Novelis 10Q 2008 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark one)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2007
or
o		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 (State or other jurisdiction of incorporation or organization)		98-0442987 (I.R.S. employer identification number)
3399 Peachtree Road NE, Suite 1500 Atlanta, Georgia (Address of principal executive offices)		30326 (Zip Code)

Telephone:(404) 814-4200

(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” inRule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ

As of October 31, 2007, the registrant had 77,459,658 common shares outstanding.

TABLE OF CONTENTS


	PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) Three Months Ended September 30, 2007 and 2006; May 16, 2007 Through September 30, 2007; April 1, 2007 Through May 15, 2007; and Six Months Ended September 30, 2006	2
		Condensed Consolidated Balance Sheets (unaudited) As of September 30, 2007 and March 31, 2007	3
		Condensed Consolidated Statements of Cash Flows (unaudited) May 16, 2007 Through September 30, 2007; April 1, 2007 Through May 15, 2007; and Six Months Ended September 30, 2006	4
		Condensed Consolidated Statements of Shareholder’s Equity (unaudited) April 1, 2007 Through May 15, 2007 and May 16, 2007 Through September 30, 2007	5
		Notes to the Condensed Consolidated Financial Statements (unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	93
	Item 4.	Controls and Procedures	97

	PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	99
	Item 6.	Exhibits	102
EX-10.1 ASSET-BASED LENDING CREDIT FACILITY
EX-10.2 TERM LOAN FACILITY
EX-10.3 INTERCREDITOR AGREEMENT
EX-10.4 SECURITY AGREEMENT
EX-10.5 SECURITY AGREEMENT
EX-31.1 SECTION 302 CERTIFICATION OF THE PEO
EX-31.2 SECTION 302 CERTIFICATION OF THE PFO
EX-32.1 SECTION 906 CERTIFICATION OF THE PEO
EX-32.2 SECTION 906 CERTIFICATION OF THE PFO

PART I. FINANCIAL INFORMATION


Item 1.	*Financial Statements*

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (unaudited)
(in millions, except per share amounts)


	Three Months
	Ended						May 16, 2007			April 1, 2007			Six Months
	September 30,						Through			Through			Ended
	2007			2006			September 30, 2007			May 15, 2007			September 30, 2006
	Successor			Predecessor			Successor			Predecessor			Predecessor
Net sales	$	2,821		$	2,494		$	4,368		$	1,281		$	5,058

Cost of goods sold (exclusive of depreciation and amortization shown below)		2,555			2,389			3,991			1,205			4,796
Selling, general and administrative expenses		88			103			130			95			201
Depreciation and amortization		102			57			155			28			116
Research and development expenses		10			10			23			6			20
Interest expense and amortization of debt issuance costs — net		56			52			81			26			101
(Gain) loss on change in fair value of derivative instruments — net		36			37			22			(20	)		(4	)
Equity in net (income) loss of non-consolidated affiliates		4			(5	)		5			(1	)		(9	)
Sale transaction fees		—			—			—			32			—
Other (income) expenses — net		(7	)		7			4			4			3

		2,844			2,650			4,411			1,375			5,224

Loss before provision (benefit) for taxes on loss and minority interests’ share		(23	)		(156	)		(43	)		(94	)		(166	)
Provision (benefit) for taxes on loss		(36	)		(52	)		—			4			(72	)

Income (loss) before minority interests’ share		13			(104	)		(43	)		(98	)		(94	)
Minority interests’ share		—			2			2			1			(2	)

Net income (loss)		13			(102	)		(41	)		(97	)		(96	)

Other comprehensive income — net of tax Currency translation adjustment		30			11			28			35			68
Change in fair value of effective portion of hedges — net		1			11			2			(1	)		(23	)
Postretirement benefit plans Amortization of net actuarial loss		—			—			—			(1	)		—
Change in minimum pension liability		—			(1	)		—			—			(4	)

Other comprehensive income — net of tax		31			21			30			33			41

Comprehensive income (loss)	$	44		$	(81	)	$	(11	)	$	(64	)	$	(55	)

Dividends per common share	$	0.00		$	0.01		$	0.00		$	0.00		$	0.10

The accompanying notes are an integral part of these condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions, except number of shares)


	As of
	September 30,			March 31,
	2007			2007
	Successor			Predecessor
ASSETS
Current assets
Cash and cash equivalents	$	181		$	128
Accounts receivable (net of allowances of $1 as of September 30, 2007 and $29 as of March 31, 2007)
— third parties		1,355			1,350
— related parties		27			25
Inventories		1,494			1,483
Prepaid expenses and other current assets		49			39
Current portion of fair value of derivative instruments		51			92
Deferred income tax assets		62			19

Total current assets		3,219			3,136
Property, plant and equipment — net		3,298			2,106
Goodwill		2,344			239
Intangible assets — net		854			20
Investment in and advances to non-consolidated affiliates		757			153
Fair value of derivative instruments — net of current portion		7			55
Deferred income tax assets		62			102
Other long-term assets
— third parties		86			105
— related parties		46			54

Total assets	$	10,673		$	5,970


LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Current portion of long-term debt	$	14		$	143
Short-term borrowings		243			245
Accounts payable
— third parties		1,454			1,614
— related parties		53			49
Accrued expenses and other current liabilities		807			480
Deferred income tax liabilities		85			73

Total current liabilities		2,656			2,604
Long-term debt — net of current portion		2,559			2,157
Deferred income tax liabilities		690			103
Accrued postretirement benefits		443			427
Other long-term liabilities		688			352

		7,036			5,643

Commitments and contingencies

Minority interests in equity of consolidated affiliates		151			152

Shareholder’s equity
Common stock, no par value; unlimited number of shares authorized; 77,459,658 and 75,357,660 shares issued and outstanding as of September 30, 2007 and March 31, 2007, respectively		—			—
Additional paid-in capital		3,497			428
Accumulated deficit		(41	)		(263	)
Accumulated other comprehensive income		30			10

Total shareholder’s equity		3,486			175

Total liabilities and shareholder’s equity	$	10,673		$	5,970

The accompanying notes are an integral part of these condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in millions)


	May 16, 2007			April 1, 2007			Six Months
	Through			Through			Ended
	September 30, 2007			May 15, 2007			September 30, 2006
	Successor			Predecessor			Predecessor
OPERATING ACTIVITIES
Net loss	$	(41	)	$	(97	)	$	(96	)
Adjustments to determine net cash provided by (used in) operating activities:
Depreciation and amortization		155			28			116
(Gain) loss on change in fair value of derivative instruments — net		22			(20	)		(4	)
Deferred income taxes		(46	)		(18	)		(111	)
Amortization of debt issuance costs		7			1			5
Write-off and amortization of fair value adjustments — net		(82	)		—			—
Provision for uncollectible accounts receivable		1			—			1
Equity in net (income) loss of non-consolidated affiliates		5			(1	)		(9	)
Dividends from non-consolidated affiliates		—			4			4
Minority interests’ share		(2	)		(1	)		2
Share-based compensation		—			—			1
Gain on sales of businesses, investments and assets — net		—			—			2
Changes in assets and liabilities (net of effects from acquisitions and divestitures):
Accounts receivable
— third parties		54			(21	)		(25	)
— related parties		—			—			2
Inventories		105			(76	)		(9	)
Prepaid expenses and other current assets		(2	)		(7	)		13
Other long-term assets		(2	)		(1	)		(12	)
Accounts payable
— third parties		(126	)		(62	)		3
— related parties		3			—			(3	)
Accrued expenses and other current liabilities		(57	)		42			15
Accrued postretirement benefits		8			1			10
Other long-term liabilities		7			(2	)		6

Net cash provided by (used in) operating activities		9			(230	)		(89	)

INVESTING ACTIVITIES
Capital expenditures		(57	)		(17	)		(56	)
Cash advance received on pending transfer of rights		—			—			15
Proceeds from sales of assets		1			—			1
Changes to investment in and advances to non-consolidated affiliates		3			1			2
Proceeds from loans receivable — net — related parties		10			—			20
Net proceeds from settlement of derivative instruments		66			18			154

Net cash provided by investing activities		23			2			136

FINANCING ACTIVITIES
Proceeds from issuance of common stock		92			—			—
Proceeds from issuance of debt		960			150			20
Principal repayments		(905	)		(1	)		(185	)
Short-term borrowings — net		(65	)		60			78
Dividends
— common shareholders		—			—			(7	)
— minority interests		(1	)		(7	)		(1	)
Debt issuance costs		(35	)		(2	)		(8	)
Proceeds from the exercise of stock options		—			1			—

Net cash provided by (used in) financing activities		46			201			(103	)

Net increase (decrease) in cash and cash equivalents		78			(27	)		(56	)
Effect of exchange rate changes on cash balances held in foreign currencies		1			1			3
Cash and cash equivalents — beginning of period		102			128			124

Cash and cash equivalents — end of period	$	181		$	102		$	71

Supplemental disclosures of cash flow information:
Interest paid	$	102		$	13		$	103
Income taxes paid		31			9			12
Supplemental schedule of non-cash investing and financing activities related to the Acquisition of Novelis Common Stock (Note 2):
Property, plant and equipment	$	(1,244	)
Goodwill		(2,097	)
Intangible assets		(859	)
Investment in and advances to non-consolidated affiliates		(610	)
Debt		66
Additional paid-in capital		(422	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (unaudited)

(in millions, except number of common shares)


											Accumulated
					Additional						Other
	Common Stock				Paid-in			Accumulated			Comprehensive
	Shares		Amount		Capital			Deficit			Income			Total

*Predecessor:*
Balance as of March 31, 2007		75,357,660	$	—	$	428		$	(263	)	$	10		$	175
Activity April 1, 2007 through May 15, 2007
Net loss		—		—		—			(97	)		—			(97	)
Issuance of common stock from the exercise of stock options		57,876		—		1			—			—			1
Conversion of share-based compensation plans from equity-based plans to liability-based plans		—		—		(7	)		—			—			(7	)
Currency translation adjustment		—		—		—			—			35			35
Change in fair value of effective portion of hedges — net		—		—		—			—			(1	)		(1	)
Postretirement benefit plans:
Amortization of net actuarial loss		—		—		—			—			(1	)		(1	)

Balance as of May 15, 2007		75,415,536	$	—	$	422		$	(360	)	$	43		$	105



*Successor:*
Balance as of May 16, 2007		75,415,536	$	—	$	3,405		$	—		$	—		$	3,405
Activity May 16, 2007 through September 30, 2007
Net loss		—		—		—			(41	)		—			(41	)
Issuance of common stock		2,044,122		—		92			—			—			92
Currency translation adjustment		—		—		—			—			28			28
Change in fair value of effective portion of hedges — net		—		—		—			—			2			2

Balance as of September 30, 2007		77,459,658	$	—	$	3,497		$	(41	)	$	30		$	3,486

The accompanying notes are an integral part of these 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 as both Predecessor and Successor (as defined below) unless the context specifically indicates otherwise. References herein to “Hindalco” refer to Hindalco Industries Limited. References herein to “Alcan” refer to Alcan, Inc.

Change in Fiscal Year End

On June 26, 2007, our board of directors approved the change of our fiscal year end to March 31 from December 31. On June 28, 2007, we filed a Transition Report onForm 10-Q for the three month period ended March 31, 2007 with the United States Securities and Exchange Commission (SEC) pursuant toRule 13a-10 of the Securities Exchange Act of 1934 for transition period reporting. Accordingly, these unaudited condensed consolidated financial statements are presented on the basis of our new fiscal year end of March 31.

Description of Business and Basis of Presentation

Novelis Inc., formed in Canada on September 21, 2004 and its subsidiaries is the world’s leading aluminum rolled products producer based on shipment volume. We produce aluminum sheet and light gauge products where the end-use destination of the products includes the construction and industrial, beverage and food cans, foil products and transportation markets. As of September 30, 2007, we had operations on four continents: North America; Europe; Asia and South America, through 33 operating plants and three research facilities in 11 countries. In addition to aluminum rolled products plants, our South American businesses include bauxite mining, alumina refining, primary aluminum smelting and power generation facilities that are integrated with our rolling plants in Brazil.

These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated and combined financial statements included in our Annual Report onForm 10-K for the year ended December 31, 2006 filed with the SEC on March 1, 2007, as amended on April 30, 2007. These unaudited condensed consolidated financial statements have been prepared pursuant to SECRule 10-01 ofRegulation S-X. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made herein are adequate to make the information not misleading.

The accompanying unaudited condensed consolidated statement of operations and comprehensive loss and statement of cash flows for the six months ended September 30, 2006 have been derived from the unaudited condensed consolidated financial statements included in our previously filed Quarterly Reports onForm 10-Q for the periods ended September 30, 2006 and March 31, 2006, as such six month period was not previously reported.

Predecessor and Successor Reporting

Our acquisition by Hindalco (see Note 2 — Acquisition of Novelis Common Stock) was recorded in accordance with Staff Accounting Bulletin No. 103, Topic 5J,Push Down Basis of Accounting Required in Certain Limited Circumstances (SAB No. 103). In the accompanying September 30, 2007 condensed consolidated balance sheet, the consideration and related costs paid by Hindalco in connection with the acquisition have been “pushed down” to us and have been allocated to the assets acquired and liabilities assumed in accordance with Financial Accounting Standards Board (FASB) Statement No. 141,Business Combinations. Due to the impact of push down accounting, the Company’s condensed consolidated financial statements and certain note presentations for the six months ended September 30, 2007 are presented in two

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

distinct periods to indicate the application of different bases of accounting between the periods presented: (1) the period up to, and including, the acquisition date (April 1, 2007 through May 15, 2007, labeled “Predecessor”) and (2) the period after that date (May 16, 2007 through September 30, 2007, labeled “Successor”). The accompanying unaudited condensed consolidated financial statements include a black line division which indicates that the Predecessor and Successor reporting entities shown are not comparable.

The unaudited results of operations for the interim periods shown in these condensed consolidated financial statements, including the periods shown as Predecessor and Successor, are not necessarily indicative of operating results for the entire fiscal year. In the opinion of management, the accompanying unaudited condensed consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our consolidated financial position, results of operations, cash flows and changes in shareholder’s equity for the periods presented.

Reclassifications and Revisions

Certain reclassifications of prior periods’ amounts and presentation have been made to conform to the presentation adopted for the current periods. The following reclassifications and presentation changes were made to the prior periods’ condensed consolidated statements of operations to conform to the current period presentation: (a) the amounts previously presented inRestructuring charges — netandImpairment charges on long-lived assetswere reclassified toOther (income) expenses — netand (b) Gain on change in fair value of derivative instruments — netandSale transaction feeswere reclassified fromOther (income) expenses — netto separate line items. These reclassifications have no effect on total assets, total shareholder’s equity, net loss or cash flows as previously presented.

As a result of the acquisition by Hindalco, and based on the way our President and Chief Operating Officer (our chief operating decision-maker) reviews the results of segment operations, during the quarter ended June 30, 2007 we changed our segment performance measure to Segment Income, as defined in Note 18 — Segment and Major Customer Information.

Recently Issued Accounting Standards

In April 2007, the FASB issued Staff PositionNo. FIN 39-1,Amendment of FASB Interpretation No 39, (FSPFIN 39-1). FSPFIN 39-1 amends FASB Statement No. 39,Offsetting of Amounts Related to Certain Contracts, by permitting entities that enter into master netting arrangements as part of their derivative transactions to offset in their financial statements net derivative positions against the fair value of amounts (or amounts that approximate fair value) recognized for the right to reclaim cash collateral or the obligation to return cash collateral under those arrangements. FSPFIN 39-1 is effective for fiscal years beginning after November 15, 2007. We have not yet commenced evaluating the potential impact, if any, of the adoption of FSPFIN 39-1 on our consolidated financial position, results of operations and cash flows.

In February 2007, the FASB issued FASB Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, which provides companies with an option to report selected financial assets and liabilities at fair value. The new statement establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of a company’s choice to use fair value on its earnings. The new statement also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. FASB Statement No. 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in FASB Statements No. 157,Fair Value Measurements, and No. 107,Disclosures about Fair Value of Financial Instruments.FASB Statement No. 159 is effective as

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

of the beginning of an entity’s first fiscal year beginning after November 15, 2007. We have not yet commenced evaluating the potential impact, if any, of the adoption of FASB Statement No. 159 on our consolidated financial position, results of operations and cash flows.

In September 2006, the FASB issued FASB Statement No. 157,Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. FASB Statement No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. We are currently evaluating the potential impact, if any, of the adoption of FASB Statement No. 157 on our consolidated financial position, results of operations and cash flows.

We have determined that all other recently issued accounting pronouncements will not have a material impact on our consolidated financial position, results of operations and cash flows, or do not apply to our operations.


2.	Acquisition of Novelis Common Stock

On May 15, 2007, the Company was acquired by Hindalco through its indirect wholly-owned subsidiary AV Metals Inc. (Acquisition Sub) pursuant to a plan of arrangement (Arrangement) entered into on February 10, 2007 and approved by the Ontario Superior Court of Justice on May 14, 2007. As a result of the Arrangement, Acquisition Sub acquired all of the Company’s outstanding common shares at a price of $44.93 per share, and all outstanding stock options and other equity incentives were terminated in exchange for cash payments. The aggregate purchase price for the Company’s common shares was $3.4 billion and immediately following the Arrangement, the common shares of the Company were transferred from Acquisition Sub to its wholly-owned subsidiary AV Aluminum Inc. (AV Aluminum). Hindalco also assumed $2.8 billion of Novelis’ debt for a total transaction value of $6.2 billion.

On June 22, 2007, we issued 2,044,122 additional common shares to AV Aluminum for $44.93 per share resulting in an additional equity contribution of approximately $92 million. This contribution was equal in amount to certain payments made by Novelis related to change in control compensation to certain employees and directors, lender fees and other transaction costs incurred by the Company. As this transaction was approved by the Company and executed subsequent to the Arrangement, the $92 million is not included in the determination of total consideration.

Purchase Price Allocation and Goodwill

As a result of the Arrangement, the consideration and transaction costs paid by Hindalco in connection with the transaction have been “pushed down” to us and have been allocated to the assets acquired and liabilities assumed in accordance with FASB Statement No. 141. The following table summarizes total consideration paid under the Arrangement (in millions).


Purchase of all outstanding 75,415,536 shares at $44.93 per share	$	3,388
Direct transaction costs incurred by Hindalco		17

Total consideration	$	3,405

In accordance with FASB Statement No. 141, total consideration of $3,405 million has been initially allocated to the assets acquired and liabilities assumed based on our preliminary estimates of fair value, using methodologies and assumptions that we believe are reasonable. To estimate fair values, we considered a number of factors, including appraisals and the application of multiples to discounted cash flow estimates.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

There is considerable management judgment with respect to cash flow estimates and appropriate multiples used in determining fair value.

The following table shows the preliminary allocation of the total consideration to assets acquired and liabilities assumed as of the date of the Arrangement (in millions).


Assets acquired:
Current assets	$	3,210
Property, plant and equipment		3,350
Goodwill		2,341
Intangible assets		879
Investment in and advances to non-consolidated affiliates		762
Fair value of derivative instruments — net of current portion		3
Deferred income tax assets		117
Other long-term assets		110

Total assets acquired		10,772

Liabilities assumed:
Accounts payable		(1,612	)
Accrued expenses and other current liabilities		(738	)
Debt, including current portion and short-term borrowings		(2,824	)
Deferred income tax liabilities, including current portion		(874	)
Accrued postretirement benefits		(430	)
Other long-term liabilities		(736	)
Minority interests in equity of consolidated affiliates		(153	)

Total liabilities assumed		(7,367	)

Total consideration	$	3,405

Intangible assets include (1) $124 million for a favorable energy supply contract in North America, recorded at its estimated fair value, (2) $15 million for other favorable supply contracts in Europe and (3) $9 million for the estimated value of acquired in-process research and development projects that had not yet reached technological feasibility. In accordance with FASB Statement No. 141, the $9 million of acquired in-process research and development was expensed upon acquisition and charged toResearch and development expensesin the period from May 16, 2007 through September 30, 2007.

The preliminary allocation shown above includes a total of $685 million for the fair value of liabilities associated with unfavorable sales contracts ($371 million included inOther long-term liabilitiesand $314 million included inAccrued expenses and other liabilities). Of this amount, $655 million relates to unfavorable sales contracts in North America. These contracts include a ceiling over which metal purchase costs cannot contractually be passed through to certain customers, unless adjusted. Subsequent to the Arrangement, the fair values of these liabilities are credited toNet sales over the remaining lives of the underlying contracts. The reduction of these liabilities does not affect our cash flows.

Certain amounts are subject to change as remaining information on the fair values is received and valuation analyses are finalized. Specifically, we continue to evaluate the valuation and useful lives of the acquired tangible and intangible assets, the allocation of fair value to our reporting units, and the income tax implications of the new basis of accounting triggered by the Arrangement. These final valuations and other

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

studies will be performed by Hindalco and Novelis, and the final fair values and allocations may differ materially from our preliminary estimates shown above. We expect to complete our final allocation of the total consideration by March 31, 2008.

The goodwill resulting from the Arrangement reflects the value of our in-place workforce, deferred income taxes associated with the fair value adjustments and potential synergies. The majority of the push down adjustments, including goodwill, will not impact our cash flows and are not expected to be deductible for income tax purposes.

We incurred a total of $64 million in fees and expenses related to the Arrangement, of which $32 million was incurred in each of the periods from April 1, 2007 through May 15, 2007 and the three months ended March 31, 2007. These fees and expenses are included inSale transaction feesin our condensed consolidated statements of operations.

Unaudited Condensed Consolidated Pro Forma Results

The unaudited condensed consolidated pro forma results of operations provided below for the three and six month periods ended September 30, 2006 are presented as though the Arrangement had occurred at the beginning of the six months ended September 30, 2006, after giving effect to purchase accounting adjustments related to depreciation and amortization of the revalued assets and liabilities, interest expense and other acquisition related adjustments in connection with the Arrangement. The pro forma results include estimates and assumptions that management believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had been in effect on the dates indicated, or which may result in future periods.


	Three Months Ended			Six Months Ended
	September 30, 2006			September 30, 2006

Net sales	$	2,578		$	5,233
Loss before provision for taxes and minority interests’ share	$	(129	)	$	(144	)
Net loss	$	(75	)	$	(74	)


3.	Restructuring Programs

We recognized no restructuring costs during the three months ended September 30, 2007 and $1 million in each of the periods from May 16, 2007 through September 30, 2007 and from April 1, 2007 through May 15, 2007, relating primarily to restructuring actions begun during 2006 in two of our European facilities.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

All restructuring provisions and recoveries are included inOther (income) expenses — netin the accompanying condensed consolidated statements of operations unless otherwise stated. The following table summarizes the activity in our restructuring liabilities (all of which relate to our Europe operating segment) (in millions).


	Europe
				Other Exit			Total
	Severance			Related			Restructuring
	Reserves			Reserves			Reserves

Predecessor:
Balance as of March 31, 2007	$	18		$	18		$	36
April 1, 2007 through May 15, 2007 Activity:
Provisions — net		1			—			1
Cash payments		—			(1	)		(1	)
Adjustments — other		—			1			1

Balance as of May 15, 2007		19			18			37



Successor:
May 16, 2007 through June 30, 2007 Activity:
Provisions — net		1			—			1
Cash payments		(2	)		(1	)		(3	)

Balance as of June 30, 2007		18			17			35
July 1, 2007 to September 30, 2007 Activity:
Cash payments		(5	)		(1	)		(6	)

Balance as of September 30, 2007	$	13		$	16		$	29


4.	Inventories

Inventories consist of the following (in millions).


	As of
	September 30, 2007			March 31, 2007
	Successor			Predecessor
Finished goods	$	368		$	369
Work in process		396			359
Raw materials		655			684
Supplies		77			120

		1,496			1,532
Allowances		(2	)		(49	)

Inventories	$	1,494		$	1,483

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

5. Property, Plant and Equipment

Property, plant and equipment — net, consists of the following (in millions).


	As of
	September 30, 2007			March 31, 2007
	Successor			Predecessor
Land and property rights	$	255			$ 97
Buildings		699			895
Machinery and equipment		2,387			4,699

		3,341			5,691
Accumulated depreciation and amortization		(142	)		(3,674	)

		3,199			2,017
Construction in progress		99			89

Property, plant and equipment — net	$	3,298			$2,106

Depreciation and amortization expense related to property, plant and equipment is shown in the table below (in millions).

May 16, 2007

April 1, 2007

Six Months

Three Months Ended

Through

Ended

September 30,

May 15,

September 30,

2007

2006

2007

2006

Successor

Predecessor

Successor

Predecessor

Depreciation and amortization expense related to property, plant and equipment

141

115

��


6.	Goodwill and Intangible Assets

Goodwill

The following table summarizes the balances and activity in goodwill by operating segment (in millions).


	Successor							Predecessor
	Balance					Balance		Balance				Balance
	as of		Cumulative			as of		as of		Cumulative		as of
	May 16,		Translation			September 30,		March 31,		Translation		May 15,
Operating Segment	2007		Adjustment			2007		2007		Adjustment		2007
North America	$	1,527	$	—		$	1,527	$	—	$	—	$	—
Europe		389		6			395		239		5		244
Asia		162		(3	)		159		—		—		—
South America		263		—			263		—		—		—

	$	2,341	$	3		$	2,344	$	239	$	5	$	244

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Intangible Assets

The following table summarizes the components of intangible assets (in millions).


	As of
	September 30, 2007									March 31, 2007
	Successor									Predecessor
	Gross					Net		Weighted		Gross					Net		Weighted
	Carrying		Accumulated			Carrying		Average		Carrying		Accumulated			Carrying		Average
	Amount		Amortization			Amount		Life		Amount		Amortization			Amount		Life
Tradenames	$	83	$	(1	)	$	82		20 years	$	14	$	(6	)	$	8		15 years
Technology		171		(4	)		167		15 years		20		(8	)		12		15 years
Customer relationships		483		(9	)		474		20 years		—		—			—
Favorable energy supply contract		123		(5	)		118		9.5 years		—		—			—
Other favorable contracts		15		(2	)		13		3.3 years		—		—			—

	$	875	$	(21	)	$	854		17.2 years	$	34	$	(14	)	$	20		15 years

Our favorable energy supply contract and other favorable contracts are amortized over their estimated useful lives using methods that reflect the pattern in which the economic benefits are expected to be consumed. All other intangible assets are amortized using the straight-line method.

Amortization expense related to intangible assets is shown in the table below (in millions), and includes $5 million and $8 million included inCost of goods soldrelated to the favorable energy supply and other favorable contracts for the three months ended September 30, 2007 and for the period from May 16, 2007 through September 30, 2007, respectively.

Three Months

May 16, 2007

April 1, 2007

Six Months

Ended

Through

Ended

September 30,

May 15,

September 30,

2007

2006

2007

2006

Successor

Predecessor

Successor

Predecessor

Amortization expense related to intangible assets

—

Estimated amortization expense related to intangible assets for each of the five succeeding fiscal years is shown in the table below (in millions). Actual amounts may differ from these estimates due to such factors as customer turnover, raw material consumption patterns, impairments, additional intangible asset acquisitions, remeasurement of amounts valued in foreign currencies and other events.


