The Quarterly
NVL 2011 10-K

Novelis Inc (NVL) SEC Annual Report (10-K) for 2012

NVL 2013 10-K
NVL 2011 10-K NVL 2013 10-K
Table of Contents Index to Financial Statements

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-K

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

For the fiscal year ended March 31, 2012

Or

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

For the transition period from              to             .

Commission file number 001-32312

Novelis Inc.

(Exact name of registrant as specified in its charter)

Canada 98-0442987

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

3560 Lenox Road, Suite 2000,

Atlanta, GA

30326
(Address of principal executive offices) (Zip Code)

(404) 760-4000

(Registrant's telephone number, including area code)

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

None

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

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.    Yes    ¨     No   x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act").    Yes   ¨     No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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   x     No   ¨

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

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

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer x   (Do not check if a smaller reporting company) Smaller reporting company ¨

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

As of May 24, 2012, the registrant had 1,000 common shares outstanding. All of the Registrant's outstanding shares were held indirectly by Hindalco Industries Ltd., the Registrant's parent company.

DOCUMENTS INCORPORATED BY REFERENCE

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Table of Contents Index to Financial Statements

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

PART I

Item 1. Business

6

Item 1A. Risk Factors

20

Item 1B. Unresolved Staff Comments

28

Item 2. Properties

28

Item 3. Legal Proceedings

32

Item 4. Mine Safety Disclosures

32

PART II

Item  5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

33

Item 6. Selected Financial Data

33

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

35

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

62

Item 8. Financial Statements and Supplementary Data

66

Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure

134

Item 9A. Controls and Procedures

134

Item 9B. Other Information

135

PART III

Item 10. Directors, Executive Officers and Corporate Governance

136

Item 11. Executive Compensation

141

Item  12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

153

Item 13. Certain Relationships and Related Transactions and Director Independence

153

Item 14. Principal Accountant Fees and Services

155

PART IV

Item 15. Exhibits and Financial Statement Schedules

156

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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 under the headings "Item 1. Business," "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." 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 Annual Report on Form 10-K include, but are not limited to, our expectations with respect to the impact of metal price movements on our financial performance; the effectiveness of our hedging programs and controls; and our future borrowing availability. 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. We do not know what impact any of these differences may have on our business, our results of operations, financial condition, and cash flow. Factors that could cause actual results or outcomes to differ from the results expressed or implied by forward-looking statements include, among other things:

relationships with, and financial and operating conditions of, our customers, suppliers and other stakeholders;

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

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

our ability to access financing to fund current operations and for future capital requirements;

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

lowering of our ratings by a credit rating agency;

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

union disputes and other employee relations issues;

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

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

changes in the fair value of derivative instruments or the failure of counterparties to our derivative instruments to honor their agreements;

the capacity and effectiveness of our metal hedging activities;

availability of production capacity;

impairment of our goodwill and other intangible assets;

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

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risks relating to future acquisitions or divestitures;

our inability to successfully implement our growth initiatives;

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

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

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

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

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

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

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

The above list of factors is not exhaustive. These and other factors are discussed in more detail under "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

In this Annual Report on Form 10-K, unless otherwise specified, the terms "we," "our," "us," "Company," "Novelis" and "Novelis Group" refer to Novelis Inc., a company incorporated in Canada under the Canadian Business Corporations Act (CBCA) and its subsidiaries. References herein to "Hindalco" refer to Hindalco Industries Limited. In October 2007, Rio Tinto Group purchased all of the outstanding shares of Alcan Inc. References herein to "Alcan" refer to Rio Tinto Alcan Inc.

Exchange Rate Data

We prepare our financial statements in United States (U.S.) dollars. As of December 31, 2008, the Federal Reserve Bank of New York ceased the practice of maintaining and publishing historical exchange rates. From December 31, 2008 onward, we have used the CitiFX Benchmark, published by Citibank, for exchange rate information published daily as of 16:00 Greenwich Mean Time (GMT) (11:00 A.M. Eastern Standard Time).

The following table sets forth exchange rate information expressed in terms of Canadian dollars per U.S. dollar at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. As noted above, the years ended March 31, 2012, 2011 and 2010 include exchange data from Citibank as of 16:00 GMT. The rates set forth below may differ from the actual rates used in our accounting processes and in the preparation of our consolidated financial statements.

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Period

At Period End Average Rate(A) High Low

April 1, 2007 Through May 15, 2007(B)

1.0976 1.1022 1.1583 1.0976

May 16, 2007 Through March 31, 2008(B)

1.0275 1.0180 1.1028 0.9168

Year Ended March 31, 2009

1.2579 1.1247 1.2694 0.9938

Year Ended March 31, 2010

1.0144 1.0848 1.1881 1.0144

Year Ended March 31, 2011

0.9709 1.0206 1.0663 0.9709

Year Ended March 31, 2012

0.9973 0.9922 1.0433 0.9510

(A) For periods after December 31, 2008, this represents the average of the 16:00 GMT buying rates on the last day of each month during the period. For periods before December 31, 2008, we used the average of the 17:00 Greenwich Mean Time (GMT) (12:00 P.M. Eastern Standard Time) on the last day of each month during the period.
(B) See Note 1 - Business and Summary of Significant Accounting Policies ( Acquisition of Novelis Common Stock ) to our accompanying audited consolidated financial statements.

All dollar figures herein are in U.S. dollars unless otherwise indicated.

Commonly Referenced Data

As used in this Annual Report, "aluminum rolled products shipments" or "flat rolled product shipments" refers to aluminum rolled products shipments to third parties. References to "total shipments" or "shipments" include aluminum rolled products as well as certain other non-rolled product shipments, primarily ingot, scrap and primary remelt. The term "aluminum rolled products" is synonymous with the terms "flat rolled products" and "FRP" commonly used by manufacturers and third party analysts in our industry. All tonnages are stated in metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. One kilotonne (kt) is 1,000 metric tonnes.

Our business is conducted under a conversion model that 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 "conversion premium." The use of the term "conversion premium" in this Annual Report, refers to the conversion costs we charge our customers to produce the rolled product which reflects, among other factors, the competitive market conditions for that product, exclusive of the pass through aluminum price.

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PART I

Item 1. Business

Overview

We are the world's leading aluminum rolled products producer based on shipment volume in fiscal 2012, with flat rolled product shipments during that period of approximately 2,838 kt. 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 aluminum products in all of the regions in which we operate. We are also the global leader in the recycling of used aluminum beverage cans. We had "Net sales" of approximately $11.1 billion for the year ended March 31, 2012.

Our History

Organization and Description of Business

Novelis Inc. was formed in Canada on September 21, 2004. We produce aluminum sheet and light gauge products for use in the packaging market, which includes beverage and food can and foil products, as well as for use in the transportation, electronic, architectural, and industrial and other product markets. We also have recycling operations in several of our plants to recycle post-consumer aluminum, such as used-beverage cans (UBCs). As of March 31, 2012, we had operations in eleven countries on four continents: North America, Europe, Asia and South America, through 29 operating plants, including recycling operations in 12 of these plants. In addition to aluminum rolled products plants, our South American businesses include primary aluminum smelting and power generation facilities.

Acquisition of Novelis Common Stock

On May 15, 2007, the Company was acquired by Hindalco through its indirect wholly-owned subsidiary pursuant to a plan of arrangement (the Arrangement) at a price of $44.93 per share. The aggregate purchase price for all of the Company's common shares was $3.4 billion and Hindalco also assumed $2.8 billion of Novelis' debt for a total transaction value of $6.2 billion. Subsequent to completion of the Arrangement on May 15, 2007, all of our common shares were indirectly held by Hindalco.

Amalgamation of AV Aluminum Inc. and Novelis Inc.

Effective September 29, 2010, in connection with an internal restructuring transaction and pursuant to articles of amalgamation under the Canadian Business Corporations Act, we were amalgamated (the Amalgamation) with our direct parent AV Aluminum Inc., a Canadian corporation (AV Aluminum), to form an amalgamated corporation named Novelis Inc., also a Canadian corporation.

As a result of the Amalgamation, we and AV Aluminum continue our corporate existence, the amalgamated Novelis Inc. remains liable for all of our and AV Aluminum's obligations, and we continue to own all of our respective property. Since AV Aluminum was a holding company whose sole asset was the shares of the pre amalgamated Novelis, our business, management, board of directors and corporate governance procedures following the Amalgamation are identical to those of Novelis immediately prior to the Amalgamation. Novelis Inc., like AV Aluminum, remains an indirect, wholly-owned subsidiary of Hindalco. We have retrospectively recast all periods presented to reflect the amalgamated companies.

Our Industry

The aluminum rolled products market represents the global supply of and demand for aluminum sheet, plate and foil produced either from sheet ingot or continuously cast roll-stock in rolling mills operated by independent aluminum rolled products producers and integrated aluminum companies alike.

Aluminum rolled products are semi-finished aluminum products that constitute the raw material for the manufacture of finished goods ranging from automotive body panels to food and beverage cans. There are two major types of manufacturing processes for aluminum rolled products differing mainly in the process used to achieve the initial stage of processing:

hot mills - that require sheet ingot, a rectangular slab of aluminum, as starter material; and

continuous casting mills - that can convert molten metal directly into semi-finished sheet.

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Both processes require subsequent rolling, which we call cold rolling, and finishing steps such as annealing, coating, leveling or slitting to achieve the desired thicknesses, width and metal properties. Most customers receive shipments in the form of aluminum coil, a large roll of metal, which can be fed into their fabrication processes.

There are two sources of input material: (1) primary aluminum, such as molten metal, re-melt ingot and sheet ingot; and (2) recycled aluminum, such as recyclable material from fabrication processes, which we refer to as recycled process material, used beverage cans (UBCs) and other post-consumer aluminum.

Primary aluminum and sheet ingot can generally be purchased at prices set on the London Metal Exchange (LME), plus a premium that varies by geographic region of delivery, alloying material, form (ingot or molten metal) and purity.

Recycled aluminum is also an important and growing source of input material. Aluminum is infinitely recyclable and recycling it requires approximately 5% of the energy needed to produce primary aluminum. As a result, in regions where aluminum is widely used, manufacturers and customers are active in setting up collection processes in which UBCs and other recyclable aluminum are collected for re-melting and reuse. Manufacturers may also enter into agreements with customers who return recycled process material and pay to have it re-melted and rolled into the same product again.

End-use Markets

Aluminum rolled products companies produce and sell a wide range of aluminum rolled products, which can be grouped into five end-use markets based upon similarities in end-use: (1) packaging; (2) transportation; (3) electronics (4) architectural and (5) industrial and other. Within each end-use market, aluminum rolled products are manufactured with a variety of alloy mixtures; a range of tempers (hardness), gauges (thickness) and widths; and various coatings and finishes. Large customers typically have customized needs resulting in the development of close relationships with their supplying mills and close technical development relationships.

Packaging. Aluminum, because of its relatively light weight, recyclability and formability, has a wide variety of uses in packaging. Beverage cans are the second largest aluminum rolled products application, accounting for approximately 23% of total worldwide shipments in the calendar year ended December 31, 2011, according to market data from Commodity Research Unit International Limited (CRU), an independent business analysis and consultancy group focused on the mining, metals, power, cables, fertilizer and chemical sectors. Beverage and food cans is also our largest end-use market, making up 61% and 58% of our total flat rolled product shipments for the years ended March 31, 2012 and 2011, respectively. The recyclability of aluminum cans enables them to be used, collected, melted and returned to the original product form an unlimited number of times, unlike steel, paper or polyethylene terephthalate (PET) plastic, which deteriorate with every iteration of recycling. Aluminum beverage cans also offer advantages in fabricating efficiency and product shelf life. Fabricators are able to produce and fill beverage cans at very high speeds, and non-porous aluminum cans provide longer shelf life than PET plastic containers. Additionally, the use of aluminum to package beverages such as craft beer is increasing, as aluminum does not allow in sunlight and therefore extends the shelf life of the product. Aluminum cans are light, stackable and use space efficiently, making them convenient and cost efficient to ship.

Beverage can sheet is sold in coil form for the production of can bodies, ends and tabs. The material can be ordered as rolled, degreased, pre-lubricated, pre-treated and/or lacquered. Typically, can makers define their own specifications for material to be delivered in terms of alloy, gauge, width and surface finish.

Household foil is another packaging application and it includes home and institutional aluminum foil wrap sold as a branded or generic product. Known in the industry as packaging foil, it is manufactured in thicknesses ranging from 11 microns to 23 microns. Container foil is used to produce semi-rigid containers such as pie plates and take-out food trays and is usually ordered in a range of thicknesses ranging from 60 microns to 200 microns.

Other applications in this end-use market include food cans and screw caps for the beverage industry.

Transportation. There has been recent growth in certain geographic markets in the use of aluminum rolled products in automotive body panel applications, including hoods, deck lids, fenders and lift gates. These uses typically result from co-operative efforts between aluminum rolled products manufacturers and their customers that yield tailor-made solutions for specific requirements in alloy selection, fabrication procedure, surface quality and joining. We believe the recent growth in automotive body panel applications is due in part to the lighter weight, better fuel economy and improved emissions performance associated with these applications and

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we expect increased growth in this end-use market as automotive companies continue to explore opportunities for ways to reduce the weight (lightweighting) of automobiles as a result of environmental regulations around emissions and competition related to fuel economy.

Heat exchangers, such as radiators and air conditioners, are an important application for aluminum rolled products in the truck and automobile categories of the transportation end-use market. Original equipment manufacturers also use aluminum sheet with specially treated surfaces and other specific properties for interior and exterior applications. Newly developed alloys are being used in transportation tanks and rigid containers that allow for safer and more economical transportation of hazardous and corrosive materials.

Aluminum is also used in aerospace applications, as well as in the construction of ships' hulls, superstructures and passenger rail cars because of its strength, light weight, formability and corrosion resistance.

Electronics. Aluminum's lightweight characteristics, high formability, ability to conduct electricity and dissipate heat and to offer corrosion resistance makes it useful in a wide variety of electronic applications. Uses of aluminum rolled products in electronics include flat screen televisions, personal computers, laptops, mobile phones, and digital music players.

Architectural. Construction is the largest application within this end-use market. Aluminum rolled products developed for the construction industry are often decorative and non-flammable, offer insulating properties, are durable and corrosion resistant, and have a high strength-to-weight ratio. Aluminum siding, gutters, and downspouts comprise a significant amount of construction volume. Other applications include doors, windows, awnings, canopies, facades, roofing and ceilings.

Industrial and Other. Industrial applications include heat exchangers, process and electrical machinery, lighting fixtures, and insulation. Other uses of aluminum rolled products in consumer durables include microwaves, coffee makers, air conditioners and cooking utensils.

Market Structure

The aluminum rolled products industry is characterized by economies of scale, significant capital investments required to achieve and maintain technological capabilities and demanding customer qualification standards. The service and efficiency demands of large customers have encouraged consolidation among suppliers of aluminum rolled products.

While our customers tend to be increasingly global, many aluminum rolled products tend to be produced and sold on a regional basis. The regional nature of the markets is influenced in part by the fact that not all mills are equipped to produce all types of aluminum rolled products. In addition, individual aluminum rolling mills generally supply a limited range of products for end-use markets, and seek to maximize profits by producing high volumes of the highest margin mix per mill hour given available capacity and equipment capabilities.

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Competition

The aluminum rolled products market is highly competitive. We face competition from a number of companies in all of the geographic regions and end-use markets in which we operate. Our primary competitors are as follows:

North America

Asia

Alcoa, Inc. (Alcoa) Alcoa
Aleris International, Inc. (Aleris) Furukawa-Sky Aluminum Corp.
Tri-Arrows Aluminum Inc. (Tri-Arrows) Kobe Steel Ltd.
Norandal Aluminum Nanshan Aluminum
Constellium (formerly Alcan) Sumitomo Light Metal Company, Ltd.
Wise Metal Group LLC

Southwest Aluminum Co. Ltd.

Chinalco Group

Europe

South America

Alcoa Alcoa
Aleris Companhia Brasileira de Alumínio
Hydro A.S.A.
Constellium (formerly Alcan)

The factors influencing competition vary by region and end-use market, but generally we compete on the basis of our value proposition, including price, product quality, the ability to meet customers' specifications, range of products offered, lead times, technical support and customer service. In some end-use markets, competition is also affected by fabricators' requirements that suppliers complete a qualification process to supply their plants. This process can be rigorous and may take many months to complete. As a result, obtaining business from these customers can be a lengthy and expensive process. However, the ability to obtain and maintain these qualifications can represent a competitive advantage.

In addition to competition from others within the aluminum rolled products industry, we, as well as the other aluminum rolled products manufacturers, face competition from non-aluminum material producers, as fabricators and end-users have, in the past, demonstrated a willingness to substitute other materials for aluminum. In the beverage and food cans end-use market, aluminum rolled products' primary competitors are glass, PET plastic, and in some regions, steel. In the transportation end-use market, aluminum rolled products compete mainly with steel and composites. Aluminum competes with wood, plastic, cement and steel in building products applications. Factors affecting competition with substitute materials include price, ease of manufacture, consumer preference and performance characteristics.

Key Factors Affecting Supply and Demand

The following factors have historically affected the supply of aluminum rolled products:

Production Capacity and Alternative Technology. In the aluminum rolled products industry, the addition of production capacity requires large capital investments and significant plant construction or expansion, and typically requires long lead-time equipment orders. Advances in technological capabilities allow aluminum rolled products producers to better align product portfolio and supply with industry demand. In addition, there are lower cost ways to enter the industry such as continuous casting, which offers the ability to increase capacity in smaller increments than is possible with hot mill additions. This enables production capacity to better adjust to small year-over-year increases in demand, however the continuous casting process results in the production of a more limited range of products.

Trade. Some trade flows do occur between regions despite shipping costs, import duties and the need for localized customer support. Higher value-added, specialty products such as plate and some foils are more likely to be traded internationally, especially if demand in certain markets exceeds local supply. With respect to less technically demanding applications, emerging markets with low cost inputs may export commodity aluminum rolled products to larger, more mature markets, as we have seen in China. Accordingly, regional changes in supply, such as plant expansions, have some impact on the worldwide supply of aluminum rolled products.

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The following factors have historically affected the demand for aluminum rolled products:

Economic Growth. We believe that economic growth is currently the single largest driver of aluminum rolled products demand. In mature markets, growth in demand has typically correlated closely with growth in industrial production.

In many emerging markets such as Brazil, growth in demand typically exceeds industrial production growth largely because of expanding infrastructures, capital investments and rising incomes that often accompany economic growth in these markets.

Substitution Trends. Manufacturers' willingness to substitute other materials for aluminum in their products and competition from substitution materials suppliers also affect demand. We see strong substitution trends towards aluminum and away from other packaging materials in the beverage can market globally, except for North America which is already a mature market. We also see this significant and important trend in other product categories such as the automotive industry. As automotive manufacturers look for ways to meet fuel efficiency regulations and reduce carbon emissions, they need to lightweight their vehicles. As a result of aluminum's durability, strength and weight, automobile manufacturers are substituting heavier alternatives for aluminum. Consequently, demand for flat rolled aluminum products has increased.

Seasonality. During our third fiscal quarter, we typically experience seasonal slowdowns resulting in lower shipment volumes. This is a result of declines in overall production output due primarily to holidays and cooler weather in North America and Europe, our two largest operating regions. We also experience downtime at our mills and customers' mills due to scheduled plant maintenance and are impacted to a lesser extent by the seasonal downturn in construction.

Sustainability. Growing awareness of environmentalism and demand for recyclable products has increased the demand for aluminum rolled products. Unlike other commonly recycled materials such as paper, steel, or PET plastic, aluminum can be recycled an unlimited number of times without affecting the quality of the product. Additionally, the recycling process uses 95% less energy than is required to produce primary aluminum from mining and smelting, as well as significantly reduces greenhouse gas emissions.

Our Business Strategy

Our primary objective is to deliver customer and shareholder value by being the lowest cost, most technologically advanced, innovative and profitable aluminum rolled products company in the world. We intend to achieve this objective through the following areas of focus:

Operate as "One Novelis" - a Fully-integrated Global Company

We intend to continue to build on our focused business model to operate as "One Novelis." The term "One Novelis" refers to our goal of becoming a truly integrated, global company driven by a singular focus. An important part of the One Novelis concept is our highly-focused, pass-through business model that utilizes our manufacturing excellence, our risk management expertise, our value-added conversion premium-based pricing, and, more importantly, our growing ability to leverage our global assets according to a single, corporate-wide vision. We believe this integrated approach is the foundation for the effective execution of our strategy across the Novelis system.

We strive to service our customers in a consistent, global manner through seamless alignment of goals, methods and metrics across the organization to improve communication and by implementation of strategic initiatives. These initiatives have resulted in enhanced operating margins and performance, and we will continue to take actions to ensure we are aligned to best leverage our operations globally.

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Focus on Our Core Premium Products to Drive Enhanced Profitability

We will focus on capturing the global growth we see in our premium product markets of beverage can, automotive and electronic markets. We plan to continue improving our product mix and margins by leveraging our world-class assets and technical capabilities. Our management approach helps us to systematically identify opportunities to improve the profitability of our operations through product portfolio analysis. This ensures that we focus on growing in attractive market segments, while also taking actions to exit unattractive ones. We will continue to focus on our core products while investing in emerging growth markets.

Pursue Organic Growth Through Capital Investments in Emerging Growth Markets

We are investing heavily in increasing our capacity, particularly in high growth emerging markets. Our international presence positions us well to capture additional growth opportunities in targeted aluminum rolled products. In particular, we believe Asia and South America have high growth potential in areas such as beverage cans and electronics. Additionally, we believe there is strong automotive growth potential worldwide. While our existing manufacturing and operating presence positions us well to capture this growth, we are making incremental capital expenditures in these areas.

In response to the growing demand for our products in South America, we are expanding our aluminum rolling operations in Brazil to increase capacity to approximately 600 kt of aluminum sheet per year. We are also installing a new coating line for beverage can end stock and expanding our recycling capacity in the Pindamonhangaba (Pinda) facility in Brazil.

In response to the lightweighting trend in the automotive industry, we are increasing our North American rolling capacity by approximately 200 kt per year for the automotive end-use market.

We are expanding our rolling and recycling capabilities in South Korea in response to the growing demand in the broader Asian region. The rolling expansion, which will include investments in both hot rolling and cold rolling operations, is expected to increase capacity in South Korea by over 50% to approximately 1,000 kt of aluminum sheet per year. The expansion will also include the construction of an integrated state-of-the-art recycling center primarily for used aluminum beverage cans.

In April 2012, we announced plans to invest $100 million into an aluminum automotive sheet heat treatment plant in China. Construction of the new facility is expected to begin in the fall of 2012 and the plant to be operational beginning in late calendar year 2014 and have capacity of approximately 120 kt per year.

In May 2012, we confirmed a decision to invest $250 million at our Nachterstedt, Germany plant to build a fully integrated recycling facility. The facility will have an annual capacity of approximately 400 kt.

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Sustainability

In December 2011, we released our first annual Sustainability Report in which we detailed ten Sustainability Targets for the year 2020, as well as our most significant environmental and social impacts over the last year. These targets include halving our greenhouse gas emissions, eliminating landfilling, reducing energy use and committing to implement a Supplier Code of Conduct. We are continuing to work with customers and other stakeholders to increase the awareness and importance of sustainability in aluminum products, specifically using lifecycle analysis to evaluate the carbon savings from lightweighting and recycling. We are driving our overall business model and strategy around sustainability in order to build our long term competitive advantage as we address growing societal needs. The recycled content of our products has increased significantly since last year, and now stands at a record high of 39%. With the improvements we made over the last year, we are making progress to meet our target of 80% by 2020. We are working on increasing recycling rates globally through our support of currently established and new recycling programs, as well as seeking ways to expand our recycling business into other scrap markets. We also joined the UN Global Compact in 2011, and plan to submit a Communication on Progress annually.

Focus on Reducing our Costs

We strive to be the lowest cost producer of world-class aluminum rolled products by pursuing a standardized focus on our core operations globally. To achieve this objective, we continue working to standardize our manufacturing processes and the associated upstream and downstream production elements where possible while still allowing the flexibility to respond to local market demands. In addition, we have implemented numerous restructuring initiatives, including the shutdown or sale of facilities, staff rationalization and other activities, all of which have led to significant cost savings that we will benefit from for years to come. We plan to focus on maintaining our low cost base, even as we invest in expansions, and intend to continuously evaluate and implement initiatives to improve operational efficiencies across our plants globally.

Our Operating Segments

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. The following is a description of our operating segments as of March 31, 2012:

North America. Headquartered in Atlanta, GA, this segment manufactures aluminum sheet and light gauge products and operates 11 plants, including 4 plants with recycling operations, in two countries.

Europe. Headquartered in Zurich, Switzerland, this segment manufactures aluminum sheet and light gauge products and operates 12 plants, including 5 plants with recycling operations, in six countries.

Asia. Headquartered in Seoul, South Korea, this segment manufactures aluminum sheet and light gauge products and operates three plants in two countries, including 2 plants with recycling operations.

South America. Headquartered in Sao Paulo, Brazil, our South America segment operates two rolling plants, including one with recycling operations, along with one primary aluminum smelter and a hydroelectric power plant as of March 31, 2012, all of which are located in Brazil. Our South America segment manufactures aluminum rolled products, including can stock, automotive and industrial sheet and light gauge. We also have mining rights located in Brazil which we are currently not exploring and alumina refinery assets that we are not operating.

The table below shows "Net sales" and total shipments by segment. For additional financial information related to our operating segments, see Note 20 - Segment, Geographical Area, Major Customer and Major Supplier Information to our accompanying audited consolidated financial statements.

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Sales in millions Year Ended
March 31,

Shipments in kilotonnes

2012 2011 2010

Consolidated

Net sales

$ 11,063 $ 10,577 $ 8,673

Total shipments

2,982 3,097 2,854

North America

Net sales(A)

$ 3,967 $ 3,760 $ 3,130

Total shipments

1,079 1,121 1,063

Europe

Net sales(A)

$ 3,840 $ 3,589 $ 2,975

Total shipments

950 976 884

Asia

Net sales(A)

$ 1,830 $ 1,866 $ 1,501

Total shipments

536 581 534

South America

Net sales(A)

$ 1,278 $ 1,214 $ 948

Total shipments

417 419 373

(A) Net sales by segment includes intersegment sales and the results of our affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments.

North America

As of March 31, 2012, North America operates 11 aluminum rolled products facilities, including 2 fully dedicated recycling facilities and 2 facilities with recycling operations, and manufactures a broad range of aluminum sheet and light gauge products. End-use markets for this segment include beverage cans, containers and packaging, automotive and other transportation applications, building products and other industrial applications. The majority of North America's efforts are directed towards the beverage can sheet market. The beverage can end-use market is technically demanding to supply and pricing is competitive. We believe we have a competitive advantage in this market due to our low-cost and technologically advanced manufacturing facilities and technical support capability. Recycling is important in the manufacturing process and we have five facilities in North America that re-melt post-consumer aluminum and recycled process material. Most of the recycled material is from UBCs and the material is cast into sheet ingot for North America's two can sheet production plants (at our Logan plant in Russellville, Kentucky and our Oswego, New York plant). We participate in a UBC recycling joint venture with Alcoa Inc., known as Evermore Recycling LLC (Evermore Recycling). Our equity investment in Evermore Recycling is 55.8% and Alcoa's equity investment is 44.2%. In December 2011, we notified Alcoa Inc. of our intention to withdraw from the Evermore Recycling joint venture. In response to the lightweighting trend in the automotive industry, we are expanding our Oswego, NY facility to increase our North American rolling capacity by approximately 200 kt per year for the transportation end-use market, which is expected to be complete by mid calendar year 2013. In March 2012, we made the decision to close our Saguenay Works plant in Quebec, Canada effective August 2012.

Europe

As of March 31, 2012, Europe operates 12 operating plants, including one fully dedicated recycling facility, one integrated recycling facility and 3 facilities with recycling operations, and manufactures a broad range of sheet and foil products. End-use markets for this segment include beverage and food can, automotive, archictectural and industrial products, foil and technical products and lithographic. Beverage and food can represent the largest end-use market in terms of shipment volume by Europe. Europe has six aluminum rolled products facilities, five foil and packaging facilities, one fully depreciated recycling facility, distribution centers in Italy, and sales offices in several European countries. Operations include our 50% joint venture interest in Aluminium Norf GmbH (Alunorf), which is the world's largest aluminum rolling and remelt facility. Alunorf supplies high quality can stock, foilstock and feeder stock for finishing at our other European operations.

In April 2009, we closed our distribution center in France. In March 2009, we announced the closure of our aluminum sheet mill in Rogerstone, South Wales, U.K. and ceased operations in April 2009. We sold the land for the Rogerstone facility during fiscal year 2012 and we sold other assets to Hindalco during fiscal year 2011. The Company ceased operations associated with the Bridgnorth, U.K. foil rolling and laminating operations at the end of April 2011 and subsequently sold the land and buildings at the Bridgnorth site.

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Additionally, we sold certain pieces of equipment from the Bridgnorth plant to Hindalco during fiscal 2012 and 2011. In fiscal 2012, we commissioned a new recycling center at Alunorf. In March 2012, we made a decision to restructure our lithographic sheet operations in our Göttingen, Germany plant, which included the shutdown of one of our lithographic sheet lines. In May 2012, we confirmed a decision to invest $250 million at our Nachterstedt, Germany plant to build a fully integrated recycling facility, which will have an annual capacity of approximately 400 kt.

In March 2012, we announced the planned sale of three aluminum foil and packaging plants to American Industrial Acquisition Corporation (AIAC). The transaction includes foil rolling and packaging operations in Rugles, France; Dudelange, Luxembourg; and Berlin, Germany. These plants are expected to be sold in the middle of calendar year 2012, and we have classified the respective assets and liabilities of these plants as "Assets held for sale" and "Liabilities held for sale" in the consolidated balance sheet as of March 31, 2012.

Asia

As of March 31, 2012, Asia operates 3 manufacturing facilities, including 2 facilities with recycling operations, and manufactures a broad range of sheet and light gauge products. End-use markets include beverage and food cans, electronics, architectural, industrial and other products, automotive and foil. The beverage can market represents the largest end-use market in terms of volume. Recycling is an important part of our operations with recycling facilities at both the Ulsan, South Korea and Yeongju, South Korea plants. We believe that Asia is well-positioned to benefit from further economic development in China as well as other parts of Asia.

In May 2011, we announced plans to expand our aluminum rolling and recycling operations in South Korea in response to the growing demand in the broader Asia region. The rolling expansion, which will include investments in both hot rolling and cold rolling operations, will increase our aluminum sheet capacity in Asia to approximately 1,000 kt annually. A response to projected market growth in the region, the move is designed to rapidly bring to market high-quality aluminum rolling capacity aligned with the projected needs of a growing customer base. The new capacity is expected to be operational in late calendar year 2013. The expansion will increase Novelis' aluminum sheet capacity in Asia by more than 50 percent, and will also include the construction of a state-of-the-art recycling center primarily for used aluminum beverage cans and a casting operation.

In April 2012, we announced plans to invest $100 million into an aluminum automotive sheet heat treatment plant in China. Construction of the new facility is expected to begin in the fall of 2012 and we expect the plant is expected to be operational beginning in late calendar year 2014 and have capacity of approximately 120 kt per year.

South America

As of March 31, 2012, South America operates two rolling plants, including one facility with recycling operations, along with one primary aluminum smelter and hydroelectric power plants, all of which are located in Brazil. South America manufactures aluminum rolled products, including can stock, automotive and industrial sheet and light gauge. The main markets are beverage and food can, specialty, industrial, foil and other packaging and transportation end-use applications. Beverage can represents the largest end-use application in terms of shipment volume. Our operations in South America include a smelter used by our Brazilian aluminum rolled products operations, with any excess production being sold on the market in the form of aluminum billets, and a hydroelectric power plant which we use to generate a portion of our own power requirements. Additionally, we have mining rights for mines located in South America which are not currently being explored.

In May 2009, we ceased the production of alumina at our Ouro Preto facility in Brazil as the sustained decline in alumina prices made production economically unfeasible. In light of the alumina and aluminum pricing environment, we closed our Aratu facility in Candeias, Brazil in December 2010.

In response to the growing demand for our products in South America, in May 2010 we announced a plan to expand our aluminum rolling operations in Brazil to increase our Pindamonhangaba's capacity by more than 50% to approximately 600 kt of aluminum sheet per year. The project is expected to be completed by late calendar year 2012. Additionally, we have announced plans to install a new coating line for beverage can end stock and to expand recycling capacity in our Pindamonhangaba, Brazil facility.

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Financial Information About Geographic Areas

Certain financial information about geographic areas is contained in Note 20- Segment, Geographical Area, Major Customer and Major Supplier Information to our accompanying audited consolidated financial statements.

Raw Materials and Suppliers

The raw materials that we use in manufacturing include primary aluminum, recycled aluminum, sheet ingot, alloying elements and grain refiners. Our smelters also use alumina, caustic soda and calcined petroleum coke and resin. These raw materials are generally available from several sources and are not generally subject to supply constraints under normal market conditions. We also consume considerable amounts of energy in the operation of our facilities.

Aluminum

We obtain aluminum from a number of sources, including the following:

Primary Aluminum Sourcing. We purchased or tolled approximately 1,800 kt of primary aluminum in fiscal 2012 in the form of sheet ingot, standard ingot and molten metal, approximately 50% of which we purchased from Alcan.

Primary Aluminum Production. We produced approximately 31 kt of our own primary aluminum requirements in fiscal 2012 through our smelter and related facilities in Brazil.

