UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended ~~December 31, 2017~~September 30, 2019



¨	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~~Registrant as specified in its charter)



Canada		98-0442987
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

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

Telephone: (404) 760-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Indicate by check mark whether the ~~registrant:~~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~~Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No ý

The ~~registrant~~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~~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~~Registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the ~~registrant~~Registrant was required to submit ~~and post~~ such files). Yes ý No ¨

Indicate by check mark whether the ~~registrant~~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”,~~filer,” “smaller reporting ~~company”,~~company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	ý	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨
Emerging growth company	¨

Indicate by check mark whether the ~~registrant~~Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

If an emerging growth company, indicate by check mark if the ~~registrant~~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. ¨

As of ~~January 31, 2018,~~November 5, 2019, the ~~registrant~~Registrant had 1,000 shares of common stock, no par value, outstanding. All of the ~~registrant’s~~Registrant’s outstanding shares were held indirectly by Hindalco Industries Ltd., the ~~registrant’s~~Registrant’s parent company.

Novelis Inc.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in millions)


	Three Months Ended December 31,						Nine Months Ended December 31,						Three Months Ended September 30,					Six Months Ended September 30,
	2017			2016			2017			2016			2019		2018			2019		2018
Net sales	$	3,085		$	2,313		$	8,548		$	6,970		$	2,851	$	3,136		$	5,776	$	6,233
Cost of goods sold (exclusive of depreciation and amortization)	2,646			1,924			7,268			5,834			2,348		2,657			4,762		5,248
Selling, general and administrative expenses	128			103			358			303			122		127			249		244
Depreciation and amortization	86			88			267			267			88		86			176		172
Interest expense and amortization of debt issuance costs	64			67			192			231			61		68			126		134
Loss on extinguishment of debt	—			—			—			112
Research and development expenses	17			14			48			41			18		17			37		32
Gain on assets held for sale	—			—			—			(2		)
(Gain) loss on sale of a business, net	—			—			(318		)	27
Restructuring and impairment, net	25			1			33			4			32		—			33		1
Equity in net loss of non-consolidated affiliates	—			8			1			8
Other (income) expense, net	(6		)	(3		)	7			36
Equity in net (income) loss of non-consolidated affiliates													—		(1		)	—		(1		)
Other (income) expenses, net													2		(6		)	6		23
Business acquisition and other integration related costs													12		8			29		10
	2,960			2,202			7,856			6,861			$	2,683	$	2,956		$	5,418	$	5,863
Income before income taxes	125			111			692			109			168		180			358		370
Income tax provision	20			47			179			110			45		64			108		117
Net income (loss)	105			64			513			(1		)
Net (loss) income attributable to noncontrolling interests	(16		)	1			(16		)	1
Net income (loss) attributable to our common shareholder	$	121		$	63		$	529		$	(2	)
Net income													$	123	$	116		$	250	$	253
Net income attributable to noncontrolling interest													—		—			—		—
Net income attributable to our common shareholder													$	123	$	116		$	250	$	253

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

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

(in millions)

Three Months Ended December 31,
2017 2016
Net income $ 105
$ 64
Other comprehensive income (loss):
Currency translation adjustment 58
(140 )
Net change in fair value of effective portion of cash flow hedges (36 ) (24 )
Net change in pension and other benefits 3
26
Other comprehensive income (loss) before income tax effect 25
(138 )
Income tax benefit, net, related to items of other comprehensive income (loss) (10 ) —
Other comprehensive income (loss), net of tax 35
(138 )
Comprehensive income (loss) 140
(74 )
Less: Comprehensive (loss) income attributable to noncontrolling interests, net of tax (16 ) 2
Comprehensive income (loss) attributable to our common shareholder $ 156
$ (76 )


	Nine Months Ended December 31,						Three Months Ended September 30,						Six Months Ended September 30,
	2017			2016			2019			2018			2019			2018
Net income (loss)	$	513		$	(1	)
Net income							$	123		$	116		$	250		$	253
Other comprehensive income (loss):
Currency translation adjustment	149			(129		)	(86		)	(1		)	(81		)	(118		)
Net change in fair value of effective portion of cash flow hedges	(33		)	(22		)	(36		)	11			(16		)	(57		)
Net change in pension and other benefits	8			55			18			10			26			28
Other comprehensive income (loss) before income tax effect	124			(96		)	$	(104	)	$	20		$	(71	)	$	(147	)
Income tax (benefit) provision, net, related to items of other comprehensive income	(6		)	8
Income tax provision (benefit) related to items of other comprehensive income (loss)							(5		)	5			3			(9		)
Other comprehensive income (loss), net of tax	130			(104		)	(99		)	15			(74		)	(138		)
Comprehensive income (loss)	643			(105		)
Less: Comprehensive (loss) income attributable to noncontrolling interests, net of tax	(16		)	3
Comprehensive income (loss) attributable to our common shareholder	$	659		$	(108	)
Comprehensive income							$	24		$	131		$	176		$	115
Less: Comprehensive income attributable to noncontrolling interest, net of tax							1			1			3			1
Comprehensive income attributable to our common shareholder							$	23		$	130		$	173		$	114

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions, except number of shares)


	December 31, 2017			March 31, 2017			September 30, 2019			March 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	757		$	594		$	935		$	950
Accounts receivable, net
— third parties (net of uncollectible accounts of $6 as of December 31, 2017 and March 31, 2017)	1,331			1,067
— third parties (net of allowance for uncollectible accounts of $7 as of September 30, 2019 and March 31, 2019, respectively)							1,329			1,417
— related parties	253			60			159			164
Inventories	1,572			1,333			1,454			1,460
Prepaid expenses and other current assets	120			137			122			121
Fair value of derivative instruments	115			113			101			70
Assets held for sale	3			3			5			3
Total current assets	4,151			3,307			$	4,105		$	4,185
Property, plant and equipment, net	3,073			3,357			3,435			3,385
Goodwill	607			607			607			607
Intangible assets, net	420			457			323			351
Investment in and advances to non–consolidated affiliates	831			451			768			792
Deferred income tax assets	90			86			136			142
Other long–term assets							203			101
— third parties	93			94
— related parties	10			15
Total assets	$	9,275		$	8,374		$	9,577		$	9,563
LIABILITIES AND SHAREHOLDER’S EQUITY (DEFICIT)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Current portion of long–term debt	$	136		$	121		$	19		$	19
Short–term borrowings	116			294			14			39
Accounts payable
— third parties	1,909			1,722			1,827			1,986
— related parties	206			51			202			175
Fair value of derivative instruments	192			151			102			87
Accrued expenses and other current liabilities	607			580			532			616
Total current liabilities	3,166			2,919			$	2,696		$	2,922
Long–term debt, net of current portion	4,352			4,437			4,338			4,328
Deferred income tax liabilities	137			98			248			223
Accrued postretirement benefits	813			799			811			844
Other long–term liabilities	241			198			242			180
Total liabilities	8,709			8,451			$	8,335		$	8,497
Commitments and contingencies
Shareholder’s equity (deficit)
Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of December 31, 2017 and March 31, 2017	—			—
Shareholder’s equity
Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of September 30, 2019 and March 31, 2019							—			—
Additional paid–in capital	1,404			1,404			1,404			1,404
Accumulated deficit	(389		)	(918		)
Accumulated other comprehensive loss	(415		)	(545		)
Total equity (deficit) of our common shareholder	600			(59		)
Noncontrolling interests	(34		)	(18		)
Total equity (deficit)	566			(77		)
Total liabilities and equity (deficit)	$	9,275		$	8,374
Retained earnings							453			203
Accumulated other comprehensive income (loss)							(583		)	(506		)
Total equity of our common shareholder							$	1,274		$	1,101
Noncontrolling interest							(32		)	(35		)
Total equity							$	1,242		$	1,066
Total liabilities and equity							$	9,577		$	9,563

See Note 6 — Consolidation for information about our consolidated variable interest entity (VIE).

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in millions)


	Nine Months Ended December 31,						Six Months Ended September 30,
	2017			2016			2019			2018
OPERATING ACTIVITIES
Net income (loss)	$	513		$	(1	)
Net income							$	250		$	253
Adjustments to determine net cash provided by operating activities:
Depreciation and amortization	267			267			176			172
Loss (gain) on unrealized derivatives and other realized derivatives in investing activities, net	4			(23		)
Gain on assets held for sale	—			(2		)
(Gain) loss on sale of business	(318		)	27
Loss on sale of assets	4			4
(Gain) loss on unrealized derivatives and other realized derivatives in investing activities, net							(21		)	(8		)
(Gain) loss on sale of assets							(2		)	2
Impairment charges	15			—			11			—
Loss on extinguishment of debt	—			112
Deferred income taxes	41			15
Amortization of fair value adjustments, net	—			7
Equity in net loss of non-consolidated affiliates	1			8
Loss on foreign exchange remeasurement of debt	3			—
Deferred income taxes, net							32			21
Equity in net (gain) loss of non-consolidated affiliates							—			(1		)
Amortization of debt issuance costs and carrying value adjustments	15			10			9			9
Other, net	(1		)	1
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures):
Changes in operating assets and liabilities:
Accounts receivable	(403		)	(108		)	51			(70		)
Inventories	(175		)	(200		)	(22		)	(237		)
Accounts payable	221			59			(57		)	141
Other current assets	24			(3		)	(4		)	(49		)
Other current liabilities	12			(55		)	(94		)	(20		)
Other noncurrent assets	(4		)	(17		)	2			(10		)
Other noncurrent liabilities	18			50			(34		)	7
Net cash provided by operating activities	237			151
Net cash provided by (used in) operating activities							$	297		$	210
INVESTING ACTIVITIES
Capital expenditures	(136		)	(138		)	(300		)	(114		)
Acquisition of assets under a capital lease							—			(239		)
Proceeds from sales of assets, third party, net of transaction fees and hedging	1			2			3			2
Proceeds (outflows) from the sale of a business	314			(2		)
Proceeds from investment in and advances to non-consolidated affiliates, net	9			12			11			6
Outflows from related party loans receivable, net	—			(3		)
(Outflows) proceeds from the settlement of derivative instruments, net	(18		)	7
Proceeds (outflows) from the settlement of derivative instruments, net							3			(5		)
Other							7			7
Net cash provided by (used in) investing activities	170			(122		)	$	(276	)	$	(343	)
FINANCING ACTIVITIES
Proceeds from issuance of long-term and short-term borrowings	—			2,770			12			—
Principal payments of long-term and short-term borrowings	(138		)	(2,676		)	(11		)	(40		)
Revolving credit facilities and other, net	(140		)	(20		)	(23		)	103
Debt issuance costs	(5		)	(139		)	(2		)	(2		)
Net cash used in financing activities	(283		)	(65		)
Net increase (decrease) in cash and cash equivalents	124			(36		)
Net cash provided by (used in) financing activities							$	(24	)	$	61
Net increase (decrease) in cash, cash equivalents and restricted cash							(3		)	(72		)
Effect of exchange rate changes on cash	39			(15		)	(11		)	(19		)
Cash and cash equivalents — beginning of period	594			556
Cash and cash equivalents — end of period	$	757		$	505
Cash, cash equivalents and restricted cash — beginning of period							960			932
Cash, cash equivalents and restricted cash — end of period							$	946		$	841

Cash and cash equivalents							$	935		$	829
Restricted cash (Included in "Other long-term assets")							11			12
Cash, cash equivalents and restricted cash — end of period							$	946		$	841

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY ~~(DEFICIT)~~ (unaudited)

(in millions, except number of shares)

Equity (Deficit) of our Common Shareholder
Common Stock
Additional
Paid-in Capital
Retained Earnings/ (Accumulated Deficit)
Accumulated
Other
Comprehensive
Loss (AOCI)

Non-
controlling Interests
Total (Deficit)/ Equity
Shares Amount
Balance as of March 31, 2016 1,000
$ —
$ 1,404
$ (963 ) $ (500 ) $ —
$ (59 )
Net loss attributable to our common shareholder —
—
—
(2 ) —
—
(2 )
Net income attributable to noncontrolling interests —
—
—
—
—
1
1
Currency translation adjustment included in AOCI —
—
—
—
(129 ) —
(129 )
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $8 million included in AOCI —
—
—
—
(14 ) —
(14 )
Change in pension and other benefits, net of tax provision of $16 million included in AOCI —
—
—
—
37
2
39
Sale of subsidiary shares to a third party —
—
—
—
—
(22 ) (22 )
Balance as of December 31, 2016 1,000
$ —
$ 1,404
$ (965 ) $ (606 ) $ (19 ) $ (186 )



	Equity of our Common Shareholder
	Common Stock			Additional Paid-in Capital		(Accumulated Deficit) Retained earnings			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Equity
	Shares	Amount		Additional Paid-in Capital		(Accumulated Deficit) Retained earnings			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Equity
Balance as of March 31, 2018	1,000	$	—	$	1,404	$	(283	)	$	(261	)	$	(37	)	$	823
Adoption of Accounting Standards Updates	—	—		—		52			(16		)	—			36
Balance as of April 1, 2018	1,000	$	—	$	1,404	$	(231	)	$	(277	)	$	(37	)	$	859
Net income attributable to our common shareholder	—	—		—		253			—			—			253
Currency translation adjustment included in AOCI	—	—		—		—			(118		)	—			(118		)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $17 million included in AOCI	—	—		—		—			(40		)	—			(40		)
Change in pension and other benefits, net of tax provision of $8 million included in AOCI	—	—		—		—			19			1			20
Balance as of September 30, 2018	1,000	$	—	$	1,404	$	22		$	(416	)	$	(36	)	$	974

Equity (Deficit) of our Common Shareholder
Common Stock
Additional
Paid-in Capital
Retained Earnings/ (Accumulated Deficit)
Accumulated
Other
Comprehensive
Loss (AOCI)

Non-
controlling Interests
Total (Deficit)/ Equity
Shares Amount
Balance as of March 31, 2017 1,000
$ —
$ 1,404
$ (918 ) $ (545 ) $ (18 ) $ (77 )
Net income attributable to our common shareholder —
—
—
529
—
—
529
Net loss attributable to noncontrolling interests —
—
—
—
—
(16 ) (16 )
Currency translation adjustment included in AOCI —
—
—
—
149
—
149
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $9 million included in AOCI —
—
—
—
(24 ) —
(24 )
Change in pension and other benefits, net of tax provision of $3 million included in AOCI —
—
—
—
5
—
5
Balance as of December 31, 2017 1,000
$ —
$ 1,404
$ (389 ) $ (415 ) $ (34 ) $ 566



	Equity of our Common Shareholder
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Equity
	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Equity
Balance as of March 31, 2019	1,000	$	—	$	1,404	$	203	$	(506	)	$	(35	)	$	1,066
Net income attributable to our common shareholder	—	—		—		250		—			—			250
Currency translation adjustment included in AOCI	—	—		—		—		(81		)	—			(81		)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $5 million included in AOCI	—	—		—		—		(11		)	—			(11		)
Change in pension and other benefits, net of tax provision of $8 million included in AOCI	—	—		—		—		15			3			18
Balance as of September 30, 2019	1,000	$	—	$	1,404	$	453	$	(583	)	$	(32	)	$	1,242



	Equity of our Common Shareholder
	Common Stock			Additional Paid-in Capital		(Accumulated Deficit) Retained earnings			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Equity
	Shares	Amount		Additional Paid-in Capital		(Accumulated Deficit) Retained earnings			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Equity
Balance as of June 30, 2018	1,000	$	—	$	1,404	$	(94	)	$	(430	)	$	(37	)	$	843
Net income attributable to our common shareholder	—	—		—		116			—			—			116
Currency translation adjustment included in AOCI	—	—		—		—			(1		)	—			(1		)
Change in fair value of effective portion of cash flow hedges, net of tax provision of $2 million included in AOCI	—	—		—		—			9			—			9
Change in pension and other benefits, net of tax provision of $3 million included in AOCI	—	—		—		—			6			1			7
Balance as of September 30, 2018	1,000	$	—	$	1,404	$	22		$	(416	)	$	(36	)	$	974



	Equity of our Common Shareholder
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Equity
	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Equity
Balance as of June 30, 2019	1,000	$	—	$	1,404	$	330	$	(483	)	$	(33	)	$	1,218
Net income attributable to our common shareholder	—	—		—		123		—			—			123
Currency translation adjustment included in AOCI	—	—		—		—		(86		)	—			(86		)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $11 million included in AOCI	—	—		—		—		(25		)	—			(25		)
Change in pension and other benefits, net of tax provision of $6 million included in AOCI	—	—		—		—		11			1			12
Balance as of September 30, 2019	1,000	$	—	$	1,404	$	453	$	(583	)	$	(32	)	$	1,242

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

References herein to “Novelis,” the “Company,” “we,” “our,” or “us” refer to Novelis Inc. and its subsidiaries unless the context specifically indicates otherwise. References herein to “Hindalco” refer to Hindalco Industries Limited. Hindalco acquired Novelis in May 2007. All of the common shares of Novelis are owned directly by AV Metals Inc. and indirectly by ~~Hindalco Industries Limited.~~Hindalco.

Organization and Description of Business

We produce aluminum sheet and light gauge products for use in the packaging market, which includes beverage and food ~~cans~~can and foil products, as well as for use in the automotive, transportation, electronics, architectural and industrial product markets. We have recycling operations in many of our plants to recycle post-consumer aluminum, such as ~~used beverage~~used-beverage cans and post-industrial aluminum, such as class scrap. As of ~~December 31, 2017,~~September 30, 2019, we had manufacturing operations in ~~ten~~nine countries on four continents: North America, South America, Asia and Europe, through 2423 operating facilities, including recycling operations in ~~eleven~~twelve of these plants.

The March 31, ~~2017~~2019 condensed consolidated balance sheet data was derived from the March 31, 2019 audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes in our ~~Annual Report on~~ Form 10-K for the year-ended March 31, ~~2017~~2019 filed with the United States Securities and Exchange Commission (SEC) on May ~~10, 2017.~~8, 2019. Management believes that all adjustments necessary for the fair statement of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented.

Consolidation Policy

Our condensed consolidated financial statements include the assets, liabilities, revenues and expenses of all wholly-owned subsidiaries, majority-owned subsidiaries over which we exercise control and entities in which we have a controlling financial interest or are deemed to be the primary beneficiary. We eliminate all significant intercompany accounts and transactions from our condensed consolidated financial statements.

We use the equity method to account for our investments in entities that we do not control, but where we have the ability to exercise significant influence over operating and financial policies. Consolidated "~~Net~~"Net income ~~(loss)~~ attributable to our common ~~shareholder~~"shareholder" includes our share of ~~Net~~net income (loss) of these entities. ~~The difference between consolidation~~

Restricted Cash Policy

Restricted cash is comprised of cash deposits for employee benefits and ~~the equity method impacts certain of our financial ratios because of the presentation of the detailed line items reported in~~is disclosed on the condensed consolidated ~~financial statements for consolidated entities, compared to a two-line presentation~~statement of ~~"Investment in and advances to non-consolidated affiliates" and "Equity in net loss of non-consolidated affiliates."~~cash flows.

Use of Estimates and Assumptions

The preparation of our condensed consolidated financial statements in conformity with ~~U.S. GAAP~~accounting principles generally accepted in the United States of America (U.S. GAAP) requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The principal areas of judgment relate to (1) the fair value of derivative financial instruments; (2) impairment of goodwill; (3) impairment of long lived assets and other intangible assets; (4) impairment and assessment of consolidation of equity investments; (5) actuarial assumptions related to pension and other postretirement benefit plans; (6) tax uncertainties and valuation allowances; and (7) assessment of loss contingencies, including environmental and litigation liabilities. Future events and their effects cannot be predicted with certainty, and accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. We evaluate and update our assumptions and estimates on an ongoing basis and may employ outside experts to assist in our evaluations. Actual results could differ from the estimates we have used.

~~Revision of Previously Issued Financial Statements~~

During the preparation of the Form 10-Q for the three months ended June 30, 2017, we identified a misclassification between "Prepaid expenses and other current assets" and “Accrued expenses other current liabilities” accounts that understated these balances for the periods ended March 31, 2017, December 31, 2016, and September 30, 2016 of $26 million, $21 million, and $16 million, respectively. In addition, we identified a misclassification between “Deferred income tax assets” and “Deferred income tax liabilities” of $4 million that understated these balances as of March 31, 2017. These items impacted the

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

Recently Adopted Accounting Standards



Standard	Adoption	Description	Disclosure Impact
ASU 2019-07, Codification Updates to SEC Sections (Issued July 2019)	July 1, 2019	The standard provides various codification updates and improvements to address comments received.	The adoption of this standard did not have an impact on the condensed consolidated financial statements. Our condensed consolidated statement of shareholder's equity now discloses current and prior period quarter-to-date activity as required by the ASU.
ASU 2016-02, Leases (Topic 842) along with additional technical improvements, practical expedients, and clarifications since issued. (Issued February 2016)	April 1, 2019	The standard requires organizations that lease assets to recognize assets and liabilities for the rights and obligations created by the leases on balance sheet. The standard requires qualitative and quantitative disclosures to help investors and financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.	We recognized right-of-use assets and lease liabilities on our consolidated balance sheets with no impact to the opening balance of retained earnings. The adoption of this standard did not have a material effect on the condensed consolidated statement of operations or the condensed consolidated statement of cash flows. See Note 5 — Leases for further details on the adoption of this standard.
ASU 2018-09, Codification Improvements (Issued July 2018)	April 1, 2019	The standard provides various codification updates and improvements to address comments received.	The adoption of this standard did not have an impact on the condensed consolidated financial statements and disclosures.
ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (Issued October 2018)	April 1, 2019	The standard permits the use of the OIS based on the SOFR as a U.S. benchmark interest rate for purposes of hedge accounting under Topic 815 as requested by the Federal Reserve Board during deliberations leading to the issuance of ASU 2017-12. The FASB recognized that although the OIS rate based on SOFR is not yet widely recognized and quoted within the U.S. financial market, the attributes of the repo rates underlying the calculation of SOFR are recognized.	The adoption of this standard did not have an impact on the condensed consolidated financial statements and disclosures. The Company does not currently have any interest rate derivative instruments, but is currently evaluating the potential future impact of this standard.
ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. (Issued February 2018)	April 1, 2018	This standard provides an option to reclassify stranded tax effects within Accumulated other comprehensive income (loss) (AOCI) to Retained earnings due to the U.S. federal corporate income tax rate change in the U.S. Tax Cuts and Jobs Act of 2017 (the “Act”).	We reclassified $16 million into retained earnings of our common shareholder from AOCI. This reclassification consisted of deferred taxes originally recorded in AOCI at rates that exceeded the newly enacted U.S. federal corporate tax rate. There was no impact to net income. Certain prior period amounts have been adjusted as a result of the adoption of this standard.
ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Asset Transfers of Assets Other than Inventory (Issued October 2016)	April 1, 2018	This standard eliminates the exception for all intra-entity sales of assets other than inventory. It requires the tax effect of intra-entity sales of assets other than inventory to be recognized currently which will impact Novelis’ effective tax rate. The changes require the current and deferred income tax consequences of the intra-entity transfer to be recorded when the transaction occurs.	We adopted this standard on a modified retrospective basis and the cumulative effect of the change on retained earnings is $36 million with a corresponding impact to deferred tax balances. Certain prior period amounts have been adjusted as a result of the adoption of this standard.

~~"Other current assets" and "Other current liabilities" line items line items within total "Operating Activities". However, there is no impact to "Net cash provided by operating activities" within the consolidated statements of cash flows.~~

In our statement of cash flows within the operating section, to correct the presentation of certain non-cash items, we revised "Loss (gain) on foreign exchange remeasurement of debt" and "Other current liabilities" in the presentation of the prior year by $41 million. This revision has no impact on the condensed consolidation statement of operations, the condensed consolidated balance sheets or the key metrics related to the condensed consolidated statements of cash flows.

We assessed the materiality of the misstatements and concluded that these misstatements were not material to the Company’s previously issued financial statements and that amendments of previously filed reports were therefore not required. However, we elected to revise the previously reported amounts in both the March 31, 2017 consolidated balance sheet and consolidated statement of cash flows by the amounts above.

