UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
Or
¨
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
 
98-0442987
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
3560 Lenox Road, Suite 2000
Atlanta, Georgia
 
30326
(Address of principal executive offices)
 
(Zip Code)
Telephone: (404) 760-4000
(Registrant’s telephone number, including area code) 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ý    No  ¨
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
¨
 
Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
ý
(Do not check if a smaller reporting company)
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  ¨    No  ý
As of November 6, 2015, the registrant had 1,000 shares of common stock, no par value, outstanding. All of the registrant’s outstanding shares were held indirectly by Hindalco Industries Ltd., the registrant’s parent company.





Novelis Inc.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 




2



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in millions)
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net sales
$
2,482

 
$
2,831

 
$
5,116

 
$
5,511

Cost of goods sold (exclusive of depreciation and amortization)
2,241

 
2,483

 
4,641

 
4,812

Selling, general and administrative expenses
100

 
103

 
200

 
211

Depreciation and amortization
89

 
90

 
176

 
179

Interest expense and amortization of debt issuance costs
82

 
82

 
162

 
163

Research and development expenses
13

 
12

 
26

 
24

Gain on assets held for sale

 

 

 
(11
)
Loss on extinguishment of debt

 

 
13

 

Restructuring and impairment, net
4

 
7

 
19

 
13

Equity in net loss of non-consolidated affiliates
1

 

 
2

 
2

Other (income) expense, net
(32
)
 
18

 
(62
)
 
23

 
2,498

 
2,795

 
5,177

 
5,416

(Loss) income before income taxes
(16
)
 
36

 
(61
)
 
95

Income tax (benefit) provision
(3
)
 
(2
)
 
12

 
22

Net (loss) income
(13
)
 
38

 
(73
)
 
73

Net income attributable to noncontrolling interests

 

 

 

Net (loss) income attributable to our common shareholder
$
(13
)
 
$
38

 
$
(73
)
 
$
73

See accompanying notes to the condensed consolidated financial statements.


3



Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(in millions)
 
 
Three Months Ended September 30,
 
2015
 
2014
Net (loss) income
$
(13
)
 
$
38

Other comprehensive (loss) income:
 
 
 
Currency translation adjustment
(61
)
 
(133
)
Net change in fair value of effective portion of cash flow hedges
(48
)
 
(7
)
Net change in pension and other benefits
9

 
10

Other comprehensive loss before income tax effect
(100
)
 
(130
)
Income tax (benefit) provision related to items of other comprehensive (loss) income
(5
)
 
6

Other comprehensive loss, net of tax
(95
)
 
(136
)
Comprehensive loss
(108
)
 
(98
)
Less: Comprehensive loss attributable to noncontrolling interests, net of tax

 
(2
)
Comprehensive loss attributable to our common shareholder
$
(108
)
 
$
(96
)

 
 
 
 
 
Six Months Ended September 30,
 
2015
 
2014
Net (loss) income
$
(73
)
 
$
73

Other comprehensive (loss) income:
 
 
 
Currency translation adjustment
(19
)
 
(106
)
Net change in fair value of effective portion of cash flow hedges
(10
)
 
6

Net change in pension and other benefits

 
(3
)
Other comprehensive loss before income tax effect
(29
)
 
(103
)
Income tax provision related to items of other comprehensive loss
1

 
1

Other comprehensive loss, net of tax
(30
)
 
(104
)
Comprehensive loss
(103
)
 
(31
)
Less: Comprehensive loss attributable to noncontrolling interests, net of tax
(2
)
 
(1
)
Comprehensive loss attributable to our common shareholder
$
(101
)
 
$
(30
)

See accompanying notes to the condensed consolidated financial statements.

4



Novelis Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except number of shares)
 
September 30,
2015
 
March 31,
2015
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
462

 
$
628

Accounts receivable, net
 
 
 
— third parties (net of uncollectible accounts of $3 as of September 30, 2015 and March 31, 2015)
1,155

 
1,289

— related parties
55

 
53

Inventories
1,349

 
1,431

Prepaid expenses and other current assets
104

 
112

Fair value of derivative instruments
102

 
77

Deferred income tax assets
43

 
79

Assets held for sale
5

 
6

Total current assets
3,275

 
3,675

Property, plant and equipment, net
3,488

 
3,542

Goodwill
607

 
607

Intangible assets, net
566

 
584

Investment in and advances to non–consolidated affiliate
464

 
447

Deferred income tax assets
95

 
95

Other long–term assets
 
 
 
— third parties
116

 
137

— related parties
19

 
15

Total assets
$
8,630

 
$
9,102

LIABILITIES AND SHAREHOLDER’S DEFICIT
 
 
 
Current liabilities
 
 
 
Current portion of long–term debt
$
102

 
$
108

Short–term borrowings
901

 
846

Accounts payable
 
 
 
— third parties
1,435

 
1,854

— related parties
49

 
44

Fair value of derivative instruments
159

 
149

Accrued expenses and other current liabilities
593

 
572

Deferred income tax liabilities
1

 
20

Total current liabilities
3,240

 
3,593

Long–term debt, net of current portion
4,418

 
4,349

Deferred income tax liabilities
196

 
261

Accrued postretirement benefits
765

 
748

Other long–term liabilities
185

 
221

Total liabilities
8,804

 
9,172

Commitments and contingencies

 

Shareholder’s deficit
 
 
 
Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of September 30, 2015 and March 31, 2015

 

Additional paid–in capital
1,404

 
1,404

Accumulated deficit
(998
)
 
(925
)
Accumulated other comprehensive loss
(589
)
 
(561
)
Total deficit of our common shareholder
(183
)
 
(82
)
Noncontrolling interests
9

 
12

Total deficit
(174
)
 
(70
)
Total liabilities and deficit
$
8,630

 
$
9,102

See accompanying notes to the condensed consolidated financial statements.

5



Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in millions)
 
Six Months Ended September 30,
 
2015
 
2014
OPERATING ACTIVITIES
 
 
 
Net (loss) income
$
(73
)
 
$
73

Adjustments to determine net cash used in operating activities:
 
 
 
Depreciation and amortization
176

 
179

(Gain) loss on unrealized derivatives and other realized derivatives in investing activities, net
(12
)
 
14

Gain on assets held for sale

 
(11
)
Loss on sale of assets
1

 
3

Impairment charges
2

 

Loss on extinguishment of debt
13

 

Deferred income taxes
(44
)
 
(18
)
Amortization of fair value adjustments, net
6

 
6

Equity in net loss of non-consolidated affiliates
2

 
2

Gain on foreign exchange remeasurement of debt
(6
)
 
(3
)
Amortization of debt issuance costs and carrying value adjustments
10

 
13

Other, net

 
(1
)
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures):
 
 
 
Accounts receivable
127

 
(187
)
Inventories
87

 
(369
)
Accounts payable
(384
)
 
295

Other current assets
10

 
(29
)
Other current liabilities
25

 
27

Other noncurrent assets
19

 
(2
)
Other noncurrent liabilities
(22
)
 
(5
)
Net cash used in operating activities
(63
)
 
(13
)
INVESTING ACTIVITIES
 
 
 
