##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-Q
  (Mark one)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2006oro

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

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

(I.R.S. employer
    identification number)3399 Peachtree Road NE,
    Suite 1500
    Atlanta, Georgia(Address of principal
    executive offices)

30326(Zip
    Code)   Telephone:
    (404) 814-4200
 (Registrants telephone
    number, including area code)
   þ o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ




---



##### 



TABLE OF
    CONTENTS
  PART I.

FINANCIAL
    INFORMATIONItem 1.

Financial
    StatementsCondensed
    Consolidated and Combined Statements of Operations and
    Comprehensive Income (Loss) (unaudited)
    Three Months and Nine Months Ended September 30, 2006 and
    September 30, 2005


2Condensed
    Consolidated Balance Sheets (unaudited)
    As of September 30, 2006 and December 31,
    2005


3Condensed
    Consolidated and Combined Statements of Cash Flows
    (unaudited)
    Nine Months Ended September 30, 2006 and September 30,
    2005


4Condensed
    Consolidated Statement of Shareholders Equity
    (unaudited)
    Nine Months Ended September 30, 2006


6Notes to the
    Condensed Consolidated and Combined Financial Statements
    (unaudited)


7Item 2.

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


43Item 3.

Quantitative and
    Qualitative Disclosures About Market Risk


72Item 4.

Controls and
    Procedures


76PART II.

OTHER
    INFORMATIONItem 1.

Legal
    Proceedings


78Item 6.

Exhibits


78EX-31.1 WILLIAM T. MONAHAN, INTERIM CHEIF EXECUTIVE OFFICER SECTION 302 CERTIFICATIONEX-31.2 RICK DOBSON, CHIEF FINANCIAL OFFICER, SECTION 302 CERTIFICATIONEX-32.1 WILLIAM T. MONAHAN, INTERIM CHIEF EXECUTIVE OFFICER, SECTION 906 CERTIFICATIONEX-32.2 RICK DOBSON, CHEIF FINANCIAL OFFICER, SECTION 906 CERTIFICATION   1




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  Novelis
    Inc.
 CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
    AND

COMPREHENSIVE INCOME (LOSS) (unaudited)

(in millions, except per share amounts)  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Net sales

$
2,494


$
2,053


$
7,377


$
6,337Cost of goods sold (exclusive of
    depreciation and amortization shown below)


2,389



1,834



6,931



5,678Selling, general and
    administrative expenses


103



90



293



260Depreciation and amortization


57



56



174



173Research and development expenses


10



10



29



29Restructuring charges 
    net


10



7



13



4Impairment charges on long-lived
    assets






4







5Interest expense and amortization
    of debt issuance costs  net


52



46



149



148Equity in net income of
    non-consolidated affiliates


(5
)


(2
)


(12
)


(6
)Other (income)
    expenses  net


34



(48
)


(62
)


(72
)2,650



1,997



7,515



6,219Income (loss) before provision
    (benefit) for taxes on income (loss) and minority
    interests share


(156
)


56



(138
)


118Provision (benefit) for taxes on
    income (loss)


(52
)


37



30



67Income (loss) before minority
    interests share


(104
)


19



(168
)


51Minority interests share


2



(9
)


(2
)


(19
)Net income (loss)


(102
)


10



(170
)


32Other comprehensive income
    (loss)  net of taxCurrency translation adjustment


11







105



(146
)Change in fair value of effective
    portion of hedges  net


11







(30
)


Change in minimum pension liability


(1
)


1



(4
)


(12
)Other comprehensive income
    (loss)  net of tax


21



1



71



(158
)Comprehensive income
    (loss)

$
(81
)

$
11


$
(99
)

$
(126
)Earnings (loss) per
    share:Net income (loss) per
    share  basic

$
(1.38
)

$
0.14


$
(2.30
)

$
0.43Net income (loss) per
    share  diluted

$
(1.38
)

$
0.14


$
(2.30
)

$
0.43Dividends per common
    share

$
0.01


$
0.09


$
0.19


$
0.27Supplemental information for
    2005 only:Net income attributable to the
    consolidated and combined results of Novelis from January 6 to
    September 30, 2005  increase to Retained earnings













$
61Net loss attributable to the
    combined results of Novelis from January 1 to January 5,
    2005  decrease to Owners net investment














(29
)Net income













$
32     2




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##### Table of Contents



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


December 31,2006


2005ASSETSCurrent assetsCash and cash equivalents

$
71


$
100Accounts receivable (net of
    allowances of $29 in 2006 and $26 in 2005) third parties


1,241



1,098 related parties


22



33Inventories


1,309



1,128Prepaid expenses and other current
    assets


72



66Current portion of fair value of
    derivative instruments


107



194Deferred income tax assets


19



8Total current assets


2,841



2,627Property, plant and
    equipment  net


2,130



2,160Goodwill


228



211Intangible assets  net


20



21Investment in and advances to
    non-consolidated affiliates


155



144Fair value of derivative
    instruments  net of current portion


55



90Deferred income tax assets


67



45Other long-term assets third parties


123



107 related parties


61



71Total assets

$
5,680


$
5,476LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt

$
4


$
3Short-term borrowings


113



27Accounts payable third parties


1,188



866 related parties


38



38Accrued expenses and other current
    liabilities


702



641Deferred income tax liabilities


86



26Total current
    liabilities


2,131



1,601Long-term debt  net of
    current portion


2,329



2,600Deferred income tax liabilities


143



186Accrued post-retirement benefits


335



305Other long-term liabilities


264



1925,202



4,884Commitments and contingenciesMinority interests in equity of
    consolidated affiliates


156



159Shareholders
    equityPreferred stock, no par value;
    unlimited number of first preferred and second preferred shares
    authorized; none issued and outstanding






Common stock, no par value;
    unlimited number of shares authorized; 74,006,375 shares
    issued and outstanding as of September 30, 2006






Additional paid-in capital


427



425(Accumulated deficit) Retained
    earnings


(92
)


92Accumulated other comprehensive loss


(13
)


(84
)Total shareholders
    equity


322



433Total liabilities and
    shareholders equity

$
5,680


$
5,476     3




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##### Table of Contents



Novelis
    Inc.
  CONDENSED
    CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
    (unaudited)
 (in
    millions)
  Nine Months EndedSeptember 30,2006


2005OPERATING ACTIVITIESNet income (loss)

$
(170
)

$
32Adjustments to determine net cash
    provided by operating activities:Depreciation and amortization


174



173Net gain on change in fair value
    of derivative instruments


(58
)


(87
)Deferred income taxes


(29
)


(6
)Amortization of debt issuance costs


7



16Provision for uncollectible
    accounts receivable


3



2Equity in net income of
    non-consolidated affiliates


(12
)


(6
)Dividends from non-consolidated
    affiliates


4



Minority interests share


2



19Stock-based compensation


2



2(Gain) loss on sales of
    businesses, investments and assets  net


16



(11
)Impairment charges on long-lived
    assets






5Changes in assets and liabilities
    (net of effects from acquisitions and divestitures):Accounts receivable third parties


(112
)


(44
) related parties


1



Inventories


(149
)


118Prepaid expenses and other current
    assets


(2
)


(2
)Other long-term assets


(13
)


(11
)Accounts payable third parties


287



39 related parties


(2
)


(7
)Accrued expenses and other current
    liabilities


16



90Accrued post-retirement benefits


23



21Other long-term liabilities


18



23Net cash provided by operating
    activities


6



366INVESTING ACTIVITIESCapital expenditures


(77
)


(104
)Disposal of business 
    net


(7
)


Cash advance received on pending
    transfer of rights


15



Proceeds from sales of assets


3



9Proceeds from loans
    receivable  net third parties






19 related parties


27



373Changes in investment in and
    advances to non-consolidated affiliates


4



Premiums paid to purchase
    derivative instruments


(2
)


(26
)Net proceeds from settlement of
    derivative instruments


227



96Net cash provided by investing
    activities


190



367(Continued) 4




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##### Table of Contents



Novelis
    Inc.
    CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
    (unaudited)
    (Continued) (in millions)
  Nine Months EndedSeptember 30,2006


2005FINANCING ACTIVITIESProceeds from issuance of debt

$
20


$
2,750Principal repayments third parties


(297
)


(1,742
) related parties






(1,180
)Short-term borrowings 
    net third parties


84



(137
) related parties






(302
)Dividends common
    shareholders


(14
)


(20
) minority
    interests


(14
)


(7
)Net receipts from Alcan






72Debt issuance costs


(9
)


(71
)Net cash used in financing
    activities


(230
)


(637
)Net (decrease) increase in cash
    and cash equivalents


(34
)


96Effect of exchange rate changes
    on cash balances held in foreign currencies


5



(3
)Cash and cash
    equivalents  beginning of period


100



31Cash and cash
    equivalents  end of period

$
71


$
124Supplemental disclosures of
    cash flow information:Interest paid

$
179


$
119Income taxes paid


24



35Principal payments on capital
    lease obligations (included above in principal
    repayments  third parties)


2



1Supplemental schedule of
    non-cash investing and financing activities relating to the
    spin-off transaction and post-closing adjustments (2005
    only):Other receivables





$
433Short-term borrowings 
    related parties






(57
)Long-term debt  related
    parties






32Capital lease obligation






52Additional paid-in capital






(98
)     5




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##### Table of Contents



Novelis
    Inc.
  CONDENSED CONSOLIDATED STATEMENT OF
    SHAREHOLDERS EQUITY (unaudited)
 (in millions, except number of common shares, which is in
    thousands)
  Retained


AccumulatedAdditional


Earnings


OtherCommon Stock


Paid-in


(Accumulated


ComprehensiveShares


Amount


Capital


Deficit)


Loss


TotalBalance as of December 31,
    2005


74,006


$



$
425


$
92


$
(84
)

$
433Activity for the Nine Months
    Ended September 30, 2006:Net loss














(170
)






(170
)Stock-based compensation










2











2Currency translation
    adjustment  net of tax


















105



105Change in fair value of effective
    portion of hedges  net


















(30
)


