November 7, 2023 - 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 September 30, 2023

☐ 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.)

3550 Peachtree Road NE, Suite 1100 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 November 6, 2023, 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.	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	54
Item 4.	Controls and Procedures.	55

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings.	56
Item 1A.	Risk Factors.	56
Item 5.	Other Information.	56
Item 6.	Exhibits.	57

SIGNATURES		58

COMMONLY USED OR DEFINED TERMS


Term						Definition
Adjusted EBITDA						As defined in Note 15 – Segment, Geographical Area, Major Customer and Major Supplier Information
Aleris						Aleris Corporation
AluInfra						AluInfra Services
Alunorf						Aluminium Norf GmbH
ASC						FASB Accounting Standards Codification


Exchange Act						Securities Exchange Act of 1934, as amended

FASB						Financial Accounting Standards Board
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 ended March 31, 2023
fiscal 2024						Fiscal year ending March 31, 2024
fiscal 2026						Fiscal year ending March 31, 2026
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.)
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
2023 Form 10-K						Our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, as filed with the SEC on May 10, 2023

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	2023		2022		2023		2022
Net sales	$	4,107	$	4,799	$	8,198	$	9,888
Cost of goods sold (exclusive of depreciation and amortization)	3,477		4,140		6,978		8,405
Selling, general and administrative expenses	182		181		356		345
Depreciation and amortization	136		134		267		272
Interest expense and amortization of debt issuance costs	78		65		155		123
Research and development expenses	23		23		48		46


Loss on extinguishment of debt, net	5		—		5		—
Restructuring and impairment expenses, net	4		1		7		2
Equity in net income of non-consolidated affiliates	(4)		(4)		(7)		(8)

Other (income) expenses, net	(2)		10		(29)		60
	3,899		4,550		7,780		9,245
Income from continuing operations before income tax provision	208		249		418		643
Income tax provision	51		65		105		152
Net income from continuing operations	157		184		313		491
Loss from discontinued operations, net of tax	—		(1)		—		(2)


Net income	157		183		313		489
Net loss attributable to noncontrolling interests	—		—		—		(1)
Net income attributable to our common shareholder	$	157	$	183	$	313	$	490

____________________

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

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


	Three Months Ended September 30,				Six Months Ended September 30,
in millions	2023		2022		2023		2022
Net income	$	157	$	183	$	313	$	489
Other comprehensive (loss) income:
Currency translation adjustment	(63)		(188)		(79)		(361)
Net change in fair value of effective portion of cash flow hedges	(251)		(110)		(84)		803
Net change in pension and other benefits	(3)		6		(7)		15
Other comprehensive (loss) income before income tax effect	(317)		(292)		(170)		457
Income tax (benefit) provision related to items of other comprehensive (loss) income	(68)		(29)		(26)		205
Other comprehensive (loss) income, net of tax	(249)		(263)		(144)		252
Comprehensive (loss) income	(92)		(80)		169		741
Comprehensive income (loss) attributable to noncontrolling interests, net of tax	—		—		—		(1)
Comprehensive (loss) income attributable to our common shareholder	$	(92)	$	(80)	$	169	$	742

____________________

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


in millions, except number of shares	September 30, 2023		March 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	1,158	$	1,498
Accounts receivable, net
— third parties (net of allowance for credit losses of $7 and $5 as of September 30, 2023, and March 31, 2023, respectively)	1,811		1,751
— related parties	135		156
Inventories	2,761		2,729
Prepaid expenses and other current assets	175		178
Fair value of derivative instruments	121		145
Assets held for sale	1		3

Total current assets	6,162		6,460
Property, plant and equipment, net	5,228		4,900
Goodwill	1,073		1,076
Intangible assets, net	568		589
Investment in and advances to non-consolidated affiliates	873		877
Deferred income tax assets	152		166
Other long-term assets
— third parties	275		293
— related parties	2		3

Total assets	$	14,333	$	14,364

LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt	$	51	$	88
Short-term borrowings	692		671
Accounts payable
— third parties	2,951		3,100
— related parties	283		277
Fair value of derivative instruments	213		130
Accrued expenses and other current liabilities	593		633


Total current liabilities	4,783		4,899
Long-term debt, net of current portion	4,859		4,881
Deferred income tax liabilities	271		288
Accrued postretirement benefits	526		554
Other long-term liabilities	271		288

Total liabilities	10,710		10,910
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, 2023, and March 31, 2023	—		—
Additional paid-in capital	1,208		1,208
Retained earnings	2,785		2,472
Accumulated other comprehensive loss	(382)		(238)
Total equity of our common shareholder	3,611		3,442
Noncontrolling interests	12		12
Total equity	3,623		3,454
Total liabilities and equity	$	14,333	$	14,364

____________________

See accompanying notes to the condensed consolidated financial statements. Refer to Note 3 – Consolidation for information on our consolidated VIE.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Six Months Ended September 30,
in millions	2023		2022
OPERATING ACTIVITIES
Net income	$	313	$	489
Net loss from discontinued operations	—		(2)
Net income from continuing operations	$	313	$	491
Adjustments to determine net cash provided by operating activities:
Depreciation and amortization	267		272
Loss on unrealized derivatives and other realized derivatives in investing activities, net	10		18


Loss on sale of assets, net	—		1
Impairment charges	3		—
Loss on extinguishment of debt, net	5		—
Deferred income taxes, net	23		19
Equity in net income of non-consolidated affiliates	(7)		(8)
Gain on foreign exchange remeasurement of debt	(6)		(22)
Amortization of debt issuance costs and carrying value adjustments	7		8
Other, net	3		—
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures):
Accounts receivable	(90)		138
Inventories	(72)		(485)
Accounts payable	(110)		(309)
Other assets	21		18
Other liabilities	(77)		55




Net cash provided by operating activities – continuing operations	290		196
Net cash used in operating activities – discontinued operations	—		(6)
Net cash provided by operating activities	$	290	$	190
INVESTING ACTIVITIES
Capital expenditures	$	(618)	$	(284)

Acquisition of business and other investments, net of cash acquired	—		(4)


Proceeds (outflows) from investment in and advances to non-consolidated affiliates, net	12		(15)
Proceeds from the settlement of derivative instruments, net	8		2
Other	8		11


Net cash used in investing activities	$	(590)	$	(290)
FINANCING ACTIVITIES
Proceeds from issuance of long-term and short-term borrowings	$	532	$	—
Principal payments of long-term and short-term borrowings	(531)		(114)
Revolving credit facilities and other, net	(24)		450
Debt issuance costs	(3)		(6)

Return of capital to our common shareholder	—		(100)


Net cash (used in) provided by financing activities	$	(26)	$	230
Net (decrease) increase in cash, cash equivalents and restricted cash	(326)		130
Effect of exchange rate changes on cash	(14)		(57)
Cash, cash equivalents and restricted cash – beginning of period	1,511		1,084
Cash, cash equivalents and restricted cash – end of period	$	1,171	$	1,157

Cash and cash equivalents	$	1,158	$	1,145
Restricted cash (included in other long-term assets)	13		12


Cash, cash equivalents and restricted cash – end of period	$	1,171	$	1,157

Supplemental Disclosures:


Accrued capital expenditures as of September 30	$	176	$	72
Leased assets obtained in exchange for new operating lease liabilities	6		27

____________________

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, 2022	1,000	$	—	$	1,308	$	1,814	$	(620)	$	7	$	2,509
Net income attributable to our common shareholder	—	—		—		490		—		—		490
Net loss attributable to noncontrolling interests	—	—		—		—		—		(1)		(1)
Currency translation adjustment included in other comprehensive (loss) income	—	—		—		—		(361)		—		(361)
Change in fair value of effective portion of cash flow hedges, net of tax provision of $202 included in other comprehensive (loss) income	—	—		—		—		601		—		601
Change in pension and other benefits, net of tax provision of $3 included in other comprehensive (loss) income	—	—		—		—		12		—		12
Return of capital to our common shareholder	—	—		(100)		—		—		—		(100)
Balance as of September 30, 2022	1,000	$	—	$	1,208	$	2,304	$	(368)	$	6	$	3,150

	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, 2023	1,000	$	—	$	1,208	$	2,472	$	(238)	$	12	$	3,454
Net income attributable to our common shareholder	—	—		—		313		—		—		313

Currency translation adjustment included in other comprehensive (loss) income	—	—		—		—		(79)		—		(79)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $24 included in other comprehensive (loss) income	—	—		—		—		(60)		—		(60)
Change in pension and other benefits, net of tax benefit of $2 included in other comprehensive (loss) income	—	—		—		—		(5)		—		(5)

Balance as of September 30, 2023	1,000	$	—	$	1,208	$	2,785	$	(382)	$	12	$	3,623

	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 June 30, 2022	1,000	$	—	$	1,308	$	2,121	$	(105)	$	6	$	3,330
Net income attributable to our common shareholder	—	—		—		183		—		—		183

Currency translation adjustment included in other comprehensive (loss) income	—	—		—		—		(188)		—		(188)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $30 included in other comprehensive (loss) income	—	—		—		—		(80)		—		(80)
Change in pension and other benefits, net of tax provision of $1 included in other comprehensive (loss) income	—	—		—		—		5		—		5
Return of capital to our common shareholder	—	—		(100)		—		—		—		(100)
Balance as of September 30, 2022	1,000	$	—	$	1,208	$	2,304	$	(368)	$	6	$	3,150

	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 June 30, 2023	1,000	$	—	$	1,208	$	2,628	$	(133)	$	12	$	3,715
Net income attributable to our common shareholder	—	—		—		157		—		—		157

Currency translation adjustment included in other comprehensive (loss) income	—	—		—		—		(63)		—		(63)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $67 included in other comprehensive (loss) income	—	—		—		—		(184)		—		(184)
Change in pension and other benefits, net of tax benefit of $1 included in other comprehensive (loss) income	—	—		—		—		(2)		—		(2)

Balance as of September 30, 2023	1,000	$	—	$	1,208	$	2,785	$	(382)	$	12	$	3,623

____________________

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. Effective September 1, 2022, Novelis Inc. and AV Metals, Inc. (which, prior to such date, was our sole shareholder and a wholly owned subsidiary of AV Minerals (Netherlands) N.V.) completed a plan of arrangement, pursuant to which AV Metals, Inc. merged with and into Novelis Inc., with Novelis Inc. surviving the merger. As of the effectiveness of the plan of arrangement, we are a direct, wholly owned subsidiary of AV Minerals (Netherlands) N.V. and indirectly by Hindalco. Prior to the effectiveness of the plan of arrangement, AV Metals, Inc. was a holding company, with its assets being comprised solely of its investment in Novelis, and without any operations. The plan of arrangement was a combination of entities under common control and resulted in a change in the reporting entity. The opening balance of additional paid-in capital has been increased and that of retained earnings reduced by $4 million in the earliest period presented.

All tonnages are stated in metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. One kt is 1,000 metric tonnes.

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. As of September 30, 2023, 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.

Basis of Presentation

The condensed consolidated balance sheet data as of March 31, 2023, was derived from the March 31, 2023, 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 2023 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.

Supplier Finance Programs

The Company participates in supply chain finance programs under which participating suppliers may elect to sell some or all of their Novelis receivables to a third-party financial institution. Supplier participation in the programs is solely up to the supplier, and participating suppliers negotiate their arrangements directly with the financial institutions. The payment terms that we have with our suppliers under these programs range up to 180 days and are considered commercially reasonable. The Company has provided a guarantee in support of the obligations of certain of its subsidiaries under one of the supply chain finance programs currently in effect pursuant to which invoices receivable from Novelis originating in North America and South America are purchased and sold. In the ordinary course of business, the Company provides operating guarantees relating to the payment obligations of certain of its subsidiaries. The Company’s obligation under the guarantee referenced above is qualitatively the same as its guarantees supporting payment obligations of its subsidiaries.

On September 30, 2023 and March 31, 2023, confirmed supplier invoices that are outstanding and subject to the third-party programs included in accounts payable on the condensed consolidated balance sheets were $651 million and $801 million, respectively.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Use of Estimates and Assumptions

The preparation of our condensed consolidated financial statements in accordance 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; and (4) assessment of loss contingencies, including environmental and litigation liabilities. Future events and their effects cannot be predicted with certainty, and accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our condensed consolidated financial statements may change as new events occur, 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.

Recently Adopted Accounting Standards

On April 1, 2023, we adopted ASU 2022-04, which requires a buyer in a supplier finance program to disclose qualitative and quantitative information about its supplier finance programs, including the key terms of the program, the amount of obligations outstanding at the end of the reporting period, and a description of where those obligations are presented in the balance sheet. If presented in more than one balance sheet line item, the amount in each line item should be disclosed. Further, effective April 1, 2024, a roll-forward of such amounts during the annual period should be presented. The adoption of this guidance resulted in enhanced disclosures regarding these programs (see Supplier Finance Programs above) and did not have a material impact on our consolidated financial condition, results of operations, or cash flows.

We did not adopt any other new accounting pronouncements during the six months ended September 30, 2023, that had a material impact on our consolidated financial condition, results of operations, or cash flows.

Recently Issued Accounting Standards (Not Yet Adopted)

There are 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. INVENTORIES

Inventories consists of the following.


in millions	September 30, 2023		March 31, 2023
Finished goods	$	745	$	643
Work in process	1,174		1,303
Raw materials	554		505
Supplies	288		278
Inventories	$	2,761	$	2,729

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

3. 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	September 30, 2023		March 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	5	$	6
Accounts receivable, net	8		6
Inventories	156		149
Prepaid expenses and other current assets	11		7
Total current assets	180		168
Property, plant and equipment, net	78		63
Goodwill	12		12
Deferred income tax assets	37		37
Other long-term assets	4		6
Total assets	$	311	$	286
LIABILITIES
Current liabilities:
Accounts payable	$	130	$	90
Accrued expenses and other current liabilities	26		28
Total current liabilities	156		118
Accrued postretirement benefits	121		130
Other long-term liabilities	4		6
Total liabilities	$	281	$	254

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

4. 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 September 30, 2023, 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 September 30,				Six Months Ended September 30,
in millions	2023		2022		2023		2022
Net sales	$	394	$	447	$	790	$	956
Costs and expenses related to net sales	381		430		762		919
Income tax provision	4		5		8		11
Net income	$	9	$	12	$	20	$	26

Purchases of tolling services from Alunorf	$	81	$	87	$	158	$	168

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	September 30, 2023		March 31, 2023
Accounts receivable, net — related parties	$	135	$	156
Other long-term assets — related parties	2		3
Accounts payable — related parties	283		277

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Transactions with Hindalco

We occasionally have related party transactions with Hindalco. During the six months ended September 30, 2023, and 2022, we recorded net sales of $1 million and less than $1 million, respectively, between Novelis and Hindalco related primarily to sales of equipment and other services. As of September 30, 2023, and March 31, 2023, there was $1 million and $2 million, respectively, of outstanding accounts receivable, net — related parties net of accounts payable — related parties related to transactions with Hindalco.