Fiscal Year Ending March 31,

2008 (remaining six months)	$	31
2009		59
2010		57
2011		54
2012		53

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)


7.	Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions

The following table summarizes the ownership structure and our ownership percentage of the non-consolidated affiliates in which we have an investment as of September 30, 2007 and which we account for using the equity method. We have no material investments that we account for using the cost method.


		Ownership
Affiliate Name	Ownership Structure	Percentage

Aluminium Norf GmbH	Corporation		50	%
Consorcio Candonga	Unincorporated Joint Venture		50	%
MiniMRF LLC	Limited Liability Company		50	%
Deutsche Aluminium Verpackung Recycling GmbH	Corporation		30	%
France Aluminium Recyclage S.A.	Public Limited Company		20	%

In September 2007, we completed the dissolution of EuroNorca Partners, and we received approximately $2 million in the completion of liquidation proceedings. No gain or loss was recognized on the liquidation.

In November 2006, we sold the common and preferred shares of our 25% interest in Petrocoque S.A. Industria e Comercio (Petrocoque) to the other shareholders of Petrocoque. Prior to the sale, we accounted for Petrocoque using the equity method of accounting. The results of operations of Petrocoque for the three and six month periods ended September 30, 2006 are included in the table below.

We do not control our non-consolidated affiliates, but have the ability to exercise significant influence over their operating and financial policies. The following table summarizes (on a 100% basis, in millions) the condensed and combined results of operations of our equity method affiliates, on a historical basis of accounting. These results do not include the incremental depreciation and amortization expense that we record in our equity method accounting, which arises as a result of the amortization of fair value adjustments we made to our investments in non-consolidated affiliates, due to the Arrangement. For the three months ended September 30, 2007 and the period from May 16, 2007 through September 30, 2007, we recorded incremental depreciation and amortization expense of $8 million and $11 million, respectively as part of our equity method accounting for these affiliates.


	Three Months				May 16, 2007				Six Months
	Ended				Through		April 1, 2007		Ended
	September 30,				September 30,		Through		September 30,
	2007		2006		2007		May 15, 2007		2006
	Successor		Predecessor		Successor		Predecessor		Predecessor
Net sales	$	138	$	144	$	223	$	45	$	288
Costs, expenses and provisions for taxes on income		130		129		211		43		268

Net income	$	8	$	15	$	12	$	2	$	20

Included in the accompanying condensed consolidated financial statements are transactions and balances arising from business we conduct with these non-consolidated affiliates, which we classify as related party

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

transactions and balances. The following table describes the nature and amounts of significant transactions that we had with related parties (in millions).


	Three Months				May 16, 2007				Six Months
	Ended				Through		April 1, 2007		Ended
	September 30,				September 30,		Through		September 30,
	2007		2006		2007		May 15, 2007		2006
	Successor		Predecessor		Successor		Predecessor		Predecessor
Purchases of tolling services and electricity
Aluminium Norf GmbH(A)	$	66	$	60	$	106	$	21	$	118
Consorcio Candonga(B)	$	3	$	3	$	6	$	1	$	7
Petrocoque(C)		n.a.	$	1		n.a.	$	—	$	1
Interest income
Aluminium Norf GmbH(D)	$	—	$	1	$	—	$	—	$	1


n.a.		not applicable — see (C).

(A)		We purchase tolling services (the conversion of customer-owned metal) from Aluminium Norf GmbH.

(B)		We purchase electricity from Consorcio Candonga for our operations in South America.

(C)		We purchase calcined-coke from Petrocoque for use in our smelting operation in South America. As previously discussed, we sold our interest in Petrocoque in November 2006. They are not considered a related party subsequent to the quarter ended December 31, 2006.

(D)		We earn interest income on a loan due from Aluminium Norf GmbH.

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


	As of
	September 30, 2007		March 31, 2007
	Successor		Predecessor
Accounts receivable(A)	$	27	$	25
Other long-term receivables(A)	$	46	$	54
Accounts payable(B)	$	53	$	49


(A)		The balances represent current and non-current portions of a loan due from Aluminium Norf GmbH.

(B)		We purchase tolling services from Aluminium Norf GmbH and electricity from Consorcio Candonga.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)


8.	Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are comprised of the following (in millions).


	As of
	September 30, 2007		March 31, 2007
	Successor		Predecessor
Accrued compensation and benefits	$	123	$	138
Accrued settlement of legal claim		39		39
Accrued interest payable		15		24
Accrued income taxes		33		9
Current portion of unfavorable sales contracts		276		—
Current portion of fair value of derivative instruments		81		33
Other current liabilities		240		237

Accrued expenses and other current liabilities	$	807	$	480

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)


9.	Debt

Debt consists of the following (in millions).


	As of
	September 30, 2007												March 31, 2007
							Successor
	Interest						Unamortized
	Rates						Fair Value			Carrying			Predecessor
	(A)			Principal			Adjustments (B)			Value			Principal
Novelis Inc.
Floating rate Term Loan, due July 2014		7.20	%	$	299		$	—		$	299		$	—
Floating rate Term Loan B(C)		—			—			—			—			259
7.25% Senior Notes, due February 2015		7.25	%		1,399			71			1,470			1,400
Novelis Corporation
Floating rate Term Loan, due July 2014		7.20	%		659			—			659			—
Floating rate Term Loan B(C)		—			—			—			—			449
Novelis Switzerland S.A.
Capital lease obligation, due January 2020 (Swiss francs (CHF) 55 million)		7.50	%		47			(4	)		43			46
Capital lease obligation, due August 2011 (CHF 4 million)		2.49	%		3			—			3			4
Novelis Korea Limited
Bank loan, due December 2007		4.55	%		70			(1	)		69			70
Bank loan (Korean won (KRW) 40 billion)(D)		—			—			—			—			42
Bank loan, due December 2007 (KRW 25 billion)		4.45	%		27			—			27			27
Bank loans, due September 2008 through June 2011 (KRW 1 billion)		3.92	%(E)		1			—			1			1
Other
Other debt, due April 2008 through December 2012		2.21	%(E)		2			—			2			2

Total debt					2,507			66			2,573			2,300
Less: current portion					(14	)		—			(14	)		(143	)

Long-term debt — net of current portion				$	2,493		$	66		$	2,559		$	2,157


(A)		Interest rates are as of September 30, 2007 and exclude the effects of accretion/amortization of fair value adjustments as a result of the Arrangement.

(B)		Debt was recorded at fair value as a result of the Arrangement (see Note 2 — Acquisition of Novelis Common Stock).

(C)		The Floating rate Term Loan B was refinanced in July 2007. SeeNew Senior Secured Credit Facilities.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)


(D)		The Bank loan was refinanced in August 2007 with a short-term borrowing. SeeKorean Bank Loans.

(E)		Weighted average interest rate.

New Senior Secured Credit Facilities

On May 25, 2007, we entered into a Bank and Bridge Facilities Commitment with affiliates of UBS and ABN AMRO, to provide backstop assurance for the refinancing of our existing indebtedness following the Arrangement. The commitments from UBS and ABN AMRO, provided by the banks on a 50%-50% basis, consisted of a senior secured term loan of up to $1.06 billion; a senior secured asset-based revolving credit facility of up to $900 million and a commitment to issue up to $1.2 billion of unsecured senior notes, if necessary. The commitment contained terms and conditions customary for facilities of this nature.

In connection with these backstop commitments, we paid fees totaling $14 million, which were included inOther long-term assets — third partiesas of June 30, 2007. Of this amount, $6 million was related to the unsecured senior notes, which were not refinanced, and was written off during the quarter ended September 30, 2007. The remaining $8 million in fees paid have been credited by the lenders towards fees associated with the new senior secured credit facilities (described below) and will be amortized over the lives of the related borrowings.

On July 6, 2007, we entered into new senior secured credit facilities with a syndicate of lenders led by affiliates of UBS and ABN AMRO (New Credit Facilities) providing for aggregate borrowings of up to $1.76 billion. The New Credit Facilities consist of (1) a $960 million seven-year Term Loan facility (Term Loan facility) and (2) an $800 million five year multi-currency asset-based revolving credit line and letter of credit facility (ABL facility).

Under the Term Loan facility, loans characterized as alternate base rate (ABR) borrowings bear interest annually at a rate equal to the alternate base rate (which is the greater of (a) the base rate in effect on a given day and (b) the federal funds effective rate in effect on a given day, plus 0.50%) plus the applicable margin, and loans characterized as Eurocurrency borrowings bear interest at an annual rate equal to the adjusted LIBOR rate for the interest period in effect, plus the applicable margin.

Under the ABL facility, interest charged is dependent on the type of loan: (1) any swingline loan or any loan categorized as an ABR borrowing will bear interest at an annual rate equal to the alternate base rate (which is the greater of (a) the base rate in effect on a given day and (b) the federal funds effective rate in effect on a given day, plus 0.50%), plus the applicable margin; (2) Eurocurrency loans will bear interest at an annual rate equal to the adjusted LIBOR rate for the applicable interest period, plus the applicable margin; (3) loans designated as Canadian base rate borrowings will bear an annual interest rate equal to the Canadian base rate (CAPRIME), plus the applicable margin; (4) loans designated as bankers acceptances (BA) rate loans will bear interest at the average discount rate offered for bankers’ acceptances for the applicable BA interest period, plus the applicable margin and (5) loans designated as Euro Interbank Offered Rate (EURIBOR) loans will bear interest annually at a rate equal to the adjusted EURIBOR rate for the applicable interest period, plus the applicable margin. Applicable margins under the ABL facility depend upon excess availability levels calculated on a quarterly basis.

Generally, for both the Term Loan facility and ABL facility, interest rates reset every three months and interest is payable on a monthly, quarterly or other periodic basis depending on the type of loan.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

September 28, 2007. Additional mandatory prepayments are required to be made in the event of certain collateral liquidations, asset sales, debt and preferred stock issuances, equity issuances, casualty events and excess cash flow (as defined in the New Credit Facilities). Any unpaid principal remaining is due in full on July 6, 2014.

Borrowing limits under the ABL facility are generally based on 85% of eligible accounts receivable and 75% to 85% of eligible inventories. Commitment fees of 0.25% to 0.375% are based on average daily amounts outstanding under the ABL facility during a fiscal quarter, and are payable quarterly.

The New Credit Facilities include customary affirmative and negative covenants. Under the ABL facility, if our excess availability, as defined under the borrowing, is less than 10% of the borrowing base, we are required to maintain a minimum fixed charge coverage ratio of 1 to 1. Substantially all of our assets are pledged as collateral under the New Credit Facilities.

We incurred debt issuance costs on our New Credit Facilities totaling $30 million, including the $8 million in fees previously paid in conjunction with the backstop commitment. These fees are included inOther long-term assets — third partiesand are being amortized over the life of the related borrowing inInterest expense and amortization of debt issuance costs — netusing the “effective interest amortization” method for the Term Loan facility and the straight-line method for the ABL facility. The unamortized amount of these costs was $28 million as of September 30, 2007.

Old Senior Secured Credit Facilities

In connection with our spin-off from Alcan, we entered into senior secured credit facilities (Old Credit Facilities) providing for aggregate borrowings of up to $1.8 billion. The Old Credit Facilities consisted of (1) a $1.3 billion seven-year senior secured Term Loan B facility, bearing interest at London Interbank Offered Rate (LIBOR) plus 1.75% (which was subject to change based on certain leverage ratios), all of which was borrowed on January 10, 2005, and (2) a $500 million five-year multi-currency revolving credit and letters of credit facility.

The Old Credit Facilities included customary affirmative and negative covenants, as well as financial covenants relating to our maximum total leverage, minimum interest coverage, and minimum fixed charge coverage ratios. Substantially all of our assets were pledged as collateral under the Old Credit Facilities.

The terms of our Old Credit Facilities required that we deliver unaudited quarterly and audited annual financial statements to our lenders within specified periods of time. Due to delays in certain of our SEC filings for 2005 and 2006, we obtained a series of five waiver and consent agreements from the lenders under the facility to extend the various filing deadlines. Fees paid related to the five waiver and consent agreements totaled $6 million.

On October 16, 2006, we amended the financial covenants to our Old Credit Facilities. In particular, we amended our maximum total leverage, minimum interest coverage, and minimum fixed charge coverage ratios through the quarter ending March 31, 2008.

We also amended and modified other provisions of the Old Credit Facilities to permit more efficient ordinary-course operations, including increasing the amounts of certain permitted investments and receivables securitizations, permitting nominal quarterly dividends, and the transfer of an intercompany loan to another subsidiary. In return for these amendments and modifications, we paid aggregate fees of approximately $3 million to lenders who consented to the amendments and modifications, and agreed to continue paying higher applicable margins on our Old Credit Facilities and higher unused commitment fees on our revolving credit facilities that were instated with a prior waiver and consent agreement in May 2006. Commitment fees related to the unused portion of the $500 million revolving credit facility were 0.625% per annum.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

On April 27, 2007, our lenders consented to a further amendment of our Old Credit Facilities. The amendment included permission to increase the Term Loan B facility by $150 million. We utilized the additional funds available under the Term Loan B facility to reduce the outstanding balance of our $500 million revolving credit facility. The additional borrowing capacity under the revolving credit facility was used to fund working capital requirements and certain costs associated with the Arrangement, including the cash settlement of share-based compensation arrangements and lender fees. Additionally, the amendment included a limited waiver of the change of control Event of Default (as defined in the senior secured credit facilities) which effectively extended the requirement to repay the Old Credit Facilities to July 11, 2007. We paid fees of approximately $2 million to lenders who consented to this amendment.

Total debt issuance costs of $43 million, including amendment fees and the waiver and consent agreements discussed above, had been recorded inOther long-term assets — third partiesand were being amortized over the life of the related borrowing inInterest expense and amortization of debt issuance costs — netusing the “effective interest amortization” method for the Term Loans and the straight-line method for the revolving credit and letters of credit facility. The unamortized amount of these costs was $26 million as of March 31, 2007. We incurred an additional $2 million in debt issuance costs as described above during the period from April 1, 2007 through May 15, 2007. As a result of the Arrangement and the recording of debt at fair value, the total amount of unamortized debt issuance costs of $28 million was reduced to zero as of May 15, 2007.

7.25% Senior Notes

On February 3, 2005, we issued $1.4 billion aggregate principal amount of senior unsecured debt securities (Senior Notes). The Senior Notes were priced at par, bear interest at 7.25% and mature on February 15, 2015. Debt issuance costs totaling $28 million had been included inOther long-term assets — third partiesand were being amortized over the life of the related borrowing inInterest expense and amortization of debt issuance costs — netusing the “effective interest amortization” method. The unamortized amount of these costs was $24 million as of March 31, 2007. As a result of the Arrangement and the recording of debt at fair value, the total amount of unamortized debt issuance costs of $23 million was reduced to zero as of May 15, 2007.

As a result of the Arrangement, the Senior Notes were recorded at their fair value of $1.474 billion based on their market price of 105.25% of $1,000 face value per bond as of May 14, 2007. The incremental fair value of $74 million is being amortized to interest income over the remaining life of the Senior Notes inInterest expense and amortization of debt issuance costs — net using the “effective interest amortization” method. Due to the change in the market price of our Senior Notes from 105.25% as of May 14, 2007 to 97.75% as of September 30, 2007, the estimated fair value of this debt has decreased $106 million to $1.368 billion (after considering the repurchase of approximately $1 million of the Senior Notes pursuant to the tender offer discussed below).

Under the indenture that governs the Senior Notes, we are subject to certain restrictive covenants applicable to incurring additional debt and providing additional guarantees, paying dividends beyond certain amounts and making other restricted payments, sales and transfers of assets, certain consolidations or mergers, and certain transactions with affiliates. We were in compliance with these covenants for the quarter ended September 30, 2007.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

post-effective amendment to the registration statement on December 1, 2006 which was declared effective by the SEC on December 22, 2006. We ceased paying additional special interest effective January 5, 2007, upon completion of the exchange offer.

Tender Offer and Consent Solicitation for 7.25% Senior Notes

Pursuant to the terms of the indenture governing our Senior Notes, we were obligated, within 30 days of closing of the Arrangement, to make an offer to purchase the Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date the Senior Notes were purchased. Consequently, we commenced a tender offer on May 16, 2007, to repurchase all of the outstanding Senior Notes at the prescribed price. This offer expired on July 3, 2007 with holders of approximately $1 million of principal presenting their Senior Notes pursuant to the tender offer.

Korean Bank Loans

In November 2004, Novelis Korea Limited (Novelis Korea), formerly Alcan Taihan Aluminium Limited, entered into a Korean won (KRW) 40 billion ($40 million) floating rate long-term loan due November 2007. We immediately entered into an interest rate swap to fix the interest rate at 4.80%. In August 2007, we refinanced this loan with a floating rate short-term borrowing in the amount of $40 million due by August 2008. We recognized a loss on extinguishment of debt of less than $1 million in connection with this refinancing. Additionally, we immediately entered into an interest rate swap and cross currency swap for the loan through a 3.94% fixed rate KRW 38 billion loan.

In December 2004, we entered into (1) a $70 million floating rate loan and (2) a KRW 25 billion ($25 million) floating rate loan, both due in December 2007. We immediately entered into an interest rate and cross currency swap on the $70 million floating rate loan through a 4.55% fixed rate KRW 73 billion loan and an interest rate swap on the KRW 25 billion floating rate loan to fix the interest rate at 4.45%. On October 25, 2007, we entered into a $100 million floating rate loan due October 2010 and immediately repaid the $70 million loan. We intend to repay the KRW 25 billion loan by its scheduled maturity date in December 2007 from the proceeds of this new borrowing. Consequently, both of the Korean bank loans originally due December 2007 have been classified as long-term in our September 30, 2007 condensed consolidated balance sheet. Additionally, we immediately entered into an interest rate swap and cross currency swap for the $100 million floating rate loan through a 5.44% fixed rate KRW 92 billion loan.

During the periods from May 16, 2007 through September 30, 2007 and from April 1, 2007 through May 15, 2007, interest rates on other Korean bank loans for $1 million (KRW 1 billion) ranged from 3.50% to 5.50%.

Other Agreements

In May 2007, we terminated a loan and a correspondingdeposit-and-guarantee agreement for $80 million. We did not include the loan or deposit amounts in our condensed consolidated balance sheet as of March 31, 2007 as the agreement included a legal right of setoff and we had the intent and ability to setoff.

Interest Rate Swaps

As noted above, we entered into interest rate swaps on certain Korean bank loans. On July 3, 2007, we terminated an interest rate swap we had to fix the3-month LIBOR interest rate at an effective weighted average interest rate of 3.9% on $100 million of the floating rate Term Loan B debt, which was originally scheduled to expire on February 3, 2008. The termination resulted in a gain of less than $1 million. As of September 30, 2007, approximately 58% of our debt was fixed rate and approximately 42% was variable rate.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Capital Lease Obligations

In December 2004, we entered into a fifteen-year capital lease obligation with Alcan for assets in Sierre, Switzerland, which has an interest rate of 7.5% and calls for fixed quarterly payments of CHF 1.7 million, which is equivalent to $1.5 million at the exchange rate as of September 30, 2007.

In September 2005, we entered into a six-year capital lease obligation for equipment in Switzerland which has an interest rate of 2.49% and calls for fixed monthly payments of CHF 0.1 million, which is equivalent to $0.1 million at the exchange rate as of September 30, 2007.

Short Term Borrowings and Lines of Credit

As of September 30, 2007, our short-term borrowings were $243 million consisting of (1) $180 million of short-term loans under our ABL facility, (2) a $40 million short-term loan in Korea and (3) $23 million in bank overdrafts. As of September 30, 2007, $26 million of our ABL facility was utilized for letters of credit and we had approximately $580 million in remaining availability under this revolving credit facility.

As of September 30, 2007, we had an additional $74 million outstanding under letters of credit in Korea not included in our ABL facility. The weighted average interest rate on our total short-term borrowings was 6.38% and 7.77% as of September 30, 2007 and March 31, 2007, respectively.


10.	Accumulated Other Comprehensive Income

Other comprehensive income is comprised of the following (in millions).


	Three Months					May 16, 2007					Six Months
	Ended					Through		April 1, 2007			Ended
	September 30,					September 30,		Through			September 30,
	2007		2006			2007		May 15, 2007			2006
	Successor		Predecessor			Successor		Predecessor			Predecessor
Net change in foreign currency translation adjustments	$	27	$	11		$	14	$	31		$	68
Net change in fair value of effective portion of hedges		2		11			4		(1	)		(23	)
Postretirement benefit plans:
Amortization of net actuarial loss		—		—			—		(1	)		—
Net change in minimum pension liability		—		(1	)		—		—			(4	)

Net other comprehensive income adjustments, before income tax effect		29		21			18		29			41
Income tax effect		2		—			12		4			—

Other comprehensive income	$	31	$	21		$	30	$	33		$	41

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Accumulated other comprehensive income, net of income tax effects, is comprised of the following (in millions).


	As of
	September 30, 2007		March 31, 2007
	Successor		Predecessor
Foreign currency translation adjustments	$	28	$	144
Fair value of effective portion of hedges — net		2		(43	)
Net actuarial loss		—		(82	)
Net prior service cost		—		(8	)
Net transition obligation		—		(1	)

Accumulated other comprehensive income	$	30	$	10


11.	Share-Based Compensation

Effect of Acquisition by Hindalco

As a result of the Arrangement (see Note 2 — Acquisition of Novelis Common Stock), all of our share-based compensation awards (except for our Recognition Awards) were accelerated to vest, cancelled and settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction. We made aggregate cash payments (including applicable payroll-related taxes) totaling $72 million to plan participants following consummation of the Arrangement, as follows:


	Shares/Units		Cash Payments
*Predecessor:*	Settled		(In millions)

Novelis 2006 Incentive Plan (stock options)		825,850	$	16
Novelis 2006 Incentive Plan (stock appreciation rights)		378,360		7
Novelis Conversion Plan of 2005		1,238,183		29
Stock Price Appreciation Unit Plan		299,873		7
Deferred Share Unit Plan for Non-Executive Directors		109,911		5
Novelis Founders Performance Awards		180,400		8

			$	72

Compensation expense of $45 million resulting from the accelerated vesting of plan awards is included inSelling, general and administrative expensesin our condensed consolidated statement of operations for the period from April 1, 2007 through May 15, 2007. We also recorded a $7 million reduction to ourAdditional paid-in capitalduring the period from April 1, 2007 through May 15, 2007 for the conversion of certain of our share-based compensation plans from equity-based plans to liability-based plans.

Our Recognition Awards plan remains in place as of September 30, 2007. However, the awards are now payable only in either, at the option of the Executive (defined below), (i) Hindalco common shares (if offered by Hindalco) or (ii) cash.

Recognition Awards

On September 25, 2006, we entered into Recognition Agreements and granted Recognition Awards to certain executive officers and other key employees (Executives) to retain and reward them for continued dedication towards corporate objectives. Under the terms of these agreements, Executives who remain

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

continuously employed by us through the vesting dates of December 31, 2007 and December 31, 2008 are entitled to receive one-half of their total Recognition Awards on each vesting date.

On February 10, 2007, our board of directors adopted resolutions to amend the Recognition Awards with the Executives. As amended, if the Executive remains continuously employed by us through the vesting dates of December 31, 2007 and December 31, 2008, the Executive is entitled to the awards, payable at a value of $44.93 per share, in either, at the option of the Executive, (i) Hindalco common shares (if offered by Hindalco) or (ii) cash.

The number of Recognition Awards payable under the agreements varies by Executive. Currently, there are 118,100 shares subject to award. Prior to the Arrangement and in accordance with the provisions of FASB Statement No. 123 (Revised),Share-Based Payment, we valued these awards as of the issuance date and were recognizing their cost over the requisite service period of the Executives. As a result of the Arrangement, the Recognition Awards changed in classification from an equity-based to a liability-based plan using the $44.93 purchase price per common share paid by Hindalco in the transaction as the per share value. This classification change resulted in additional share-based compensation expense of $1.3 million during the period from April 1, 2007 through May 15, 2007.

The table below shows the activity for our Recognition Awards.


				Weighted
	Number of			Average		Award
	Recognition			Fair Value at		Redemption
	Awards			Grant Date		Price

*Predecessor:*
Recognition Awards as of March 31, 2007		145,800		$	23.15
Granted		—
Vested		—
Forfeited/Cancelled		—

Recognition Awards as of May 15, 2007		145,800				$	44.93




*Successor:*
Granted		—
Vested		—
Forfeited/Cancelled		(27,700	)

Recognition Awards as of September 30, 2007		118,100				$	44.93

As of September 30, 2007, there was approximately $1 million of unamortized compensation expense related to each of the two vesting dates for the Recognition Awards, which is expected to be recognized over the next 0.25 years and 1.25 years, respectively.

2006 Stock Options

On October 26, 2006, our board of directors authorized a grant of an aggregate of 885,170 seven-year non-qualified stock options under the Novelis 2006 Incentive Plan (2006 Incentive Plan) at an exercise price of $25.53 to certain of our executive officers and key employees. These options were comprised of equal portions of premium and non-premium options. Both the premium and non-premium options were to vest ratably in 25% annual increments over a four year period measured from October 26, 2006, and could be exercised, in whole or in part, once vested. However, while the premium and non-premium options carry the same exercise price of $25.53, in no event could the premium options be exercised unless the fair market

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

value per share, as defined in the 2006 Incentive Plan, on the business day preceding the exercise date equals or exceeds $28.59. As a result of the Arrangement, all of our stock options under the 2006 Incentive Plan were accelerated to vest, cancelled and settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction.

The table below shows the option activity (for both premium and non-premium options) under our 2006 Incentive Plan.


						Weighted
						Average
				Weighted		Remaining
				Average		Contractual		Aggregate
	Number of			Exercise		Term		Intrinsic
	Options			Price		(In Years)		Value

*Predecessor:*
Options outstanding as of March 31, 2007		825,850		$	25.53
Granted		—			—
Exercised		—			—
Forfeited/Cancelled		—			—
Expired		—			—
Settled as a result of the Arrangement		(825,850	)	$	25.53

Options outstanding as of May 15, 2007		—		$	—		—	$	—

Options exercisable as of May 15, 2007		—		$	—		—	$	—

Prior to the Arrangement, we used the Monte Carlo valuation model to determine the fair value of the premium options outstanding under the 2006 Incentive Plan. The Monte Carlo model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award and calculates the fair market value of each award. Because our trading history was shorter than the expected life of the options, we used historical stock price volatility data from comparable companies to supplement our own historical volatility to determine expected volatility assumptions. The annual expected dividend yield was based on dividend payments of $0.01 per share per quarter. Risk-free interest rates were based on U.S. Treasury Strip yields, compounded daily, consistent with the expected lives of the options. The fair value of the premium options was being amortized over the requisite service period of each award, which was originally from one to four years, subject to acceleration in cases where the employee elected retirement or was retirement eligible after October 26, 2007.

