##### 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
    June 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

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


2Condensed
    Consolidated and Combined Statements of Income (Loss) and
    Comprehensive Income (Loss) (unaudited)
    Three Months and Six Months Ended June 30, 2006 and
    June 30, 2005


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


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


4Condensed
    Consolidated Statement of Shareholders Equity
    (unaudited)
    Six Months Ended June 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


41Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


68Item 4.


Controls and
    Procedures


71PART II.


OTHER
    INFORMATIONItem 1.


Legal
    Proceedings


74Item 6.


Exhibits


75EX-31.1 SECTION 302 CERTIFICATION OF PEOEX-31.2 SECTION 302 CERTIFICATION OF PFOEX-32.1 SECTION 906 CERTIFICATION OF PEOEX-32.2 SECTION 906 CERTIFICATION OF PFO   1




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION Item 1.  Financial
    Statements  Novelis
    Inc.
  CONDENSED CONSOLIDATED AND COMBINED STATEMENTS
    OF INCOME (LOSS) AND
 COMPREHENSIVE INCOME (LOSS) (unaudited)
 (in millions, except per share amounts)
  Three Months Ended June 30,


Six Months Ended June 30,2006


2005


2006


2005Net sales

$
2,564


$
2,172


$
4,883


$
4,284Cost of goods sold (exclusive of
    depreciation and amortization shown below)


2,407



1,960



4,542



3,844Selling, general and administrative
    expenses


98



82



190



170Depreciation and amortization


59



58



117



117Research and development expenses


10



11



19



19Restructuring charges
    (recoveries)  net


2



(1
)


3



(3
)Impairment charges on long-lived
    assets






1







1Interest expense and amortization
    of debt issuance costs  net


49



48



97



102Equity in net income of
    non-consolidated affiliates


(4
)


(2
)


(7
)


(4
)Other (income) expenses 
    net


(47
)


10



(96
)


(24
)2,574



2,167



4,865



4,222Income (loss) before provision
    (benefit) for taxes on income (loss) and minority
    interests share


(10
)


5



18



62Provision (benefit) for taxes on
    income (loss)


(20
)






82



30Income (loss) before minority
    interests share


10



5



(64
)


32Minority interests share


(4
)


(5
)


(4
)


(10
)Net income (loss)


6







(68
)


22Other comprehensive income
    (loss)  net of taxCurrency translation adjustment


57



(93
)


94



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


(34
)






(41
)


Change in minimum pension liability


(3
)






(3
)


(13
)Other comprehensive income
    (loss)  net of tax


20



(93
)


50



(159
)Comprehensive income
    (loss)

$
26


$
(93
)

$
(18
)

$
(137
)Earnings (loss) per
    share:Net income (loss) per
    share  basic

$
0.08


$



$
(0.92
)

$
0.30Net income (loss) per
    share  diluted

$
0.08


$



$
(0.92
)

$
0.30Dividends per common
    share

$
0.09


$
0.09


$
0.18


$
0.18Supplemental information for
    2005 only:Net income attributable to the
    consolidated and combined results of Novelis from January 6 to
    June 30, 2005  increase to Retained earnings













$
51Net loss attributable to the
    combined results of Novelis from January 1 to January 5,
    2005  decrease to Owners net investment














(29
)Net income













$
22     2




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##### Table of Contents



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


December 31,2006


2005ASSETSCurrent assetsCash and cash equivalents

$
93


$
100Accounts receivable (net of
    allowances of $30 in 2006 and $26 in 2005) third parties


1,319



1,098 related parties


28



33Inventories


1,399



1,128Prepaid expenses and other current
    assets


86



66Current portion of fair value of
    derivative instruments


179



194Deferred income tax assets


8



8Total current assets


3,112



2,627Property, plant and
    equipment  net


2,155



2,160Goodwill


226



211Intangible assets  net


21



21Investment in and advances to
    non-consolidated affiliates


151



144Fair value of derivative
    instruments  net of current portion


74



90Deferred income tax assets


85



45Other long-term assets third parties


107



107 related parties


66



71Total assets

$
5,997


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

$
4


$
3Short-term borrowings


62



27Accounts payable third parties


1,309



866 related parties


42



38Accrued expenses and other current
    liabilities


699



641Deferred income tax liabilities


126



26Total current
    liabilities


2,242



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


2,417



2,600Deferred income tax liabilities


187



186Accrued post-retirement benefits


330



305Other long-term liabilities


263



1925,439



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


155



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; 74,005,649 shares
    issued and outstanding as of June 30, 2006






Additional paid-in capital


427



425Retained earnings


10



92Accumulated other comprehensive loss


(34
)


(84
)Total shareholders
    equity


403



433Total liabilities and
    shareholders equity

$
5,997


$
5,476     3




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##### Table of Contents



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


2005OPERATING ACTIVITIESNet income (loss)

$
(68
)

$
22Adjustments to determine net cash
    provided by operating activities:Depreciation and amortization


117



117Net gains on change in fair value
    of derivative instruments


(95
)


(42
)Deferred income taxes


51



(37
)Amortization of debt issuance costs


4



14Provision for uncollectible
    accounts receivable


3



2Equity in net income of
    non-consolidated affiliates


(7
)


(4
)Dividends from non-consolidated
    affiliates


4



Minority interests share


4



10Stock-based compensation


2



1(Gains) losses on sales of
    businesses, investments and assets  net


14



(11
)Impairment charges on long-lived
    assets






1Changes in assets and liabilities
    (net of effects from acquisitions and divestitures):Accounts receivable third parties


(193
)


(134
) related parties


1



Inventories


(244
)


90Prepaid expenses and other current
    assets


(17
)


(1
)Other long-term assets






5Accounts payable third parties


413



66 related parties


2



(8
)Accrued expenses and other current
    liabilities


38



103Accrued post-retirement benefits


20



17Other long-term liabilities


10



20Net cash provided by operating
    activities


59



231INVESTING ACTIVITIESCapital expenditures


(55
)


(59
)Disposal of business  net


(7
)


Proceeds from sales of assets


3



9Proceeds from loans
    receivable  net third parties






19 related parties


16



364Changes in investment in and
    advances to non-consolidated affiliates


3



Premiums paid to purchase
    derivative instruments






(18
)Net proceeds from settlement of
    derivative instruments


157



88Net cash provided by investing
    activities


117



403(Continued) 4




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##### Table of Contents





Novelis
    Inc.




CONDENSED
    CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
    (unaudited)


(Continued)
    (in millions)




