UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended ~~June~~September 30, 2021

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

For the transition period from to

Commission File Number: 001-32312

Novelis Inc.

(Exact name of registrant as specified in its charter)


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

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

(404) 760-4000

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No ☒

The registrant is a voluntary filer and is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. However, the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

☒

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

As of ~~August 3,~~November 2, 2021, the registrant had 1,000 shares of common stock, no par value, outstanding. All of the registrant’s outstanding shares were held indirectly by Hindalco Industries Ltd., the registrant’s parent company.

TABLE OF CONTENTS

COMMONLY USED OR DEFINED TERMS


Term						Definition
Aleris						Aleris Corporation
AluInfra						AluInfra Services
Alunorf						Aluminium Norf GmbH


Duffel						Plant located in Duffel, Belgium required to be divested (Refer to Note 3 – Discontinued Operations)
Adjusted EBITDA						Equivalent to segment income as defined in Note 18 – Segment, Geographical Area, Major Customer and Major Supplier Information
Exchange Act						Securities Exchange Act of 1934, as amended

fiscal 2016						Fiscal year ended March 31, 2016
fiscal 2019						Fiscal year ended March 31, 2019
fiscal 2020						Fiscal year ended March 31, 2020
fiscal 2021						Fiscal year ended March 31, 2021
fiscal 2022						Fiscal year ending March 31, 2022
FRP						Flat-rolled products
GAAP						Generally Accepted Accounting Principles
Hindalco SARs						Hindalco Stock Appreciation Rights
kt						kilotonne (One kt is 1,000 metric tonnes.)
Kobe						Kobe Steel, Ltd.
Lewisport						Plant located in Lewisport, Kentucky required to be divested (Refer to Note 3 – Discontinued Operations)
Logan						Logan Aluminum Inc.
LME						The London Metals Exchange
LMP						Local market premium

MMBtu						One decatherm or 1 million British Thermal Units

OEM						Original equipment manufacturer
RSU						Restricted stock unit
SEC						United States Securities and Exchange Commission

Segment income						As defined in Note 18 – Segment, Geographical Area, Major Customer and Major Supplier Information
SG&A						Selling, general and administrative expenses
SPE						Special purpose entity
Tri-Arrows						Tri-Arrows Aluminum Inc.
UAL						Ulsan Aluminum Ltd.
UBC						Used beverage can
U.S.						United States
VIE						Variable interest entity
2021 Form 10-K						Our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 as filed with the SEC on May 12, 2021

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


		Three Months Ended June 30,				Three Months Ended September 30,				Six Months Ended September 30,
in millions	in millions	2021		2020			in millions	2021		2020		2021		2020
Net sales	Net sales	$	3,855	$	2,426		Net sales	$	4,119	$	2,978	$	7,974	$	5,404
Cost of goods sold (exclusive of depreciation and amortization)	Cost of goods sold (exclusive of depreciation and amortization)	3,137		2,101			Cost of goods sold (exclusive of depreciation and amortization)	3,400		2,384		6,537		4,485
Selling, general and administrative expenses	Selling, general and administrative expenses	159		122			Selling, general and administrative expenses	142		129		301		251
Depreciation and amortization	Depreciation and amortization	134		118			Depreciation and amortization	134		141		268		259
Interest expense and amortization of debt issuance costs	Interest expense and amortization of debt issuance costs	59		70			Interest expense and amortization of debt issuance costs	60		70		119		140
Research and development expenses	Research and development expenses	24		19			Research and development expenses	21		18		45		37

Gain on extinguishment of debt		(2)		0
Restructuring and impairment (reversal) expenses, net		(2)		1
Loss on extinguishment of debt, net							Loss on extinguishment of debt, net	64		—		62		—
Restructuring and impairment expenses (reversal), net							Restructuring and impairment expenses (reversal), net	—		7		(2)		8
Equity in net income of non-consolidated affiliates	Equity in net income of non-consolidated affiliates	(1)		(1)			Equity in net income of non-consolidated affiliates	—		(1)		(1)		(2)
Business acquisition and other related costs	Business acquisition and other related costs	0		11			Business acquisition and other related costs	—		—		—		11
Other (income) expenses, net	Other (income) expenses, net	(64)		75			Other (income) expenses, net	(20)		18		(84)		93
		3,444		2,516				3,801		2,766		7,245		5,282
Income (loss) from continuing operations before income tax provision		411		(90)
Income tax provision (benefit)		108		(29)
Net income (loss) from continuing operations		303		(61)
Income from continuing operations before income tax provision							Income from continuing operations before income tax provision	318		212		729		122
Income tax provision							Income tax provision	79		68		187		39
Net income from continuing operations							Net income from continuing operations	239		144		542		83
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	(63)		(18)			Loss from discontinued operations, net of tax	(2)		(11)		(65)		(29)

Loss on sale of discontinued operations, net of tax							Loss on sale of discontinued operations, net of tax	—		(170)		—		(170)
Net loss from discontinued operations							Net loss from discontinued operations	(2)		(181)		(65)		(199)
Net income (loss)	Net income (loss)	240		(79)			Net income (loss)	237		(37)		477		(116)
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	0		0			Net income attributable to noncontrolling interests	—		—		—		—
Net income (loss) attributable to our common shareholder	Net income (loss) attributable to our common shareholder	$	240	$	(79)		Net income (loss) attributable to our common shareholder	$	237	$	(37)	$	477	$	(116)

____________________

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

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


		Three Months Ended June 30,				Three Months Ended September 30,				Six Months Ended September 30,
in millions	in millions	2021		2020			in millions	2021		2020		2021		2020
Net income (loss)	Net income (loss)	$	240	$	(79)		Net income (loss)	$	237	$	(37)	$	477	$	(116)
Other comprehensive income:
Other comprehensive (loss) income:							Other comprehensive (loss) income:
Currency translation adjustment	Currency translation adjustment	30		55			Currency translation adjustment	(64)		96		(34)		151
Net change in fair value of effective portion of cash flow hedges	Net change in fair value of effective portion of cash flow hedges	(15)		(77)			Net change in fair value of effective portion of cash flow hedges	(190)		6		(205)		(71)
Net change in pension and other benefits	Net change in pension and other benefits	3		8			Net change in pension and other benefits	7		79		10		87
Other comprehensive income (loss) before income tax effect		18		(14)
Income tax benefit related to items of other comprehensive income		0		(19)
Other comprehensive income, net of tax		18		5
Comprehensive income (loss)		258		(74)
Other comprehensive (loss) income before income tax effect							Other comprehensive (loss) income before income tax effect	(247)		181		(229)		167
Income tax (benefit) provision related to items of other comprehensive (loss) income							Income tax (benefit) provision related to items of other comprehensive (loss) income	(48)		21		(48)		2
Other comprehensive (loss) income, net of tax							Other comprehensive (loss) income, net of tax	(199)		160		(181)		165
Comprehensive income							Comprehensive income	38		123		296		49
Comprehensive income attributable to noncontrolling interests, net of tax	Comprehensive income attributable to noncontrolling interests, net of tax	0		1			Comprehensive income attributable to noncontrolling interests, net of tax	—		2		—		3
Comprehensive income (loss) attributable to our common shareholder		$	258	$	(75)
Comprehensive income attributable to our common shareholder							Comprehensive income attributable to our common shareholder	$	38	$	121	$	296	$	46

____________________

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


in millions, except number of shares	in millions, except number of shares	June 30, 2021		March 31, 2021		in millions, except number of shares	September 30, 2021		March 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	872	$	998	Cash and cash equivalents	$	659	$	998
Accounts receivable, net	Accounts receivable, net					Accounts receivable, net
— third parties (net of allowance for credit losses of $6 and $5 as of June 30, 2021 and March 31, 2021, respectively)		1,990		1,687
— third parties (net of allowance for credit losses of $7 and $5 as of September 30, 2021 and March 31, 2021, respectively)						— third parties (net of allowance for credit losses of $7 and $5 as of September 30, 2021 and March 31, 2021, respectively)	2,124		1,687
— related parties	— related parties	210		166		— related parties	222		166
Inventories	Inventories	2,380		1,928		Inventories	2,623		1,928
Prepaid expenses and other current assets	Prepaid expenses and other current assets	201		198		Prepaid expenses and other current assets	212		198
Fair value of derivative instruments	Fair value of derivative instruments	174		137		Fair value of derivative instruments	217		137
Assets held for sale	Assets held for sale	5		5		Assets held for sale	5		5
Current assets of discontinued operations	Current assets of discontinued operations	14		15		Current assets of discontinued operations	12		15
Total current assets	Total current assets	5,846		5,134		Total current assets	6,074		5,134
Property, plant and equipment, net	Property, plant and equipment, net	4,677		4,687		Property, plant and equipment, net	4,628		4,687
Goodwill	Goodwill	1,084		1,083		Goodwill	1,083		1,083
Intangible assets, net	Intangible assets, net	677		696		Intangible assets, net	655		696
Investment in and advances to non–consolidated affiliates	Investment in and advances to non–consolidated affiliates	850		838		Investment in and advances to non–consolidated affiliates	831		838
Deferred income tax assets	Deferred income tax assets	142		130		Deferred income tax assets	137		130
Other long–term assets	Other long–term assets					Other long–term assets
— third parties	— third parties	310		316		— third parties	271		316
— related parties	— related parties	1		1		— related parties	1		1

Total assets	Total assets	$	13,587	$	12,885	Total assets	$	13,680	$	12,885

LIABILITIES AND SHAREHOLDER’S EQUITY	LIABILITIES AND SHAREHOLDER’S EQUITY					LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long–term debt	Current portion of long–term debt	$	541	$	71	Current portion of long–term debt	$	443	$	71
Short–term borrowings	Short–term borrowings	359		236		Short–term borrowings	247		236
Accounts payable	Accounts payable					Accounts payable
— third parties	— third parties	2,916		2,498		— third parties	3,083		2,498
— related parties	— related parties	295		230		— related parties	296		230
Fair value of derivative instruments	Fair value of derivative instruments	346		280		Fair value of derivative instruments	582		280
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	610		670		Accrued expenses and other current liabilities	655		670
Current liabilities of discontinued operations	Current liabilities of discontinued operations	14		16		Current liabilities of discontinued operations	13		16
Total current liabilities	Total current liabilities	5,081		4,001		Total current liabilities	5,319		4,001
Long–term debt, net of current portion	Long–term debt, net of current portion	4,960		5,653		Long–term debt, net of current portion	4,942		5,653
Deferred income tax liabilities	Deferred income tax liabilities	230		162		Deferred income tax liabilities	172		162
Accrued postretirement benefits	Accrued postretirement benefits	871		878		Accrued postretirement benefits	852		878
Other long–term liabilities	Other long–term liabilities	301		305		Other long–term liabilities	313		305

Total liabilities	Total liabilities	11,443		10,999		Total liabilities	11,598		10,999
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Shareholder’s equity:	Shareholder’s equity:					Shareholder’s equity:
Common stock, no par value; Unlimited number of shares authorized; 1,000 shares issued and outstanding as of June 30, 2021 and March 31, 2021		0		0
Common stock, no par value; Unlimited number of shares authorized; 1,000 shares issued and outstanding as of September 30, 2021 and March 31, 2021						Common stock, no par value; Unlimited number of shares authorized; 1,000 shares issued and outstanding as of September 30, 2021 and March 31, 2021	—		—
Additional paid–in capital	Additional paid–in capital	1,404		1,404		Additional paid–in capital	1,304		1,404
Retained earnings	Retained earnings	1,104		864		Retained earnings	1,341		864
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(348)		(366)		Accumulated other comprehensive loss	(547)		(366)
Total equity of our common shareholder	Total equity of our common shareholder	2,160		1,902		Total equity of our common shareholder	2,098		1,902
Noncontrolling interests	Noncontrolling interests	(16)		(16)		Noncontrolling interests	(16)		(16)
Total equity	Total equity	2,144		1,886		Total equity	2,082		1,886
Total liabilities and equity	Total liabilities and equity	$	13,587	$	12,885	Total liabilities and equity	$	13,680	$	12,885

____________________

See accompanying notes to the condensed consolidated financial statements. Refer to Note 6 – Consolidation for information on our consolidated VIE.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


		Three Months Ended June 30,					Six Months Ended September 30,
in millions	in millions	2021		2020		in millions	2021		2020
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income (loss)	Net income (loss)	$	240	$	(79)	Net income (loss)	$	477	$	(116)
Net loss from discontinued operations	Net loss from discontinued operations	(63)		(18)		Net loss from discontinued operations	(65)		(199)
Net income (loss) from continuing operations		$	303	$	(61)
Net income from continuing operations						Net income from continuing operations	$	542	$	83
Adjustments to determine net cash provided by operating activities:	Adjustments to determine net cash provided by operating activities:					Adjustments to determine net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	134		118		Depreciation and amortization	268		259
Loss on unrealized derivatives and other realized derivatives in investing activities, net	Loss on unrealized derivatives and other realized derivatives in investing activities, net	13		15		Loss on unrealized derivatives and other realized derivatives in investing activities, net	36		11

Gain on sale of assets		0		(2)
Impairment charges		0		1
Gain on extinguishment of debt		(2)		0
Loss (gain) on sale of assets						Loss (gain) on sale of assets	2		(2)

Loss on extinguishment of debt, net						Loss on extinguishment of debt, net	62		—
Deferred income taxes, net	Deferred income taxes, net	56		(62)		Deferred income taxes, net	54		(33)
Equity in net income of non-consolidated affiliates	Equity in net income of non-consolidated affiliates	(1)		(1)		Equity in net income of non-consolidated affiliates	(1)		(2)
Loss on foreign exchange remeasurement of debt	Loss on foreign exchange remeasurement of debt	1		0		Loss on foreign exchange remeasurement of debt	1		—
Amortization of debt issuance costs and carrying value adjustments	Amortization of debt issuance costs and carrying value adjustments	5		6		Amortization of debt issuance costs and carrying value adjustments	9		14
Other, net	Other, net	1		3		Other, net	2		(1)
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures):	Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures):					Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures):
Accounts receivable	Accounts receivable	(357)		130		Accounts receivable	(540)		52
Inventories	Inventories	(451)		192		Inventories	(728)		195
Accounts payable	Accounts payable	498		(312)		Accounts payable	706		(68)
Other assets	Other assets	(55)		44		Other assets	(25)		52
Other liabilities	Other liabilities	(80)		(194)		Other liabilities	(49)		(187)

Net cash provided by (used in) operating activities - continuing operations		65		(123)
Net cash provided by operating activities - continuing operations						Net cash provided by operating activities - continuing operations	339		373
Net cash used in operating activities - discontinued operations	Net cash used in operating activities - discontinued operations	(3)		(15)		Net cash used in operating activities - discontinued operations	(5)		(31)
Net cash provided by (used in) operating activities		$	62	$	(138)
Net cash provided by operating activities						Net cash provided by operating activities	$	334	$	342
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	$	(101)	$	(112)	Capital expenditures	$	(194)	$	(226)

Acquisition of business, net of cash and restricted cash acquired	Acquisition of business, net of cash and restricted cash acquired	0		(2,550)		Acquisition of business, net of cash and restricted cash acquired	—		(2,614)
Proceeds from sales of assets, third party, net of transaction fees and hedging	Proceeds from sales of assets, third party, net of transaction fees and hedging	1		0		Proceeds from sales of assets, third party, net of transaction fees and hedging	—		2

Proceeds from investment in and advances to non-consolidated affiliates, net	Proceeds from investment in and advances to non-consolidated affiliates, net	7		7		Proceeds from investment in and advances to non-consolidated affiliates, net	10		8
(Outflows) proceeds from the settlement of derivative instruments, net		(4)		9
Outflows from the settlement of derivative instruments, net						Outflows from the settlement of derivative instruments, net	(4)		(1)
Other	Other	3		3		Other	7		5
Net cash used in investing activities - continuing operations	Net cash used in investing activities - continuing operations	(94)		(2,643)		Net cash used in investing activities - continuing operations	(181)		(2,826)
Net cash provided by investing activities - discontinued operations	Net cash provided by investing activities - discontinued operations	0		10		Net cash provided by investing activities - discontinued operations	—		217
Net cash used in investing activities	Net cash used in investing activities	$	(94)	$	(2,633)	Net cash used in investing activities	$	(181)	$	(2,609)
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Proceeds from issuance of long-term and short-term borrowings	Proceeds from issuance of long-term and short-term borrowings	$	20	$	1,899	Proceeds from issuance of long-term and short-term borrowings	$	1,520	$	1,910
Principal payments of long-term and short-term borrowings	Principal payments of long-term and short-term borrowings	(262)		(7)		Principal payments of long-term and short-term borrowings	(1,923)		(30)
Revolving credit facilities and other, net	Revolving credit facilities and other, net	125		327		Revolving credit facilities and other, net	14		(358)
Debt issuance costs	Debt issuance costs	(2)		(18)		Debt issuance costs	(24)		(24)

Return of capital to our common shareholder						Return of capital to our common shareholder	(100)		—
Net cash (used in) provided by financing activities - continuing operations	Net cash (used in) provided by financing activities - continuing operations	(119)		2,201		Net cash (used in) provided by financing activities - continuing operations	(513)		1,498
Net cash used in financing activities - discontinued operations	Net cash used in financing activities - discontinued operations	0		(1)		Net cash used in financing activities - discontinued operations	—		(2)
Net cash (used in) provided by financing activities	Net cash (used in) provided by financing activities	$	(119)	$	2,200	Net cash (used in) provided by financing activities	$	(513)	$	1,496
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(151)		(571)		Net decrease in cash, cash equivalents and restricted cash	(360)		(771)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	11		7		Effect of exchange rate changes on cash	6		19
Cash, cash equivalents and restricted cash — beginning of period	Cash, cash equivalents and restricted cash — beginning of period	1,027		2,402		Cash, cash equivalents and restricted cash — beginning of period	1,027		2,402
Cash, cash equivalents and restricted cash — end of period	Cash, cash equivalents and restricted cash — end of period	$	887	$	1,838	Cash, cash equivalents and restricted cash — end of period	$	673	$	1,650

Cash and cash equivalents	Cash and cash equivalents	$	872	$	1,729	Cash and cash equivalents	$	659	$	1,627
Restricted cash (Included in other long–term assets)	Restricted cash (Included in other long–term assets)	15		12		Restricted cash (Included in other long–term assets)	14		14
Restricted cash (Included in prepaid expenses and other current assets)	Restricted cash (Included in prepaid expenses and other current assets)	0		8		Restricted cash (Included in prepaid expenses and other current assets)	—		9
Cash and cash equivalents of discontinued operations		0		89

Cash, cash equivalents and restricted cash — end of period	Cash, cash equivalents and restricted cash — end of period	$	887	$	1,838	Cash, cash equivalents and restricted cash — end of period	$	673	$	1,650

Supplemental Disclosures:	Supplemental Disclosures:					Supplemental Disclosures:

Accrued capital expenditures as of June 30		$	55	$	44
Accrued merger consideration as of June 30		0		70
Accrued capital expenditures as of September 30						Accrued capital expenditures as of September 30	$	57	$	55
Accrued merger consideration as of September 30						Accrued merger consideration as of September 30	—		10

____________________

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (unaudited)


		Equity of our Common Shareholder																			Equity of our Common Shareholder
		Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interests			Total Equity			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non- controlling Interests		Total Equity
in millions, except number of shares	in millions, except number of shares	Shares	Amount																	in millions, except number of shares	Shares	Amount
Balance as of March 31, 2020	Balance as of March 31, 2020	1,000	$	0		$	1,404		$	628		$	(620)		$	(51)		$	1,361	Balance as of March 31, 2020	1,000	$	—	$	1,404	$	628	$	(620)	$	(51)	$	1,361
Net loss attributable to our common shareholder	Net loss attributable to our common shareholder	—	—			—			(79)			—			—			(79)		Net loss attributable to our common shareholder	—	—		—		(116)		—		—		(116)

Currency translation adjustment included in accumulated other comprehensive loss	Currency translation adjustment included in accumulated other comprehensive loss	—	—			—			—			55			—			55		Currency translation adjustment included in accumulated other comprehensive loss	—	—		—		—		151		—		151
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $21 included in accumulated other comprehensive loss		—	—			—			—			(56)			—			(56)
Change in pension and other benefits, net of tax provision of $2 included in accumulated other comprehensive loss		—	—			—			—			5			1			6
Balance as of June 30, 2020		1,000	$	0		$	1,404		$	549		$	(616)		$	(50)		$	1,287
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $19 included in accumulated other comprehensive loss																				Change in fair value of effective portion of cash flow hedges, net of tax benefit of $19 included in accumulated other comprehensive loss	—	—		—		—		(52)		—		(52)
Change in pension and other benefits, net of tax provision of $21 included in accumulated other comprehensive loss																				Change in pension and other benefits, net of tax provision of $21 included in accumulated other comprehensive loss	—	—		—		—		63		3		66