Capital expenditures
(204
)
 
(264
)
Proceeds from sales of assets, third party, net of transaction fees and hedging
1

 
34

Outflows from investment in and advances to non-consolidated affiliates, net
(4
)
 
(11
)
(Outflows) proceeds from settlement of other undesignated derivative instruments, net
(14
)
 
3

Net cash used in investing activities
(221
)
 
(238
)
FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of long-term and short-term borrowings
140

 
198

Principal payments of long-term and short-term borrowings
(135
)
 
(126
)
Revolving credit facilities and other, net
123

 
248

Return of capital to our common shareholder

 
(250
)
Dividends, noncontrolling interest
(1
)
 
(1
)
Debt issuance costs
(13
)
 

Net cash provided by financing activities
114

 
69

Net decrease in cash and cash equivalents
(170
)
 
(182
)
Effect of exchange rate changes on cash
4

 
(1
)
Cash and cash equivalents — beginning of period
628

 
509

Cash and cash equivalents — end of period
$
462

 
$
326


See accompanying notes to the condensed consolidated financial statements.

6



Novelis Inc.
CONDENSED CONSOLIDATED STATEMENT OF DEFICIT (unaudited)
(in millions, except number of shares)
 
 
Deficit of our Common Shareholder
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Loss (AOCI)
 
Non-
controlling Interests
 
Total Deficit
 
Shares
 
Amount
Balance as of March 31, 2015
1,000

 
$

 
$
1,404

 
$
(925
)
 
$
(561
)
 
$
12

 
$
(70
)
Net loss attributable to our common shareholder

 

 

 
(73
)
 

 

 
(73
)
Currency translation adjustment, net of tax provision of $ - million included in AOCI

 

 

 

 
(16
)
 
(3
)
 
(19
)
Change in fair value of effective portion of cash flow hedges, net of tax provision of $2 million included in AOCI

 

 

 

 
(12
)
 

 
(12
)
Change in pension and other benefits, net of tax benefit of $1 million included in AOCI

 

 

 

 

 
1

 
1

Noncontrolling interest cash dividends declared

 

 

 

 

 
(1
)
 
(1
)
Balance as of September 30, 2015
1,000

 
$

 
$
1,404

 
$
(998
)
 
$
(589
)
 
$
9

 
$
(174
)
See accompanying notes to the condensed consolidated financial statements.


7

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. Hindalco acquired Novelis in May 2007. All of the common shares of Novelis are owned directly by AV Metals Inc. and indirectly by Hindalco Industries Limited.
Organization and Description of Business
Novelis is the world's leading aluminum rolled products producer based on shipment volume in fiscal 2015. We produce aluminum sheet and light gauge products for use in the packaging market, which includes beverage and food can and foil products, as well as for use in the automotive, transportation, electronics, architectural and industrial product markets. We are also the world's largest recycler of aluminum and have recycling operations in many of our plants to recycle both post-consumer aluminum and post-industrial aluminum. As of September 30, 2015, we had manufacturing operations in 11 countries on four continents, which include 25 operating plants, and recycling operations in 11 of these plants.
The March 31, 2015 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes in our Annual Report on Form 10-K for the year ended March 31, 2015 filed with the United States Securities and Exchange Commission (SEC) on May 12, 2015. Management believes that all adjustments necessary for the fair statement of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented.
Consolidation Policy
Our condensed consolidated financial statements include the assets, liabilities, revenues and expenses of all wholly-owned subsidiaries, majority-owned subsidiaries over which we exercise control and entities in which we have a controlling financial interest or are deemed to be the primary beneficiary. We eliminate all significant intercompany accounts and transactions from our condensed consolidated financial statements.
We use the equity method to account for our investments in entities that we do not control, but where we have the ability to exercise significant influence over operating and financial policies. Consolidated “Net (loss) income attributable to our common shareholder” includes our share of net income (loss) of these entities. Our condensed consolidated financial statements include our "Investment in and advances to non-consolidated affiliates" and "Equity in net loss of non-consolidated affiliates.
Use of Estimates and Assumptions
The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The principal areas of judgment relate to (1) the fair value of derivative financial instruments; (2) impairment of goodwill; (3) impairment of long lived assets and other intangible assets; (4) impairment and assessment of consolidation of equity investments; (5) actuarial assumptions related to pension and other postretirement benefit plans; (6) tax uncertainties and valuation allowances; and (7) assessment of loss contingencies, including environmental and litigation liabilities. Future events and their effects cannot be predicted with certainty, and accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. We evaluate and update our assumptions and estimates on an ongoing basis and may employ outside experts to assist in our evaluations. Actual results could differ from the estimates we have used.

8

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





Recently Adopted Accounting Standards
Effective for the first quarter of fiscal 2016, we adopted Financial Accounting Standards Board (FASB) ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in this update provide clarification regarding the release of a cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. Our existing accounting policy complies with this guidance; therefore, there was no impact on our financial statements.
Effective for the first quarter fiscal 2016, we adopted FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendment changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the revised standard, a discontinued operation is (1) a component of an entity or group of components that has been disposed of by sale, disposed of other than by sale or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results or (2) an acquired business or nonprofit activity that is classified as held for sale on the date of the acquisition. There was no impact upon adoption; however, the accounting treatment and classification of future disposals under this new standard could differ from our previous treatment and classification of disposals.
Recently Issued Accounting Standards    
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which, when effective, will supersede the guidance in former ASC 605, Revenue Recognition. The new guidance requires entities to recognize revenue based on the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual periods beginning after December 15, 2016 and interim periods within that year. Early adoption is not permitted. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which provides an optional one-year deferral of the effective date. We are currently evaluating the impact of this standard on our consolidated financial position and results of operations.  
In February 2015, the FASB issued ASU No. 2015-02, Consolidations (Topic 810): Amendments to the Consolidations Analysis, which when effective, will (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.  The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within that year. Early adoption is permitted. We will adopt this standard in our first quarter ending June 30, 2016. Adoption of this standard is not expected to have any impact on our consolidated financial position and results of operations.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which, when effective, will require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within that year. In August 2015, the FASB issued ASU 2015-15, a clarifying amendment, allowing for debt issuance costs related to lines of credit being presented as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet or each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Early adoption is permitted. We will adopt this standard in our first quarter ending June 30, 2016. Adoption of this standard will impact the presentation of deferred debt issuance costs on our consolidated financial position. We have determined that the adoption of these changes as of September 30, 2015 would have resulted in a decrease of approximately $34 million to "Other long-term assets" and "Long-term debt, net of current portion" on the accompanying condensed consolidated Balance Sheet, and that we would continue to present debt issuance costs related to lines of credit as an asset. The future impact of the adoption on balance sheet classification may be impacted by future amortization and debt refinancing.