|                                                                                                                                                                |  |                  |      |   |      |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ---- | - | ---- | - | ------ | -
|                                                                                                                                                                |  | Six Months Ended |     
|                                                                                                                                                                |  | June 30,         |     
|                                                                                                                                                                |  | 2006             |      |   | 2005 |  
|                                                                                                                                                               
|FINANCING ACTIVITIES                                                                                                                                            |  |                  |      |   |      |   |        |  
|Proceeds from issuance of debt                                                                                                                                  |  | $                | 20   |   |      | $ | 2,750  |  
|Principal repayments                                                                                                                                            |  |                  |      |   |      |   |        |  
| third parties                                                                                                                                                 |  |                  | (209 | ) |      |   | (1,630 | )
| related parties                                                                                                                                               |  |                  |     |   |      |   | (1,180 | )
|Short-term borrowings 
    net                                                                                                                                 |  |                  |      |   |      |   |        |  
| third parties                                                                                                                                                 |  |                  | 34   |   |      |   | (152   | )
| related parties                                                                                                                                               |  |                  |     |   |      |   | (302   | )
|Dividends  common
    shareholders                                                                                                                             |  |                  | (14  | ) |      |   | (14    | )
|Dividends  minority
    interests                                                                                                                              |  |                  | (14  | ) |      |   | (7     | )
|Net receipts from Alcan                                                                                                                                         |  |                  |     |   |      |   | 72     |  
|Debt issuance costs                                                                                                                                             |  |                  | (4   | ) |      |   | (71    | )
|                                                                                                                                                                |  |                  |      |   |      |   |        |  
|Net cash used in financing
    activities                                                                                                                       |  |                  | (187 | ) |      |   | (534   | )
|                                                                                                                                                                |  |                  |      |   |      |   |        |  
|Net increase (decrease) in cash and
    cash equivalents                                                                                                        |  |                  | (11  | ) |      |   | 100    |  
|Effect of exchange rate changes
    on cash balances held in foreign currencies                                                                                 |  |                  | 4    |   |      |   | (4     | )
|Cash and cash
    equivalents  beginning of period                                                                                                             |  |                  | 100  |   |      |   | 31     |  
|                                                                                                                                                                |  |                  |      |   |      |   |        |  
|Cash and cash
    equivalents  end of period                                                                                                                   |  | $                | 93   |   |      | $ | 127    |  
|                                                                                                                                                                |  |                  |      |   |      |   |        |  
|Supplemental disclosures of cash
    flow information:                                                                                                          |  |                  |      |   |      |   |        |  
|Interest paid                                                                                                                                                   |  | $                | 97   |   |      | $ | 43     |  
|Income taxes paid                                                                                                                                               |  |                  | 19   |   |      |   | 28     |  
|Principal payments on capital lease
    obligations (included above in principal repayments 
    third parties)                                                |  |                  | 1    |   |      |   | 1      |  
|                                                                                                                                                                |  |                  |      |   |      |   |        |  
|Supplemental schedule of
    non-cash investing and financing activities relating to the
    spin-off transaction and post-closing adjustments (2005
    only): |  |                  |      |   |      |   |        |  
|Other receivables                                                                                                                                               |  |                  |      |   |      | $ | 433    |  
|Short-term borrowings 
    related parties                                                                                                                     |  |                  |      |   |      |   | (57    | )
|Long-term debt  related
    parties                                                                                                                            |  |                  |      |   |      |   | 32     |  
|Capital lease obligation                                                                                                                                        |  |                  |      |   |      |   | 52     |  
|Additional paid-in capital                                                                                                                                      |  |                  |      |   |      |   | (97    | )









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)
  AccumulatedAdditional





OtherCommon Stock


Paid-in


Retained


ComprehensiveShares


Amount


Capital


Earnings


Loss


TotalBalance as of December 31,
    2005


74,006


$



$
425


$
92


$
(84
)

$
433Activity for the Six Months
    Ended June 30, 2006:Net loss














(68
)






(68
)Stock-based compensation










2











2Currency translation
    adjustment  net of tax


















94



94Change in fair value of effective
    portion of hedges  net


















(41
)


(41
)Change in minimum pension liability


















(3
)


(3
)Dividends on common shares
    ($0.18 per share)














(14
)






(14
)Balance as of June 30,
    2006


74,006


$



$
427


$
10


$
(34
)

$
403     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
    2.
    Restructuring
    Programs  Restructuring charges (recoveries)  net
 8




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##### Table of Contents



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


$
18       Subsequent
    Event
    3.
    Loss on
    Disposal of Business  Other (income)
    expenses  net
  4.
    Inventories    9




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##### Table of Contents



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


December 31, 2005Finished goods

$
388


$
313Work in process


324



234Raw materials


608



498Supplies


128



1231,448



1,168Allowances


(49
)


(40
)$
1,399


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


December 31, 2005Land and property rights

$
94


$
90Buildings


873



845Machinery and equipment


4,564



4,4075,531



5,342Accumulated depreciation and
    amortization


(3,500
)


(3,319
)2,031



2,023Construction in progress


124



137$
2,155


$
2,160   Subsequent
    Event
   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


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Net sales

$
144


$
120


$
276


$
236Costs, expenses and provisions for
    taxes on income


137



115



261



226Net income

$
7


$
5


$
15


$
10     Six MonthsThree Months Ended


EndedJune 30,


June 30,2006


2005


2006


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

$
58


$
51


$
110


$
102Consorcio Candonga (B)


4



2



7



4Petrocoque S.A. Industria e
    Comercio (C)






1



1



1Interest incomeAluminium Norf GmbH (D)






1







1     (A)
    
    We purchase tolling services (the conversion of metal) from
    Aluminium Norf GmbH.(B)
    
    We purchase electricity from Consorcio Candonga for our
    operations in South America.(C)
    
    We purchase calcined-coke from Petrocoque 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. 11




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##### Table of Contents



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


December 31, 2005Accounts receivable (A)

$
28


$
33Other long-term assets (A)


66



71Accounts payable (B)


42



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    June 30, 2006


December 31, 2005Accrued payroll

$
125


$
152Accrued settlement of legal claim


71



71Accrued interest payable


54



51Accrued income taxes


55



55Current portion of fair value of
    derivative instruments


32



22Other current liabilities


362



290$
699


$
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


June 30,


December 31,Rates(A)


2006


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


6.88
%(B)

$
292


$
3427.25% Senior Notes, due 2015


7.25
%(C)


1,400



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


6.88
%(B)


506



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


7.50
%


47



45Capital lease obligation, due 2011
    (CHF 5 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
%


26



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


4.17
%(D)


1



1OtherOther debt, due 2006 through 2012


2.59
%(D)


3



3Total debt






2,421



2,603Less: current portion






(4
)


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





$
2,417


$
2,600     (A)
    
    Interest rates are as of June 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
    additional 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
  Form 10-Q.
   14




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  90-day
  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 Form 10-Q Form 10-Q
 15




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Form 10-Q
  Interest expense and amortization of debt
    issuance costs  net Other
    long-term assets
    Form 10-Q Form 10-Q
    Lines of
    Credit /Short Term Borrowings
       16




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  9.
    Other
    Comprehensive Income (Loss)    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Net change in foreign currency
    translation adjustments

$
57


$
(93
)

$
98


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


(34
)






(41
)


Net change in minimum pension
    liability


(3
)


1



(3
)


(6
)Net other comprehensive income
    (loss) adjustments, before income tax effect


20



(92
)


54



(152
)Income tax effect






(1
)


(4
)


(7
)Other comprehensive income
    (loss)

$
20


$
(93
)

$
50


$
(159
)     June 30, 2006


December 31, 2005Foreign currency translation
    adjustments

$
59


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


(41
)


Minimum pension liability


(52
)


(49
)$
(34
)

$
(84
)   10.
    Stock-Based
    Compensation  Share-Based Payment Accounting for Stock-Based
    Compensation.
    Selling, general and
    administrative expenses
   17




---



##### Table of Contents



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


RemainingAverage


Contractual


AggregateNumber


Exercise


Term


Intrinsicof Options


Price


(In Years)


ValueOptions outstanding as of
    December 31, 2005


2,704,790


$
21.60Granted






Exercised






Forfeited






Expired/Cancelled


(53,843
)

$
21.09Options outstanding as of
    June 30, 2006


2,650,947


$
21.61



6.9


$
(82,230
)Options exercisable as of
    June 30, 2006


877,033


$
21.26



6.6


$
281,832     June 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
   18




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Accounting for Stock Issued
    to Employees Accounting for Stock Appreciation Rights and Other Variable
    Stock Option or Award Plans.
  Stock
    Price Appreciation Unit Plan
        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
    June 30, 2006


418,777


$
22.04



7.6


$
(190,981
)SPAUs exercisable as of
    June 30, 2006


115,419


$
21.53



7.4


$
5,830  19




---



##### Table of Contents



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

AverageAssumptions

AssumptionsDividend yield

0.19%


0.19%Expected volatility

39.50 to 43.80%


42.82%Risk-free interest rate

5.07 to 5.14%


5.08%Expected life

2.62 to 4.87 years


4.34 years   Total
    Shareholder Returns Performance Plan
      AggregateNumber of


Redemption


IntrinsicRSUs


Price


ValueRSUs outstanding as of
    December 31, 2005


119,842


$
20.89Granted


1,055Exercised


Forfeited


Expired/Cancelled


RSUs outstanding as of
    June 30, 2006


120,897


$
21.58


$
2,608,957   Deferred
    Share Unit Plan For Non-Executive Directors
   20




---



##### Table of Contents



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


Redemption


IntrinsicDDSUs


Price


ValueDDSUs outstanding as of
    December 31, 2005


41,862


$
20.94Granted


31,270



Exercised






Forfeited






Expired/Cancelled






DDSUs outstanding as of
    June 30, 2006


73,132


$
21.22


$
1,551,861   Novelis
    Founders Performance Awards
      Weighted average expected stock
    price volatility


