**FORM        10-Q**

**For        the quarterly period ended June 30, 2007**

**ALCAN        INC.**

|  **CANADA**                                 |  Inapplicable                                    |
|--------------------------------------------------|-------------------------------------------------------|
| (State                  or Other Jurisdiction of | (I.R.S.                  Employer Identification No.) |
| Incorporation                  or Organization)  |                                                  |

**1188        Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2**

**(514)        848-8000**

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**PART        I. FINANCIAL INFORMATION**
In        this        report, all dollar amounts are stated in US dollars and all quantities in        metric        tons, or tonnes, unless indicated otherwise. A tonne is 1,000 kilograms,        or        2,204.6 pounds. The words "Company" and “Alcan” refer to Alcan Inc. and, where        applicable, one or more of its consolidated subsidiaries.
**Item        1.** **Financial        Statements****ALCAN        INC.****INTERIM        CONSOLIDATED STATEMENT OF INCOME**(unaudited)  Second                  Quarter Six                  Months**Periods                  ended June 30**  **2007**  2006  **2007**  2006(*in                  millions of US$, except per share amounts)*              **Sales                  and operating revenues**  **6,605**  6,103  **13,025**  11,653               **Costs                  and expenses**             Cost                  of sales and operating expenses, excluding depreciation and                                                      amortization noted below  **4,998**  4,646  **9,799**  8,774 Depreciation                  and amortization  **269**  258  **533**  509 Selling,                  administrative and general expenses  **453**  366  **827**  730 Research                  and development expenses  **61**  55  **115**  107 Interest                    **61**  69  **121**  145 Restructuring                  charges - net (note 6)  **26**  94  **38**  108 Other                  expenses (income) - net (note 9)  **155**  2  **152**  (29)   **6,023**  5,490  **11,585**  10,344               Income                    from continuing operations before income taxes and                    other items  **582**  613  **1,440**  1,309 Income                  taxes (note 7)  **166**  195  **446**  464 Income                  from continuing operations before other items  **416**  418  **994**  845 Equity                  income  **24**  37  **36**  65 Minority                  interests  **(2****)** (1) **(2****)** (2)**Income                  from continuing operations**  **438**  454  **1,028**  908 Income                  from discontinued operations   **-**  1  **1**  4 **Income                  before cumulative effect of accounting change**  **438**  455  **1,029**  912 Cumulative                  effect of accounting change, net of income taxes of $2 in                  2006  **-**  -  **-**  (4)**Net                  income**  **438**  455  **1,029**  908 Dividends                  on preference shares  **3**  3  **6**  5 **Net                  income attributable to common shareholders**  **435**  452  **1,023**  903 **Earnings                  per share**(note                  5)             Basic:             Income                  from continuing operations   **1.18**  1.21  **2.78**  2.42 Income                  from discontinued operations  **-**  -  **-**  0.01 Cumulative                  effect of accounting change  **-**  -  **-**  (0.01)**Net                  income per common share - basic**  **1.18**  1.21  **2.78**  2.42 Diluted:             Income                  from continuing operations  **1.17**  1.20  **2.77**  2.41 Income                  from discontinued operations  **-**  -  **-**  0.01 Cumulative                  effect of accounting change  **-**  -  **-**  (0.01)**Net                  income per common share - diluted**  **1.17**  1.20  **2.77**  2.41 **Dividends                  per common share**  **0.20**  0.15  **0.40**  0.30  *The        accompanying notes are an integral part of the interim consolidated financial        statements.* -            2            - **ALCAN        INC.****INTERIM        CONSOLIDATED BALANCE SHEET**(unaudited)        **June                  30,****2007**  December                  31, 2006 (*in                  millions of US$)*               **ASSETS**               **Current                  assets**       Cash                  and time deposits  **198**  229 Trade                  receivables (net of allowances of $65 in 2007 and $58 in                  2006)  **3,254**  2,910 Other                  receivables and deferred charges  **1,242**  1,195 Deferred                  income taxes  **132**  152 Inventories                  (note 10)  **3,258**  3,186 Current                  assets held for sale   **4**  5 **Total                  current assets**  **8,088**  7,677         Deferred                  charges and other assets  **1,001**  1,087 Investments  **1,404**  1,509 Deferred                  income taxes  **1,285**  989 Property,                  plant and equipment                                Cost (excluding construction work in progress)  **19,106**  18,698                          Construction work in progress  **2,706**  2,294                          Accumulated                  depreciation  **(9,031****)** (8,592)   **12,781**  12,400         Intangible                  assets, net of accumulated amortization of $399 in 2007 and                  $346 in 2006  **628**  676 Goodwill  **4,387**  4,599 Long-term                  assets held for sale   **1**  2 **Total                  assets**  **29,575**  28,939                 *The        accompanying notes are an integral part of the interim consolidated financial        statements.* -            3            - **ALCAN        INC.****INTERIM        CONSOLIDATED BALANCE SHEET**(cont’d)** **(unaudited)** **           **June                  30,****2007**  December                  31, 2006 (*in                  millions of US$)*               **LIABILITIES                  AND SHAREHOLDERS' EQUITY**               **Current                  liabilities**       Payables                  and accrued liabilities (note 16)  **5,466**  5,430 Short-term                  borrowings (note 12)  **704**  467 Debt                  maturing within one year  **69**  36 Deferred                  income taxes  **49**  46 **Total                  current liabilities**  **6,288**  5,979         Debt                  not maturing within one year (note 12)  **4,578**  5,476 Deferred                  credits and other liabilities  **1,703**  1,787 Post-retirement                  benefits  **3,330**  3,381 Deferred                  income taxes  **1,219**  1,151 Minority                  interests  **74**  71         **Shareholders’                  equity**       Redeemable                  non-retractable preference shares (note 20)  **160**  160 Common                  shareholders' equity                                  Common shares  **6,453**  6,235                            Additional paid-in capital  **634**  672                            Retained earnings  **5,132**  4,281                            Common shares held by a subsidiary  **(31****)** (31)                           Accumulated other comprehensive income (loss) (note 14)  **35**  (223)   **12,223**  10,934    **12,383**  11,094         Commitments                  and contingencies (note 15)               **Total                  liabilities and shareholders’ equity**  **29,575**  28,939         *The        accompanying notes are an integral part of the interim consolidated financial        statements.* -            4            - **ALCAN        INC.****INTERIM        CONSOLIDATED STATEMENT OF CASH FLOWS**(unaudited) Second                  Quarter  Six                  Months**Periods                  ended June 30**  **2007**  2006  **2007**  2006 (*in                  millions of US$)*                           **OPERATING                  ACTIVITIES**                           Net                  income   **438**  455  **1,029**  908 Cumulative                  effect of accounting change  **-**  -  **-**  4 Income                  from discontinued operations  **-**  (1) **(1****)** (4)Income                  from continuing operations  **438**  454  **1,028**  908 Adjustments                  to determine cash from operating activities:                                        Depreciation and amortization  **269**  258  **533**  509          Deferred                  income taxes  **(26****)** 83  **41**  227                            Equity loss (income), net of dividends  **43**  (2) **51**  (18)                           Asset impairment charges  **18**  36  **19**  45                            Loss (Gain) on disposal of businesses and investments -                  net  **50**  (4) **46**  (4)                           Stock option expense  **9**  11  **11**  36                            Change in operating working capital                                                  Change in receivables  **(225****)** (217) **(390****)** (756)                                     Change in inventories  **(38****)** (31) **(65****)** (109)                                     Change in payables and accrued liabilities  **82**  110  **(59****)** 130                            Change in deferred charges and other assets, deferred                                                   credits and other liabilities, and post-retirement benefits -                  net  **118**  75  **111**  167                            Other - net  **-**  (2) **(6****)** (2)Cash                  from operating activities in continuing operations  **738**  771  **1,320**  1,133 Cash                    from operating activities in discontinued operations  **-**  8  **-**  8 **Cash                  from operating activities**   **738**  779  **1,320**  1,141               **FINANCING                  ACTIVITIES**                           Proceeds                  from issuance of new debt - net of issuance costs  **9**  354  **22**  371 Debt                  repayments  **(416****)** (770) **(760****)** (836)Short-term                  borrowings - net  **(6****)** 36  **102**  - Common                  shares issued  **138**  81  **166**  147 Dividends                           - Alcan shareholders (including preference)  **(72****)** (58) **(147****)** (115)                            -                  Minority interests  **(1****)** -  **(1****)** (1)**Cash                  used for financing activities**  **(348****)** (357) **(618****)** (434)              *The        accompanying notes are an integral part of the interim consolidated financial        statements.* -            5            - **ALCAN        INC.****INTERIM        CONSOLIDATED STATEMENT OF CASH FLOWS**(cont’d)** **(unaudited)          Second                  Quarter  Six                  Months**Periods                  ended June 30**  **2007**  2006  **2007**  2006 (*in                  millions of US$)*                           **INVESTMENT                  ACTIVITIES**                           Purchase                  of property, plant and equipment  **(421****)** (469) **(733****)** (895)Business                  acquisitions and purchase of investments, net of cash and time                  deposits acquired  **(12****)** (2) **(14****)** (40)Net                    proceeds from disposal of businesses, investments and other assets  **50**  9  **57**  207 Other                    **2**  12  **(47****)** 12 Cash                    used for investment activities in continuing operations  **(381****)** (450) **(737****)** (716)Cash                  from investment activities in discontinued operations  **-**  5  **-**  5 **Cash                  used for investment activities**   **(381****)** (445) **(737****)** (711)              Effect                  of exchange rate changes on cash and time deposits  **3**  2  **4**  5 **Increase                  (Decrease) in cash and time deposits**  **12**  (21) **(31****)** 1               Cash                  and time deposits - beginning of period  **186**  203  **229**  181 Cash                  and time deposits - end of period  **198**  182  **198**  182               *The        accompanying notes are an integral part of the interim consolidated financial        statements.* -            6            - **ALCAN        INC.** **NOTES        TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS****June        30, 2007****(unaudited)***(in        millions of US$, except per share amounts)*
 