Return of Capital

On August 1, 2023, the Board of Directors approved a return of capital to our common shareholder in the amount of $100 million, which will be paid during fiscal 2024. We paid a return of capital to our common shareholder in the amount of $100 million during the second quarter of fiscal 2023.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

5. DEBT

Debt consists of the following.


	September 30, 2023								March 31, 2023
in millions	Interest Rates(1)		Principal		Unamortized Carrying Value Adjustments(2)		Carrying Value		Principal		Unamortized Carrying Value Adjustments(2)		Carrying Value
Short-term borrowings	6.38	%	$	692	$	—	$	692	$	671	$	—	$	671
Floating rate Term Loans, due January 2025			—		—		—		752		(7)		745
Floating rate Term Loans, due September 2026	7.04	%	750		(4)		746		—		—		—
Floating rate Term Loans, due March 2028	7.54	%	488		(6)		482		490		(6)		484
3.25% Senior Notes, due November 2026	3.25	%	750		(7)		743		750		(8)		742
3.375% Senior Notes, due April 2029	3.375	%	529		(7)		522		543		(8)		535
4.75% Senior Notes, due January 2030	4.75	%	1,600		(20)		1,580		1,600		(22)		1,578
3.875% Senior Notes, due August 2031	3.875	%	750		(9)		741		750		(9)		741
China Bank Loans, due August 2027	3.90	%	58		—		58		64		—		64
1.8% Brazil Loan, due June 2023	1.80	%	—		—		—		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	2.71	%	18		—		18		30		—		30
Total debt			$	5,655	$	(53)	$	5,602	$	5,700	$	(60)	$	5,640
Less: Short-term borrowings			(692)		—		(692)		(671)		—		(671)
Less: Current portion of long-term debt			(51)		—		(51)		(88)		—		(88)
Long-term debt, net of current portion			$	4,912	$	(53)	$	4,859	$	4,941	$	(60)	$	4,881

____________________

(1)Interest rates are the stated rates of interest on the debt instrument (not the effective interest rate) as of September 30, 2023, and therefore exclude the effects of related interest rate swaps and 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 September 30, 2023, for our debt denominated in foreign currencies are as follows (in millions).


As of September 30, 2023	Amount
Short-term borrowings and current portion of long-term debt due within one year	$	743
2 years	28
3 years	759
4 years	776
5 years	469
Thereafter	2,880
Total	$	5,655

Short-Term Borrowings

As of September 30, 2023, our short-term borrowings totaled $692 million, which consisted of $495 million of borrowings on our ABL Revolver, $150 million in short-term Brazil loans, and $47 million in short-term China loans (CNY 336 million). The weighted average interest rate on the short-term borrowings was 6.38% and 6.67% as of September 30, 2023, and March 31, 2023, respectively.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Term Loan Facility

As of September 30, 2023, we were in compliance with the covenants of our Term Loan Facility.

On March 31, 2023, Novelis amended the Term Loan Facility, primarily to modify the reference rate used to determine interest from LIBOR to SOFR. Term loans under the Term Loan Facility will, beginning with the interest period commencing June 30, 2023, accrue interest at SOFR plus a 0.15% credit spread adjustment plus a spread of 1.75% in the case of the 2020 Term Loans, or a spread of 2.00% in the case of the 2021 Term Loans. During fiscal 2021, the Company adopted the practical expedient for Reference Rate Reform related to its debt arrangements and as such, this amendment is treated as a continuation of the existing debt agreement and no gain or loss on the modification was recorded. The Company did not record any gains or losses on the conversion of the reference rate for the borrowings under the Term Loan Facility from LIBOR to SOFR.

In September 2023, Novelis amended the Term Loan Facility and borrowed $750 million of term loans (the "2023 Term Loans"). The proceeds of the 2023 Term Loan were used to repay the previously-issued term loans due January 2025 (the "2020 Term Loans"). The 2023 Term Loans mature on September 25, 2026, are subject to 0.25% quarterly amortization payments and accrue interest at SOFR plus 1.65%.

In accordance with ASC 470, Debt, the amendment was accounted for as a partial extinguishment of the 2020 Term Loans, whereby $482 million of the $750 million outstanding at the time of the transaction was deemed an extinguishment and $268 million was deemed a modification of debt. As a result of this transaction, we recorded a loss on extinguishment of debt of $5 million in the second quarter of fiscal 2024.

ABL Revolver

In April 2022, Novelis amended the 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.

In August 2022, Novelis amended the ABL Revolver facility to, among other things, increase the commitment under the ABL Revolver by $500 million to $2.0 billion and extend the maturity of the ABL Revolver until August 18, 2027. The amendment provides that new borrowings under the ABL Revolver facility made subsequent to the date of the amendment will incur interest at Term SOFR, EURIBOR, SONIA or SARON, as applicable based on the currency of the loan, plus a spread of 1.10% to 1.60% based on excess availability. The ABL Revolver facility also permits us to elect to borrow USD loans that accrue interest at a base rate (determined based on the greatest of one month Term SOFR plus 1.00%, a prime rate or an adjusted federal funds rate) plus a prime spread of 0.10% to 0.60% based on excess availability.

As of September 30, 2023, we had $495 million in borrowings under the ABL Revolver and were in compliance with debt covenants. We utilized $41 million of the ABL Revolver for letters of credit. We had availability of $990 million on the ABL Revolver, including $234 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 September 30, 2023, we were in compliance with the covenants of our Senior Notes.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

6. SHARE-BASED COMPENSATION

During the six months ended September 30, 2023, we granted 1,941,778 Hindalco phantom RSUs and 2,598,668 Hindalco SARs. Total share-based compensation expense was $8 million and $14 million for the three and six months ended September 30, 2023, respectively. Total share-based compensation expense was $6 million and $4 million for the three and six months ended September 30, 2022, respectively. As of September 30, 2023, the outstanding liability related to share-based compensation was $22 million.

The cash payments made to settle all Hindalco SAR liabilities were $4 million and $7 million in the six months ended September 30, 2023, and 2022, respectively. Total cash payments made to settle RSUs were $13 million and $15 million in the six months ended September 30, 2023, and 2022, respectively. As of September 30, 2023, unrecognized compensation expense related to the non-vested Hindalco SARs (assuming all future performance criteria are met) and the RSUs was $9 million and $22 million, respectively. The unrecognized expense related to the non-vested Hindalco SARs and the RSUs is expected to be recognized over weighted average periods of 1.5 years and 1.6 years, respectively.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

7. 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 September 30,				Three Months Ended September 30,
in millions	2023		2022		2023		2022
Service cost	$	6	$	7	$	1	$	1
Interest cost	19		15		2		1
Expected return on assets	(20)		(18)		—		—
Amortization — losses, net	—		2		(1)		—
Amortization — prior service credit, net	(1)		—		(1)		(1)

Net periodic benefit cost(1)	$	4	$	6	$	1	$	1

	Pension Benefit Plans				Other Benefit Plans
	Six Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Service cost	$	11	$	13	$	1	$	2
Interest cost	38		31		3		2
Expected return on assets	(39)		(36)		—		—
Amortization — losses, net	(1)		4		(1)		—
Amortization — prior service credit, net	(1)		—		(2)		(2)

Net periodic benefit cost(1)	$	8	$	12	$	1	$	2

____________________

(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 (income) expenses, net.

The average expected long-term rate of return on all plan assets is 6.1% in fiscal 2024.

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 September 30,				Six Months Ended September 30,
in millions	2023		2022		2023		2022
Funded pension plans	$	19	$	6	$	21	$	8
Unfunded pension plans	3		4		7		8
Savings and defined contribution pension plans	14		13		30		27
Total contributions	$	36	$	23	$	58	$	43

During the remainder of fiscal 2024, we expect to contribute an additional $8 million to our funded pension plans, $9 million to our unfunded pension plans, and $26 million to our savings and defined contribution pension plans.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

8. CURRENCY LOSSES (GAINS)

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


	Three Months Ended September 30,				Six Months Ended September 30,
in millions	2023		2022		2023		2022
Gains on remeasurement of monetary assets and liabilities, net	$	(16)	$	(35)	$	(4)	$	(67)
Losses recognized on balance sheet remeasurement currency exchange contracts, net	17		41		9		78
Currency losses, net	$	1	$	6	$	5	$	11

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

9. 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.


	September 30, 2023
	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	$	28	$	—	$	(68)	$	—	$	(40)
Currency exchange contracts	17		1		(24)		(2)		(8)
Energy contracts	2		—		(1)		—		1
Interest rate swap contracts	—		1		—		—		1
Total derivatives designated as hedging instruments	$	47	$	2	$	(93)	$	(2)	$	(46)
Derivatives not designated as hedging instruments:
Metal contracts	$	59	$	1	$	(94)	$	(1)	$	(35)
Currency exchange contracts	14		1		(25)		(2)		(12)
Energy contracts	1		—		(1)		—		—
Total derivatives not designated as hedging instruments	$	74	$	2	$	(120)	$	(3)	$	(47)
Total derivative fair value	$	121	$	4	$	(213)	$	(5)	$	(93)


	March 31, 2023
	Assets				Liabilities				Net Fair Value
	Current		Noncurrent(1)		Current		Noncurrent(1)		Assets / (Liabilities)
Derivatives designated as hedging instruments:
Cash flow hedges
Metal contracts	$	37	$	—	$	(31)	$	—	$	6
Currency exchange contracts	26		4		(19)		(1)		10
Energy contracts	3		—		(4)		—		(1)
Total derivatives designated as hedging instruments	$	66	$	4	$	(54)	$	(1)	$	15
Derivatives not designated as hedging instruments:
Metal contracts	$	66	$	—	$	(52)	$	(2)	$	12
Currency exchange contracts	13		3		(22)		(3)		(9)
Energy contracts	—		—		(2)		—		(2)
Total derivatives not designated as hedging instruments	$	79	$	3	$	(76)	$	(5)	$	1
Total derivative fair value	$	145	$	7	$	(130)	$	(6)	$	16

____________________

(1)The noncurrent portions of derivative assets and liabilities are included in other long-term assets and other long-term liabilities, respectively, in the accompanying condensed consolidated balance sheets.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Metal

We use derivative instruments to preserve our conversion margins and manage the timing differences associated with metal price lag. We use over-the-counter derivatives indexed to the LME (referred to as our "aluminum derivative forward contracts") to reduce our exposure to fluctuating metal prices associated with the period of time between the pricing of our purchases of inventory and the pricing of the sale of that inventory to our customers, which is known as "metal price lag." We also purchase forward LME aluminum contracts simultaneously with our sales contracts with customers that contain fixed metal prices. These LME aluminum forward contracts directly hedge the economic risk of future metal price fluctuations to better match the selling price of the metal with the purchase price of the metal. The volatility in LMPs also results in metal price lag.

Price risk arises due to fluctuating aluminum prices between the time the sales order is committed and the time the order is shipped. We identify and designate certain LME aluminum forward purchase contracts as cash flow hedges of the metal price risk associated with our future metal purchases that vary based on changes in the price of aluminum. Generally, such designated exposures do not extend beyond one year in length. The average duration of those contracts is one year.

Price risk exposure arises due to the timing lag between the LME based pricing of raw material aluminum purchases and the LME based pricing of finished product sales. We identify and designate certain LME aluminum forward sales contracts as cash flow hedges of the metal price risk associated with our future metal sales that vary based on changes in the price of aluminum. Generally, such designated exposures do not extend beyond two years in length. The average duration of those contracts is less than one year.

In addition to aluminum, we entered into LME copper and zinc forward contracts, as well as LMP forward contracts. As of September 30, 2023, and March 31, 2023, the fair value of these contracts represented a liability of less than $1 million and an asset of less than $1 million, respectively. These contracts are undesignated, with an average duration of one year.

The following table summarizes our notional amount.


in kt	September 30, 2023	March 31, 2023
Hedge type
Purchase (sale)
Cash flow purchases	—	1
Cash flow sales	(730)	(699)
Not designated	(115)	(144)
Total, net	(845)	(842)

Foreign Currency

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

We use foreign currency contracts to hedge expected future foreign currency transactions, which include capital expenditures. These contracts cover the same periods as known or expected exposures. We had total notional amounts of $1.0 billion and $1.2 billion in outstanding foreign currency forwards designated as cash flow hedges as of September 30, 2023, and March 31, 2023, respectively.

As of September 30, 2023, and March 31, 2023, we had outstanding foreign currency exchange contracts with a total notional amount of $1.4 billion and $1.7 billion, respectively, to primarily hedge balance sheet remeasurement risk, which were not designated as hedges. Contracts representing the majority of this notional amount will mature by the third and fourth quarters of fiscal 2024 and offset the remeasurement impact.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Interest rate

We use interest rate swaps to partially manage our exposure to changes in the SOFR interest rate, which impacts our variable-rate debt. During the three months ended September 30, 2023, we entered into several interest rate swaps to convert $400 million of our variable rate exposure to a weighted average fixed rate of 4.4%. These interest rate swaps, designated as cash flow hedges, are effective from September 2023 through March 31, 2027.

Energy

We use natural gas forward purchase contracts to manage our exposure to fluctuating energy prices in North America. We had a notional of 3 million MMBtu designated as cash flow hedges as of September 30, 2023, and the fair value was an asset of less than $1 million. There was a notional of 7 million MMBtu of natural gas forward purchase contracts designated as cash flow hedges as of March 31, 2023, and the fair value was a liability of less than $1 million. As of September 30, 2023, we had a notional of less than $1 million MMBtu forward contracts that were not designated as hedges, and the fair value was a liability of less than $ 1 million. As of March 31, 2023, we had a notional of less than 1 million MMBtu and the fair value was a liability of less than $1 million. The average duration for all natural gas contracts is less than three years in length.

We use diesel fuel forward purchase contracts to manage our exposure to fluctuating fuel prices in North America and Europe. We had a notional of 1 million gallons designated as cash flow hedges as of September 30, 2023, and the fair value was an asset of less than $1 million. There was a notional of 1 million gallons designated as cash flow hedges as of March 31, 2023, and the fair value was a liability of less than $1 million. As of September 30, 2023, we had a notional of less than 1 million metric tonnes not designated as hedges, and the fair value was an asset of less than $1 million. As of March 31, 2023, we had a notional of less than 1 million metric tonnes of forward contracts that were not designated as hedges, and the fair value was a liability of less than $1 million. The average duration for all diesel fuel contracts is one year in length.

(Gain) Loss Recognition

The following table summarizes the (gains) losses associated with the change in fair value of derivative instruments not designated as hedges and the excluded portion of designated derivatives recognized in other (income) expenses, net. (Gains) losses recognized in other line items in the condensed consolidated statement of operations are separately disclosed within this footnote.


