  
Other Postretirement Benefit Plans
                                         
Service cost
  $ 2     $ 1     $ 5     $ 3       $ 1  
Interest cost
    3       2       8       5         1  
Amortization — actuarial losses
    —       —       1       —         —  
Curtailment/settlement losses
    —       —       (2 )     —         —  
                                           
Net periodic benefit cost
  $ 5     $ 3     $ 12     $ 8       $ 2  
                                           
 
The expected long-term rate of return on plan assets is 6.9% in fiscal 2009.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
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
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
    Successor     Predecessor     Successor     Successor       Predecessor  
Funded pension plans
  $ 8     $ 10     $ 19     $ 25       $ 4  
Unfunded pension plans
    4       4       12       10         2  
Savings and defined contribution pension plans
    4       4       13       10         2  
                                           
Total contributions
  $ 16     $ 18     $ 44     $ 45       $ 8  
                                           
 
During the remainder of fiscal 2009, we expect to contribute an additional $15 million to our funded pension plans, $5 million to our unfunded pension plans and $5 million to our savings and defined contribution plans. For the nine months ended December 31, 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.
 
14.   Currency (Gains) Losses
 
The following currency (gains) losses are included in the accompanying condensed consolidated statements of operations (in millions).
 
                                           
    Three Months
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      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)
  $ 50     $ 23     $ 11     $ 5       $ (10 )
Net (gain) loss on remeasurement of monetary assets and liabilities(B)
    17       (17 )     73       (2 )       4  
                                           
    $ 67     $ 6     $ 84     $ 3       $ (6 )
                                           
 
 
(A) Included in (Gain) loss on change in fair value of derivative instruments, net.
 
(B) Included in Other (income) expenses, net.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
 
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).
 
                 
          May 16,
 
    Nine Months
    2007
 
    Ended
    Through
 
    December 31, 2008     March 31, 2008  
          (Restated)
 
    Successor     Successor  
 
Cumulative currency translation adjustment at beginning of period
  $ 59     $ —  
Effect of changes in exchange rates
    (90 )     59  
                 
Cumulative currency translation adjustment at end of period
  $ (31 )   $ 59  
                 
 
15.   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 ultimate gain or loss on these derivatives may differ from the amount recognized in the accompanying December 31, 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 and the current portion of derivative liabilities are presented on the face of our accompanying condensed consolidated balance sheets. The noncurrent portions of derivative liabilities are included in Other long-term liabilities in the accompanying condensed consolidated balance sheets.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
The fair values of our financial instruments and commodity contracts as of December 31, 2008 and March 31, 2008 are as follows (in millions):
 
                                         
    December 31, 2008  
    Assets     Liabilities     Net Fair Value
 
    Current     Noncurrent     Current     Noncurrent     Assets/(Liabilities)  
 
Successor
                                       
Derivatives designated as hedging instruments:
                                       
Cross-currency swaps
  $ —     $ —     $ (1 )   $ (10 )   $ (11 )
Interest rate swaps
    —       —       (9 )     (5 )     (14 )
Electricity swap
    —       —       (3 )     (7 )     (10 )
                                         
Total derivatives designated as hedging instruments
    —       —       (13 )     (22 )     (35 )
                                         
Derivatives not designated as hedging instruments:
                                       
Foreign exchange forward contracts
    31       2       (103 )     (26 )     (96 )
Currency options
    —       —       (4 )     —       (4 )
Cross-currency swaps
    16       1       (19 )     (1 )     (3 )
Interest rate currency swaps
    (1 )     26       —       —       25  
Aluminum forward contracts
    134       33       (754 )     (7 )     (594 )
Aluminum options
    —       9       (71 )     —       (62 )
Embedded derivative instruments
    148       —       (18 )     —       130  
Heating oil swaps
    —       —       (4 )     —       (4 )
Natural gas swaps
    —       —       (10 )     —       (10 )
                                         
