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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
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, GA
  30326
(Address of principal executive offices)   (Zip Code)
(404760-4000
(Registrant’s telephone number, including area code) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
N/A N/A N/A
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  ¨    No  
The registrant is a voluntary filer and is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. However, the registrant 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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer Smaller reporting company
¨
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  
As of November 8, 2020, 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)
 
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2020 2019 2020 2019
Net sales $ 2,978  $ 2,851  $ 5,404  $ 5,776 
Cost of goods sold (exclusive of depreciation and amortization) 2,384  2,348  4,485  4,762 
Selling, general and administrative expenses 129  122  251  249 
Depreciation and amortization 141  88  259  176 
Interest expense and amortization of debt issuance costs 70  61  140  126 
Research and development expenses 18  18  37  37 
Restructuring and impairment, net 7  32  8  33 
Equity in net income of non-consolidated affiliates
(1)   (2)  
Business acquisition and other related costs   12  11  29 
Other expenses, net
18  2  93  6 
2,766  2,683  5,282  5,418 
Income from continuing operations before income tax provision
212  168  122  358 
Income tax provision
68  45  39  108 
Net income from continuing operations
144  123  83  250 
Loss from discontinued operations, net of tax
(11)   (29)  
Loss on sale of discontinued operations, net of tax (170)   (170)  
Net loss from discontinued operations (181)   (199)  
Net (loss) income
(37) 123  (116) 250 
Net income attributable to noncontrolling interests
       
Net (loss) income attributable to our common shareholder
$ (37) $ 123  $ (116) $ 250 
____________________
See accompanying notes to the condensed consolidated financial statements.

3


Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
 
 
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2020 2019 2020 2019
Net (loss) income
$ (37) $ 123  $ (116) $ 250 
Other comprehensive income:
Currency translation adjustment 96  (86) 151  (81)
Net change in fair value of effective portion of cash flow hedges 6  (36) (71) (16)
Net change in pension and other benefits 79  18  87  26 
Other comprehensive income (loss) before income tax effect 181  (104) 167  (71)
Income tax provision (benefit) related to items of other comprehensive income 21  (5) 2  3 
Other comprehensive income (loss), net of tax 160  (99) 165  (74)
Comprehensive income 123  24  49  176 
Comprehensive income attributable to noncontrolling interest, net of tax 2  1  3  3 
Comprehensive income attributable to our common shareholder $ 121  $ 23  $ 46  $ 173 
____________________
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,
2020
March 31,
2020
ASSETS
Current assets:
Cash and cash equivalents $ 1,627  $ 2,392 
Accounts receivable, net
— third parties (net of allowance for uncollectible accounts of $7 and $8 as of September 30, 2020 and March 31, 2020, respectively)
1,317  1,067 
— related parties 163  164 
Inventories 1,639  1,409 
Prepaid expenses and other current assets 164  145 
Fair value of derivative instruments 65  202 
Assets held for sale 5  5 
Current assets of discontinued operations 256   
Total current assets 5,236  5,384 
Property, plant and equipment, net 4,625  3,580 
Goodwill 1,023  607 
Intangible assets, net 676  299 
Investment in and advances to non–consolidated affiliates 812  760 
Deferred income tax assets 181  140 
Other long–term assets
— third parties 343  219 
— related parties 2   
Long–term assets of discontinued operations 214   
Total assets $ 13,112  $ 10,989 
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Current portion of long–term debt $ 55  $ 19 
Short–term borrowings 393  176 
Accounts payable
— third parties 1,832  1,732 
— related parties 220  176 
Fair value of derivative instruments 153  214 
Accrued expenses and other current liabilities 616  613 
Current liabilities of discontinued operations 144   
Total current liabilities 3,413  2,930 
Long–term debt, net of current portion 6,767  5,345 
Deferred income tax liabilities 126  194 
Accrued postretirement benefits 1,023  930 
Other long–term liabilities 244  229 
Long–term liabilities of discontinued operations 129   
Total liabilities 11,702  9,628 
Commitments and contingencies
Shareholder’s equity:
Common stock, no par value; Unlimited number of shares authorized; 1,000 shares issued and outstanding as of September 30, 2020 and March 31, 2020
   
