##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-Q
   (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30,
    2010Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number:
    001-32312
  Novelis
    Inc.
 (Exact name of registrant as
    specified in its charter)
   Canada

98-0442987(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification Number)3560 Lenox Road, Suite 2000
    Atlanta, Georgia(Address of principal
    executive offices)

30326(Zip Code)   Telephone:
    (404) 760-4000
 (Registrants telephone
    number, including area code)
  þ o
  Regulation S-T o o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   Rule 12b-2 o þ




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##### 



TABLE OF
    CONTENTS
   
 PART I. FINANCIAL INFORMATIONItem 1.


Financial Statements


2Condensed Consolidated Statements of Operations
    for the Three and Six Months Ended September 30, 2010 and
    2009 (unaudited)


2Condensed Consolidated Balance Sheets as of
    September 30, 2010 and March 31, 2010 (unaudited)


3Condensed Consolidated Statements of Cash Flows
    for the Six Months Ended September 30, 2010 and 2009
    (unaudited)


4Condensed Consolidated Statement of
    Shareholders Equity for the Six Months Ended
    September 30, 2010 (unaudited)


5Condensed Consolidated Statements of
    Comprehensive Income for the Three and Six Months Ended
    September 30, 2010 and 2009 (unaudited)


6Notes to the Condensed Consolidated Financial
    Statements (unaudited)


7Item 2.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


39Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


57Item 4.


Controls and Procedures


59PART II. OTHER INFORMATIONItem 1.


Legal Proceedings


61Item 1A.


Risk Factors


61Item 6.


Exhibits


61EX-3.1EX-4.1EX-4.2EX-4.3EX-4.4EX-31.1EX-31.2EX-32.1EX-32.2   1




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  Novelis
    Inc.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (unaudited)(In millions)
  Three Months


Six MonthsEnded


EndedSeptember 30,


September 30,2010


2009


2010


2009Net sales

$
2,524


$
2,181


$
5,057


$
4,141Cost of goods sold (exclusive of depreciation and amortization)


2,188



1,734



4,396



3,271Selling, general and administrative expenses


97



77



178



151Depreciation and amortization


104



92



207



192Research and development expenses


9



9



18



17Interest expense and amortization of debt issuance costs


40



44



79



87Interest income


(3
)


(3
)


(6
)


(6
)Gain on change in fair value of derivative instruments, net


(34
)


(80
)


(28
)


(152
)Restructuring charges, net


9



3



15



6Equity in net loss of non-consolidated affiliates


3



10



6



20Other (income) expense, net


(18
)


(6
)


(11
)


(19
)2,395



1,880



4,854



3,567Income before income taxes


129



301



203



574Income tax provision


56



87



71



199Net income


73



214



132



375Net income attributable to noncontrolling interests


11



19



20



37Net income attributable to our common shareholder

$
62


$
195


$
112


$
338    2




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##### Table of Contents



Novelis
    Inc.CONDENSED CONSOLIDATED BALANCE SHEETS
    (unaudited)(In millions, except number of
    shares)
  September 30,


March 31,2010


2010ASSETSCurrent assetsCash and cash equivalents

$
512


$
437Accounts receivable (net of allowances of $5 and $4 as of
    September 30, 2010 and March 31, 2010) third parties


1,244



1,143 related parties


12



24Inventories


1,177



1,083Prepaid expenses and other current assets


44



39Fair value of derivative instruments


182



197Deferred income tax assets


21



12Total current assets


3,192



2,935Property, plant and equipment, net


2,526



2,632Goodwill


611



611Intangible assets, net


724



749Investment in and advances to non-consolidated affiliates


707



709Fair value of derivative instruments, net of current portion


17



7Long-term deferred income tax assets


14



5Other long-term assets third parties


98



93 related parties


20



21Total assets

$
7,909


$
7,762LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt

$
117


$
116Short-term borrowings


23



75Accounts payable third parties


1,045



1,076 related parties


47



53Fair value of derivative instruments


145



110Accrued expenses and other current liabilities


441



436Deferred income tax liabilities


33



34Total current liabilities


1,851



1,900Long-term debt, net of current portion


2,477



2,480Long-term deferred income tax liabilities


537



497Accrued postretirement benefits


507



499Other long-term liabilities


354



376Total liabilities


5,726



5,752Commitments and contingenciesShareholders equityCommon stock, no par value; unlimited number of shares
    authorized; 1,000 shares issued and outstanding as of
    September 30, 2010 and March 31, 2010






Additional paid-in capital


3,530



3,530Accumulated deficit


(1,446
)


(1,558
)Accumulated other comprehensive loss


(62
)


(103
)Total Novelis shareholders equity


2,022



1,869Noncontrolling interests


161



141Total equity


2,183



2,010Total liabilities and shareholders equity

$
7,909


$
7,762    3




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##### Table of Contents



Novelis
    Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited)
    (In millions)
  Six MonthsEndedSeptember 30,2010


2009OPERATING ACTIVITIESNet income

$
132


$
375Adjustments to determine net cash provided by (used in)
    operating activities:Depreciation and amortization


207



192Gain on change in fair value of derivative instruments, net


(28
)


(152
)Deferred income taxes


18



196Write-off and amortization of fair value adjustments, net


8



(98
)Equity in net loss of non-consolidated affiliates


6



20Foreign exchange remeasurement of debt


1



(15
)Gain on sale of assets


(13
)


(1
)Other, net


5



6Changes in assets and liabilities:Accounts receivable


(91
)


(98
)Inventories


(84
)


(84
)Accounts payable


(45
)


97Other current assets


(4
)


4Other current liabilities


16



(4
)Other noncurrent assets


(8
)


(14
)Other noncurrent liabilities


4



27Net cash provided by operating activities


124



451INVESTING ACTIVITIESCapital expenditures


(71
)


(46
)Proceeds from sales of assets


18



4Changes to investment in and advances to non-consolidated
    affiliates






2Proceeds from related party loans receivable, net


11



14Net proceeds (outflow) from settlement of derivative instruments


67



(403
)Net cash provided by (used in) investing activities


25



(429
)FINANCING ACTIVITIESProceeds from issuance of debt, third parties






177Proceeds from issuance of debt, related parties






3Principal payments, third parties


(8
)


(16
)Principal payments, related parties






(94
)Short-term borrowings, net


(50
)


(96
)Dividends, noncontrolling interest


(18
)


(13
)Net cash used in financing activities


(76
)


(39
)Net increase (decrease) in cash and cash equivalents


73



(17
)Effect of exchange rate changes on cash balances held in
    foreign currencies


2



15Cash and cash equivalents  beginning of period


437



248Cash and cash equivalents  end of period

$
512


$
246    4




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##### Table of Contents



Novelis
    Inc.CONDENSED CONSOLIDATED STATEMENT OF
    SHAREHOLDERS EQUITY (unaudited)(In millions, except number of
    shares)
  Novelis Inc. ShareholderAccumulatedOtherAdditional





Comprehensive


Non-Common Stock


Paid-in


Accumulated


Loss


controlling


TotalShares


Amount


Capital


Deficit


(AOCI)


Interests


EquityBalance as of March 31, 2010


1,000


$



$
3,530


$
(1,558
)

$
(103
)

$
141


$
2,010Net income attributable to our
    common shareholder














112











112Net income attributable to
    noncontrolling interests






















20



20Currency translation adjustment, net of tax provision of
    $3 million included in AOCI


















35



1



36Change in fair value of effective portion of cash flow hedges,
    net of tax provision of $3 included in AOCI


















7







7Postretirement benefit plans:Change in pension and other benefits, net of tax provision of $1
    included in AOCI


















(1
)






(1
)Noncontrolling interests dividends






















(1
)


(1
)Balance as of September 30, 2010


1,000


$



$
3,530


$
(1,446
)

$
(62
)

$
161


$
2,183    5




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##### Table of Contents



Novelis
    Inc.CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
    INCOME (unaudited)
    (In millions)
  Three Months Ended