Total derivatives not designated as hedging instruments
    328       71       (983 )     (34 )     (618 )
                                         
Total derivative fair value
  $ 328     $ 71     $ (996 )   $ (56 )   $ (653 )
                                         
 


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
                                         
    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
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
    Successor     Successor     Successor     Successor       Predecessor  
Cross-currency swaps
  $ 50     $ (5 )   $ 170     $ (33 )     $ (8 )
 
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

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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
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 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 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 $2 million in effective net losses 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 (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)
 
                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)     (Effective Portion)     Effectiveness Testing)  
    Three Months
    Three Months
    Three Months
    Three Months
    Three Months
    Three Months
 
    Ended
    Ended
    Ended
    Ended
    Ended
    Ended
 
    December 31,
    December 31,
    December 31,
    December 31,
    December 31,
    December 31,
 
    2008     2007     2008     2007     2008     2007  
    Successor     Successor     Successor     Successor     Successor     Successor  
 
Electricity swap
  $ (16 )   $ 6     $ 2     $ 3     $ 2     $ —  
Interest rate swaps
  $ (9 )   $ (2 )   $ —     $ —     $ —     $ —  
 
Nine Month Comparison:
 
                         
                Amount of Gain or (Loss)
 
    Amount of Gain or (Loss)
    Amount of Gain or (Loss)
    Recognized in Income on
 
    Recognized in OCI on
    Reclassified from Accumulated
    Derivative (Ineffective Portion
 
    Derivative
    OCI into Income
    and Amount Excluded from
 
    (Effective Portion)     (Effective Portion)     Effectiveness Testing)  
    Nine Months
    Nine Months
    Nine Months
 
    Ended
    Ended
    Ended
 
    December 31,
    December 31,
    December 31,
 
    2008     2008     2008  
    Successor     Successor     Successor  
 
Electricity swap
  $ (16 )   $ 10     $ 2  
Interest rate swaps
  $ 2     $ —     $ —  


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
                                                       
                Amount of Gain or (Loss)
 
                Recognized in Income on
 
          Amount of Gain or (Loss)
    Derivative
 
    Amount of Gain or (Loss)
    Reclassified from Accumulated
    (Ineffective Portion and Amount
 
    Recognized in OCI on
    OCI into Income (Effective
    Excluded from Effectiveness
 
    Derivative (Effective Portion)     Portion)     Testing)  
    May 16, 2007
      April 1, 2007
    May 16, 2007
      April 1, 2007
    May 16, 2007
      April 1, 2007
 
    Through
      Through
    Through
      Through
    Through
      Through
 
    December 31,
      May 15,
    December 31,
      May 15,
    December 31,
      May 15,
 
    2007       2007     2007       2007     2007       2007  
    Successor       Predecessor     Successor       Predecessor     Successor       Predecessor  
Foreign exchange forward contracts
  $ —       $ 3     $ —       $ 1     $ —       $ —  
Electricity swap
  $ 12       $ 4     $ 5       $ —     $ —       $ —  
Interest rate swaps
  $ (2 )     $ —     $ —       $ —     $ —       $ —   
 
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 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 our customers’ 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 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 loss.


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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
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
    Successor     Successor     Successor     Successor       Predecessor  
Derivative Instruments Not Designated as Hedges
                                         
Foreign exchange forward contracts
  $ 21     $ (24 )   $ 28     $ (12 )     $ 11  
Interest rate currency swaps
    (82 )     1       (58 )     (1 )       (1 )
Currency options
    (4 )     —       (4 )     —         —  
Aluminum forward contracts
    (415 )     (54 )     (606 )     (88 )       9  
Aluminum options
    (47 )     —       (72 )     1         —  
Embedded derivative instruments
    113       16       171       28         2  
Heating oil swaps
    (5 )     —       (5 )     —         —  
Natural gas swaps
    (7 )     (1 )     (16 )     (4 )       1  
Cross currency swaps
    17       3       25       (3 )       (3 )
                                           