	Three Months Ended September 30				Six Months Ended September 30
in millions	2023		2022		2023		2022
Derivative instruments not designated as hedges
Metal contracts	$	(1)	$	7	$	(25)	$	49
Currency exchange contracts	18		42		7		84
Energy contracts(1)	(1)		—		(1)		(4)
Loss (gain) recognized in other (income) expenses, net	16		49		(19)		129
Derivative instruments designated as hedges
Gain recognized in other (income) expenses, net(2)	(1)		(3)		(2)		(5)
Total loss (gain) recognized in other (income) expenses, net	$	15	$	46	$	(21)	$	124

Losses recognized on balance sheet remeasurement currency exchange contracts, net	$	17	$	41	$	9	$	78
Realized (gains) losses on change in fair value of derivative instruments, net	(25)		(16)		(49)		67
Unrealized losses (gains) on change in fair value of derivative instruments, net	23		21		19		(21)
Total loss (gain) recognized in other (income) expenses, net	$	15	$	46	$	(21)	$	124

_________________________

(1)Includes amounts related to natural gas and diesel swaps not designated as hedges and electricity swap settlements.

(2)Amount includes forward market premium/discount excluded from hedging relationship and releases to income from accumulated other comprehensive loss on balance sheet remeasurement contracts.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following tables summarize the impact on accumulated other comprehensive loss and earnings of derivative instruments designated as cash flow hedges. Within the next twelve months, we expect to reclassify $59 million of losses from accumulated other comprehensive loss to earnings, before taxes.


	Amount of Gain (Loss) Recognized in Other comprehensive (loss) income (Effective Portion)
	Three Months Ended September 30,				Six Months Ended September 30,
in millions	2023		2022		2023		2022
Cash flow hedging derivatives
Metal contracts	$	(154)	$	204	$	72	$	1,103
Currency exchange contracts	(26)		(99)		(18)		(177)
Energy contracts	—		9		(1)		16
Interest rate swap contracts	1		—		1		—



Total	$	(179)	$	114	$	54	$	942

Gain (Loss) Reclassification


	Amount of Gain (Loss) Reclassified from Accumulated other comprehensive loss into Income/(Expense) (Effective Portion)
	Three Months Ended September 30,				Six Months Ended September 30,				Location of Gain (Loss) Reclassified from Accumulated other comprehensive loss into Earnings
in millions	2023		2022		2023		2022
Cash flow hedging derivatives

Energy contracts(1)	$	(2)	$	11	$	(3)	$	18	Cost of goods sold (exclusive of depreciation and amortization)
Metal contracts	1		(3)		2		3		Cost of goods sold (exclusive of depreciation and amortization)
Metal contracts	74		229		143		147		Net sales
Currency exchange contracts	4		4		7		11		Cost of goods sold (exclusive of depreciation and amortization)
Currency exchange contracts	1		1		1		1		Selling, general and administrative expenses
Currency exchange contracts	(4)		(16)		(9)		(28)		Net sales
Currency exchange contracts	(1)		(2)		(2)		(3)		Depreciation and amortization
Total	$	73	$	224	$	139	$	149	Income from continuing operations before income tax provision
	(18)		(53)		(37)		(32)		Income tax provision
	$	55	$	171	$	102	$	117	Net income from continuing operations

_________________________

(1)Includes amounts related to electricity, natural gas, and diesel swaps.

The entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is included in other comprehensive (loss) income and reclassified to earnings in the period in which earnings are impacted by the hedged items or in the period that the transaction becomes probable of not occurring. There was no amount excluded from the assessment of effectiveness recognized in earnings for the periods ended September 30, 2023, and 2022.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

10. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables summarize the change in the components of accumulated other comprehensive loss, excluding noncontrolling interests, for the periods presented.


in millions	Currency Translation		Cash Flow Hedges(1)		Postretirement Benefit Plans(2)		Total
Balance as of June 30, 2023	$	(309)	$	119	$	57	$	(133)
Other comprehensive (loss) income before reclassifications	(63)		(129)		1		(191)
Amounts reclassified from accumulated other comprehensive loss, net	—		(55)		(3)		(58)
Net current-period other comprehensive loss	(63)		(184)		(2)		(249)
Balance as of September 30, 2023	$	(372)	$	(65)	$	55	$	(382)

	Currency Translation		Cash Flow Hedges(1)		Postretirement Benefit Plans(2)		Total
Balance as of June 30, 2022	$	(339)	$	246	$	(12)	$	(105)
Other comprehensive (loss) income before reclassifications	(188)		91		5		(92)
Amounts reclassified from accumulated other comprehensive loss, net	—		(171)		—		(171)
Net current-period other comprehensive (loss) income	(188)		(80)		5		(263)
Balance as of September 30, 2022	$	(527)	$	166	$	(7)	$	(368)

	Currency Translation		Cash Flow Hedges(1)		Postretirement Benefit Plans(2)		Total
Balance as of March 31, 2023	$	(293)	$	(5)	$	60	$	(238)
Other comprehensive (loss) income before reclassifications	(79)		42		(1)		(38)
Amounts reclassified from accumulated other comprehensive loss, net	—		(102)		(4)		(106)
Net current-period other comprehensive loss	(79)		(60)		(5)		(144)
Balance as of September 30, 2023	$	(372)	$	(65)	$	55	$	(382)

	Currency Translation		Cash Flow Hedges(1)		Postretirement Benefit Plans(2)		Total
Balance as of March 31, 2022	$	(166)	$	(435)	$	(19)	$	(620)
Other comprehensive (loss) income before reclassifications	(361)		718		11		368
Amounts reclassified from accumulated other comprehensive loss, net	—		(117)		1		(116)
Net current-period other comprehensive (loss) income	(361)		601		12		252
Balance as of September 30, 2022	$	(527)	$	166	$	(7)	$	(368)

_________________________

(1)For additional information on our cash flow hedges, see Note 9 – Financial Instruments and Commodity Contracts.

(2)For additional information on our postretirement benefit plans, see Note 7 – Postretirement Benefit Plans.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

11. FAIR VALUE MEASUREMENTS

We record certain assets and liabilities, primarily derivative instruments, on our condensed consolidated balance sheets at fair value. We also disclose the fair values of certain financial instruments, including debt and loans receivable, which are not recorded at fair value. Our objective in measuring fair value is to estimate an exit price in an orderly transaction between market participants on the measurement date. We consider factors such as liquidity, bid/offer spreads, and nonperformance risk, including our own nonperformance risk, in measuring fair value. We use observable market inputs wherever possible. To the extent observable market inputs are not available, our fair value measurements will reflect the assumptions used. We grade the level of the inputs and assumptions used according to a three-tier hierarchy:

Level 1 — Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities we have the ability to access at the measurement date.

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 — Unobservable inputs for which there is little or no market data, which require us to develop our own assumptions based on the best information available as to what market participants would use in pricing the asset or liability.

The following section describes the valuation methodologies we used to measure our various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified.

Derivative Contracts

For certain derivative contracts with fair values based upon trades in liquid markets, such as aluminum, zinc, copper, foreign exchange, natural gas, and diesel fuel forward contracts and options, valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy.

The majority of our derivative contracts are valued using industry-standard models with observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices. We generally classify these instruments within Level 2 of the valuation hierarchy. Such derivatives include interest rate swaps, cross-currency swaps, foreign currency contracts, aluminum, copper, and zinc forward contracts, and natural gas and diesel fuel forward contracts.

For Level 2 and 3 of the fair value hierarchy, where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads, and credit considerations (nonperformance risk). We regularly monitor these factors along with significant market inputs and assumptions used in our fair value measurements and evaluate the level of the valuation input according to the fair value hierarchy. This may result in a transfer between levels in the hierarchy from period to period. As of September 30, 2023, and March 31, 2023, we did not have any Level 1 or Level 3 derivative contracts. No amounts were transferred between levels in the fair value hierarchy.

All of the Company's derivative instruments are carried at fair value in the statements of financial position prior to considering master netting agreements. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date and are reported gross.

The following table presents our derivative assets and liabilities which were measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of September 30, 2023, and March 31, 2023. The table below also discloses the net fair value of the derivative instruments after considering the impact of master netting agreements.


	September 30, 2023				March 31, 2023
in millions	Assets		Liabilities		Assets		Liabilities
Level 2 instruments:
Metal contracts	$	88	$	(163)	$	103	$	(85)
Currency exchange contracts	33		(53)		46		(45)
Energy contracts	3		(2)		3		(6)
Interest rate swap contracts	1		—		—		—
Total level 2 instruments	$	125	$	(218)	$	152	$	(136)




Netting adjustment(1)	(73)		73		(72)		72
Total net	$	52	$	(145)	$	80	$	(64)

_________________________

(1)Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions with the same counterparties.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Financial Instruments Not Recorded at Fair Value

The table below presents the estimated fair value of certain financial instruments not recorded at fair value on a recurring basis. The table excludes finance leases and short-term financial assets and liabilities for which we believe carrying value approximates fair value. We value long-term receivables and long-term debt using Level 2 inputs. Valuations are based on either market and/or broker ask prices when available or on a standard credit adjusted discounted cash flow model using market observable inputs.


	September 30, 2023				March 31, 2023
in millions	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term receivables from related parties	$	2	$	2	$	3	$	3
Total debt — third parties (excluding finance leases and short-term borrowings)	4,892		4,461		4,939		4,652

Additionally, our condensed consolidated balance sheet as of September 30, 2023 includes a note receivable in the amount of $42 million. The note receivable is not carried at fair value, but we assess its collectability on a quarterly basis. The fair value of the note receivable is determined using Level 2 inputs and is materially consistent with the carrying value.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

12. OTHER (INCOME) EXPENSES, NET

Other (income) expenses, net consists of the following.


	Three Months Ended September 30,				Six Months Ended September 30,
in millions	2023		2022		2023		2022
Currency losses, net(1)	$	1	$	6	$	5	$	11
Unrealized losses (gains) on change in fair value of derivative instruments, net(2)	23		21		19		(21)
Realized (gains) losses on change in fair value of derivative instruments, net(2)	(25)		(16)		(49)		67

Loss on sale of assets, net	—		—		—		1

Interest income	(4)		(4)		(11)		(8)
Non-operating net periodic benefit cost(3)	(2)		(1)		(3)		(1)

Other, net	5		4		10		11
Other (income) expenses, net	$	(2)	$	10	$	(29)	$	60

_________________________

(1)Includes losses recognized on balance sheet remeasurement currency exchange contracts, net. See Note 8 – Currency Losses (Gains) for further details.

(2)See Note 9 – Financial Instruments and Commodity Contracts for further details.

(3)Represents net periodic benefit cost, exclusive of service cost for the Company's pension and other post-retirement plans. For further details, refer to Note 7 – Postretirement Benefit Plans.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

13. INCOME TAXES

For the three months ended September 30, 2023, our effective tax rate differs from the Canadian statutory rate primarily due to the full-year forecasted effective tax rate taking into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset by the availability of tax credits and income not subject to tax. For the six months ended September 30, 2023, our effective tax rate differs from the Canadian statutory rate primarily due to the full-year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset by the availability of tax credits and income not subject to tax. For the three months ended September 30, 2022, our effective tax rate differs from the Canadian statutory rate primarily due to the full-year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes and changes to the Brazilian real foreign exchange rate, offset by the availability of tax credits and income not subject to tax. For the six months ended September 30, 2022, our effective tax rate differs from the Canadian statutory rate primarily due to the full-year forecasted effective tax rate taking into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, changes to the Brazilian real foreign exchange rate, the availability of tax credits, and the change in valuation allowance. The change in valuation allowance is mainly attributable to the release of the full valuation allowance on temporary items and tax attributes of legacy Aleris entities in certain separate filer states and unitary filer states that require combined or separate reporting, resulting in a benefit of $11 million.

As of September 30, 2023, we had a net deferred tax liability of $119 million. This amount included gross deferred tax assets of approximately $1.4 billion and a valuation allowance of $709 million. It is reasonably possible that our estimates of future taxable income may change within the next twelve months resulting in a change to the valuation allowance in one or more jurisdictions.

Tax Uncertainties

Certain tax filings for fiscal years 2007 through 2020 are subject to tax examinations and judicial and administrative proceedings. As a result of further settlement of audits, judicial decisions, the filing of amended tax returns, or the expiration of statutes of limitations, our reserves for unrecognized tax benefits, as well as reserves for interest and penalties, may change in the next 12 months. With few exceptions, tax returns for all jurisdictions for all tax years before 2007 are no longer subject to examination by taxing authorities or subject to any judicial or administrative proceedings. In September 2023, we received a settlement offer for certain tax audits of Aleris Germany that were previously negotiated. We reclassified the tax contingency related to these audits to income tax payable and anticipate paying the settlement in fiscal 2024. During the three months ended September 30, 2023, certain other estimates and assumptions associated with uncertain tax positions also changed, none of which had a material impact on our financial statements for any periods presented.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. COMMITMENTS AND CONTINGENCIES

We are party to and may in the future be involved in or subject to disputes, claims, and proceedings arising in the ordinary course of our business, including some we assert against others, such as environmental, health and safety, product liability, employee, tax, personal injury, and other matters. For certain matters in which the Company is involved in for which a loss is reasonably possible, we are unable to estimate a loss. For certain other matters for which a loss is reasonably possible and the loss is estimable, we have estimated the aggregated range of loss as $0 to $69 million. This estimated aggregate range of reasonably possible losses is based upon currently available information. The Company's estimates involve significant judgment. Therefore, the estimate will change from time to time and actual losses may differ from the current estimate. We review the status of, and estimated liability related to, pending claims and civil actions on a quarterly basis. The evaluation model includes all asserted and unasserted claims that can be reasonably identified, including claims relating to our responsibility for compliance with environmental, health and safety laws and regulations in the jurisdictions in which we operate or formerly operated. The estimated costs in respect of such reported liabilities are not offset by amounts related to insurance or indemnification arrangements unless otherwise noted.

Environmental Matters

We have established liabilities based on our estimates for currently anticipated costs associated with environmental matters. We estimate that the costs related to our environmental liabilities as of September 30, 2023, and March 31, 2023, were $36 million and $37 million, respectively. Of the total $36 million as of September 30, 2023, $15 million is associated with an environmental reserve, $17 million is associated with undiscounted environmental clean-up costs, and $4 million is associated with restructuring actions. As of September 30, 2023, $20 million is included in accrued expenses and other current liabilities and the remainder is within other long-term liabilities in our accompanying condensed consolidated balance sheets.