Prior to the Arrangement, we used the Black-Scholes valuation model to determine the fair value of non-premium options issued. Because our trading history was shorter than the expected life of the options, we used historical stock price volatility data from comparable companies to supplement our own historical volatility to determine expected volatility assumptions. The annual expected dividend yield was based on dividend payments of $0.01 per share per quarter. Risk-free interest rates were based on U.S. Treasury Strip yields, compounded daily, consistent with the expected lives of the options. Because we did not have a sufficient history of option exercise or cancellation, we estimated the expected life of the options based on an extension of the “simplified method” as prescribed by SEC Staff Accounting Bulletin (SAB) No. 107,Share-Based Payment, which allows for the use of a mid-point between the earliest and latest dates that an award can be exercised.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

No premium or non-premium options under the 2006 Incentive Plan were granted during the period from April 1, 2007 through May 15, 2007. Prior to the Arrangement, the fair value of our premium and non-premium options was estimated using the following assumptions:


		April 1, 2007
		Through
		May 15, 2007
		Predecessor

Expected volatility		42.20 to 46.40%
Weighted average volatility		44.30%
Dividend yield		0.16%
Risk-free interest rate		4.68 to 4.71%
Expected life		1.00 to 4.75 years

As a result of the Arrangement, 825,850 premium and non-premium options under the 2006 Incentive Plan were accelerated to vest and were settled in cash for approximately $16 million.

Novelis Conversion Plan of 2005

On January 5, 2005, our board of directors adopted the Novelis Conversion Plan of 2005 (the Conversion Plan) to allow for 1,372,663 Alcan stock options held by employees of Alcan who became our employees following our spin-off from Alcan to be replaced with options to purchase 2,723,914 of our common shares. As a result of the Arrangement, all of our stock options under the Conversion Plan were accelerated to vest, cancelled and settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction.

The table below shows the option activity in our Conversion Plan.


						Weighted
						Average
				Weighted		Remaining
				Average		Contractual		Aggregate
	Number of			Exercise		Term		Intrinsic
	Options			Price		(In Years)		Value

*Predecessor:*
Options outstanding as of March 31, 2007		1,296,952		$	21.74
Granted		—			—
Exercised		(57,876	)	$	20.00
Forfeited/Cancelled		(893	)	$	23.74
Expired		—			—
Settled as a result of the Arrangement		(1,238,183	)	$	21.82

Options outstanding as of May 15, 2007		—		$	—		—	$	—

Options exercisable as of May 15, 2007		—		$	—		—	$	—

Prior to the Arrangement, we used the Black-Scholes valuation model to determine the fair value of the options outstanding. Because we had no trading history at the time of the valuation, we used historical stock price volatility data from comparable companies to determine expected volatility assumptions. The annual expected dividend yield was based on our then current and anticipated dividend payments. Risk-free interest rates were based on U.S. Treasury bond yields, compounded daily, consistent with the expected lives of the options. Because we did not have a sufficient history of option exercise or cancellation, we estimated the

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

expected life of the options based on the lesser of the expected term of six years or the remaining life of the option.

No new options under the Conversion Plan were granted since its adoption in January 2005. The fair value of each option was estimated using the following assumptions:


		April 1, 2007
		Through
		May 15, 2007
		Predecessor

Expected volatility		30.30%
Weighted-average volatility		30.30%
Dividend yield		1.56%
Risk-free interest rate		2.88 to 3.73%
Expected life		0.70 to 5.70 years

During the period from April 1, 2007 through May 15, 2007, there were 6,548 options that vested. As a result of the Arrangement, 563,651 options were accelerated to vest with a total fair value of approximately $4 million, and 1,238,183 options were settled in cash using the $44.93 per common share transaction price for approximately $29 million.

Under our Conversion Plan for the period from April 1, 2007 through May 15, 2007, the total intrinsic value of options exercised was approximately $1 million and cash received from options exercised was approximately $1 million. During both the three months and six months ended September 30, 2006, there were 4,298 options exercised at a weighted average exercise price of $18.31.

Stock Appreciation Rights

On October 26, 2006, our board of directors authorized a grant of 381,090 Stock Appreciation Rights (SARs) under the 2006 Incentive Plan at an exercise price of $25.53 to certain of our executive officers and key employees. The terms of the SARs were identical in all material respects to those of the stock options issued under the 2006 Incentive Plan, except that the incremental increase in the value of the SARs was to be settled in cash rather than shares of Novelis’ common stock at the time of exercise. The SARs were comprised of two equal portions: premium and non-premium SARs. Both the premium and non-premium SARs vested ratably in 25% annual increments over the four-year period measured from October 26, 2006, and could be exercised, in whole or in part, once vested. However, while the premium and non-premium SARs carried the same exercise price of $25.53, in no event could the premium SARs be exercised unless the fair market value per share, as defined in the 2006 Incentive Plan, on the business day preceding the exercise date equals or exceeds $28.59. As a result of the Arrangement, all of our SARs under the 2006 Incentive Plan were accelerated to vest, cancelled and settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

The table below shows the SARs activity (for both premium and non-premium SARs) under our 2006 Incentive Plan.


						Weighted
						Average
				Weighted		Remaining
				Average		Contractual		Aggregate
	Number of			Exercise		Term		Intrinsic
	SARs			Price		(In Years)		Value

*Predecessor:*
SARs outstanding as of March 31, 2007		380,000		$	25.53
Granted		—			—
Exercised		—			—
Forfeited/Cancelled		(1,640	)	$	25.53
Expired		—			—
Settled as a result of the Arrangement		(378,360	)	$	25.53

SARs outstanding as of May 15, 2007		—		$	—		—	$	—

SARs exercisable as of May 15, 2007		—		$	—		—	$	—

Prior to the Arrangement, we used the Monte Carlo valuation model to determine the fair value of the premium SARs outstanding under the 2006 Incentive Plan. The Monte Carlo model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award and calculates the fair market value of each award. Because our trading history was shorter than the expected life of the SARs, we used historical stock price volatility data from comparable companies to supplement our own historical volatility to determine expected volatility assumptions. No quarterly or annual dividend was expected. Risk-free interest rates were based on U.S. Treasury Strip yields, compounded daily, consistent with the expected remaining lives of the premium SARs. The fair value of the premium SARs was being amortized over the requisite remaining service period of each award, which was from 0.57 to 3.57 years as of March 31, 2007, subject to acceleration in cases where the employee elects retirement or is retirement eligible after October 26, 2007.

Prior to the Arrangement, we used the Black-Scholes valuation model to determine the fair value of the non-premium SARs outstanding. Because our trading history was shorter than the expected life of the SARs, we used historical stock price volatility data from comparable companies to supplement our own historical volatility to determine expected volatility assumptions. No quarterly or annual dividend was expected. Risk-free interest rates were based on U.S. Treasury Strip yields, compounded daily, consistent with the expected remaining lives of the SARs. Because we did not have a sufficient history of SAR exercise or cancellation, we estimated the expected remaining life of the SARs based on an extension of the “simplified method” as prescribed by SAB No. 107.

As a result of the Arrangement, 378,360 premium and non-premium SARs were accelerated to vest and were settled in cash for approximately $7 million.

Stock Price Appreciation Unit Plan

Prior to the spin-off, some Alcan employees who later transferred to Novelis held Alcan stock price appreciation units (SPAUs). These units entitled them to receive cash equal to the excess of the market value of an Alcan common share on the exercise date of a SPAU over the market value of an Alcan common share on its grant date. On January 6, 2005, these employees received 418,777 Novelis SPAUs to replace their 211,035 Alcan SPAUs at a weighted average exercise price of $22.04. All converted SPAUs that were vested at the spin-off date continued to be vested. Unvested SPAUs were to vest in four equal annual installments beginning on January 6, 2006, the first anniversary of the spin-off date.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

The table below shows the activity in our SPAU Plan.


						Weighted
						Average
				Weighted		Remaining
				Average		Contractual		Aggregate
	Number of			Exercise		Term		Intrinsic
	SPAUs			Price		(In Years)		Value

*Predecessor:*
SPAUs outstanding as of March 31, 2007		300,617		$	21.94
Granted		—			—
Exercised		—			—
Forfeited/Cancelled		(744	)	$	21.49
Expired		—			—
Settled as a result of the Arrangement		(299,873	)	$	21.94

SPAUs outstanding as of May 15, 2007		—		$	—		—	$	—

SPAUs exercisable as of May 15, 2007		—		$	—		—	$	—

Prior to the Arrangement, we used the Black-Scholes valuation model to estimate the fair value of SPAUs granted to employees and to determine the fair value of the SPAUs outstanding. Because our trading history is shorter than the expected life of the SPAUs, we used historical stock price volatility data from comparable companies to supplement our own historical volatility to determine expected volatility assumptions. No quarterly or annual dividend was expected. Risk-free interest rates were based on U.S. Treasury spot rates consistent with the expected remaining lives of the SPAUs. Because we did not have a sufficient history of SPAU exercise or cancellation, we estimated the expected remaining life of the SPAUs based on an extension of the “simplified method” as prescribed by SAB No. 107. As a result of the Arrangement, the SPAUs were valued using the $44.93 purchase price per common share paid by Hindalco in the transaction.

As a result of the Arrangement, 201,495 SPAUs were accelerated to vest and 299,873 SPAUs were settled in cash using the $44.93 per common share transaction price for approximately $7 million.

Deferred Share Unit Plan for Non-Executive Directors

On January 5, 2005, Novelis established the Deferred Share Unit Plan for Non-Executive Directors under which non-executive directors would receive 50% of their compensation payable in the form of directors’ deferred share units (DDSUs) and the other 50% in the form of either cash, additional DDSUs or a combination of these two (at the election of each non-executive director). The number of DDSUs was determined by dividing the quarterly amount payable, as elected, by the average closing prices of a common share on the Toronto Stock Exchange (TSX) (adjusted for the noon exchange rate) and New York Stock Exchange (NYSE) on the last five trading days of each quarter. Additional DDSUs representing the equivalent of dividends declared on common shares are credited to each holder of DDSUs. The number of DDSUs outstanding as of March 31, 2007 included DDSUs issued on April 1, 2007, as the required service was provided by the period-end.

The DDSUs were redeemable in cashand/or in shares of our common stock following the participant’s retirement from the board. The redemption amount was calculated by multiplying the accumulated balance of DDSUs by the average closing price of a common share on the TSX (adjusted for the noon exchange rate) and NYSE on the last five trading days prior to the redemption date. As a result of the Arrangement, all of our DDSUs were cancelled and settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

The table below shows the activity in our DDSU Plan.


						Aggregate
	Number of			Redemption		Intrinsic
	DDSUs			Price		Value

*Predecessor:*
DDSUs outstanding as of March 31, 2007		106,578		$	44.09
Granted		3,333
Exercised (paid out)		—
Forfeited		—
Expired/Cancelled		—
Settled as a result of the Arrangement		(109,911	)	$	44.93

DDSUs outstanding as of May 15, 2007		—		$	—	$	—

As a result of the Arrangement, 109,911 DDSUs were settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction for approximately $5 million.

Novelis Founders Performance Awards

In March 2005 (and amended and restated in March 2006 and February 2007), Novelis established a plan to reward certain key executives with Performance Share Units (PSUs) if Novelis common share price improvement targets were achieved within specific time periods. There were three equal tranches of PSUs, and each had a specific share price improvement target. For the first tranche, the target share price of $23.57 applied for the period from March 24, 2005 to March 23, 2008. For the second tranche, the target share price of $25.31 applied for the period from March 24, 2006 to March 23, 2008. For the third tranche, the target share price of $27.28 applied for the period from March 24, 2007 to March 23, 2008. If awarded, a particular tranche was to be paid in cash on the later of six months from the date the specific common share price target is reached or twelve months after the start of the performance period, and will be based on the average of the daily common share closing prices on the NYSE for the last five trading days prior to the payment date.

The liability for the first tranche was accrued over its term, was valued on March 24, 2006, and was paid in April 2006 in the aggregate amount of approximately $3 million.

In February 2007, our board of directors recognized that the applicable share price threshold had been (or would likely be) met with respect to the second tranche and would probably be met for the third tranche, but in light of the insiders’ awareness of the possibility of a change in control transaction, they were subject to a trading blackout. Moreover, it was unlikely that a 15 day open trading window under the Novelis disclosure and insider trading policies would arise prior to the Arrangement. Accordingly, on February 10, 2007, our board of directors further amended the PSUs in order to provide that the applicable threshold for (a) the second tranche was to be met as of February 28, 2007 and (b) the third tranche was to be met as of March 26, 2007, for purposes of PSUs to be awarded.

As a result of the Arrangement, the second and third tranches (represented by 94,450 and 85,950 PSUs, respectively) were settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction for a total of approximately $8 million.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Share-Based Compensation Expense

Total share-based compensation expense is presented in the table below (in millions). These amounts are included inSelling, general and administrative expensesin our condensed consolidated statements of operations.


	Three Months
	Ended				May 16, 2007					Six Months
	September 30,				Through		April 1, 2007			Ended
					September 30,		Through			September 30,
	2007		2006		2007		May 15, 2007			2006
	Successor		Predecessor		Successor		Predecessor			Predecessor
Recognition Awards	$	0.8	$	—	$	1.2	$	1.5		$	—
Novelis 2006 Incentive Plan (stock options)		n.a.		—		n.a.		14.5			—
Novelis 2006 Incentive Plan (stock appreciation rights)		n.a.		—		n.a.		5.6			—
Novelis Conversion Plan of 2005		n.a.		0.8		n.a.		23.8			1.5
Stock Price Appreciation Unit Plan		n.a.		0.8		n.a.		(0.5	)		1.1
Deferred Share Unit Plan for Non-Executive Directors		n.a.		0.5		n.a.		0.2			0.9
Novelis Founders Performance Awards		n.a.		1.0		n.a.		0.1			1.3
Total Shareholder Returns Performance Plan		n.a.		0.6		n.a.		—			1.0

Total share-based compensation expense	$	0.8	$	3.7	$	1.2	$	45.2		$	5.8

n.a. — not applicable as plan was cancelled.


12.	Postretirement Benefit Plans

Components of net periodic benefit cost for our significant pension and other postretirement benefit plans are shown in the tables below (in millions).


	Three Months						May 16, 2007						Six Months
	Ended						Through			April 1, 2007			Ended
	September 30,						September 30,			Through			September 30,
Pension Benefit Plans	2007			2006			2007			May 15, 2007			2006
	Successor			Predecessor			Successor			Predecessor			Predecessor
Service cost	$	12		$	9		$	18		$	6		$	19
Interest cost		12			11			18			6			22
Expected return on assets		(11	)		(9	)		(16	)		(5	)		(19	)
Amortization
— actuarial losses		—			1			—			—			3
— prior service cost		—			1			—			—			1

Net periodic benefit cost	$	13		$	13		$	20		$	7		$	26

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)


	Three Months				May 16, 2007				Six Months
	Ended				Through		April 1, 2007		Ended
	September 30,				September 30,		Through		September 30,
Other Postretirement Benefit Plans	2007		2006		2007		May 15, 2007		2006
	Successor		Predecessor		Successor		Predecessor		Predecessor
Service cost	$	1	$	1	$	2	$	1	$	2
Interest cost		2		2		3		1		4
Amortization
— actuarial losses		—		1		—		—		1

Net periodic benefit cost	$	3	$	4	$	5	$	2	$	7

The expected long-term rate of return on plan assets is 7.5% in fiscal 2008.

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, Malaysia and Brazil. We contributed the following amounts to all plans, including the Alcan plans that cover our employees (in millions).


	Three Months				May 16, 2007				Six Months
	Ended				Through		April 1, 2007		Ended
	September 30,				September 30,		Through		September 30,
	2007		2006		2007		May 15, 2007		2006
	Successor		Predecessor		Successor		Predecessor		Predecessor
Funded pension plans	$	11	$	8	$	16	$	4	$	13
Unfunded pension plans		4		3		6		2		6
Savings and defined contribution pension plans		4		3		6		2		5

Total contributions	$	19	$	14	$	28	$	8	$	24

During the remainder of fiscal 2008, we expect to contribute an additional $20 million to our funded pension plans, $9 million to our unfunded pension plans and $6 million to our savings and defined contribution pension plans.

In October 2007, we completed the transfer of additional U.K. plan assets and liabilities from Alcan to Novelis. Plan liabilities assumed exceeded plan assets received by approximately $7 million. This difference will be recorded as a purchase price adjustment to goodwill in our final purchase price allocation.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)


13.	Currency Losses (Gains)

The following currency losses (gains) are included in the accompanying condensed consolidated statements of operations (in millions).


	Three Months						May 16, 2007						Six Months
	Ended						Through			April 1, 2007			Ended
	September 30,						September 30,			Through			September 30,
	2007			2006			2007			May 15, 2007			2006
	Successor			Predecessor			Successor			Predecessor			Predecessor
Net loss (gain) on change in fair value of currency derivative instruments(A)	$	(5	)	$	(6	)	$	(21	)	$	(10	)	$	2
Net loss (gain) on translation of monetary assets and liabilities(B)		2			(5	)		9			4			(10	)

Net currency losses (gains)	$	(3	)	$	(11	)	$	(12	)	$	(6	)	$	(8	)


(A)		Included in(Gain) loss on change in fair value of derivative instruments — netin the accompanying condensed consolidated statements of operations.

(B)		Included inOther (income) expenses — netin the accompanying condensed consolidated statements of operations.

The following currency gains are included inAccumulated other comprehensive incomein the accompanying condensed consolidated balance sheets (net of tax effect and in millions).


	May 16, 2007		January 1, 2007
	Through		Through
	September 30, 2007		March 31, 2007
	Successor		Predecessor
Cumulative currency translation adjustment — beginning of period	$	—	$	133
Effect of changes in exchange rates		28		11

Cumulative currency translation adjustment — end of period	$	28	$	144


14.	Financial Instruments and Commodity Contracts

In conducting our business, we use various derivative and non-derivative instruments, including forward contracts, to manage the risks arising from fluctuations in exchange rates, interest rates, aluminum prices and energy prices. Such instruments are used for risk management purposes only. We may be exposed to losses in the future if the counterparties to the contracts fail to perform. We are satisfied that the risk of such non-performance is remote, due to our monitoring of credit exposures. Alcan is the principal counterparty to our aluminum forward contracts.

Certain contracts are designated as hedges of either net investment or cash flows. For these contracts we recognize the change in fair value of the ineffective portion of the hedge as a gain or loss in our current period results of operations. We include the change in fair value of the effective and interest portions of these hedges inAccumulated other comprehensive income within Shareholder’s equity in the accompanying condensed consolidated balance sheet.

Prior to Completion of the Arrangement

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

forward exchange contracts. Our Euro and British pound (GBP) cross-currency swaps were designated as net investment hedges, while our Swiss franc (CHF) cross-currency swaps and our Brazilian real (BRL) forward foreign exchange contracts were designated as cash flow hedges. As of May 15, 2007, we had $712 million of cross-currency swaps (Euro 475 million, GBP 62 million and CHF 35 million) and $99 million of forward foreign exchange contracts (BRL 229 million). During the period from April 1, 2007 through May 15, 2007, we implemented cash flow hedge accounting for an electricity swap, which was embedded in a supply contract.

During the period from April 1, 2007 through May 15, 2007, the change in fair value of the effective and interest portions of our net investment hedges was a loss of $8 million and the change in fair value of the effective portion of our cash flow hedges was a gain of $7 million.

Impact of the Arrangement and Purchase Accounting

Concurrent with completion of the Arrangement on May 15, 2007, we dedesignated all hedging relationships. The cumulative change in fair value of effective and interest portions of these hedges, previously presented inAccumulated other comprehensive incomewithin Shareholder’s equity on May 15, 2007, was incorporated in the new basis of accounting. As a result of purchase accounting, the fair value of all embedded derivative instruments was allocated to the fair value of their respective host contracts, reducing the fair value of embedded derivative instruments to zero.

Subsequent to Completion of the Arrangement

We redesignated our electricity swap, noted below, as a cash flow hedge on June 1, 2007. We redesignated our Euro, GBP and CHF cross-currency swaps, noted above, as net investment hedges on September 1, 2007. We have not applied hedge accounting to any other derivative instruments after May 15, 2007. Subsequent changes in fair value have been recognized in(Gain) loss on change in fair value of derivative instruments — netin our condensed consolidated statements of operations.

During the three months ended September 30, 2007 and for the period from May 16, 2007 through September 30, 2007, we recognized pre-tax gains of $2 million and $4 million, respectively, for the change in fair value of the effective portion of our remaining cash flow hedge. As of September 30, 2007, the amount of effective net gains to be realized during the next twelve months is not significant. The maximum period over which we have hedged our exposure to cash flow variability is through November 2016.

During the three months ended September 30, 2007 and for the period from May 16, 2007 through September 30, 2007, we recognized pre-tax losses of $28 million and $28 million, respectively, for the change in fair value of the effective portion of our net investment hedges. As of September 30, 2007, we expect to realize $4 million of effective net losses during the next twelve months. The maximum period over which we have hedged our net investment variability is through February 2015.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

The fair values of our financial instruments and commodity contracts as of September 30, 2007 and March 31, 2007 were as follows (in millions).


		As of September 30, 2007
	Maturity Dates						Net Fair
	(Fiscal Year)	Assets		Liabilities			Value

*Successor:*
Foreign exchange forward contracts	2008 through 2012	$	34	$	(44	)	$	(10	)
Cross-currency swaps	2008 through 2015		—		(141	)		(141	)
Aluminum forward contracts	2008 through 2010		13		(29	)		(16	)
Electricity swap	2017		4		(1	)		3
Embedded derivative instruments	2008		7		—			7
Natural gas swaps	2008 through 2009		—		(1	)		(1	)

Total fair value			58		(216	)		(158	)
Less: current portion(A)			51		(81	)		(30	)

Noncurrent portion(A)		$	7	$	(135	)	$	(128	)


		As of March 31, 2007
	Maturity Dates						Net Fair
	(Fiscal Year)	Assets		Liabilities			Value

*Predecessor:*
Foreign exchange forward contracts	2008 through 2012	$	16	$	(20	)	$	(4	)
Interest rate swaps	2008		2		—			2
Cross-currency swaps	2008 through 2015		6		(90	)		(84	)
Aluminum forward contracts	2008 through 2010		60		(8	)		52
Aluminum options	2008		1		—			1
Electricity swap	2017		60		—			60
Embedded derivative instruments	2008		1		—			1
Natural gas swaps	2008		1		—			1

Total fair value			147		(118	)		29
Less: current portion(A)			92		(33	)		59

Noncurrent portion(A)		$	55	$	(85	)	$	(30	)


(A)		The amounts of the current and long-term portions of fair values under assets are each presented in the accompanying condensed consolidated balance sheets. The amounts of the current and noncurrent portions of fair values under liabilities are included inAccrued expenses and other current liabilitiesandOther long-term liabilities, respectively, in the accompanying condensed consolidated balance sheets.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)


15.	Other (Income) Expenses — Net

Other (income) expenses — net is comprised of the following (in millions).


	Three Months						May 16, 2007						Six Months
	Ended						Through			April 1, 2007			Ended
	September 30,						September 30,			Through			September 30,
	2007			2006			2007			May 15, 2007			2006
	Successor			Predecessor			Successor			Predecessor			Predecessor
Restructuring charges — net	$	—		$	10		$	1		$	1		$	12
Exchange (gains) losses — net		2			(5	)		9			4			(10	)
Losses on disposals of property, plant and equipment — net		—			2			—			—			2
Other — net		(9	)		—			(6	)		(1	)		(1	)

Other (income) expenses — net	$	(7	)	$	7		$	4		$	4		$	3


16.	Income Taxes

We provide for income taxes using the liability method in accordance with FASB Statement No. 109,Accounting for IncomeTaxes. In accordance with APB Opinion No. 28,Interim Financial Reporting, and FASB Interpretation No. 18,Accounting for Income Taxes in Interim Periods(FIN No. 18), the provision for taxes on income recognizes our estimate of the effective tax rate expected to be applicable for the full fiscal year, adjusted for the impact of any discrete events, which are reported in the period in which they occur. Each quarter, we re-evaluate our estimated tax expense for the year and make adjustments for changes in the estimated tax rate. Additionally, we evaluate the realizability of our deferred tax assets on a quarterly basis. Our evaluation considers all positive and negative evidence and factors, such as the scheduled reversal of temporary differences, historical and projected future taxable income or losses, and prudent and feasible tax planning strategies.

TheProvision (benefit) for taxes on lossfor (1) the three months ended September 30, 2007 and (2) the periods from May 16, 2007 through September 30, 2007 and from April 1, 2007 through May 15, 2007 were based on the estimated effective tax rates applicable for the fiscal year ending March 31, 2008, after considering items specifically related to the interim periods. TheProvision (benefit) for taxes on lossfor the three and six month periods ended September 30, 2006 were based on the estimated effective tax rates applicable for the fiscal year ended December 31, 2006, after considering items specifically related to the interim periods.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

A reconciliation of the Canadian statutory tax rates to our effective tax rates is as follows (in millions).


							May 16, 2007			April 1, 2007			Six Months
							Through			Through			Ended
	Three Months Ended September 30,						September 30,			May 15,			September 30,
	2007			2006			2007			2007			2006
	Successor			Predecessor			Successor			Predecessor			Predecessor
Pre-tax loss before equity in net (income) loss of non-consolidated affiliates and minority interests’ share	$	(19	)	$	(161	)	$	(38	)	$	(95	)	$	(175	)

Canadian statutory tax rate		33	%		33	%		33	%		33	%		33	%

Income taxes (benefit) at the Canadian statutory rate	$	(6	)	$	(54	)	$	(12	)	$	(31	)	$	(58	)
Increase (decrease) in tax rate resulting from:
Exchange translation items		27			2			47			23			26
Exchange remeasurement of deferred income taxes		4			(1	)		7			3			(1	)
Change in valuation allowances		19			12			40			13			9
Enacted tax rate changes		(74	)		—			(71	)		2			1
Expense/income items with no tax effect — net		(10	)		—			(19	)		(11	)		(9	)
Tax rate differences on foreign earnings		(2	)		(11	)		—			2			(40	)
Other — net		6			—			8			3			—

Provision (benefit) for taxes on loss	$	(36	)	$	(52	)	$	—		$	4		$	(72	)

Effective tax rate		189	%		32	%		—	%		(4	)%		41	%

Our effective tax rate differs from the Canadian statutory rate primarily due to the following factors: (1) pre-tax foreign currency gains or losses with no tax effect and the tax effect of U.S. dollar denominated currency gains or losses with no pre-tax effect, which is shown above as exchange translation items; (2) changes in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses; (3) differences between the Canadian statutory and foreign effective tax rates resulting from the application of an annual effective tax rate to profit and loss entities in different jurisdictions shown above as tax rate differences on foreign earnings and (4) the effects of enacted tax rate changes on cumulative taxable temporary differences.

Cash taxes paid are shown in the table below (in millions).

May 16, 2007

April 1, 2007

Six Months

Through

Ended

Three Months Ended September 30,

September 30,

May 15,

September 30,

2007

2006

2007

2006

Successor

Predecessor

Successor

Predecessor

Cash taxes paid

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Adoption of FASB Interpretation No. 48

In June 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes.FASB Interpretation No. 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FASB Interpretation No. 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Upon adoption as of January 1, 2007, we increased our reserves for uncertain tax positions by $1 million. We recognized the increase as a cumulative effect adjustment to Shareholder’s equity, as an increase to ourAccumulated deficit. Including this adjustment, reserves for uncertain tax positions totaled $45 million as of January 1, 2007. Of this total, $43 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in any future periods.

Tax authorities are currently examining certain of our prior years’ tax returns for1999-2006. We are evaluating potential adjustments related to certain items and we anticipate that it is reasonably possible that settlement of the examination will result in a payment in the range of up to $5 million and a corresponding decrease in unrecognized tax benefits by September 30, 2008.

