##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q/A


(Amendment No. 1)


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended June 30, 2005                                                
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from          to          .                                   

Commission file number: 001-32312


Novelis Inc.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Canada                                                             |  | 98-0442987                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. employer
    identification number)
|                                                                  
|3399 Peachtree Road NE, Suite 1500                                 |  | 30326                                      
|Atlanta, Georgia                                                   |  | (Zip Code)                                 
|(Address of principal executive offices)                           |  |                                            

Telephone: (404) 814-4200


(Registrants telephone number, including area code)


o þ


12b-2 o þ












---



##### Table of Contents



EXPLANATORY NOTE


10-Q/ 10-Q




| |   |                                                         
| | - | --------------------------------------------------------
| |  | misapplication of GAAP related to liability recognition;
|
| |  | income tax accounting;                                  
|
| |  | other miscellaneous items; and                          
|
| |  | out-of-period
    adjustments.                          

10-Q/


10-Q/ 10-Q, 10-Q 10-Q. 10-Q/ 10-Q. 10-Q


10-Q/ 10-Q/ 10-Q 10-Q




---



##### 










Novelis Inc.


Index


|                                             |  |                                                                                           |  |                                                                                                                                                  |    |  |   | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ | -- |  | - | 
|                                             |  |                                                                                           |  | Page No.                                                                                                                                         |   
|                                             |  |                                                                                           |  |                                                                                                                                                  |   
|PART I.                                      |  | FINANCIAL INFORMATION                                                                     |  |                                                                                                                                                  |    | 
|Item 1.                                      |  | Financial Statements                                                                      |  |                                                                                                                                                  | 2  | 
|                                             |  |                                                                                           |  | Unaudited Condensed Consolidated and
    Combined Statements of Income Second quarter and six months
    ended June 30, 2005 (restated) and 2004 |    |  | 2 | 
|                                             |  |                                                                                           |  | Unaudited Condensed Consolidated and
    Combined Balance Sheets June 30, 2005 (restated)
    and December 31, 2004                              |    |  | 3 | 
|                                             |  |                                                                                           |  | Unaudited Condensed Consolidated and
    Combined Statements of Cash Flows Six months ended
    June 30, 2005 (restated) and 2004                |    |  | 5 | 
|                                             |  |                                                                                           |  | Unaudited Condensed Consolidated and
    Combined Statement of Shareholders/Invested Equity
    Six months ended June 30, 2005 (restated)       |    |  | 6 | 
|                                             |  |                                                                                           |  | Notes to the Unaudited Condensed
    Consolidated and Combined Financial Statements                                                              |    |  | 7 | 
|Item 2.                                      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |  |                                                                                                                                                  | 46 | 
|Item 3.                                      |  | Quantitative and Qualitative Disclosures
    About Market Risk                            |  |                                                                                                                                                  | 65 | 
|Item 4.                                      |  | Controls and Procedures                                                                   |  |                                                                                                                                                  | 68 | 
|                                            
|PART II.                                     |  | OTHER INFORMATION                                                                         |  |                                                                                                                                                  |    | 
|Item 6.                                      |  | Exhibits                                                                                  |  |                                                                                                                                                  | 73 | 
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO



1



---



##### Table of Contents






PART I. FINANCIAL INFORMATION







|        |                     
|------- | --------------------
|Item 1. | Financial Statements

Novelis Inc.





CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(unaudited)


(in millions of US$, except per share amounts)