Brazilian Tax Litigation

Under a federal tax dispute settlement program established by the Brazilian government, we have settled several disputes with Brazil's tax authorities regarding various forms of manufacturing taxes and social security contributions. In most cases, we are paying the settlement amounts over a period of 180 months, however, in some cases we pay the settlement amounts over a shorter period. Total settlement liabilities as of September 30, 2023, and March 31, 2023, were $8 million and $11 million, respectively. As of September 30, 2023, $7 million is included in accrued expenses and other current liabilities and the remainder is within other long-term liabilities in our accompanying condensed consolidated balance sheets.

In addition to the disputes we have settled under the federal tax dispute settlement program, we are involved in several other unresolved tax and other legal claims in Brazil. Total liabilities for other disputes and claims were $40 million as of September 30, 2023, and $37 million as of March 31, 2023. As of September 30, 2023, the $40 million is included within other long-term liabilities in our accompanying condensed consolidated balance sheets. Additionally, we have included in the range of reasonably possible losses disclosed above any unresolved tax disputes or other contingencies for which a loss is reasonably possible and estimable. The interest cost recorded on these settlement liabilities offset by interest earned on the cash deposits is reported in other (income) expenses, net on the condensed consolidated statement of operations.

During prior fiscal years, we received multiple favorable rulings from the Brazilian court that recognized the right to exclude certain taxes from the tax base used to calculate contributions to the social integration program and social security contributions on gross revenues, also known as PIS and COFINS. As a result of these cases, we had the right to apply for tax credits for the amounts overpaid during specified tax years. These credits and corresponding interest could be used to offset various Brazilian federal taxes in future years.

The Brazilian Office of the Attorney General of the National Treasury sought clarification from the Brazilian Supreme Court on certain matters, including the calculation methodology (i.e. gross or net credit amount) and timing of these credits. Since the Brazilian Supreme Court had not yet confirmed the appropriate methodology when these favorable rulings were received, Novelis recorded this benefit in the corresponding periods based on the net credit amount.

However, during the first quarter of fiscal 2022, the Brazilian Supreme Court ruled that the credit should be calculated using the gross methodology for lawsuits filed prior to March 2017. As such, Novelis recorded additional income of $76 million in other (income) expenses, net, $48 million of which is principal and $29 million is interest, related to PIS and COFINS for the years 2009 to 2017, net of $1 million in litigation expense.

During the third quarter of fiscal 2022, Novelis recorded $5 million of additional income in other (income) expenses, net, $2 million of which is principal and $3 million of which is interest, related to PIS and COFINS for certain periods.

The credit amounts, interest calculation, and supporting documentation are subject to further validation and scrutiny by tax authorities for five years after the credits are utilized. Thus, credits recognized may differ from these amounts.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

In order to qualify for these credits, the Company is required to compile and present verifiable support validating the credits. During fiscal 2022, Novelis applied for and received official authorization from The Special Department of Federal Revenue of Brazil ("Receita Federal") to use the PIS and COFINS credits related to certain periods. Novelis was able to utilize a majority of these credits to offset taxes paid in fiscal 2022 and utilized the remaining credits in the first quarter of fiscal 2023.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

15. SEGMENT, GEOGRAPHICAL AREA, MAJOR CUSTOMER AND MAJOR SUPPLIER INFORMATION

Segment Information

Due in part to the regional nature of the supply and demand of aluminum rolled products and to best serve our customers, we manage our activities based on geographical areas and are organized under four operating segments: North America, Europe, Asia, and South America. All of our segments manufacture aluminum sheet and light gauge products. We also manufacture aluminum plate products in Europe and Asia.

The following is a description of our operating segments.

North America. Headquartered in Atlanta, Georgia, this segment operates 17 plants, including seven with recycling operations, in two countries.

Europe. Headquartered in Küsnacht, Switzerland, this segment operates 10 plants, including five with recycling operations, in four countries.

Asia. Headquartered in Seoul, South Korea, this segment operates four plants, including two with recycling operations, in two countries.

South America. Headquartered in São Paulo, Brazil, this segment operates two plants in Brazil, including one with recycling operations.

Net sales and expenses are measured in accordance with the policies and procedures described in Note 1 – Business and Summary of Significant Accounting Policies within our 2023 Form 10-K.

We measure the profitability and financial performance of our operating segments based on Adjusted EBITDA. Adjusted EBITDA provides a measure of our underlying segment results that is in line with our approach to risk management. We define Adjusted EBITDA as earnings before (a) depreciation and amortization; (b) interest expense and amortization of debt issuance costs; (c) interest income; (d) unrealized gains (losses) on change in fair value of derivative instruments, net, except for foreign currency remeasurement hedging activities, which are included in Adjusted EBITDA; (e) impairment of goodwill; (f) (gain) loss on extinguishment of debt, net; (g) noncontrolling interests' share; (h) adjustments to reconcile our proportional share of Adjusted EBITDA from non-consolidated affiliates to income as determined on the equity method of accounting; (i) restructuring and impairment expenses (reversals), net; (j) gains or losses on disposals of property, plant and equipment and businesses, net; (k) other costs, net; (l) litigation settlement, net of insurance recoveries; (m) sale transaction fees; (n) income tax provision (benefit); (o) cumulative effect of accounting change, net of tax; (p) metal price lag; (q) business acquisition and other related costs; (r) purchase price accounting adjustments; (s) income (loss) from discontinued operations, net of tax; and (t) loss on sale of discontinued operations, net of tax.

The tables that follow show selected segment financial information. "Eliminations and Other" includes eliminations and functions that are managed directly from our corporate office that have not been allocated to our operating segments as well as the adjustments for proportional consolidation and eliminations of intersegment net sales. The financial information for our segments includes the results of our affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. In order to reconcile the financial information for the segments shown in the tables below to the relevant U.S. GAAP based measures, we must adjust proportional consolidation of each line item. The "Eliminations and Other" in net sales – third party includes the net sales attributable to our joint venture party, Tri-Arrows, for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP, but we manage our Logan affiliate on a proportionately consolidated basis. See Note 3 – Consolidation and Note 4 – Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these affiliates. Additionally, we eliminate intersegment sales and intersegment income for reporting on a consolidated basis.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Selected Segment Financial Information


in millions
September 30, 2023	North America		Europe		Asia		South America		Eliminations and Other		Total
Investment in and advances to non-consolidated affiliates	$	—	$	532	$	341	$	—	$	—	$	873
Total assets	5,406		3,934		2,245		2,017		731		14,333


in millions
March 31, 2023	North America		Europe		Asia		South America		Eliminations and Other		Total
Investment in and advances to non-consolidated affiliates	$	—	$	540	$	337	$	—	$	—	$	877
Total assets	4,867		4,166		2,417		2,155		759		14,364


in millions
Selected Operating Results Three Months Ended September 30, 2023	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales – third party	$	1,722	$	1,131	$	580	$	564	$	110	$	4,107
Net sales – intersegment	—		20		60		29		(109)		—
Net sales	$	1,722	$	1,151	$	640	$	593	$	1	$	4,107

Depreciation and amortization	$	55	$	40	$	23	$	20	$	(2)	$	136
Income tax (benefit) provision	6		13		10		11		11		51
Capital expenditures	218		34		17		19		(3)		285

in millions
Selected Operating Results Three Months Ended September 30, 2022	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales – third party	$	1,958	$	1,266	$	780	$	674	$	121	$	4,799
Net sales – intersegment	—		49		69		77		(195)		—
Net sales	$	1,958	$	1,315	$	849	$	751	$	(74)	$	4,799

Depreciation and amortization	$	58	$	38	$	21	$	19	$	(2)	$	134
Income tax (benefit) provision	1		9		10		36		9		65
Capital expenditures	98		21		19		26		10		174

in millions
Selected Operating Results Six Months Ended September 30, 2023	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales – third party	$	3,454	$	2,290	$	1,177	$	1,064	$	213	$	8,198
Net sales – intersegment	—		42		132		58		(232)		—
Net sales	$	3,454	$	2,332	$	1,309	$	1,122	$	(19)	$	8,198

Depreciation and amortization	$	108	$	81	$	45	$	40	$	(7)	$	267
Income tax (benefit) provision	(7)		26		18		27		41		105
Capital expenditures	493		61		39		34		(9)		618

in millions
Selected Operating Results Six Months Ended September 30, 2022	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales – third party	$	4,054	$	2,624	$	1,531	$	1,444	$	235	$	9,888
Net sales – intersegment	—		85		176		133		(394)		—
Net sales	$	4,054	$	2,709	$	1,707	$	1,577	$	(159)	$	9,888

Depreciation and amortization	$	115	$	78	$	43	$	40	$	(4)	$	272
Income tax provision	(23)		5		30		73		67		152
Capital expenditures	152		43		42		37		10		284

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The table below displays the reconciliation from net income attributable to our common shareholder to Adjusted EBITDA.


	Three Months Ended September 30,				Six Months Ended September 30,
in millions	2023		2022		2023		2022
Net income attributable to our common shareholder	$	157	$	183	$	313	$	490
Net loss attributable to noncontrolling interests	—		—		—		(1)
Income tax provision	51		65		105		152
Loss from discontinued operations, net of tax	—		1		—		2

Income from continuing operations before income tax provision	208		249		418		643
Depreciation and amortization	136		134		267		272
Interest expense and amortization of debt issuance costs	78		65		155		123
Adjustment to reconcile proportional consolidation(1)	11		13		25		27
Unrealized losses (gains) on change in fair value of derivative instruments, net	23		21		19		(21)
Realized gains on derivative instruments not included in Adjusted EBITDA(2)	(1)		(1)		(4)		(2)


Loss on extinguishment of debt, net	5		—		5		—
Restructuring and impairment expenses, net	4		1		7		2
Loss on sale of assets, net	—		—		—		1

Metal price lag	22		24		17		21

Other, net	(2)		—		(4)		1
Adjusted EBITDA	$	484	$	506	$	905	$	1,067

_________________________

(1)Adjustment to reconcile proportional consolidation relates to depreciation, amortization, and income taxes of our equity method investments. Income taxes related to our equity method investments are reflected in the carrying value of the investment and not in our consolidated income tax provision.

(2)Realized gains on derivative instruments not included in Adjusted EBITDA represents foreign currency derivatives unrelated to operations.

The following table displays Adjusted EBITDA by reportable segment.


	Three Months Ended September 30,				Six Months Ended September 30,
in millions	2023		2022		2023		2022
North America	$	208	$	191	$	374	$	418
Europe	100		73		188		157
Asia	82		113		169		207
South America	93		127		177		283
Eliminations and Other	1		2		(3)		2
Adjusted EBITDA	$	484	$	506	$	905	$	1,067

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Information about Product Sales, Major Customers, and Primary Supplier

Product Sales

The following table displays net sales by product end market.


	Three Months Ended September 30,				Six Months Ended September 30,
in millions	2023		2022		2023		2022
Beverage packaging(1)	$	1,943	$	2,314	$	3,727	$	4,802
Automotive	971		995		1,989		1,942
Aerospace and industrial plate	179		199		355		363
Specialty	1,014		1,291		2,127		2,781
Net sales	$	4,107	$	4,799	$	8,198	$	9,888

_________________________

(1)Prior to the three months ended September 30, 2023, we utilized the term "can" for the beverage packaging end market. This change is solely to align the terminology with that being currently used by the Company and does not impact the amounts presented.

Major Customers

The following table displays customers representing 10% or more of our net sales for any of the periods presented and their respective percentage of net sales.


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Ball	14	%	15	%	13	%	16	%

Primary Supplier

Rio Tinto is our primary supplier of metal inputs, including prime and sheet ingot. The table below shows our purchases from Rio Tinto as a percentage of our total combined metal purchases.


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Purchases from Rio Tinto as a percentage of total combined metal purchases	9	%	7	%	10	%	7	%

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

16. SUBSEQUENT EVENTS

In October 2023, the Company approved the plan to close the cold rolling and finishing plant in Clayton, New Jersey. The decision was based on the opportunity to optimize the product portfolio and simplify the manufacturing footprint by eliminating some low growth, low margin products and consolidating production at other sites. The Company expects to cease substantially all operations at this plant by the end of the third quarter of fiscal 2024 and estimates total pre-tax charges associated with this action to be in the range of $25 million to $35 million, consisting primarily of charges for accelerated depreciation and employee-related restructuring expenses, which the Company expects to record in the third quarter of fiscal 2024. Additionally, the Company will record any environmental liabilities, if applicable, when such amounts are estimable following the closure of the plant.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

The following information should be read together with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this Form 10-Q for a more complete understanding of our financial condition and results of operations. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below, particularly in SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA.

OVERVIEW AND REFERENCES

In this Form 10-Q, unless otherwise specified, the terms "we," "our," "us," the "Company," and "Novelis" refer to Novelis Inc., a company incorporated in Canada under the Canadian Business Corporations Act, and its subsidiaries. References herein to "Hindalco" refer to Hindalco Industries Limited, which acquired Novelis in May 2007.

Novelis is driven by its purpose of shaping a sustainable world together. We consider ourselves a global leader in the production of innovative aluminum products and solutions and the world's largest recycler of aluminum. Our ambition is to be the leading provider of low-carbon, sustainable aluminum solutions and to achieve a fully circular economy by partnering with our suppliers and customers in beverage packaging, automotive, aerospace, and specialties (a diverse market including building and construction; signage; foil and packaging; commercial transportation; and commercial and consumer products, among others) markets throughout North America, Europe, Asia, and South America. Novelis is a subsidiary of Hindalco, an industry leader in aluminum and copper and the metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India. As of September 30, 2023, 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.

As used in this Form 10-Q, consolidated "aluminum rolled product shipments," "flat-rolled product shipments," or "shipments" refers to aluminum rolled product shipments to third parties. Regional "aluminum rolled product shipments," "flat-rolled product shipments," or "shipments" refers to aluminum rolled product shipments to third parties and intersegment shipments to other Novelis regions. Shipment amounts also include tolling shipments. References to "total shipments" include aluminum rolled product shipments as well as certain other non-rolled product shipments, primarily scrap, UBCs, ingots, billets, and primary remelt. The term "aluminum rolled products" is synonymous with the terms "flat-rolled products" and "FRP," which are commonly used by manufacturers and third-party analysts in our industry. All tonnages are stated in metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. One kt is 1,000 metric tonnes.

BUSINESS AND INDUSTRY CLIMATE

A little over a decade ago, we launched a strategy to transform and improve the profitability of our business through disciplined phases of significant capital investment in new capacity and capabilities. These investments enabled us to increase the amount of recycled content in our products, capitalize on favorable long-term market trends driving increased consumer demand for lightweight, sustainable aluminum products, and diversify and optimize our product portfolio. As a global leader in the aluminum flat-rolled products industry, we leveraged our new capacity, global footprint, scale, and solid customer relationships to drive volumes and capture favorable supply and demand market dynamics across all our end-use markets. Volume growth combined with improved pricing, a significant increase in scrap inputs, operational efficiencies, acquisition cost synergies, and high-capacity utilization rates, we significantly improved the profitability of our beverage packaging and specialties products and maintained high margins for automotive and aerospace products since launching this strategy.