(30
)Change in minimum pension liability


















(4
)


(4
)Dividends on common shares
    ($0.19 per share)














(14
)






(14
)Balance as of
    September 30, 2006


74,006


$



$
427


$
(92
)

$
(13
)

$
322    6




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS (unaudited)
  1.
    Business
    and Summary of Significant Accounting Policies  Organization
    and Description of Business
      Form 10-K Form 10-K, Form 10-K Form 10-K
  Rule 10-01 Regulation S-X.
    .
  Recently
    Issued Accounting Standards
  Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements.
 7




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans
    Fair Value Measurements
  Accounting for Uncertainty in Income Taxes
   8




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  2.
    Restructuring
    Programs  Restructuring charges  net
  Europe


North America


TotalOther Exit





Other Exit





Other ExitSeverance


Related


Severance


Related


Severance


RelatedBalance as of December 31,
    2005

$
9


$
19


$
1


$



$
10


$
19Provisions  net


1















1



Cash payments


(2
)


(1
)


(1
)






(3
)


(1
)Adjustments  other






1















1Balance as of March 31,
    2006


8



19











8



19Provisions  net


1



1











1



1Cash payments


(1
)


(3
)










(1
)


(3
)Adjustments  other






1















1Balance as of June 30,
    2006


8



18











8



18Provisions  net


8



2











8



2Cash payments


(2
)


(2
)










(2
)


(2
)Adjustments  other






(1
)














(1
)Balance as of
    September 30, 2006

$
14


$
17


$



$



$
14


$
17          9




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  3.
    Loss on
    Disposal of Business  Other (income)
    expenses  net
  4.
    Inventories    September 30, 2006


December 31, 2005Finished goods

$
393


$
313Work in process


314



234Raw materials


527



498Supplies


123



1231,357



1,168Allowances


(48
)


(40
)$
1,309


$
1,128   Inventory Cost,
  5.
    Property,
    Plant and Equipment    September 30, 2006


December 31, 2005Land and property rights

$
96


$
90Buildings


881



845Machinery and equipment


4,616



4,4075,593



5,342Accumulated depreciation and
    amortization


(3,557
)


(3,319
)2,036



2,023Construction in progress


94



137$
2,130


$
2,160    10




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    6.
    Investment
    in and Advances to Non-consolidated Affiliates and Related Party
    Transactions    OwnershipAffiliate Name

Ownership Structure

PercentageAluminium Norf GmbH

Corporation


50
%Consorcio Candonga

Unincorporated Joint Venture


50
%Petrocoque S.A. Industria e
    Comercio

Corporation


25
%EuroNorca Partners

General Partnership


50
%Deutsche Aluminium Verpackung
    Recycling GmbH

Corporation


30
%France Aluminium Recyclage
    S.A.

Public Limited Company


20
%     Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Net sales

$
144


$
125


$
420


$
361Costs, expenses and provisions for
    taxes on income


129



120



392



346Net income

$
15


$
5


$
28


$
15     Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Purchases of tolling services,
    electricity and inventoriesAluminium Norf GmbH (A)

$
60


$
52


$
170


$
154Consorcio Candonga (B)


3



2



10



6Petrocoque S.A. Industria e
    Comercio (C)


1



1



2



2Interest
    incomeAluminium Norf GmbH (D)


1







1



1     (A)
    
    We purchase tolling services (the conversion of customer-owned
    metal) from Aluminium Norf GmbH. 11




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  (B)
    
    We purchase electricity from Consorcio Candonga for our
    operations in South America.(C)
    
    We purchase calcined-coke from Petrocoque S.A. Industria e
    Comercio for use in our smelting operations in South America.(D)
    
    We earn interest income on a loan due from Aluminium Norf GmbH.    September 30, 2006


December 31, 2005Accounts receivable (A)

$
22


$
33Other long-term assets (A)


61



71Accounts payable (B)


38



38     (A)
    
    The balances represent current and non-current portions of a
    loan due from Aluminium Norf GmbH.(B)
    
    We purchase tolling services from Aluminium Norf GmbH and
    electricity from Consorcio Candonga.    7.
    Accrued
    Expenses and Other Current Liabilities    September 30, 2006


December 31, 2005Accrued payroll

$
145


$
152Accrued settlement of legal claim


39



71Accrued interest payable


25



51Accrued income taxes


68



55Current portion of fair value of
    derivative instruments


41



22Other current liabilities


384



290$
702


$
641  12




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  8.
    Long-Term
    Debt    Interest


September 30,


December 31,Rates(A)


2006


2005Novelis Inc.Floating rate Term Loan B,
    due 2012


7.22
%(B)

$
260


$
3427.25% Senior Notes, due 2015


7.25
%(C)


1,400



1,400Novelis CorporationFloating rate Term Loan B,
    due 2012


7.22
%(B)


451



593Novelis Switzerland
    S.A.Capital lease obligation, due 2020
    (Swiss francs (CHF) 58 million)


7.50
%


46



45Capital lease obligation, due 2011
    (CHF 4 million)


2.49
%


4



4Novelis Korea LimitedBank loan, due 2008


5.30
%


30



50Bank loan, due 2008 (Korean won
    (KRW) 30 billion)










30Bank loan, due 2007


4.55
%


70



70Bank loan, due 2007 (KRW
    40 billion)


4.80
%


42



40Bank loan, due 2007 (KRW
    25 billion)


4.45
%


27



25Bank loans, due 2008 through 2011
    (KRW 1 billion)


4.07
%(D)


1



1OtherOther debt, due 2006 through 2012


2.55
%(D)


2



3Total debt






2,333



2,603Less: current portion






(4
)


(3
)Long-term debt  net
    of current portion





$
2,329


$
2,600     (A)
    
    Interest rates are as of September 30, 2006 and exclude the
    effects of any related interest rate swaps or amortization of
    debt issuance costs.(B)
    
    The interest rate for the Term Loans does not include any
    applicable margin discussed below.(C)
    
    The interest rate for the Senior Notes does not include
    additional special interest discussed below.(D)
    
    Weighted average interest rate.  Floating
    Rate Term Loan B
    Other long-term
 13




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
          7.25% Senior
    Notes
  Other long-term assets
    90-day
 14




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Korean
    Bank Loans
      Interest
    Rate Swaps
  3-month
  Impact of
    Late SEC Filings on our Debt Agreements
  Form 10-Q Form 10-K Form 10-Q Form 10-Q
  Form 10-Q
  Interest expense and amortization of debt
    issuance costs  net
 15




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Other long-term assets
  Interest expense and debt issuance costs  net.
  Lines of
    Credit /Short Term Borrowings
        9.
    Other
    Comprehensive Income (Loss)    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Net change in foreign currency
    translation adjustments

$
11


$



$
109


$
(146
)Net change in fair value of
    effective portion of hedges


11







(30
)


Net change in minimum pension
    liability


(1
)


1



(4
)


(5
)Net other comprehensive income
    (loss) adjustments, before income tax effect


21



1



75



(151
)Income tax effect










(4
)


(7
)Other comprehensive income
    (loss)

$
21


$
1


$
71


$
(158
)  16




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    September 30, 2006


December 31, 2005Foreign currency translation
    adjustments

$
70


$
(35
)Fair value of effective portion of
    hedges  net


(30
)


Minimum pension liability


(53
)


(49
)$
(13
)

$
(84
)   10.
    Stock-Based
    Compensation  Share-Based Payment Accounting for Stock-Based
    Compensation.
    Selling,
    general and administrative expenses
    Compensation
    to be Settled in Stock
  Novelis
    2006 Incentive Plan
   17




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    2006
    Stock Options
    Recognition
    Agreements
      Novelis
    Conversion Plan of 2005
   18




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
        WeightedAverageWeighted


RemainingAverage


Contractual


AggregateNumber


Exercise


Term


Intrinsicof Options


Price


(In Years)


ValueOptions outstanding as of
    December 31, 2005


2,704,790


$
21.60Granted






Exercised


(4,298
)

$
18.31Forfeited






Expired/Cancelled


(55,827
)

$
20.90Options outstanding as of
    September 30, 2006


2,644,665


$
21.62



6.5


$
10,497,443Options exercisable as of
    September 30, 2006


871,246


$
21.28



6.1


$
3,752,931     September 30,


December 31,2006


2005Dividend yield


1.56%



1.56%Expected volatility


30.30%



30.30%Risk-free interest rate


3.73%



3.73%Expected life


5.47 years



5.47 years   Selling, general and administrative
    expenses.
  Compensation
    to be Settled in Cash
    Accounting for Stock Issued
    to Employees Accounting for Stock Appreciation Rights and Other Variable
    Stock Option or Award Plans.
 19




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Stock
    Appreciation Rights
    Stock
    Price Appreciation Unit Plan
     20




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    WeightedAverageRemainingWeighted


Contractual


AggregateNumber of


Average


Term


IntrinsicSPAUs


Exercise Price


(In Years)


ValueSPAUs outstanding as of
    December 31, 2005


418,777


$
22.04Granted






Exercised






Forfeited






Expired/Cancelled






SPAUs outstanding as of
    September 30, 2006


418,777


$
22.04



7.3


$
1,488,315SPAUs exercisable as of
    September 30, 2006


115,419


$
21.53



7.2


$
468,660     WeightedRange of

AverageAssumptions

AssumptionsDividend yield

0.16%


0.16%Expected volatility

38.10 to 42.40%


41.34%Risk-free interest rate

4.56 to 4.68%


4.58%Expected life

2.49  to 4.62 years


4.13 years   Total
    Shareholder Returns Performance Plan
   21




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    AggregateNumber of


Redemption


IntrinsicRSUs


Price


ValueRSUs outstanding as of
    December 31, 2005


119,842


$
20.89Granted


1,107Exercised


Forfeited


Expired/Cancelled


RSUs outstanding as of
    September 30, 2006


120,949


$
23.68


$
2,864,446   Deferred
    Share Unit Plan For Non-Executive Directors
    and/or
    AggregateNumber of