Balance as of September 30, 2020																				Balance as of September 30, 2020	1,000	$	—	$	1,404	$	512	$	(458)	$	(48)	$	1,410

		Equity of our Common Shareholder																			Equity of our Common Shareholder
		Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interests			Total Equity			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non- controlling Interests		Total Equity
		Shares	Amount																		Shares	Amount
Balance as of March 31, 2021	Balance as of March 31, 2021	1,000	$	0		$	1,404		$	864		$	(366)		$	(16)		$	1,886	Balance as of March 31, 2021	1,000	$	—	$	1,404	$	864	$	(366)	$	(16)	$	1,886
Net income attributable to our common shareholder	Net income attributable to our common shareholder	—	—			—			240			—			—			240		Net income attributable to our common shareholder	—	—		—		477		—		—		477

Currency translation adjustment included in accumulated other comprehensive loss	Currency translation adjustment included in accumulated other comprehensive loss	—	—			—			—			30			—			30		Currency translation adjustment included in accumulated other comprehensive loss	—	—		—		—		(34)		—		(34)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $1 included in accumulated other comprehensive loss		—	—			—			—			(14)			—			(14)
Change in pension and other benefits, net of tax provision of $1 included in accumulated other comprehensive loss		—	—			—			—			2			0			2
Balance as of June 30, 2021		1,000	$	0		$	1,404		$	1,104		$	(348)		$	(16)		$	2,144
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $53 included in accumulated other comprehensive loss																				Change in fair value of effective portion of cash flow hedges, net of tax benefit of $53 included in accumulated other comprehensive loss	—	—		—		—		(152)		—		(152)
Change in pension and other benefits, net of tax provision of $5 included in accumulated other comprehensive loss																				Change in pension and other benefits, net of tax provision of $5 included in accumulated other comprehensive loss	—	—		—		—		5		—		5
Return of capital to our common shareholder																				Return of capital to our common shareholder	—	—		(100)		—		—		—		(100)
Balance as of September 30, 2021																				Balance as of September 30, 2021	1,000	$	—	$	1,304	$	1,341	$	(547)	$	(16)	$	2,082

								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
Balance as of June 30, 2020																						$	—	$	1,404	$	549	$	(616)	$	(50)	$	1,287
Net loss attributable to our common shareholder																				Net loss attributable to our common shareholder	—	—		—		(37)		—		—		(37)

Currency translation adjustment included in accumulated other comprehensive loss																				Currency translation adjustment included in accumulated other comprehensive loss	—	—		—		—		96		—		96
Change in fair value of effective portion of cash flow hedges, net of tax provision of $2 included in accumulated other comprehensive loss																				Change in fair value of effective portion of cash flow hedges, net of tax provision of $2 included in accumulated other comprehensive loss	—	—		—		—		4		—		4
Change in pension and other benefits, net of tax provision of $19 included in accumulated other comprehensive loss																				Change in pension and other benefits, net of tax provision of $19 included in accumulated other comprehensive loss	—	—		—		—		58		2		60

Balance as of September 30, 2020																				Balance as of September 30, 2020	1,000	$	—	$	1,404	$	512	$	(458)	$	(48)	$	1,410

																					Equity of our Common Shareholder
																					Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non- controlling Interest		Total Equity
																					Shares	Amount
Balance as of June 30, 2021																				Balance as of June 30, 2021	1,000	$	—	$	1,404	$	1,104	$	(348)	$	(16)	$	2,144
Net income attributable to our common shareholder																				Net income attributable to our common shareholder	—	—		—		237		—		—		237

Currency translation adjustment included in accumulated other comprehensive loss																				Currency translation adjustment included in accumulated other comprehensive loss	—	—		—		—		(64)		—		(64)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $52 included in accumulated other comprehensive loss																				Change in fair value of effective portion of cash flow hedges, net of tax benefit of $52 included in accumulated other comprehensive loss	—	—		—		—		(138)		—		(138)
Change in pension and other benefits, net of tax provision of $4 included in accumulated other comprehensive loss																				Change in pension and other benefits, net of tax provision of $4 included in accumulated other comprehensive loss	—	—		—		—		3		—		3
Return of capital to our common shareholder																				Return of capital to our common shareholder	—	—		(100)		—		—		—		(100)
Balance as of September 30, 2021																				Balance as of September 30, 2021	1,000	$	—	$	1,304	$	1,341	$	(547)	$	(16)	$	2,082

____________________

See accompanying notes to the condensed consolidated financial statements.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Organization and Description of Business

We produce aluminum plate, sheet, and light gauge products for use in the packaging market, which includes beverage and food can and foil products, as well as for use in the automotive, transportation, aerospace, electronics, architectural, and industrial product markets. We have recycling operations in many of our plants to recycle post-consumer aluminum, such as used-beverage cans, and post-industrial aluminum, such as class scrap. As of ~~June~~September 30, 2021, we had manufacturing operations in 9 countries on 4 continents: North America, South America, Asia, and Europe, through 33 operating facilities, which may include any combination of hot or cold rolling, finishing, casting, or recycling capabilities. We have recycling operations in 15 of our operating facilities.

The March 31, 2021 condensed consolidated balance sheet data was derived from the March 31, 2021 audited financial statements but does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes in our 2021 Form 10-K. Management believes that all adjustments necessary for the fair statement of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented.

Consolidation Policy

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

We use the equity method to account for our investments in entities that we do not control but have the ability to exercise significant influence over operating and financial policies. Consolidated net income (loss) attributable to our common shareholder includes our share of net income (loss) of these entities. The difference between consolidation and the equity method impacts certain of our financial ratios because of the presentation of the detailed line items reported in the condensed consolidated financial statements for consolidated entities, compared to a two-line presentation of investment in and advances to non–consolidated affiliates and equity in net income of non-consolidated affiliates.

Use of Estimates and Assumptions

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

Risks & Uncertainty resulting from COVID-19

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

Our global operations, similar to those of many other large, multi-national corporations, primarily felt this impact in early fiscal 2021 as we adjusted schedules at some of our facilities based on customer demand, resulting in disruptions to our supply chain, interruptions to our production, and delays of shipments to our customers, mainly during the first quarter of fiscal 2021.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

While much of our customer demand and shipments recovered in the majority of our end markets, the overall extent of the impact of the COVID-19 pandemic on our operating results, cash flows, liquidity, and financial condition will depend on certain developments, including the duration and spread of the outbreak (including the emergence of variants of the virus) and its impact on our customers, employees, and vendors. We believe this will be primarily driven by the severity and duration of the pandemic, the pandemic’s impact on the U.S. and global economies, and the timing, scope, and effectiveness of federal, state, and local governmental responses, including the distribution and adoption of vaccines.

Although we have made our best estimates based upon current information, the effects of the COVID-19 pandemic on our business may result in future changes to our estimates and assumptions based on its duration. Actual results could materially differ from the estimates and assumptions developed by management. If so, we may be subject to future impairment charges as well as changes to recorded reserves and valuations.

Reclassifications and Revisions of Previously Issued Financial Statements

We identified a misstatement related to the calculation of accrued capital expenditures within the statement of cash flows in our previously issued Form ~~10-Qs~~10-Q for the quarterly period ended ~~June~~September 30, 2020. As a result, the previously reported amounts for capital expenditures were understated by $6$4 million, changes in accounts payable were overstated by $4$2 million, changes in other liabilities were overstated by $2 million, and accrued capital expenditures, presented in supplemental disclosures, were ~~overstated~~understated by ~~$43~~$3 million for the ~~three months~~quarterly periods ended ~~June~~September 30, 2020. In addition, net cash used in operating activities - discontinued operations and net cash provided by investing activities - discontinued operations were each understated by $10 million for the quarterly periods ended September 30, 2020.

Additionally, we identified a misstatement related to the disclosure of changes in the components of accumulated other comprehensive loss, net in our previously issued Form 10-Q for the quarterly period ended September 30, 2020. As a result, the previously reported amount for other comprehensive income (loss) before reclassifications for currency translation was understated by $60 million for the quarterly period ended September 30, 2020, while the amounts reclassified from accumulated other comprehensive loss, net for currency translation were overstated by $60 million for the quarterly period ended September 30, 2020.

We assessed the materiality of the ~~misstatement~~misstatements and concluded ~~it was~~they were not material to the company's previously issued financial statements for the quarterly period ended ~~June~~September 30, 2020. However, we elected to revise the previously reported amounts for capital expenditures, ~~and~~ changes in accounts payable and other liabilities, net cash used in operating activities - discontinued operations, and net cash provided by investing activities - discontinued operations within the condensed consolidated statement of cash flows, accrued capital expenditures within the supplemental disclosures to the condensed consolidated statement of cash flows, and capital expenditures within Note 18 – Segment, Geographical Area, Major Customer and Major Supplier Information. We have also revised the amounts for other comprehensive income (loss) before reclassifications for currency translation and the amounts reclassified from accumulated other comprehensive loss, net for currency translation within Note 13 – Accumulated Other Comprehensive Loss.

Recently Issued Accounting Standards (Not yet adopted)

There are no recent accounting pronouncements pending adoption that we expect will have a material impact on our consolidated financial condition, results of operations, or cash flows.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

2. BUSINESS COMBINATION

On April 14, 2020, Novelis completed its acquisition of 100% of the issued and outstanding shares of Aleris Corporation, a global supplier of rolled aluminum products.

The Company's condensed consolidated statement of operations for the ~~three~~six months ended ~~June~~September 30, 2020 includes the results of operations for Aleris Corporation from the acquisition date of April 14, 2020 to ~~June~~September 30, 2020. The following unaudited supplemental pro forma combined financial information presents the Company’s results of operations for the three and six months ended ~~June~~September 30, 2020 as if the acquisition of Aleris had occurred on April 1, 2019. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the Company’s operating results that may have actually occurred had the acquisition of Aleris been completed on April 1, 2019. In addition, the unaudited pro forma financial information does not give effect to any anticipated cost savings, operating efficiencies or other synergies that may be associated with the acquisition, or any estimated costs that have been or will be incurred by the Company to integrate the assets and operations of Aleris.

~~Three Months Ended June 30,~~

~~in millions~~

~~2020~~

~~Net sales~~

~~2,480~~

~~Net loss~~

~~(94)~~


	Three Months Ended September 30,		Six Months Ended September 30,
in millions	2020		2020
Net sales	$	2,979	$	5,459
Net income (loss)	17		(81)

The unaudited pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on April 1, 2019 to give effect to certain events the Company believes to be directly attributable to the acquisition. These pro forma adjustments primarily include:

•the elimination of Aleris historical depreciation and amortization expense and the recognition of new depreciation and amortization expense;

•an adjustment to interest expense to reflect (i) the additional borrowings of the Company in conjunction with the acquisition (ii) the repayment of Aleris’ historical debt in conjunction with the acquisition;

•an adjustment to present acquisition-related transaction costs and other one-time costs directly attributable to the acquisition as if they were incurred in the earliest period presented; and

•the related income tax effects of the adjustments noted above.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

3. DISCONTINUED OPERATIONS

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

On September 30, 2020, we completed the sale of Duffel to Liberty House Group through its subsidiary, ALVANCE, the international aluminum business of the GFG Alliance. Upon closing, we received €210 million ($246 million as of September 30, 2020) in cash and a €100 million ($117 million as of September 30, 2020) receivable that was deemed to be contingent consideration. In addition, we recorded a €15 million ($18 million) receivable for net debt and working capital adjustments.

As of June 30, 2021, Novelis marked all outstanding receivables related to the sale of Duffel to an estimated fair value of €45 million ($53 million), which resulted in a loss of €51 million ($61 million) recorded in loss from discontinued operations, net of tax. As of September 30, 2021, there has been no change to this fair value. There is no assurance as to when we expect the post-closing arbitration process to conclude or whether we will receive any of the contingent consideration.

On November 8, 2020, we entered into a definitive agreement with American Industrial Partners for the sale of Lewisport and closed the sale on November 30, 2020. Upon closing, we received $180 million in cash proceeds. In addition, we have recorded a $17 million receivable for net working capital adjustments, which remains outstanding as of ~~June~~September 30, 2021.

In addition to the $61 million loss from discontinued operations, net of tax related to the fair value adjustment of Duffel receivables in the period, Novelis incurred $2$4 million of additional costs to sell primarily related to ~~litigation~~legal expenses. These costs are recorded within loss from discontinued operations, net of tax.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

4. RESTRUCTURING AND IMPAIRMENT

Restructuring and impairment expenses (reversal) ~~expenses,~~, net includes restructuring costs, impairments, and other related expenses or reversal of expenses. Restructuring and impairment expenses (reversal) ~~expenses,~~, net for the three months ended ~~June~~September 30, 2021 was a net zero expense primarily related to a partial release of certain restructuring liabilities as a result of changes in estimated costs, fully offset by expenses primarily related to reorganization activities resulting from the Aleris acquisition. Restructuring and impairment expenses (reversal), net for the six months ended September 30, 2021 totaled a net reversal of $2 million primarily related to a partial release of certain restructuring liabilities as a result of changes in estimated costs.

Restructuring and impairment expenses (reversal) ~~expenses,~~, net for the three and six months ended ~~June~~September 30, 2020 totaled $1$7 million and $8 million in ~~expenses.~~expenses, respectively, primarily related to reorganization activities resulting from the Aleris acquisition.

The following table summarizes our restructuring liability activity.


in millions	in millions	North America		Europe		Asia		South America		Other Operations		Total		in millions	North America		Europe		Asia		South America		Other Operations		Total
Restructuring liability balance as of March 31, 2020	Restructuring liability balance as of March 31, 2020	$	1	$	21	$	0	$	12	$	0	$	34	Restructuring liability balance as of March 31, 2020	$	1	$	21	$	—	$	12	$	—	$	34
Restructuring and impairment (reversal) expenses, net		—		—		—		—		1		1
Restructuring and impairment expenses, net														Restructuring and impairment expenses, net	3		1		—		—		4		8
Cash payments	Cash payments	—		(9)		—		—		(1)		(10)		Cash payments	(1)		(13)		—		(1)		(1)		(16)
Foreign currency and other	Foreign currency and other	—		—		—		(1)		—		(1)		Foreign currency and other	—		1		—		(1)		—		—
Restructuring liability balance as of June 30, 2020		$	1	$	12	$	0	$	11	$	0	$	24
Restructuring liability balance as of September 30, 2020														Restructuring liability balance as of September 30, 2020	$	3	$	10	$	—	$	10	$	3	$	26

in millions	in millions	North America		Europe		Asia		South America		Other Operations		Total		in millions	North America		Europe		Asia		South America		Other Operations		Total
Restructuring liability balance as of March 31, 2021	Restructuring liability balance as of March 31, 2021	$	3	$	19	$	0	$	9	$	3	$	34	Restructuring liability balance as of March 31, 2021	$	3	$	19	$	—	$	9	$	3	$	34
Restructuring and impairment (reversal) expenses, net		—		(2)		—		—		—		(2)
Restructuring and impairment expenses (reversal), net														Restructuring and impairment expenses (reversal), net	1		(5)		2		—		—		(2)
Cash payments	Cash payments	(1)		(4)		—		—		—		(5)		Cash payments	(2)		(8)		—		(1)		(3)		(14)
Foreign currency and other	Foreign currency and other	—		—		—		(1)		—		(1)		Foreign currency and other	—		—		—		(1)		—		(1)
Restructuring liability balance as of June 30, 2021(1)		$	2	$	13	$	0	$	8	$	3	$	26
Restructuring liability balance as of September 30, 2021(1)														Restructuring liability balance as of September 30, 2021(1)	$	2	$	6	$	2	$	7	$	—	$	17

____________________

(1)As of ~~June~~September 30, 2021, the restructuring liability totaled ~~$26~~$17 million with ~~$20~~$11 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.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

5. INVENTORIES

Inventories consists of the following.


in millions	in millions	June 30, 2021		March 31, 2021		in millions	September 30, 2021		March 31, 2021
Finished goods	Finished goods	$	551	$	455	Finished goods	$	595	$	455
Work in process	Work in process	1,080		874		Work in process	1,192		874
Raw materials	Raw materials	548		407		Raw materials	629		407
Supplies	Supplies	201		192		Supplies	207		192
Inventories	Inventories	$	2,380	$	1,928	Inventories	$	2,623	$	1,928

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

6. CONSOLIDATION

Variable Interest Entities

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

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

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	in millions	June 30, 2021		March 31, 2021		in millions	September 30, 2021		March 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	3	$	5	Cash and cash equivalents	$	2	$	5
Accounts receivable, net	Accounts receivable, net	63		69		Accounts receivable, net	57		69
Inventories	Inventories	85		81		Inventories	88		81
Prepaid expenses and other current assets	Prepaid expenses and other current assets	3		4		Prepaid expenses and other current assets	4		4
Total current assets	Total current assets	154		159		Total current assets	151		159
Property, plant and equipment, net	Property, plant and equipment, net	21		19		Property, plant and equipment, net	24		19
Goodwill	Goodwill	12		12		Goodwill	12		12
Deferred income tax assets	Deferred income tax assets	57		57		Deferred income tax assets	56		57
Other long–term assets	Other long–term assets	7		8		Other long–term assets	9		8
Total assets	Total assets	$	251	$	255	Total assets	$	252	$	255
LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	45	$	38	Accounts payable	$	43	$	38
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	21		26		Accrued expenses and other current liabilities	22		26
Total current liabilities	Total current liabilities	66		64		Total current liabilities	65		64
Accrued postretirement benefits	Accrued postretirement benefits	208		214		Accrued postretirement benefits	209		214
Other long–term liabilities	Other long–term liabilities	5		5		Other long–term liabilities	5		5
Total liabilities	Total liabilities	$	279	$	283	Total liabilities	$	279	$	283

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

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

Alunorf

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

UAL

UAL is a joint venture investment between Novelis Korea Ltd., a subsidiary of Novelis, and Kobe. UAL is a thinly capitalized VIE that relies on the regular reimbursement of costs and expenses from ~~its investors,~~ Novelis and Kobe. UAL is controlled by an equally represented Board of Directors in which neither entity has sole decision-making ability regarding production operations or other significant decisions. Furthermore, neither entity has the ability to take the majority share of production or associated costs over the life of the joint venture. Our risk of loss is limited to the carrying value of our investment in and inventory-related receivables from UAL. UAL's creditors do not have recourse to our general credit. Therefore, Novelis is not considered the primary beneficiary, and UAL is accounted for as an equity method investment. UAL currently produces flat-rolled aluminum products exclusively for Novelis and Kobe. As of ~~June~~September 30, 2021, each of the parties to the joint venture holds a 50% interests in the equity of UAL.

AluInfra

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

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


		Three Months Ended June 30,				Three Months Ended September 30,				Six Months Ended September 30,
in millions	in millions	2021		2020			in millions	2021		2020		2021		2020
Net sales	Net sales	$	385	$	280		Net sales	$	389	$	285	$	774	$	565
Costs and expenses related to net sales	Costs and expenses related to net sales	372		274			Costs and expenses related to net sales	375		277		747		551
Income tax provision	Income tax provision	3		2			Income tax provision	4		3		7		5
Net income	Net income	$	10	$	4		Net income	$	10	$	5	$	20	$	9

Purchases of tolling services from Alunorf	Purchases of tolling services from Alunorf	$	69	$	61		Purchases of tolling services from Alunorf	$	70	$	64	$	139	$	125

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


in millions	in millions	June 30, 2021		March 31, 2021		in millions	September 30, 2021		March 31, 2021
Accounts receivable, net — related parties	Accounts receivable, net — related parties	$	210	$	166	Accounts receivable, net — related parties	$	222	$	166
Other long–term assets — related parties	Other long–term assets — related parties	1		1		Other long–term assets — related parties	1		1
Accounts payable — related parties	Accounts payable — related parties	295		230		Accounts payable — related parties	296		230

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Transactions with Hindalco

We occasionally have related party transactions with Hindalco. During the three and six months ended ~~June~~September 30, 2021 and 2020, we recorded net sales of less than $1 million between Novelis and Hindalco related primarily to sales of equipment and other services. As of ~~June~~September 30, 2021 and March 31, 2021, there was $2 million of outstanding accounts receivable, net — related parties net of accounts payable — related parties related to transactions with Hindalco. During the three and six months ended ~~June~~September 30, 2021, Novelis purchased less than $1 million and $2 million in raw materials from ~~Hindalco.~~Hindalco, respectively.

Return of Capital

During the second quarter of fiscal 2022, we paid a return of capital to our common shareholder in the amount of $100 million.

1617

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

8. DEBT

Debt consists of the following.