Separately, we are awaiting a court ruling regarding the utilization of certain operating losses. We anticipate that it is reasonably possible that this ruling will result in a $12 million decrease in unrecognized tax benefits by September 30, 2008 related to this matter. We have fully funded this contingent liability through a judicial deposit, which is included inOther long-term assets — third partiesas of January 1, 2007.

With the exception of the ongoing tax examinations described above, we are no longer subject to any income tax examinations by any tax authorities for years before 2001. With few exceptions, tax returns for all jurisdictions for all tax years after 2000 are subject to examination by taxing authorities.

Our continuing practice and policy is to record potential interest and penalties related to unrecognized tax benefits in ourProvision (benefit) for taxes on income (loss). As of March 31, 2007, we had $8 million accrued for potential interest on income taxes and no amounts accrued for potential penalties. For the three months ended September 30, 2007 and the periods from May 16, 2007 through September 30, 2007 and from April 1, 2007 through May 15, 2007, ourProvision (benefit) for taxes on lossincluded charges for an additional $1 million, $3 million and less than $1 million of potential interest, respectively. As of September 30, 2007, we had $11 million accrued for potential interest on income taxes and no amounts accrued for potential penalties.


17.	Commitments and Contingencies

Primary Supplier

Alcan is our primary supplier of prime and sheet ingot. The table below shows our purchases from Alcan as a percentage of our total combined prime and sheet ingot purchases.

Three Months

May 16, 2007

April 1, 2007

Six Months

Ended

Through

Ended

September 30,

May 15,

September 30,

2007

2006

2007

2006

Successor

Predecessor

Successor

Predecessor

Purchases from Alcan as a percentage of total combined prime and sheet ingot purchases

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Legal Proceedings

Reynolds Boat Case. As previously disclosed, we and Alcan were defendants in a case in the United States District Court for the Western District of Washington, in Tacoma, Washington, case number C04-0175RJB. Plaintiffs were Reynolds Metals Company, Alcoa, Inc. and National Union Fire Insurance Company of Pittsburgh PA. The case was tried before a jury beginning on May 1, 2006 under implied warranty theories, based on allegations that from 1998 to 2001 we and Alcan sold certain aluminum products that were ultimately used for marine applications and were unsuitable for such applications. The jury reached a verdict on May 22, 2006 against us and Alcan for approximately $60 million, and the court later awarded Reynolds and Alcoa approximately $16 million in prejudgment interest and court costs.

The case was settled during July 2006 as among us, Alcan, Reynolds, Alcoa and their insurers for $71 million. We contributed approximately $1 million toward the settlement, and the remaining $70 million was funded by our insurers. Although the settlement was substantially funded by our insurance carriers, certain of them have reserved the right to request a refund from us, after reviewing details of the plaintiffs’ damages to determine if they include costs of a nature not covered under the insurance contracts. Of the $70 million funded, $39 million is in dispute with and under further review by certain of our insurance carriers. In the quarter ended September 30, 2006, we posted a letter of credit in the amount of approximately $10 million in favor of one of those insurance carriers, while we resolve the extent of coverage of the costs included in the settlement. On October 8, 2007, we received a letter from these insurers stating that they have completed their review and they are requesting a refund of the $39 million plus interest. We are reviewing the insurers’ position and expect to respond to their letter within 45 days.

Since our fiscal 2005 Annual Report onForm 10-K was not filed until August 25, 2006, we recognized a liability for the full settlement amount of $71 million on December 31, 2005, included inAccrued expenses and other current liabilitieson our consolidated balance sheet, with a corresponding charge against earnings. We also recognized an insurance receivable included inPrepaid expenses and other current assetson our consolidated balance sheet of $31 million, with a corresponding increase to earnings. Although $70 million of the settlement was funded by our insurers, we only recognized an insurance receivable to the extent that coverage was not in dispute. This resulted in a net charge of $40 million during the quarter ended December 31, 2005.

In July 2006, we contributed and paid $1 million to our insurers who subsequently paid the entire settlement amount of $71 million to the plaintiffs. Accordingly, during the quarter ended September 30, 2006 we reversed the previously recorded insurance receivable of $31 million and reduced our recorded liability by the same amount plus the $1 million contributed by us. The remaining liability of $39 million represents the amount of the settlement claim that was funded by our insurers but is still in dispute with and under further review by the parties as described above. The $39 million liability is included inAccrued expenses and other current liabilities in our condensed consolidated balance sheets as of September 30, 2007 and March 31, 2007.

While the ultimate resolution of the nature and extent of any costs not covered under our insurance contracts cannot be determined with certainty or reasonably estimated at this time, if there is an adverse outcome with respect to insurance coverage, and we are required to reimburse our insurers, it could have a material impact on our cash flows in the period of resolution. Alternatively, the ultimate resolution could be favorable, such that insurance coverage is in excess of the net expense that we have recognized to date. This would result in our recording a non-cash gain in the period of resolution, and this non-cash gain could have a material impact on our results of operations during the period in which such a determination is made.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Inc., Enterprises Acquisition Company, Inc., TheCoca-Cola Company and TheCoca-Cola Trading Company, Inc. (collectively CCE) in federal court in Georgia. Novelis intends to defend these claims vigorously.

CCBSS is a consortium ofCoca-Cola bottlers across the United States, includingCoca-Cola Enterprises Inc. CCBSS alleges that Novelis Corporation breached an aluminum can stock supply agreement between the parties, and seeks monetary damages in an amount to be determined at trial and a declaration of its rights under the agreement. The agreement includes a “most favored nations” provision regarding certain pricing matters. CCBSS alleges that Novelis Corporation breached the terms of the most favored nations provision. The dispute will likely turn on the facts that are presented to the court by the parties and the court’s finding as to how certain provisions of the agreement ought to be interpreted. If CCBSS were to prevail in this litigation, the amount of damages would likely be material. Novelis Corporation has filed its answer and the parties are proceeding with discovery.

The claim by CCE seeks monetary damages in an amount to be determined at trial for breach of a prior aluminum can stock supply agreement between CCE and Novelis Corporation, successor to the rights and obligations of Alcan Aluminum Corporation under the agreement. According to its terms, that agreement with CCE terminated in 2006. The CCE supply agreement included a “most favored nations” provision regarding certain pricing matters. CCE alleges that Novelis Corporation’s entry into a supply agreement with Anheuser-Busch, Inc. breached the “most favored nation” provision of the CCE supply agreement. If CCE were to prevail in this litigation, the amount of damages would likely be material. The dispute will likely turn on the facts that are presented to the court by the parties and the court’s finding as to how certain provisions of the supply agreement ought to be interpreted. Novelis Corporation has moved to dismiss the complaint and has not yet filed its answer. We have not recorded any reserves for these matters.

Anheuser-Busch Litigation. On September 19, 2006, Novelis Corporation filed a lawsuit against Anheuser-Busch, Inc. in federal court in Ohio. Anheuser-Busch, Inc. subsequently filed suit against Novelis Corporation and the Company in federal court in Missouri. On January 3, 2007, Anheuser-Busch, Inc.’s suit was transferred to the Ohio federal court.

Novelis Corporation alleges that Anheuser-Busch, Inc. breached the existing multi-year aluminum can stock supply agreement between the parties, and we seek monetary damages and declaratory relief. Among other claims, we assert that since entering into the supply agreement, Anheuser-Busch, Inc. has breached its confidentiality obligations and there has been a structural change in market conditions that requires a change to the pricing provisions under the agreement.

In its complaint, Anheuser-Busch, Inc. has asked for a declaratory judgment that Anheuser-Busch, Inc. is not obligated to modify the supply agreement as requested by Novelis Corporation, and that Novelis Corporation must continue to perform under the existing supply agreement.

The Anheuser-Busch, Inc. litigation is currently at the discovery stage. Novelis Corporation has continued to perform under the supply agreement during the litigation.

ARCO Aluminum Complaint. On May 24, 2007, Arco Aluminum Inc. (ARCO) filed a complaint against Novelis Corporation and Novelis Inc. in the United States District Court for the Western District of Kentucky. ARCO and Novelis are partners in a joint venture rolling mill located in Logan, Kentucky. In the complaint, ARCO seeks to resolve a perceived dispute over management and control of the joint venture following Hindalco’s acquisition of Novelis.

ARCO alleges that its consent was required in connection with Hindalco’s acquisition of Novelis. Failure to obtain consent, ARCO alleges, has put us in default of the joint venture agreements, thereby triggering certain provisions in those agreements. The provisions include a reversion of the production management at the joint venture to Logan Aluminum from Novelis, and a reduction of the board of directors of the entity that

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

manages the joint venture from seven members (four appointed by Novelis and three appointed by ARCO) to six members (three appointed by each of Novelis and ARCO).

ARCO is seeking a court declaration that (1) Novelis and its affiliates are prohibited from exercising any managerial authority or control over the joint venture, (2) Novelis’ interest in the joint venture is limited to an economic interest only and (3) ARCO has authority to act on behalf of the joint venture. Or, alternatively, ARCO is seeking a reversion of the production management function to Logan Aluminum, and a change in the composition of the board of directors of the entity that manages the joint venture. Novelis filed its answer to the complaint on July 16, 2007.

On July 3, 2007, ARCO filed a motion for partial summary judgment with respect to one of the counts of its complaint relating to the claim that Novelis breached the joint venture agreement by not seeking ARCO’s consent. On July 30, 2007, Novelis filed a motion to hold ARCO’s motion for summary judgment in abeyance (pending further discovery), along with a demand for a jury. Those motions are pending. We intend to defend these proceedings vigorously.

Environmental Matters

Oswego North Ponds. As previously disclosed, Oswego North Ponds is currently our largest known single environmental loss contingency. In the late 1960s and early 1970s, Novelis Corporation, (formerly known as Alcan Aluminum Corporation, or Alcancorp) used an oil containing polychlorinated biphenyls (PCBs) in its re-melt operations in Oswego, New York. At the time, Novelis Corporation utilized a once-through cooling water system that discharged through a series of constructed ponds and wetlands, collectively referred to as the North Ponds. In the early 1980s, low levels of PCBs were detected in the cooling water system discharge and Novelis Corporation performed several subsequent investigations. The PCB-containing hydraulic oil, Pydraul, which was eliminated from use by Novelis Corporation in the early 1970s, was identified as the source of contamination. In the mid-1980s, the Oswego North Ponds site was classified as an “inactive hazardous waste disposal site” and added to the New York State Registry. Novelis Corporation ceased discharge through the North Ponds in mid-2002.

In cooperation with the New York State Department of Environmental Conservation (NYSDEC) and the New York State Department of Health, Novelis Corporation entered into a consent decree in August 2000 to develop and implement a remedial program to address the PCB contamination at the Oswego North Ponds site. A remedial investigation report was submitted in January 2004. The current estimated cost associated with this remediation is in the range of $12 million to $26 million. Based upon the report and other factors, we accrued $19 million as our estimated cost. In addition, NYSDEC held a public hearing on the remediation plan on March 13, 2006 and a Consent Order for the implementation of the remediation plan was executed by NYSDEC and Novelis Corporation, effective January 1, 2007. We believe that our estimate of $19 million is reasonable, and that the remediation plan will be designed and implemented in fiscal 2008.

Brazil Tax Matters

Primarily as a result of legal proceedings with Brazil’s Ministry of Treasury regarding certain taxes in South America, as of September 30, 2007 and March 31, 2007, we had cash deposits aggregating approximately $30 million and $25 million, respectively, in judicial depository accounts pending finalization of the related cases. The depository accounts are in the name of the Brazilian government and will be expended towards these legal proceedings or released to us, depending on the outcome of the legal cases. These deposits are included inOther long-term assets — third partiesin our accompanying condensed consolidated balance sheets. In addition, we are involved in several disputes with Brazil’s Ministry of Treasury about various forms of manufacturing taxes and social security contributions, for which we have made no judicial deposits but for which we have established reserves ranging from $12 million to $74 million as of

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

September 30, 2007. In total, these reserves approximate $93 million as of September 30, 2007 and are included inOther long-term liabilitiesin our accompanying condensed consolidated balance sheets.

On August 15, 2007, there was a Superior Court of Justice ruling in Brazil reducing the statute of limitations from ten years to five years for claims relating to the application of Brazilian tax credits resulting from previous payments made under a social contribution tax. Accordingly, in the three months ended September 30, 2007, we reversed $21 million of reserves ($15 million net of tax) relating to the disputed application of such credits in 1999 and 2000, as these tax credits may no longer be challenged by the government.

Guarantees of Indebtedness

We have issued guarantees on behalf of certain of our subsidiaries and non-consolidated affiliates, including:


	•	certain of our wholly-owned and majority-owned subsidiaries; and

	•	Aluminium Norf GmbH, which is a fifty percent (50%) owned joint venture that does not meet the requirements for consolidation under FASB Interpretation No. 46 (Revised),Consolidation of Variable Interest Entities.

In the case of our wholly-owned subsidiaries, the indebtedness guaranteed is for trade accounts payable to third parties. Some of the guarantees have annual terms while others have no expiration and have termination notice requirements. For our majority-owned subsidiaries, the indebtedness guaranteed is for short-term loan, overdraft and other debt facilities with financial institutions, some of which have various expiration dates through September 30, 2008. Other of the guarantees have indefinite terms and expire upon written notice among the parties. Neither we nor any of our subsidiaries or non-consolidated affiliates 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 financial statements, all outstanding liabilities associated with trade accounts payable and short-term debt facilities for these entities are already included in our condensed consolidated balance sheets.

The following table discloses information about our obligations under guarantees of indebtedness as of September 30, 2007 (in millions).


	Maximum Potential		Liability Carrying
Type of Entity	Future Payment		Value

Wholly-owned subsidiaries	$	64	$	55
Majority-owned subsidiaries		3		—
Aluminium Norf GmbH		14		—


18.	Segment and Major Customer Information

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 areas and are organized under four operating segments: North America; Europe; Asia and South America.

As a result of the acquisition by Hindalco, and based on the way our President and Chief Operating Officer (our chief operating decision-maker) reviews the results of segment operations, during the quarter ended June 30, 2007 we changed our segment performance measure to Segment Income, as defined below. As a result, certain prior period amounts have been reclassified to conform to the new segment performance measure.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

with our portfolio approach to risk management. We define Segment Income as earnings before (a) interest expense and amortization of debt issuance costs — net; (b) unrealized gains (losses) on change in fair value of derivative instruments — net; (c) realized gains (losses) on corporate derivative instruments — net; (d) depreciation and amortization; (e) impairment charges on long-lived assets; (f) minority interests’ share; (g) adjustments to reconcile our proportional share of Segment Income from non-consolidated affiliates to income as determined on the equity method of accounting; (h) restructuring charges — net; (i) gains or losses on disposals of property, plant and equipment and businesses — net; (j) corporate selling, general and administrative expenses; (k) other costs — net; (l) litigation settlement — net of insurance recoveries; (m) sale transaction fees; (n) provision or benefit for taxes on income (loss) and (o) cumulative effect of accounting change.

Net sales and expenses are measured in accordance with the policies and procedures described in Note 1 — Business and Summary of Significant Accounting Policies to our consolidated and combined financial statements included in our Annual Report onForm 10-K for the year ended December 31, 2006.

We do not treat all derivative instruments as hedges under FASB Statement No. 133. Accordingly, changes in fair value are recognized immediately in earnings, which results in the recognition of fair value as a gain or loss in advance of the contract settlement. In the accompanying condensed consolidated statements of operations, changes in fair value of derivative instruments not accounted for as hedges under FASB Statement No. 133 are recognized in(Gain) loss on change in fair value of derivative instruments — net.These gains or losses may or may not result from cash settlement. For Segment Income purposes we only include the impact of the derivative gains or losses to the extent they are settled in cash (i.e., realized) during that period.

The tables below show selected segment financial information (in millions). The Corporate and Other column in the tables below includes functions that are managed directly from our corporate office, which focuses on strategy development and oversees governance, policy, legal compliance, human resources and finance matters. It also includes consolidating and other elimination accounts.

Selected Segment Financial Information


									Adjustment to
									Eliminate
	North						South		Proportional			Corporate
Total Assets	America		Europe		Asia		America		Consolidation			and Other		Total

September 30, 2007 (Successor)	$	4,468	$	3,388	$	1,363	$	1,353	$	(34	)	$	135	$	10,673


March 31, 2007 (Predecessor)	$	1,566	$	2,543	$	1,110	$	821	$	(114	)	$	44	$	5,970

Comparison of Three Month Data:


									Adjustment to
									Eliminate
Selected Operating Results	North						South		Proportional			Corporate
Three Months Ended September 30, 2007	America		Europe		Asia		America		Consolidation			and Other			Total
(Successor)

Net sales (to third parties)	$	1,050	$	1,092	$	438	$	241	$	—		$	—		$	2,821
Intersegment sales		2		1		4		11		—			(18	)		—
Segment Income		89		67		18		46		—			—			220
Depreciation and amortization		39		39		16		14		(7	)		1			102
Capital expenditures		8		16		6		7		(3	)		1			35

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)


										Adjustment to
										Eliminate
Selected Operating Results	North							South		Proportional			Corporate
Three Months Ended September 30, 2006	America			Europe		Asia		America		Consolidation			and Other			Total
(Predecessor)

Net sales (to third parties)	$	954		$	940	$	388	$	216	$	(4	)	$	—		$	2,494
Intersegment sales		—			2		4		21		—			(27	)		—
Segment Income (Loss)		(18	)		68		16		37		—			—			103
Depreciation and amortization		17			21		14		11		(7	)		1			57
Capital expenditures		6			8		6		5		(3	)		—			22

Comparison of Six Month Data:


									Adjustment to
									Eliminate
Selected Operating Results	America						South		Proportional			Corporate
May 16, 2007 Through September 30, 2007	North		Europe		Asia		America		Consolidation			and Other			Total
(Successor)

Net sales (to third parties)	$	1,624	$	1,686	$	683	$	375	$	—		$	—		$	4,368
Intersegment sales		3		1		6		27		—			(37	)		—
Segment Income		112		110		17		68		—			—			307
Depreciation and amortization		60		61		24		22		(13	)		1			155
Capital expenditures		14		25		11		8		(3	)		2			57


										Adjustment to
										Eliminate
Selected Operating Results	America							South		Proportional			Corporate
April 1, 2007 Through May 15, 2007	North			Europe		Asia		America		Consolidation			and Other			Total
(Predecessor)

Net sales (to third parties)	$	446		$	510	$	216	$	109	$	—		$	—		$	1,281
Intersegment sales		—			—		1		7		—			(8	)		—
Segment Income (Loss)		(24	)		32		6		18		—			—			32
Depreciation and amortization		7			11		7		5		(3	)		1			28
Capital expenditures		4			8		4		3		(3	)		1			17


									Adjustment to
									Eliminate
Selected Operating Results	North						South		Proportional			Corporate
Six Months Ended September 30, 2006	America		Europe		Asia		America		Consolidation			and Other			Total
(Predecessor)

Net sales (to third parties)	$	1,946	$	1,862	$	841	$	417	$	(8	)	$	—		$	5,058
Intersegment sales		1		2		9		32		—			(44	)		—
Segment Income		7		146		40		80		—			—			273
Depreciation and amortization		35		45		27		22		(15	)		2			116
Capital expenditures		16		17		14		13		(5	)		1			56

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

The following table shows the reconciliation from Total Segment Income to Net income (loss) (in millions).


	Three Months						May 16,			April 1, 2007
	Ended						2007 Through			Through			Six Months Ended
	September 30,						September 30,			May 15,			September 30,
	2007			2006			2007			2007			2006
	Successor			Predecessor			Successor			Predecessor			Predecessor
Total Segment Income	$	220		$	103		$	307		$	32		$	273
Interest expense and amortization of debt issuance costs — net		(56	)		(52	)		(81	)		(26	)		(101	)
Unrealized gains (losses) on change in fair value of derivative instruments — net(A)		(87	)		(98	)		(102	)		5			(133	)
Realized gains (losses) on corporate derivative instruments — net		29			—			37			(3	)		—
Depreciation and amortization		(102	)		(57	)		(155	)		(28	)		(116	)
Minority interests’ share		—			2			2			1			(2	)
Adjustment to eliminate proportional consolidation(B)		(17	)		(9	)		(26	)		(7	)		(16	)
Restructuring charges — net		—			(10	)		(1	)		(1	)		(12	)
Gains or (losses) on disposal of property, plant, and equipment — net		—			(2	)		—			—			(2	)
Corporate selling, general and administrative expenses		(16	)		(33	)		(26	)		(35	)		(63	)
Other costs — net		6			2			4			1			4
Sale transaction fees		—			—			—			(32	)		—
Benefit (provision) for taxes on loss		36			52			—			(4	)		72

Net income (loss)	$	13		$	(102	)	$	(41	)	$	(97	)	$	(96	)


(A)		Unrealized gains (losses) on change in fair value of derivative instruments — net represents the portion of gains (losses) that were not settled in cash during the period. Total realized and unrealized gains (losses) are shown in the table below and are included in the aggregate each period in(Gain) loss on change in fair value of derivative instruments — neton our condensed consolidated statements of operations.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)


	Three Months						May 16, 2007						Six Months
	Ended						Through			April 1, 2007			Ended
	September 30,						September 30,			Through			September 30,
	2007			2006			2007			May 15, 2007			2006
	Successor			Predecessor			Successor			Predecessor			Predecessor
(Gain) loss on change in fair value of derivative instruments — net:
Realized and included in Segment Income	$	(22	)	$	(61	)	$	(43	)	$	(18	)	$	(137	)
Realized on corporate derivative instruments		(29	)		—			(37	)		3			—
Unrealized		87			98			102			(5	)		133

(Gain) loss on change in fair value of derivative instruments — net	$	36		$	37		$	22		$	(20	)	$	(4	)


(B)		Our financial information for our segments (including Segment Income) includes the results of our non-consolidated affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. However, under GAAP, these non-consolidated affiliates are accounted for using the equity method of accounting. Therefore, in order to reconcile Total Segment Income to Net income (loss), the proportional Segment Income of these non-consolidated affiliates is removed from Total Segment Income, net of our share of their net after-tax results, which is reported asEquity in net (income) loss of non-consolidated affiliateson our condensed consolidated statements of operations. See Note 7 — Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these non-consolidated affiliates.

Major Customer Information

All of our operating segments had net sales to Rexam Plc (Rexam), our largest customer. The table below shows our net sales to Rexam as a percentage of total net sales.

Three Months

May 16, 2007

Six Months

Ended

Through

April 1, 2007

Ended

September 30,

Through

September 30,

2007

2006

2007

May 15, 2007

2006

Successor

Predecessor

Successor

Predecessor

Net sales to Rexam as a percentage of total net sales

15.6

14.3

14.7

13.5

13.8


19.	Supplemental Guarantor Information

In connection with the issuance of our Senior Notes, certain of our wholly-owned subsidiaries provided guarantees of the Senior Notes. These guarantees are full and unconditional as well as joint and several. The guarantor subsidiaries (the Guarantors) are comprised of the majority of our businesses in Canada, the U.S, the U.K, Brazil and Switzerland, as well as certain businesses in Germany. Certain Guarantors may be subject to restrictions on their ability to distribute earnings to Novelis Inc. (the Parent). The remaining subsidiaries (the Non-Guarantors) of the Parent are not guarantors of the Senior Notes.

The following information presents consolidating statements of operations, consolidating balance sheets and consolidating statements of cash flows of the Parent, the Guarantors and the Non-Guarantors. Investments include investment in and advances to non-consolidated affiliates as well as investments in net assets of divisions included in the Parent, and have been presented using the equity method of accounting.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Novelis Inc.

Consolidating Statement of Operations

(In millions)


	Three Months Ended September 30, 2007(Successor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	369		$	2,400		$	736		$	(684	)	$	2,821

Cost of goods sold (exclusive of depreciation and amortization shown below)		366			2,183			697			(691	)		2,555
Selling, general and administrative expenses		8			62			18			—			88
Depreciation and amortization		5			74			23			—			102
Research and development expenses		7			2			1			—			10
Interest expense and amortization of debt issuance costs — net		15			35			6			—			56
Loss on change in fair value of derivative instruments — net		1			27			8			—			36
Equity in net income (loss) of affiliates		(40	)		4			—			40			4
Other (income) expenses — net		(10	)		4			(2	)		1			(7	)

		352			2,391			751			(650	)		2,844

Income (loss) before provision for taxes on income (loss) and minority interests’ share		17			9			(15	)		(34	)		(23	)
Provision (benefit) for taxes on income (loss)		4			(40	)		—			—			(36	)

Income (loss) before minority interests’ share		13			49			(15	)		(34	)		13
Minority interests’ share		—			—			—			—			—

Net income (loss)	$	13		$	49		$	(15	)	$	(34	)	$	13

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Novelis Inc.

Consolidating Statement of Operations

(In millions)


	Three Months Ended September 30, 2006(Predecessor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	415		$	2,176		$	657		$	(754	)	$	2,494

Cost of goods sold (exclusive of depreciation and amortization shown below)		404			2,121			625			(761	)		2,389
Selling, general and administrative expenses		13			70			20			—			103
Depreciation and amortization		4			37			16			—			57
Research and development expenses		7			2			1			—			10
Interest expense and amortization of debt issuance costs — net		12			35			5			—			52
Loss on change in fair value of derivative instruments — net		9			23			5			—			37
Equity in net (income) loss of affiliates		70			(5	)		—			(70	)		(5	)
Other (income) expenses — net		(5	)		14			(2	)		—			7

		514			2,297			670			(831	)		2,650

Loss before provision (benefit) for taxes on loss and minority interests’ share		(99	)		(121	)		(13	)		77			(156	)
Provision (benefit) for taxes on loss		3			(55	)		—			—			(52	)

Loss before minority interests’ share		(102	)		(66	)		(13	)		77			(104	)
Minority interests’ share		—			—			2			—			2

Net loss	$	(102	)	$	(66	)	$	(11	)	$	77		$	(102	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Novelis Inc.

Consolidating Statement of Operations

(In millions)


	May 16, 2007 Through September 30, 2007(Successor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	614		$	3,747		$	1,155		$	(1,148	)	$	4,368

Cost of goods sold (exclusive of depreciation and amortization shown below)		612			3,434			1,099			(1,154	)		3,991
Selling, general and administrative expenses		13			87			30			—			130
Depreciation and amortization		8			112			35			—			155
Research and development expenses		9			9			5			—			23
Interest expense and amortization of debt issuance costs — net		18			55			8		��	—			81
(Gain) loss on change in fair value of derivative instruments — net		(12	)		23			11			—			22
Equity in net income (loss) of affiliates		(5	)		5			—			5			5
Other (income) expenses — net		(14	)		18			(1	)		1			4

		629			3,743			1,187			(1,148	)		4,411

Income (loss) before provision for taxes on income (loss) and minority interests’ share		(15	)		4			(32	)		—			(43	)
Provision (benefit) for taxes on income (loss)		26			(26	)		—			—			—

Income (loss) before minority interests’ share		(41	)		30			(32	)		—			(43	)
Minority interests’ share		—			—			2			—			2

Net income (loss)	$	(41	)	$	30		$	(30	)	$	—		$	(41	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Novelis Inc.