~~Reclassification~~

~~A reclassification of a prior period amount has been made to conform to the presentation adopted for the current period.~~

For the nine months ended December 31, 2016, we reclassified $27 million from "Other (income) expense, net" to "(Gain) loss on the sale of a business, net" in the condensed consolidated statement of operations to conform with the current period presentation. This reclassification had no impact on “Income before income taxes,” “Net income (loss) attributable to our common shareholder,” the condensed consolidated balance sheets or condensed consolidated statements of cash flows during the respective periods. Refer to Note 13 — Other (income) expense, net for further details.

~~Recently Issued Accounting Standards~~

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~. The amendments in this update better align an entity’s risk management objectives, activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The guidance is effective for public business entities for interim and annual periods beginning after December 15, 2018. Early adoption is permitted and we intend to early adopt during the fourth quarter of fiscal 2018. We believe that the impact to Novelis will primarily result from the following changes to the guidance: election to hedge a specific component of non-financial risk, the entire change in the fair value of the hedging instrument will be deferred to OCI, elimination of hedge accounting ineffectiveness in earnings, reclassification of AOCI to earnings in the same line item impacted by the hedged item, and operational simplification of hedge effectiveness requirements.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting~~. This update was issued to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. An entity may change the terms or conditions of a share-based payment award for many different reasons, and the nature and effect of the change can vary significantly. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective for public business entities for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. We will adopt this standard during the first quarter of Fiscal 2019. Adoption of this standard is not expected to have an impact on our consolidated results of operations.

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.~~ This update was issued primarily to improve the presentation of net periodic pension and other postretirement benefit costs. The new guidance requires entities to (1) disaggregate the current service cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the results of operations and (2) present the other components elsewhere in the results of operations and outside of income from operations if that subtotal is presented. The guidance is effective for public business entities for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. Currently, all postretirement costs (FAS 87, FAS 106 and FAS 112) fall within the line item “Selling, general and administrative expenses” within the consolidated results of operations. We are currently evaluating the impact of this standard on our consolidated financial position and results of operations.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~In February 2017, the FASB issued ASU 2017-06,~~ Recently Issued Accounting Standards (Not yet adopted)Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965), Employee Benefit Plan Master Trust Reporting (“ASU 2017-06”). This update primarily impacted the reporting by an employee benefit plan (a plan) for its interest in a master trust. The amendments in this update require all plans to disclose (1) their master trust’s other asset and liability balances and (2) the dollar amount of the plan’s interest in each of those balances. The amendments in this update are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. Adoption of this standard is not expected to have an impact on our consolidated financial position or results of operations.

~~In February 2017, the FASB issued ASU 2017-05,~~ Other Income-Gains and Losses from the Derecognition of Non-financial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Non-financial Assets. The amendments in this update include (i) clarification that non-financial assets within the scope of ASC 610-20 may include non-financial assets transferred within a legal entity to a counterparty; (ii) clarification that an entity should allocate consideration to each distinct asset by applying the guidance in ASC 606 on allocating the transaction price to performance obligations; and (iii) a requirement for entities to derecognize a distinct non-financial asset or distinct in substance non-financial asset in a partial sale transaction when it does not have (or ceases to have) a controlling financial interest in the legal entity that holds the asset in accordance with ASC 810, and transfers control of the asset in accordance with ASC 606. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. Adoption of this standard is expected to have an immaterial impact on our consolidated financial position and results of operations.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~, accounting guidance, which removes Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. Under the simplified model, a goodwill impairment is calculated as the difference between the carrying amount of the reporting unit and its fair value, but not to exceed the carrying amount of goodwill allocated to that reporting unit. Early adoption is permitted. The guidance is effective for public business entities for interim and annual periods beginning after its annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Adoption of this standard is not expected to have an impact on our consolidated financial position, results of operations and statement of cash flows.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Clarifying the Definition of a Business (Topic 805)~~, which provides guidance on evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The new guidance amends ASC 805 to provide a more robust framework to use in determining when a set of assets and activities is a business. In addition, the amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We believe that the adoption of this standard will not have an impact on our consolidated financial position and results of operations.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230) - Statement of Cash Flows (Topic 230): Restricted Cash~~. The amendments in this update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. Adoption of this standard is not expected to have a material impact on our consolidated financial position, results of operations and statement of cash flows.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory~~. The new guidance eliminates the exception for all intra-entity sales of assets other than inventory. The guidance will require the tax effects of intercompany transactions to be recognized currently and will likely impact reporting entities’ effective tax rates. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial position and results of operations.



Standard	Adoption	Description	Disclosure Impact
ASU 2019-04, Codification Improvements: Topic 326: Financial Instruments - Credit Losses, Topic 815: Derivatives and Hedging, and Topic 825: Financial Instruments	Various	The standard provides various codification updates and improvements to address comments received.	The Company is currently evaluating the impact of this standard.
ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities (Issued October 2018)	April 1, 2020	This standard eliminates the requirement that entities consider indirect interests held through related parties under common control in their entirety when assessing whether a decision-making fee is a variable interest. Instead, the reporting entity must consider such indirect interests on a proportionate basis.	The Company is currently evaluating the impact of this standard.
ASU 2018-15, Intangibles-Goodwill and Other Internal-Use Software (Topic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract (Issued August 2018)	April 1, 2020	This standard requires capitalization of implementation costs incurred in a hosting arrangement that is a service contract. This change will better align with requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected.	The Company is currently evaluating the impact of this standard.
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (Issued August 2018)	April 1, 2020	This standard added requirements for new disclosures such as requiring a narrative description of the reasons for significant gains and losses affecting the benefit obligation for the period and also an explanation of any other significant changes in the benefit obligation or plan assets that are not otherwise apparent in the other disclosures required by ASC 715. Further, the standard removes some currently required disclosures such as (a) the requirement (for public entities) to disclose the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost, and the benefit obligation for postretirement health care benefits and (b) the amounts in accumulated other comprehensive income "OCI" expected to be recognized in net periodic benefit costs over the next fiscal year.	The Company is currently evaluating the impact of this standard.
ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (Issued January 2017)	April 1, 2020	This standard removes Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. Under the simplified model, a goodwill impairment is calculated as the difference between the carrying amount of the reporting unit and its fair value, but not to exceed the carrying amount of goodwill allocated to that reporting unit. This standard will need to be considered each time Novelis performs an assessment of goodwill for impairment under the quantitative test.	The Company is currently evaluating the impact of this standard.
ASU 2016-13, Financial Instrument-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments along with additional technical improvements and clarifications since issued. (Issued June 2016)	April 1, 2020	The standard provides financial statement users with more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The “current expected credit loss” (CECL) model requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.	The Company is currently evaluating the impact of this standard.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company's contracts with customers are comprised of purchase orders along with standard terms and conditions. These contracts with customers typically consist of the manufacture of products which represent single performance obligations that are satisfied upon transfer of control of the product to the customer at a point in time. Transfer of control is assessed based on alternative use of the products we produce and our enforceable right to payment for performance to date under the contract terms. Transfer of control and revenue recognition generally occur upon shipment or delivery of the product, which is when title, ownership and risk of loss pass to the customer and is based on the applicable shipping terms. The shipping terms vary across all businesses and depend on the product, the country of origin, and the type of transportation (truck, train, or vessel). The length of payment terms can vary per contract but none extend beyond one year. Revenue is recognized net of any volume rebates or other incentives.

We disaggregate revenue from contracts with customers on a geographic basis based on our segment view. This disaggregation also achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. We manage our activities on the basis of geographical regions and are organized under four operating segments: North America, South America, Asia and Europe. See Note 18 — Segment, Major Customer and Major Supplier Information for further information about our segment revenue.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments~~. The new guidance applies to all entities that are required to present a statement of cash flows under Topic 230 and addresses specific cash flow items to provide clarification and reduce the diversity in presentation of these items. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within that year. Early adoption is permitted. Adoption of this standard is not expected to have a material impact on our consolidated financial position, results of operations and statement of cash flows.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~, which when effective will require organizations that lease assets (e.g., through "leases") to recognize assets and liabilities for the rights and obligations created by the leases on the balance sheet. A lessee will be required to recognize assets and liabilities for leases with terms that exceed twelve months. The standard will also require disclosures to help investors and financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases. The disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial position and results of operations.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which, when effective, will supersede the guidance in former ASC 605, Revenue Recognition. The new guidance requires entities to recognize revenue based on the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for these goods or services. The guidance is effective for annual periods beginning after December 15, 2016 and interim periods within that year. Early adoption is not permitted. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which provides an optional one-year deferral of the effective date. Subsequent to these amendments, further clarifying amendments have been issued. We are currently evaluating the impact of the standard on our consolidated financial position, results of operations and disclosures. We have begun assessing our contracts and drafting policies to implement the new revenue standards and will be implementing this standard during the first quarter of fiscal year 2019.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

2.3. RESTRUCTURING AND IMPAIRMENT, NET

“"Restructuring and impairment, ~~net”~~net" includes restructuring costs, impairments, and other related expenses. "Restructuring and impairment, net" for the ~~nine~~three and six months ended ~~December 31, 2017~~September 30, 2019 totaled $32 million and ~~2016 was~~ $33 million, respectively, and $4is primarily related to portfolio optimization efforts resulting in the upcoming closure of certain non-core operations in Europe. Of the $32 million ~~respectively.~~recognized during the three months ended September 30, 2019, $21 million is related to employee severance and $11 million is related primarily to the impairment of property, plant, and equipment. We do not anticipate significant changes in relation to this restructuring plan between now and March 2020, the expected date that operations plan to cease, that will have a material impact on future results of operations, liquidity, and capital resources.

"Restructuring and impairment, net" for the three months ended September 30, 2018 totaled less than $1 million. "Restructuring and impairment, net" for the six months ended September 30, 2018 totaled $1 million.

As of September 30, 2019, the restructuring liability totaled $36 million with $27 million included in "Accrued expenses and other current liabilities" and the remaining is within "Other long-term liabilities" on our accompanying condensed consolidated balance sheet. As of September 30, 2019, the restructuring liability totaled $24 million for the Europe segment, $11 million for South America segment, and $1 million for the North America segment.

The following table summarizes our restructuring liability activity and other impairment charges (in millions).

Total restructuring
liabilities
Other restructuring charges (A) Total restructuring charges Other impairments (B)
Total
restructuring
and impairments, net
Balance as of March 31, 2017 $ 24

Expenses 18
$ 9
$ 27
$ 6
$ 33
Cash payments (5 )
Foreign currency (C) (1 )
Balance as of December 31, 2017 $ 36



	Total restructuring liabilities			Other restructuring charges (A)	Total restructuring charges		Other impairments (B)	Total restructuring and impairments, net
Balance as of March 31, 2019	$	17
Fiscal 2020 Activity:
Expenses	22			11	$	33	—	$	33
Cash payments	(2		)
Foreign currency	(1		)
Balance as of September 30, 2019	$	36

~~_________________________~~____________________


(A)	Other restructuring charges include restructuring related impairments and period expenses that were not recorded through the restructuring liability.


(B)	Other impairment charges not related to restructuring activities.


~~(C)~~	~~This primarily relates to the remeasurement of Brazilian real denominated restructuring liabilities.~~

We plan to cease certain non-core operations at a facility in Europe resulting in $9 million of asset impairments and $16 million of severance and associated legal costs, which is expected to be paid in fiscal 2019.

As of December 31, 2017, $31 million of restructuring liabilities was included in "Accrued expenses and other current liabilities" and $5 million was included in "Other long-term liabilities" on our condensed consolidated balance sheet. As of December 31, 2017, there was a $17 million restructuring liability for the South America segment, $17 million for the Europe segment, $1 million for the North America segment and $1 million for the Asia segment. There were also $2 million and $3 million in payments for the Europe and South America segments, respectively, during the nine months ended December 31, 2017.

As of March 31, 2017, $16 million of restructuring liabilities was included in "Accrued expenses and other current liabilities" and $8 million was included in "Other long-term liabilities" on our condensed consolidated balance sheet.

~~For additional information on environmental charges see Note 15 — Commitments and Contingencies.~~

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

3.4. INVENTORIES

"Inventories" consist of the following (in millions).


	December 31, 2017		March 31, 2017		September 30, 2019		March 31, 2019
Finished goods	$	417	$	389	$	379	$	354
Work in process	733		576		654		684
Raw materials	263		213		249		254
Supplies	159		155		172		168
Inventories	$	1,572	$	1,333	$	1,454	$	1,460

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

5. LEASES

We lease certain land, buildings and equipment under noncancelable operating lease arrangements and certain office space under finance (capital) lease arrangements. Upon adoption of ASC 842, we elected the following practical expedients:

Non-lease components: Leases that contain non-lease components (primarily equipment maintenance) are accounted for as a single component and recorded on the condensed consolidated balance sheet for certain asset classes including real estate and certain equipment. Non-lease components include, but are not limited to, common area maintenance, service arrangements, and supply agreements.

Package of practical expedients: We will not reassess whether any expired or existing contracts are leases or contain leases, the lease classification for any expired or existing leases or any initial direct costs for any expired or existing leases as of the transition date.

Additional transition method: We adopted the standard using a modified retrospective approach, applying the standard's transition provisions at the beginning of the period of adoption and maintain previous disclosure requirements for comparative periods.

We used the following policies and/or assumptions in evaluating our lease population:

Lease determination: Novelis considers a contract to be or to contain a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.

Discount rate: When our lease contracts do not provide a readily determinable implicit rate, we use the estimated incremental borrowing rate based on information available at the inception of the lease. The discount rate is determined by region and asset class.

Variable payments: Novelis includes payments that are based on an index or rate within the calculation of right of use leased assets and lease liabilities, initially measured at the lease commencement date. Other variable lease payments include, but are not limited to, maintenance, service, and supply costs. These costs are disclosed as a component of total lease costs.

Purchase options: Certain leases include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Renewal options: Most leases include one or more options to renew, with renewal terms that can extend the lease term from one or more years. The exercise of lease renewal options is at our sole discretion.

Residual value guarantees, restrictions, or covenants: Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Short-term leases: Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term and expense the associated operating lease costs to "Selling, general, and administrative expenses" on the condensed consolidated statement of operations.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -

4.The table below presents the classification of leasing assets and liabilities.



Leases	Balance Sheet Classification	September 30, 2019
Assets
Operating lease right-of-use assets	Other long-term assets	$	100
Finance lease assets (A)	Property, plant and equipment, net	2
Total lease assets		$	102

Liabilities
Current
Operating lease liabilities	Accrued expenses and other current liabilities	$	24
Finance lease liabilities	Current portion of long-term debt	—
Long term
Operating lease liabilities	Other long-term liabilities	76
Finance lease liabilities	Long-term debt, net of current portion	1
Total lease liabilities		$	101

________________________


(A)	Finance lease assets are recorded net of accumulated depreciation of $6 million as of September 30, 2019.

The table below presents the classification of lease related expenses or income as reported on the condensed consolidated statements of operations. Amortization of and interest on liabilities related to finance leases were less than $1 million during the three and six months ended September 30, 2019. Sublease income was less than $1 million during the three and six months ended September 30, 2019.



Expense Type	Income Statement Classification	Three Months Ended September 30, 2019		Six Months Ended September 30, 2019
Operating lease costs (A)	Selling, general and administrative expenses	$	13	$	24

________________________


(A)	Operating lease costs include short-term leases and variable lease costs.

Future minimum lease payments as of September 30, 2019, for our operating and finance leases having an initial or remaining non-cancelable lease term in excess of one year are as follows (in millions).



Period Ending September 30,	Operating leases (A)		Finance leases (B)		Total
2020	$	17	$	—	$	17
2021	26		—		26
2022	19		—		19
2023	14		—		14
2024	13		—		13
Thereafter	27		1		28
Total minimum lease payments	$	116	$	1	$	117
Less: interest	16		—		16
Present value of lease liabilities	$	100	$	1	$	101

________________________


(A)	Operating lease payments related to options to extend lease terms that are reasonably certain of being exercised are immaterial and we do not have leases signed but not yet commenced as of September 30, 2019.


(B)	Finance lease payments related to options to extend lease terms that are reasonably certain of being exercised are immaterial and we do not have leases signed but not yet commenced as of September 30, 2019.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -

The following table presents the weighted-average remaining lease term and discount rates.



Weighted-average remaining lease term (years)		As of September 30, 2019
Operating leases		6.5
Finance leases		6.7
Weighted-average discount rate
Operating leases		3.73%
Finance leases		3.11%

The following table presents supplemental information on our operating leases for the six months ended September 30, 2019 (in millions). Operating and financing cash flows from finance leases were less than $1 million for the six months ended September 30, 2019. Leased assets obtained in exchange for new operating and financing lease liabilities were $14 million for the six months ended September 30, 2019, individually and in the aggregate.



Supplemental information	Six Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	27

Disclosure related to periods prior to adoption of the new lease standard

The following table sets forth the aggregate minimum lease payments under finance and operating leases (in millions).



Year Ending March 31,	Operating leases		Finance lease obligations
2020	$	29	$	—
2021	22		—
2022	16		—
2023	12		—
2024	10		—
Thereafter	17		1
Total minimum lease payments	$	106	$	1
Less: interest portion on finance leases			—
Principal obligation on finance leases			$	1

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -

6. CONSOLIDATION

Variable Interest Entities (VIE)

We have a joint interest in Logan Aluminum Inc. (Logan) with Tri-Arrows Aluminum Inc. (Tri-Arrows). Logan processes metal received from Novelis and Tri-Arrows and charges the respective partner a fee to cover expenses. Logan is thinly capitalized and relies on the regular reimbursement of costs and expenses by Novelis and Tri-Arrows to fund its operations. This reimbursement is considered a variable interest as it constitutes a form of financing the activities of Logan. As Logan is dependent upon the investors for ongoing capital to support the operations of the entity, Logan is a variable interest entity ("VIE").

The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. An entity is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. ~~We have~~

Logan Aluminum Inc. (Logan) is a consolidated joint venture in which we hold 40% ownership. Our joint venture partner is Tri-Arrows Aluminum Inc. (Tri-Arrows). Logan processes metal received from Novelis and Tri-Arrows and charges the ~~ability~~respective partner a fee to ~~make decisions regarding Logan’s production~~cover expenses. Logan is a thinly capitalized VIE that relies on the regular reimbursement of costs and expenses from its investors, Novelis and Tri-Arrows, to fund its operations. ~~We also have~~Novelis is considered the ~~ability to take the majority share of production and associated costs. These facts qualify us as Logan’s~~ primary beneficiary and ~~this entity is consolidated for all periods presented.~~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.

Other than the contractually required reimbursements, we do not provide other 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).


	December 31, 2017		March 31, 2017		September 30, 2019		March 31, 2019
Assets
Current assets
Cash and cash equivalents	$	4	$	2	$	5	$	1
Accounts receivable	29		29		14		40
Inventories	69		62		82		72
Prepaid expenses and other current assets	1		2		1		1
Total current assets	103		95		$	102	$	114
Property, plant and equipment, net	21		25		24		29
Goodwill	12		12		12		12
Deferred income taxes	59		89		64		64
Other long-term assets	23		30		35		27
Total assets	$	218	$	251	$	237	$	246
Liabilities
Current liabilities
Accounts payable	$	40	$	32	$	39	$	43
Accrued expenses and other current liabilities	18		21		21		21
Total current liabilities	58		53		$	60	$	64
Accrued postretirement benefits	217		224		238		245
Other long-term liabilities	3		3		1		1
Total liabilities	$	278	$	280	$	299	$	310

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

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


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

~~We have two non-consolidated affiliates, Aluminum Norf GmbH (Alunorf) and Ulsan Aluminum, Ltd. (UAL).~~ Included in the accompanying condensed consolidated financial statements are transactions and balances arising from business we conducted with ~~these~~our equity method non-consolidated ~~affiliates, which we classify~~affiliates. See Note 18 — Segment, Major Customer and Major Supplier Information for the respective carrying values by segment as ~~related party transactions~~reported in our condensed consolidated balance sheets (in millions).

Alunorf

Aluminium Norf GmbH (Alunorf) is a joint venture investment between Novelis Deutschland GmbH, a subsidiary of Novelis, and ~~balances. We account for these affiliates using~~Hydro Aluminum Deutschland GmbH (Hydro). Each of the parties to the joint venture holds a 50% interest in the equity, ~~method.~~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 expense.

~~In May 2017,~~UAL

Ulsan Aluminum, Ltd. (UAL) is a joint venture investment between Novelis Korea Ltd. ~~(Novelis Korea)~~, a subsidiary of Novelis, ~~Inc., entered into definitive agreements with~~and Kobe Steel ~~Ltd.~~Ltd (Kobe), an unrelated party, under which Novelis Korea and Kobe will jointly own and operate the Ulsan manufacturing plant owned by Novelis Korea. In April 2017, Novelis Korea formed a new wholly owned subsidiary, UAL. In September 2017, the transaction closed and Novelis Korea sold 49.9% of its shares in. UAL to Kobe for the purchase price of $314 million. We recognized a net gain of $318 million on the transaction, pre-tax, consisting of: (1) $168 million gain related to the difference between the fair value of the consideration received and the carrying amount of the former subsidiary's assets and liabilities; (2) $163 million net gain related to the remeasurement of the retained investment by Novelis Korea; (3) $11 million in transaction fees and (4) $2 million in pension settlement losses. The net gain is recognized in "Gain (loss) on sale of a business" within the condensed consolidated statement of operations. The fair value of the retained investment was derived from cash consideration paid by a market participant, Kobe, for its 49.9% interest.

~~As a result of this transaction, we have shared power in UAL with Kobe. Novelis Korea and Kobe will supply input metal to UAL and UAL will produce~~currently produces flat rolled aluminum products exclusively for Novelis ~~Korea~~ and Kobe. ~~In addition, we~~As of September 30, 2019, Novelis and Kobe both hold ~~several variable~~50% interests in UAL. UAL ~~through~~is a thinly capitalized VIE that relies on the regular ~~funding~~reimbursement of costs and expenses byfrom its investors, Novelis ~~Korea~~ and Kobe. As UAL is dependent upon the investors for ongoing capital to support the operations of the entity, UAL is a variable interest entity ("VIE"). The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. An entity is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The entity will be controlled by ~~the~~an equally represented Board of ~~Directors. We do not have the~~Directors in which neither entity has sole decision-making ability regarding ~~UAL's~~ production operations ~~and~~or other significant ~~decisions as the Board of Directors~~decisions. Furthermore, neither entity has ~~ultimate control over these decisions. In addition, we do not have~~ the ability to take the majority share of production ~~and~~or associated costs over the life of the joint venture. ~~As we share power jointly with Kobe, we determined Novelis is not the primary beneficiary.~~ Our risk of loss ~~with respect to this VIE~~ 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. ~~We have no obligation to provide additional funding to this VIE outside~~Therefore, UAL is accounted for as an equity method investment and Novelis is not considered the primary beneficiary.

AluInfra

AluInfra Services (AluInfra) is a joint venture investment between Novelis Switzerland SA (Novelis Switzerland), a subsidiary of Novelis, and Constellium N.V. (Constellium). Each of the ~~contractually required reimbursements.~~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 affiliates in the aggregate, and the nature and amounts of significant transactions we have with our non-consolidated affiliates (in millions). The amounts in the table below are disclosed at 100% of the operating results of these affiliates.

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Net sales $ 308
$ 95
$ 549
$ 340
Costs and expenses related to net sales 309
116
551
358
Provision for taxes on income (1 ) (7 ) (1 ) (6 )
Net loss $ —
$ (14 ) $ (1 ) $ (12 )
Purchases of tolling services from Alunorf $ 59
$ 47
$ 180
$ 170

~~Novelis Inc.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)~~



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Net sales	$	308	$	332	$	608	$	650
Costs and expenses related to net sales	302		327		595		642
Income tax provision	2		2		3		3
Net income	$	4	$	3	$	10	$	5
Purchases of tolling services from Alunorf (Novelis' share)	$	63	$	65	$	127	$	129

The following table describes the period-end account balances, ~~that we had with these non-consolidated affiliates,~~ shown as related party balances in the accompanying condensed consolidated balance sheets (in millions). We had no other material related party balances with ~~Alunorf or UAL.~~non-consolidated affiliates.