		June 30, 2021								March 31, 2021							September 30, 2021								March 31, 2021
in millions	in millions	Interest Rates(1)		Principal		Unamortized Carrying Value Adjustments(2)		Carrying Value		Principal		Unamortized Carrying Value Adjustments(2)		Carrying Value		in millions	Interest Rates(1)		Principal		Unamortized Carrying Value Adjustments(2)		Carrying Value		Principal		Unamortized Carrying Value Adjustments(2)		Carrying Value
Short–term borrowings	Short–term borrowings	1.94	%	$	359	$	0	$	359	$	236	$	0	$	236	Short–term borrowings	3.10	%	$	247	$	—	$	247	$	236	$	—	$	236

Floating rate Term Loan Facility, due June 2022	Floating rate Term Loan Facility, due June 2022	2.00	%	524		(4)		520		648		(5)		643		Floating rate Term Loan Facility, due June 2022	2.00	%	419		(2)		417		648		(5)		643

Floating rate Term Loan Facility, due January 2025	Floating rate Term Loan Facility, due January 2025	1.90	%	765		(14)		751		767		(15)		752		Floating rate Term Loan Facility, due January 2025	1.90	%	763		(12)		751		767		(15)		752
Floating rate Term Loan Facility, due March 2028	Floating rate Term Loan Facility, due March 2028	2.15	%	499		(9)		490		480		(9)		471		Floating rate Term Loan Facility, due March 2028	2.15	%	498		(8)		490		480		(9)		471

Zhenjiang Term Loans, due May 2024	Zhenjiang Term Loans, due May 2024			0		0		0		124		2		126		Zhenjiang Term Loans, due May 2024			—		—		—		124		2		126

5.875% Senior Notes, due September 2026	5.875% Senior Notes, due September 2026	5.875	%	1,500		(13)		1,487		1,500		(13)		1,487		5.875% Senior Notes, due September 2026			—		—		—		1,500		(13)		1,487
3.25% Senior Notes, due November 2026																3.25% Senior Notes, due November 2026	3.25	%	750		(11)		739		—		—		—
3.375% Senior Notes, due April 2029	3.375% Senior Notes, due April 2029	3.375	%	593		(12)		581		588		(13)		575		3.375% Senior Notes, due April 2029	3.375	%	579		(12)		567		588		(13)		575
4.75% Senior Notes, due January 2030	4.75% Senior Notes, due January 2030	4.75	%	1,600		(27)		1,573		1,600		(28)		1,572		4.75% Senior Notes, due January 2030	4.75	%	1,600		(26)		1,574		1,600		(28)		1,572

3.875% Senior Notes, due August 2031																3.875% Senior Notes, due August 2031	3.875	%	750		(11)		739		—		—		—
China Bank loans, due August 2027	China Bank loans, due August 2027	4.90	%	77		0		77		76		0		76		China Bank loans, due August 2027	4.90	%	77		—		77		76		—		76

Finance lease obligations and other debt, due through June 2028	Finance lease obligations and other debt, due through June 2028	2.45	%	22		0		22		22		0		22		Finance lease obligations and other debt, due through June 2028	2.45	%	31		—		31		22		—		22
Total debt	Total debt			$	5,939	$	(79)	$	5,860	$	6,041	$	(81)	$	5,960	Total debt			$	5,714	$	(82)	$	5,632	$	6,041	$	(81)	$	5,960
Less: Short–term borrowings	Less: Short–term borrowings			(359)		0		(359)		(236)		0		(236)		Less: Short–term borrowings			(247)		—		(247)		(236)		—		(236)
Less: Current portion of long–term debt	Less: Current portion of long–term debt			(545)		4		(541)		(71)		0		(71)		Less: Current portion of long–term debt			(445)		2		(443)		(71)		—		(71)
Long–term debt, net of current portion	Long–term debt, net of current portion			$	5,035	$	(75)	$	4,960	$	5,734	$	(81)	$	5,653	Long–term debt, net of current portion			$	5,022	$	(80)	$	4,942	$	5,734	$	(81)	$	5,653

____________________

(1)Interest rates are the stated rates of interest on the debt instrument (not the effective interest rate) as of ~~June~~September 30, 2021 and therefore exclude the effects of accretion and amortization of debt issuance costs related to refinancing transactions and additional borrowings. We present stated rates of interest because they reflect the rate at which cash will be paid for future debt service.

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

Principal repayment requirements for our total debt over the next five years and thereafter using exchange rates as of ~~June~~September 30, 2021 for our debt denominated in foreign currencies are as follows (in millions).


As of ~~June~~September 30, 2021	Amount
Short-term borrowings and current portion of long-term debt due within one year	$	~~904~~692
2 years	2426
3 years	2637
4 years	~~763~~760
5 years	2325
Thereafter	~~4,199~~4,174
Total	$	~~5,939~~5,714

Short-Term Borrowings

As of ~~June~~September 30, 2021, our short-term borrowings totaled ~~$359~~$247 million, which consisted of ~~$225~~$98 million of borrowings on our ABL Revolver, ~~$83~~$99 million in China loans (CNY ~~537~~639 million), and $50 million in Brazil loans (BRL ~~250 millions), and $1 million in other short-term borrowings.~~272 million).

Term Loan Facility

During the six months ended September 30, 2021, we made $200 million in principal payments beyond our quarterly amortization payments on our Floating rate Term Loan Facility, due June 2022. As a result of these payments, we recorded a loss on extinguishment of debt of $1 million in the second quarter of fiscal 2022.

As of ~~June~~September 30, 2021, we were in compliance with the covenants of our Term Loan Facility.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

ABL Revolver

As of ~~June~~September 30, 2021, we had ~~$225~~$98 million in borrowings under our ABL Revolver and were in compliance with debt covenants. We utilized ~~$32~~$55 million of our ABL Revolver for letters of credit. We had availability of ~~$1.2~~$1.3 billion on the ABL Revolver, including ~~$143~~$120 million of remaining availability ~~which~~that can be utilized for letters of credit.

~~Novelis Inc.~~

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

Zhenjiang Term Loans

In May 2021, the Zhenjiang Term Loans were repaid in full, and the covenants under the agreement are no longer in effect. As a result of this transaction, we recorded a gain on extinguishment of debt of $2 ~~million.~~million in the first quarter of fiscal 2022.

Senior Notes

In August 2021, Novelis Corporation, a wholly owned subsidiary of Novelis Inc., issued $750 million in aggregate principal amount of 3.25% Senior Notes due November 2026 and $750 million in aggregate principal amount of 3.875% Senior Notes due August 2031 (together with the 3.25% Senior Notes due November 2026, the 3.375% Senior Notes due April 2029, and the 4.75% Senior Notes due January 2030, the "Senior Notes"). The 3.25% Senior Notes due November 2026 will mature on November 15, 2026 and are subject to semi-annual interest payments that will accrue at a rate of 3.25% per year. The 3.875% Senior Notes due August 2031 will mature on August 15, 2031 and are subject to semi-annual interest payments that will accrue at a rate of 3.875% per year. The net proceeds of the offering, together with cash on hand, were used to (i) fund the redemption of all of the 5.875% Senior Notes due September 2026, plus the redemption premium and accrued and unpaid interest thereon and (ii) pay certain fees and expenses in connection with the foregoing and the offering of the notes. We incurred debt issuance costs of $11 million for each of the 3.25% Senior Notes due November 2026 and the 3.875% Senior Notes due August 2031, which will be amortized as an increase to interest expense and amortization of debt issuance costs over the term of the note.

As a result of this transaction, we recorded a loss on extinguishment of debt of $63 million in the second quarter of fiscal 2022, $51 million of which related to the redemption premium and was paid with cash on hand.

The Senior Notes are guaranteed, jointly and severally, on a senior unsecured basis, by Novelis Inc. and certain of its subsidiaries. The Senior Notes contain customary covenants and events of default that will limit our ability and, in certain instances, the ability of certain of our subsidiaries to (1) incur additional debt and provide additional guarantees, (2) pay dividends or return capital beyond certain amounts and make other restricted payments, (3) create or permit certain liens, (4) make certain asset sales, (5) use the proceeds from the sales of assets and subsidiary stock, (6) create or permit restrictions on the ability of certain of Novelis' subsidiaries to pay dividends or make other distributions to Novelis or certain of Novelis' subsidiaries, as applicable, (7) engage in certain transactions with affiliates, (8) enter into sale and leaseback transactions, (9) designate subsidiaries as unrestricted subsidiaries and (10) consolidate, merge or transfer all or substantially all of our assets and the assets of certain of our subsidiaries. During any future period in which either Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. have assigned an investment grade credit rating to the Senior Notes and no default or event of default under the indenture has occurred and is continuing, most of the covenants will be suspended. The Senior Notes include customary events of default, including a cross-acceleration event of default. The Senior Notes also contain customary call protection provisions for our bondholders that extend through November 2023 for the 3.25% Senior Notes due November 2026, through April 2024 for the 3.375% Senior Notes due April 2029, through January 2025 for the 4.75% Senior Notes due January 2030, and through August 2026 for the 3.875% Senior Notes due August 2031.

As of ~~June~~September 30, 2021, we were in compliance with the covenants of our Senior Notes.

~~See~~ ~~Note 19 – Subsequent Events~~ ~~for information on our debt activities subsequent to June 30, 2021.~~

1819

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

9. SHARE-BASED COMPENSATION

During the ~~three~~six months ended ~~June~~September 30, 2021, we granted ~~1,759,942~~1,737,390 Hindalco phantom RSUs and ~~2,285,816~~2,374,574 Hindalco SARs. Total compensation expense was $12 million ~~for the three months ended June 30, 2021~~ and $7$24 million for the three and six months ended ~~June~~September 30, ~~2020.~~2021, respectively. Total compensation expense was $5 million and $12 million for the three and six months ended September 30, 2020, respectively. As of ~~June~~September 30, 2021, the outstanding liability related to share-based compensation was ~~$23~~$27 million.

The cash payments made to settle all Hindalco SAR liabilities were $9$16 million and $1 million in the ~~three~~six months ended ~~June~~September 30, 2021 and 2020, respectively. Total cash payments made to settle RSUs were $16 million and $4 million in the ~~three~~six months ended ~~June~~September 30, 2021 and 2020, respectively. Unrecognized compensation expense related to the non-vested Hindalco SARs (assuming all future performance criteria are met) was ~~$12~~$13 million, which is expected to be recognized over a weighted average period of ~~1.4~~1.3 years. Unrecognized compensation expense related to the RSUs was ~~$18~~$16 million, which will be recognized over the remaining weighted average vesting period of ~~1.6~~1.5 years.

1920

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

10. POSTRETIREMENT BENEFIT PLANS

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

During the first quarter of fiscal 2022, Novelis announced the freeze of future benefit accruals under the Canada Pension Plan, effective for union participants as of December 31, 2021 and for non-union participants as of December 31, 2023. Novelis remeasured the plan’s assets and obligations as of April 30, 2021, which is the nearest calendar month-end to the announcement of this freeze. A curtailment gain of $3 million was recorded related to the Canada Pension Plan.

During the second quarter of fiscal 2022, Novelis entered into an agreement to transfer the liabilities associated with a portion of the retirees and beneficiaries of the Canada Novelis Pension Plan to an insurer through a purchase of buy-out annuities. The premium payment was made to the insurer on August 10, 2021. Novelis remeasured the plan's assets and obligations as of July 31, 2021, which is the nearest calendar month-end to the premium payment for this settlement. The insurer will take on responsibility for the payments to these transferred members effective November 1, 2021. As a result of this transaction, a settlement gain of $4 million was recorded during the three months ended September 30, 2021.

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


		Pension Benefit Plans					Other Benefit Plans					Pension Benefit Plans				Other Benefit Plans
		Three Months Ended June 30,					Three Months Ended June 30,					Three Months Ended September 30,				Three Months Ended September 30,
in millions	in millions	2021		2020			2021		2020		in millions	2021		2020		2021		2020
Service cost	Service cost	$	8	$	12		$	3	$	3	Service cost	$	8	$	12	$	3	$	2
Interest cost	Interest cost	14		15			2		2		Interest cost	14		15		1		2
Expected return on assets	Expected return on assets	(20)		(19)			0		0		Expected return on assets	(19)		(19)		—		—
Amortization — losses, net	Amortization — losses, net	5		12			0		0		Amortization — losses, net	4		11		—		—

Termination/curtailment (benefit) cost		(3)		0			0		0
Settlement/curtailment (gain) loss											Settlement/curtailment (gain) loss	(4)		1		—		—
Net periodic benefit cost(1)	Net periodic benefit cost(1)	$	4	$	20		$	5	$	5	Net periodic benefit cost(1)	$	3	$	20	$	4	$	4

						Pension Benefit Plans						Other Benefit Plans
						Six Months Ended September 30,						Six Months Ended September 30,
												2021		2020		2021		2020
Service cost											Service cost	$	16	$	24	$	6	$	5
Interest cost											Interest cost	28		30		3		4
Expected return on assets											Expected return on assets	(39)		(38)		—		—
Amortization — losses, net											Amortization — losses, net	9		23		—		—

Settlement/curtailments (gain) loss											Settlement/curtailments (gain) loss	(7)		1		—		—
Net periodic benefit cost(1)											Net periodic benefit cost(1)	$	7	$	40	$	9	$	9

____________________

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

Service costs of $1 million, interest cost of $1$2 million, and expected return on assets of $2 million included in the table above, for the three months ended ~~June~~September 30, 2020, relate to discontinued operations. The average expected long-term rate of return on all plan assets is 4.9% in fiscal 2022.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 to all plans.


		Three Months Ended June 30,			Three Months Ended September 30,						Six Months Ended September 30,
in millions	in millions		2021			2020		in millions	2021		2020		2021		2020
Funded pension plans	Funded pension plans		$	7		$	10	Funded pension plans	$	10	$	39	$	17	$	49
Unfunded pension plans	Unfunded pension plans		4			3		Unfunded pension plans	2		4		6		7
Savings and defined contribution pension plans	Savings and defined contribution pension plans		15			11		Savings and defined contribution pension plans	12		7		27		18
Total contributions	Total contributions		$	26		$	24	Total contributions	$	24	$	50	$	50	$	74

For the ~~three~~six months ended ~~June~~September 30, 2020, contributions to funded pension plans of $2$5 million were attributable to discontinued operations. During the remainder of fiscal 2022, we expect to contribute an additional ~~$36~~$26 million to our funded pension plans, ~~$13~~$11 million to our unfunded pension plans, and ~~$30~~$18 million to our savings and defined contribution pension plans.

2022

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

11. CURRENCY LOSSES (GAINS)

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

Three Months Ended
June 30,
in millions 2021 2020
Loss (gain) on remeasurement of monetary assets and liabilities, net $ 13 $ (4)
(Gain) loss recognized on balance sheet remeasurement currency exchange contracts, net (8) 2
Currency losses (gains), net $ 5 $ (2)


	Three Months Ended September 30,				Six Months Ended September 30,
in millions	2021		2020		2021		2020
Gain on remeasurement of monetary assets and liabilities, net	$	(21)	$	(4)	$	(8)	$	(8)
Loss recognized on balance sheet remeasurement currency exchange contracts, net	16		9		8		11
Currency (gains) losses, net	$	(5)	$	5	$	—	$	3

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


		Three Months Ended June 30, 2021		Fiscal Year Ended March 31, 2021			Six Months Ended September 30, 2021		Fiscal Year Ended March 31, 2021
in millions	in millions					in millions
Cumulative currency translation adjustment — beginning of period	Cumulative currency translation adjustment — beginning of period	$	(95)	$	(309)	Cumulative currency translation adjustment — beginning of period	$	(95)	$	(309)
Effect of changes in exchange rates	Effect of changes in exchange rates	30		244		Effect of changes in exchange rates	(34)		244
Amounts reclassified from accumulated other comprehensive loss, net(1)	Amounts reclassified from accumulated other comprehensive loss, net(1)	0		(30)		Amounts reclassified from accumulated other comprehensive loss, net(1)	—		(30)
Cumulative currency translation adjustment — end of period	Cumulative currency translation adjustment — end of period	$	(65)	$	(95)	Cumulative currency translation adjustment — end of period	$	(129)	$	(95)

____________________

(1)Amounts reclassified from accumulated other comprehensive loss are due to the sale of Duffel.

2123

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

12. FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS

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


		June 30, 2021											September 30, 2021
		Assets				Liabilities				Net Fair Value			Assets				Liabilities				Net Fair Value
in millions	in millions	Current		Noncurrent(1)		Current		Noncurrent(1)		Assets / (Liabilities)		in millions	Current		Noncurrent(1)		Current		Noncurrent(1)		Assets / (Liabilities)
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:											Derivatives designated as hedging instruments:
Cash flow hedges	Cash flow hedges											Cash flow hedges
Metal contracts	Metal contracts	$	1	$	0	$	(178)	$	(3)	$	(180)	Metal contracts	$	3	$	1	$	(310)	$	(16)	$	(322)
Currency exchange contracts	Currency exchange contracts	18		4		(9)		(3)		10		Currency exchange contracts	3		1		(25)		(10)		(31)
Energy contracts	Energy contracts	7		3		(1)		0		9		Energy contracts	17		8		—		—		25
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments	$	26	$	7	$	(188)	$	(6)	$	(161)	Total derivatives designated as hedging instruments	$	23	$	10	$	(335)	$	(26)	$	(328)
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:											Derivatives not designated as hedging instruments:
Metal contracts	Metal contracts	$	136	$	4	$	(137)	$	(2)	$	1	Metal contracts	$	172	$	4	$	(208)	$	(4)	$	(36)
Currency exchange contracts	Currency exchange contracts	12		0		(21)		(1)		(10)		Currency exchange contracts	20		—		(39)		(1)		(20)
Energy contracts	Energy contracts	0		0		0		0		0		Energy contracts	2		—		—		—		2
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	$	148	$	4	$	(158)	$	(3)	$	(9)	Total derivatives not designated as hedging instruments	$	194	$	4	$	(247)	$	(5)	$	(54)
Total derivative fair value	Total derivative fair value	$	174	$	11	$	(346)	$	(9)	$	(170)	Total derivative fair value	$	217	$	14	$	(582)	$	(31)	$	(382)


		March 31, 2021											March 31, 2021
		Assets				Liabilities				Net Fair Value			Assets				Liabilities				Net Fair Value
		Current		Noncurrent(1)		Current		Noncurrent(1)		Assets / (Liabilities)			Current		Noncurrent(1)		Current		Noncurrent(1)		Assets / (Liabilities)
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:											Derivatives designated as hedging instruments:
Cash flow hedges	Cash flow hedges											Cash flow hedges
Metal contracts	Metal contracts	$	4	$	0	$	(105)	$	0	$	(101)	Metal contracts	$	4	$	—	$	(105)	$	—	$	(101)
Currency exchange contracts	Currency exchange contracts	6		0		(20)		(4)		(18)		Currency exchange contracts	6		—		(20)		(4)		(18)
Energy contracts	Energy contracts	1		1		(3)		0		(1)		Energy contracts	1		1		(3)		—		(1)
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments	$	11	$	1	$	(128)	$	(4)	$	(120)	Total derivatives designated as hedging instruments	$	11	$	1	$	(128)	$	(4)	$	(120)
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:											Derivatives not designated as hedging instruments:
Metal contracts	Metal contracts	$	104	$	3	$	(124)	$	(1)	$	(18)	Metal contracts	$	104	$	3	$	(124)	$	(1)	$	(18)
Currency exchange contracts	Currency exchange contracts	22		0		(28)		0		(6)		Currency exchange contracts	22		—		(28)		—		(6)

Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	$	126	$	3	$	(152)	$	(1)	$	(24)	Total derivatives not designated as hedging instruments	$	126	$	3	$	(152)	$	(1)	$	(24)
Total derivative fair value	Total derivative fair value	$	137	$	4	$	(280)	$	(5)	$	(144)	Total derivative fair value	$	137	$	4	$	(280)	$	(5)	$	(144)

____________________

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

2224

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Metal

We use derivative instruments to preserve our conversion margins and manage the timing differences associated with metal price lag. We use over-the-counter derivatives indexed to 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 arises due to fluctuating aluminum prices between the time the sales order is committed and the time the order is shipped. We identify and designate certain LME aluminum forward purchase contracts as cash flow hedges of the metal price risk associated with our future metal purchases that vary based on changes in the price of aluminum. Generally, such exposures do not extend beyond two years in length. The average duration of undesignated contracts 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 zinc forward contracts, as well as local market premiums forward contracts. As of ~~June~~September 30, 2021 and March 31, 2021, the fair value of these contracts represented an asset of $5less than $1 million and an asset of $7 million, respectively. These contracts are undesignated with an average duration of less than two years.

