August 3, 2022 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ 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 No.)

3560 Lenox Road, Suite 2000 Atlanta, GA						30326
(Address of principal executive offices)						(Zip Code)

(404) 760-4000

(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

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 ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of August 2, 2022, 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.

TABLE OF CONTENTS


Commonly Used or Defined Terms		3

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited).	4
	Condensed Consolidated Statements of Operations (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)	5
	Condensed Consolidated Balance Sheets (unaudited)	6
	Condensed Consolidated Statements of Cash Flows (unaudited)	7
	Condensed Consolidated Statement s of Shareholder's Equity (unaudited)	8
	Notes to the Condensed Consolidated Financial Statements (unaudited)	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	52
Item 4.	Controls and Procedures.	53

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings.	54
Item 1A.	Risk Factors.	54

Item 6.	Exhibits.	55

SIGNATURES		56

COMMONLY USED OR DEFINED TERMS


Term						Definition
Adjusted EBITDA						As defined in Note 16 – Segment, Geographical Area, Major Customer and Major Supplier Information
Aleris						Aleris Corporation
AluInfra						AluInfra Services
Alunorf						Aluminium Norf GmbH
ASC						FASB Accounting Standards Codification

Duffel						Plant located in Duffel, Belgium, required to be divested (Refer to Note 2 – Discontinued Operations)
Exchange Act						Securities Exchange Act of 1934, as amended

fiscal 2016						Fiscal year ended March 31, 2016

fiscal 2020						Fiscal year ended March 31, 2020
fiscal 2021						Fiscal year ended March 31, 2021
fiscal 2022						Fiscal year ended March 31, 2022
fiscal 2023						Fiscal year ending March 31, 2023
Form 10-Q						Quarterly Report on Form 10-Q
FRP						Flat-rolled products
GAAP						Generally Accepted Accounting Principles
Kobe						Kobe Steel, Ltd.
kt						kilotonne (One kt is 1,000 metric tonnes.)
Lewisport						Plant located in Lewisport, Kentucky, required to be divested (Refer to Note 2 – Discontinued Operations)
LME						The London Metals Exchange
LMP						Local market premium
Logan						Logan Aluminum Inc.
MMBtu						One decatherm or 1 million British Thermal Units
OEM						Original equipment manufacturer


RSUs						Restricted stock units
SARs						Stock appreciation rights
SEC						United States Securities and Exchange Commission
SG&A						Selling, general and administrative expenses
Tri-Arrows						Tri-Arrows Aluminum Inc.
UAL						Ulsan Aluminum Ltd.
UBC						Used beverage can
U.S.						United States
U.K.						United Kingdom
VIE						Variable interest entity
2022 Form 10-K						Our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, as filed with the SEC on May 11, 2022

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited).

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


	Three Months Ended June 30,
in millions	2022		2021
Net sales	$	5,089	$	3,855
Cost of goods sold (exclusive of depreciation and amortization)	4,265		3,137
Selling, general and administrative expenses	164		159
Depreciation and amortization	138		134
Interest expense and amortization of debt issuance costs	58		59
Research and development expenses	23		24


Gain on extinguishment of debt, net	—		(2)
Restructuring and impairment expenses (reversals), net	1		(2)
Equity in net income of non-consolidated affiliates	(4)		(1)

Other expenses (income), net	50		(64)
	4,695		3,444
Income from continuing operations before income tax provision	394		411
Income tax provision	87		108
Net income from continuing operations	307		303
Loss from discontinued operations, net of tax	(1)		(63)


Net income	306		240
Net loss attributable to noncontrolling interests	(1)		—
Net income attributable to our common shareholder	$	307	$	240

____________________

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)