	December 31, 2017		March 31, 2017		September 30, 2019		March 31, 2019
Accounts receivable-related parties	$	253	$	60	$	159	$	164
Other long-term assets-related parties	$	10	$	15
Accounts payable-related parties	$	206	$	51	$	202	$	175

We earned less than $1 million of interest income on a loan due from Alunorf during each of the periods presented in "Other long-term assets-related parties" in the table above. We believe collection of the full receivable from Alunorf is probable; thus no allowance for loan loss was recorded as of ~~December 31, 2017~~ ~~and March 31, 2017.~~

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -

We have guaranteed the indebtedness for a credit facility on behalf of Alunorf. The guarantee is limited to 50% of the outstanding debt, not to exceed 6 million euros. As of December 31, 2017, there were no amounts outstanding under our guarantee with Alunorf as there were no outstanding borrowings. We have also guaranteed the payment of early retirement benefits on behalf of Alunorf. As of December 31, 2017, this guarantee totaled $2 million.

Transactions with Hindalco

We occasionally have related party transactions with ~~our indirect parent company,~~ Hindalco. During the ~~nine~~three and six months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, we recorded “Net sales” ~~were~~of less than $1 million between Novelis and ~~Hindalco.~~Hindalco related primarily to sales of equipment and other services. As of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017,~~2019, there ~~were~~was $1 million and less than $1 million inof outstanding "Accounts receivable, net - related parties" ~~outstanding~~and "Accounts Payable, net - related parties" related to transactions with ~~Hindalco.~~

Hindalco, respectively. During each of the ~~nine~~three and six months ended ~~December 31, 2017,~~September 30, 2019 and 2018, Novelis ~~did not purchase any~~purchased less than $1 million in raw materials from Hindalco. ~~There were $3 million of raw material purchases from Hindalco that were fully paid for during the nine months ended December 31, 2016.~~

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

6.8. DEBT

Debt consisted of the following (in millions).


	December 31, 2017											March 31, 2017									September 30, 2019											March 31, 2019
	Interest Rates (A)		Principal			Unamortized Carrying Value Adjustments (B)			Carrying Value			Principal			Unamortized Carrying Value Adjustments (B)			Carrying Value			Interest Rates (A)		Principal			Unamortized Carrying Value Adjustments (B)			Carrying Value			Principal			Unamortized Carrying Value Adjustments (B)			Carrying Value
Third party debt:
Short-term borrowings	2.51	%	$	116		$	—		$	116		$	294		$	—		$	294		4.19	%	$	14		$	—		$	14		$	39		$	—		$	39
Novelis Inc.
Floating rate Term Loan Facility, due June 2022	3.54	%	1,782			(46		)	1,736			1,796			(53		)	1,743			3.95	%	1,751			(28		)	1,723			1,760			(33		)	1,727
Novelis Corporation
5.875% Senior Notes, due September 2026	5.875	%	1,500			(22		)	1,478			1,500			(23		)	1,477			5.875	%	1,500			(17		)	1,483			1,500			(19		)	1,481
6.25% Senior Notes, due August 2024	6.25	%	1,150			(17		)	1,133			1,150			(19		)	1,131			6.25	%	1,150			(12		)	1,138			1,150			(14		)	1,136
Novelis Korea Limited
Bank loans, due through September 2020 (KRW 132 billion)	2.65	%	123			—			123			184			—			184
Novelis Switzerland S.A.
Capital lease obligation, due through December 2019 (Swiss francs (CHF) 14 million)	7.50	%	14			—			14			17			(1		)	16
Novelis do Brasil Ltda.
BNDES loans, due through April 2021 (BRL 7 million)	6.02	%	2			—			2			4			—			4
Novelis China
Bank loans, due through June 2027 (CNY 83 million)																					4.90	%	12			—			12			—			—			—
Other
Capital Lease Obligations and Other debt, due through December 2020	4.84	%	2			—			2			3			—			3
Finance lease obligations and other debt, due through December 2026																					4.54	%	1			—			1			3			—			3
Total debt			4,689			(85		)	4,604			4,948			(96		)	4,852					$	4,428		$	(57	)	$	4,371		$	4,452		$	(66	)	$	4,386
Less: Short term borrowings			(116		)	—			(116		)	(294		)	—			(294		)
Current portion of long term debt			(136		)	—			(136		)	(121		)	—			(121		)
Less: Short-term borrowings																							(14		)	—			(14		)	(39		)	—			(39		)
Less: Current portion of long-term debt																							(19		)	—			(19		)	(19		)	—			(19		)
Long-term debt, net of current portion			$	4,437		$	(85	)	$	4,352		$	4,533		$	(96	)	$	4,437				$	4,395		$	(57	)	$	4,338		$	4,394		$	(66	)	$	4,328

~~_________________________~~_________________________

(A)

Interest rates are the stated rates of interest on the debt instrument (not the effective interest rate) as of ~~December 31, 2017,~~September 30, 2019, and therefore, exclude the effects of related interest rate swaps and accretion/amortization of fair value adjustments as a result of purchase accounting in connection with Hindalco's purchase of Novelis and accretion/amortization of debt issuance costs related to 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.


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

~~Novelis Inc.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)~~

Principal repayment requirements for our total debt over the next five years and thereafter using exchange rates as of

~~December 31, 2017~~ September 30, 2019 (for our debt denominated in foreign currencies) are as follows (in millions).

As of December 31, 2017 Amount
Short-term borrowings and current portion of long-term debt due within one year $ 252
2 years 38
3 years 21
4 years 18
5 years 1,710
Thereafter 2,650
Total $ 4,689

~~Senior Secured Credit Facilities~~

As of December 31, 2017, the senior secured credit facilities consisted of (i) a $1.8 billion secured term loan credit facility (Term Loan Facility) and (ii) a $1 billion asset based loan facility (ABL Revolver). As of December 31, 2017, $18 million of the Term Loan Facility is due within one year.

~~Term Loan Facility~~

In September 2017, we amended our Term Loan Credit Agreement (the "Term Loan Amendment") to our $1.8 billion Credit Agreement (the "Term Loan Facility") dated as of January 10, 2017. The amendment modifies certain provisions of the Term Loan Facility to facilitate the closing of the transaction with Kobe Steel Ltd.

The Term Loan Facility matures on June 2, 2022, and is subject to 0.25% quarterly amortization payments. The loans under the Term Loan Facility accrue interest at LIBOR plus 1.85%. The Term Loan Facility also requires customary mandatory

prepayments with excess cash flow, asset sale and casualty event proceeds and proceeds of prohibited indebtedness, all subject to customary exceptions. The Term Loan may be prepaid, in full or in part, at any time at the Company’s election without penalty or premium. The Term Loan Facility allows for additional term loans to be issued in an amount not to exceed $300 million (or its equivalent in other currencies) plus an unlimited amount if, after giving effect to such incurrence on a pro forma basis, the senior secured net leverage ratio does not exceed 3.00 to 1.00. The lenders under the Term Loan Facility have not committed to provide any such additional term loans.

~~ABL Revolver~~

In September 2017, we amended and extended the ABL Revolver. The facility is a senior secured revolver bearing an interest rate of LIBOR plus a spread of 1.25% to 1.75% or a prime rate plus a prime spread of 0.25% to 0.75% based on excess availability. The ABL Revolver has a provision that allows the facility to be increased by an additional $500 million. The ABL Revolver has various customary covenants including maintaining a minimum fixed charge coverage ratio of 1.25 to 1 if excess availability is less than the greater of (1) $90 million and (2) 10% of the lesser of (a) the maximum size of the ABL Revolver and (b) the borrowing base. The fixed charge coverage ratio will be equal to the ratio of (1) (a) ABL Revolver defined Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") less (b) maintenance capital expenditures less (c) cash taxes; to (2) (a) interest expense plus (b) scheduled principal payments plus (c) dividends to the Company's direct holding company to pay certain taxes, operating expenses and management fees and repurchases of equity interests from employees, officers and directors. The ABL Revolver matures on September 14, 2022; provided that, in the event that the Term Loan Facility, or certain other indebtedness matures on or prior to March 14, 2023 and is outstanding 90 days prior to its maturity (and not refinanced with a maturity date later than March 14, 2023), then the ABL Revolver will mature 90 days prior to the maturity date for such other indebtedness, as applicable; unless excess availability under the ABL Revolver is at least (i) 20% of the lesser of (x) the total ABL Revolver commitment and (y) the then applicable borrowing base and (ii) 15% of the lesser of (x) the total ABL Revolver commitment and (y) the then applicable borrowing base, and a minimum fixed charge ratio test of at least 1.25 to 1 is met.



As of September 30, 2019	Amount
Short-term borrowings and current portion of long-term debt due within one year	$	33
2 years	18
3 years	1,716
4 years	1
5 years	1,152
Thereafter	1,508
Total	$	4,428

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~Short-Term Borrowings~~Short Term Credit Facility

Our credit agreement (the “Short Term Credit Agreement”) governs the commitments of certain financial institutions to provide, subject to closing conditions (including the concurrent closing of our previously announced proposed acquisition of Aleris Corporation (Aleris)), up to $1.5 billion of short term loans for purposes of funding a portion of the consideration payable in connection with the proposed acquisition of Aleris or repaying certain indebtedness of Aleris and its subsidiaries. The short term loans, once borrowed, will be unsecured, will mature one year from the borrowing date of the loans, will not be subject to any amortization payments and will accrue interest at LIBOR (as defined in the Term Loan Facility described below) plus 0.95%. The short term loans will be guaranteed by the same entities that have provided guarantees under the Term Loan Facility and ABL Revolver.

Senior Notes

As of September 30, 2019, we were in compliance with the covenants of our Senior Notes.

Term Loan Facility

On December ~~31, 2017,~~18, 2018, we entered into an increase joinder amendment (the “Term Loan Increase Joinder Amendment”) to our ~~short-term borrowings were $116 million, consisting~~existing secured term loan credit agreement (as amended by the Term Loan Increase Joinder Amendment, the “Amended Secured Term Loan Credit Agreement”). The Term Loan Increase Joinder Amendment governs the commitments of ~~$73~~certain financial institutions to provide, subject to closing conditions (including the concurrent closing of the proposed acquisition of Aleris), up to $775 million of ~~short-term~~incremental term loans under our ~~ABL Revolver, $39 million~~existing term loan credit agreement.

The proceeds of the incremental term loans may be used to pay a portion of the consideration payable in ~~Novelis China~~connection with the proposed acquisition of Aleris and fees and expenses related to the proposed acquisition, the incremental term loans ~~(CNY 253 million),~~ and ~~$4 million~~short term loans. The incremental term loans will mature on the fifth anniversary of the date on which they are borrowed, subject to 0.25% quarterly amortization payments. The incremental term loans will, once borrowed, accrue interest at LIBOR (as defined in ~~other loans.~~the Amended Secured Term Loan Credit Agreement) plus 1.75%. The incremental term loans will be subject to the same voluntary and mandatory prepayment provisions, affirmative and negative covenants and events of default as those applicable to the existing term loans outstanding under the Amended Secured Term Loan Credit Agreement. The incremental term loans will be guaranteed by the same entities that have provided guarantees under our Term Loan Facility and secured on a pari passu basis with our existing term loans by security interests in substantially all of the assets of the Company and the guarantors, subject to our existing intercreditor agreement.

As of ~~December 31, 2017, $19~~September 30, 2019, borrowings outstanding under the Term Loan Facility (excluding the incremental term loans) consisted of a $1.8 billion five-year secured term loan with $18 million due within one year. As of September 30, 2019, we were in compliance with the covenants of our Term Loan Facility.

ABL Revolver

In April 2019, we entered into an amendment (the "Amendment") to our existing ABL Revolver facility. Pursuant to the terms of the agreement, the commitments under the pre-existing $1 billion facility increased by $500 million on October 15, 2019. Aleris and certain of its subsidiaries will become borrowers under the ABL Revolver Facility upon closing of the proposed acquisition, and the Amendment includes additional changes to facilitate the proposed acquisition of Aleris (including permitting borrowings under the Short Term Credit Agreement) and the inclusion of certain Aleris assets in the borrowing base following the acquisition, if consummated. The Amendment also includes additional changes to increase our operating flexibility.

As of September 30, 2019, the ABL Revolver consisted of a $1 billion facility. As of September 30, 2019, the revolver had a zero balance and $21 million was utilized for letters of credit. There was $759 million in remaining availability, including $104 million of remaining availability which can be utilized for letters of credit, and we ~~had $739~~were in compliance with the covenants of our ABL Revolver Facility.

Other Short-Term Borrowings

As of September 30, 2019, the $14 million in ~~remaining availability under the ABL Revolver.~~

~~As of December 31, 2017, we~~short-term borrowings was primarily related to China loans (CNY 97 million). We had $100 million in availability under our Novelis Korea ~~Novelis Middle East~~revolving facilities and ~~Africa, and~~$16 million in availability under our Novelis China revolving facilities.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -

China Bank Loans

In September 2019, we entered into a credit ~~facilities and credit lines~~agreement with the Bank of ~~$202~~China to provide up to $75 million ~~(KRW 216 billion), $20 million, and $6 million (CNY 45 million), respectively.~~in unsecured loans to support previously announced capital expansion projects in China.

~~Senior Notes~~

Refer to our ~~Annual Report on~~ Form 10-K for the year-ended March 31, ~~2017~~2019 for details on the issuances and respective covenants of ~~the~~our senior notes, short term credit facility, and ~~their respective covenants. As of December 31, 2017, we were in compliance with~~senior secured credit facilities, which includes the ~~covenants for our Senior Notes.~~Term Loan Facility and ABL Revolver facility.

Novelis Inc.

~~Interest Rate Swaps~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -

We use interest rate swaps to manage our exposure to changes in benchmark interest rates which impact our variable-rate debt. See Note 10 — Financial Instruments and Commodity Contracts for further information about these interest rate swaps.

7.9. SHARE-BASED COMPENSATION

~~The Company's board of directors has authorized long term incentive plans (LTIPs), under which~~During the six months ended September 30, 2019, we granted 2,681,386 Hindalco ~~stock appreciation rights (Hindalco SARs), Novelis stock appreciation rights (Novelis SARs),~~ phantom restricted stock units (RSUs), and ~~Novelis Performance Units (Novelis PUs) are granted to certain executive officers and key employees.~~

~~The~~3,475,995 Hindalco SARs vest at the rate of 25% or 33% per year, subject to the achievement of an annual performance target, and expire seven years from their original grant date. The performance criterion for vesting of the Hindalco SARs is based on the actual overall Novelis operating EBITDA compared to the target established and approved each fiscal year. The RSUs are based on Hindalco's stock price. The RSUs vest either in full three years from the grant date or 33% per year over three years, subject to continued employment with the Company, but are not subject to performance criteria.

In May 2016, the Company's board of directors approved the issuance of Novelis PUs which have a fixed $100 value per unit and will vest in full three years from the grant date, subject to specific performance criteria compared to the established target. The Company made a voluntary offer to the participants with outstanding Novelis SARs granted for fiscal years 2012 through 2016 to exchange their Novelis SARs for an equivalently valued number of Novelis PUs. The voluntary exchange resulted in 1,054,662 Novelis SARs being modified into PUs which are not based on Novelis' or Hindalco's fair values and are accounted for outside the scope of ASC 718, ~~Compensation -~~ Stock ~~Compensation~~Appreciation Rights (Hindalco SARs). ~~This exchange was accounted for as a modification.~~

~~During the nine months ended December 31, 2017, we granted 2,586,824 RSUs, 2,317,529 Hindalco SARs, and no Novelis SARs.~~ Total compensation expense ~~related to these plans for the respective periods~~ was $9$6 million and $3$12 million for the ~~three~~six months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, respectively. These amounts are included in “Selling, general and administrative expenses” in our condensed consolidated statements of operations. As the performance criteria for fiscal years 2019, 2020 and 2021 have not yet been established, measurement periods for Hindalco SARs relating to those periods have not yet commenced. As a result, only compensation expense for vested and current year Hindalco SARs and Novelis SARs has been recorded. As of ~~December 31, 2017,~~September 30, 2019, the outstanding liability related to share-based compensation was ~~$27~~$16 million.

The cash payments made to settle all SAR liabilities were $9$3 million and $3$4 million in the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019 and ~~2016.~~2018, respectively. Total cash payments made to settle ~~Hindalco~~ RSUs were $8$9 million and $2$14 million in the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, respectively. Unrecognized compensation expense related to the non-vested Hindalco SARs (assuming all future performance criteria are met) was $9$4 million, which is expected to be recognized over a weighted average period of 1.2 years. Unrecognized compensation expense related to the non-vested Novelis SARs (assuming all future performance criteria are met) was less than $1 million, which is expected to be recognized over a weighted average period of 0.91.5 years. Unrecognized compensation expense related to the RSUs was ~~$11~~$8 million, which will be recognized over the remaining weighted average vesting period of ~~1.3~~1.5 years.

For a further description of authorized long term incentive plans (LTIPs), including Hindalco SARs, RSUs, and Novelis Performance Units, please refer to our Form 10-K for the year ended March 31, 2019.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

8.10. POSTRETIREMENT BENEFIT PLANS

Our pension obligations relate to: (1) funded defined benefit pension plans in the U.S., Canada, Switzerland and the U.K.; (2) unfunded defined benefit pension plans in Germany; (3) unfunded lump sum indemnities payable upon retirement to employees in France and Italy; and (4) partially funded lump sum indemnities in South Korea. Our other postretirement obligations (Other Benefit Plans, as shown in certain tables below) include unfunded health care and life insurance benefits provided to retired employees in the U.S., Canada and Brazil.

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

Pension Benefit Plans Other Benefit Plans
Three Months Ended December 31, Three Months Ended December 31,
2017 2016 2017 2016
Service cost $ 11
$ 11
$ 1
$ 2
Interest cost 15
15
2
2
Expected return on assets (16 ) (16 ) —
—
Amortization — losses, net 9
10
—
1
Amortization — prior service credit, net —
(1 ) —
—
Net periodic benefit cost $ 19
$ 19
$ 3
$ 5

Pension Benefit Plans Other Benefit Plans
Nine Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Service cost $ 33
$ 34
$ 5
$ 5
Interest cost 44
46
5
5
Expected return on assets (46 ) (47 ) —
—
Amortization — losses 26
30
1
3
Amortization — prior service credit, net —
(2 ) —
1
Termination benefits / (curtailments) 2
—
—
—
Net periodic benefit cost $ 59
$ 61
$ 11
$ 14



	Pension Benefit Plans						Other Benefit Plans
	Three Months Ended September 30,						Three Months Ended September 30,
	2019			2018			2019		2018
Service cost	$	10		$	10		$	3	$	2
Interest cost	15			15			2		2
Expected return on assets	(18		)	(16		)	—		—
Amortization — losses, net	9			8			—		1
Net periodic benefit cost (A)	$	16		$	17		$	5	$	5



	Pension Benefit Plans						Other Benefit Plans
	Six Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019		2018
Service cost	$	20		$	20		$	6	$	4
Interest cost	30			30			4		4
Expected return on assets	(36		)	(32		)	—		—
Amortization — losses, net	17			16			—		2
Net periodic benefit cost (A)	$	31		$	34		$	10	$	10

_________________________

(A) 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 plan assets is ~~5.2%~~5.5% in fiscal ~~2018.~~2020.

Employer Contributions to Plans

For pension plans, our policy is to fund an amount required to provide for contractual benefits attributed to service to date, and amortize unfunded actuarial liabilities typically over periods of 15 years or less. We also participate in savings plans in Canada and the U.S., as well as defined contribution pension plans in the U.S., U.K., Canada, Germany, Italy, Switzerland and Brazil. We contributed the following amounts (in millions) to all ~~plans (in millions).~~plans.


	Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016		2019		2018		2019		2018
Funded pension plans	$	8	$	13	$	42	$	20	$	33	$	14	$	38	$	16
Unfunded pension plans	3		3		10		9		3		3		5		6
Savings and defined contribution pension plans	7		6		21		19		7		7		17		16
Total contributions	$	18	$	22	$	73	$	48	$	43	$	24	$	60	$	38

During the remainder of fiscal ~~2018,~~2020, we expect to contribute an additional $5$13 million to our funded pension plans, $4$7 million to our unfunded pension plans and $7$17 million to our savings and defined contribution pension plans.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

9.11. CURRENCY (GAINS) LOSSES

The following currency (gains) losses are included in “Other (income) ~~expense,~~expenses, net” in the accompanying condensed consolidated statements of operations (in millions).

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
(Gain) loss on remeasurement of monetary assets and liabilities, net $ (4 ) $ (1 ) $ (43 ) $ 14
Loss (gain) recognized on balance sheet remeasurement currency exchange contracts, net 4
(1 ) 43
(15 )
Currency gains, net $ —
$ (2 ) $ —
$ (1 )



	Three Months Ended September 30,					Six Months Ended September 30,
	2019			2018		2019			2018
(Gain) loss on remeasurement of monetary assets and liabilities, net	$	(1	)	$	—	$	(6	)	$	(6	)
(Gain) loss recognized on balance sheet remeasurement currency exchange contracts, net	2			—		8			6
Currency (gains) losses, net	$	1		$	—	$	2		$	—

The following currency gains (losses) are included in “Accumulated other comprehensive ~~loss,~~income (loss)," net of ~~tax”~~tax and “Noncontrolling ~~interests”~~interest” in the accompanying condensed consolidated balance sheets (in millions).


	Nine Months Ended December 31, 2017			Year Ended March 31, 2017			Six Months Ended September 30, 2019			Year Ended March 31, 2019
	Nine Months Ended December 31, 2017			Year Ended March 31, 2017			Six Months Ended September 30, 2019			Year Ended March 31, 2019
Cumulative currency translation adjustment — beginning of period	$	(256	)	$	(197	)	$	(236	)	$	(65	)
Effect of changes in exchange rates	149			(75		)	(81		)	(171		)
Sale of investment in foreign entities (A)	—			16
Cumulative currency translation adjustment — end of period	$	(107	)	$	(256	)	$	(317	)	$	(236	)

~~_________________________~~


~~(A)~~	We reclassified $16 million of cumulative currency losses from AOCI to "(Gain) loss on sale of a business, net" in the twelve months ended March 31, 2017 due to the sale of our equity interest in Aluminium Company of Malaysia Berhad (ALCOM) in fiscal 2017.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~10.~~12. FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS

The following tables summarize the gross fair values of our financial instruments and commodity contracts as of ~~December 31, 2017 and March 31, 2017~~the periods presented (in millions).


	December 31, 2017													September 30, 2019
	Assets				Liabilities						Net Fair Value			Assets				Liabilities						Net Fair Value
	Current		Noncurrent (A)		Current			Noncurrent (A)			Assets / (Liabilities)			Current		Noncurrent (A)		Current			Noncurrent (A)			Assets / (Liabilities)
Derivatives designated as hedging instruments:
Cash flow hedges
Aluminum contracts	$	—	$	—	$	(62	)	$	—		$	(62	)
Metal contracts														$	28	$	—	$	(5	)	$	(1	)	$	22
Currency exchange contracts	12		1		(6		)	(4		)	3			3		—		(31		)	(9		)	(37		)
Energy contracts	—		1		(2		)	(7		)	(8		)	—		—		(5		)	(6		)	(11		)
Total derivatives designated as hedging instruments	12		2		(70		)	(11		)	(67		)	$	31	$	—	$	(41	)	$	(16	)	$	(26	)
Derivatives not designated as hedging instruments
Aluminum contracts	76		—		(91		)	(1		)	(16		)
Derivatives not designated as hedging instruments:
Metal contracts														47		—		(46		)	—			1
Currency exchange contracts	26		—		(31		)	(1		)	(6		)	23		—		(15		)	—			8
Energy contracts	1		—		—			—			1
Total derivatives not designated as hedging instruments	103		—		(122		)	(2		)	(21		)	$	70	$	—	$	(61	)	$	—		$	9
Total derivative fair value	$	115	$	2	$	(192	)	$	(13	)	$	(88	)	$	101	$	—	$	(102	)	$	(16	)	$	(17	)


	March 31, 2017													March 31, 2019
	Assets				Liabilities						Net Fair Value			Assets				Liabilities						Net Fair Value
	Current		Noncurrent (A)		Current			Noncurrent(A)			Assets / (Liabilities)			Current		Noncurrent (A)		Current			Noncurrent (A)			Assets / (Liabilities)
Derivatives designated as hedging instruments:
Cash flow hedges
Aluminum contracts	$	—	$	—	$	(69	)	$	—		$	(69	)
Metal contracts														$	6	$	—	$	(10	)	$	—		$	(4	)
Currency exchange contracts	26		1		(1		)	(3		)	23			4		—		(15		)	(1		)	(12		)
Energy contracts	1		—		—			(9		)	(8		)	—		—		(1		)	(4		)	(5		)
Total derivatives designated as hedging instruments	27		1		(70		)	(12		)	(54		)	$	10	$	—	$	(26	)	$	(5	)	$	(21	)
Derivatives not designated as hedging instruments:
Aluminum contracts	57		1		(68		)	(1		)	(11		)
Metal contracts														38		1		(34		)	(1		)	4
Currency exchange contracts	29		—		(13		)	—			16			22		1		(27		)	(1		)	(5		)
Total derivatives not designated as hedging instruments	86		1		(81		)	(1		)	5			$	60	$	2	$	(61	)	$	(2	)	$	(1	)
Total derivative fair value	$	113	$	2	$	(151	)	$	(13	)	$	(49	)	$	70	$	2	$	(87	)	$	(7	)	$	(22	)

_________________________


(A)	The noncurrent portions of derivative assets and liabilities are included in “Other long-term assets-third parties” and in “Other long-term liabilities”, respectively, in the accompanying condensed consolidated balance sheets.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~Aluminum~~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 London Metals Exchange (LME) (referred to as our "aluminum derivative forward contracts") to reduce our exposure to fluctuating metal prices associated with the period of time between the pricing of our purchases of inventory and the pricing of the sale of that inventory to our customers, which is known as "metal price lag." We also purchase forward LME aluminum contracts simultaneously with our sales contracts with customers that contain fixed metal prices. These LME aluminum forward contracts directly hedge the economic risk of future metal price fluctuations to better match the selling price of the metal with the purchase price of the metal. The volatility in local market premiums also results in metal price lag.