Gain (loss) recognized
    (409 )     (59 )     (537 )     (79 )       19  
Derivative Instruments Designated as Cash Flow Hedges
                                         
Electricity swap
    4       3       13       7         1  
                                           
Gain (loss) on change in fair value of derivative instruments, net
  $ (405 )   $ (56 )   $ (524 )   $ (72 )     $ 20  
                                           
 
16.   Fair Value Measurements
 
FASB 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 157 on April 1, 2008 resulted in (1) a gain of less than $1 million, which is included in (Gain) loss on change in fair value of derivative instruments, net in our condensed consolidated statement of operations, (2) a $1 million decrease to the fair value of effective portion of hedges, net included in Accumulated other comprehensive income (loss) and (3) a $35 million increase to the foreign currency translation adjustment included in Accumulated other comprehensive income (loss) during the three months 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 15 — Financial Instruments and Commodity Contracts).
 
FASB 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 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 13, for purposes of lease classification or measurement. FASB 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 entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under FASB 157 are described as follows:
 
Level 1 — Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that we have the ability to access at the measurement date;
 
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 — Unobservable inputs for which there is little or no market data, which require us to develop our own assumptions based on the best information available as what market participants would use in pricing 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 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 December 31, 2008 (in millions).
 
                                 
    Fair Value Measurements Using  
    Level 1     Level 2     Level 3     Total  
Successor:                        
 
Assets — Derivative instruments
  $ —     $ 399     $ —     $ 399  
Liabilities — Derivative instruments
  $ —     $ (1,022 )   $ (30 )   $ (1,052 )
 
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 $20 million of unrealized losses related to Level 3 financial instruments that were still held as of December 31, 2008. These unrealized losses are


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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 fair value activity for Level 3 derivative contracts on a net basis (in millions).
 
         
    Level 3
 
    Derivative
 
    Instruments(A)  
Successor:      
 
Balance as of April 1, 2008
  $     11  
Net realized/unrealized (losses) included in earnings(B)
    (3 )
Net realized/unrealized (losses) included in Other Comprehensive Income (Loss)(C)
    (36 )
Net purchases, issuances and settlements
    (3 )
Net transfers in and/or (out) of Level 3
    1  
         
Balance as of December 31, 2008
  $ (30 )
         
 
 
(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.
 
17.   Other (Income) Expenses, net
 
Other (income) expenses, net is comprised of the following (in millions).
 
                                           
    Three Months
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
          (Restated)           (Restated)          
          Successor           Successor          
    Successor           Successor             Predecessor  
Exchange (gains) losses, net
  $ 17     $ (17 )   $ 73     $ (2 )     $ 4  
Gain on reversal of accrued legal claim(A)
    —       —       (26 )     —         —  
Gain on partial reversal of accrued social contribution tax
    —       —       —       (14 )       —  
Other, net
    3       —       6       7         (1 )
                                           
Other (income) expenses, net
  $ 20     $ (17 )   $ 53     $ (9 )     $ 3  
                                           
 
 
(A) 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 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.
 
18.   Income Taxes
 
The Income tax provision (benefit) for the three and nine months ended December 31, 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 Income tax provision (benefit) for the periods from May 16, 2007 through December 31, 2007 (as restated) and April 1, 2007 through May 15, 2007 were based on the


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
estimated effective tax rates applicable for the year ended March 31, 2008, after considering items specifically related to the interim periods.
 
A reconciliation of the Canadian statutory tax rates to our effective tax rates is as follows (in millions, except percentages).
 