	Three Months Ended June 30,
in millions	2022		2021
Net income	$	306	$	240
Other comprehensive income:
Currency translation adjustment	(173)		30
Net change in fair value of effective portion of cash flow hedges	913		(15)
Net change in pension and other benefits	9		3
Other comprehensive income before income tax effect	749		18
Income tax provision related to items of other comprehensive income	234		—
Other comprehensive income, net of tax	515		18
Comprehensive income	821		258
Comprehensive loss attributable to noncontrolling interests, net of tax	(1)		—
Comprehensive income attributable to our common shareholder	$	822	$	258

____________________

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


in millions, except number of shares	June 30, 2022		March 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	1,037	$	1,070
Accounts receivable, net
— third parties (net of allowance for credit losses of $6 as of June 30, 2022, and March 31, 2022)	2,601		2,590
— related parties	234		222
Inventories	3,456		3,038
Prepaid expenses and other current assets	182		195
Fair value of derivative instruments	621		377
Assets held for sale	5		5
Current assets of discontinued operations	6		6
Total current assets	8,142		7,503
Property, plant and equipment, net	4,477		4,624
Goodwill	1,075		1,081
Intangible assets, net	604		623
Investment in and advances to non-consolidated affiliates	801		832
Deferred income tax assets	149		158
Other long-term assets
— third parties	295		274
— related parties	1		1

Total assets	$	15,544	$	15,096

LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt	$	59	$	26
Short-term borrowings	603		529
Accounts payable
— third parties	3,843		3,869
— related parties	345		320
Fair value of derivative instruments	266		959
Accrued expenses and other current liabilities	859		774
Current liabilities of discontinued operations	21		21
Total current liabilities	5,996		6,498
Long-term debt, net of current portion	4,894		4,967
Deferred income tax liabilities	387		158
Accrued postretirement benefits	631		669
Other long-term liabilities	306		295

Total liabilities	12,214		12,587
Commitments and contingencies
Shareholder's equity:
Common stock, no par value; Unlimited number of shares authorized; 1,000 shares issued and outstanding as of June 30, 2022, and March 31, 2022	—		—
Additional paid-in capital	1,304		1,304
Retained earnings	2,125		1,818
Accumulated other comprehensive loss	(105)		(620)
Total equity of our common shareholder	3,324		2,502
Noncontrolling interests	6		7
Total equity	3,330		2,509
Total liabilities and equity	$	15,544	$	15,096

____________________

See accompanying notes to the condensed consolidated financial statements. Refer to Note 4 – Consolidation for information on our consolidated VIE.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Three Months Ended June 30,
in millions	2022		2021
OPERATING ACTIVITIES
Net income	$	306	$	240
Net loss from discontinued operations	(1)		(63)
Net income from continuing operations	$	307	$	303
Adjustments to determine net cash provided by operating activities:
Depreciation and amortization	138		134
(Gain) loss on unrealized derivatives and other realized derivatives in investing activities, net	(18)		13


Loss on sale of assets, net	1		—

Gain on extinguishment of debt, net	—		(2)
Deferred income taxes, net	12		56
Equity in net income of non-consolidated affiliates	(4)		(1)
(Gain) loss on foreign exchange remeasurement of debt	(11)		1
Amortization of debt issuance costs and carrying value adjustments	4		5
Other, net	1		1
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures):
Accounts receivable	(97)		(357)
Inventories	(510)		(451)
Accounts payable	135		498
Other assets	7		(55)
Other liabilities	79		(80)




Net cash provided by operating activities – continuing operations	44		65
Net cash used in operating activities – discontinued operations	(1)		(3)
Net cash provided by operating activities	$	43	$	62
INVESTING ACTIVITIES
Capital expenditures	$	(110)	$	(101)

Acquisition of business and other investments, net of cash acquired	(4)		—
Proceeds from sales of assets, third party, net of transaction fees and hedging	—		1

(Outflows) proceeds from investment in and advances to non-consolidated affiliates, net	(9)		7
Outflows from the settlement of derivative instruments, net	(3)		(4)
Other	6		3