Aluminum Products Recycling. We operate facilities in several plants to recycle post-consumer aluminum, such as UBCs collected through recycling programs. In addition, we have agreements with several of our large customers where we have a closed-looped system whereby we take recycled processed material from their fabricating activity and re-melt, cast and roll it to re-supply them with aluminum sheet. Other sources of recycled material include lithographic plates, and products with longer lifespans, like cars and buildings, which are starting to become high volume sources of recycled material. We purchased or tolled approximately 1,100 kt of recycled material inputs in fiscal 2012 and are making recycling investments in Europe, Korea and South America to increase the amount of recycled material we use as raw materials.

For the materials that we recycle, they are remelted, cast and then rolled out in our operations. The net effect of all recycling activities is that approximately 39% of our total aluminum rolled product shipments in fiscal 2012 were made with recycled material inputs.

Energy

We use several sources of energy in the manufacture and delivery of our aluminum rolled products. In fiscal 2012, natural gas and electricity represented approximately 88% 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 smelter 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. We have in the past and may continue to seek to stabilize our future exposure to natural gas prices through the purchase of derivative instruments. Natural gas prices in Europe, Asia and South America have historically been more stable than in the United States.

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. We have fixed pricing on some of our energy supply arrangements. When the market price of energy is above the fixed price within the contract, we are subject to the credit risk of the counterparty in terms of fulfilling the contract to its term, including those favorable contracts which were existent at the date of the Arrangement and for which an intangible asset was recorded in purchase accounting.

Our South America segment has its own hydroelectric facility that supplies approximately 60% of our smelter operation's electricity requirements. We have a mixture of self-generated electricity, long term and shorter term contracts. We may continue to face challenges renewing our South American energy supply contracts at rates which enable profitable operation of our full smelter capacity.

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Others

We also have bauxite and alumina requirements. We will satisfy some of our alumina requirements for the near term pursuant to an alumina supply agreement we have entered into with Alcan.

Our Customers

Although we provide products to a wide variety of customers in each of the markets that we serve, we have experienced consolidation trends among our customers in many of our key end-use markets. In fiscal 2012, approximately 51% of our total "Net sales" were to our ten largest customers, most of whom we have been supplying for more than 20 years. To address consolidation trends, we focus significant efforts at developing and maintaining close working relationships with our customers and end-users. Our major customers include:

Beverage and Food Cans

Automotive

Anheuser-Busch, Incorporated Audi Worldwide Company
Affiliates of Ball Corporation BMW AG
Can-Pack S.A. Daimler AG
Various bottlers of the Coca-Cola System Ford Motor Company
Crown Cork & Seal Company General Motors LLC
Rexam plc Hyundai Motor Company
Jaguar Land Rover
Volvo Group

Construction, Industrial and Other

Electronics

AGFA Graphics N.V.

LG International Corporation
Amcor Limited Samsung Electronics Co., Ltd
Lotte Aluminum Co. Ltd.
Pactiv Corporation
Ryerson Inc.
Tetra Pak International SA

Our single largest end-use market is beverage can sheet. We sell can sheet directly to beverage makers and bottlers as well as to can fabricators that sell the cans they produce to bottlers. In certain cases, we operate under umbrella agreements with beverage makers and bottlers under which they direct their can fabricators to source their requirements for beverage can body, end and tab stock from us. One of our beverage can sheet customers is Coca-Cola Bottlers' Sales and Services (CCBSS). We have multi-year agreement with CCBSS to supply beverage can sheet, including can end, body and tab sheet to the various producers of beverage cans for Coca-Cola in North America where we are Coca-Cola's primary supplier.

The table below shows our "Net sales" to Rexam Plc (Rexam), Anheuser-Busch, Incorporated (Anheuser-Busch), and Affiliates of Ball Corporation our three largest customers, as a percentage of total "Net sales."

Year Ended
March 31,
2012 2011 2010

Rexam

14 15 16

Anheuser-Busch

10 13 11

Affiliates of Ball Corporation

10 8 6

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Distribution and Backlog

We have two principal distribution channels for the end-use markets in which we operate: direct sales to our customers and distributors.

Year Ended
March 31,
2012 2011 2010

Direct sales as a percentage of total "Net sales"

93 92 93

Distributor sales as a percentage of total "Net sales"

7 8 7

Direct Sales

We supply various end-use markets all over the world through a direct sales force that operates from individual plants or sales offices, as well as from regional sales offices in 23 countries. The direct sales channel typically involves very large, sophisticated fabricators and original equipment manufacturers. Longstanding relationships are maintained with leading companies in industries that use aluminum rolled products. Supply contracts for large global customers generally range from one to five years in length and historically there has been a high degree of renewal business with these customers. Given the customized nature of products and in some cases, large order sizes, switching costs are significant, thus adding to the overall consistency of the customer base.

We also use third party agents or traders in some regions to complement our own sales force. They provide service to our customers in countries where we do not have local expertise. We tend to use third party agents in Asia more frequently than in other regions.

Distributors

We also sell our products through aluminum distributors, particularly in North America and Europe. Customers of distributors are widely dispersed, and sales through this channel are highly fragmented. Distributors sell mostly commodity or less specialized products into many end-use markets in small quantities, including the construction and industrial markets. We collaborate with our distributors to develop new end-use markets and improve the supply chain and order efficiencies.

Backlog

We believe that order backlog is not a material aspect of our business.

Research and Development

The table below summarizes our "Research and development expenses" in our plants and modern research facilities, which included mini-scale production lines equipped with hot mills, can lines and continuous casters (in millions).

Year Ended
March 31,
2012 2011 2010

Research and development expenses

$ 44 $ 40 $ 38

We conduct research and development activities at our plants in order to satisfy current and future customer requirements, improve our products and reduce our conversion costs. Our customers work closely with our research and development professionals to improve their production processes and market options. We have approximately 180 employees dedicated to research and development, located in many of our plants and research centers. We are opening a global research and development center in Kennesaw, GA that will be operational in mid calendar year 2012. The center will offer state of the art research and development capabilities to help Novelis meet the global long-term demand for aluminum used for the automotive, beverage can and electronic markets. To reach the Company's sustainability commitments, a key focus is to help increase the amount of recycled metal content across all product lines while meeting performance requirements.

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Our Employees

The table below summarizes our approximate number of employees by region.

Employees

North
America
Europe Asia South
America
Total

March 31, 2012

3,100 5,210 1,600 1,710 11,620

March 31, 2011

3,100 5,380 1,500 1,600 11,580

Approximately 58% of our employees are represented by labor unions and their employment conditions are governed by collective bargaining agreements. Collective bargaining agreements are negotiated on a site, regional or national level, and are of different durations.

Intellectual Property

In connection with our spin-off, Alcan has assigned or licensed to Novelis a number of important patents, trademarks and other intellectual property rights owned or previously owned by Alcan and required for our business. Ownership of certain intellectual property that is used by both us and Alcan is owned by one of us, and licensed to the other. Certain specific intellectual property rights, which have been determined to be exclusively useful to us or which were required to be transferred to us for regulatory reasons, have been assigned to us with no license back to Alcan.

We actively review intellectual property arising from our operations and our research and development activities and, when appropriate, we apply for patents in the appropriate jurisdictions, including the United States and Canada. We currently hold patents and patent applications on approximately 175 different items of intellectual property. While these patents and patent applications are important to our business on an aggregate basis, no single patent or patent application is deemed to be material to our business.

We have applied for or received registrations for the "Novelis" word trademark and the Novelis logo trademark in approximately 50 countries where we have significant sales or operations. Novelis uses the Aditya Birla Rising Sun logo under license from Aditya Birla Management Corporation Private Limited.

We have also registered the word "Novelis" and several derivations thereof as domain names in numerous top level domains around the world to protect our presence on the World Wide Web.

Environment, Health and Safety

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

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

We have established procedures for regularly evaluating environmental loss contingencies, including those arising from environmental reviews and investigations and any other environmental remediation or compliance matters. We believe we have a

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reasonable basis for evaluating these environmental loss contingencies, and we also believe we have made reasonable estimates for the costs that are reasonably possible for these environmental loss contingencies. Accordingly, we have established liabilities based on our reasonable estimates for the currently anticipated costs associated with these environmental matters. Management has determined that the currently anticipated costs associated with these environmental matters will not, individually or in the aggregate, materially impair our operations or materially adversely affect our financial condition.

Our capital expenditures for environmental protection and the betterment of working conditions in our facilities were $16 million in fiscal 2012. We expect these capital expenditures will be approximately $11 million in fiscal 2013. In addition, expenses for environmental protection (including estimated and probable environmental remediation costs as well as general environmental protection costs at our facilities) were $17 million in fiscal 2012, and are expected to be $14 million in fiscal 2013. Generally, expenses for environmental protection are recorded in "Cost of goods sold (exclusive of depreciation and amortization)." However, significant remediation costs that are not associated with on-going operations are recorded in "Other (income) expense, net."

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Available Information

We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (Exchange Act) and, as a result, we file periodic reports and other information with the SEC. We make these filings available on our website free of charge, the URL of which is http://www.novelis.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly and current reports and other information we file electronically with the SEC. You can read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Information on our website does not constitute part of this Annual Report on Form 10-K.

Item 1A. Risk Factors

In addition to the factors discussed elsewhere in this report, you should consider the following factors, which could materially affect our business, financial condition or results of operations in the future. The following factors, among others, could cause our actual results to differ from those projected in any forward looking statements we make.

Certain of our customers are significant to our revenues, and we could be adversely affected by changes in the business or financial condition of these significant customers or by the loss of their business.

Our ten largest customers accounted for approximately 51%, 50% and 48% of our total "Net sales" for the year ended March 31, 2012, 2011 and 2010, respectively, with Rexam Plc, a leading global beverage can maker, and its affiliates representing approximately 14%, 15% and 16% of our total "Net sales" in the respective periods. A significant downturn in the business or financial condition of our significant customers could materially adversely affect our results of operations and cash flows. In addition, if our existing relationships with significant customers materially deteriorate or are terminated in the future, and we are not successful in replacing business lost from such customers, our results of operations and cash flows could be adversely affected. Some of the longer term contracts under which we supply our customers, including under umbrella agreements such as those described under "Business - Our Customers," are subject to renewal, renegotiation or re-pricing at periodic intervals or upon changes in competitive supply conditions. Our failure to successfully renew, renegotiate or re-price such agreements could result in a reduction or loss in customer purchase volume or revenue, and if we are not successful in replacing business lost from such customers, our results of operations and cash flows could be adversely affected. The markets in which we operate are competitive and customers may seek to consolidate supplier relationships or change suppliers to obtain cost savings and other benefits.

Our results and short term liquidity can be negatively impacted by timing differences between the prices we pay under purchase contracts and metal prices we charge our customers.

Most of our purchase and sales contracts are based on the LME aluminum price for high grade aluminum, and there are typically timing differences between the pricing periods for purchases and sales where purchase prices tend to be fixed and paid earlier than sales prices. This creates a price exposure that we call "metal price lag." To mitigate this exposure, we sell short-term LME aluminum futures contracts to protect the value of priced metal purchases and inventory until the sale price is established. We settle these derivative contracts in advance of collecting from our customers, which both positively and negatively impacts our short-term liquidity position.

In addition, from time to time, customers request fixed prices for longer term sales commitments, and we in turn enter into futures purchase contracts to hedge against these fixed forward priced sales to customers. The mismatch between the settlement of these derivative contracts and customer collection from shipments hedged with these derivative contracts also leads to volatility in our short-term liquidity position, either positively or negatively. The lag between the derivative settlement and customer collection typically ranges from 30 to 60 days.

Our operations consume energy and our profitability and cash flows may decline if energy costs were to rise, or if our energy supplies were interrupted.

We consume substantial amounts of energy in our rolling, casting and smelter operations. The factors that affect our energy costs and supply reliability tend to be specific to each of our facilities. A number of factors could materially adversely affect our energy position including:

increases in costs of natural gas;

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significant increases in costs of supplied electricity or fuel oil related to transportation;

interruptions in energy supply due to equipment failure or other causes;

the inability to extend energy supply contracts upon expiration on economical terms; and

the inability to pass through energy costs in certain sales contracts.

In addition, global climate change may increase our costs for energy sources, supplies or raw materials. See We may be affected by global climate change or by legal, regulatory or market responses to such change . If energy costs were to rise, or if energy supplies or supply arrangements were disrupted, our profitability and cash flows could decline.

A deterioration of our financial position or a downgrade of our ratings by a credit rating agency could increase our borrowing costs and our business relationships could be adversely affected.

A deterioration of our financial position or a downgrade of our ratings for any reason could increase our borrowing costs and have an adverse effect on our business relationships with customers, suppliers and hedging counterparties. From time to time, we enter into various forms of hedging activities against currency, interest rate or metal price fluctuations and trade metal contracts on the LME. Financial strength and credit ratings are important to the availability and pricing of these hedging and trading activities. As a result, any downgrade of our credit ratings may make it more costly for us to engage in these activities, and changes to our level of indebtedness may make it more difficult or costly for us to engage in these activities in the future.

Adverse changes in currency exchange rates could negatively affect our financial results or cash flows and the competitiveness of our aluminum rolled products relative to other materials.

Our businesses and operations are exposed to the effects of changes in the exchange rates of the U.S. dollar, the euro, the British pound, the Brazilian real, the Canadian dollar, the Korean won and other currencies. We have implemented a hedging policy that attempts to manage currency exchange rate risks to an acceptable level based on management's judgment of the appropriate trade-off between risk, opportunity and cost; however, this hedging policy may not successfully or completely eliminate the effects of currency exchange rate fluctuations which could have a material adverse effect on our financial results and cash flows.

We prepare our consolidated financial statements in U.S. dollars, but a portion of our earnings and expenditures are denominated in other currencies, primarily the euro, the Korean won and the Brazilian real. Changes in exchange rates will result in increases or decreases in our operating results and may also affect the book value of our assets located outside the U.S.

Most of our facilities are staffed by a unionized workforce, and union disputes and other employee relations issues could materially adversely affect our financial results.

Approximately 58% of our employees are represented by labor unions under a large number of collective bargaining agreements with varying durations and expiration dates. We may not be able to satisfactorily renegotiate our collective bargaining agreements when they expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future.

We could be adversely affected by disruptions of our operations.

Breakdown of equipment or other events, including catastrophic events such as war or natural disasters, leading to production interruptions at our plants could have a material adverse effect on our financial results and cash flows. Further, because many of our customers are, to varying degrees, dependent on planned deliveries from our plants, those customers that have to reschedule their own production due to our missed deliveries could pursue claims against us and reduce their future business with us. We may incur costs to correct any of these problems, in addition to facing claims from customers. Further, our reputation among actual and potential customers may be harmed, resulting in a loss of business. While we maintain insurance policies covering, among other things, physical damage, business interruptions and product liability, these policies would not cover all of our losses.

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Our operations have been and will continue to be exposed to various business and other risks, changes in conditions and events beyond our control in countries where we have operations or sell products.

We are, and will continue to be, subject to financial, political, economic and business risks in connection with our global operations. We have made investments and carry on production activities in various emerging markets, including Brazil, Korea and Malaysia, and we market our products in these countries, as well as China and certain other countries in Asia, the Middle East and emerging markets in South America. While we anticipate higher growth or attractive production opportunities from these emerging markets, they also present a higher degree of risk than more developed markets. In addition to the business risks inherent in developing and servicing new markets, economic conditions may be more volatile, legal and regulatory systems less developed and predictable, and the possibility of various types of adverse governmental action more pronounced. In addition, inflation, fluctuations in currency and interest rates, competitive factors, civil unrest and labor problems could affect our revenues, expenses and results of operations. Our operations could also be adversely affected by acts of war, terrorism or the threat of any of these events as well as government actions such as controls on imports, exports and prices, tariffs, new forms of taxation, or changes in fiscal regimes and increased government regulation in the countries in which we operate or service customers. Unexpected or uncontrollable events or circumstances in any of these markets could have a material adverse effect on our financial results and cash flows.

Economic conditions could negatively affect our financial condition and results of operations.

Our financial condition and results of operations depend significantly on worldwide economic conditions. Uncertainty about current or future global economic conditions poses a risk as our customers may postpone purchases in response to tighter credit and negative financial news, which could adversely impact demand for our products. In addition, there can be no assurance that the actions we have taken or may take in response to the economic conditions will be sufficient to counter any continuation or reoccurrence of the downturn or disruptions. A significant global economic downturn or disruptions in the financial markets could have a material adverse effect on our financial condition and results of operations.

Our results of operations, cash flows and liquidity could be adversely affected if we were unable to purchase derivative instruments or if counterparties to our derivative instruments fail to honor their agreements.

We use various derivative instruments to manage the risks arising from fluctuations in aluminum prices, exchange rates, energy prices and interest rates. If for any reason we were unable to purchase derivative instruments to manage these risks or were unsuccessful in passing through the costs of our risk management activities, our results of operations, cash flows and liquidity could be adversely affected. In addition, we may be exposed to losses in the future if the counterparties to our derivative instruments fail to honor their agreements. In particular, deterioration in the financial condition of our counterparties and any resulting failure to pay amounts owed to us or to perform obligations or services owed to us could have a negative effect on our business and financial condition. Further, if major financial institutions continue to consolidate and are forced to operate under more restrictive capital constraints and regulations, there could be less liquidity in the derivative markets, which could have a negative effect on our ability to hedge and transact with creditworthy counterparties.

New derivatives legislation could have an adverse impact on our ability to hedge risks associated with our business and on the cost of our hedging activities.

We use over-the-counter (OTC) derivatives products to hedge our metal commodity risks and our interest rate and currency risks. Recent legislation has been adopted to increase the regulatory oversight of the OTC derivatives markets and impose restrictions on certain derivative transactions, which could affect the use of derivatives in hedging transactions. Final regulations pursuant to this legislation defining which companies will be subject to the legislation have not yet been adopted. If future regulations subject us to additional capital or margin requirements or other restrictions on our trading and commodity positions, they could have an adverse effect on our ability to hedge risks associated with our business and on the cost of our hedging activities.

Our goodwill and other intangible assets could become impaired, which could require us to take non-cash charges against earnings.

We assess, at least annually and potentially more frequently, whether the value of our goodwill has been impaired. We assess the recoverability of finite-lived other intangible assets whenever events or changes in circumstances indicate that we may not be able to recover the asset's carrying amount. Any impairment of goodwill or other intangible assets as a result of such analysis would result in a non-cash charge against earnings, which charge could materially adversely affect our reported results of operations.

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Table of Contents Index to Financial Statements

A significant and sustained decline in our future cash flows, a significant adverse change in the economic environment or slower growth rates could result in the need to perform additional impairment analysis in future periods. If we were to conclude that a write-down of goodwill or other intangible assets is necessary, then we would record such additional charges, which could materially adversely affect our results of operations.

As part of our ongoing evaluation of our operations, we may undertake additional restructuring efforts in the future which could in some instances result in significant severance-related costs, environmental remediation expenses and impairment and other restructuring charges.

We recorded "Restructuring charges, net" of $60 million and $34 million for the year ended March 31, 2012 and 2011, respectively, and $111 million "Loss on assets held for sale" for the year ended March 31, 2012. During these periods, we announced, among others, the following restructuring actions and programs:

the restructuring of our lithographic sheet European business, which resulted in closing one line in our Göttingen, Germany plant in March 2012;

the shutdown of our Saguenay Works plant in Quebec, Canada, decision made in March 2012 with an effective closing date in August 2012;

the announced sale of three of our European foil operations in Rugles, France; Dudelange, Luxembourg; and Berlin, Germany, with an expected closing date of mid calendar year 2012;

the cessation of foil rolling activities and part of the packaging business at our facility located in Bridgnorth, U.K. in fiscal 2012; and

the shutdown of our Aratu facility located in Candeias, Brazil in fiscal 2011.

We may take additional restructuring actions in the future. Any additional restructuring efforts could result in significant severance-related costs, environmental remediation expenses, impairment charges, restructuring charges and related costs and expenses, which could adversely affect our profitability and cash flows.

We may not be able to successfully develop and implement new technology initiatives in a timely manner.

We have invested in, and are involved with, a number of technology and process initiatives. Several technical aspects of these initiatives are still unproven, and the eventual commercial outcomes cannot be assessed with any certainty. Even if we are successful with these initiatives, we may not be able to deploy them in a timely fashion. Accordingly, the costs and benefits from our investments in new technologies and the consequent effects on our financial results may vary from present expectations.

Loss of our key management and other personnel, or an inability to attract such management and other personnel, could adversely impact our business.

We depend on our senior executive officers and other key personnel to run our business. The loss of any of these officers or other key personnel could materially adversely affect our operations. Competition for qualified employees among companies that rely heavily on engineering and technology is intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and expansion of our business could hinder our ability to improve manufacturing operations, conduct research activities successfully and develop marketable products.

Future acquisitions or divestitures may adversely affect our financial condition.

As part of our strategy for growth, we may pursue acquisitions, divestitures or strategic alliances, which may not be completed or, if completed, may not be ultimately beneficial to us. There are numerous risks commonly encountered in strategic transactions, including the risk that we may not be able to complete a transaction that has been announced, effectively integrate businesses acquired or generate the cost savings and synergies anticipated. Failure to do so could have a material adverse effect on our financial results.

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Table of Contents Index to Financial Statements

Capital investments in organic growth initiatives may not produce the returns we anticipate.

A significant element of our strategy is to invest in opportunities to increase the production capacity of our operating facilities through modifications of and investments in existing facilities and equipment and to evaluate other investments in organic growth in our target markets. These projects involve numerous risks and uncertainties, including the risk that actual capital investment requirements exceed projected levels, that our forecasted demand levels prove to be inaccurate, that we do not realize the production increases or other benefits anticipated, that we experience scheduling delays in connection with the commencement or completion of the project, that the project disrupts existing plant operations causing us to temporarily lose a portion of our available production capacity, or that key management devotes significant time and energy focused on one or more initiatives that divert attention from other business activities.

We could be required to make unexpected contributions to our defined benefit pension plans as a result of adverse changes in interest rates and the capital markets.

Most of our pension obligations relate to funded defined benefit pension plans for our employees in the U.S., the U.K. and Canada, unfunded pension benefits in Germany and lump sum indemnities payable to our employees in France, Italy, Korea and Malaysia upon retirement or termination. Our pension plan assets consist primarily of funds invested in listed stocks and bonds. Our estimates of liabilities and expenses for pensions and other postretirement benefits incorporate a number of assumptions, including expected long-term rates of return on plan assets and interest rates used to discount future benefits. Our results of operations, liquidity or shareholder's equity in a particular period could be adversely affected by capital market returns that are less than their assumed long-term rate of return or a decline of the rate used to discount future benefits.

If the assets of our pension plans do not achieve assumed investment returns for any period, such deficiency could result in one or more charges against our earnings for that period. In addition, changing economic conditions, poor pension investment returns or other factors may require us to make unexpected cash contributions to the pension plans in the future, preventing the use of such cash for other purposes.

We face risks relating to certain joint ventures and subsidiaries that we do not entirely control. Our ability to access cash from these entities may be more restricted than if these entities were wholly-owned subsidiaries.

Some of our activities are, and will in the future be, conducted through entities that we do not entirely control or wholly own. These entities include our Norf, Germany; Logan, Kentucky; and Evermore Recycling joint ventures, as well as our majority-owned Malaysian subsidiary. Our Malaysian subsidiary is a public company whose shares are listed for trading on the Bursa Malaysia. Under the governing documents, agreements or securities laws applicable to or stock exchange listing rules relative to certain of these joint ventures and subsidiaries, our ability to fully control certain operational matters may be limited. In addition, we do not solely determine certain key matters, such as the timing and amount of cash distributions from these entities. As a result, our ability to access cash from these entities may be more restricted than if they were wholly-owned entities. Further, in some cases we do not have rights to prevent a joint venture partner from selling its joint venture interests to a third party.

Hindalco and its interests as equity holder may conflict with the interests of the holders of our senior notes in the future.

Novelis is an indirectly wholly-owned subsidiary of Hindalco. As a result, Hindalco may exercise control over our decisions to enter into any corporate transaction or capital restructuring and has the ability to approve or prevent any transaction that requires the approval of our shareholder. Hindalco may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in its judgment, could enhance its equity investment, even though such transactions might involve risks to holders of our Senior Notes.

Additionally, Hindalco operates in the aluminum industry and may from time to time acquire and hold interests in businesses that compete, directly or indirectly, with us. Hindalco has no obligation to provide us with financing and is able to sell their equity ownership in us at any time.

If we are unable to obtain sufficient quantities of primary aluminum, recycled aluminum, sheet ingot and other raw materials used in the production of our products, our ability to produce and deliver products or to manufacture products on a timely basis and using the desired mix of metal inputs could be adversely affected.

We rely on a limited number of suppliers for our raw materials requirements. Increasing aluminum demand levels have caused supply constraints in the industry. Further increases in demand levels could exacerbate these supply issues. In addition, worldwide supplies of primary ingot may be constrained by speculative investor activities. If we are unable to obtain sufficient quantities of primary aluminum, recycled aluminum, sheet ingot and other raw materials used in the production of our rolled aluminum products due to supply constraints in the future, our ability to produce and deliver products or to manufacture products on a timely basis could be adversely affected.

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Table of Contents Index to Financial Statements

Certain of our manufacturing operations rely on UBCs for a portion of base metal inputs. Since January 1, 2010, we have relied on our joint venture with Alcoa Inc., Evermore Recycling, as our exclusive agent for the procurement of UBCs in North America. In December 2011, we provided notice to Alcoa and Evermore Recycling of our intention to withdraw from Evermore Recycling. Upon the termination of our relationship with Evermore Recycling, we will acquire UBCs on our own behalf, through third party suppliers, to support our North American operations. Competition for UBCs is significant, and while we believe we will be able to obtain sufficient quantities to meet our production needs, if we are unable to do so, we could be required to purchase more expensive metal inputs which could have an adverse effect on our profitability and cash flows.

In addition, our sheet ingot requirements have historically been, in part, supplied by Rio Tinto Alcan pursuant to agreements with us. For the year ended March 31, 2012, we purchased the majority of our third party sheet ingot requirements from Rio Tinto Alcan's primary metal group. If Rio Tinto Alcan or any other significant supplier of sheet ingot is unable to deliver sufficient quantities of this material on a timely basis, our production may be disrupted and our net sales, profitability and cash flows could be materially adversely affected. Although aluminum is traded on the world markets, developing alternative suppliers of sheet ingot could be time consuming and expensive.

We face significant price and other forms of competition from other aluminum rolled products producers, which could hurt our results of operations and cash flows.

Generally, the markets in which we operate are highly competitive. We compete primarily on the basis of our value proposition, including price, product quality, ability to meet customers' specifications, range of products offered, lead times, technical support and customer service. Some of our competitors may benefit from greater capital resources, have more efficient technologies, have lower raw material and energy costs and may be able to sustain longer periods of price competition. In particular, we face increased competition from producers in China, which have significantly lower production costs and pricing. This lower pricing could erode the market prices of our products in the Chinese market and elsewhere.

In addition, our competitive position within the global aluminum rolled products industry may be affected by, among other things, the trend toward consolidation among our competitors, exchange rate fluctuations that may make our products less competitive in relation to the products of companies based in other countries (despite the U.S. dollar-based input cost and the marginal costs of shipping) and economies of scale in purchasing, production and sales, which accrue to the benefit of some of our competitors. For example, the price gap between the Shanghai Futures Exchange (SHFE) and the LME may make products manufactured in China with SHFE prices for aluminum more competitive compared to our products manufactured in Asia with LME prices for aluminum.

Increased competition could cause a reduction in our shipment volumes and profitability or increase our expenditures, either of which could have a material adverse effect on our financial results and cash flows.

The end-use markets for certain of our products are highly competitive and customers are willing to accept substitutes for our products.

The end-use markets for certain aluminum rolled products are highly competitive. Aluminum competes with other materials, such as steel, plastics, composite materials and glass, among others, for various applications, including in beverage and food cans, electronics and automotive end-use markets. In the past, customers have demonstrated a willingness to substitute other materials for aluminum. For example, changes in consumer preferences in beverage containers have increased the use of PET plastic containers and glass bottles in recent years. These trends may continue. The willingness of customers to accept substitutes for aluminum products could have a material adverse effect on our financial results and cash flows.

The seasonal nature of some of our customers' industries could have a negative effect on our financial results and cash flows.

The construction industry and the consumption of beer and soda are sensitive to weather conditions and as a result, demand for aluminum rolled products in the construction industry and for can feedstock can be seasonal. Our quarterly financial results could fluctuate as a result of climatic changes, and a prolonged series of cool summers in the different regions in which we conduct our business could have a material adverse effect on our financial results and cash flows.

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Table of Contents Index to Financial Statements

We are subject to a broad range of environmental, health and safety laws and regulations, and we may be exposed to substantial environmental, health and safety costs and liabilities.

We are subject to a broad range of environmental, health and safety laws and regulations in the jurisdictions in which we operate. These laws and regulations impose stringent environmental, health and safety protection standards and permitting requirements regarding, among other things, air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination, post-mining reclamation and working conditions for our employees. Some environmental laws, such as Superfund and comparable laws in U.S. states and other jurisdictions worldwide, impose joint and several liability for the cost of environmental remediation, natural resource damages, third party claims, and other expenses, without regard to the fault or the legality of the original conduct.

The costs of complying with these laws and regulations, including participation in assessments and remediation of contaminated sites and installation of pollution control facilities, have been, and in the future could be, significant. In addition, these laws and regulations may also result in substantial environmental liabilities associated with divested assets, third party locations and past activities. In certain instances, these costs and liabilities, as well as related action to be taken by us, could be accelerated or increased if we were to close, divest of or change the principal use of certain facilities with respect to which we may have environmental liabilities or remediation obligations. Currently, we are involved in a number of compliance efforts, remediation activities and legal proceedings concerning environmental matters, including certain activities and proceedings arising under Superfund and comparable laws in U.S. states and other jurisdictions worldwide in which we have operations.

We have established liabilities for environmental remediation activities where appropriate. However, the cost of addressing environmental matters (including the timing of any charges related thereto) cannot be predicted with certainty, and these liabilities may not ultimately be adequate, especially in light of changing interpretations of laws and regulations by regulators and courts, the discovery of previously unknown environmental conditions, the risk of governmental orders to carry out additional compliance on certain sites not initially included in remediation in progress, our potential liability to remediate sites for which provisions have not been previously established and the adoption of more stringent environmental laws including, for example, the possibility of increased regulation of the use of bisphenol-A, a chemical component commonly used in the coating of aluminum cans. Such future developments could result in increased environmental costs and liabilities, which could have a material adverse effect on our financial condition, results or cash flows. Furthermore, the failure to comply with our obligations under the environmental laws and regulations could subject us to administrative, civil or criminal penalties, obligations to pay damages or other costs, and injunctions or other orders, including orders to cease operations. In addition, the presence of environmental contamination at our properties could adversely affect our ability to sell property, receive full value for a property or use a property as collateral for a loan.

Some of our current and potential operations are located or could be located in or near communities that may regard such operations as having a detrimental effect on their social and economic circumstances. Community objections could have a material adverse impact upon the profitability or, in extreme cases, the viability of an operation.

We use a variety of hazardous materials and chemicals in our rolling processes, as well as in our smelting operations in Brazil and in connection with maintenance work on our manufacturing facilities. Because of the nature of these substances or related residues, we may be liable for certain costs, including, among others, costs for health-related claims or removal or re-treatment of such substances. Certain of our current and former facilities incorporate asbestos-containing materials, a hazardous substance that has been the subject of health-related claims for occupational exposure. In addition, although we have developed environmental, health and safety programs for our employees, including measures to reduce employee exposure to hazardous substances, and conduct regular assessments at our facilities, we are currently, and in the future may be, involved in claims and litigation filed on behalf of persons alleging injury predominantly as a result of occupational exposure to substances or other hazards at our current or former facilities. It is not possible to predict the ultimate outcome of these claims and lawsuits due to the unpredictable nature of personal injury litigation. If these claims and lawsuits, individually or in the aggregate, were finally resolved against us, our results of operations and cash flows could be adversely affected.

We may be exposed to significant legal proceedings or investigations.

From time to time, we are involved in, or the subject of, disputes, proceedings and investigations with respect to a variety of matters, including environmental, health and safety, product liability, employee, tax, personal injury, contractual and other matters as well as other disputes and proceedings that arise in the ordinary course of business. Certain of these matters are discussed in the preceding risk factor. Any claims against us or any investigations involving us, whether meritorious or not, could be costly to defend or comply with and could divert management's attention as well as operational resources. Any such dispute, litigation or investigation, whether currently pending or threatened or in the future, may have a material adverse effect on our financial results and cash flows.

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Product liability claims against us could result in significant costs or negatively impact our reputation and could adversely affect our business results and financial condition.

We are sometimes exposed to warranty and product liability claims. There can be no assurance that we will not experience material product liability losses arising from individual suits or class actions alleging product liability defects or related claims in the future and that these will not have a negative impact on us. We generally maintain insurance against many product liability risks, but there can be no assurance that this coverage will be adequate for any liabilities ultimately incurred. In addition, there is no assurance that insurance will continue to be available on terms acceptable to us. A successful claim that exceeds our available insurance coverage could have a material adverse effect on our financial results and cash flows.

We may be affected by global climate change or by legal, regulatory, or market responses to such change.