The following table summarizes our metal notional amount.

in kt

June 30,
2021

March 31,
2021

in kt

September 30,
2021

March 31,
2021

Hedge type

Purchase (sale)

Cash flow purchases

Cash flow sales

(880)

(594)

Cash flow sales

(930)

(594)

Not designated

(45)

(44)

Not designated

(59)

(44)

Total, net

(924)

(628)

Total, net

(988)

(628)

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 $1.1 billion and $936 million in outstanding foreign currency forwards designated as cash flow hedges as of ~~June~~September 30, 2021 and March 31, 2021, 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 ~~June~~September 30, 2021 and March 31, 2021.

As of ~~June~~September 30, 2021 and March 31, 2021, we had outstanding foreign currency exchange contracts with a total notional amount of ~~$1.4~~$1.5 billion and $1.3 billion, respectively, to primarily hedge balance sheet remeasurement risk, which were not designated as hedges. Contracts representing the majority of this notional amount will mature during the ~~second~~third quarter of fiscal 2022 and offset the remeasurement impact.

Energy

We own an interest in an electricity swap contract to hedge our exposure to fluctuating electricity prices, which matures on January 5, 2022. As of ~~June~~September 30, 2021 and March 31, 2021, less than 1 million of notional megawatt hours were outstanding. The fair value of this swap was an asset of less than $1 million and a liability of ~~$1 million and~~ $2 million, respectively. The electricity swap is designated as a cash flow hedge.

2325

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

We use natural gas forward purchase contracts to manage our exposure to fluctuating energy prices in North America. We had a notional of 1614 million MMBtus designated as cash flow hedges as of ~~June~~September 30, 2021, and the fair value was a an asset of $8$22 million. There was a notional of 13 million MMBtu of natural gas forward contracts designated as cash flow hedges as of March 31, 2021 and the fair value was an asset of less than $1 million. As of ~~June~~September 30, 2021 and March 31, 2021, we had notionals of less than 1 million MMBtu forward contracts that were not designated as hedges. The fair value of forward contracts not designated as hedges as of ~~June~~September 30, 2021 and March 31, 2021 were an asset of ~~less than $1~~$2 million and a liability of less than $1 million, respectively. The average duration of undesignated contracts is less than three years in length.

We use diesel fuel forward purchase contracts to manage our exposure to fluctuating fuel prices in North America. We had a notional of 4 million gallons designated as cash flow hedges as of ~~June~~September 30, 2021, and the fair value was a an asset of $2 million. There was a notional of 5 million gallons designated as cash flow hedges as of March 31, 2021, and the fair value was an asset of $1 million. As of ~~June~~September 30, 2021 ~~all~~we had notional of ~~our diesel forward contracts were designated~~less than 1 million metric tonne, and as ~~hedges. As~~ of March 31, 2021 we had notional of less than 1 million gallons of forward contracts that were not designated as ~~hedges, and the~~hedges. The fair value of the same was an asset of less than $1 million, and the average duration of those undesignated contracts was less than one year in length.

Gain (Loss) Recognition

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


		Three Months Ended June 30			Three Months Ended September 30						Six Months Ended September 30
in millions	in millions		2021			2020		in millions	2021		2020		2021		2020
Derivative instruments not designated as hedges	Derivative instruments not designated as hedges							Derivative instruments not designated as hedges
Metal contracts	Metal contracts		$	3		$	(25)	Metal contracts	$	12	$	(7)	$	15	$	(32)
Currency exchange contracts	Currency exchange contracts		11			(3)		Currency exchange contracts	(17)		(8)		(6)		(11)
Energy contracts(1)	Energy contracts(1)		2			2		Energy contracts(1)	4		3		6		5

Total gain (loss) recognized in other (income) expenses, net			$	16		$	(26)
Total (loss) gain recognized in other (income) expenses, net								Total (loss) gain recognized in other (income) expenses, net	$	(1)	$	(12)	$	15	$	(38)

Gain (loss) recognized on balance sheet remeasurement currency exchange contracts, net			$	8		$	(2)
Realized gains, net			12			9
Unrealized losses on other derivative instruments, net			(4)			(33)
Total gain (loss) recognized in other (income) expenses, net			$	16		$	(26)
Loss recognized on balance sheet remeasurement currency exchange contracts, net								Loss recognized on balance sheet remeasurement currency exchange contracts, net	$	(16)	$	(9)	$	(8)	$	(11)
Realized gains (losses), net								Realized gains (losses), net	31		(9)		43		—
Unrealized (losses) gains on other derivative instruments, net								Unrealized (losses) gains on other derivative instruments, net	(16)		6		(20)		(27)
Total (loss) gain recognized in other (income) expenses, net								Total (loss) gain recognized in other (income) expenses, net	$	(1)	$	(12)	$	15	$	(38)

_________________________

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

The following table summarizes the impact on accumulated other comprehensive loss and earnings of derivative instruments designated as cash flow hedges. Within the next twelve months, we expect to reclassify ~~$159~~$329 million of losses from accumulated other comprehensive loss to earnings, before taxes.


		Amount of Gain (Loss) Recognized in Other comprehensive income (Effective Portion)					Amount of Gain (Loss) Recognized in Other comprehensive (loss) income (Effective Portion)
		Three Months Ended June 30,					Three Months Ended September 30,	Six Months Ended September 30,
in millions	in millions		2021		2020				in millions	2021		2020		2021		2020
Cash flow hedging derivatives	Cash flow hedging derivatives								Cash flow hedging derivatives
Metal contracts	Metal contracts		$	(193)	$	(22)			Metal contracts	$	(330)	$	(37)	$	(523)	$	(59)
Currency exchange contracts	Currency exchange contracts		30		(8)				Currency exchange contracts	(49)		—		(19)		(8)
Energy contracts	Energy contracts		10		2				Energy contracts	20		3		30		5

Total	Total		$	(153)	$	(28)			Total	$	(359)	$	(34)	$	(512)	$	(62)

2426

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Gain (Loss) Reclassification


		Amount of Gain (Loss) Reclassified from Accumulated other comprehensive loss into Income/(Expense) (Effective Portion) Three Months Ended June 30,			Location of Gain (Loss) Reclassified from Accumulated other comprehensive loss into Earnings		Amount of Gain (Loss) Reclassified from Accumulated other comprehensive loss into Income/(Expense) (Effective Portion) Three Months Ended September 30,					Amount of Gain (Loss) Reclassified from Accumulated other comprehensive loss into Income/(Expense) (Effective Portion) Six Months Ended September 30,				Location of Gain (Loss) Reclassified from Accumulated other comprehensive loss into Earnings
in millions	in millions		2021		2020				in millions	2021		2020		2021		2020
Cash flow hedging derivatives	Cash flow hedging derivatives								Cash flow hedging derivatives

Energy contracts(1)	Energy contracts(1)		$	(1)	$	(3)		Cost of goods sold (exclusive of depreciation and amortization)	Energy contracts(1)	$	1	$	(4)	$	—	$	(7)	Cost of goods sold (exclusive of depreciation and amortization)
Metal contracts	Metal contracts		2		(4)			Cost of goods sold (exclusive of depreciation and amortization)	Metal contracts	3		(6)		5		(10)		Cost of goods sold (exclusive of depreciation and amortization)
Metal contracts	Metal contracts		(139)		70			Net sales	Metal contracts	(174)		(15)		(313)		55		Net sales
Currency exchange contracts	Currency exchange contracts		—		(11)			Cost of goods sold (exclusive of depreciation and amortization)	Currency exchange contracts	3		(12)		3		(23)		Cost of goods sold (exclusive of depreciation and amortization)
Currency exchange contracts	Currency exchange contracts		—		(1)			Selling, general and administrative expenses	Currency exchange contracts	—		(1)		—		(2)		Selling, general and administrative expenses
Currency exchange contracts	Currency exchange contracts		1		(2)			Net sales	Currency exchange contracts	(2)		(1)		(1)		(3)		Net sales
Currency exchange contracts	Currency exchange contracts		(1)		—			Depreciation and amortization	Currency exchange contracts	—		(1)		(1)		(1)		Depreciation and amortization
Total	Total		$	(138)	$	49		Income (loss) from continuing operations before income tax provision	Total	$	(169)	$	(40)	$	(307)	$	9	Income from continuing operations before income tax provision
			37		(13)			Income tax provision (benefit)		42		11		79		(2)		Income tax provision
			$	(101)	$	36		Net (loss) gain		$	(127)	$	(29)	$	(228)	$	7	Net income from continuing operations

_________________________

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

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

Three Months Ended June 30, 2021
in millions 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 accumulated other comprehensive loss into income $ (139) $ 2 $ 0 $ 0 $ 0
Energy commodity contracts:
Amount of loss reclassified from accumulated other comprehensive loss into income $ 0 $ (1) $ 0 $ 0 $ 0
Foreign exchange contracts:
Amount of loss reclassified from accumulated other comprehensive loss into income $ 1 $ 0 $ 0 $ (1) $ 0
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value $ 0 $ 0 $ 0 $ 0 $ 0


		Three Months Ended June 30, 2020			Three Months Ended September 30, 2021												Six Months Ended September 30, 2021
in millions	in millions		Net Sales			Cost of Goods Sold		Selling, General & Administrative Expenses		Depreciation and Amortization		Other (Income) Expenses, Net		in millions	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	Gain (loss) on cash flow hedging relationships													Gain (loss) on cash flow hedging relationships
Metal commodity contracts:	Metal commodity contracts:													Metal commodity contracts:
Amount of (loss) gain reclassified from accumulated other comprehensive loss into income														Amount of (loss) gain reclassified from accumulated other comprehensive loss into income	$	(174)	$	3	$	—	$	—	$	—	$	(313)	$	5	$	—	$	—	$	—
Energy commodity contracts:														Energy commodity contracts:
Amount of gain reclassified from accumulated other comprehensive loss into income	Amount of gain reclassified from accumulated other comprehensive loss into income		$	70		$	(4)	$	0	$	0	$	0	Amount of gain reclassified from accumulated other comprehensive loss into income	$	—	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Energy commodity contracts:
Amount of loss reclassified from accumulated other comprehensive loss into income			$	0		$	(3)	$	0	$	0	$	0
Foreign exchange contracts:	Foreign exchange contracts:													Foreign exchange contracts:
Amount of loss reclassified from accumulated other comprehensive loss into income			$	(2)		$	(11)	$	(1)	$	0	$	0
Amount of (loss) gain reclassified from accumulated other comprehensive loss into income														Amount of (loss) gain reclassified from accumulated other comprehensive loss into income	$	(2)	$	3	$	—	$	—	$	—	$	(1)	$	3	$	—	$	(1)	$	—
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value	Amount excluded from effectiveness testing recognized in earnings based on changes in fair value		$	0		$	0	$	0	$	0	$	0	Amount excluded from effectiveness testing recognized in earnings based on changes in fair value	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

2527

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


	Three Months Ended September 30, 2020										Six Months Ended September 30, 2020
in millions	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 (loss) gain reclassified from accumulated other comprehensive loss into income	$	(15)	$	(6)	$	—	$	—	$	—	$	55	$	(10)	$	—	$	—	$	—
Energy commodity contracts:
Amount of loss reclassified from accumulated other comprehensive loss into income	$	—	$	(4)	$	—	$	—	$	—	$	—	$	(7)	$	—	$	—	$	—
Foreign exchange contracts:
Amount of loss reclassified from accumulated other comprehensive loss into income	$	(1)	$	(12)	$	(1)	$	(1)	$	—	$	(3)	$	(23)	$	(2)	$	(1)	$	—
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

13. ACCUMULATED OTHER COMPREHENSIVE LOSS

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


in millions										in millions	Currency Translation		Cash Flow Hedges(1)		Postretirement Benefit Plans(2)		Total
Balance as of June 30, 2021										Balance as of June 30, 2021	$	(65)	$	(147)	$	(136)	$	(348)
Other comprehensive (loss) income before reclassifications										Other comprehensive (loss) income before reclassifications	(64)		(265)		4		(325)
Amounts reclassified from accumulated other comprehensive loss, net										Amounts reclassified from accumulated other comprehensive loss, net	—		127		(1)		126
Net current-period other comprehensive (loss) income										Net current-period other comprehensive (loss) income	(64)		(138)		3		(199)
Balance as of September 30, 2021										Balance as of September 30, 2021	$	(129)	$	(285)	$	(133)	$	(547)

											Currency Translation		Cash Flow Hedges(1)		Postretirement Benefit Plans(2)		Total

Balance as of June 30, 2020										Balance as of June 30, 2020	$	(254)	$	(82)	$	(280)	$	(616)
Other comprehensive income (loss) before reclassifications										Other comprehensive income (loss) before reclassifications	126		(25)		49		150
Amounts reclassified from accumulated other comprehensive loss, net(3)										Amounts reclassified from accumulated other comprehensive loss, net(3)	(30)		29		9		8
Net current-period other comprehensive income										Net current-period other comprehensive income	96		4		58		158
Balance as of September 30, 2020										Balance as of September 30, 2020	$	(158)	$	(78)	$	(222)	$	(458)

		Currency Translation		Cash Flow Hedges(1)		Postretirement Benefit Plans(2)		Total			Currency Translation		Cash Flow Hedges(1)		Postretirement Benefit Plans(2)		Total
Balance as of March 31, 2021	Balance as of March 31, 2021	$	(95)	$	(133)	$	(138)	$	(366)	Balance as of March 31, 2021	$	(95)	$	(133)	$	(138)	$	(366)
Other comprehensive income (loss) before reclassifications		30		(115)		1		(84)
Other comprehensive (loss) income before reclassifications										Other comprehensive (loss) income before reclassifications	(34)		(380)		5		(409)
Amounts reclassified from accumulated other comprehensive loss, net	Amounts reclassified from accumulated other comprehensive loss, net	0		101		1		102		Amounts reclassified from accumulated other comprehensive loss, net	—		228		—		228
Net current-period other comprehensive income (loss)		30		(14)		2		18
Balance as of June 30, 2021		$	(65)	$	(147)	$	(136)	$	(348)
Net current-period other comprehensive (loss) income										Net current-period other comprehensive (loss) income	(34)		(152)		5		(181)
Balance as of September 30, 2021										Balance as of September 30, 2021	$	(129)	$	(285)	$	(133)	$	(547)

		Currency Translation		Cash Flow Hedges(1)		Postretirement Benefit Plans(2)		Total			Currency Translation		Cash Flow Hedges(1)		Postretirement Benefit Plans(2)		Total
Balance as of March 31, 2020	Balance as of March 31, 2020	$	(309)	$	(26)	$	(285)	$	(620)	Balance as of March 31, 2020	$	(309)	$	(26)	$	(285)	$	(620)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	55		(20)		(4)		31		Other comprehensive income (loss) before reclassifications	181		(45)		45		181
Amounts reclassified from accumulated other comprehensive loss, net		0		(36)		9		(27)
Amounts reclassified from accumulated other comprehensive loss, net(3)										Amounts reclassified from accumulated other comprehensive loss, net(3)	(30)		(7)		18		(19)
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	55		(56)		5		4		Net current-period other comprehensive income (loss)	151		(52)		63		162
Balance as of June 30, 2020		$	(254)	$	(82)	$	(280)	$	(616)
Balance as of September 30, 2020										Balance as of September 30, 2020	$	(158)	$	(78)	$	(222)	$	(458)

_________________________

(1)For additional information on our cash flow hedges, see Note 12 – Financial Instruments and Commodity Contracts.

(2)For additional information on our postretirement benefit plans, see Note 10 – Postretirement Benefit Plans.

(3)Amounts reclassified from accumulated other comprehensive loss for currency translation are due to the sale of Duffel.

2629

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

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

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

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

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

Derivative Contracts

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

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

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 ~~June~~September 30, 2021, estimated using the method described above, was ~~$43~~$55 per megawatt hour, which represented an approximately $5$7 premium over forward prices in the nearby observable market. The actual rate from the most recent swap settlement was approximately ~~$44~~$50 per megawatt hour. Each $1 per megawatt hour decline in price decreases the valuation of the electricity swap by less than $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 ~~June~~September 30, 2021 and March 31, 2021, 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.

2730

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 ~~June~~September 30, 2021 and March 31, 2021. The table below also discloses the net fair value of the derivative instruments after considering the impact of master netting agreements.


		June 30, 2021				March 31, 2021					September 30, 2021				March 31, 2021
in millions	in millions	Assets		Liabilities		Assets		Liabilities		in millions	Assets		Liabilities		Assets		Liabilities
Level 2 instruments:	Level 2 instruments:									Level 2 instruments:
Metal contracts	Metal contracts	$	141	$	(320)	$	111	$	(230)	Metal contracts	$	180	$	(538)	$	111	$	(230)
Currency exchange contracts	Currency exchange contracts	34		(34)		28		(52)		Currency exchange contracts	24		(75)		28		(52)
Energy contracts	Energy contracts	10		0		2		(1)		Energy contracts	26		—		2		(1)
Total level 2 instruments	Total level 2 instruments	$	185	$	(354)	$	141	$	(283)	Total level 2 instruments	$	230	$	(613)	$	141	$	(283)
Level 3 instruments:	Level 3 instruments:									Level 3 instruments:
Energy contracts	Energy contracts	0		(1)		0		(2)		Energy contracts	1		—		—		(2)
Total level 3 instruments	Total level 3 instruments	$	0	$	(1)	$	0	$	(2)	Total level 3 instruments	$	1	$	—	$	—	$	(2)
Total gross	Total gross	$	185	$	(355)	$	141	$	(285)	Total gross	$	231	$	(613)	$	141	$	(285)
Netting adjustment(1)	Netting adjustment(1)	$	(102)	$	102	$	(81)	$	81	Netting adjustment(1)	$	(138)	$	138	$	(81)	$	81
Total net	Total net	$	83	$	(253)	$	60	$	(204)	Total net	$	93	$	(475)	$	60	$	(204)

_________________________

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

There were no unrealized gains (losses) recognized in other (income) expenses, net for the ~~three~~six months ended ~~June~~September 30, 2021 related to Level 3 financial instruments.

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


in millions	Level 3 – Derivative Instruments(1)
Balance as of March 31, 2021	$	(2)
Unrealized/realized gain included in earnings(2)	25
Unrealized/realized gain included in accumulated other comprehensive loss(3)	2
Settlements(2)	~~(1)~~(4)
Balance as of ~~June~~September 30, 2021	$	~~(1)~~1

_________________________

(1)Represents net derivative liabilities.

(2)Included in other (income) expenses, net.

In addition to our derivative assets and liabilities held at fair value, we have a Level 3 receivable related to the contingent consideration for the sale of Duffel to ALVANCE. Upon closing on September 30, 2020, we recorded a receivable at a fair value of €93 million ($109 million) measured based on the anticipated outcome, timeline of arbitration of greater than one year, and a discount rate of 5%. As of March 31, 2021, the fair value had been adjusted for the accretion of imputed interest to €95 million ($112 million).

AsDuring the first quarter of ~~June 30, 2021,~~fiscal 2022, Novelis marked all outstanding receivables related to the sale of Duffel to an estimated fair value of €45 million ($53 million), which resulted in a loss of €51 million ($61 million) recorded in loss from discontinued operations, net of tax. See Note 3 – Discontinued Operations for more information. As of September 30, 2021, this receivable remains outstanding.

2831

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Financial Instruments Not Recorded at Fair Value

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


		June 30, 2021				March 31, 2021					September 30, 2021				March 31, 2021
in millions	in millions	Carrying Value		Fair Value		Carrying Value		Fair Value		in millions	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term receivables from related parties	Long-term receivables from related parties	$	1	$	1	$	1	$	1	Long-term receivables from related parties	$	1	$	1	$	1	$	1
Total debt — third parties (excluding finance leases and short-term borrowings)	Total debt — third parties (excluding finance leases and short-term borrowings)	5,479		5,754		5,702		5,967		Total debt — third parties (excluding finance leases and short-term borrowings)	5,354		5,578		5,702		5,967

2932

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

15. OTHER (INCOME) EXPENSES, NET

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


		Three Months Ended June 30,				Three Months Ended September 30,				Six Months Ended September 30,
in millions	in millions	2021		2020			in millions	2021		2020		2021		2020
Currency losses (gains), net(1)		$	5	$	(2)
Unrealized losses on change in fair value of derivative instruments, net(2)		4		33
Realized gains on change in fair value of derivative instruments, net(2)		(12)		(9)
Gain on sale of assets, net		0		(2)
Currency (gains) losses, net(1)							Currency (gains) losses, net(1)	$	(5)	$	5	$	—	$	3
Unrealized losses (gains) on change in fair value of derivative instruments, net(2)							Unrealized losses (gains) on change in fair value of derivative instruments, net(2)	16		(6)		20		27
Realized (gains) losses on change in fair value of derivative instruments, net(2)							Realized (gains) losses on change in fair value of derivative instruments, net(2)	(31)		9		(43)		—
Loss (gain) on sale of assets, net							Loss (gain) on sale of assets, net	2		—		2		(2)
Gain on Brazilian tax litigation, net(3)	Gain on Brazilian tax litigation, net(3)	(76)		0			Gain on Brazilian tax litigation, net(3)	—		—		(76)		—
Interest income	Interest income	(3)		(3)			Interest income	(1)		(1)		(4)		(4)
Non-operating net periodic benefit cost(4)	Non-operating net periodic benefit cost(4)	(2)		10			Non-operating net periodic benefit cost(4)	(4)		10		(6)		20
Charitable contribution(5)	Charitable contribution(5)	0		50			Charitable contribution(5)	—		—		—		50
Other, net(6)	Other, net(6)	20		(2)			Other, net(6)	3		1		23		(1)
Other (income) expenses, net	Other (income) expenses, net	$	(64)	$	75		Other (income) expenses, net	$	(20)	$	18	$	(84)	$	93

_________________________

(1)Includes ~~(gain)~~ loss recognized on balance sheet remeasurement currency exchange contracts, net. See Note 11 – Currency Losses (Gains) for further details.