9

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which, when effective, will remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those fiscal years. An entity should apply the amendments retrospectively to all periods presented. Early adoption is permitted. We will adopt this standard in our annual period ending March 31, 2017. Adoption of this standard may impact the presentation of certain pension plan assets in our postretirement benefit plans footnote disclosure.
In July 2015, the FASB issued ASU 2015-011, Inventory (Topic 330): Simplifying the Measurement of Inventory, which, when effective, will remove the requirement to measure inventory at the lower of cost or market whereas market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin, and require an entity to measure inventory at the lower of cost and net realizable value. Lower of cost and net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for annual periods beginning after December 15, 2016 including interim periods within those fiscal years. This update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We will adopt this standard on April 1, 2016, the start of our next fiscal year. Adoption of this standard is not expected to have any impact on our consolidated financial position and results of operations.


10

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





2.    RESTRUCTURING AND IMPAIRMENT
“Restructuring and impairment, net” for the six months ended September 30, 2015 and 2014 was $19 million and $13 million, respectively.
The following table summarizes our restructuring liability activity and other impairment charges (in millions). 
 
 
Total restructuring
liabilities
 
Other restructuring charges (A)
 
Total restructuring charges
 
Other impairments (B)
 
Total
restructuring 
and impairments, net
Balance as of March 31, 2015
 
$
32

 
 
 
 
 
 
 
 
-Provisions
 
18

 
 
 
 
 
 
 
 
-Reversal of expense
 
(1
)
 
 
 
 
 
 
 
 
Expenses, net
 
17

 
$
2

 
$
19

 
$

 
$
19

Cash payments
 
(14
)
 
 
 
 
 
 
 
 
Foreign currency and other (C)
 
(6
)
 
 
 
 
 
 
 
 
Balance as of September 30, 2015
 
$
29

 
 
 
 
 
 
 
 
(A)
Other restructuring charges include period expenses that were not recorded through the restructuring liability.
(B)
Other impairment charges not related to a restructuring activity.
(C)
This primarily relates to the remeasurement of Brazilian real denominated restructuring liabilities.
As of September 30, 2015, $20 million of restructuring liabilities was included in "Accrued expenses and other current liabilities" and $9 million was included in "Other long-term liabilities" on our condensed consolidated balance sheet. As of September 30, 2015, the restructuring liability for the North America segment was $1 million. The other regional and corporate restructuring activities are described in more detail on the subsequent pages.


 
 
 
 
 
 
 
 



    

11

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)






Europe
The following table summarizes our restructuring activity for the Europe segment by plan (in millions).
 
 
Six Months Ended September 30,
 
Year Ended March 31,
 
Prior to April 1,
 
 
2015
 
2015
 
2014
Restructuring charges - Europe
 
 
 
 
 
Business optimization
 
 
 
 
 
 
Severance
$
2

 
$
3

 
$
43

 
 
 
 
 
 
 
Total restructuring charges - Europe
$
2

 
$
3

 
$
43

 
 
 
 
 
 
Restructuring payments - Europe
 
 
 
 
 
 
Severance
$
(3
)
 
$
(12
)
 
 
Total restructuring payments - Europe
$
(3
)
 
$
(12
)
 
 
The business optimization actions include the shutdown of facilities, staff rationalization and other activities to optimize our business in Europe. As of September 30, 2015, the restructuring liability for the Europe segment was $5 million, which relates to severance charges.

12

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





South America
The following table summarizes our restructuring activity for the South America segment by plan (in millions).
 
 
Six Months Ended September 30,
 
Year Ended March 31,
 
Prior to April 1,
 
 
2015
 
2015
 
2014
Restructuring charges - South America
 
 
 
 
 
Ouro Preto closures
 
 
 
 
 
 
Severance
$
1

 
$
14

 
$
5

 
Asset impairments (A)

 
5

 
1

 
Environmental charges

 
6

 
16

 
Contract termination and other exit related costs
1

 
5

 
6

 
 
 
 
 
 
 
Other past restructuring programs

 
1

 
20

Total restructuring charges - South America
$
2

 
$
31

 
$
48

 
 
 
 
 
 
 
Restructuring payments - South America
 
 
 
 
 
 
Severance
$
(2
)
 
$
(12
)
 
 
 
Other
(2
)
 
(4
)
 
 
Total restructuring payments - South America
$
(4
)
 
$
(16
)
 
 
(A)     These charges were not recorded through the restructuring liability.
We ceased operations at the smelter in Ouro Preto, Brazil, in December 2014. This decision was made in an effort to further align our global sustainability strategy, and exit non-core operations. Certain charges associated with this closure are reflected within the "Ouro Preto smelter closures" section above, along with our closure of a pot line in Ouro Preto, Brazil, in fiscal 2013. As of September 30, 2015, the restructuring liability for the South America segment was $18 million and related to $12 million of environmental charges, $1 million of certain labor related charges, and $5 million of other exit related costs.
For additional information on environmental charges see Note 16 – Commitments and Contingencies.


13

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





Corporate
The following table summarizes our restructuring activity for our corporate office by plan (in millions).    
 
 
 
 
 
 
 
 
 
Six Months Ended September 30,
 
Year Ended March 31,
 
Prior to April 1,
 
 
2015
 
2015
 
2014
Corporate Restructuring Program
 
 
 
 
 
 
Severance
$
13

 
$

 
$

 
Asset impairments (A)
1

 

 

Total restructuring charges - Corporate
$
14

 
$

 
$

 
 
 
 
 
 
Restructuring payments - Corporate
 
 
 
 
 
 
Severance
$
(7
)
 
$

 
 
 
Lease Termination Costs

 
(1
)
 
 
Total restructuring payments - Corporate
$
(7
)
 
$
(1
)
 
 
(A)     These charges were not recorded through the restructuring liability.
During the first quarter of fiscal 2016, the Company implemented a series of restructuring actions at the global headquarters office to better align the organization structure and corporate staffing levels with strategic priorities. An impairment charge related to certain software items was also recorded as part of this restructuring action. As of September 30, 2015, the restructuring liability for the corporate office was $5 million and related to severance charges.



14

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





3.    INVENTORIES
"Inventories" consist of the following (in millions). 
 
September 30,
2015
 
March 31,
2015
Finished goods
$
292

 
$
358

Work in process
504

 
531

Raw materials
419

 
419

Supplies
134

 
123

Inventories
$
1,349

 
$
1,431


    

15

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





4.    ASSETS HELD FOR SALE
We are focused on capturing the global growth we see in our premium product markets of beverage can, automotive and high-end specialties. We continually analyze our product portfolio to ensure we are focused on growing in attractive market segments. The following transaction relates to exiting certain non-core operations and are steps to align our growth strategy in the premium product markets.
In April 2014, we entered into agreements to sell certain hydroelectric power generation operations in South America and our share of the joint venture of the Consorcio Candonga to two separate parties. In December 2014, we sold our share of the joint venture of the Consorcio Candonga. Additionally, we sold the majority of our hydroelectric power generation operations fully owned by the Company in February 2015. The remaining hydroelectric power generation assets which are Property, plant, and equipment, totaling $5 million as of September 30, 2015 and $6 million as of March 31, 2015, were classified as "Assets held for sale" in our condensed consolidated balance sheets. The contract for the sale of these remaining operations is subject to resolution of certain operating license issues and final regulatory approval.
"Gain on assets held for sale" includes $7 million from the sale of our consumer foil operations in North America and $4 million from a property and mining rights sale in South America during the six months ended September 30, 2014.
    