                                           
    Three Months
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
          (Restated)
          (Restated)
         
    Successor     Successor     Successor     Successor       Predecessor  
Pre-tax loss before equity in net (income) loss of non-consolidated affiliates and minority interests’ share
  $ (1,862 )   $ (44 )   $ (2,072 )   $ (82 )     $ (95 )
                                           
Canadian statutory tax rate
    31 %     33 %     31 %     33 %       33 %
                                           
Provision (benefit) at the Canadian statutory rate
    (577 )     (15 )     (642 )     (27 )       (31 )
Increase (decrease) for taxes on income (loss) resulting from:
                                         
Non-deductible goodwill impairment
    415       —       415       —         —  
Exchange translation items
    (64 )     12       (77 )     61         23  
Exchange remeasurement of deferred income taxes
    (30 )     18       (51 )     25         3  
Change in valuation allowances
    23       14       41       54         13  
Expense (income) items not subject to tax
    22       —       28       (19 )       (9 )
Enacted statutory tax rate changes
    1       (17 )     3       (42 )       —  
Tax rate differences on foreign earnings
    11       11       (57 )     11         2  
Uncertain tax positions
    1       —       2       —         —  
Other, net
    (1 )     3       5       10         3  
                                           
Income tax provision (benefit)
  $ (199 )   $ 26     $ (333 )   $ 73       $ 4  
                                           
Effective tax rate
    11 %     (59 )%     16 %     (89 )%       (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; (4) items of expense (income) that are not subject to tax; (5) 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 and (6) non-deductible impairment of goodwill.
 
As of December 31, 2008, we had a net deferred tax liability of $242 million, including deferred tax assets of approximately $378 million for net operating loss and tax credit carryforwards. The carryforwards begin expiring between now and the year 2028 with some amounts being carried forward indefinitely. As of December 31, 2008, valuation allowances of $120 million had been recorded against net operating loss carryforwards and tax credit carryforwards, where it appeared more likely than not that such benefits will not be realized. Realization is dependent on generating sufficient taxable income prior to expiration of the tax attribute carryforwards.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
Although realization is not assured, management believes it is more likely than not that all the remaining net deferred tax assets will be realized. In the near term, the amount of deferred tax assets considered realizable could be reduced if we do not generate sufficient taxable income in certain jurisdictions.
 
Tax Uncertainties
 
Adoption of FASB Interpretation No. 48
 
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
 
During the three months ended December 31, 2008, our unrecognized tax benefits decreased $1 million as a result of foreign exchange translation. Our reserves for uncertain tax positions totaled $53 million and $61 million as of December 31, 2008 and March 31, 2008, respectively. As of December 31, 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 $47 million in both periods.
 
Tax authorities are currently examining certain of our prior years’ tax returns for 2004-2007. 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 nine month period ended December 31, 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 $10 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 2003 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 income tax provision. As of December 31, 2008 and March 31, 2008, we had $11 million and $14 million (as restated) accrued for potential interest on income taxes, respectively. For the three and nine months ended December 31, 2008, our income tax provision included an additional charge of $1 and $2 million of potential interest, respectively, which was offset in its entirety by current period foreign exchange movement. For the three months ended December 31, 2007 and the periods from May 16, 2007 through December 31, 2007 and from April 1, 2007 through May 15, 2007, our income tax provision included a reduction of less than $1 million, charges for an additional $2 million, and $1 million of potential interest, respectively.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
19.   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
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
    Successor     Successor     Successor     Successor       Predecessor  
Purchases from Alcan as a percentage of total metal purchases in kt(A)
    40 %     33 %     36 %     35 %       34 %
 
 
(A) One kilotonne (kt) is 1,000 metric tonnes. One metric tonne is equivalent to 2,204.6 pounds.
 
Legal Proceedings
 
Coca-Cola Lawsuits.  A lawsuit was commenced against Novelis Corporation on February 15, 2007 by Coca-Cola Bottler’s Sales and Services Company LLC (CCBSS) in Georgia state court. 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 court’s 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.
 
ARCO Aluminum Complaint.  On May 24, 2007, 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 Hindalco’s acquisition of Novelis.
 