Consolidating Statement of Operations

(In millions)


	April 1, 2007 Through May 15, 2007(Predecessor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	129		$	1,020		$	359		$	(227	)	$	1,281

Cost of goods sold (exclusive of depreciation and amortization shown below)		131			961			340			(227	)		1,205
Selling, general and administrative expenses		29			51			15			—			95
Depreciation and amortization		2			18			8			—			28
Research and development expenses		5			1			—			—			6
Interest expense and amortization of debt issuance costs — net		3			20			3			—			26
(Gain) loss on change in fair value of derivative instruments — net		(2	)		(19	)		1			—			(20	)
Equity in net (income) loss of affiliates		29			(1	)		—			(29	)		(1	)
Sale transaction fees		32			—			—			—			32
Other (income) expenses — net		(3	)		9			(2	)		—			4

		226			1,040			365			(256	)		1,375

Loss before provision for taxes on loss and minority interests’ share		(97	)		(20	)		(6	)		29			(94	)
Provision for taxes on loss		—			3			1			—			4

Loss before minority interests’ share		(97	)		(23	)		(7	)		29			(98	)
Minority interests’ share		—			—			1			—			1

Net loss	$	(97	)	$	(23	)	$	(6	)	$	29		$	(97	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Novelis Inc.

Consolidating Statement of Operations

(In millions)


	Six Months Ended September 30, 2006(Predecessor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	834		$	4,349		$	1,413		$	(1,538	)	$	5,058

Cost of goods sold (exclusive of depreciation and amortization shown below)		809			4,195			1,334			(1,542	)		4,796
Selling, general and administrative expenses		34			130			37			—			201
Depreciation and amortization		7			76			33			—			116
Research and development expenses		14			5			1			—			20
Interest expense and amortization of debt issuance costs — net		22			70			9			—			101
(Gain) loss on change in fair value of derivative instruments — net		9			(19	)		6			—			(4	)
Equity in net (income) loss of affiliates		44			(9	)		—			(44	)		(9	)
Other (income) expenses — net		(13	)		21			(5	)		—			3

		926			4,469			1,415			(1,586	)		5,224

Loss before provision for taxes on income (loss) and minority interests’ share		(92	)		(120	)		(2	)		48			(166	)
Provision (benefit) for taxes on income (loss)		4			(62	)		(14	)		—			(72	)

Income (loss) before minority interests’ share		(96	)		(58	)		12			48			(94	)
Minority interests’ share		—			—			(2	)		—			(2	)

Net income (loss)	$	(96	)	$	(58	)	$	10		$	48		$	(96	)

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Novelis Inc.

Consolidating Balance Sheet

(In millions)


	As of September 30, 2007(Successor)
						Non-
	Parent			Guarantors		Guarantors			Eliminations			Consolidated

ASSETS
Current assets
Cash and cash equivalents	$	9		$	128	$	44		$	—		$	181
Accounts receivable — net of allowances
— third parties		33			893		429			—			1,355
— related parties		504			280		24			(781	)		27
Inventories		70			1,010		407			7			1,494
Prepaid expenses and other current assets		7			29		13			—			49
Current portion of fair value of derivative instruments		3			44		4			—			51
Deferred income tax assets		—			58		4			—			62

Total current assets		626			2,442		925			(774	)		3,219
Property, plant and equipment — net		110			2,404		784			—			3,298
Goodwill		—			1,975		369			—			2,344
Intangible assets — net		—			774		80			—			854
Investments		3,723			1,611		(1	)		(4,576	)		757
Fair value of derivative instruments — net of current portion		—			7		—			—			7
Deferred income tax assets		—			25		37			—			62
Other long-term assets		1,226			193		132			(1,419	)		132

Total assets	$	5,685		$	9,431	$	2,326		$	(6,769	)	$	10,673


LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Current portion of long-term debt	$	3		$	10	$	1		$	—		$	14
Short-term borrowings
— third parties		—			185		58			—			243
— related parties		42			403		51			(496	)		—
Accounts payable
— third parties		86			817		551			—			1,454
— related parties		65			215		58			(285	)		53
Accrued expenses and other current liabilities		49			661		97			—			807
Deferred income tax liabilities		—			84		1			—			85

Total current liabilities		245			2,375		817			(781	)		2,656
Long-term debt — net of current portion
— third parties		1,766			695		98			—			2,559
— related parties		—			1,159		260			(1,419	)		—
Deferred income tax liabilities		1			635		54			—			690
Accrued postretirement benefits		22			307		114			—			443
Other long-term liabilities		165			505		20			(2	)		688

		2,199			5,676		1,363			(2,202	)		7,036

Commitments and contingencies

Minority interests in equity of consolidated affiliates		—			—		151			—			151

Shareholder’s equity
Common stock		—			—		—			—			—
Additional paid-in capital		3,497			—		—			—			3,497
(Accumulated deficit)/retained earnings/owner’s net investment		(41	)		2,751		519			(3,270	)		(41	)
Accumulated other comprehensive income		30			1,004		293			(1,297	)		30

Total shareholder’s equity		3,486			3,755		812			(4,567	)		3,486

Total liabilities and shareholder’s equity	$	5,685		$	9,431	$	2,326		$	(6,769	)	$	10,673

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Novelis Inc.

Consolidating Balance Sheet

(In millions)


	As of March 31, 2007(Predecessor)
							Non-
	Parent			Guarantors			Guarantors		Eliminations			Consolidated

ASSETS
Current assets
Cash and cash equivalents	$	6		$	71		$	51	$	—		$	128
Accounts receivable — net of allowances
— third parties		36			903			411		—			1,350
— related parties		416			500			58		(949	)		25
Inventories		65			1,004			417		(3	)		1,483
Prepaid expenses and other current assets		3			26			10		—			39
Current portion of fair value of derivative instruments		—			88			4		—			92
Deferred income tax assets		3			12			4		—			19

Total current assets		529			2,604			955		(952	)		3,136
Property, plant and equipment — net		112			1,229			765		—			2,106
Goodwill		—			29			210		—			239
Intangible assets — net		—			18			2		—			20
Investments		362			153			—		(362	)		153
Fair value of derivative instruments — net of current portion		—			55			—		—			55
Deferred income tax assets		1			66			35		—			102
Other long-term assets		1,231			160			132		(1,364	)		159

Total assets	$	2,235		$	4,314		$	2,099	$	(2,678	)	$	5,970


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	—		$	3		$	140	$	—		$	143
Short-term borrowings
— third parties		—			241			4		—			245
— related parties		15			529			61		(605	)		—
Accounts payable
— third parties		116			938			560		—			1,614
— related parties		69			240			84		(344	)		49
Accrued expenses and other current liabilities		63			317			100		—			480
Deferred income tax liabilities		—			73			—		—			73

Total current liabilities		263			2,341			949		(949	)		2,604
Long-term debt — net of current portion
— third parties		1,659			496			2		—			2,157
— related parties		—			1,116			248		(1,364	)		—
Deferred income tax liabilities		—			89			14		—			103
Accrued postretirement benefits		19			293			115		—			427
Other long-term liabilities		119			214			19		—			352

		2,060			4,549			1,347		(2,313	)		5,643

Commitments and contingencies

Minority interests in equity of consolidated affiliates		—			—			152		—			152

Shareholders’ equity
Common stock		—			—			—		—			—
Additional paid-in capital		428			—			—		—			428
(Accumulated deficit)/retained earnings/owner’s net investment		(263	)		(458	)		575		(117	)		(263	)
Accumulated other comprehensive income		10			223			25		(248	)		10

Total shareholders’ equity		175			(235	)		600		(365	)		175

Total liabilities and shareholders’ equity	$	2,235		$	4,314		$	2,099	$	(2,678	)	$	5,970

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Novelis Inc.

Consolidating Statement of Cash Flows

(In millions)


	May 16, 2007 Through September 30, 2007(Successor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	125		$	(123	)	$	7		$	—		$	9

INVESTING ACTIVITIES
Capital expenditures		(5	)		(47	)		(5	)		—			(57	)
Proceeds from sales of assets		—			—			1			—			1
Changes to investment in and advances to non-consolidated affiliates		(40	)		3			—			40			3
Proceeds from loans receivable — net
— related parties		—			10			—			—			10
Net proceeds from settlement of derivative instruments		26			42			(2	)		—			66

Net cash provided by (used in) investing activities		(19	)		8			(6	)		40			23

FINANCING ACTIVITIES
Proceeds from issuance of common stock		92			40			—			(40	)		92
Proceeds from issuance of debt		300			660			—			—			960
Principal repayments		(260	)		(603	)		(42	)		—			(905	)
Short-term borrowings — net
— third parties		(45	)		(67	)		47			—			(65	)
— related parties		(157	)		139			18			—			—
Dividends
— minority interests		—			—			(1	)		—			(1	)
Debt issuance costs		(35	)		—			—			—			(35	)

Net cash provided by (used in) financing activities		(105	)		169			22			(40	)		46

Net increase in cash and cash equivalents		1			54			23			—			78
Effect of exchange rate changes on cash balances held in foreign currencies		—			—			1			—			1
Cash and cash equivalents — beginning of period		8			74			20			—			102

Cash and cash equivalents — end of period	$	9		$	128		$	44		$	—		$	181

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Novelis Inc.

Consolidating Statement of Cash Flows

(In millions)


	April 1, 2007 Through May 15, 2007(Predecessor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations		Consolidated

OPERATING ACTIVITIES
Net cash used in operating activities	$	(21	)	$	(181	)	$	(28	)	$	—	$	(230	)

INVESTING ACTIVITIES
Capital expenditures		(1	)		(10	)		(6	)		—		(17	)
Changes to investment in and advances to non-consolidated affiliates		—			1			—			—		1
Net proceeds from settlement of derivative instruments		(5	)		23			—			—		18

Net cash provided by (used in) investing activities		(6	)		14			(6	)		—		2

FINANCING ACTIVITIES
Proceeds from issuance of debt		—			150			—			—		150
Principal repayments		—			(1	)		—			—		(1	)
Short-term borrowings — net
— third parties		45			9			6			—		60
— related parties		(15	)		11			4			—		—
Dividends
— minority interests		—			—			(7	)		—		(7	)
Debt issuance costs		(2	)		—			—			—		(2	)
Proceeds from the exercise of stock options		1			—			—			—		1

Net cash provided by financing activities		29			169			3			—		201

Net increase (decrease) in cash and cash equivalents		2			2			(31	)		—		(27	)
Effect of exchange rate changes on cash balances held in foreign currencies		—			1			—			—		1
Cash and cash equivalents — beginning of period		6			71			51					128

Cash and cash equivalents — end of period	$	8		$	74		$	20		$	—	$	102

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) — (Continued)

Novelis Inc.

Consolidating Statement of Cash Flows

(In millions)


	Six Months Ended September 30, 2006(Predecessor)
							Non-
	Parent			Guarantors			Guarantors			Eliminations			Consolidated

OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	138		$	(143	)	$	(13	)	$	(71	)	$	(89	)

INVESTING ACTIVITIES
Capital expenditures		(2	)		(36	)		(18	)		—			(56	)
Cash advance received on pending transfer of rights		—			15			—			—			15
Proceeds from sales of assets		—			1			—			—			1
Changes to investment in and advances to non-consolidated affiliates		—			2			—			—			2
Proceeds from loans receivable — net — related parties		(7	)		(36	)		(1	)		64			20
Net proceeds from settlement of derivative instruments		—			153			1			—			154

Net cash provided by (used in) investing activities		(9	)		99			(18	)		64			136

FINANCING ACTIVITIES
Proceeds from issuance of debt
— third parties		—			—			20			—			20
— related parties		—			199			—			(199	)		—
Principal repayments
— third parties		(53	)		(92	)		(40	)		—			(185	)
— related parties		(73	)		(59	)		(3	)		135			—
Short-term borrowings — net
— third parties		5			49			24			—			78
— related parties		(20	)		9			11			—			—
Dividends
— common shareholders		(7	)		(70	)		(1	)		71			(7	)
— minority interests		—			—			(1	)		—			(1	)
Debt issuance costs		(8	)		—			—			—			(8	)

Net cash provided by (used in) financing activities		(156	)		36			10			7			(103	)

Net decrease in cash and cash equivalents		(27	)		(8	)		(21	)		—			(56	)
Effect of exchange rate changes on cash balances held in foreign currencies		—			2			1			—			3
Cash and cash equivalents — beginning of period		29			55			40			—			124

Cash and cash equivalents — end of period	$	2		$	49		$	20		$	—		$	71


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

FORWARD LOOKING STATEMENTS

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

REFERENCES

References herein to “Novelis,” the “Company,” “we,” “our,” or “us” refer to Novelis Inc. and its subsidiaries as both Predecessor and Successor unless the context specifically indicates otherwise. References herein to “Hindalco” refer to Hindalco Industries Limited. References herein to “Alcan” refer to Alcan, Inc.

References to ourForm 10-K made throughout this document refer to our Annual Report onForm 10-K for the year ended December 31, 2006, as amended, originally filed with the United States Securities and Exchange Commission (SEC) on March 1, 2007, as amended on April 30, 2007.

GENERAL

Novelis is the world’s leading aluminum rolled products producer based on shipment volume. We produce aluminum sheet and light gauge products for the construction and industrial, beverage and food cans, foil products and transportation markets. As of September 30, 2007, we had operations on four continents: North America; South America; Asia and Europe, through 33 operating plants and three research facilities in 11 countries. In addition to aluminum rolled products plants, our South American businesses include bauxite mining, alumina refining, primary aluminum smelting and power generation facilities that are integrated with our rolling plants in Brazil. We are the only company of our size and scope focused solely on aluminum rolled products markets and capable of local supply of technologically sophisticated products in all of these geographic regions.

Acquisition of Novelis Common Stock

On May 15, 2007, the Company was acquired by Hindalco Industries, Limited (Hindalco) through its indirect wholly-owned subsidiary AV Metals Inc. (Acquisition Sub) pursuant to a plan of arrangement (Arrangement) entered into on February 10, 2007 and approved by the Ontario Superior Court of Justice on May 14, 2007. As a result of the Arrangement, Acquisition Sub acquired all of the Company’s outstanding common shares at a price of $44.93 per share, and all outstanding stock options and other equity incentives were terminated in exchange for cash payments. The aggregate purchase price for the Company’s common shares was $3.4 billion and immediately following the Arrangement, the common shares of the Company were transferred from Acquisition Sub to its wholly-owned subsidiary AV Aluminum Inc. (AV Aluminum). Hindalco also assumed $2.8 billion of Novelis’ debt for a total transaction value of $6.2 billion.

On June 22, 2007, we issued 2,044,122 additional common shares to AV Aluminum for $44.93 per share resulting in an additional equity contribution of approximately $92 million. This contribution was equal in amount to certain payments made by Novelis related to change in control compensation to certain employees and directors, lender fees and other transaction costs incurred by the Company. As this transaction was approved by the Company and executed subsequent to the Arrangement, the $92 million cash payment is not included in the determination of total purchase price.

As discussed in Note 1 — Business and Summary of Significant Accounting Policies in the accompanying condensed and consolidated financial statements, the Arrangement was recorded in accordance with Staff Accounting Bulletin No. 103, Topic 5J,Push Down Basis of Accounting Required in Certain Limited Circumstances(SAB No. 103), which states that purchase transactions that result in an entity becoming substantially wholly-owned establish a new basis of accounting for the purchased assets and liabilities.

Accordingly, in the accompanying September 30, 2007 condensed consolidated balance sheet, the consideration and related costs paid by Hindalco in connection with the acquisition have been “pushed down” to us and have been allocated to the assets acquired and liabilities assumed in accordance with Financial Accounting Standards Board (FASB) Statement No. 141,Business Combinations. Due to the impact of push down accounting, the condensed consolidated financial statements and certain note presentations for the six months ended September 30, 2007 separate the Company’s presentations into distinct periods to indicate the application of different bases of accounting between the periods presented: (1) the period up to, and including, the acquisition date (April 1, 2007 through May 15, 2007, labeled “Predecessor”) and (2) the period after that date (May 16, 2007 through September 30, 2007, labeled “Successor”). The accompanying condensed consolidated financial statements and tables included in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) include a black line division when both Predecessor and Successor periods are presented, indicating that the Predecessor and Successor entities are not comparable.

CHANGE IN FISCAL YEAR END

On June 26, 2007, our board of directors approved the change of our fiscal year end to March 31 from December 31. This Quarterly Report onForm 10-Q for the period ended September 30, 2007 is our second quarter filing for our new fiscal year ending March 31, 2008, and references to this quarter will be to the second quarter of fiscal 2008. Comparisons will be made to the three months ended September 30, 2006, which will be referred to as the comparable prior year period, the quarter ended September 30, 2006 or the three months ended September 30, 2006.

NOTE REGARDING COMBINED RESULTS OF OPERATIONS AND SELECTED FINANCIAL AND OPERATING INFORMATION DUE TO THE ACQUISITION

As discussed above, the Arrangement created a new basis of accounting. Under generally accepted accounting principles in the United States of America (GAAP), the condensed consolidated financial statements for the six months ended September 30, 2007 are presented in two distinct periods, as Predecessor and Successor entities are not comparable in all material respects. However, in MD&A, in order to facilitate an understanding of our results of operations, segment information and liquidity and capital resources for the six months ended September 30, 2007 in comparison with the six months ended September 30, 2006, our Predecessor and Successor operating results, segment information and cash flows are presented on a combined basis. The combined operating results, segment information and cash flows are non-GAAP financial measures, do not include any proforma assumptions or adjustments and should not be used in isolation or substitution of the Predecessor and Successor operating results, segment information or cash flows.

Shown below are combining schedules of (1) shipments and (2) our results of operations for periods allocable to the Successor, Predecessor and the combined presentation for the six months ended September 30, 2007 that we use throughout MD&A.

May 16, 2007

April 1, 2007

Six Months

Through

Ended

September 30, 2007

May 15, 2007

September 30, 2007

Successor

Predecessor

Combined

Combined Shipments:

Shipments (kt)(A):

Rolled products(B)

1,156

348

1,504

Ingot products(C)

Total shipments

1,222

363

1,585


	(A)	One kilotonne (kt) is 1,000 metric tonnes. One metric tonne is equivalent to 2,204.6 pounds.


	(B)	Rolled products include tolling (the conversion of customer-owned metal).

	(C)	Ingot products include primary ingot in Brazil, foundry products in Korea and Europe, secondary ingot in Europe and other miscellaneous recyclable aluminum.


	May 16, 2007			April 1, 2007			Six Months
	Through			Through			Ended
	September 30, 2007			May 15, 2007			September 30,2007
	Successor			Predecessor			Combined
Combined Results of Operations ($ in millions)
Net sales	$	4,368		$	1,281		$	5,649

Cost of goods sold (exclusive of depreciation and amortization shown below)		3,991			1,205			5,196
Selling, general and administrative expenses		130			95			225
Depreciation and amortization		155			28			183
Research and development expenses		23			6			29
Interest expense and amortization of debt issuance costs — net		81			26			107
(Gain) loss on change in fair value of derivative instruments — net		22			(20	)		2
Equity in net (income) loss of non-consolidated affiliates		5			(1	)		4
Sale transaction fees		—			32			32
Other expenses — net		4			4			8

		4,411			1,375			5,786

Loss before provision for taxes on loss and minority interests’ share		(43	)		(94	)		(137	)
Provision for taxes on loss		—			4			4

Loss before minority interests’ share		(43	)		(98	)		(141	)
Minority interests’ share		2			1			3

Net loss	$	(41	)	$	(97	)	$	(138	)

HIGHLIGHTS

Significant highlights, events and factors impacting our business during the quarters and six months ended September 30, 2007 and 2006 are presented briefly below. Each is discussed in further detail throughout MD&A.


	•	Shipments and selected financial information are as follows ($ in millions):


	Quarter Ended						Six Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
				Predecessor			Combined			Predecessor
	Successor
Shipments (kt):
Rolled products		747			737			1,504			1,490
Ingot products		42			37			81			84

Total shipments		789			774			1,585			1,574

Net sales	$	2,821		$	2,494		$	5,649		$	5,058
Net income (loss)	$	13		$	(102	)	$	(138	)	$	(96	)
Net increase (decrease) in total debt(A)	$	(43	)	$	(37	)	$	205		$	(81	)


	(A)	Net increase (decrease) in total debt is measured comparing the period-end amounts of our total outstanding debt (including short-term borrowings) as shown in our condensed consolidated balance sheets. For the three and six months ended September 30, 2007, the net increase (decrease) in total debt excludes the change in unamortized fair value adjustments recorded as part of the Arrangement.


	•	Rolled products shipments increased during the second quarter and on a year to date basis in all regions except North America primarily as a result of increased demand in their respective regional can markets. Compared to the prior year, the North American demand for rolled products has declined across all product groups, most notably in the industrial and distributor markets partially due to a slowdown in housing construction. In addition, a strike at a key can customer in North America contributed to lower shipments year over year.

	•	London Metal Exchange (LME) pricing for aluminum (metal) was an average of 2.7% and 3.3% higher during the second quarter and six months ended September 30, 2007 than the comparable prior year periods. However, cash prices have trended down this fiscal year and cash prices as of March 31, 2007; June 30, 2007 and September 30, 2007 were $2,792; $2,686 and $2,440, respectively. This trend negatively impacted our fiscal 2008 second quarter and six month results as described more fully below under Metal Price Lag.

	•	Net sales for the second quarter and six months ended September 30, 2007 increased from the comparable prior year periods due primarily to increased volume and prices, lower exposure to metal price ceilings, a strengthening euro and a rise in average LME prices. The benefit of higher LME prices was limited by metal price ceilings in sales contracts representing approximately 10% of our total shipments during both the quarter and six months ended September 30, 2007, compared to 20% of our total shipments in the same prior year periods. During the second quarter of fiscal 2008 and the comparable prior year quarter, we were unable to pass through approximately $60 million and $115 million, respectively, of metal purchase costs associated with sales under these contracts, for a net favorable comparable impact of approximately $55 million.

During the six months ended September 30, 2007 and the comparable prior year period, we were unable to pass through approximately $140 million and $255 million, respectively, of metal purchase costs associated with sales under these contracts, for a net favorable comparable impact of approximately $115 million.

Net sales for the second quarter and six months ended September 30, 2007 was also favorably impacted by $85 million and $129 million, respectively, related to the accretion of fair value reserves associated with these contracts, as discussed more fully below under Metal Price Ceilings.


	•	Compared to the six months ended September 30, 2006, net loss for the six months ended September 30, 2007 was impacted by the following items associated with or triggered by the Arrangement: (1) $43 million (pre-tax) of incremental stock compensation expense, (2) $32 million (pre-tax) of sale transaction fees and (3) $10 million (pre-tax) of incremental income (described below) associated with push down accounting and the preliminary fair value allocation of purchase price.

	•	During the second quarter of fiscal 2008 we reduced our total debt by $43 million; however, on a year to date basis, our total debt increased $205 million (excluding unamortized fair value adjustments recorded as part of the acquisition by Hindalco) as a result of our need to fund additional working capital requirements and certain costs associated with the Arrangement, including sale transaction fees and share-based compensation.

	•	As described more fully in Note 2 — Acquisition of Novelis Common Stock in the accompanying condensed and consolidated financial statements, the consideration paid by Hindalco to acquire Novelis has been pushed down to us and initially allocated to the assets acquired and liabilities assumed based on our preliminary estimates of fair value, using methodologies and assumptions that we believe are reasonable. This preliminary allocation of fair value results in additional charges or income to our post-acquisition consolidated statements of operations. A summary of the pre-tax impacts of these items on the second quarter and six months ended September 30, 2007 is shown below (in millions).


	Quarter Ended						Six Months Ended
	September 30, 2007						September 30, 2007
	Increase (Decrease) to:						Increase (Decrease) to:
	Pre-Tax			Segment			Pre-Tax			Segment
	Income			Income(A)			Income			Income(A)

Favorable/unfavorable contracts	$	83		$	83		$	126		$	126
Depreciation and amortization		(43	)		—			(65	)		—
In-process research and development		—			—			(9	)		(9	)
Inventory		(6	)		(6	)		(35	)		(35	)
Equity investments		(8	)		—			(11	)		—
Fair value of debt		3			—			4			—

Total impact	$	29		$	77		$	10		$	82


	(A)	We use Segment Income to measure the profitability and financial performance of our operating segments, as discussed below in OPERATING SEGMENT REVIEW FOR THE QUARTER ENDED SEPTEMBER 30, 2007 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2006.

OUR BUSINESS

Business Model and Key Concepts

Most of our business is conducted under a conversion model, which allows us to pass through increases or decreases in the price of metal to our customers. Nearly all of our products have a price structure with two components: (i) a pass-through aluminum price based on the LME plus local market premiums and (ii) a “margin over metal” price based on the conversion cost to produce the rolled product and the competitive market conditions for that product.

Metal Price Ceilings

Sales contracts representing approximately 10% of our total shipments for both the quarter and six months ended September 30, 2007 and 20% for both of the comparable prior year periods, provide for a ceiling over

which metal purchase costs cannot contractually be passed through to certain customers, unless adjusted. This negatively impacts our margins when the price we pay for metal is above the ceiling price contained in these contracts. During the quarter ended September 30, 2007 and the comparable prior year period, we were unable to pass through approximately $60 million and $115 million, respectively, of metal purchase costs associated with sales under these contracts. During the six months ended September 30, 2007 and the comparable prior year period, we were unable to pass through approximately $140 million and $255 million, respectively, of metal purchase costs associated with sales under these contracts. We calculate and report this difference to be approximately the difference between the quoted purchase price on the LME (adjusted for any local premiums and for any price lag associated with purchasing or processing time) and the metal price ceiling in our contracts. Cash flows from operations are negatively impacted by the same amounts, adjusted for any timing difference between customer receipts and vendor payments, and offset partially by reduced income taxes.

Based on a September 30, 2007 aluminum price of $2,440 per tonne, and our best estimate of a range of shipment volumes, we estimate that we will be unable to pass through aluminum purchase costs of approximately $90 — $95 million for the remainder of fiscal 2008 and $285 — $300 million in the aggregate thereafter.

In connection with the preliminary allocation of purchase price (i.e., total consideration) paid by Hindalco, we established reserves totaling $655 million as of May 15, 2007 to record these contracts at fair value. Fair value effectively represents the discounted cash flows of the forecasted metal purchase costs in excess of the metal price ceilings contained in these contracts. These reserves are being accreted into Net sales over the remaining lives of the underlying contracts, and this accretion will not impact future cash flows. We recorded total accretion of $129 million during the period from May 16, 2007 through September 30, 2007, $44 million of which was recorded during the period from May 16, 2007 through June 30, 2007, and $85 million of which was recorded during the quarter ended September 30, 2007.

Metal Price Lag

On certain sales contracts we experience timing differences on the pass through of changing aluminum prices based on the difference between the price we pay for aluminum and the price we ultimately charge our customers after the aluminum is processed. Generally, and in the short-term, in periods of rising prices our earnings benefit from this timing difference while the opposite is true in periods of declining prices, and we refer to this timing difference as metal price lag. Metal price lag negatively impacted the quarter ended September 30, 2007 by $22 million and the comparable prior year period by approximately $33 million, for a net favorable impact of $11 million. For the six months ended September 30, 2007, metal price lag negatively impacted our results by $23 million and benefited the comparable prior year period by approximately $44 million, for a net unfavorable impact of $67 million. These amounts are reported herein without regard to the effects of any derivative instruments we purchased to offset this risk as described below.