Redemption


IntrinsicDDSUs


Price


ValueDDSUs outstanding as of
    December 31, 2005


41,862


$
20.94Granted


45,726



Exercised






Forfeited






Expired/Cancelled






DDSUs outstanding as of
    September 30, 2006


87,588


$
23.68


$
2,074,357   Novelis
    Founders Performance Awards
   22




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
      Weighted average expected stock
    price volatility


40.00
%Annual expected dividend yield


0.16
%Risk-free interest rate


4.72
%   at-the-money 2-year
  Compensation
    Cost
  Selling,
    general and administrative expenses.
 23




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  11.
    Post-Retirement
    Benefit Plans    OtherPension Benefits


Post-Retirement BenefitsThree Months Ended


Nine Months Ended


Three Months Ended


Nine Months EndedSeptember 30,


September 30,


September 30,


September 30,2006


2005


2006


2005


2006


2005


2006


2005Service cost

$
9


$
5


$
29


$
14


$
1


$
1


$
3


$
3Interest cost


11



7



32



22



2



(1
)


6



5Expected return on assets


(9
)


(3
)


(28
)


(15
)














Amortization actuarial losses


1







4



4



1



1



1



1 prior service cost


1







2



2















Net periodic benefit cost

$
13


$
9


$
39


$
27


$
4


$
1


$
10


$
9     Employer
    Contributions to Plans
        Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Funded pension plans

$
8


$
2


$
22


$
14Unfunded pension plans


3



3



9



9Savings and defined contribution
    pension plans


3



3



8



7      24




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  12.
    Currency
    Gains (Losses)  Other
    (income) expenses  net
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Net gain (loss) on change in fair
    value of currency derivative instruments

$
6


$
3


$
(18
)

$
76Net gain on translation of
    monetary assets and liabilities


5



3



15



43$
11


$
6


$
(3
)

$
119   Accumulated other comprehensive loss
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Cumulative currency translation
    adjustment  beginning of period

$
59


$
(26
)

$
(35
)

$
120Current period gain (loss) arising
    from changes in foreign currency exchange rates  net


11







105



(146
)Cumulative currency translation
    adjustment  end of period

$
70


$
(26
)

$
70


$
(26
)   13.
    Financial
    Instruments and Commodity Contracts        Accumulated other comprehensive loss Shareholders equity
 25




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Accumulated other comprehensive loss
      As of September 30, 2006Net FairMaturity Dates

Assets


Liabilities


ValueForward foreign exchange contracts

2006 through 2011

$
12


$
(11
)

$
1Interest rate swaps

2007 through 2008


3







3Cross-currency interest rate swaps

2006 through 2015






(76
)


(76
)Aluminum forward contracts

2006 through 2009


68



(21
)


47Aluminum options

2006


25







25Fixed price electricity contract

2016


49







49Embedded derivative instruments

2007


5







5162



(108
)


54Less: current portion (A)




107



(41
)


66$
55


$
(67
)

$
(12
)     (A)
    
    The amounts of the current and long-term portions of fair values
    under assets are each presented in the accompanying condensed
    consolidated balance sheets. The amounts of the current and
    long-term portions of fair values under liabilities are included
    in Accrued expenses and other current liabilitiesand
    Other long-term liabilities, respectively, in the
    accompanying condensed consolidated balance sheets.    As of December 31, 2005Net FairMaturity Dates

Assets


Liabilities


ValueForward foreign exchange contracts

2006 through 2011

$
15


$
(9
)

$
6Interest rate swaps

2006 through 2008


5







5Cross-currency interest rate swaps

2006 through 2015






(24
)


(24
)Aluminum forward contracts

2006 through 2009


87



(7
)


80Aluminum options

2006


109







109Fixed price electricity contract

2016


68







68284



(40
)


244Less: current portion (A)




194



(22
)


172$
90


$
(18
)

$
72  26




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    (A)
    
    The amounts of the current and long-term portions of fair values
    under assets are each presented in the accompanying condensed
    consolidated balance sheets. The amounts of the current and
    long-term portions of fair values under liabilities are included
    in Accrued expenses and other current liabilitiesand
    Other long-term liabilities, respectively, in the
    accompanying condensed consolidated balance sheets.  14.
    Other
    (Income) Expenses  Net    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Gain) loss on change in fair
    value of derivative instruments  net

$
37


$
(39
)

$
(58
)

$
(56
)Loss on disposal of business










15



Exchange (gain) loss 
    net


(5
)


(4
)


(15
)


1Loss (gain) on disposals of
    property, plant and equipment  net


2







1



(11
)Other income  net






(5
)


(5
)


(6
)$
34


$
(48
)

$
(62
)

$
(72
)   15.
    Income
    Taxes  Accounting for
    Income Taxes. Interim Financial Reporting Accounting for Income Taxes in Interim
    Periods
 27




---



##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Pre-tax income (loss) before
    equity in net income of non-consolidated affiliates and minority
    interests share

$
(161
)

$
54


$
(150
)

$
112Canadian statutory tax rate


33
%


33
%


33
%


33
%Income taxes (benefit) at the
    Canadian statutory tax rate

$
(54
)

$
18


$
(50
)

$
37Increase (decrease) in tax rate
    resulting from:Exchange translation items


2



28



36



24Exchange remeasurement of deferred
    income taxes


(1
)


6



2



6Change in valuation allowances


12



(12
)


42



Expense/income items with no tax
    effect  net






(10
)


(5
)


(6
)Tax rate differences on foreign
    earnings


(11
)


5



4



4Out-of-period
    adjustments  net














(7
)Other  net






2



1



9Provision (benefit) for taxes on
    income (loss)

$
(52
)

$
37


$
30


$
67Effective tax rate


32
%


69
%


(20
)%


60
%        28




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    16.
    Earnings
    Per Share    Nine MonthsThree Months Ended


EndedSeptember 30,


September 30,2006


2005


2006


2005Numerator:Net income (loss)

$
(102
)

$
10


$
(170
)

$
32Denominators:Weighted average number of
    outstanding shares  basic


74.01



74.00



74.01



73.99Effect of dilutive shares






0.38







0.25Weighted average number of
    outstanding shares  diluted


74.01



74.38



74.01



74.24Earnings (loss) per
    share:Net income (loss) per
    share  basic

$
(1.38
)

$
0.14


$
(2.30
)

$
0.43Net income (loss) per
    share  diluted

$
(1.38
)

$
0.14


$
(2.30
)

$
0.43        29




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    17.
    Commitments
    and Contingencies    Legal
    Proceedings
  Reynolds Boat Case. C04-0175RJB.
    Accrued expenses
    and other current liabilities Prepaid expenses and other
    current assets
  Accrued expenses
    and other current liabilities
   30




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Environmental
    Matters
  Oswego North Ponds.
    Indirect
    Guarantees of the Indebtedness of Others
    
    wholly-owned or majority-owned subsidiaries;
    variable interest entities consolidated under FASB
    Interpretation No. 46 (Revised), Consolidation of
    Variable Interest Entities; and
    Aluminium Norf GmbH, which is a fifty percent (50%) owned joint
    venture that does not meet the consolidation tests under FASB
    Interpretation No. 46 (Revised).     31




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Maximum Potential


Liability Carrying


Assets Held forType of Entity

Future Payment


Value


CollateralWholly-owned subsidiaries

$
35


$
21


$
Majority-owned subsidiaries


2







Aluminium Norf GmbH


13







   18.
    Segment,
    Geographical Area and Major Customer Information    Disclosure About the Segments of
    an Enterprise and Related Information.
    Other (income)
    expenses  net.
   32




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Selected
    Segment Financial Information
    Adjustment toEliminateAs of and for the Three

North








South


Proportional


CorporateMonths Ended September 30, 2006

America


Europe


Asia


America


Consolidation


and Other


TotalNet sales (to third parties)

$
954


$
940


$
388


$
216


$
(4
)

$



$
2,494Intersegment sales






2



4



21







(27
)


Regional Income (Loss)


(19
)


71



18



37











107Depreciation and amortization


17



21



14



11



(7
)


1



57Capital expenditures


6



8



6



5



(3
)






22Total assets


1,487



2,392



1,021



814



(98
)


64



5,680   Adjustment toEliminateAs of and for the Three

North








South


Proportional


CorporateMonths Ended September 30, 2005

America


Europe


Asia


America


Consolidation


and Other


TotalNet sales (to third parties)

$
836


$
737


$
328


$
157


$
(5
)

$



$
2,053Intersegment sales


1



2



1



7







(11
)


Regional Income


54



52



23



24











153Depreciation and amortization


18



23



12



11



(8
)






56Capital expenditures


18



16



5



5



(3
)


4



45Total assets


1,388



2,129



971



780



(81
)


77



5,264   Adjustment toEliminateAs of and for the Nine

North








South


Proportional


CorporateMonths Ended September 30, 2006

America


Europe


Asia


America


Consolidation


and Other


TotalNet sales (to third parties)

$
2,841


$
2,688


$
1,235


$
626


$
(13
)

$



$
7,377Intersegment sales


1



2



12



39







(54
)


Regional Income


64



208



70



122











464Depreciation and amortization


53



68



41



33



(24
)


3



174Capital expenditures


24



26



15



17



(8
)


3



77Total assets


1,487



2,392



1,021



814



(98
)


64



5,680   Adjustment toEliminateAs of and for the Nine

North








South


Proportional


CorporateMonths Ended September 30, 2005

America


Europe


Asia


America


Consolidation


and Other


TotalNet sales (to third parties)

$
2,500


$
2,376


$
1,025


$
448


$
(12
)

$



$
6,337Intersegment sales


2



30



6



37







(75
)


Regional Income


141



161



80



86











468Depreciation and amortization


54



74



37



33



(25
)






173Capital expenditures


35



38



15



13



(5
)


8



104Total assets


1,388



2,129



971



780



(81
)