ARCO alleges that its consent was required in connection with Hindalco’s 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 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 JV Agreement by not seeking ARCO’s consent. On July 30, 2007, Novelis filed a motion to hold ARCO’s motion for summary judgment in abeyance (pending


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
further discovery), along with a demand for a jury. On February 14, 2008, the judge issued an order granting our motion to hold ARCO’s 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 December 31, 2008 will be approximately $38 million. Of this amount, $20 million is included in Other long-term liabilities, with the remaining $18 million included in Accrued expenses and other current liabilities in our condensed consolidated balance sheet as of December 31, 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.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
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 $2 million included in our condensed consolidated balance sheet as of December 31, 2008, 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 Brazil’s Ministry of Treasury regarding certain taxes in South America, as of December 31, 2008 and March 31, 2008, we had cash deposits aggregating approximately $29 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 Brazil’s 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 $6 million to $82 million as of December 31, 2008. In total, these reserves approximate $98 million and $111 million as of December 31, 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 court’s 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 FIN 46(R).
 
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.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
The following table discloses information about our obligations under guarantees of indebtedness of others as of December 31, 2008 (in millions). We did not have any obligations under guarantees of indebtedness related to our majority-owned subsidiaries as of December 31, 2008.
 
                 
    Maximum
    Liability
 
    Potential
    Carrying
 
Type of Entity
  Future Payment     Value  
 
Wholly-owned subsidiaries
  $ 51     $ 25  
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.
 
20.   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. 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 9 — 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.


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
Selected Segment Financial Information
 
                                                         
                            Adjustment to
             
                            Eliminate
             
    North
                South
    Proportional
    Corporate
       
Total Assets
  America     Europe     Asia     America     Consolidation     and Other     Total  
(Successor)                                          
 
December 31, 2008
  $ 3,156     $ 3,135     $ 934     $ 1,289     $ (194 )   $ 51     $ 8,371  
March 31, 2008 (Restated)
  $ 3,957     $ 4,355     $ 1,080     $ 1,485     $ (199 )   $ 59     $ 10,737  
 
Comparison of Three Month Data:
 
                                                         
                            Adjustment to
             
                            Eliminate
             
Selected Operating Results
  North
                South
    Proportional
    Corporate
       
Three Months Ended December 31, 2008
  America     Europe     Asia     America     Consolidation     and Other     Total  
(Successor)                                          
 
Net sales (to third parties)
  $ 898     $ 729     $ 344     $ 205     $ —     $ —     $ 2,176  
Intersegment sales
    —       4       —       —       —       (4 )     —  
Segment income
    1       48       55       34       —       —       138  
Depreciation and amortization
    41       54       12       17       (18 )     1       107  
Capital expenditures
    13       21       5       6       (8 )     —       37  
 
                                                         
                            Adjustment to
             
                            Eliminate
             
Selected Operating Results
  North
                South
    Proportional
    Corporate
       
Three Months Ended December 31, 2007
  America     Europe     Asia     America     Consolidation     and Other     Total  
(Successor)                                          
 
Net sales (to third parties)
  $ 995     $ 1,010     $ 483     $ 247     $ —     $ —     $ 2,735  
Intersegment sales
    5       1       3       —       —       (9 )     —  
Segment income (Restated)
    82       44       11       34       —       —       171  
Depreciation and amortization (Restated)
    37       58       13       22       (23 )     1       108  
Capital expenditures
    13       35       11       8       (5 )     1       63  
 
Comparison of Nine Month Data:
 
                                                         
                            Adjustment to
             
                            Eliminate
             
Selected Operating Results
  North
                South
    Proportional
    Corporate
       
Nine Months Ended December 31, 2008
  America     Europe     Asia     America     Consolidation     and Other     Total  
(Successor)                                          
 
Net sales (to third parties)
  $ 3,090     $ 3,039     $ 1,311     $ 800     $ (2 )   $ —     $ 8,238  
Intersegment sales
    2       9       1       —       —       (12 )     —  
Segment income
    45       221       83       129       —       —       478  
Depreciation and amortization
    124       171       40       53       (60 )     2       330  
Capital expenditures
    30       57       16       21       (18 )     1       107  
 