40.00
%Annual expected dividend yield


0.19
%Risk-free interest rate


5.18
%   at-the-money 2-year
 21




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Recognition
    Agreements
      Compensation
    Cost
  Selling,
    general and administrative expenses.
  11.
    Post-Retirement
    Benefit Plans    OtherPost-RetirementBenefitsPension Benefits





Six MonthsThree Months Ended


Six Months Ended


Three Months Ended


EndedJune 30,


June 30,


June 30,


June 30,2006


2005


2006


2005


2006


2005


2006


2005Service cost

$
10


$
5


$
20


$
9


$
1


$
1


$
2


$
2Interest cost


11



7



21



15



2



3



4



6Expected return on assets


(10
)


(6
)


(19
)


(12
)














Amortization actuarial losses


2



2



3



4















 prior service cost






1



1



2















Net periodic benefit cost

$
13


$
9


$
26


$
18


$
3


$
4


$
6


$
8     Employer
    Contributions to Plans
   22




---



##### Table of Contents



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


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Funded pension plans

$
5


$
2


$
14


$
12Unfunded pension plans


3



3



6



6Savings and defined contribution
    pension plans


2



2



5



4       12.
    Currency
    Gains (Losses)  Other
    (income) expenses  net
  Six MonthsThree Months Ended


EndedJune 30,


June 30,2006


2005


2006


2005Net gains (losses) on change in
    fair value of currency derivative instruments

$
(8
)

$
43


$
(24
)

$
73Net gains on translation of
    monetary assets and liabilities


5



28



10



40$
(3
)

$
71


$
(14
)

$
113   Accumulated other comprehensive loss
  Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Cumulative currency translation
    adjustment  beginning of period

$
2


$
67


$
(35
)

$
120Current period effect of changes
    in foreign currency exchange rates  gains (losses)


57



(93
)


94



(146
)Cumulative currency translation
    adjustment  end of period

$
59


$
(26
)

$
59


$
(26
)   13.
    Financial
    Instruments and Commodity Contracts   23




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
        Accumulated other comprehensive
    loss Shareholders equity . Accumulated other comprehensive loss
  Accumulated other comprehensive loss. Accumulated other comprehensive loss
      As of June 30, 2006Maturity







Net FairDates

Assets


Liabilities


ValueForward foreign exchange contracts

2006 through 2011

$
9


$
(14
)

$
(5
)Interest rate swaps

2006 through 2008


5







5Cross-currency interest rate swaps

2006 through 2015


5



(82
)


(77
)Aluminum forward contracts

2006 through 2009


109



(11
)


98Aluminum call options

2006


70







70Fixed price electricity contract

2016


55







55253



(107
)


146Less: current portion (A)




179



(32
)


147$
74


$
(75
)

$
(1
)  24




---



##### 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 on our 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, on our
    condensed consolidated balance sheets.    As of December 31, 2005Maturity







Net FairDates

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 call options

2006


109







109Fixed price electricity contract

2016


68







68284



(40
)


244Less: current portion (A)




194



(22
)


172$
90


$
(18
)

$
72     (A)
    
    The amounts of the current and long-term portions of fair values
    under assets are each presented on our 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, on our
    condensed consolidated balance sheets.  14.
    Other
    (Income) Expenses  Net    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005(Gains) losses on change in fair
    value of derivative instruments  net

$
(41
)

$
7


$
(95
)

$
(17
)Loss on disposal of business










15



Exchange (gains)
    losses  net


(5
)


17



(10
)


5Gains on disposals of fixed
    assets  net






(10
)


(1
)


(11
)Other income  net


(1
)


(4
)


(5
)


(1
)$
(47
)

$
10


$
(96
)

$
(24
)   15.
    Income
    Taxes  Accounting for
    Income Taxes. Interim Financial Reporting Accounting for Income Taxes in Interim
    Periods
 25




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##### Table of Contents



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


Six Months EndedJune 30,


June 30,2006


2005


2006


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

$
(14
)

$
3


$
11


$
58Canadian statutory tax rate


33
%


33
%


33
%


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

$
(4
)

$
1


$
4


$
19Increase (decrease) in tax rate
    resulting from:Exchange translation items


24



7



34



(4
)Exchange remeasurement of deferred
    income taxes










3



Change in valuation allowances


(3
)


1



30



12Expense/income items with no tax
    effect  net


(8
)


(3
)


(5
)


4Tax rate differences on foreign
    earnings


(29
)


(5
)


15



(1
)Out-of-period
    adjustments  net














(7
)Other  net






(1
)


1



7Provision (benefit) for taxes on
    income (loss)

$
(20
)

$



$
82


$
30Effective tax rate


143
%



%


745
%


52
%        26




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED AND
 COMBINED
    FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    out-of-period
    16.
    Earnings
    Per Share    Three Months


Six MonthsEnded


EndedJune 30,


June 30,2006


2005


2006


2005Numerator:Net income (loss)

$
6


$



$
(68
)

$
22Denominators:Weighted average number of
    outstanding shares  basic


74.01



73.99



74.01



73.99Effect of dilutive shares


0.24











.23Adjusted number of outstanding
    shares  diluted


74.25



73.99



74.01



74.22Earnings (loss) per
    share:Net income (loss) per
    share  basic

$
0.08


$



$
(0.92
)

$
0.30Net income (loss) per
    share  diluted

$
0.08


$



$
(0.92
)

$
0.30      27




---



##### 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.
    Accrued expenses and other current liabilities Prepaid expenses and other
    current assets
     28




---



##### 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 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).     29




---



##### 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

$
16


$
5


$
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.
 30




---



##### 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 June 30, 2006

America


Europe


Asia


America


Consolidation


and Other


TotalNet sales (to third parties)

$
992


$
922


$
453


$
201


$
(4
)

$



$
2,564Intersegment sales


1







5



11







(17
)


Regional Income


25



80



27



44











176Depreciation and amortization


18



24



13



11



(8
)


1



59Capital expenditures


10



9



8



8



(2
)


1



34Total assets


1,617



2,501



1,076



803



(94
)


94



5,997 Adjustment toEliminateAs of and for the Three

North








South


Proportional


CorporateMonths Ended June 30, 2005

America


Europe


Asia


America


Consolidation


and Other


TotalNet sales (to third parties)

$
841


$
833


$
359


$
143


$
(4
)

$



$
2,172Intersegment sales






9



2



14







(25
)


Regional Income


35



55



27



24











141Depreciation and amortization


18



25



12



11



(8
)






58Capital expenditures


9



15



7



5



(3
)


1



34Total assets


1,459



2,186



985



761



(80
)


54



5,365 Adjustment toEliminateAs of and for the Six

North








South


Proportional


CorporateMonths Ended June 30, 2006

America


Europe


Asia


America


Consolidation


and Other


TotalNet sales (to third parties)

$
1,887


$
1,748


$
847


$
410


$
(9
)

$



$
4,883Intersegment sales


1







8



18







(27
)


Regional Income


83



137



52



85











357Depreciation and amortization


36



47



27



22



(17
)


2



117Capital expenditures


18



18



9



12



(5
)


3



55Total assets


1,617



2,501



1,076



803



(94
)


94



5,997 Adjustment toEliminateAs of and for the Six

North








South


Proportional


CorporateMonths Ended June 30, 2005

America


Europe


Asia


America


Consolidation


and Other


TotalNet sales (to third parties)

$
1,664


$
1,639


$
697


$
291


$
(7
)

$



$
4,284Intersegment sales


1



28



5



30







(64
)


Regional Income


87



109



57



62











315Depreciation and amortization


36



51



25



22



(17
)






117Capital expenditures


17



22



10



8



(2
)


4



59Total assets


1,459



2,186



985



761



(80
)


54



5,365  31




---



##### Table of Contents



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


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Total Regional Income

$
176


$
141


$
357


$
315Interest expense and amortization
    of debt issuance costs


(54
)


(50
)


(105
)


(106
)Unrealized losses due to changes
    in the fair value of derivative instruments