In Europe, certain of our sales contracts contain fixed metal prices for periods of time such as four to thirty-six months. In some cases, this can result in a negative (positive) impact on sales as metal prices increase (decrease) because the prices are fixed at historical levels. The positive or negative impact on sales under these contracts has been included in the metal price lag effect quantified above, without regard to the effects of any derivative instruments we purchase to offset this risk as described below.

Risk Mitigation

We employ three strategies to mitigate our risk of rising metal prices that we cannot pass through to certain customers due to metal price ceilings. First, we maximize the amount of our internally supplied metal inputs from our smelting, refining and mining operations in Brazil. Second, we rely on the output from our recycling operations which utilize used beverage cans (UBCs). Both of these sources of aluminum supply have historically provided a benefit as these sources of metal are typically less expensive than purchasing aluminum from third party suppliers. We refer to these two sources as our internal hedges.

exposure in 2006, we previously purchased call options at various strike prices. In September 2006, we began purchasing both fixed forward derivative instruments and put options, thereby creating synthetic call options, to hedge our exposure to further metal price increases.

During the quarter ended September 30, 2006, we began selling short-term LME forward contracts to mitigate the impact of metal price lag. In Europe, we enter into forward metal purchases simultaneous with the contracts that contain fixed metal prices. These forward metal purchases directly hedge the economic risk of future metal price fluctuation associated with these contracts. The positive or negative impact on sales under these contracts has been included in the metal price lag effect described above, without regard to the effects of any derivative instruments we purchase to offset this risk. The net sales and Segment Income impacts are described more fully in the Operations and Segment Review for our Europe operating segment.

For accounting purposes, we do not treat all derivative instruments as hedges under FASB Statement No. 133,Accounting for Derivative Instruments and Hedging Activities.In those cases, changes in fair value are recognized immediately in earnings, which results in the recognition of fair value as a gain or loss in advance of the contract settlement, and we expect further earnings volatility as a result. In the accompanying condensed consolidated statements of operations, changes in fair value of derivative instruments not accounted for as hedges under FASB Statement No. 133 are recognized in (Gain) loss on change in fair value of derivative instruments — net. These gains or losses may or may not result from cash settlement. For Segment Income purposes we only include the impact of the derivative gains or losses to the extent they are settled in cash during that period.

Internal Controls

We previously reported in our Annual Report onForm 10-K for the year ended December 31, 2006 and continue to report as of September 30, 2007, that we have a material weakness in our internal control over financial reporting as we did not maintain effective controls over accounting for income taxes. See Item 4. Controls and Procedures.

Spin-Off From Alcan

On May 18, 2004, Alcan announced its intention to transfer its rolled products businesses into a separate company and to pursue a spin-off of that company to its shareholders. The rolled products businesses were managed under two separate operating segments within Alcan — Rolled Products Americas and Asia; and Rolled Products Europe. On January 6, 2005, Alcan and its subsidiaries contributed and transferred to Novelis substantially all of the aluminum rolled products businesses operated by Alcan, together with some of Alcan’s alumina and primary metal-related businesses in Brazil, which are fully integrated with the rolled products operations there, as well as four rolling facilities in Europe whose end-use markets and customers were similar to ours.

Post-Transaction Adjustments

The agreements giving effect to the spin-off provide for various post-transaction adjustments and the resolution of outstanding matters. On November 8, 2006, we executed a settlement agreement with Alcan resolving the working capital and cash balance adjustments to our opening balance sheet and issues relating to the transfer of U.S. pension assets and liabilities from Alcan to Novelis. As of September 30, 2007, there remained an outstanding matter related to two pension plans for those employees who elected to transfer their past service to Novelis, one in the U.K. and one in Canada. In October 2007, we completed the transfer of U.K. plan assets and liabilities. Plan liabilities assumed exceeded assets received by approximately $7 million. We expect the transfer of pension assets and liabilities in Canada will take place by December 31, 2007, and we expect that the plan assets transferred will approximate the liabilities assumed. To the extent that that differences between transferred plan assets and liabilities exist, we will record purchase price adjustments to goodwill in our final purchase price allocation.

Agreements between Novelis and Alcan

At the spin-off, we entered into various agreements with Alcan including the use of transitional and technical services, the supply from Alcan of metal and alumina, the licensing of certain of Alcan’s patents, trademarks and other intellectual property rights, and the use of certain buildings, machinery and equipment, technology and employees at certain facilities retained by Alcan, but required in our business. The terms and conditions of the agreements were determined primarily by Alcan and may not reflect what two unaffiliated parties might have agreed to. Had these agreements been negotiated with unaffiliated third parties, their terms may have been more favorable, or less favorable, to us. See Item 1. Business in our Annual Report onForm 10-K for the year ended December 31, 2006 for additional information.

OPERATIONS AND SEGMENT REVIEW

The following tables present our shipments, our results of operations, prices for aluminum, oil and natural gas and key currency exchange rates for the quarters and six months ended September 30, 2007 and 2006, and the changes from period to period.


	Quarter Ended							Six Months Ended
	September 30,				Percent			September 30,				Percent
	2007		2006		Change			2007		2006		Change
	Successor		Predecessor					Combined		Predecessor
Shipments (kt):
Rolled products, including tolling (the conversion of customer-owned metal)		747		737		1.4	%		1,504		1,490		0.9	%
Ingot products, including primary and secondary ingot and recyclable aluminum		42		37		13.5	%		81		84		(3.6	)%

Total shipments		789		774		1.9	%		1,585		1,574		0.7	%


	Quarter Ended									Six Months Ended
	September 30,						Percent			September 30,						Percent
	2007			2006			Change			2007			2006			Change
	Successor			Predecessor						Combined			Predecessor
Results of Operations
($ in millions)
Net sales	$	2,821		$	2,494			13.1	%	$	5,649		$	5,058			11.7	%

Cost of goods sold (exclusive of depreciation and amortization shown below)		2,555			2,389			6.9	%		5,196			4,796			8.3	%
Selling, general and administrative expenses		88			103			(14.6	)%		225			201			11.9	%
Depreciation and amortization		102			57			78.9	%		183			116			57.8	%
Research and development expenses		10			10			—	%		29			20			45.0	%
Interest expense and amortization of debt issuance costs — net		56			52			7.7	%		107			101			5.9	%
(Gain) loss on change in fair value of derivatives — net		36			37			(2.7	)%		2			(4	)		(150.0	)%
Equity in net (income) loss of non-consolidated affiliates		4			(5	)		(180.0	)%		4			(9	)		(144.4	)%
Sale transaction fees		—			—			—	%		32			—			n.m.
Other (income) expenses — net		(7	)		7			(200.0	)%		8			3			166.7	%

		2,844			2,650			7.3	%		5,786			5,224			10.8	%

Loss before provision (benefit) for taxes on loss and minority interests’ share		(23	)		(156	)		(85.3	)%		(137	)		(166	)		(17.5	)%
Provision (benefit) for taxes on loss		(36	)		(52	)		(30.8	)%		4			(72	)		(105.6	)%

Income (loss) before minority interests’ share		13			(104	)		(112.5	)%		(141	)		(94	)		50.0	%
Minority interests’ share		—			2			(100.0	)%		3			(2	)		(250.0	)%

Net income (loss)	$	13		$	(102	)		(112.7	)%	$	(138	)	$	(96	)		43.8	%

n.m. — not meaningful


	Quarter Ended							Six Months Ended
	September 30,				Percent			September 30,				Percent
	2007		2006		Change			2007		2006		Change
	Successor		Predecessor					Combined		Predecessor
London Metal Exchange Prices
Aluminum (per metric tonne, and presented in U.S. dollars):
Closing cash price as of end of period	$	2,440	$	2,572		(5.1	)%	$	2,440	$	2,572		(5.1	)%
Average cash price during the period	$	2,547	$	2,481		2.7	%	$	2,654	$	2,568		3.3	%


	Quarter Ended				U.S. Dollar			Six Months Ended				U.S. Dollar
	September 30,				Strengthen/			September 30,				Strengthen/
	2007		2006		(Weaken)			2007		2006		(Weaken)
	Successor		Predecessor					Combined		Predecessor
Federal Reserve Bank of New York Exchange Rates
Average of the month end rates:
U.S. dollar per Euro		1.386		1.275		(8.7	)%		1.370		1.275		(7.5	)%
Brazilian real per U.S. dollar		1.891		2.161		(12.5	)%		1.926		2.173		(11.4	)%
South Korean won per U.S. dollar		924		954		(3.1	)%		925		950		(2.6	)%
Canadian dollar per U.S. dollar		1.039		1.118		(7.1	)%		1.060		1.115		(4.9	)%


	Quarter Ended							Six Months Ended
	September 30,				Percent			September 30,				Percent
	2007		2006		Change			2007		2006		Change
	Successor		Predecessor					Combined		Predecessor
New York Mercantile Exchange — Energy Price Quotations
Light Sweet Crude
Average settlement price (per barrel)	$	71.08	$	71.55		(0.7	)%	$	66.39	$	69.40		(4.3	)%
Natural Gas
Average Henry Hub contract settlement price (per MMBTU)(A)	$	6.16	$	6.58		(6.4	)%	$	6.85	$	6.68		2.5	%


	(A)	One MMBTU is the equivalent of one decatherm, or one million British Thermal Units.

RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2007 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2006

Shipments

Rolled products shipments increased during the second quarter in all regions except North America primarily as a result of increased demand in their respective regional can markets. Compared to the prior year, the North American demand for rolled products has declined across all product groups, most notably in the industrial and distributor markets partially due to a slowdown in housing construction.

Net sales

Net sales for the quarter ended September 30, 2007 increased from the comparable prior year period due primarily to increased volume and prices, lower exposure to metal price ceilings, a strengthening euro and a rise in average LME prices. Metal represents approximately 60% — 70% of the sales value of our products.

Net sales for the second quarter of fiscal 2008 were adversely impacted in North America due to price ceilings on certain can contracts, which limited our ability to pass through approximately $60 million of metal purchase costs. In comparison, we were unable to pass through approximately $115 million of metal purchase costs in the comparable prior year period, for a net favorable impact of approximately $55 million. North America net sales were also favorably positively impacted by $85 million related to the accretion of the contract fair value reserves, discussed above in Metal Price Ceilings.

Costs and expenses

The following table presents our costs and expenses for the quarters ended September 30, 2007 and 2006, in U.S. dollars and expressed as percentages of net sales.


	Quarter Ended September 30,
	2007						2006
				% of						% of
	$ in millions			net sales			$ in millions			net sales
	Successor						Predecessor
Cost of goods sold (exclusive of depreciation and amortization shown below)	$	2,555			90.5	%	$	2,389			95.8	%
Selling, general and administrative expenses		88			3.1	%		103			4.1	%
Depreciation and amortization		102			3.6	%		57			2.3	%
Research and development expenses		10			0.4	%		10			0.4	%
Interest expense and amortization of debt issuance costs — net		56			2.0	%		52			2.1	%
Loss on change in fair value of derivative instruments — net		36			1.3	%		37			1.5	%
Equity in net income (loss) of non-consolidated affiliates		4			0.1	%		(5	)		(0.2	)%
Other (income) expenses — net		(7	)		(0.2	)%		7			0.3	%

	$	2,844			100.8	%	$	2,650			106.3	%

Cost of goods sold. Metal represents approximately 70% — 80% of our input costs, and the increase in cost of goods sold in U.S. dollar terms is primarily due to the impact of higher LME prices. As a percentage of net sales, cost of goods sold was adversely impacted in both periods due to price ceilings on certain can contracts, as discussed above; however, the current year quarter benefited from less volume sold under these contracts, as well as the accretion of the contract fair value reserves.

Selling, general and administrative expenses (SG&A). SG&A decreased primarily as a result of lower corporate costs, which were $17 million lower in the current quarter due primarily to (1) $6 million of severance recorded last year for our former chief executive officer, (2) a $4 million reduction in legal and professional fees (primarily associated with the use of third party consultants to assist with our financial reporting requirements), (3) a $3 million reduction in share-based compensation expense and (4) a $4 million reduction in salaries, benefits and other employee related costs.

Depreciation and amortization. As a result of the Arrangement, as of May 15, 2007, we recorded increases in the basis to our property, plant and equipment and intangible assets. This results in higher post-acquisition depreciation and amortization and explains the increase shown above.

Other (income) expenses — net. We incurred $10 million of restructuring expenses in the prior year quarter primarily related to actions taken to reduce overhead costs and to streamline certain functions at two of our business units in Europe. The other remaining differences are primarily exchange related.

Provision (benefit) for taxes on loss

For the three months ended September 30, 2007, we recorded a $36 million benefit for taxes on our pre-tax loss of $19 million, before our equity in net (income) loss of non-consolidated affiliates and minority interests’ share, which represented an effective tax rate of 189%. Our effective tax rate is greater than the benefit at the Canadian statutory rate due primarily to (1) a $74 million benefit from the effects of enacted tax rate changes on cumulative taxable temporary differences, partially offset by (2) $27 million for (a) pre-tax foreign currency gains or losses with no tax effect and (b) the tax effect of U.S. dollar denominated currency gains or losses with no pre-tax effect and (3) a $19 million increase in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses.

For the three months ended September 30, 2006, we recorded a $52 million benefit for taxes on our pre-tax loss of $161 million, before our equity in net (income) loss of non-consolidated affiliates and minority interests’ share, which represented an effective tax rate of 32%. Our effective tax rate is less than the benefit at the Canadian statutory rate due primarily to (1) a $12 million increase in valuation allowances related to tax losses in certain jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses, mostly offset by (2) an $11 million benefit from differences between the Canadian statutory and foreign effective tax rates resulting from the application of an annual effective tax rate to profit and loss entities in different jurisdictions.

Net income

We reported net income of $13 million for the quarter ended September 30, 2007 compared to a net loss of $102 million for the quarter ended September 30, 2006.

OPERATING SEGMENT REVIEW FOR THE QUARTER ENDED SEPTEMBER 30, 2007 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2006

As a result of the acquisition by Hindalco, and based on the way our President and Chief Operating Officer (our chief operating decision-maker) reviews the results of segment operations, during the quarter ended June 30, 2007, we changed our segment performance measure to Segment Income, as defined below. As a result, certain prior period amounts have been reclassified to conform to the new segment performance measure.

We measure the profitability and financial performance of our operating segments, based on Segment Income, in accordance with FASB Statement No. 131,Disclosure About the Segments of an Enterprise and Related Information. Segment Income provides a measure of our underlying segment results that is in line with our portfolio approach to risk management. We define Segment Income as earnings before (a) interest expense and amortization of debt issuance costs — net; (b) unrealized gains (losses) on change in fair value of derivative instruments — net; (c) realized gains (losses) on corporate derivative instruments — net; (d) depreciation and amortization; (e) impairment charges on long-lived assets; (f) minority interests’ share; (g) adjustments to reconcile our proportional share of Segment Income from non-consolidated affiliates to income as determined on the equity method of accounting; (h) restructuring charges — net; (i) gains or losses on disposals of property, plant and equipment and businesses — net; (j) corporate selling, general and administrative expenses; (k) other costs — net; (l) litigation settlement — net of insurance recoveries; (m) sale transaction fees; (n) provision or benefit for taxes on income (loss) and (o) cumulative effect of accounting change — net of tax.

We do not treat all derivative instruments as hedges under FASB Statement No. 133. Accordingly, changes in fair value are recognized immediately in earnings, which results in the recognition of fair value as a gain or loss in advance of the contract settlement. In the accompanying condensed consolidated statements of operations, changes in fair value of derivative instruments not accounted for as hedges under FASB Statement No. 133 are recognized in (Gain) loss on change in fair value of derivative instruments — net. These gains or losses may or may not result from cash settlement. For Segment Income purposes we only include the impact of the derivative gains or losses to the extent they are settled in cash (i.e., realized) during that period.

Reconciliation

The following table presents Segment Income (Loss) by operating segment and reconciles Total Segment Income to Net income (loss) (in millions).


	Quarter Ended
	September 30,
	2007			2006
	Successor			Predecessor
Segment Income (Loss)
North America	$	89		$	(18	)
Europe		67			68
Asia		18			16
South America		46			37

Total Segment Income		220			103
Interest expense and amortization of debt issuance costs — net		(56	)		(52	)
Unrealized gains (losses) on change in fair value of derivative instruments — net(A)		(87	)		(98	)
Realized gains (losses) on corporate derivative instruments — net		29			—
Depreciation and amortization		(102	)		(57	)
Minority interests’ share		—			2
Adjustment to eliminate proportional consolidation(B)		(17	)		(9	)
Restructuring charges — net		—			(10	)
Gains or (losses) on disposal of property, plant, and equipment — net		—			(2	)
Corporate selling, general and administrative expenses		(16	)		(33	)
Other costs — net		6			2
Benefit for taxes on loss		36			52

Net income (loss)	$	13		$	(102	)


	(A)	Unrealized gains (losses) on change in fair value of derivative instruments — net represents the portion of gains (losses) that were not settled in cash during the period.


	(B)	Our financial information for our segments (including Segment Income) includes the results of our non-consolidated affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. However, under GAAP, these non-consolidated affiliates are accounted for using the equity method of accounting. Therefore, in order to reconcile Total Segment Income to Net income (loss), the proportional Segment Income of these non-consolidated affiliates is removed from Total Segment Income, net of our share of their net after-tax results, which is reported as Equity in net (income) loss of non-consolidated affiliates on our condensed consolidated statements of operations. See Note 7 — Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these non-consolidated affiliates.

OPERATING SEGMENT RESULTS

North America

As of September 30, 2007, North America manufactured aluminum sheet and light gauge products through 10 aluminum rolled products facilities and two dedicated recycling facilities. Important end-use applications include beverage cans, containers and packaging, automotive and other transportation applications, building products and other industrial applications.

The following table presents key financial and operating information for North America ($ in millions).


	Quarter Ended
	September 30,					Percent
	2007		2006			Change
	Successor		Predecessor
Shipments (kt):
Rolled products		279		296			(5.7	)%
Ingot products		17		17			—	%

Total shipments		296		313			(5.4	)%

Net sales	$	1,050	$	954			10.1	%
Segment Income (Loss)	$	89	$	(18	)		(594.4	)%
Total assets	$	4,468	$	1,487			200.5	%

Shipments

Rolled products shipments declined primarily due to reduced distributor and industrial demand. Distributors are reducing purchases primarily due to a slowdown in the housing market.

Net sales

Net sales increased primarily as a result of reduced exposure to contracts with price ceilings and unfavorable contract fair value accretion as discussed above in Metal Price Ceilings. During the second quarter of fiscal 2008, we were unable to pass through approximately $60 million of metal purchase costs. During the comparable prior year period, we were unable to pass through approximately $115 million of metal purchase costs, for a net favorable comparable impact of approximately $55 million. The second quarter of fiscal 2008 was also favorably impacted by $85 million related to the accretion of the contract fair value reserves, as discussed in Metal Price Ceilings. These positive impacts were partially offset by lower volume.

Segment Income (Loss)

As compared to the quarter ended September 30, 2006, Segment Income for the second quarter of fiscal 2008 was favorably impacted by $140 million as a result of the impact of the price ceilings, including the accretion of the contract fair value reserves, described above. Segment Income was also positively impacted by approximately $14 million due to higher selling prices and approximately $20 million due to improved UBC spreads and lower metal premiums. These positive factors were partially offset by (1) lower realized gains related to the cash settlement of derivatives of approximately $35 million, (2) lower volume and mix which negatively impacted Segment Income by approximately $28 million and (3) slightly higher operating costs.

Total assets

The consideration and related costs paid by Hindalco in connection with the Arrangement have been pushed down to us and, in turn, to each of our reporting units, and have been allocated to the assets acquired and liabilities assumed based on their relative fair values. This increased North America assets by approximately $3.0 billion as fair value exceeded historical cost. See Note 2 — Acquisition of Novelis Common Stock in the accompanying condensed and consolidated financial statements.

Europe

As of September 30, 2007, our European segment provided European markets with value-added sheet and light gauge products through 13 aluminum rolled products facilities and one dedicated recycling facility. Europe serves a broad range of aluminum rolled product end-use markets in various applications including can, automotive, lithographic and painted products.

The following table presents key financial and operating information for Europe ($ in millions).


	Quarter Ended
	September 30,				Percent
	2007		2006		Change
	Successor		Predecessor
Shipments (kt):
Rolled products		275		265		3.8	%
Ingot products		8		4		100.0	%

Total shipments		283		269		5.2	%

Net sales	$	1,092	$	940		16.2	%
Segment Income	$	67	$	68		(1.5	)%
Total assets	$	3,388	$	2,392		41.6	%

Shipments

Rolled products shipments increased primarily as a result of increased demand in the can market. Shipments into most other markets were comparable between periods.

Net sales

Net sales increased primarily as a result of (1) incremental volume, (2) the increase in average LME metal prices, (3) currency benefits as the euro strengthened against the U.S. dollar and (4) higher selling prices. These factors contributed approximately (1) $48 million, (2) $55 million, (3) $35 million and (4) $11 million, respectively, to net sales in the second quarter of fiscal 2008 when compared to the comparable prior year period.

Segment Income

Segment Income was favorably impacted in fiscal 2008 primarily by (1) increased volume, (2) prices, (3) currency benefits as the euro strengthened against the U.S. dollar and (4) metal price lag. These factors improved Segment Income in the second quarter of fiscal 2008 by approximately (1) $7 million, (2) $11 million, (3) $7 million and (4) $5 million, respectively, versus the comparable prior year period. These positive factors were more than offset by differences of $16 million of higher operating costs including energy, freight and labor, $13 million in lower realized gains on derivatives, and expenses associated with fair value adjustments recorded as a result of the Arrangement.

Total assets

The consideration and related costs paid by Hindalco in connection with the Arrangement have been pushed down to us and, in turn, to each of our reporting units, and have been allocated to the assets acquired and liabilities assumed based on their relative fair values. This increased Europe assets by approximately $1.0 billion as fair value exceeded historical cost. See Note 2 — Acquisition of Novelis Common Stock in the accompanying condensed and consolidated financial statements.

Asia

As of September 30, 2007, Asia operated three manufacturing facilities, with production balanced between foil, construction and industrial, and beverage and food can end-use applications.

The following table presents key financial and operating information for Asia ($ in millions).


	Quarter Ended
	September 30,				Percent
	2007		2006		Change
	Successor		Predecessor
Shipments (kt):
Rolled products		116		106		9.4	%
Ingot products		10		9		11.1	%

Total shipments		126		115		9.6	%

Net sales	$	438	$	388		12.9	%
Segment Income	$	18	$	16		12.5	%
Total assets	$	1,363	$	1,021		33.5	%

Shipments

Rolled products shipments increased primarily due to higher sales in the can market. Shipments into other markets were comparable between periods.

Net sales

Net sales increased primarily as a result of higher volume and the increase in average LME metal prices, which was largely passed through to customers.

Segment Income

Segment Income increased by approximately $5 million due to higher volume. However, this was partially offset by the negative impact of the strengthening Korean won.

Total assets

The consideration and related costs paid by Hindalco in connection with the Arrangement have been pushed down to us and, in turn, to each of our reporting units, and have been allocated to the assets acquired and liabilities assumed based on their relative fair values. This increased Asia assets by approximately $298 million as fair value exceeded historical cost. See Note 2 — Acquisition of Novelis Common Stock in the accompanying condensed and consolidated financial statements.

South America

As of September 30, 2007, South America operated two rolling plants in Brazil along with two smelters, an alumina refinery, bauxite mines and power generation facilities. South America manufactures various aluminum rolled products, including can stock, automotive and industrial sheet and light gauge for the beverage and food can, construction and industrial and transportation end-use markets.

The following table presents key financial and operating information for South America ($ in millions).


	Quarter Ended
	September 30,				Percent
	2007		2006		Change
	Successor		Predecessor
Shipments (kt):
Rolled products		77		70		10.0	%
Ingot products		7		7		—	%

Total shipments		84		77		9.1	%

Net sales	$	241	$	216		11.6	%
Segment Income	$	46	$	37		24.3	%
Total assets	$	1,353	$	814		66.2	%

Shipments

Rolled products shipments increased during the second quarter of fiscal 2008 over the comparable prior year period primarily due to an increase in can shipments driven by strong market demand. This was slightly offset by reductions in shipments in the industrial products markets.

Net sales

Net sales increased primarily as a result of higher shipments and higher LME prices.

Segment Income

Segment Income was favorably impacted during the second quarter of fiscal 2008 primarily due to (1) increased shipments described above, (2) higher selling prices, (3) higher realized gains from derivative settlements and (4) a favorable social tax reserve adjustment. These factors improved Segment Income in the second quarter of fiscal 2008 by approximately (1) $4 million, (2) $15 million, (3) $6 million and (4) $6 million, respectively, as compared to the prior year period. These positive factors were partially offset by the strengthening of the Brazilian real, which reduced Segment Income by $12 million and other cost increases of $8 million.

Total assets

The consideration and related costs paid by Hindalco in connection with the Arrangement have been pushed down to us and, in turn, to each of our reporting units, and have been allocated to the assets acquired and liabilities assumed based on their relative fair values. This increased South America assets by approximately $471 million as fair value exceeded historical cost. See Note 2 — Acquisition of Novelis Common Stock in the accompanying condensed and consolidated financial statements.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007 (ON A COMBINED NON-GAAP BASIS) COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2006

As discussed above, the Arrangement created a new basis of accounting. Under GAAP, the condensed consolidated financial statements for the six months ended September 30, 2007 are presented in two distinct periods, as Predecessor and Successor entities are not comparable in all material respects. However, in order to facilitate an understanding of our results of operations for the six months ended September 30, 2007 in comparison with the six months ended September 30, 2006, our Predecessor and Successor results are presented herein on a combined basis. The combined results of operations are non-GAAP financial measures and should not be used in isolation or substitution of the Predecessor and Successor results.

Shipments

Compared to the prior year, rolled products shipments increased on a year to date basis in all regions except North America primarily as a result of increased demand in their respective regional can markets. Compared to the prior year, North American demand for rolled products has declined across all product groups, most notably in the industrial and distributor markets partially due to a slowdown in housing construction. In addition, a strike at a key can customer in North America contributed to lower shipments year over year.

Net sales

Higher net sales in the six months ended September 30, 2007 resulted primarily from (1) the increase in LME metal pricing, which was 3.3% higher on average during the fiscal 2008 period than the comparable prior year period, (2) lower exposure to contracts with price ceilings (discussed below) in North America, (3) improved pricing and (4) currency benefits as the euro strengthened against the dollar. The positive impact of increased volume in Europe, South America and Asia was largely offset by the decrease in volume in North America. Metal represents approximately 60% — 70% of the sales value of our products.

Net sales for the six months ended September 30, 2007 were adversely impacted in North America due to price ceilings on certain can contracts, which limited our ability to pass through approximately $140 million of metal purchase costs. In comparison, we were unable to pass through approximately $255 million of metal purchase costs in the comparable prior year period, for a net favorable impact of approximately $115 million. In addition, North America net sales were favorably impacted by $129 million related to the accretion of the contract fair value reserves, discussed above in Metal Price Ceilings.

Costs and expenses

The following table presents our costs and expenses for the six months ended September 30, 2007 and 2006, in U.S. dollars and expressed as percentages of net sales.