Net cash used in investing activities	$	(120)	$	(94)
FINANCING ACTIVITIES
Proceeds from issuance of long-term and short-term borrowings	$	—	$	20
Principal payments of long-term and short-term borrowings	(107)		(262)
Revolving credit facilities and other, net	183		125
Debt issuance costs	—		(2)




Net cash provided by (used in) financing activities	$	76	$	(119)
Net decrease in cash, cash equivalents and restricted cash	(1)		(151)
Effect of exchange rate changes on cash	(33)		11
Cash, cash equivalents and restricted cash – beginning of period	1,084		1,027
Cash, cash equivalents and restricted cash – end of period	$	1,050	$	887

Cash and cash equivalents	$	1,037	$	872
Restricted cash (included in other long-term assets)	13		15


Cash, cash equivalents and restricted cash – end of period	$	1,050	$	887

Supplemental Disclosures:


Accrued capital expenditures as of June 30	$	62	$	55
Leased assets obtained in exchange for new operating lease liabilities	26		5

____________________

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (unaudited)


	Equity of our Common Shareholder
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total Equity
in millions, except number of shares	Shares	Amount
Balance as of March 31, 2021	1,000	$	—	$	1,404	$	864	$	(366)	$	(16)	$	1,886
Net income attributable to our common shareholder	—	—		—		240		—		—		240

Currency translation adjustment included in other comprehensive income	—	—		—		—		30		—		30
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $1 included in other comprehensive income	—	—		—		—		(14)		—		(14)
Change in pension and other benefits, net of tax provision of $1 included in other comprehensive income	—	—		—		—		2		—		2

Balance as of June 30, 2021	1,000	$	—	$	1,404	$	1,104	$	(348)	$	(16)	$	2,144

	Equity of our Common Shareholder
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total Equity
	Shares	Amount
Balance as of March 31, 2022	1,000	$	—	$	1,304	$	1,818	$	(620)	$	7	$	2,509
Net income attributable to our common shareholder	—	—		—		307		—		—		307
Net loss attributable to noncontrolling interests	—	—		—		—		—		(1)		(1)
Currency translation adjustment included in other comprehensive income	—	—		—		—		(173)		—		(173)
Change in fair value of effective portion of cash flow hedges, net of tax provision of $232 included in other comprehensive income	—	—		—		—		681		—		681
Change in pension and other benefits, net of tax provision of $2 included in other comprehensive income	—	—		—		—		7		—		7

Balance as of June 30, 2022	1,000	$	—	$	1,304	$	2,125	$	(105)	$	6	$	3,330

____________________

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

References herein to "Novelis," the "Company," "we," "our," or "us" refer to Novelis Inc. and its subsidiaries unless the context specifically indicates otherwise. References herein to "Hindalco" refer to Hindalco Industries Limited. 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 plate, 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. As of June 30, 2022, 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 15 of our operating facilities to recycle post-consumer aluminum, such as UBCs, and post-industrial aluminum, such as class scrap.

The condensed consolidated balance sheet data as of March 31, 2022, was derived from the March 31, 2022, audited financial statements but does not include all disclosures required by 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 2022 Form 10-K. 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 have been prepared in accordance with U.S. GAAP and 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 income attributable to our common shareholder includes our share of the 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, 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) actuarial assumptions related to pension and other postretirement benefit plans; (3) tax uncertainties and valuation allowances; (4) assessment of loss contingencies, including environmental and litigation liabilities; and (5) 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, more experience is acquired, additional information is obtained, and 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.

Risks & Uncertainty resulting from COVID-19

Beginning late in the fourth quarter of fiscal 2020 and carrying into fiscal 2023, the COVID-19 pandemic and its unprecedented negative economic implications have affected production and sales across a range of industries around the world.