(37
)


(61
)


(36
)


(42
)Depreciation and amortization


(59
)


(58
)


(117
)


(117
)Minority interests share


(4
)


(5
)


(4
)


(10
)Adjustment to eliminate
    proportional consolidation (A)


(9
)


(8
)


(17
)


(18
)Restructuring (charges)
    recoveries  net


(2
)


1



(3
)


3Impairment charges on long-lived
    assets






(1
)






(1
)Gains (losses) on disposals of
    fixed assets and businesses  net






10



(14
)


11Corporate selling, general and
    administrative expenses (B)


(29
)


(14
)


(55
)


(30
)Gains and losses on corporate
    derivative instruments and exchange items 
    net (B)


4



45



8



47Benefit (provision) for taxes on
    income (loss)


20







(82
)


(30
)Net income (loss)

$
6


$



$
(68
)

$
22     (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 income (loss). 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.(B)
    
    These items are managed by our corporate office, which focuses
    on strategy development and oversees governance, policy, legal
    compliance, human resources and finance matters.  Information
    about Major Customers
    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Net sales to Rexam (in millions)

$
331


$
258


$
663


$
510Percentage of total net sales


12.9
%


11.9
%


13.6
%


11.9
%  32




---



##### 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 Income
 (in
    millions)
  Three Months Ended June 30, 2006Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedNet sales

$
419


$
2,173


$
756


$
(784
)

$
2,564Cost of goods sold (exclusive of
    depreciation and amortization shown below)


405



2,074



709



(781
)


2,407Selling, general and
    administrative expenses


21



60



17







98Depreciation and amortization


3



39



17







59Research and development expenses


7



3











10Restructuring charges
    (recoveries)  net






1



1







2Interest expense and amortization
    of debt issuance costs  net


10



35



4







49Equity in net income of affiliates


(29
)


(4
)






29



(4
)Other income  net


(8
)


(36
)


(3
)






(47
)409



2,172



745



(752
)


2,574Income (loss) before provision
    (benefit) for taxes on income (loss) and minority
    interests share


10



1



11



(32
)


(10
)Provision (benefit) for taxes on
    income (loss)


1



(7
)


(14
)






(20
)Income before minority
    interests share


9



8



25



(32
)


10Minority interests share










(4
)






(4
)Net income

$
9


$
8


$
21


$
(32
)

$
6  33




---



##### Table of Contents



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





andParent


Guarantors


Guarantors


Eliminations


CombinedNet sales

$
313


$
1,778


$
628


$
(547
)

$
2,172Cost of goods sold (exclusive of
    depreciation and amortization shown below)


303



1,624



580



(547
)


1,960Selling, general and
    administrative expenses


16



50



16







82Depreciation and amortization


2



40



16







58Research and development expenses


9



2











11Restructuring charges
    (recoveries)  net






(1
)










(1
)Impairment charges on long-lived
    assets










1







1Interest expense and amortization
    of debt issuance costs  net


10



33



5







48Equity in net income of affiliates


19



(2
)






(19
)


(2
)Other (income)
    expenses  net


(36
)


45



1







10323



1,791



619



(566
)


2,167Income (loss) before provision
    (benefit) for taxes on income (loss) and minority
    interests share


(10
)


(13
)


9



19



5Provision (benefit) for taxes on
    income (loss)


(10
)


9



1







Income (loss) before minority
    interests share






(22
)


8



19



5Minority interests share










(5
)






(5
)Net income (loss)

$



$
(22
)

$
3


$
19


$
  34




---



##### Table of Contents



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


Guarantors


Guarantors


Eliminations


ConsolidatedNet sales

$
789


$
4,133


$
1,429


$
(1,468
)

$
4,883Cost of goods sold (exclusive of
    depreciation and amortization shown below)


760



3,896



1,344



(1,458
)


4,542Selling, general and
    administrative expenses


34



123



33







190Depreciation and amortization


7



77



33







117Research and development expenses


13



6











19Restructuring charges
    (recoveries)  net






1



2







3Interest expense and amortization
    of debt issuance costs  net


21



67



9







97Equity in net income of affiliates


(5
)


(7
)






5



(7
)Other (income)
    expenses  net


9



(104
)


(1
)






(96
)839



4,059



1,420



(1,453
)


4,865Income (loss) before provision for
    taxes on income (loss) and minority interests share


(50
)


74



9



(15
)


18Provision for taxes on income
    (loss)


8



63



11







82Income (loss) before minority
    interests share


(58
)


11



(2
)


(15
)


(64
)Minority interests share










(4
)






(4
)Net income (loss)

$
(58
)

$
11


$
(6
)

$
(15
)

$
(68
)  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 Income
 (in
    millions)
  Six Months Ended June 30, 2005ConsolidatedNon-





andParent


Guarantors


Guarantors


Eliminations


CombinedNet sales

$
628


$
3,521


$
1,256


$
(1,121
)

$
4,284Cost of goods sold (exclusive of
    depreciation and amortization shown below)


612



3,195



1,158



(1,121
)


3,844Selling, general and
    administrative expenses


33



104



33







170Depreciation and amortization


5



80



32







117Research and development expenses


13



6











19Restructuring charges
    (recoveries)  net






(3
)










(3
)Impairment charges on long-lived
    assets










1







1Interest expense and amortization
    of debt issuance costs  net


34



58



10







102Equity in net income of affiliates


(37
)


(4
)






37



(4
)Other (income)
    expenses  net


(41
)


13



4







(24
)619



3,449



1,238



(1,084
)


4,222Income before provision (benefit)
    for taxes on income and minority interests share


9



72



18



(37
)


62Provision (benefit) for taxes on
    income


(13
)


40



3







30Income before minority
    interests share


22



32



15



(37
)


32Minority interests share










(10
)






(10
)Net income

$
22


$
32


$
5


$
(37
)

$
22  36




---



##### 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 June 30, 2006Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedASSETSCurrent assetsCash and cash equivalents

$
13


$
67


$
13


$



$
93Accounts receivable  net
    of allowances third parties


71



853



395







1,319 related parties


419



354



34



(779
)


28Inventories


64



959



386



(10
)


1,399Prepaid expenses and other current
    assets


3



71



12







86Current portion of fair value of
    derivative instruments






171



8







179Deferred income tax assets


1







7







8Total current assets


571



2,475



855



(789
)


3,112Property, plant and
    equipment  net


118



1,276



761







2,155Goodwill






26



200







226Intangible assets  net






18



3







21Investments


635



151







(635
)


151Fair value of derivative
    instruments  net of current portion






74











74Deferred income tax assets


21



16



48







85Other long-term assets


1,178



174



120



(1,299
)


173Total assets

$
2,523


$
4,210


$
1,987


$
(2,723
)

$
5,997LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt

$



$
3


$
1


$



$
4Short-term borrowings third parties






62











62 related parties


7



406



40



(453
)


Accounts payable third parties


106



747



456







1,309 related parties


88



205



75



(326
)


42Accrued expenses and other current
    liabilities


111



466



122







699Deferred income tax liabilities






109



17







126Total current
    liabilities


312



1,998



711



(779
)


2,242Long-term debt  net of
    current portion third parties


1,692



555



170







2,417 related parties






1,064



235



(1,299
)


Deferred income tax liabilities


23



149



15







187Accrued post-retirement benefits


10



233



87







330Other long-term liabilities


73



177



13







2632,110



4,176



1,231



(2,078
)


5,439Commitments and contingenciesMinority interests in equity of
    consolidated affiliates










155







155Shareholders
    equityPreferred stock


















Common stock


















Additional paid-in capital


427















427Retained earnings/owners net
    investment


20



(153
)


591



(448
)


10Accumulated other comprehensive
    income (loss)


(34
)


187



10



(197
)


(34
)Total shareholders
    equity


413



34



601



(645
)


403Total liabilities and
    shareholders equity

$
2,523


$
4,210


$
1,987


$
(2,723
)

$
5,997  37




---



##### 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


92















92Accumulated other comprehensive
    income (loss)


(84
)


131



(21
)


(110
)


(84
)Owners net investment






(2
)


621



(619
)