There is a growing concern over climate change, which has led to new and proposed legislative and regulatory initiatives, such as cap-and-trade systems and additional limits on emissions of greenhouse gases. New laws enacted could directly and indirectly affect our customers and suppliers (through an increase in the cost of production or their ability to produce satisfactory products) or our business (through an impact on our inventory availability, cost of sales, operations or demand for the products we sell), which could result in an adverse effect on our financial condition, results of operations and cash flows. Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by us, our customers or our suppliers. Also, we rely on natural gas, electricity, fuel oil and transport fuel to operate our facilities. Any increased costs of these energy sources because of new laws could be passed along to us and our customers and suppliers, which could also have a negative impact on our profitability.

Income tax payments may ultimately differ from amounts currently recorded by the Company. Future tax law changes may materially increase the Company's prospective income tax expense.

We are subject to income taxation in many jurisdictions. Judgment is required in determining our worldwide income tax provision and accordingly there are many transactions and computations for which our final income tax determination is uncertain. We are routinely audited by income tax authorities in many tax jurisdictions. Although we believe the recorded tax estimates are reasonable, the ultimate outcome from any audit (or related litigation) could be materially different from amounts reflected in our income tax provisions and accruals. Future settlements of income tax audits may have a material effect on earnings between the period of initial recognition of tax estimates in the financial statements and the point of ultimate tax audit settlement. Additionally, it is possible that future income tax legislation in any jurisdiction to which we are subject may be enacted that could have a material impact on our worldwide income tax provision beginning with the period that such legislation becomes effective.

Our substantial indebtedness could adversely affect our business.

We have a relatively high degree of leverage. As of March 31, 2012, we had $4.4 billion of indebtedness outstanding. Our substantial indebtedness and interest expense could have important consequences to our company and holders of notes, including:

limiting our ability to borrow additional amounts for working capital, capital expenditures or other general corporate purposes;

increasing our vulnerability to general adverse economic and industry conditions, including volatility in LME aluminum prices;

limiting our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in government regulation; and

limiting our ability or increasing the costs to refinance indebtedness.

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The covenants in our senior secured credit facilities and the indentures governing our Senior Notes impose operating and financial restrictions on us.

Our senior secured credit facilities and the indentures governing our senior notes impose certain operating and financial restrictions on us. These restrictions limit our ability and the ability of our restricted subsidiaries, among other things, to:

incur additional debt and provide additional guarantees;

pay dividends and make other restricted payments, including certain investments;

create or permit certain liens;

make certain asset sales;

use the proceeds from the sales of assets and subsidiary stock;

create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to us;

engage in certain transactions with affiliates;

enter into sale and leaseback transactions; and

consolidate, merge or transfer all or substantially all of our assets or the assets of our restricted subsidiaries.

See Note 11 - Debt for additional discussion.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our executive offices are located in Atlanta, Georgia. We are opening a global research and development center in Kennesaw, GA that will be operational in mid calendar year 2012. The center will offer state of the art research and development capabilities to help Novelis meet the global long-term demand for aluminum used for the automotive, beverage can and specialties markets.

The following tables provide information, by operating segment, about the plant locations, processes and major end-use markets/applications for the aluminum rolled products, recycling and primary metal facilities we operated during all or part of the year ended March 31, 2012. The total number of operating facilities within our operating segments as of March 31, 2012 is shown in the table below:

Total
Operating

Facilities
Facilities
with  recycling
operations

North America

11 4

Europe

12 5

Asia

3 2

South America

3 1

Total

29 12

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Table of Contents Index to Financial Statements

Included above are operating facilities that we jointly own and operate with third parties. Please see detail below:

North America

Location

Plant Processes

Major End-Use Markets

Berea, Kentucky

Recycling Recycled ingot

Burnaby, British Columbia

Finishing Foil containers

Fairmont, West Virginia

Cold rolling, finishing Foil, HVAC material

Greensboro, Georgia

Recycling Recycled ingot

Kingston, Ontario

Cold rolling, finishing Automotive, construction/industrial

Russellville, Kentucky (A)

Hot rolling, cold rolling, finishing, recycling Can stock

Oswego, New York

Novelis Fusion™ casting, hot rolling, cold rolling, recycling, brazing, finishing

Can stock, automotive,

construction/industrial,

semi-finished coil

Saguenay, Quebec (B)

Continuous casting Semi-finished coil

Terre Haute, Indiana

Cold rolling, finishing Foil

Toronto, Ontario

Finishing Foil, foil containers

Warren, Ohio

Coating Can end stock

(A) We own 40% of the outstanding common shares of Logan Aluminum Inc. (Logan), but we have made equipment investments such that our portion of Logan's total machine hours has provided us approximately 55% of Logan's total production.
(B) In April 2012, we announced the planned closure of our Saguenay Works plant in Quebec, Canada effective August 2012.

Our Oswego, New York facility operates modern equipment used for recycling beverage cans and other scrap metals, ingot casting, hot rolling, cold rolling and finishing. Oswego produces can stock as well as building and industrial products. Oswego also provides feedstock to our Kingston, Ontario facility, which produces heat-treated automotive sheet and products for construction and industrial applications, and to our Fairmont, West Virginia facility, which produces light-gauge sheet. Our expansion project at our Oswego, NY facility is scheduled to be operational in mid calendar year 2013.

Our Russellville, Kentucky facility (referred to herein as Logan) is a processing joint venture between us and Tri-Arrows Aluminum Inc. (Tri-Arrows), formerly known as ARCO Aluminum, Inc. (ARCO). Effective August 1, 2011, a consortium of Japanese companies purchased ARCO. The transaction did not impact Novelis' interest in Logan. Logan, which was built in 1985, is the newest and largest rolling mill in North America. Logan operates modern and high-speed equipment for ingot casting, hot-rolling, cold-rolling and finishing. Logan is a dedicated manufacturer of aluminum sheet products for the can stock market with modern equipment, an efficient workforce and product focus. A portion of the can end stock is coated at North America's Warren, Ohio facility, in addition to Logan's on-site coating assets. Together with Tri-Arrows, we operate Logan as a production cooperative, with each party supplying its own primary metal inputs for conversion at the facility. The converted product is then returned to the supplying party at cost. Logan does not own any of the primary metal inputs or any of the converted products. All of the fixed assets at Logan are directly owned by us and Tri-Arrows in varying ownership percentages or solely by each party.

We share control of the management of Logan with Tri-Arrows through a board of directors with seven voting members of which we appoint four members and Tri-Arrows appoints three members. Management of Logan is led jointly by two executive officers who are subject to approval by at least five members of the board of directors.

Our Burnaby, British Columbia and Toronto, Ontario facilities spool and package household foil products and report to our foil business unit based in Toronto, Ontario.

Along with our recycling center in Oswego, New York, we own two other fully dedicated recycling facilities in North America, located in Berea, Kentucky and Greensboro, Georgia. Each offers a modern, cost-efficient process to recycle UBCs and other aluminum scrap into sheet ingot to supply our hot mills in Logan and Oswego.

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Europe

Location

Plant Processes

Major End-Use Markets

Berlin, Germany (C) Converting Packaging
Bresso, Italy Finishing, painting Painted sheet, architectural
Dudelange, Luxembourg (C) Continuous casting, foil rolling, finishing, recycling Foil
Göttingen, Germany (D) Cold rolling, finishing, painting Can end, can tab, food can, lithographic, painted sheet
Latchford, U.K. Recycling Sheet ingot from recycled metal
Ludenscheid, Germany Foil rolling, finishing, converting Foil, packaging
Nachterstedt, Germany Cold rolling, finishing, painting

Automotive, can end, industrial, painted

sheet, architectural

Norf, Germany (A) Hot rolling, cold rolling, recycling, continuous casting

Can stock, foilstock, feeder

stock for finishing operations

Ohle, Germany Cold rolling, finishing, converting Foil, packaging
Pieve, Italy Continuous casting, cold rolling, finishing, recycling Coil for Bresso, industrial
Rugles, France (C) Continuous casting, foil rolling, finishing, recycling Foil
Sierre, Switzerland (B) Novelis Fusion ™ casting, hot rolling, cold rolling, and finishing Automotive sheet, industrial

(A) Operated as a 50/50 joint venture between us and Hydro Aluminum Deutschland GmbH (Hydro).
(B) We have entered into an agreement with Constellium pursuant to which it retains access to the aluminum plate production capacity, which represents a significant portion of the total production capacity of the Sierre hot mill.
(C) During the fourth quarter of fiscal 2012, we announced the planned sale of three European aluminum foil and packaging plants. The sale is expected to be finalized in mid calendar year 2012 and includes the operations in Rugles, France; Dudelange, Luxembourg; and Berlin, Germany.
(D) In March 2012, we made the decision to restructure our lithographic sheet business, resulting in the closing of one line in our Göttingen, Germany facility.

Aluminium Norf GmbH (Alunorf) in Germany, a 50/50 production-sharing joint venture between us and Hydro, is a large scale, modern manufacturing hub for several of our operations in Europe, and is the largest aluminum rolling mill and remelting operation in the world. Norf supplies hot coil for further processing through cold rolling to some of our other plants, including Göttingen and Nachterstedt in Germany and provides foilstock to our plants in Ohle and Ludenscheid in Germany and Rugles in France. Together with Hydro, we operate Alunorf as a production cooperative, with each party supplying its own primary metal inputs for transformation at the facility. The transformed product is then transferred back to the supplying party on a pre-determined cost-plus basis. We own 50% of the equity interest in Norf and Hydro owns the other 50%. We share control of the management of Alunorf with Hydro through a jointly-controlled shareholders' committee. Management of Alunorf is led jointly by two managing executives, one nominated by us and one nominated by Hydro.

Our Göttingen plant has a paint line as well as lines for can end and food sheet. Our Nachterstedt plant cold rolls and finishes mainly automotive sheet and can end stock. The Pieve plant, located near Milan, Italy, mainly produces continuous cast coil that is cold rolled into paintstock and sent to the Bresso, Italy plant for painting and some specialist finishing.

The Sierre hot rolling plant in Switzerland and the Nachterstedt plant in Germany are Europe's leading producers of automotive sheet in terms of shipments. Sierre also supplies plate stock to Constellium.

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Our recycling operation in Latchford, United Kingdom is the only major recycling plant in Europe dedicated to UBCs.

In May 2012, we confirmed a decision to invest $250 million at our Nachterstedt, Germany plant to build a fully integrated recycling facility, which will have an annual capacity of approximately 400 kt.

Asia

Location

Plant Processes

Major End-Use Markets

Bukit Raja, Malaysia(A) Continuous casting, cold rolling, coating Construction/industrial, heavy and light gauge foils
Ulsan, South Korea(B) Hot rolling, cold rolling, recycling, finishing Can stock, construction/industrial, electronics, foilstock, and recycled material
Yeongju, South Korea(B) Hot rolling, cold rolling, recycling, finishing Can stock, construction/industrial, electronics, foilstock and recycled material

(A) Ownership of the Bukit Raja plant corresponds to our 59% equity interest in Aluminium Company of Malaysia Berhad.
(B) We hold a 99% equity interest in the legal entity that owns the Ulsan and Yeongju plants.

Our Korean subsidiary, in which we hold a 99% interest, was formed through acquisitions in 1999 and 2000. Since the acquisitions, product capability has been developed to address higher value and more technically advanced markets such as can sheet. We hold a 59% equity interest in the Aluminum Company of Malaysia Berhad, a publicly traded company that operates from Bukit Raja, Selangor, Malaysia.

Novelis Asia also operates recycling furnaces at both its Ulsan and Yeongju facilities in South Korea for the conversion of customer and third-party recycled aluminum. In response to the growing demand for our products, we are expanding our rolling and recycling operations in South Korea. The expansion is on schedule and expected to become operational at the end of calendar year 2013. During the fourth quarter of fiscal 2012, we announced plans to invest $100 million into an aluminum automotive heat treatment plant in China, which will have annual capacity of approximately 120 kt. Construction of the new facility is expected to begin in the fall of 2012 and we expect the plant to be operational beginning in late calendar year 2014.

South America

Location

Plant Processes

Major End-Use Markets

Pindamonhangaba (Pinda), Brazil Hot rolling, cold rolling, recycling, finishing Can stock, construction/industrial, foilstock, recycled ingot
Utinga, Brazil Foil rolling, finishing Foil
Ouro Preto, Brazil Smelting Primary aluminum (sheet ingot and billets)

Our Pinda rolling and recycling facility in Brazil has an integrated process that includes recycling, sheet ingot casting, hot mill and cold mill operations. A leased coating line produces painted products, including can end stock. Pinda supplies foilstock to our Utinga foil plant, which produces converter, household and container foil.

Pinda is the largest aluminum rolling and recycling facility in South America in terms of shipments and the only facility in South America capable of producing can body and end stock. Pinda recycles primarily UBCs, and is engaged in tolling recycled metal for our customers. In response to the growing demand for our products in South America, in May 2010 we announced a plan to expand our aluminum rolling operations in Pinda. The expansion will increase the plant's capacity by more than 50% to approximately 600 kt of aluminum sheet per year. The project is expected to be operational in late calendar year 2012. Additionally, we have announced plans to install a new coating line for beverage can end stock and to expand the recycling capacity in our Pinda facility, both of which will be operational by the end of calendar 2013.

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We operate primary aluminum smelting and hydroelectric power generation operations at our Ouro Preto, Brazil facility. Our owned power generation supplies approximately 60% of our smelter needs. We own alumina refining assets that we are currently not operating. We also own mining rights in the Ouro Preto, Cataguases and Carangola regions that are not currently being explored.

Item 3. Legal Proceedings

We are a party to litigation incidental to our business from time to time. For additional information regarding litigation to which we are a party, see Note 19 - Commitments and Contingencies to our accompanying audited consolidated financial statements, which are incorporated by reference into this item.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

There is no established public trading market for the Company's common stock. Hindalco owns all of the Company's common stock through an indirect wholly-owned subsidiary. None of the equity securities of the Company are authorized for issuance under any equity compensation plan.

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.

On December 17, 2010, we paid $1.7 billion to our shareholder as a return of capital.

Item 6. Selected Financial Data

The selected consolidated financial data presented below as of and for the years ended March 31, 2012, 2011, 2010 and 2009 and the periods May 16, 2007 through March 31, 2008 and April 1, 2007 through May 15, 2007 were derived from the audited consolidated financial statements of Novelis Inc. The selected consolidated financial data should be read in conjunction with our consolidated financial statements for the respective periods and the related notes included elsewhere in this Form 10-K.

As of May 15, 2007, all of our common shares were indirectly held by Hindalco; thus, earnings per share data are not reported. Amounts in the table below are in millions.

Year Ended
March 31,

May 16,

2007

Through

March 31,

April 1,
2007
Through
May 15,
2012 2011 2010 2009 (B)

2008(A) (B)

2007(A) (B)
Successor Successor Successor Successor Successor Predecessor

Net sales

$ 11,063 $ 10,577 $ 8,673 $ 10,177 $9,965 $ 1,281

Net income (loss) attributable to our common shareholder

$ 63 $ 116 $ 405 $ (1,910 $(53) $ (97

Return of capital(C)

$ -   $ 1,700 $ -   $ -   $-   $ -  

March 31,
2012
March 31,
2011
March 31,
2010
March 31,
2009
March 31,
2008

Total assets

$ 8,021 $ 8,296 $ 7,762 $ 7,567 $ 10,737

Long-term debt (including current portion)

$ 4,344 $ 4,086 $ 2,596 $ 2,559 $ 2,575

Short-term borrowings

$ 18 $ 17 $ 75 $ 264 $ 115

Cash and cash equivalents

$ 317 $ 311 $ 437 $ 248 $ 326

Shareholder's/invested equity

$ 123 $ 445 $ 1,869 $ 1,419 $ 3,490

(A) On May 15, 2007, the Company was acquired by Hindalco through its indirect wholly-owned subsidiary. Our acquisition by Hindalco was recorded in accordance with Staff Accounting Bulletin No. 103, Push Down Basis of Accounting Required in Certain Limited Circumstances (SAB 103). In the accompanying consolidated balance sheets, 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 (FASB 141), the applicable accounting standard at the Arrangement date. Due to the impact of push down accounting, the Company's selected financial data for the year ended March 31, 2008 are presented in two distinct periods to indicate the application of two 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 March 31, 2008, labeled "Successor"). The table above includes a black line division which indicates that the Predecessor and Successor reporting entities shown are not comparable.

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The consideration paid by Hindalco to acquire Novelis has been pushed down to us and allocated to the assets acquired and liabilities assumed based on our estimates of fair value, using methodologies and assumptions that we believe are reasonable. This allocation of fair value results in additional charges or income to our post-acquisition consolidated statements of operations.

(B) Net income (loss) attributable to our common shareholder for the year ended March 31, 2009 includes non-cash pre-tax impairment charges of $1.5 billion, and certain non-recurring expenses that were incurred related to the acquisition by Hindalco. The period May 16, 2007 through March 31, 2008 includes $32 million of sales transaction fees. The period May 16, 2007 through March 31, 2008 also includes $45 million of stock compensation expense related to the Arrangement.
(C) On December 17, 2010, we paid $1.7 billion to our shareholder as a return of capital.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW AND REFERENCES

Novelis is the world's leading aluminum rolled products producer based on shipment volume in fiscal 2012. We produce aluminum sheet and light gauge products for use in the packaging market, which includes beverage and food can and foil products, as well as for use in the transportation, electronics, architectural and industrial product markets. We are also the world's largest recycler of used-beverage cans (UBCs) and have recycling operations in several of our plants to recycle post-consumer aluminum. As of March 31, 2012, we had operations in eleven countries on four continents, which include 29 operating plants, and recycling operations in 12 of these plants. In addition to aluminum rolled products plants, our South American businesses include primary aluminum smelting and power generation facilities. We are the only company of our size and scope focused solely on the aluminum rolled products markets and capable of local supply of technologically sophisticated products in all of these geographic regions, but with the global footprint to service global customers.

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 and elsewhere in this Annual Report, particularly in "Special Note Regarding Forward-Looking Statements and Market Data" and "Risk Factors."

BACKGROUND AND BASIS OF PRESENTATION

Acquisition of Novelis Common Stock

On May 15, 2007, the company was acquired by Hindalco through its indirect wholly-owned subsidiary pursuant to a plan of arrangement (the Arrangement) at a price of $44.93 per share. The aggregate purchase price for all of the company's common shares was $3.4 billion, and $2.8 billion of Novelis' debt was also assumed for a total transaction value of $6.2 billion. Subsequent to completion of the Arrangement on May 15, 2007, all of our common shares were indirectly held by Hindalco.

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HIGHLIGHTS

Our focus on the fundamentals of our business in our core markets of can, automotive, and electronics and our agility in reacting to changes in the market have driven solid performance by our business even in a period of economic uncertainty. We reported favorable conversion premiums within all regions in fiscal 2012 compared to fiscal 2011, which was the result of our focus on our core markets. We continue to see increasing demand for our automotive applications and expect this trend to continue, although unfavorable macroeconomic conditions caused shipments of our flat rolled products in our other market segments to decline in fiscal 2012 compared to fiscal 2011. We continue to strive to be the lowest cost producer of world-class aluminum rolled products and have implemented numerous initiatives to improve operational efficiencies and cost disciplines across our segments throughout fiscal 2012. We have implemented numerous restructuring activities, including the shutdown or sale of facilities, staff rationalization and other activities, which have resulted in cost savings in the current year and will lead to significant cost savings for years to come.

Shipments of flat rolled products totaled 2,838 kt for fiscal 2012, a decrease of 4% compared to fiscal 2011. These unfavorable declines occurred in our three largest regions: North America, Europe, and Asia. The lower shipments were primarily in our foil stock, light gauge, and industrial products markets.

"Net sales" for fiscal 2012 were $11.1 billion, an increase of 5% compared to the $10.6 billion reported in fiscal 2011. The increase in "Net sales" is the result of higher average aluminum prices and favorable conversion premiums, partially offset by declines in volume, within all our segments in fiscal 2012 compared to prior year.

We reported pre-tax income of $129 million in fiscal 2012 compared to $243 million in fiscal 2011. Included in our pre-tax income is $111 million "Loss on assets held for sale" and $60 million of "Restructuring charges, net" in fiscal 2012 and $84 million "Loss on extinguishment of debt" and $34 million of "Restructuring charges, net" in fiscal 2011.

We reported cash flow provided by operations of $556 million for fiscal 2012, an increase of 22% compared to $454 million in fiscal 2011. The favorable increase was the result of improved working capital due to lower aluminum prices and effective inventory management. We spent $516 million on capital expenditures during fiscal 2012, which is slightly lower than expected, and compares to $234 million in fiscal 2011.

We completed the acquisition of 31.3% of the outstanding shares of our Korean subsidiary for $344 million during the third and fourth quarters of fiscal 2012, raising our ownership to 99%. We funded the acquisition through a $225 million secured term loan executed in December 2011, additional borrowings on our asset backed loan facility and other available cash.

We reported strong available liquidity of $1.0 billion as of March 31, 2012 as compared to available liquidity of $1.1 billion as of March 31, 2011. The decline is attributable to the short-term borrowings made in December 2011 for the acquisition of the outstanding shares of our Korean subsidiary and capital investments made during fiscal 2012 on our expansion projects in Oswego, NY; Pindamonhangaba, Brazil; and South Korea, offset by favorable cash provided by operating activities.

BUSINESS AND INDUSTRY CLIMATE

Global economic uncertainty negatively impacted our flat rolled product shipments in fiscal 2012 compared to prior year, particularly in North America, Europe and Asia. Despite the challenging global economy, our continued focus on the core markets of can, automotive, and electronics, along with increases in average aluminum prices, helped drive an increase in "Net sales" in fiscal 2012 compared to prior year. Shipments of beverage and food can products represented 61% of our total rolled product shipments in fiscal 2012, compared to 58% in fiscal 2011. We continue to see favorable growth in demand for our automotive products and expect this trend to continue. On a regional basis, we reported record "Segment income" in our North America and South America operations, due to strong conversion premiums and favorable product mix.

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Key Sales and Shipment Trends

(In millions, except Shipments which are in kt)

Three Months Ended Year Ended Three Months Ended Year Ended
June 30,
2010
September 30,
2010
December 31,
2010
March 31,
2011
March 31,
2011
June 30,
2011
September 30,
2011
December 31,
2011
March 31,
2012
March 31,
2012

Net sales

$ 2,533 $ 2,524 $ 2,560 $ 2,960 $ 10,577 $ 3,113 $ 2,880 $ 2,462 $ 2,608 $ 11,063

        Percentage increase (decrease) in net sales versus comparable previous year period

29 16 21 22 22 23 14 (4 )%  (12 )%  5

Rolled product shipments:

North America

278 285 262 280 1,105 288 274 248 254 1,064

Europe

232 227 208 240 907 237 227 183 228 875

Asia

146 134 148 152 580 152 131 117 124 524

South America

90 91 97 99 377 90 88 100 97 375

Total

746 737 715 771 2,969 767 720 648 703 2,838

Beverage and food cans

425 429 424 453 1,731 462 437 404 419 1,722

All other rolled products

321 308 291 318 1,238 305 283 244 284 1,116

Total

746 737 715 771 2,969 767 720 648 703 2,838

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

North America

9 10 8 2 7 4 (4 )%  (5 )%  (9 )%  (4 )% 

Europe

25 12 11 6 13 2 -   (12 )%  (5 )%  (4 )% 

Asia

12 (4 )%  10 18 9 4 (2 )%  (21 )%  (18 )%  (10 )% 

South America

11 (2 )%  15 15 10 -   (3 )%  3 (2 )%  (1 )% 

Total

15 6 10 8 10 3 (2 )%  (9 )%  (9 )%  (4 )% 

Beverage and food cans

7 5 14 12 10 9 2 (5 )%  (8 )%  (1 )% 

All other rolled products

26 8 5 3 10 (5 )%  (8 )%  (16 )%  (11 )%  (10 )% 

Total

15 6 10 8 10 3 (2 )%  (9 )%  (9 )%  (4 )% 

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Business Model and Key Concepts

Conversion Business Model

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 London Metal Exchange (LME) plus local market premiums and (ii) a "conversion premium" price on the conversion cost to produce the rolled product which reflects, among other factors, the competitive market conditions for that product.

Increases or decreases in the average price of aluminum directly impact "Net sales," "Cost of goods sold (exclusive of depreciation and amortization)" and working capital, albeit on a lag basis. These impacts are referred to as metal price lag. Metal price lag is caused by inventory and sales price exposure which we actively work to mitigate through our comprehensive risk management practices. Metal price lag is attributable to fluctuating metal prices associated with the period of time between the pricing of our purchases of inventory and the pricing of that inventory to our customers. Specifically, a portion of our metal purchases are based on average prices for a period of time prior to the period at which we order the metal. Further, there is a period of time between when we place an order for metal, when we receive it and when we price the finished products which will be shipped to our customers. Additionally, a cost recognition delay occurs due to the flow of metal costs through moving average inventory cost values and "Cost of goods sold (exclusive of depreciation and amortization)." The recognition of these timing differences in sales and metal costs vary based on contractual arrangements with customers and metal suppliers in each region. We discuss this metal price risk further below.

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We also have exposure to foreign currency risk associated with sales made in currencies that differ from those in which we are paying our conversion costs. For example, sales in Brazil are generally priced in U.S. dollars, but the majority of our conversion costs are paid in Brazilian real. We discuss this foreign currency risk further below.

LME Aluminum Prices

The average (based on the simple average of the monthly averages) and closing prices based upon the LME prices for aluminum for the years ended March 31, 2012, 2011 and 2010 are as follows:

Percent Change
Year Ended March 31,

Year Ended

March 31, 2012

versus

Year Ended

March 31, 2011

versus

London Metal Exchange Prices

2012 2011 2010 March 31, 2011 March 31, 2010

Aluminum (per metric tonne, and presented in U.S. dollars):

Closing cash price as of beginning of period

$ 2,600 $ 2,288 $ 1,366 14 67

Average cash price during period

$ 2,318 $ 2,257 $ 1,866 3 21

Closing cash price as of end of period

$ 2,099 $ 2,600 $ 2,288 (19 )%  14

Although aluminum prices declined approximately $500 per ton during fiscal 2012, average aluminum prices were approximately $60 per ton higher in fiscal 2012 compared fiscal 2011. Aluminum prices had a steady decline from April 2011 through December 2011; recovered slightly in January and February of 2012; and then fell again in March 2012. The higher average price of aluminum resulted in $25 million of unrealized losses on undesignated metal derivatives recorded through our statement of operations during the year ended March 31, 2012, while the underlying related exposure will be realized in a future period. We deferred losses of $24 million on designated metal hedges during the year ended March 31, 2012, which are expected to be released into our statement of operations in the same period the underlying related exposure is recognized.

Metal Derivative Instruments

We use derivative instruments to preserve our conversion margin and manage the timing differences associated with metal price lag. We sell short-term LME aluminum forward contracts to reduce our exposure to fluctuating metal prices associated with the period of time between the pricing of our purchases of inventory and the pricing of that inventory to our customers. These LME aluminum forward contracts directly hedge the economic risk of future metal price fluctuations on our inventory to synthetically ensure we sell metal for the same price at which we purchase metal.

Fixed Forward Price Commitments

For some select customers, we enter into fixed forward price commitments. This results in fixed forward price exposure in certain sales contracts that contain fixed metal prices for sales in future periods of time. The impact of fixed priced sales contracts is recognized in revenue during the period in which the sale occurs.

We eliminate any risk by purchasing LME aluminum forward contracts simultaneous with our sales contracts to customers that contain fixed metal prices. These LME aluminum forward contracts directly hedge the economic risk of future metal price fluctuation attributable to the fixed forward price exposure combined with hedges of metal price lag to synthetically help ensure we purchase metal for the same price at which we agree to sell metal.

The recognition of unrealized gains and losses on undesignated metal derivative positions typically precedes inventory cost recognition, customer delivery, revenue recognition, and the realized gains or losses of the fixed forward priced contracts. The timing difference between the recognition of unrealized gains and losses on undesignated metal derivatives and cost or revenue recognition impacts "Income before income taxes" and "Net income." Gains and losses on metal derivative contracts are not recognized in "Segment income" until realized.

We settle derivative contracts in advance of billing on the underlying physical inventory and collecting from our customers, which temporarily impacts our liquidity position. The lag between derivative settlement and customer collection typically ranges from 30 to 90 days.

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Metal Price Ceilings

In the past, we had contracts that contained a ceiling over which metal prices could not be contractually passed through to certain customers. The last of these contracts expired on December 31, 2009, and we entered into a new multi-year agreement to continue supplying similar volumes to the same customer. This new agreement became effective January 1, 2010, and does not contain a metal price ceiling. In connection with the allocation of purchase price (i.e., total consideration) paid by Hindalco, we established liabilities totaling $655 million as of May 15, 2007 to record these sales contracts with metal price ceilings at fair value. These liabilities were accreted into "Net sales" over the term of the underlying contracts. This accretion had no impact on cash flow. In fiscal 2010, we recorded accretion of $152 million. With the expiration of the last contract with a price ceiling, the balance of the reserve was zero at December 31, 2009, so there was no accretion during the years ended March 31, 2011 and 2012.

Energy swaps

We use natural gas swaps to manage our exposure to fluctuating natural gas prices in North America. We also own an interest in an electricity swap which we designated as a cash flow hedge of our exposure to fluctuating electricity prices. In fiscal 2011, due to significant credit deterioration of our counterparty, we discontinued hedge accounting for the electricity swap. As a result of declining natural gas prices and electricity prices during fiscal 2012, we recorded $25 million of unrealized losses on undesignated energy swaps during the year ended March 31, 2012, while the related exposures will be realized in a future period.

Foreign Exchange Impact

We operate a global business and conduct business in various currencies around the world. Fluctuations in foreign exchange rates impact our operating results. We recognize foreign exchange gains and losses when business transactions are denominated in currencies other than the functional currency of that operation. The following table presents the exchange rates for significant currencies in which we conduct business as of the end of each period as well as the average of the month-end exchange rates for each of the past three fiscal years.

Exchange Rate as of
March 31,
Average Exchange Rate
Year Ended March 31,
2012 2011 2010 2012 2011 2010

U.S. dollar per Euro

1.335 1.419 1.353 1.385 1.325 1.414

Brazilian real per U.S. dollar

1.823 1.627 1.784 1.696 1.718 1.861

South Korean won per U.S. dollar

1,138 1,107 1,131 1,111 1,151 1,213

Canadian dollar per U.S. dollar

0.997 0.971 1.014 0.992 1.021 1.085

During fiscal 2012, the U.S. dollar strengthened against all the local currencies in our regions. In Europe and Asia, the strengthening of the U.S. dollar resulted in foreign exchange losses as these operations are recorded in the local currency. In Brazil, where the U.S. dollar is the functional currency due to predominately U.S. dollar selling prices, we recognized foreign exchange gains as the Brazilian real denominated liabilities were remeasured to the U.S. dollar.

We use foreign exchange forward contracts and cross-currency swaps to manage our exposure to changes in exchange rates. These exposures arise from recorded assets and liabilities, firm commitments and forecasted cash flows denominated in currencies other than the functional currency of certain operations, which includes capital expenditures. The movement of currency exchange rates during fiscal 2012 resulted in $15 million of unrealized losses on undesignated foreign currency derivatives, other than foreign currency remeasurement, during the year ended March 31, 2012, while the underlying related exposure will be realized in a future period. We deferred unrealized losses of $29 million on designated foreign currency hedges during the year ended March 31, 2012, which are expected to be released into our statement of operations in the same period the underlying related exposure is recognized.

During fiscal 2011 and fiscal 2010, the U.S. dollar weakened as compared to the local currency in all our regions. In Europe and Asia, the weakening of the U.S. dollar resulted in foreign exchange gains as these operations use the local currency as the functional currency. In North America and Brazil, where the U.S. dollar is the functional currency due to predominantly U.S. dollar selling prices and metal costs, but where have local currency operating costs, we incurred foreign exchange losses.

Gains and losses on foreign exchange forward contracts and cross-currency swaps are not recognized in "Segment income" until realized, except for foreign currency remeasurement derivatives which are recognized in "Segment income" throughout the life of the derivative contract. See "Segment Review" below for each of the periods presented for additional discussion of the impact of foreign exchange on the results of each region.

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Results of Operations

Year Ended March 31, 2012 Compared with the Year Ended March 31, 2011

We reported strong operating results in fiscal 2012 despite the global market pressures we continue to experience. Our premium product portfolio, long-term customer base and business model enabled us to produce solid results for fiscal 2012. "Net sales" for the year ended March 31, 2012 increased $486 million, or 5%, as compared to fiscal 2011 as a result of improved conversion premiums on our flat rolled products and higher average aluminum prices, partially offset by a decline in volumes.

"Cost of goods sold (exclusive of depreciation and amortization)" for the year ended March 31, 2012 increased $516 million, or 6%, as compared to fiscal 2011, which reflects the higher average aluminum prices and increased input cost pressures.