Price risk exposure arises from commitments to sell aluminum in future periods at fixed prices. We identify and designate certain LME aluminum forward contracts as fair value hedges of the metal price risk associated with fixed price sales commitments that qualify as firm commitments. We did not have any outstanding aluminum forward purchase contracts designated as fair value hedges as of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017.~~2019.

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. ~~We did~~Generally, such exposures do not ~~have any outstanding aluminum forward purchase~~extend beyond two years in length. The average duration of undesignated contracts ~~designated as cash flow hedges as of December 31, 2017 and March 31, 2017.~~is less than 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 exposures do not extend beyond two years in length. The average duration of undesignated contracts is less than one year.

In addition to aluminum, we entered into LME copper and LMP forward contracts. As of September 30, 2019 and March 31, 2019, the fair value of these contracts represented a liability and an asset, respectively, of less than $1 million. These contracts are undesignated with an average duration of less than two years.

The following table summarizes our metal notional ~~amount (in kt)~~amounts in kilotonnes (kt). One kt is 1,000 metric tonnes.


	December 31, 2017		March 31, 2017		September 30, 2019		March 31, 2019
Hedge type
Purchase (Sale)
Purchase (sale)
Cash flow purchases					44		—
Cash flow sales	(341	)	(391	)	(387	)	(353	)
Not designated	(197	)	(89	)	(32	)	15
Total, net	(538	)	(480	)	(375	)	(338	)

Foreign Currency

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

We use foreign currency contracts to hedge expected future foreign currency transactions, which include capital expenditures. These contracts cover the same periods as known or expected exposures. We had total notional amounts of ~~$432~~$688 million and ~~$465~~$703 million in outstanding foreign currency forwards designated as cash flow hedges as of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017,~~2019, respectively.

We use foreign currency contracts to hedge our foreign currency exposure to our net investment in foreign subsidiaries. We did not have any outstanding foreign currency forwards designated as net investment hedges as of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017.~~2019.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -

As of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017,~~2019, we had outstanding foreign currency exchange contracts with a total notional amount of ~~$1,478~~$846 million and ~~$683~~$737 million, respectively, to primarily hedge balance sheet remeasurement risk, which were not designated as hedges. Contracts representing the majority of this notional amount will mature during the ~~fourth~~third quarter of fiscal ~~2018~~2020 and offset the remeasurement impact.

~~Novelis Inc.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)~~

Energy

We own an interest in an electricity swap contract to hedge our exposure to fluctuating electricity ~~prices.~~prices, which matures on January 5, 2022. As of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017, there were~~2019, 1 million of notional megawatt hours was outstanding and the fair value of ~~the~~this swap was a liability of $7$5 million and $9$3 million, respectively. The electricity swap ~~which matures on January 5, 2022,~~ is designated as a cash flow hedge.

We use natural gas forward purchase contracts ~~("forward contracts")~~ to manage our exposure to fluctuating ~~natural gas~~energy prices in North America. We had a notional of 2113 million MMBTUs designated as cash flow hedges as of ~~December 31, 2017,~~September 30, 2019, and the fair value was a liability of $1$5 million. There was a notional of 615 million MMBTU forward contracts designated as cash flow hedges as of March 31, ~~2017~~2019 and the fair value was ~~an asset~~a liability of $1$2 million. As of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017,~~2019, we had notionals of less than 1 million MMBTU forward contracts that were not designated as hedges. The fair value ~~for the~~of forward contracts not designated as hedges as of ~~December 31, 2017 was a liability of $1 million~~September 30, 2019 and ~~as of~~ March 31, ~~2017~~2019 was a liability of less than $1 million. The average duration of undesignated contracts is ~~approximately 2~~less than three years in length. One MMBTU is the equivalent of one decatherm, or one million British Thermal Units.

We use diesel fuel forward contracts to manage our exposure to fluctuating fuel prices in North ~~America, which were not~~America. We had a notional of 6 million gallons designated as cash flow hedges as of ~~December 31, 2017. As~~September 30, 2019, and the fair value was a liability of ~~December 31, 2017 and March 31, 2017, we had 5 million and~~ $1 million. There was a notional of 8 million gallons ~~of diesel fuel forward purchase contracts outstanding. The fair value~~designated as ~~of December 31, 2017 was an asset of $1 million, and~~cash flow hedges as of March 31, ~~2017~~2019, and the fair value was a liability of less than $1 million. ~~The average duration of undesignated contracts is less than 2 years in length.~~

Interest Rate

As of December 31, 2017, we swapped $56 million (KRW 60 billion) floating rate loans to a weighted average fixed rate of 3.10%. All swaps expire concurrent with the maturity of the related loans. As of December 31, 2017September 30, 2019 and March 31, ~~2017, $56 million (KRW 60 billion) and $119 million (KRW 133 billion), respectively, were designated as cash flow hedges.~~2019, we had no outstanding interest rate swaps.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

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 ~~ineffectiveness~~excluded portion of designated derivatives recognized in “Other (income) ~~expense,~~expenses, net” (in millions). Gains (losses) recognized in other line items in the condensed consolidated statement of operations are separately disclosed within this footnote.

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Derivative instruments not designated as hedges
Aluminum contracts $ 6
$ (10 ) $ 8
$ (27 )
Currency exchange contracts (2 ) 4
(51 ) 17
Energy contracts (A) 3
4
6
9
Gain (loss) recognized in "Other (income) expense, net" 7
(2 ) (37 ) (1 )
Derivative instruments designated as hedges
(Loss) gain recognized in "Other (income) expense, net" (B) (1 ) 5
(8 ) (8 )
Total gain (loss) recognized in "Other (income) expense, net" $ 6
$ 3
$ (45 ) $ (9 )
Balance sheet remeasurement currency exchange contract (losses) gains $ (4 ) $ 1
$ (43 ) $ 15
Realized losses, net (5 ) (19 ) (15 ) (42 )
Unrealized gains on other derivative instruments, net 15
21
13
18
Total gain (loss) recognized in "Other (income) expense, net" $ 6
$ 3
$ (45 ) $ (9 )



	Three Months Ended September 30,					Six Months Ended September 30,
	2019			2018		2019			2018
Derivative instruments not designated as hedges
Metal contracts	$	(2	)	$	10	$	(4	)	$	(6	)
Currency exchange contracts	(2		)	1		(8		)	(9		)
Energy contracts (A)	2			3		3			5
Gain (loss) recognized in "Other (income) expenses, net"	$	(2	)	$	14	$	(9	)	$	(10	)
Derivative instruments designated as hedges
Gain (loss) recognized in "Other (income) expenses, net" (B)	$	2		$	—	$	2		$	—
Total gain (loss) recognized in "Other (income) expenses, net"	$	—		$	14	$	(7	)	$	(10	)
Balance sheet remeasurement currency exchange contract losses	$	(2	)	$	—	$	(8	)	$	(6	)
Realized gains (losses), net	(1		)	13		(8		)	(1		)
Unrealized gains (losses) on other derivative instruments, net	3			1		9			(3		)
Total gain (loss) recognized in "Other (income) expenses, net"	$	—		$	14	$	(7	)	$	(10	)

_________________________


(A)	Includes amounts related to ~~de-designated electricity swap and natural gas~~diesel swaps not designated as ~~hedges.~~hedges, and electricity swap settlements.


(B)	Amount includes: forward market premium/discount excluded from hedging relationship ~~and ineffectiveness~~ on designated ~~aluminum and~~ foreign currency capital expenditure contracts; releases to income from AOCI on balance sheet remeasurement ~~contracts; and ineffectiveness of fair value hedges involving aluminum derivatives.~~contracts.

The following table summarizes the impact on AOCI and earnings of derivative instruments designated as cash flow ~~and net investment~~ hedges (in millions). Within the next twelve months, we expect to reclassify ~~$76~~$2 million of losses from AOCI to earnings, before taxes.


	Amount of Gain (Loss) Recognized in OCI (Effective Portion)						Amount of Gain (Loss) Recognized in OCI (Effective Portion)						Amount of Gain (Loss) Recognized in “Other Expense, net” (Ineffective and Excluded Portion)				Amount of Gain (Loss) Recognized in “Other Expense, net” (Ineffective and Excluded Portion)						Amount of Gain (Loss) Recognized in OCI (Effective Portion)					Amount of Gain (Loss) Recognized in OCI (Effective Portion)						Amount of Gain (Loss) Recognized in “Other (Income) Expenses, net” (Ineffective and Excluded Portion)				Amount of Gain (Loss) Recognized in “Other (Income) Expenses, net” (Ineffective and Excluded Portion)
	Three Months Ended December 31,						Nine Months Ended December 31,						Three Months Ended December 31,				Nine Months Ended December 31,						Three Months Ended September 30,					Six Months Ended September 30,						Three Months Ended September 30,				Six Months Ended September 30,
	2017			2016			2017			2016			2017		2016		2017			2016			2019			2018		2019			2018			2019		2018		2019		2018
Cash flow hedging derivatives
Aluminum contracts	$	(66	)	$	(22	)	$	(89	)	$	(52	)	$	—	$	4	$	(9	)	$	(9	)
Metal contracts																							$	28		$	29	$	76		$	(36	)	$	—	$	—	$	—	$	—
Currency exchange contracts	—			(14		)	(7		)	18			—		—		1			1			(43		)	—		(42		)	(35		)	2		—		2		—
Energy contracts	(2		)	1			(4		)	(3		)	—		—		1			(1		)	(5		)	1		(9		)	1			—		—		—		—
Total cash flow hedging derivatives	$	(68	)	$	(35	)	$	(100	)	$	(37	)	$	—	$	4	$	(7	)	$	(9	)
Net investment derivatives
Currency exchange contracts	(17		)	—			(17		)	—			—		—		—			—
Total	$	(85	)	$	(35	)	$	(117	)	$	(37	)	$	—	$	4	$	(7	)	$	(9	)	$	(20	)	$	30	$	25		$	(70	)	$	2	$	—	$	2	$	—

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

Gain (Loss) Reclassification


	Amount of Gain (Loss) Reclassified from AOCI into Income/(Expense) (Effective Portion) Three Months Ended December 31,						Amount of Gain (Loss) Reclassified from AOCI into Income/(Expense) (Effective Portion) Nine Months Ended September 30,						Location of Gain (Loss) Reclassified from AOCI into Earnings	Amount of Gain (Loss) Reclassified from AOCI into Income/(Expense) (Effective Portion) Three Months Ended September 30,						Amount of Gain (Loss) Reclassified from AOCI into Income/(Expense) (Effective Portion) Six Months Ended September 30,						Location of Gain (Loss) Reclassified from AOCI into Earnings
Cash flow hedging derivatives	2017			2016			2017			2016				2019			2018			2019			2018
Energy contracts (A)	$	—		$	(1	)	$	—		$	(4	)	Other (income) expense, net	$	(1	)	$	—		$	(2	)	$	(1	)	Cost of goods sold (B)
Energy contracts (C)	(1		)	(1		)	(2		)	(4		)	Cost of goods sold (B)
Aluminum contracts	(36		)	(13		)	(79		)	(19		)	Cost of goods sold (B)
Aluminum contracts	—			(1		)	—			(3		)	Net sales
Currency exchange contracts	4			5			11			10			Cost of goods sold (B)
Metal contracts														(1		)	—			(1		)	—			Cost of goods sold (B)
Metal contracts														23			27			53			—			Net sales
Currency exchange contracts	—			—			1			1			Selling, general and administrative expenses	—			(5		)	(1		)	(7		)	Cost of goods sold (B)
Currency exchange contracts	1			1			3			4			Net sales	—			(1		)	—			(1		)	Selling, general and administrative expenses
Currency exchange contracts	—			—			—			1			Other (income) expense, net	(4		)	(2		)	(7		)	(3		)	Net sales
Currency exchange contracts	—			—			(1		)	(1		)	Depreciation and amortization	(1		)	(1		)	(1		)	(1		)	Depreciation and amortization
Total	$	(32	)	$	(10	)	$	(67	)	$	(15	)	Loss before taxes	$	16		$	18		$	41		$	(13	)	Income (loss) before taxes
	11			2			23			3			Income tax benefit	(4		)	(6		)	(10		)	2			Income tax (provision) benefit
	$	(21	)	$	(8	)	$	(44	)	$	(12	)	Net loss	$	12		$	12		$	31		$	(11	)	Net gain (loss)

_________________________


(A)	Includes amounts related to ~~de-designated~~ electricity, ~~swap. AOCI related to this swap was amortized to income over the remaining term of the hedged item.~~natural gas, and diesel swaps.


(B)	"Cost of goods sold" is exclusive of depreciation and amortization.


~~(C)~~	~~Includes amounts related to electricity and natural gas swaps.~~

The following tables summarize the location and amount of gains (losses) that were reclassified from "Accumulated other comprehensive income (loss)" into earnings and the amount excluded from the assessment of effectiveness for the periods presented (in millions).



	Three Months Ended September 30, 2019													Six Months Ended September 30, 2019
	Net Sales			Cost of Goods Sold			Selling, General & Administrative Expenses		Depreciation and Amortization			Other (Income) Expenses, Net		Net Sales			Cost of Goods Sold			Selling, General & Administrative Expenses		Depreciation and Amortization			Other (Income) Expenses, Net
Gain (loss) on cash flow hedging relationships
Metal commodity contracts:
Amount of gain reclassified from AOCI into income	$	23		$	(1	)	$	—	$	—		$	—	$	53		$	(1	)	$	—	$	—		$	—
Energy commodity contracts:
Amount of loss reclassified from AOCI into income	$	—		$	(1	)	$	—	$	—		$	—	$	—		$	(2	)	$	—	$	—		$	—
Foreign exchange contracts:
Amount of loss reclassified from AOCI into income	$	(4	)	$	—		$	—	$	(1	)	$	—	$	(7	)	$	(1	)	$	—	$	(1	)	$	—
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value	$	—		$	—		$	—	$	—		$	2	$	—		$	—		$	—	$	—		$	2

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -



	Three Months Ended September 30, 2018														Six Months Ended September 30, 2018
	Net Sales			Cost of Goods Sold			Selling, General & Administrative Expenses			Depreciation and Amortization			Other (Income) Expenses, Net		Net Sales			Cost of Goods Sold			Selling, General & Administrative Expenses			Depreciation and Amortization			Other (Income) Expenses, Net
Gain (loss) on cash flow hedging relationships
Metal commodity contracts:
Amount of gain reclassified from AOCI into income	$	27		$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—		$	—
Energy commodity contracts:
Amount of loss reclassified from AOCI into income	$	—		$	—		$	—		$	—		$	—	$	—		$	(1	)	$	—		$	—		$	—
Foreign exchange contracts:
Amount of loss reclassified from AOCI into income	$	(2	)	$	(5	)	$	(1	)	$	(1	)	$	—	$	(3	)	$	(7	)	$	(1	)	$	(1	)	$	—

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~11.~~13. ACCUMULATED OTHER COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

The following tables summarize the change in the components ~~of accumulated~~of Accumulated other comprehensive ~~loss,~~income (loss), net of tax and excluding "Noncontrolling ~~interests"~~interest", for the periods presented (in millions).



	Currency Translation			(A) Cash Flow Hedges			(B) Postretirement Benefit Plans			Total
Balance as of June 30, 2019	$	(231	)	$	(8	)	$	(244	)	$	(483	)
Other comprehensive income (loss) before reclassifications	(86		)	(13		)	5			(94		)
Amounts reclassified from AOCI, net	—			(12		)	6			(6		)
Net current-period other comprehensive income (loss)	(86		)	(25		)	11			(100		)
Balance as of September 30, 2019	$	(317	)	$	(33	)	$	(233	)	$	(583	)


	Currency Translation			(A) Cash Flow Hedges			(B) Postretirement Benefit Plans			Total			Currency Translation			(A) Cash Flow Hedges			(B) Postretirement Benefit Plans			Total
Balance as of September 30, 2017	$	(165	)	$	(44	)	$	(241	)	$	(450	)
Balance as of June 30, 2018													$	(182	)	$	(21	)	$	(227	)	$	(430	)
Other comprehensive income (loss) before reclassifications	58			(46		)	(10		)	2			(1		)	21			(1		)	19
Amounts reclassified from AOCI, net	—			20			13			33			—			(12		)	7			(5		)
Net current-period other comprehensive income (loss)	58			(26		)	3			35			(1		)	9			6			14
Balance as of December 31, 2017	$	(107	)	$	(70	)	$	(238	)	$	(415	)
Balance as of September 30, 2018													$	(183	)	$	(12	)	$	(221	)	$	(416	)

Currency Translation (A) Cash Flow Hedges (B)
Postretirement Benefit Plans Total
Balance as of September 30, 2016 $ (185 ) $ (8 ) $ (274 ) $ (467 )
Other comprehensive loss before reclassifications (140 ) (25 ) —
(165 )
Amounts reclassified from AOCI, net —
8
18
26
Net current-period other comprehensive income (loss) (140 ) (17 ) 18
(139 )
Balance as of December 31, 2016 $ (325 ) $ (25 ) $ (256 ) $ (606 )



	Currency Translation			(A) Cash Flow Hedges			(B) Postretirement Benefit Plans			Total
Balance as of March 31, 2019	$	(236	)	$	(22	)	$	(248	)	$	(506	)
Other comprehensive income (loss) before reclassifications	(81		)	20			3			(58		)
Amounts reclassified from AOCI, net	—			(31		)	12			(19		)
Net current-period other comprehensive income (loss)	(81		)	(11		)	15			(77		)
Balance as of September 30, 2019	$	(317	)	$	(33	)	$	(233	)	$	(583	)

Currency Translation (A) Cash Flow Hedges (B)
Postretirement Benefit Plans Total
Balance as of March 31, 2017 $ (256 ) $ (46 ) $ (243 ) $ (545 )
Other comprehensive income (loss) before reclassifications 149
(67 ) (14 ) 68
Amounts reclassified from AOCI, net —
43
19
62
Net current-period other comprehensive income (loss) 149
(24 ) 5
130
Balance as of December 31, 2017 $ (107 ) $ (70 ) $ (238 ) $ (415 )

Currency Translation (A) Cash Flow Hedges (B)
Postretirement Benefit Plans Total
Balance as of March 31, 2016 $ (196 ) $ (11 ) $ (293 ) $ (500 )
Other comprehensive (loss) income before reclassifications (145 ) (26 ) 17
(154 )
Amounts reclassified from AOCI, net (C) 16
12
20
48
Net current-period other comprehensive (loss) income (129 ) (14 ) 37
(106 )
Balance as of December 31, 2016 $ (325 ) $ (25 ) $ (256 ) $ (606 )



	Currency Translation			(A) Cash Flow Hedges			(B) Postretirement Benefit Plans			Total
Balance as of March 31, 2018	$	(65	)	$	31		$	(227	)	$	(261	)
Amounts reclassified from AOCI, net - due to adoption of accounting standard updates	—			(3		)	(13		)	(16		)
Balance as of April 1, 2018	$	(65	)	$	28		$	(240	)	$	(277	)
Other comprehensive income (loss) before reclassifications	(118		)	(51		)	5			(164		)
Amounts reclassified from AOCI, net	—			11			14			25
Net current-period other comprehensive income (loss)	(118		)	(40		)	19			(139		)
Balance as of September 30, 2018	$	(183	)	$	(12	)	$	(221	)	$	(416	)

_________________________


(A)	For additional information on our cash flow hedges, see Note 1012 — Financial Instruments and Commodity Contracts.


(B)	For additional information on our postretirement benefit plans, see Note 810 — Postretirement Benefit Plans.


~~(C)~~	The $16 million in currency translation reclassified from AOCI relates to CTA that was written off as part of our sale of the Aluminium Company of Malaysia Berhad (ALCOM) business in fiscal 2017. This amount is classified in (Gain) loss on sale of a business, net.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~12.~~14. 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 ~~value~~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 we 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 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, 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 ~~derivative~~and copper forward contracts, natural gas and diesel fuel forward contracts.

We classify derivative contracts that are valued based on models with significant unobservable market inputs as Level 3 of the valuation hierarchy. Our electricity swap, which is our only Level 3 derivative contract, represents an agreement to buy electricity at a fixed price at our Oswego, New York facility. Forward prices are not observable for this market, so we must make certain assumptions based on available information we believe to be relevant to market participants. We use observable forward prices for a geographically nearby market and adjust for 1) historical spreads between the cash prices of the two markets, and 2) historical spreads between retail and wholesale prices.

For the electricity swap, the average forward price at ~~December 31, 2017,~~September 30, 2019, estimated using the method described above, was $40 per megawatt hour, which represented ~~a $3~~an approximately $2 premium over forward prices in the nearby observable market. The actual rate from the most recent swap settlement was approximately ~~$47~~$30 per megawatt hour. Each $1 per megawatt hour decline in price decreases the valuation of the electricity swap by $1 million.

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 ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017,~~2019, we did not have any Level 1 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.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

The following table presents our derivative assets and liabilities which were measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017~~2019 (in millions). The table below also discloses the net fair value of the derivative instruments after considering the impact of master netting agreements.


	December 31, 2017						March 31, 2017						September 30, 2019						March 31, 2019
	Assets			Liabilities			Assets			Liabilities			Assets			Liabilities			Assets			Liabilities
Level 2 instruments
Aluminum contracts	$	76		$	(154	)	$	58		$	(138	)
Level 2 instruments:
Metal contracts													$	75		$	(52	)	$	45		$	(45	)
Currency exchange contracts	39			(42		)	56			(17		)	26			(55		)	27			(44		)
Energy contracts	2			(2		)	1			—			—			(6		)	—			(2		)
Total level 2 instruments	117			(198		)	115			(155		)	$	101		$	(113	)	$	72		$	(91	)
Level 3 instruments
Level 3 instruments:
Energy contracts	—			(7		)	—			(9		)	—			(5		)	—			(3		)
Total level 3 instruments	—			(7		)	—			(9		)	$	—		$	(5	)	$	—		$	(3	)
Total gross	$	117		$	(205	)	$	115		$	(164	)	$	101		$	(118	)	$	72		$	(94	)
Netting adjustment (A)	$	(64	)	$	64		$	(46	)	$	46		$	(45	)	$	45		$	(36	)	$	36
Total net	$	53		$	(141	)	$	69		$	(118	)	$	56		$	(73	)	$	36		$	(58	)

_________________________


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

~~We recognized~~There were no unrealized gains ~~of $2 million~~(losses) recognized in "Other (income) expenses, net" for the ~~nine~~three and six months ended ~~December 31, 2017~~September 30, 2019 related to Level 3 financial ~~instruments that were still held as of December 31, 2017. These unrealized gains were included in “Other (income) expense, net.”~~instrument.

The following table presents a reconciliation of fair value activity for Level 3 derivative contracts (in millions).