Additional paid–in capital 1,404  1,404 
Retained earnings 512  628 
Accumulated other comprehensive loss (458) (620)
Total equity of our common shareholder 1,458  1,412 
Noncontrolling interests (48) (51)
Total equity 1,410  1,361 
Total liabilities and equity $ 13,112  $ 10,989 
____________________
See accompanying notes to the condensed consolidated financial statements. Refer to Note 7 – Consolidation for information on our consolidated variable interest entity (VIE).
5


Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 
Six Months Ended
September 30,
in millions 2020 2019
OPERATING ACTIVITIES
Net (loss) income $ (116) $ 250 
Net loss from discontinued operations (199)  
Net income from continuing operations $ 83  $ 250 
Adjustments to determine net cash provided by operating activities:
Depreciation and amortization 259  176 
Loss (gain) on unrealized derivatives and other realized derivatives in investing activities, net
11  (21)
Gain on sale of assets
(2) (2)
Impairment charges   11 
Deferred income taxes, net (33) 32 
Equity in net income of non-consolidated affiliates (2)  
Amortization of debt issuance costs and carrying value adjustments 14  9 
Other, net (1)  
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures):
Accounts receivable 52  51 
Inventories 195  (22)
Accounts payable (70) (52)
Other assets 52  (2)
Other liabilities (189) (128)
Net cash provided by operating activities - continuing operations
369  302 
Net cash used in operating activities - discontinued operations
(21)  
Net cash provided by operating activities
$ 348  $ 302 
INVESTING ACTIVITIES
Capital expenditures (222) (305)
Acquisition of business, net of cash and restricted cash acquired (2,614)  
Proceeds from sales of assets, third party, net of transaction fees and hedging
2  3 
Proceeds from investment in and advances to non-consolidated affiliates, net
8  11 
(Outflows) proceeds from the settlement of derivative instruments, net
(1) 3 
Other 5  7 
Net cash used in investing activities - continuing operations
(2,822) (281)
Net cash provided by investing activities - discontinued operations
207   
Net cash used in investing activities
$ (2,615) $ (281)
FINANCING ACTIVITIES
Proceeds from issuance of long-term and short-term borrowings 1,910  12 
Principal payments of long-term and short-term borrowings (30) (11)
Revolving credit facilities and other, net (358) (23)
Debt issuance costs (24) (2)
Net cash provided by (used in) financing activities - continuing operations
1,498  (24)
Net cash used in financing activities - discontinued operations
(2)  
Net cash provided by (used in) financing activities
$ 1,496  $ (24)
Net decrease in cash, cash equivalents and restricted cash
(771) (3)
Effect of exchange rate changes on cash 19  (11)
Cash, cash equivalents and restricted cash — beginning of period 2,402  960 
Cash, cash equivalents and restricted cash — end of period $ 1,650  $ 946 
Cash and cash equivalents $ 1,627  $ 935 
Restricted cash (Included in "Other long–term assets")
14  11 
Restricted cash (Included in "Prepaid expenses and other current assets")
9   
Cash and cash equivalents of discontinued operations    
Cash, cash equivalents and restricted cash — end of period $ 1,650  $ 946 
Supplemental Disclosures:
Accrued capital expenditures as of September 30
$ 52  $ 57 
Accrued merger consideration as of September 30
10   
____________________
See accompanying notes to the condensed consolidated financial statements.
6


Novelis Inc.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (unaudited)