77



5,264  33




---



##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Total Regional Income

$
107


$
153


$
464


$
468Interest expense and amortization
    of debt issuance costs


(55
)


(49
)


(160
)


(155
)(Gain) loss on cash settlement of
    derivative instruments  net, included in Regional
    Income


(62
)


4



(193
)


(10
)Gain (loss) on change in fair
    value of derivative instruments  net


(37
)


39



58



56Depreciation and amortization


(57
)


(56
)


(174
)


(173
)Minority interests share


2



(9
)


(2
)


(19
)Adjustment to eliminate
    proportional consolidation (A)


(9
)


(9
)


(26
)


(27
)Restructuring (charges)
    recoveries  net


(10
)


(7
)


(13
)


(4
)Impairment charges on long-lived
    assets






(4
)






(5
)Gain (loss) on disposals of
    property, plant and equipment and businesses  net


(2
)






(16
)


11Corporate selling, general and
    administrative expenses


(33
)


(19
)


(88
)


(49
)Other corporate costs  net


2



4



10



6Benefit (provision) for taxes on
    income (loss)


52



(37
)


(30
)


(67
)Net income (loss)

$
(102
)

$
10


$
(170
)

$
32     (A)
    
    Our financial information for our segments (including Regional
    Income) includes the results of our non-consolidated affiliates
    on a proportionately consolidated basis, which is consistent
    with the way we manage our business segments. However, under
    GAAP, these non-consolidated affiliates are accounted for using
    the equity method of accounting. Therefore, in order to
    reconcile Total Regional Income to Net income, the proportional
    Regional Income of these non-consolidated affiliates is removed
    from Total Regional Income, net of our share of their net
    after-tax results, which is reported as Equity in net income
    of non-consolidated affiliateson our condensed consolidated
    and combined statements of operations. See
    Note 6  Investment in and Advances to
    Non-consolidated Affiliates and Related Party Transactions to
    our condensed consolidated and combined financial statements for
    further information about these non-consolidated affiliates.  Information
    about Major Customers
    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Net sales to Rexam (in millions)

$
357


$
282


$
1,021


$
792Percentage of total net sales


14.3
%


13.8
%


13.8
%


12.5
%  34




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  19.
    Supplemental
    Guarantor Information      Novelis
    Inc.
  Condensed
    Consolidating Statement of Operations
 (in
    millions)
  Three Months Ended September 30, 2006Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedNet sales

$
415


$
2,176


$
657


$
(754
)

$
2,494Cost of goods sold (exclusive of
    depreciation and amortization shown below)


404



2,121



625



(761
)


2,389Selling, general and
    administrative expenses


13



70



20







103Depreciation and amortization


4



37



16







57Research and development expenses


7



2



1







10Restructuring charges 
    net






10











10Interest expense and amortization
    of debt issuance costs  net


12



35



5







52Equity in net income of affiliates


70



(5
)






(70
)


(5
)Other expenses  net


4



27



3







34514



2,297



670



(831
)


2,650Loss before provision (benefit)
    for taxes on loss and minority interests share


(99
)


(121
)


(13
)


77



(156
)Provision (benefit) for taxes on
    loss


3



(55
)










(52
)Loss before minority
    interests share


(102
)


(66
)


(13
)


77



(104
)Minority interests share










2







2Net loss

$
(102
)

$
(66
)

$
(11
)

$
77


$
(102
)  35




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Condensed
    Consolidating and Combining Statement of Operations
 (in
    millions)
  Three Months Ended September 30, 2005ConsolidatedNon-





andParent


Guarantors


Guarantors


Eliminations


CombinedNet sales

$
332


$
1,697


$
579


$
(555
)

$
2,053Cost of goods sold (exclusive of
    depreciation and amortization shown below)


321



1,523



545



(555
)


1,834Selling, general and
    administrative expenses


19



55



16







90Depreciation and amortization


3



39



14







56Research and development expenses


6



3



1







10Restructuring charges
    (recoveries)  net






(1
)


8







7Impairment charges on long-lived
    assets










4







4Interest expense and amortization
    of debt issuance costs  net


12



29



5







46Equity in net income of affiliates


(52
)


(2
)






52



(2
)Other (income)
    expenses  net


10



(50
)


(8
)






(48
)319



1,596



585



(503
)


1,997Income (loss) before provision
    (benefit) for taxes on income (loss) and minority
    interests share


13



101



(6
)


(52
)


56Provision (benefit) for taxes on
    income (loss)


3



43



(9
)






37Income before minority
    interests share


10



58



3



(52
)


19Minority interests share










(9
)






(9
)Net income (loss)

$
10


$
58


$
(6
)

$
(52
)

$
10  36




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Condensed
    Consolidating Statement of Operations
 (in
    millions)
  Nine Months Ended September 30, 2006Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedNet sales

$
1,204


$
6,309


$
2,086


$
(2,222
)

$
7,377Cost of goods sold (exclusive of
    depreciation and amortization shown below)


1,164



6,017



1,969



(2,219
)


6,931Selling, general and
    administrative expenses


47



193



53







293Depreciation and amortization


11



114



49







174Research and development expenses


20



8



1







29Restructuring charges 
    net






11



2







13Interest expense and amortization
    of debt issuance costs  net


33



102



14







149Equity in net income of affiliates


75



(12
)






(75
)


(12
)Other (income)
    expenses  net


13



(77
)


2







(62
)1,363



6,356



2,090



(2,294
)


7,515Loss before provision for taxes on
    loss and minority interests share


(159
)


(47
)


(4
)


72



(138
)Provision for taxes on loss


11



8



11







30Loss before minority
    interests share


(170
)


(55
)


(15
)


72



(168
)Minority interests share










(2
)






(2
)Net loss

$
(170
)

$
(55
)

$
(17
)

$
72


$
(170
)  37




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Condensed
    Consolidating and Combining Statement of Operations
 (in
    millions)
  Nine Months Ended September 30, 2005ConsolidatedNon-





andParent


Guarantors


Guarantors


Eliminations


CombinedNet sales

$
960


$
5,218


$
1,835


$
(1,676
)

$
6,337Cost of goods sold (exclusive of
    depreciation and amortization shown below)


933



4,718



1,703



(1,676
)


5,678Selling, general and
    administrative expenses


52



159



49







260Depreciation and amortization


8



119



46







173Research and development expenses


19



9



1







29Restructuring charges
    (recoveries)  net






(4
)


8







4Impairment charges on long-lived
    assets










5







5Interest expense and amortization
    of debt issuance costs  net


46



87



15







148Equity in net income of affiliates


(89
)


(6
)






89



(6
)Other income  net


(31
)


(37
)


(4
)






(72
)938



5,045



1,823



(1,587
)


6,219Income before provision (benefit)
    for taxes on income and minority interests share


22



173



12



(89
)


118Provision (benefit) for taxes on
    income


(10
)


83



(6
)






67Income before minority
    interests share


32



90



18



(89
)


51Minority interests share










(19
)






(19
)Net income (loss)

$
32


$
90


$
(1
)

$
(89
)

$
32  38




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Condensed
    Consolidating Balance Sheet
 (in
    millions)
  As of September 30, 2006Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedASSETSCurrent assetsCash and cash equivalents

$
2


$
49


$
20


$



$
71Accounts receivable  net
    of allowances third parties


64



846



331







1,241 related parties


376



409



21



(784
)


22Inventories


59



875



378



(3
)


1,309Prepaid expenses and other current
    assets


3



54



15







72Current portion of fair value of
    derivative instruments






104



3







107Deferred income tax assets


2



8



9







19Total current assets


506



2,345



777



(787
)


2,841Property, plant and
    equipment  net


115



1,256



759







2,130Goodwill






27



201







228Intangible assets  net






17



3







20Investments


539



155







(539
)


155Fair value of derivative
    instruments  net of current portion






55











55Deferred income tax assets


19



16



32







67Other long-term assets


1,185



175



130



(1,306
)


184Total assets

$
2,364


$
4,046


$
1,902


$
(2,632
)

$
5,680LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt

$



$
3


$
1


$



$
4Short-term borrowings third parties


5



80



28







113 related parties






469



30



(499
)


Accounts payable third parties


99



706



383







1,188 related parties


78



188



57



(285
)


38Accrued expenses and other current
    liabilities


102



479



121







702Deferred income tax liabilities






82



4







86Total current
    liabilities


284



2,007



624



(784
)


2,131Long-term debt  net of
    current portion third parties


1,660



498



171







2,329 related parties






1,069



237



(1,306
)


Deferred income tax liabilities


19



108



16







143Accrued post-retirement benefits


12



236



87







335Other long-term liabilities


67



181



16







2642,042



4,099



1,151



(2,090
)


5,202Commitments and contingenciesMinority interests in equity of
    consolidated affiliates










156







156Shareholders
    equityPreferred stock


















Common stock


















Additional paid-in capital


427















427(Accumulated deficit)/retained
    earnings/owners net investment


(92
)


(247
)


580



(333
)


(92
)Accumulated other comprehensive
    income (loss)


(13
)


194



15



(209
)


(13
)Total shareholders
    equity


322



(53
)


595



(542
)


322Total liabilities and
    shareholders equity

$
2,364


$
4,046


$
1,902


$
(2,632
)

$
5,680  39




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Condensed
    Consolidating Balance Sheet
 (in
    millions)
  As of December 31, 2005Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedASSETSCurrent assetsCash and cash equivalents

$
2


$
34


$
64


$



$
100Accounts receivable  net
    of allowances third parties


67



689



342







1,098 related parties


381



318



22



(688
)


33Inventories


49



769



310







1,128Prepaid expenses and other current
    assets


2



55



9







66Current portion of fair value of
    derivative instruments






186



8







194Deferred income tax assets










8







8Total current assets


501



2,051



763



(688
)


2,627Property, plant and
    equipment  net


121



1,297



742







2,160Goodwill






25



186







211Intangible assets  net






18



3







21Investments


729



144







(729
)