Three Months EndedSeptember 30, 2010


September 30, 2009Attributable to


Attributable to





Attributable to


Attributable toOur Common


Noncontrolling





Our Common


NoncontrollingShareholder


Interests


Total


Shareholder


Interests


TotalNet income

$
62


$
11


$
73


$
195


$
19


$
214Other comprehensive income (loss):Currency translation adjustment


154



9



163



74



7



81Net change in fair value of effective portion of cash flow hedges


1







1



(15
)






(15
)Postretirement benefit plans:Change in pension and other benefits














3







3Other comprehensive income before income tax effect


155



9



164



62



7



69Income tax provision related to
    items of other comprehensive income (loss)


4







4



(2
)






(2
)Other comprehensive income, net of tax


151



9



160



64



7



71Comprehensive income

$
213


$
20


$
233


$
259


$
26


$
285   Six Months Ended


Six Months EndedSeptember 30, 2010


September 30, 2009Attributable to


Attributable to





Attributable to


Attributable toOur Common


Noncontrolling





Our Common


NoncontrollingShareholder


Interests


Total


Shareholder


Interests


TotalNet income

$
112


$
20


$
132


$
338


$
37


$
375Other comprehensive income (loss):Currency translation adjustment


38



1



39



130



14



144Net change in fair value of effective portion of cash flow hedges


10







10



(4
)






(4
)Postretirement benefit plans:Change in pension and other benefits














6







6Other comprehensive income before income tax effect


48



1



49



132



14



146Income tax provision related to
    items of other comprehensive
    income (loss)


7







7



6







6Other comprehensive income, net of tax


41



1



42



126



14



140Comprehensive income

$
153


$
21


$
174


$
464


$
51


$
515    6




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)
  1.
    BUSINESS
    AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    Description
    of Business and Basis of Presentation
    Form 10-K
    Acquisition
    of Novelis Common Stock
    Amalgamation
    of AV Aluminum Inc. and Novelis Inc.
    pre-amalgamated
 7




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
      Consolidation
    Policy
    Reclassifications
    and Adjustment
          Recently
    Adopted Accounting Standards
  No. 2009-17, Consolidations: Improvements to Financial Reporting by
    Enterprises Involved with Variable Interest Entities. No. 2009-17 No. 2009-16, Transfers and Servicing: Accounting for Transfers of
    Financial Assets
  Recently
    Issued Accounting Standards
   8




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  2.
    RESTRUCTURING
    PROGRAMS    North





South





RestructuringEurope


America


Asia


America


Corporate


ReservesBalance as of March 31, 2010

$
28


$
10


$



$



$



$
38Provisions, net


2



9











5



16Cash payments


(5
)


(11
)














(16
)Balance as of September 30, 2010

$
25


$
8


$



$



$
5


$
38   Europe
    North
    America
    Corporate
    3.
    INVENTORIES    September 30,


March 31,2010


2010Finished goods

$
238


$
270Work in process


451



431Raw materials


391



295Supplies


103



931,183



1,089Allowances


(6
)


(6
)Inventories

$
1,177


$
1,083   4.
    CONSOLIDATION
    OF VARIABLE INTEREST ENTITIES (VIE)   9




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
          September 30,


March 31,2010


2010AssetsCurrent assetsCash and cash equivalents

$
1


$
3Accounts receivable


31



29Inventories, net


33



31Prepaid expenses and other current assets


1



1Total current assets


66



64Property, plant and equipment, net


9



10Goodwill


12



12Deferred income taxes


44



41Other long-term assets


3



3Total assets

$
134


$
130LiabilitiesCurrent liabilitiesAccounts payable

$
22


$
23Accrued expenses and other current liabilities


15



12Total current liabilities


37



35Accrued postretirement benefits


99



97Other long-term liabilities


3



3Total liabilities

$
139


$
135  10




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  5.
    INVESTMENT
    IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY
    TRANSACTIONS      Three Months


Six MonthsEnded


EndedSeptember 30,


September 30,2010


2009


2010


2009Net sales

$
59


$
64


$
115


$
121Costs, expenses and provisions for taxes on income


62



74



121



141Net income (loss)

$
(3
)

$
(10
)

$
(6
)

$
(20
)Purchase of tolling services from Aluminium Norf GmbH (Norf)

$
59


$
64


$
115


$
120       September 30,

March 31,2010

2010Accounts receivable

$
12


$
24Other long-term receivables

$
20


$
21Accounts payable

$
47


$
53  11




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  6.
    DEBT    September 30, 2010


March 31, 2010Unamortized








UnamortizedInterest





Fair Value


Carrying





Fair Value


CarryingRates(A)


Principal


Adjustments(B)


Value


Principal


Adjustments(B)


ValueThird party debt:Short term borrowings


2.37
%

$
23


$



$
23


$
75


$



$
75Novelis Inc.Floating rate Term Loan Facility, due July 2014


2.27
%(C)


290







290



292







29211.5% Senior Notes, due February 2015


11.50
%


185



(3
)


182



185



(3
)


1827.25% Senior Notes, due February 2015


7.25
%


1,124



37



1,161



1,124



41



1,165Novelis CorporationFloating rate Term Loan Facility, due July 2014


2.40
%(C)


855



(41
)


814



859



(46
)


813Novelis Switzerland S.A.Capital lease obligation, due December 2019 (Swiss francs (CHF)
    46 million)


7.50
%


47



(3
)


44



45



(3
)


42Capital lease obligation, due August 2011 (CHF 1 million)


2.49
%


1







1



1







1Novelis Korea LimitedBank loan, due October 2010


2.00
%(C)


100







100



100







100OtherOther debt, due December 2011 through June 2015


4.12
%


2







2



1







1Total debt  third parties






2,627



(10
)


2,617



2,682



(11
)


2,671Less: Short term borrowings






(23
)






(23
)


(75
)






(75
)Current portion of long term debt






(117
)






(117
)


(116
)






(116
)Long-term debt, net of current portion  third
    parties:





$
2,487


$
(10
)

$
2,477


$
2,491


$
(11
)

$
2,480     (A)
    
    Interest rates are as of September 30, 2010 and exclude the
    effects of accretion/amortization of fair value adjustments as a
    result of the Arrangement and the debt exchange completed in
    fiscal 2009.(B)
    
    Debt existing at the time of the Arrangement was recorded at
    fair value. Additional floating rate Term Loan with a face value
    of $220 million issued in March 2009 was recorded at a fair
    value of $165 million. 11.5% Senior Notes with a face
    value of $185 million issued in August 2009 were recorded
    at a fair value of $181 million.(C)
    
    Excludes the effect of related interest rate swaps and the
    effect of accretion of fair value. 12




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
     As of September 30, 2010

AmountWithin one year

$
1402 years


163 years


174 years


1,1145 years


1,314Thereafter


26Total

$
2,627     Senior
    Secured Credit Facilities
    Short-Term
    Borrowings and Lines of Credit
      Interest
    Rate Swaps
       13




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  7.
    SHARE-BASED
    COMPENSATION    
    The Novelis Long-Term Incentive Plan FY 2009  FY 2012
    (2009 LTIP) was authorized in June 2008. Under the 2009 LTIP,
    phantom stock appreciation rights (SARs) were granted to certain
    of our executive officers and key employees.
    The Novelis Long-Term Incentive Plan FY 2010  FY 2013
    (2010 LTIP) was authorized in June 2009. Under the 2010 LTIP,
    SARs were granted to certain of our executive officers and key
    employees.
    The Novelis Long-Term Incentive Plan FY 2011- FY 2014 (2011
    LTIP) was authorized in May 2010. The 2011 LTIP plan provides
    for SARs and phantom restricted stock units (RSUs).      Three Months Ended


Six Months EndedSeptember 30,


September 30,2010


2009


2010


20092009 LTIP

$
2


$
1


$
3


$
12010 LTIP


5



1



6



12011 LTIP


1







1



Total compensation expense

$
8


$
2


$
10


$
2     AggregateGrant Date Fair


IntrinsicNumber of


Value


Value (USD2011 LTIP

RSUs


(in Indian Rupees)


in millions)RSUs outstanding as of March 31, 2010









$
Granted


890,077



147.10



3Forfeited/Cancelled


(1,755
)