Equity of our Common Shareholder
Common Stock Additional
Paid-in Capital
Retained Earnings Accumulated
Other
Comprehensive Income (Loss)
Non-
controlling
Interest
Total Equity
in millions, except number of shares Shares Amount
Balance as of March 31, 2019
1,000  $   $ 1,404  $ 208  $ (506) $ (35) $ 1,071 
Net income attributable to our common shareholder
—  —  —  250  —  —  250 
Currency translation adjustment included in AOCI —  —  —  —  (81) —  (81)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $5 million included in AOCI
—  —  —  —  (11) —  (11)
Change in pension and other benefits, net of tax provision of $8 million included in AOCI
—  —  —  —  15  3  18 
Balance as of September 30, 2019
1,000  $   $ 1,404  $ 458  $ (583) $ (32) $ 1,247 
Equity of our Common Shareholder    
Common Stock Additional
Paid-in Capital
Retained Earnings Accumulated
Other
Comprehensive Income (Loss)
Non-
controlling
Interest
Total Equity
Shares Amount
Balance as of March 31, 2020
1,000  $   $ 1,404  $ 628  $ (620) $ (51) $ 1,361 
Net loss attributable to our common shareholder
—  —  —  (116) —  —  (116)
Currency translation adjustment included in AOCI —  —  —  —  151  —  151 
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $19 million included in AOCI
—  —  —  —  (52) —  (52)
Change in pension and other benefits, net of tax provision of $21 million included in AOCI
—  —  —  —  63  3  66 
Balance as of September 30, 2020
1,000  $   $ 1,404  $ 512  $ (458) $ (48) $ 1,410 
Equity of our Common Shareholder
Common Stock Additional
Paid-in Capital
Retained Earnings Accumulated
Other
Comprehensive Income (Loss)
Non-
controlling
Interest
Total Equity
Shares Amount
Balance as of June 30, 2019
1,000  $   $ 1,404  $ 335  $ (483) $ (33) $ 1,223 
Net income attributable to our common shareholder
—  —  —  123  —  —  123 
Currency translation adjustment included in AOCI —  —  —  —  (86) —  (86)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $11 million included in AOCI
—  —  —  —  (25) —  (25)
Change in pension and other benefits, net of tax provision of $6 million included in AOCI
—  —  —  —  11  1  12 
Balance as of September 30, 2019
1,000  $   $ 1,404  $ 458  $ (583) $ (32) $ 1,247 
Equity of our Common Shareholder
Common Stock Additional
Paid-in Capital
Retained Earnings Accumulated
Other
Comprehensive Income (Loss)
Non-
controlling
Interest
Total Equity
Shares Amount
Balance as of June 30, 2020
1,000  $   $ 1,404  $ 549  $ (616) $ (50) $ 1,287 
Net loss attributable to our common shareholder
—  —  —  (37) —  —  (37)
Currency translation adjustment included in AOCI —  —  —  —  96  —  96 
Change in fair value of effective portion of cash flow hedges, net of tax provision of $2 million included in AOCI
—  —  —  —  4  —  4 
Change in pension and other benefits, net of tax provision of $19 million included in AOCI
—  —  —  —  58  2  60 
Balance as of September 30, 2020
1,000  $   $ 1,404  $ 512  $ (458) $ (48) $ 1,410 
____________________
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.
Organization and Description of Business
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, aerospace, electronics, architectural, and industrial product markets. We have recycling operations in many of our plants to recycle post-consumer aluminum, such as used-beverage cans and post-industrial aluminum, such as class scrap. As of September 30, 2020, we had manufacturing operations in nine countries on four continents: North America, South America, Asia, and Europe, through 33 operating facilities, which may include any combination of hot or cold rolling, finishing, casting, or recycling capabilities. We have recycling operations in 18 of our operating facilities.
The March 31, 2020 condensed consolidated balance sheet data was derived from the March 31, 2020 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 Form 10-K for the fiscal year ended March 31, 2020 filed with the United States Securities and Exchange Commission (SEC) on May 7, 2020. 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 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 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. The difference between consolidation and the equity method impacts certain of our financial ratios because of the presentation of the detailed line items reported in the condensed consolidated financial statements for consolidated entities, compared to a two-line presentation of "Investment in and advances to non–consolidated affiliates" and "Equity in net income 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 and 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) impairment of goodwill; (2) impairment of long lived assets and other intangible assets; (3) impairment of equity investments; (4) actuarial assumptions related to pension and other postretirement benefit plans; (5) tax uncertainties and valuation allowances; (6) assessment of loss contingencies, including environmental and litigation liabilities; (7) the fair value of derivative financial instruments; and (8) the fair value of the contingent consideration resulting from the sale of Duffel. 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.
For more information regarding our use of estimates in the determination of fair values of assets acquired and liabilities assumed in the acquisition of Aleris Corporation (Aleris), see Note 2 – Business Combination.
Risks & Uncertainty resulting from COVID-19
Beginning late in the fourth quarter of fiscal year ended March 31, 2020 and carrying into the current fiscal year, a novel strain of the coronavirus, or COVID-19, and its unprecedented negative economic implications, affected production and sales across a range of industries, including the automotive industry. Since then, the spread of COVID-19 has developed into a global pandemic, significantly affecting the economies of most countries around the world.
8