144Fair value of derivative
    instruments  net of current portion






90











90Deferred income tax assets


8



5



32







45Other long-term assets


1,129



173



119



(1,243
)


178Total assets

$
2,488


$
3,803


$
1,845


$
(2,660
)

$
5,476LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt

$



$
2


$
1


$



$
3Short-term borrowings third parties






23



4







27 related parties


45



409



17



(471
)


Accounts payable third parties


76



442



348







866 related parties


62



152



41



(217
)


38Accrued expenses and other current
    liabilities


105



411



125







641Deferred income tax liabilities






26











26Total current
    liabilities


288



1,465



536



(688
)


1,601Long-term debt  net of
    current portion third parties


1,742



640



218







2,600 related parties






1,017



226



(1,243
)


Deferred income tax liabilities






176



10







186Accrued post-retirement benefits


9



213



83







305Other long-term liabilities


16



163



13







1922,055



3,674



1,086



(1,931
)


4,884Commitments and contingenciesMinority interests in equity of
    consolidated affiliates










159







159Shareholders
    equityPreferred stock


















Common stock


















Additional paid-in capital


425















425Retained earnings/(accumulated
    deficit)/owners net investment


92



(2
)


621



(619
)


92Accumulated other comprehensive
    income (loss)


(84
)


131



(21
)


(110
)


(84
)Total shareholders
    equity


433



129



600



(729
)


433Total liabilities and
    shareholders equity

$
2,488


$
3,803


$
1,845


$
(2,660
)

$
5,476  40




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Condensed
    Consolidating Statement of Cash Flows
 (in
    millions)
  Nine Months Ended September 30, 2006Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedOPERATING ACTIVITIESNet cash provided by operating
    activities

$
152


$
2


$
35


$
(183
)

$
6INVESTING ACTIVITIESCapital expenditures


(5
)


(49
)


(23
)






(77
)Disposal of business 
    net


(7
)














(7
)Cash advance received on pending
    transfer of rights






15











15Proceeds from sales of assets






3











3Proceeds from loans
    receivable  net














 related parties


53



(29
)


(1
)


4



27Changes in investment in and
    advances to non-consolidated affiliates






4











4Premiums paid to purchase
    derivative instruments






(2
)










(2
)Net proceeds from settlement of
    derivative instruments






232



(5
)






227Net cash provided by (used in)
    investing activities


41



174



(29
)


4



190FINANCING ACTIVITIESProceeds from issuance of new debt third parties










20







20 related parties






199







(199
)


Principal repayments third parties


(82
)


(143
)


(72
)






(297
) related parties


(73
)


(119
)


(3
)


195



Short-term borrowings 
    net third parties


5



55



24







84 related parties


(20
)


12



8







Dividends preference shares






(12
)






12



 common
    shareholders


(14
)


(155
)


(16
)


171



(14
) minority
    interests










(14
)






(14
)Debt issuance costs


(9
)














(9
)Net cash used in financing
    activities


(193
)


(163
)


(53
)


179



(230
)Net increase (decrease) in cash
    and cash equivalents






13



(47
)






(34
)Effect of exchange rate changes
    on cash balances held in foreign currencies






2



3







5Cash and cash
    equivalents  beginning of period


2



34



64







100Cash and cash
    equivalents  end of period

$
2


$
49


$
20


$



$
71  41




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Condensed
    Consolidating and Combining Statement of Cash Flows
 (in
    millions)
  Nine Months Ended September 30, 2005ConsolidatedNon-





andParent


Guarantors


Guarantors


Eliminations


CombinedOPERATING ACTIVITIESNet cash provided by (used in)
    operating activities

$
116


$
399


$
(14
)

$
(135
)

$
366INVESTING ACTIVITIESCapital expenditures


(12
)


(67
)


(25
)






(104
)Proceeds from sales of assets






1



8







9Proceeds from loans
    receivable  net third parties






4



15







19 related parties


(1,104
)


(157
)


(118
)


1,752



373Share repurchase 
    intercompany


400











(400
)


Premiums paid to purchase
    derivative instruments






(26
)










(26
)Net proceeds from settlement of
    derivative instruments






96











96Net cash provided by (used in)
    investing activities


(716
)


(149
)


(120
)


1,352



367FINANCING ACTIVITIESProceeds from issuance of debt third parties


1,875



825



50







2,750 related parties


40



1,459



253



(1,752
)


Principal repayments


(1,316
)


(1,512
)


(94
)






(2,922
)Short-term borrowings 
    net third parties


2



(68
)


(71
)






(137
) related parties


(30
)


(281
)


9







(302
)Share repurchase 
    intercompany






(400
)






400



Issuance of preference shares










32



(32
)


Dividends preference shares










(7
)


7



 common
    shareholders


(20
)


(158
)


(2
)


160



(20
) minority
    interests










(7
)






(7
)Net receipts from (payments to)
    Alcan


100



(21
)


(7
)






72Debt issuance costs


(49
)


(22
)










(71
)Net cash provided by (used in)
    financing activities


602



(178
)


156



(1,217
)


(637
)Net increase in cash and cash
    equivalents


2



72



22







96Effect of exchange rate changes
    on cash balances held in foreign currencies






(2
)


(1
)






(3
)Cash and cash
    equivalents  beginning of period






12



19







31Cash and cash
    equivalents  end of period

$
2


$
82


$
40


$



$
124  42




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  FORWARD
    LOOKING STATEMENTS
  The following information should be read together with our
    unaudited condensed consolidated and combined financial
    statements and accompanying notes included elsewhere in this
    quarterly report for a more complete understanding of our
    financial condition and results of operations. The following
    discussion contains forward-looking statements that reflect our
    plans, estimates and beliefs. Our actual results could differ
    materially from those discussed in these forward-looking
    statements. Factors that could cause or contribute to these
    differences include, but are not limited to, those discussed
    below, particularly in SPECIAL NOTE REGARDING
    FORWARD-LOOKING STATEMENTS AND MARKET DATA.
    GENERAL
    Form 10-K, Form 10-K Form 10-K
  HIGHLIGHTS
    
    We had net sales of $2.5 billion and a net loss of
    $102 million, or $(1.38) per share for our quarter ended
    September 30, 2006, compared to net sales of
    $2.1 billion and net income of $10 million, or
    $0.14 per share for the third quarter of 2005. We had net
    sales of $7.4 billion and a net loss of $170 million,
    or $(2.30) per share for the nine months ended
    September 30, 2006, compared to net sales of
    $6.3 billion and net income of $32 million, or
    $0.43 per share for the nine months ended
    September 30, 2005.
    Total rolled products shipments increased from 725 kilotonnes
    (kt) in the third quarter of 2005 to 737kt in the third quarter
    of 2006, while ingot products shipments declined from 46kt to
    37kt in those same periods. Total rolled products shipments
    increased from 2,168kt for the nine months ended
    September 30, 2005 to 2,231kt for the nine months ended
    September 30, 2006, while ingot products shipments declined
    from 174kt to 125kt in those same periods.
    We reduced our total debt by $37 million during the third
    quarter of 2006 and by $184 million through the nine months
    ended September 30, 2006, which was in excess of our
    required principal payment obligations. 43




---



##### Table of Contents




    London Metal Exchange (LME) pricing for aluminum (metal) was an
    average of 36% higher during the third quarter of 2006 than the
    same period for 2005, and an average of 37% higher during the
    nine months ended September 30, 2006 than the same period
    for 2005.
    Net sales for the third quarter and nine months ended
    September 30, 2006 increased 21% and 16%, respectively,
    compared to the same 2005 periods due mainly to the rise in LME
    prices. However, the benefit of higher LME prices on our net
    sales was limited by metal price ceilings in sales contracts
    representing approximately 20% of our estimated total shipments.
    During the third quarter and first nine months of 2006, we were
    unable to pass through approximately $115 million and
    $350 million, respectively, of metal price increases
    associated with sales under these contracts. The metal price
    ceilings are discussed in more detail below.
    As a result of our restatement and review process, delayed
    filings and continued reliance on third party consultants we
    continue to incur higher corporate costs and interest expense in
    2006 than in 2005. For the third quarter and nine months ended
    September 30, 2006, we estimate that these expenses
    approximated $9 million and $32 million, respectively.
    We expect to continue to incur these higher costs until we
    complete our registered exchange offer for our Senior Notes and
    until our accounting and finance functions are permanently
    staffed with the appropriate complement of personnel to support
    our ongoing financial reporting requirements. The restatement
    and review process and delayed filings are discussed in more
    detail below.
    During the third quarter we recognized pre-tax losses of
    $37 million related to the change in fair value of
    derivative instruments. During the nine months ended
    September 30, 2006, we recognized pre-tax gains of
    $58 million related to the change in fair value of
    derivative instruments. These amounts are included in Other
    (income) expenses  net. Regional Income includes
    approximately $62 million and $193 million of
    cash-settled derivative gains for the third quarter and nine
    months ended September 30, 2006, respectively. These
    derivative instruments and the related accounting are discussed
    in more detail below.
    The net loss for the third quarter includes an income tax
    benefit of $52 million, while the net loss for the nine
    months ended September 30, 2006 includes income tax expense
    of $30 million. These amounts were impacted by
    (1) pre-tax foreign currency gains or losses with no tax
    effect and the tax effect of foreign currency gains or losses
    with no pre-tax effect, (2) changes in valuation allowances
    and (3) foreign rate differences. Cash taxes paid during
    the third quarter and nine months ended September 30, 2006
    were $5 million and $24 million, respectively.  METAL
    PRICE CEILINGS
       44




---



##### Table of Contents



and/or
  Accounting for Derivative
    Instruments and Hedging Activities.
    METAL
    PRICE LAG
       45




---



##### Table of Contents



RESTATEMENT
    AND REVIEW AND DELAYED FILINGS
    Form 10-Q Form 10-K Form 10-Q
  INTERNAL
    CONTROLS
  Form 10-K Controls and Procedures.
  SPIN-OFF
    FROM ALCAN
    Post-Transaction
    Adjustments
    Agreements
    between Novelis and Alcan
   46