(2)See Note 12 – Financial Instruments and Commodity Contracts for further details.

(3)See Note 17 – Commitments and Contingencies for further details.

(4)Represents net periodic benefit cost, exclusive of service cost for the Company's pension and other post-retirement plans. For further details, refer to Note 1 0 – Postretirement Benefit Plans.

(5)Represents a charitable contribution for COVID-19 relief.

(6)~~Primarily relates~~Amounts in other, net for the six months ended September 31, 2021 primarily relate to $18 million from the release of certain outstanding receivables.

3033

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

16. INCOME TAXES

For the three and six months ended ~~June~~September 30, 2021, we had an effective tax rate of 25% and ~~June~~26%, respectively. For the three and six months ended September 30, 2020, we had an effective tax rate of ~~26%~~32% and ~~32%~~33%, respectively. ~~These~~The 25% tax ~~rates are~~rate for the three months ended September 30, 2021 was primarily ~~due to~~driven by the ~~results of operations~~full year forecasted effective tax rate that takes into account income taxed at ~~foreign statutory tax~~ rates that differ from the 25% Canadian ~~tax~~ rate, including withholding taxes, ~~and~~ offset by changes to the Brazilian real foreign exchange rate, income not subject to tax, and tax credits. The 26% rate for the six months ended September 30, 2021 was primarily driven by the full year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset by ~~certain other non-taxable income,~~ tax credits, income not subject to tax and ~~a tax~~the enacted rate change in the United ~~Kingdom enacted in fiscal 2021.~~Kingdom. The corporate tax rate in the United Kingdom is scheduled to increase from 19% to 25%, effective for the fiscal year beginning April 1, 2023. The impact of this change resulted in a tax benefit of approximately $8 million.

As of ~~June~~September 30, 2021, we had a net deferred tax liability of ~~$88 million~~.$35 million. This amount included gross deferred tax assets of approximately ~~$1.5~~$1.5 billion and a valuation allowance of ~~$822~~$832 million. It is reasonably possible that our estimates of future taxable income may change within the next twelve months resulting in a change to the valuation allowance in one or more jurisdictions.

3134

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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. 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 ~~$65~~$57 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.

Environmental Matters

We have established liabilities based on our estimates for currently anticipated costs associated with environmental matters. We estimate that the costs related to our environmental liabilities as of ~~June~~September 30, 2021 and March 31, 2021 were approximately ~~$24~~$22 million and $23 million, respectively. Of the total ~~$24~~$22 million at ~~June~~September 30, 2021, $5$4 million was associated with restructuring actions and the remaining ~~$19~~$18 million is associated with undiscounted environmental clean-up costs. As of ~~June~~September 30, 2021, $6$5 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.

Brazilian Tax Litigation

Under a federal tax dispute settlement program established by the Brazilian government, we have settled several disputes with Brazil’s tax authorities regarding various forms of manufacturing taxes and social security contributions. Total settlement liabilities as of ~~June~~September 30, 2021 and March 31, 2021 were ~~$21~~$18 million and $20 million, respectively. As of ~~June~~September 30, 2021, $6 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.

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 ~~$31~~$27 million as of ~~June~~September 30, 2021 and $24 million as of March 31, 2021. As of ~~June~~September 30, 2021, $2$1 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 offset by interest earned on the cash deposits is reported in other (income) expenses, net on the condensed consolidated statement of operations.

During fiscal 2021, fiscal 2020, and fiscal 2019, we received multiple favorable rulings from the Brazilian court that recognized the right to exclude certain taxes ~~related~~from the tax base used to calculate contributions to the social integration program and social security contributions on gross revenues, also known as PIS and COFINS. As a result of these cases, we have the right to apply for tax credits for the amounts overpaid during specified tax years. These credits and corresponding interest can be used to offset various Brazilian federal taxes in future years.

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

However, during the first quarter of fiscal 2022, the Brazilian Supreme Court ruled that the credit should be calculated using the gross methodology for lawsuits filed prior to March 2017. As such, Novelis has recorded additional income of $76 million in other (income) expenses, net, $48 million of which is principal and $29 million ofis interest, related to PIS and COFINS for the years 2009 to 2017, net of $1 million in litigation expense. This income is subject to income taxes and therefore, resulted in the recognition of income of $51 million within net income (loss). The credit amounts, interest calculation, and supporting documentation are subject to further validation and scrutiny by tax authorities for five years after the credits are utilized. Thus, credits recognized may differ from these amounts.

3235

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

In order to qualify for these credits, the Company is required to compile and present verifiable support validating the credits. The Company is still in process of compiling supporting documentation related to PIS for the years 2002 to 2008 and COFINS for the years 1991 to 2008, and therefore has not yet recorded an estimate for these periods. Novelis expects to complete this process and record the impacts of any additional credits by the end of fiscal 2022.

During the second quarter of fiscal 2022, Novelis applied for and received official authorization from The Special Department of Federal Revenue of Brazil, Receita Federal, to use the PIS and COFINS credits related to the years 2015 to 2017. Novelis was able to utilize a portion of these credits to offset taxes to be paid in the current period and anticipates utilizing the remainder in the third quarter of fiscal 2022.

3336

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

18. SEGMENT, GEOGRAPHICAL AREA, 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 4 operating segments: North America, Europe, Asia, and South America. All of our segments manufacture aluminum sheet and light gauge products. We also manufacture aluminum plate products in Europe and Asia.

The following is a description of our operating segments.

North America. Headquartered in Atlanta, Georgia, this segment operates 17 plants, including 7 with recycling operations, in 2 countries.

Europe. Headquartered in Küsnacht, Switzerland, this segment operates 10 plants, including 5 with recycling operations, in 4 countries.

Asia. Headquartered in Seoul, South Korea, this segment operates 4 plants, including 2 with recycling operations, in 2 countries.

South America. Headquartered in Sao Paulo, Brazil, this segment operates 2 plants in Brazil, including 1 with recycling operations.

Net sales and expenses are measured in accordance with the policies and procedures described in Note 1 – Business and Summary of Significant Accounting Policies shown in our 2021 Form 10-K.

We measure the profitability and financial performance of our operating segments based on 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 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) loss on extinguishment of ~~debt;~~debt, net; (g) noncontrolling interests' share; (h) adjustments to reconcile our proportional share of segment income from non-consolidated affiliates to income as determined on the equity method of accounting; (i) restructuring and impairment (reversal) expenses, net; (j) gains or losses on disposals of property, plant and equipment and businesses, net; (k) other costs, net; (l) litigation settlement, net of insurance recoveries; (m) sale transaction fees; (n) income tax provision (benefit); (o) cumulative effect of accounting change, net of tax; (p) metal price lag; (q) business acquisition and other related costs"; (r) purchase price accounting adjustments; (s) income (loss) from discontinued operations, net of tax; and (t) loss on sale of discontinued operations, net of tax.

The tables that follow show selected segment financial information. "Eliminations and Other" includes eliminations and functions that are managed directly from our corporate office that have not been allocated to our operating segments as well as the adjustments for proportional consolidation and eliminations of intersegment net sales. The financial information for our segments includes the results of our affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. In order to reconcile the financial information for the segments shown in the tables below to the relevant U.S. GAAP based measures, we must adjust proportional consolidation of each line item. The "Eliminations and Other" in net sales – third party includes the net sales attributable to our joint venture party, Tri-Arrows, for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP, but we manage our Logan affiliate on a proportionately consolidated basis. See Note 6 – Consolidation and Note 7 – Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these affiliates. Additionally, we eliminate intersegment sales and intersegment income for reporting on a consolidated basis.

3437

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Selected Segment Financial Information


June 30, 2021		North America		Europe		Asia		South America		Eliminations and Other(1)		Total
September 30, 2021														September 30, 2021	North America		Europe		Asia		South America		Eliminations and Other(1)		Total
Investment in and advances to non–consolidated affiliates	Investment in and advances to non–consolidated affiliates	$	0	$	517	$	333	$	0	$	0	$	850	Investment in and advances to non–consolidated affiliates	$	—	$	508	$	323	$	—	$	—	$	831
Total assets	Total assets	4,501		4,153		2,370		1,943		620		13,587		Total assets	4,601		4,229		2,444		1,783		623		13,680


March 31, 2021	March 31, 2021	North America		Europe		Asia		South America		Eliminations and Other(1)		Total		March 31, 2021	North America		Europe		Asia		South America		Eliminations and Other(1)		Total
Investment in and advances to non–consolidated affiliates	Investment in and advances to non–consolidated affiliates	$	0	$	510	$	328	$	0	$	0	$	838	Investment in and advances to non–consolidated affiliates	$	—	$	510	$	328	$	—	$	—	$	838
Total assets	Total assets	4,084		3,974		2,423		1,797		607		12,885		Total assets	4,084		3,974		2,423		1,797		607		12,885


Selected Operating Results Three Months Ended June 30, 2021		North America		Europe		Asia		South America		Eliminations and Other		Total
Selected Operating Results Three Months Ended September 30, 2021														Selected Operating Results Three Months Ended September 30, 2021	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales - third party	Net sales - third party	$	1,456	$	1,068	$	666	$	574	$	91	$	3,855	Net sales - third party	$	1,671	$	1,044	$	722	$	592	$	90	$	4,119
Net sales - intersegment	Net sales - intersegment	0		52		6		2		(60)		0		Net sales - intersegment	—		45		6		3		(54)		—
Net sales	Net sales	$	1,456	$	1,120	$	672	$	576	$	31	$	3,855	Net sales	$	1,671	$	1,089	$	728	$	595	$	36	$	4,119

Depreciation and amortization	Depreciation and amortization	$	56	$	44	$	22	$	18	$	(6)	$	134	Depreciation and amortization	$	57	$	43	$	22	$	19	$	(7)	$	134
Income tax provision (benefit)	Income tax provision (benefit)	17		11		18		63		(1)		108		Income tax provision (benefit)	28		12		18		23		(2)		79
Capital expenditures	Capital expenditures	45		15		14		29		(2)		101		Capital expenditures	34		18		22		20		(1)		93

Selected Operating Results Three Months Ended June 30, 2020		North America		Europe		Asia		South America		Eliminations and Other		Total
Selected Operating Results Three Months Ended September 30, 2020														Selected Operating Results Three Months Ended September 30, 2020	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales - third party														Net sales - third party	$	1,192	$	792	$	480	$	425	$	89	$	2,978
Net sales - intersegment														Net sales - intersegment	—		25		4		—		(29)		—
Net sales														Net sales	$	1,192	$	817	$	484	$	425	$	60	$	2,978

Depreciation and amortization														Depreciation and amortization	$	65	$	43	$	22	$	17	$	(6)	$	141
Income tax provision														Income tax provision	17		2		14		29		6		68
Capital expenditures														Capital expenditures	41		18		28		29		(2)		114

Selected Operating Results Six Months Ended September 30, 2021														Selected Operating Results Six Months Ended September 30, 2021	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales - third party														Net sales - third party	$	3,127	$	2,112	$	1,388	$	1,166	$	181	$	7,974
Net sales - intersegment														Net sales - intersegment	—		97		12		5		(114)		—
Net sales														Net sales	$	3,127	$	2,209	$	1,400	$	1,171	$	67	$	7,974

Depreciation and amortization														Depreciation and amortization	$	113	$	87	$	44	$	37	$	(13)	$	268
Income tax provision (benefit)														Income tax provision (benefit)	45		23		36		86		(3)		187
Capital expenditures														Capital expenditures	79		33		36		49		(3)		194

Selected Operating Results Six Months Ended September 30, 2020														Selected Operating Results Six Months Ended September 30, 2020	North America		Europe		Asia		South America		Eliminations and Other		Total
Net sales - third party	Net sales - third party	$	828	$	669	$	499	$	345	$	85	$	2,426	Net sales - third party	$	2,020	$	1,461	$	979	$	770	$	174	$	5,404
Net sales - intersegment	Net sales - intersegment	0		18		6		7		(31)		0		Net sales - intersegment	—		43		10		7		(60)		—
Net sales	Net sales	$	828	$	687	$	505	$	352	$	54	$	2,426	Net sales	$	2,020	$	1,504	$	989	$	777	$	114	$	5,404

Depreciation and amortization	Depreciation and amortization	$	49	$	38	$	20	$	18	$	(7)	$	118	Depreciation and amortization	$	114	$	81	$	42	$	35	$	(13)	$	259
Income tax (benefit) provision	Income tax (benefit) provision	(33)		(10)		10		25		(21)		(29)		Income tax (benefit) provision	(16)		(8)		24		54		(15)		39
Capital expenditures	Capital expenditures	49		16		24		24		(1)		112		Capital expenditures	90		34		52		53		(3)		226

_________________________

(1)Includes assets of discontinued operations.

3538

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The table below displays the reconciliation from net income (loss) attributable to our common shareholder to segment income.


		Three Months Ended June 30,				Three Months Ended September 30,				Six Months Ended September 30,
in millions	in millions	2021		2020			in millions	2021		2020		2021		2020
Net income (loss) attributable to our common shareholder	Net income (loss) attributable to our common shareholder	$	240	$	(79)		Net income (loss) attributable to our common shareholder	$	237	$	(37)	$	477	$	(116)
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	0		0			Net income attributable to noncontrolling interests	—		—		—		—
Income tax provision (benefit)		108		(29)
Income tax provision							Income tax provision	79		68		187		39
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	63		18			Loss from discontinued operations, net of tax	2		11		65		29

Income (loss) from continuing operations before income tax provision		411		(90)
Loss on sale of discontinued operations, net of tax							Loss on sale of discontinued operations, net of tax	—		170		—		170
Income from continuing operations before income tax provision							Income from continuing operations before income tax provision	318		212		729		122
Depreciation and amortization	Depreciation and amortization	134		118			Depreciation and amortization	134		141		268		259
Interest expense and amortization of debt issuance costs	Interest expense and amortization of debt issuance costs	59		70			Interest expense and amortization of debt issuance costs	60		70		119		140
Adjustment to reconcile proportional consolidation(1)	Adjustment to reconcile proportional consolidation(1)	14		14			Adjustment to reconcile proportional consolidation(1)	15		15		29		29
Unrealized losses on change in fair value of derivative instruments, net		4		33
Realized (gains) losses on derivative instruments not included in segment income(2)		(1)		3
Unrealized losses (gains) on change in fair value of derivative instruments, net							Unrealized losses (gains) on change in fair value of derivative instruments, net	16		(6)		20		27
Realized losses (gains) on derivative instruments not included in segment income(2)							Realized losses (gains) on derivative instruments not included in segment income(2)	—		1		(1)		4

Gain on extinguishment of debt		(2)		0
Restructuring and impairment (reversal) expenses, net		(2)		1
Gain on sale of assets, net		0		(2)
Loss on extinguishment of debt, net							Loss on extinguishment of debt, net	64		—		62		—
Restructuring and impairment expenses (reversal), net							Restructuring and impairment expenses (reversal), net	—		7		(2)		8
Loss (gain) on sale of assets, net							Loss (gain) on sale of assets, net	2		—		2		(2)
Purchase price accounting adjustments(3)	Purchase price accounting adjustments(3)	0		28			Purchase price accounting adjustments(3)	—		1		—		29

Metal price lag	Metal price lag	(54)		20			Metal price lag	(59)		12		(113)		32
Business acquisition and other related costs(4)	Business acquisition and other related costs(4)	0		11			Business acquisition and other related costs(4)	—		—		—		11
Other, net(5)	Other, net(5)	(8)		47			Other, net(5)	3		2		(5)		49
Segment income	Segment income	$	555	$	253		Segment income	$	553	$	455	$	1,108	$	708

_________________________

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

(2)Realized losses (gains) ~~losses~~ on derivative instruments not included in segment income represents foreign currency derivatives unrelated to operations.

(3)Purchase price accounting adjustments primarily relates to the relief of the inventory step-up related to the acquired Aleris business.

(4)Business acquisition and other related costs are primarily legal and professional fees associated with our acquisition of Aleris.

(5)For the ~~three~~six months ended ~~June~~September 30, 2021, other, net primarily relates to $29 million of interest income recognized as a result of Brazilian tax litigation settlements, partially offset by $18 million from the release of certain outstanding receivables. For the ~~three~~six months ended ~~June~~September 30, 2020, other, net primarily relates to a charitable contribution for COVID-19 relief as well as interest income.

The following table displays segment income by reportable segment.


		Three Months Ended June 30,				Three Months Ended September 30,				Six Months Ended September 30,
in millions	in millions	2021		2020			in millions	2021		2020		2021		2020
North America	North America	$	172	$	78		North America	$	227	$	205	$	399	$	283
Europe	Europe	102		20			Europe	78		63		180		83
Asia	Asia	88		75			Asia	92		74		180		149
South America	South America	193		76			South America	154		112		347		188
Eliminations and other	Eliminations and other	0		4			Eliminations and other	2		1		2		5
Segment income	Segment income	$	555	$	253		Segment income	$	553	$	455	$	1,108	$	708

3639

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 product end market.


		Three Months Ended June 30,				Three Months Ended September 30,				Six Months Ended September 30,
in millions	in millions	2021		2020			in millions	2021		2020		2021		2020
Can	Can	$	1,940	$	1,380		Can	$	2,112	$	1,455	$	4,052	$	2,835
Automotive	Automotive	746		313			Automotive	764		654		1,510		967
Aerospace and industrial plate	Aerospace and industrial plate	114		102			Aerospace and industrial plate	122		93		236		195
Specialty	Specialty	1,055		631			Specialty	1,121		776		2,176		1,407
Net sales	Net sales	$	3,855	$	2,426		Net sales	$	4,119	$	2,978	$	7,974	$	5,404

Major Customers

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

Three Months Ended
June 30,
2021 2020
Ball 16 % 17 %


	Three Months Ended September 30,				Six Months Ended September 30,
	2021		2020		2021		2020
Ball	16	%	14	%	16	%	15	%

Primary Supplier

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

Three Months Ended
June 30,
2021 2020
Purchases from Rio Tinto as a percentage of total combined metal purchases 8 % 7 %


	Three Months Ended September 30,				Six Months Ended September 30,
	2021		2020		2021		2020
Purchases from Rio Tinto as a percentage of total combined metal purchases	8	%	9	%	8	%	8	%

3740

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

19. SUBSEQUENT EVENTS

~~Debt Activity~~ABL Revolver Amendment

~~On July 26,~~In October 2021, we ~~priced~~entered into an ~~offering~~amendment to our existing ABL Revolver. Prior to the USD LIBOR transition date, loans denominated in USD under the ABL Revolver will continue to bear interest at a rate of ~~$750 million aggregate principal amount~~LIBOR plus a spread of ~~3.25% senior notes due 2026~~1.25% to 1.75% based on excess availability. The amendment provides that on and ~~$750 million aggregate principal amount of 3.875% senior notes due 2031. The offering is expected to close on August 11, 2021. We intend to use~~after the net proceeds from the offering, together with cash on hand, to (i) fund the redemption of all of our outstanding 5.875% Senior Notes due 2026 (the "Existing 2026 Notes"), plus the redemption premium and accrued and unpaidUSD LIBOR transition date, loans denominated in USD will bear interest ~~and, (ii) pay certain fees and expenses in connection with the foregoing and offering~~at a rate of the ~~Notes.~~

~~In connection with~~applicable replacement reference plus a spread of 1.25% to 1.75% as adjusted under the ~~offering, on July 26, 2021, we delivered a notice for the conditional redemption of all~~terms of the ~~Existing 2026 Notes pursuant~~ABL Revolver based on excess availability. In the case of USD loans accruing interest at Daily Simple SOFR, the margin adjustment is 0.11448% so the applicable interest rate would be Daily Simple SOFR plus a spread of approximately 1.36% to 1.86% depending on availability. The USD LIBOR transition date is defined as the ~~indenture, dated as~~earlier of ~~September 14, 2016.~~(a) when the ICE Benchmark Administration ceases to provide the USD LIBOR and there is no available tenor of USD LIBOR or the Financial Conduct Authority announces all available tenors of USD LIBOR are no longer representative or (b) an early opt-in effective date. The ~~redemption~~ABL Revolver also permits us to elect to borrow USD loans that accrue interest at a base rate (determined based on the greater of ~~the Existing 2026 Notes is subject~~a prime rate or an adjusted federal funds rate) plus a prime spread of .25% to .75% based on excess availability. The amendment also provides for replacement reference rates for loans denominated in euros, British pounds, and ~~conditioned~~Swiss francs upon the ~~completion of the offering on terms and conditions satisfactory~~transition event applicable to us yielding net proceeds, together with up to $150 million of cash on hand. The redemption date for the Existing 2026 Notes is August 25, 2021, provided that the redemption date may be extended by the Issuer pending satisfaction of the redemption condition. The Company is still evaluating the financial and accounting impacts of this transaction.