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Our global operations, similar to those of many other large, multi-national corporations, were also impacted. We were required to partially shut down or temporarily close certain facilities in the United States and abroad to comply with state orders and governmental decrees and adjust schedules at some of our facilities based on customer demand. The plant shut downs and adjusted schedules resulting from COVID-19 resulted in disruptions to our supply chain, interruptions to our production, and delays of shipments to our customers, mainly during the first quarter of the current fiscal year.
While much of our customer demand and shipments recovered in the majority of our end markets during the second fiscal quarter, the overall extent of the impact of the COVID-19 pandemic on our operating results, cash flows, liquidity, and financial condition will depend on certain developments, including the duration and spread of the outbreak and its impact on our customers, employees, and vendors. We believe this will be primarily driven by the severity and duration of the pandemic, the pandemic’s impact on the US and global economies and the timing, scope, and effectiveness of federal, state, and local governmental responses.
Our application of U.S. GAAP requires the pervasive use of estimates and assumptions in preparing the unaudited condensed consolidated financial statements. The global COVID-19 pandemic has required greater use of estimates and assumptions. More specifically, those estimates and assumptions that are utilized in our forecasted cash flows that form the basis in developing the fair values utilized in impairment assessments as well as annual effective tax rate. This has included assumptions as to the duration and severity of the pandemic, timing and amount of demand shifts amongst sales channels (primarily in the automotive industry), workforce availability, and supply chain continuity. We have experienced short-term disruptions and anticipate such disruptions may continue for the foreseeable future, but anticipate an eventual return to normal demand. Although we have made our best estimates based upon current information, the effects of the COVID-19 pandemic on our business may result in future changes to our estimates and assumptions based on its duration. Actual results could materially differ from the estimates and assumptions developed by management. If so, we may be subject to future impairment charges as well as changes to recorded reserves and valuations.
Business Combinations
Occasionally, we may enter into business combinations. In accordance with Accounting Standards Codification (ASC) Topic 805, Business Combinations (ASC 805), we generally recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree at their fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset valuation allowances, liabilities including those related to debt, pensions and other postretirement plans, uncertain tax positions, contingent consideration, and contingencies. Significant estimates and assumptions include subjective and/or complex judgements regarding items such as discount rates, customer attrition rates, economic lives, and other factors, including estimating future cash flows that we expect to generate from the acquired assets.
The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record future impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased or the acquired asset could be impaired.
Reclassifications and Revisions of Previously Issued Financial Statements
Certain prior period amounts have been reclassified to conform with current period presentations or as a result of recently adopted accounting standards.
During the preparation of the consolidated financial statements for the fiscal year ended March 31, 2020, we identified a misstatement related to the sale of land within the previously issued Form 10-Ks for the year ended March 31, 2019 and previously issued Form 10-Qs for the quarters ended June 30, 2019 and September 30, 2019. The previously disclosed amounts for "Property, plant and equipment, net" and "Retained earnings" were understated by $5 million in the aforementioned periods.
9

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
We assessed the materiality of the misstatement and concluded it was not material to the Company’s previously issued financial statements for the year ended March 31, 2019 and that amendments of previously filed financial statements were therefore not required. However, we elected to revise the previously reported amounts in the condensed consolidated statements of shareholder's equity to correct the misstatement. This revision applies to the previously reported amounts for "Retained earnings" in the condensed consolidated statements of shareholder's equity for the interim periods ended June 30, 2019 and September 30, 2019 included within this filing.
In addition, during the preparation of the condensed consolidated financial statements for the period ended September 30, 2020, we identified a misstatement related to the calculation of accrued capital expenditures within the statement of cash flows in our previously issued Form 10-Ks for the years ended March 31, 2019 and March 31, 2020 and the interim periods within these years. As a result, the previously reported amounts for "Capital expenditures" were understated by $5 million and changes in accounts payable were overstated by $5 million for the six months ending September 30, 2019.
We assessed the materiality of the misstatement and concluded it was not material to the company's previously issued financial statements for the years ended March 31, 2019 and March 31, 2020 and the interim periods within these years. However, we elected to revise the previously reported amounts for "Capital expenditures" and changes in accounts payable within the condensed consolidated statement of cash flows and "Capital expenditures" within Note 19 – Segment, Geographical Area, Major Customer and Major Supplier Information.
10