 
 
 
 



16

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





5.    CONSOLIDATION
Variable Interest Entities (VIE)
The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. An entity is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
We have a joint interest in Logan Aluminum Inc. (Logan) with Tri-Arrows Aluminum Inc. (Tri-Arrows). Logan processes metal received from Novelis and Tri-Arrows and charges the respective partner a fee to cover expenses. Logan is thinly capitalized and relies on the regular reimbursement of costs and expenses by Novelis and Tri-Arrows to fund its operations. This reimbursement is considered a variable interest as it constitutes a form of financing the activities of Logan. Other than these contractually required reimbursements, we do not provide other material support to Logan. Logan's creditors do not have recourse to our general credit.
We have a majority voting right on Logan’s board of directors and have the ability to direct the majority of Logan’s production operations. We also have the ability to take the majority share of production and associated costs. These facts qualify us as Logan’s primary beneficiary and this entity is consolidated for all periods presented. All significant intercompany transactions and balances have been eliminated.
The following table summarizes the carrying value and classification of assets and liabilities owned by the Logan joint venture and consolidated in our condensed consolidated balance sheets (in millions). There are significant other assets used in the operations of Logan that are not part of the joint venture, as they are directly owned and consolidated by Novelis or Tri-Arrows. 
 
September 30,
2015
 
March 31,
2015
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
3

 
$
2

Accounts receivable
30

 
40

Inventories
59

 
52

Prepaid expenses and other current assets
1

 
1

Total current assets
93

 
95

Property, plant and equipment, net
14

 
20

Goodwill
12

 
12

Deferred income taxes
69

 
65

Other long-term assets
4

 
4

Total assets
$
192

 
$
196

Liabilities
 
 
 
Current liabilities
 
 
 
Accounts payable
$
24

 
$
33

Accrued expenses and other current liabilities
11

 
12

Total current liabilities
35

 
45

Accrued postretirement benefits
170

 
166

Other long-term liabilities
2

 
2

Total liabilities
$
207

 
$
213

 

17

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





6.
INVESTMENT IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY TRANSACTIONS
We have a non-consolidated affiliate, Aluminium Norf GmbH (Alunorf), which serves our Europe region with rolling and remelt tolling services. We also had a non-consolidated affiliate, Consorcio Candonga (Candonga), which we sold in December 2014, that provided hydroelectric power generation operations. Included in the accompanying condensed consolidated financial statements are transactions and balances arising from business we conducted with these non-consolidated affiliates, which we classify as related party transactions and balances. We account for these affiliates using the equity method.     
The following table summarizes the results of operations of these equity method affiliates, and the nature and amounts of significant transactions we had with our non-consolidated affiliates (in millions). The amounts in the table below are disclosed at 100% of the operating results of these affiliates.
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net sales
$
117

 
$
138

 
$
234

 
$
276

Costs and expenses related to net sales
115

 
141

 
233

 
287

Provision (benefit) for taxes on income
3

 
(3
)
 
2

 
(5
)
Net loss
$
(1
)
 
$

 
$
(1
)
 
$
(6
)
Purchases of tolling services from Alunorf
$
59

 
$
69

 
$
117

 
$
138


Additionally, we earned less than $1 million of interest income on a loan due from Alunorf.

The following table describes the period-end account balances that we had with our remaining non-consolidated affiliate, Alunorf, shown as related party balances in the accompanying condensed consolidated balance sheets (in millions). We had no other material related party balances with Alunorf. 
 
September 30,
2015
 
March 31,
2015
Accounts receivable-related parties
$
55

 
$
53

Other long-term assets-related parties
$
19

 
$
15

Accounts payable-related parties
$
49

 
$
44


As noted above, we have a loan due from Alunorf, which is presented in "Other long-term assets-related parties" during each of the periods in the table above. We believe collection of the full receivable from Alunorf is probable; thus no allowance for loan loss was recorded as of September 30, 2015 and March 31, 2015.

We have guaranteed the indebtedness for a credit facility on behalf of Alunorf. The guarantee is limited to 50% of the outstanding debt, not to exceed 6 million euros. As of September 30, 2015, there were no amounts outstanding under our guarantee with Alunorf as there were no outstanding borrowings. We have also guaranteed the payment of early retirement benefits on behalf of Alunorf. As of September 30, 2015, this guarantee totaled $2 million, though an associated liability for the Novelis is not currently probable.

Transactions with Hindalco and AV Metals Inc.
We occasionally have related party transactions with Hindalco. During the six months ended September 30, 2015 and 2014, “Net sales” were less than $1 million between Novelis and Hindalco. As of September 30, 2015 and March 31, 2015, there were less than $1 million and $1 million in "Accounts receivable, net" outstanding, respectively, related to transactions with Hindalco.
On April 30, 2014, we paid a return of capital to our direct shareholder, AV Metals Inc., in the amount of $250 million.

18

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





7.    DEBT
Debt consisted of the following (in millions).
 
September 30, 2015
 
March 31, 2015
 
Interest
Rates (A)
 
Principal
 
Unamortized
Carrying  Value
Adjustments
 
 
 
Carrying
Value
 
Principal
 
Unamortized
Carrying  Value
Adjustments
 
 
 
Carrying
Value
Third party debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
3.05
%
 
$
901

 
$

 
  
 
$
901

 
$
846

 
$

 
  
 
$
846

Novelis Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating rate Term Loan Facility, due through June 2022
4.00
%
 
1,796

 
(18
)
 
(B) 
 
1,778

 
1,731

 
(13
)
 
(B) 
 
1,718

8.375% Senior Notes, due December 2017
8.375
%
 
1,100

 

 
  
 
1,100

 
1,100

 

 
  
 
1,100

8.75% Senior Notes, due December 2020
8.75
%
 
1,400

 

 
  
 
1,400

 
1,400

 

 
 
 
1,400

Capital lease obligations, due through July 2017
3.64
%
 
7

 

 
 
 
7

 
9

 

 
 
 
9

Novelis Korea Limited
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank loans, due through September 2020 (KRW 242 billion)
2.67
%
 
203

 

 
  
 
203

 
192

 

 
  
 
192

Novelis Switzerland S.A.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital lease obligation, due through December 2019 (Swiss francs (CHF) 25 million)
7.50
%
 
26

 
(1
)
 
(C)
 
25

 
28

 
(1
)
 
(C)
 
27

Novelis do Brasil Ltda.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BNDES loans, due through April 2021 (BRL 19 million)
5.92
%
 
5

 
(1
)
 
(D)
 
4

 
7

 
(1
)
 
(D)
 
6

Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other debt, due through December 2020
6.29
%
 
3

 

 
  
 
3

 
5

 

 
  
 
5

Total debt
 
 
5,441

 
(20
)
 
 
 
5,421

 
5,318

 
(15
)
 
 
 
5,303

Less: Short-term borrowings
 
 
(901
)
 

 
  
 
(901
)
 
(846
)
 

 
  
 
(846
)
Current portion of long term debt
 
 
(102
)
 

 
  
 
(102
)
 
(108
)
 