Level 3 –
Derivative Instruments (A)
Balance as of March 31, 2017 $ (9 )
Unrealized/realized gain included in earnings (B) 4
Unrealized loss included in AOCI (C) —
Settlements (B) (2 )
Balance as of December 31, 2017 $ (7 )



	Level 3 – Derivative Instruments (A)
Balance as of March 31, 2019	$	(3	)
Unrealized/realized gain (loss) included in earnings (B)	2
Unrealized/realized gain (loss) included in AOCI (C)	(3		)
Settlements (B)	(1		)
Balance as of September 30, 2019	$	(5	)

_________________________


(A)	Represents net derivative liabilities.


(B)	Included in “Other (income) ~~expense,~~expenses, net.”


(C)	Included in ~~"Change~~"Net change in fair value of effective portion of cash flow ~~hedges, net"~~hedges."

~~Novelis Inc.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)~~

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 (in millions). The table excludes 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.


	December 31, 2017				March 31, 2017				September 30, 2019				March 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Long-term receivables from related parties	$	10	$	10	$	15	$	14
Liabilities
Total debt — third parties (excluding short-term borrowings)	$	4,488	$	4,689	$	4,558	$	4,797	$	4,357	$	4,582	$	4,347	$	4,472

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~13.~~15. OTHER (INCOME) ~~EXPENSE,~~EXPENSES, NET

“Other (income) ~~expense,~~expenses, net” is comprised of the following (in millions).

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Currency gains, net (A) $ —
$ (2 ) $ —
$ (1 )
Unrealized gains on change in fair value of derivative instruments, net (B) (15 ) (21 ) (13 ) (18 )
Realized losses on change in fair value of derivative
instruments, net (B) 5
19
15
42
Loss (gain) on sale of assets, net 2
(2 ) 4
4
Loss on Brazilian tax litigation, net (C) —
1
2
4
Interest income (2 ) (2 ) (6 ) (7 )
Other, net 4
4
5
12
Other (income) expense, net (D) $ (6 ) $ (3 ) $ 7
$ 36



	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Currency (gains) losses, net (A)	$	1		$	—		$	2		$	—
Unrealized (gains) losses on change in fair value of derivative instruments, net (B)	(3		)	(1		)	(9		)	3
Realized (gains) losses on change in fair value of derivative instruments, net (B)	1			(13		)	8			1
(Gain) loss on sale of assets, net	(1		)	(1		)	(2		)	2
Loss on Brazilian tax litigation, net (C)	1			1			1			1
Interest income	(3		)	(2		)	(6		)	(5		)
Non-operating net periodic benefit cost	8			8			15			16
Other, net	(2		)	2			(3		)	5
Other (income) expenses, net	$	2		$	(6	)	$	6		$	23

_________________________


(A)	See Note 911 — Currency (Gains) Losses for further details.


(B)	See Note 1012 — Financial Instruments and Commodity Contracts for further details.


(C)	See Note 1517 — Commitments and Contingencies ~~– Brazil Tax and Legal Matters~~ for further details.

~~(D)~~

We have reclassified the "Loss on sale of a business" for the nine months ended December 31, 2016 of $27 million from "Other (income) expense, net" to "(Gain) loss on sale of a business, net" in the condensed consolidated statement of operations for presentation purposes. In September 2016, we sold our equity interest in Aluminium Company of Malaysia Berhad (ALCOM), a previously consolidated subsidiary. The sale resulted in a loss of $27 million during the three months ended September 30, 2016.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~14.~~16. INCOME TAXES

~~A reconciliation of~~For the ~~Canadian statutory tax rate to our~~three and six months ended September 30, 2019, we had effective tax ~~rate was as follows (in millions, except percentages).~~

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Pre-tax income before equity in net (income) loss of non-consolidated affiliates and noncontrolling interests $ 125
$ 119
$ 692
$ 117
Canadian statutory tax rate 25 % 25 % 25 % 25 %
Provision at the Canadian statutory rate $ 31
$ 30
$ 173
$ 29
Increase (decrease) for taxes on income (loss) resulting from:
Exchange translation items 2
3
8
7
Exchange remeasurement of deferred income taxes (3 ) —
(3 ) 6
Change in valuation allowances 7
6
10
49
Tax credits (8 ) —
(14 ) —
Income items not subject to tax (4 ) (2 ) (4 ) —
Tax gain, net —
—
—
9
Dividends not subject to tax —
—
—
(23 )
Legislative changes including enacted tax rates (18 ) —
(18 ) 3
Tax rate differences on foreign earnings 9
10
22
25
Uncertain tax positions 2
3
5
4
Other — net 2
(3 ) —
1
Income tax provision $ 20
$ 47
$ 179
$ 110
Effective tax rate 16 % 39 % 26 % 94 %

~~The Tax Cuts~~rates of 27% and ~~Jobs Act (the “Act”) was enacted on December 22, 2017. Among its numerous changes,~~30%, respectively. For the Act reduces the Company’s U.S. corporate rate from 35% to 21% effective January 1, 2018. The result is a blended U.S. corporate rate of 31.55% for fiscal year 2018. The impact of the lower statutory rate applied to year-to-date earnings has been recorded in the periodthree and six months ended December 31, 2017. Also recorded in the same period is an estimated non-cash income tax benefit of $18 million for the remeasurement of deferred tax assets and liabilities to reflect the anticipated rate at which the deferred items will be realized. The following information is needed to complete the accounting for the remeasurement of deferred tax assets and liabilities.

~~Determination of state conformity~~

~~Changes in temporary differences for the impact of obligations for which companies measure on an annual basis based on actuarial reports.~~

~~Actual reversals of temporary differences through March 31,~~September 30, 2018,

Based on an initial assessment of the Act, the Company believes that most significant impact on the Company’s consolidated financial statements is the remeasurement of deferred tax assets and liabilities. Other provisions of the Act are not expected to have a material impact on the fiscal year 2018 consolidated financial statements.

~~Our~~ we had effective tax ~~rate differs from the Canadian statutory rate~~rates of 36% and 32%, respectively. These tax rates are primarily due to the ~~following factors: (1) pre-tax foreign currency gains or losses with no tax effect and the tax effect~~results of U.S. dollar denominated currency gains or losses with no pre-tax effect, which are shown above as exchange translation items; (2) the remeasurement of deferred income taxes due to foreign currency changes, which is shown above as exchange remeasurement of deferred income taxes; (3) changes in valuation allowances; (4) remeasurement of deferred taxes for recently enacted tax reform; (5) differences between Canadian andoperations taxed at foreign statutory tax rates ~~applied to earnings in foreign jurisdictions and foreign withholding tax expense shown above as~~that differ from the 25% Canadian tax rate, ~~differences on foreign earnings.~~including withholding taxes, also driven by changes in valuation allowances and certain other non-deductible expenses, offset by tax credits.

As of ~~December 31, 2017,~~September 30, 2019, we had a net deferred tax liability of ~~$47~~$112 million. This amount included gross deferred tax assets of approximately $1.1 billion and a valuation allowance of ~~$696~~$744 million. It is reasonably possible that our estimates of future taxable income may change within the next 12twelve months resulting in a change to the valuation allowance in one or more jurisdictions.

~~Novelis Inc.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)~~

Tax authorities continue to examine certain of our tax filings for fiscal years 2005 through ~~2017.~~2018. As a result of audit settlements, 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 decrease in the next 12twelve months by an amount up to approximately ~~$17~~$5 million.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~15.~~17. 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. We have established a liability with respect to contingencies for which a loss is probable and estimable. While the ultimate resolution of, liability and costs related to these matters cannot be determined with certainty, we do not believe any of these pending actions, individually or in the aggregate, will materially impair our operations or materially affect our financial condition or liquidity.

For certain matters in which the Company is involved 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 ~~$110~~$75 million. This estimated aggregate range of reasonably possible losses is based upon currently available information. The Company’s estimates involve significant judgment, and 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.

~~The following describes certain contingencies relating to our business, including those for which we assumed liability as a result of our spin-off from Alcan Inc.~~

Environmental Matters

We own and operate numerous manufacturing and other facilities in various countries around the world. Our operations are subject to environmental laws and regulations from various jurisdictions, which govern, among other things, air emissions, wastewater discharges, the handling, storage and disposal of hazardous substances and wastes, the remediation of contaminated sites, post-mining reclamation and restoration of natural resources, and employee health and safety. Future environmental regulations may impose stricter compliance requirements on the industries in which we operate. Additional equipment or process changes at some of our facilities may be needed to meet future requirements. The cost of meeting these requirements may be significant. Failure to comply with such laws and regulations could subject us to administrative, civil or criminal penalties, obligations to pay damages or other costs, and injunctions and other orders, including orders to cease operations.

We are involved in proceedings under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, also known as CERCLA or Superfund, or analogous state provisions regarding liability arising from the usage, storage, treatment or disposal of hazardous substances and wastes at a number of sites in the United States, as well as similar proceedings under the laws and regulations of the other jurisdictions in which we have operations, including Brazil and certain countries in the European Union. Many of these jurisdictions have laws that impose joint and several liability, without regard to fault or the legality of the original conduct, for the costs of environmental remediation, natural resource damages, third party claims, and other expenses. In addition, we are, from time to time, subject to environmental reviews and investigations by relevant governmental authorities. We are also involved in claims and litigation filed on behalf of persons alleging exposure to substances and other hazards at our current and former facilities.

We have established liabilities based on our estimates for ~~the~~ currently anticipated costs associated with ~~these~~ environmental matters. We ~~estimated~~estimate that the ~~remaining undiscounted clean-up~~ costs related to our environmental liabilities as of ~~December~~September 30, 2019 and March 31, ~~2017~~2019 were approximately ~~$15 million, of which $7 million was included in “Other long-term liabilities” and the remaining $8 million in “Accrued expenses and other current liabilities”.~~$9 million. Of the total ~~$15~~$9 million ~~$11~~at September 30, 2019, $7 million was associated with restructuring actions and the remaining $2 million is associated with undiscounted environmental clean-up ~~costswere approximately $4 million.~~costs. As of ~~March 31, 2017, $10~~September 30, 2019, $5 million ~~of the environmental liability was~~is included in ~~“Other long-term liabilities,” with the remaining $5 million included in “Accrued~~"Accrued expenses and other current ~~liabilities”~~liabilities" and the remaining is within "Other long-term liabilities" in our accompanying condensed consolidated balance sheet. Management has reviewed the environmental matters, including those for which we assumed liability as a result of our spin-off from Alcan Inc. As a result of management's review of these items, management has determined that the currently anticipated costs associated with these environmental matters will not, individually or in the aggregate, materially impact our operations or materially adversely affect our financial condition, results of operations or liquidity.

~~Novelis Inc.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)~~sheets.

Brazilian Tax Litigation

~~Brazil Tax and Legal Matters~~

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, although in some cases we are paying the settlement amounts over a shorter period. The assets and liabilities related to these settlements, as well as proceedings with labor courts and designated civil courts, are presented in the table below (in millions).

December 31,
2017 March 31,
2017
Cash deposits (A) $ 7
$ 7

Short-term settlement liability (B) $ 9
$ 9
Long-term settlement liability (B) 51
59
Total settlement liability $ 60
$ 68

Liability for other disputes and claims (C) $ 28
$ 22

~~_________________________~~

~~(A)~~

Effective in the third quarter of fiscal 2018, management defines “Cash deposits” to include cash deposits related to tax, labor, and civil disputes. To conform with current year presentation, we have updated prior period amounts to also include cash deposits related to labor and civil disputes. We have maintained these cash deposits as a result of legal proceedings with Brazil's tax authorities, labor courts, or designated civil courts. These deposits, which are included in “Other long-term assets - third parties” in our accompanying condensed consolidated balance sheets, will be expended toward these legal proceedings.


~~(B)~~	The short-term and long-term settlement liabilities are included in "Accrued expenses and other current liabilities" and "Other long-term liabilities", respectively, in our accompanying condensed consolidated balance sheets.


~~(C)~~	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. The related liabilities are included in "Other long-term liabilities" in our accompanying condensed consolidated balance sheets.

~~The interest cost recorded on these~~Total settlement liabilities ~~partially offset by interest earned on the cash deposits~~as of September 30, 2019 and March 31, 2019 were $37 million and $44 million, respectively. As of September 30, 2019, $7 million is included in "Accrued expenses and other current liabilities" and the ~~table below (in millions).~~remaining is within "Other long-term liabilities" in our accompanying condensed consolidated balance sheets.

Three Months Ended December 31, Nine Months Ended December 31,

2017 2016 2017 2016
Loss on Brazilian tax litigation, net $ —
$ 1
$ 2
$ 4

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 $23 million as of September 30, 2019 and March 31, 2019. As of September 30, 2019, $2 million is included in "Accrued expenses and other current liabilities" and the remaining is 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, partially offset by interest earned on the cash deposit is reported as "Loss on Brazilian tax litigation, net" in Note 15 — Other (Income) Expenses.

~~Other Commitments~~

~~We sell and repurchase inventory with third parties in an attempt~~For additional information, please refer to ~~better manage inventory levels and to better match~~our Form 10-K for the purchasing of inventory with the demand for our products. We sell certain inventories to third parties and agree to repurchase the same or similar inventory back from the third parties at market prices subsequent to balance sheet dates. Our estimated outstanding repurchase obligations for this inventory as of December 31, 2017 andyear ended March 31, 2017 was approximately $10 million and $12 million, respectively, based on market prices as of the balance sheet dates. As of December 31, 2017 and March 31, 2017, there were no liabilities related to these repurchase obligations recorded in our accompanying condensed consolidated balance sheets.2019.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~16.~~18. SEGMENT, MAJOR CUSTOMER AND MAJOR SUPPLIER INFORMATION

Segment Information

Due in part to the regional nature of 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.

The following is a description of our operating segments:

North America. Headquartered in Atlanta, Georgia, this segment operates eight plants, including two fully dedicated recycling facilities and ~~one facility~~two facilities with recycling operations, in two countries.

Europe. Headquartered in Küsnacht, Switzerland, this segment operates ten plants, including two fully dedicated recycling facilities and ~~two~~three facilities with recycling operations, in four countries.

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

South America. Headquartered in Sao Paulo, Brazil, this segment comprises power generation operations, and operates two plants, including a facility with recycling operations, in Brazil. ~~The majority of our power generation operations were sold during the fourth quarter of fiscal 2015.~~

Net sales and expenses are measured in accordance with the policies and procedures described in Note 1 — Business and Summary of Significant Accounting Policies ~~see~~shown in our ~~Annual Report on~~ Form 10-K for the year ended March 31, ~~2017.~~2019.

We measure the profitability and financial performance of our operating segments based on ~~“Segment~~segment income.~~” “Segment income”~~ Segment income provides a measure of our underlying segment results that is in line with our approach to risk management. We define ~~“Segment income”~~segment income 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 segment income; (e) impairment of goodwill; (f) gain or loss on extinguishment of debt; (g) noncontrolling ~~interests'~~interest's share; (h) adjustments to reconcile our proportional share of ~~“Segment income”~~segment income from non-consolidated affiliates to income as determined on the equity method of accounting; (i) “restructuring and impairment, 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) provision or benefit for taxes on income (loss); (o) cumulative effect of accounting change, net of tax; ~~and~~ (p) metal price ~~lag.~~lag; and (q) business acquisition and other integration related costs.

The tables below show selected segment financial information (in millions). The “Eliminations and Other” column in the table below 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~~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 46 — Consolidation and Note 7 — Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about ~~this affiliate.~~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



September 30, 2019	North America		Europe		Asia		South America		Eliminations and Other		Total
Investment in and advances to non–consolidated affiliates	$	—	$	468	$	300	$	—	$	—	$	768
Total assets	$	3,261	$	2,893	$	1,589	$	1,566	$	268	$	9,577



March 31, 2019	North America		Europe		Asia		South America		Eliminations and Other		Total
Investment in and advances to non–consolidated affiliates	$	—	$	478	$	314	$	—	$	—	$	792
Total assets	$	2,918	$	2,872	$	1,717	$	1,831	$	225	$	9,563



Selected Operating Results Three Months Ended September 30, 2019	North America		Europe			Asia		South America		Eliminations and Other			Total
Net sales-third party	$	1,070	$	770		$	478	$	457	$	76		$	2,851
Net sales-intersegment	—		38			3		13		(54		)	—
Net sales	$	1,070	$	808		$	481	$	470	$	22		$	2,851

Depreciation and amortization	$	38	$	28		$	15	$	17	$	(10	)	$	88
Income tax provision	$	11	$	(3	)	$	5	$	28	$	4		$	45
Capital expenditures	$	72	$	13		$	34	$	19	$	—		$	138



Selected Operating Results Three Months Ended September 30, 2018	North America		Europe		Asia		South America		Eliminations and Other			Total
Net sales-third party	$	1,211	$	832	$	517	$	512	$	64		$	3,136
Net sales-intersegment	1		31		8		6		(46		)	—
Net sales	$	1,212	$	863	$	525	$	518	$	18		$	3,136

Depreciation and amortization	$	37	$	29	$	16	$	16	$	(12	)	$	86
Income tax provision	$	18	$	4	$	6	$	33	$	3		$	64
Capital expenditures	$	28	$	14	$	9	$	11	$	(2	)	$	60



Selected Operating Results Six Months Ended September 30, 2019	North America		Europe		Asia		South America		Eliminations and Other			Total
Net sales-third party	$	2,186	$	1,522	$	990	$	924	$	154		$	5,776
Net sales-intersegment	—		84		5		25		(114		)	—
Net sales	$	2,186	$	1,606	$	995	$	949	$	40		$	5,776

Depreciation and amortization	$	76	$	57	$	31	$	33	$	(21	)	$	176
Income tax provision	$	28	$	—	$	13	$	55	$	12		$	108
Capital expenditures	$	164	$	23	$	72	$	38	$	3		$	300



Selected Operating Results Six Months Ended September 30, 2018	North America		Europe		Asia		South America		Eliminations and Other			Total
Net sales-third party	$	2,332	$	1,685	$	1,059	$	1,030	$	127		$	6,233
Net sales-intersegment	1		46		16		16		(79		)	—
Net sales	$	2,333	$	1,731	$	1,075	$	1,046	$	48		$	6,233

Depreciation and amortization	$	74	$	56	$	33	$	33	$	(24	)	$	172
Income tax provision	$	32	$	8	$	12	$	57	$	8		$	117
Capital expenditures	$	50	$	30	$	11	$	21	$	2		$	114

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - ~~(Continued)~~

~~Selected Segment Financial Information~~

December 31, 2017
North
America
Europe Asia
South
America
Eliminations and Other Total
Investment in and advances to non–consolidated affiliates $ —
$ 508
$ 323
$ —
$ —
$ 831
Total assets $ 2,575
$ 2,957
$ 1,812
$ 1,726
$ 205
$ 9,275

March 31, 2017
North
America
Europe Asia
South
America
Eliminations and Other Total
Investment in and advances to non–consolidated affiliates $ —
$ 451
$ —
$ —
$ —
$ 451
Total assets $ 2,359
$ 2,683
$ 1,602
$ 1,637
$ 93
$ 8,374

Selected Operating Results Three Months Ended December 31, 2017
North
America
Europe Asia
South
America
Eliminations and Other Total
Net sales-third party $ 985
$ 820
$ 533
$ 542
$ 205
$ 3,085
Net sales-intersegment 1
17
14
25
(57 ) —
Net sales $ 986
$ 837
$ 547
$ 567
$ 148
$ 3,085

Depreciation and amortization $ 37
$ 29
$ 18
$ 16
$ (14 ) $ 86
Income tax (benefit) provision $ (11 ) $ (6 ) $ 9
$ 18
$ 10
$ 20
Capital expenditures $ 19
$ 19
$ 7
$ 10
$ (1 ) $ 54

Selected Operating Results Three Months Ended December 31, 2016
North
America
Europe Asia
South
America
Eliminations and Other Total
Net sales-third party $ 789
$ 684
$ 409
$ 386
$ 45
$ 2,313
Net sales-intersegment —
9
3
13
(25 ) —
Net sales $ 789
$ 693
$ 412
$ 399
$ 20
$ 2,313

Depreciation and amortization $ 38
$ 25
$ 14
$ 15
$ (4 ) $ 88
Income tax provision $ 8
$ 8
$ 3
$ 19
$ 9
$ 47
Capital expenditures $ 20
$ 16
$ 10
$ 9
$ (7 ) $ 48

Selected Operating Results Nine Months Ended December 31, 2017
North
America
Europe Asia
South
America
Eliminations and Other Total
Net sales - third party $ 2,878
$ 2,480
$ 1,533
$ 1,348
$ 309
$ 8,548
Net sales - intersegment 17
39
32
62
(150 ) —
Net sales $ 2,895
$ 2,519
$ 1,565
$ 1,410
$ 159
$ 8,548

Depreciation and amortization $ 112
$ 83
$ 47
$ 48
$ (23 ) $ 267
Income tax provision $ 10
$ 5
$ 98
$ 54
$ 12
$ 179
Capital expenditures $ 52
$ 40
$ 19
$ 22
$ 3
$ 136

~~Novelis Inc.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)~~

Selected Operating Results Nine Months Ended December 31, 2016
North
America
Europe Asia
South
America
Eliminations and Other Total
Net sales - third party $ 2,305
$ 2,158
$ 1,305
$ 1,044
$ 158
$ 6,970
Net sales - intersegment 2
31
9
46
(88 ) —
Net sales $ 2,307
$ 2,189
$ 1,314
$ 1,090
$ 70
$ 6,970

Depreciation and amortization $ 112
$ 79
$ 44
$ 46
$ (14 ) $ 267
Income tax provision $ 2
$ 11
$ 16
$ 58
$ 23
$ 110
Capital expenditures $ 47
$ 49
$ 24
$ 28
$ (10 ) $ 138

The table below ~~reconciles~~displays the reconciliation from “Net income ~~(loss)~~ attributable to our common shareholder” to segment income from reportable segments ~~for the three and nine months ended December 31, 2017 and 2016~~ (in millions).

Three Months Ended December 31, 2017 Nine Months Ended December 31, 2017
2017 2016 2017 2016
Net income (loss) attributable to our common shareholder $ 121
$ 63
$ 529
$ (2 )
Noncontrolling interests (16 ) 1
(16 ) 1
Income tax provision 20
47
179
110
Depreciation and amortization 86
88
267
267
Interest expense and amortization of debt issuance costs 64
67
192
231
Adjustment to reconcile proportional consolidation 17
4
33
20
Unrealized gains on change in fair value of derivative instruments, net (15 ) (21 ) (13 ) (18 )
Realized losses (gains) on derivative instruments not included in segment income 1
(1 ) —
(2 )
Gain on assets held for sale —
—
—
(2 )
Loss on extinguishment of debt —
—
—
112
Restructuring and impairment, net 25
1
33
4
Losses (gains) on sale of fixed assets 2
(2 ) 4
4
(Gain) loss on sale of a business (A) —
—
(318 ) 27
Metal price lag (B) (1 ) 4
5
32
Other, net 1
4
1
10
Total of reportable segments $ 305
$ 255
$ 896
$ 794

~~_________________________~~


~~(A)~~	In September 2017, Novelis Korea Ltd., a subsidiary of Novelis Inc., sold a portion of its shares in Ulsan Aluminum, Ltd. (UAL) for $314 million, which resulted in a gain on sale of investments. For additional information related to the transaction, see Note 5 — Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions.

~~(B)~~

Effective in the first quarter of fiscal 2018, management removed the impact of metal price lag from Segment Income in order to enhance the visibility of the underlying operating performance of the Company. The impact of metal price lag is now reported as a separate line item in this reconciliation. This change does not impact our condensed consolidated financial statements. Segment Income for prior periods presented has been updated to reflect this change. For additional information related to metal price lag, see Note 10 — Financial Instruments and Commodity Contracts.

~~Novelis Inc.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)~~



	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Net income attributable to our common shareholder	$	123		$	116		$	250		$	253
Noncontrolling interest	—			—			—			—
Income tax provision	45			64			108			117
Depreciation and amortization	88			86			176			172
Interest expense and amortization of debt issuance costs	61			68			126			134
Adjustment to reconcile proportional consolidation	14			15			29			31
Unrealized (gains) losses on change in fair value of derivative instruments, net	(3		)	(1		)	(9		)	3
Realized (gains) losses on derivative instruments not included in segment income	1			(1		)	3			(1		)
Restructuring and impairment, net	32			—			33			1
(Gain) loss on sale of fixed assets	(1		)	(1		)	(2		)	2
Metal price lag	5			(1		)	7			(34		)
Business acquisition and other integration related costs	12			8			29			10
Other, net	(3		)	2			(4		)	1
Total of reportable segments	$	374		$	355		$	746		$	689

"Business acquisition and other integration related costs" are primarily legal and professional fees associated with our proposed acquisition of Aleris. The acquisition is subject to closing conditions and regulatory approvals.