**1.** **ACCOUNTING        POLICIES**
Basis        of Presentation
The        unaudited interim consolidated financial statements are based upon accounting        policies and methods of their application consistent with those used and        described in the Company's annual consolidated financial statements as contained        in the most recent Annual Report on Form 10-K (Form 10-K), except as described        below in notes 2 and 4.        The        2006        year-end balance sheet data was derived from audited annual consolidated        financial statements, but does not include all disclosures required by        accounting principles generally accepted in the United States of America        (US        GAAP). The unaudited interim consolidated financial statements do not include        all of the financial statement disclosures included in the annual consolidated        financial statements prepared in accordance with US GAAP and therefore should        be        read in conjunction with the Company's most recent Form 10-K.
In        the        opinion of management of the Company, the unaudited interim consolidated        financial statements reflect all adjustments, which consist only of normal        and        recurring adjustments, necessary to present fairly the financial position        and        the results of operations and cash flows in accordance with US GAAP. The        results        reported in these unaudited interim consolidated financial statements are        not        necessarily indicative of the results that may be expected for the entire        year.
**2.** **ACCOUNTING        CHANGES**
FIN        48        - Accounting for Uncertainty in Income Taxes 
On        January 1, 2007, the Company adopted the provisions of the Financial Accounting        Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty        in        Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48). Under        FIN        48, the Company may recognize the tax benefit from a tax position only if        it is        more likely than not that the tax position will be sustained on examination        by        the taxing authorities, based on the technical merits of the position. The        tax        benefits recognized in the financial statements from such a position should        be        measured based on the largest benefit that has a greater than fifty percent        likelihood of being realized upon settlement. FIN 48 also provides guidance        on        derecognition, classification, interest and penalties on income taxes,        accounting in interim periods and expanded income tax disclosures. 
On        January 1, 2007, the Company recorded a $28 net increase in the liability        for        unrecognized tax benefits. This net increase in liabilities resulted in a        decrease to the January 1, 2007 balance of Retained earnings of $21, a net        decrease in Deferred tax liabilities of $8 and a reduction of $1 in        equity-accounted investments included in Deferred charges and other assets.        See        note 7 - Income taxes.
SFAS        No. 156 - Accounting for Servicing of Financial Assets
On        January 1, 2007, the Company adopted Statement of Financial Accounting Standards        (SFAS) No. 156, Accounting for Servicing of Financial Assets. This statement,        which is an amendment to SFAS No. 140, requires that all separately recognized        servicing assets and servicing liabilities be initially measured at fair        value,        if practicable and permits, but does not require, the subsequent measurement        of        separately recognized servicing assets and servicing liabilities at fair        value.        The Company will recognize servicing assets or liabilities at fair value        at        inception but will not remeasure separately recognized servicing assets and        liabilities at fair value. The adoption of this standard did not impact the        Company’s financial statements. -            7            - **3.** **RECENTLY        ISSUED ACCOUNTING STANDARDS**
SFAS        No. 157 - Fair Value Measurements
In        September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, to        increase consistency and comparability in fair value measurements and to        expand        their disclosures. The new standard includes a definition of fair value as        well        as a framework for measuring fair value. The standard is effective for fiscal        periods beginning after November 15, 2007 and should be applied prospectively,        except for certain financial instruments where it must be applied        retrospectively as a cumulative-effect adjustment to the balance of opening        retained earnings in the year in which this statement is initially applied.        The        Company is currently evaluating the impact of this standard on its financial        statements. 
SFAS        No. 159 - The Fair Value Option for Financial Assets and Financial        Liabilities
In        February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial        Assets and Financial Liabilities, including an amendment of FASB Statement        No.        115. This statement permits entities to choose to measure many financial        instruments and certain other items at fair value that are not currently        required to be measured at fair value and establishes presentation and        disclosure requirements designed to facilitate comparisons between entities        that        choose different measurement attributes for similar types of assets and        liabilities. The standard is effective for fiscal periods beginning after        November 15, 2007 and should be applied prospectively with the effect of        the        remeasurement to fair value at adoption recorded as a cumulative-effect        adjustment to the opening balance of retained earnings. The Company is currently        evaluating the impact of this standard on its financial statements.
**4.** **CHANGE        IN FUNCTIONAL CURRENCY OF THE EUROPEAN PRIMARY METAL GROUP**
Effective        January 1, 2007, the smelting businesses of the European Primary Metal group        located in the UK, France, and Cameroon adopted the US dollar as their        functional currency. The        currency of the primary economic environment for these businesses in        these        countries became        the US dollar. This        change was triggered by the acquisition and subsequent integration of Pechiney,        the Novelis Spin-off, a European legal reorganization, as well as reorganization        of the European Primary Metal group.