|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |       |   |  |       |       |  
|----------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | -------------- | ----- | ----- | ---------- |  | ---------- | ----- |  |  | ----- | ----- | - |  | ----- | ----- | -
|                                                                                                                                                |                   | Second Quarter |       |       | Six Months | 
|                                                                                                                                                |                   |                |       |       |            | 
|                                                                                                                                                |                   | 2005           |       |       | 2004       |  |            | 2005  |  |  | 2004  |      
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|                                                                                                                                                |                   | (restated)     |       |       |            |  | (restated) |       |  | 
|Sales and operating revenues                                                                                                                    |                   |                |       |       |            |  |            |       |  |  |       |       |   |  |       |      
|                                                                                                                                                |  third parties   |                |       | 2,172 |            |  |            | 1,805 |  |  |       | 4,284 |   |  |       | 3,523 |  
|                                                                                                                                                |  related parties |                |       |      |            |  |            | 124   |  |  |       |      |   |  |       | 216   |  
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|                                                                                                                                                |                   |                | 2,172 |       |            |  | 1,929      |       |  |  | 4,284 |       |   |  | 3,739 |      
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|Costs and expenses                                                                                                                              |                   |                |       |       |            |  |            |       |  |  |       |       |   |  |       |      
|Cost of sales and operating expenses, excluding depreciation and
    amortization noted below                                                   |                   |                |       |       |            |  |            |       |  |  |       |       |   |  |       |      
|                                                                                                                                                |  third parties   |                |       | 1,960 |            |  |            | 1,578 |  |  |       | 3,844 |   |  |       | 3,083 |  
|                                                                                                                                                |  related parties |                |       |      |            |  |            | 112   |  |  |       |      |   |  |       | 192   |  
|Depreciation and amortization                                                                                                                   |                   |                | 58    |       |            |  | 57         |       |  |  | 117   |       |   |  | 118   |      
|Selling, general and administrative expenses                                                                                                    |                   |                | 79    |       |            |  | 50         |       |  |  | 164   |       |   |  | 110   |      
|Research and development expenses                                                                                                               |                   |                | 11    |       |            |  | 6          |       |  |  | 19    |       |   |  | 10    |      
|Research and development expenses  related parties                                                                                             |                   |                |      |       |            |  | 12         |       |  |  |      |       |   |  | 18    |      
|Other expenses (income)  net                                                                                                                   |                   |                |       |       |            |  |            |       |  |  |       |       |   |  |       |      
|                                                                                                                                                |  third parties   |                |       | 13    |            |  |            | 4     |  |  |       | (11   | ) |  |       | 8     |  
|                                                                                                                                                |  related parties |                |       | (1    | )          |  |            | 21    |  |  |       | (1    | ) |  |       | (22   | )
|Interest expense                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |       |   |  |       |      
|                                                                                                                                                |  third parties   |                |       | 49    |            |  |            | 10    |  |  |       | 94    |   |  |       | 21    |  
|                                                                                                                                                |  related parties |                |       |      |            |  |            | 9     |  |  |       |      |   |  |       | 17    |  
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|                                                                                                                                                |                   |                | 2,169 |       |            |  | 1,859      |       |  |  | 4,226 |       |   |  | 3,555 |      
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|Income before income taxes and other items                                                                                                      |                   |                | 3     |       |            |  | 70         |       |  |  | 58    |       |   |  | 184   |      
|Income taxes                                                                                                                                    |                   |                |      |       |            |  | 23         |       |  |  | 30    |       |   |  | 66    |      
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|Income before other items                                                                                                                       |                   |                | 3     |       |            |  | 47         |       |  |  | 28    |       |   |  | 118   |      
|Equity in net income of non-consolidated affiliates                                                                                             |                   |                | 2     |       |            |  | 1          |       |  |  | 4     |       |   |  | 3     |      
|Minority interests in earnings of consolidated affiliates                                                                                       |                   |                | (5    | )     |            |  | (3         | )     |  |  | (10   | )     |   |  | (7    | )    
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|Net income                                                                                                                                      |                   |                |      |       |            |  | 45         |       |  |  | 22    |       |   |  | 114   |      
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|Earnings per share                                                                                                                              |                   |                |       |       |            |  |            |       |  |  |       |       |   |  |       |      
|Net income per share  basic                                                                                                                    |                   |                |      |       |            |  | 0.61       |       |  |  | 0.30  |       |   |  | 1.54  |      
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|Net income per share  diluted                                                                                                                  |                   |                |      |       |            |  | 0.61       |       |  |  | 0.30  |       |   |  | 1.53  |      
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|Dividends per common share                                                                                                                      |                   |                | 0.09  |       |            |  |           |       |  |  | 0.18  |       |   |  |      |      
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|Supplemental information for 2005:                                                                                                              |                   |                |       |       |            |  |            |       |  |  |       |       |   |  |       |      
|Net income attributable to consolidated and combined results of
    Novelis from January 6 to June 30, 2005 
    increase to Retained earnings |                   |                |      |       |            |  |            |       |  |  | 51    |       |   |  |       |      
|Net loss attributable to the combined results of Novelis from
    January 1 to January 5, 2005  decrease to
    Owners net investment(A)      |                   |                |      |       |            |  |            |       |  |  | (29   | )     |   |  |       |      
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      
|Net income                                                                                                                                      |                   |                |      |       |            |  |            |       |  |  | 22    |       |   |  |       |      
|                                                                                                                                                |                   |                |       |       |            |  |            |       |  |  |       |      