	Six Months Ended September 30,
	2007					2006
			% of						% of
	$ in millions		net sales			$ in millions			net sales
	Combined					Predecessor

Cost of goods sold (exclusive of depreciation and amortization shown below)	$	5,196		92.0	%	$	4,796			94.8	%
Selling, general and administrative expenses		225		4.0	%		201			4.0	%
Depreciation and amortization		183		3.2	%		116			2.3	%
Research and development expenses		29		0.5	%		20			0.4	%
Interest expense and amortization of debt issuance costs — net		107		1.9	%		101			2.0	%
(Gain) loss on change in fair value of derivative instruments — net		2		—	%		(4	)		(0.1	)%
Equity in net income (loss) of non-consolidated affiliates		4		0.1	%		(9	)		(0.2	)%
Sale transaction fees		32		0.6	%		—			—	%
Other expenses — net		8		0.1	%		3			0.1	%

	$	5,786		102.4	%	$	5,224			103.3	%

Cost of goods sold. Metal represents approximately 70% — 80% of our input costs, and the increase in cost of goods sold in U.S. dollar terms is primarily due to the impact of higher LME prices. As a percentage of net sales, cost of goods sold was adversely impacted in both periods due to price ceilings on certain can contracts; however, the impact was lower in the current year to date period as a result of lower exposure to price ceilings and the impact of fair value adjustments as result of the Arrangement as described above.

Selling, general and administrative expenses. Compared to the six months ended September 30, 2006, SG&A for the six months ended September 30, 2007 increased primarily as a result of $43 million of incremental stock compensation expense as a result of the Arrangement, offset partially by lower corporate costs. Corporate costs (excluding stock compensation of $20 million included in the $43 million described above) were $22 million lower in the current year to date period primarily as a result of $10 million of severance recorded in the prior year to date period for certain former executives and an $11 million reduction in legal and professional fees (primarily associated with the use of third party consultants to assist with our financial reporting requirements in the prior year to date period).

Research and development expenses. Research and development expenses increased in fiscal 2008 over the comparable prior year period due to a one-time write-off of $9 million of in-process research and development costs resulting from the Arrangement.

Sale transaction fees. We incurred $32 million of fees and expenses related to the Arrangement during the period from April 1, 2007 through May 15, 2007.

Provision (benefit) for taxes on loss

For the six months ended September 30, 2007, we recorded a $4 million provision for taxes on our pre-tax loss of $133 million, before our equity in net (income) loss of non-consolidated affiliates and minority interests’ share, which represented an effective tax rate of (3)%. Our effective tax rate is greater than the benefit at the Canadian statutory rate due primarily to (1) $70 million for (a) pre-tax foreign currency gains or losses with no tax effect and (b) the tax effect of U.S. dollar denominated currency gains or losses with no pre-tax effect, (2) a $53 million increase in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses, (3) a $69 million benefit from the effects of enacted tax rate changes on cumulative taxable temporary differences and (4) a $30 million benefit from expense/income items with no tax effect — net.

For the six months ended September 30, 2006, we recorded a $72 million benefit for taxes on our pre-tax loss of $175 million, before our equity in net (income) loss of non-consolidated affiliates and minority interests’ share, which represented an effective tax rate of 41%. Our effective tax rate is greater than the benefit at the Canadian statutory rate due primarily to (1) $26 million for (a) pre-tax foreign currency gains or losses with no tax effect and (b) the tax effect of U.S. dollar denominated currency gains or losses with no pre-tax effect, (2) a $9 million increase in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses, which were more than offset by (3) a $40 million benefit from differences between the Canadian statutory and foreign effective tax rates resulting from the application of an annual effective tax rate to profit and loss entities in different jurisdictions and (4) a $9 million benefit from expense/income items with no tax effect — net.

Net loss

We reported a net loss of $138 million for the six months ended September 30, 2007 compared to a net loss of $96 million for the six months ended September 30, 2006.

OPERATING SEGMENT REVIEW FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007 (ON A COMBINED NON-GAAP BASIS) COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2006

comparison with the six months ended September 30, 2006, our Predecessor and Successor segment information is presented herein on a combined basis. The combined segment items are non-GAAP financial measures and should not be used in isolation or substitution of the Predecessor and Successor segment information.

Net sales

Shown below is the schedule of Net sales by operating segment for periods allocable to the Successor, Predecessor and the combined presentation for the six months ended September 30, 2007 that we use throughout MD&A (in millions).


	May 16, 2007				Six Months
	Through		April 1, 2007		Ended
	September 30,		Through		September 30,
	2007		May 15, 2007		2007
	Successor		Predecessor		Combined
Combined Net sales by Operating Segment:
North America	$	1,624	$	446	$	2,070
Europe		1,686		510		2,196
Asia		683		216		899
South America		375		109		484

Total Net sales	$	4,368	$	1,281	$	5,649

Segment Income

Shown below is the schedule of our reconciliation from Total Segment Income to Net loss by operating segment for periods allocable to the Successor, Predecessor and the combined presentation for the six months ended September 30, 2007 that we use throughout MD&A (in millions).


	May 16, 2007						Six Months
	Through			April 1, 2007			Ended
	September 30,			Through			September 30,
	2007			May 15, 2007			2007
	Successor			Predecessor			Combined
Combined Results by Operating Segment:
Segment Income (Loss)
North America	$	112		$	(24	)	$	88
Europe		110			32			142
Asia		17			6			23
South America		68			18			86

Total Segment Income		307			32			339
Interest expense and amortization of debt issuance costs — net		(81	)		(26	)		(107	)
Unrealized gains (losses) on change in fair value of derivative instruments — net		(102	)		5			(97	)
Realized gains (losses) on corporate derivative instruments — net		37			(3	)		34
Depreciation and amortization		(155	)		(28	)		(183	)
Minority interests’ share		2			1			3
Adjustment to eliminate proportional consolidation		(26	)		(7	)		(33	)
Restructuring charges — net		(1	)		(1	)		(2	)
Corporate selling, general and administrative expenses		(26	)		(35	)		(61	)
Other costs — net		4			1			5
Sale transaction fees		—			(32	)		(32	)
Provision for taxes on loss		—			(4	)		(4	)

Net loss	$	(41	)	$	(97	)	$	(138	)

Reconciliation

The following table presents Segment Income by operating segment and reconciles Total Segment Income to Net loss (in millions).


	Six Months Ended
	September 30,
	2007			2006
	Combined			Predecessor

Segment Income
North America	$	88		$	7
Europe		142			146
Asia		23			40
South America		86			80

Total Segment Income		339			273
Interest expense and amortization of debt issuance costs — net		(107	)		(101	)
Unrealized losses on change in fair value of derivative instruments — net		(97	)		(133	)
Realized gains on corporate derivative instruments — net		34			—
Depreciation and amortization		(183	)		(116	)
Minority interests’ share		3			(2	)
Adjustment to eliminate proportional consolidation		(33	)		(16	)
Restructuring charges — net		(2	)		(12	)
Gains or (losses) on disposal of property, plant, and equipment — net		—			(2	)
Corporate selling, general and administrative expenses		(61	)		(63	)
Other corporate costs — net		5			4
Sale transaction fees		(32	)		—
Benefit (provision) for taxes on loss		(4	)		72

Net loss	$	(138	)	$	(96	)

OPERATING SEGMENT RESULTS

North America

The following table presents key financial and operating information for North America ($ in millions).


	Six Months Ended
	September 30,				Percent
	2007		2006		Change
	Combined		Predecessor

Shipments (kt):
Rolled products		557		594		(6.2	)%
Ingot products		33		42		(21.4	)%

Total shipments		590		636		(7.2	)%

Net sales	$	2,070	$	1,946		6.4	%
Segment Income	$	88	$	7		1,157.1	%

Shipments

Rolled products shipments declined by approximately 25kt due to reduced distributor demand and 12kt due to lower can volume. Distributors are reducing purchases primarily due to a slowdown in the housing market. North America can sheet shipments were negatively impacted by a labor strike at one of our large

customers during the first quarter of fiscal 2008. Ingot product shipments declined during the six months ended September 30, 2007 due to lower scrap sales and improved internal use of primary ingot, excess amounts of which were sold to third parties in the six months ended September 30, 2006.

Net sales

Net sales increased primarily as a result of reduced exposure to contracts with price ceilings and unfavorable contract fair value accretion as discussed above in Metal Price Ceilings. During the first six months of fiscal 2008 we were unable to pass through approximately $140 million of metal purchase costs. During the comparable prior year period, we were unable to pass through approximately $255 million of metal purchase costs, for a net favorable comparable impact of approximately $115 million. The first six months of 2008 was also favorably impacted by $129 million related to the accretion of the contract fair value reserves, as discussed in Metal Price Ceilings. North America was also positively impacted by improved pricing and higher LME, but this was more than offset by a reduction in volume.

Segment Income

As compared to the six months ended September 30, 2006, Segment Income for the six months ended September 30, 2007 was favorably impacted by $244 million as a result of the impact of the price ceilings, including the accretion of the contract fair value reserves, described above. Segment Income was also positively impacted by approximately $33 million due to higher selling prices and $10 million due to cost improvements. These positive factors were partially offset by (1) the negative impact of metal price lag which unfavorably impacted Segment Income by $47 million as compared to the six months ended September 30, 2006, (2) lower realized gains related to the cash settlement of derivatives of approximately $78 million, (3) lower volume which negatively impacted Segment Income by approximately $51 million, (4) incremental stock compensation expense of $10 million as a result of the Arrangement and (5) $20 million of additional expenses associated with fair value adjustments recorded as a result of the Arrangement.

Europe

The following table presents key financial and operating information for Europe ($ in millions).


	Six Months Ended
	September 30,				Percent
	2007		2006		Change
	Combined		Predecessor

Shipments (kt):
Rolled products		559		531		5.3	%
Ingot products		12		7		71.4	%

Total shipments		571		538		6.1	%

Net sales	$	2,196	$	1,862		17.9	%
Segment Income	$	142	$	146		(2.7	)%

Shipments

Rolled products shipments increased approximately 21kt in the can market and 8kt in the light gauge and automotive markets. Shipments into other markets were comparable between periods.

Net sales

Net sales increased primarily as a result of (1) incremental volume, (2) the 3.3% increase in average LME metal prices, (3) currency benefits as the euro strengthened against the U.S. dollar and (4) higher selling prices. These factors contributed approximately (1) $123 million, (2) $124 million, (3) $62 million and (4) $21 million, respectively, to net sales in the six months ended September 30, 2007 when compared to the prior year period.

Segment Income

Segment Income was favorably impacted in fiscal 2008 primarily by (1) increased volume, (2) prices and (3) currency benefits as the euro strengthened against the U.S. dollar. These factors improved Segment Income in the six months ended September 30, 2007 by approximately (1) $18 million, (2) $20 million and (3) $7 million, respectively, versus the comparable prior year period. However, these positive factors were more than offset by (a) unfavorable metal price lag, (b) lower realized gains on derivative instruments, (c) higher operating costs including freight, energy and labor and (d) expenses associated with fair value adjustments recorded as a result of the Arrangement. These factors reduced Segment Income in the six months ended September 30, 2007 by approximately (a) $7 million, (b) $19 million, (c) $13 million and (d) $10 million, respectively, on a comparable basis.

Asia

The following table presents key financial and operating information for Asia ($ in millions).


	Six Months Ended
	September 30,				Percent
	2007		2006		Change
	Combined		Predecessor

Shipments (kt):
Rolled products		234		229		2.2	%
Ingot products		22		22		—	%

Total shipments		256		251		2.0	%

Net sales	$	899	$	841		6.9	%
Segment Income	$	23	$	40		(42.5	)%

Shipments

Rolled products shipments increased 13kt in the can market due to increased demand. This increase was partially offset by a decline of shipments in the industrial and light gauge markets as a result of continued price pressure from Chinese exports, driven by the difference in aluminum metal prices on the Shanghai Foreign Exchange and the LME.

Net sales

Net sales increased approximately $30 million as a result of favorable metal price lag related to contracts priced with a one-quarter lag. Net sales also increased approximately $23 million due to the increase in higher average LME prices which was largely passed through to customers. Sales increases associated with higher volume were largely offset by a larger amount of tolled metal and mix changes.

Segment Income

While Segment Income benefited from the favorable metal price lag associated with certain sales contracts described above, this was more than offset by the metal price lag associated with inventory processing time. On a net basis, these items resulted in lower Segment Income by $5 million as compared to the prior year to date period. Segment Income was also unfavorably impacted by $4 million due to the strengthening of the won and by $9 million of additional expenses associated with fair value adjustments recorded as a result of the Arrangement.

South America

The following table presents key financial and operating information for South America ($ in millions).


	Six Months Ended
	September 30,				Percent
	2007		2006		Change
	Combined		Predecessor

Shipments (kt):
Rolled products		154		136		13.2	%
Ingot products		14		13		7.7	%

Total shipments		168		149		12.8	%

Net sales	$	484	$	417		16.1	%
Segment Income	$	86	$	80		7.5	%

Shipments

Rolled products shipments increased during the six months ended September 30, 2007 over the comparable prior year period primarily due to an increase in can shipments driven by strong market demand. This was slightly offset by reductions in shipments in the industrial products markets.

Net sales

Net sales increased primarily as a result of higher shipments, increased prices and an increase in LME prices.

Segment Income

Segment Income during the six months ended September 30, 2007 was favorably impacted primarily by (1) increased shipments described above, (2) higher selling prices, (3) higher LME, (4) greater realized gains on derivative instruments and (5) a favorable social tax reserve adjustment. These factors improved Segment Income in the six months ended September 30, 2007 by approximately (1) $21 million, (2) $11 million, (3) $10 million, (4) $19 million and (5) $6 million, respectively, as compared to the prior year to date period. These positive factors were offset by metal price lag, which was less favorable than the prior year period by approximately $9 million, the strengthening of the Brazilian real, which reduced Segment Income by $27 million, $8 million of incremental expenses associated with fair value adjustments recorded as a result of the Arrangement and other cost increases of $17 million.

LIQUIDITY AND CAPITAL RESOURCES

As discussed above, the Arrangement created a new basis of accounting. Under GAAP, the condensed consolidated financial statements for the six months ended September 30, 2007 are presented in two distinct periods, as Predecessor and Successor entities are not comparable in all material respects. However, in order to facilitate an understanding of our liquidity and capital resources as of and for the six months ended September 30, 2007 in comparison with the six months ended September 30, 2006, our Predecessor and Successor cash flows are presented herein on a combined basis. The combined cash flows are non-GAAP financial measures and should not be used in isolation or substitution of the Predecessor and Successor cash flows.

Shown below is a condensed combining schedule of cash flows for periods allocable to the Successor, Predecessor and the combined presentation for the six months ended September 30, 2007 that we use throughout our discussion of liquidity and capital resources.


	May 16, 2007						Six Months
	Through			April 1, 2007			Ended
	September 30,			Through			September 30,
	2007			May 15, 2007			2007
	Successor			Predecessor			Combined
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	9		$	(230	)	$	(221	)

INVESTING ACTIVITIES
Capital expenditures		(57	)		(17	)		(74	)
Proceeds from sales of assets		1			—			1
Changes to investment in and advances to non-consolidated affiliates		3			1			4
Proceeds from loans receivable — net — related parties		10			—			10
Net proceeds from settlement of derivative instruments		66			18			84

Net cash provided by investing activities		23			2			25

FINANCING ACTIVITIES
Proceeds from issuance of common stock		92			—			92
Proceeds from issuance of debt		960			150			1,110
Principal repayments		(905	)		(1	)		(906	)
Short-term borrowings — net		(65	)		60			(5	)
Dividends — minority interests		(1	)		(7	)		(8	)
Debt issuance costs		(35	)		(2	)		(37	)
Proceeds from the exercise of stock options		—			1			1

Net cash provided by financing activities		46			201			247

Net increase (decrease) in cash and cash equivalents		78			(27	)		51
Effect of exchange rate changes on cash balances held in foreign currencies		1			1			2
Cash and cash equivalents — beginning of period		102			128			128

Cash and cash equivalents — end of period	$	181		$	102		$	181

Operating Activities

Free cash flow (which is a non-GAAP measure) consists of (a) Net cash provided by (used in) operating activities; (b) less dividends and capital expenditures; (c) plus net proceeds from settlement of derivative instruments (which is net of premiums paid to purchase derivative instruments). Dividends include those paid by our less than wholly-owned subsidiaries to their minority shareholders and dividends paid by us to our common shareholder(s). Management believes that 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. We believe the line on our condensed consolidated statements of cash flows entitled “Net cash provided by (used in) operating activities” is the most directly comparable measure to Free cash flow. Our method of calculating Free cash flow may not be consistent with that of other companies.

In our discussion of Metal Price Ceilings, we have disclosed that certain of our sales contracts contain a fixed aluminum (metal) price ceiling beyond which the cost of aluminum cannot be passed through to the customer, unless adjusted. During the six months ended September 30, 2007 and the comparable prior year period, we were unable to pass through approximately $140 million and $255 million, respectively, of metal purchase costs associated with sales under these contracts. Net cash provided by operating activities is negatively impacted by the same amounts, adjusted for any timing difference between customer receipts and vendor payments and offset partially by reduced income taxes. Based on a September 30, 2007 aluminum price of $2,440 per tonne, and our estimate of a range of shipment volumes, we estimate that we will be unable to pass through aluminum purchase costs of approximately $90 — $95 million for the remainder of fiscal 2008 and $285 — $300 million in the aggregate thereafter.

As a result of our acquisition by Hindalco, we established reserves totaling $655 million as of May 15, 2007 representing the fair value of these contracts, and these reserves are being accreted into Net sales over the remaining lives of the contracts in a manner consistent with the forecast used to determine the fair value of the reserves. This accretion does not impact cash flow.

The following tables show the reconciliation from Net cash used in operating activities to Free cash flow, the ending balances of cash and cash equivalents and the change between periods.


	Six Months Ended September 30,
	2007			2006			Change
	Combined			Predecessor
	($ in millions)

Net cash used in operating activities	$	(221	)	$	(89	)	$	(132	)
Dividends		(8	)		(8	)		—
Capital expenditures		(74	)		(56	)		(18	)
Net proceeds from settlement of derivative instruments		84			154			(70	)

Free cash flow	$	(219	)	$	1		$	(220	)


	As of
	September 30,		March 31,
	2007		2007		Change
	Successor		Predecessor
Ending balances of cash and cash equivalents	$	181	$	128	$	53

In the six months ended September 30, 2007, net cash used in operating activities was influenced primarily by metal purchase costs we were unable to pass through to customers due to the price ceilings previously discussed. Other items that negatively impacted operating cash flow for the six months ended September 30, 2007 include $72 million paid in share-based compensation payments, $42 million paid for sale transaction fees and bonus payments totaling $25 million for the calendar year ended December 31, 2006 and the period from January 1, 2007 through May 15, 2007, triggered by the Arrangement.

Financing Activities

Overview

During the six months ended September 30, 2007, our total debt (including short-term borrowings) increased by $205 million (excluding net unamortized fair value adjustments of $66 million recorded as part of the Arrangement), principally as a result of our need to fund additional working capital requirements and certain costs associated with the Arrangement, including sale transaction fees and share-based compensation payments. During the first quarter of fiscal 2008, we also received $92 million in cash from the sale of additional common stock to Hindalco.

New Senior Secured Credit Facilities

The proceeds from the Term Loan facility of $960 million, drawn in full at the time of closing, and the initial draw of $324 million under the ABL facility were used to pay off the existing senior secured credit facility (discussed below), pay for debt issuance costs of the New Credit Facilities and provide for additional working capital. Mandatory minimum principal amortization payments under the Term Loan facility are $2.4 million per calendar quarter. The first mandatory minimum principal amortization payment was made on September 28, 2007. Additional mandatory prepayments are required to be made in the event of certain collateral liquidations, asset sales, debt and preferred stock issuances, equity issuances, casualty events and excess cash flow (as defined in the New Credit Facilities). Any unpaid principal remaining is due in full on July 6, 2014.

Old Senior Secured Credit Facilities

— netusing the “effective interest amortization” method for the Term Loans and the straight-line method for the revolving credit and letters of credit facility. The unamortized amount of these costs was $26 million as of March 31, 2007. We incurred an additional $2 million in debt issuance costs as described above during the period from April 1, 2007 through May 15, 2007. As a result of the Arrangement and the recording of debt at fair value, the total amount of unamortized debt issuance costs of $28 million was reduced to zero as of May 15, 2007.

7.25% Senior Notes

The indenture governing the Senior Notes and the related registration rights agreement required us to file a registration statement for the notes and exchange the original, privately placed notes for registered notes. Under the indenture and the related registration rights agreement, we were required to complete the exchange offer for the Senior Notes by November 11, 2005. We did not complete the exchange offer by that date and, as a result, we began to incur additional special interest at rates ranging from 0.25% to 1.00%. We filed a post-effective amendment to the registration statement on December 1, 2006 which was declared effective by the SEC on December 22, 2006. We ceased paying additional special interest effective January 5, 2007, upon completion of the exchange offer.

Tender Offer and Consent Solicitation for 7.25% Senior Notes

Korean Bank Loans

refinanced this loan with a floating rate short-term borrowing in the amount of $40 million due by August 2008. We recognized a loss on extinguishment of debt of less than $1 million in connection with this refinancing. Additionally, we immediately entered into an interest rate swap and cross currency swap for the loan through a 3.94% fixed rate KRW 38 billion loan.

Short Term Borrowings and Lines of Credit

Issuance of Additional Common Stock

On June 22, 2007, we issued 2,044,122 additional shares to AV Aluminum for $44.93 per share resulting in an additional equity contribution of $92 million. This contribution was equal in amount to certain payments made by Novelis related to change in control compensation to certain employees and directors, lender fees and other transaction costs incurred by the Company.

Investing Activities

The following table presents information regarding our Net cash provided by investing activities ($ in millions).


	Six Months Ended
	September 30,
	2007			2006			Change
	Combined			Predecessor

Net proceeds from settlement of derivative instruments	$	84		$	154		$	(70	)
Capital expenditures		(74	)		(56	)		(18	)
Cash advance received on pending transfer of rights		—			15			(15	)
Proceeds from loans receivable — net		10			20			(10	)
Changes to investment in and advances to non-consolidated affiliates		4			2			2
Proceeds from sales of assets		1			1			—

Net cash provided by investing activities	$	25		$	136		$	(111	)

Net proceeds from the settlement of derivative instruments explain the majority of the difference in the current to prior year to date net cash provided by investing activities.

The majority of our capital expenditures for the six months ended September 30, 2007 and 2006 were for projects devoted to product quality, technology, productivity enhancement and increased capacity.

We estimate that our annual capital expenditure requirements for items necessary to maintain comparable production, quality and market position levels (maintenance capital) will be approximately $120 million, and that total annual capital expenditures will be approximately $200 million for all of fiscal 2008.

OFF-BALANCE SHEET ARRANGEMENTS

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


	•	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;

	•	any obligation under certain derivative instruments; 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 each of the above items for our company.

Derivative Instruments

As of September 30, 2007, we have derivative financial instruments, as defined by FASB Statement No. 133. See Note 14 — Financial Instruments and Commodity Contracts to our condensed consolidated financial statements included in this Quarterly Report onForm 10-Q.

Certain contracts are designated as hedges of either net investment or cash flows. For these contracts we recognize the change in fair value of the ineffective portion of the hedge as a gain or loss in our current period results of operations. We include the change in fair value of the effective and interest portions of these hedges in Accumulated other comprehensive income within Shareholder’s equity in the accompanying condensed consolidated balance sheet.

Prior to Completion of the Arrangement

Prior to and during the period from April 1, 2007 through May 15, 2007, we applied hedge accounting to certain of our cross-currency swaps with respect to intercompany loans to several European subsidiaries and forward exchange contracts. Our Euro and British pound (GBP) cross-currency swaps were designated as net investment hedges, while our Swiss franc (CHF) cross-currency swaps and our Brazilian real (BRL) forward foreign exchange contracts were designated as cash flow hedges. As of May 15, 2007, we had $712 million of cross-currency swaps (Euro 475 million, GBP 62 million and CHF 35 million) and $99 million of forward foreign exchange contracts (BRL 229 million). During the period from April 1, 2007 through May 15, 2007, we implemented cash flow hedge accounting for an electricity swap, which was embedded in a supply contract.

Impact of the Arrangement and Purchase Accounting

Concurrent with completion of the Arrangement on May 15, 2007, we dedesignated all hedging relationships. The cumulative change in fair value of effective and interest portions of these hedges, previously presented in Accumulated other comprehensive income within Shareholder’s equity on May 15, 2007, was incorporated in the new basis of accounting. As a result of purchase accounting, the fair value of all embedded derivative instruments was allocated to the fair value of their respective host contracts, reducing the fair value of embedded derivative instruments to zero.

Subsequent to Completion of the Arrangement

The fair values of our financial instruments and commodity contracts are as follows (in millions).


		As of September 30, 2007
	Maturity Dates						Net Fair
*Successor:*	(Fiscal Year)	Assets		Liabilities			Value

Foreign exchange forward contracts	2008 through 2012	$	34	$	(44	)	$	(10	)
Cross-currency swaps	2008 through 2015		—		(141	)		(141	)
Aluminum forward contracts	2008 through 2010		13		(29	)		(16	)
Electricity swap	2017		4		(1	)		3
Embedded derivative instruments	2008		7		—			7
Natural gas swaps	2008 through 2009		—		(1	)		(1	)

Total fair value			58		(216	)		(158	)
Less: current portion			51		(81	)		(30	)

Noncurrent portion		$	7	$	(135	)	$	(128	)

Guarantees of Indebtedness

The following table discloses information about our obligations under guarantees of indebtedness as of September 30, 2007 (in millions).


	Maximum		Liability
	Potential Future		Carrying
Type of Entity	Payment		Value

Wholly-owned subsidiaries	$	64	$	55
Majority-owned subsidiaries		3		—
Aluminium Norf GmbH		14		—

We have no 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.

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 structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2007 and March 31, 2007, we are not involved in any unconsolidated SPE transactions.

CONTRACTUAL OBLIGATIONS

We have future obligations under various contracts relating to debt and interest payments, capital and operating leases, long-term purchase obligations, and postretirement benefit plans. During the six months ended September 30, 2007, there were no significant changes to these obligations as reported in our Annual Report onForm 10-K for the year ended December 31, 2006, other than those described below.

Our total debt increased by $205 million during the period from April 1, 2007 to September 30, 2007 (excluding net unamortized fair value adjustments of $66 million recorded as part of the acquisition by Hindalco), principally as a result of our need to fund additional working capital requirements and certain costs associated with the Arrangement, including Sale transaction fees and share-based compensation payments.

As a result of the amendment to our Old Credit Facilities in April 2007, we obtained a limited waiver of the change of control Event of Default (as defined in the senior secured credit facilities) which effectively extended the requirement to repay the Old Credit Facilities to July 11, 2007. As a result of the Arrangement, we paid off and terminated the Old Credit Facilities on July 6, 2007 through refinancing with the New Credit Facilities.