---



##### Table of Contents



OPERATIONS
    AND SEGMENT REVIEW
      Third Quarter


Percent


Nine Months


PercentPeriods Ended September 30,

2006


2005


Change


2006


2005


ChangeShipments  in
    kilotonnes (A)Rolled products, including tolling
    (the conversion of customer-owned metal)


737



725



2
%


2,231



2,168



3
%Ingot products, including primary
    and secondary ingot and recyclable aluminum (B)


37



46



(20
)%


125



174



(28
)%Total shipments


774



771




%


2,356



2,342



1
%     (A)
    
    One kilotonne (kt) is 1,000 metric tonnes. One metric tonne is
    equivalent to 2,204.6 pounds.(B)
    
    Ingot products shipments include primary ingot in Brazil,
    foundry products sold in Korea and Europe, secondary ingot in
    Europe and other miscellaneous recyclable aluminum sales made
    for logistical purposes.  47




---



##### Table of Contents



Third Quarter


Percent


Nine Months


PercentPeriods Ended September 30,

2006


2005


Change


2006


2005


Change($ in millions)Operating ResultsNet sales

$
2,494


$
2,053



21
%

$
7,377


$
6,337



16
%Cost and expensesCost of goods sold (exclusive of
    depreciation and amortization shown below)


2,389



1,834



30
%


6,931



5,678



22
%Selling, general and
    administrative expenses


103



90



14
%


293



260



13
%Depreciation and amortization


57



56



2
%


174



173



1
%Research and development expenses


10



10




%


29



29




%Restructuring charges 
    net


10



7



43
%


13



4



225
%Impairment charges on long-lived
    assets






4



(100
)%






5



(100
)%Interest expense and amortization
    of debt issuance costs  net


52



46



13
%


149



148



1
%Equity in net income of
    non-consolidated
    affiliates


(5
)


(2
)


150
%


(12
)


(6
)


100
%Other (income)
    expenses  net


34



(48
)


(171
)%


(62
)


(72
)


(14
)%2,650



1,997



33
%


7,515



6,219



21
%Income (loss) before provision for
    taxes on income and minority interests share


(156
)


56



(379
)%


(138
)


118



(217
)%Provision (benefit) for taxes on
    income (loss)


(52
)


37



(241
)%


30



67



(55
)%Income (loss) before minority
    interests share


(104
)


19



(647
)%


(168
)


51



(429
)%Minority interests share


2



(9
)


(122
)%


(2
)


(19
)


(89
)%Net income (loss)

$
(102
)

$
10



(1,120
)%

$
(170
)

$
32



(631
)%   Percent2006


2005


ChangeLondon Metal Exchange
    PricesAluminum (per metric tonne, and
    presented in U.S. dollars):Closing cash price as of
    September 30,

$
2,572


$
1,857



39
%Average cash price during the
    quarters ended September 30,

$
2,481


$
1,830



36
%Average cash price during the nine
    months ended September 30,

$
2,516


$
1,839



37
%   48




---



##### Table of Contents



Dollar








DollarThird Quarter


Strengthen/


Nine Months


Strengthen/Periods Ended September 30,

2006


2005


(Weaken)


2006


2005


(Weaken)Federal Reserve Bank of New
    York Exchange RatesAverage of the month end rates:U.S. dollar per Euro


1.275



1.217



5
%


1.252



1.258




%Brazilian real per U.S. dollar


2.161



2.317



(7
)%


2.171



2.456



(12
)%South Korean won per
    U.S. dollar


954



1,036



(8
)%


956



1,021



(6
)%Canadian dollar per
    U.S. dollar


1.118



1.192



(6
)%


1.127



1.221



(8
)%   Third Quarter


Percent


Nine Months


PercentPeriods Ended September 30,

2006


2005


Change


2006


2005


ChangeNew York Mercantile
    Exchange  Energy Price QuotationsLight Sweet
    CrudeAverage settlement price (per
    barrel)

$
71.55


$
56.25



27
%

$
67.09


$
49.10



37
%Natural
    GasAverage Henry Hub contract
    settlement price (per MMBTU) (A)

$
6.58


$
8.49



(22
)%

$
7.44


$
7.16



4
%     (A)
    
    One MMBTU is the equivalent of one decatherm, or one million
    BTUs (British Thermal Units). 49




---



##### Table of Contents



RESULTS
    OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2006
    COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2005
  Shipments
      Net
    sales
    Costs and
    expenses
    Third Quarter2006


2005% of





% of$ in millions


Net Sales


$ in millions


Net SalesCost of goods sold (exclusive of
    depreciation and amortization)

$
2,389



95.9
%

$
1,834



89.4
%Selling, general and
    administrative expenses


103



4.1
%


90



4.4
%Depreciation and amortization


57



2.3
%


56



2.7
%Research and development expenses


10



0.4
%


10



0.5
%Restructuring charges 
    net


10



0.4
%


7



0.3
%Impairment of long-lived assets







%


4



0.2
%Interest expense and amortization
    of debt issuance costs  net


52



2.1
%


46



2.2
%Equity in net income of
    non-consolidated affiliates


(5
)


(0.2
)%


(2
)


(0.1
)%Other (income)
    expenses  net


34



1.3
%


(48
)


(2.3
)%$
2,650



106.3
%

$
1,997



97.3
%   Cost of goods sold.
 50




---



##### Table of Contents



Selling, general and administrative expenses
    (SG&A).
  Interest expense and amortization of debt issuance
    costs  net.
  Other (income) expenses  net.
  Other(Income)Expenses  NetOther (income)
    expenses  net for the quarter ended
    September 30, 2005

$
(48
)Net losses of $37 million on
    change in fair value of derivative instruments in 2006, compared
    to net gains of $39 million in 2005


76Loss on disposal of property,
    plant and equipment  net in 2006 of $2 million


2Exchange gains of $5 million
    in 2006 compared to gains of $4 million in 2005


(1
)Other  net


5Other (income)
    expenses  net for the quarter ended
    September 30, 2006

$
34   Provision
    (benefit) for taxes on income (loss)
     51




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##### Table of Contents



Net
    income (loss)
    OPERATING
    SEGMENT REVIEW FOR THE QUARTER ENDED SEPTEMBER 30, 2006
    COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2005
  Regional
    Income
      Disclosure About the Segments of
    an Enterprise and Related Information.
     52




---



##### Table of Contents



Reconciliation
    Third Quarter2006


2005Regional Income
    (Loss)North America

$
(19
)

$
54Europe


71



52Asia


18



23South America


37



24Total Regional Income


107



153Interest expense and amortization
    of debt issuance costs


(55
)


(49
)(Gains) losses on cash settlement
    of derivative instruments  net, included in Regional
    Income


(62
)


4Gains (losses) on change in fair
    value of derivative instruments  net


(37
)


39Depreciation and amortization


(57
)


(56
)Minority interests share


2



(9
)Adjustment to eliminate
    proportional consolidation (A)


(9
)


(9
)Restructuring charges 
    net


(10
)


(7
)Impairment charges on long-lived
    assets






(4
)Losses on disposals of property,
    plant and equipment and businesses


(2
)


Corporate selling, general and
    administrative expenses


(33
)


(19
)Other corporate costs  net


2



4Benefit (provision) for taxes on
    income (loss)


52



(37
)Net income (loss)

$
(102
)

$
10     (A)
    
    Our financial information for our segments (including Regional
    Income) includes the results of our non-consolidated affiliates
    on a proportionately consolidated basis, which is consistent
    with the way we manage our business segments. However, under
    GAAP, these non-consolidated affiliates are accounted for using
    the equity method of accounting. Therefore, in order to
    reconcile Total Regional Income to Net income (loss), the
    proportional Regional Income of these non-consolidated
    affiliates is removed from Total Regional Income, net of our
    share of their net after-tax results, which is reported as
    Equity in net income of non-consolidated affiliates in the
    accompanying condensed consolidated and combined statements of
    operations. See Note 6  Investment in and
    Advances to Non-consolidated Affiliates and Related Party
    Transactions to our condensed consolidated and combined
    financial statements for further information about these
    non-consolidated affiliates.  OPERATING
    SEGMENT RESULTS
  North
    America
   53




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##### Table of Contents



Third Quarter


Percent2006


2005


Change($ in millions)Shipments (kt):Rolled products


296



285



3.9
%Ingot products


17



18



(5.6
)%Total shipments


313



303



3.3
%Net sales

$
954


$
836



14.1
%Regional Income (Loss)

$
(19
)

$
54



(135.2
)%Total assets

$
1,487


$
1,388



7.1
%   Shipments
    Net
    sales
  quarter-over-quarter
  Regional
    Income
    Europe
   54




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##### Table of Contents



Third Quarter


Percent2006


2005


Change($ in millions)Shipments (kt):Rolled products


265



252



5.2
%Ingot products


4



13



(69.2
)%Total shipments


269



265



1.5
%Net sales

$
940


$
737



27.5
%Regional Income

$
71


$
52



36.5
%Total assets

$
2,392


$
2,129



12.4
%   Shipments
    Net
    sales
    Regional
    Income
  back-to-back
  Total
    assets
    Asia
   55




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##### Table of Contents



Third Quarter


Percent2006


2005


Change($ in millions)Shipments (kt):Rolled products


106



119



(10.9
)%Ingot products


9



9




%Total shipments


115



128



(10.2
)%Net sales

$
388


$
328



18.3
%Regional Income

$
18


$
23



(21.7
)%Total assets

$
1,021


$
971



5.1
%   Shipments
    Net
    sales
    Regional
    Income
    South
    America
      Third Quarter


Percent2006


2005


Change($ in millions)Shipments (kt):Rolled products


70



68



2.9
%Ingot products


7



7




%Total shipments


77



75



2.7
%Net sales

$
216


$
157



37.6
%Regional Income

$
37


$
24



54.2
%Total assets

$
814


$
780



4.4
%  56




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##### Table of Contents



Shipments
    Net
    sales
    Regional
    Income
    RESULTS
    OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
    COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30,
    2005
  Shipments
      Net
    sales
   57