 
  
 
(108
)
Long-term debt, net of current portion
 
 
$
4,438

 
$
(20
)
 
 
 
$
4,418

 
$
4,364

 
$
(15
)
 
 
 
$
4,349


19

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





(A)
Interest rates are the fixed or variable rates as specified in the debt instruments (not the effective interest rate) as of September 30, 2015, and therefore, exclude the effects of related interest rate swaps, accretion/amortization of fair value adjustments as a result of purchase accounting in connection with Hindalco's purchase of Novelis and accretion/amortization of debt issuance costs related to the debt exchange completed in fiscal 2009 and the series of refinancing transactions and additional borrowings we completed in fiscal 2011 through 2016. We present stated rates of interest because they reflect the rate at which cash will be paid for future debt service.
(B)
Debt existing at the time of Hindalco's purchase of Novelis was recorded at fair value. In connection with a series of refinancing transactions, a portion of the historical fair value adjustments was allocated to the Term Loan Facility, resulting in carrying value adjustments on this debt obligation. The unamortized carrying value also includes an issuance discount.
(C)
Debt existing at the time of Hindalco's purchase of Novelis was recorded at fair value resulting in carrying value adjustments to our capital lease obligations in Novelis Switzerland.
(D)
The unamortized carrying value includes issuance discounts related to the difference resulting from the contractual rates of interest specified in the instruments that are lower than the market rates of interest upon issuance.
Principal repayment requirements for our total debt over the next five years and thereafter (excluding unamortized carrying value adjustments and using exchange rates as of September 30, 2015 for our debt denominated in foreign currencies) are as follows (in millions).
As of September 30, 2015
Amount
Short-term borrowings and current portion of long-term debt due within one year
$
1,003

2 years
83

3 years
1,200

4 years
26

5 years
20

Thereafter
3,109

Total
$
5,441

Senior Secured Credit Facilities
     As of September 30, 2015, the senior secured credit facilities consisted of (1) a $1.8 billion seven-year secured term loan credit facility (Term Loan Facility), (2) a $1.2 billion five-year asset based loan facility (ABL Revolver) and (3) a $200 million 15-month subordinated secured lien revolving facility (Subordinated Lien Revolver). As of September 30, 2015, $18 million of the Term Loan Facility is due within one year.
In June 2015, we entered into the Subordinated Lien Revolver with a maturity date of September 10, 2016. The interest rate for the Subordinated Lien Revolver is equal to the higher of LIBOR and 0.75% plus a spread of 3.50% or 3.25% depending on the total net leverage ratio then in effect. The Subordinated Lien Revolver requires us to maintain a secured net leverage ratio of 4 to 1. Pursuant to the terms of the Term Loan Facility, such secured net leverage maintenance covenant will automatically apply to the Term Loan Facility as well for so long as the Subordinated Lien Revolver is in effect.
In June 2015, we entered into a Refinancing Amendment Agreement with respect to our Term Loan Facility. The Amendment increases the principal amount of the Term Loan Facility from $1.7 billion to $1.8 billion and extends the final maturity from December 17, 2017 to June 2, 2022; provided that, in the event that any series of our senior unsecured notes remain outstanding 92 days prior to its maturity date, then the Term Loan Facility will mature on such date, subject to limited exceptions. The loans under the Term Loan Facility accrue interest at the higher of LIBOR and 0.75% plus a 3.25% spread. The Amendment eliminates the senior secured net leverage covenant that requires us to maintain a minimum senior secured net leverage ratio (subject to the terms disclosed in the preceding paragraph). In addition, certain negative covenants were amended to increase the Company’s operational flexibility, including increasing flexibility to enter into working capital management programs and incur other debt.


20

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





In October 2014, we amended and extended our ABL Revolver by entering into a $1.2 billion, five-year, senior secured ABL Revolver bearing an interest rate of LIBOR plus a spread of 1.50% to 2.00% plus a prime spread of 0.50% to 1.00% based on excess availability. The ABL Revolver has a provision that allows the facility to be increased by an additional $500 million. The ABL Revolver has various customary covenants including maintaining a minimum fixed charge coverage ratio of 1.25 to 1 if excess availability is less than the greater of (1) $110 million and (2) 12.5% of the lesser of (a) the maximum size of the ABL Revolver and (b) the borrowing base. The fixed charge coverage ratio will be equal to the ratio of (1) (a) ABL Revolver defined Earnings Before Interest, Taxes, Depreciation and Amortization less (b) maintenance capital expenditures less (c) cash taxes; to (2) (a) interest expense plus (b) scheduled principal payments plus (c) dividends to the Company's direct holding company to pay certain taxes, operating expenses and management fees and repurchases of equity interests from employees, officers and directors. The ABL Revolver matures on October 6, 2019; provided that, in the event that any of the Notes, the Term Loan Facility, or certain other indebtedness are outstanding (and not refinanced with a maturity date later than April 6, 2020) 90 days prior to their respective maturity dates, then the ABL Revolver will mature 90 days prior to the maturity date for the Notes, the Term Loan Facility or such other indebtedness, as applicable; unless excess availability under the ABL Revolver is at least (i) 25% of the lesser of (x) the total ABL Revolver commitment and (y) the then applicable borrowing base and (ii) 20% of the lesser of (x) the total ABL Revolver commitment and (y) the then applicable borrowing base, and a minimum fixed charged ratio test of at least 1.25 to 1 is met.
The senior secured credit facilities contain various affirmative covenants, including covenants with respect to our financial statements, litigation and other reporting requirements, insurance, payment of taxes, employee benefits and (subject to certain limitations) causing new subsidiaries to pledge collateral and guarantee our obligations. The senior secured credit facilities also include various customary negative covenants and events of default, including limitations on our ability to (1) make certain restricted payments, (2) incur additional indebtedness, (3) sell certain assets, (4) enter into sale and leaseback transactions, (5) make investments, loans and advances, (6) pay dividends or returns of capital and distributions beyond certain amounts, (7) engage in mergers, amalgamations or consolidations, (8) engage in certain transactions with affiliates, and (9) prepay certain indebtedness. Substantially all of our assets are pledged as collateral under the senior secured credit facilities. As of September 30, 2015, we were in compliance with the covenants in the Term Loan Facility, ABL Revolver and Subordinated Lien Revolver.
Short-Term Borrowings
As of September 30, 2015, our short-term borrowings were $901 million, consisting of $596 million of loans under our ABL Revolver, $98 million in Novelis Brazil loans, $90 million under our Subordinated Lien Revolver, $48 million (KRW 58 billion) in Novelis Korea loans, $33 million in Novelis Middle East and Africa loans, $27 million (CNY 173 million) in Novelis China loans, $7 million (VND 186 billion) in Novelis Vietnam loans and $2 million of other short-term borrowings.
As of September 30, 2015, $7 million of the ABL Revolver availability was utilized for letters of credit, and we had $187 million in remaining availability under the ABL Revolver.
As of September 30, 2015, $110 million under the Subordinated Lien Revolver was available.
Novelis Korea has entered into various short-term facilities, including revolving loan facilities and committed credit lines. As of September 30, 2015, we had $198 million (KRW 236 billion) in remaining availability under these facilities.
In fiscal year 2016, Novelis Middle East and Africa entered into various short-term facilities, including revolving facility agreements. As of September 30, 2015, we had $7 million in remaining availability under these facilities.
In fiscal year 2015, Novelis China entered into a committed facility. On September 16, 2015 the committed facility for Novelis China was increased to $31 million (200 million CNY). As of September 30, 2015, we had $4 million (CNY 27 million) in remaining availability under this facility.
Senior Notes
On December 17, 2010, we issued $1.1 billion in aggregate principal amount of 8.375% Senior Notes Due 2017 (the 2017 Notes) and $1.4 billion in aggregate principal amount of 8.75% Senior Notes Due 2020 (the 2020 Notes, and together with the 2017 Notes, the Notes).