Our global operations, similar to those of many other large, multi-national corporations, have encountered higher costs and have felt this impact on customer demand, disruptions to our supply chain, interruptions to our production, and delays of shipments to our customers.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

While much of our customer demand and shipments have recovered in the majority of our end markets, 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 (including the emergence of variants of the virus) and its impact on our customers, employees, suppliers, and other partners. We believe this will be primarily driven by the severity and duration of the pandemic, the pandemic's impact on the U.S. and global economies, and the timing, scope, and effectiveness of federal, state, and local governmental responses, including the revision of governmental quarantine or other public health measures and the availability of vaccines or other medical remedies and preventative measures.

Although we have made our best estimates based on 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.

Risks & Uncertainties resulting from Inflation, Supply Chain Disruptions and Geopolitical Instability

The first quarter of fiscal 2023 was marked by global economic uncertainty, capital markets disruption, and supply chain interruptions, which have been impacted by inflationary cost pressures, the ongoing COVID-19 pandemic, and geopolitical instability due to the ongoing military conflict between Russia and Ukraine. We experienced increased inflationary cost pressures during the first quarter of fiscal 2023 resulting from global supply chain disruptions impacting the availability and price of materials and services including freight, energy, coatings, and alloys, such as magnesium. Rising geopolitical instability exacerbated inflationary cost pressures, which are expected to continue for the foreseeable future. We have not experienced significant direct impacts from the Russia-Ukraine conflict, as we do not have operations nor significant sales in either Russia or Ukraine. However, we have experienced indirect impacts, as the conflict has driven up energy prices globally, beginning in the fourth quarter of fiscal 2022 and expect these costs will remain elevated until energy prices stabilize. To date, our operations have not been materially impacted by labor shortages, and we remain able to procure the necessary raw materials, parts, and equipment due to our diverse, global supplier network. We believe we are positioned to maintain current production levels and service our customers without disruptions in the near term. However, we cannot predict how long supply chain disruptions will last or potential future financial impacts. We have been able to mitigate a portion of the higher inflationary cost impact through a combination of hedging, passing through a meaningful portion of higher costs to customers, favorable pricing environments, and increased recycling benefits. There is no assurance that we will continue to be able to mitigate these higher costs in the future.

The overall extent of the impact of these factors on our operating results, cash flows, liquidity, and financial condition will depend on certain developments, including the duration of the current inflationary environment, supply chain disruptions, and the Russia-Ukraine conflict. Although we have made our best estimates based on the current information, the effects of these factors on our business may result in future changes to our estimates and assumptions based on their 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.

Recent Accounting Pronouncements

We did not adopt any new accounting pronouncements during the three months ended June 30, 2022, that had a material impact on our consolidated financial condition, results of operations, or cash flows. There are also no recent accounting pronouncements pending adoption that we expect will have a material impact on our consolidated financial condition, results of operations, or cash flows.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

2. DISCONTINUED OPERATIONS

On April 14, 2020, we closed the acquisition of Aleris for $2.8 billion. As a result of the antitrust review processes in the European Union, the U.S., and China, which were required for approval of the acquisition, we were obligated to divest Aleris' European and North American automotive assets, including the Duffel and Lewisport plants, respectively.

On September 30, 2020, we completed the sale of Duffel to Liberty House Group through its subsidiary, ALVANCE, the international aluminum business of the GFG Alliance. Upon closing, we received €210 million ($246 million as of September 30, 2020) in cash and a €100 million ($117 million as of September 30, 2020) receivable that was deemed to be contingent consideration subject to the results of a binding arbitration proceeding under German law that is currently underway. The arbitration will determine the responsibility of ALVANCE to Novelis based on whether either or both parties breached any of their respective obligations under the purchase and sale agreements and, if so, their relative culpability for such breaches, potentially reduced by certain claims of ALVANCE against Novelis. Arbitration results are inherently uncertain and unpredictable, and there can be no assurance of the result the arbitral tribunal will reach. The arbitrators may award Novelis no more than €100 million and may not award any damages to ALVANCE. In addition, we recorded a €15 million ($18 million) receivable for net debt and working capital adjustments.