Total shareholders
    equity


433



129



600



(729
)


433Total liabilities and
    shareholders equity

$
2,488


$
3,803


$
1,845


$
(2,660
)

$
5,476  38




---



##### 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)
  Six Months Ended June 30, 2006Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedOPERATING ACTIVITIESNet cash provided by operating
    activities

$
131


$
49


$
37


$
(158
)

$
59INVESTING ACTIVITIESCapital expenditures


(5
)


(32
)


(18
)






(55
)Disposal of business 
    net


(7
)














(7
)Proceeds from sales of assets






3











3Proceeds from loans
    receivable  net related parties


20



1







(5
)


16Changes in investment in and
    advances to non-consolidated affiliates






3











3Net proceeds from settlement of
    derivative instruments






164



(7
)






157Net cash provided by (used in)
    investing activities


8



139



(25
)


(5
)


117FINANCING ACTIVITIESProceeds from issuance of new debt third parties










20







20 related parties






55







(55
)


Principal repayments third parties


(50
)


(87
)


(72
)






(209
) related parties


(40
)


(20
)






60



Short-term borrowings 
    net third parties






38



(4
)






34 related parties


(20
)






20







Dividends  preference
    shareholder






(12
)






12



Dividends  common
    shareholders


(14
)


(130
)


(16
)


146



(14
)Dividends  minority
    interests










(14
)






(14
)Debt issuance costs


(4
)














(4
)Net cash used in financing
    activities


(128
)


(156
)


(66
)


163



(187
)Net increase (decrease) in cash
    and cash equivalents


11



32



(54
)






(11
)Effect of exchange rate changes
    on cash balances held in foreign currencies






1



3







4Cash and cash
    equivalents  beginning of period


2



34



64







100Cash and cash
    equivalents  end of period

$
13


$
67


$
13


$



$
93  39




---



##### 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)
  Six Months Ended June 30, 2005ConsolidatedNon-





andParent


Guarantors


Guarantors


Eliminations


CombinedOPERATING ACTIVITIESNet cash provided by operating
    activities

$
64


$
240


$
13


$
(86
)

$
231INVESTING ACTIVITIESCapital expenditures


(7
)


(34
)


(18
)






(59
)Proceeds from sales of assets






1



8







9Proceeds from loans
    receivable  net third parties






4



15







19 related parties


(990
)


(108
)


(119
)


1,581



364Share repurchase 
    intercompany


400











(400
)


Premiums paid to purchase
    derivative instruments






(18
)










(18
)Net proceeds from settlement of
    derivative instruments


45



40



3







88Net cash provided by (used in)
    investing activities


(552
)


(115
)


(111
)


1,181



403FINANCING ACTIVITIESProceeds from issuance of debt third parties


1,875



825



50







2,750 related parties


40



1,288



253



(1,581
)


Principal repayments


(1,276
)


(1,443
)


(91
)






(2,810
)Short-term borrowings 
    net third parties


2



(58
)


(96
)






(152
) related parties


(172
)


(147
)


17







(302
)Share repurchase 
    intercompany






(400
)






400



Dividends  preference
    shareholder










(7
)


7



Dividends  common
    shareholders


(14
)


(77
)


(2
)


79



(14
)Dividends   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


506



(55
)


110



(1,095
)


(534
)Net increase in cash and cash
    equivalents


18



70



12







100Effect of exchange rate changes
    on cash balances held in foreign currencies






(3
)


(1
)






(4
)Cash and cash
    equivalents  beginning of period






12



19







31Cash and cash
    equivalents  end of period

$
18


$
79


$
30


$



$
127  40




---



##### 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
  HIGHLIGHTS
    
    We had net sales of $2.6 billion and net income of
    $6 million, or $0.08 per share for our quarter ended
    June 30, 2006, compared to net sales of $2.2 billion
    and no net income or earnings per share (breakeven results) for
    the second quarter of 2005. We had net sales of
    $4.9 billion and a net loss of $68 million, or $(0.92)
    per share for the six months ended June 30, 2006, compared
    to net sales of $4.3 billion and net income of
    $22 million, or $0.30 per share for the six months
    ended June 30, 2005.
    Total rolled products shipments increased from 730 kilotonnes
    (kt) in the second quarter of 2005 to 753kt in the second
    quarter of 2006, while ingot products shipments declined from
    71kt to 47kt in those same periods. Total rolled products
    shipments increased from 1,443kt for the six months ended
    June 30, 2005 to 1,494kt for the six months ended
    June 30, 2006, while ingot products shipments declined from
    128kt to 88kt in those same periods.
    Through strong operating cash flows, we reduced our total debt
    by $44 million during the second quarter of 2006 and by
    $147 million through the six months ended June 30,
    2006, which was in excess of our required principal payment
    obligations.
    London Metal Exchange (LME) pricing for aluminum (metal) was an
    average of 48% higher during the second quarter of 2006 than the
    same period for 2005, and an average of 37% higher during the
    six months ended June 30, 2006 than the same period for
    2005. 41




---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net sales for the second quarter and six months ended
    June 30, 2006 increased 18% and 14%, 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
    second quarter and first six months of 2006, we were unable to
    pass through approximately $140 million and
    $235 million, respectively, of metal price increases
    associated with sales under these contracts. The metal price
    ceilings are discussed in more detail below.                                                                                                                                                                                    
|
| |  | During the second quarter and first six months of 2006, we
    incurred expenses of approximately $13 million and
    $23 million, respectively, associated with the restatement
    of our condensed consolidated and combined financial statements
    for our first and second quarters of 2005 (filed May 16,
    2006) and our review process, and as a result of our
    delayed filings. In addition, we had previously incurred
    approximately $7 million during the fourth quarter of 2005,
    for a total of approximately $30 million in expenses
    through June 30, 2006, and we expect to continue to incur
    these expenses until, among other things, we are current with
    our filings with the United States Securities and Exchange
    Commission (SEC). The restatement and review process and delayed
    filings are discussed in more detail below.
|
| |  | During the second quarter and six months ended June 30,
    2006, we recognized pre-tax gains of $41 million and
    $95 million, respectively, related to changes in fair value
    of derivative instruments. These amounts are included in Other
    (income) expenses  net. Regional Income includes
    approximately $76 million and $131 million of
    cash-settled derivative gains for the second quarter and six
    months ended June 30, 2006, respectively. These derivative
    instruments and the related accounting are discussed in more
    detail below.                                                                                                                                                                                                                                                                                                      
|
| |  | For the second quarter and six months ended June 30, 2006,
    our provision (benefit) for taxes on income (loss) was ($20) and
    $82 million, respectively. These amounts exceeded the
    provision (benefit) at the Canadian statutory rate due primarily
    to (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 second quarter and six months ended June 30, 2006 were
    $7 million and $19 million, respectively.                                                                                                                                                                                                                                          







METAL
    PRICE CEILINGS














42



---



##### Table of Contents







and/or




Accounting for Derivative
    Instruments and Hedging Activities.








METAL
    PRICE LAG












RESTATEMENT
    AND REVIEW AND DELAYED FILINGS






43



---



##### Table of Contents







Form 10-Q.




INTERNAL
    CONTROLS




Controls and Procedures.




SPIN-OFF
    FROM ALCAN








Post-Transaction
    Adjustments








Agreements
    between Novelis and Alcan






44



---



##### Table of Contents



OPERATIONS
    AND SEGMENT REVIEW
      Second Quarter


Percent


Six Months


PercentPeriods Ended June 30,

2006


2005


Change


2006


2005


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


753



730



3
%


1,494



1,443



4
%Ingot products, including primary
    and secondary ingot and recyclable aluminum (B)


47



71



(34
)%


88



128



(31
)%Total shipments


800



801




%


1,582



1,571



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.  Second Quarter


Percent


Six Months


Percent2006


2005


Change


2006


2005


Change($ in millions)Operating ResultsNet sales

$
2,564


$
2,172



18
%

$
4,883


$
4,284



14
%Cost and expensesCost of goods sold (exclusive of
    depreciation and amortization shown below)


2,407



1,960



23
%


4,542



3,844



18
%Selling, general and
    administrative expenses


98



82



20
%


190



170



12
%Depreciation and amortization


59



58



2
%


117



117




%Research and development expenses


10



11



(9
)%


19



19




%Restructuring charges
    (recoveries)  net


2



(1
)


300
%


3



(3
)


200
%Impairment charges on long-lived
    assets






1



(100
)%






1



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


49



48



2
%


97



102



(5
)%Equity in net income of
    non-consolidated affiliates


(4
)


(2
)


100
%


(7
)


(4
)


75
%Other (income)
    expenses  net


(47
)


10



570
%


(96
)


(24
)


300
%2,574



2,167



19
%


4,865



4,222



15
%Income (loss) before provision
    (benefit) for taxes on income (loss) and minority
    interests share


(10
)


5



(300
)%


18



62



(71
)%Provision (benefit) for taxes on
    income (loss)


(20
)






n.m.