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Recently Adopted Accounting Standards
Standard Adoption Description Disclosure Impact
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
(Issued March 2020)
April 1, 2020 The standard provides transitional guidance and optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships which reference LIBOR or another reference rate expected to be discontinued. The Company has evaluated the impact of this standard, noting that there is no impact to our current contracts or hedging relationships. The Company will monitor the impact on future transactions through December 31, 2022.
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (Issued December 2019)
April 1, 2020
The standard simplifies the accounting for income taxes by eliminating certain exceptions in ASC 740 related to the methodology for calculating income taxes in an interim period. It also clarifies and simplifies other aspects of the accounting for income taxes, improving the consistent application and simplification of U.S. GAAP.
The Company elected to early adopt the standard on a prospective basis. The most significant impact to the Company is the removal of a limit on the tax benefit recognized on pre-tax losses in interim periods. The adoption of this standard removed the limit on the tax benefit recognized on pre-tax losses during an interim period, which allowed the Company to recognize a higher tax benefit this quarter than previously allowable.
ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities (Issued October 2018)
April 1, 2020 This standard eliminates the requirement that entities consider indirect interests held through related parties under common control in their entirety when assessing whether a decision-making fee is a variable interest. Instead, the reporting entity must consider such indirect interests on a proportionate basis. The Company has evaluated the impact of this standard, noting that there is no impact to our current variable interests. We have updated our accounting policies to ensure appropriate treatment if these are entered into in the future. As such, the adoption of this standard did not have an impact on the condensed consolidated financial statements or disclosures.
ASU 2018-15, Intangibles-Goodwill and Other Internal-Use Software (Topic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract (Issued August 2018)
April 1, 2020 This standard requires capitalization of implementation costs incurred in a hosting arrangement that is a service contract. This change will better align with requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected. The Company has evaluated the impact of this standard, noting that we do not have these types of arrangements. We have updated our accounting policies to ensure appropriate treatment if these are entered into in the future. As such, the adoption of this standard did not have an impact on the condensed consolidated financial statements or disclosures.
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (Issued August 2018)
April 1, 2020 This standard added requirements for new disclosures such as requiring a narrative description of the reasons for significant gains and losses affecting the benefit obligation for the period and also an explanation of any other significant changes in the benefit obligation or plan assets that are not otherwise apparent in the other disclosures required by ASC 715. Further, the standard removes some currently required disclosures such as (a) the requirement (for public entities) to disclose the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost, and the benefit obligation for postretirement health care benefits and (b) the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year. The Company has evaluated the impact of this standard. We have updated our pension and postretirement disclosure accordingly, which did not have a material impact on the condensed consolidated financial statements.
ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (Issued January 2017)
April 1, 2020 This standard removes Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. Under the simplified model, a goodwill impairment is calculated as the difference between the carrying amount of the reporting unit and its fair value, but not to exceed the carrying amount of goodwill allocated to that reporting unit. This standard will need to be considered each time Novelis performs an assessment of goodwill for impairment under the quantitative test. The Company has evaluated the impact of this standard. We have updated our goodwill impairment assessment process accordingly, which did not have a material impact on the condensed consolidated financial statements.
11

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
ASU 2016-13, Financial Instrument-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments along with additional technical improvements and clarifications since issued. (Issued June 2016)
April 1, 2020 The standard provides financial statement users with more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The "current expected credit loss" (CECL) model requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. We have updated our policies and processes for reserves against our financial instruments to factor in expected credit losses. This adoption did not have a material impact on the condensed consolidated financial statements.
Recently Issued Accounting Standards (Not yet adopted)
Standard Adoption Description Disclosure Impact
ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
Various The standard provides various codification updates and improvements to address comments received. The Company is currently evaluating the impact of this standard.