However, rising inflation and geopolitical instability in Europe in fiscal 2023, led to increased global operating costs, including for energy, freight, labor, coatings, and alloys. While many of these operating cost pressures have lessened in recent months, some costs, including for labor and repairs, and maintenance, remain elevated. Rising interest rates have also increased interest expense on our variable interest rate loans. We believe the challenging inflationary and geopolitical environment is negatively impacting near-term demand in some specialty end markets, such as building and construction, which is more sensitive to inflation and interest rates. We expect such elevated costs and reduced demand until economic conditions stabilize. Despite our results being negatively impacted by higher costs, we have been able to partially mitigate a portion of the higher inflationary cost impact through a combination of hedging, passing through a portion of the higher costs to customers, favorable pricing environments, and utilizing recycled materials. We have also implemented cost control measures across our global operations, including a focus on employment, professional services, and travel costs. There is no assurance that we will continue to be able to mitigate these higher costs in the future.

Our management administers an Enterprise Risk Management ("ERM") program, which is a comprehensive risk assessment and mitigation process that identifies and addresses all known current and potential material risks to Novelis' global operations, including legal and regulatory risks. The ERM team is led by an executive officer who delivers an ERM report to the Audit Committee of our Board at least quarterly. The ERM team meets with or interviews approximately 80 employees each quarter to stay abreast of the latest risks we face. Throughout the escalation of the Russia-Ukraine conflict, our ERM team has monitored developments and gathered information about Novelis contracts with Russian businesses. Novelis' direct exposure to the conflict has been limited, as we have no operations, assets, or employees in either Russia or Ukraine, and we have only immaterial customer relationships in these countries. Sanctions, tariffs, a ban, or similar actions impacting the supply of Russian aluminum could disrupt global aluminum supply. While one of our suppliers of metal is UC Rusal PLC ("Rusal"), a Russian aluminum company, we purchase metal from a diverse global portfolio of metal suppliers and are not dependent on Rusal for a significant portion of our metal supply. The ERM team also monitors other potential impacts of Russia's invasion of Ukraine, including impacts on the reliability of energy supplies to our European manufacturing sites and supply chain disruptions. This information is presented to, and discussed with, the Audit Committee of our Board at least quarterly, with interim updates from our executive leadership as our Board may require. In addition, we manage sanctions compliance through a global sanctions screening program, and our Information Security team monitors cybersecurity matters and makes periodic reports at meetings of our Board.

We believe that global long-term demand for aluminum rolled products remains strong, driven by anticipated economic growth, material substitution, and sustainability considerations, including increased environmental awareness around polyethylene terephthalate ("PET") plastics. However, we saw reduced can sheet demand beginning in the second half of fiscal 2023 attributed to the beverage packaging industry reducing their excess inventory as supply chains improve and markets adjust to a more moderated level of beverage packaging demand post-COVID-19 pandemic. We believe inventory levels across the beverage packaging supply chain have now largely normalized.

Increasing customer preference for sustainable packaging options, and package mix shift toward infinitely recyclable aluminum are driving higher demand for aluminum beverage packaging worldwide. To support growing demand for aluminum beverage can sheet in North America, we broke ground on a 600 kt capacity greenfield rolling and recycling plant in Bay Minette, Alabama, in October 2022. We plan to allocate more than half of this plant's capacity to the production of beverage can sheet. We continue to evaluate opportunities for additional capacity expansion across regions where local can sheet supply is insufficient to meet the rise in demand.

We believe that long-term demand for aluminum automotive sheet will continue to grow, which drove our recently completed investments in automotive sheet finishing capacity in Guthrie, Kentucky, and Changzhou, China. This demand has been primarily driven by the benefits that result from using lightweight aluminum in vehicle structures and components, as automakers respond to stricter government regulations regarding emissions and fuel economy, while maintaining or improving vehicle safety and performance, resulting in increased competition with high-strength steel. We are also seeing increased demand for aluminum for electric vehicles, as aluminum's lighter weight can result in extended battery range.

We expect long-term demand for building and construction and other specialty products to grow due to increased customer preference for lightweight, sustainable materials and demand for aluminum plate in Asia to grow driven by the development and expansion of industries serving aerospace, rail, and other technically demanding applications.

Demand for aerospace aluminum plate and sheet has strengthened as air-travel demand has recovered toward pre-COVID levels. In the longer-term, we believe significant aircraft industry order backlogs for key OEMs, including Airbus and Boeing, will translate into growth in the future and that our multi-year supply agreements have positioned us to benefit from future expected demand.

We believe the long-term demand trends for flat-rolled aluminum products remain strong, and we have identified more than $4.5 billion of potential organic capital investment opportunities to grow Novelis' business through debottlenecking, recycling, and new capacity investments, focused on increasing capacity and capabilities that meet growing customer demand and align with our sustainability commitments. We intend to primarily fund these organic growth investments from internally generated cash flows, and, as such, are pacing capital investments and prioritizing specific investments of approximately $3.5 billion that are already under way.

Environmental, Social & Governance

In April 2021, we announced that we will further our longstanding sustainability commitment by aiming to become a carbon neutral company by 2050 or sooner, with an interim goal to reduce our carbon footprint by 30% by fiscal 2026, from our baseline of fiscal 2016. Carbon goals are inclusive of Scope 1 and 2, as well as Scope 3 emissions in categories 1 and 4 of the Greenhouse Gas Protocol. In addition, we have targets to reduce waste intensity to landfills by 20%, energy intensity by 10%, and water intensity by 10%, each by fiscal 2026, from our baseline of fiscal 2020.

We plan to increase the use of recycled content in our products, as appropriate, and engage with customers, suppliers, and industry peers across the value chain as we aim to drive innovation that improves aluminum's overall sustainability profile. In addition, we intend to evaluate each future expansion project's carbon impact and plan to include an appropriate carbon cost impact as part of our financial evaluation of future strategic growth investments so that we may appropriately mitigate any negative carbon impacts to meet our goals.

In support of our commitments, we are voluntarily pursuing the certification of all of our plant operations to the Aluminum Stewardship Initiatives' ("ASI") certification program. ASI works together with producers, users, and stakeholders in the aluminum value chain to collaboratively foster responsible production, sourcing, and stewardship of aluminum. Currently, we have 22 plants globally, and 14 scrap collection centers across Brazil, with both the Performance Standard Certification and the Chain of Custody Certification. In addition, to support our initiatives, in March 2021 we issued €500 million in aggregate principal amount of senior notes. We intend to allocate an amount equal to the net proceeds of these notes to eligible "green" projects, such as investments in renewable energy and pollution prevention and control projects. Through March 31, 2023, we have allocated $280 million of the net proceeds to such projects.

Our path to a more sustainable and circular future goes beyond our environmental commitments. We have set targets to be a more diverse and inclusive workforce that reflects our local communities. Globally, we are dedicated to increasing the representation of women in senior leadership, as well as in technical roles. To achieve these goals, the Company has established a global Diversity & Inclusion board of directors, as well as supporting councils in each of our four regions. We will also continue assisting our Employee Resource Groups to help create a more inclusive environment where we seek to provide our employees with a sense of belonging and where different backgrounds and perspectives are embraced and valued.

We are also committed to supporting the communities in which our employees live and work. With firmly established community engagement programs, the Company is committed to advancing its corporate social responsibility efforts by further investing in the Novelis Neighbor program, which gives back to communities through financial contributions and employee volunteerism. The program will continue emphasizing STEM education, recycling education, and community development.

Liquidity Position

We believe we have adequate liquidity to manage the business with dynamic metal prices. Our cash and cash equivalents and availability under committed credit facilities aggregated to $2.3 billion of liquidity as of September 30, 2023.

We maintain a disciplined approach to capital spending, prioritizing maintenance capital for our operations, and organic strategic capacity expansion projects. We are taking a prudent approach to phasing the timing of transformational organic investment spend, and we expect capital expenditures for fiscal 2024 to be in the range of approximately $1.6 to $1.9 billion, as spending for a number of announced strategic capital projects is now ramping up. This current guidance includes approximately $300 million for expected maintenance spend.

Market Trends

Beverage Packaging. Can stock shipments represent the largest percentage of our total rolled product shipments. We estimate demand for can stock will increase at a global compound annual growth rate of approximately 3% from calendar year 2022 to 2031, mainly driven by sustainability trends; growth in beverage markets that increasingly use aluminum packaging; and substitution from plastic, glass, and steel. However, we have recently seen reduced can sheet demand, which began during the middle of fiscal year 2023 and has continued into early fiscal 2024. We attribute this reduced can sheet demand to the beverage packaging industry reducing excess inventory previously stocked in response to unreliable supply chains and unprecedented high levels of beverage packaging demand during the COVID-19 pandemic, as well as low promotional activity at retailers. We anticipate demand will continue to recover over the next couple of quarters as we believe industry inventory levels have now largely normalized and some level of promotional activity is beginning to resume.

Automotive. We believe aluminum utilization is positioned for long-term growth through increased adoption of electric vehicles, which utilize higher amounts of aluminum. We estimate global automotive aluminum sheet demand will grow at an 11% compound annual growth rate between calendar year 2023 and 2028. Easing supply chain challenges and pent-up consumer demand increasing vehicle levels is supporting strong near-term demand for automotive aluminum sheet.

Beginning on September 15, 2023, the United Auto Workers (UAW) commenced strikes impacting three of our North American customers, Ford Motor Company, General Motors and Stellantis. Due to our diverse customer and geographic base, we did not experience any material impact from these strikes in the second quarter of fiscal 2024. The UAW reached tentative agreements with all three automakers during the second half of October 2023, and as such we do not anticipate any material impact on our financial results in future periods as a result of these strikes, assuming the agreements are approved and finalized promptly.

Aerospace. Passenger air travel continues to increase facilitating a faster than anticipated recovery for the aerospace industry post-pandemic. We expect demand for aerospace aluminum plate and sheet to continue to grow driven by increased air traffic and a need for fleet modernization.

Specialties. Specialties includes diverse markets, including building and construction, commercial transportation, foil and packaging, and commercial and consumer products. These industries continue to increase aluminum adoption due to its many desirable characteristics. We believe these trends will keep demand high in the long-term, despite the near-term economic headwinds impacting demand for building and construction and some industrial products.

BUSINESS MODEL AND KEY CONCEPTS

Conversion Business Model

A significant amount of our business is conducted under a conversion model, which allows us to pass through increases or decreases in the price of aluminum to our customers. Nearly all of our flat-rolled products have a price structure with three components: (1) a base aluminum price quoted off the LME; (2) an LMP; and (3) a "conversion premium" to produce the rolled product, which reflects, among other factors, the competitive market conditions for that product. Base aluminum prices are typically driven by macroeconomic factors and global supply and demand for aluminum. LMPs tend to vary based on the supply and demand for metal in a particular region and associated transportation costs.

In North America, Europe, and South America, we pass through LMPs to our customers, which are recorded through net sales. In Asia, we purchase our metal inputs based on the LME and incur an LMP. Many of our competitors in this region price their metal off the Shanghai Futures Exchange, which does not include an LMP. However, in a majority of new contracts over the last several quarters, we are able to fully pass through the LMPs.

LME Base Aluminum Prices and Local Market Premiums

The average (based on the simple average of the monthly averages) and closing prices for aluminum set on the LME are as follows.


	Three Months Ended September 30,				Percent Change		Six Months Ended September 30,				Percent Change
	2023		2022				2023		2022
Aluminum (per metric tonne, and presented in U.S. dollars):
Closing cash price as of beginning of period	$	2,097	$	2,397	(13)	%	$	2,337	$	3,503	(33)	%
Average cash price during the period	2,155		2,354		(8)		2,209		2,618		(16)
Closing cash price as of end of period	2,308		2,180		6		2,308		2,180		6

The weighted average LMPs are as follows.


	Three Months Ended September 30,				Percent Change		Six Months Ended September 30,				Percent Change
	2023		2022				2023		2022
Weighted average LMP (per metric tonne and presented in U.S. dollars)	$	310	$	360	(14)	%	$	340	$	442	(23)	%

Metal Price Lag and Related Hedging Activities

Increases or decreases in the price of aluminum based on the average LME base aluminum prices and LMPs directly impact net sales, cost of goods sold (exclusive of depreciation and amortization), and working capital. The timing of these impacts varies based on contractual arrangements with customers and metal suppliers in each region. These timing impacts are referred to as metal price lag. Metal price lag exists due to: (i) the period of time between the pricing of our purchases of metal, holding and processing the metal, and the pricing of the sale of finished inventory to our customers and (ii) certain customer contracts containing fixed forward price commitments, which result in exposure to changes in metal prices for the period of time between when our sales price fixes and the sale actually occurs.

We use LME aluminum forward contracts to preserve our conversion margins and manage the timing differences associated with the LME base metal component of net sales and cost of goods sold (exclusive of depreciation and amortization). These derivatives directly hedge the economic risk of future LME base metal price fluctuations to better match the purchase price of metal with the sales price of metal. We have exposure to multiple regional LMPs, however the derivative markets for those LMPs are generally not robust or efficient enough for us to hedge all of our exposure to price movements beyond a small volume. From time to time, we take advantage of short-term market conditions to hedge a small percentage of our exposure. As a consequence, volatility in LMPs can have a significant impact on our results of operations and cash flows.

We elect to apply hedge accounting to better match the recognition of gains or losses on certain derivative instruments with the recognition of the underlying exposure being hedged in the statement of operations. For undesignated metal derivatives, there are timing differences between the recognition of unrealized gains or losses on the derivatives and the recognition of the underlying exposure in the statement of operations. The recognition of unrealized gains and losses on undesignated metal derivative positions typically precedes inventory cost recognition, customer delivery, and revenue recognition. The timing difference between the recognition of unrealized gains and losses on undesignated metal derivatives and cost or revenue recognition impacts income from continuing operations before income tax provision and net income.

Foreign Currency and Related Hedging Activities

We operate a global business and conduct business in various currencies around the world. We have exposure to foreign currency risk as fluctuations in foreign exchange rates impact our operating results when we translate the operating results from various functional currencies into our U.S. dollar reporting currency at current average rates. We also record foreign exchange remeasurement gains and losses when business transactions are denominated in currencies other than the functional currency of that operation. Global economic uncertainty is contributing to higher levels of volatility among the currency pairs in which we conduct business. The following table presents the exchange rates as of the end of each period and the average of the month-end exchange rates.