82



30



173
%Income (loss) before minority
    interests share


10



5



100
%


(64
)


32



(300
)%Minority interests share


(4
)


(5
)


(20
)%


(4
)


(10
)


(60
)%Net income (loss)

$
6


$




n.m.


$
(68
)

$
22



(409
)%       45




---



##### Table of Contents



|                                                                |  |      |       |  |      |   |       |         |  |  |    |  
|--------------------------------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | ------- |  |  | -- | -
|                                                                |  |      |       |  |      |   |       | Percent | 
|                                                                |  | 2006 |       |  | 2005 |   |       | Change  | 
|                                                               
|London Metal Exchange
    Prices                                |  |      |       |  |      |   |       |         |  |  |    |  
|Aluminum (per metric tonne, and
    presented in U.S. dollars): |  |      |       |  |      |   |       |         |  |  |    |  
|Closing cash price as of
    June 30,                           |  | $    | 2,551 |  |      | $ | 1,716 |         |  |  | 49 | %
|Average cash price during
    the quarters ended June 30,       |  | $    | 2,652 |  |      | $ | 1,790 |         |  |  | 48 | %
|Average cash price during
    the six months ended June 30,     |  | $    | 2,534 |  |      | $ | 1,844 |         |  |  | 37 | %





|                                                    |  |                |       |  |             |  |       |            |  |  |             |    |  |      |       |  |          |  |       |  |  |  |     |   
|--------------------------------------------------- |  | -------------- | ----- |  | ----------- |  | ----- | ---------- |  |  | ----------- | -- |  | ---- | ----- |  | -------- |  | ----- |  |  |  | --- | --
|                                                    |  |                |       |  |             |  |       | Dollar     |  |  |             |    |  |      |       |  | Dollar   | 
|                                                    |  | Second Quarter |       |  | Strengthen/ |  |       | Six Months |  |  | Strengthen/ |   
|Periods Ended June 30,                              |  | 2006           |       |  | 2005        |  |       | (Weaken)   |  |  | 2006        |    |  | 2005 |       |  | (Weaken) | 
|                                                   
|Federal Reserve Bank of New
    York Exchange Rates |  |                |       |  |             |  |       |            |  |  |             |    |  |      |       |  |          |  |       |  |  |  |     |   
|Average of the month end rates:                     |  |                |       |  |             |  |       |            |  |  |             |    |  |      |       |  |          |  |       |  |  |  |     |   
|U.S. dollar per Euro                                |  |                | 1.275 |  |             |  | 1.246 |            |  |  | (2          | )% |  |      | 1.241 |  |          |  | 1.278 |  |  |  | 3   | % 
|Brazilian real per U.S. dollar                      |  |                | 2.185 |  |             |  | 2.430 |            |  |  | (10         | )% |  |      | 2.176 |  |          |  | 2.525 |  |  |  | (14 | )%
|South Korean won per
    U.S. dollar                |  |                | 946   |  |             |  | 1,012 |            |  |  | (7          | )% |  |      | 956   |  |          |  | 1,013 |  |  |  | (6  | )%
|Canadian dollar per
    U.S. dollar                 |  |                | 1.113 |  |             |  | 1.245 |            |  |  | (11         | )% |  |      | 1.131 |  |          |  | 1.236 |  |  |  | (8  | )%





|                                                            |  |                |       |  |         |   |       |            |  |  |         |   |  |      |       |  |        |   |       |  |  |  |    |  
|----------------------------------------------------------- |  | -------------- | ----- |  | ------- | - | ----- | ---------- |  |  | ------- | - |  | ---- | ----- |  | ------ | - | ----- |  |  |  | -- | -
|                                                            |  | Second Quarter |       |  | Percent |   |       | Six Months |  |  | Percent |  
|Periods Ended June 30,                                      |  | 2006           |       |  | 2005    |   |       | Change     |  |  | 2006    |   |  | 2005 |       |  | Change |  
|                                                           
|New York Mercantile
    Exchange  Energy Price Quotations  |  |                |       |  |         |   |       |            |  |  |         |   |  |      |       |  |        |   |       |  |  |  |    |  
|Light Sweet Crude                                           |  |                |       |  |         |   |       |            |  |  |         |   |  |      |       |  |        |   |       |  |  |  |    |  
|Average settlement price (per
    barrel)                   |  | $              | 67.25 |  |         | $ | 46.49 |            |  |  | 45      | % |  | $    | 64.86 |  |        | $ | 45.52 |  |  |  | 42 | %
|Natural Gas                                                 |  |                |       |  |         |   |       |            |  |  |         |   |  |      |       |  |        |   |       |  |  |  |    |  
|Average Henry Hub contract
    settlement price (per MMBTU) |  | $              | 6.78  |  |         | $ | 6.73  |            |  |  | 1       | % |  | $    | 7.88  |  |        | $ | 6.50  |  |  |  | 21 | %









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

46



---



##### Table of Contents



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


2005% of





% of$ in millions


Net Sales


$ in millions


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

$
2,407



93.9
%

$
1,960



90.2
%Selling, general and
    administrative expenses


98



3.8
%


82



3.8
%Depreciation and amortization


59



2.3
%


58



2.7
%Research and development expenses


10



0.4
%


11



0.5
%Restructuring charges
    (recoveries)  net


2



0.1
%


(1
)



%Impairment of long-lived assets







%


1



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


49



1.9
%


48



2.2
%Equity in net income of
    non-consolidated affiliates


(4
)


(0.2
)%


(2
)


(0.1
)%Other (income)
    expenses  net


(47
)


(1.8
)%


10



0.5
%$
2,574



100.4
%

$
2,167



99.8
%   Cost of goods sold.
 47




---



##### 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 June 30,
    2005

$
10Gains of $41 million on the
    change in fair value of derivative instruments in 2006, compared
    to losses of $7 million in 2005


(48
)Gain on disposal of fixed
    assets  net in 2005 of $10 million


10Exchange gains of $5 million
    in 2006 compared to losses of $17 million in 2005


(22
)Other  net


3Other (income)
    expenses  net for the quarter ended June 30,
    2006

$
(47
)   Provision
    (Benefit) for Taxes on Income (Loss)
      Net
    Income
    OPERATING
    SEGMENT REVIEW FOR THE QUARTER ENDED JUNE 30, 2006 COMPARED
    TO THE QUARTER ENDED JUNE 30, 2005
  Regional
    Income
   48




---



##### Table of Contents



Disclosure About the Segments of
    an Enterprise and Related Information.
    Reconciliation
    Second Quarter2006


2005Regional IncomeNorth America

$
25


$
35Europe


80



55Asia


27



27South America


44



24Total Regional Income


176



141Interest expense and amortization
    of debt issuance costs


(54
)


(50
)Unrealized losses due to changes
    in the fair value of derivative instruments


(37
)


(61
)Depreciation and amortization


(59
)


(58
)Minority interests share


(4
)


(5
)Adjustment to eliminate
    proportional consolidation (A)


(9
)


(8
)Restructuring (charges)
    recoveries  net


(2
)


1Impairment charges on long-lived
    assets






(1
)Gains on disposals of fixed assets
    and businesses






10Corporate selling, general and
    administrative expenses (B)


(29
)


(14
)Gains on corporate derivative
    instruments and exchange items  net (B)


4



45Benefit for taxes on income (loss)