**5.** **EARNINGS        PER SHARE**-**BASIC AND DILUTED**
Basic        and        diluted earnings per share are based on the weighted average number of shares        outstanding during the period. The treasury stock method for calculating        the        dilutive impact of stock options is used. The following table outlines the        calculation of basic and diluted earnings per share on income from continuing        operations.  Second                  Quarter Six                  Months *Periods                  ended June 30*  **2007**  2006  **2007**  2006 **Numerator:**             Income                  from continuing operations  **438**  454  **1,028**  908 Less:                  dividends on preference shares  **(3****)** (3) **(6****)** (5)Income                  from continuing operations attributable to common                  shareholders  **435**  451  **1,022**  903 **Denominator** **(number                  of common shares in millions):**             Weighted                  average of outstanding shares   **369**  375  **368**  374 Effect                  of dilutive stock options  **2**  2  **2**  2 Adjusted                  weighted average of outstanding shares  **371**  377  **370**  376 **Earnings                  per common share - basic**  **1.18**  1.21  **2.78**  2.42 **Earnings                  per common share - diluted**  **1.17**  1.20  **2.77**  2.41   -            8            - **5.** **EARNINGS        PER SHARE**-**BASIC AND DILUTED**(cont’d)
In        the        second quarter and six months ended June 30, 2007, there were no options        to        purchase common shares (2006: 402,561 options at a weighted average grant        price        of CAN$56.34 per share were outstanding in the second quarter and six months        ended June 30, 2006) that were outstanding during the periods and that were        not        included in the computation of diluted earnings per share because the options'        exercise price was greater than the average price of the common        shares.
As        at        June 30, 2007, there were 370,975,741 (2006: 376,070,782) common shares        outstanding. 
**6.** **RESTRUCTURING        PROGRAMS**
**2007        Restructuring Activities**
The        schedule provided below shows details of the charges by operating        segment:**Charges        recorded in the statement of income***Quarter                  ended June 30, 2007*  **Severance                  Costs**  **Asset                  Impairment Charges**  **Other**  **Total** **Bauxite                  and Alumina**  **1**  **-**  **-**  **1** **Primary                  Metal**  **4**  **-**  **1**  **5** **Engineered                  Products**  **-**  **-**  **1**  **1** **Packaging**  **15**  **3**  **-**  **18** **Other**  **1**  **-**  **-**  **1** **Total**  **21**  **3**  **2**  **26**  *Six                  months ended June 30, 2007*  **Severance                  Costs**  **Asset                  Impairment Charges**  **Other**  **Total** **Bauxite                  and Alumina**  **2**  **-**  **-**  **2** **Primary                  Metal**  **11**  **-**  **1**  **12** **Engineered                  Products**  **-**  **-**  **2**  **2** **Packaging**  **17**  **4**  **-**  **21** **Other**  **1**  **-**  **-**  **1** **Total**  **31**  **4**  **3**  **38** 
For        the        second quarter and six months ended June 30, 2007, $1 and $3 of the severance        costs and other charges above are excluded from the measurement of the        profitability of the Company’s operating segments (Business Group Profit), as        they relate to corporate initiatives as discussed in note 18 - Information        by        Operating Segment.
The        components of the 2007 restructuring charges were as follows:
Bauxite        and Alumina
The        Company announced in 2006 that it had signed a new collective labour agreement        with its Quebec employees represented by the Canadian Auto Workers union.        As        part of this agreement, the Company has offered early retirement incentives        to        employees and recorded severance charges of $1 in the second quarter of 2007        for        employees who have accepted. The Company expects to incur additional severance        charges of $1 as a result of this offer.
The        Company announced in 2005 that its subsidiary, Société Générale de Recherches et        d'Exploitations Minières (Sogerem), had begun an information and consultation        process with its employee representatives and local partners due to the        exhaustion of mining resources in the Tarn region of France. Production at        its        fluorspar mining operations came to a close during the first half of 2006.        The        consultation process is now ended. In the first quarter of 2007, the Company        recorded additional severance costs of $1. No further charges are expected        to be        incurred.  -            9            -  
**6.** **RESTRUCTURING        PROGRAMS**        (cont’d)
Primary        Metal
The        Company announced in 2006 that it had begun consultations with unions and        employee representatives for a proposed sale of selected assets at the Company’s        Affimet aluminum recycling plant in Compiègne (France). The consultation process        is now ended. In the first quarter of 2007, the Company recorded additional        severance costs of $5. The divestiture was completed in the second quarter        of        2007, as discussed in note 11 - Sales and Acquisitions of Businesses and        Investments. ** **
In        2005,        the Company recorded restructuring charges related to the closure of its        aluminum smelter in Lannemezan (France). The closure process for Lannemezan        began in June 2006 and is expected to be completed, at the latest, during        the        course of 2008. In the first quarter of 2007, the Company recorded additional        severance costs of $1. In the second quarter of 2007, the Company recorded        additional severance costs and other restructuring charges of $1 each. The        Company expects to incur an additional $7 of restructuring charges related        to        the closure of the smelter.
The        Company recorded additional severance costs of $1 and $3 for other minor        restructuring programs pursued in the first and second quarters of 2007 in        this        operating segment.
Engineered        Products