	Exchange Rate as of		Average Exchange Rate Three Months Ended September 30,		Average Exchange Rate Six Months Ended September 30,
	September 30, 2023	March 31, 2023	2023	2022	2023	2022
Euro per U.S. dollar	0.945	0.920	0.924	0.998	0.922	0.971
Brazilian real per U.S. dollar	5.008	5.080	4.890	5.258	4.931	5.110
South Korean won per U.S. dollar	1,345	1,304	1,315	1,362	1,320	1,316
Canadian dollar per U.S. dollar	1.352	1.354	1.340	1.321	1.343	1.299
Swiss franc per euro	0.968	0.993	0.961	0.972	0.969	0.995

Exchange rate movements have an impact on our operating results. In Europe, where we predominantly have local currency selling prices and operating costs, we benefit as the euro strengthens but are adversely affected as the euro weakens. For our Swiss operations, where operating costs are incurred primarily in the Swiss franc and a large portion of revenues are denominated in the euro, we benefit as the Swiss franc weakens but are adversely affected as the franc strengthens. In South Korea, where we have local currency operating costs and U.S. dollar denominated selling prices for exports, we benefit as the South Korean won weakens but are adversely affected as the won strengthens. In Brazil, where we have predominately U.S. dollar selling prices and local currency manufacturing costs, we benefit as the Brazilian real weakens but are adversely affected as the real strengthens. We use foreign exchange forward contracts to manage our exposure arising from recorded assets and liabilities, firm commitments, and forecasted cash flows denominated in currencies other than the functional currency of certain operations, which include capital expenditures and net investment in foreign subsidiaries.

See Segment Review below for the impact of foreign currency on each of our segments.

RESULTS OF OPERATIONS

For the three months ended September 30, 2023, we reported net income attributable to our common shareholder of $157 million, a decrease of 14% compared to $183 million in the comparable prior year period, and total Adjusted EBITDA of $484 million, a decrease of 4% compared to $506 million in the comparable prior year period. The decrease in operational performance compared to the comparable prior year period is primarily driven by lower beverage packaging and specialty shipments, less favorable metal benefit from recycling, and a favorable inventory timing effect from capitalizing high operating costs in the prior year period. These headwinds were largely offset by higher pricing including some cost pass-through to customers, higher automotive shipments, favorable product mix, and some settling of inflation in the current quarter on operating costs, including freight, energy, and coatings.

For the six months ended September 30, 2023, we reported net income attributable to our common shareholder of $313 million, a decrease of 36% compared to $490 million in the comparable prior year period, and total Adjusted EBITDA of $905 million, a decrease of 15% compared to $1.1 billion in the comparable prior year period. The decrease in operational performance was primarily driven by lower beverage packaging and specialty shipments and less favorable metal benefit from recycling. These headwinds were partially offset by higher pricing, including some cost pass-through to customers, higher automotive shipments, and some settling of inflationary cost pressures.

Key Sales and Shipment Trends


	Three Months Ended												Fiscal Year Ended			Three Months Ended
in millions, except percentages and shipments, which are in kt	June 30, 2022			September 30, 2022			December 31, 2022			March 31, 2023			March 31, 2023			June 30, 2023			September 30, 2023
Net sales	$	5,089		$	4,799		$	4,201		$	4,397		$	18,486		$	4,091		$	4,107
Percentage (decrease) increase in net sales versus comparable prior year period	32		%	17		%	(3)		%	(9)		%	8		%	(20)		%	(14)		%
Rolled product shipments:
North America	386			386			380			363			1,515			370			390
Europe	272			268			242			248			1,030			250			256
Asia	185			208			141			187			721			176			175
South America	148			162			162			144			616			119			144
Eliminations	(29)			(40)			(17)			(6)			(92)			(36)			(32)
Total	962			984			908			936			3,790			879			933

The following summarizes the percentage (decrease) increase in rolled product shipments versus the comparable prior year period:
North America	8		%	3		%	6		%	(3)		%	3		%	(4)		%	1		%
Europe	(3)			3			(5)			(9)			(3)			(8)			(4)		%
Asia	(4)			6			(18)			(8)			(6)			(5)			(16)		%
South America	(6)			10			3			(8)			—			(20)			(11)		%
Total	(1)		%	2		%	(2)		%	(5)		%	(2)		%	(9)		%	(5)		%

Three Months Ended September 30, 2023, Compared to the Three Months Ended September 30, 2022

Net sales was $4.1 billion for the three months ended September 30, 2023, a decrease of 14% from $4.8 billion in the comparable prior year period, primarily driven by lower average aluminum prices, and a 5% decrease in shipments, partially offset by higher pricing across end markets.

Income from continuing operations before income tax provision was $208 million for the three months ended September 30, 2023, a decrease of 16% from $249 million in the comparable prior year period. In addition to the factors noted above, the following items affected income from continuing operations before income tax provision.

Cost of Goods Sold (Exclusive of Depreciation and Amortization)

Cost of goods sold (exclusive of depreciation and amortization) was $3.5 billion for the three months ended September 30, 2023, a decrease of 16% from $4.1 billion in the comparable prior year period, primarily due to lower average aluminum prices and lower shipments. Total metal input costs included in cost of goods sold (exclusive of depreciation and amortization) decreased $663 million over the comparable prior year period.

Selling, General and Administrative Expenses

SG&A was $182 million for the three months ended September 30, 2023, compared to $181 million for the three months ended September 30, 2022.

Depreciation and Amortization

Depreciation and amortization was $136 million and $134 million in the three months ended September 30, 2023, and 2022, respectively.

Interest Expense and Amortization of Debt Issuance Costs

Interest expense and amortization of debt issuance costs was $78 million and $65 million for the three months ended September 30, 2023, and 2022, respectively. The increase is primarily due to higher average interest rates on variable interest rate borrowings.

Loss on Extinguishment of Debt, Net

We recorded a $5 million loss on extinguishment of debt, net for the three months ended September 30, 2023. This relates to the write-off of unamortized debt issuance costs and discount for the partial extinguishment of the 2020 Term Loan. There were no losses on extinguishments of debt for the three months ended September 30, 2022.

Restructuring and Impairment Expenses (Reversals), Net

Restructuring and impairment expenses, net was a net expense of $4 million and $1 million for the three months ended September 30, 2023 and 2022, respectively.

Other (Income) Expense, Net

Other (income) expenses, net was income of $2 million and an expense of $10 million for the three months ended September 30, 2023, and 2022, respectively. The change primarily relates to an increase in realized gains on the change in fair value of derivative instruments, net in the current period compared to the prior year period.

Taxes

We recognized $51 million of income tax expense for the three months ended September 30, 2023. Our effective tax rate was primarily driven by the full-year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset by the availability of tax credits and income not subject to tax. We recognized $65 million of income tax expense in the comparable prior year period.

Segment Review

Due in part to the regional nature of supply and demand of aluminum rolled products and in order to best serve our customers, we manage our activities on the basis of geographical regions and are organized under four operating segments: North America, Europe, Asia, and South America.

The tables below illustrate selected segment financial information (in millions, except shipments, which are in kt). For additional financial information related to our operating segments including the reconciliation of net income attributable to our common shareholder to Adjusted EBITDA, see Note 15 – Segment, Geographical Area, Major Customer and Major Supplier Information. In order to reconcile the financial information for the segments shown in the tables below to the relevant U.S. GAAP-based measures, "Eliminations and Other" must adjust for proportional consolidation of each line item for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP purposes. However, we manage our Logan affiliate on a proportionately consolidated basis and eliminate intersegment shipments (in kt).


Selected Operating Results Three Months Ended September 30, 2023	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales	$	1,722	$	1,151	$	640	$	593	$	1	$	4,107
Shipments (in kt):
Rolled products – third party	390		252		155		136		—		933
Rolled products – intersegment	—		4		20		8		(32)		—
Total rolled products	390		256		175		144		(32)		933
Non-rolled products	4		26		6		27		—		63
Total shipments	394		282		181		171		(32)		996


Selected Operating Results Three Months Ended September 30, 2022	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales	$	1,958	$	1,315	$	849	$	751	$	(74)	$	4,799
Shipments (in kt):
Rolled products – third party	386		257		190		151		—		984
Rolled products – intersegment	—		11		18		11		(40)		—
Total rolled products	386		268		208		162		(40)		984
Non-rolled products	3		31		7		35		(8)		68
Total shipments	389		299		215		197		(48)		1,052

The following table reconciles changes in Adjusted EBITDA for the three months ended September 30, 2022, to the three months ended September 30, 2023.


in millions	North America		Europe		Asia		South America		Eliminations and Other(1)		Total
Adjusted EBITDA - Three Months Ended September 30, 2022	$	191	$	73	$	113	$	127	$	2	$	506
Volume	5		(14)		(33)		(18)		8		(52)
Conversion premium and product mix	25		12		(13)		(5)		15		34
Conversion costs	(11)		16		8		(10)		(21)		(18)
Foreign exchange	2		9		4		(1)		(2)		12
Selling, general & administrative and research & development costs(2)	(3)		(1)		1		1		3		1
Other changes	(1)		5		2		(1)		(4)		1
Adjusted EBITDA - Three Months Ended September 30, 2023	$	208	$	100	$	82	$	93	$	1	$	484

_________________________

(1)The recognition of Adjusted EBITDA by a region on an intersegment shipment could occur in a period prior to the recognition of Adjusted EBITDA on a consolidated basis, depending on the timing of when the inventory is sold to the third-party customer. The "Eliminations and Other" column adjusts regional Adjusted EBITDA for intersegment shipments that occur in a period prior to recognition of Adjusted EBITDA on a consolidated basis. The "Eliminations and Other" column also reflects adjustments for changes in regional volume, conversion premium and product mix, and conversion costs related to intersegment shipments for consolidation. In order to reconcile the financial information for the segments shown in the tables above to the relevant U.S. GAAP-based measures, "Eliminations and Other" must adjust for proportional consolidation of each line item for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP purposes. However, we manage our Logan affiliate on a proportionately consolidated basis and eliminate intersegment shipments (in kt).

(2)Selling, general & administrative and research & development costs include costs incurred directly by each segment and all corporate related costs.

North America

Net sales decreased $236 million, or 12%, primarily driven by lower average aluminum prices and lower specialty shipments, mainly in building and construction, due to softer market demand, partially offset by higher automotive shipments compared to the prior year due to stronger demand and higher beverage packaging shipments as customer inventory destocking activities are complete and some level of promotional activity and demand has resumed in the region. Adjusted EBITDA was $208 million, an increase of 9%, primarily driven by higher volume and product pricing. Total conversion costs were higher year over year despite reduced inflationary cost pressures and favorable metal benefit due to a favorable inventory timing effect from capitalizing high operating costs in prior year.

Europe

Net sales decreased $164 million, or 12%, primarily driven by lower average aluminum prices, lower beverage packaging and specialty shipments, mainly in building and construction, due to softer market demand, partially offset by higher automotive shipments compared to the prior year due to stronger demand from automotive OEMs. Adjusted EBITDA was $100 million, an increase of 37%, primarily driven by higher product prices, favorable metal benefits, some reduced inflationary pressures on operating costs including energy, and favorable foreign exchange, partially offset by lower volume.

Asia

Net sales decreased $209 million, or 25%, primarily driven by lower average aluminum prices, lower beverage packaging shipments due to softer market demand in southeast Asia and the Middle East, and slightly lower automotive shipments, partially offset by higher specialty shipments mainly to support strong EV battery demand. Adjusted EBITDA was $82 million, a decrease of 27%, primarily driven by lower volume and less favorable metal benefit, partially offset by favorable foreign exchange. Additionally, we incurred lower freight costs compared to the prior year period, which in turn resulted in a lower freight cost pass through in price to customers.

South America

Net sales decreased $158 million, or 21%, primarily driven by lower average aluminum prices and lower beverage packaging shipments on softer local market demand. Adjusted EBITDA was $93 million, a decrease of 27%, primarily driven by lower volume and less favorable metal benefit.

Six Months Ended September 30, 2023, Compared to the Six Months Ended September 30, 2022

Net sales were $8.2 billion for the six months ended September 30, 2023, a decrease of 17% from $9.9 billion in the comparable prior year period, primarily driven by lower average aluminum prices and a 6% decline in total shipments compared to the prior year period.

Income from continuing operations before income tax provision was $418 million for the six months ended September 30, 2023, compared to $643 million in the comparable prior year period. In addition to the factors noted above, the following items affected income from continuing operations before income tax provision.

Cost of Goods Sold (Exclusive of Depreciation and Amortization)

Cost of goods sold (exclusive of depreciation and amortization) was $7.0 billion for the six months ended September 30, 2023, a decrease of 17% from $8.4 billion in the comparable prior year period, driven primarily by lower average aluminum prices and lower production due to reduced demand. Total metal input costs included in cost of goods sold (exclusive of depreciation and amortization) decreased $1.4 billion over the comparable prior year period.

Selling, General and Administrative Expenses

SG&A was $356 million for the six months ended September 30, 2023, compared to $345 million for the six months ended September 30, 2022. The increase is mainly due to higher employment costs, partially offset by cost control measures across our global operations, including a focus on employment, professional services, and travel costs.

Depreciation and Amortization

Depreciation and amortization was $267 million for the six months ended September 30, 2023, compared to $272 million for the six months ended September 30, 2022.

Interest Expense and Amortization of Debt Issuance Costs

Interest expense and amortization of debt issuance costs was $155 million and $123 million for the six months ended September 30, 2023, and 2022, respectively. This increase is primarily due to higher average interest rates on variable interest rate borrowings.

Loss on Extinguishment of Debt, Net

We recorded a $5 million loss on extinguishment of debt, net for the six months ended September 30, 2023. This relates to the write-off of unamortized debt issuance costs and discount for the partial extinguishment of the 2020 Term Loan. There were no losses on extinguishments of debt for the six months ended September 30, 2022.

Restructuring and Impairment Expenses, Net

Restructuring and impairment expenses, net was a net expense of $7 million and $2 million for the six months ended September 30, 2023, and 2022, respectively.

Other (Income) Expenses, Net

Other (income) expenses, net was income of $29 million and an expense of $60 million for the six months ended September 30, 2023, and 2022, respectively. This change primarily relates to realized gains on the change in fair value of derivative instruments, net, in the current period compared to losses in the prior year period and unrealized losses on the change in fair value of derivative instruments, net, in the current period compared to gains in the prior year period.

Taxes

We recognized $105 million of income tax provision for the six months ended September 30, 2023. Our effective tax rate was primarily driven by the full year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset with the availability of tax credits and income not subject to tax. We recognized $152 million of income tax provision in the prior comparable period.