~~Novelis Head Office Lease~~

Subsequent to quarter-end, Novelis executed an agreement to relocate our corporate and North America headquarters in Atlanta, GA from Two Alliance Center to One Phipps Plaza. While One Phipps Plaza is still undergoing construction, Novelis currently anticipates the relocation to occur in July 2022. The existing headquarters lease at Two Alliance Center expires in August 2024. We intend to sublease the space at Two Alliance Center while we remain the primary obligor under the original contract.

While the lease at One Phipps Plaza has not yet commenced, we anticipate this lease will create significant rights and obligations to Novelis. The Company is still evaluating the financial impacts of this relocation.each such currency.

3841

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

OVERVIEW AND REFERENCES

Novelis Inc. is driven by its purpose of shaping a sustainable world together. We are a global leader in the ~~leading producer~~production of ~~flat-rolled~~innovative aluminum products and solutions and the ~~world's~~world’s largest recycler of aluminum. ~~Driven~~Our ambition is to be the leading provider of low-carbon, sustainable aluminum solutions and to achieve a fully circular economy by partnering with our ~~purpose to shape a sustainable world together, we partner with~~suppliers, as well as our customers in the aerospace, automotive, beverage can, ~~automotive, aerospace,~~ and ~~specialty markets (including foil packaging, certain transportation products, architectural, industrial, and consumer durables) to deliver solutions that maximize the benefits of lightweight aluminum~~specialties industries throughout North America, Europe, Asia, and South America. Novelis is a subsidiary of Hindalco Industries Limited, an industry leader in aluminum and copper, and the metals flagship company of the Aditya Birla Group, a multinational conglomerate based in ~~Mumbai, India.~~ Mumbai. We have recycling operations in many of our plants to recycle both post-consumer ~~aluminum~~ and post-industrial aluminum. As of ~~June~~September 30, 2021, we had manufacturing operations in nine countries on four continents, through 33 operating facilities, which include any combination of hot or cold rolling, finishing, casting, or recycling capabilities. We have recycling operations in 15 of our operating facilities.

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, and its subsidiaries. References herein to "Hindalco" refer to Hindalco Industries Limited, which acquired Novelis in May 2007.

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

BUSINESS AND INDUSTRY CLIMATE

On April 14, 2020, Novelis closed its acquisition of Aleris Corporation and continues to integrate the two companies. The acquisition provides a number of strategic benefits, including increasing the Company’s footprint as an aluminum rolled products manufacturer and diversifying its product and customer portfolio. In addition, we now expect to generate over ~~$200~~$220 million in synergies, through traditional integration cost synergies and strategic synergies created by enhancing and integrating operations in Asia. Since closing the transaction, ~~$100~~$96 million of run-rate cost synergies have ~~already~~ been achieved through ~~June~~September 30, 2021.

The early months of fiscal 2021 were negatively impacted by a short-term reduction in demand for aluminum rolled products as a result of the COVID-19 pandemic, particularly in the automotive and aerospace markets. With the exception of aerospace, which is expected to remain muted in fiscal 2022 as air travel remains restricted, demand strengthened considerably in the second quarter of fiscal 2021 across our end markets and has since remained broadly favorable.

Like most companies, Novelis has experienced increased inflationary cost pressures this fiscal year resulting from global supply chain disruptions impacting the availability and price of materials and services including freight, energy, coatings, and alloys. We believe we are adequately prepared to maintain current production levels and service our customers without disruptions. However, we cannot project how long supply chain disruptions will last. While our near-term results are being negatively impacted by these higher costs, we have been able to mitigate the inflationary impact through a combination of hedging, passing through costs to customers, favorable pricing environments and increased recycling benefits.

We believe the long-term trends for flat-rolled aluminum products remain ~~strong.~~strong and there are several opportunities to grow Novelis’ business organically through debottlenecking, recycling, and other capacity investments over the next five years. Economic growth, material substitution, and sustainability considerations, including increased environmental awareness around polyethylene terephthalate plastics, continue to support long-term increasing global demand for aluminum and rolled products.

We expect our future capital investment plans to be focused on increasing capacity and capabilities that meet growing customer demand and align with our sustainability commitments. In October 2021, we announced plans to invest approximately $130 million at our Oswego, New York (U.S.) plant to meet growing customer demand for sustainable, aluminum flat-rolled products. We expect the project to increase hot mill capacity by 124 kt, with a total expected increase of finished goods capacity estimated in the range of 65 kt, and enhance batch annealing capabilities used to finish automotive sheet.

With the exception of China, where can sheet overcapacity and strong competition remains, favorable market conditions and increasing customer preference for sustainable packaging options is driving higher demand for recyclable aluminum beverage cans and bottles. AtIn the ~~end~~first half of fiscal ~~2019,~~2022, we ~~began expanding~~completed an investment to expand the rolling ~~casting,~~ and recycling capability, each by 100 kt, in our Pindamonhangaba, Brazil plant to support this ~~demand.~~

demand and continue to evaluate opportunities for additional capacity expansion across regions.

Near-term demand for aluminum automotive sheet is being impacted by the semiconductor shortage in the automotive ~~industry.~~industry, and we expect uneven demand to continue through the remainder of fiscal 2022. However, long-term demand continues to grow and has driven our recent investments in automotive sheet finishing capacity in Guthrie, Kentucky (U.S.), and Changzhou, China. This demand has been primarily driven by the benefits that result from using lightweight aluminum in vehicle structures and components, such as electric vehicle battery enclosures, as companies respond to stricter government emissions and fuel economy regulations, while maintaining or improving vehicle safety and performance, resulting in increased competition with high-strength steel. We have also announced plans to invest approximately $375 million to expand cold rolling and recycling capacity in Zhenjiang, China to integrate our automotive business in Asia.

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

We believe significant aircraft industry order backlogs for key OEMs, including Airbus and Boeing, will translate into growth in the future, and we believe our multi-year supply agreements have positioned us to benefit from future expected demand.

Environmental, Social & Governance

In April 2021, we announced that we will further our longstanding sustainability commitment by aiming to become a net carbon-neutral company by 2050 or sooner and reducing our carbon footprint 30% by 2026, based on a baseline of fiscal 2016. In addition, we have added targets to reduce waste to landfills by 20%, energy intensity by 10%, and water consumption by 10%, each by 2026, based on a baseline of fiscal 2016.

We plan to continue increasing the use of recycled content in our products, as appropriate, and engaging with customers, suppliers, and industry peers across the value chain as we aim to drive innovation that improves aluminum's overall sustainability.

Our path to a more sustainable and circular future goes beyond our environmental commitments. We have set new targets to reshape a more diverse and inclusive workforce that reflects our local communities. Globally, we are dedicated to increasing the representation of women in senior leadership and technical roles at Novelis in order to create and foster the next generation of female scientists and engineers.

Novelis is committed to increasing the representation of women in the company to 30% in senior leadership positions and 15% in senior technical roles by 2024. To achieve these goals, the company has established a global Diversity & Inclusion board, as well as supporting councils in each of our four regions. We will also continue assisting our Employee Resource Groups to help create a more inclusive environment where we seek to provide everyone with a sense of belonging and different backgrounds and perspectives are embraced and valued.

Equally important is Novelis' work with the communities in which our employees live and work and our longstanding, industry-leading commitment to safety. With firmly established community engagement programs, the company commits to advancing its corporate social responsibility efforts by further investing in the Novelis Neighbor program, which gives back to communities through financial contributions and employee volunteer service. The program will continue emphasizing STEM education, raising recycling awareness, and fostering better overall community health and well-being.

COVID-19 Response

The COVID-19 pandemic continues to cause some travel and business disruption and economic volatility.

With our primary focus being the health and well-being of our employees, we continue to monitor the changing landscape with respect to COVID-19 and take actions to manage our business and support our customers. We have bolstered our own Environmental Health and Safety protocols and aligned them with guidance from global health authorities and government agencies across our operations to help ensure the safety of our employees, customers, suppliers, communities, and other stakeholders. For example, we have implemented social distancing standards and control measures for common work areas, including desks, workstations, meeting rooms, break rooms, cafeterias, clock-in areas, and smoking areas. We have controlled distancing during shift changes by staggering shift change times and creating one-way flows marked on floors. In addition, we have distributed personal protective equipment such as facemasks, face shields, and gloves, as well as cleaning stations, personal hygiene products, and disinfection products to our sites. ~~For our non-production workforce, we have strongly encouraged virtual meetings to reduce employee contact and have switched to paperless work environments where possible.~~ We are also encouraging all employees to get the vaccine to help further ensure the health of our employees and communities and now require individuals entering certain Novelis facilities and ~~communities.~~offices to be fully vaccinated. On September 9, 2021, President Biden announced a proposed new rule requiring all employers with at least 100 employees to ensure that their employees are fully vaccinated or require unvaccinated workers to get a negative COVID-19 test result at least once a week. The Department of Labor’s Occupational Safety and Health Administration is currently drafting an emergency regulation to carry out this mandate. We cannot predict with certainty the impact this may have on our operations.

Liquidity Position

We believe that we have adequate liquidity to manage the business with dynamic metal prices. Our cash and cash equivalents and long-term committed available borrowings aggregated to ~~$2.3~~$2.1 billion of liquidity at ~~June~~September 30, 2021.

We maintain a disciplined approach to capital spending, prioritizing maintenance capital for our operations, as well as organic strategic capacity expansions projects. We expect total capital spending to be in the range of $600 million to $700 million for the full fiscal year 2022. This includes approximately $300 million for maintenance spend as well as strategic spending to complete automotive capacity expansions now commissioning in the U.S. and China, the Brazil rolling and casting capacity expansion, and the initial spend associated with aour strategic capacity expansion in ~~China.~~Zhenjiang, China and Oswego, New York (U.S.).

Market Trends

Demand for lightweight, highly recyclable aluminum beverage packaging, which represents the largest share of our shipment product portfolio, remains strong across all regions.

Demand for aluminum sheet across specialties markets, including electronics, electric vehicle battery enclosures, painted products, container foil, and building and construction markets also remains high.

While we believe long-term demand trends are intact, the current global semiconductor shortage impacting the automotive industry has resulted in temporary automotive customer shutdowns and has reduced near-term demand for automotive aluminum sheet. However, ~~automotive shipments~~sales to other product markets experiencing strong demand such as beverage can and specialties are helping to mitigate this impact. In aerospace, while we are seeing some improvement in ~~the first quarter of fiscal 2022 have doubled compared to the prior year period, which was significantly impacted by COVID-19 related temporary OEM production shutdowns. In aerospace,~~bookings, we expect continued lower consumer air travel to result in soft demand for aerospace sheet in fiscal 2022.

BUSINESS MODEL AND KEY CONCEPTS

Conversion Business Model

A significant amount of our business is conducted under a conversion model, which allows us to pass through increases or decreases in the price of aluminum to our customers. Nearly all of our flat-rolled products have a price structure with three components: (i) a base aluminum price quoted off the 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 for 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. Many of our competitors in this region price their metal off the Shanghai Futures Exchange, which does not include a local market premium. However, in a majority of the new contracts over the last several quarters, we are able to fully pass through the local market premiums in an increasingly favorable demand environment.

LME Base Aluminum Prices and Local Market Premiums

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


		Three Months Ended June 30,				Percent Change			Three Months Ended September 30,						Percent Change			Six Months Ended September 30,						Percent Change
		2021		2020						2021				2020			Percent Change		2021			2020			Percent Change
London Metal Exchange Prices	London Metal Exchange Prices										London Metal Exchange Prices
Aluminum (per metric tonne, and presented in U.S. dollars):	Aluminum (per metric tonne, and presented in U.S. dollars):							Aluminum (per metric tonne, and presented in U.S. dollars):
Closing cash price as of beginning of period	Closing cash price as of beginning of period	$	2,213	$	1,489	49	%				Closing cash price as of beginning of period	$	2,523		$	1,602			57	%		$	2,213		$	1,489		49	%
Average cash price during the period	Average cash price during the period	2,399		1,494		61					Average cash price during the period	2,648			1,706			55			2,528			1,600			58
Closing cash price as of end of period	Closing cash price as of end of period	2,523		1,602		57					Closing cash price as of end of period	2,851			1,737			64			2,851			1,737			64

The weighted average local market premium are as follows.

Three Months Ended
June 30,
Percent Change
2021 2020
Weighted average Local Market Premium (per metric tonne, and presented in U.S. dollars) $ 397 $ 125 218 %


	Three Months Ended September 30,				Percent Change		Six Months Ended September 30,				Percent Change
	2021		2020				2021		2020
Weighted average Local Market Premium (per metric tonne, and presented in U.S. dollars)	$	510	$	175	191	%	$	454	$	149	205	%

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 there is not fully hedged. In Europe, Asia, and South America, 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 small volume. As a consequence, volatility in local market premiums can have a significant impact on our results of operations and cash flows.

We elect to apply hedge accounting to better match the recognition of gains or losses on certain derivative instruments with the recognition of the underlying exposure being hedged in the statement of operations. For undesignated metal derivatives, there are timing differences between the recognition of unrealized gains or losses on the derivatives and the recognition of the underlying exposure in the statement of operations. The recognition of unrealized gains and losses on undesignated metal derivative positions typically precedes inventory cost recognition, customer delivery, and revenue recognition. The timing difference between the recognition of unrealized gains and losses on undesignated metal derivatives and cost or revenue recognition impacts income ~~(loss)~~ from continuing operations before income tax provision and net income (loss). Gains and losses on metal derivative contracts are not recognized in segment income until realized.

4145

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 current average rates. We also record foreign exchange remeasurement gains and losses when business transactions are denominated in currencies other than the functional currency of that operation. Global economic uncertainty is contributing to higher levels of volatility among the currency pairs in which we conduct business. The following table presents the exchange rates as of the end of each period and the average of the month-end exchange rates.


		Exchange Rate as of		Average Exchange Rate Three Months Ended June 30,		Exchange Rate as of					Average Exchange Rate Three Months Ended September 30,								Average Exchange Rate Six Months Ended September 30,
		June 30, 2021	March 31, 2021	2021	2020		September 30, 2021		March 31, 2021				2021				2020				2021				2020
Euro per U.S. dollar	Euro per U.S. dollar	0.843	0.851	0.831	0.901		0.863			0.851				0.851				0.845				0.841				0.872
Brazilian real per U.S. dollar	Brazilian real per U.S. dollar	5.002	5.697	5.213	5.443		Brazilian real per U.S. dollar	5.439				5.697				5.235				5.438				5.224				5.441
South Korean won per U.S. dollar	South Korean won per U.S. dollar	1,130	1,134	1,118	1,222		South Korean won per U.S. dollar	1,185			1,134				1,166				1,183				1,142				1,203
Canadian dollar per U.S. dollar	Canadian dollar per U.S. dollar	1.239	1.257	1.226	1.378		Canadian dollar per U.S. dollar	1.267			1.257				1.260				1.326				1.243				1.352
Swiss franc per euro	Swiss franc per euro	1.096	1.106	1.098	1.063		Swiss franc per euro	1.081			1.106				1.079				1.077				1.088				1.070

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 strengthens but are adversely affected as the euro weakens. For our Swiss operations, where operating costs are incurred primarily in the Swiss franc and a large portion of revenues are denominated in the euro, we benefit as the Swiss franc weakens but are adversely affected as the franc strengthens. In South Korea, where we have local currency operating costs and U.S. dollar denominated selling prices for exports, we benefit as the South Korean won weakens but are adversely affected as the won strengthens. In Brazil, where we have predominately U.S. dollar selling prices and local currency manufacturing costs, we benefit as the Brazilian real weakens but are adversely affected as the real strengthens. We use foreign exchange forward contracts 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.

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

4246

RESULTS OF CONSOLIDATED OPERATIONS

For the three months ended ~~June~~September 30, 2021, we reported net income attributable to our common shareholder of ~~$240~~$237 million, an increase of ~~404%~~741% compared to a net loss of ~~$79~~$37 million in the comparable prior year period, and segment income of $553 million, an increase of 22% compared to $455 million in the comparable prior year period. WeThe improvement in operational performance was primarily driven by strong market demand primarily in the beverage can and specialty segments and favorable metal costs, partially offset by a loss on extinguishment of debt, net in the current period of $64 million. The prior year period also included a net loss from discontinued operations of $181 million.

For the six months ended September 30, 2021, we reported ~~segment~~net income attributable to our common shareholder of ~~$555~~$477 million, an increase of ~~119%~~511% compared to ~~$253~~a net loss of $116 million in the comparable prior year period, and segment income of $1.1 billion, an increase of 56% compared to $708 million in the comparable prior year period. ~~Operational~~The improvement in operational performance was primarily driven by a broad recovery in sales compared to the prior year, which was significantly impacted by the COVID-19 pandemic, ~~as well as~~favorable metal costs, a $76 million gain on Brazilian tax litigation resulting from a favorable decision received in the first quarter of fiscal 2022, an increase in realized gains on change in fair value of derivative instruments, net, and more favorable non-operating net periodic benefit costs, partially offset by a loss on extinguishment of debt, net in the current ~~period.~~period of $62 million. The prior year period net loss ~~results~~ also included ~~$33~~a loss from discontinued operations of $199 million, ~~of unrealized derivatives losses,~~ a ~~$28~~$29 million purchase price accounting adjustment resulting from the relief of an inventory step-up, and $11 million of business acquisition and other related costs, all of which primarily related to the acquired Aleris business, in addition to a $50 million charitable donation to support COVID-19 relief efforts.

Further, these factors drove net cash provided by operating activities to ~~$62~~$334 million for the ~~three~~six months ended ~~June~~September 30, 2021, ~~an increase~~a decrease of ~~$200~~$8 million over the comparable prior year ~~period.~~period, which was primarily a result of higher segment income and favorable metal price lag being more than offset by higher working capital requirements mainly driven by the sharp increase in aluminum prices.

Key Sales and Shipment Trends


		Three Months Ended												Fiscal Year Ended			Three Months Ended				Three Months Ended								Fiscal Year Ended			Three Months Ended
in millions, except percentages and shipments, which are in kt	in millions, except percentages and shipments, which are in kt	June 30, 2020			September 30, 2020			December 31, 2020			March 31, 2021			March 31, 2021			June 30, 2021					in millions, except percentages and shipments, which are in kt	June 30, 2020			September 30, 2020			December 31, 2020			March 31, 2021			March 31, 2021			June 30, 2021			September 30, 2021
Net sales	Net sales	$	2,426		$	2,978		$	3,241		$	3,631		$	12,276		$	3,855				Net sales	$	2,426		$	2,978		$	3,241		$	3,631		$	12,276		$	3,855		$	4,119
Percentage (decrease) increase in net sales versus comparable prior year period	Percentage (decrease) increase in net sales versus comparable prior year period	(17)		%	4		%	19		%	33		%	9		%	59		%			Percentage (decrease) increase in net sales versus comparable prior year period	(17)		%	4		%	19		%	33		%	9		%	59		%	38		%
Rolled product shipments:	Rolled product shipments:																					Rolled product shipments:
North America	North America	272			367			347			362			1,348			358					North America	272			367			347			362			1,348			358			375
Europe	Europe	212			240			253			272			977			279					Europe	212			240			253			272			977			279			260
Asia	Asia	184			178			184			201			747			192					Asia	184			178			184			201			747			192			197
South America	South America	113			148			158			159			578			157					South America	113			148			158			159			578			157			147
Eliminations	Eliminations	(7)			(10)			(9)			(11)			(37)			(13)					Eliminations	(7)			(10)			(9)			(11)			(37)			(13)			(11)
Total	Total	774			923			933			983			3,613			973					Total	774			923			933			983			3,613			973			968

The following summarizes the percentage (decrease) increase in rolled product shipments versus the comparable prior year period:	The following summarizes the percentage (decrease) increase in rolled product shipments versus the comparable prior year period:																			The following summarizes the percentage (decrease) increase in rolled product shipments versus the comparable prior year period:
North America	North America	(6)		%	28		%	29		%	36		%	21		%	32		%			North America	(6)		%	28		%	29		%	36		%	21		%	32		%	2		%
Europe	Europe	(9)			(2)			13			24			6			32					Europe	(9)			(2)			13			24			6			32			8		%
Asia	Asia	—			1			6			9			4			4					Asia	—			1			6			9			4			4			11		%
South America	South America	(19)			5			8			7			1			39					South America	(19)			5			8			7			1			39			(1)		%
Total	Total	(7)		%	11		%	17		%	21		%	10		%	26		%			Total	(7)		%	11		%	17		%	21		%	10		%	26		%	5		%

Three Months Ended ~~June~~September 30, 2021 Compared to the Three Months Ended ~~June~~September 30, 2020

Net sales was ~~$3.9~~$4.1 billion for the three months ended September 30, 2021, an increase of ~~59%,~~38% from the comparable prior year period, primarily driven by higher average aluminum prices and a ~~26%~~5% increase in total ~~flat rolled~~flat-rolled product shipments compared to the prior year ~~which was significantly impacted by reduced demand~~ due to strong market conditions particularly in the ~~COVID-19 pandemic, as well as higher average aluminum prices.~~beverage can and specialty segments and a moderate recovery in aerospace shipments compared to the prior year.