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##### Table of Contents



Costs
    and expenses
    Nine Months Ended September 30,2006


2005% of





% of$ in millions


Net Sales


$ in millions


Net SalesCost of goods sold (exclusive of
    depreciation and amortization)

$
6,931



94.0
%

$
5,678



89.6
%Selling, general and
    administrative expenses


293



4.0
%


260



4.1
%Depreciation and amortization


174



2.3
%


173



2.7
%Research and development expenses


29



0.4
%


29



0.5
%Restructuring charges 
    net


13



0.2
%


4




%Impairment of long-lived assets







%


5



0.1
%Interest expense and amortization
    of debt issuance costs  net


149



2.0
%


148



2.3
%Equity in net income of
    non-consolidated affiliates


(12
)


(0.2
)%


(6
)


(0.1
)%Other income  net


(62
)


(0.8
)%


(72
)


(1.1
)%$
7,515



101.9
%

$
6,219



98.1
%   Cost of goods sold.
  Selling, general and administrative expenses
    (SG&A). start-up start-up
  Interest expense and amortization of debt issuance
    costs  net.
  Restructuring charges  net.
 58




---



##### Table of Contents



Other income  net.
  OtherIncome  NetOther income  net
    for the nine months ended September 30, 2005

$
(72
)Net gains of $58 million on
    the change in fair value of derivative instruments in 2006,
    compared to net gains of $56 million in 2005


(2
)Loss on disposal of business in
    2006 of $15 million


15Loss on disposal of property,
    plant and equipment in 2006 of $1 million compared to gains
    of $11 million in 2005


12Exchange gains of $15 million
    in 2006 compared to losses of $1 million in 2005


(16
)Other  net


1Other income  net
    for the nine months ended September 30, 2006

$
(62
)   Provision
    for taxes on income (loss)
      Net
    income (loss)
  mark-to-market
 59




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##### Table of Contents



OPERATING
    SEGMENT REVIEW FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
    COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30,
    2005
    Nine Months EndedSeptember 30,2006


2005Regional IncomeNorth America

$
64


$
141Europe


208



161Asia


70



80South America


122



86Total Regional Income


464



468Interest expense and amortization
    of debt issuance costs


(160
)


(155
)Gains on cash settlement of
    derivative instruments  net, included in Regional
    Income


(193
)


(10
)Gains on change in fair value of
    derivative instruments  net


58



56Depreciation and amortization


(174
)


(173
)Minority interests share


(2
)


(19
)Adjustment to eliminate
    proportional consolidation (A)


(26
)


(27
)Restructuring charges 
    net


(13
)


(4
)Impairment charges on long-lived
    assets






(5
)Gains (losses) on disposals of
    property, plant and equipment and businesses


(16
)


11Corporate selling, general and
    administrative expenses


(88
)


(49
)Other corporate costs  net


10



6Provision for taxes on income
    (loss)


(30
)


(67
)Net income (loss)

$
(170
)

$
32     (A)
    
    Our financial information for our segments (including Regional
    Income) includes the results of our non-consolidated affiliates
    on a proportionately consolidated basis, which is consistent
    with the way we manage our business segments. However, under
    GAAP, these non-consolidated affiliates are accounted for using
    the equity method of accounting. Therefore, in order to
    reconcile Total Regional Income to Net income (loss), the
    proportional Regional Income of these non-consolidated
    affiliates is removed from Total Regional Income, net of our
    share of their net after-tax results, which is reported as
    Equity in net income of non-consolidated affiliates in the
    accompanying condensed consolidated and combined statements of
    operations. See Note 6  Investment in and
    Advances to Non-consolidated Affiliates and Related Party
    Transactions to our condensed consolidated and combined
    financial statements for further information about these
    non-consolidated affiliates. 60




---



##### Table of Contents



OPERATING
    SEGMENT RESULTS
  North
    America
    Nine Months EndedSeptember 30,


Percent2006


2005


Change($ in millions)Shipments (kt):Rolled products


883



852



3.6
%Ingot products


59



61



(3.3
)%Total shipments


942



913



3.2
%Net sales

$
2,841


$
2,500



13.6
%Regional Income

$
64


$
141



(54.6
)%Total assets

$
1,487


$
1,388



7.1
%   Shipments
    Net
    sales
    Regional
    Income
   61




---



##### Table of Contents



Europe
    Nine Months EndedSeptember 30,


Percent2006


2005


Change($ in millions)Shipments (kt):Rolled products


797



768



3.8
%Ingot products


15



63



(76.2
)%Total shipments


812



831



(2.3
)%Net sales

$
2,688


$
2,376



13.1
%Regional Income

$
208


$
161



29.2
%Total assets

$
2,392


$
2,129



12.4
%   Shipments
    Net
    sales
    Regional
    Income
  back-to-back start-up
  Total
    assets
   62




---



##### Table of Contents



Asia
    Nine Months EndedSeptember 30,2006


Percent2006


2005


Change($ in millions)Shipments (kt):Rolled products


347



356



(2.5
)%Ingot products


32



30



6.7
%Total shipments


379



386



(1.8
)%Net sales

$
1,235


$
1,025



20.5
%Regional Income

$
70


$
80



(12.5
)%Total assets

$
1,021


$
971



5.1
%   Shipments
    Net
    sales
    Regional
    Income
    South
    America
    Nine Months EndedSeptember 30,


Percent2006


2005


Change($ in millions)Shipments (kt):Rolled products


204



191



6.8
%Ingot products


19



21



(9.5
)%Total shipments


223



212



5.2
%Net sales

$
626


$
448



39.7
%Regional Income

$
122


$
86



41.9
%Total assets

$
814


$
780



4.4
%  63




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##### Table of Contents



Shipments
    Net
    sales
    Regional
    Income
    LIQUIDITY
    AND CAPITAL RESOURCES
    Operating
    Activities
   64




---



##### Table of Contents



Nine Months EndedSeptember 30,2006


2005


ChangeNet cash provided by operating
    activities

$
6


$
366


$
(360
)Dividends


(28
)


(27
)


(1
)Capital expenditures


(77
)


(104
)


27Premiums paid to purchase
    derivative instruments


(2
)


(26
)


24Net proceeds from settlement of
    derivative instruments


227



96



131Free cash flow

$
126


$
305


$
(179
)   September 30,


December 31,2006


2005


ChangeCash and cash equivalents

$
71


$
100


$
(29
)         Financing
    Activities
       65




---



##### Table of Contents



3-month
     66




---



##### Table of Contents



Investing
    Activities
    Nine Months EndedSeptember 30,2006


2005


Change($ in millions)Proceeds from settlement of
    derivative instruments, less premiums paid to purchase
    derivative instruments

$
225


$
70


$
155Capital expenditures


(77
)


(104
)


27Proceeds from loans
    receivable  net


27



392



(365
)Cash advance received on pending
    transfer of rights


15







15Payments related to disposal of
    business


(7
)






(7
)Changes in investment in and
    advances to non-consolidated affiliates


4







4Proceeds from sales of assets


3



9



(6
)Net cash provided by investing
    activities

$
190


$
367


$
(177
)         Nine Months EndedSeptember 30,2006


2005


Change($ in millions)Capital expenditures

$
77


$
104


$
(27
)Depreciation and amortization

$
174


$
173



1Reinvestment rate


44
%


60
%   Impact
    of Late SEC Filings on our Debt Agreements
  Form 10-Q Form 10-K Form 10-Q Form 10-Q
  Senior
    Secured Credit Facilities
   67




---



##### Table of Contents



Form 10-Q
    OFF-BALANCE
    SHEET ARRANGEMENTS
  Derivative
    Instruments
          As of September 30, 2006Net FairMaturity Dates

Assets


Liabilities


ValueForward foreign exchange contracts

2006 through 2011

$
12


$
(11
)

$
1Interest rate swaps

2007 through 2008


3







3Cross-currency interest rate swaps

2006 through 2015






(76
)


(76
)Aluminum forward contracts

2006 through 2009


68



(21
)


47Aluminum options

2006


25







25Fixed price electricity contract

2016


49







49Embedded derivative instruments

2007


5







5162



(108
)


54Less: current portion




107



(41
)


66$
55


$
(67
)

$
(12
)  68




---



##### Table of Contents



Indirect
    Guarantees of Indebtedness
    Maximum


Liability


AssetsPotential Future


Carrying


Held forType of Entity

Payment


Value


CollateralWholly-owned subsidiaries

$
35


$
21


$
Majority-owned subsidiaries


2







Aluminium Norf GmbH


13







   deposit-and-guarantee
    Other
    Arrangements
    CONTRACTUAL
    OBLIGATIONS
  Form 10-K
  DIVIDENDS
    Dividend perDeclaration Date

Record Date

Common Share


Payment DateFebruary 23, 2006

March 8, 2006

$
0.09


March 23, 2006April 27, 2006

May 20, 2006

$
0.09


June 20, 2006August 28, 2006

September 7, 2006

$
0.01


September 25, 2006October 26, 2006

November 20, 2006

$
0.01


December 20, 2006     CRITICAL
    ACCOUNTING POLICIES AND ESTIMATES
  Form 10-K
 69




---



##### Table of Contents



RECENT
    ACCOUNTING STANDARDS
  Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements.
  Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans
    Fair Value Measurements
  Accounting for Uncertainty in Income Taxes
    SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET
    DATA
  Form 10-Q
 70