Segment Review


Selected Operating Results Six Months Ended September 30, 2023	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales	$	3,454	$	2,332	$	1,309	$	1,122	$	(19)	$	8,198
Shipments
Rolled products – third party	760		497		308		247		—		1,812
Rolled products – intersegment	—		9		43		16		(68)		—
Total rolled products	760		506		351		263		(68)		1,812
Non-rolled products	8		53		15		56		1		133
Total shipments	768		559		366		319		(67)		1,945


Selected Operating Results Six Months Ended September 30, 2022	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales	$	4,054	$	2,709	$	1,707	$	1,577	$	(159)	$	9,888
Shipments
Rolled products – third party	772		522		354		298		—		1,946
Rolled products – intersegment	—		18		39		12		(69)		—
Total rolled products	772		540		393		310		(69)		1,946
Non-rolled products	6		59		13		72		(21)		129
Total shipments	778		599		406		382		(90)		2,075

The following table reconciles changes in Adjusted EBITDA for the six months ended September 30, 2022, to the six months ended September 30, 2023.


in millions	North America		Europe		Asia		South America		Eliminations and Other(1)		Total
Adjusted EBITDA - Six Months Ended September 30, 2022	$	418	$	157	$	207	$	283	$	2	$	1,067
Volume	(14)		(40)		(42)		(49)		(1)		(146)
Conversion premium and product mix	65		63		(26)		(13)		36		125
Conversion costs	(95)		(15)		11		(42)		(35)		(176)
Foreign exchange	2		10		13		(6)		(2)		17
Selling, general & administrative and research & development costs(2)	(15)		(5)		1		7		4		(8)
Other changes	13		18		5		(3)		(7)		26
Adjusted EBITDA - Six Months Ended September 30, 2023	$	374	$	188	$	169	$	177	$	(3)	$	905

_________________________

(1)The recognition of Adjusted EBITDA by a region on an intersegment shipment could occur in a period prior to the recognition of Adjusted EBITDA on a consolidated basis, depending on the timing of when the inventory is sold to the third-party customer. The "Eliminations and Other" column adjusts regional Adjusted EBITDA for intersegment shipments that occur in a period prior to recognition of Adjusted EBITDA on a consolidated basis. The "Eliminations and Other" column also reflects adjustments for changes in regional volume, conversion premium and product mix, and conversion costs related to intersegment shipments for consolidation. "Eliminations and Other" must adjust for proportional consolidation of each line item for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP, but we manage our Logan affiliate on a proportionately consolidated basis.

(2)Selling, general & administrative and research & development costs include costs incurred directly by each segment and all corporate related costs.

North America

Net sales decreased $600 million, or 15%, driven by lower average aluminum prices, and lower specialty shipments from a weak macro-economic environment, partially offset by higher automotive shipments on robust demand.Year-to-date beverage packaging shipments were in line with the prior year period as demand and customer inventory positions have largely normalized after a period of excess inventory reduction actions. Adjusted EBITDA was $374 million, a decrease of 11%, primarily driven by lower volume, higher operating costs including a favorable inventory timing effect from capitalizing high operating costs in the prior year, and less favorable metal benefit. In addition, SG&A and other changes increased versus the comparable prior year period mainly due to an increase in factoring expense resulting from higher interest rates. These factors were partially offset by favorable product mix and higher product prices, as well as lower freight expense.

Europe

Net sales decreased $377 million, or 14%, driven by lower average aluminum prices, lower beverage packaging shipments and lower specialty shipments due to softer demand, partially offset by higher automotive shipments. Adjusted EBITDA was $188 million, an increase of 20%, primarily driven by higher product prices and favorable foreign exchange rates, partially offset by lower volume and less favorable metal benefits.

Asia

Net sales decreased $398 million, or 23%, driven primarily by lower average aluminum prices and lower beverage packaging shipments due to softer demand, partially offset by higher specialty shipments due mainly to growing demand for EV battery components and higher automotive shipments. Adjusted EBITDA was $169 million, a decrease of 18%, primarily due to lower volume and less favorable metal benefit, partially offset by favorable product mix and favorable foreign exchange. Additionally, we incurred lower freight costs compared to the prior year period, which in turn resulted in a lower freight cost pass through in price to customers.

South America

Net sales decreased $455 million, or 29%, driven by lower average aluminum prices and lower beverage packaging shipments due to softer demand this year. Adjusted EBITDA was $177 million, a decrease of 37%, primarily due to lower volume, less favorable metal benefit, and unfavorable foreign exchange, partially offset by lower operating costs such as freight and utilities, and lower SG&A due to lowering factoring expense.

LIQUIDITY AND CAPITAL RESOURCES

We believe we maintain adequate liquidity levels through a combination of cash and availability under committed credit facilities. Our cash and cash equivalents and availability under committed credit facilities aggregated to $2.3 billion of liquidity as of September 30, 2023. Our primary liquidity sources are cash flows from operations, working capital management, cash, and liquidity under our debt agreements. Our recent business investments are being funded through cash flows generated by our operations and a combination of local financing and our senior secured credit facilities. We expect to be able to fund both our short- and long-term liquidity needs, such as our continued expansions, servicing our debt obligations, and providing sufficient liquidity to operate our business, through one or more of the following: the generation of operating cash flows, working capital management, our existing debt facilities (including refinancing), and new debt issuances, as necessary.

Available Liquidity

Our available liquidity as of September 30, 2023, and March 31, 2023, is as follows.


in millions	September 30, 2023		March 31, 2023
Cash and cash equivalents	$	1,158	$	1,498
Availability under committed credit facilities	1,145		1,101
Total available liquidity	$	2,303	$	2,599

The decrease in total available liquidity relates to the decrease in cash and cash equivalents, primarily resulting from investing activities during the period, partially offset by an increase in availability under our ABL Revolver facility due to an increase in the borrowing base compared to prior period. See Note 5 – Debt for more details about our availability under committed credit facilities.

Cash and cash equivalents includes cash held in foreign countries in which we operate. As of September 30, 2023, we held $45 million of cash and cash equivalents in Canada, in which we are incorporated, with the rest held in other countries in which we operate. As of September 30, 2023, we held $612 million of cash in jurisdictions for which we have asserted that earnings are permanently reinvested, and we plan to continue to fund operations and local expansions with cash held in those jurisdictions. Cash held outside of Canada is free from significant restrictions that would prevent the cash from being accessed to meet the Company's liquidity needs, including, if necessary, to fund operations and service debt obligations in Canada. Upon the repatriation of any earnings to Canada, in the form of dividends or otherwise, we could be subject to Canadian income taxes (subject to adjustment for foreign taxes paid and the utilization of the large cumulative net operating losses we have in Canada) and withholding taxes payable to the various foreign jurisdictions. As of September 30, 2023, we do not believe adverse tax consequences exist that restrict our use of cash and cash equivalents in a material manner.

We use derivative contracts to manage risk as well as liquidity. Under our terms of credit with counterparties to our derivative contracts, we do not have any material margin call exposure. No material amounts have been posted by Novelis nor do we hold any material amounts of margin posted by our counterparties. We settle derivative contracts in advance of billing on the underlying physical inventory and collecting payment from our customers, which temporarily impacts our liquidity position. The lag between derivative settlement and customer collection typically ranges from 30 to 90 days.

Obligations

Our material cash requirements include future contractual and other obligations arising in the normal course of business. These obligations primarily include debt and related interest payments, finance and operating lease obligations, postretirement benefit plan obligations, and purchase obligations. See Note 5 – Debt to our accompanying condensed consolidated financial statements and "Liquidity and Capital Resources" within Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K for more details.

There are no additional material off-balance sheet arrangements.

Cash Flow Summary


	Six Months Ended September 30,
in millions	2023		2022		Change
Net cash provided by operating activities	$	290	$	190	$	100
Net cash used in investing activities	(590)		(290)		(300)
Net cash (used in) provided by financing activities	(26)		230		(256)

Operating Activities

The increase in net cash provided by operating activities primarily relates to favorable changes in working capital, partially offset by lower Adjusted EBITDA.

Adjusted Free Cash Flow

Refer to Non-GAAP Financial Measures for our definition of Adjusted Free Cash Flow.

The following table displays the Adjusted Free Cash Flow, the change between periods, as well as the ending balances of cash and cash equivalents.


	Six Months Ended September 30,
in millions	2023		2022		Change
Net cash provided by operating activities – continuing operations	$	290	$	196	$	94
Net cash used in investing activities – continuing operations	(590)		(290)		(300)

Plus: Cash used in the acquisition of business and other investments, net of cash acquired	—		4		(4)


Adjusted Free Cash Flow from continuing operations	(300)		(90)		(210)
Net cash used in operating activities – discontinued operations	—		(6)		6


Adjusted Free Cash Flow	$	(300)	$	(96)	$	(204)
Ending cash and cash equivalents	$	1,158	$	1,145	$	13

Investing Activities

Net cash used in investing activities was primarily attributable to capital expenditures of $618 million during the six months ended September 30, 2023.

Financing Activities

The following represents proceeds from the issuance of long-term and short-term borrowings during the six months ended September 30, 2023. There were no proceeds from the issuance of long-term and short-term borrowings during the six months ended September 30, 2022.


	Six Months Ended
in millions	September 30, 2023
Floating rate Term Loans, due September 2026	$	482
Short-term borrowings in Brazil	50





Proceeds from issuance of long-term and short-term borrowings	$	532

The following represents principal payments of long-term and short-term borrowings during the six months ended September 30, 2023, and 2022.


	Six Months Ended
in millions	September 30, 2023


Brazil Loan, due June 2023	$	(30)
Floating rate Term Loans, due January 2025	(484)
Floating rate Term Loans, due March 2028	(3)
China Bank Loans, due August 2027	(3)


Finance leases and other repayments	(11)
Principal payments of long-term and short-term borrowings	$	(531)


	Six Months Ended
in millions	September 30, 2022
Short-term loans due November 2022	$	(102)
Floating rate Term Loans, due January 2025	(4)
Floating rate Term Loans, due March 2028	(3)
China Bank Loans, due August 2027	(3)


Finance leases and other repayments	(2)
Principal payments of long-term and short-term borrowings	$	(114)

The following represents inflows (outflows) from revolving credit facilities and other, net during the six months ended September 30, 2023, and 2022.


	Six Months Ended
in millions	September 30, 2023
ABL Revolver	$	32
China credit facility	(57)
Korea credit facility	1

Revolving credit facilities and other, net	$	(24)


	Six Months Ended
in millions	September 30, 2022
ABL Revolver	$	426
China Credit Facility	16


Korea credit facility and Other revolving facilities	8
Revolving credit facilities and other, net	$	450

In September 2023, Novelis amended the Term Loan Facility and the amendment was accounted for as a partial extinguishment of the 2020 Term Loans, whereby $482 million of the $750 million outstanding at the time of the transaction was deemed an extinguishment and the remaining $268 million was deemed a modification of debt.

In addition to the activities shown in the tables above, we paid debt issuance costs of $3 million and $6 million during the six months ended September 30, 2023, and 2022, respectively. We also paid a return of capital to our common shareholder in the amount of $100 million during the six months ended September 30, 2022.

Non-Guarantor Information

As of September 30, 2023, the Company's subsidiaries that are not guarantors represented the following approximate percentages of (a) net sales (including intercompany sales), (b) Adjusted EBITDA, and (c) total assets of the Company, on a consolidated basis (including intercompany balances).


Item Description	Ratio
Net sales represented by non-guarantor subsidiaries (for the six months ended September 30, 2023)	19	%
Adjusted EBITDA represented by non-guarantor subsidiaries (for the six months ended September 30, 2023)	19	%
Assets owned by non-guarantor subsidiaries (as of September 30, 2023)	15	%

In addition, for the six months ended September 30, 2023, and 2022, the Company's subsidiaries that are not guarantors had net sales (including intercompany sales) of $1.8 billion and $2.3 billion, respectively, and as of September 30, 2023, those subsidiaries had assets of $2.9 billion and debt and other liabilities of $1.6 billion (including intercompany balances).

CAPITAL ALLOCATION FRAMEWORK

In May 2021, Novelis announced a capital allocation framework that laid out the general guidelines for use of post-maintenance capital expenditure Adjusted Free Cash Flow for the next five years. The priority at that time was to reduce long-term debt by $2.6 billion from its recent peak in the first quarter of fiscal 2021 after the Aleris acquisition and to target a net leverage ratio of approximately 2.5x. Having achieved both targets by the end of fiscal 2022, the priority has now shifted to organic growth capital expenditures. We believe the long-term demand trends for flat-rolled aluminum products remain strong, and we have identified more than $4.5 billion of potential organic capital investment opportunities to grow Novelis' business through debottlenecking, recycling, and new capacity investments, focused on increasing capacity and capabilities that meet growing customer demand and align with our sustainability commitments. We intend to fund these organic growth investments from internally generated cash flows, and, as such, are pacing capital investments and prioritizing specific investments of approximately $3.5 billion that are already under way. We intend to maintain a medium-term net leverage ratio below 3x, and continue to guide approximately 8%-10% of post-maintenance capital expenditure Adjusted Free Cash Flow to be returned to our common shareholder. Payments to our common shareholder are at the discretion of our Board of Directors. Any such payments depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments governing our indebtedness, being in compliance with the appropriate indentures and covenants under the instruments that govern our indebtedness, and other relevant factors.

On August 1, 2023, the Board of Directors approved a return of capital to our common shareholder in the amount of $100 million, which will be paid in fiscal 2024. We paid a return of capital to our common shareholder in the amount of $100 million during the second quarter of fiscal 2023. Past payments of return of capital should not be construed as a guarantee of future returns of capital in the same amounts or at all.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There were no significant changes to our critical accounting policies and estimates as reported in our 2023 Form 10-K. See Note 1 – Business and Summary of Significant Accounting Policies for our principal areas of uses of estimates and assumptions.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 1 – Business and Summary of Significant Accounting Policies to our accompanying condensed consolidated financial statements for a full description of recent accounting pronouncements, if applicable, including the respective expected dates of adoption and expected effects on results of operations and financial condition.

NON-GAAP FINANCIAL MEASURES

Total Adjusted EBITDA presents the sum of the results of our four operating segments on a consolidated basis. We believe that total Adjusted EBITDA is an operating performance measure that measures operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets among otherwise comparable companies. In reviewing our corporate operating results, we also believe it is important to review the aggregate consolidated performance of all of our segments on the same basis we review the performance of each of our regions and draw comparisons between periods based on the same measure of consolidated performance.

Management believes investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations from one period to the next and would ordinarily add back items that are not part of normal day-to-day operations of our business. By providing total Adjusted EBITDA, together with reconciliations, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives.

However, total Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP, and our total Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Total Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. For example, total Adjusted EBITDA:

•does not reflect the Company's cash expenditures or requirements for capital expenditures or capital commitments;

•does not reflect changes in, or cash requirements for, the Company's working capital needs; and

•does not reflect any costs related to the current or future replacement of assets being depreciated or amortized.