"Income before income taxes" for the year ended March 31, 2012 was $129 million, a decrease of $114 million, or 47%, compared to fiscal 2011. In addition to the effects from operations discussed above, the following items affected "Income before income taxes":

$329 million of "Depreciation and amortization" in fiscal 2012, which declined as compared to $404 million in fiscal 2011 as a result of groups of our fixed assets reaching their fully depreciated balances since our purchase by Hindalco and reduced depreciation as a result of certain facility shut-downs over the past several years;

$305 million of "Interest expense and amortization of debt issuance costs" in fiscal 2012 as compared to $207 million in fiscal 2011 as a result of our higher debt balances and amortization of debt issuance costs from refinancing our debt in the third quarter of fiscal 2011;

$111 million of "Loss on assets held for sale" in fiscal 2012 related to the planned sale of three foil plants in Europe. The transaction is a step in aligning our growth strategy on the higher-volume, premium markets of beverage cans, automobiles and electronics and specialty products;

$60 million of "Restructuring charges, net" in fiscal 2012 primarily related to an impairment on the planned closure of our Saguenay plant, severance across our European plants, severance related to the restructuring of our lithographic sheet operations in our Göttingen, Germany facility, and restructuring at our Santo Andre plant in Brazil, partially offset by the reversal the outstanding environmental contingencies of $21 million related to the final sale of the Rogerstone facility. The $34 million of "Restructuring charges, net" in fiscal 2011 related to the move of our North American headquarters to Atlanta, Georgia and the announced shutdowns of our Bridgnorth, UK and Aratu, Brazil facilities. These restructuring initiatives were implemented to align our operations with our global strategy of focusing on our core premium products and to optimize our global capacity;

$84 million of "Loss on early extinguishment of debt" related to a series of refinancing transactions executed and recorded in fiscal 2011;

foreign currency (losses) gains, net of related derivatives, of $(11) million in fiscal 2012 compared to $1 million of gains in fiscal 2011;

unrealized losses related to changes in the fair value of undesignated derivatives, other than foreign currency remeasurement, was $62 million for fiscal 2012 as compared to unrealized losses of $64 million for fiscal 2011; and

realized gains of $130 million in fiscal 2012 were comprised of changes in fair value of undesignated derivatives other than foreign currency remeasurement as compared to $107 million of realized gains in fiscal 2011. These amounts are reported in "Other (income) expense, net" and offset year-over-year impacts of changes in metal prices, foreign currency exchange rates and other input costs on "Net sales" and "Cost of goods sold (exclusive of depreciation and amortization)."

We reported a $39 million "Income tax provision" in fiscal 2012 compared to $83 million in fiscal 2011. We reported "Net income attributable to our common shareholder" of $63 million for the year ended March 31, 2012 as compared to $116 million for the year ended March 31, 2011, primarily as a result of the factors discussed above.

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Segment Review

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

We measure the profitability and financial performance of our operating segments based on "Segment income." "Segment income" provides a measure of our underlying segment results that is in line with our portfolio approach to risk management. We define "Segment income" as earnings before (a) "depreciation and amortization"; (b) "interest expense and amortization of debt issuance costs"; (c) "interest income"; (d) unrealized gains (losses) on change in fair value of derivative instruments, net, except for foreign currency derivatives on our foreign currency balance sheet exposures, which are included in segment income; (e) "impairment of goodwill"; (f) impairment charges on long-lived assets (other than goodwill); (g) gain or loss on extinguishment of debt; (h) noncontrolling interests' share; (i) adjustments to reconcile our proportional share of "Segment income" from non-consolidated affiliates to income as determined on the equity method of accounting; (j) "restructuring charges, net"; (k) gains or losses on disposals of property, plant and equipment and businesses, net; (l) other costs, net; (m) litigation settlement, net of insurance recoveries; (n) sale transaction fees; (o) provision or benefit for taxes on income (loss) and (p) cumulative effect of accounting change, net of tax. Our presentation of "Segment income" on a consolidated basis is a non-U.S. GAAP financial measure. See "Non-GAAP Financial Measures" below for additional discussion about our use of total "Segment income."

Adjustment to Eliminate Proportional Consolidation. The financial information for our segments includes the results of our affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. In order to reconcile the financial information for the segments shown in the tables below to the relevant U.S. GAAP-based measures, we must adjust proportional consolidation of each line item. See Note 8- Consolidation and Note 9 - Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these affiliates.

The tables below show selected segment financial information (in millions, except shipments which are in kt). For additional financial information related to our operating segments, see Note 20 - Segment, Geographical area, Major Customer and Major Supplier Information.

Selected Operating Results
Year Ended March 31, 2012

North
America
Europe Asia South
America
Eliminations
and other
Total

Net sales

$ 3,967 $ 3,840 $ 1,830 $ 1,278 $ 148 $ 11,063

Shipments:

Rolled products

1,064 875 524 375 -   2,838

Ingot products

15 75 12 42 -   144

Total shipments

1,079 950 536 417 -   2,982

Selected Operating Results
Year Ended March 31, 2011

North
America
Europe Asia South
America
Eliminations
and other
Total

Net sales

$ 3,760 $ 3,589 $ 1,866 $ 1,214 $ 148 $ 10,577

Shipments:

Rolled products

1,105 907 580 377 -   2,969

Ingot products

16 69 1 42 -   128

Total shipments

1,121 976 581 419 -   3,097

The following table reconciles changes in "Segment income" for the year ended March 31, 2011 to the year ended March 31, 2012 (in millions). Variances include the related realized derivative gain or loss and unrealized gains or losses on foreign currency derivatives which hedge our foreign currency balance sheet exposure.

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Changes in Segment Income

North
America
Europe Asia South
America
Total

Segment income - year ended March 31, 2011

$ 382 $ 313 $ 225 $ 152 $ 1,072

Volume

(24 (30 (37 (2 (93

Conversion premium and product mix

67 48 46 42 203

Conversion costs(A)

(23 (26 (38 (25 (112

Metal price lag

20 (28 -   (8 (16

Foreign exchange

(11 2 (16 28 3

Primary metal production

-   -   -   7 7

Other changes(B)

(4 5 1 (13 (11

Segment income - year ended March 31, 2012

$ 407 $ 284 $ 181 $ 181 $ 1,053

(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 (inefficiencies) 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. Significant fluctuations in these items are discussed below.

North America

As of March 31, 2012, our North American operations manufactured aluminum sheet and light gauge products through 11 operating plants, including recycling operations in 4 plants. Important end-use applications include beverage cans, containers and packaging, automotive and other transportation applications and other industrial applications. Our expansion project at our Oswego, NY facility is scheduled to be operational in mid calendar year 2013. In March 2012, we made the decision to close our Saguenay Works plant in Quebec, Canada effective August 2012.

Our North American operations reported strong operating results in fiscal 2012 compared to prior year, although we experienced some softness in our can business and a decline in demand for our light gauge products. "Net sales" for the year ended March 31, 2012 was $4.0 billion, up 6% as compared to $3.8 billion for the year ended March 31, 2011. This reflects higher average aluminum prices and strong conversion premiums as a result of focusing on our core premium products, offset by a net decline of 41 kt in flat rolled shipments compared to prior year. The decline in shipments was primarily in our can and light gauge products, partially offset by higher shipments in our automotive products.

"Segment income" for the year ended March 31, 2012 was $407 million, up 7% as compared to prior year. This increase was primarily due to improved conversion premiums and favorable changes in metal price lag offset by higher conversion costs, lower volumes and the negative effects of changes in foreign currency exchange rates. The higher conversion costs were the result of unfavorable melt loss, higher outbound freight, repairs and maintenance, and subcontractor costs offset by favorable prices of scrap metal and an increase in the usage of lower priced UBCs.

Europe

As of March 31, 2012, our European segment provided European markets, and to a lesser extent Asia, with value-added sheet and light gauge products through 12 operating plants, including recycling operations in 5 plants. Europe serves a broad range of aluminum rolled product end-use markets in various applications including beverage and food can, automotive, lithographic, foil products and painted products. During the first quarter of fiscal 2012, we announced that we were investing to increase our recycling capacity at our Pieve, Italy facility, which will become operational in late calendar year 2012. In May 2012, we made a decision to invest $250 million at our Nachterstedt, Germany facility to build a fully integrated recycling facility, which will have an annual capacity of approximately 400 kt. During the fourth quarter of fiscal 2012, we announced the planned sale of three European aluminum foil and packaging plants. The sale is expected to be finalized in mid calendar year 2012 and includes the operations in Rugles, France; Dudelange, Luxembourg; and Berlin, Germany. In March 2012, we made a decision to restructure our lithographic sheet business in our Göttingen, Germany plant, which resulted in the closure of one of our lithographic lines.

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Table of Contents Index to Financial Statements

Our European segment reported solid operating results driven by our continued focus on our core premium products. Despite a challenging economic environment, we experienced an increase in flat rolled product shipments in our can and automotive products and improved conversion premiums for fiscal 2012 compared to fiscal 2011. We experienced declines in volumes of our industrial, light gauge and foil products, which resulted in an overall net decline of 32 kt in our flat rolled product shipments in fiscal 2012 compared to fiscal 2011. "Net sales" for the year ended March 31, 2012 was $3.8 billion, up 7% compared to $3.6 billion for the year ended March 31, 2011. The increase in "Net sales" reflects higher average aluminum prices, improved conversion premiums due to the continued focus on our premium products, higher volumes of our automotive and can products, offset by a decline in our non-core product volumes.

"Segment income" for the year ended March 31, 2012 was $284 million, down 9% compared prior year, resulting from lower volumes, higher conversion costs, and the negative effects of metal price lag. Higher conversion costs compared to prior year resulted from an increase in the costs to process scrap and UBC, an increase in melt loss, and increases in utility costs and outbound freight, partially offset by favorable metal discounts and lower labor costs.

Asia

As of March 31, 2012, our Asian segment has 3 operating plants, including recycling operations in 2 plants, with production balanced between beverage and food can, specialty (including electronics) and foil end-use applications. The expansion of our rolling and recycling capacity in Yeongju, South Korea and Ulsan, South Korea is on schedule and expected to become operational at the end of calendar year 2013. During the fourth quarter of fiscal 2012, we announced plans to invest $100 million into an aluminum automotive heat treatment plant in China, which will have annual capacity of approximately 120 kt. Construction of the new facility is expected to begin in the fall of 2012 and we expect the plant to be operational beginning in late calendar year 2014. During fiscal 2012, we completed the acquisition of 31.3 percent of the outstanding shares of our Korean subsidiary for $344 million raising our ownership of the Korean subsidiary to 99 percent.

"Net sales" for the year ended March 31, 2012 decreased $36 million, or 2%, as compared to fiscal 2011 reflecting lower volumes of our flat rolled products, offset by higher average aluminum prices and improved conversion premiums. We experienced a decline in our flat rolled product shipments of 56 kt, or 10%, in fiscal 2012 compared to fiscal 2011. The declines were impacted by the continued global macroeconomic uncertainties, which resulted in a slow-down of our electronics shipments to customers globally. Despite unseasonably cold and wet weather during part of the year, our can product shipments remained relatively flat compared to fiscal 2011. The declines in our volumes were offset by favorable product mix, which resulted in an increase in our conversion premium in fiscal 2012, compared to fiscal 2011.

"Segment income" for the year ended March 31, 2012 was $181 million, down 20% as compared to prior year due to higher conversion costs and lower volumes offset by improved conversion premiums. Conversion costs increased due to higher scrap prices, labor costs, fuel and utility costs and negative effects of increased melt loss. In fiscal 2011, we realized a $17 million gain on the settlement of currency exchange derivatives related to a U.S. dollar dominated debt that was repaid in the third quarter of fiscal 2011, which was recorded in "Foreign currency remeasurement gains, net" and positively impacted "Segment income" in fiscal 2011, but had no impact on fiscal 2012.

South America

As of March 31, 2012, our South American segment included 3 operating plants in Brazil, which includes one plant with recycling operations, one primary aluminum smelter and hydroelectric power generation facilities. Our South American operations produce various aluminum rolled products for the beverage and food can, construction and industrial and transportation end-use markets. The previously announced expansion of our Pinda facility in Brazil is expected to be commissioned at the end of calendar year 2012. Additionally, we have announced plans to install a new coating line for beverage can end stock and to expand recycling capacity in our Pindamonhangaba, Brazil facility.

Our South America operations had positive operating results for the year ended March 31, 2012, compared to prior year. "Net sales" increased $64 million, or 5%, as compared to fiscal 2011 primarily as a result of higher average aluminum prices and improved conversion premiums. Our flat rolled product shipments in fiscal 2012 remained relatively unchanged as compared to prior year.

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Table of Contents Index to Financial Statements

"Segment income" for the year ended March 31, 2012 was $181 million, an increase of $29 million, or 19%, as compared to the prior year. Improved conversion premiums, the positive effects of changes in foreign currency exchange rates, and favorable variance in our primary metal production were partially offset by unfavorable metal price lag, higher UBC and scrap prices, increased melt loss, and higher costs for alloys and hardeners. Other changes include higher general and administrative costs.

Reconciliation of segment results to "Net income attributable to our common shareholder"

Costs such as depreciation and amortization, interest expense and unrealized gains (losses) on changes in the fair value of derivatives, except foreign currency derivatives on our foreign currency balance sheet exposures, are not utilized by our chief operating decision maker in evaluating segment performance. The table below reconciles "Segment income" from reportable segments to "Net income attributable to our common shareholder" for the year ended March 31, 2012 and 2011 (in millions).

Year Ended March 31,
2012 2011

North America

$ 407 $ 382

Europe

284 313

Asia

181 225

South America

181 152

Total Segment income

1,053 1,072

Depreciation and amortization

(329 (404

Interest expense and amortization of debt issuance costs

(305 (207

Interest income

15 13

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

(62 (64

Realized gains on derivative instruments not included in segment income

1 5

Adjustment to eliminate proportional consolidation

(49 (45

Loss on extinguishment of debt

-   (84

Restructuring charges, net

(60 (34

Loss on assets held for sale

(111 -  

Other costs, net

(24 (9

Income before income taxes

129 243

Income tax provision

39 83

Net income

90 160

Net income attributable to noncontrolling interests

27 44

Net income attributable to our common shareholder

$ 63 $ 116

"Depreciation and amortization" decreased $75 million primarily as a result of facilities that have been shut-down and are no longer being depreciated, as well as assets which became fully depreciated as they reached the end of the useful lives assigned at the time of the purchase of Novelis by Hindalco.

"Interest expense and amortization of debt issuance costs" increased by $98 million primarily due to higher average debt balances and higher capitalized debt issuance costs as a result of refinancing our debt in the third quarter of fiscal 2011.

"Adjustment to eliminate proportional consolidation" typically relates to depreciation and amortization and income taxes at our Aluminium Norf GmbH (Alunorf) joint venture. Income taxes related to our equity method investments are reflected in the carrying value of the investment and not in our consolidated "Income tax provision."

"Unrealized gains (losses) on change in fair value of derivative instruments, net" is comprised of unrealized gains and losses on undesignated derivatives other than foreign currency remeasurement.

"Loss on early extinguishment of debt" in the third quarter of fiscal year 2011 related to a series of debt refinancing transactions completed in December 2010.

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Table of Contents Index to Financial Statements

"Restructuring charges, net" in fiscal 2012 primarily related to the impairment on our Saguenay plant, severance across our European plants, including the closure of one lithographic sheet line, and restructuring at our Santo Andre plant in Brazil, offset by a reversal of environmental contingencies related to the final sale of our plant in Rogerstone facility in South Wales, U.K. The $34 million of "Restructuring charges, net" in fiscal 2011 related to the move of our North American headquarters to Atlanta, Georgia and the announced shutdowns of our Bridgnorth, UK and Aratu, Brazil facilities. See Note 2 - Restructuring Programs.

"Loss on assets held for sale" in fiscal 2012 related to the planned sale of three foil plants in Europe.

"Other costs, net" in fiscal 2012 relates primarily to losses on the Brazil tax litigation of $13 million, new taxes on derivative transactions in Brazil of $8 million, and losses on sale of assets of $3 million. See Note 19 - Commitments and contingencies for further discussion on the Brazil tax matters.

We have experienced significant fluctuations in "Income tax provision" and the corresponding effective tax rate. The primary factors contributing to the effective tax rate differing from the statutory Canadian rate include:

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 statements of operations.

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 be unable to utilize those losses.

We have certain permanent tax differences that impact our effective tax rate, including a benefit from non-taxable dividends.

In fiscal 2012, we recorded a $39 million "Income tax provision" on our pre-tax income of $142 million, before our equity in net loss of non-consolidated affiliates, which represented an effective tax rate of 27%. Our effective tax rate differs from the expense at the Canadian statutory rate primarily due to the following factors: (1) a $9 million benefit for 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, (2) a $26 million benefit for exchange remeasurement of deferred income taxes, (3) a $117 million increase in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we be unable to utilize those losses, (4) a $52 million benefit from non-taxable dividends, (5) a $4 million benefit from differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions, and (6) a $23 million benefit related to a decrease in uncertain tax positions.

In fiscal 2011, we recorded an $83 million "Income tax provision" on our pre-tax income of $255 million, before our equity in net income of non-consolidated affiliates, which represented an effective tax rate of 33%. Our effective tax rate differs from the expense at the Canadian statutory rate primarily due to the following factors: (1) a $20 million expense for exchange remeasurement of deferred income taxes, (2) a $50 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 be unable to utilize those losses, largely offset by a $49 decrease in our valuation allowance in the U.K. based on expectations of future taxable income, (3) a $15 million benefit from non-taxable dividends, (4) a $6 million benefit from differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions, and (5) a $6 million expense related to increase in uncertain tax positions.

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Table of Contents Index to Financial Statements

Year Ended March 31, 2011 Compared with the Year Ended March 31, 2010

We experienced strong demand across all our regions during the year ended March 31, 2011, and were operating at or near capacity in all regions. "Net sales" for the year ended March 31, 2011 increased $1.9 billion, or 22%, as compared to the year ended March 31, 2010 primarily as a result of increases in aluminum prices and volumes. The fiscal 2010 "Net sales" includes $152 million of non-cash accretion on can price ceiling contracts which did not benefit the fiscal 2011.

"Cost of goods sold (exclusive of depreciation and amortization)" for the year ended March 31, 2011 increased $2.0 billion, or 28%, as compared to the year ended March 31, 2010 which reflects higher aluminum prices and increased volume. Increased input cost pressures were partially offset by our prior sustained cost cutting measures.

"Income before income taxes" for the year ended March 31, 2011 was $243 million, a decrease of $484 million, or 67%, compared to the $727 million reported in fiscal 2010. In addition to the effects from operations discussed above, the following items affected "Income before income taxes:"

$34 million of "Restructuring charges, net" for the year ended March 31, 2011 primarily as a result of the move of our North American headquarters to Atlanta, Georgia and the announced shutdowns of our Bridgnorth, UK and Aratu, Brazil facilities, as compared to $14 million of restructuring charges for the year ended March 31, 2010

$84 million of "Loss on early extinguishment of debt" related to a series of refinancing transactions executed and recorded during the year ended March 31, 2011

foreign exchange gains of $1 million in fiscal 2011 compared to gains of $15 million in fiscal 2010

unrealized losses related to changes in the fair value of undesignated derivatives in $64 million compared to $578 million in unrealized gains in fiscal 2010

realized gains of $107 million in fiscal 2011 comprised of changes in fair value of undesignated derivatives as compared to $384 million of realized losses in fiscal 2010. These amounts are reported in "Other (income) expense, net" and offset year-over-year impacts of changes in metal prices, foreign currency exchange rates and other input costs on "Net sales" and "Cost of goods sold (exclusive of depreciation and amortization)."

We reported "Net income attributable to our common shareholder" of $116 million for fiscal 2011 as compared to "Net income attributable to our common shareholder" of $405 million for fiscal 2010, primarily as a result of the factors discussed above. We also recorded an "Income tax provision" of $83 million in the year ended March 31, 2011, as compared to a $262 million in the year ended March 31, 2010.

Segment Review

The tables below show selected segment financial information (in millions, except shipments which are in kt). For additional financial information related to our operating segments, see Note 20 - Segment, Geographical area, Major Customer and Major Supplier Information.

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Table of Contents Index to Financial Statements
000000 000000 000000 000000 000000 000000

Selected Operating Results
Year Ended March 31, 2011

North
America
Europe Asia South
America
Eliminations
and other
Total

Net sales

$ 3,760 $ 3,589 $ 1,866 $ 1,214 $ 148 $ 10,577

Shipments:

Rolled products

1,105 907 580 377 -   2,969

Ingot products

16 69 1 42 -   128

Total shipments

1,121 976 581 419 -   3,097

000000 000000 000000 000000 000000 000000

Selected Operating Results
Year Ended March 31, 2010

North
America
Europe Asia South
America
Eliminations
and other
Total

Net sales

$ 3,130 $ 2,975 $ 1,501 $ 948 $ 119 $ 8,673

Shipments:

Rolled products

1,029 803 532 344 -   2,708

Ingot products

34 81 2 29 -   146

Total shipments

1,063 884 534 373 -   2,854

The following table reconciles changes in "Segment income" for the year ended March 31, 2010 to the year ended March 31, 2011 (in millions). Variances include the related realized derivative gain or loss.

Changes in Segment Income

North
America
Europe Asia South
America
Total

Segment income - year ended March 31, 2010

$ 292 $ 212 $ 154 $ 97 $ 755

Volume

59 64 22 24 169

Conversion premium and product mix

26 22 36 36 120

Conversion costs(A)

51 (15 (21 8 23

Metal price lag

(7 42 15 11 61

Foreign exchange

(20 (16 29 (21 (28

Primary metal production

-   -   -   5 5

Other changes(B)

(19 4 (10 (8 (33

Segment income - year ended March 31, 2011

$ 382 $ 313 $ 225 $ 152 $ 1,072

(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 alternative scrap 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.

North America

As of March 31, 2011, our North American operations manufactured aluminum sheet and light gauge products through 11 plants, including two dedicated recycling facilities. Important end-use applications include beverage cans, containers and packaging, automotive and other transportation applications and other industrial applications.

Our North American operations experienced strong demand across all sectors with increased volumes in can, automotive and other industrial products in fiscal 2011 as compared to fiscal 2010. Shipments of flat rolled products in fiscal 2011 increased 7% as compared to fiscal 2010, with each quarter seeing an increase in volumes shipped as compared to the same periods in fiscal 2010. "Net sales" for fiscal 2011 were up $630 million, or 20%, as compared to fiscal 2010 reflecting the strong demand previously mentioned as well as higher aluminum prices. This increase is despite the fact that "Net sales" for fiscal 2010 included $152 million of accretion on can price ceiling contracts offset by $128 million of derivatives related to those contracts.

"Segment income" for fiscal 2011 was $382 million, up $90 million as compared to fiscal 2010. Improved volume, conversion premium and mix and reductions in conversion costs all had a positive impact on "Segment income." Conversion cost improvements are driven by reductions in a number of cost categories including labor, energy, repairs and maintenance and the usage of other aluminum scrap metal. These improvements are slightly offset by increased costs of alloys and hardeners and higher melt loss rates

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Table of Contents Index to Financial Statements

associated with melting additional scrap inputs. Other changes include a $152 million negative impact related to the purchase accounting effect of metal price ceiling contracts, which increased "Segment income" for fiscal 2010 but did not affect fiscal 2011 offset by a $128 million positive effect of the expiration of the can price ceiling contracts and related derivatives on December 31, 2009.

Europe

As of March 31, 2011, our European segment provided European markets with value-added sheet and light gauge products through 12 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, foil products and painted products.

Our European operations have experienced strong demand across our core end-use markets with the can sector providing particularly strong results and the premium car market remaining firm. Flat rolled product shipments and "Net sales" were up 13% and 21%, respectively, in fiscal 2011 as compared to fiscal 2010 which reflects higher average aluminum prices and volume and mix improvement as a result of strong demand. Our facilities operated at or near capacity for fiscal 2011.

"Segment income" for fiscal 2011 was $313 million, up $101 million compared to fiscal 2010. Improved volume, conversion premiums, product mix and favorable changes in metal price lag more than offset increases in conversion costs and the negative effect of changes in foreign currency exchange rates to the U.S. dollar and Euro.

Asia

As of March 31, 2011, Asia operated three manufacturing facilities with production balanced between beverage and food can, construction and industrial (including electronics) and foil end-use applications.

In fiscal 2011, the Asian markets experienced strong demand for all product categories. Flat rolled product shipments are up 9% in fiscal 2011 as compared fiscal 2010. "Net sales" increased $365 million for the year ended March 31, 2011 as compared the year ended March 31, 2010 primarily as a result of higher aluminum prices and increased volume.

"Segment income" for fiscal 2011 was $225 million, up $71 million as compared to fiscal 2010 due primarily to improved volume, conversion premiums, favorable changes in metal price lag, favorable effects of changes in foreign currency exchange rates to the U.S. dollar, and realized gains on the settlement of currency exchange derivatives related to a U.S. dollar denominated debt that was repaid in the fiscal 2011. The favorable variances were partially off by the negative effects of higher conversion costs and selling, general and administrative costs in fiscal 2011 as compared to fiscal 2010.

South America

Our operations in South America manufacture various aluminum rolled products for the beverage and food can, construction and industrial and transportation end-use markets. Our South American operations included two rolling plants in Brazil along with one smelter, and hydroelectric power generation facilities as of March 31, 2011. We also have mining rights, which we are not exploring and some alumina refinery assets, which we are not operating.

Our South American operations experienced strong demand across all sectors as compared to the prior year. Shipments of flat rolled products in fiscal 2011 increased 10% as compared to a year ago. "Net sales" for fiscal 2011 were up $266 million, or 28%, as compared to fiscal 2010 reflecting strong demand as well as higher aluminum prices.

"Segment income" for fiscal 2011 was $152 million, up $55 million as compared to fiscal 2010. Improved volumes, conversion premiums, reductions of conversion costs and favorable metal price lag more than offset the negative effects of changes in foreign currency exchange rates and higher selling, general and administrative costs. Increased "Segment income" of the primary business reflects the higher aluminum prices, offset by increased energy and alumina costs.

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Reconciliation of segment results to "Net income attributable to our common shareholder"

Costs such as depreciation and amortization, interest expense and unrealized gains (losses) on changes in the fair value of derivatives are not utilized by our chief operating decision maker in evaluating segment performance. The table below reconciles "Segment income" from reportable segments to "Net income attributable to our common shareholder" for the year ended March 31, 2011 and 2010 (in millions).

Year Ended March 31,
2011 2010

North America

$ 382 $ 292

Europe

313 212

Asia

225 154

South America

152 97

Total Segment income

1,072 755

Depreciation and amortization

(404 (384

Interest expense and amortization of debt issuance costs

(207 (175

Interest income

13 11

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

(64 578

Realized gains on derivative instruments not included in segment income

5 -  

Adjustment to eliminate proportional consolidation

(45 (52

Loss on extinguishment of debt

(84 -  

Restructuring charges, net

(34 (14

Other costs, net

(9 8

Income before income taxes

243 727

Income tax provision

83 262

Net income

160 465

Net income attributable to noncontrolling interests

44 60

Net income attributable to our common shareholder

$ 116 $ 405

"Interest expense" and amortization of debt issuance costs increased primarily due to a higher average principal balance after the refinancing of our debt, offset by lower average interest rates on our variable rate debt for the majority of fiscal 2011.

For fiscal 2011, the $64 million of losses consists of unrealized losses on changes in fair value of metal, foreign currency, interest rate offset by unrealized gains on energy derivatives. We recorded $578 million of unrealized gains for fiscal 2010.

Realized gains on derivative instruments not included in "Segment income" represents realized gains on foreign currency derivatives related to capital expenditures for our previously announced expansion at our Pinda facility in South America.

"Adjustment to eliminate proportional consolidation" was a $45 million loss for fiscal 2011 as compared to a $52 million loss in fiscal 2010. This adjustment primarily relates to depreciation, amortization and income taxes at our Aluminium Norf GmbH (Alunorf) joint venture. The difference from the prior year relates to the reduction in depreciation and amortization on the step up in our basis in the underlying assets of the investees. Income taxes related to our equity method investments are reflected in the carrying value of the investment and not in our consolidated "Income tax provision."

We paid tender premiums, fees and other costs of $193 million associated with the refinancing transactions in December 2010 and related exchange offer in March 2011, including fees paid to lenders, arrangers and outside professionals such as attorneys and rating agencies. Approximately $84 million of these fees, existing unamortized fees, discounts and fair value adjustments associated with the old debt were expensed and included in the "Loss on early extinguishment of debt." The remaining fees paid and the remaining unamortized fees, discounts and fair value adjustments associated with the old debt were capitalized and will be amortized as an increase to "Interest expense" over the term of the related debt, ranging from five to ten years.

"Restructuring charges, net" in fiscal 2011 primarily related to the move of our North American headquarters to Atlanta, Georgia and the announced closure of our Bridgnorth facility in Europe and our Aratu facility in South America.

We have experienced significant fluctuations in "Income tax provision" and the corresponding effective tax rate. The primary factors contributing to the effective tax rate differing from the statutory Canadian rate included:

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.

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Table of Contents Index to Financial Statements

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 be unable to utilize those losses.

For the year ended March 31, 2011, we recorded an $83 million "Income tax provision" on our pre-tax income of $255 million, before our equity in net income of non-consolidated affiliates, which represented an effective tax rate of 33%. Our effective tax rate differs from the expense at the Canadian statutory rate primarily due to the following factors: (1) a $20 million expense for exchange remeasurement of deferred income taxes, (2) a $50 million increase in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we be unable to utilize those losses, largely offset by a $49 decrease in our valuation allowance in the U.K. based on expectations of future taxable income, (3) a $15 million benefit from non-taxable dividends, (4) a $6 million benefit from differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions, and (5) a $6 million expense related to increase in uncertain tax positions.

For fiscal 2010, we recorded a $262 million "Income tax provision" on our pre-tax income of $742 million, before our equity in net (income) loss of non-consolidated affiliates, which represented an effective tax rate of 35%. Our effective tax rate differs from the expense at the Canadian statutory rate primarily due to the following factors: (1) $19 million expense for 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, (2) a $38 million expense for exchange remeasurement of deferred income taxes, (3) a $7 million expense for the effects of enacted tax rate changes on cumulative taxable temporary differences, (4) a $9 million benefit from differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions and (5) a $10 million benefit related to a decrease in uncertain tax positions.

Liquidity and Capital Resources

We believe we have adequate liquidity to meet our operational and capital requirements for the foreseeable future. Our primary sources of liquidity are cash and cash equivalents, borrowing availability under our revolving credit facility and cash generated by operating activities.

As of March 31, 2012, we had available liquidity of $1.0 billion, which reflects a decrease of 4% from March 31, 2011, due to higher capital expenditures, higher working capital needs and short-term borrowings used to purchase the noncontrolling interest in the Company's Korean operations in December 2011. We expect to maintain adequate liquidity throughout fiscal 2013 despite the challenging economic uncertainty and the significant investments we are making with our expansion projects.

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Available Liquidity

Our available liquidity as of March 31, 2012 and 2011 is as follows (in millions):

March 31,
2012
March 31,
2011

Cash and cash equivalents

$ 317 $ 311

Overdrafts

-   (17

Availability under the asset based lending (ABL) facility

704 767

Total liquidity

$ 1,021 $ 1,061

The "Cash and cash equivalents" balance above includes cash held in foreign countries in which we operate. Cash held outside Canada, in which we are incorporated, is free from significant restrictions that would prevent the cash from being accessed to meet the Company's liquidity needs including, if necessary, to fund operations and service debt obligations in Canada. Upon the repatriation of any earnings to Canada, in the form of dividends or otherwise, we could be subject to Canadian income taxes (subject to adjustment for foreign taxes paid) and withholding taxes payable to the various foreign countries. As of March 31, 2012, we do not believe adverse tax consequences exist that restrict our use of "Cash or cash equivalents" in a material manner.

Free Cash Flow

We define "Free cash flow" (which is a non-GAAP measure) as: (a) "net cash provided by (used in) operating activities," (b) plus "net cash provided by (used in) investing activities" and (c) less "net proceeds from sales of assets." 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." Our method of calculating "Free cash flow" may not be consistent with that of other companies.

The following table shows the "Free cash flow" for the year ended March 31, 2012, 2011 and 2010, the change between periods, as well as the ending balances of cash and cash equivalents (in millions).

Change
Year Ended March 31,

2012

versus

2011

versus

2012 2011 2010 2011 2010

Net cash provided by operating activities

$ 556 $ 454 $ 844 $ 102 $ (390

Net cash used in investing activities

(442 (113 (484 (329 371

Less: Proceeds from sales of assets

(16 (31 (5 15 (26

Free cash flow

$ 98 $ 310 $ 355 $ (212 $ (45

Ending cash and cash equivalents

$ 317 $ 311 $ 437 $ 6 $ (126

"Free cash flow" decreased $212 million in the year ended March 31, 2012 as compared to prior year. The changes in "Free cash flow" are described in greater detail below.

Operating Activities

Overall operating results were strong for the year ended March 31, 2012, which was the result of improved working capital due to lower aluminum prices and effective inventory management. These variances were partially offset by $284 million of higher interest payments on a larger underlying refinanced debt entered into in the third quarter of fiscal 2011.

In fiscal 2013, we expect to make contributions of $82 million to our pension and other post-employment benefit plans.

A summary of our operating activities for the year ended March 31, 2012 can be found above in "Results of operations for the year ended March 31, 2012 compared to the year ended March 31, 2011."

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Investing Activities

The following table presents information regarding our "Net cash used in investing activities" (in millions).

Change
Year Ended March 31,

2012

versus

2011

versus

2012 2011 2010 2011 2010

Capital expenditures

$ (516 $ (234 $ (101 $ (282 $ (133

Proceeds (outflow) from settlement of derivative instruments, net

59 91 (395 (32 486

Proceeds from sales of assets

16 31 5 (15 26

Proceeds from investment in and advances to non-consolidated affiliates

2 -   3 2 (3

Proceeds (outflow) from related parties loans receivable, net

(3 (1 4 (2 (5

Net cash used in investing activities

$ (442 $ (113 $ (484 $ (329 $ 371

The majority of our capital expenditures cash outflows for the year ended March 31, 2012 were attributable to our three major expansion projects in Pinda, Brazil; South Korea; and Oswego, New York. Additionally, we have incurred $113 million of accounts payable and accrued liabilities as of March 31, 2012 related to capital projects, which will result in cash outflows in fiscal 2013. The majority of our capital expenditures in fiscal 2011 and 2010 were for projects devoted to maintenance and debottlenecking. We expect capital expenditures for fiscal 2013 to be between $650 million and $700 million.