|    |                                                            
|--- | -----------------------------------------------------------
|(A) | Refer to Note 1  Background and Basis of
    Presentation.



2



---



##### Table of Contents






Novelis Inc.


CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS
(unaudited)


(in millions of US$, except number of shares)


|                                                                                      |                   |            |       |       |              |  |       |       | 
|------------------------------------------------------------------------------------- | ----------------- | ---------- | ----- | ----- | ------------ |  | ----- | ----- | 
|                                                                                      |                   | June 30,   |       |       | December 31, | 
|As of                                                                                 |                   | 2005       |       |       | 2004         | 
|                                                                                      |                   |            |       |       |              | 
|                                                                                      |                   | (restated) |       |       |             
|ASSETS                                                                               
|Current assets                                                                        |                   |            |       |       |              |  |       |      
|Cash and cash equivalents                                                             |                   |            | 127   |       |              |  | 31    |      
|Trade receivables (net of allowances of $32 in 2005 and $33 in
    2004)              |                   |            |       |       |              |  |       |      
|                                                                                      |  third parties   |            |       | 1,073 |              |  |       | 710   | 
|                                                                                      |  related parties |            |       |      |              |  |       | 87    | 
|Other receivables                                                                     |                   |            |       |       |              |  |       |      
|                                                                                      |  third parties   |            |       | 5     |              |  |       | 5     | 
|                                                                                      |  related parties |            |       | 35    |              |  |       | 846   | 
|Prepaid expenses                                                                      |                   |            | 51    |       |              |  | 36    |      
|Inventories                                                                           |                   |            |       |       |              |  |       |      
|                                                                                      | Aluminum          |            |       | 965   |              |  |       | 1,081 | 
|                                                                                      | Raw materials     |            |       | 18    |              |  |       | 20    | 
|                                                                                      | Other supplies    |            |       | 142   |              |  |       | 125   | 
|                                                                                      |                   |            |       |       |              | 
|                                                                                      |                   |            | 1,125 |       |              |  | 1,226 |      
|Other current assets                                                                  |                   |            | 154   |       |              |  | 77    |      
|                                                                                      |                   |            |       |       |              | 
|Total current assets                                                                  |                   |            | 2,570 |       |              |  | 3,018 |      
|Deferred charges and other assets                                                     |                   |            | 162   |       |              |  | 71    |      
|Long-term receivables from related parties                                            |                   |            | 81    |       |              |  | 104   |      
|Property, plant and equipment, net                                                    |                   |            | 2,194 |       |              |  | 2,348 |      
|Investments in non-consolidated affiliates                                            |                   |            | 98    |       |              |  | 122   |      
|Intangible assets (net of accumulated amortization of $10 in
    2005 and $9 in 2004) |                   |            | 30    |       |              |  | 35    |      
|Goodwill                                                                              |                   |            | 230   |       |              |  | 256   |      
|                                                                                      |                   |            |       |       |              | 
|Total assets                                                                          |                   |            | 5,365 |       |              |  | 5,954 |      
|                                                                                      |                   |            |       |       |              | 



3



---



##### Table of Contents



Novelis Inc.


CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS
(unaudited)  (Continued)


(in millions of US$, except number of shares)


|                                                                                                                                           |                   |            |       |       |              |  |       |       | 
|------------------------------------------------------------------------------------------------------------------------------------------ | ----------------- | ---------- | ----- | ----- | ------------ |  | ----- | ----- | 
|                                                                                                                                           |                   | June 30,   |       |       | December 31, | 
|As of                                                                                                                                      |                   | 2005       |       |       | 2004         | 
|                                                                                                                                           |                   |            |       |       |              | 
|                                                                                                                                           |                   | (restated) |       |       |             
|LIABILITIES AND SHAREHOLDERS/ INVESTED EQUITY                                                                                            
|Current liabilities                                                                                                                        |                   |            |       |       |              |  |       |      
|Current portion of long-term debt                                                                                                          |                   |            |       |       |              |  |       |      
|                                                                                                                                           |  third parties   |            |       | 3     |              |  |       | 1     | 
|                                                                                                                                           |  related parties |            |       |      |              |  |       | 290   | 
|Short-term borrowings                                                                                                                      |                   |            |       |       |              |  |       |      
|                                                                                                                                           |  third parties   |            |       | 22    |              |  |       | 229   | 
|                                                                                                                                           |  related parties |            |       |      |              |  |       | 312   | 
|Accounts payable, trade                                                                                                                    |                   |            |       |       |              |  |       |      
|                                                                                                                                           |  third parties   |            |       | 783   |              |  |       | 496   | 
|                                                                                                                                           |  related parties |            |       | 37    |              |  |       | 401   | 
|Accrued expenses                                                                                                                           |                   |            | 435   |       |              |  | 339   |      
|Interest payable                                                                                                                           |                   |            | 51    |       |              |  | 2     |      
|Accrued income taxes                                                                                                                       |                   |            | 41    |       |              |  | 1     |      
|Other current liabilities                                                                                                                  |                   |            | 29    |       |              |  | 21    |      
|                                                                                                                                           |                   |            |       |       |              | 
|Total current liabilities                                                                                                                  |                   |            | 1,401 |       |              |  | 2,092 |      
|Long-term debt, net of current portion                                                                                                     |                   |            |       |       |              |  |       |      
|                                                                                                                                           |  third parties   |            |       | 2,757 |              |  |       | 139   | 
|                                                                                                                                           |  related parties |            |       |      |              |  |       | 2,307 | 
|Accrued post-retirement benefits                                                                                                           |                   |            | 306   |       |              |  | 284   |      
|Deferred credits and other liabilities                                                                                                     |                   |            | 194   |       |              |  | 188   |      
|Deferred income taxes                                                                                                                      |                   |            | 163   |       |              |  | 249   |      
|Commitments and contingencies                                                                                                              |                   |            |       |       |              |  |       |      
|Minority interests in equity of consolidated affiliates                                                                                    |                   |            | 144   |       |              |  | 140   |      
|Shareholders/invested equity                                                                                                              |                   |            |       |       |              |  |       |      
|Preferred shares  unlimited number of first preferred
    and second preferred shares authorized; none issued                             |                   |            |      |       |              |  |      |      
|Common shares, no par value  unlimited number of
    shares authorized; issued and outstanding:
    73,993,006 shares as of June 30, 2005 |                   |            |      |       |              |  |      |      
|Additional paid-in capital                                                                                                                 |                   |            | 434   |       |              |  |      |      
|Retained earnings                                                                                                                          |                   |            | 37    |       |              |  |      |      
|Accumulated other comprehensive income (loss)                                                                                              |                   |            | (71   | )     |              |  | 88    |      
|Owners net investment                                                                                                                     |                   |            |      |       |              |  | 467   |      
|                                                                                                                                           |                   |            |       |       |              | 
|Total shareholders/invested equity                                                                                                        |                   |            | 400   |       |              |  | 555   |      
|                                                                                                                                           |                   |            |       |       |              | 
|Total liabilities and shareholders/invested equity                                                                                        |                   |            | 5,365 |       |              |  | 5,954 |      
|                                                                                                                                           |                   |            |       |       |              | 



4



---



##### Table of Contents



Novelis Inc.





CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(unaudited)


(in millions of US$)


|                                                                                |                                         |            |       |        |      |  |      |      |  
|------------------------------------------------------------------------------- | --------------------------------------- | ---------- | ----- | ------ | ---- |  | ---- | ---- | -
|Six Months Ended June 30                                                        |                                         | 2005       |       |        | 2004 | 
|                                                                                |                                         |            |       |        |      | 
|                                                                                |                                         | (restated) |       |        |     
|OPERATING ACTIVITIES                                                            |                                         |            |       |        |      |  |      |     
|Net cash provided by operating activities                                       |                                         |            | 231   |        |      |  | 91   |     
|                                                                                |                                         |            |       |        |      | 
|INVESTING ACTIVITIES                                                            |                                         |            |       |        |      |  |      |     
|Capital expenditures                                                            |                                         |            | (59   | )      |      |  | (59  | )   
|Proceeds from sales of fixed assets and investments                             |                                         |            | 9     |        |      |  | 8    |     
|Proceeds from (payments on) loans receivable  net                              |                                         |            |       |        |      |  |      |     
|                                                                                |  third parties                         |            |       | 19     |      |  |      |     |  
|                                                                                |  related parties                       |            |       | 364    |      |  |      | (311 | )
|Premiums paid on purchased derivatives                                          |                                         |            | (18   | )      |      |  |     |     
|Net proceeds from settlement of derivatives                                     |                                         |            | 88    |        |      |  |     |     
|                                                                                |                                         |            |       |        |      | 
|Net cash provided by (used in) investing activities                             |                                         |            | 403   |        |      |  | (362 | )   
|                                                                                |                                         |            |       |        |      | 
|FINANCING ACTIVITIES                                                            |                                         |            |       |        |      |  |      |     
|Proceeds from issuance of new debt  third parties                              |                                         |            | 2,750 |        |      |  | 441  |     
|Principal repayments                                                            |                                         |            |       |        |      |  |      |     
|                                                                                |  third parties                         |            |       | (1,630 | )    |  |      | (28  | )
|                                                                                |  related parties                       |            |       | (1,180 | )    |  |      |     |  
|Short-term borrowings  net                                                     |                                         |            |       |        |      |  |      |     
|                                                                                |  third parties                         |            |       | (152   | )    |  |      | (129 | )
|                                                                                |  related parties                       |            |       | (302   | )    |  |      | 8    |  
|Dividends  common shareholders                                                 |                                         |            | (14   | )      |      |  | -    |     
|Dividends  minority interest                                                   |                                         |            | (7    | )      |      |  | (3   | )   
|Net receipts from (payments to) Alcan                                           |                                         |            | 72    |        |      |  | (17  | )   
|Debt issuance costs paid                                                        |                                         |            | (71   | )      |      |  |     |     
|                                                                                |                                         |            |       |        |      | 
|Net cash provided by (used in) financing activities                             |                                         |            | (534  | )      |      |  | 272  |     
|                                                                                |                                         |            |       |        |      | 
|Net increase in cash and cash equivalents                                       |                                         |            | 100   |        |      |  | 1    |     
|Effect of exchange rate changes on cash balances held in foreign
    currencies |                                         |            | (4    | )      |      |  |     |     
|Cash and cash equivalents  beginning of period                                 |                                         |            | 31    |        |      |  | 27   |     
|                                                                                |                                         |            |       |        |      | 
|Cash and cash equivalents  end of period                                       |                                         |            | 127   |        |      |  | 28   |     
|                                                                                |                                         |            |       |        |      | 
|Supplemental schedule of 2005 non-cash investing and
    financing activities:  |                                         |            |       |        |      |  |      |     
|Spin-off transaction and post-closing adjustments                               |                                         |            |       |        |      |  |      |     
|                                                                                | 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



---



##### Table of Contents



Novelis Inc.





CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF


SHAREHOLDERS/ INVESTED EQUITY (unaudited)


Six Months Ended June 30, 2005 (restated)


(in millions of US$, except number of shares which is in
thousands and per share amounts)


|                                                                        |  |               |        |  |            |  |   |             |  |       |               |     |  |               |     |   |            |  |      |       |  |  |      |      |  |  |      |  
|----------------------------------------------------------------------- |  | ------------- | ------ |  | ---------- |  | - | ----------- |  | ----- | ------------- | --- |  | ------------- | --- | - | ---------- |  | ---- | ----- |  |  | ---- | ---- |  |  | ---- | -
|                                                                        |  |               |        |  |            |  |   | Accumulated |  |       |               |     | 
|                                                                        |  | Common Shares |        |  | Additional |  |   |             |  | Other |               |     |  |               |    
|                                                                        |  |               |        |  | Paid-in    |  |   | Retained    |  |       | Comprehensive |     |  | Owners Net   |     |   |           
|                                                                        |  | Shares        |        |  | Amount     |  |   | Capital     |  |       | Earnings      |     |  | Income (Loss) |     |   | Investment |  |      | Total | 
|                                                                        |  |               |        |  |            |  |   |             |  |       |               |     |  |               |     |   |            |  |      |       | 
|Balance as of December 31, 2004                                         |  |               |       |  |            |  |  |             |  |       |              |     |  |               |    |   |            |  | 88   |       |  |  | 467  |      |  |  | 555  |  
|2005 Activity:                                                          |  |               |        |  |            |  |   |             |  |       |               |     |  |               |     |   |            |  |      |       |  |  |      |      |  |  |      |  
|Net loss  January 1 to January 5 (restated)                            |  |               |        |  |            |  |   |             |  |       |               |     |  |               |     |   |            |  |      |       |  |  | (29  | )(A) |  |  | (29  | )
|                                                                        |  |               |        |  |            |  |   |             |  |       |               |     |  |               |     |   |            |  |      |       | 
|Adjusted Invested equity at spin-off date  January 6                   |  |               |       |  |            |  |  |             |  |       |              |     |  |               |    |   |            |  | 88   |       |  |  | 438  | (B)  |  |  | 526  |  
|Issuance of common stock in connection with the spin-off
    (restated) |  |               | 73,989 |  |            |  |  |             |  |       | 438           |     |  |               |     |   |            |  |      |       |  |  | (438 | )    |  |  |     |  
|Spin settlement and post-closing adjustments (restated)                 |  |               |        |  |            |  |   |             |  |       | 3             | (C) |  |               |     |   |            |  |      |       |  |  |      |      |  |  | 3    |  
|Issuance of common stock in connection with stock plans                 |  |               | 4      |  |            |  |  |             |  |       |               |     |  |               |     |   |            |  |      |       |  |  |      |      |  |  |     |  
|Net income  January 6 to June 30 (restated)                            |  |               |        |  |            |  |   |             |  |       |               |     |  |               | 51  |   |            |  |      |       |  |  |      |      |  |  | 51   |  
|Deferred translation adjustments (restated)                             |  |               |        |  |            |  |   |             |  |       |               |     |  |               |     |   |            |  | (146 | )     |  |  |      |      |  |  | (146 | )
|Change in minimum pension liability (restated)                          |  |               |        |  |            |  |   |             |  |       |               |     |  |               |     |   |            |  | (13  | )     |  |  |      |      |  |  | (13  | )
|Dividends on common shares ($0.18 per common share)                     |  |               |        |  |            |  |   |             |  |       |               |     |  |               | (14 | ) |            |  |      |       |  |  |      |      |  |  | (14  | )
|Dividends on preferred shares of consolidated affiliates                |  |               |        |  |            |  |   |             |  |       | (7            | )   |  |               |     |   |            |  |      |       |  |  |      |      |  |  | (7   | )
|                                                                        |  |               |        |  |            |  |   |             |  |       |               |     |  |               |     |   |            |  |      |       | 
|Balance as of June 30, 2005 (restated)                                  |  |               | 73,993 |  |            |  |  |             |  |       | 434           |     |  |               | 37  |   |            |  | (71  | )     |  |  |     |      |  |  | 400  |  
|                                                                        |  |               |        |  |            |  |   |             |  |       |               |     |  |               |     |   |            |  |      |       | 






|    |                                                            
|--- | -----------------------------------------------------------
|(A) | Refer to Note 1  Background and Basis of
    Presentation.