The        Company announced in 2006 that it had begun consultations with unions and        employee representatives for a proposed closure of the Workington hard alloy        extrusion plant. Production from Workington will be consolidated at Alcan’s        facilities in Issoire and Montreuil-Juigné (France). In the first quarter of        2007, the Company recorded additional other restructuring charges of $1.        In the        second quarter of 2007, the Company recorded additional other restructuring        charges of $1. Workington production is now ceased. The Company expects to        incur        additional charges of $11 related to this activity. 
Packaging
In        the        second quarter of 2007, along with the Company’s continuous effort to manage        ongoing costs and margins, certain selected restructuring activities were        announced, mainly in its Food Europe and Tobacco Businesses. In relation        to        these activities, the Company incurred severance costs of $12 and expects        further costs of $2.
The        Company launched in 2006 a restructuring program in the Global Beauty Packaging        sector aimed at streamlining processes and reaching an improved competitive        position. In the first quarter of 2007, the Company recorded severance costs        of        $2. In the second quarter of 2007, the Company recorded additional severance        costs of $3. The Company expects to incur additional charges of $4 related        to        this activity. 
The        Company announced in 2005 the restructuring of certain businesses, notably        Global Beauty Packaging and Food Packaging Europe, as part of the continuing        drive to reshape its portfolio, counter increasing competitive pressures        in        Western countries and improve margins. In the first quarter of 2007, the        Company        recorded additional asset impairment charges of $1. In the second quarter        of        2007, the Company recorded asset impairment charges of $3. The Company expects        to incur additional charges of $1 related to this activity.  -            10            - **6.** **RESTRUCTURING        PROGRAMS**        (cont’d)**2006        Restructuring Activities**The        schedule provided below shows details of the charges by operating        segment:**Charges        recorded in the statement of income** *Quarter                  ended June 30, 2006*  **Severance                  Costs**  **Asset                  Impairment Provisions**  **Other**  **Total** **Bauxite                  and Alumina**  1  11  -  12 **Primary                  Metal**  14  23  7  44 **Engineered                  Products**  9  -  1  10 **Packaging**  23  1  3  27 **Other**  1  -  -  1 **Total**  48  35  11  94 *Six                  months ended June 30, 2006*             **Bauxite                  and Alumina**  1  11  2  14 **Primary                  Metal**  15  23  8  46 **Engineered                  Products**  10  -  1  11 **Packaging**  25  6  5  36 **Other**  1  -  -  1 **Total**  52  40  16  108 
For        the        second quarter and six months ended June 30, 2006, $16 and $22, respectively,        of        the severance costs and other charges above are excluded from the measurement        of        the profitability of the Company’s operating segments (Business Group Profit),        as they relate to major corporate initiatives as discussed in note 18 -        Information by Operating Segment.
The        significant components of the second quarter and six months ended June 30,        2006        restructuring charges were as follows:
Bauxite        and Alumina
In        2006,        the Company announced the reorganization of its global specialty aluminas        business entailing the gradual, yet permanent shut-down of the Company’s        Specialty-Calcined Alumina plant (UPCA) in Jonquière, Quebec, by the end of the        year. In relation to this activity, the Company recorded restructuring charges        of $12 comprising $1 of severance costs and $11 of asset impairment charges        during the second quarter of 2006. No further charges were        incurred.
In        relation to the proposed closure of mining operations in the Tarn region        of        France announced in 2005 by Sogerem, the Company recorded additional other        restructuring charges of $2 in the first quarter of 2006. Refer to the        components of the 2007 restructuring charges discussed above for more details        in        relation to this activity.
Primary        Metal
In        relation to the proposed sale of selected assets at the Company’s Affimet        aluminum recycling plant in Compiègne (France) announced in 2006, the Company        recorded restructuring charges of $44 comprising $14 of severance costs,        $7 of        other costs and $23 of asset impairment charges during the second quarter        of        2006. Refer to the components of the 2007 restructuring charges discussed        above        for more details in relation to this activity. 
In        the        first quarter of 2006, the Company recorded other restructuring charges of        $1        and severance costs of $1 related to other minor restructuring programs in        this        operating segment. -            11            - **6.** **RESTRUCTURING        PROGRAMS**        (cont’d)
Engineered        Products
In        relation to the Workington closure announced in 2006, the Company recorded        severance costs of $9 during the second quarter of 2006. Refer to the components        of the 2007 restructuring charges discussed above for more details in relation        to this activity.
Other        minor restructuring charges were incurred in this operating segment. In the        first quarter of 2006, the Company recorded severance costs of $1 and in        the        second quarter of 2006, the Company recorded additional other restructuring        charges of $1. 
Packaging 
In        2006,        the Company announced that it had begun consultations with unions and employee        representatives for a proposed closure of the Midsomer Norton food flexibles        packaging plant. The plant had been adversely affected by a declining demand        in        the UK market and high raw material costs. The Company recorded restructuring        charges of $17 comprising $16 of severance costs and $1 of asset impairment        charges during the second quarter of 2006. 
In        relation to pursuing plans to restructure certain businesses announced in        2005,        notably Global Beauty Packaging and Food Packaging Europe, the Company recorded        additional restructuring charges of $9 in the first quarter of 2006. This        charge        was comprised of severance costs of $2, asset impairment charges of $5 and        other        charges of $2. In the second quarter of 2006, the Company recorded additional        severance costs of $5 and other restructuring charges of $3. Refer to the        components of the 2007 restructuring charges discussed above for more details        in        relation to this activity.