12

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
2. BUSINESS COMBINATION
On April 14, 2020, Novelis completed its acquisition of 100% of the issued and outstanding shares of Aleris Corporation, a global supplier of rolled aluminum products, pursuant to an Agreement and Plan of Merger, dated as of July 26, 2018 (the “Merger Agreement”). The closing purchase price of $2.8 billion consists of $775 million less transaction costs for the equity value, as well as approximately $2.0 billion for the extinguishment of Aleris’ current outstanding debt, and a $50 million earn-out payment. The $775 million base equity payment was reduced by $64 million of Aleris transaction costs, resulting in $711 million of estimated cash for equity consideration. As a result, the acquisition increases the Company’s footprint as an aluminum rolled products manufacturer by expanding the portfolio of services provided to its customers. Refer to Note 3 – Discontinued Operations for more details on the Duffel and Lewisport divestitures required as a condition of the acquisition. As a condition to the sale of the Duffel plant, we were required by the European Union (EU) to make a €55 million payment (approximately $60 million at the date of acquisition) to support capital improvements at the Duffel plant upon sale.
The total preliminary calculation of estimated merger consideration paid to Aleris is as follows:
in millions
Preliminary calculation of estimated Merger consideration Amount
Estimated cash for equity consideration (i) $ 711 
Estimated repayment of Aleris' debt (including prepayment penalties and accrued interest) (ii) 1,954 
Earn-out consideration (iii) 50 
Payment associated with Duffel capital expenditures (iv) 60 
Preliminary fair value of estimated merger consideration $ 2,775 
(i)Under the terms of the Merger Agreement, this represents the estimated cash consideration, which is the base consideration for the settlement of all shares of common stock outstanding, including shares issued in connection with the conversion of the 6% Senior Subordinated Exchangeable Notes due 2020 issued by Aleris International, Inc. (the “Exchangeable Notes”) into Aleris common shares, and the settlement of stock options and restricted stock units, less transaction costs of $64 million. The transaction costs are removed from the base consideration as these costs were incurred by Aleris prior to the closing date and were not reimbursed by Novelis. Additionally, under the terms of the Merger Agreement, there is a €8 million (approximately $9 million at the date of acquisition) German tax indemnification included in the estimated cash for equity consideration that will be payable to the selling shareholders upon the condition that the existing Aleris German tax receivable is received from the German tax authorities.
(ii)On the closing date, all of the outstanding historical debt of Aleris, except for certain non-recourse multi-currency secured term loan facilities (collectively, the “Zhenjiang Term Loans”), was repaid in connection with the merger. In addition, prepayment penalties and accrued interest of approximately $12 million and $16 million, respectively, associated with the Aleris debt were paid in connection with such repayment.
(iii)Under the terms of the Merger Agreement, this represents the fair value of the earn-out consideration of $50 million which is based upon Aleris meeting specified commercial margin targets. On the closing date, Aleris had met all of the specified targets in the Merger Agreement and selling shareholders received the $50 million cash payment.
(iv)In connection with obtaining the regulatory antitrust approvals, the European Commission required Novelis to pay the buyer of Duffel an additional €55 million (approximately $60 million at the date of acquisition) to fund capital expenditures that would be required so that Duffel can operate as a standalone business. This amount was paid on September 30, 2020 and is included in "Acquisition of business, net of cash and restricted cash acquired" in the condensed consolidated statements of cash flows.
The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805. The purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill, none of which is expected to be deductible for tax purposes. Goodwill is primarily attributed to synergies from future expected economic benefits, including enhanced revenue growth from expanded capabilities and geographic presence as well as cost savings from duplicative overhead, streamlined operations, and enhanced operational efficiency. The allocation of goodwill to reporting units has not been completed as of the date of this filing.
13