We elected to account for the contingent consideration at fair value and mark to fair value on a quarterly basis. As of June 30, 2021, Novelis marked all outstanding receivables related to the sale of Duffel to an estimated fair value of €45 million ($53 million), which resulted in a loss of €51 million ($61 million) recorded in loss from discontinued operations, net of tax. As of June 30, 2022, there has been no change to this fair value, and the receivable is included in other long-term assets in our condensed consolidated balance sheet as of June 30, 2022. There is no assurance as to when we expect the post-closing arbitration process to conclude or whether we will receive any of the contingent consideration.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

3. INVENTORIES

Inventories consists of the following.


in millions	June 30, 2022		March 31, 2022
Finished goods	$	824	$	677
Work in process	1,561		1,511
Raw materials	838		620
Supplies	233		230
Inventories	$	3,456	$	3,038

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

4. CONSOLIDATION

Variable Interest Entity

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.

Logan is a consolidated joint venture in which we hold 40% ownership. Our joint venture partner is Tri-Arrows. Logan processes metal received from Novelis and Tri-Arrows and charges the respective partner a fee to cover expenses. Logan is a thinly capitalized VIE that relies on the regular reimbursement of costs and expenses from Novelis and Tri-Arrows to fund its operations. Novelis is considered the primary beneficiary and consolidates Logan since it has the power to direct activities that most significantly impact Logan's economic performance, an obligation to absorb expected losses, and the right to receive benefits that could potentially be significant to the VIE.

Other than the contractually required reimbursements, we do not provide additional material support to Logan. Logan's creditors do not have recourse to our general credit. 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.

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	June 30, 2022		March 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	5	$	3
Accounts receivable, net	31		50
Inventories	118		115
Prepaid expenses and other current assets	5		8
Total current assets	159		176
Property, plant and equipment, net	24		22
Goodwill	12		12
Deferred income tax assets	41		41
Other long-term assets	10		6
Total assets	$	246	$	257
LIABILITIES
Current liabilities:
Accounts payable	$	56	$	53
Accrued expenses and other current liabilities	21		28
Total current liabilities	77		81
Accrued postretirement benefits	146		153
Other long-term liabilities	5		2
Total liabilities	$	228	$	236

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

5. INVESTMENT IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY TRANSACTIONS

Included in the accompanying condensed consolidated financial statements are transactions and balances arising from business we conducted with our equity method non-consolidated affiliates.

Alunorf

Alunorf is a joint venture investment between Novelis Deutschland GmbH, a subsidiary of Novelis, and Speira GmbH. Each of the parties to the joint venture holds a 50% interest in the equity, profits and losses, shareholder voting, management control, and rights to use the production capacity of the facility. Alunorf tolls aluminum and charges the respective partner a fee to cover the associated expenses.

UAL

UAL is a joint venture investment between Novelis Korea Ltd., a subsidiary of Novelis, and Kobe. UAL is a thinly capitalized VIE that relies on the regular reimbursement of costs and expenses from Novelis and Kobe. UAL is controlled by an equally represented board of directors in which neither entity has sole decision-making ability regarding production operations or other significant decisions. Furthermore, neither entity has the ability to take the majority share of production or associated costs over the life of the joint venture. Our risk of loss is limited to the carrying value of our investment in and inventory-related receivables from UAL. UAL's creditors do not have recourse to our general credit. Therefore, UAL is accounted for as an equity method investment, and Novelis is not considered the primary beneficiary. UAL currently produces flat-rolled aluminum products exclusively for Novelis and Kobe. As of June 30, 2022, Novelis and Kobe both hold a 50% interest in UAL.

AluInfra

AluInfra is a joint venture investment between Novelis Switzerland SA, a subsidiary of Novelis, and Constellium SE. Each of the parties to the joint venture holds a 50% interest in the equity, profits and losses, shareholder voting, management control, and rights to use the facility.

The following table summarizes the results of operations of our equity method non-consolidated affiliates in the aggregate and the nature and amounts of significant transactions we have with our non-consolidated affiliates. The amounts in the table below are disclosed at 100% of the operating results of these affiliates.