In        addition, the Company also recorded severance costs of $2 during the second        quarter of 2006 related to the closure of Alcan Packaging Mohammedia’s cookware        activity.
The        schedules provided below show details of the provision balances and related        cash        payments for the significant restructuring activities:**Provision        roll-forward** *Quarter                  ended June 30, 2007*  **Severance                  Costs**  **Asset                  Impairment Charges***  **Other**  **Total** Provision                  balance as at March 31, 2007  **163**  **-**  **57**  **220**               Charges                  recorded in the statement of income  **21**  **3**  **2**  **26** Cash                  payments - net  **(30****)** **-**  **(7****)** **(37****)**Non-cash                  items  **5**  **(3****)** **-**  **2** Provision                  balance as at June 30, 2007  **159**  **-**  **52**  **211**  *Quarter                  ended June 30, 2006*  **Severance                  Costs**  **Asset                  Impairment Charges***  **Other**  **Total** Provision                  balance as at March 31, 2006  217  -  54  271               Charges                  recorded in the statement of income  48  35  11  94 Cash                  payments - net  (46) -  (9) (55)Non-cash                  items  3  (35) 2  (30)Provision                  balance as at June 30, 2006  222  -  58  280  -            12            - **6.** **RESTRUCTURING        PROGRAMS**(cont’d)  *Six                  months ended June 30, 2007*  **Severance                  Costs**  **Asset                  Impairment Charges***  **Other**  **Total** Provision                  balance as at December 31, 2006  **199**  **-**  **61**  **260**               Charges                  recorded in the statement of income  **31**  **4**  **3**  **38** Cash                  payments - net  **(78****)** **-**  **(12****)** **(90****)**Non-cash                  items  **7**  **(4****)** **-**  **3** Provision                  balance as at June 30, 2007  **159**  **-**  **52**  **211**   *Six                  months ended June 30, 2006*  **Severance                  Costs**  **Asset                  Impairment Charges***  **Other**  **Total** Provision                  balance as at December 31, 2005  243  -  57  300               Charges                  recorded in the statement of income  52  40  16  108 Cash                  payments - net  (83) -  (17) (100)Non-cash                  items  10  (40) 2  (28)Provision                  balance as at June 30, 2006  222  -  58  280 *Fair        value of assets was determined using discounted future cash flows.**7.** **INCOME        TAXES**  Second                  QuarterSix                  Months *Periods                  ended June 30*  **2007**  2006  **2007**  2006 Current  **192**  112  **405**  237 Deferred  **(26****)** 83  **41**  227    **166**  195  **446**  464 
The        composite of the applicable statutory corporate income tax rates in Canada        is        33% (2006: 33%).
The        Company’s 2007 second quarter and year to date effective tax rate increased due        to balance sheet translation losses resulting from the continued strengthening        of the Canadian dollar, offset by the favourable impact related to the        recognition of future tax benefits in France which were not previously        recognized. In the second quarter of 2007, the Company reversed $462 of        valuation allowance related to deferred income tax assets of French subsidiaries        when it became evident that the realization of these assets was more likely        than        not due to current forecasts of sustained improved operating results. An        amount        of $144 was recorded as a credit to the income tax provision and $318 was        applied to reduce Goodwill as it related to tax benefits acquired in a business        combination.
As        a        result of the implementation of FIN 48, the amount of unrecognized tax benefits        at January 1, 2007 is $193 of which $84 would impact the Company’s effective tax        rate, if recognized. Also included in the amount of unrecognized tax benefits        is        $44 that, if recognized, would be allocated to reduce goodwill and $44 for        which        the Company would obtain an offset in other taxing jurisdictions. There were        no        material changes in the amounts above during the second quarter and six months        ended June 30, 2007.
It        is        expected that the amount of unrecognized tax benefits will change in the        next 12        months, however we do not expect the change to have a significant impact        on the        results of operations or the financial position of the Company.
The        Company recognizes accrued interest and penalties related to unrecognized        tax        benefits as part of the income tax provision. As of January 1, 2007, the        Company        had recorded a net liability of $10 for interest and penalties. -            13            - 
**7.** **INCOME        TAXES**(cont’d)
Canadian        federal income tax returns are closed through 2001 (except for potential        transfer pricing adjustments) and Canadian provincial income tax returns        are        closed through 1995. The process to obtain corollary adjustments with the        US        competent authority for the 1996-1999 transfer pricing adjustments to income        is        underway. The Canadian federal statute of limitations remains open for the        year        2002 and onward with years 2002 and 2003 currently under examination by the        Canada Revenue Agency. Foreign jurisdictions have statutes of limitations        generally ranging from 2 to 5 years. Years still open to examination by foreign        tax authorities in major jurisdictions include US (2004 onward), Germany        (2001        onward), UK (2004 onward), Switzerland (2004 onward), Australia (2002 onward)        and France (1989 onward). 
**8.** **SALES        OF RECEIVABLES**
The        Company has entered into programs with certain financial institutions to        sell        certain trade receivables. Effective April 2, 2007, the Company terminated        one        such program to sell to a third party an undivided interest up to $125 (€95        million) of selected trade receivables without recourse.
**9.** **OTHER        EXPENSES (INCOME) - NET**  
 Second                  Quarter  
 Six                  Months 
*Periods                  ended June 30* 
**2007** 
2006 
**2007** 
2006 
          