We also use total Adjusted EBITDA:

•as a measure of operating performance to assist us in comparing our operating performance on a consistent basis because it removes the impact of items not directly resulting from our core operations;

•for planning purposes, including the preparation of our internal annual operating budgets and financial projections;

•to evaluate the performance and effectiveness of our operational strategies; and

•as a basis to calculate incentive compensation payments for our key employees.

Adjusted EBITDA per tonne is calculated by dividing Adjusted EBITDA by aluminum rolled product shipments (in tonnes) for the corresponding period, both on a consolidated basis and at a segment level. The term "aluminum rolled products" is synonymous with the terms "flat-rolled products" and "FRP," which are commonly used by manufacturers and third-party analysts in our industry. Shipment amounts also include tolling shipments. All tonnages are stated in metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. One kt is 1,000 metric tonnes.

Management believes Adjusted EBITDA per tonne is relevant to investors as it provides a measure of aluminum rolled product shipments to third parties rather than aluminum rolled product shipments as well as certain other non-rolled product shipments, primarily scrap, UBCs, ingots, billets, and primary remelt. This is useful to investors because the incremental impact of non-rolled products shipments on our Adjusted EBITDA is marginal since the price of these products is generally set to cover the costs of raw materials not utilized in manufacturing products sold to beverage packaging customers, specialties and aerospace customers in our regions, and these non-rolled products are not part of our core operating business.

Please see Note 15 – Segment, Geographical Area, Major Customer and Major Supplier Information for our definition of Adjusted EBITDA. Under ASC 280, Adjusted EBITDA is our measure of segment profitability and financial performance of our operating segments, and when used in this context, the term Adjusted EBITDA is a financial measure prepared in accordance with U.S. GAAP. Adjusted EBITDA reported for the Company on a consolidated basis is a non-U.S. GAAP financial measure. Prior to the three months ended June 30, 2022, we also utilized the term Segment Income to refer to Adjusted EBITDA. Both terms have the same definition and there is no difference in the composition or calculation of Adjusted EBITDA for the periods presented and Segment Income previously reported.

Adjusted Free Cash Flow consists of (a) net cash provided by (used in) operating activities – continuing operations, (b) plus net cash provided by (used in) investing activities – continuing operations, (c) plus net cash provided by (used in) operating activities – discontinued operations, (d) plus net cash provided by (used in) investing activities – discontinued operations, (e) plus cash used in the acquisition of assets under a finance lease, (f) plus cash used in the acquisition of business and other investments, net of cash acquired, (g) plus accrued merger consideration, (h) less proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging, and (i) less proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging – discontinued operations. Management believes Adjusted Free Cash Flow is relevant to investors, as it provides a measure of the cash generated internally that is available for debt service and other value creation opportunities. In addition, this measure is a key consideration in determining the amounts to be paid as returns to our common shareholder. However, Adjusted Free Cash Flow does not necessarily represent cash available for discretionary activities as certain debt service obligations must be funded out of Adjusted Free Cash Flow. Our method of calculating Adjusted Free Cash Flow may not be consistent with that of other companies.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

This Quarterly Report on Form 10-Q contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industry in which we operate, and beliefs and assumptions made by our management. Such statements include, in particular, statements about our plans, strategies, and prospects under the heading "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," under the Notes to the Condensed Consolidated Financial Statements, and elsewhere in this Quarterly Report. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," and variations of such words and similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, our belief that, the expected timing and results from investments in certain operating facilities, including our greenfield, fully-integrated rolling and recycling mill currently being built in Bay Minette, Alabama; our projections regarding financial performance, liquidity, capital expenditures, and investments; and the possible future impacts of the COVID-19 variants or any other epidemic or pandemic and the actions taken against them, including expectations about the impact of any changes in demand as well as volatility and uncertainty in general economic conditions; the possible future impacts of geopolitical instability due in part to the Russia-Ukraine conflict; statements about our belief that long-term demand for aluminum automotive sheet will continue to grow; statements about our expectation that aerospace demand and shipments will continue to grow driven by increased air traffic and a need for fleet modernization; statements about our belief that significant aircraft industry order backlogs for key OEMS, including Airbus and Boeing, will translate into growth in the future and that our multi-year supply agreements have positioned us to benefit from future expected demand; statements about our belief that long term demand for flat-rolled aluminum remains strong; and statements about our expectation that long-term demand for building and construction and other specialty products will grow. These statements are based on beliefs and assumptions of Novelis' management, which in turn are based on currently available information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed, implied, or forecasted in such forward-looking statements. We do not intend, and we disclaim any obligation, to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Factors that could cause actual results or outcomes to differ from the results expressed or implied by forward-looking statements include, among other things:

•disruptions or changes in the business or financial condition of our significant customers or the loss of their business or reduction in their requirements;

•price and other forms of competition from other aluminum rolled products producers and potential new market entrants;

•competition in our end-markets, and the willingness of our customer to accept substitutes for our products, including steel, plastics, composite materials and glass;

•our inability to realize the anticipated benefits of strategic investments;

•increases in the cost of volatility in the availability of primary aluminum, scrap aluminum, sheet ingot, or other raw materials used in the production of our products;

•rises in energy costs or disruptions to our energy supplies;

•downturns in the automotive and ground transportation industries or changes in consumer demand;

•public health crises, such as the recently experienced COVID-19 pandemic;

•union disputes and other employee relations issues;

•the impact of labor disputes and strikes on our customers could have material adverse effects on our business and financial results;

•loss of our key management and other personnel, or an inability to attract and retain such management and other personnel;

•unplanned disruptions at our operating facilities;

•exposure to economic and political risk associated with our global operations;

•economic uncertainty, capital markets disruption and supply chain interruptions, including as a result of geopolitical instability due to the ongoing military conflict between Russia and Ukraine;

•risks relating to certain joint ventures, subsidiaries and assets that we do not entirely control;

•security breaches and other disruptions to our information technology networks and systems;

•increased freight costs on imported products;

•timing differences between the prices we pay under purchase contracts and metal prices we charge our customers;

•a deterioration of our financial condition, a downgrade of our ratings by a credit rating agency or other factors which could limit our ability to enter into, or increase our costs of, financing and hedging transactions;

•risks related to variable rate indebtedness, including interest rate risk;

•adverse changes in currency exchange rates;

•our inability to transact in derivative instruments, if our exposure to price fluctuations is not adequately hedged under derivative instruments, or if counterparties to our derivative instruments fail to honor their agreements;

•an adverse decline in the liability discount rate, lower-than-expected investment return on pension assets;

•impairments to our goodwill, other intangible assets and other long-lived assets;

•tax expense, tax liabilities or tax compliance costs;

•operating and financial restrictions imposed on us by the covenants in our credit facilities and the indentures governing our Senior Notes;

•our inability to protect our intellectual property, the confidentiality of our know-how, trade secrets, technology, and other proprietary information;

•risks related to our global operations, including the impact of complex and stringent laws and government regulations;

•global climate change or the legal, regulatory or market responses to such change;

•risks related to the broad range of environmental, health and safety laws and regulations to which we are subject, and any related exposure to substantial environmental, health and safety costs and liabilities;

•our failure to comply with laws and regulations and industry standards relating to privacy, data protection, advertising and consumer protection; and

•exposure to significant legal proceedings and investigations.

The above list of factors is not exhaustive.

This document also contains information concerning our markets and products generally, which is forward-looking in nature and is based on a variety of assumptions regarding the ways in which these markets and product categories will develop. These assumptions have been derived from information currently available to us and to the third-party industry analysts quoted herein. This information includes, but is not limited to, product shipments and share of production. Actual market results may differ from those predicted. We do not know what impact any of these differences may have on our business, our results of operations, financial condition, and cash flow. For a discussion of some of the specific factors that may cause Novelis' actual results or outcomes to differ materially from those projected in any forward-looking statements, refer to the factors discussed in Part I. Item 1A. Risk Factors and Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2023 Form 10-K, as the same may be updated from time to time in our quarterly reports on Form 10-Q or in other reports which we from time to time file with the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in metal prices (primarily aluminum, copper, zinc, and LMPs), energy prices (electricity, natural gas, and diesel fuel), foreign currency exchange rates, and interest rates that could impact our results of operations and financial condition. We partially manage our exposure to energy prices by entering into fixed forward purchase contracts with energy providers, predominantly in Europe. We generally apply the normal purchase and normal sale scope exception to these contracts and do not record the contracts at fair value. These energy supply contracts are not derivatives but function as a risk management tool for fluctuating energy prices. We manage our exposure to other market risks through regular operating and financing activities and derivative financial instruments. We use derivative financial instruments as risk management tools only and not for speculative purposes.

Commodity Price Risks

Metal

The following table presents the estimated potential negative effect on the fair values of these derivative instruments as of September 30, 2023, given a 10% change in prices. Direction of the change in price corresponds with the direction that would cause a negative impact on the fair value of these derivative instruments.


in millions	Change in Price		Change in Fair Value
Aluminum	10	%	$	(180)
Copper	(10)		(1)
Zinc	(10)		(1)

Energy

The following table presents the estimated potential negative effect on the fair values of these derivative instruments as of September 30, 2023, given a 10% decline in prices for energy contracts.


in millions	Change in Price		Change in Fair Value
Natural gas	(10)	%	$	(1)
Diesel fuel	(10)		(1)

Foreign Currency Exchange Risks

The following table presents the estimated potential negative effect on the fair values of these derivative instruments as of September 30, 2023, given a 10% change in rates. Direction of the change in exchange rate corresponds with the direction that would cause the change in exchange rate to negatively impact the fair value of these derivative instruments.


$ in millions	Change in Exchange Rate		Change in Fair Value
Currency measured against the U.S. dollar
Brazilian real	(10)	%	$	(13)
Euro	(10)		(40)
Korean won	(10)		(51)
Canadian dollar	(10)		(3)
British pound	(10)		(25)
Swiss franc	(10)		(43)
Chinese yuan	10		(8)

Interest Rate Risks

We are subject to interest rate risk related to our floating rate debt. For every 100 basis point increase in the interest rates on our outstanding variable rate debt as of September 30, 2023, which includes term loan debt, net of interest rate swaps, our annual pre-tax income would be reduced by approximately $8 million. See Note 5 – Debt to our accompanying audited consolidated financial statements for further information.

From time to time, we use interest rate swaps to manage our debt cost. During the three months ended September 30, 2023, we entered into interest rate swaps to fix the interest rate on various floating rate debt. See Note 9 – Financial Instruments and Commodity Contracts to our accompanying audited consolidated financial statements for further information. A decrease of 10% in the SOFR interest rate as of September 30, 2023, would have an estimated potential negative effect on the contracts' fair value of approximately $5 million.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any system of controls, however well-designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

We have carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon such evaluation, management has concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are a party to litigation incidental to our business from time to time. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows. For additional information regarding litigation to which we are a party, see Note 14 – Commitments and Contingencies to our accompanying condensed consolidated financial statements.

Item 1A. Risk Factors.

See Part I. Item 1A. Risk Factors in our 2023 Form 10-K. Except as discussed below, there have been no material changes from the risk factors described in our 2023 Form 10-K.

The impact of labor disputes and strikes on our customers could have material adverse effects on our business and financial results.

Certain of our customers have a substantial number of the employees who are members of industrial trade unions and are employed under the terms of collective bargaining agreements. These customers may experience labor disputes, work stoppages or strikes if they fail to successfully negotiate collective bargaining agreements and/or labor contracts with their employees, as necessary. For example, three of our North American customers, Ford Motor Company, General Motors, and Stellantis recently experienced work stoppages at certain of their facilities as a result of the United Auto Workers strikes. The duration and scope of any future labor disputes or strikes by employees of our customers, and the resultant impact on our business and financial results cannot be predicted with any certainty at this time. However, in the event that our customers are unable to successfully negotiate collective bargaining agreements and/or other labor contracts with their employees as necessary, and their plants experience prolonged slowdowns, closures, or idling as a result of the strikes, the demand from these customers for our flat-rolled aluminum products and our financial results could be materially adversely impacted as a result. While we may be able to replace any such reduction in demand with higher demand from other customers, the ultimate impact of labor disputes and strikes on our business and financial results will depend on factors beyond our control.

Item 5. Other Information.

Election of Directors

On November 6, 2023, our sole shareholder elected Mr. Steven Fisher as a director of the Company to serve until the next regular meeting of shareholders.

Mr. Fisher, 52, has served as our President and Chief Executive Officer since 2015. Mr. Fisher joined the Company in 2006 as Vice President, Strategic Planning and Corporate Development and served as our Chief Financial Officer from 2007 to 2015. Prior to joining Novelis, Mr. Fisher served as Vice President and Controller for TXU Energy, the non-regulated subsidiary of TXU Corp., at its headquarters in Dallas, Texas. Mr. Fisher is a member of the Business Roundtable, an association of leading U.S. companies working to promote sound public policy. In addition, he is a member of the Board of Directors for the Metro Atlanta Chamber of Commerce. Mr. Fisher received a bachelor's degree in finance and accounting from the University of Iowa.

Item 6. Exhibits.


Exhibit No.						Description
2.1						Arrangement Agreement by and among Hindalco Industries Limited, AV Aluminum Inc. and Novelis Inc., dated as of February 10, 2007 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on February 13, 2007) (File No. 001-32312))
3.1						Certificate and Articles of A rrangement of Novelis Inc., dated as of Se ptember 1, 2022 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8 -K filed on Se ptember 6, 2022 (File No. 001-32312))
3.2						Novelis Inc. Amended and Restated Bylaws, adopted as of July 24, 2008 (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on July 25, 2008 (File No. 001-32312))
10.1						Refinancing Amendment (Tranche A-2 Term Loans) to Credit Agreement, dated as of September 25, 2023, among, inter alios, Novelis Inc., as borrower, Novelis ALR Aluminum Holdings Corporation, as co-borrower of the Tranche A-2 Term Loans and as guarantor, AV Minerals (Netherlands) N.V., as Holdings, the other loan parties party thereto, Novelis Italia S.P.A., as Third Party Security Provider, the Lenders party thereto and Standard Chartered Bank, as Administrative Agent, and as Collateral Agent


31.1						Section 302 Certification of Principal Executive Officer
31.2						Section 302 Certification of Principal Financial Officer
32.1						Section 906 Certification of Principal Executive Officer
32.2						Section 906 Certification of Principal Financial Officer
101.INS						XBRL Instance Document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			NOVELIS INC.
			By:						/s/ Devinder Ahuja
									Devinder Ahuja
									Chief Financial Officer
									(Principal Financial Officer and Authorized Officer)

			By:						/s/ Stephanie Rauls
									Stephanie Rauls
									Senior Vice President, Deputy Chief Financial Officer and Chief Accounting Officer
									(Principal Accounting Officer)

Date: November 7, 2023

Form: 10-Q

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