21

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





The Notes contain customary covenants and events of default that will limit our ability and, in certain instances, the ability of certain of our subsidiaries to (1) incur additional debt and provide additional guarantees, (2) pay dividends or return capital beyond certain amounts and make other restricted payments, (3) create or permit certain liens, (4) make certain asset sales, (5) use the proceeds from the sales of assets and subsidiary stock, (6) create or permit restrictions on the ability of certain of the Company's subsidiaries to pay dividends or make other distributions to the Company, (7) engage in certain transactions with affiliates, (8) enter into sale and leaseback transactions, (9) designate subsidiaries as unrestricted subsidiaries and (10) consolidate, merge or transfer all or substantially all of our assets and the assets of certain of our subsidiaries. During any future period in which either Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. have assigned an investment grade credit rating to the Notes and no default or event of default under the indenture has occurred and is continuing, most of the covenants will be suspended. The Notes include a cross-acceleration event of default triggered if (1) any other indebtedness with an aggregate principal amount of more than $100 million is (1) accelerated prior to its maturity or (2) not repaid at its maturity. As of September 30, 2015, we were in compliance with the covenants in the Notes. The Notes also contain customary call protection provisions for our bond holders that extend through December 2016 for the 2017 Notes and through December 2018 for the 2020 Notes.
Korean Bank Loans
As of September 30, 2015, Novelis Korea had $72 million (KRW 86 billion) of outstanding long-term loans with various banks due within one year. All loans have variable interest rates with base rates tied to Korea's 91-day CD rate plus an applicable spread ranging from 0.80% to 1.58%.
Brazil BNDES Loans
Novelis Brazil entered into loan agreements with Brazil’s National Bank for Economic and Social Development (the BNDES long-term loans) related to the plant expansion in Pindamonhangaba, Brazil (Pinda). As of September 30, 2015 there are $1 million of BNDES long-term loans due within one year.    
Other Long-term debt
In December 2004, we entered into a 15-year capital lease obligation with Alcan Inc. for assets in Sierre, Switzerland, which has an interest rate of 7.5% and fixed quarterly payments of CHF 1.7 million, (USD $1.8 million).
During fiscal 2013 and 2014, Novelis Inc. entered into various capital lease arrangements to upgrade and expand our information technology infrastructure.
As of September 30, 2015, we had $3 million of other debt, including certain capital lease obligations, with due dates through December 2020.
Interest Rate Swaps
We use interest rate swaps to manage our exposure to changes in benchmark interest rates which impact our variable-rate debt. See Note 11- Financial Instruments and Commodity Contracts for further information about these interest rate swaps.

22

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





8.    SHARE-BASED COMPENSATION
The Company's board of directors has authorized long term incentive plans (LTIPs), under which Hindalco stock appreciation rights (Hindalco SARs), Novelis stock appreciation rights (Novelis SARs), and phantom restricted stock units (RSUs) are granted to certain executive officers and key employees. The RSUs are based on Hindalco's stock price. The Hindalco SARs and Novelis SARs vest at the rate of 25% per year, subject to the achievement of an annual performance target, and expire 7 years from their original grant date. The performance criterion for vesting of both the Hindalco SARs and Novelis SARs is based on the actual overall Novelis operating EBITDA compared to the target established and approved each fiscal year. The RSUs vest in full three years from the grant date, subject to continued employment with the Company, but are not subject to performance criteria.
During the six months ended September 30, 2015, we granted 1,816,560 RSUs, 6,329,281 Hindalco SARs, and 608,289 Novelis SARs. Total compensation expense (benefit) related to these plans for the respective periods is less than $1 million and $3 million for the three months ended September 30, 2015, and 2014; and $(6) million and $7 million for the six months ended September 30, 2015 and 2014, respectively. These amounts are included in “Selling, general and administrative expenses” or "Cost of goods sold (exclusive of depreciation and amortization)" in our condensed consolidated statements of operations. As the performance criteria for fiscal years 2017, 2018 and 2019 have not yet been established, measurement periods for Hindalco SARs and Novelis SARs relating to those periods have not yet commenced. As a result, only compensation expense for vested and current year Hindalco SARs and Novelis SARs has been recorded.    
The cash payments made to settle SAR liabilities were $2 million and $7 million in the six months ended September 30, 2015 and 2014, respectively. Total cash payments made to settle Hindalco RSUs were $5 million and $3 million in the six months ended September 30, 2015 and 2014, respectively. Unrecognized compensation expense related to the non-vested Hindalco SARs (assuming all future performance criteria are met) was $3 million, which is expected to be recognized over a weighted average period of 2.3 years. Unrecognized compensation expense related to the non-vested Novelis SARs (assuming all future performance criteria are met) was $14 million, which is expected to be recognized over a weighted average period of 2.4 years. Unrecognized compensation expense related to the RSUs was $3 million, which will be recognized over the remaining weighted average vesting period of 1.7 years.







23

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)






9.    POSTRETIREMENT BENEFIT PLANS
Our pension obligations relate to: (1) funded defined benefit pension plans in the U.S., Canada, Switzerland and the U.K.; (2) unfunded defined benefit pension plans in Germany; (3) unfunded lump sum indemnities payable upon retirement to employees in France, Malaysia and Italy; and (4) partially funded lump sum indemnities in South Korea. Our other postretirement obligations (Other Benefits, as shown in certain tables below) include unfunded health care and life insurance benefits provided to retired employees in the U.S., Canada and Brazil.
Components of net periodic benefit cost (credit) for all of our postretirement benefit plans are shown in the tables below (in millions).
 