Asset                    impairment charges not included in restructuring programs  
**15**  
1  
**15**  
5 
Loss                    (Gain) on disposal of businesses and investments - net  
**50**  
(4
) 
**46**  
(4
)
Provision                  for (Recoveries of) legal claims  
**-**  
8  
**-**  
(54
)
Environmental                  provisions  
**-**  
7  
**-**  
9 
Interest                  revenue  
**(9**
**)** 
(7
) 
**(19**
**)** 
(15
)
Exchange                  losses - net  
**54**  
65  
**71**  
83 
Derivative                  gains - net  
**(6**
**)** 
(46
) 
**(22**
**)** 
(44
)
Advisory					and legal                  fees  
**21**  
-  
**21**  
- 
Other  
**30**  
(22
) 
**40**  
(9
)   
**155**  
2  
**152**  
(29
)
Following        a hostile takeover offer in May 2007, the Company incurred $21 in the second        quarter of 2007 for advisory and legal fees in order to develop alternatives.        See note 20 - Subsequent Events.
On        January 19, 2006, the Company sold claims related to the Enron bankruptcy        to        a** **financial        institution for combined proceeds of $62, recorded in Provision for (Recoveries        of) legal claims.
**10.** **INVENTORIES**  
**June                  30, 2007** 
December                  31, 2006 
**Aluminum                  operating segments**     
                      Aluminum  
**977**  
1,060 
                      Raw materials  
**903**  
835 
                      Other supplies  
**557**  
495    
**2,437**  
2,390 
**Packaging                  operating segments**       
                      Raw materials and other supplies  
**324**  
311 
                      Work in progress  
**165**  
155 
                      Finished goods  
**332**  