---



##### Table of Contents




    the level of our indebtedness and our ability to generate cash;
    relationships with, and financial and operating conditions of,
    our customers and suppliers;
    changes in the prices and availability of aluminum (or premiums
    associated with such prices) or other materials and raw
    materials we use;
    the effect of metal price ceilings in certain of our sales
    contracts;
    our ability to successfully negotiate with our customers to
    remove or limit metal price ceilings in our contracts;
    the effectiveness of our metal hedging activities, including our
    internal used beverage can and smelter hedges;
    fluctuations in the supply of, and prices for, energy in the
    areas in which we maintain production facilities;
    our ability to access financing for future capital requirements;
    continuing obligations and other relationships resulting from
    our spin-off from Alcan;
    changes in the relative values of various currencies;
    factors affecting our operations, such as litigation,
    environmental remediation and
    clean-up
    costs, labor relations and negotiations, breakdown of equipment
    and other events;
    economic, regulatory and political factors within the countries
    in which we operate or sell our products, including changes in
    duties or tariffs;
    competition from other aluminum rolled products producers as
    well as from substitute materials such as steel, glass, plastic
    and composite materials;
    changes in general economic conditions;
    our ability to improve and maintain effective internal control
    over financial reporting and disclosure controls and procedures
    in the future;
    changes in the fair value of derivative instruments;
    cyclical demand and pricing within the principal markets for our
    products as well as seasonality in certain of our
    customers industries; 71




---



##### Table of Contents




    changes in government regulations, particularly those affecting
    taxes, environmental, health or safety compliance; and
    changes in interest rates that have the effect of increasing the
    amounts we pay under our principal credit agreement and other
    financing agreements.  Form 10-K
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk    marked-to-market
      Commodity
    Price Risks
    Aluminum
       72




---



##### Table of Contents



and/or
  Sensitivities
    Change in


Change inRate/Price


Fair Value(In millions)Aluminum Options


10
%

$
9Aluminum Forward Contracts


10
%


35   Electricity
    and Natural Gas
       73




---



##### Table of Contents



Sensitivities
    Change in


Change inRate/Price


Fair Value(In millions)Electricity


10
%

$
12Natural Gas


10
%


   Foreign
    Currency Exchange Risks
    non-U.S. dollar
    Form 10-K Form 10-Q.
 74




---



##### Table of Contents



Sensitivities
    Change in


Change inRate


Fair Value(In millions)Currency measured against the
    U.S. dollarEuro


10
%

$
46Korean won


10
%


28Brazilian real


10
%


21       Change in


Change inRate


Fair Value(In millions)Currency measured against the
    U.S. dollarEuro


10
%

$
73   Interest
    Rate Risks
          Sensitivities
    Change in


Change inRate


Fair Value(In millions)Interest Rate Swap
    contractsNorth America


10
%

$
1Asia


10
%


  75




---



##### Table of Contents



Item 4.
    Controls
    and Procedures  Evaluation
    of disclosure controls and procedures
    Form 10-Q Rule 13a-15(e) 15d-15(e) Form 10-K Form 10-K. Form 10-Q
  Remediation
    measures for identified material weaknesses
  Form 10-K
          and/or
 76




---



##### Table of Contents



Changes
    in internal control over financial reporting and related
    matters
     77




---



##### Table of Contents



PART II.
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings  Reynolds Boat Case.
          Item 6.
    Exhibits  ExhibitNo.

Description3
.1

Restated Certificate and Articles
    of Incorporation of Novelis Inc. (incorporated by reference to
    Exhibit 3.1 to the
    Form 8-K
    filed by Novelis Inc. on January 7, 2005 (File
    No. 001-32312))3
.2

By-law No. 1 of Novelis Inc.
    (incorporated by reference to Exhibit 3.2 to the
    Form 10 filed by Novelis Inc. on November 17, 2004
    (File
    No. 001-32312)) 78




---



##### Table of Contents



ExhibitNo.

Description4
.1

Shareholder Rights Agreement
    between Novelis and CIBC Mellon Trust Company (incorporated by
    reference to Exhibit 4.1 to the
    Form 10-K
    filed by Novelis Inc. on March 30, 2005 (File
    No. 001-32312))4
.2

Specimen Certificate of Novelis
    Inc. Common Shares (incorporated by reference to
    Exhibit 4.2 to the Form 10 filed by Novelis Inc. on
    December 27, 2004 (File
    No. 001-32312))4
.3

Indenture, relating to the Notes,
    dated as of February 3, 2005, between the Company, the
    guarantors named on the signature pages thereto and The Bank of
    New York Trust Company, N.A., as trustee (incorporated by
    reference to Exhibit 4.1 to our Current Report on
    Form 8-K
    filed on February 3, 2005 (File
    No. 001-32312))4
.4

Registration Rights Agreement,
    dated as of February 3, 2005, among the Company, the
    guarantors named on the signature pages thereto, Citigroup
    Global Markets Inc., Morgan Stanley & Co. Incorporated
    and UBS Securities LLC, as Representatives of the Initial
    Purchasers (incorporated by reference to Exhibit 4.2 to our
    Current Report on
    Form 8-K
    filed on February 3, 2005 (File
    No. 001-32312))4
.5

Form of Note for
    71/4% Senior
    Notes due 2015 (incorporated by reference to Exhibit 4.1 to
    the
    Form S-4
    filed by Novelis Inc. on August 3, 2005 (File
    No. 331-127139))10
.1

Fifth Waiver, dated as of
    August 11, 2006, under the Credit Agreement dated
    January 7, 2005 among Novelis Inc., Novelis Corporation,
    Novelis Deutschland GmbH, Novelis UK Ltd., Novelis AG, Citigroup
    North America, Inc. and the issuers and lenders a party thereto
    (incorporated by reference to Exhibit 10.1 to the
    Form 8-K
    filed by Novelis Inc. on August 17, 2006 (File
    No. 001-32312))10
.2

Form of Change in Control
    Agreement between Novelis Inc. and certain executive officers
    (incorporated by reference to Exhibit 99.1 to the
    Form 8-K
    filed by Novelis on September 27, 2006 (File
    No. 001-32312))10
.3

Form of Change in Control
    Agreement between Novelis Inc. and certain executive officers
    and key employees (incorporated by reference to
    Exhibit 99.2 to the
    Form 8-K
    filed by Novelis on September 27, 2006 (File
    No. 001-32312))10
.4

Form of Recognition Agreement
    between Novelis Inc. and certain executive officers and key
    employees (incorporated by reference to Exhibit 99.3 to the
    Form 8-K
    filed by Novelis on September 27, 2006 (File
    No. 001-32312))31
.1

Section 302 Certification of
    Principal Executive Officer31
.2

Section 302 Certification of
    Principal Financial Officer32
.1

Section 906 Certification of
    Principal Executive Officer32
.2

Section 906 Certification of
    Principal Financial Officer  79




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##### Table of Contents



SIGNATURES
      By:
    /s/  Rick
    Dobson        By:
    /s/  Robert
    M. Patterson         80




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description3
.1

Restated Certificate and Articles
    of Incorporation of Novelis Inc. (incorporated by reference to
    Exhibit 3.1 to the
    Form 8-K
    filed by Novelis Inc. on January 7, 2005 (File
    No. 001-32312))3
.2

By-law No. 1 of Novelis Inc.
    (incorporated by reference to Exhibit 3.2 to the
    Form 10 filed by Novelis Inc. on November 17, 2004
    (File
    No. 001-32312))4
.1

Shareholder Rights Agreement
    between Novelis and CIBC Mellon Trust Company (incorporated by
    reference to Exhibit 4.1 to the
    Form 10-K
    filed by Novelis Inc. on March 30, 2005 (File
    No. 001-32312))4
.2

Specimen Certificate of Novelis
    Inc. Common Shares (incorporated by reference to
    Exhibit 4.2 to the Form 10 filed by Novelis Inc. on
    December 27, 2004 (File
    No. 001-32312))4
.3

Indenture, relating to the Notes,
    dated as of February 3, 2005, between the Company, the
    guarantors named on the signature pages thereto and The Bank of
    New York Trust Company, N.A., as trustee (incorporated by
    reference to Exhibit 4.1 to our Current Report on
    Form 8-K
    filed on February 3, 2005 (File
    No. 001-32312))4
.4

Registration Rights Agreement,
    dated as of February 3, 2005, among the Company, the
    guarantors named on the signature pages thereto, Citigroup
    Global Markets Inc., Morgan Stanley & Co. Incorporated
    and UBS Securities LLC, as Representatives of the Initial
    Purchasers (incorporated by reference to Exhibit 4.2 to our
    Current Report on
    Form 8-K
    filed on February 3, 2005 (File
    No. 001-32312))4
.5

Form of Note for
    71/4% Senior
    Notes due 2015 (incorporated by reference to Exhibit 4.1 to
    the
    Form S-4
    filed by Novelis Inc. on August 3, 2005 (File
    No. 331-127139))10
.1

Fifth Waiver, dated as of
    August 11, 2006, under the Credit Agreement dated
    January 7, 2005 among Novelis Inc., Novelis Corporation,
    Novelis Deutschland GmbH, Novelis UK Ltd., Novelis AG, Citigroup
    North America, Inc. and the issuers and lenders a party thereto
    (incorporated by reference to Exhibit 10.1 to the
    Form 8-K
    filed by Novelis Inc. on August 17, 2006 (File
    No. 001-32312))10
.2

Form of Change in Control
    Agreement between Novelis Inc. and certain executive officers
    (incorporated by reference to Exhibit 99.1 to the
    Form 8-K
    filed by Novelis on September 27, 2006 (File
    No. 001-32312))10
.3

Form of Change in Control
    Agreement between Novelis Inc. and certain executive officers
    and key employees (incorporated by reference to
    Exhibit 99.2 to the
    Form 8-K
    filed by Novelis on September 27, 2006 (File
    No. 001-32312))10
.4

Form of Recognition Agreement
    between Novelis Inc. and certain executive officers and key
    employees (incorporated by reference to Exhibit 99.3 to the
    Form 8-K
    filed by Novelis on September 27, 2006 (File
    No. 001-32312))31
.1

Section 302 Certification of
    Principal Executive Officer31
.2

Section 302 Certification of
    Principal Financial Officer32
.1

Section 906 Certification of
    Principal Executive Officer32
.2

Section 906 Certification of
    Principal Financial Officer  81