DIVIDENDS

No dividends have been declared on our common stock during fiscal 2008. Future dividends are at the discretion of the board of directors and will depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments governing our indebtedness, being in compliance with the appropriate indentures and covenants under the instruments that govern our indebtedness that would allow us to legally pay dividends and other relevant factors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

During the six months ended September 30, 2007, there were no significant changes to our critical accounting policies and estimates as reported in our Annual Report onForm 10-K for the year ended December 31, 2006.

RECENT ACCOUNTING STANDARDS

In April 2007, the FASB issued Staff Position (FSP)No. FIN 39-1,Amendment of FASB Interpretation No 39, (FSPFIN 39-1). FSPFIN 39-1 amends FASB Statement No. 39,Offsetting of Amounts Related to Certain Contracts, by permitting entities that enter into master netting arrangements as part of their derivative transactions to offset in their financial statements net derivative positions against the fair value of amounts (or amounts that approximate fair value) recognized for the right to reclaim cash collateral or the obligation to return cash collateral under those arrangements. FSPFIN 39-1 is effective for fiscal years beginning after November 15, 2007. We have not yet commenced evaluating the potential impact, if any, of the adoption of FSPFIN 39-1 on our consolidated financial position, results of operations and cash flows.


SPECIAL NOTE REGARDING	FORWARD-LOOKING STATEMENTS AND MARKET DATA

This document contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industry in which we operate, and beliefs and assumptions made by our management. Such statements include, in particular, statements about our plans, strategies and prospects. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and variations of such words and similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements in this Quarterly Report onForm 10-Q include, but are not limited to, our expectations with respect to the impact of metal price movements on our financial performance, our metal price ceiling exposure and the effectiveness of our hedging programs and controls. These statements are based on beliefs and assumptions of Novelis’ management, which in turn are based on currently available information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that

are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. We do not intend, and we disclaim any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.

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. While we do not know what impact any of these differences may have on our business, our results of operations, financial condition, cash flow and the market price of our securities may be materially adversely affected. Factors that could cause actual results or outcomes to differ from the results expressed or implied by forward-looking statements include, among other things:


	•	the level of our indebtedness and our ability to generate cash;

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

	•	the effect of metal price ceilings in certain of our sales contracts;

	•	the effectiveness of our metal hedging activities, including our internal used beverage can (UBC) and smelter hedges;

	•	relationships with, and financial and operating conditions of, our customers, suppliers and our ultimate parent, Hindalco;

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

	•	our ability to access financing for future capital requirements;

	•	continuing obligations and other relationships resulting from our spin-off from Alcan;

	•	changes in the relative values of various currencies;

	•	factors affecting our operations, such as litigation, environmental remediation andclean-up costs, labor relations and negotiations, breakdown of equipment and other events;

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

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

	•	changes in general economic conditions;

	•	our ability to improve and maintain effective internal control over financial reporting and disclosure controls and procedures in the future;

	•	changes in the fair value of derivative instruments;

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

	•	changes in government regulations, particularly those affecting taxes, environmental, health or safety compliance;

	•	changes in interest rates that have the effect of increasing the amounts we pay under our principal credit agreement and other financing agreements; and

	•	the effect of taxes and changes in tax rates.

The above list of factors is not exhaustive. Some of these and other factors are discussed in more detail under “Item 1A. Risk Factors” in our Annual Report onForm 10-K for the year ended December 31, 2006, as amended, and filed with the SEC and are specifically incorporated by reference into this filing.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in commodity prices (aluminum, electricity and natural gas), 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. Except where noted, the derivative contracts are marked-to-market and the related gains and losses are included in earnings in the current accounting period.

By their nature, all derivative financial instruments involve risk, including the credit risk of non-performance by counterparties. All derivative contracts are executed with counterparties that, in our judgment, are creditworthy. Our maximum potential loss may exceed the amount recognized in our accompanying condensed consolidated balance sheet as of September 30, 2007.

The decision of whether and when to execute derivative instruments, along with the duration of the instrument, can vary from period to period depending on market conditions and the relative costs of the instruments. The duration is always linked to the timing of the underlying exposure, with the connection between the two being regularly monitored.

Commodity Price Risks

We have commodity price risk with respect to purchases of certain raw materials including aluminum, electricity and natural gas.

Aluminum

Most 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 products have a price structure with two components: (i) a pass through aluminum price based on the LME plus local market premiums and (ii) a “margin over metal” price based on the conversion cost to produce the rolled product and the competitive market conditions for that product.

In situations where we offer customers fixed prices for future delivery of our products, we may enter into derivative instruments for the metal inputs in order to protect the profit on the conversion of the product. Consequently, the gain or loss resulting from movements in the price of aluminum on these contracts would generally be offset by an equal and opposite impact on the net sales and purchases being hedged.

In addition, sales contracts representing approximately 10% of our total shipments for the six months ended September 30, 2007 provide for a ceiling over which metal purchase costs cannot contractually be passed through to certain customers, unless adjusted. As a result, we are unable to pass through the complete metal purchase costs for sales under these contracts and this negatively impacts our margins when the metal price is above the ceiling price. These contracts expire at varying times and our estimated remaining exposure approximates 10% of estimated shipments in the remainder of fiscal 2008.

However, as previously discussed, in connection with the allocation of purchase price arising from the Arrangement, we established reserves totaling $655 million as of May 15, 2007 to record these sales contracts at fair value. Fair value effectively represents the discounted cash flows of the forecasted metal purchase costs in excess of the metal price ceilings contained in these contracts. These reserves are being accreted into Net sales over the remaining lives of the underlying contracts, and this accretion will not impact future cash flows. During the period from May 16, 2007 through September 30, 2007, we recorded accretion of $129 million.

Beyond our internal hedges described above, our third strategy to mitigate the risk of loss or reduced profitability associated with the metal price ceilings is to purchase futures, call optionsand/or synthetic call options on projected aluminum volume requirements above our assumed internal hedge position. To hedge our exposure in 2006, we previously purchased call options at various strike prices. In September of 2006, we began purchasing both fixed forward derivative instruments and put options, thereby creating synthetic call options, to hedge our exposure to further metal price increases.

During the quarter ended September 30, 2006, we began selling short-term LME futures contracts to reduce the cash flow volatility of fluctuating metal prices associated with metal price lag.

In Europe, we enter into forward metal purchases simultaneous with the contracts that contain fixed metal prices. These forward metal purchases directly hedge the economic risk of future metal price fluctuation associated with these contracts. The positive or negative impact on sales under these contracts has been included in the metal price lag effect described above, without regard to the fixed forward instruments purchased to offset this risk.

Sensitivities

The following table presents the estimated potential pre-tax gain (loss) in the fair values of these derivative instruments as of September 30, 2007, assuming a 10% decline in the three-month LME price.


				Pre-Tax
	Decline in			Loss in
	Rate/Price			Fair Value
				($ In millions)

Aluminum Forward Contracts		10	%	$	(56	)
Aluminum Put Options		10	%		—

Electricity and Natural Gas

We use several sources of energy in the manufacture and delivery of our aluminum rolled products. In the six months ended September 30, 2007, natural gas and electricity represented approximately 70% of our energy consumption by cost. We also use fuel oil and transport fuel. The majority of energy usage occurs at our casting centers, at our smelters in South America and during the hot rolling of aluminum. Our cold rolling facilities require relatively less energy. We purchase our natural gas on the open market, which subjects us to market pricing fluctuations. Recent natural gas pricing changes in the United States have increased our energy costs. We seek to stabilize our future exposure to natural gas prices through the use of forward purchase contracts. Natural gas prices in Europe, Asia and South America have historically been more stable than in the United States. As of September 30, 2007, we have a nominal amount of forward purchases outstanding related to natural gas.

A portion of our electricity requirements are purchased pursuant to long-term contracts in the local regions in which we operate. A number of our facilities are located in regions with regulated prices, which affords relatively stable costs. In South America, we own and operate hydroelectric facilities that meet approximately 25% of our total electricity requirements in that region. Additionally, we have entered into an electricity swap in North America to fix a portion of the cost of our electricity requirements.

Rising energy costs worldwide, due to the volatility of supply and international and geopolitical events, expose us to reduced profits as such changes in such costs cannot immediately be recovered under existing contracts and sales agreements, and may only be mitigated in future periods under future pricing arrangements.

Sensitivities

The following table presents the estimated potential pre-tax loss in the fair values of these derivative instruments as of September 30, 2007, assuming a 10% decline in spot prices for energy contracts.


				Pre-Tax
	Decline in			Loss in
	Rate/Price			Fair Value
				($ In millions)

Electricity		10	%	$	(15	)
Natural Gas		10	%		—

Foreign Currency Exchange Risks

Exchange rate movements, particularly the euro, the Canadian dollar, the Brazilian real and the Korean won against the U.S. dollar, 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. In Korea, where we have local currency selling prices for local sales and U.S. dollar denominated selling prices for exports, we benefit slightly as the won weakens, but are adversely affected as the won strengthens, due to a slightly higher percentage of exports compared to local sales. In Canada and Brazil, where we have predominately U.S. dollar selling prices and local currency operating costs, we benefit as the local currencies weaken, but are adversely affected as the local currencies strengthen. Foreign currency contracts may be used to hedge the economic exposures at our foreign operations.

It is our policy to minimize functional currency exposures within each of our key regional operating segments. As such, the majority of our foreign currency exposures are from either forecasted net sales or forecasted purchase commitments in non-functional currencies. Our most significantnon-U.S. dollar functional currency operating segments are Europe and Asia, which have the euro and the Korean won as their functional currencies, respectively. South America is U.S. dollar functional with Brazilian real transactional exposure.

We face translation risks related to the changes in foreign currency exchange rates. Amounts invested in our foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as a component of Accumulated other comprehensive income in the Shareholder’s equity section of the accompanying condensed consolidated balance sheets. Net sales and expenses in our foreign operations’ foreign currencies are translated into varying amounts of U.S. dollars depending upon whether the U.S. dollar weakens or strengthens against other currencies. Therefore, changes in exchange rates may either positively or negatively affect our net sales and expenses from foreign operations as expressed in U.S. dollars.

Any negative impact of currency movements on the currency contracts that we have entered into to hedge foreign currency commitments to purchase or sell goods and services would be offset by an equal and opposite favorable exchange impact on the commitments being hedged. For a discussion of accounting policies and other information relating to currency contracts, see Note 1 — Business and Summary of Significant Accounting Policies and Note 17 — Financial Instruments and Commodity Contracts to our consolidated and combined financial statements included in our Annual Report onForm 10-K for the year ended December 31, 2006.

Sensitivities

The following table presents the estimated potential pre-tax loss in the fair values of these derivative instruments as of September 30, 2007, assuming a 10% increase (decrease) in the foreign currency/U.S. dollar exchange rate.


				Pre-Tax
	Increase (Decrease) ian			Loss in
	Exchange Rate			Fair Value
				($ In millions)

Currency measured against the U.S. dollar
Euro		(10	)%	$	(26	)
Korean won		(10	)%		(19	)
Brazilian real		10	%		(22	)
Canadian dollar		10	%		(3	)
British pound		(10	)%		(1	)
Swiss franc		(10	)%		(28	)

Loans to and investments in European operations have been hedged by cross-currency swaps (euro 475 million, GBP 62 million, CHF 35 million). Loans from European operations have been hedged by cross-currency principal only swaps (euro 111 million). Principal only swaps totaling euro 91 million were accounted for as cash flow hedges through May 15, 2007. Concurrent with the completion of the Arrangement on May 15, 2007, we dedesignated these hedging relationships. On September 1, 2007, we redesignated our cross-currency swaps as net investment hedges. While this has no impact on our cash flows, subsequent changes in the value of currency related derivative instruments that are not designated as hedges are recognized in Gain (loss) on change in fair value of derivative instruments — net in our condensed consolidated statement of operations.

The following table presents the estimated potential pre-tax loss in the fair values of these derivative instruments as of September 30, 2007, assuming a 10% increase in rates.


				Pre-Tax
	Increase in			Loss in
	Rate			Fair Value
				($ In millions)

Currency measured against the U.S. dollar
Euro		10	%	$	(80	)
British pound		10	%		(15	)
Swiss franc		10	%		(4	)

Interest Rate Risks

We are subject to interest rate risk related to our floating rate debt. For every 12.5 basis point increase in the interest rates on our outstanding variable rate debt as of September 30, 2007, which includes $958 million of Term Loan debt and other variable rate debt of $203 million, our annual pre-tax income would be reduced by approximately $1 million.

As of September 30, 2007, approximately 58% of our debt obligations were at fixed rates. Due to the nature of fixed-rate debt, there would be no significant impact on our interest expense or cash flows from either a 10% increase or decrease in market rates of interest.

From time to time, we have used interest rate swaps to manage our debt cost. In Korea, we entered into interest rate swaps to fix the interest rate on various floating rate debt. See Note 9 — Debt to our accompanying condensed consolidated financial statements for further information.

Sensitivities

The following table presents the estimated potential pre-tax loss in the fair values of these derivative instruments as of September 30, 2007, assuming a 10% decrease in rates.


				Pre-Tax
	Decrease			Loss in
	in Rate			Fair Value
				($ In millions)

Interest Rate Swap Contracts
Asia		(10	)%		—


Item 4.	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to provide reasonable assurance that the information required to be disclosed in reports filed or submitted under the United States Securities Exchange Act of 1934, as amended (Exchange Act), is (1) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (2) accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report onForm 10-Q for the period ended September 30, 2007, members of management, at the direction (and with the participation) of our Principal Executive Officer and Principal Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined inRule 13a-15(e) under the Exchange Act), as of September 30, 2007. Based on that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2007, as a result of the continued existence of a material weakness in our accounting for income taxes, as described in our Annual Report onForm 10-K for the year ended December 31, 2006. Notwithstanding this material weakness, management has concluded that the condensed consolidated financial statements included in this report present fairly, in all material respects, our financial position and results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America

Changes in Internal Control Over Financial Reporting

On October 22, 2007, Novelis Inc. announced that Robert M. Patterson was appointed Vice President Treasury and Planning and Jeffrey Schwaneke was appointed Vice President and Controller (Principal Accounting Officer). Mr. Patterson was formerly Vice President and Controller (Principal Accounting Officer) and replaces Orville Lunking as Treasurer who is leaving Novelis to pursue other opportunities. There have been no other changes in our internal control over financial reporting (as defined inRule 13a-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On October 1, 2007, the Company hired Michael Pashos as Vice President of Global Tax. With his guidance, the Company will continue to evaluate the current mix of internal and external staffing in the area of income taxes and may make further changes as necessary to most effectively and accurately handle the Company’s accounting for income taxes.

Remediation Plan for Material Weakness Existing as of September 30, 2007

We outlined our plan to remediate the material weakness in accounting for income taxes in Item 9A. Controls and Procedures of our Annual Report onForm 10-K for the year ended December 31, 2006, which was filed on March 1, 2007 (and amended on April 30, 2007), and there have been no additional remedial measures implemented since. While we believe that the measures enumerated in our Annual Report will ultimately allow us to remediate this material weakness, we concluded as of September 30, 2007, that there continues to be more than a remote likelihood that a material misstatement of our annual or interim financial statements related to accounting for income taxes will not be prevented or detected. Management believes it is prudent to observe and test these controls over a longer period of time prior to concluding that this weakness has been remediated. We are further considering our current mix of internal and external staffing in the area of income taxes and may make further changes as necessary to remediate this material weakness as quickly as possible. In addition, we will continue to provide training to our tax personnel and specifically focus on areas where adjustments and errors have been previously identified.

PART II. OTHER INFORMATION


Item 1.	*Legal Proceedings*

The case was settled during July 2006 as among us, Alcan, Reynolds, Alcoa and their insurers for $71 million. We contributed approximately $1 million toward the settlement, and the remaining $70 million was funded by our insurers. Although the settlement was substantially funded by our insurance carriers, certain of them have reserved the right to request a refund from us, after reviewing details of the plaintiffs’ damages to determine if they include costs of a nature not covered under the insurance contracts. Of the $70 million funded, $39 million is in dispute with and under further review by certain of our insurance carriers. In the quarter ended September 30, 2006, we posted a letter of credit in the amount of approximately $10 million in favor of one of those insurance carriers, while we resolve the extent of coverage of the costs included in the settlement. On October 8, 2007, we received a letter from these insurers stating that they have completed their review and requesting a refund of the $39 million plus interest. We are reviewing the insurers’ position and expect to respond to their letter within 45 days.

Since our fiscal 2005 Annual Report onForm 10-K was not filed until August 25, 2006, we recognized a liability for the full settlement amount of $71 million on December 31, 2005, included in Accrued expenses and other current liabilities on our consolidated balance sheet, with a corresponding charge against earnings. We also recognized an insurance receivable included in Prepaid expenses and other current assets on our consolidated balance sheet of $31 million, with a corresponding increase to earnings. Although $70 million of the settlement was funded by our insurers, we only recognized an insurance receivable to the extent that coverage was not in dispute. This resulted in a net charge of $40 million during the quarter ended December 31, 2005.

In July 2006, we contributed and paid $1 million to our insurers who subsequently paid the entire settlement amount of $71 million to the plaintiffs. Accordingly, during the quarter ended September 30, 2006 we reversed the previously recorded insurance receivable of $31 million and reduced our recorded liability by the same amount plus the $1 million contributed by us. The remaining liability of $39 million represents the amount of the settlement claim that was funded by our insurers but is still in dispute with and under further review by the parties as described above. The $39 million liability is included in Accrued expenses and other current liabilities in our condensed consolidated balance sheets as of September 30, 2007 and March 31, 2007.

Coca-Cola Lawsuits. A lawsuit was commenced against Novelis Corporation on February 15, 2007 byCoca-Cola Bottler’s Sales and Services Company LLC (CCBSS) in state court in Georgia. In addition, a lawsuit was commenced against Novelis Corporation and Alcan Corporation on April 3, 2007 byCoca-Cola Enterprises Inc., Enterprises Acquisition Company, Inc., TheCoca-Cola Company and TheCoca-Cola Trading Company, Inc. (collectively CCE) in federal court in Georgia. Novelis intends to defend these claims vigorously.

The Anheuser-Busch, Inc. litigation is currently at the discovery stage. Novelis Corporation has continued to perform under the supply agreement during the litigation.

100

101


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 onForm 8-K filed on February 13, 2007)
	3	.1	Restated Certificate and Articles of Incorporation of Novelis Inc. (incorporated by reference to Exhibit 3.1 to theForm 8-K filed by Novelis Inc. on January 7, 2005 (FileNo. 001-32312))
	3	.2	By-law No. 1 of Novelis Inc. (incorporated by reference to Exhibit 3.2 to the Form 10 filed by Novelis Inc. on November 17, 2004 (FileNo. 001-32312))
	4	.1	Shareholder Rights Agreement between Novelis and CIBC Mellon Trust Company (incorporated by reference to Exhibit 4.1 to theForm 10-K filed by Novelis Inc. on March 30, 2005 (FileNo. 001-32312))
	4	.2	Indenture, relating to the Notes, dated as of February 3, 2005, between the Company, the guarantors named on the signature pages thereto and The Bank of New York Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to our Current Report onForm 8-K filed on February 3, 2005 (FileNo. 001-32312))
	4	.3	Form of Note for 71/4% Senior Notes due 2015 (incorporated by reference to Exhibit 4.1 to theForm S-4 filed by Novelis Inc. on August 3, 2005 (FileNo. 331-127139))
	4	.4	First Amendment to the Shareholder Rights Agreement between Novelis Inc. and CIBC Mellon Trust Company, dated as of February 10, 2007 (incorporated by reference to our Current Report onForm 8-K file on February 13, 2007)
	10	.1	$800 million asset-based lending credit facility (“ABL Facility”) dated as of July 6, 2007 among Novelis Inc., Novelis Corporation as U.S. Borrower, the other U.S. Subsidiaries of Novelis Inc., Novelis UK Ltd, Novelis AG, AV Aluminum Inc. as parent guarantor, the other guarantors party thereto, with the lenders party thereto, ABN AMRO Bank N.V., as U.S./European issuing bank, swingline lender and administrative agent, LaSalle Business Credit, LLC, as collateral agent and funding agent, UBS Securities LLC, as syndication agent, Bank of America, N.A., National City Business Credit, Inc. and CIT Business Credit Canada Inc., as documentation agents, ABN AMRO Bank N.V. Canada Branch, as Canadian issuing bank, Canadian funding agent and Canadian administrative agent, and ABN AMRO Incorporated and UBS Securities LLC, as joint lead arrangers and joint book managers
	10	.2	$960 million term loan facility (“Term Loan Facility”) dated as of July 6, 2007 among Novelis Inc., Novelis Corporation as U.S. Borrower, AV Aluminum Inc., As Holdings, and the other guarantors party thereto, with the lenders party thereto, UBS AG, Stamford Branch, as administrative agent and as collateral agent, UBS Securities LLC, as syndication agent, ABN AMRO Incorporated, as documentation agent, and UBS Securities LLC and ABN AMRO Incorporated as joint lead arrangers and joint book managers
	10	.3	Intercreditor Agreement dated as of July 6, 2007 by and among Novelis Inc., Novelis Corporation, Novelis PAE Corporation, Novelis Finances USA LLC, Novelis South America Holdings LLC, Aluminum Upstream Holdings LLC, Novelis UK Ltd, Novelis AG, AV Aluminum Inc., and the subsidiary guarantors party thereto, as grantors, ABN AMRO BANK N.V., as revolving credit administrative agent ABN AMRO Bank N.A., acting through its Canadian branch, as revolving credit Canadian administrative agent and as revolving credit Canadian funding agent, La Salle Business Credit, LLC, as revolving credit collateral agent and as revolving credit funding agent, and UBS AG, Stamford Branch, as Term Loan administrative agent, and Term Loan collateral agent
	10	.4	Security Agreement made by Novelis Inc., as Canadian Borrower, Novelis Corporation, as U.S. Borrower and the guarantors from time to time party thereto in favor of UBS AG, Stamford branch, as collateral agent dated as of July 6, 2007
	10	.5	Security Agreement made by Novelis Inc., as Canadian Borrower, Novelis Corporation, Novelis PAE Corporation, Novelis Finances USA LLC, Novelis South America Holdings LLC, Aluminum Upstream Holdings LLC, as U.S. Borrowers and the guarantors from time to time party thereto in favor of La Salle Business Credit, LLC, as collateral agent dated as of July 6, 2007
	31	.1	Section 302 Certification of Principal Executive Officer
	31	.2	Section 302 Certification of Principal Financial Officer
	32	.1	Section 906 Certification of Principal Executive Officer
	32	.2	Section 906 Certification of Principal Financial Officer

102

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/ Steven Fisher

Steven Fisher

Chief Financial Officer

(Principal Financial Officer)


	By:	/s/ Jeffrey Schwaneke

Jeffrey Schwaneke

Vice President and Controller

(Principal Accounting Officer)

Date: November 9, 2007

103

EXHIBIT INDEX


Exhibit
No.			Description

	2	.1	Arrangement Agreement by and among Hindalco Industries Limited, AV Aluminum Inc. and Novelis Inc., dated as of February 10, 2007 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on February 13, 2007)
	3	.1	Restated Certificate and Articles of Incorporation of Novelis Inc. (incorporated by reference to Exhibit 3.1 to the Form 8-K filed by Novelis Inc. on January 7, 2005 (File No. 001-32312))
	3	.2	By-law No. 1 of Novelis Inc. (incorporated by reference to Exhibit 3.2 to the Form 10 filed by Novelis Inc. on November 17, 2004 (File No. 001-32312))
	4	.1	Shareholder Rights Agreement between Novelis and CIBC Mellon Trust Company (incorporated by reference to Exhibit 4.1 to the Form 10-K filed by Novelis Inc. on March 30, 2005 (File No. 001-32312))
	4	.2	Indenture, relating to the Notes, dated as of February 3, 2005, between the Company, the guarantors named on the signature pages thereto and The Bank of New York Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on February 3, 2005(File No. 001-32312))
	4	.3	Form of Note for 71/4% Senior Notes due 2015 (incorporated by reference to Exhibit 4.1 to the Form S-4 filed by Novelis Inc. on August 3, 2005 (File No. 331-127139))
	4	.4	First Amendment to the Shareholder Rights Agreement between Novelis Inc. and CIBC Mellon Trust Company, dated as of February 10, 2007 (incorporated by reference to our Current Report on Form 8-K file on February 13, 2007)
	10	.1	$800 million asset-based lending credit facility (“ABL Facility”) dated as of July 6, 2007 among Novelis Inc., Novelis Corporation as U.S. Borrower, the other U.S. Subsidiaries of Novelis Inc., Novelis UK Ltd, Novelis AG, AV Aluminum Inc. as parent guarantor, the other guarantors party thereto, with the lenders party thereto, ABN AMRO Bank N.V., as U.S./European issuing bank, swingline lender and administrative agent, LaSalle Business Credit, LLC, as collateral agent and funding agent, UBS Securities LLC, as syndication agent, Bank of America, N.A., National City Business Credit, Inc. and CIT Business Credit Canada Inc., as documentation agents, ABN AMRO Bank N.V. Canada Branch, as Canadian issuing bank, Canadian funding agent and Canadian administrative agent, and ABN AMRO Incorporated and UBS Securities LLC, as joint lead arrangers and joint book managers
	10	.2	$960 million term loan facility (“Term Loan Facility”) dated as of July 6, 2007 among Novelis Inc., Novelis Corporation as U.S. Borrower, AV Aluminum Inc., As Holdings, and the other guarantors party thereto, with the lenders party thereto, UBS AG, Stamford Branch, as administrative agent and as collateral agent, UBS Securities LLC, as syndication agent, ABN AMRO Incorporated, as documentation agent, and UBS Securities LLC and ABN AMRO Incorporated as joint lead arrangers and joint book managers
	10	.3	Intercreditor Agreement dated as of July 6, 2007by and among Novelis Inc., Novelis Corporation, Novelis PAE Corporation, Novelis Finances USA LLC, Novelis South America Holdings LLC, Aluminum Upstream Holdings LLC, Novelis UK Ltd, Novelis AG, AV Aluminum Inc., and the subsidiary guarantors party thereto, as grantors, ABN AMRO BANK N.V., as revolving credit administrative agent ABN AMRO Bank N.A., acting through its Canadian branch, as revolving credit Canadian administrative agent and as revolving credit Canadian funding agent, La Salle Business Credit, LLC, as revolving credit collateral agent and as revolving credit funding agent, and UBS AG, Stamford Branch, as Term Loan administrative agent, and Term Loan collateral agent
	10	.4	Security Agreement made by Novelis Inc., as Canadian Borrower, Novelis Corporation, as U.S. Borrower and the guarantors from time to time party thereto in favor of UBS AG, Stamford branch, as collateral agent dated as of July 6, 2007
	10	.5	Security Agreement made by Novelis Inc., as Canadian Borrower, Novelis Corporation, Novelis PAE Corporation, Novelis Finances USA LLC, Novelis South America Holdings LLC, Aluminum Upstream Holdings LLC, as U.S. Borrowers and the guarantors from time to time party thereto in favor of La Salle Business Credit, LLC, as collateral agent dated as of July 6, 2007
	31	.1	Section 302 Certification of Principal Executive Officer
	31	.2	Section 302 Certification of Principal Financial Officer
	32	.1	Section 906 Certification of Principal Executive Officer
	32	.2	Section 906 Certification of Principal Financial Officer

104

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Novelis (NVL) 10-Q2008 Q2 Quarterly report

Content analysis