Pension Benefit Plans
 
Other Benefit Plans
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Service cost
$
12

 
$
11

 
$
1

 
$
1

Interest cost
14

 
17

 
2

 
2

Expected return on assets
(17
)
 
(18
)
 

 

Amortization — losses, net
9

 
6

 
1

 
2

Amortization — prior service credit, net

 

 
(7
)
 
(9
)
Net periodic benefit cost (credit)
$
18

 
$
16

 
$
(3
)
 
$
(4
)
 
 
 
 
 
 
 
 
 
Pension Benefit Plans
 
Other Benefits
 
Six Months Ended September 30,
 
Six Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Service cost
$
24

 
$
22

 
$
2

 
$
2

Interest cost
29

 
34

 
3

 
3

Expected return on assets
(34
)
 
(35
)
 

 

Amortization — losses
18

 
12

 
2

 
4

Amortization — prior service credit, net
(1
)
 
(1
)
 
(14
)
 
(19
)
Termination benefits / curtailments

 
1

 

 
(2
)
Net periodic benefit cost (credit)
$
36

 
$
33

 
$
(7
)
 
$
(12
)
The average expected long-term rate of return on plan assets is 5.6% in fiscal 2016.
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 Ended September 30,
 
Six Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Funded pension plans
$
3

 
$
8

 
$
6

 
$
12

Unfunded pension plans
3

 
3

 
5

 
4

Savings and defined contribution pension plans
6

 
5

 
13

 
11

Total contributions
$
12

 
$
16

 
$
24

 
$
27

During the remainder of fiscal 2016, we expect to contribute an additional $16 million to our funded pension plans, $5 million to our unfunded pension plans and $9 million to our savings and defined contribution plans.


24

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





10.    CURRENCY LOSSES (GAINS)
The following currency losses (gains) are included in “Other (income) expense, net” in the accompanying condensed consolidated statements of operations (in millions).
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Gain on remeasurement of monetary assets and liabilities, net
$
(46
)
 
$
(13
)
 
$
(51
)
 
$
(2
)
Loss released from accumulated other comprehensive loss
1

 
1

 
1

 
1

Loss recognized on balance sheet remeasurement currency exchange contracts, net
48

 
13

 
49

 
2

Currency losses (gains), net
$
3

 
$
1

 
$
(1
)
 
$
1

The following currency losses are included in “Accumulated other comprehensive loss” and “Noncontrolling interests” in the accompanying condensed consolidated balance sheets (in millions).
 
Six Months Ended September 30, 2015
 
Year Ended March 31, 2015
 
Cumulative currency translation adjustment — beginning of period
$
(214
)
 
$
90

Effect of changes in exchange rates
(19
)
 
(304
)
Cumulative currency translation adjustment — end of period
$
(233
)
 
$
(214
)
 


25

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





11.    FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS
The following tables summarize the gross fair values of our financial instruments and commodity contracts as of September 30, 2015 and March 31, 2015 (in millions).
 
September 30, 2015
 
Assets
 
Liabilities
 
Net Fair Value

 
Current
 
Noncurrent (A)
 
Current
 
Noncurrent (A)
 
Assets / (Liabilities)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
Aluminum contracts
$
30

 
$

 
$
(1
)
 
$

 
$
29

Currency exchange contracts

 

 
(54
)
 
(18
)
 
(72
)
Energy contracts

 

 
(5
)
 
(1
)
 
(6
)
Interest rate swaps

 

 
(1
)
 

 
(1
)
Net investment hedges
 
 
 
 
 
 
 
 
 
Currency exchange contracts
3

 

 

 

 
3

Fair value hedges
 
 
 
 
 
 
 
 
 
Aluminum contracts

 

 
(1
)
 

 
(1
)
Total derivatives designated as hedging instruments
$
33

 
$

 
$
(62
)
 
$
(19
)
 
$
(48
)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
Aluminum contracts
51

 

 
(40
)
 

 
11

Currency exchange contracts
15

 

 
(42
)
 

 
(27
)
Energy contracts
3

 

 
(15
)
 
(2
)
 
(14
)
Total derivatives not designated as hedging instruments
69

 

 
(97
)
 
(2
)
 
(30
)
Total derivative fair value
$
102

 
$

 
$
(159
)
 
$
(21
)
 
$
(78
)
 

 
March 31, 2015
 
Assets
 
Liabilities
 
Net Fair Value

 
Current
 
Noncurrent (A)
 
Current
 
Noncurrent(A)
 
Assets / (Liabilities)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
Aluminum contracts
$
15

 
$

 
$
(5
)
 
$

 
$
10

Currency exchange contracts
4

 

 
(42
)
 
(15
)
 
(53
)
Energy contracts

 

 
(6
)
 
(2
)
 
(8
)
Interest rate swaps

 

 
(1
)
 

 
(1
)
Net investment hedges
 
 
 
 
 
 
 
 
 
Currency exchange contracts
5

 

 

 

 
5

Total derivatives designated as hedging instruments
$
24

 
$

 
$
(54
)
 
$
(17
)
 
$
(47
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Aluminum contracts
24

 

 
(26
)
 

 
(2
)
Currency exchange contracts
26

 

 
(54
)
 

 
(28
)
Energy contracts
3

 

 
(15
)
 
(7
)
 
(19
)
Total derivatives not designated as hedging instruments
53

 

 
(95
)
 
(7
)
 
(49
)
Total derivative fair value
$
77

 
$

 
$
(149
)
 
$
(24
)
 
$
(96
)
 

26

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





(A)
The noncurrent portions of derivative assets and liabilities are included in “Other long-term assets-third parties” and in “Other long-term liabilities”, respectively, in the accompanying condensed consolidated balance sheets.
Aluminum
We use derivative instruments to preserve our conversion margins and manage the timing differences associated with metal price lag. We use over-the-counter derivatives indexed to the London Metals Exchange (LME) (referred to as our "aluminum derivative forward contracts") to reduce our exposure to fluctuating metal prices associated with the period of time between the pricing of our purchases of inventory and the pricing of the sale of that inventory to our customers, which is known as "metal price lag." We also purchase forward LME aluminum contracts simultaneously with our sales contracts with customers that contain fixed metal prices. These LME aluminum forward contracts directly hedge the economic risk of future metal price fluctuations to better match the selling price of the metal with the purchase price of the metal. The volatility in local market premiums also results in metal price lag, although we do not have derivative contracts associated with local market premiums as these are not prevalent in the market.
Price risk exposure arises from commitments to sell aluminum in future periods at fixed prices. We identify and designate certain LME aluminum forward contracts as fair value hedges of the metal price risk associated with fixed price sales commitments that qualify as firm commitments. Such exposures do not extend beyond two years in length. We had 10 kt and 2 kt of outstanding aluminum forward purchase contracts designated as fair value hedges as of September 30, 2015 and March 31, 2015, respectively. One kilotonne (kt) is 1,000 metric tonnes.
The following table summarizes the amount of gain (loss) recognized on fair value hedges of metal price risk (in millions).
 