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
                                                         
                            Adjustment to
             
                            Eliminate
             
Selected Operating Results
  North
                South
    Proportional
    Corporate
       
May 16, 2007 Through December 31, 2007
  America     Europe     Asia     America     Consolidation     and Other     Total  
(Successor)                                          
 
Net sales (to third parties)
  $ 2,619     $ 2,695     $ 1,167     $ 622     $ —     $ —     $ 7,103  
Intersegment sales
    8       2       10       27       —       (47 )     —  
Segment income (Restated)
    194       155       27       102       —       —       478  
Depreciation and amortization (Restated)
    98       130       37       44       (46 )     1       264  
Capital expenditures
    26       63       21       18       (11 )     3       120  
 
 
 
                                                         
                            Adjustment to
             
                            Eliminate
             
Selected Operating Results
  North
                South
    Proportional
    Corporate
       
April 1, 2007 Through May 15, 2007
  America     Europe     Asia     America     Consolidation     and Other     Total  
(Predecessor)                                          
 
Net sales (to third parties)
  $ 446     $ 510     $ 216     $ 109     $ —     $ —     $ 1,281  
Intersegment sales
    —       —       1       7       —       (8 )     —  
Segment income (loss)
    (24 )     32       6       18       —       —       32  
Depreciation and amortization
    7       11       7       5       (3 )     1       28  
Capital expenditures
    4       8       4       3       (3 )     1       17  

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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
The following table shows the reconciliation from Total Segment income to Net loss (in millions).
 
                                           
    Three Months
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
          (Restated)
          (Restated)
         
    Successor     Predecessor     Successor     Successor       Predecessor  
Total Segment income
  $ 138     $ 171     $ 478     $ 478       $ 32  
Interest expense and amortization of debt issuance costs, net
    (44 )     (47 )     (125 )     (128 )       (26 )
Unrealized gains (losses) on change in fair value of derivative instruments, net(A)
    (472 )     (24 )     (672 )     (126 )       5  
Realized gains (losses) on corporate derivative instruments, net
    4       2       4       40         (3 )
Depreciation and amortization
    (107 )     (108 )     (330 )     (264 )       (28 )
Impairment of goodwill
    (1,340 )     —       (1,340 )     —         —  
Impairment charges on long-lived assets
    —       —       (1 )     —         —  
Minority interests’ share
    9       —       7       2         1  
Adjustment to eliminate proportional consolidation(B)
    (174 )     (15 )     (210 )     (17 )       (7 )
Restructuring (charges) recoveries, net
    (15 )     (1 )     (14 )     (2 )       (1 )
Gain (loss) on sales of property, plant and equipment and businesses, net
    (1 )     —       1       —         —  
Corporate selling, general and administrative expenses
    (12 )     (18 )     (42 )     (42 )       (35 )
Other costs, net(C)
    (5 )     (7 )     13       (5 )       1  
Sale transaction fees
    —       —       —       —         (32 )
Income tax (provision) benefit
    199       (26 )     333       (73 )       (4 )
                                           
Net loss
  $ (1,820 )   $ (73 )   $ (1,898 )   $ (137 )     $ (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.
 
(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 9 — 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 nine months ended December 31, 2008. See Note 17 — Other (Income) Expenses, net.
 