20



Net income

$
6


$
  49




---



##### Table of Contents



(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 on our
    consolidated and combined statements of income (loss). 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.(B)
    
    These items are managed by our corporate office, which focuses
    on strategy development and oversees governance, policy, legal
    compliance, human resources and finance matters.  OPERATING
    SEGMENT RESULTS
  North
    America
      Second Quarter


Percent2006


2005


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


298



283



5.3
%Ingot products


25



24



4.2
%Total shipments


323



307



5.2
%Net sales

$
992


$
841



18.0
%Regional Income

$
25


$
35



(28.6
)%Total assets

$
1,617


$
1,459



10.8
%   Shipments
    Net
    sales
  quarter-over-quarter
 50




---



##### Table of Contents



Regional
    Income
    Total
    assets
    Europe
      Second Quarter


Percent2006


2005


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


266



263



1.1
%Ingot products


3



30



(90.0
)%Total shipments


269



293



(8.2
)%Net sales

$
922


$
833



10.7
%Regional Income

$
80


$
55



45.5
%Total assets

$
2,501


$
2,186



14.4
%   Shipments
    Net
    sales
    Regional
    Income
  back-to-back
 51




---



##### Table of Contents



Total
    assets
    Asia
      Second Quarter


Percent2006


2005


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


123



123




%Ingot products


13



10



30.0
%Total shipments


136



133



2.3
%Net sales

$
453


$
359



26.2
%Regional Income

$
27


$
27




%Total assets

$
1,076


$
985



9.2
%   Shipments
    Net
    sales
    Regional
    Income
    South
    America
   52




---



##### Table of Contents



Second Quarter


Percent2006


2005


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


66



61



8.2
%Ingot products


6



7



(14.3
)%Total shipments


72



68



5.9
%Net sales

$
201


$
143



40.6
%Regional Income

$
44


$
24



83.3
%Total assets

$
803


$
761



5.5
%   Shipments
    Net
    sales
    Regional
    Income
    RESULTS
    OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2006
    COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005
  Shipments
      Net
    sales
   53




---



##### Table of Contents



Costs
    and expenses
    Six Months Ended June 30,2006


2005% of





% of$ in millions


Net Sales


$ in millions


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

$
4,542



93.0
%

$
3,844



89.7
%Selling, general and
    administrative expenses


190



3.9
%


170



4.0
%Depreciation and amortization


117



2.4
%


117



2.7
%Research and development expenses


19



0.4
%


19



0.5
%Restructuring charges
    (recoveries)  net


3




%


(3
)


(0.1
)%Impairment of long-lived assets







%


1



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


97



2.0
%


102



2.4
%Equity in net income of
    non-consolidated affiliates


(7
)


(0.1
)%


(4
)


(0.1
)%Other income  net


(96
)


(2.0
)%


(24
)


(0.5
)%$
4,865



99.6
%

$
4,222



98.6
%   Cost of goods sold.
  Selling, general and administrative expenses
    (SG&A). start-up start-up
  Interest expense and amortization of debt issuance
    costs  net.
 54




---



##### Table of Contents



Other income  net.
  OtherIncome  NetOther income  net
    for the six months ended June 30, 2005

$
(24
)Gains of $95 million on the
    change in fair value of derivative instruments in 2006, compared
    to $17 million in 2005


(78
)Loss on disposal of business in
    2006 of $15 million


15Gain on disposal of fixed assets
    in 2006 of $1 million compared to gains of $11 million
    in 2005


10Exchange gains of $10 million
    in 2006 compared to losses of $5 million in 2005


(15
)Other  net


(4
)Other income  net
    for the six months ended June 30, 2006

$
(96
)   Provision
    for Taxes on Income
      out-of-period
  Net
    Income (Loss)
  mark-to-market
 55




---



##### Table of Contents



OPERATING
    SEGMENT REVIEW FOR THE SIX MONTHS ENDED JUNE 30, 2006
    COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005
  Reconciliation
    Six Months EndedJune 30,2006


2005Regional IncomeNorth America

$
83


$
87Europe


137



109Asia


52



57South America


85



62Total Regional Income


357



315Interest expense and amortization
    of debt issuance costs


(105
)


(106
)Unrealized losses due to changes
    in the fair value of derivative instruments


(36
)


(42
)Depreciation and amortization


(117
)


(117
)Minority interests share


(4
)


(10
)Adjustment to eliminate
    proportional consolidation (A)


(17
)


(18
)Restructuring (charges)
    recoveries  net


(3
)


3Impairment charges on long-lived
    assets






(1
)Gains (losses) on disposals of
    fixed assets and businesses


(14
)


11Corporate selling, general and
    administrative expenses (B)


(55
)


(30
)Gains and losses on corporate
    derivative instruments and exchange items 
    net (B)


8



47Provision for taxes on income


(82
)


(30
)Net income (loss)

$
(68
)

$
22     (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 affiliateson
    our consolidated and combined statements of income (loss). 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.(B)
    
    These items are managed by our corporate office, which focuses
    on strategy development and oversees governance, policy, legal
    compliance, human resources and finance matters. 56




---



##### Table of Contents



OPERATING
    SEGMENT RESULTS
  North
    America
    Six Months EndedJune 30,


Percent2006


2005


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


587



567



3.5
%Ingot products


42



43



(2.3
)%Total shipments


629



610



3.1
%Net sales

$
1,887


$
1,664



13.4
%Regional Income

$
83


$
87



(4.6
)%Total assets

$
1,617


$
1,459



10.8
%   Shipments
    Net
    sales
    Regional
    Income
    Total
    assets
   57




---



##### Table of Contents



Europe
    Six Months EndedJune 30,


Percent2006


2005


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


532



516



3.1
%Ingot products


11



50



(78.0
)%Total shipments


543



566



(4.1
)%Net sales

$
1,748


$
1,639



6.7
%Regional Income

$
137


$
109



25.7
%Total assets

$
2,501


$
2,186



14.4
%   Shipments
    Net
    sales
    Regional
    Income
  back-to-back start-up
  Total
    assets
   58




---



##### Table of Contents



Asia
    Six Months EndedJune 30,


Percent2006


2005


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


241



237



1.7
%Ingot products


23



21



9.5
%Total shipments


264



258



2.3
%Net sales

$
847


$
697



21.5
%Regional Income

$
52


$
57



(8.8
)%Total assets

$
1,076


$
985



9.2
%   Shipments
    Net
    sales
    Regional
    Income
    South
    America
    Six Months EndedJune 30,


Percent2006


2005


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


134



123



8.9
%Ingot products


12



14



(14.3
)%Total shipments


146



137



6.6
%Net sales

$
410


$
291



40.9
%Regional Income

$
85


$
62



37.1
%Total assets

$
803


$
761



5.5
%   Shipments
   59




---



##### Table of Contents



Net
    sales
    Regional
    Income
    LIQUIDITY
    AND CAPITAL RESOURCES
    Operating
    Activities
      Six Months Ended June 30,2006


2005


ChangeNet cash provided by operating
    activities

$
59


$
231


$
(172
)Dividends


(28
)


(21
)


(7
)Capital expenditures


(55
)


(59
)


4Premiums paid to purchase
    derivative instruments






(18
)


18Net proceeds from settlement of
    derivative instruments


157



88



69Free cash flow

$
133


$
221


$
(88
)   June 30,


December 31,2006


2005


ChangeCash and cash equivalents

$
93


$
100


$
(7
)  60




---



##### Table of Contents



Financing
    Activities
           61




---



##### Table of Contents



Form 10-Q.
  3-month
      Investing
    Activities
    Six Months EndedJune 30,2006


2005


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

$
157


$
70


$
87Capital expenditures


(55
)


(59
)


4Proceeds from loans
    receivable  net


16



383



(367
)Payments related to disposal of
    business


(7
)






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


3







3Proceeds from sales of assets


3



9



(6
)Net cash provided by investing
    activities

$
117


$
403


$
(286
)    62




---



##### Table of Contents



Six Months EndedJune 30,2006


2005


Change($ in millions)Capital expenditures

$
55


$
59


$
(4
)Depreciation and amortization

$
117


$
117


$
Reinvestment rate


47
%


50
%   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
  Form 10-Q Form 10-Q Form 10-Q Form 10-Q
     63