The settlement of undesignated derivative instruments resulted in a cash inflows of $59 million in the year ended March 31, 2012 as compared to $91 million of cash inflow in the year ended March 31, 2011. The fair value of our outstanding derivatives, not designated as hedging instruments, as of March 31, 2012 that will be settled in fiscal 2013 is a net liability position of $11 million.

The majority of proceeds from asset sales in the year ended March 31, 2012 related to sales in Europe and Brazil. The majority of proceeds from asset sales in the year ended March 31, 2011 related to asset sales in Brazil.

"Proceeds (outflow) from related party loans receivable, net," during all periods are primarily comprised of additional loans made to our non-consolidated affiliate, Aluminium Norf GmbH (Alunorf), net of payments we received related to a previous loan due from Alunorf.

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Financing Activities

The following table presents information regarding our "Net cash used in financing activities" (in millions).

Change
Year Ended March 31,

2012

versus

2011

versus

2012 2011 2010 2011 2010

Proceeds from issuance of debt, third parties

$ 271 $ 3,985 $ 177 $ (3,714 $ 3,808

Proceeds from issuance of debt, related parties

-   -   4 -   (4

Principal repayments, third parties

(22 (2,489 (67 2,467 (2,422

Principal repayments, related parties

-   -   (95 -   95

Short-term borrowings, net

2 (56 (193 58 137

Return of capital to our common shareholder

-   (1,700 -   1,700 (1,700

Dividends, noncontrolling interest

(1 (18 (13 17 (5

Acquisition of noncontrolling interest in Novelis Korea, Ltd

(344 -   -   (344 -  

Debt issuance costs

(2 (193 (1 191 (192

Net cash used in financing activities

$ (96 $ (471 $ (188 $ 375 $ (283

During fiscal 2012, we acquired 31.3% percent of the outstanding noncontrolling interest shares of Novelis Korea Limited for cash of $344 million. We funded the acquisition with a $225 million secured term loan, which resulted in cash proceeds, net of the debt discount, of $219 million, due March 2017. The remaining purchase price was funded through short-term borrowings and other available cash.

In the third quarter of fiscal 2012, we executed three separate loan agreements with Korean banks, which resulted in $43 million of proceeds from the issuance of long-term debt due December 2014 and additional short-term borrowings of $17 million.

During 2012, we entered into additional loan agreements with Brazil's National Bank of Economic and Social Development (BNDES) related to the Pindamonhangaba, Brazil plant expansion which resulted in $10 million of proceeds related to the issuance of this debt. As of March 31, 2012, we had $15 million (R$28 million) outstanding under the BNDES loan agreements with maturity dates of December 2018 through April 2021.

In December 2010, we completed a series of refinancing transactions, which included the issuance of $1.1 billion of notes due 2017, $1.4 billion of notes due 2020 and a $1.5 billion secured term loan. The proceeds from the refinancing were used repay a prior secured loan credit facility, fund tender offers of old notes and pay various financing expenses. Additionally, a portion of the proceeds were used to fund a distribution of $1.7 billion as a return of capital to Hindalco.

As of March 31, 2012, our short-term borrowings consisted of an $18 million bank loan in South Korea. As of March 31, 2012, $24 million of the ABL Facility was utilized for letters of credit and we had $704 million in remaining availability under the ABL Facility. The weighted average interest rate on our total short-term borrowings was 4.83% and 2.43% as of March 31, 2012 and March 31, 2011, respectively.

Dividends paid to our noncontrolling interests, primarily in our Asia operating segment, were $1 million, $18 million, and $13 million for fiscal 2012, 2011, and 2010, respectively.

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OFF-BALANCE SHEET ARRANGEMENTS

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

any obligation under certain derivative instruments;

any obligation under certain guarantees or contracts;

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

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

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

Derivative Instruments

See Note 15 - Financial Instruments and Commodity Contracts to our accompanying audited consolidated financial statements for a full description of derivative instruments.

Other Arrangements

Forfaiting of Trade Receivables

Novelis Korea Limited forfaits trade receivables in the ordinary course of business. These trade receivables are typically outstanding for 60 to 120 days. Forfaiting is a non-recourse method to manage credit and interest rate risks. Under this method, customers contract to pay a financial institution. The institution assumes the risk of non-payment and remits the invoice value (net of a fee) to us after presentation of a proof of delivery of goods to the customer. We do not retain a financial or legal interest in these receivables, and they are not included in our consolidated balance sheets.

Factoring of Trade Receivables

Our Brazilian operations factor, without recourse, certain trade receivables that are unencumbered by pledge restrictions. Under this method, customers are directed to make payments on invoices to a financial institution, but are not contractually required to do so. The financial institution pays us any invoices it has approved for payment (net of a fee). We do not retain financial or legal interest in these receivables, and they are not included in our consolidated balance sheets.

Summary Disclosures of Forfaited and Factored Financial Amounts

The following tables summarize our forfaiting and factoring amounts (in millions).

Year Ended

March 31,

2012 2011 2010

Receivables forfaited

$ 235 $ 396 $ 423

Receivables factored

$ 61 $ 77 $ 149

Forfaiting expense

$ 1 $ 1 $ 2

Factoring expense

$ 1 $ 1 $ 1

March 31,
2012 2011

Forfaited receivables outstanding

$ 49 $ 52

Factored receivables outstanding

$ 4 $ 8

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 March 31, 2012 and 2011, we were not involved in any unconsolidated SPE transactions.

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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. The following table presents our estimated future payments under contractual obligations that exist as of March 31, 2012, based on undiscounted amounts (in millions). The future cash flow commitments that we may have related to derivative contracts are not estimable and are therefore not included. Furthermore, due to the difficulty in determining the timing of settlements, the table excludes $28 million of uncertain tax positions. See Note 18 - Income Taxes to our accompanying audited consolidated financial statements.

Total Less Than
1 Year
1-3 Years 3-5 Years More Than
5 Years

Debt(A)

$ 4,403 $ 40 $ 169 $ 1,670 $ 2,524

Interest on long-term debt(B)

1,442 285 447 374 336

Capital leases(C)

57 8 14 14 21

Operating leases(D)

142 22 37 26 57

Purchase obligations(E)

4,032 1,521 1,545 631 335

Unfunded pension plan benefits(F)

148 14 26 28 80

Other post-employment benefits(F)

130 8 19 24 79

Funded pension plans(F)

47 47 -   -   -  

Total

$ 10,401 $ 1,945 $ 2,257 $ 2,767 $ 3,432

(A) Includes only principal payments on our Senior Notes, term loans, revolving credit facilities and notes payable to banks and others. These amounts exclude payments under capital lease obligations.
(B) Interest on our fixed rate debt is estimated using the stated interest rate. Interest on our variable-rate debt is estimated using the rate in effect as of March 31, 2012 and includes the effect of current interest rate swap agreements. Actual future interest payments may differ from these amounts based on changes in floating interest rates or other factors or events. These amounts include an estimate for unused commitment fees. Excluded from these amounts are interest related to capital lease obligations, the amortization of debt issuance and other costs related to indebtedness.
(C) Includes both principal and interest components of future minimum capital lease payments. Excluded from these amounts are insurance, taxes and maintenance associated with the property.
(D) Includes the minimum lease payments for non-cancelable leases for property and equipment used in our operations. We do not have any operating leases with contingent rents. Excluded from these amounts are insurance, taxes and maintenance associated with the properties and equipment.
(E) Includes agreements to purchase goods (including raw materials and capital expenditures) and services that are enforceable and legally binding on us, and that specify all significant terms. Some of our raw material purchase contracts have minimum annual volume requirements. In these cases, we estimate our future purchase obligations using annual minimum volumes and costs per unit that are in effect as of March 31, 2012. Due to volatility in the cost of our raw materials, actual amounts paid in the future may differ from these amounts. Excluded from these amounts are the impact of any derivative instruments and any early contract termination fees, such as those typically present in energy contracts.
(F) Obligations for postretirement benefit plans are estimated based on actuarial estimates using benefit assumptions for, among other factors, discount rates, rates of compensation increases and healthcare cost trends. Payments for unfunded pension plan benefits and other post-employment benefits are estimated through 2022. For funded pension plans, estimating the requirements beyond fiscal 2013 is not practical, as it depends on the performance of the plans' investments, among other factors.

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RETURN OF CAPITAL

On December 17, 2010, we paid $1.7 billion to our shareholder as a return of capital.

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.

ENVIRONMENT, HEALTH AND SAFETY

We strive to be a leader in environment, health and safety (EHS). Our EHS system is aligned with ISO 14001, an international environmental management standard, and OHSAS 18001, an international occupational health and safety management standard. All of our facilities are expected to implement the necessary management systems to support ISO 14001 and OHSAS 18001 certifications.

As of March 31, 2012, all of our manufacturing facilities worldwide were ISO 14001 certified and OHSAS 18001 certified and 29 have dedicated quality improvement management systems.

Our capital expenditures for environmental protection and the betterment of working conditions in our facilities were $16 million in fiscal 2012. We expect these capital expenditures will be approximately $11 million in fiscal 2013. In addition, expenses for environmental protection (including estimated and probable environmental remediation costs as well as general environmental protection costs at our facilities) were $17 million in fiscal 2012, and are expected to be $14 million in fiscal 2013. Generally, expenses for environmental protection are recorded in "Cost of goods sold (exclusive of depreciation and amortization)." However, significant remediation costs that are not associated with on-going operations are recorded in "Other (income) expense, net."

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors we believe to be relevant at the time we prepare our consolidated financial statements. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 1 - Business and Summary of Significant Accounting Policies to our accompanying consolidated financial statements. We believe the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, as they require management to make difficult, subjective or complex judgments, and to make estimates about the effect of matters that are inherently uncertain. Although management believes that the estimates and judgments discussed herein are reasonable, actual results could differ, which could result in gains or losses that could be material. We have reviewed these critical accounting policies and related disclosures with the Audit Committee of our board of directors.

Derivative Financial Instruments

We hold derivatives for risk management purposes and not for trading. We use derivatives to mitigate uncertainty and volatility caused by underlying exposures to aluminum prices, foreign exchange rates, interest rate, and energy prices. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date and are reported gross.

We may be exposed to losses in the future if the counterparties to our derivative contracts fail to perform. We are satisfied that the risk of such non-performance is remote due to our monitoring of credit exposures. Additionally, we enter into master netting agreements with contractual provisions that allow for netting of counterparty positions in case of default, and we do not face credit contingent provisions that would result in the posting of collateral.

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For derivatives designated as fair value hedges, we assess hedge effectiveness by formally evaluating the high correlation of changes in the fair value of the hedged item and the derivative hedging instrument. The changes in the fair values of the underlying hedged items are reported in other current and noncurrent assets and liabilities in the consolidated balance sheet. Changes in the fair values of these derivatives and underlying hedged items generally offset and are recorded each period in revenue, consistent with the underlying hedged item.

For derivatives designated as cash flow hedges or net investment hedges, we assess hedge effectiveness by formally evaluating the high correlation of the expected future cash flows of the hedged item and the derivative hedging instrument. The effective portion of gain or loss on the derivative is included in OCI and reclassified to earnings in the period in which earnings are impacted by the hedged items or in the period that the transaction becomes probable of not occurring. Gains or losses representing reclassifications of OCI to earnings are recognized in the line item most reflective of the underlying risk exposure. We exclude the time value component of foreign currency and aluminum price risk hedges when measuring and assessing ineffectiveness to align accounting policy with risk management objectives when it is necessary. If at any time during the life of a cash flow hedge relationship we determine that the relationship is no longer effective, the derivative will no longer be designated as a cash flow hedge and future gains or losses on the derivative will be recognized in "Other (income) expense, net".

For all derivatives designated in hedging relationships, gains or losses representing hedge ineffectiveness or amounts excluded from effectiveness testing are recognized in "Other (income) expense, net" in our current period earnings. If no hedging relationship is designated, gains or losses are recognized in "Other (income) expense, net" in our current period earnings.

Consistent with the cash flows from the underlying risk exposure, we classify cash settlement amounts associated with designated derivatives as part of either operating or investing activities in the consolidated statements of cash flows. If no hedging relationship is designated, we classify cash settlement amounts as part of investing activities in the consolidated statement of cash flows.

The majority of our derivative contracts are valued using industry-standard models that use observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices for foreign exchange rates. See Note 15 - Financial Instruments and Commodity Contracts and Note 16 - Fair Value of Assets and Liabilities to our accompanying consolidated audited financial statements for discussion on fair value of derivative instruments.

Impairment of Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets of acquired companies. As a result of the Arrangement, we estimated fair value of the identifiable net assets of acquired companies using a number of factors, including the application of multiples and discounted cash flow estimates. The carrying value of goodwill for each of our reporting units, which is tested for impairment annually, is as follows (in millions):

March 31, 2012

North America

$ 288

Europe

181

South America

142

$ 611

Goodwill is not amortized; instead, it is tested for impairment annually or more frequently if indicators of impairment exist. On an ongoing basis, absent any impairment indicators, we perform our goodwill impairment testing as of the last day of February of each year. Our reporting units are the same as our operating segments.

In September 2011, the Financial Accounting Standards Board issued new accounting guidance for testing goodwill for impairment. See Note 1 – Business and Summary of Significant Accounting Policies. The guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative impairment test.

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For the year ended March 31, 2012, we early adopted the new guidance for purposes of performing our annual goodwill impairment assessment. As of the last day of February 2012, we assessed qualitative factors and determined that there were no events or circumstances that led to a determination that it was more likely than not that the estimated fair value of a reporting unit was less than its carrying amount, therefore no further analysis was required and no goodwill impairment was identified.

Qualitative factors considered for each reporting unit included, but were not limited to, financial performance, forecasts and trends, macro-economic conditions, industry and market considerations, and the degree by which the fair value of each reporting unit exceeded its carrying value as of our most recent quantitative analysis in fiscal year 2011.

If we determine that that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount, we would perform the two-step quantitative impairment test. Step one compares the fair value of each reporting unit to its carrying amount. If step one indicates that the carrying value of the reporting unit exceeds the fair value, the second step is performed to measure the amount of impairment, if any.

Equity investments

We invest in a number of public and privately-held companies, primarily through joint ventures and consortiums. If they are not consolidated, these investments are accounted for using the equity or cost method. As a result of the Arrangement, investments in and advances to affiliates as of May 16, 2007 were adjusted to reflect fair value.

We review investments for impairment whenever certain indicators are present suggesting that the carrying value of an investment is not recoverable. This analysis requires a significant amount of judgment to identify events or circumstances indicating that an investment may be impaired. Once an impairment indicator is identified, we must determine if an impairment exists, and if so, whether the impairment is other than temporary, in which case the investment would be written down to its estimated fair value.

Impairment of Long Lived Assets and Other Intangible Assets

We assess the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that we may not be able to recover the asset's carrying amount, in accordance with FASB Accounting Standards Codification (ASC) (Codification) No. 360, Property, Plant and Equipment.

When evaluating long-lived assets and finite-lived intangible assets for potential impairment, we first compare the carrying value of the asset to the asset's estimated future net cash flows (undiscounted and without interest charges). If the estimated future net cash flows are less than the carrying value of the asset, we calculate and recognize an impairment loss. If we recognize an impairment loss, the carrying amount of the asset is adjusted to fair value based on the discounted estimated future net cash flows and will be its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated over the remaining useful life of that asset. For an amortizable intangible asset, the new cost basis will be amortized over the remaining useful life of the asset.

Our impairment loss calculations require management to apply judgments in estimating future cash flows to determine asset fair values, including forecasting useful lives of the assets and selecting the discount rate that represents the risk inherent in future cash flows. For the year ended March 31, 2012, we recorded impairment charges of $42 million classified as "Restructuring charges, net" which related primarily to the impairment of the planned closure of our Saguenay Works facility in Quebec, Canada and an additional impairment recorded on the land and buildings at our Bridgnorth facility and $4 million in impairment charges on long-lived assets classified as "Other (income) expense, net." For the year ended March 31, 2011, we recorded impairment charges of $5 million classified as "Restructuring charges, net" related to the write down of land and buildings at our Bridgnorth facility, offset by a $10 million gain on asset sales at our Rogerstone facility. We recorded impairment charges on long-lived assets of $1 million during the year ended March 31, 2010.

Our other intangible assets of $678 million as of March 31, 2012 consist of tradenames, technology and software, customer relationships and favorable energy and supply contracts and are amortized over 3 to 20 years. As of March 31, 2012, we do not have any other intangible assets with indefinite useful lives, other than Goodwill. No impairments of other intangible assets have been identified during any of the periods presented.

If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to additional impairment losses that could be material to our results of operations.

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Pension and Other Postretirement Plans

We account for our pensions and other postretirement benefits in accordance with ASC 715, Compensation - Retirement Benefits (ASC 715). Liabilities and expense for pension plans and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets, and several assumptions related to the employee workforce (salary increases, medical costs, retirement age, and mortality).

The actuarial models use an attribution approach that generally spreads the financial impact of changes to the plan and actuarial assumptions over the average remaining service lives of the employees in the plan. Changes in liability due to changes in actuarial assumptions such as discount rate, rate of compensation increases and mortality, as well as annual deviations between what was assumed and what was experienced by the plan are treated as gains or losses. Gains and losses are amortized over the group's average future service life of the employees. The average future service life for pension plans and other postretirement benefit plans is 10.5 and 11.9 years, respectively. The principle underlying the required attribution approach is that employees render service over their average remaining service lives on a relatively smooth basis and, therefore, the accounting for benefits earned under the pension or non-pension postretirement benefits plans should follow the same relatively smooth pattern.

Our pension obligations relate to funded defined benefit pension plans we have established in the United States, Canada, Switzerland and the United Kingdom, unfunded defined benefit pension plans primarily in Germany, unfunded lump sum indemnities payable upon retirement to employees in France, Malaysia, and Italy and partially funded lump sum indemnities in South Korea. Pension benefits are generally based on the employee's service and either on a flat rate for years of service or on the highest average eligible compensation before retirement. Our other postretirement benefit obligations include unfunded healthcare and life insurance benefits provided to retired employees in Canada, the U.S. and Brazil.

All net actuarial gains and losses are generally amortized over the expected average remaining service life of the employees. The costs and obligations of pension and other postretirement benefits are calculated based on assumptions including the long-term rate of return on pension assets, discount rates for pension and other postretirement benefit obligations, expected service period, salary increases, retirement ages of employees and healthcare cost trend rates. These assumptions bear the risk of change as they require significant judgment and they have inherent uncertainties that management may not be able to control.

The most significant assumption used to calculate pension and other postretirement obligations is the discount rates used to determine the present value of benefits. It is based on spot rate yield curves and individual bond matching models for pension and other postretirement plans in Canada and the United States, and on published long-term high quality corporate bond indices in other countries, at the end of each fiscal year. Adjustments were made to the index rates based on the duration of the plans' obligations for each country. The weighted average discount rate used to determine the pension benefit obligation was 4.4%, 5.3%, and 5.5% as of March 31, 2012, 2011, and 2010, respectively. The weighted average discount rate used to determine the other postretirement benefit obligation was 4.2% as of March 31, 2012, compared to 5.2% and 5.6% for March 31, 2011 and 2010, respectively. The weighted average discount rate used to determine the net periodic benefit cost is the rate used to determine the benefit obligation at the end of the previous fiscal year.

As of March 31, 2012, an increase in the discount rate of 0.5%, assuming inflation remains unchanged, would result in a decrease of $132 million in the pension and other postretirement obligations and in a decrease of $15 million in the net periodic benefit cost. A decrease in the discount rate of 0.5% as of March 31, 2012, assuming inflation remains unchanged, would result in an increase of $132 million in the pension and other postretirement obligations and in an increase of $15 million in the net periodic benefit cost. The calculation of the estimate of the expected return on assets and additional discussion regarding pension and other postretirement plans is described in Note 13 - Postretirement Benefit Plans to our accompanying consolidated financial statements. The weighted average expected return on assets was 6.7% for 2012, 6.8% for 2011, and 6.7% for 2010. The expected return on assets is a long-term assumption whose accuracy can only be measured over a long period based on past experience. A variation in the expected return on assets by 0.5% as of March 31, 2012 would result in a variation of approximately $5 million in the net periodic benefit cost.

Income Taxes

We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, deferred tax assets are also recorded with respect to net operating losses and other tax attribute carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when realization of the benefit of deferred tax assets is not deemed to be more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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The ultimate recovery of certain of our deferred tax assets is dependent on the amount and timing of taxable income that we will ultimately generate in the future and other factors such as the interpretation of tax laws. This means that significant estimates and judgments are required to determine the extent that valuation allowances should be provided against deferred tax assets. We have provided valuation allowances as of March 31, 2012 aggregating $251 million against such assets based on our current assessment of future operating results, timing and nature of realizing deferred tax liabilities, tax planning strategies and tax carrybacks.

By their nature, tax laws are often subject to interpretation. Further complicating matters is that in those cases where a tax position is open to interpretation, differences of opinion can result in differing conclusions as to the amount of tax benefits to be recognized under ASC 740, Income Taxes . ASC 740 utilizes a two-step approach for evaluating tax positions. Recognition (Step 1) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (Step 2) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon ultimate settlement. Consequently, the level of evidence and documentation necessary to support a position prior to being given recognition and measurement within the financial statements is a matter of judgment that depends on all available evidence.

Assessment of Loss Contingencies

We have legal and other contingencies, including environmental liabilities, which could result in significant losses upon the ultimate resolution of such contingencies. Environmental liabilities that are not legal asset retirement obligations are accrued on an undiscounted basis when it is probable that a liability exists for past events.

We have provided for losses in situations where we have concluded that it is probable that a loss has been or will be incurred and the amount of the loss is reasonably estimable. A significant amount of judgment is involved in determining whether a loss is probable and reasonably estimable due to the uncertainty involved in determining the likelihood of future events and estimating the financial statement impact of such events. If further developments or resolution of a contingent matter are not consistent with our assumptions and judgments, we may need to recognize a significant charge in a future period related to an existing contingency.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

NON-GAAP FINANCIAL MEASURES

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

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

However, total "Segment Income" is not a measurement of financial performance under GAAP, and our total "Segment Income" may not be comparable to similarly titled measures of other companies. Total "Segment Income" has important limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. For example, total "Segment Income":

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

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

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

We also use total "Segment Income":

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

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

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

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

Total "Segment Income" is equivalent to Adjusted EBITDA, which we refer to in our earnings announcements and other external presentations to analysts and investors.

Item 7A. 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 (primarily 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 the accompanying March 31, 2012 consolidated balance sheet.

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, natural gas and transport fuel.

Aluminum

Most of our business is conducted under a conversion model that 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 "conversion premium" based on the conversion cost to produce the rolled product and the competitive market conditions for that product.

A key component of our conversion model is the use of derivative instruments on projected aluminum requirements to preserve our conversion margin. We enter into forward metal purchases simultaneous with the sales 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 recognition of unrealized gains and losses on metal derivative positions typically precedes customer delivery and revenue recognition under the related fixed forward priced contracts. The timing difference between the recognition of unrealized gains and losses on metal derivatives and recognition of revenue impacts income (loss) before income taxes and net income (loss). Gains and losses on metal derivative contracts are not recognized in segment income until realized.

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Table of Contents Index to Financial Statements

Metal price lag associated with inventory and non-fixed priced sales exposes us to potential losses in periods of falling aluminum prices. We sell short-term LME futures contracts to reduce our exposure to this risk. We expect the gain or loss on the settlement of the derivative to offset the effect of changes in aluminum prices on future product sales. These hedges generally generate losses in periods of increasing aluminum prices.

Sensitivities

We estimate that a 10% increase in LME aluminum prices would result in a $29 million pre-tax loss related to the change in fair value of our aluminum contracts as of March 31, 2012.

Energy

We use several sources of energy in the manufacture and delivery of our aluminum rolled products. For the year ended March 31, 2012, natural gas and electricity represented approximately 88% 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. 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 March 31, 2012, 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 60% of our total electricity requirements for our smelter operations. Additionally, we have entered into an electricity swap in North America to fix a portion of the cost of our electricity requirements.

We purchase a nominal amount of heating oil forward contracts to hedge against fluctuations in the price of our transport fuel.

Fluctuating energy costs worldwide, due to the changes in supply and international and geopolitical events, expose us to earnings volatility 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 effect on the fair values of these derivative instruments as of March 31, 2012 given a 10% decline in spot prices for energy contracts ($ in millions).

Change in 
Price
Change in
Fair Value

Electricity

(10 )% $ (1 )

Natural Gas

(10 )% (2 )

Foreign Currency Exchange Risks

Exchange rate movements, particularly the euro, 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 Brazil, where we have predominately U.S. dollar selling prices and local currency operating costs, we benefit as the local currency weakens, but are adversely affected as the local currency strengthens. Foreign currency contracts may be used to hedge the economic exposures at our foreign operations.

It is our policy to minimize exposures from non-functional currency denominated transactions within each of our 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 significant non-U.S. dollar functional currency operations have the euro and the Korean won as their functional currencies, respectively. Our Brazilian operations are U.S. dollar functional.

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We also face translation risks related to the changes in foreign currency exchange rates which are generally not hedged. Amounts invested in these 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 (loss)" in the Shareholders' equity section of the accompanying consolidated balance sheets. "Net sales" and expenses at these non-U.S. dollar functional currency entities 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 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 15 - Financial Instruments and Commodity Contracts.

Sensitivities

The following table presents the estimated potential effect on the fair values of these derivative instruments as of March 31, 2012, given a 10% change in rates ($ in millions).

Change in
Exchange Rate
Change in
Fair Value

Currency measured against the U.S. dollar

Brazilian real

(10 )% $ (43 )

Euro

10 % (39 )

Korean won

10 % (8 )

Canadian dollar

(10 )% (4 )

British pound

(10 )% (3

Swiss franc

(10 )% (6 )

Interest Rate Risks

We use interest rate swaps to manage our exposure to changes in the benchmark LIBOR interest rate which impacts our variable-rate debt. Prior to the completion of the December 17, 2010 refinancing transactions, these swaps were designated as cash flow hedges. Upon completion of the refinancing transaction, our exposure to changes in the benchmark LIBOR interest rate was limited which resulted in de-designation. The 2011 Term Loan Facility contains a floor feature of the higher of LIBOR or 100 basis points plus a spread that ranges from 2.75% to 3.00%. As of March 31, 2012, this floor feature was in effect, changing our variable rate debt to fixed rate debt with a spread of 3%. 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.

Due to the floor feature of our 2011 Term Loan Facility mentioned above, a 10 basis point increase in the interest rates on our outstanding variable rate debt as of March 31, 2012, would have no impact on our annual pre-tax income. To be above the 2011 Term Loan Facility floor feature, as of March 31, 2012, interest rates would have to increase by 54 basis points (bp). From time to time, we have used interest rate swaps to manage our debt cost.

In January 2012, in Korea, we entered into interest rate swaps to fix the interest rate on various floating rate debt swaps in order to manage our exposure to changes in 3M-CD interest rate. See Note 11 - Debt for further information.

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Sensitivities

The following table presents the estimated potential effect on the fair values of these derivative instruments as of March 31, 2012, given a 100 bps negative shift in rates ($ in millions).

Change in
Rate
Change in
Fair Value

Interest Rate Contracts

North America – USD LIBOR

(100)bps $ -  

Asia – KRW-CD-3200

(100)bps $ (1 )

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Item 8. Financial Statements and Supplementary Data

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm

67

Consolidated Statements of Operations

68

Consolidated Balance Sheets

69

Consolidated Statements of Cash Flows

70

Consolidated Statements of Shareholder's Equity

71

Consolidated Statements of Comprehensive Income (Loss)

72

Notes to the Consolidated Financial Statements

73

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Table of Contents Index to Financial Statements

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholder of Novelis Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss), shareholder's equity and cash flows present fairly, in all material respects, the financial position of Novelis Inc. and its subsidiaries (the Company) at March 31, 2012 and March 31, 2011, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Atlanta, Georgia

May 24, 2012

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Novelis Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

Year Ended
March 31,
2012 2011 2010

Net sales

$ 11,063 $ 10,577 $ 8,673

Cost of goods sold (exclusive of depreciation and amortization)

9,743 9,227 7,213

Selling, general and administrative expenses

383 375 337

Depreciation and amortization

329 404 384

Research and development expenses

44 40 38

Interest expense and amortization of debt issuance costs

305 207 175

Interest income

(15 (13 (11

Loss on assets held for sale

111 -   -  

Loss on extinguishment of debt

-   84 -  

Restructuring charges, net

60 34 14

Equity in net loss of non-consolidated affiliates

13 12 15

Other (income) expense, net

(39 (36 (219

10,934 10,334 7,946

Income before income taxes

129 243 727

Income tax provision

39 83 262

Net income

90 160 465

Net income attributable to noncontrolling interests

27 44 60

Net income attributable to our common shareholder

$ 63 $ 116 $ 405

See accompanying notes to the consolidated financial statements.

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Novelis Inc.

CONSOLIDATED BALANCE SHEETS

(In millions, except number of shares)

March 31,
2012 2011
ASSETS

Current assets

Cash and cash equivalents

$ 317 $ 311

Accounts receivable, net

- third parties (net of allowances of $5 and $7 as of March 31, 2012 and 2011, respectively)

1,331 1,480

- related parties

36 28

Inventories

1,024 1,338

Prepaid expenses and other current assets

61 50

Fair value of derivative instruments

99 165

Deferred income tax assets

151 39

Assets held for sale

81 -  

Total current assets

3,100 3,411

Property, plant and equipment, net

2,689 2,543

Goodwill

611 611

Intangible assets, net

678 707

Investment in and advances to non–consolidated affiliates

683 743

Fair value of derivative instruments, net of current portion

2 17

Deferred income tax assets

74 52

Other long–term assets

- third parties

168 193

- related parties

16 19

Total assets

$ 8,021 $ 8,296

LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities

Current portion of long–term debt

$ 23 $ 21

Short–term borrowings

18 17

Accounts payable

- third parties

1,245 1,378

- related parties

51 50

Fair value of derivative instruments

95 82

Accrued expenses and other current liabilities

476 568

Deferred income tax liabilities

34 43

Liabilities held for sale

57 -  

Total current liabilities

1,999 2,159

Long–term debt, net of current portion

4,321 4,065

Deferred income tax liabilities

581 552

Accrued postretirement benefits

687 526

Other long–term liabilities

310 359

Total liabilities

7,898 7,661

Commitments and contingencies

Shareholder's equity

Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of March 31, 2012 and 2011

-   -  

Additional paid–in capital

1,659 1,830

Accumulated deficit

(1,379 (1,442

Accumulated other comprehensive (loss) income

(191 57

Total equity of our common shareholder

89 445

Noncontrolling interests

34 190

Total equity

123 635

Total liabilities and equity

$ 8,021 $ 8,296

See accompanying notes to the consolidated financial statements.

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Novelis Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Year Ended
March 31,
2012 2011 2010

OPERATING ACTIVITIES

Net income

$ 90 $ 160 $ 465

Adjustments to determine net cash provided by operating activities:

Depreciation and amortization

329 404 384

Gain on unrealized derivatives and other realized derivatives in investing activities, net

(7 (43 (194

Loss on assets held for sale

111 -   -  

Loss on extinguishment of debt

-   84 -  

Non-cash impairment charges, net

46 5 2

Deferred income taxes

(33 (45 229

Write-off and amortization of fair value adjustments, net

24 4 (134

Amortization of debt issuance costs

17 9 6

Equity in net loss of non-consolidated affiliates

13 12 15

(Gain) loss on foreign exchange remeasurement on debt

13 -   (20

(Gain) loss on sale of assets

3 (4 1

Gain on reversal of accrued legal claim

-   -   (3

Other, net

3 (7 4

Changes in assets and liabilities including assets and liabilities held for sale (net of effects from acquisitions and divestitures):

Accounts receivable

47 (295 (46

Inventories

214 (218 (264

Accounts payable

(188 263 311

Other current assets

(10 (8 14

Other current liabilities

(67 134 47

Other noncurrent assets

9 (6 (15

Other noncurrent liabilities

(58 5 42

Net cash provided by operating activities

556 454 844

INVESTING ACTIVITIES

Capital expenditures

(516 (234 (101

Proceeds from sales of assets

- third parties

12 21 5

- related parties

4 10 -  

Proceeds from investment in and advances to non-consolidated affiliates, net

2 -   3

(Outflow) proceeds from related party loans receivable, net

(3 (1 4

(Outflow) proceeds from settlement of other undesignated derivative instruments, net

59 91 (395

Net cash used in investing activities

(442 (113 (484

FINANCING ACTIVITIES

Proceeds from issuance of debt

- third parties

271 3,985 177

- related parties

-   -   4

Principal repayments

- third parties

(22 (2,489 (67

- related parties

-   -   (95

Short-term borrowings, net

2 (56 (193

Return of capital to our common shareholder

-   (1,700 -  

Dividends, noncontrolling interest

(1 (18 (13

Acquisition of noncontrolling interest in Novelis Korea, Ltd.

(344 -   -  

Debt issuance costs

(2 (193 (1

Net cash used in financing activities

(96 (471 (188

Net increase (decrease) in cash and cash equivalents

18 (130 172

Effect of exchange rate changes on cash

(12 4 17

Cash and cash equivalents - beginning of period

311 437 248

Cash and cash equivalents - end of period

$ 317 $ 311 $ 437

See accompanying notes to the consolidated financial statements.