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) |  | Represents the amount of Owners net investment as of
    January 6, 2005.                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(C) |  | In connection with the spin-off from Alcan, we entered into
    agreements which provide for various post-transaction
    adjustments. These adjustments, for the most part, have been and
    will be reflected as changes to shareholders equity and
    include items such as working capital, pension assets and
    liabilities, and adjustments to opening balance sheet accounts.
    This is further discussed in Note 1  Background
    and Basis of Presentation.



6



---



##### Table of Contents



Novelis Inc.





NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS (unaudited)


(in millions of US$, except where indicated)




|   |                                     
|-- | ------------------------------------
|1. | BACKGROUND AND BASIS OF PRESENTATION



| |           
| | ----------
| | Background



10-K








7



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




Related
Party Disclosures.




| |                             
| | ----------------------------
| | Post-Transaction Adjustments





| |                                     
| | ------------------------------------
| | Agreements between Novelis and Alcan





| |                      
| | ---------------------
| | Basis of Presentation



mark-to mark-to




8



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)








| |                           
| | --------------------------
| | General Corporate Expenses





| |                                      
| | -------------------------------------
| | Pensions and Post-Retirement Benefits





9



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)








| |             
| | ------------
| | Income Taxes





| |                
| | ---------------
| | Cash Management







| |                 
| | ----------------
| | Interest Expense







| |            
| | -----------
| | Derivatives



10



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




| |              
| | -------------
| | Stock Options





| |                   
| | ------------------
| | Earnings Per Share





| |                  
| | -----------------
| | Subsequent Events

10-Q/ 10-Q




|   |                    
|-- | -------------------
|2. | ACCOUNTING POLICIES





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                            
| | ---------------------------
| | Principles of Consolidation



11



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)






| |                    
| | -------------------
| | Debt Issuance Costs





| |                
| | ---------------
| | Dividend Policy





| |                                      
| | -------------------------------------
| | Pensions and Post-Retirement Benefits

Employers Accounting for
Pensions. Employers Accounting for Post-Retirement Benefits Other
than Pensions.




| |                                     
| | ------------------------------------
| | Recently Issued Accounting Standards

Share-Based Payment, Accounting for Stock-Based Compensation Accounting
for Stock-Based Compensation  Transition and
Disclosure.


Accounting for Conditional Asset Retirement
Obligations  an interpretation of FASB Statement
No. 143.


12



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




00-19 Application of EITF Issue
No. 00-19 to
Freestanding Financial Instruments Originally Issued as Employee
Compensation. 00-19, Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock,


Accounting for Early Retirement or
Postemployment Programs with Specific Features (Such As Terms
Specified in Altersteilzeit Early Retirement Arrangements) 05-5). 05-5 05-5 05-5


143-1, Accounting for Electronic Equipment Waste Obligations. 143-1 143-1 Accounting for Asset Retirement Obligations, 143-1 143-1






|   |                                    
|-- | -----------------------------------
|3. | RESTATEMENT OF FINANCIAL STATEMENTS



13



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)








| |   |                                                         
| | - | --------------------------------------------------------
| |  | misapplication of GAAP related to liability recognition;
|
| |  | income tax accounting;                                  
|
| |  | other miscellaneous items; and                          
|
| |  | out-of-period
    adjustments.                          

Misapplication of GAAP related to liability recognition.