147.10RSUs outstanding as of September 30, 2010


888,322



147.10


$
4   14




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  AggregateRemaining


IntrinsicNumber of


Exercise Price


Contractual Term


Value (USD2011 LTIP

SARs


(in Indian Rupees)


(In years)


in millions)SARs outstanding as of March 31, 2010













$
Granted


6,992,123



147.10Forfeited/Cancelled


(13,784
)


147.10SARs outstanding as of September 30, 2010


6,978,339



147.10



6.70


$
8   Weighted


Weighted Average


AggregateAverage


Remaining


IntrinsicNumber of


Exercise Price


Contractual Term


Value (USD2010 LTIP

SARs


(in Indian Rupees)


(In years)


in millions)SARs outstanding as of March 31, 2010


13,680,431



87.68



6.24


$
29Exercised


(1,930,290
)


85.88Forfeited/Cancelled


(433,777
)


85.79SARs outstanding as of September 30, 2010


11,316,364



88.34



5.70


$
26   AggregateRemaining


IntrinsicNumber of


Exercise Price


Contractual Term


Value (USD2009 LTIP

SARs


(in Indian Rupees)


(In years)


in millions)SARs outstanding as of March 31, 2010


11,371,399



60.50



5.25


$
18Exercised


(1,508,527
)


60.50Forfeited/Cancelled


(459,464
)


60.50SARs outstanding as of September 30, 2010


9,403,408



60.50



4.70


$
15     2011 LTIP

2010 LTIP

2009 LTIPRisk-free interest rate

7.57  7.86%

7.52  7.81%

7.38%  7.65%Dividend yield

0.69%

0.69%

0.69%Volatility

48.12%

50.05%

53.6%Time interval (in years)

0.004

0.004

0.004      15




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    8.
    POSTRETIREMENT
    BENEFIT PLANS      Pension Benefit PlansThree Months Ended


Six Months EndedSeptember 30,


September 30,2010


2009


2010


2009Service cost

$
9


$
8


$
18


$
16Interest cost


16



14



32



28Expected return on assets


(14
)


(10
)


(28
)


(20
)Amortization  losses


3



3



6



6Net periodic benefit cost

$
14


$
15


$
28


$
30   Other BenefitsThree Months Ended


Six Months EndedSeptember 30,


September 30,2010


2009


2010


2009Service cost

$
2


$
1


$
4


$
3Interest cost


2



3



4



6Net periodic benefit cost

$
4


$
4


$
8


$
9     Employer
    Contributions to Plans
    Three Months Ended


Six Months EndedSeptember 30,


September 30,2010


2009


2010


2009Funded pension plans

$
8


$
9


$
17


$
12Unfunded pension plans


3



4



6



8Savings and defined contribution pension plans


4



4



9



7Total contributions

$
15


$
17


$
32


$
27  16




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    9.
    CURRENCY
    (GAINS) LOSSES    Three Months Ended


Six Months EndedSeptember 30,


September 30,2010


2009


2010


2009Net (gain) loss on change in fair value of currency derivative
    instruments(A)

$
13


$
(29
)

$
(11
)

$
(51
)Net gain on remeasurement and transaction gains or losses(B)


(22
)


(3
)


(1
)


(7
)Net currency gain

$
(9
)

$
(32
)

$
(12
)

$
(58
)     (A)
    
    Included in (Gain) loss on change in fair value of derivative
    instruments, net.(B)
    
    Included in Other (income) expense, net.    Six Months Ended


Year EndedSeptember 30, 2010


March 31, 2010Cumulative currency translation adjustment  beginning
    of period

$
(3
)

$
(78
)Effect of changes in exchange rates


36



75Cumulative currency translation adjustment  end of
    period

$
33


$
(3
)  17




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  10.
    FINANCIAL
    INSTRUMENTS AND COMMODITY CONTRACTS    September 30, 2010Assets


Liabilities


Net Fair ValueCurrent


Noncurrent


Current


Noncurrent(A)


Assets/(Liabilities)Derivatives designated as hedging instruments:Currency exchange contracts

$
3


$
4


$



$



$
7Interest rate swaps










(6
)


(2
)


(8
)Electricity swap










(7
)


(23
)


(30
)Total derivatives designated as hedging instruments


3



4



(13
)


(25
)


(31
)Derivatives not designated as hedging instruments:Aluminum contracts


124



7



(98
)






33Currency exchange contracts


55



6



(28
)


(2
)


31Energy contracts










(6
)


(1
)


(7
)Total derivatives not designated as hedging instruments


179



13



(132
)


(3
)


57Total derivative fair value

$
182


$
17


$
(145
)

$
(28
)

$
26   March 31, 2010Assets


Liabilities


Net Fair ValueCurrent


Noncurrent


Current


Noncurrent(A)


Assets/(Liabilities)Derivatives designated as hedging instruments:Currency exchange contracts

$



$



$



$
(21
)

$
(21
)Interest rate swaps










(6
)


(1
)


(7
)Electricity swap










(8
)


(27
)


(35
)Total derivatives designated as hedging instruments










(14
)


(49
)


(63
)Derivatives not designated as hedging instruments:Aluminum contracts


149



6



(80
)






75Currency exchange contracts


48



1



(10
)


(1
)


38Energy contracts










(6
)






(6
)Total derivatives not designated as hedging instruments


197



7



(96
)


(1
)


107Total derivative fair value

$
197


$
7


$
(110
)

$
(50
)

$
44     (A)
    
    The noncurrent portions of derivative liabilities are included
    in Other long-term liabilities in the accompanying condensed
    consolidated balance sheets. 18




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   Net
    Investment Hedges
    Cash Flow
    Hedges
           19




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Amount of Gain or (Loss)Recognized inAmount of Gain or (Loss)




Amount of Gain or (Loss)


Income/(Expense) onRecognized in OCI on




Reclassified from


Derivative (Ineffective PortionDerivative




AOCI into Income/(Expense)


and Amount Excluded from(Effective Portion)




(Effective Portion)


Effectiveness Testing)Three Months


Six Months


Location of Gain or (Loss)

Three Months


Six Months


Three Months


Six MonthsEnded


Ended


Reclassified from

Ended


Ended


Ended


EndedDerivatives in Cash Flow

September 30,


September 30,


Accumulated OCI into Earnings

September 30,


September 30,


September 30,


September 30,Hedging Relationships

2010


2009


2010


2009


(Effective Portion)

2010


2009


2010


2009


2010


2009


2010


2009Electricity swap

$
(2
)

$
(14
)

$
8


$
(3
)

(Gain) loss on
      derivative
      instruments, net

$
2


$
1


$
3


$
2


$



$



$



$
2Interest rate swaps


(1
)






(1
)


1


Interest expense and
      amortization of debt
      issuance costs






























Currency exchange contracts


6







6






Depreciation and
      amortization






























Total

$
3


$
(14
)

$
13


$
(2
)



$
2


$
1


$
3


$
2


$



$



$



$
2   Derivative
    Instruments Not Designated as Hedges
         20




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
        Three Months


Six MonthsEnded


EndedSeptember 30,


September 30,2010


2009


2010


2009Derivative Instruments Not Designated as HedgesAluminum contracts

$
50


$
49


$
17


$
97Currency exchange contracts


(13
)


29



11



51Energy contracts


(5
)






(4
)


Gain (loss) recognized


32



78



24



148Derivative Instruments Designated as Cash Flow HedgesInterest Rate swaps














Electricity swap


2



2



4



4Gain (loss) on change in fair value of derivative instruments,
    net

$
34


$
80


$
28


$
152     Three Months Ended


Six Months EndedSeptember 30,


September 30,2010


2009


2010


2009Realized gains (losses) included in segment income

$
33


$
(174
)

$
74


$
(402
)Realized gains (losses) on corporate derivative instruments














1Unrealized gains (losses)