Amount of Gain (Loss)
Recognized on Changes in Fair Value
 
Amount of Gain (Loss)
Recognized on Changes in Fair Value
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Fair Value Hedges of Metal Price Risk
 
 
 
 
 
 
 
Derivative Contracts
$
(1
)
 
$

 
$
(1
)
 
$
1

Designated Hedged Items
1

 

 
1

 
(1
)
Net Ineffectiveness (A)
$

 
$

 
$

 
$

(A)
Effective portion is recorded in "Net sales" and net ineffectiveness in "Other (income) expense, net." There was no amount excluded from the assessment of hedge effectiveness related to Fair Value Hedges.
Price risk arises due to fluctuating aluminum prices between the time the sales order is committed and the time the order is shipped. We identify and designate certain LME aluminum forward purchase contracts as cash flow hedges of the metal price risk associated with our future metal purchases that vary based on changes in the price of aluminum. Such exposures do not extend beyond two years in length. We had 14 kt and 1 kt of outstanding aluminum forward purchase contracts designated as cash flow hedges as of September 30, 2015 and March 31, 2015, respectively.
Price risk exposure arises due to the timing lag between the LME based pricing of raw material aluminum purchases and the LME based pricing of finished product sales. We identify and designate certain LME aluminum forward sales contracts as cash flow hedges of the metal price risk associated with our future metal sales that vary based on changes in the price of aluminum. Generally, such exposures do not extend beyond one year in length. We had 295 kt and 285 kt of outstanding aluminum forward sales contracts designated as cash flow hedges as of September 30, 2015 and March 31, 2015, respectively.
The remaining aluminum derivative contracts are not designated as accounting hedges. As of September 30, 2015 and March 31, 2015, we had 98 kt and 36 kt, respectively, of outstanding aluminum sales contracts not designated as hedges. The average duration of undesignated contracts is less than six months.
The following table summarizes our notional amount (in kt). 

27

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





 
September 30,
2015
 
March 31,
2015
Hedge Type
 
 
 
Purchase (Sale)
 
 
 
Cash flow purchases
14

 
1

Cash flow sales
(295
)
 
(285
)
Fair value
10

 
2

Not designated
(98
)
 
(36
)
Total, net
(369
)
 
(318
)
Foreign Currency
We use foreign exchange forward contracts, cross-currency swaps and options 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 operations.
We use foreign currency contracts to hedge expected future foreign currency transactions, which include capital expenditures. These contracts cover the same periods as known or expected exposures. We had total notional amounts of $707 million and $590 million in outstanding foreign currency forwards designated as cash flow hedges as of September 30, 2015 and March 31, 2015, respectively.
We use foreign currency contracts to hedge our foreign currency exposure to our net investment in foreign subsidiaries. We had $22 million and $28 million of outstanding foreign currency forwards designated as net investment hedges as of September 30, 2015 and March 31, 2015, respectively.
As of September 30, 2015 and March 31, 2015, we had outstanding currency exchange contracts with a total notional amount of $555 million and $868 million, respectively, which were not designated as hedges. Contracts representing the majority of this notional amount will mature during the third quarter of fiscal 2016.
Energy
We own an interest in an electricity swap, which we formerly designated as a cash flow hedge of our exposure to fluctuating electricity prices. As of March 31, 2011, due to significant credit deterioration of our counterparty, we discontinued hedge accounting for this electricity swap. Less than 1 million of notional megawatt hours remained outstanding as of September 30, 2015, and the fair value of this swap was a liability of $12 million as of September 30, 2015. As of March 31, 2015, the fair value of this electricity swap was a liability of $16 million.
We use natural gas forward purchase contracts to manage our exposure to fluctuating energy prices in North America. We had 6 million MMBTUs designated as cash flow hedges as of September 30, 2015, and the fair value was a liability of $6 million. There were 7 million MMBTUs of natural gas forward purchase contracts designated as cash flow hedges as of March 31, 2015 and the fair value was a liability of $8 million. As of September 30, 2015 and March 31, 2015, we had 1 million and 2 million of MMBTUs, respectively, of natural gas forward purchase contracts that were not designated as hedges. The fair value as of September 30, 2015 and March 31, 2015 was a liability of $2 million and a liability of $3 million, respectively, for the forward purchase contracts not designated as hedges. The average duration of undesignated contracts is less than two years in length. One MMBTU is the equivalent of one decatherm, or one million British Thermal Units.
Interest Rate
As of September 30, 2015, we swapped $183 million (KRW 219 billion) floating rate loans to a weighted average fixed rate of 3.23%. All swaps expire concurrent with the maturity of the related loans. As of September 30, 2015 and March 31, 2015, $183 million (KRW 219 billion) and $78 million (KRW 86 billion), respectively, were designated as cash flow hedges.



28

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)





(Loss) Gain Recognition
The following table summarizes the gains (losses) associated with the change in fair value of derivative instruments not designated as hedges and the ineffectiveness of designated derivatives recognized in “Other (income) expense, net” (in millions). Gains (losses) recognized in other line items in the condensed consolidated statement of operations are separately disclosed within this footnote.  
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Derivative Instruments Not Designated as Hedges
 
 
 
 
 
 
 
Aluminum contracts (C)
$
9

 
$
(20
)
 
$
40

 
$
(27
)
Currency exchange contracts
(55
)
 
(14
)
 
(54
)
 
(2
)
Energy contracts (A)
2

 
2

 
2

 
4

Loss recognized in "Other (income) expense, net"
(44
)
 
(32
)
 
(12
)
 
(25
)
Derivative Instruments Designated as Hedges
 
 
 
 
 
 
 
Gain recognized in "Other (income) expense, net" (B)
22

 
6

 
16

 
8

Total (loss) gain recognized in "Other (income) expense, net"
$
(22
)
 
$
(26
)
 
$
4

 
$
(17
)
Balance sheet remeasurement currency exchange contract losses
$
(49
)
 
$
(14
)
 
$
(50
)
 
$
(3
)
Realized gains (losses), net
42

 
(11
)
 
34

 
(14
)
Unrealized (losses) gains on other derivative instruments, net (C)
(15
)
 
(1
)
 
20

 

Total (loss) gain recognized in "Other (income) expense, net"
$
(22
)
 
$
(26
)
 
$
4

 
$
(17
)
 
(A)
Includes amounts related to de-designated electricity swap and natural gas swaps not designated as hedges.
(B)
Amount includes: forward market premium/discount excluded from hedging relationship and ineffectiveness on designated aluminum and foreign currency capital expenditure contracts; releases to income from AOCI on balance sheet remeasurement contracts; and ineffectiveness of fair value hedges involving aluminum derivatives.
(C)
During the three and six months ended September 30, 2015, the level of undesignated aluminum derivatives was higher due to the recent volatility in the local market premium component of our net selling prices.
The following table summarizes the impact on AOCI and earnings of derivative instruments designated as cash flow and net investment hedges (in millions). Within the next twelve months, we expect to reclassify $46 million of losses from AOCI to earnings, before taxes.
 
Amount of Gain (Loss)
Recognized in OCI
(Effective Portion)
 
Amount of Gain  (Loss)
Recognized in OCI
(Effective Portion)
 
Amount of Gain  (Loss)
Recognized in “Other  (Income) Expense, net” 
(Ineffective and
Excluded Portion)
 
Amount of Gain  (Loss)
Recognized in “Other  (Income) Expense, net”
 (Ineffective  and
Excluded Portion)
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Cash flow hedging derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aluminum contracts
$
21

 
$
(27
)
 
$
59

 
$
(48
)
 
$
22

 
$
7

 
$
16

 
$
10

Currency exchange contracts
(51
)
 
(19
)
 
(43
)
 
13

 

 

 

 
(1
)
Energy contracts
(2
)
 
(3
)
 
(2
)
 
(3
)
 

 

 

 

Interest Rate Swaps
1

 

 

 

 

 

 

 

Total cash flow hedging derivatives
$
(31
)
 
$