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
                                           
    Three Months
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      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 (gains) losses included in Segment income
  $ (63 )   $ 34     $ (144 )   $ (14 )     $ (18 )
Realized (gains) losses on corporate derivative instruments
    (4 )     (2 )     (4 )     (40 )       3  
Unrealized losses
    472       24       672       126         (5 )
                                           
(Gains) losses on change in fair value of derivative instruments, net
  $ 405     $ 56     $ 524     $ 72       $ (20 )
                                           
 
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
    Nine Months
    May 16, 2007
      April 1, 2007
 
    Ended
    Ended
    Through
      Through
 
    December 31,     December 31,
    December 31,
      May 15,
 
    2008     2007     2008     2007       2007  
    Successor     Successor     Successor     Successor       Predecessor  
Net sales to Rexam as a percentage of total net sales
    16.7 %     15.6 %     16.4 %     14.7 %       13.5 %
 
21.   Supplemental Guarantor Information
 
In connection with the issuance of our 7.25% Senior Notes, certain of our wholly-owned subsidiaries provided guarantees of the 7.25% 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 7.25% Senior Notes.

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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 December 31, 2008 (Successor)  
                Non-
             
    Parent     Guarantors     Guarantors     Eliminations     Consolidated  
 
Net sales
  $ 254     $ 1,751     $ 601     $ (430 )   $ 2,176  
                                         
Cost of goods sold (exclusive of depreciation and amortization shown below)
    252       1,648       553       (430 )     2,023  
Selling, general and administrative expenses
    (8 )     66       15       —       73  
Depreciation and amortization
    6       80       21       —       107  
Research and development expenses
    8       2       1       —       11  
Interest expense and amortization of debt issuance costs, net
    9       31       4       —       44  
(Gain) loss on change in fair value of derivative instruments, net
    1       355       49       —       405  
Impairment of goodwill
    —       1,340       —       —       1,340  
Restructuring charges, net
    5       9       1       —       15  
Equity in net (income) loss of affiliates
    1,811       166       —       (1,811 )     166  
Other (income) expenses, net
    11       (17 )     26       —       20  
                                         
      2,095       3,680       670       (2,241 )     4,204  
                                         
Income (loss) before income taxes and minority interests’ share
    (1,841 )     (1,929 )     (69 )     1,811       (2,028 )
Income tax provision (benefit)
    (21 )     (170 )     (8 )     —       (199 )
                                         
Income (loss) before minority interests’ share
    (1,820 )     (1,759 )     (61 )     1,811       (1,829 )
Minority interests’ share
    —       —       9       —       9  
                                         
Net income (loss)
  $ (1,820 )   $ (1,759 )   $ (52 )   $ 1,811     $ (1,820 )
                                         


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
Novelis Inc.
 
Condensed Consolidating Statement of Operations
(In millions)
 
                                         
    Three Months Ended December 31, 2007 (Successor)  
                Non-
             
Restated
  Parent     Guarantors     Guarantors     Eliminations     Consolidated  
 
Net sales
  $ 334     $ 2,211     $ 783     $ (593 )   $ 2,735  
                                         
Cost of goods sold (exclusive of depreciation and amortization shown below)
    337       1,993       737       (593 )     2,474  
Selling, general and administrative expenses
    20       61       18       —       99  
Depreciation and amortization
    6       93       9       —       108  
Research and development expenses
    9       6       (4 )     —       11  
Interest expense and amortization of debt issuance costs, net
    8       32       7       —       47  
(Gain) loss on change in fair value of derivative instruments, net
    (8 )     56       8       —       56  
Restructuring charges, net
    —       1       —       —       1  
Equity in net (income) loss of affiliates
    46       3       —       (46 )     3  
Other (income) expenses, net
    (12 )     (15 )     10       —       (17 )
                                         
      406       2,230       785       (639 )     2,782  
                                         
Income (loss) before income taxes and minority interests’ share
    (72 )     (19 )     (2 )     46       (47 )
Income tax provision (benefit)
    1       24       1       —       26  
                                         
Income (loss) before minority interests’ share
    (73 )     (43 )     (3 )     46       (73 )
Minority interests’ share
    —       —       —       —       —  
                                         
Net income (loss)
  $ (73 )   $ (43 )   $ (3 )   $ 46     $ (73 )
                                         


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Novelis Inc.
 
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)
 
Novelis Inc.
 
Condensed Consolidating Statement of Operations
(In millions)