1



254



(46
)


553Gain (loss) on change in fair value of derivative instruments,
    net

$
34


$
80


$
28


$
152   11.
    FAIR
    VALUE MEASUREMENTS   21




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
            Derivative
    Contracts
         22




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    September 30, 2010


March 31, 2010Assets


Liabilities


Assets


LiabilitiesLevel 2Aluminum contracts

$
127


$
(94
)

$
151


$
(76
)Currency exchange contracts


68



(30
)


49



(32
)Energy contracts






(7
)






(6
)Interest rate swaps






(8
)






(7
)Total Level 2 Instruments


195



(139
)


200



(121
)Level 3Aluminum contracts


4



(4
)


4



(4
)Electricity swap






(30
)






(35
)Total Level 3 Instruments


4



(34
)


4



(39
)Total

$
199


$
(173
)

$
204


$
(160
)       Level 3DerivativeInstruments(A)Balance as of March 31, 2010

$
(35
)Net realized/unrealized (losses) included in earnings(B)


4Net realized/unrealized (losses) included in Other comprehensive
    income (loss)(C)


5Net purchases, issuances and settlements


(4
)Net transfers from Level 3 to Level 2


Balance as of September 30, 2010

$
(30
)     (A)
    
    Represents derivative assets net of derivative liabilities.(B)
    
    Included in (Gain) loss on change in fair value of derivative
    instruments, net.(C)
    
    Included in Change in fair value of effective portion of hedges,
    net. 23




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   Financial
    Instruments Not Recorded at Fair Value
  and/or
  September 30, 2010

March 31, 2010Carrying

Fair

Carrying

FairValue

Value

Value

ValueAssetsLong-term receivables from related parties

$
20


$
20


$
21


$
21LiabilitiesTotal debt  third parties (excluding short term
    borrowings)

$
2,594


$
2,525


$
2,596


$
2,432   12.
    OTHER
    (INCOME) EXPENSE, NET    Three Months Ended


Six Months EndedSeptember 30,


September 30,2010


2009


2010


2009Net gain on currency remeasurement and transaction gains or
    losses

$
(22
)

$
(3
)

$
(1
)

$
(7
)Gain on sale of assets










(13
)


(1
)Gain on tax litigation settlement in Brazil














(6
)Other, net


4



(3
)


3



(5
)Other (income) expense, net

$
(18
)

$
(6
)

$
(11
)

$
(19
)  24




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  13.
    INCOME
    TAXES    Three Months Ended


Six Months EndedSeptember 30,


September 30,2010


2009


2010


2009Pre-tax income before equity in net income of non-consolidated
    affiliates and noncontrolling interests

$
132


$
311


$
209


$
594Canadian statutory tax rate


29
%


30
%


29
%


30
%Provision at the Canadian statutory rate


38



93



61



178Increase (decrease) for taxes on income resulting from:Exchange translation items


2



8







20Exchange remeasurement of deferred income taxes


13



13



11



36Change in valuation allowances


12



2



15



3Expense (income) items not subject to tax


3



(5
)


2



(4
)Tax rate differences on foreign earnings


(9
)


2



(14
)


(9
)Uncertain tax positions, net


(4
)


(26
)


(3
)


(25
)Other  net


1







(1
)


Income tax provision

$
56


$
87


$
71


$
199Effective tax rate


42
%


28
%


34
%


34
%       14.
    COMMITMENTS
    AND CONTINGENCIES   25




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Legal
    Proceedings
  Coca-Cola
    Lawsuit. Coca-Cola
  Environmental
    Matters
        clean-up
 26




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Brazil
    Tax Matters
      Guarantees
    of Indebtedness
        Maximum

LiabilityPotential

CarryingType of Entity

Future Payment

ValueWholly-owned subsidiaries

$
141


$
44    27




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  15.
    SEGMENT,
    MAJOR CUSTOMER AND MAJOR SUPPLIER INFORMATION  Segment
    Information
      Adjustment to Eliminate Proportional
    Consolidation.
    Selected
    Segment Financial Information
  North





South

CorporateTotal Assets

America

Europe

Asia

America

and Other

Eliminations

TotalSeptember 30, 2010

$
2,822


$
2,930


$
946


$
1,370


$
35


$
(194
)

$
7,909March 31, 2010

$
2,726


$
2,870


$
965


$
1,344


$
49


$
(192
)

$
7,762   Selected Operating Results

North





South

CorporateThree Months Ended September 30, 2010

America

Europe

Asia

America

and Other

Eliminations

TotalNet sales

$
965


$
874


$
413


$
278


$



$
(6
)

$
2,524Depreciation and amortization


41



36



14



23



2



(12
)


104Capital expenditures


10



10



7



16



10



(5
)


48   Selected Operating Results

North





South

CorporateThree Months Ended September 30, 2009

America

Europe

Asia

America

and Other

Eliminations

TotalNet sales

$
822


$
735


$
382


$
252


$



$
(10
)

$
2,181Depreciation and amortization


39



46



12



15



1



(21
)


92Capital expenditures


7



11



2



5







(3
)


22   28




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Selected Operating Results

North





South

CorporateSix Months Ended September 30, 2010

America

Europe

Asia

America

and Other

Eliminations

TotalNet sales

$
1,924


$
1,716


$
870


$
555


$



$
(8
)

$
5,057Depreciation and amortization


83



69



29



46



4



(24
)


207Capital expenditures


17



18



13



21



13



(11
)


71   Selected Operating Results

North





South

CorporateSix Months Ended September 30, 2009

America

Europe

Asia

America

and Other

Eliminations

TotalNet sales

$
1,589


$
1,400


$
708


$
456


$



$
(12
)

$
4,141Depreciation and amortization


80



94



23



33



2



(40
)


192Capital expenditures


13



22



5



12







(6
)


46     Three Months Ended


Six Months EndedSeptember 30,


September 30,2010


2009


2010


2009North America

$
116


$
75


$
217


$
132Europe


102



60



190



93Asia


67



48



111



86South America


38



36



87



47Corporate and other(A)


(33
)


(19
)


(52
)


(34
)Depreciation and amortization


(104
)


(92
)


(207
)


(192
)Interest expense and amortization of debt issuance costs


(40
)


(44
)


(79
)


(87
)Interest income


3



3



6



6Unrealized gains (losses) on change in fair value of derivative
    instruments, net(B)


1



254



(46
)


553Adjustment to eliminate proportional consolidation


(11
)


(17
)


(21
)


(33
)Restructuring charges, net


(9
)


(3
)


(15
)


(6
)Other income, net


(1
)






12



9Income before income taxes


129



301



203



574Income tax provision


56



87



71



199Net income


73



214



132



375Net income attributable to noncontrolling interests


11



19



20



37Net income attributable to our common shareholder

$
62


$
195


$
112


$
338     (A)
    
    Corporate and other 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. These expenses have not been
    allocated to the regions. It also includes realized gains
    (losses) on corporate derivative instruments.(B)
    
    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 included in the aggregate each
    period in (Gain) loss on change in fair value of derivative
    instruments, net on our condensed consolidated statements of
    operations. See Note 10  Financial Instruments
    and Commodity Contracts for additional discussion. 29




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   Information
    about Major Customers and Primary Supplier
    Three Months Ended

Six Months EndedSeptember 30,

September 30,2010

2009

2010

2009Rexam


20
%


16
%


18
%


18
%Anheuser-Busch


9
%


11
%


11
%


11
%     Three Months Ended

Six Months EndedSeptember 30,

September 30,2010

2009

2010

2009Purchases from Rio Tinto Alcan as a percentage of total


32
%


45
%


33
%


41
%   16.
    SUPPLEMENTAL
    INFORMATION    September 30,


March 31,2010


2010Currency translation adjustment

$
27


$
(8
)Fair value of effective portion of cash flow hedges


(20
)


(27
)Pension and other benefits


(69
)


(68
)Accumulated other comprehensive loss

$
(62
)