	Three Months Ended June 30,
in millions	2022		2021
Net sales	$	509	$	385
Costs and expenses related to net sales	489		372
Income tax provision	6		3
Net income	$	14	$	10

Purchases of tolling services from Alunorf	$	81	$	69

The following table describes related party balances in the accompanying condensed consolidated balance sheets. We had no other material related party balances with non-consolidated affiliates.


in millions	June 30, 2022		March 31, 2022
Accounts receivable, net — related parties	$	234	$	222
Other long-term assets — related parties	1		1
Accounts payable — related parties	345		320

Transactions with Hindalco

We occasionally have related party transactions with Hindalco. During the three months ended June 30, 2022, and 2021, we recorded net sales of less than $1 million between Novelis and Hindalco related primarily to sales of equipment and other services. As of June 30, 2022, and March 31, 2022, there was $1 million of outstanding accounts receivable, net — related parties net of accounts payable — related parties related to transactions with Hindalco. During the three months ended June 30, 2022, Novelis purchased less than $1 million in raw materials from Hindalco.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

6. DEBT

Debt consists of the following.


	June 30, 2022								March 31, 2022
in millions	Interest Rates(1)		Principal		Unamortized Carrying Value Adjustments(2)		Carrying Value		Principal		Unamortized Carrying Value Adjustments(2)		Carrying Value
Short-term borrowings	2.77	%	$	603	$	—	$	603	$	529	$	—	$	529
Floating rate Term Loans, due January 2025	4.00	%	758		(10)		748		760		(11)		749
Floating rate Term Loans, due March 2028	4.25	%	494		(8)		486		495		(8)		487
3.25% Senior Notes, due November 2026	3.25	%	750		(9)		741		750		(10)		740
3.375% Senior Notes, due April 2029	3.375	%	522		(9)		513		556		(10)		546
4.75% Senior Notes, due January 2030	4.75	%	1,600		(24)		1,576		1,600		(25)		1,575
3.875% Senior Notes, due August 2031	3.875	%	750		(10)		740		750		(10)		740
China Bank Loans, due August 2027	4.90	%	72		—		72		76		—		76
1.8% Brazil Loan, due June 2023	1.80	%	30		—		30		30		—		30
1.8% Brazil Loan, due December 2023	1.80	%	20		—		20		20		—		20
Finance lease obligations and other debt, due through June 2028	2.23	%	27		—		27		30		—		30
Total debt			$	5,626	$	(70)	$	5,556	$	5,596	$	(74)	$	5,522
Less: Short-term borrowings			(603)		—		(603)		(529)		—		(529)
Less: Current portion of long-term debt			(59)		—		(59)		(26)		—		(26)
Long-term debt, net of current portion			$	4,964	$	(70)	$	4,894	$	5,041	$	(74)	$	4,967

____________________

(1)Interest rates are the stated rates of interest on the debt instrument (not the effective interest rate) as of June 30, 2022, and therefore exclude the effects of accretion and amortization of debt issuance costs related to refinancing transactions and additional borrowings. We present stated rates of interest because they reflect the rate at which cash will be paid for future debt service.

(2)Amounts include unamortized debt issuance costs, fair value adjustments, and debt discounts.

Principal repayment requirements for our total debt over the next five years and thereafter using exchange rates as of June 30, 2022, for our debt denominated in foreign currencies are as follows (in millions).


As of June 30, 2022	Amount
Short-term borrowings and current portion of long-term debt due within one year	$	662
2 years	53
3 years	763
4 years	22
5 years	774
Thereafter	3,352
Total	$	5,626

Short-Term Borrowings

As of June 30, 2022, our short-term borrowings totaled $603 million, which consisted of $213 million under our short-term loan due November 2022, $194 million of borrowings on our ABL Revolver, $100 million in short-term Brazil loans, $95 million in short-term China loans (CNY 640 million), and $1 million in other short-term borrowings.