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The condensed consolidated balance sheet as of September 30, 2020 includes the assets and liabilities of Aleris, which have been measured at fair value as of the acquisition date. The discontinued operations financial statement line items in the table below relate to Duffel and Lewisport. The preliminary allocation of purchase price recorded for Aleris as of June 30, 2020, and subsequently revised for measurement period adjustments, was as follows:
in millions
Assets Acquired as of
June 30, 2020(1)
Measurement Period Adjustments
Assets Acquired as of
September 30, 2020(1)
Cash and cash equivalents $ 105  $ —  $ 105 
Accounts receivable(2)
251  17  268 
Inventories 379  —  379 
Prepaid expenses and other current assets(3)
24  —  24 
Fair value of derivative instruments 46  —  46 
Current assets of discontinued operations(4)
463  1  464 
Property, plant and equipment 949  —  949 
Goodwill(5)(6)(7)
328  88  416 
Intangible assets, net(5)
149  261  410 
Deferred income tax assets(6)
114  (34) 80 
Other long-term assets 39  —  39 
Long–term assets of discontinued operations(7)
944  (315) 629 
Total assets $ 3,791  $ 18  $ 3,809 
Liabilities Assumed as of
June 30, 2020(1)
Measurement Period Adjustments
Liabilities Assumed as of
September 30, 2020(1)
Current portion of long–term debt $ 24  $ —  $ 24 
Accounts Payable(2)
141  17  158 
Fair value of derivative instruments 25  —  25 
Accrued expenses and other current liabilities 143  1  144 
Current liabilities of discontinued operations 166  —  166 
Long–term debt, net of current portion 125  —  125 
Deferred income tax liabilities 37  —  37 
Accrued postretirement benefits 164  —  164 
Other long–term liabilities 41  —  41 
Long–term liabilities of discontinued operations 150  —  150 
Total liabilities $ 1,016  $ 18  $ 1,034 
Net assets acquired $ 2,775 
Total purchase price $ 2,775 
(1)In connection with the acquisition of Aleris, the Company acquired two businesses which are required to be sold. Therefore, such businesses were classified as held for sale and were included within the "Current assets of discontinued operations," "Long–term assets of discontinued operations," "Current liabilities of discontinued operations," and "Long–term liabilities of discontinued operations" line items in the above preliminary allocation of purchase price (see Note 3 – Discontinued Operations).
(2)Measurement period adjustment related to the presentational alignment of pending derivative settlements on a gross basis, in accordance with Novelis' policy.
(3)Included in "Prepaid expenses and other current assets" is $9 million of restricted cash acquired related to cash deposits restricted for the payment of the Zhenjiang Term Loans.
(4)Included in "Current assets of discontinued operations" is $41 million of cash and cash equivalents acquired related to our discontinued operations.
(5)Measurement period adjustment related to revisions in the valuation of intangible assets based on refinements to key assumptions, such as discount rates and growth rates.
(6)Measurement period adjustment related to the deferred tax impacts of the above measurement period adjustments and other tax adjustments.
(7)Measurement period adjustments related to estimated costs to sell the Duffel and Lewisport businesses, in addition to revisions to key assumptions of the valuation of Lewisport's property, plant and equipment.
14

Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The fair values of assets acquired and liabilities assumed are preliminary and are based on the information that was available as of the reporting date. The preliminary fair values of the assets acquired and liabilities assumed were determined using the income and cost approaches. In many cases, the determination of the fair values required estimates about discount rates, future expected cash flows, and other future events that are judgmental and subject to change. The fair value measurements are primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement in the fair value hierarchy as defined in ASC 820, Fair Value Measurements (ASC 820). Intangible assets consisting of customer relationships, technology, and trade names are valued using the multi-period excess earnings method (MPEEM), or the relief from royalty (RFR) method, both of which are forms of the income approach. A cost and market approach has been applied, as appropriate, for property and equipment, including land, and inventory.
Customer relationship intangible assets are valued using the MPEEM method. The significant assumptions used include the estimated annual net cash flows (including appropriate revenue and profit attributable to the asset, retention rate, applicable tax rate, and contributory asset charges, among other factors), the discount rate, reflecting the risks inherent in the future cash flow stream, an assessment of the asset’s life cycle, and the tax amortization benefit, among other factors.
Technology and trade name intangible assets are valued using the RFR method. The significant assumptions used include the estimated annual net cash flows (including appropriate revenue attributable to the asset, applicable tax rate, royalty rate, and other factors such as technology related obsolescence rates), the discount rate, reflecting the risks inherent in the future cash flow stream, and the tax amortization benefit, among other factors.
Inventory has been valued using the replacement cost or market approach, as appropriate. The replacement cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, has been used to determine the estimated replacement cost of raw materials. The market approach has been used to determine the estimated selling price less costs to sale for work in progress and finished goods.
Property and equipment, including land, are valued using the cost or market approach, as appropriate. For assets valued using the cost approach, the cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation. The market approach, which estimates value by leveraging comparable land sale data/listings and qualitatively comparing them to the in-scope properties, has been used to value the land.
The assumed long-term debt in China has been valued using an income approach. The significant assumptions used include the estimated annual cash flows and interest and credit spreads, among other factors.
The assumed pension and postretirement liabilities have been valued using an income approach. The significant assumptions used include the estimated annual cash flows, the discount rate, the estimated return on asset rate, among other factors.
The fair value of the assets acquired includes current accounts receivables of $268 million related to continuing operations and $78 million related to discontinued operations. The gross amount due is $346 million, of which less than $1 million is expected to be uncollectible.
The fair value of the assets acquired includes $22 million and $7 million of operating lease right-of-use assets and finance lease assets, respectively. The fair value of liabilities assumed includes $9 million and $7 million of o