---



##### Table of Contents



Senior
    Notes
  Form 10-Q Form 10-Q
  OFF-BALANCE
    SHEET ARRANGEMENTS
  Derivative
    Instruments
            As of June 30, 2006Maturity







Net FairDates

Assets


Liabilities


ValueForward foreign exchange contracts

2006 through 2011

$
9


$
(14
)

$
(5
)Interest rate swaps

2006 through 2008


5







5Cross-currency interest rate swaps

2006 through 2015


5



(82
)


(77
)Aluminum forward contracts

2006 through 2009


109



(11
)


98Aluminum call options

2006


70







70Fixed price electricity contract

2016


55







55253



(107
)


146Less: current portion




179



(32
)


147$
74


$
(75
)

$
(1
)  64




---



##### Table of Contents



Indirect
    Guarantees of Indebtedness of Others
    Maximum


Liability


AssetsPotential Future


Carrying


Held forType of Entity

Payment


Value


CollateralWholly-Owned Subsidiaries

$
16


$
5


$
Aluminium Norf GmbH


13







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

Record Date

Dividend/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, 2006     CRITICAL
    ACCOUNTING POLICIES AND ESTIMATES
  Form 10-K
 65




---



##### 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
 66




---



##### 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; 67




---



##### Table of Contents




    changes in government regulations, particularly those affecting
    taxes, environmental, health or safety compliance;
    changes in interest rates that have the effect of increasing the
    amounts we pay under our principal credit agreement and other
    financing agreements; and
    the continued cooperation of regulatory authorities (including
    the Toronto Stock Exchange and New York Stock Exchange) with
    respect to extensions of our 2006 SEC filing deadlines.  Form 10-K
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk    marked-to-market
      Commodity
    Price Risks
    Aluminum
       68




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##### Table of Contents



and/or
  Sensitivities
    Change in


Change inRate/Price


Fair Value(in millions)Aluminum Call Options


10
%

$
28Aluminum Forward Contracts


10
%


52   Electricity
    and Natural Gas
       69




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##### Table of Contents



Sensitivities
    Change in


Change inRate/Price


Fair Value(In millions)Electricity


10
%

$
13   Foreign
    Currency Exchange Risks
    non-U.S. dollar
    Form 10-K Form 10-Q.
  Sensitivities
    Change in


Change inRate


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


10
%

$
60Korean won


10
%


26Brazilian real


10
%


17  70




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##### Table of Contents



Change in


Change inRate


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


10
%

$
81   Interest
    Rate Risks
        Form 10-Q
  Sensitivities
    Change in


Change inRate


Fair Value(In millions)Interest Rate Swap
    contractsNorth America


10
%

$
1Asia


10
%


   Item 4.
    Controls
    and Procedures  Evaluation
    of disclosure controls and procedures
    Form 10-Q
 71




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##### Table of Contents



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
     72




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##### Table of Contents



Changes
    in internal control over financial reporting and related
    matters
         73




---



##### Table of Contents



PART II.
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings  Reynolds Boat Case.
    Accrued expenses and other current liabilities Prepaid expenses and other
    current assets
      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))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)) 74




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##### Table of Contents



ExhibitNo.

Description4
.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

Employment Agreement of Arnaud de
    Weert (incorporated by reference to Exhibit 10.1 to the
    Form 8-K
    filed by Novelis Inc. on April 3, 2006 (File
    No. 001-32312))10
.2

Agreement Concerning Transition
    from Employment between Novelis and Geoff Batt dated
    March 31, 2006 (incorporated by reference to
    Exhibit 10.1 to the
    Form 8-K
    filed by Novelis on April 6, 2006 (File
    No. 001-32312))10
.3

Third Waiver, dated as of
    April 12, 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 April 18, 2006 (File
    No. 001-32312))10
.4

Fourth Waiver, dated as of
    May 10, 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 May 16, 2006 (File
    No. 001-32312))10
.5

Transition Agreement, dated
    June 15, 2006, by and between Jo-Ann Longworth and Novelis
    Inc. (incorporated by reference to Exhibit 10.45 to the
    Form 10-K
    filed by Novelis Inc. on August 25, 2006 (File
    No. 001-32312))10
.6

Separation and Release Agreement,
    dated June 15, 2006, by and between Jo-Ann Longworth and
    Novelis Corp. (incorporated by reference to Exhibit 10.46
    to the
    Form 10-K
    filed by Novelis Inc. on August 25, 2006 (File
    No. 001-32312))10
.7

Transition Agreement, dated
    June 27, 2006, by and between Geoff Batt and Novelis Inc.
    (incorporated by reference to Exhibit 10.47 to the
    Form 10-K
    filed by Novelis Inc. on August 25, 2006 (File
    No. 001-32312))10
.8

Separation and Release Agreement,
    dated June 27, 2006, by and between Geoff Batt and Novelis
    Corp. (incorporated by reference to Exhibit 10.48 to the
    Form 10-K
    filed by Novelis Inc. on August 25, 2006 (File
    No. 001-32312))10
.9

Offer Letter, dated June 20,
    2006, by and between Rick Dobson and Novelis Inc. (incorporated
    by reference to Exhibit 10.50 to the
    Form 10-K
    filed by Novelis Inc. on August 25, 2006 (File
    No. 001-32312))10
.10

Addendum to Rick Dobson Offer
    Letter, dated June 20, 2006, by and between Rick Dobson and
    Novelis Inc. (incorporated by reference to Exhibit 10.51 to
    the
    Form 10-K
    filed by Novelis Inc. on August 25, 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  75




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##### Table of Contents



SIGNATURES
      By:
    /s/  Rick
    Dobson        By:
    /s/  Robert
    M. Patterson         76




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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

Employment Agreement of Arnaud de
    Weert (incorporated by reference to Exhibit 10.1 to the
    Form 8-K
    filed by Novelis Inc. on April 3, 2006 (File
    No. 001-32312))10
.2

Agreement Concerning Transition
    from Employment between Novelis and Geoff Batt dated
    March 31, 2006 (incorporated by reference to
    Exhibit 10.1 to the
    Form 8-K
    filed by Novelis on April 6, 2006 (File
    No. 001-32312))10
.3

Third Waiver, dated as of
    April 12, 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 April 18, 2006 (File
    No. 001-32312))10
.4

Fourth Waiver, dated as of
    May 10, 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 May 16, 2006 (File
    No. 001-32312))10
.5

Transition Agreement, dated
    June 15, 2006, by and between Jo-Ann Longworth and Novelis
    Inc. (incorporated by reference to Exhibit 10.45 to the
    Form 10-K
    filed by Novelis Inc. on August 25, 2006 (File
    No. 001-32312))10
.6

Separation and Release Agreement,
    dated June 15, 2006, by and between Jo-Ann Longworth and
    Novelis Corp. (incorporated by reference to Exhibit 10.46
    to the
    Form 10-K
    filed by Novelis Inc. on August 25, 2006 (File
    No. 001-32312))10
.7

Transition Agreement, dated
    June 27, 2006, by and between Geoff Batt and Novelis Inc.
    (incorporated by reference to Exhibit 10.47 to the
    Form 10-K
    filed by Novelis Inc. on August 25, 2006 (File
    No. 001-32312))10
.8

Separation and Release Agreement,
    dated June 27, 2006, by and between Geoff Batt and Novelis
    Corp. (incorporated by reference to Exhibit 10.48 to the
    Form 10-K
    filed by Novelis Inc. on August 25, 2006 (File
    No. 001-32312))10
.9

Offer Letter, dated June 20,
    2006, by and between Rick Dobson and Novelis Inc. (incorporated
    by reference to Exhibit 10.50 to the
    Form 10-K
    filed by Novelis Inc. on August 25, 2006 (File
    No. 001-32312))10
.10

Addendum to Rick Dobson Offer
    Letter, dated June 20, 2006, by and between Rick Dobson and
    Novelis Inc. (incorporated by reference to Exhibit 10.51 to
    the
    Form 10-K
    filed by Novelis Inc. on August 25, 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  77