“Adjustment to reconcile proportional consolidation” relates to depreciation, amortization and income taxes atof our ~~Aluminium Norf GmbH (Alunorf) and Ulsan Aluminum, Ltd. (UAL) joint ventures.~~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.”

“Realized (gains) losses ~~(gains)~~ on derivative instruments not included in segment income” represents ~~realized gains (losses) on~~ foreign currency derivatives not related to ~~capital expenditures.~~operations.

"Other, net" is related primarily to losses on certain indirect tax expenses in Brazil and interest income.

The table below displays segment income from reportable segments ~~for the three months and nine months ended December 31, 2017 and 2016, respectively.~~

by region (in millions).


	Three Months Ended December 31, 2017					Nine Months Ended December 31, 2017					Three Months Ended September 30,				Six Months Ended September 30,
	2017			2016		2017			2016		2019		2018		2019		2018
North America	$	111		$	90	$	351		$	276	$	171	$	151	$	341	$	270
Europe	50			44		158			150		60		59		113		122
Asia	43			40		124			132		46		47		99		102
South America	107			81		269			236		97		98		193		195
Intersegment eliminations	(6		)	—		(6		)	—
Total of reportable segments	$	305		$	255	$	896		$	794	$	374	$	355	$	746	$	689

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 our Net sales by value stream (in millions).



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Can	$	1,591	$	1,651	$	3,178	$	3,340
Automotive	672		771		1,381		1,497
Specialty (and other)	588		714		1,217		1,396
Net sales	$	2,851	$	3,136	$	5,776	$	6,233

Major Customers

The following table ~~below shows our~~displays net sales to ~~the Affiliates~~customers representing 10% or more of ~~Ball Corporation (Ball), Ford Motor Company (Ford), Crown Holdings Incorporated, formerly Crown Cork & Seal Company (Crown),~~ our ~~three largest customers, as a percentage of~~ total “Net sales.”


	Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016		2019		2018		2019		2018
Ball ~~(A)~~	21	%	26	%	21	%	27	%	23	%	22	%	22	%	23	%
Ford	10	%	11	%	10	%	10	%	10	%	11	%	10	%	10	%
Crown	8	%	10	%	9	%	10	%

~~_________________________~~


~~(A)~~	In fiscal 2017, Ball completed the acquisition of Rexam and the divestiture of certain assets to the Ardagh Group (Ardagh). We combined the sales of Ball and Rexam for presentation purposes. For the three and nine months ended December 31, 2017, combined sales to Ball, Rexam, and Ardagh totaled 29% of "Net Sales".

Primary Supplier

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

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Purchases from RT as a percentage of total combined metal purchases 9 % 11 % 10 % 11 %



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Purchases from RT as a percentage of total combined metal purchases	11	%	10	%	11	%	10	%

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 Quarterly Report 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

Novelis is the ~~world's~~ leading producer of flat-rolled aluminum ~~rolled~~ products ~~producer based on shipment volume in fiscal 2017. We produce aluminum sheet~~ and light gauge products for use in the packaging market, which includes beverage and food can and foil products, as well as for use in the automotive, transportation, electronics, architectural and industrial product markets. We are also the world's largest recycler of ~~aluminum~~aluminum. Driven by our purpose to shape a sustainable world together, we work alongside our customers to provide innovative solutions to the beverage can, automotive and specialty markets (includes foil packaging, certain transportation products, architectural, industrial, and consumer durables). We have recycling operations in many of our plants to recycle both post-consumer aluminum and post-industrial aluminum. As of ~~December 31, 2017,~~September 30, 2019, we had manufacturing operations in ~~ten~~nine countries on four continents, which include 2423 operating plants, and recycling operations in ~~eleven~~twelve of these plants.

In this Quarterly Report on Form 10-Q, unless otherwise specified, the terms “we,” “our,” “us,” “Company,” and “Novelis” refer to Novelis Inc., a company incorporated in Canada under the Canadian Business Corporations Act (CBCA) and its subsidiaries. References herein to “Hindalco” refer to Hindalco Industries Limited, our indirect parent company, which acquired Novelis in May 2007, through its indirect wholly-owned subsidiary, AV Metals Inc., our direct parent company.

As used in this Quarterly Report, consolidated “aluminum rolled product shipments” or “flat rolled product shipments” refers to aluminum rolled products shipments to third parties. Regional “aluminum rolled product shipments” or “flat rolled product shipments” refers to aluminum rolled products shipments to third parties and intersegment shipments to other Novelis regions. Shipment amounts also include tolling shipments. References to “total shipments” include aluminum rolled products as well as certain other non-rolled product shipments, primarily scrap, used beverage cans (UBC), ingot, billets and primary remelt. The term “aluminum rolled products” is synonymous with the terms “flat rolled products” and “FRP” commonly used by manufacturers and third party analysts in our industry. All tonnages are stated in metric tonnes. One metric tonne (mt) is equivalent to 2,204.6 pounds. One kilotonne (kt) is 1,000 metric tonnes.

References to our Form 10-K made throughout this document refer to our ~~Annual Report on~~ Form 10-K for the year ended March 31, ~~2017,~~2019, filed with the United States Securities and Exchange Commission (SEC) on May ~~10, 2017.~~8, 2019.

HIGHLIGHTS

~~HIGHLIGHTS~~Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018

We reported "Net income attributable to our common shareholder" of ~~$121~~$123 million, an increase of 6% compared to $116 million in the ~~three months ended December 31, 2017,~~prior comparable period. We reported segment income of $374 million, an increase of 5% compared ~~with "Net income attributable~~ to ~~our common shareholder" of $63~~$355 million in the ~~three months ended December 31, 2016. The~~prior comparable period. Our strong operational performance was driven by a 3% increase ~~is primarily~~in flat rolled product shipments, as well as favorable price and product mix partially offset by less favorable recycling benefits due to strong can and automotive demand combined with a focus on driving asset efficiency, strong global operational performance and diligent operating cost management. As a result of this, net sales and shipments were up 33% and 6%, respectively, in the three months ended December 31, 2017 and the three months ended December 31, 2016. Additionally, our focus on optimizing our product portfolio continues to contribute to higher net income.

We achieved record "Segment income" of $305 million (an increase of 20%) for the third quarter of fiscal 2018 compared with "Segment income" of $255 million for the third quarter of fiscal 2017. The increase is primarily due to thelower average LME aluminum prices. Further, these factors ~~noted above. Also, as a result of these factors,~~drove net cash provided by operating activities ~~was $237~~to $297 million ~~for the nine months ended December 31, 2017,~~compared to $210 million, an improvement of ~~$86~~$87 million ~~from~~over the prior comparable period.

During the second quarter of fiscal 2020, we announced plans to cease operations at a foil plant in Germany to further optimize our product portfolio, which led to the recognition of $32 million in severance and other related expenses. See Note 3 — Restructuring and Impairment. During the quarter, we completed a $14 million expansion project at our Yeongju Recycling Center, providing the facility with increased production capacity and cost competitiveness with higher usage of recycled contents. We also introduced the Advanz™ 6HS-s650, an engineered aluminum automotive body sheet product that exceeds industry standards for strength, lightweighting, formability, performance and structural integrity. This latest offering, which we expect to release globally within the next three years, can be recycled into new high-strength aluminum products as part of a closed-loop recycling process. Additionally, our strategic investments continue to progress with construction well underway in Guthrie, Kentucky, Changzhou, China, and Pindamonhangaba (Pinda), Brazil.

In fiscal 2019, we entered into an agreement to acquire Aleris Corporation (Aleris), a global supplier of rolled aluminum products. The acquisition continues to progress and is expected to close by the outside date under the merger agreement, which is in the fourth quarter of fiscal 2020 (first quarter of calendar year 2020), subject to regulatory approvals and customary closing conditions.

On September 4, 2019, the United States Department of Justice (DOJ) filed a civil antitrust lawsuit to block our proposed acquisition of Aleris. Contemporaneously with the lawsuit, the DOJ also announced an agreement with us to resolve the antitrust issues through binding arbitration. The agreement includes a timetable and process for resolving the DOJ’s concerns and closing the transaction by the outside date under the merger agreement (prior to completion of the arbitration). Depending on the outcome of the arbitration, we may be required to divest Aleris’ Lewisport, Kentucky manufacturing plant after closing our purchase of Aleris.

On October 1, 2019, the European Commission (EC) announced its approval of our proposed acquisition of Aleris, conditioned on the divestiture of certain automotive assets in Europe. The EC’s approval of the transaction is also subject to its approval of the proposed buyer of the divested assets.

Our application for antitrust approval of the proposed acquisition is also under review by the State Administration for Market Regulation in China.

BUSINESS AND INDUSTRY CLIMATE

Economic growth, ~~and~~ material substitution, and sustainability, including environmental awareness around polyethylene terephthalate (PET) plastics, continue to drive increasing global demand for aluminum and rolled

products. ~~Global~~With the exception of China where can sheet overcapacity ~~increased~~and strong competition ~~from Chinese suppliers of flat rolled~~remains, favorable market conditions and increasing customer preference for sustainable packaging options is driving higher demand for infinitely recyclable aluminum ~~products,~~beverage cans and ~~customer consolidation are also adding downward pricing pressures~~bottles. In fiscal 2019, we announced plans to expand rolling, casting and recycling capability in ~~the can sheet market.~~Pinda, Brazil to support this demand.

Meanwhile, the demand for aluminum in the automotive industry continues to grow, which drove the investments we made in our automotive sheet finishing capacity in North America, Europe and ~~Asia.~~Asia in recent years, and is driving our additional investments in Guthrie, Kentucky (U.S.) and Changzhou, China. This demand has been primarily driven by the benefits that result from using ~~lighter weight materials~~lightweight aluminum in ~~the vehicles,~~vehicle structures and components, as companies respond to stricter government ~~regulations, which are driving improved~~ emissions and ~~better~~ fuel ~~economy;~~economy regulations, while ~~also~~ maintaining or improving vehicle safety and ~~performance.~~performance, resulting in increased competition with high-strength steel. Further, we signed a definitive agreement to acquire Aleris, which would further diversify our global footprint and product portfolio. The acquisition continues to progress and is expected to close by the outside date under the merger agreement, which is in the fourth quarter of fiscal 2020 (first quarter of calendar year 2020), subject to regulatory approvals and customary closing conditions.

Key Sales and Shipment Trends

(in millions, except shipments which are in kt) Three Months Ended Year Ended Three Months Ended
June 30, 2016 Sept 30, 2016 Dec 31, 2016 March 31, 2017 March 31, 2017 June 30, 2017 Sept 30, 2017 Dec 31, 2017
Net sales $ 2,296
$ 2,361
$ 2,313
$ 2,621
$ 9,591
$ 2,669
$ 2,794
$ 3,085
Percentage (decrease) increase in net sales versus comparable previous year period (13 )% (5 )% (2 )% 9 % (3 )% 16 % 18 % 33 %
Rolled product shipments:
North America 242
252
247
269
1,010
273
274
269
Europe 246
236
226
235
943
235
237
222
Asia 178
176
162
174
690
180
180
177
South America 103
121
125
125
474
110
131
146
Eliminations (14 ) (12 ) (10 ) (14 ) (50 ) (13 ) (20 ) (18 )
Total 755
773
750
789
3,067
785
802
796

The following summarizes the percentage (decrease) increase in rolled product shipments versus the comparable previous year period:
North America (7 )% (6 )% (2 )% 8 % (2 )% 13 % 9 % 9 %
Europe (2 )% (6 )% (3 )% (4 )% (4 )% (4 )% — % (2 )%
Asia (8 )% (6 )% (16 )% (7 )% (9 )% 1 % 2 % 9 %
South America (4 )% 3 % (5 )% (7 )% (3 )% 7 % 8 % 17 %
Total (2 )% (2 )% (4 )% — % (2 )% 4 % 4 % 6 %



(in millions, except percentages and shipments, which are in kt)	Three Months Ended												Year Ended			Three Months Ended
	June 30, 2018			Sept 30, 2018			Dec 31, 2018			March 31, 2019			March 31, 2019			June 30, 2019			Sept 30, 2019
Net sales	$	3,097		$	3,136		$	3,009		$	3,084		$	12,326		$	2,925		$	2,851
Percentage increase in net sales versus comparable previous year period	16		%	12		%	3		%	1		%	8		%	(6		)%	(9)%
Rolled product shipments:
North America	274			295			279			294			1,142			289			286
Europe	232			229			211			246			918			234			245
Asia	175			168			182			198			723			184			177
South America	126			126			142			143			537			139			141
Eliminations	(10		)	(11		)	(14		)	(11		)	(46		)	(16		)	(14		)
Total	797			807			800			870			3,274			830			835

The following summarizes the percentage increase (decrease) in rolled product shipments versus the comparable previous year period:
North America	—		%	8		%	4		%	8		%	5		%	5		%	(3		)%
Europe	(1		)%	(3		)%	(5		)%	4		%	(1		)%	1		%	7		%
Asia	(3		)%	(7		)%	3		%	14		%	2		%	5		%	5		%
South America	15		%	(4		)%	(3		)%	5		%	3		%	10		%	12		%
Total	2		%	1		%	1		%	8		%	3		%	4		%	3		%

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~~flat rolled products have a price structure with three components: (i) a base aluminum price quoted off the ~~LME;~~London Metal Exchange (LME); (ii) a local market premium; and (iii) 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 offor aluminum. The local market premiums 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 local market premiums to our customers which are recorded through "Net sales." In Asia we purchase our metal inputs based on the LME and incur a local market premium; however, many of our competitors in this region price their metal off the Shanghai Futures Exchange, which does not include a local market premium, making it difficult for us to fully pass through this component of our metal input cost to some of our customers.

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 ~~for the three and nine months ended December 31, 2017 and 2016~~ are as follows:


	Three Months Ended December 31,				Percent		Nine Months Ended December 31,				Percent		Three Months Ended September 30,				Percent		Six Months Ended September 30,				Percent
	2017		2016		Change		2017		2016		Change		2019		2018		Change		2019		2018		Change
London Metal Exchange Prices
Aluminum (per metric tonne, and presented in U.S. dollars):
Closing cash price as of beginning of period	$	2,111	$	1,659	27	%	$	1,947	$	1,492	30	%	$	1,774	$	2,183	(19	)%	$	1,900	$	1,997	(5	)%
Average cash price during the period	$	2,101	$	1,710	23	%	$	2,008	$	1,634	23	%	$	1,761	$	2,056	(14	)%	$	1,777	$	2,157	(18	)%
Closing cash price as of end of period	$	2,242	$	1,714	31	%	$	2,242	$	1,714	31	%	$	1,704	$	2,012	(15	)%	$	1,704	$	2,012	(15	)%

The weighted average local market premium ~~was as follows for the three and nine months ended December 31, 2017 and 2016~~ are as follows:

Three Months Ended December 31, Percent Nine Months Ended December 31, Percent
2017 2016 Change 2017 2016 Change
Weighted average Local Market Premium (per metric tonne, and presented in U.S. dollars) $ 180
$ 144
25 % $ 168
$ 142
18 %



	Three Months Ended September 30,				Percent		Six Months Ended September 30,				Percent
	2019		2018		Change		2019		2018		Change
Weighted average Local Market Premium (per metric tonne, and presented in U.S. dollars)	$	239	$	280	(15	)%	$	241	$	293	(18	)%

Metal Price Lag and Related Hedging Activities

Increases or decreases in the price of aluminum based on the average LME base aluminum prices and local market premiums 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. The majority of our local market premium hedging occurs in North America depending on market conditions; however, exposure here is not fully hedged. In our Europe, Asia and South America regions, the derivative market for local market premiums is not robust or efficient enough for us to offset the impacts of LMP price movements beyond a ~~very~~ small volume. As a consequence, volatility in local market premiums can have a significant impact on our results of operations and cash flows. ~~Reduced volatility of local market premiums reduced the amount of metal price lag for the nine months ended December 31, 2017.~~

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 before income taxes” and “Net ~~income (loss).~~income.” Gains and losses on metal derivative contracts are not recognized in ~~“Segment income”~~segment income until realized.

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 as we translate the operating results from various functional currencies into our U.S. dollar reporting currency at ~~the~~ 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 for the three and nine months ended December 31, 2017 and 2016:~~rates:



	Exchange Rate as of		Average Exchange Rate		Average Exchange Rate					Average Exchange Rate				Average Exchange Rate
	December 31, 2017	March 31, 2017	Three Months Ended December 31,		Nine Months Ended December 31,					Three Months Ended				Six Months Ended
	December 31, 2017	March 31, 2017	2017	2016	2017	2016	Exchange Rate as of			September 30,				September 30,
U.S. dollar per Euro	1.201	1.068	1.185	1.070	1.163	1.104
							September 30, 2019	March 31, 2019			2019		2018		2019		2018
							1.090	1.123	1.102			1.165		1.113		1.173
Brazilian real per U.S. dollar	3.308	3.168	3.282	3.279	3.227	3.313	4.164	3.897		4.023		3.965		3.964		3.828
South Korean won per U.S. dollar	1,071	1,116	1,093	1,174	1,118	1,151	1,201	1,138		1,200		1,113		1,184		1,103
Canadian dollar per U.S. dollar	1.254	1.329	1.278	1.343	1.288	1.313	1.324	1.336		1.322		1.300		1.328		1.299
Swiss franc per Euro	1.171	1.069	1.168	1.079	1.133	1.088
Swiss franc per euro							1.088	1.118		1.093		1.139		1.109		1.154

Exchange rate movements have an impact on our operating results. In Europe, where we have predominantly local currency selling prices and operating costs, we benefit as the ~~Euro~~euro strengthens, but are adversely affected as the ~~Euro~~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 and cross-currency swaps 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. There was no earnings impact of foreign exchange remeasurement, net of related hedges, in the third quarter of fiscal 2018, and a net currency gain of $2 million during the third quarter of fiscal 2017. The movement of currency exchange rates during the third quarter of fiscal 2018 and fiscal 2017 resulted in $4 million of net unrealized gains and less than $4 million of net unrealized losses, respectively, on undesignated foreign currency derivatives.

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

~~Recent Developments~~

On January 31, 2018, our subsidiary, Novelis Switzerland SA, entered into a framework agreement with a subsidiary of Constellium N.V. (Constellium). Under the agreement, the parties agreed that (i) Novelis will purchase from Constellium all of the real and personal property we lease at our Sierre, Switzerland rolling facility for an aggregate purchase price of €195 million, (ii) Constellium will create a service company that will be jointly owned and operated by the parties to provide certain services to the parties at the Sierre facility, and Novelis will acquire from Constellium a 50% interest in the service company for an aggregate purchase price of €5 million, and (iii) under two commercial arrangements, Constellium will provide ingots to Novelis on a tolling basis and Novelis will provide rolled products to Constellium on a tolling basis, respectively. The parties also agreed to suspend, until the closing of the transactions described in the agreement, the arbitration proceedings currently before the International Chamber of Commerce (ICC) regarding the existing arrangements between them. At the closing of the transactions, the parties will release all of the claims between them, including the claims subject to the ICC arbitration.

RESULTS OF OPERATIONS

Three Months Ended ~~December 31, 2017 compared~~September 30, 2019 Compared to the Three Months Ended ~~December 31, 2016~~September 30, 2018

“"Net ~~sales” increased $772~~sales" were $2,851 million, ~~or 33%, driven by~~ a ~~23% increase in average base aluminum prices and a 25% increase in average local market premiums.~~decrease of 9%. The ~~increase was also due to a 6%~~3% increase in flat rolled product shipments ~~including~~was offset by a ~~favorable impact from our strategic shift to higher conversion premium products.~~14% decrease in average base aluminum prices.

“"Cost of goods sold (exclusive of depreciation and amortization)~~” increased $722~~" was $2,348 million, ~~or 38%~~a decrease of 12%, ~~due~~and was also attributable to ~~higher~~decreases in average base aluminum ~~prices and a 6% increase in flat rolled product shipments. Total~~prices. Additionally, total metal input costs included in "Cost of goods sold (exclusive of depreciation and amortization)” ~~increased $542 million.~~decreased $297 million over the prior period.

“"Income before income ~~taxes” for the three months ended December 31, 2017~~taxes" was ~~$125~~$168 million, compared to ~~a $111~~$180 million ~~"Income before income taxes"~~ in the ~~three months ended December 31, 2016.~~prior period. In addition to the factors noted above, the following ~~additional~~ items affected ~~“Income~~"Income before income ~~taxes”:~~taxes:"

"Restructuring and impairment, net" of ~~$25~~$32 million ~~for the three months ended December 31, 2017 primarily related to restructuring actions in Europe. We incurred $1 million of restructuring for the three months ended December 31, 2016 primarily~~ related to severance ~~charges.~~

~~Net gains related to changes~~and impairment expenses associated with portfolio optimization efforts resulting in the ~~fair value~~closure of ~~other unrealized derivative instruments was $15 million compared to $21 million of gains~~certain non-core operations in ~~the same period in the prior year, which is reported as "Other (income) expense, net";~~Europe. See Note 3 — Restructuring and Impairment.

~~An increase in "Selling, general and administrative expenses" primarily related to an increase in fair value of LTIP awards and an increase in factoring expense.~~

We recognized ~~$20~~$45 million of tax expense for the three months ended ~~December 31, 2017,~~September 30, 2019, which resulted in an effective tax rate of ~~16%,~~27%. This tax rate is primarily due to ~~a non-cash income tax benefit of $18 million for the remeasurement of deferred tax assets and liabilities in accordance with the Tax Cuts and Jobs Act offset by~~ the results of operations ~~and~~taxed at statutory tax rates that differ from the 25% Canadian tax rate, ~~differences in foreign earnings.~~including withholding taxes. We recognized ~~$47~~$64 million of tax expense ~~for~~in the ~~three months ended December 31, 2016,~~prior comparable period, which resulted in an effective tax rate of 36%. This tax rate was primarily due to ~~tax rate differences in foreign earnings and~~the results of operations, including recording a valuation allowance for tax losses in jurisdictions where ~~we believe~~the company determined it ~~to be~~ more likely than not that wethe loss will not be ~~able to utilize those losses~~utilized, and ~~therefore have a valuation allowance recorded.~~the favorable impact of the weakening Brazilian real.

We reported “Net income attributable to our common shareholder” of ~~$121~~$123 million and ~~$63~~$116 million for the three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, respectively, primarily as a result of the factors discussed above.

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.

~~See Note 16 - Segment, Major Customer and Major Supplier information for our definition of segment income, a reconciliation of “Net income (loss) attributable to our common shareholder” to segment income and segment income by region for the three and nine months ended December 31, 2017 and 2016, respectively.~~

The tables below ~~show~~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 segment income, see Note 1618 — Segment, 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" adjusts~~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, and ~~eliminates~~eliminate intersegment shipments (in kt) ~~and intersegment "Net sales."~~.


Selected Operating Results Three Months Ended December 31, 2017	North America		Europe		Asia		South America		Eliminations and Other			Total
Selected Operating Results Three Months Ended September 30, 2019														North America		Europe		Asia		South America		Eliminations and other			Total
Net sales	$	986	$	837	$	547	$	567	$	148		$	3,085	$	1,070	$	808	$	481	$	470	$	22		$	2,851
Shipments
Shipments (in kt):
Rolled products - third party	268		217		173		138		—			796		286		237		176		136		—			835
Rolled products - intersegment	1		5		4		8		(18		)	—		—		8		1		5		(14		)	—
Total rolled products	269		222		177		146		(18		)	796		286		245		177		141		(14		)	835
Non-rolled products	—		1		2		38		—			41		11		7		1		27		(5		)	41
Total shipments	269		223		179		184		(18		)	837		297		252		178		168		(19		)	876


Selected Operating Results Three Months Ended December 31, 2016	North America		Europe		Asia		South America		Eliminations and Other			Total
Selected Operating Results Three Months Ended September 30, 2018														North America		Europe		Asia		South America		Eliminations and other			Total
Net sales	$	789	$	693	$	412	$	399	$	20		$	2,313	$	1,212	$	863	$	525	$	518	$	18		$	3,136
Shipments
Shipments (in kt):
Rolled products - third party	247		222		161		120		—			750		295		222		165		125		—			807
Rolled products - intersegment	—		4		1		5		(10		)	—		—		7		3		1		(11		)	—
Total rolled products	247		226		162		125		(10		)	750		295		229		168		126		(11		)	807
Non-rolled products	—		1		2		28		—			31		1		5		1		33		—			40
Total shipments	247		227		164		153		(10		)	781		296		234		169		159		(11		)	847

The following table reconciles changes in ~~“Segment income”~~segment income for the three months ended ~~December 31, 2016~~September 30, 2018 to the three months ended ~~December 31, 2017~~September 30, 2019 (in millions).