During the three months ended June 30, 2022, we made a $100 million payment beyond our scheduled quarterly amortization payments on our short-term loan due November 2022.

Term Loan Facility

As of June 30, 2022, we were in compliance with the covenants of our Term Loan Facility.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

ABL Revolver

In October 2021, we entered into an amendment to our existing ABL Revolver. Prior to the USD LIBOR transition date, loans denominated in USD under the ABL Revolver will continue to bear interest at a rate of LIBOR plus a spread of 1.25% to 1.75% based on excess availability. The amendment provides that on and after the USD LIBOR transition date, loans denominated in USD will bear interest at a rate of the applicable replacement reference plus a spread of 1.25% to 1.75% as adjusted under the terms of the ABL Revolver based on excess availability. In the case of USD loans accruing interest at Term SOFR, the margin adjustment is 0.11 for a one-month interest period, .026 for a three-month interest period, and 0.43 for a six-month interest period. Thus, the applicable interest rate for a one-month interest period would be Term SOFR plus a spread of approximately 1.36% to 1.86% depending on availability. The USD LIBOR transition date is defined as the earlier of (a) when the ICE Benchmark Administration ceases to provide the USD LIBOR and there is no available tenor of USD LIBOR or the Financial Conduct Authority announces all available tenors of USD LIBOR are no longer representative or (b) an early opt-in effective date. The ABL Revolver also permits us to elect to borrow USD loans that accrue interest at a base rate (determined based on the greater of a prime rate or an adjusted federal funds rate) plus a prime spread of .25% to .75% based on excess availability. The amendment also provides for replacement reference rates for loans denominated in euros, British pounds, and Swiss francs upon the transition event applicable to each such currency.

In April 2022, Novelis amended our ABL Revolver facility to increase the limit on committed letters of credit under the facility to $275 million. There were no material costs incurred or accounting impacts as a result of this amendment.

As of June 30, 2022, we had $194 million in borrowings under our ABL Revolver and were in compliance with debt covenants. We utilized $119 million of our ABL Revolver for letters of credit. We had availability of $1.2 billion on the ABL Revolver, including $156 million of remaining availability that can be utilized for letters of credit.

Senior Notes

The Senior Notes are guaranteed, jointly and severally, on a senior unsecured basis, by Novelis Inc. and certain of its subsidiaries. The Senior 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 incur additional debt and provide additional guarantees; pay dividends or return capital beyond certain amounts and make other restricted payments; create or permit certain liens; make certain asset sales; use the proceeds from the sales of assets and subsidiary stock; create or permit restrictions on the ability of certain of Novelis' subsidiaries to pay dividends or make other distributions to Novelis or certain of Novelis' subsidiaries, as applicable; engage in certain transactions with affiliates; enter into sale and leaseback transactions; designate subsidiaries as unrestricted subsidiaries; and 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 Senior Notes and no default or event of default under the indenture has occurred and is continuing, certain of the covenants will be suspended. The Senior Notes include customary events of default, including a cross-acceleration event of default. The Senior Notes also contain customary call protection provisions for our bondholders that extend through November 2023 for the 3.25% Senior Notes due November 2026, through April 2024 for the 3.375% Senior Notes due April 2029, through January 2025 for the 4.75% Senior Notes due January 2030, and through August 2026 for the 3.875% Senior Notes due August 2031.

As of June 30, 2022, we were in compliance with the covenants of our Senior Notes.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

7. SHARE-BASED COMPENSATION

During the three months ended June 30, 2022, we granted 4,388,256 Hindalco phantom RSUs and 2,369,538 Hindalco SARs. Total share-based compensation was a net benefit of $2 million for the three months ended June 30, 2022. Total share-based compensation was an expense of $12 million for the three months ended June 30, 2021. As of June 30, 2022, the outstanding liability related to share-based compensation was $14 million.