330    
**821**  
796    
**3,258**  
3,186  -            14            - 
**11.** **SALES        AND ACQUISITIONS OF BUSINESSES AND INVESTMENTS**
Investment
On        April        30, 2007, the Company signed a Heads of Agreement with Saudi Arabian mining        company Ma’aden to develop a proposed US$7-billion integrated aluminum“mine-to-metal” project. The Company would hold a 49% stake in the project and        recorded an initial investment of $18 in the second quarter of        2007.
Sales
On        April        27, 2007, the Company concluded the sale of selected assets at the Company’s        Affimet aluminum recycling plant in Compiègne (France). In relation to this, the        Company received proceeds of $26 and recorded a loss on disposal of $12 in        the        second quarter of 2007.
On        May        31, 2007, the Company reached an agreement in principle with UK-based Klesch        & Company Limited (Klesch) regarding the sale of its Vlissingen smelter in        the Netherlands. Alcan had an 85% interest in the smelter. The Company recorded        charges of $42 included as a loss on disposal of businesses and investments        within Other expenses (income) - net in the second quarter of 2007. The sale        was        concluded on July 2, 2007, for net proceeds of $29.
On        June        26, 2007, the Company concluded the sale of its Satma subsidiary, located        in        Goncelin (France), to ALMECO Spa for net proceeds of $4 and the Company recorded        a loss on disposal of $1 in the second quarter and $2 in the six months ended        June 30, 2007. 
**12.** **LONG-TERM        DEBT**
As        at        June 30, 2007, the Company has the ability, through its long-term credit        facilities, to refinance its commercial paper borrowings on a long-term basis.        However, the Company’s intention is to repay these commercial paper borrowings        during the third quarter of 2007 and has classified them as Short-term        borrowings at June 30, 2007. As at December 31, 2006, the Company had both        the        intention and the ability, through its long-term credit facilities, to refinance        its commercial paper borrowings on a long-term basis and had classified them        as        Debt not maturing within one year. Furthermore, all commercial paper debt        repayments were included in the year 2011 when the multi-currency, five year,        committed global credit facility matures. Based on foreign exchange rates        in        effect at June 30, 2007, debt repayment requirements over the next five years        amount to $69 in 2007, $484 in 2008, $25 in 2009, $18 in 2010 and $416 in        2011.
During        the first quarter of 2007, the Company entered into an interest rate derivative        to swap interest payments on $100 of its long-term debt from fixed to floating        rate (relating to the 4.875% Global notes due in 2012). The fair market value        of        this derivative was $(1) as at June 30, 2007. During the second quarter of        2007,        the Company entered into interest rate derivatives to swap interest payments        on        an additional $200 of the same long-term debt. The        fair        market value of these derivatives was $(5) as at June 30, 2007. These        derivatives have been designated and are effective as fair value hedges of        the        underlying fixed rate debt.
Since        June 16, 2006, the Company has had in place a two-tranche, multi-currency,        committed global credit facility with a syndicate of international banks.        This        facility is comprised of a $2,000 5-year tranche, maturing in June 2011,        and a        $1,000 364-day tranche, extendable by two years at the Company’s option. In the        second quarter of 2007, the Company extended the $1,000 364-day tranche.        The        facility is available for general corporate purposes and is primarily used        to        support the commercial paper programs. -            15            - **13.** **STOCK        OPTIONS AND OTHER STOCK-BASED COMPENSATION**
Total        Stock-Based Compensation Cost
Total        pre-tax stock based compensation expense is $76 and $93 for the second quarter        and six months ended June 30, 2007, respectively (2006: $21 and $61). The        amounts include other stock-based compensation expense of $67 and $82 for        the        second quarter and six months ended June 30, 2007 (2006: $10 and $25) and        stock        option expense of $9 and $11 for the second quarter and six months ended        June        30, 2007 (2006: $11 and $36). Total pre-tax stock based compensation expense        for        the second quarter and six months ended June 30, 2007 includes $3 and $5        of        compensation expense related to retired and retirement eligible employees        (2006:        $nil and $11).
As        of        June 30, 2007, virtually all of the stock options were vested. As such, all        related stock option expense has been recognized for all currently outstanding        stock options. The Company expects to continue to incur additional stock-based        compensation expense for its outstanding awards, other than stock options,        until        such time that these awards are settled, which will depend on the change        in        control date. As a result of the Rio Tinto offer, as discussed in note 20        -        Subsequent Events, the Company expects to record the remaining compensation        expense for such awards over an accelerated requisite service        period.
**14.** **COMPREHENSIVE        INCOME**
 