$
(103
)     Six Months EndedSeptember 30,2010

2009Interest paid

$
70


$
78Income taxes paid, net

$
36


$
13   17.
    SUPPLEMENTAL
    GUARANTOR INFORMATION  Rule 3-10(h)(1) Regulation S-X,
   30




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  NOVELIS
    INC.
  CONDENSED
    CONSOLIDATING STATEMENT OF OPERATIONS
 (In
    millions)
  Three Months Ended September 30, 2010Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedNet sales

$
261


$
2,067


$
698


$
(502
)

$
2,524Cost of goods sold (exclusive of depreciation and amortization)


250



1,809



631



(502
)


2,188Selling, general and administrative expenses


23



60



14







97Depreciation and amortization


1



80



23







104Research and development expenses


7



2











9Interest expense and amortization of debt issuance costs


29



25



1



(15
)


40Interest income


(15
)


(2
)


(1
)


15



(3
)Gain on change in fair value of derivative instruments, net






(33
)


(1
)






(34
)Restructuring charges, net


5



4











9Equity in net (income) loss of non-consolidated affiliates


(97
)


3







97



3Other income, net


(4
)






(14
)






(18
)199



1,948



653



(405
)


2,395Income before income taxes


62



119



45



(97
)


129Income tax provision






48



8







56Net income


62



71



37



(97
)


73Net income attributable to noncontrolling interests










11







11Net income attributable to our common shareholder

$
62


$
71


$
26


$
(97
)

$
62   31




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Three Months Ended September 30, 2009Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedNet sales

$
218


$
1,743


$
606


$
(386
)

$
2,181Cost of goods sold (exclusive of depreciation and amortization)


193



1,414



513



(386
)


1,734Selling, general and administrative expenses


9



53



15







77Depreciation and amortization


1



67



24







92Research and development expenses


6



2



1







9Interest expense and amortization of debt issuance costs


29



29



2



(16
)


44Interest income


(17
)


(2
)






16



(3
)Gain on change in fair value of derivative instruments, net


(1
)


(71
)


(8
)






(80
)Restructuring charges, net






1



2







3Equity in net (income) loss of non-consolidated affiliates


(158
)


10







158



10Other (income) expense, net


(8
)


17



(15
)






(6
)54



1,520



534



(228
)


1,880Income before income taxes


164



223



72



(158
)


301Income tax provision (benefit)


(31
)


103



15







87Net income


195



120



57



(158
)


214Net income attributable to noncontrolling interests










19







19Net income attributable to our common shareholder

$
195


$
120


$
38


$
(158
)

$
195  32




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  NOVELIS
    INC.
  CONDENSED
    CONSOLIDATING STATEMENT OF OPERATIONS
 (In
    millions)
  Six Months Ended September 30, 2010Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedNet sales

$
521


$
4,099


$
1,447


$
(1,010
)

$
5,057Cost of goods sold (exclusive of depreciation and amortization)


492



3,613



1,301



(1,010
)


4,396Selling, general and administrative expenses


20



129



29







178Depreciation and amortization


3



157



47







207Research and development expenses


13



5











18Interest expense and amortization of debt issuance costs


58



48



2



(29
)


79Interest income


(29
)


(5
)


(1
)


29



(6
)(Gain) loss on change in fair value of derivative instruments,
    net


1



(33
)


4







(28
)Restructuring charges, net


5



9



1







15Equity in net (income) loss of non-consolidated affiliates


(144
)


6







144



6Other (income) expense, net


(8
)






(3
)






(11
)411



3,929



1,380



(866
)


4,854Income before income taxes


110



170



67



(144
)


203Income tax provision (benefit)


(2
)


61



12







71Net income


112



109



55



(144
)


132Net income attributable to noncontrolling interests










20







20Net income attributable to our common shareholder

$
112


$
109


$
35


$
(144
)

$
112   33




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Six Months Ended September 30, 2009Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedNet sales

$
386


$
3,277


$
1,157


$
(679
)

$
4,141Cost of goods sold (exclusive of depreciation and amortization)


349



2,632



969



(679
)


3,271Selling, general and administrative expenses


19



105



27







151Depreciation and amortization


2



145



45







192Research and development expenses


11



5



1







17Interest expense and amortization of debt issuance costs


55



59



5



(32
)


87Interest income


(32
)


(5
)


(1
)


32



(6
)Gain on change in fair value of derivative instruments, net


(3
)


(132
)


(17
)






(152
)Restructuring charges, net






4



2







6Equity in net (income) loss of non-consolidated affiliates


(305
)


20







305



20Other (income) expense, net


(15
)


24



(28
)






(19
)81



2,857



1,003



(374
)


3,567Income before income taxes


305



420



154



(305
)


574Income tax provision (benefit)


(33
)


204



28







199Net income


338



216



126



(305
)


375Net income attributable to noncontrolling interests










37







37Net income attributable to our common shareholder

$
338


$
216


$
89


$
(305
)

$
338  34




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  NOVELIS
    INC.
  CONDENSED
    CONSOLIDATING BALANCE SHEET
 (In
    millions)
  September 30, 2010Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedASSETSCurrent assetsCash and cash equivalents

$
7


$
397


$
108


$



$
512Accounts receivable, net of allowances third parties


31



829



384







1,244 related parties


710



282



58



(1,038
)


12Inventories


52



825



300







1,177Prepaid expenses and other current assets


3



33



8







44Fair value of derivative instruments


4



143



46



(11
)


182Deferred income tax assets






20



1







21Total current assets


807



2,529



905



(1,049
)


3,192Property, plant and equipment, net


140



1,892



494







2,526Goodwill






600



11







611Intangible assets, net


5



716



3







724Investments in and advances to non-consolidated affiliates


2,120



706



1



(2,120
)


707Fair value of derivative instruments, net of current portion


2



15



3



(3
)


17Deferred income tax assets


1



5



8







14Other long-term assets


977



200



69



(1,128
)


118Total assets

$
4,052


$
6,663


$
1,494


$
(4,300
)

$
7,909LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt

$
3


$
14


$
100


$



$
117Short-term borrowings third parties






2



21







23 related parties


42



461



20



(523
)


Accounts payable third parties


61



614



370







1,045 related parties


73



357



130



(513
)


47Fair value of derivative instruments


6



121



29



(11
)


145Accrued expenses and other current liabilities


53



298



92



(2
)


441Deferred income tax liabilities






32



1







33Total current liabilities


238



1,899



763



(1,049
)


1,851Long-term debt, net of current portion third parties


1,631



846











2,477 related parties


106



935



87



(1,128
)


Deferred income tax liabilities






525



12







537Accrued postretirement benefits


34



351



122







507Other long-term liabilities


21



329



7



(3
)


354Total liabilities


2,030



4,885



991



(2,180
)


5,726Commitments and contingenciesShareholders equityCommon stock


















Additional paid-in capital


3,530















3,530Retained earnings/(accumulated deficit)/owners net
    investment


(1,446
)


1,884



383



(2,267
)


(1,446
)Accumulated other comprehensive income (loss)


(62
)


(106
)


(41
)


147



(62
)Total Novelis shareholders equity


2,022



1,778



342



(2,120
)


2,022Noncontrolling interests










161







161Total equity


2,022



1,778



503



(2,120
)


2,183Total liabilities and shareholders equity

$
4,052


$
6,663


$
1,494


$
(4,300
)

$
7,909  35




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  NOVELIS
    INC.
  CONDENSED
    CONSOLIDATING BALANCE SHEET
 (In
    millions)
  As of March 31, 2010Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedASSETSCurrent assetsCash and cash equivalents

$
22


$
266


$
149


$



$
437Accounts receivable, net of allowances third parties


24



747



372







1,143 related parties


695



312



62



(1,045
)


24Inventories


47



770



266







1,083Prepaid expenses and other current assets


2



28



9







39Fair value of derivative instruments


5



161



43



(12
)


197Deferred income tax assets






7



5







12Total current assets


795



2,291



906



(1,057
)


2,935Property, plant and equipment, net


138



1,976



518







2,632Goodwill






600



11







611Intangible assets, net


6



740



3







749Investments in and advances to non-consolidated affiliates


1,998



708



1



(1,998
)