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Novelis Inc.

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY

(In millions, except number of shares)

Equity of our Common Shareholder
Common Stock

Additional

Paid-in

Retained

Earnings/

(Accumulated

Accumulated

Other

Comprehensive

Income (Loss)

Non-

Controlling

Total
Shares Amount Capital Deficit) (AOCI) Interests Equity

Balance as of March 31, 2009

1,412,046 -   $ 3,530 $ (1,963 $ (148 $ 90 1,509

Fiscal 2010 Activity:

Net income attributable to our common shareholder

-   -   -   405 -   -   405

Net income attributable to noncontrolling interests

-   -   -   -   -   60 60

Share consolidation

(1,411,046 -   -   -   -   -   -  

Currency translation adjustment, net of tax of $-
in AOCI

-   -   -   -   54 21 75

Change in fair value of effective portion of hedges,
net of tax benefit of $5 included in AOCI

-   -   -   -   (8 -   (8

Change in pension and other benefits, net of tax
provision of $10 included in AOCI

-   -   -   -   (1 -   (1

Noncontrolling interests cash dividends declared

-   -   -   -   -   (30 (30

Balance as of March 31, 2010

1,000 -   3,530 (1,558 (103 141 2,010

Fiscal 2011 Activity:

Net income attributable to our common shareholder

-   -   -   116 -   -   116

Net income attributable to noncontrolling interests

-   -   -   -   -   44 44

Currency translation adjustment, net of tax provision of
$6 in AOCI

-   -   -   -   111 6 117

Change in fair value of effective portion of hedges,
net of tax provision of $27 included in AOCI

-   -   -   -   49 -   49

Change in pension and other benefits, net of tax
benefit of $3 included in AOCI

-   -   -   -   -   -   -  

Return of capital to our common shareholder

-   -   (1,700 -   -   -   (1,700

Noncontrolling interests cash dividends declared

-   -   -   -   -   (1 (1

Balance as of March 31, 2011

1,000 -   1,830 (1,442 57 190 635

Fiscal 2012 Activity:

Net income attributable to our common shareholder

-   -   -   63 -   -   63

Net income attributable to noncontrolling interests

-   -   -   -   -   27 27

Currency translation adjustment, net of tax provision of
$- in AOCI

-   -   -   -   (83 (8 (91

Change in fair value of effective portion of hedges,
net of tax benefit of $17 included in AOCI

-   -   -   -   (26 (3 (29

Change in pension and other benefits, net of tax
benefit of $55 included in AOCI

-   -   -   -   (136 -   (136

Acquisition of noncontrolling interest in Novelis Korea Ltd.

-   -   (171 -   (3 (170 (344

Noncontrolling interests cash dividends declared

-   -   -   -   -   (2 (2

Balance as of March 31, 2012

1,000 $ -   $ 1,659 $ (1,379 $ (191 $ 34 $ 123

See accompanying notes to the consolidated financial statements.

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Novelis Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

Year Ended
March 31,
2012 2011 2010

Net income attributable to our common shareholder

$ 63 $ 116 $ 405

Other comprehensive income (loss):

Currency translation adjustment attributable to our common shareholder

(83 117 54

Change in fair value of effective portion of hedges, net attributable to our common shareholder

(43 76 (13

Change in pension and other benefits, net attributable to our common shareholder

(191 (3 9

Other comprehensive income (loss) before income tax effect attributable to our common shareholder

(317 190 50

Income tax provision (benefit) related to items of other comprehensive income (loss) attributable to our common shareholder

(72 30 5

Other comprehensive income (loss), net of tax attributable to our common shareholder

(245 160 45

Comprehensive income (loss) attributable to our common shareholder

(182 276 450

Net income attributable to noncontrolling interests

27 44 60

Other comprehensive income:

Currency translation adjustment attributable to noncontrolling interest

(8 6 21

Change in fair value of effective portion of hedges, net attributable to noncontrolling interest

(3 -   -  

Other comprehensive income (loss) attributable to noncontrolling interest

(11 50 81

Comprehensive income attributable to noncontrolling interest

$ 16 $ 326 $ 531

See accompanying notes to the consolidated financial statements.

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Novelis Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

References herein to "Novelis," the "Company," "we," "our," or "us" refer to Novelis Inc. and its subsidiaries unless the context specifically indicates otherwise. References herein to "Hindalco" refer to Hindalco Industries Limited. In October 2007, the Rio Tinto Group purchased all the outstanding shares of Alcan, Inc. References herein to "Alcan" refer to Rio Tinto Alcan Inc.

Organization and Description of Business

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 for the beverage and food can, transportation, construction and industrial, and foil products markets. As of March 31, 2012, we had operations on four continents: North America, South America, Asia and Europe, and 29 operating facilities in eleven countries. In addition to aluminum rolled products plants, our South American businesses include primary aluminum smelting and power generation facilities.

Acquisition of Novelis Common Stock

On May 15, 2007, the Company was acquired by Hindalco through its indirect wholly-owned subsidiary pursuant to a plan of arrangement (the Arrangement) at a price of $44.93 per share. The aggregate purchase price for all of the Company's common shares was $3.4 billion and Hindalco also assumed $2.8 billion of Novelis' debt for a total transaction value of $6.2 billion. Subsequent to completion of the Arrangement on May 15, 2007, all of our common shares were indirectly held by Hindalco.

Consolidation Policy

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

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

We use the cost method to account for our investments in entities that we do not control and for which we do not have the ability to exercise significant influence over operating and financial policies. These investments are recorded at the lower of their cost or fair value.

Use of Estimates and Assumptions

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

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Novelis Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Risks and Uncertainties

We are exposed to a number of risks in the normal course of our operations that could potentially affect our financial position, results of operations, and cash flows.

Laws and regulations

We operate in an industry that is subject to a broad range of environmental, health and safety laws and regulations in the jurisdictions in which we operate. These laws and regulations impose increasingly stringent environmental, health and safety protection standards and permitting requirements regarding, among other things, air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination, post-mining reclamation and working conditions for our employees. Some environmental laws, such as the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, also known as CERCLA or Superfund, and comparable state laws, impose joint and several liability for the cost of environmental remediation, natural resource damages, third party claims, and other expenses, without regard to the fault or the legality of the original conduct.

The costs of complying with these laws and regulations, including participation in assessments and remediation of contaminated sites and installation of pollution control facilities, have been, and in the future could be, significant. In addition, these laws and regulations may also result in substantial environmental liabilities associated with divested assets, third party locations and past activities. In certain instances, these costs and liabilities, as well as related action to be taken by us, could be accelerated or increased if we were to close, divest of or change the principal use of certain facilities with respect to which we may have environmental liabilities or remediation obligations. Currently, we are involved in a number of compliance efforts, remediation activities and legal proceedings concerning environmental matters, including certain activities and proceedings arising under U.S. Superfund and comparable laws in other jurisdictions where we have operations.

We have established liabilities for environmental remediation where appropriate. However, the cost of addressing environmental matters (including the timing of any charges related thereto) cannot be predicted with certainty, and these liabilities may not ultimately be adequate, especially in light of potential changes in environmental conditions, changing interpretations of laws and regulations by regulators and courts, the discovery of previously unknown environmental conditions, the risk of governmental orders to carry out additional compliance on certain sites not initially included in remediation in progress, our potential liability to remediate sites for which provisions have not been previously established and the adoption of more stringent environmental laws. Such future developments could result in increased environmental costs and liabilities and could require significant capital expenditures, any of which could have a material adverse effect on our financial position or results of operations or cash flows. Furthermore, the failure to comply with our obligations under the environmental laws and regulations could subject us to administrative, civil or criminal penalties, obligations to pay damages or other costs, and injunctions or other orders, including orders to cease operations. In addition, the presence of environmental contamination at our properties could adversely affect our ability to sell a property, receive full value for a property or use a property as collateral for a loan.

Some of our current and potential operations are located or could be located in or near communities that may regard such operations as having a detrimental effect on their social and economic circumstances. Environmental laws typically provide for participation in permitting decisions, site remediation decisions and other matters. Concern about environmental justice issues may affect our operations. Should such community objections be presented to government officials, the consequences of such a development may have a material adverse impact upon the profitability or, in extreme cases, the viability of an operation. In addition, such developments may adversely affect our ability to expand or enter into new operations in such location or elsewhere and may also have an effect on the cost of our environmental remediation projects.

We use a variety of hazardous materials and chemicals in our rolling processes, as well as in our smelting operations in Brazil and in connection with maintenance work on our manufacturing facilities. Because of the nature of these substances or related residues, we may be liable for certain costs, including, among others, costs for health-related claims or removal or re-treatment of such substances. Certain of our current and former facilities incorporate asbestos-containing materials, a hazardous substance that has been the subject of health-related claims for occupation exposure. In addition, although we have developed environmental, health and safety programs for our employees, including measures to reduce employee exposure to hazardous substances, and conduct regular assessments at our facilities, we are currently, and in the future may be, involved in claims and litigation filed on behalf of persons alleging injury predominantly as a result of occupational exposure to substances at our current or former facilities. It is not possible to predict the ultimate outcome of these claims and lawsuits due to the unpredictable nature of personal injury litigation. If these claims and lawsuits, individually or in the aggregate, were finally resolved against us, our financial position, results of operations and cash flows could be adversely affected.

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Materials and labor

In the aluminum rolled products industry, our raw materials are subject to continuous price volatility. We may not be able to pass on the entire cost of the increases to our customers or offset fully the effects of higher raw material costs, other than metal, through productivity improvements, which may cause our profitability to decline. In addition, there is a potential time lag between changes in prices under our purchase contracts and the point when we can implement a corresponding change under our sales contracts with our customers. As a result, we could be exposed to fluctuations in raw materials prices, including metal, since, during the time lag period, we may have to temporarily bear the additional cost of the change under our purchase contracts, which could have a material adverse effect on our financial position, results of operations and cash flows. Significant price increases may result in our customers' substituting other materials, such as plastic or glass, for aluminum or switch to another aluminum rolled products producer, which could have a material adverse effect on our financial position, results of operations and cash flows.

We consume substantial amounts of energy in our rolling operations, our cast house operations and our Brazilian smelting operations. The factors that affect our energy costs and supply reliability tend to be specific to each of our facilities. A number of factors could materially adversely affect our energy position including, but not limited to: (a) increases in the cost of natural gas; (b) increases in the cost of supplied electricity or fuel oil related to transportation; (c) interruptions in energy supply due to equipment failure or other causes and (d) the inability to extend energy supply contracts upon expiration on economical terms. A significant increase in energy costs or disruption of energy supplies or supply arrangements could have a material adverse impact on our financial position, results of operations and cash flows.

Approximately 58% of our employees are represented by labor unions under a large number of collective bargaining agreements with varying durations and expiration dates. We may not be able to satisfactorily renegotiate our collective bargaining agreements when they expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future, and any such work stoppage could have a material adverse effect on our financial position, results of operations and cash flows.

Geographic markets

We are, and will continue to be, subject to financial, political, economic and business risks in connection with our global operations. We have made investments and carry on production activities in various emerging markets, including Brazil, Korea and Malaysia, and we market our products in these countries, as well as China and certain other countries in Asia. While we anticipate higher growth or attractive production opportunities from these emerging markets, they also present a higher degree of risk than more developed markets. In addition to the business risks inherent in developing and servicing new markets, economic conditions may be more volatile, legal and regulatory systems less developed and predictable, and the possibility of various types of adverse governmental action more pronounced. In addition, inflation, fluctuations in currency and interest rates, competitive factors, civil unrest and labor problems could affect our revenues, expenses and results of operations. Our operations could also be adversely affected by acts of war, terrorism or the threat of any of these events as well as government actions such as controls on imports, exports and prices, tariffs, new forms of taxation, or changes in fiscal regimes and increased government regulation in the countries in which we operate or service customers. Unexpected or uncontrollable events or circumstances in any of these markets could have a material adverse effect on our financial position, results of operations and cash flows.

Other risks and uncertainties

In addition, refer to Note 16 - Fair Value of Assets and Liabilities and Note 19 - Commitments and Contingencies for a discussion of financial instruments and commitments and contingencies.

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Reclassifications and adjustments

Certain reclassifications of the prior period amounts and presentation have been made to conform to the presentation adopted for the current period.

For the years ended March 31, 2011 and 2010, we reclassified $(43) million and $(194) million, respectively, from "(Gain) loss on change in fair value of derivative instruments, net" to "Other (income) expense, net" to conform with the current year presentation. This reclassification had no impact on "Income before income taxes," "Net income," the consolidated balance sheets or consolidated statements of cash flows. See footnote 17 - Other (income) expense, net for details of "Other (income) expense, net."

Revenue recognition

We recognize sales when the revenue is realized or realizable, and has been earned. We record sales when a firm sales agreement is in place, delivery has occurred and collectability of the fixed or determinable sales price is reasonably assured.

We recognize product revenue, net of trade discounts and allowances, in the reporting period in which the products are shipped and the title and risk of ownership pass to the customer. We generally ship our product to our customers FOB (free on board) destination point; the remaining products are shipped FOB shipping point. Our standard terms of delivery are included in our contracts of sale, order confirmation documents and invoices. We sell most of our products under contracts based on a "conversion premium," which is subject to periodic adjustments based on market factors. As a result, the aluminum price risk is largely absorbed by the customer. In situations where we offer customers fixed prices for future delivery of our products, we may enter into derivative instruments for all or a portion of the cost of metal inputs to protect our profit on the conversion of the product. In addition, through December 31, 2009, certain of our sales contracts provided for a ceiling over which metal prices could not be contractually passed through to the customer. We partially mitigated the risk of this metal price exposure through the purchase of derivative instruments.

We record tolling revenue when the revenue is realized or realizable, and has been earned. Tolling refers to the process by which certain customers provide metal to us for conversion to rolled product. We do not take title to the metal and, after the conversion and return shipment of the rolled product to the customer, we charge them for the value-added conversion cost and record these amounts in "Net sales."

Shipping and handling amounts we bill to our customers are included in "Net sales" and the related shipping and handling costs we incur are included in "Cost of goods sold (exclusive of depreciation and amortization)."

Cost of goods sold (exclusive of depreciation and amortization)

"Cost of goods sold (exclusive of depreciation and amortization)" includes all costs associated with inventories, including the procurement of materials, the conversion of such materials into finished product, and the costs of warehousing and distributing finished goods to customers. Material procurement costs include inbound freight charges as well as purchasing, receiving, inspection and storage costs. Conversion costs include the costs of direct production inputs such as labor and energy, as well as allocated overheads from indirect production centers and plant administrative support areas. Warehousing and distribution expenses include inside and outside storage costs, outbound freight charges and the costs of internal transfers.

Selling, general and administrative expenses

"Selling, general and administrative expenses" include selling, marketing and advertising expenses; salaries, travel and office expenses of administrative employees and contractors; legal and professional fees; software license fees and bad debt expenses.

Cash and cash equivalents

"Cash and cash equivalents" includes investments that are highly liquid and have maturities of three months or less when purchased. The carrying values of cash and cash equivalents approximate their fair value due to the short-term nature of these instruments.

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We maintain amounts on deposit with various financial institutions, which may, at times, exceed federally insured limits. However, management periodically evaluates the credit-worthiness of those institutions, and we have not experienced any losses on such deposits.

Accounts receivable

Our accounts receivable are geographically dispersed. We do not obtain collateral relating to our accounts receivable. We do not believe there are any significant concentrations of revenues from any particular customer or group of customers that would subject us to any significant credit risks in the collection of our accounts receivable. We report accounts receivable at the estimated net realizable amount we expect to collect from our customers.

Additions to the allowance for doubtful accounts are made by means of the provision for doubtful accounts. We write-off uncollectible accounts receivable against the allowance for doubtful accounts after exhausting collection efforts.

For each of the periods presented, we performed an analysis of our historical cash collection patterns and considered the impact of any known material events in determining the allowance for doubtful accounts. In performing the analysis, the impact of any adverse changes in general economic conditions was considered, and for certain customers we reviewed a variety of factors including: past due receivables; macro-economic conditions; significant one-time events and historical experience. Specific reserves for individual accounts may be established due to a customer's inability to meet their financial obligations, such as in the case of bankruptcy filings or the deterioration in a customer's operating results or financial position. As circumstances related to customers change, we adjust our estimates of the recoverability of the accounts receivable.

Derivative Instruments

We hold derivatives for risk management purposes and not for trading. We use derivatives to mitigate uncertainty and volatility caused by underlying exposures to aluminum prices, foreign exchange rates, interest rate, and energy prices. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date and are reported gross.

We may be exposed to losses in the future if the counterparties to our derivative contracts fail to perform. We are satisfied that the risk of such non-performance is remote due to our monitoring of credit exposures. Additionally, we enter into master netting agreements with contractual provisions that allow for netting of counterparty positions in case of default, and we do not face credit contingent provisions that would result in the posting of collateral.

For derivatives designated as fair value hedges, we assess hedge effectiveness by formally evaluating the high correlation of changes in the fair value of the hedged item and the derivative hedging instrument. The changes in the fair values of the underlying hedged items are reported in other current and noncurrent assets and liabilities in the consolidated balance sheet. Changes in the fair values of these derivatives and underlying hedged items generally offset and are recorded each period in revenue, consistent with the underlying hedged item.

For derivatives designated as cash flow hedges or net investment hedges, we assess hedge effectiveness by formally evaluating the high correlation of the expected future cash flows of the hedged item and the derivative hedging instrument. The effective portion of gain or loss on the derivative is included in OCI and reclassified to earnings in the period in which earnings are impacted by the hedged items or in the period that the transaction becomes probable of not occurring. Gains or losses representing reclassifications of OCI to earnings are recognized in the line item most reflective of the underlying risk exposure. We exclude the time value component of foreign currency and aluminum price risk hedges when measuring and assessing ineffectiveness to align accounting policy with risk management objectives when it is necessary. If at any time during the life of a cash flow hedge relationship we determine that the relationship is no longer effective, the derivative will no longer be designated as a cash flow hedge and future gains or losses on the derivative will be recognized in "Other (income) expense, net."

For all derivatives designated in hedging relationships, gains or losses representing hedge ineffectiveness or amounts excluded from effectiveness testing are recognized in "Other (income) expense, net" in our current period earnings. If no hedging relationship is designated, gains or losses are recognized in "Other (income) expense, net" in our current period earnings.

Consistent with the cash flows from the underlying risk exposure, we classify cash settlement amounts associated with designated derivatives as part of either operating or investing activities in the consolidated statements of cash flows. If no hedging relationship is designated, we classify cash settlement amounts as part of investing activities in the consolidated statement of cash flows.

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The majority of our derivative contracts are valued using industry-standard models that use observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices for foreign exchange rates. See Note 15 - Financial Instruments and Commodity Contracts and Note 16 - Fair Value of Assets and Liabilities to our accompanying consolidated audited financial statements for discussion on fair value of derivative instruments.

Inventories

We carry our inventories at the lower of their cost or market value, reduced for excess and obsolete items. We use the "average cost" method to determine cost.

Property, plant and equipment

We record land, buildings, leasehold improvements and machinery and equipment at cost. We record assets under capital lease obligations at the lower of their fair value or the present value of the aggregate future minimum lease payments as of the beginning of the lease term. We depreciate our assets using the straight-line method over the shorter of the estimated useful life of the assets or the lease term, excluding any lease renewals, unless the lease renewals are reasonably assured.

The ranges of estimated useful lives are as follows:

Years

Buildings

30 to 40

Leasehold improvements

7 to 20

Machinery and equipment

2 to 25

Furniture, fixtures and equipment

3 to 10

Equipment under capital lease obligations

6 to 15

As noted above, our machinery and equipment have useful lives of 2 to 25 years. Most of our large scale machinery, including hot mills, cold mills, continuous casting mills, furnaces and finishing mills have useful lives of 15 to 25 years. Supporting machinery and equipment, including automation and work rolls, have useful lives of 2 to 15 years.

Maintenance and repairs of property and equipment are expensed as incurred. We capitalize replacements and improvements that increase the estimated useful life of an asset, and when material, we capitalize interest on major construction and development projects while in progress.

We retain fully depreciated assets in property and accumulated depreciation accounts until we remove them from service. In the case of sale, retirement or disposal, the asset cost and related accumulated depreciation balances are removed from the respective accounts, and the resulting net amount, after consideration of any proceeds, is included as a gain or loss in "Other (income) expense, net" in our consolidated statements of operations.

We account for operating leases under the provisions of ASC 840, Leases. These pronouncements require us to recognize escalating rents, including any rent holidays, on a straight-line basis over the term of the lease for those lease agreements where we receive the right to control the use of the entire leased property at the beginning of the lease term.

Goodwill

We test for impairment at least annually during the fourth quarter of each fiscal year, unless some triggering event occurs that would require an impairment assessment. We use our operating segments as our reporting units.

In September 2011, the Financial Accounting Standards Board issued new accounting guidance for testing goodwill for impairment. The guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative impairment test.

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In the year ended March 31, 2012, in conjunction with management's annual review of goodwill, Novelis early adopted the new guidance.

When a business within a reporting unit is disposed of, goodwill is allocated to the gain or loss on disposition using the relative fair value methodology.

Long-Lived Assets and Other Intangible Assets

We amortize the cost of intangible assets over their respective estimated useful lives to their estimated residual value.

We assess the recoverability of long-lived assets (excluding goodwill) and finite-lived intangible assets, whenever events or changes in circumstances indicate that we may not be able to recover the asset's carrying amount. We measure the recoverability of assets to be held and used by a comparison of the carrying amount of the asset (groups) to the expected, undiscounted future net cash flows to be generated by that asset (groups), or, for identifiable intangible assets, by determining whether the amortization of the intangible asset balance over its remaining life can be recovered through undiscounted future cash flows. The amount of impairment of identifiable intangible assets is based on the present value of estimated future cash flows. We measure the amount of impairment of other long-lived assets (excluding goodwill) as the amount by which the carrying value of the asset exceeds the fair value of the asset, which is generally determined as the present value of estimated future cash flows or as the appraised value. Impairments of long-lived assets have been included in "Restructuring charges, net" and "Other income (expense), net" in the consolidated statement of operations.

If the carrying amount of an intangible asset were to exceed its fair value, we would recognize an impairment charge in "Other (income) expense, net" in our consolidated statements of operations. No impairments of other intangible assets have been identified during any of the periods presented.

We continue to depreciate long-lived assets to be disposed of other than by sale. We carry long-lived assets to be disposed of by sale in our consolidated balance sheets at the lower of net book value or the fair value less cost to sell, and we cease depreciation.

Investment in and Advances to Non-Consolidated Affiliates

Management assesses the potential for other-than-temporary impairment of our equity method and cost method investments. We consider all available information, including the recoverability of the investment, the earnings and near-term prospects of the affiliate, factors related to the industry, conditions of the affiliate, and our ability, if any, to influence the management of the affiliate. We assess fair value based on valuation methodologies, as appropriate, including the present value of estimated future cash flows, estimates of sales proceeds, and external appraisals. If an investment is considered to be impaired and the decline in value is other than temporary, we record an appropriate write-down.

Guarantees

We recognize a liability for the fair value of obligations undertaken at the inception of a guarantee.

Financing Costs and Interest Income

We amortize financing costs and premiums, and accrete discounts, over the remaining life of the related debt using the "effective interest amortization" method. The related income or expense is included in "Interest expense and amortization of debt issuance costs" in our consolidated statements of operations. We record discounts or premiums as a direct deduction from, or addition to, the face amount of the financing.

Fair Value of Financial Instruments

ASC 820, Fair Value Measurements and Disclosures (ASC 820), defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. ASC 820 also applies to measurements under other accounting pronouncements, such as ASC 825, Financial Instruments (ASC 825) that require or permit fair value measurements. ASC 825 requires disclosures of the fair value of financial instruments. Our financial instruments include: cash and cash equivalents; certificates of deposit; accounts receivable; accounts payable; foreign currency, energy and interest rate derivative instruments; cross-currency swaps; metal option and forward contracts; related party notes receivable and payable; letters of credit; short-term borrowings and long-term debt.

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The carrying amounts of cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable and current related party notes receivable and payable approximate their fair value because of the short-term maturity and highly liquid nature of these instruments. The fair value of our letters of credit is deemed to be the amount of payment guaranteed on our behalf by third party financial institutions. We determine the fair value of our short-term borrowings and long-term debt based on various factors including maturity schedules, call features and current market rates. We also use quoted market prices, when available, or the present value of estimated future cash flows to determine fair value of short-term borrowings and long-term debt. When quoted market prices are not available for various types of financial instruments (such as currency, energy and interest rate derivative instruments, swaps, options and forward contracts), we use standard pricing models with market-based inputs, which take into account the present value of estimated future cash flows.

Pensions and Postretirement Benefits

We recognize the funded status of our benefit plans as a net asset or liability, with an offsetting adjustment to AOCI in shareholder's equity. The funded status is calculated as the difference between the fair value of plan assets and the benefit obligation. For the years ended March 31, 2012 and 2011, we used March 31 as the measurement date.

We use standard actuarial methods and assumptions to account for our pension and other postretirement benefit plans. Pension and postretirement benefit obligations are actuarially calculated using management's best estimates of expected service periods, salary increases and retirement ages of employees. Pension and postretirement benefit expense includes the actuarially computed cost of benefits earned during the current service period, the interest cost on accrued obligations, the expected return on plan assets based on fair market value and the straight-line amortization of net actuarial gains and losses and adjustments due to plan amendments. Generally, all net actuarial gains and losses are amortized over the expected average remaining service lives of plan participants.

Our pension obligations relate to funded defined benefit pension plans in the U.S., Canada, Switzerland and the U.K., unfunded pension plans in Germany, and unfunded lump sum indemnities in France, South Korea, Malaysia and Italy. Our other postretirement obligations include unfunded healthcare and life insurance benefits provided to retired employees in Canada, the U.S. and Brazil.

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Noncontrolling Interests in Consolidated Affiliates

These financial statements reflect the application of ASC 810, Consolidations (ASC 810), which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within shareholder's equity, but separate from the parent's equity; (ii) the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and (iii) changes in a parent's ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently.

Our consolidated financial statements include all assets, liabilities, revenues and expenses of less-than-100%-owned affiliates that we control or for which we are the primary beneficiary. We record a noncontrolling interest for the allocable portion of income or loss to which the noncontrolling interest holders are entitled based upon their ownership share of the affiliate. Distributions made to the holders of noncontrolling interests are charged to the respective noncontrolling interest balance.

Losses attributable to the noncontrolling interest in an affiliate may exceed our interest in the affiliate's equity. The excess, and any further losses attributable to the noncontrolling interest, shall be attributed to those interests. The noncontrolling interest shall continue to be attributed its share of losses even if that attribution results in a deficit noncontrolling interest balance. As of March 31, 2012, we have no such losses.

Environmental Liabilities

We record accruals for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. We adjust these accruals periodically as assessment and remediation efforts progress or as additional technical or legal information become available. Accruals for environmental liabilities are stated at undiscounted amounts. Environmental liabilities are included in our consolidated balance sheets in "Accrued expenses and other current liabilities" and "Other long-term liabilities," depending on their short- or long-term nature. Any receivables for related insurance or other third party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in our consolidated balance sheets in "Prepaid expenses and other current assets."

Costs related to environmental contamination treatment and clean-up are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued in the period in which such costs are determined to be probable and estimable.

Litigation Contingencies

We accrue for loss contingencies associated with outstanding litigation, claims and assessments for which management has determined it is probable that a loss contingency exists and the amount of loss can be reasonably estimated. We expense professional fees associated with litigation claims and assessments as incurred.

Income Taxes

We provide for income taxes using the asset and liability method. This approach recognizes the amount of income taxes payable or refundable for the current year, as well as deferred tax assets and liabilities for the future tax consequence of events recognized in the consolidated financial statements and income tax returns. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates. Under ASC 740, a valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. Realization is dependent on generating sufficient taxable income through various sources.

We record tax benefits related to uncertain tax positions taken or expected to be taken on a tax return when such benefits meet a more than likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, the statute of limitation has expired or the appropriate taxing authority has completed their examination. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized. See Note 18 -Income Taxes for additional discussion.

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Share-Based Compensation

In accordance with ASC 718, Compensation - Stock Compensation (ASC 718), we recognize compensation expense for a share-based award over an employee's requisite service period based on the award's grant date fair value, subject to adjustment.

We adopted ASC 718 using the modified prospective method, which requires companies to record compensation cost beginning with the effective date based on the requirements of ASC 718 for all share-based payments granted after the effective date of ASC 718. All awards granted to employees prior to the effective date of ASC 718 that remained unvested at the adoption date continued to be expensed over the remaining service period. Additionally, we determined that all of our compensation plans settled in cash are considered liability based awards. As such, liabilities for awards under these plans are required to be measured at each reporting date until the date of settlement. The Black-Scholes model was used to determine the fair value of these awards.

Foreign Currency Translation

The assets and liabilities of foreign operations, whose functional currency is other than the U.S. dollar (located in Europe and Asia), are translated to U.S. dollars at the period end exchange rates and revenues and expenses are translated at average exchange rates for the period. Differences arising from the translation of assets and liabilities are included in the currency translation adjustment (CTA) component of AOCI. If there is a planned sale or liquidation of our ownership in a foreign operation, the relevant portion of the CTA is recognized in our consolidated statement of operations.

For all operations, the monetary items denominated in currencies other than the functional currency are remeasured at period-end exchange rates and transaction gains and losses are included in "Other (income) expense, net" in our consolidated statements of operations. Non-monetary items are remeasured at historical rates.

Research and Development

We incur costs in connection with research and development programs that are expected to contribute to future earnings, and charge such costs against income as incurred. Research and development costs consist primarily of salaries and administrative costs.

Restructuring Activities

"Restructuring charges, net" include employee severance and benefit costs, impairments of assets, and other costs associated with exit activities. We apply the provisions of ASC 420, Exit or Disposal Cost Obligations (ASC 420) relating to one-time termination benefits. Severance costs accounted for under ASC 420 are recognized when management with the proper level of authority has committed to a restructuring plan and communicated those actions to employees. Impairment losses are based upon the estimated fair value less costs to sell, with fair value estimated based on existing market prices for similar assets. Other exit costs include environmental remediation costs and contract termination costs, primarily related to equipment and facility lease obligations. At each reporting date, we evaluate the accruals for restructuring costs to ensure the accruals are still appropriate.

Customer Directed Derivatives

We classify all customer directed derivatives and associated trading activities as operating activities in our consolidated statement of cash flows. Cash flows provided by such derivatives were $19 million and $75 million in the years ended March 31, 2011 and 2010, respectively. There were no customer directed derivatives for the year ended March 31, 2012 or as of March 31, 2011.

Recently Adopted Accounting Standards

Effective for the year ended March 31, 2012, we adopted the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment , which contains changes to the testing of goodwill for impairment. These changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative

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impairment test, otherwise no further analysis is required. An entity may also elect not to perform the qualitative assessment and, instead, go directly to the two-step quantitative impairment test. The adoption of this standard had no impact on our consolidated financial position.

Effective for the year ended March 31, 2012, we adopted the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs . ASU No. 2011-04 develops common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (IFRSs) and improves the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. ASU No. 2011-04 will be effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of this standard had no impact on our consolidated financial position, but required additional disclosure in Note 16 - Fair Value of Assets and Liabilities.

Recently Issued Accounting Standards

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income . ASU No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requires all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, in December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which indefinitely defers the requirement in ASU No. 2011-05 to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. During the deferral period, the existing requirements in U.S. GAAP for the presentation of reclassification adjustments must continue to be followed. These standards are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are to be applied retrospectively, with early adoption permitted. We will adopt this standard in our interim period ending June 30, 2012. The adoption of this standard will have no impact on our consolidated financial position, but will require additional disclosure.

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities . The amendments in this update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The requirements are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. We are currently evaluating the potential impact, if any, of the adoption of ASU No. 2011-11 on our consolidated financial statements and disclosures.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2. RESTRUCTURING PROGRAMS

"Restructuring charges, net" for the year ended March 31, 2012, 2011 and 2010 of $60 million, $34 million and $14 million, respectively, includes $42 million, $5 million and $2 million, respectively, of non-cash charges discussed in greater detail below. "Restructuring charges, net" for the year ended March 31, 2011 includes a $10 million gain from the sale of assets to Hindalco discussed further below. The following table summarizes our restructuring activity by region (in millions).

Europe North
America
Asia South
America
Corporate Restructuring
liabilities

Balance as of March 31, 2009

61 16 -   2 1 80

Fiscal 2010 Activity:

Provisions

8 5 -   (1 -   12

Cash payments

(46 (11 -   (2 (1 (60

Adjustments - other

5 -   -   1 -   6

Balance as of March 31, 2010

28 10 -   -   -   38

Fiscal 2011 Activity:

Provisions

17 13 -   5 5 40

Cash payments

(10 (17 -   (1 (2 (30

Adjustments - other

2 -   -   -   -   2

Balance as of March 31, 2011

37 6 -   4 3 50

Fiscal 2012 Activity:

Provisions

30 6 -   1 2 39

Cash payments

(25 (7 -   (2 (3 (37

Reversals

(21 -   -   -   -   (21

Adjustments - other

(2 -   -   (1 -   (3

Balance as of March 31, 2012

$ 19 $ 5 $   -   $ 2 $ 2 $ 28

As of March 31, 2012, $27 million of restructuring liabilities is classified as short-term and is included in "Accrued expenses and other current liabilities" and $1 million is classified as long-term in "Other long–term liabilities" on our consolidated balance sheets.