Changes in Segment income	North America			Europe			Asia			South America			Eliminations (A)			Total
Segment income - Three Months Ended December 31, 2016 (B)	$	90		$	44		$	40		$	81		$	—		$	255
Changes in segment income																			North America			Europe			Asia			South America			Eliminations and other (A)			Total
Segment income - Three Months Ended September 30, 2018																			$	151		$	59		$	47		$	98		$	—		$	355
Volume	23			(3		)	11			23			(8		)	46			(12		)	18			6			16			(5		)	23
Conversion premium and product mix	7			2			(9		)	(2		)	3			1			11			(12		)	5			3			—			7
Conversion costs ~~(C)~~	(2		)	3			1			9			4			15			14			2			(11		)	(23		)	4			(14		)
Foreign exchange	—			6			—			(3		)	—			3			1			(5		)	2			4			—			2
Selling, general & administrative and research & development costs ~~(D)~~(B)	(11		)	(2		)	—			(8		)	(4		)	(25		)	4			—			(3		)	1			(2		)	—
Other changes ~~(E)~~	4			—			—			7			(1		)	10			2			(2		)	—			(2		)	3			1
Segment income - Three Months Ended December 31, 2017	$	111		$	50		$	43		$	107		$	(6	)	$	305
Segment income - Three Months Ended September 30, 2019																			$	171		$	60		$	46		$	97		$	—		$	374

_________________________

(A)

The recognition of ~~"Segment income"~~segment income by a region on an intersegment shipment could occur in a period prior to the recognition of ~~"Segment income"~~segment income 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 segment income for intersegment shipments that occur in a period prior to recognition of segment income 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.

third party customer. The "Eliminations" column adjusts regional "Segment income" for intersegment shipments that occur in a period prior to recognition of "Segment income" on a consolidated basis. The "Eliminations" column also reflects adjustments for changes in regional volume, conversion premium and product mix, and conversion costs related to intersegment shipments for consolidation.


(B)	Effective in the first quarter of fiscal 2018, management removed the impact of metal price lag from Segment Income in order to enhance the visibility of the underlying operating performance of the Company. This change does not impact our condensed consolidated financial statements. Segment information for prior periods presented has been updated to reflect this change.


~~(C)~~	Conversion costs include expenses incurred in production such as direct and indirect labor, energy, freight, scrap usage, alloys and hardeners, coatings, alumina, melt loss, the benefit of utilizing scrap and other metal costs. Fluctuations in this component reflect cost efficiencies (inefficiencies) during the period as well as cost (inflation) deflation.


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


~~(E)~~	The State of Espirito Santo grants an indirect tax incentive (ICMS) for companies who fulfill certain requirements. According to this incentive, the Company can recognize a presumed ICMS credit, thus reducing the amounts due to the State. The mentioned incentive is recorded in our consolidated results of operations.

North America

“Net sales” ~~increased $197~~decreased $142 million, or ~~25%~~12%, ~~due to higher~~driven by a decrease in average base aluminum prices ~~higher can and automotive shipments due to customer demand.~~

“along with a decrease in specialty shipments. Segment ~~income”~~income was ~~$111~~$171 million, an increase of ~~23%~~13%, primarily due to favorable price and product mix as well as favorable recycling benefits.

Europe

“Net sales” decreased $55 million, or 6%, primarily driven by a decrease in average base aluminum prices partially offset by an increase in can and specialty shipments. Segment income was $60 million, an increase of 2%, primarily due to higher ~~automotive~~specialty and can ~~volumes and favorable product mix as a result of our portfolio optimization efforts, partially offset by higher selling, general and administrative expenses.~~

~~Europe~~

~~“Net sales” increased $144 million, or 21%, due to higher average aluminum prices and higher automotive~~ shipments partially offset by ~~lower can and specialties shipments.~~

~~“Segment income” was $50 million, an increase of 14%, primarily reflecting foreign currency benefits and favorable~~unfavorable product mix ~~as a result of automotive shipment growth~~ and ~~other portfolio optimization efforts. These benefits were partially offset by lower can and specialty volumes.~~

foreign exchange impacts.

Asia

“Net sales” ~~increased $135~~decreased $44 million, or ~~33%~~8%, ~~due to higher~~primarily driven by a decrease in average base aluminum prices, ~~and higher can and automotive shipments,~~ partially offset by ~~lower~~higher can ~~pricing.~~

“shipments. Segment ~~income”~~income was ~~$43~~$46 million, a ~~increase~~decrease of 8%2%, primarily due to ~~higher can and auto shipments. This was~~less favorable recycling benefits primarily offset by increased volume.

South America

“Net sales” decreased $48 million, or 9%, primarily driven by a decrease in average base aluminum prices partially offset by ~~lower can pricing.~~

~~South America~~

~~“Net sales” increased $168 million, or 42%, due to~~ higher can ~~and specialties shipments offset by unfavorable pricing due to higher exports.~~

“shipments. Segment ~~income”~~income was ~~$107~~$97 million, ~~an increase~~a decrease of ~~32%~~1%, primarily due to ~~higher can and specialties volumes as well as lower metal input costs and~~less favorable ~~indirect tax incentives~~recycling benefits primarily offset by ~~higher selling, general and administrative costs.~~increased volume.

~~RESULTS OF OPERATIONS~~

~~Nine~~Six Months Ended ~~December 31, 2017 compared~~September 30, 2019 Compared to the ~~Nine~~Six Months Ended ~~December 31, 2016~~September 30, 2018

“Net sales” ~~increased $1,578~~were $5,776 million, ~~or 23%, driven by~~ a ~~23% increase in average base aluminum prices and an 18% increase in average local market premiums.~~decrease of 7%. The ~~increase was also due to a 5%~~4% increase in flat rolled product shipments ~~including~~was offset by a ~~favorable impact from our strategic shift to higher conversion premium products.~~18% decrease in average base aluminum prices.

“Cost of goods sold (exclusive of depreciation and amortization)” ~~increased $1,434~~was $4,762 million, ~~or 25%~~a decrease of 9%, and was also due to ~~an increase~~decreases in ~~flat rolled product shipments and higher~~ average base aluminum prices. ~~Total~~Additionally, total metal input costs included in "Cost of goods sold (exclusive of depreciation and amortization)” ~~increased $1,263 million.~~decreased $462 million over the prior period.

“Income before income taxes” ~~for the nine months ended December 31, 2017~~ was ~~$692~~$358 million, compared to ~~a $109~~$370 million ~~"Income before income taxes"~~ in the ~~nine months ended December 31, 2016.~~comparable period. In addition to the factors noted above, the following ~~additional~~ items affected “Income before income taxes:”

~~A pre-tax gain on sale~~"Business acquisition and other integration related costs" of ~~a business of $318~~$29 million related primarily to professional fees associated with the purchase of shares of UAL by Kobe and the deconsolidation of the remaining assets to form the equity method investment in September 2017 compared to a loss of $27 million recognized on the sale of our interest in Aluminium Company of Malaysia Berhad in the prior year, which was report within (Gain) loss on sale of a business, net

~~"Loss on extinguishment of debt" in the prior year of $112 million relates to the extinguishment of our 2017 and 2020 Senior Notes in fiscal 2017;~~

~~A decline in interest expense of $39 million primarily due to lower interest rates resulting from the refinancing of the 2017 Notes, 2020 Notes and Term Loan in fiscal 2017;~~further progressed, proposed Aleris acquisition;

"Restructuring and impairment, net" ~~for the nine months ended December 31, 2017 was~~of $33 million ~~compared to $4 million of expenses in the same period of the prior year;~~

~~An increase in "Selling, general and administrative expenses " primarily~~ related to ~~an increase~~severance and impairments associated with the closure of certain non-core operations in ~~fair value of LTIP awards~~Europe. See Note 3 — Restructuring and ~~an increase in factoring expense;~~Impairment; and

~~Increased stability~~Fluctuations in local market premiums ~~which we are unable to hedge economically~~ resulted in ~~a $5~~$7 million of unfavorable metal price lag ~~loss in the first nine months of this fiscal year~~ compared to ~~a $32~~$34 million ~~loss~~of favorable metal price lag in the prior ~~year.~~period.

We recognized ~~$179~~$108 million of tax expense for the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, which resulted in an effective tax rate of 30%. This tax rate is primarily due to ~~a non-cash tax benefit of $18 million for the remeasurement of deferred tax assets and liabilities in accordance with the Tax Cuts and Jobs Act offset by~~ the results of operations ~~and~~taxed at statutory tax rates that differ from the 25% Canadian tax rate, ~~differences in foreign earnings.~~including withholding taxes. We recognized ~~$110~~$117 million of tax expense ~~for~~in the ~~nine months ended December 31, 2016,~~prior comparable period which resulted in an effective tax rate of 32%. This tax rate is primarily due to results of operations, including recording a valuation allowance for tax losses in jurisdictions where ~~we believe~~the company has determined it is more likely than not that wethe loss will not be able to utilize those losses and therefore have a valuation allowance recorded and unfavorable foreign exchange translation and remeasurement of deferred income taxes, offset by dividends not subject to tax.utilized.

We reported “Net income attributable to our common shareholder” of ~~$529~~$250 million and $253 million for the ~~nine~~six months ended ~~December 31, 2017 as compared to "Net loss attributable to our common shareholder" of $2 million for the nine months ended December 31, 2016,~~September 30, 2019 and 2018, respectively, primarily as a result of the factors discussed above.

Segment Review


Selected Operating Results Nine Months Ended December 31, 2017	North America		Europe		Asia		South America		Eliminations and Other			Total
Selected Operating Results Six Months Ended September 30, 2019														North America		Europe		Asia		South America		Eliminations and other			Total
Net sales	$	2,895	$	2,519	$	1,565	$	1,410	$	159		$	8,548	$	2,186	$	1,606	$	995	$	949	$	40		$	5,776
Shipments
Rolled products - third party	809		682		527		365		—			2,383		575		460		359		271		—			1,665
Rolled products - intersegment	7		12		10		22		(51		)	—		—		19		2		9		(30		)	—
Total rolled products	816		694		537		387		(51		)	2,383		575		479		361		280		(30		)	1,665
Non-rolled products	—		5		6		97		—			108		23		14		2		56		(12		)	83
Total shipments	816		699		543		484		(51		)	2,491		598		493		363		336		(42		)	1,748

Selected Operating Results Nine Months Ended December 31, 2016 North
America Europe Asia South
America Eliminations and Other Total
Net sales $ 2,307
$ 2,189
$ 1,314
$ 1,090
$ 70
$ 6,970
Shipments
Rolled products - third party 740
695
512
331
—
2,278
Rolled products - intersegment 1
13
4
18
(36 ) —
Total rolled products 741
708
516
349
(36 ) 2,278
Non-rolled products 3
6
6
61
—
76
Total shipments 744
714
522
410
(36 ) 2,354



Selected Operating Results Six Months Ended September 30, 2018	North America		Europe		Asia		South America		Eliminations and other			Total
Net sales	$	2,333	$	1,731	$	1,075	$	1,046	$	48		$	6,233
Shipments
Rolled products - third party	569		450		338		247		—			1,604
Rolled products - intersegment	—		11		5		5		(21		)	—
Total rolled products	569		461		343		252		(21		)	1,604
Non-rolled products	2		7		3		67		—			79
Total shipments	571		468		346		319		(21		)	1,683

The following table reconciles changes in ~~“Segment income”~~segment income for the ~~nine~~six months ended ~~December 31, 2016~~September 30, 2018 to the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019 (in millions).


Changes in Segment income	North America			Europe			Asia			South America			Eliminations (A)			Total
Segment income - Nine Months Ended December 31, 2016 (B)	$	276		$	150		$	132		$	236		$	—		$	794
Changes in segment income																			North America		Europe			Asia			South America			Eliminations and other (A)			Total
Segment income - Six Months Ended September 30, 2018																			$	270	$	122		$	102		$	195		$	—		$	689
Volume	80			(14		)	25			44			(14		)	121			9		20			12			30			(15		)	56
Conversion premium and product mix	8			12			(27		)	(25		)	10			(22		)	43		(21		)	6			9			2			39
Conversion costs ~~(C)~~	(7		)	10			2			17			3			25			15		—			(14		)	(49		)	13			(35		)
Foreign exchange	2			14			(2		)	(4		)	—			10			1		(7		)	(1		)	8			—			1
Selling, general & administrative and research & development costs ~~(D)~~(B)	(21		)	(13		)	(4		)	(17		)	(5		)	(60		)	—		(3		)	(6		)	1			(3		)	(11		)
Other changes ~~(E)~~	13			(1		)	(2		)	18			—			28			3		2			—			(1		)	3			7
Segment income - Nine Months Ended December 31, 2017	$	351		$	158		$	124		$	269		$	(6	)	$	896
Segment income - Six Months Ended September 30, 2019																			$	341	$	113		$	99		$	193		$	—		$	746

_________________________

(A)

The recognition of ~~"Segment income"~~segment income by a region on an intersegment shipment could occur in a period prior to the recognition of ~~"Segment income"~~segment income on a consolidated basis, depending on the timing of when the inventory is sold to the third party customer. The ~~"Eliminations"~~"Eliminations and other" column adjusts regional ~~"Segment income"~~segment income for intersegment shipments that occur in a period prior to recognition of ~~"Segment income"~~segment income on a consolidated basis. The ~~"Eliminations"~~"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.


(B)	Effective in the first quarter of fiscal 2018, management removed the impact of metal price lag from Segment Income in order to enhance the visibility of the underlying operating performance of the Company. This change does not impact our condensed consolidated financial statements. Segment information for prior periods presented has been updated to reflect this change.


~~(C)~~	Conversion costs include expenses incurred in production such as direct and indirect labor, energy, freight, scrap usage, alloys and hardeners, coatings, alumina, melt loss, the benefit of utilizing scrap and other metal costs. Fluctuations in this component reflect cost efficiencies (inefficiencies) during the period as well as cost (inflation) deflation.


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


~~(E)~~	The State of Espirito Santo grants an indirect tax incentive (ICMS) for companies who fulfill certain requirements. According to this incentive, the Company can recognize a presumed ICMS credit, thus reducing the amounts due to the State. The mentioned incentive is recorded in our consolidated results of operations.

North America

“Net sales” ~~increased $588~~decreased $147 million, or ~~25%~~6%, driven by a decrease in average aluminum prices partially offset by increased volume. Segment income was $341 million, an increase of 26%, primarily due to ~~higher average aluminum prices~~favorable price and ~~higher can and automotive shipments.~~

~~“Segment income” was $351 million, an increase of 27%, primarily due to higher automotive and can volumes and favorable~~ product mix ~~as a result of automotive growth. These positive factors were partially offset by cost inflation and unfavorable selling, general, and administrative costs resulting from~~along with increased ~~factoring costs.~~volume.

Europe

“Net sales” ~~increased $330~~decreased $125 million, or ~~15%~~7%, driven by lower average aluminum prices partially offset by increased specialty shipments. Segment income was $113 million, a decrease of 7%, primarily due to ~~higher average aluminum prices~~unfavorable price and ~~higher automotive shipments;~~product mix partially offset by ~~lower can and~~higher specialty shipments.

“Segment income” was $158 million, an increase of 5%, primarily due to favorable foreign currency impact and favorable product mix as a result of our portfolio optimization efforts, higher automotive volumes and favorable cost absorption. These positive factors were partially offset by lower can and specialties volumes, and higher selling, general and administrative costs.

Asia

“Net sales” ~~increased $251~~decreased $80 million, or ~~19%~~7%, ~~due to higher~~driven by lower average aluminum prices ~~and higher can and automotive shipments; partially offset by lower can pricing and lower specialties shipments.~~

~~“Segment income” was $124 million, a decrease of 6%, primarily due to lower can pricing and lower specialties volumes. These negative factors were~~ partially offset by increased can ~~and automotive volumes, and~~shipments. Segment income was $99 million, a decrease of 3%, primarily driven by less favorable ~~automotive mix.~~recycling benefits, partially offset by increased volume.

South America

“Net sales” ~~increased $320~~decreased $97 million, or ~~29%~~9%, ~~due to higher~~driven by lower average aluminum prices ~~and higher specialties and can shipments;~~ partially offset by ~~unfavorable mix within specialties products~~increased volume along with favorable price and ~~lower can pricing.~~

“product mix. Segment ~~income”~~income was ~~$269~~$193 million, ~~an increase~~a decrease of ~~14%~~1%, primarily due to ~~higher can~~increased variable costs and ~~specialties volumes and lower metal input costs. These positive factors were~~less favorable recycling benefits, partially offset by ~~unfavorable price and product mix and higher selling, general and administrative costs.~~

increased volume.

Liquidity and Capital Resources

Our ~~significant~~primary liquidity sources are cash flows from operations, working capital management, cash and liquidity under our debt agreements. Our recent business investments ~~in the business were~~are being funded through cash flows generated by our operations and a

combination of local financing and our senior secured credit facilities. ~~Our~~Most of our recent strategic expansion projects are ~~currently~~operating close to full capacity and are generating additional operating cash ~~flows.~~flow. We ~~have the ability~~expect to be able to fund our ~~potential~~continued expansions, service our debt obligations, and provide sufficient liquidity to operate our business through one or more of the following: the generation of operating cash ~~flows;~~flows, working capital management, our existing debt facilities ~~including refinancing;~~(including refinancing) and new debt issuances, as necessary. In April 2019, we amended our existing ABL Revolver facility in anticipation of incorporating Aleris' borrowing base following the proposed acquisition. The commitments under the pre-existing $1 billion facility increased by $500 million on October 15, 2019. The acquisition continues to progress and is expected to close by the outside date under the merger agreement, which is in the fourth quarter of fiscal 2020 (first quarter of calendar year 2020), subject to regulatory approvals and customary closing conditions.

~~Debt Refinancing~~

~~For more information on our most recent debt refinancing activities, please refer to Note 6 - Debt.~~Non-Guarantor Information

As of ~~December 31, 2017,~~September 30, 2019, the Company’s subsidiaries that are not guarantors represented the following approximate percentages of (a) ~~net sales,~~"Net sales", (b) Adjusted EBITDA (segment income), and (c) ~~total assets~~"Total assets" of the Company, on a consolidated basis (including intercompany balances):



Item Description	Ratio
~~Consolidated net~~Net sales represented by ~~net~~Net sales to third parties by non-guarantor subsidiaries (for the ~~nine~~six months ended ~~December 31, 2017)~~September 30, 2019)	2220	%
~~Consolidated~~ Adjusted EBITDA represented by non-guarantor subsidiaries (for the ~~nine~~six months ended ~~December 31, 2017)~~September 30, 2019)	1612	%
~~Consolidated assets~~Assets owned by non-guarantor subsidiaries (as of ~~December 31, 2017)~~September 30, 2019)	1916	%

In addition, for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, the Company’s subsidiaries that are not guarantors had net sales of ~~$2.1 billion and $1.7~~$1.4 billion, respectively, and, as of ~~December 31, 2017,~~September 30, 2019, those subsidiaries had assets of ~~$2.3~~$2.1 billion and debt and other liabilities of ~~$1.6~~$1.3 billion (including inter-company balances).

Available Liquidity

Our available liquidity as of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017~~2019 is as follows (in millions):.


	December 31, 2017		March 31, 2017		September 30, 2019		March 31, 2019
Cash and cash equivalents	$	757	$	594	$	935	$	950
Availability under committed credit facilities(A)	967		701		875		897
Total liquidity	$	1,724	$	1,295
Total available liquidity					$	1,810	$	1,847

_________________________


(A)	Our availability under committed credit facilities does not include the financing for Aleris.

~~We reported liquidity of $1.7 billion as of December 31, 2017, which represents an increase compared to $1.3 billion reported as of March 31, 2017.~~ The ~~increase~~decrease in total available liquidity is primarily ~~attributable~~related to ~~$314 million~~cash capital spending related to strategic investments, decreases in proceeds from the sale of shares in UAL and other assets, an increase in the ABL borrowing base of $178 million, and positive free cash flow of $103 million. These increases were partially offset by net payments on short-term and long-term borrowings of $162 million, a reduction in availability of credit facilities of $34 million, and other changes of $40 million. As of December 31, 2017, our availability under committed credit facilities, partially offset by free cash flow of ~~$967 million was comprised of $739 million~~$18 million. See Note 8 — Debt for more details about our availability under ~~our ABL Revolver and $228 million under our Korea, China, and Middle East loan~~committed credit facilities.

The “Cash and cash equivalents” balance above includes cash held in foreign countries in which we operate. As of ~~December 31, 2017,~~September 30, 2019, we held $2$6 million of "Cash and cash equivalents" in Canada, ~~where~~in which we are incorporated, with the rest held in other countries in which we operate. As of ~~December 31, 2017,~~September 30, 2019, we held ~~$356~~$790 million of cash in jurisdictions for which we have asserted that earnings are ~~indefinitely~~permanently reinvested and we plan to continue to fund operations and local expansions with cash held in those jurisdictions. Our significant future uses of cash include funding our expansion projects globally, which we plan to fund with cash flows from operating activities and local financing, and servicing our debt obligations domestically, which we plan to fund with cash flows from operating activities and, if necessary, by repatriating cash from jurisdictions for which we have not asserted that earnings are indefinitely reinvested. 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 ~~December 31, 2017,~~September 30, 2019, we do not believe adverse tax consequences exist that restrict our use of “Cash or cash equivalents” in a material manner.

Free Cash Flow

We define “Free cash flow” (which is a non-GAAP measure) as: (a) “net cash provided by (used in) operating activities,” (b) plus "net cash provided by (used in) investing activities” and (c) less “proceeds from salesRefer to Non-GAAP Financial Measures for our definition of assets, net of transaction fees, cash income taxes and hedging.” Management believes “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. However, “Free cash flow” does not necessarily represent cash available for discretionary activities, as certain debt service obligations must be funded out of “Freefree cash flow.~~” Our method of calculating “Free cash flow” may not be consistent with that of other companies.~~

Effective in the second quarter of fiscal 2018, management clarified the definition of “Free cash flow” (a non-GAAP measure) to reduce "Proceeds on the sale of assets, net of transaction fees and hedging" by cash income taxes to further enable users of the financial statements to understand cash generated internally by the Company. This change does not impact the condensed consolidated financial statements or significantly impact prior periods.

The following table ~~shows “Free~~displays the free cash ~~flow” for the nine months ended December 31, 2017 and 2016,~~flow, the change between periods, ~~and~~as well as the ending balances of cash and cash equivalents (in millions).


	Nine Months Ended December 31,									Six Months Ended September 30,
	2017			2016			Change			2019			2018			Change
Net cash provided by operating activities	$	237		$	151		$	86
Net cash provided by (used in) operating activities										$	297		$	210		$	87
Net cash provided by (used in) investing activities	170			(122		)	292			(276		)	(343		)	67
Less: Proceeds from the sale of a business, net of transaction fees, cash income taxes and hedging (A)	(304		)	—			(304		)
Plus: Cash used in the acquisition of assets under a capital lease										—			239			(239		)
Less: Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging										(3		)	(2		)	(1		)
Free cash flow	$	103		$	29		$	74		$	18		$	104		$	(86	)
Ending cash and cash equivalents	$	757		$	505		$	252		$	935		$	829		$	106

~~_________________________~~

~~(A)~~

This line item includes the proceeds from the sale of shares in Ulsan Aluminum Ltd., to Kobe Steel Ltd. during the three months ended December 31, 2017 in the amount of $314 million. This line item also includes "Outflows from the sale of a business, net of transaction fees," which is comprised of cash of $13 million held by ALCOM, which was a consolidated entity sold during the nine months ended September 30, 2016. We expect additional cash taxes and transaction fees related to Ulsan Aluminum Ltd. of approximately $41 million and $2 million, respectively, to be paid during the remainder of fiscal 2018.