709Fair value of derivative instruments, net of current portion






7



2



(2
)


7Deferred income tax assets


1



3



1







5Other long-term assets


976



199



78



(1,139
)


114Total assets

$
3,914


$
6,524


$
1,520


$
(4,196
)

$
7,762LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt

$
3


$
13


$
100


$



$
116Short-term borrowings third parties






61



14







75 related parties


41



457



21



(519
)


Accounts payable third parties


58



600



418







1,076 related parties


62



350



166



(525
)


53Fair value of derivative instruments


7



102



13



(12
)


110Accrued expenses and other current liabilities


52



279



106



(1
)


436Deferred income tax liabilities






33



1







34Total current liabilities


223



1,895



839



(1,057
)


1,900Long-term debt, net of current portion third parties


1,635



844



1







2,480 related parties


115



929



94



(1,138
)


Deferred income tax liabilities






485



12







497Accrued postretirement benefits


31



349



119







499Other long-term liabilities


41



333



5



(3
)


3762,045



4,835



1,070



(2,198
)


5,752Commitments and contingenciesShareholders equityCommon stock


















Additional paid-in capital


3,530















3,530Retained earnings (accumulated deficit)


(1,558
)


1,818



349



(2,167
)


(1,558
)Accumulated other comprehensive income (loss)


(103
)


(129
)


(40
)


169



(103
)Total equity of our common shareholder


1,869



1,689



309



(1,998
)


1,869Noncontrolling interests










141







141Total equity


1,869



1,689



450



(1,998
)


2,010Total liabilities and equity

$
3,914


$
6,524


$
1,520


$
(4,196
)

$
7,762  36




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  NOVELIS
    INC.
  CONDENSED
    CONSOLIDATING STATEMENT OF CASH FLOWS
 (In
    millions)
  Six Months Ended September 30, 2010Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedOPERATING ACTIVITIESNet cash provided by (used in) operating activities

$
5


$
133


$
(14
)

$



$
124INVESTING ACTIVITIESCapital expenditures


(14
)


(41
)


(16
)






(71
)Proceeds from sales of assets






17



1







18Proceeds from loans receivable, net  related parties






11











11Net proceeds from settlement of derivative instruments


(5
)


64



8







67Net cash provided by (used in) investing activities


(19
)


51



(7
)






25FINANCING ACTIVITIESPrincipal payments third parties


(2
)


(6
)










(8
) related parties






8



(11
)


3



Short-term borrowings, net third parties






(57
)


7







(50
) related parties


1



3



(1
)


(3
)


Dividends  noncontrolling interests










(18
)






(18
)Net cash provided by (used in) financing activities


(1
)


(52
)


(23
)






(76
)Net increase (decrease) in cash and cash equivalents


(15
)


132



(44
)






73Effect of exchange rate changes on cash balances held in
    foreign currencies






(1
)


3







2Cash and cash equivalents  beginning of period


22



266



149







437Cash and cash equivalents  end of period

$
7


$
397


$
108


$



$
512  37




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  NOVELIS
    INC.
  CONDENSED
    CONSOLIDATING STATEMENT OF CASH FLOWS
 (In
    millions)
  Six Months Ended September 30, 2009Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedOPERATING ACTIVITIESNet cash provided by (used in) operating activities

$
37


$
340


$
152


$
(78
)

$
451INVESTING ACTIVITIESCapital expenditures


(1
)


(34
)


(11
)






(46
)Proceeds from sales of assets










4







4Changes to investment in and advances to non-consolidated
    affiliates






2











2Proceeds from loans receivable, net  related parties






14











14Net proceeds from settlement of derivative instruments


(2
)


(319
)


(82
)






(403
)Net cash provided by (used in) investing activities


(3
)


(337
)


(89
)






(429
)FINANCING ACTIVITIESProceeds from issuance of debt third parties


177















177 related parties


3















3Principal payments third parties


(1
)


(6
)


(9
)






(16
) related parties


(256
)


(41
)


(13
)


216



(94
)Short-term borrowings, net third parties


50



(121
)


(25
)






(96
) related parties


1



142



(5
)


(138
)


Dividends  noncontrolling interests










(13
)






(13
)Net cash provided by (used in) financing activities


(26
)


(26
)


(65
)


78



(39
)Net increase (decrease) in cash and cash equivalents


8



(23
)


(2
)






(17
)Effect of exchange rate changes on cash balances held in
    foreign currencies






5



10







15Cash and cash equivalents  beginning of period


3



175



70







248Cash and cash equivalents  end of period

$
11


$
157


$
78


$



$
246  38




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  FORWARD
    LOOKING STATEMENTS
  The following information should be read together with our
    unaudited condensed consolidated financial statements and
    accompanying notes included elsewhere in this quarterly report
    for a more complete understanding of our financial condition and
    results of operations. The following discussion contains
    forward-looking statements that reflect our plans, estimates and
    beliefs. Our actual results could differ materially from those
    discussed in these forward-looking statements. Factors that
    could cause or contribute to these differences include, but are
    not limited to, those discussed below, particularly in
    SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND
    MARKET DATA.
  OVERVIEW
    AND REFERENCES
        Form 10-K Form 10-K
    HIGHLIGHTS
    
    Net sales for the three months ended September 30, 2010
    were $2.5 billion, an increase of 16% compared to the
    $2.2 billion reported in the same period a year ago.
    Shipments of aluminum rolled products totaled 737 kt for the
    second quarter of fiscal 2011, an increase of 6% compared to
    shipments of 693 kt in the second quarter of the previous year,
    driven by strong end-market demand across all our regions
    Operating cash flow was strong and we ended the period with
    $1.2 billion of liquidity and $512 million of cash on
    hand at September 30, 2010. 39




---



##### Table of Contents




    We reported net sales of $5.1 billion for the six months
    ended September 30, 2010, which is an increase of 22% as
    compared to the same period last year when we reported net sales
    of $4.1 billion  BUSINESS
    AND INDUSTRY CLIMATE
    Key
    Sales and Shipment Trends
  Three Months


Three MonthsThree Months Ended


Ended


EndedJune 30,


September 30,


December 31,


March 31,


June 30,


September 30,2009


2009


2009


2010


2010


2010(In millions, excepts shipments which are in kt)Net sales

$
1,960


$
2,181


$
2,112


$
2,420


$
2,533


$
2,524Percentage increase (decrease) in net
    sales versus comparable previous
    year period


(37
)%


(26
)%


(3
)%


25
%


29
%


16
%Rolled product shipments:North America


254



258



243



274



278



285Europe


185



203



188



227



232



227Asia


130



139



134



129



146



134South America


81



93



84



86



90



91Total


650



693



649



716



746



737Beverage and food cans


396



407



371



406



425



429All other rolled products


254



286



278



310



321



308Total


650



693



649



716



746



737Percentage increase (decrease) in
    rolled products shipments versus
    comparable previous year period:North America


(11
)%


(12
)%



%


11
%


9
%


10
%Europe


(32
)%


(20
)%


(5
)%


21
%


25
%


12
%Asia


(2
)%


14
%


26
%


50
%


12
%


(4
)%South America


(7
)%


7
%


(3
)%


1
%


11
%


(3
)%Total


(16
)%


(8
)%


3
%


18
%


15
%


6
%Beverage and food cans


(5
)%


(2
)%


2
%


12
%


7
%


5
%All other rolled products


(29
)%


(16
)%


3
%


27
%


6
%


8
%Total


(16
)%


(8
)%


3
%


18
%


15
%


6
%   Business
    Model and Key Concepts
  Conversion
    Business Model
   40




---



##### Table of Contents



Metal
    Derivative Instruments
          Metal
    Price Ceilings
     41




---



##### Table of Contents



LME
    Three Months



Six MonthsEnded



EndedSeptember 30,

Percent

September 30,

Percent2010

2009

Change

2010

2009

ChangeLondon Metal Exchange PricesAluminum (per metric tonne, and presented in U.S. dollars):Closing cash price as of beginning of period