The cash payments made to settle all Hindalco SAR liabilities were $6 million and $9 million in the three months ended June 30, 2022, and 2021, respectively. Total cash payments made to settle RSUs were $11 million and $16 million in the three months ended June 30, 2022, and 2021, respectively. Unrecognized compensation expense related to the non-vested Hindalco SARs (assuming all future performance criteria are met) was $8 million, which is expected to be recognized over a weighted average period of 1.4 years. Unrecognized compensation expense related to the RSUs was $23 million, which will be recognized over the remaining weighted average vesting period of 2.3 years.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

8. POSTRETIREMENT BENEFIT PLANS

The Company recognizes actuarial gains and losses and prior service costs in the condensed consolidated balance sheet and recognizes changes in these amounts during the year in which changes occur through other comprehensive income (loss). The Company uses various assumptions when computing amounts relating to its defined benefit pension plan obligations and their associated expenses (including the discount rate and the expected rate of return on plan assets).

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


	Pension Benefit Plans				Other Benefit Plans
	Three Months Ended June 30,				Three Months Ended June 30,
in millions	2022		2021		2022		2021
Service cost	$	6	$	8	$	1	$	3
Interest cost	16		14		1		2
Expected return on assets	(18)		(20)		—		—
Amortization — losses, net	2		5		—		—
Amortization — prior service credit, net	—		—		(1)		—
Settlement/curtailment gain	—		(3)		—		—
Net periodic benefit cost(1)	$	6	$	4	$	1	$	5

____________________

(1)Service cost is included within cost of goods sold (exclusive of depreciation and amortization) and selling, general and administrative expenses, while all other cost components are recorded within other expenses (income), net.

The average expected long-term rate of return on all plan assets is 4.8% in fiscal 2023.

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., the U.K., Canada, Germany, Italy, Switzerland, and Brazil. We contributed the following amounts to all plans.


	Three Months Ended June 30,
in millions	2022		2021
Funded pension plans	$	2	$	7
Unfunded pension plans	4		4
Savings and defined contribution pension plans	14		15
Total contributions	$	20	$	26

During the remainder of fiscal 2023, we expect to contribute an additional $18 million to our funded pension plans, $12 million to our unfunded pension plans, and $38 million to our savings and defined contribution pension plans.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

9. CURRENCY LOSSES (GAINS)

The following currency losses are included in other expenses (income), net in the accompanying condensed consolidated statements of operations.


	Three Months Ended June 30,
in millions	2022		2021
(Gains) losses on remeasurement of monetary assets and liabilities, net	$	(32)	$	13
Losses (gains) recognized on balance sheet remeasurement currency exchange contracts, net	37		(8)
Currency losses, net	$	5	$	5

The following currency losses are included in accumulated other comprehensive loss, net of tax and noncontrolling interests in the accompanying condensed consolidated balance sheets.


	Three Months Ended June 30, 2022		Fiscal Year Ended March 31, 2022
in millions
Cumulative currency translation adjustment — beginning of period	$	(166)	$	(95)
Effect of changes in exchange rates	(173)		(71)

Cumulative currency translation adjustment — end of period	$	(339)	$	(166)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

10. FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS

The following tables summarize the gross fair values of our financial instruments and commodity contracts as of the periods presented.


	June 30, 2022
	Assets				Liabilities				Net Fair Value
in millions	Current		Noncurrent(1)		Current		Noncurrent(1)		Assets / (Liabilities)
Derivatives designated as hedging instruments:
Cash flow hedges
Metal contracts	$	331	$	9	$	(10)	$	(1)	$	329
Currency exchange contracts	15		3		(53)		(15)		(50)
Energy contracts	19		6		—		—		25
Total derivatives designated as hedging instruments	$	365	$	18	$	(63)	$	(16)	$	304
Derivatives not designated as hedging instruments:
Metal contracts	$	223	$	2	$	(148)	$	(2)	$	75
Currency exchange contracts	30		—		(55)		(1)		(26)
Energy contracts	3

Form: 10-Q

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