Income ~~(loss)~~ from continuing operations before income tax provision was ~~an income of $411~~$318 million for the three months ended September 30, 2021, compared to ~~a loss of $90~~$212 million in the comparable prior year period. In addition to the factors noted above, the following items affected income ~~(loss)~~ from continuing operations before income tax provision.

Cost of Goods Sold (Exclusive of Depreciation and Amortization)

Cost of goods sold (exclusive of depreciation and amortization) was ~~$3.1~~$3.4 billion for the three months ended September 30, 2021, an increase of ~~49%,~~43% from the comparable prior year period, due to higher production volume and higher average aluminum prices. Total metal input costs included in cost of goods sold (exclusive of depreciation and amortization) increased ~~$857~~$881 million over the prior period.

Selling, General and Administrative Expenses

SG&A was ~~$159~~$142 million infor the three months ended ~~June~~September 30, 2021 compared to ~~$122~~$129 million infor the three months ended ~~June~~September 30, 2020. The increase is primarily due to higher variable and compensation costs in the current year, compared to temporary cost savings measures in the prior year enacted to mitigate the decline in sales due to the COVID-19 pandemic, partially offset by acquisition synergy cost savings.

Depreciation and Amortization

Depreciation and amortization was $134 million infor the three months ended ~~June~~September 30, 2021 ~~quarter~~ compared to ~~$118~~$141 million infor the three months ended ~~June~~September 30, 2020. ~~This increase is primarily attributable to the timing of the Aleris acquisition, which caused there to be fewer days of depreciation on the acquired assets in the comparable prior period.~~

Interest Expense and Amortization of Debt Issuance Costs

Interest expense and amortization of debt issuance costs was ~~$59~~$60 million and $70 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively. This decrease is primarily due to a decrease in average level of debt held during the current period.

Loss on Extinguishment of Debt, Net

We recorded a $64 million loss on extinguishment of debt, net for the three months ended September 30, 2021. This primarily related to the write-off of unamortized debt issuance costs and a $51 million cash payment of a redemption premium for the redemption of our 5.875% Senior Notes, due September 2016.

Restructuring and Impairment, Net

Restructuring and impairment expenses (reversal) ~~expenses,~~, net was a net ~~reversal of expense of $2 million~~zero and an expense of $1$7 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively. See Note 4 – R estructuring and Impairment for further information.

Other (Income) Expenses, Net

Other (income) expenses, net was income of ~~$64~~$20 million and an expense of ~~$75~~$18 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively. ~~This~~The change primarily relates to more favorable realized gains on change in fair value of derivatives, net, a ~~gain of $76 million on Brazilian tax litigation related to a~~decrease in non-operating net periodic benefit cost, and favorable ~~decision received~~currency gains in the current year regarding the calculation basis of certain tax overpayments, a $50 million charitable contribution made during the prior year to support COVID-19 relief efforts, and a $29 million reduction in unrealized derivatives losses in the current year,period, partially offset by an ~~$18 million release~~increase in unrealized losses on change in fair value of ~~certain receivables in the current year.~~derivatives, net.

Taxes

We recognized ~~$108~~$79 million of income tax ~~expense~~provision for the three months ended ~~June~~September 30, 2021, which resulted in an effective tax rate of ~~26%~~25%. This ~~tax~~ rate was primarily driven by the full year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, ~~and~~offset by changes to the Brazilian real foreign exchange rate, ~~offset by certain other non-taxable~~ income not subject to tax, ~~credits,~~ and ~~the enacted~~ tax ~~rate change in the United Kingdom.~~ ~~The corporate tax rate in the United Kingdom is scheduled to increase from 19% to 25%,~~ ~~effective for the fiscal year beginning April 1, 2023. The impact of this change resulted in a tax benefit of approximately $8 million.~~credits. We recognized ~~$29~~$68 million of income tax benefit in the comparable prior year period, which resulted in an effective tax rate of 32%.

Segment Review

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

The tables below illustrate selected segment financial information (in millions, except shipments which are in kt). For additional financial information related to our operating segments including the reconciliation of net income (loss) attributable to our common shareholder to segment income, see Note 18 – Segment, Geographical Area, Major Customer and Major Supplier Information. In order to reconcile the financial information for the segments shown in the tables below to the relevant U.S. GAAP-based measures, "Eliminations and other" must adjust for proportional consolidation of each line item for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. ~~GAAP.~~GAAP purposes. However, we manage our Logan affiliate on a proportionately consolidated basis and eliminate intersegment shipments (in kt).


Selected Operating Results Three Months Ended June 30, 2021		North America		Europe		Asia		South America		Eliminations and other		Total
Selected Operating Results Three Months Ended September 30, 2021														Selected Operating Results Three Months Ended September 30, 2021	North America		Europe		Asia		South America		Eliminations and other		Total
Net sales	Net sales	$	1,456	$	1,120	$	672	$	576	$	31	$	3,855	Net sales	$	1,671	$	1,089	$	728	$	595	$	36	$	4,119
Shipments (in kt):	Shipments (in kt):													Shipments (in kt):
Rolled products - third party	Rolled products - third party	358		268		190		157		—		973		Rolled products - third party	375		251		196		146		—		968
Rolled products - intersegment	Rolled products - intersegment	—		11		2		—		(13)		—		Rolled products - intersegment	—		9		1		1		(11)		—
Total rolled products	Total rolled products	358		279		192		157		(13)		973		Total rolled products	375		260		197		147		(11)		968
Non-rolled products	Non-rolled products	3		32		2		21		(5)		53		Non-rolled products	3		26		4		21		(4)		50
Total shipments	Total shipments	361		311		194		178		(18)		1,026		Total shipments	378		286		201		168		(15)		1,018


Selected Operating Results Three Months Ended June 30, 2020		North America		Europe		Asia		South America		Eliminations and other		Total
Selected Operating Results Three Months Ended September 30, 2020														Selected Operating Results Three Months Ended September 30, 2020	North America		Europe		Asia		South America		Eliminations and other		Total
Net sales	Net sales	$	828	$	687	$	505	$	352	$	54	$	2,426	Net sales	$	1,192	$	817	$	484	$	425	$	60	$	2,978
Shipments (in kt):	Shipments (in kt):													Shipments (in kt):
Rolled products - third party	Rolled products - third party	272		208		182		112		—		774		Rolled products - third party	367		232		176		148		—		923
Rolled products - intersegment	Rolled products - intersegment	—		4		2		1		(7)		—		Rolled products - intersegment	—		8		2		—		(10)		—
Total rolled products	Total rolled products	272		212		184		113		(7)		774		Total rolled products	367		240		178		148		(10)		923
Non-rolled products	Non-rolled products	12		17		1		25		(7)		48		Non-rolled products	8		25		1		22		—		56
Total shipments	Total shipments	284		229		185		138		(14)		822		Total shipments	375		265		179		170		(10)		979

The following table reconciles changes in segment income for the three months ended ~~June~~September 30, 2020 to the three months ended ~~June~~September 30, 2021.


in millions	in millions	North America		Europe		Asia		South America		Eliminations and other(1)		Total		in millions	North America		Europe		Asia		South America		Eliminations and other(1)		Total
Segment income - Three Months Ended June 30, 2020		$	78	$	20	$	75	$	76	$	4	$	253
Segment income - Three Months Ended September 30, 2020														Segment income - Three Months Ended September 30, 2020	$	205	$	63	$	74	$	112	$	1	$	455
Volume	Volume	83		72		6		48		(9)		200		Volume	9		24		16		(2)		(2)		45
Conversion premium and product mix	Conversion premium and product mix	62		22		8		(8)		—		84		Conversion premium and product mix	20		(7)		32		7		—		52
Conversion costs	Conversion costs	(36)		(15)		—		23		6		(22)		Conversion costs	(17)		5		(28)		17		5		(18)
Foreign exchange	Foreign exchange	(2)		12		3		5		(1)		17		Foreign exchange	(1)		5		1		19		1		25
Selling, general & administrative and research & development costs(2)	Selling, general & administrative and research & development costs(2)	(25)		(5)		(3)		(6)		2		(37)		Selling, general & administrative and research & development costs(2)	(7)		(5)		(2)		(6)		—		(20)
Other changes~~(4)~~(3)	Other changes~~(4)~~(3)	12		(4)		(1)		55		(2)		60		Other changes~~(4)~~(3)	18		(7)		(1)		7		(3)		14
Segment income - Three Months Ended June 30, 2021		$	172	$	102	$	88	$	193	$	—	$	555
Segment income - Three Months Ended September 30, 2021														Segment income - Three Months Ended September 30, 2021	$	227	$	78	$	92	$	154	$	2	$	553

_________________________

(1)The recognition of segment income by a region on an intersegment shipment could occur in a period prior to the recognition of 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.

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

(3)Other changes in North America primarily relates to a $9$10 million reduction in non-operating net periodic benefit costs resulting from recent pension plan freezes. See Note 10 – Postretirement Benefit Plans for further information.

North America

Net sales increased $479 million, or 40%, primarily driven by higher can volumes due to strong market demand and higher average aluminum prices, partially offset by lower automotive shipments as a result of the semiconductor shortage impact on the automotive industry. Segment income was $227 million, an increase of 11%, primarily driven by higher volume, favorable product mix and price, a decrease in non-operating net periodic benefit costs, and favorable metal costs, partially offset by higher operating costs due to inflation and higher SG&A costs compared to prior year temporary cost reduction initiatives.

Europe

Net sales increased $272 million, or 33%, primarily driven by strong can shipments, higher specialty shipments, and higher average aluminum prices, partially offset by lower automotive shipments as a result of the semiconductor shortage impact on the automotive industry. Segment income was $78 million, an increase of 24%, primarily driven by higher volume, favorable metal costs and foreign exchange, partially offset by higher production and SG&A costs compared to prior year temporary cost reduction initiatives and inflation.

Asia

Net sales increased $244 million, or 50%, primarily driven by higher automotive and can shipments and higher average aluminum prices. Segment income was $92 million, an increase of 24%, primarily driven by higher volume, favorable product mix and price, and favorable metal costs, partially offset by higher operating costs compared to prior year due to temporary cost reduction initiatives and inflation.

South America

Net sales increased $170 million, or 40%, primarily driven by higher average aluminum prices. Segment income was $154 million, an increase of 38%, primarily driven by favorable metal costs and foreign exchange, offset by higher operating and SG&A compared to prior year due to temporary cost reduction initiatives and inflation.

Six Months Ended September 30, 2021 Compared to the Six Months Ended September 30, 2020

Net sales were $8.0 billion for the six months ended September 30, 2021, an increase of 48% from the comparable prior year period, primarily driven by higher total shipments compared to the prior year significantly impacted by reduced demand due to the COVID-19 pandemic, as well as higher average aluminum prices.

Income from continuing operations before income tax provision was $729 million for the six months ended September 30, 2021, compared to $122 million in the comparable prior year period. In addition to the factors noted above, the following items affected income from continuing operations before income tax provision.

Cost of Goods Sold (Exclusive of Depreciation and Amortization)

Cost of goods sold (exclusive of depreciation and amortization) was $6.5 billion for the six months ended September 30, 2021, an increase of 46% from the comparable prior year period, driven by higher production volume and higher average aluminum prices. Total metal input costs included in cost of goods sold (exclusive of depreciation and amortization) increased $1.7 billion over the prior period.

Selling, General and Administrative Expenses

SG&A was $301 million for the six months ended September 30, 2021 compared to $251 million for the six months ended September 30, 2020. The increase is primarily due to higher variable and compensation costs in the current year, compared to temporary cost savings measures in the prior year enacted to mitigate the decline in sales due to the COVID-19 pandemic, partially offset by acquisition synergy cost savings.

Depreciation and Amortization

Depreciation and amortization was $268 million for the six months ended September 30, 2021 quarter compared to $259 million for the six months ended September 30, 2020.

Interest Expense and Amortization of Debt Issuance Costs

Interest expense and amortization of debt issuance costs was $119 million and $140 million for the six months ended September 30, 2021 and 2020, respectively. This decrease is primarily due to a decrease in average level of debt held during the current period.

Loss on Extinguishment of Debt, Net

We recorded a $62 million in loss on extinguishment of debt, net for the six months ended September 30, 2021. This primarily related to the write-off of unamortized debt issuance costs and a $51 million cash payment of a redemption premium for the redemption of our 5.875% Senior Notes, due September 2016.

Restructuring and Impairment, Net

Restructuring and impairment expenses (reversal), net was a net reversal of expense of $2 million and an expense of $8 million for the six months ended September 30, 2021 and 2020, respectively. See Note 4 – Restructuring and Impairment for further information.

Other (Income) Expenses, Net

Other (income) expenses, net was income of $84 million and an expense of $93 million for the six months ended September 30, 2021 and 2020, respectively. This change primarily relates to a gain of $76 million on Brazilian tax litigation related to a favorable decision received in the current year regarding the calculation basis of certain tax overpayments, a $50 million charitable contribution made during the prior year to support COVID-19 relief efforts, a $43 million increase in realized derivatives gains in the current year, and a $26 million decrease in non-operating net periodic benefit cost in the current year, partially offset by an $18 million release of certain receivables in the current year.

Taxes

We recognized $187 million of income tax provision for the six months ended September 30, 2021, which resulted in an effective tax rate of 26%. This rate was primarily driven by the full year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset by tax credits, income not subject to tax and the enacted rate change in the United Kingdom. The corporate tax rate in the United Kingdom is scheduled to increase from 19% to 25%, effective for the fiscal year beginning April 1, 2023. The impact of this change resulted in a tax benefit of approximately $8 million. We recognized $39 million of income tax provision in the prior comparable period which resulted in an effective tax rate of 33%.

Segment Review


Selected Operating Results Six Months Ended September 30, 2021	North America		Europe		Asia		South America		Eliminations and other		Total
Net sales	$	3,127	$	2,209	$	1,400	$	1,171	$	67	$	7,974
Shipments
Rolled products - third party	733		519		386		303		—		1,941
Rolled products - intersegment	—		20		3		1		(24)		—
Total rolled products	733		539		389		304		(24)		1,941
Non-rolled products	6		58		6		42		(9)		103
Total shipments	739		597		395		346		(33)		2,044


Selected Operating Results Six Months Ended September 30, 2020	North America		Europe		Asia		South America		Eliminations and other		Total
Net sales	$	2,020	$	1,504	$	989	$	777	$	114	$	5,404
Shipments
Rolled products - third party	639		440		358		260		—		1,697
Rolled products - intersegment	—		12		4		1		(17)		—
Total rolled products	639		452		362		261		(17)		1,697
Non-rolled products	20		42		2		47		(7)		104
Total shipments	659		494		364		308		(24)		1,801

The following table reconciles changes in segment income for the six months ended September 30, 2020 to the six months ended September 30, 2021.


in millions	North America		Europe		Asia		South America		Eliminations and other(1)		Total
Segment income - Six Months Ended September 30, 2020	$	283	$	83	$	149	$	188	$	5	$	708
Volume	91		96		23		46		(11)		245
Conversion premium and product mix	83		15		40		(1)		—		137
Conversion costs	(53)		(11)		(27)		41		11		(39)
Foreign exchange	(4)		16		1		23		—		36
Selling, general & administrative and research & development costs(2)	(31)		(10)		(6)		(12)		2		(57)
Other changes(3)(4)	30		(9)		—		62		(5)		78
Segment income - Six Months Ended September 30, 2021	$	399	$	180	$	180	$	347	$	2	$	1,108

_________________________

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

(3)Other changes in North America primarily relates to a $19 million reduction in non-operating net periodic benefit costs resulting from recent pension plan freezes. See Note 10 – Postretirement Benefit Plans for further information.

(4)Other changes in South America includes the principal portion, net of litigation expenses, of a non-recurring gain on Brazilian tax litigation of $47 million recognized during fiscal 2022. See Note 17 – Commitments and Contingencies for further information.

North ~~Americ~~aAmerica

Net sales increased ~~$628 million,~~$1.1 billion, or ~~76%~~55%, ~~primarily~~ driven by higher specialty, automotive, and ~~specialty volumes compared to the prior year, which was impacted by the COVID-19 pandemic,~~can shipments and higher average aluminum prices. Segment income was ~~$172~~$399 million, an increase of ~~121%~~41%, primarily driven by higher volume, ~~more~~ favorable product mix ~~with higher automotive shipments,~~and price, favorable metal costs, and a decrease in non-operating net periodic benefit costs, partially offset by higher operating costs due to inflation and higher production and SG&A costs compared to prior year temporary cost reduction initiatives.

Europe

Net sales increased $705 million, or 47%, driven by recovery in automotive and specialty shipments compared to the prior year impacted by COVID-19, higher can and aerospace shipments, and higher average aluminum prices. Segment income was $180 million, an increase of 117%, primarily driven by higher volume, favorable metal costs, favorable product mix with the recovery of automotive and higher aerospace shipments, and foreign exchange, partially offset by higher operating costs due to inflation and higher production.

Asia

Net sales increased $411 million, or 42%, driven by higher automotive and can shipments and higher average aluminum prices. Segment income was $180 million, an increase of 21%, primarily due to higher volume, favorable product mix and price, and favorable metal costs, partially offset by higher operating costs due to inflation and higher production and ~~selling, general and administrative~~SG&A costs compared to prior year temporary cost reduction initiatives.

~~Europe~~

Net sales increased $433 million, or 63%, primarily driven by recovery in automotive and specialty volumes compared to the prior year impacted by the COVID-19 pandemic, higher aerospace shipments, and higher average aluminum prices. Segment income was $102 million, an increase of 410%, primarily driven by higher volume, more favorable product mix with the recovery in automotive shipments and higher aerospace shipments, favorable metal costs, and foreign exchange, partially offset by higher costs due to higher production compared to prior year temporary cost reduction initiatives and inflation.

~~Asia~~

Net sales increased $167 million, or 33%, primarily driven by higher can and automotive shipments, partially offset by lower specialty shipments due to portfolio optimization. Segment income was $88 million, an increase of 17%, primarily driven by higher volume, favorable product mix and price, and favorable metal costs, partially offset by higher operating and selling, general and administrative costs compared to prior year due to temporary cost reduction initiatives and inflation.

South America

Net sales increased ~~$224~~$394 million, or ~~64%~~51%, ~~primarily~~ driven by higher can shipments compared to the prior year impacted by COVID-19 related customer shutdowns. Segment income was ~~$193~~$347 million, an increase of ~~154%~~85%, primarily ~~driven by~~due to higher volume, $47 million from the principal amount, net of litigation expenses, of a gain on Brazilian tax litigation settlement in the current year, ~~and~~ favorable metal costs, and favorable foreign exchange, partially offset by operating costs due to inflation and higher ~~operating~~production and ~~selling, general and administrative~~SG&A costs compared to prior year ~~due to~~ temporary cost reduction ~~initiatives and unfavorable product mix and price.~~initiatives.

Liquidity and Capital Resources

Our primary liquidity sources are cash flows from operations, working capital management, cash, and liquidity under our debt agreements. Our recent business investments are being funded through cash flows generated by our operations and a combination of local financing and our senior secured credit facilities. We expect to be able to fund our 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, working capital management, our existing debt facilities (including refinancing), and new debt issuances, as necessary.