$
1,924


$
1,616



19
%

$
2,288


$
1,365



68
%Average cash price during the period

$
2,090


$
1,811



15
%

$
2,093


$
1,648



27
%Closing cash price as of end of period

$
2,314


$
1,852



25
%

$
2,314


$
1,852



25
%     Foreign
    Exchange
    Exchange Rate as of

Average Exchange RateSeptember 30,

March 31,

Three Months Ended

Six Months Ended2010

2010

September 30, 2010

September 30, 2010U.S. dollar per Euro


1.362



1.353



1.290



1.297Brazilian real per U.S. dollar


1.700



1.784



1.753



1.765South Korean won per U.S. dollar


1,142



1,131



1,182



1,168Canadian dollar per U.S. dollar


1.032



1.014



1.049



1.039   Exchange Rate as of

Average Exchange RateSeptember 30,

March 31,

Three Months Ended

Six Months Ended2009

2009

September 30, 2009

September 30, 2009U.S. dollar per Euro


1.462



1.328



1.438



1.328Brazilian real per U.S. dollar


1.781



2.301



1.841



1.932South Korean won per U.S. dollar


1,189



1,377



1,224



1,261Canadian dollar per U.S. dollar


1.073



1.258



1.084



1.115    42




---



##### Table of Contents



RESULTS
    OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010
    COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2009
      year-over-year
      Segment
    Review
     43




---



##### Table of Contents



Selected Operating Results

North








SouthThree Months Ended September 30, 2010

America


Europe


Asia


America


Eliminations


TotalNet sales

$
965


$
874


$
413


$
278


$
(6
)

$
2,524Shipments (kt)Rolled products


285



227



134



91







737Ingot products


3



17







10







30Total shipments


288



244



134



101







767   Selected Operating Results

North








SouthThree Months Ended September 30, 2009

America


Europe


Asia


America


Eliminations


TotalNet sales

$
822


$
735


$
382


$
252


$
(10
)

$
2,181Shipments (kt)Rolled products


258



203



139



93







693Ingot products


8



15



1



7







31Total shipments


266



218



140



100







724     North








SouthChanges in Segment income

America


Europe


Asia


AmericaSegment income  three months ended September 30,
    2009

$
75


$
60


$
48


$
36Volume


19



24



(3
)


(1
)Conversion premium and product mix


14



2



7



8Conversion costs(A)


16



2



(9
)


9Metal price lag






23



11



(6
)Foreign exchange


(6
)


(4
)


13



(8
)Primary metal production














2Other changes(B)


(2
)


(5
)






(2
)Segment income  three months ended September 30,
    2010

$
116


$
102


$
67


$
38     (A)
    
    Conversion costs include expenses incurred in production such as
    direct and indirect labor, energy, freight, scrap usage, alloys
    and hardeners, coatings, alumina, melt loss, the incremental
    benefit of used beverage cans (UBCs) and other metal costs.
    Fluctuations in this component reflect cost efficiencies during
    the period as well as cost inflation (deflation).(B)
    
    Other changes include selling, general &
    administrative costs and research and development for all
    segments and certain other items which impact one or more
    regions, including such items as the impact of purchase
    accounting and metal price ceiling contracts. Significant
    fluctuations in these items are discussed below. 44




---



##### Table of Contents



North
    America
        Europe
        Asia
    12-day
   45




---



##### Table of Contents



South
    America
        Reconciliation
    of segment results to Net income
    Three Months EndedSeptember 30,2010


2009North America

$
116


$
75Europe


102



60Asia


67



48South America


38



36Corporate and other


(33
)


(19
)Depreciation and amortization


(104
)


(92
)Interest expense and amortization of debt issuance costs


(40
)


(44
)Interest income


3



3Unrealized gains (losses) on change in fair value of derivative
    instruments, net


1



254Adjustment to eliminate proportional consolidation


(11
)


(17
)Restructuring charges, net


(9
)


(3
)Other, net


(1
)


Income before income taxes


129



301Income tax provision


56



87Net income


73



214Net income attributable to noncontrolling interests


11



19Net income attributable to our common shareholder

$
62


$
195    46




---



##### Table of Contents




    Our functional currency in Brazil is the U.S. dollar where
    the company holds significant U.S. dollar denominated debt.
    As the value of the local currency strengthens or weakens
    against the U.S. dollar, unrealized gains or losses are
    created for tax purposes, while the underlying gains or losses
    are not recorded in our income statement.
    We have significant net deferred tax liabilities in Brazil that
    are remeasured to account for currency fluctuations as the taxes
    are payable in local currency.
    Our income is taxed at various statutory tax rates in varying
    jurisdictions. Applying the corresponding amounts of income and
    loss to the various tax rates results in differences when
    compared to our Canadian statutory tax rate.
    We record increases and decreases to 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.    RESULTS
    OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2010
    COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2009
   47




---



##### Table of Contents



year-over-year
      Segment
    Review
    Selected Operating Results

North








SouthSix Months Ended September 30, 2010

America


Europe


Asia


America


Eliminations


TotalNet sales

$
1,924


$
1,716


$
870


$
555


$
(8
)

$
5,057Shipments (kt)Rolled products


563



459



280



181







1,483Ingot products


8



34



1



20







63Total shipments


571



493



281



201







1,546   Selected Operating Results

North








SouthSix Months Ended September 30, 2009

America


Europe


Asia


America


Eliminations


TotalNet sales

$
1,589


$
1,400


$
708


$
456


$
(12
)

$
4,141Shipments (kt)Rolled products


512



388



269



174







1,343Ingot products


15



42



1



14







72Total shipments


527



430



270



188







1,415  48




---



##### Table of Contents



North








SouthChanges in Segment income

America


Europe


Asia


AmericaSegment income  six months ended September 30,
    2009

$
132


$
93


$
86


$
47Volume


35



56



5



5Conversion premium and product mix


29



3



14



15Conversion costs(A)


43



(8
)


(9
)


11Metal price lag


(6
)


53



19



2Foreign exchange


(12
)


(15
)






(6
)Primary metal production














18Other changes(B)


(4
)


8



(4
)


(5
)Segment income  six months ended September 30,
    2010

$
217


$
190


$
111


$
87     (A)
    
    Conversion costs include expenses incurred in production such as
    direct and indirect labor, energy, freight, scrap usage, alloys
    and hardeners, coatings, alumina and melt loss. Fluctuations in
    this component reflect cost efficiencies during the period as
    well as cost inflation (deflation).(B)
    
    Other changes include selling, general &
    administrative costs and research and development for all
    segments and certain other items which impact one or more
    regions, including such items as the impact of purchase
    accounting and metal price ceiling contracts. Significant
    fluctuations in these items are discussed below.  North
    America
      Europe
     49




---



##### Table of Contents



Asia
  12-day
    South
    America
     50




---



##### Table of Contents



Reconciliation
    of segment results to Net income
    Six MonthsEndedSeptember 30,2010


2009North America

$
217


$
132Europe


190



93Asia


111



86South America


87



47Corporate and other


(52
)


(34
)Depreciation and amortization


(207
)


(192
)Interest expense and amortization of debt issuance costs


(79
)


(87
)Interest income


6



6Unrealized gains (losses) on change in fair value of derivative
    instruments, net


(46
)


553Adjustment to eliminate proportional consolidation


(21
)


(33
)Restructuring recoveries (charges), net


(15
)


(6
)Other costs, net


12



9Income (loss) before income taxes


203



574Income tax provision (benefit)


71



199Net income (loss)


132



375Net income attributable to noncontrolling interests


20



37Net income (loss) attributable to our common shareholder

$
112


$
338            51




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##### Table of Contents



LIQUIDITY
    AND CAPITAL RESOURCES
      Available
    Liquidity
    September 30,


March 31,2010


2010Cash and cash equivalents

$
512


$
437Overdrafts


(23
)