Europe

Total "Restructuring charges, net" for the year ended March 31, 2012 consisted of $13 million in severance across our European plants, fixed asset impairments related to restructuring actions initiated in prior years, a reversal of a remaining liability and other exit costs. For the year ended March 31, 2012, we made $12 million in severance payments, $3 million in payments for environmental remediation, and $10 million in other exit related payments.

For the year ended March 31, 2012, we made a decision to shutdown a lithographic sheet line in our Göttingen, Germany facility and as a result we have recorded a liability for severance costs of $14 million. The Company ceased operations associated with the Bridgnorth, U.K. foil rolling and laminating operations at the end of April 2011. For the year ended March 31, 2012, as a result of the sale of the land and buildings at the Bridgnorth site, we recorded an additional $8 million of fixed asset impairment and restructuring charges related to the sale and site closure and made payments of $13 million in severance and other exit payments related to this plan.

As previously announced, we closed our Rogerstone facility in prior years. During the year ended March 31, 2012, we sold the land and reversed the outstanding environmental contingencies of $21 million related to this location, which was recorded as a reduction to "Restructuring charges, net." Additionally, we recorded $6 million of severance charges for restructuring programs related to our European general and administrative functions and $5 million related to other restructuring activities in the year ended March 31, 2012.

As of March 31, 2012, the restructuring liability balance of $19 million was comprised of $18 million of severance costs and $1 million of other costs.

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Total "Restructuring charges, net" for the year ended March 31, 2011 consisted of $11 million in severance across our European plants, fixed asset impairments related to restructuring actions initiated in fiscal 2011 and prior years and other exit costs. We recorded $15 million of restructuring costs related to Bridgnorth which consisted of the following: $8 million in severance and environmental costs; $2 million in contract termination and other expenses and $5 million in asset impairment costs related to the write down of land and building to fair value. In fiscal year 2011, we recorded a $10 million gain on the sale of assets to Hindalco and $1 million in other restructuring related costs related to the closure of our Rogerstone facility. Also, we recorded an additional $3 million of restructuring expense for severance and environmental costs and $2 million of contract termination and other costs related to restructuring actions initiated in prior years. For the year ended March 31, 2011, we made $6 million in severance payments and $4 million in payments for environmental remediation and other costs.

For the year ended March 31, 2010, we made the following payments relating to restructuring programs in Europe: $30 million in severance payments, $10 million in payments for environmental remediation and $6 million of other payments. We made additional staff reductions at plants in Italy, Switzerland and Germany, resulting in additional one-time terminations charges of $4 million. We also incurred $4 million of environmental and other costs at our Borgofranco facility, which was closed in March 2006.

North America

Total "Restructuring charges, net" for the year ended March 31, 2012 were $34 million. In the year ended March 31, 2012, we recorded an additional $3 million of termination benefits related to the previously announced relocation of our North American headquarters from Cleveland to Atlanta and we made $7 million in payments related to previously announced separation programs. We also recorded $3 million of one-time termination benefits associated with our decision to relocate our primary research and development operations to Kennesaw, Georgia. During the year ended March 31, 2012 we made the decision to close our Saguenay Works facility in Quebec, Canada effective August 2012, and recorded a fixed asset impairment charge of $28 million. The decision was driven by the need to right-size production capacity in North America, along with the ever-increasing logistics costs and structural challenges facing this location.

As of March 31, 2012, the restructuring liability balance of $5 million was comprised of $4 million of severance costs and $1 million of other costs.

We recorded $13 million and $4 million of restructuring expense for the year ended March 31, 2011 and 2010, respectively, related to the relocation of our North American headquarters from Cleveland to Atlanta, and made $17 million in payments related to this move.

In November 2008, we announced a Voluntary Separation Program (VSP) available to salaried employees in North America and the Corporate office aimed at reducing staff levels. This VSP supplemented a pre-existing Involuntary Severance Program (ISP). We eliminated approximately 120 positions and recorded $16 million in severance-related costs for the VSP and ISP programs for the year ended March 31, 2009. This program continued into fiscal 2010, with an additional $1 million in severance costs recorded under the voluntary and involuntary separation programs. We made $11 million in severance payments related to this plan in the year ended March 31, 2010.

South America

Total "Restructuring charges, net" for the year ended March 31, 2012, consisted of $11 million of severance costs, fixed asset impairments related to current period restructuring actions and impairments related to actions initiated in prior years. For the year ended March 31, 2012, we made $2 million in severance and other exit related payments.

In the year ended March 31, 2012, we announced that we ceased production of converter foil (9 microns thickness or less) for flexible packaging and stopped production of one rolling mill at our Santo André plant in Brazil. The decision was made due to overcapacity in the foil market and increased competition from low-cost countries. Approximately 74 positions were eliminated in the Santo Andre plant related to ceasing these operations. For the year ended March 31, 2012, the Company recorded $3 million in asset impairment costs related to the write down of land and building to fair value and $1 million in severance related costs.

As of March 31, 2012, the restructuring liability balance of $2 million was comprised of environmental remediation liabilities.

We recorded $7 million of restructuring expense for the year ended March 31, 2011 for employee termination and certain environmental remediation costs related to the closure of our primary aluminum smelter at Aratu, Brazil, of which $2 million were expensed as incurred; therefore, these costs were not reflected in the table above. The closure was in response to high operating costs and lack of competitively priced energy supply. The closure affected approximately 300 workers and was completed by December 31, 2010. For fiscal 2011, we made $1 million in severance payments. In December 2009, we completed all restructuring actions initiated in fiscal 2009.

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Corporate

Total "Restructuring charges, net" for the year ended March 31, 2012, consisted of $2 million, primarily in severance costs and other exit related costs. As of March 31, 2012, the restructuring liability balance of $2 million was comprised of lease termination costs incurred in the relocation of our corporate headquarters to a new facility in Atlanta and other contract termination fees.

We recorded $3 million of restructuring expense for the year ended March 31, 2011, related to lease termination costs incurred in the relocation of our corporate headquarters to a new facility in Atlanta and other contract termination fees. The lease termination costs include a $2 million deferred credit on the former facility.

3. ACCOUNTS RECEIVABLE

"Accounts receivable, net" consists of the following (in millions).

March 31,
2012 2011

Trade accounts receivable

$ 1,268 $ 1,413

Other accounts receivable

68 74

Accounts receivable - third parties

1,336 1,487

Allowance for doubtful accounts - third parties

(5 (7

1,331 1,480

Other accounts receivable - related parties

36 28

Accounts receivable, net

$ 1,367 $ 1,508

Allowance for Doubtful Accounts

As of March 31, 2012 and 2011, our allowance for doubtful accounts represented approximately 0.4% and 0.5%, respectively, of gross accounts receivable.

Activity in the allowance for doubtful accounts is as follows (in millions).

Balance at
Beginning
of Period
Additions
Charged to
Expense
Accounts
Recovered/
(Written-
Off)
Foreign
Exchange
and Other
Balance at
End of  Period

Year Ended March 31, 2010

$ 2 $ 2 $ (1 $ 1 $ 4

Year Ended March 31, 2011

$ 4 $ 2 $ (1 $ 2 $ 7

Year Ended March 31, 2012

$ 7 $ 1 $ (2 $ (1 $ 5

Forfaiting and Factoring of Trade Receivables

Novelis Korea Ltd. forfaits trade receivables in the ordinary course of business. These trade receivables are typically outstanding for 60 to 120 days. Forfaiting is a non-recourse method to manage credit and interest rate risks. Under this method, customers contract to pay a financial institution. The institution assumes the risk of non-payment and remits the invoice value (net of a fee) to us after presentation of a proof of delivery of goods to the customer. We do not retain a financial or legal interest in these receivables, and they are excluded from the accompanying consolidated balance sheets. Forfaiting expenses are included in "Selling, general and administrative expenses" in our consolidated statements of operations.

Our Brazilian operations factor, without recourse, certain trade receivables that are unencumbered by pledge restrictions. Under this method, customers are directed to make payments on invoices to a financial institution, but are not contractually required to do so. The financial institution pays us for invoices it has approved for payment (net of a fee). We do not retain financial or legal interest in these receivables, and they are excluded from the accompanying consolidated balance sheets. Factoring expenses are included in "Selling, general and administrative expenses" in our consolidated statements of operations.

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Summary Disclosures of Financial Amounts

The following tables summarize amounts relating to our forfaiting and factoring activities (in millions).

Year Ended
March 31,
2012 2011 2010

Receivables forfaited

$ 235 $ 396 $ 423

Receivables factored

$ 61 $ 77 $ 149

Forfaiting expense

$ 1 $ 1 $ 2

Factoring expense

$ 1 $ 1 $ 1

March 31,
2012 2011

Forfaited receivables outstanding

$ 49 $ 52

Factored receivables outstanding

$ 4 $ 8

4. INVENTORIES

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

March 31,
2012 2011

Finished goods

$ 207 $ 293

Work in process

380 529

Raw materials

340 414

Supplies

97 102

Inventories

$ 1,024 $ 1,338

5. ASSETS HELD FOR SALE

In March 2012, we announced the planned sale of three aluminum foil and packaging plants in our Europe segment to American Industrial Acquisition Corporation (AIAC). The transaction includes foil rolling and packaging operations in Rugles, France; Dudelange, Luxembourg; and Berlin, Germany. The transaction is a step in aligning our growth strategy on the higher-volume, premium markets of beverage cans, automobiles and electronics and specialty products. These plants are expected to be sold within a year and we have classified the respective assets and liabilities of these plants as "Assets held for sale" and "Liabilities held for sale" in the consolidated balance sheet as of March 31, 2012.

Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell. During the year ended March 31, 2012, we recorded an estimated loss on the disposal of the assets and liabilities of $111 million, which is included in "Loss on assets held for sale" in the consolidated statement of operations.

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The following table summarizes the carrying amounts of the major classes of assets and liabilities held for sale as of March 31, 2012 (in millions).

March 31
2012

Assets held for sale

Accounts receivable

53

Inventories

17

Prepaid expenses and other current assets

3

Property, plant and equipment, net

8

Total assets held for sale

$ 81

Liabilities held for sale

Accounts payable

23

Accrued expenses and other current liabilities

20

Accrued postretirement benefits

10

Other liabilities

4

Total liabilities held for sale

$ 57

6. PROPERTY, PLANT AND EQUIPMENT

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

March 31,
2012 2011

Land and property rights

$ 185 $ 228

Buildings

770 816

Machinery and equipment

2,684 2,787

3,639 3,831

Accumulated depreciation and amortization

(1,508 (1,441

2,131 2,390

Construction in progress

558 153

Property, plant and equipment, net

$ 2,689 $ 2,543

As of March 31, 2012 and 2011, there were $535 million and $328 million, respectively, of fully depreciated assets included in our consolidated balance sheet.

Total depreciation expense is shown in the table below (in millions). For the year ended March 31, 2012, we capitalized $12 million in interest related to construction of property, plant and equipment. Capitalized interest related to construction of property, plant and equipment was immaterial for the year ended March 31, 2011.

Year Ended
March 31,
2012 2011 2010

Depreciation expense related to property, plant and equipment

$ 283 $ 357 $ 336

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Asset impairments

For the year ended March 31, 2012, we recorded impairment charges of $42 million classified in "Restructuring charges, net" primarily related to the closure of our Saguenay and Bridgnorth facilities and $4 million in impairment charges on long-lived assets classified as "Other (income) expense, net." For the year ended March 31, 2011, we recorded impairment charges of $5 million classified in "Restructuring charges, net" related to the write down of land and buildings at our Bridgnorth facility, offset by a $10 million gain on asset sales at our Rogerstone facility. During the year ended March 31, 2010, we recorded $1 million of impairment charges which is included in "Other (income) expense, net" on the consolidated statement of operations. See Note 2 - Restructuring Programs for additional information on asset impairments classified as "Restructuring charges, net."

Leases

We lease certain land, buildings and equipment under non-cancelable operating leases expiring at various dates through 2015, and we lease assets in Sierre, Switzerland including a 15-year capital lease through December 2019 from Alcan. Operating leases generally have five to ten-year terms, with one or more renewal options, with terms to be negotiated at the time of renewal. Various facility leases include provisions for rent escalation to recognize increased operating costs or require us to pay certain maintenance and utility costs.

The following table summarizes rent expense included in our consolidated statements of operations (in millions):

Year Ended
March 31,
2012 2011 2010

Rent expense

$ 27 $ 26 $ 24

Future minimum lease payments as of March 31, 2012, for our operating and capital leases having an initial or remaining non-cancelable lease term in excess of one year are as follows (in millions).

Year Ending March 31,

Operating
Leases
Capital Lease
Obligations

2013

$ 22 $ 8

2014

20 7

2015

17 7

2016

14 7

2017

12 7

Thereafter

57 21

Total minimum lease payments

$ 142 57

Less: interest portion on capital lease

12

Principal obligation on capital leases

$ 45

The future minimum lease payments for capital lease obligations exclude $2 million of unamortized fair value adjustments recorded as a result of the Arrangement (see Note 11 - Debt).

Assets and related accumulated amortization under capital lease obligations as of March 31, 2012 and 2011 are as follows (in millions).

March 31,
2012 2011

Assets under capital lease obligations:

Buildings

$ 11 $ 11

Machinery and equipment

78 78

89 89

Accumulated amortization

(51 (44

$ 38 $ 45

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Asset Retirement Obligations

The following is a summary of our asset retirement obligation activity. The period-end balances are included in "Other long-term liabilities" in our consolidated balance sheets (in millions).

Balance at
Beginning
of Period
Accretion Other Balance at
End of  Period

Year Ended March 31, 2010

$ 16 $ 1 $   -   $ 17

Year Ended March 31, 2011

$ 17 $ 1 $ (2 $ 16

Year Ended March 31, 2012

$ 16 $ 1 $ (2 $ 15

7. GOODWILL AND INTANGIBLE ASSETS

There were no material changes to the gross carrying amount or accumulated impairment of goodwill during the years ended March 31, 2012 and 2011. The following table summarizes "Goodwill" (in millions) for the years ended March 31, 2012 and 2011.

Gross
Carrying
Amount
Accumulated
Impairment
Net
Carrying
Value

North America

$ 1,148 $ (860 $ 288

Europe

511 (330 181

South America

292 (150 142

$ 1,951 $ (1,340 $ 611

The components of "Intangible assets, net" are as follows (in millions).

March 31, 2012 March 31, 2011
Weighted
Average
Life
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount

Tradenames

20 years $ 141 $ (34 $ 107 $ 145 $ (28 $ 117

Technology and software

13 years 245 (83 162 210 (72 138

Customer-related intangible assets

20 years 466 (113 353 475 (92 383

Favorable energy supply contract

9.5 years 124 (68 56 123 (54 69

16.9 years $ 976 $ (298 $ 678 $ 953 $ (246 $ 707

Our favorable energy supply contract is amortized over its estimated useful life using a method that reflects 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, net" is as follows (in millions):

Year Ended
March 31,
2012 2011 2010

Total Amortization expense related to intangible assets

$ 59 $ 60 $ 66

Less: Amortization expense related to intangible assets included in "Cost of goods sold (exclusive of depreciation and amortization)" (A)

(13 (13 (18

Amortization expense related to intangible assets included in "Depreciation and amortization"

$ 46 $ 47 $ 48

(A) Relates to amortization of favorable energy supply contract.

Estimated total amortization expense related to "Intangible assets, net" for each of the five succeeding fiscal years is as follows (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 and other events.

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Fiscal Year Ending March 31,

2013

$   62

2014

62

2015

61

2016

61

2017

57

8. CONSOLIDATION

Purchase of Noncontrolling Interest in Novelis Korea Limited

During the year ended March 31, 2012, we acquired 31.3% of the shares of Novelis Korea Limited for $344 million. The transaction resulted in our ownership of 99% of the outstanding shares of Novelis Korea Limited. The acquisition was recorded as a reduction to equity of $344 million.

The following table summarizes the change in ownership interest (in millions).

Year ended
March 31, 2012

Net income attributable to our common shareholder

$ 63

Decrease in additional paid-in capital for purchase of shares in Novelis Korea Limited

(171

Change from net income attributable to our common shareholder and transfers from noncontrolling interest

$ (108

Variable Interest Entities (VIE)

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

We have a joint interest in Logan Aluminum Inc. (Logan) with Tri-Arrows Aluminum Inc. (Tri-Arrows), formerly known as ARCO Aluminum, Inc. (ARCO). Effective August 1, 2011, a consortium of Japanese companies purchased ARCO. The transaction did not impact Novelis' interest in Logan. Logan processes metal received from Novelis and Tri-Arrows and charges the respective partner a fee to cover expenses. Logan is thinly capitalized and relies on the regular reimbursement of costs and expenses by Novelis and Tri-Arrows to fund its operations. This reimbursement is considered a variable interest as it constitutes a form of financing of the activities of Logan. Other than these contractually required reimbursements, we do not provide other material support to Logan. Logan's creditors do not have recourse to our general credit.

Novelis has a majority voting right on Logan's board of directors and has the ability to direct the majority of Logan's production operations. We also have the ability to take the majority share of production and associated costs. These facts qualify Novelis as Logan's primary beneficiary and this entity is consolidated for all periods presented. All significant intercompany transactions and balances have been eliminated.

The following table summarizes the carrying value and classification of assets and liabilities owned by the Logan joint venture and consolidated in our consolidated balance sheets (in millions). There are significant other assets used in the operations of Logan that are not part of the joint venture, as they are directly owned and consolidated by Novelis or Tri-Arrows.

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March 31,
2012
March 31,
2011
Assets

Current assets

Cash and cash equivalents

$ 2 $ 1

Accounts receivable

20 27

Inventories

42 36

Total current assets

64 64

Property, plant and equipment, net

15 13

Goodwill

12 12

Deferred income taxes

63 52

Other long-term assets

3 3

Total assets

$ 157 $ 144

Liabilities

Current liabilities

Accounts payable

$ 24 $ 26

Accrued expenses and other current liabilities

11 11

Total current liabilities

35 37

Accrued postretirement benefits

145 120

Other long-term liabilities

2 2

Total liabilities

$ 182 $ 159

9. 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 March 31, 2012, and which we account for using the equity method. We do not control our non-consolidated affiliates, but have the ability to exercise significant influence over their operating and financial policies. We have no material investments that we account for using the cost method.

Affiliate Name

Ownership Structure Ownership
Percentage

Aluminium Norf GmbH

Corporation 50%

Consorcio Candonga

Unincorporated Joint Venture 50%

MiniMRF LLC

Limited Liability Company 50%

The following table summarizes our share of the assets, liabilities and equity of our equity method affiliates. The results include the unamortized fair value adjustments of $509 million and $559 million as of March 31, 2012 and 2011, respectively relating to our non-consolidated affiliates due to the Arrangement.

March 31,
2012 2011

Assets:

Current assets

$ 78 $ 80

Non-current assets

825 889

Total assets

$ 903 $ 969

Liabilities:

Current liabilities

$ 66 $ 63

Non-current liabilities

154 163

Total liabilities

220 226

Equity:

Novelis equity investment

683 743

Total liabilities and equity

$ 903 $ 969

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Included in the accompanying consolidated financial statements are transactions and balances arising from businesses we conduct with these non-consolidated affiliates, which we classify as related party transactions and balances. The following table also describes the nature and amounts of significant transactions that we had with our non-consolidated affiliates (in millions). These results include the incremental depreciation and amortization expense, net of tax, of $17 million, $17 million, and $18 million for the years ended March 31, 2012, 2011, and 2010, respectively that we record in our equity method accounting as a result of fair value adjustments we made to our investments in non-consolidated affiliates due to the Arrangement.

Year Ended
March  31,
2012 2011 2010

Net sales

$ 252 $ 229 $ 242

Costs, expenses and provision for taxes on income

265 241 257

Net income (loss)

$ (13 $ (12 $ (15

Purchase of tolling services from Aluminium Norf GmbH (Alunorf)

$ 252 $ 229 $ 241

For the year ended March 31, 2012, Alunorf had a $16 million related party loan outstanding. We earned less than $1 million of interest income on the loan due from Alunorf during each of the periods presented in the table above. We believe collection of the full amount receivable is probable; thus, no allowance for loan loss was provided for this loan as of March 31, 2012 and 2011.

We have guaranteed the indebtedness for a credit facility and loan on behalf of Alunorf. The guarantee is limited to 50% of the outstanding debt, not to exceed 6 million Euros. As of March 31, 2012, our guarantee was $1 million.

The following table describes the period-end account balances that we had with these non-consolidated affiliates, included in the related party balances in the accompanying consolidated balance sheets (in millions).

March 31,
2012 2011

Accounts receivable-related parties

$ 33 $ 28

Other long-term assets-related parties

$ 16 $ 19

Accounts payable-related parties

$ 51 $ 50

Transactions with Hindalco

We occasionally have related party transactions with our parent company, Hindalco. During the year ended March 31, 2012 we recorded "Net Sales" of $5 million between Novelis and our parent related to sales of aluminum coils. There were no amounts recorded to "Net Sales" for years ended March 31, 2011 and 2010. We also have related party "Accounts receivable, net" of $3 million as of March 31, 2012 related to transactions with Hindalco. There were no "Accounts receivable, net" related to transactions with Hindalco outstanding as of March 31, 2011.

On December 11, 2009, our wholly-owned subsidiary, Novelis U.K. Limited, entered into an agreement with Hindalco to sell certain equipment previously used in the operation of our aluminum sheet mill in Rogerstone, South Wales, U.K., which ceased operations in April 2009. Under the equipment purchase agreement, Hindalco paid Novelis U.K. Limited a purchase price of $17 million, and in the year ended March 31, 2012, we provided ancillary technical assistance to Hindalco with respect to its use of the equipment. The purchase price for the equipment was based on a third-party valuation, and we believe the terms of this transaction are comparable to the terms that would have been reached with a third party on an arms-length basis.

Novelis U.K. Limited entered into agreements with Hindalco to sell certain aluminum rolling equipment previously used in the operation of our plant located at Bridgnorth, England. In the year ended March 31, 2011, Hindalco paid Novelis U.K. Limited a purchase price of $3 million, plus certain additional dismantling costs. The purchase price for the equipment was based on a third-party valuation, and we believe the terms of this transaction are comparable to the terms that would have been reached with a third party on an arms-length basis. In the year ended March 31, 2012, Hindalco purchased an additional $5 million of equipment, and we provided ancillary technical assistance to Hindalco with respect to its use of the equipment.

On December 17, 2010, we completed certain refinancing activities and paid $1.7 billion to our shareholder as a return of capital.

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10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

"Accrued expenses and other current liabilities" consists of the following (in millions).

March 31,
2012 2011

Accrued compensation and benefits

$ 160 $ 199

Accrued interest payable

66 64

Accrued income taxes

19 35

Other current liabilities

231 270

Accrued expenses and other current liabilities

$ 476 $ 568

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11. DEBT

Debt consists of the following (in millions).

March 31, 2012 March 31, 2011
Interest
Rates(A)
Principal Unamortized
Carrying Value
Adjustments
Carrying
Value
Principal Unamortized
Carrying Value
Adjustments
Carrying
Value

Third party debt:

Short term borrowings

4.83 $ 18 $ -   $ 18 $ 17 $ -   $ 17

Novelis Inc.

Floating rate Term Loan Facility, due March 2017

4.00 1,705 (37 )(B)  1,668 1,496 (38 )(B)  1,458

8.375% Senior Notes, due December 2017

8.375 1,100 -   1,100 1,100 -   1,100

8.75% Senior Notes, due December 2020

8.75 1,400 -   1,400 1,400 (1 1,399

7.25% Senior Notes, due February 2015

7.25 74 2 76 74 3 77

Novelis Korea Limited

Facility Loan, due December 2014

4.63 26 -   26 -   -   -  

Term Loan, due December 2014

4.96 18 -   18 -   -   -  

Novelis Switzerland S.A.

Capital lease obligation, due December 2019 (Swiss francs (CHF) 40 million)

7.50 45 (2 43 48 (3 45

Novelis Brazil

BNDES loans, due December 2018 through April 2021

5.50 15 (4 11 5 (2 3

Other

Other debt, due December 2011 through November 2015

5.22 2 -   2 4 -   4

Total debt - third parties

4,403 (41 4,362 4,144 (41 4,103

Less: Short term borrowings

(18 -   (18 (17 -   (17

Current portion of long term debt

(23 -   (23 (21 -   (21

Long-term debt, net of current portion - third parties:

$ 4,362 $ (41 $ 4,321 $ 4,106 $ (41 $ 4,065

(A) Interest rates are as of March 31, 2012 and exclude the effects of related interest rate swaps and accretion/amortization of fair value adjustments as a result of the Arrangement, the debt exchange completed in fiscal 2009, the series of refinancing transactions we completed in fiscal 2011, and the additional borrowing in fiscal 2012.
(B) Debt existing at the time of the Arrangement was recorded at fair value. In connection with a series of refinancing transactions a portion of the historical fair value adjustments were allocated to the Term Loan Facility. The balance also includes the unamortized discount on the Term Loan Facility.

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Principal repayment requirements for our total debt over the next five years and thereafter (excluding unamortized carrying value adjustments and using exchange rates as of March 31, 2012 for our debt denominated in foreign currencies) are as follows (in millions).

As of March 31, 2012

Amount

Short-term borrowings and Current portion of long term debt due within one year

$ 41

2 years

25

3 years

143

4 years

25

5 years

1,645

Thereafter

2,524

Total

$ 4,403

Senior Notes

On December 17, 2010, we issued $1.1 billion in aggregate principal amount of 8.375% Senior Notes Due 2017 (the 2017 Notes) and $1.4 billion in aggregate principal amount of 8.75% Senior Notes Due 2020 (the 2020 Notes, and together with the 2017 Notes, the Notes).

Also, on December 17, 2010, we commenced a cash tender offer and consent solicitation for our 7.25% Senior Notes due 2015 (the 7.25% Notes) and our 11.5% Senior Notes due 2015 (the 11.5% Notes). The entire $185 million aggregate outstanding principal amount of the 11.5% Notes was tendered and redeemed. Of the $1.1 billion aggregate principal amount of the 7.25% Notes, $74 million was not redeemed and is expected to remain outstanding through maturity in February 2015. The 7.25% Notes that remain outstanding are no longer subject to substantially all of the restrictive covenants and certain events of default originally included in the indenture for the 7.25% Notes.

The Notes contain customary covenants and events of default that will limit our ability and, in certain instances, the ability of certain of our subsidiaries to (1) incur additional debt and provide additional guarantees, (2) pay dividends beyond certain amounts and make other restricted payments, (3) create or permit certain liens, (4) make certain asset sales, (5) use the proceeds from the sales of assets and subsidiary stock, (6) create or permit restrictions on the ability of certain of the Company's subsidiaries to pay dividends or make other distributions to the Company, (7) engage in certain transactions with affiliates, (8) enter into sale and leaseback transactions, (9) designate subsidiaries as unrestricted subsidiaries and (10) consolidate, merge or transfer all or substantially all of the our assets and the assets of certain of our subsidiaries. During any future period in which either Standard & Poor's Ratings Group, Inc., a division of the McGraw-Hill Companies, Inc. or Moody's Investors Service, Inc. have assigned an investment grade credit rating to the Notes and no default or event of default under the Indenture has occurred and is continuing, most of the covenants will be suspended.

Senior Secured Credit Facilities

On December 7, 2011, we borrowed an incremental $225 million through our existing term loan credit facility. The senior secured credit facilities consist of (1) a $1.5 billion six-year secured and an incremental $225 million five-year secured term loan credit facility, due March 2017 (collectively referred to as Term Loan Facility) and (2) an $800 million five-year asset based loan facility (ABL Facility) that may be increased by an additional $200 million. The interest rate on the Term Loan Facility is the higher of LIBOR or a floor of 100 basis points, plus a spread ranging from 2.75% to 3.00% depending on the Company's net leverage ratio, as defined in the Term Loan Facility agreement. The senior secured credit facilities contain various affirmative covenants, including covenants with respect to our financial statements, litigation and other reporting requirements, insurance, payment of taxes, employee benefits and (subject to certain limitations) causing new subsidiaries to pledge collateral and guaranty our obligations. The senior secured credit facilities also contain certain negative covenants as specified in the agreements. Substantially all of our assets are pledged as collateral under the senior secured credit facilities.

The senior secured credit facilities include various customary covenants and events of default, including limitations on our ability to (1) make certain restricted payments, (2) incur additional indebtedness, (3) sell certain assets, (4) enter into sale and leaseback transactions, (5) make investments, loans and advances, (6) pay dividends and distributions beyond certain amounts, (7) engage in mergers, amalgamations or consolidations, (8) engage in certain transactions with affiliates, and (9) prepay certain indebtedness. In

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addition, under the ABL Facility, if (a) our excess availability under the ABL Facility is less than the greater of (i) 12.5% of the lesser of (x) the total ABL Facility commitment at any time and (y) the then applicable borrowing base and (ii) $90 million, at any time or (b) any event of default has occurred and is continuing, we are required to maintain a minimum fixed charge coverage ratio of at least 1.1 to 1 until (1) such excess availability has subsequently been at least the greater of (i) 12.5% of the lesser of (x) the total ABL Facility commitments at such time and (y) the then applicable borrowing base for 30 consecutive days and (ii) $90 million and (2) no default is outstanding during such 30 day period. As of March 31, 2012 our excess availability under the ABL Facility was $704 million, or 88% of the lender commitments.

Further, under the Term Loan Facility we may not permit our total net leverage ratio as of the last day of our four consecutive quarters ending with any fiscal quarter to be greater than the ratio set forth below opposite the period in the table below during which the last day of such period occurs:

Period

Total Net
Leverage  Ratio

March 30, 2011 through March 31, 2012

4.75 to 1.0

April 1, 2012 through March 31, 2013

4.50 to 1.0

April 1, 2013 through March 31, 2014

4.375 to 1.0

April 1, 2014 through March 31, 2015

4.25 to 1.0

April 1, 2015 and thereafter

4.0 to 1.0

Korean Bank Loans

In December 2011, Novelis Korea Limited (Novelis Korea) entered into three separate loan agreements with local banks. The Novelis Korea bank loans consist of the following: (1) a $26 million (KRW 30 billion) loan due December 2014, (2) an $18 million (KRW 20 billion) loan due December 2014, and (3) a short term borrowing of $18 million (KRW 20 billion). All three bank loans have variable interest rates with the base rate tied to Korea's 91-day CD rate plus an applicable spread ranging from 1.08% to 1.41%.

Short-Term Borrowings and Lines of Credit

As of March 31, 2012, our short-term borrowings were $18 million, consisting of an $18 million (KRW 20 billion) Novelis Korea bank loan. As of March 31 2012, $24 million of the ABL Facility was utilized for letters of credit, and we had $704 million in remaining availability under the ABL Facility. The weighted average interest rate on our total short-term borrowings was 4.83% and 2.43% as of March 31, 2012 and March 31, 2011, respectively.

As of March 31, 2012, we had $49 million of outstanding letters of credit in South Korea which are not related to the ABL Facility.

BNDES Loans

From February 2011 through December 2011, Novelis Brazil entered into eleven new loan agreements (the BNDES loans) with Brazil's National Bank for Economic and Social Development (BNDES) related to the plant expansion in Pindamonhangaba, Brazil (Pinda). The agreements provided for a commitment of Brazilian Real (R$) borrowings at a fixed rate of 5.5% up to an aggregate of $18 million (R$34 million). As of March 31, 2012, we had $15 million (R$28 million) outstanding under the BNDES loan agreements with maturity dates ranging from December 2018 through April 2021.

Interest Rate Swaps

We use interest rate swaps to manage our exposure to changes in the benchmark LIBOR interest rate which impacts our variable-rate debt. Prior to December 17, 2010 these swaps were designated as cash flow hedges. On December 17, 2010 after the completion a refinancing transaction we ceased hedge accounting for these swaps and released all "Accumulated Other Comprehensive Income" (AOCI) into earnings during the year ended March 31, 2011.

We had $220 million of outstanding interest rate swaps with maturity date of April 2012, which were not designated as hedges as of March 31, 2012 and March 31, 2011.

On January 18, 2012 Novelis Korea entered into interest rate swaps for the Facility and Term year loans maturing December 2014. The rates were fixed at 4.485% for the $26 million (KRW 30 billion) loan and 4.815% for the $18 million (KRW 20 billion) loan. Both swaps expire December 2014, concurrent with the maturity of the loans. As of March 31, 2012, these swaps were designated as cash flow hedges.

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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 fixed quarterly payments of CHF 1.7 million, which is equivalent to $2 million at the exchange rate as of March 31, 2012.

12. SHARE-BASED COMPENSATION

The board of directors has authorized four long term incentive plans as follows:

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 provides for SARs and phantom restricted stock units (RSUs).

The Novelis Long-Term Incentive Plan FY 2012- FY 2015 (2012 LTIP) was authorized in May 2011. The 2012 LTIP provides for SARs and RSUs.

Under all four plans, SARs vest at the rate of 25% per year, subject to performance criteria and expire seven years from their grant date. Each SAR is to be settled in cash based on the difference between the market value of one Hindalco share on the date of grant and the market value on the date of exercise, subject to a maximum payout as defined by the plan. If the SAR is exercised within one year of vesting, the maximum payout is equal to two and a half times the target. If the SAR is exercised after one year of vesting, the maximum payout is equal to three times the target. The SARs do not transfer any shareholder rights in Hindalco to a participant. The SARs are classified as liability awards and are remeasured at fair value each reporting period until the SARs are settled.