 
Second                  Quarter 
 
Six                  Months
 
*Periods                  ended June 30*
 
 
**2007**
 
 
2006
 
 
**2007**
 
 
2006
 
Net                  income 
 
 

**438**
 
 

455
 
 

**1,029**
 
 

908
 
Other                  comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net change in deferred translation adjustments
 
 

**55**
 
 

239
 
 

**108**
 
 

396
 
Net                  change                  in excess of market value over book value of                  “available-for-sale” securities
 
 

**1**
 
 

-
 
 

**1**
 
 

-
 
Net change in unreleased gains and losses on derivatives, net of                  tax of                  $(30) and $(54)
 
 
 
 
 
 
 
 
 
 
 
 
 
respectively, for the quarter and six months ended June                  30, 2007 (2006:                  $6 and $49):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net change from periodic revaluations 
 
 

**8**
 
 

(65

)
 

(3

)
 

(188

)
Net amount reclassified to income
 
 

**53**
 
 

57
 
 

**110**
 
 

98
 
Net change in minimum pension liability (net of tax of 
 
 
 
 
 
 
 
 
 
 
 
 
 
$8 and $9, respectively, for the quarter and six months                  ended June 30, 2006)
 
 

**-**
 
 

(13

)
 

**-**
 
 

(18

)
Net change in unfunded status of pension and other 
 
 
 
 
 
 
 
 
 
 
 
 
 
postretirement plans, net of tax of $(15) and $(20), respectively                  for the                  
 
 
 
 
 
 
 
 
 
 
 
 
 
quarter and six months ended                    June 30, 2007