Available Liquidity

Our available liquidity as of ~~June~~September 30, 2021 and March 31, 2021 is as follows.


in millions	in millions	June 30, 2021		March 31, 2021		in millions	September 30, 2021		March 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	872	$	998	Cash and cash equivalents	$	659	$	998
Availability under committed credit facilities	Availability under committed credit facilities	1,380		1,223		Availability under committed credit facilities	1,490		1,223
Total available liquidity	Total available liquidity	$	2,252	$	2,221	Total available liquidity	$	2,149	$	2,221

The ~~increase~~decrease in total available liquidity primarily relates to a decrease in cash and cash equivalents primarily resulting from financing activities during the period, partially offset by an increase in availability under committed credit facilities caused by the impacts of increased metal prices on our borrowing ~~base offset by a decrease in cash and cash equivalents primarily resulting from financing activities during the period.~~base. See Note 8 – Debt for more details about our availability under committed credit facilities.

Cash and cash equivalents above includes cash held in foreign countries in which we operate. As of ~~June~~September 30, 2021, we held $3$8 million of cash and cash equivalents in Canada, in which we are incorporated, with the rest held in other countries in which we operate. As of ~~June~~September 30, 2021, we held ~~$613~~$589 million of cash in jurisdictions for which we have asserted that earnings are permanently reinvested and we plan to continue to fund operations and local expansions with cash held in those jurisdictions. Cash held outside of Canada is free from significant restrictions that would prevent the cash from being accessed to meet the Company's liquidity needs including, if necessary, to fund operations and service debt obligations in Canada. Upon the repatriation of any earnings to Canada, in the form of dividends or otherwise, we could be subject to Canadian income taxes (subject to adjustment for foreign taxes paid and the utilization of the large cumulative net operating losses we have in Canada) and withholding taxes payable to the various foreign jurisdictions. As of ~~June~~September 30, 2021, we do not believe adverse tax consequences exist that restrict our use of cash and cash equivalents in a material manner.

Non-Guarantor Information

As of ~~June~~September 30, 2021, the Company’s subsidiaries that are not guarantors represented the following approximate percentages of (a) net sales (including intercompany sales), (b) Adjusted EBITDA (segment income), and (c) total assets of the Company, on a consolidated basis (including intercompany balances).


Item Description	Ratio
Net sales represented by non-guarantor subsidiaries (for the ~~three~~six months ended ~~June~~September 30, 2021)	20	%
Adjusted EBITDA represented by non-guarantor subsidiaries (for the ~~three~~six months ended ~~June~~September 30, 2021)	17	%
Assets owned by non-guarantor subsidiaries (as of ~~June~~September 30, 2021)	1516	%

In addition, for the ~~three~~six months ended ~~June~~September 30, 2021 and 2020, the Company’s subsidiaries that are not guarantors had net sales (including intercompany sales) of ~~$886 million~~$1.8 billion and ~~$677 million,~~$1.4 billion, respectively, and as of ~~June~~September 30, 2021, those subsidiaries had assets of ~~$3.0~~$3.1 billion and debt and other liabilities of ~~$1.8~~$1.9 billion (including intercompany balances).

4653

Free Cash Flow

Refer to Non-GAAP Financial Measures for our definition of free cash flow.

The following table displays the free cash flow, the change between periods, as well as the ending balances of cash and cash equivalents.


		Three Months Ended June 30,							Six Months Ended September 30,
in millions	in millions	2021		2020		Change		in millions	2021		2020		Change
Net cash provided by (used in) operating activities - continuing operations		$	65	$	(123)	$	188
Net cash provided by operating activities - continuing operations								Net cash provided by operating activities - continuing operations	$	339	$	373	$	(34)
Net cash used in investing activities - continuing operations	Net cash used in investing activities - continuing operations	(94)		(2,643)		2,549		Net cash used in investing activities - continuing operations	(181)		(2,826)		2,645

Plus: Cash used in the acquisition of business, net of cash and restricted cash acquired(1)	Plus: Cash used in the acquisition of business, net of cash and restricted cash acquired(1)	—		2,550		(2,550)		Plus: Cash used in the acquisition of business, net of cash and restricted cash acquired(1)	—		2,614		(2,614)
Plus: Accrued merger consideration(1)	Plus: Accrued merger consideration(1)	—		70		(70)		Plus: Accrued merger consideration(1)	—		10		(10)
Less: Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging	Less: Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging	(1)		—		(1)		Less: Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging	—		(2)		2
Free cash flow from continuing operations	Free cash flow from continuing operations	(30)		(146)		116		Free cash flow from continuing operations	158		169		(11)
Net cash used in operating activities - discontinued operations	Net cash used in operating activities - discontinued operations	(3)		(15)		12		Net cash used in operating activities - discontinued operations	(5)		(31)		26
Net cash provided by investing activities - discontinued operations	Net cash provided by investing activities - discontinued operations	—		10		(10)		Net cash provided by investing activities - discontinued operations	—		217		(217)

Less: Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging - discontinued operations(2)								Less: Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging - discontinued operations(2)	—		(223)		223
Free cash flow	Free cash flow	$	(33)	$	(151)	$	118	Free cash flow	$	153	$	132	$	21
Ending cash and cash equivalents	Ending cash and cash equivalents	$	872	$	1,729	$	(857)	Ending cash and cash equivalents	$	659	$	1,627	$	(968)

_________________________

(1)The total of acquisition of business, net of cash and restricted cash acquired and accrued merger consideration, represents $2.8 billion of merger consideration plus $4 million related to the translation adjustment of the €55 million capital improvement investment for Duffel upon payout, net of $105 million of cash and cash equivalents, $41 million of discontinued operations cash and cash equivalents acquired, and $9 million of restricted cash.

(2)Proceeds from the sales of assets and business, net of transaction fees, cash and income taxes and hedging - discontinued operations represents the proceeds from the sale of Duffel, net of cash sold of $23 million.

Cash Flow Summary


		Three Months Ended June 30,							Six Months Ended September 30,
in millions	in millions	2021		2020		Change		in millions	2021		2020		Change
Net cash provided by (used in) operating activities		$	62	$	(138)	$	200
Net cash provided by operating activities								Net cash provided by operating activities	$	334	$	342	$	(8)
Net cash used in investing activities	Net cash used in investing activities	(94)		(2,633)		2,539		Net cash used in investing activities	(181)		(2,609)		2,428
Net cash (used in) provided by financing activities	Net cash (used in) provided by financing activities	(119)		2,200		(2,319)		Net cash (used in) provided by financing activities	(513)		1,496		(2,009)

Operating Activities

The ~~increase~~decrease in net cash provided by ~~(used in)~~ operating activities primarily relates to changes in working capital mainly impacted by increasing aluminum prices and local market premiums, mostly offset by higher segment income ~~partially offset by changes in working capital.~~and favorable metal price lag.

Investing Activities

Net cash used in investing activities was primarily attributable to capital expenditures of ~~$101~~$194 million during the ~~three~~six months ended ~~June~~September 30, 2021. The change in investing activities over the prior year primarily relates to costs associated with the acquisition of Aleris during the ~~three~~six months ended ~~June~~September 30, 2020.

Financing Activities

~~During~~The following represents proceeds from the ~~three~~issuance of long-term and short-term borrowings during the six months ended ~~June~~September 30, ~~2021, there~~2021.


	Six Months Ended September 30,
in millions	2021
3.25% Senior Notes, due November 2026(1)	$	750
3.875% Senior Notes, due August 2031(1)	750
Floating rate Term Loan Facility, due March 2028	20

Proceeds from issuance of long-term and short-term borrowings	$	1,520

_________________________

(1)The proceeds from the issuance of the 3.25% Senior Notes, due November 2026 and the 3.875% Senior Notes, due August 2031 were used to redeem the $1.5 billion principal amount outstanding on the 5.875% Senior Notes, due September 2026.

The following represents principal payments of long-term and short-term borrowings during the six months ended September 30, 2021.


	Six Months Ended September 30,
in millions	2021
5.875% Senior Notes, due September 2026(1)	$	(1,551)
Floating rate Term Loan Facility, due June 2022	(229)
Zhenjiang Term Loans, due May 2024	(129)
Finance leases and other repayments	(5)
Floating rate Term Loan Facility, due January 2025	(4)
Short-term borrowings in Brazil	(3)
Floating rate Term Loan Facility, due March 2028	(2)
Principal payments of long-term and short-term borrowings	$	(1,923)

_________________________

(1)This represents the $1.5 billion principal on the 5.875% Senior Notes, due September 2026 that was anredeemed during the period through the issuance of the 3.25% Senior Notes, due November 2026 and the 3.875% Senior Notes, due August 2031. An additional ~~$20~~$51 million ~~issuance under our 2021 Term Loans. We~~payment was made ~~principal repayments of $262 million, including a $129 million repayment of our Zhenjiang Term Loans, $125 million~~using cash on ~~our 2017 Term Loans, $3 million on our short-term debt in Brazil, $3 million on finance leases and other repayments, and $2 million on our 2020 Term Loans.~~ hand for the resulting redemption premium.

The ~~net cash~~following represents inflows (outflows) from ~~our~~ revolving credit facilities ~~is related~~and other, net during the six months ended September 30, 2021.


	Six Months Ended September 30,
in millions	2021
China credit facility	$	22
ABL Revolver	9
Korea credit facility	(17)

Revolving credit facilities and other, net	$	14

In addition to ~~net inflows of $136 million on our ABL Revolver and $7 million on our China credit facility, partially offset by net outflows of $18 million on our Korea credit facility. Additionally,~~the activities shown in the tables above during the six months ended September 30, 2021, we paid $2$24 million in debt issuance costs, $22 million of which related to the issuance of new Senior Notes in the period and $2 million related to prior ~~year~~period issuances. We also paid a return of capital to our shareholder in the amount of $100 million.

During the ~~three~~six months ended ~~June~~September 30, 2020, there were $1.9 billion issuances of long-term and short-term borrowings, including $1.1 billion in issuances on our Short Term Credit Agreement and $775 million in issuances in incremental term loans on our Term Loan Facility. The proceeds of these issuances were used to pay a portion of the consideration payable in the acquisition of Aleris. Additionally, we issued ~~$10~~$22 million on our China Bank Loans and $13 million of short-term debt in Brazil. As a result of our issuances, we paid ~~$18~~$24 million in debt issuance costs. We made principal repayments of $5$9 million on our Term Loan Facility, $9 million on our Zhenjiang Term Loans, $5 million on our short-term debt in Brazil, and $2$4 million on our incremental loans on our Term Loan Facility. The net cash ~~proceeds~~outflows from our revolving credit facilities is related to net ~~proceeds~~outflows of ~~$262~~$413 million on our ABL Revolver, ~~$35~~net of $29 million of proceeds from our China credit facilities and $26 million of net proceeds from our Korea credit ~~facilities, and $4 million in other borrowings.~~facilities.

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 12 – 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 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.

Other Arrangements

Factoring of Trade Receivables

We factor trade receivables based on local cash needs, as well as in an attempt 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 SPEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of ~~June~~September 30, 2021 and March 31, 2021, we are not involved in any unconsolidated SPE transactions.

CONTRACTUAL OBLIGATIONS

We have future obligations under various contracts relating to debt and interest payments, finance and operating leases, long-term purchase obligations, postretirement benefit plans, and uncertain tax positions. See Note 8 – Debt to our accompanying condensed consolidated financial statements and "Contractual Obligations" within Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K for more details.

CAPITAL ALLOCATION FRAMEWORK

In ~~February~~May 2021, ~~Hindalco~~Novelis announced a capital allocation framework ~~for the consolidated company. This framework~~which laid out the general guidelines for use of post-maintenance capital ~~expenditures~~expenditure free cash flow for the next five ~~years, prioritizing~~years. The priority is organic growth capital expenditures ~~and~~in the order of magnitude of approximately $1.5 billion, $2.6 billion in debt reduction from its recent peak in the first quarter of fiscal 2021 post Aleris acquisition, targeting a medium-term net leverage ratio of approximately 2.5x, and guiding approximately 8% to 10% of ~~such~~post-maintenance capital expenditure free cash flow to be returned to ~~its shareholders. The applicable guidelines of this framework will also apply to Novelis.~~Hindalco. Payments to our shareholder are at the discretion of the board of directors. Any such payments depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments governing our indebtedness, being in compliance with the appropriate indentures and covenants under the instruments that govern our indebtedness, and other relevant factors.

During the second quarter of fiscal 2022, we paid a return of capital to our common shareholder in the amount of $100 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There were no significant changes to our critical accounting policies and estimates as reported in our 2021 Form 10-K. See Note 1 – Business and Summary of Significant Accounting Policies for our principal areas of uses of estimates and assumptions.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

NON-GAAP FINANCIAL MEASURES

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

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

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

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

We also use total 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 is equivalent to our Adjusted EBITDA, which we refer to in our earnings announcements and other external presentations to analysts and investors. Please see Note 18 – Segment, Geographical Area, Major Customer and Major Supplier Information for our definition of segment income.

Free cash flow consists of: (a) net cash provided by (used in) operating activities - continuing operations, (b) plus net cash provided by (used in) investing activities - continuing operations, (c) plus net cash provided by (used in) operating activities - discontinued operations, (d) plus net cash provided by (used in) investing activities - discontinued operations, (e) plus cash used in the acquisition of assets under a finance lease, (f) plus cash used in the acquisition of business, net of cash and restricted cash acquired, (g) plus accrued merger consideration, (h) less proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging, and (i) less proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging - discontinued operations. Management believes 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 free cash flow. Our method of calculating free cash flow may not be consistent with that of other companies.

4958

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

Statements made in this Quarterly Report on Form 10-Q which describe Novelis' intentions, expectations, beliefs or predictions may be forward-looking within the meaning of securities laws. Forward-looking statements include statements preceded by, followed by, or including the words "believes," "expects," "anticipates," "plans," "estimates," "projects," "forecasts," or similar expressions. Examples of forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, our belief that, as a result of the Aleris acquisition, we can more efficiently serve the automotive market and unlock synergies; statements about our expectation that we will be able to fund our continued expansions and capital spending, service our debt obligations and provide sufficient liquidity to operate our business, expectations on demand for our products in various markets and our ability to support this demand, and the expected continuing impacts of the ongoing COVID-19 pandemic. Novelis cautions that, by their nature, forward-looking statements involve risk and uncertainty and Novelis' actual results could differ materially from those expressed or implied in such 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 arising out of our acquisition of Aleris Corporation, including uncertainties inherent in the acquisition method of accounting; disruption to our global aluminum production and supply chain as a result of COVID-19; changes in the relative values of various currencies and the effectiveness of our currency hedging activities; factors affecting our operations, such as litigation including pending and future litigation settlements, environmental remediation and clean-up costs, breakdown of equipment and other events; ability to manage existing facilities and workforce to operate the business; 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; the risks of pandemics or other public health emergencies, including the continued spread and impact of, and the governmental and third party response to, the ongoing COVID-19 outbreak; changes in government regulations, particularly those affecting taxes, tax policies and effective tax rates, 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. For a discussion of some of the specific factors that may cause Novelis' actual results or outcomes to differ materially from those projected in any forward-looking statements, refer to our 2021 Form 10-K and see the following sections of the report: Part I. Item 1A. Risk Factors and Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

5059

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in metal prices (primarily aluminum, copper, zinc, and local market 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

Metal

The following table presents the estimated potential negative effect on the fair values of these derivative instruments as of ~~June~~September 30, 2021, given a 10% change in prices. Direction of the change in price corresponds with the direction that would cause a negative impact on the fair value of these derivative instruments.


in millions	in millions	Change in Price		Change in Fair Value		in millions	Change in Price		Change in Fair Value
Aluminum	Aluminum	10	%	$	(223)	Aluminum	10	%	$	(272)
Copper	Copper	(10)		(1)		Copper	(10)		(1)
Zinc	Zinc	(10)		(1)		Zinc	(10)		—
Local market premiums	Local market premiums	10		(1)		Local market premiums	10		(1)

Energy

The following table presents the estimated potential negative effect on the fair values of these derivative instruments as of ~~June~~September 30, 2021, given a 10% decline in prices for energy contracts.


in millions	in millions	Change in Price		Change in Fair Value		in millions	Change in Price		Change in Fair Value
Electricity	Electricity	(10)	%	$	(1)	Electricity	(10)	%	$	—
Natural gas	Natural gas	(10)		(5)		Natural gas	(10)		(6)
Diesel fuel	Diesel fuel	(10)		(1)		Diesel fuel	(10)		(2)

Foreign Currency Exchange Risks

The following table presents the estimated potential negative effect on the fair values of these derivative instruments as of ~~June~~September 30, 2021, given a 10% change in rates. Direction of the change in exchange rate corresponds with the direction that would cause the change in exchange rate to negatively impact the fair value of these derivative instruments.


$ in millions	$ in millions	Change in Exchange Rate		Change in Fair Value		$ in millions	Change in Exchange Rate		Change in Fair Value
Currency measured against the U.S. dollar	Currency measured against the U.S. dollar					Currency measured against the U.S. dollar
Brazilian real	Brazilian real	(10)	%	$	(17)	Brazilian real	(10)	%	$	(30)
Euro	Euro	(10)		(37)		Euro	(10)		(39)
Korean won	Korean won	(10)		(71)		Korean won	(10)		(71)
Canadian dollar	Canadian dollar	(10)		(4)		Canadian dollar	(10)		(4)
British pound	British pound	(10)		(21)		British pound	(10)		(19)
Swiss franc	Swiss franc	(10)		(37)		Swiss franc	(10)		(37)
Chinese yuan	Chinese yuan	10		(3)		Chinese yuan	10		(1)

5160

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

We have carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon such evaluation, management has concluded that the Company’s disclosure controls and procedures were effective as of ~~June~~September 30, 2021.

Changes in Internal Control over Financial Reporting

We completed the acquisition of Aleris on April 14, 2020, and the financial results of Aleris have been included in our condensed consolidated financial statements for the quarter ended ~~June~~September 30, 2021. During the time since the acquisition, we have assessed the control environment of Aleris and made certain changes to Aleris' internal control over financial reporting to integrate Aleris into Novelis' internal control over financial reporting. We now consider Aleris to be included in the scope of our assessment of internal control over financial reporting.

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.

5261

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 17 – Commitments and Contingencies to our accompanying condensed consolidated financial statements.

Item 1A. Risk Factors

See "Risk Factors" in Part I, Item 1A in our 2021 Form 10-K. There have been no material changes from the risk factors described in our 2021 Form 10-K.

5362

Item 6. Exhibits


Exhibit No.						Description
2.1						Arrangement Agreement by and among Hindalco Industries Limited, AV Aluminum Inc. and Novelis Inc., dated as of February 10, 2007 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on February 13, 2007) (File No. 001-32312))
3.1						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))
4.1						2026 Notes Indenture, dated as of August 11, 2021, among Novelis Corporation, Novelis Inc., the subsidiary guarantors named on the signature pages thereto and Regions Bank, as trustee (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on August 11, 2021 (File No. 001-32312 )).
4.2						Form of 3.250% Senior Note due 2026 (included in Exhibit 4.1).
4.3						2031 Notes Indenture, dated as of August 11, 2021, among Novelis Corporation, Novelis Inc., the subsidiary guarantors named on the signature pages thereto and Regions Bank, as trustee (incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed on August 11, 2021 (File No. 001-32312)).
4.4						Form of 3.875% Senior Note due 2031 (included in Exhibit 4.3).
10.1						Amendment No. 8 to Second Amended and Restated Credit Agreement, dated as of October 7, 2021, among Novelis Inc., Novelis Corporation, the other U.S. Subsidiaries of Canadian Borrower party thereto, Novelis UK Ltd, Novelis AG, Novelis Deutschland GMBH, the other Guarantors party thereto, the Third Party Security Provider, the Lenders party thereto, Wells Fargo Bank, National Association, as Administrative Agent, and as Collateral Agent
31.1						Section 301 Certification of Principal Executive Officer
31.2						Section 302 Certification of Principal Financial Officer
32.1						Section 906 Certification of Principal Executive Officer
32.2						Section 906 Certification of Principal Financial Officer
101.INS						XBRL Instance Document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

5463

SIGNATURES

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


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

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

Date: ~~August 4,~~November 3, 2021

5564


Commonly Used or Defined Terms		3

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Statements of Operations (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)	5
	Condensed Consolidated Balance Sheets (unaudited)	6
	Condensed Consolidated Statements of Cash Flows (unaudited)	7
	Condensed Consolidated Statement of Shareholder's Equity (unaudited)	8
	Notes to the Condensed Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3942
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5160
Item 4.	Controls and Procedures	5261

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	5362
Item 1A.	Risk Factors	5362

Item 6.	Exhibits	5463
Signatures		5564


	Three Months Ended June 30, 2021
in millions		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 accumulated other comprehensive loss into income		$	(139)	$	2	$	0	$	0	$	0
Energy commodity contracts:
Amount of loss reclassified from accumulated other comprehensive loss into income		$	0	$	(1)	$	0	$	0	$	0
Foreign exchange contracts:
Amount of loss reclassified from accumulated other comprehensive loss into income		$	1	$	0	$	0	$	(1)	$	0
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value		$	0	$	0	$	0	$	0	$	0