The performance criterion for vesting is based on the actual overall Novelis operating earnings before interest, taxes, depreciation and amortization, as adjusted (adjusted Operating EBITDA) compared to the target adjusted Operating EBITDA established and approved each fiscal year. The minimum threshold for vesting each year is 75% of each annual target adjusted Operating EBITDA, at which point 75% of the SARs for that period would vest, with an equal pro rata amount of SARs vesting through 100% achievement of the target. Given that the performance criterion is based on an earnings target in a future period for each fiscal year, the grant date of the awards for accounting purposes is generally not established until the performance criterion has been defined.

The RSUs under the 2011 LTIP and 2012 LTIP vest in full three years from the grant date and are not subject to performance criteria. The payout on the RSUs is limited to three times the grant price.

Total compensation expense related to SARs and RSUs under the long term incentive plans for the respective periods is presented in the table below (in millions). These amounts are included in "Selling, general and administrative expenses" in our consolidated statements of operations. As the performance criteria for fiscal years 2013, 2014 and 2015 have not yet been established, measurement periods for SARs relating to those periods have not yet commenced. As a result, only compensation expense for vested and current year SARs has been recorded for the years ended March 31, 2012 and 2011.

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Year Ended
March  31,
2012 2011 2010

Novelis Long-Term Incentive Plan 2009

$ 3 $ 4 $ 6

Novelis Long-Term Incentive Plan 2010

(1 9 3

Novelis Long-Term Incentive Plan 2011

(2 5 -  

Novelis Long-Term Incentive Plan 2012

1 -   -  

Total compensation (income) expense

$ 1 $ 18 $ 9

The tables below show the RSUs activity under our 2012 LTIP and 2011 LTIP and the SARs activity under our 2012 LTIP, 2011 LTIP, 2010 LTIP and 2009 LTIP.

2012 LTIP - RSUs

Number of
RSUs
Grant Date Fair
Value
(in Indian Rupees)
Aggregate
Intrinsic
Value (USD
in millions)

RSUs outstanding as of March 31, 2011

-   -   $ -  

Granted

945,983 186.47 2

Forfeited/Cancelled

(67,308 192.38

RSUs outstanding as of March 31, 2012

878,675 186.02 $ 2

2012 LTIP - SARs

Number of
SARs
Weighted
Average
Exercise Price
(in Indian Rupees)
Weighted Average
Remaining
Contractual Term
(In years)
Aggregate
Intrinsic
Value (USD
in millions)

SARs outstanding as of March 31, 2011

-   -   -   $ -  

Granted

7,201,070 188.05 -  

Forfeited/Cancelled

(512,353 192.38

SARs outstanding as of March 31, 2012

6,688,717 186.05 6.1 $ -  

2011 LTIP - RSUs

Number of
RSUs
Grant Date Fair
Value
(in Indian Rupees)
Aggregate
Intrinsic
Value (USD
in millions)

RSUs outstanding as of March 31, 2011

906,057 148.79 $ 4

Forfeited/Cancelled

(103,908 147.10

RSUs outstanding as of March 31, 2012

802,149 149.01 $ 2

2011 LTIP - SARs

Number of
SARs
Weighted
Average
Exercise Price
(in Indian Rupees)
Weighted Average
Remaining
Contractual Term
(In years)
Aggregate
Intrinsic
Value (USD
in millions)

SARs outstanding as of March 31, 2011

7,117,652 148.79 6.2 $ 10

Exercised

(69,222 191.17

Forfeited/Cancelled

(744,582 147.10

SARs outstanding as of March 31, 2012

6,303,848 149.01 5.1 $ -  

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2010 LTIP - SARs

Number of
SARs
Weighted
Average
Exercise Price
(in Indian Rupees)
Weighted Average
Remaining
Contractual Term
(In years)
Aggregate
Intrinsic
Value (USD
in millions)

SARs outstanding as of March 31, 2011

11,052,491 88.46 5.2 $ 25

Exercised

(1,670,951 174.76

Forfeited/Cancelled

(1,209,954 87.16

SARs outstanding as of March 31, 2012

8,171,586 88.37 4.2 $ 7

2009 LTIP - SARs

Number of
SARs
Weighted
Average
Exercise Price
(in Indian Rupees)
Weighted Average
Remaining
Contractual Term
(In years)
Aggregate
Intrinsic
Value (USD
in millions)

SARs outstanding as of March 31, 2011

8,944,822 60.50 4.2 $ 14

Exercised

(3,505,010 134.23

Forfeited/Cancelled

(594,160 60.50

SARs outstanding as of March 31, 2012

4,845,652 60.50 3.2 $ 7

The fair value of each SAR is based on the difference between the fair value of a long call and a short call option. The fair value of each of these call options was determined using the Monte Carlo Simulation model. We used historical stock price volatility data of Hindalco on the National Stock Exchange of India to determine expected volatility assumptions. The fair value of each SAR under the 2012 LTIP, 2011 LTIP, 2010 LTIP and 2009 LTIP was estimated as of March 31, 2012 using the following assumptions:

2012 LTIP 2011 LTIP 2010 LTIP 2009 LTIP

Risk-free interest rate

8.59 8.60 8.59 8.27

Dividend yield

1.04 1.04 1.04 1.04

Volatility

53 55 57 47

The fair value of the SARs is being recognized over the requisite performance and service period of each tranche, subject to the achievement of any performance criteria. Since the performance criteria for fiscal years 2013, 2014 and 2015 have not yet been established and therefore, measurement periods for SARs relating to those periods have not yet commenced, no compensation expense for those tranches has been recorded for the year ended March 31, 2012. As of March 31, 2012, 5,930,689 SARs were exercisable.

Unrecognized compensation expense related to the non-vested SARs (assuming all future performance criteria are met) is $13 million which is expected to be realized over a weighted average period of 2.37 years. Unrecognized compensation expense is $1 million related to 2011 RSU's and $2 million related to 2012 RSU's, which will be recognized over the remaining vesting period of 1 year and 2 years, respectively.

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13. POSTRETIREMENT BENEFIT PLANS

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

Employer Contributions to Plans

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

Year Ended
March  31,
2012 2011 2010

Funded pension plans

$ 57 $ 41 $ 50

Unfunded pension plans

13 13 11

Savings and defined contribution pension plans

19 18 16

Total contributions

$ 89 $ 72 $ 77

During fiscal year 2013, we expect to contribute $47 million to our funded pension plans, $14 million to our unfunded pension plans and $21 million to our savings and defined contribution plans.

Investment Policy and Asset Allocation

The company's overall investment strategy is to achieve a mix of approximately 50% of investments for long-term growth (equities, real estate) and 50% for near-term benefit payments (debt securities, other) with a wide diversification of asset categories, investment styles, fund strategies and fund managers. Since most of the defined benefit plans are closed to new entrants, we expect this strategy to gradually shift more investments toward near-term benefit payments.

Each of our funded pension plans is governed by an Investment Fiduciary, who establishes an investment policy appropriate for the pension plan. The Investment Fiduciary is responsible for selecting the asset allocation for each plan, monitoring investment managers, monitoring returns versus benchmarks and monitoring compliance with the investment policy. The targeted allocation ranges by asset class, and the actual allocation percentages for each class are listed in the table below.

Asset Category

Target
Allocation  Ranges

Allocation in

Aggregate as of

March 31,

2012 2011

Equity securities

35 - 60 48 50

Debt securities

35 - 55 47 39

Real estate

0 - 25 2 4

Other

0 - 15 3 7

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Benefit Obligations, Fair Value of Plan Assets, Funded Status and Amounts Recognized in Financial Statements

Pension Benefits
Year Ended
March  31,
2012 2011 2010

Benefit obligation at beginning of period

$ 1,275 $ 1,154 $ 945

Service cost

41 36 35

Interest cost

68 64 61

Members' contributions

6 5 5

Benefits paid

(51 (45 (40

Amendments

(8 1 1

Transfers/mergers

8 (6 4

Curtailments/settlements/termination benefits

(16 -   1

Actuarial (gains) losses

175 23 107

Currency (gains) losses

(14 43 35

Benefit obligation at end of period

$ 1,484 $ 1,275 $ 1,154

Benefit obligation of funded plans

$ 1,299 $ 1,101 $ 976

Benefit obligation of unfunded plans

185 174 178

Benefit obligation at end of period

$ 1,484 $ 1,275 $ 1,154

The following tables present the change in benefit obligation, change in fair value of plan assets and the funded status for pension and other benefits (in millions), including the Swiss Pension Plan. Other Benefits in the tables below include unfunded healthcare and life insurance benefits provided to retired employees in Canada, Brazil and the U.S.

Other Benefits
Year Ended
March  31,
2012 2011 2010

Benefit obligation at beginning of period

$ 196 $ 167 $ 162

Service cost

9 7 6

Interest cost

10 10 10

Benefits paid

(9 (7 (7

Curtailments/termination benefits

-   -   -  

Actuarial (gains) losses

22 18 (6

Currency (gains) losses

-   1 2

Benefit obligation at end of period

$ 228 $ 196 $ 167

Benefit obligation of unfunded plans

228 196 167

Benefit obligation at end of period

$ 228 $ 196 $ 167

Pension Benefits
Year Ended
March 31,
2012 2011 2010

Change in fair value of plan assets

Fair value of plan assets at beginning of period

927 $ 805 $ 598

Actual return on plan assets

55 81 147

Members' contributions

6 5 5

Benefits paid

(51 (45 (40

Company contributions

70 54 62

Transfers/mergers

6 (6 4

Settlements

(14 -   -  

Currency gains (losses)

(3 33 29

Fair value of plan assets at end of period

$ 996 $ 927 $ 805

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March 31,
2012 2011
Pension
Benefits
Other
Benefits
Pension
Benefits
Other
Benefits

Funded status

Funded Status at end of period:

Assets less the benefit obligation of funded plans

$ (303 $ -   $ (174 $ -  

Benefit obligation of unfunded plans

(185 (228 (174 (196

$ (488 $ (228 $ (348 $ (196

As included on consolidated balance sheet

Accrued expenses and other current liabilities

$ 13 $ 8 $ 11 $ 8

Accrued postretirement benefits

475 220 337 188

$ 488 $ 228 $ 348 $ 196

The postretirement amounts recognized in "Accumulated other comprehensive income (loss)," before tax effects, are presented in the table below (in millions), and includes the impact related to our equity method investments.

March 31,
2012 2011
Pension
Benefits
Other
Benefits
Pension
Benefits
Other
Benefits

Net actuarial loss

$ 262 $ 39 $ 85 $ 19

Prior service cost (credit)

(13 -   (7 -  

Total postretirement amounts recognized in Accumulated other comprehensive loss (income)

$ 249 $ 39 $ 78 $ 19

The estimated amounts that will be amortized from "Accumulated other comprehensive income (loss)" into net periodic benefit cost in fiscal 2013 are $26 million for pension benefits and $3 million for other postretirement benefits, primarily related to net actuarial losses.

The postretirement changes recognized in "Accumulated other comprehensive income (loss)," before tax effects, are presented in the table below (in millions), and includes the impact related to our equity method investments.

March 31,
2012 2011
Pension
Benefits
Other
Benefits
Pension
Benefits
Other
Benefits

Beginning balance in Accumulated other comprehensive loss (income)

$ 78 $ 19 $ 95 $ 1

Curtailments and settlements

(2 -   -   -  

Net actuarial loss (gain)

190 22 (10 18

Amortization of:

Prior service cost

2 -   1 -  

Actuarial loss

(11 (2 (11 -  

Effect of currency exchange

-   -   3 -  

Plan amendment

(8 -   -   -  

Total postretirement amounts recognized in Accumulated other comprehensive loss (income)

$ 249 $ 39 $ 78 $ 19

Accumulated Benefit Obligation in Excess of Plan Assets

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets as of March 31, 2012 and 2011 are presented in the table below (in millions).

March 31,
2012 2011

Projected benefit obligation

$ 1,467 $ 1,014

Accumulated benefit obligation

$ 1,329 $ 918

Fair value of plan assets

$ 979 $ 698

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Future Benefit Payments

Expected benefit payments to be made during the next ten fiscal years are listed in the table below (in millions).

Pension Benefits Other Benefits

2013

$ 53 $ 8

2014

57 9

2015

62 10

2016

67 11

2017

73 12

2018 through 2022

445 79

Total

$ 757 $ 129

Year Ended
March 31,

Pension Benefits

2012 2011 2010

Net periodic benefit cost

Service cost

$ 42 $ 36 $ 35

Interest cost

68 64 61

Expected return on assets

(63 (56 (43

Amortization

- actuarial losses

11 11 12

- prior service cost

(1 (1 (1

Curtailment/settlement losses

1 -   1

Net periodic benefit cost

58 54 65

Proportionate share of non-consolidated affiliates' deferred pension costs, net of tax

3 3 1

Total net periodic benefit costs recognized

$ 61 $ 57 $ 66

Components of Net Periodic Benefit Cost

The components of net periodic benefit cost for the respective periods are listed in the table below (in millions).

Year Ended
March 31,

Other Benefits

2012 2011 2010

Net periodic benefit cost

Service cost

$ 9 $ 7 $ 6

Interest cost

10 9 10

Amortization - actuarial losses

1 -   1

Curtailment/termination benefits

-   -   -  

Total net periodic benefit costs recognized

$ 20 $ 16 $ 17

Actuarial Assumptions and Sensitivity Analysis

The weighted average assumptions used to determine benefit obligations and net periodic benefit costs for the respective periods are listed in the table below.

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Year Ended
March 31,

Pension Benefits

2012 2011 2010

Weighted average assumptions used to determine benefit obligations

Discount rate

4.4 5.3 5.5

Average compensation growth

3.4 3.3 3.6

Weighted average assumptions used to determine net periodic benefit cost

Discount rate

5.3 5.5 6.1

Average compensation growth

3.3 3.6 3.4

Expected return on plan assets

6.7 6.8 6.7

Year Ended
March 31,

Other Benefits

2012 2011 2010

Weighted average assumptions used to determine benefit obligations

Discount rate

4.2 5.2 5.6

Average compensation growth

3.9 3.9 3.9

Weighted average assumptions used to determine net periodic benefit cost

Discount rate

5.2 5.6 6.2

Average compensation growth

3.9 3.9 4.0

In selecting the appropriate discount rate for each plan, we generally used a country-specific, high-quality corporate bond index, adjusted to reflect the duration of the particular plan. In the U.S. and Canada, the discount rate was calculated by matching the plan's projected cash flows with similar duration high-quality corporate bonds to develop a present value, which was then interpolated to develop a single equivalent discount rate.

In estimating the expected return on assets of a pension plan, consideration is given primarily to its target allocation, the current yield on long-term bonds in the country where the plan is established, and the historical risk premium of equity or real estate over long-term bond yields in each relevant country. The approach is consistent with the principle that assets with higher risk provide a greater return over the long-term. The expected long-term rate of return on plan assets is 6.4% in fiscal 2013.

We provide unfunded healthcare and life insurance benefits to our retired employees in Canada, the U.S. and Brazil, for which we paid $9 million and $7 million for the years ended March 31, 2012 and 2011, respectively. The assumed healthcare cost trend used for measurement purposes is 8% for fiscal 2013, decreasing gradually to 5% in 2019 and remaining at that level thereafter.

A change of one percentage point in the assumed healthcare cost trend rates would have the following effects on our other benefits (in millions).

1% Increase 1% Decrease

Sensitivity Analysis

Effect on service and interest costs

$ 2 $ (2

Effect on benefit obligation

$ 21 $ (18

In addition, we provide post-employment benefits, including disability, early retirement and continuation of benefits (medical, dental, and life insurance) to our former or inactive employees, which are accounted for on the accrual basis in accordance ASC No. 712, Compensation - Retirement Benefits. "Other long-term liabilities" on our consolidated balance sheets includes $18 million and $19 million as of March 31, 2012 and 2011, respectively, for these benefits.

Fair Value of Plan Assets

The following pension plan assets are measured and recognized at fair value on a recurring basis (in millions). Please see Note 16- Fair Value of Assets and Liabilities for description of the fair value hierarchy. The U.S. pension plan assets are invested exclusively in commingled funds and classified in Level 2. The foreign pension plan assets are invested in both direct investments (Levels 1 and 2) and commingled funds (Level 2).

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US Pension Plan Assets

March 31, 2012
Fair  Value Measurements Using
March 31, 2011
Fair  Value Measurements Using
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Large Cap Equity

$ -   $ 167 $ -   $ 167 $ -   $ 149 $ -   $ 149

Small/Mid Cap Equity

-   44 -   44 -   41 -   41

International Equity

-   103 -   103 -   86 -   86

Fixed Income

-   203 -   203 -   186 -   186

Total

$ -   $ 517 $ -   $ 517 $ -   $ 462 $ -   $ 462

Foreign Pension Plan Assets

March 31, 2012
Fair  Value Measurements Using
March 31, 2011
Fair  Value Measurements Using
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Equity

$ 103 $ 59 $ -   $ 162 $ 138 $ 53 $ -   $ 191

Fixed Income

47 222 -   269 16 156 -   172

Real Estate

12 10 -   22 5 31 -   36

Cash

24 -   -   24 34 -   -   34

Other

2 -   -   2 8 24 -   32

Total

$ 188 $ 291 $ -   $ 479 $ 201 $ 264 $ -   $ 465

14. CURRENCY LOSSES (GAINS)

The following currency (gains) losses are included in "Other (income) expense, net" in the accompanying consolidated statements of operations (in millions).

Year Ended
March  31,
2012 2011 2010

(Gain) loss on remeasurement of monetary assets and liabilities, net

$ 16 $ (1 $ (15

Loss released from accumulated other comprehensive income

1 -   -  

Gain recognized on balance sheet remeasurement currency exchange contracts, net

(6 -   -  

Currency (gains) losses, net

$ 11 $ (1 $ (15

The following currency gains (losses) are included in "AOCI," net of tax and "Noncontrolling interests" (in millions).

Year Ended
March  31,
2012 2011 2010

Cumulative currency translation adjustment - beginning of period

$ 114 $ (3 $ (78

Effect of changes in exchange rates

(79 117 75

Sale of investment in foreign entities (A)

(12 -   -  

Cumulative currency translation adjustment - end of period

$ 23 $ 114 $ (3

(A) We reclassified $12 million of cumulative currency gains from AOCI to "Loss on assets held for sale" in the year ended March 31, 2012 related to the planned sale of three aluminum foil and packaging plants in Europe. See Note 5 - Assets Held For Sale

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15. FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS

The gross fair values of our financial instruments and commodity contracts as of March 31, 2012 and 2011 are as follows (in millions):

00000 00000 00000 00000 00000
March 31, 2012
Assets Liabilities Net Fair Value
Current Noncurrent Current Noncurrent(A) Assets/(Liabilities)

Derivatives designated as hedging instruments:

Cash flow hedges

Aluminum contracts

$ 17 $ -   $ (5 $ -   $ 12

Currency exchange contracts

12 $ 1 (6 (6 1

Net Investment hedges

Currency exchange contracts

2 -   -   -   2

Fair value hedges

Aluminum contracts

1 -   (6 -   (5

Total derivatives designated as hedging instruments

$ 32 $ 1 $ (17 $ (6 $ 10

Derivatives not designated as hedging instruments

Aluminum contracts

51 -   (47 -   4

Currency exchange contracts

16 1 (10 (1 6

Interest rate swaps

-   -   -   -   -  

Energy contracts

-   -   (21 (30 (51

Total derivatives not designated as hedging instruments

67 1 (78 (31 (41

Total derivative fair value

$ 99 $ 2 $ (95 $ (37 $ (31

00000 00000 00000 00000 00000
March 31, 2011
Assets Liabilities Net Fair Value
Current Noncurrent Current Noncurrent(A) Assets/(Liabilities)

Derivatives designated as hedging instruments:

Cash flow hedges

Aluminum contracts

$ 44 $ -   $ -   $ -   $ 44

Currency exchange contracts

43 10 (1 -   52

Net Investment hedges

Currency exchange contracts

Fair value hedges

Aluminum contracts

9 -   -   -   9

Total derivatives designated as hedging instruments

$ 96 $ 10 $ (1 -   $ 105

Derivatives not designated as hedging instruments

Aluminum contracts

54 5 (49 -   10

Currency exchange contracts

15 2 (19 (1 (3

Interest rate swaps

-   -   (4 -   (4

Energy contracts

-   -   (9 (23 (32

Total derivatives not designated as hedging instruments

69 7 (81 (24 (29

Total derivative fair value

$ 165 $ 17 $ (82 $ (24 $ 76

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

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Aluminum

We use aluminum forward contracts and options to hedge our exposure to changes in the London Metal Exchange (LME) price of aluminum. These exposures arise primarily from firm commitments to sell aluminum in future periods at fixed prices, the forecasted output of our smelter operation in South America and the forecasted metal price lag associated with sales of aluminum in future periods at prices based on the LME.

We identify and designate certain aluminum forward contracts as fair value hedges of the metal price risk associated with fixed price sales commitments that qualify as firm commitments. Price risk arises due to fluctuating aluminum prices between the time the sales order is committed and the time the order is shipped. Such exposures do not extend beyond two years in length. We recognized losses on changes in fair value of derivative contracts of $11 million and gains on changes in the fair value of designated hedged items of $11 million in sales revenue for the year ended March 31, 2012. We had 32 kt and 25 kt of outstanding aluminum forward purchase contracts designated as fair value hedges as of March 31, 2012 and March 31, 2011, respectively.

We identify and designate certain aluminum forward purchase contracts as cash flow hedges of the metal price risk associated with our future metal purchases that vary based on changes in the price of aluminum. Price risk exposure arises from commitments to sell aluminum in future periods at fixed prices. Such exposures do not extend beyond one year in length. We had 16 kt and 183 kt of outstanding aluminum forward purchase contracts designated as cash flow hedges as of March 31, 2012 and March 31, 2011, respectively.

We identify and designate certain aluminum forward sales contracts as cash flow hedges of the metal price risk associated with our future metal sales that vary based on changes in the price of aluminum. Price risk exposure arises due to fixed costs associated with our smelter operations in South America. Price risk exposure also arises due to the timing lag between the LME based pricing of raw material metal purchases and the LME based pricing of finished product sales. Such exposures do not extend beyond one year in length. We had 144 kt of outstanding aluminum forward sales contracts designated as cash flow hedges as of March 31, 2012. No aluminum forward sales contracts were designated as cash flow hedges as of March 31, 2011.

The remaining balance of our aluminum derivative contracts are not designated as accounting hedges. As of March 31, 2012 and March 31, 2011, we had short positions of 42 kt and 146 kt, respectively, of outstanding aluminum contracts not designated as hedges. The average duration of undesignated contracts is less than four months. The following table summarizes our notional amount (in kt).

March 31,
2012 2011

Hedge Type

Purchase (Sale)

Cash flow purchases

16 183

Cash flow sales

(144 -  

Fair value

32 25

Not designated

(42 (146

Total

(138 62

Foreign Currency

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

We use foreign currency contracts to hedge expected future foreign currency transactions, which include capital expenditures. These contracts cover the same periods as known or expected exposures. We had $976 million and $644 million of outstanding foreign currency forwards designated as cash flow hedges as of March 31, 2012 and 2011, respectively.

We use foreign currency contracts to hedge our foreign currency exposure to net investment in foreign subsidiaries. We had $123 million of outstanding foreign currency forwards designated as net investment hedges as of March 31, 2012. We had no contracts designated as net investment hedges as of March 31, 2011. We recorded gains of $6 million related to net investment hedges in OCI for the year ended March 31, 2012.

As of March 31, 2012 and 2011, we had outstanding currency exchange contracts with a total notional amount of $1.4 billion and $1.6 billion, respectively, which were not designated as hedges. Contracts that represent the majority of notional amounts will mature during the first quarter of fiscal 2013.

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Energy

We own an interest in an electricity swap which we designated as a cash flow hedge of our exposure to fluctuating electricity prices. As of March 31, 2011, due to significant credit deterioration of our counterparty, we discontinued hedge accounting for this electricity swap. Approximately 1.2 million megawatt hours of notional remain outstanding as of March 31, 2012. This electricity swap is expected to mature in November 2016.

We use natural gas swaps to manage our exposure to fluctuating energy prices in North America. As of March 31, 2012 and March 31, 2011, we had 6.6 million MMBTUs and 6.7 million MMBTUs, respectively, of natural gas swaps that were not designated as hedges. Such exposures do not extend beyond two years in length. One MMBTU is the equivalent of one decatherm, or one million British Thermal Units.

Interest Rate

We use interest rate swaps to manage our exposure to changes in the benchmark LIBOR interest rate which impacts our variable-rate debt. Prior to the completion of the December 17, 2010 refinancing transactions (see Note 11 - Debt), these swaps were designated as cash flow hedges. Upon completion of the refinancing transaction, our exposure to changes in the benchmark LIBOR interest rate was limited. We ceased hedge accounting for these swaps and released all "Accumulated Other Comprehensive Income" (AOCI) into earnings during the year ended March 31, 2011.

We had $220 million of outstanding interest rate swaps with a maturity date of April 2012, which were not designated as hedges as of March 31, 2012 and 2011.

In January 2012, we entered into interest rate swaps to manage our exposure to changes in the benchmark 3M-CD interest rate. We converted our (1) $26 million (KRW 30 billion) floating rate loan to a fixed rate of 4.485% and our (2) $18 million (KRW 20 billion) floating rate loan to a fixed rate of 4.815%. Both swaps expire December 2014, concurrent with the maturity of the loans. As of March 31, 2012, these swaps were designated as cash flow hedges.

Other

For certain customers, we enter into contractual relationships that entitle us to pass through the economic effect of trading positions that we take with other third parties on our customers' behalf. We recognize a derivative position with both the customer and the third party for these types of contracts and we classify cash settlement amounts associated with these derivatives as part of operating activities in the consolidated statements of cash flows. These derivatives expired in February 2010 with the last cash settlement occurring in October 2010.

The following table summarizes the gains (losses) associated with the change in fair value of derivative instruments recognized in "Other (income) expense, net" (in millions).

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Year Ended
March 31,
2012 2011 2010

Derivative Instruments Not Designated as Hedges

Aluminum contracts

$ 65 $ 5 $ 123

Balance sheet remeasurement currency exchange contracts

7 -   -  

Other currency exchange contracts

20 34 72

Energy contracts (D)

(30 3 (1

Interest Rate swaps

-   (5 -  

Gain recognized

62 37 194

Derivative Instruments Designated as Hedges

Cash flow hedges

Aluminum contracts (C)

2 -   -  

Currency exchange contracts (A)

11 6 -  

Balance Sheet remeasurement currency exchange contracts (B)

(1 -   -  

Fair Value hedges

Aluminum contracts

(11 4 -  

Fixed priced firm sales commitments (C)

11 (4 -  

Gain recognized

12 6 -  

Total gain recognized

$ 74 $ 43 $ 194

Gain on balance sheet remeasurement currency exchange contracts, net

6 -   -  

Realized gains (losses), net

130 107 (384

Unrealized gains (losses) on other derivative instruments, net

(62 (64 578

Total gain recognized

$ 74 $ 43 $ 194

(A) Amount represents excluded forward market premium/discount and hedging relationship ineffectiveness.
(B) Amount represents releases from AOCI of gains/losses related to balance sheet remeasurement hedges.
(C) An immaterial amount of ineffectiveness exists in both cash flow and fair value hedging relationships involving aluminum derivatives.
(D) Includes amounts related to de-designated electricity swap.

The following table summarizes the impact on AOCI and earnings of derivative instruments designated as cash flow hedges (in millions). Within the next twelve months, we expect to reclassify $12 million of gains from "AOCI" to earnings, before taxes.

Amount of Gain (Loss)
Recognized in OCI
(Effective Portion)
Amount of Gain (Loss)
Recognized in "Other (Income)
Expense,  net" (Ineffective and
Excluded Portion)
Year Ended
March 31,
Year Ended
March 31,

Derivatives in Cash Flow

2012 2011 2010 2012 2011 2010

Energy contracts (A)

$ -   $ 12 $ (13 $ -   $ -   $ 1

Aluminum contracts

(30 41 -   2 -   -  

Currency exchange contracts

(26 24 -   11 6 -  

Interest rate swaps

-   1 5 -   (5 -  

Total

$ (56 $ 78 $ (8 $ 13 $ 1 $ 1

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Amount of Gain (Loss)
Reclassified from AOCI into Income/(Expense)
(Effective Portion)
Year Ended
March 31,
Location of Gain  (Loss)
Reclassified from AOCI into
Earnings

Derivatives in Cash Flow

2012 2011 2010

Energy contracts (A)

$ (5 $ 7 $ 5 Other (income) expense, net

Aluminum contracts

(16 -   -   Cost of goods sold

Aluminum contracts

5 -   -   Sales

Currency exchange contracts

7 -   -   Cost of goods sold and SG&A

Currency exchange contracts

(3 -   -   Sales

Currency exchange contracts

(1 -   -   Other (income) expense, net and Interest
Expense

Interest rate swaps

-   (5 -   Other (income) expense, net and Interest
Expense

Total

$ (13 $ 2 $ 5

(A) AOCI related to de-designated electricity swap is amortized to income over the remaining term of the hedged item.

16. FAIR VALUE OF ASSETS AND LIABILITIES

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

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

Level 2 - Assets and liabilities valued based on inputs other than quoted prices included within Level 1 that are observable for similar instruments, either directly or indirectly.

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

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

Derivative Contracts

For certain of our derivative contracts that have fair values based upon trades in liquid markets, such as aluminum forward contracts and options, valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy.

The majority of our derivative contracts are valued using industry-standard models that use observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices for foreign exchange rates. We generally classify these instruments within Level 2 of the valuation hierarchy. Such derivatives include interest rate swaps, cross-currency swaps, foreign currency forward contracts and certain energy-related forward contracts (e.g., natural gas).

We classify derivative contracts that are valued based on models with significant unobservable market inputs as Level 3 of the valuation hierarchy. These derivatives include certain of our energy-related forward contracts (e.g., electricity swap). Models for these fair value measurements include inputs based on estimated future prices for periods beyond the term of the quoted prices.

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Our electricity swap represents an agreement to buy electricity at a fixed price at our Oswego, New York facility. Forward prices are not observable for this market, so we must make certain assumptions based on available information that we believe to be relevant to market participants. We use observable forward prices for a geographically nearby market. We adjust these prices for 1) historical spreads between the cash prices of the two markets, and 2) historical spreads between retail and wholesale prices.

The average forward price at March 31, 2012, estimated using the method described above was $49 per megawatt hour, which represents an $8 premium over forward prices in the nearby observable market. The actual rate from the most recent swap settlement was approximately $42 per megawatt hour. Each $1 per megawatt hour decline in price decreases the valuation of the electricity swap by approximately $750 thousand.

For Level 2 and 3 of the fair value hierarchy, where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations (nonperformance risk). As of March 31, 2012 and 2011, we did not have any Level 1 derivative contracts. No amounts were transferred from Level 1 to Level 2 or to Level 3. Additionally, no amounts were transferred from Level 2 to Level 1 or to Level 3.

The following table presents our derivative assets and liabilities which are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy (in millions).

March 31,
2012 2011
Assets Liabilities Assets Liabilities

Level 2 Instruments

Aluminum contracts

$ 69 $ (58 $ 111 $ (48

Currency exchange contracts

32 (23 70 (21

Energy contracts

-   (10 -   (3

Interest rate swaps

-   -   -   (4

Total Level 2 Instruments

101 (91 181 (76

Level 3 Instruments

Aluminum contracts

-   -   1 (1

Energy contracts

-   (41 -   (29

Total Level 3 Instruments

-   (41 1 (30

Total

$ 101 $ (132 $ 182 $ (106

We recognized unrealized losses of $17 million related to Level 3 financial instruments that were still held as of March 31, 2012. These unrealized gains are included in "Other (income) expense, net."

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

Level 3 –
Derivative
Instruments (A)

Balance as of March 31, 2010

$ (35

Realized/unrealized gain included in earnings (B)

7

Realized/unrealized gain included in Other Comprehensive income (loss) (C)

6

Settlements

(7

Balance as of March 31, 2011

(29

Realized/unrealized losses included in earnings(B)

(16

Settlements

4

Balance as of March 31, 2012

$ (41

(A) Represents net derivative liabilities.
(B) Included in "Other income (expense), net."
(C) Included in "Change in fair value of effective portion of hedges, net," within Other comprehensive income (loss).

Financial Instruments Not Recorded at Fair Value

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

March 31,
2012 2011
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value

Assets

Long-term receivables from related parties

$ 16 $ 16 $ 19 $ 19

Liabilities

Total debt - third parties (excluding short term borrowings)

$ 4,344 $ 4,605 $ 4,086 $ 4,370

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17. OTHER (INCOME) EXPENSE, NET

"Other (income) expense, net" is comprised of the following (in millions).

Year Ended
March 31,
2012 2011 2010

Foreign currency remeasurement (gains) losses, net (A)

$ 11 $ (1 $ (15

Gain on reversal of accrued legal claims (B)

-   -   (3

Loss (gain) on change in fair value of other unrealized derivative instruments, net

62 64 (578

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

(130 (107 384

Loss on Brazilian tax litigation, net (C)

13 8 1

(Gain) on litigation settlement in Brazil (D)

(8 -   -  

(Gain) loss on sale of assets, net

3 (4 1

Other, net

10 4 (9

Other (income) expense, net

$ (39 $ (36 $ (219

(A) Includes "Gain recognized on balance sheet remeasurement currency exchange contracts, net."
(B) We recognized a $3 million gain on the reversal of a previously recorded legal accrual upon settlement during the year ended March 31, 2010.
(C) See footnote 19 – Commitments and Contingencies, Brazil Tax Matters for further details.