(14
)Availability under the ABL facility


694



603Total estimated liquidity

$
1,183


$
1,026     Free
    Cash Flow
   52




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##### Table of Contents



Six Months EndedSeptember 30,2010


2009


ChangeNet cash provided by operating activities

$
124


$
451


$
(327
)Net cash provided by (used in) investing activities


25



(429
)


454Less: Proceeds from sales of assets


(18
)


(4
)


(14
)Free cash flow

$
131


$
18


$
113Ending cash and cash equivalents

$
512


$
246


$
266     Operating
    Activities
    Investing
    Activities
    Six Months EndedSeptember 30,2010


2009


ChangeCapital expenditures

$
(71
)

$
(46
)

$
(25
)Net proceeds (outflow) from settlement of derivative instruments


67



(403
)


470Proceeds from sales of assets


18



4



14Changes to investment in and advances to non-consolidated
    affiliates






2



(2
)Proceeds from related parties loans receivable, net


11



14



(3
)Net cash provided by (used in) investing activities

$
25


$
(429
)

$
454      53




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##### Table of Contents



Financing
    Activities
    Six Months EndedSeptember 30,2010


2009


ChangeProceeds from issuance of debt, third parties

$



$
177


$
(177
)Proceeds from issuance of debt, related parties






3



(3
)Principal payments, third parties


(8
)


(16
)


8Principal payments, related parties






(94
)


94Short-term borrowings, net


(50
)


(96
)


46Dividends, noncontrolling interest


(18
)


(13
)


(5
)Net cash provided by (used in) financing activities

$
(76
)

$
(39
)

$
(37
)     OFF-BALANCE
    SHEET ARRANGEMENTS
    Derivative
    Instruments
    Guarantees
    of Indebtedness
        Maximum

LiabilityPotential

CarryingType of Entity

Future Payment

ValueWholly-owned subsidiaries

$
141


$
44  54




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##### Table of Contents



Other
    CONTRACTUAL
    OBLIGATIONS
  Form 10-K
  DIVIDENDS
    CRITICAL
    ACCOUNTING POLICIES AND ESTIMATES
  Form 10-K
  RECENT
    ACCOUNTING STANDARDS
    SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET
    DATA
  Form 10-Q
 55




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##### Table of Contents




    changes in the prices and availability of aluminum (or premiums
    associated with such prices) or other materials and raw
    materials we use;
    the capacity and effectiveness of our metal hedging activities,
    including our internal UBCs and smelter hedges;
    relationships with, and financial and operating conditions of,
    our customers, suppliers and other stakeholders;
    fluctuations in the supply of, and prices for, energy in the
    areas in which we maintain production facilities;
    our ability to access financing for future capital requirements;
    continuing obligations and other relationships resulting from
    our spin-off from Alcan Inc.;
    changes in the relative values of various currencies and the
    effectiveness of our currency hedging activities;
    factors affecting our operations, such as litigation,
    environmental remediation and
    clean-up
    costs, labor relations and negotiations, breakdown of equipment
    and other events;
    the impact of restructuring efforts in the future;
    economic, regulatory and political factors within the countries
    in which we operate or sell our products, including changes in
    duties or tariffs;
    competition from other aluminum rolled products producers as
    well as from substitute materials such as steel, glass, plastic
    and composite materials;
    changes in general economic conditions including deterioration
    in the global economy, particularly sectors in which our
    customers operate;
    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;
    the effect of taxes and changes in tax rates; and
    our indebtedness and our ability to generate cash.  Form 10-K
 56




---



##### Table of Contents



Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  marked-to-market
      Commodity
    Price Risks
    Aluminum
        Sensitivities
    Energy
   57




---



##### Table of Contents



Sensitivities
    Change in

Change inPrice

Fair ValueElectricity


(10
)%

$
(1
)Natural Gas


(10
)%


(3
)   Foreign
    Currency Exchange Risks
    non-U.S. dollar
   58




---



##### Table of Contents



Sensitivities
    Change in

Change inExchange Rate

Fair ValueCurrency measured against the U.S. dollarBrazilian real


(10
)%

$
(33
)Euro


10
%


(19
)Korean won


(10
)%


(6
)Canadian dollar


(10
)%


(4
)British pound


(10
)%


(4
)Swiss franc


10
%


(7
)   Interest
    Rate Risks
      Sensitivities
    Change in

Change inRate

Fair ValueInterest Rate ContractsNorth America


(100
) bps

$
(4
)Asia


(100
) bps

$
   Item 4.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
 59




---



##### Table of Contents



Rule 13a-15
  Changes
    in Internal Control Over Financial Reporting
  Rule 13a-15(f)
 60




---



##### Table of Contents



PART II.
    OTHER INFORMATION Item 1.
    Legal
    Proceedings    Item 1A.
    Risk
    Factors  Form 10-K
  Item 6.
    Exhibits  ExhibitNo.

Description2
.1

Arrangement Agreement by and among Hindalco Industries Limited,
    AV Aluminum Inc. and Novelis Inc., dated as of February 10,
    2007 (incorporated by reference to Exhibit 2.1 to our
    Current Report on
    Form 8-K
    filed on February 13, 2007) (File
    No. 001-32312))3
.1

Restated Certificate and Articles of Amalgamation of Novelis Inc.3
.2

Novelis Inc. Amended and Restated Bylaws, adopted as of
    July 24, 2008 (incorporated by reference to
    Exhibit 3.2 to our Current Report on
    Form 8-K
    filed on July 25, 2008 (File
    No. 001-32312))4
.1

Supplemental Indenture to Indenture dated February 3, 2005,
    among the Company and the Bank of New York Trust Company,
    N.A., as trustee, dated as of September 28, 20104
.2

Supplemental Indenture dated August 11, 2009, among the
    Company and the Bank of New York Trust Company, N.A., as
    trustee, dated as of September 28, 20104
.3

Supplemental Indenture to Indenture dated February 3, 2005,
    among the Company and the Bank of New York Trust Company,
    N.A., as trustee, dated as of September 29, 20104
.4

Supplemental Indenture to Indenture dated August 11, 2009,
    among the Company and the Bank of New York Trust Company,
    N.A., as trustee, dated as of September 29, 201031
.1

Section 302 Certification of Principal Executive Officer31
.2

Section 302 Certification of Principal Financial Officer32
.1

Section 906 Certification of Principal Executive Officer32
.2

Section 906 Certification of Principal Financial Officer  61




---



##### Table of Contents



SIGNATURES
      By:
    /s/  Steven
    Fisher    
  By
    /s/  Robert
    P. Nelson       62




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description2
.1

Arrangement Agreement by and among Hindalco Industries Limited,
    AV Aluminum Inc. and Novelis Inc., dated as of February 10,
    2007 (incorporated by reference to Exhibit 2.1 to our
    Current Report on
    Form 8-K
    filed on February 13, 2007) (File
    No. 001-32312))3
.1

Restated Certificate and Articles of Amalgamation of Novelis Inc.3
.2

Novelis Inc. Amended and Restated Bylaws, adopted as of
    July 24, 2008 (incorporated by reference to
    Exhibit 3.2 to our Current Report on
    Form 8-K
    filed on July 25, 2008 (File
    No. 001-32312))4
.1

Supplemental Indenture to Indenture dated February 3, 2005,
    among the Company and the Bank of New York Trust Company,
    N.A., as trustee, dated as of September 28, 20104
.2

Supplemental Indenture dated August 11, 2009, among the
    Company and the Bank of New York Trust Company, N.A., as
    trustee, dated as of September 28, 20104
.3

Supplemental Indenture to Indenture dated February 3, 2005,
    among the Company and the Bank of New York Trust Company,
    N.A., as trustee, dated as of September 29, 20104
.4

Supplemental Indenture to Indenture dated August 11, 2009,
    among the Company and the Bank of New York Trust Company,
    N.A., as trustee, dated as of September 29, 201031
.1

Section 302 Certification of Principal Executive Officer31
.2

Section 302 Certification of Principal Financial Officer32
.1

Section 906 Certification of Principal Executive Officer32
.2

Section 906 Certification of Principal Financial Officer  63