Operating Activities

~~Net~~The increase in "Net cash provided by operating ~~activities~~ was $237 million for the nine months ended December 31, 2017, which was favorable compared to net cash provided by operating activities of $151 million for the nine months ended December 31, 2016. The favorable varianceactivities" primarily relates to higher ~~"Segment income".~~segment income primarily driven by increased shipments, favorable price and product mix, as well as other operational efficiencies. The ~~following summarizes changes~~net change in working capital ~~accounts (in millions).~~

Nine Months Ended December 31,
2017 2016 Change
Net cash used in operating activities due to changes in working capital:
Accounts receivable $ (403 ) $ (108 ) $ (295 )
Inventories (175 ) (200 ) 25
Accounts payable 221
59
162
Other current assets and liabilities 36
(58 ) 94
Net change in working capital $ (321 ) $ (307 ) $ (14 )

~~Nine Months Ended December 31, 2017~~

"Accounts receivable, net" increased due to the timing of cash collections on certain customer and related party receivables balances coupled with an 33% increase in sales. To manage the timing of cash collections, we determine the need to factor our receivables based on local cash needs including the need to fund our strategic investments, as well as attempting to

~~balance the timing of cash flows of trade payables and receivables. "Inventories" were higher due to higher quantities on hand and higher average metal costs. The higher~~was primarily driven by lower quantities of inventory on hand at December 31, 2017 is the result of recent capacity expansions, as well as longer supply chains to support the automotive sector and expand our scrap procurement network. "Accounts payable" increased $221 million in the nine months ended December 31, 2017 due primarily to higher metal input costs.

Included in cash flows from operating activities for the nine months ended December 31, 2017 were $197 million of interest payments, $107 million of cash paid for income taxes, $5 million of payments on restructuring programs, and $73 million of contributions to our pension plans. As of December 31, 2017, we had $36 million of outstanding restructuring liabilities, of which $31 million we estimate will result in cash outflows within the next twelve months.

~~Nine Months Ended December 31, 2016~~

"Accounts receivable, net" increased due to the timing of cash collections on certain customer receivables balances offset by 2% lower sales and higher factoring balances. As of December 31, 2016 and March 31, 2016, we had factored, without recourse, certain trade receivables aggregating $846 million and $626 million, respectively, which had a favorable impact to net cash provided by operating activities of $220 million for the nine months ended December 31, 2016. We determine the need to factor our receivables based on local cash needs including the need to fund our strategic investments, as well as attempting to balance the timing of cash flows of trade payables and receivables. "Inventories" were higher due to higher quantities on hand partially offset by lower average metal costs. The higher quantities of inventory on hand at December 31, 2016 is the result of recent capacity expansions, as well as longer supply chains to support the automotive sector and expand our scrap procurement network. As of December 31, 2016, we had sold certain inventories to third parties and have agreed to repurchase the same or similar inventory back from the third parties at market prices subsequent to December 31, 2016. Our estimated repurchase obligation for this inventory as of December 31, 2016 is $16 million, based on market prices as of this date. We sell and repurchase inventory with third parties in an attempt to better manage inventory levels and to better match the purchasing of inventory with the demand for our products. "Accounts payable" increased $59 million in the nine months ended December 31, 2016 due primarily to the timing of payments to vendors.

Included in cash flows from operating activities for the nine months ended December 31, 2016 were $236 million of interest payments, $70 million of cash paid for income taxes, $10 million of payments on restructuring programs, and $48 million of contributions to our pension plans. As of December 31, 2016, we had $23 million of outstanding restructuring liabilities, of which $15 million we estimate will result in cash outflows within the next twelve months. We also expect to incur restructuring charges in future periods as we dismantle the smelter site in South America.

~~Hedging Activities~~

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.

~~More details on our operating activities can be found above in “Results of operations for the nine months ended December 31, 2017 compared to the nine months ended December 31, 2016."~~

inventory.

Investing Activities

~~The following table presents information regarding our “Net cash provided by (used in) investing activities” (in millions).~~

Nine Months Ended December 31,
2017 2016 Change
Capital expenditures $ (136 ) $ (138 ) $ 2
(Outflows) proceeds from the settlement of derivative instruments, net (18 ) 7
(25 )
Proceeds from sales of assets, third party, net of transaction fees and hedging 1
2
(1 )
Proceeds (outflows) from the sale of a business 314
(2 ) 316
Proceeds from investment in and advances to non-consolidated affiliates, net 9
12
(3 )
Net cash provided by (used in) investing activities $ 170
$ (122 ) $ 292

~~For the nine months ended December 31, 2017 and December 31, 2016, our "Capital expenditures" were primarily attributable to maintenance of existing property, plant, and equipment.~~

"~~Proceeds from the sale of a business, net of certain transaction fees" for the nine months ended December 31, 2017 was primarily due to the sale of shares in Ulsan Aluminum Ltd.~~

As of December 31, 2017, we had $47 million of outstanding accounts payable and accrued liabilities related to capital expenditures in which the cash outflows will occur subsequent to December 31, 2017. We expect capital expenditures for fiscal 2018 to be approximately $250 million.

The settlement of undesignated derivative instruments resulted in cash outflow of $18 million and cash inflow of $7 million, in the nine months ended December 31, 2017 and 2016, respectively. The variance in these cash flows related primarily to changes in average aluminum prices and foreign currency rates which impact gains or losses we realize on the settlement of derivatives.

“Proceeds from investments in and advances to non–consolidated affiliates, net" for nine months ended December 31, 2017 and 2016 were primarily comprised of loan repayments and advances made to our non-consolidated affiliate, Alunorf, to fund capital expenditures.

~~Financing Activities~~

~~The following table presents information regarding our “~~Net cash used in ~~financing activities” (in millions).~~investing activities" was primarily attributable to increased cash capital spending related to strategic investments and previously announced capacity expansions in Guthrie, Kentucky, Changzhou, China, and Pinda, Brazil. The prior period included a $239 million cash outflow related to the acquisition of real and personal property that we historically leased at our Sierre, Switzerland rolling facility.

Nine Months Ended December 31,
2017 2016 Change
Proceeds from issuance of long-term and short-term borrowings $ —
$ 2,770
$ (2,770 )
Principal payments of long-term and short-term borrowings (138 ) (2,676 ) 2,538
Revolving credit facilities and other, net (140 ) (20 ) (120 )
Debt issuance costs (5 ) (139 ) 134
Net cash used in financing activities $ (283 ) $ (65 ) $ (218 )

~~Nine Months Ended December 31, 2017~~Financing Activities

During the ~~nine~~six months ended ~~December 31, 2017, there were no issuances~~September 30, 2019, we borrowed $12 million of long ~~or short-term borrowings.~~term debt in China to fund capital expansion projects. We made principal repayments of ~~$50 million on short-term loans in Brazil, $14~~$9 million on our Term Loan Facility ~~$68~~and $2 million on Korean long-term debt and $6 million on capital leases. The net cash repayments from our credit facilities balance is related to payments of $119 million on our ABL Revolver and $21 million on our China credit facilities.

~~Nine Months Ended December 31, 2016~~

During the nine months ended December 31, 2016, we received proceeds of $1.15 billion and $1.5 billion, related to the issuance of our new 2024 and 2026 Notes, respectively. We also received proceeds related to the issuance of new short term loans in Brazil and Vietnam of $81 million and $40 million, respectively. Additionally, we made principal repayments of $1.1 billion and $1.4 billion on our 2017 Notes and 2020 Notes, respectively, $87 million on short-term loans in Brazil, $49 million on Novelis Vietnam loan repayments, $42 million on Korean loan repayments, $14 million on the Term Loan, $7 million on capitalfinance leases and ~~$3 million in~~ other ~~principal~~ repayments. The net cash repayments from our credit facilities balance are primarily related to payments of $23 million on our China credit facility.

During the six months ended September 30, 2018 there were no issuances of long-term borrowings. We made principal repayments of $27 million on Korean long-term debt, $9 million on our Term Loan Facility, and $4 million on finance leases and other obligations. The net cash proceeds from our credit facilities' balance is related to ~~$12~~proceeds of $94 million ~~net repayments~~ on our ~~Middle East~~ABL Revolver and ~~Africa (MEA) facilities offset by net proceeds~~ of ~~$17~~$9 million inon our China credit facilities.

~~As of December 31, 2016, our short-term borrowings were $517 million consisting of $367 million of loans under our ABL Revolver, $71~~ We incurred $2 million in Novelis Brazil loans, $58 million in Novelis China loans, $11 million in Novelis Korea bank loans and $10 million of other short-term borrowings. The weighted average interest rate on our total short-term borrowings was 2.65% as of ~~December 31, 2016.~~

debt issuance costs.

OFF-BALANCE SHEET ARRANGEMENTS

In accordance with SEC rules, the following qualify as off-balance sheet arrangements:

any obligation under certain derivative instruments;

any obligation under certain guarantees or contracts;

a retained or contingent interest in assets transferred to an unconsolidated entity or similar entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets; and

any obligation under a material variable interest held by the registrant in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or research and development services with the registrant.

The following discussion addresses the applicable off-balance sheet items for our Company.

Derivative Instruments

See Note 1012 — Financial Instruments and Commodity Contracts to our accompanying unaudited condensed consolidated financial statements for a description of derivative instruments.

Guarantees of Indebtedness

We have issued guarantees on behalf of certain of our subsidiaries. The indebtedness guaranteed is for trade accounts payable to third ~~parties.~~parties and capital expenditures. Some of the guarantees have annual terms while others have no expiration and have termination notice requirements. Neither we nor any of our subsidiaries holds any assets of any third parties as collateral to offset the potential settlement of these guarantees. Since we consolidate wholly-owned and majority-owned subsidiaries in our condensed consolidated financial statements, all liabilities associated with trade payables and short-term debt facilities for these entities are already included in our condensed consolidated balance sheets.

~~See Note 5 — Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for details on our guarantee of indebtedness to Alunorf, our non-consolidated affiliate.~~

Other Arrangements

Factoring of Trade Receivables

We factor ~~and forfait~~ trade receivables ~~(collectively, we refer to these as "factoring" programs)~~ based on local cash needs, as well as attempting to balance the timing of cash flows of trade payables and receivables, fund strategic investments, and fund other business needs. Factored invoices are not included in our condensed consolidated balance sheets when we do not retain a financial or legal interest. If a financial or legal interest is retained, we classify these factorings as secured borrowings. However, no such financial or legal interests are currently retained.

Other

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017,~~2019, we are not involved in any unconsolidated SPE transactions.

CONTRACTUAL OBLIGATIONS

We have future obligations under various contracts relating to debt and interest payments, capital and operating leases, long-term purchase obligations, postretirement benefit plans and uncertain tax positions. See Note 68 — Debt to our accompanying condensed consolidated financial statements and "Contractual Obligations" ~~in Item 7. See~~of the Management’s Discussion and Analysis of Financial Condition and Results of Operations insection of our ~~Annual Report on~~ Form 10-K for the year ended March 31, ~~2017~~2019 for more details.

RETURN OF CAPITAL

Payments to our shareholder are at the discretion of the board of directors and will 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

~~During~~Except as otherwise disclosed in Note 1 — Business and Summary of Significant Accounting Policies related to the ~~nine months ended December 31, 2017,~~adoption of new accounting standards (including ASC 842 - Leases), there were no significant changes to our critical accounting policies and estimates as reported in our ~~Annual Report on~~ Form 10-K for the year ended March 31, ~~2017.~~2019.

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 including the respective expected dates of adoption and expected effects on results of operations and financial condition.

NON-GAAP FINANCIAL MEASURES

Total ~~“Segment income”~~segment income presents the sum of the results of our four operating segments on a consolidated basis. We believe that total ~~“Segment income”~~segment income 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 to 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 ~~“Segment~~segment income,” 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 ~~“Segment income”~~segment income is not a measurement of financial performance under U.S. GAAP, and our total ~~“Segment income”~~segment income may not be comparable to similarly titled measures of other companies. Total ~~“Segment income”~~segment income 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 ~~“Segment income”:~~segment income:

does not reflect the ~~company’s~~Company’s cash expenditures or requirements for capital expenditures or capital commitments;

does not reflect changes in, or cash requirements for, the ~~company’s~~Company’s working capital needs; and

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

We also use total ~~“Segment income”:~~segment income:

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.

Total ~~“Segment income”~~segment income is equivalent to our Adjusted EBITDA, which we refer to in our earnings announcements and other external presentations to analysts and investors.

~~See Liquidity~~ Please see Note 18 — Segment, Major Customer and ~~Capital Resources section~~Major Supplier Information for our definition of ~~"Free cash flow".~~segment income.

Free cash flow consists of: (a) “net cash provided by (used in) operating activities,” (b) plus "net cash provided by (used in) investing activities” (c) plus cash used in the “Acquisition of assets under a capital lease”, and (d) less “proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging." Management believes 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. Management also uses free cash flow to measure the profitability and financial performance of our business. However, free cash flow does not necessarily represent cash available for discretionary activities, as certain debt service obligations must be funded out of free cash flow. Our method of calculating free cash flow may not be consistent with that of other companies.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

~~This document contains~~Statements made in this Quarterly Report on Form 10-Q which describe Novelis' intentions, expectations, beliefs or predictions may be forward-looking ~~statements that are based on current expectations, estimates, forecasts and projections about~~within the ~~industry in which we operate, and beliefs and assumptions made by our management. Such~~meaning of securities laws. Forward-looking statements include ~~in particular,~~ statements ~~about our plans, strategies and prospects. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and variations of such~~preceded by, followed by, or including the words ~~and~~"believes," "expects," "anticipates," "plans," "estimates," "projects," "forecasts," or similar ~~expressions are intended to identify such forward-looking statements.~~expressions. Examples of forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about our ~~expectations with respect~~expectation that we will be able to ~~the impact of metal price movements on our financial performance, the effectiveness of our hedging programs~~make strategic investments in capacity and ~~controls,~~R&D. Novelis cautions that, by their nature, forward-looking statements involve risk and ~~our future borrowing availability. These statements are based on beliefs~~uncertainty 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,Novelis' actual ~~outcomes and~~ results ~~may~~could differ materially from ~~what is~~those expressed ~~implied~~ or ~~forecasted~~implied 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: changes in the prices and availability of aluminum (or premiums associated with such prices) or other materials and raw materials we use; the capacity and effectiveness of our hedging activities; relationships with, and financial and operating conditions of, our customers, suppliers and other stakeholders; fluctuations in the supply of, and prices for, energy in the areas in which we maintain production facilities; our ability to access financing including in connection with potential acquisitions and investments; risks relating to, and our ability to consummate, pending and future acquisitions, investments or divestitures, including the proposed acquisition of Aleris Corporation; changes in the relative values of various currencies and the effectiveness of our currency hedging activities; factors affecting our operations, such as litigation, environmental remediation and clean-up costs, breakdown of equipment and other events; economic, regulatory and political factors within the countries in which we operate or sell our products, including changes in duties or tariffs; competition from other aluminum rolled products producers as well as from substitute materials such as steel, glass, plastic and composite materials; changes in general economic conditions including deterioration in the global economy; changes in government regulations, particularly those affecting taxes, derivative instruments, environmental, health or safety compliance; changes in interest rates that have the effect of increasing the amounts we pay under our credit facilities and other financing agreements; and our ability to generate cash. 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. ~~Factors~~For a discussion of some of the specific factors that ~~could~~may cause Novelis' actual results or outcomes to differ materially from ~~the results expressed or implied by~~those projected in any forward-looking statements, ~~include, among other things:~~

~~relationships with,~~refer to our Form 10-K for the year-ended March 31, 2019 and ~~financial and operating conditions~~see the following sections of ~~our customers, suppliers and other stakeholders;~~

~~changes in~~ the ~~prices and availability of aluminum (or premiums associated with aluminum prices) or other materials and raw materials we use;~~

~~fluctuations in the supply of, and prices for, energy in the areas in which we maintain production facilities;~~

~~our ability to access financing, repay existing debt or refinance existing debt to fund current operations and for future capital requirements;~~

~~the level of our indebtedness and our ability to generate cash to service our indebtedness;~~

~~lowering of our ratings by a credit rating agency;~~

~~changes in the relative values of various currencies and the effectiveness of our currency hedging activities;~~

~~union disputes and other employee relations issues;~~

~~factors affecting our operations, such as litigation (including product liability claims), environmental remediation and clean-up costs, breakdown of equipment and other events;~~

~~changes in general economic conditions, including deterioration in the global economy;~~

~~the capacity and effectiveness of our hedging activities;~~

~~impairment of our goodwill, other intangible assets, and long-lived assets;~~

~~loss of key management and other personnel, or an inability to attract such management and other personnel;~~

~~risks relating to future acquisitions or divestitures;~~

~~our inability to successfully implement our growth initiatives;~~

~~changes in interest rates that have the effect of increasing the amounts we pay under our senior secured credit facilities, other financing agreements and our defined benefit pension plans;~~

~~risks relating to certain joint ventures and subsidiaries that we do not entirely control;~~

~~the effect of derivatives legislation on our ability to hedge risks associated with our business;~~

~~competition from other aluminum rolled products producers as well as from substitute materials such as steel, glass, plastic and composite materials;~~

~~demand and pricing within the principal markets for our products as well as seasonality in certain of our customers’ industries;~~

~~economic, regulatory and political factors within the countries in which we operate or sell our products, including changes in duties or tariffs; and~~

~~changes in government regulations, particularly those affecting taxes and tax rates, health care reform, climate change, environmental, health or safety compliance.~~

~~The above list of factors is not exhaustive. These and other factors are discussed in more detail under “Item~~report: "Part I. Item 1A. Risk ~~Factors” and “Item~~Factors," "Part II. Item 7. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of ~~Operations” in our Annual Report on Form 10-K for the year ended March 31, 2017.~~Operations" and "Part II. Item 7. Critical Accounting Policies and Estimates."

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 ~~commodity~~metal prices (primarily ~~the London Metals Exchange ("LME")~~ aluminum, ~~prices~~copper and ~~natural gas),~~ local market ~~premiums, electricity rates,~~premiums), 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 manage our exposure to these and 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

~~Aluminum~~Metal

The following table presents the estimated potential effect on the fair values of these derivative instruments as of ~~December 31, 2017,~~September 30, 2019, given a 10% ~~increase~~change in prices ~~($ in~~(in millions).

Change in
Price Change in
Fair Value
LME aluminum 10 % $ (106 )



	Change in Price		Change in Fair Value
Aluminum	10	%	$	(65	)
Copper	(10	)%	$	(1	)

Energy

The following table presents the estimated potential effect on the fair values of these derivative instruments as of ~~December 31, 2017,~~September 30, 2019, given a 10% decline in spot prices for energy contracts ~~($ in~~(in millions).

Change in
Price

Change in
Fair Value
Electricity (10 )% $ (4 )
Natural Gas (10 )% (6 )
Diesel Fuel (10 )% (1 )



	Change in Price		Change in Fair Value
Electricity	(10	)%	$	(2	)
Natural gas	(10	)%	$	(3	)
Diesel fuel	(10	)%	$	(2	)

Foreign Currency Exchange Risks

The following table presents the estimated potential effect on the fair values of these derivative instruments as of ~~December 31, 2017,~~September 30, 2019, given a 10% change in rates ~~($ in~~(in millions).


	Change in Exchange Rate		Change in Fair Value			Change in Exchange Rate		Change in Fair Value
Currency measured against the U.S. dollar
Brazilian real	(10	)%	$	(22	)	(10	)%	$	(42	)
Euro	10	%	(39		)	10	%	$	(13	)
Korean won	(10	)%	(31		)
South Korean won						(10	)%	$	(40	)
Canadian dollar	(10	)%	(4		)	(10	)%	$	(4	)
British pound	(10	)%	(19		)	(10	)%	$	(16	)
Swiss franc	(10	)%	(40		)	(10	)%	$	(25	)
Chinese yuan	10	%	(8		)	10	%	$	(5	)

~~Interest Rate Risks~~

The following table presents the estimated potential effect on the fair values of these derivative instruments as of December 31, 2017, given a 100 bps decrease in the benchmark interest rate ($ in millions).



	~~Change in~~ ~~Rate~~				~~Change in~~ ~~Fair Value~~
~~Interest Rate Contracts~~
~~Asia - KRW-CD-3200~~	~~(100~~	)	~~bps~~	—	$	—

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 Securities Exchange Act of 1934, as amended (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 ~~December 31, 2017.~~September 30, 2019.

Changes in Internal Control ~~Over~~over Financial Reporting

During the quarter ended June 30, 2019, we implemented a new system and modified our internal controls to facilitate the adoption of ASU 2016-02, Leases (Topic 842). The adoption of this standard did not have a material impact to the condensed consolidated statement of operations or the condensed consolidated statement of cash flows. There have been no other 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. For additional information regarding litigation to which we are a party, see Note 1517 — Commitments and Contingencies to our accompanying condensed consolidated financial statements.

Item 1A. Risk Factors

See "Risk Factors" in Part I, Item 1A in our ~~Annual Report on~~ Form 10-K for the year ended March 31, ~~2017.~~2019. There have been no material changes from the risk factors described in our Form 10-K for the year ended March 31, 2019.

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))

2.2			Agreement and Plan of Merger, dated as of July 26, 2018, among Novelis Inc., Novelis Acquisitions LLC, Aleris Corporation and OCM Opportunities ALS Holdings L.P. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on July 26, 2018)(File No. 001-32312)

3.1			Restated Certificate and Articles of Amalgamation of Novelis Inc. (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q filed on November 10, 2010 (File No. 001-32312))

3.2			Certificate and Articles of Amalgamation of Novelis Inc., dated March 31, 2016 (incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K filed on May 10, 2016 (File No. 001-32312))

3.3			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))

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			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase

101.DEF			XBRL Taxonomy Extension Definition Linkbase

101.LAB			XBRL Taxonomy Extension Label Linkbase

101.PRE			XBRL Taxonomy Extension Presentation Linkbase

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
			Vice President Finance and Controller
			(Principal Accounting Officer)

Date: ~~February 1, 2018~~November 6, 2019

~~EXHIBIT INDEX~~



~~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~~			~~Restated Certificate and Articles of Amalgamation of Novelis Inc. (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q filed on November 10, 2010 (File No. 001-32312))~~

~~3.2~~			~~Certificate and Articles of Amalgamation of Novelis Inc., dated March 31, 2016 (incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K filed on May 10, 2016 (File No. 001-32312))~~

~~3.3~~			~~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))~~

~~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~~			~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~			~~XBRL Taxonomy Extension Calculation Linkbase~~

~~101.DEF~~			~~XBRL Taxonomy Extension Definition Linkbase~~

~~101.LAB~~			~~XBRL Taxonomy Extension Label Linkbase~~

~~101.PRE~~			~~XBRL Taxonomy Extension Presentation Linkbase~~



PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Statements of Operations (unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)	4
	Condensed Consolidated Balance Sheets (unaudited)	5
	Condensed Consolidated Statements of Cash Flows (unaudited)	6
	Condensed Consolidated Statement of Shareholder's Equity ~~(Deficit)~~ (unaudited)	7
	Notes to the Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4042
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6359
Item 4.	Controls and Procedures	6460

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	6561
Item 1A.	Risk Factors	6561
Item 6.	Exhibits	6562
	Signatures	63



As of December 31, 2017	Amount
Short-term borrowings and current portion of long-term debt due within one year	$	252
2 years	38
3 years	21
4 years	18
5 years	1,710
Thereafter	2,650
Total	$	4,689



	Level 3 – Derivative Instruments (A)
Balance as of March 31, 2017	$	(9	)
Unrealized/realized gain included in earnings (B)	4
Unrealized loss included in AOCI (C)	—
Settlements (B)	(2		)
Balance as of December 31, 2017	$	(7	)



	December 31, 2017		March 31, 2017
Cash deposits (A)	$	7	$	7

Short-term settlement liability (B)	$	9	$	9
Long-term settlement liability (B)	51		59
Total settlement liability	$	60	$	68

Liability for other disputes and claims (C)	$	28	$	22



	Change in Price		Change in Fair Value
Electricity	(10	)%	$	(4	)
Natural Gas	(10	)%	(6		)
Diesel Fuel	(10	)%	(1		)