Income tax accounting.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Germany deemed disposal of goodwill. In connection
    with our spin-off from Alcan, we entered into an agreement with
    Alcan whereby our Ohle plant agreed to supply pet food
    containers to Alcan through a tolling arrangement. Under German
    tax laws, the effect of shifting from a manufacturing and sale
    arrangement to a tolling arrangement could be treated as a
    deemed disposal of goodwill. If treated as such, we would have
    generated taxable income. However, we failed to record a tax
    provision of $3.0 for the uncertain tax position in the quarter
    ended March 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Currency impacts on intercompany loans. As
    discussed above, an error was made in the accounting for income
    taxes on the currency translations related to intercompany loans
    to our European subsidiaries. We made intercompany loans to
    various European subsidiaries in various functional currencies
    which were other than the U.S. (or Canadian) dollar. For
    accounting purposes, the currency gains/losses, together with
    the tax effects should have been recorded to Other comprehensive
    income. As a Canadian corporation, we file our tax returns in
    Canadian dollars. After the Canadian dollar made significant
    currency movements during the third quarter of 2005, we began to
    analyze the extent to which the currency movement would impact
    our income taxes. During this review, we discovered we had
    incorrectly recorded the tax effects of $4.7 as a reduction to
    Income taxes instead of as a reduction to Other comprehensive
    loss to match the

14



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | treatment of the currency gains/losses. Accordingly, we recorded
    an additional $4.7 in Income taxes for the quarter ended
    March 31, 2005. With the movement in currency gains/losses
    and our tax position for the quarter ended June 30, 2005,
    there was an approximately equal and offsetting decrease of $4.7
    to Income taxes in that period, resulting in a net adjustment
    for the six months ended June 30, 2005 of nil.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Tax treatment of other currency gains/losses. As
    part of our review of currency impacts on intercompany loans
    discussed above, management also identified calculation errors
    in the first and second quarters of 2005 where we incorrectly
    allocated certain currency gains/losses between capital and
    operating income and losses for Canadian income tax purposes,
    which impacted the effective tax rates used in those quarters.
    The correction of the effective tax rates resulted in reduced
    Income taxes of $1.5 in the quarter ended June 30, 2005 and
    an increase to Income taxes of $2.5 for the six months ended
    June 30, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Tax treatment of the currency impact of spin-related loan
    repayments.As of December 31, 2004, we owed
    amounts to Alcan in U.S. dollars. In connection with our
    spin-off from Alcan, we repaid these loans during the three
    months ended March 31, 2005. As the U.S. dollar is the
    functional currency for Novelis Inc., no foreign currency
    transaction losses were recognized for financial reporting
    purposes upon repayment of the loans. However, for Canadian tax
    purposes, there were foreign currency transaction losses treated
    as capital losses. For the three months ended March 31,
    2005, the tax benefit from these foreign currency transaction
    losses were offset by a valuation allowance, as it was more
    likely than not that the benefit of these losses would not be
    realized. In the second quarter of 2005, the tax provision
    should have included a reversal of a portion of that valuation
    allowance against foreign currency transaction gains realized
    during the period. The correction of this error resulted in a
    decrease to Income taxes of $7.3 for the quarter and six months
    ended June 30, 2005.

Other miscellaneous items.


Out-of-period adjustments. 10-Q




Restatement of Cash Flows.


15



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




Reclassifications.




|                                                |                                                                    |         |     |       |        |  |    |      | 
|----------------------------------------------- | ------------------------------------------------------------------ | ------- | --- | ----- | ------ |  | -- | ---- | 
|                                                |                                                                    | 2005    |    
|                                                |                                                                    |         |    
|                                                |                                                                    | Second  |     |       | Six    | 
|Summary of increases (decreases) in Net income: |                                                                    | Quarter |     |       | Months | 
|                                                |                                                                    |         |     |       |        | 
|Net income (loss)  as previously reported      |                                                                    |         | (18 | )     |        |  | 11 |     
|                                                |                                                                    |         |     |       |        | 
|Net adjustments                                 |                                                                    |         |     |       |        |  |    |     
|                                                | Misapplication of GAAP related to liability recognition            |         |     | 3     |        |  |    | 3    | 
|                                                | Errors in income tax accounting                                    |         |     | 15    |        |  |    | 4    | 
|                                                | Out-of-period adjustments                                          |         |     |      |        |  |    | 4    | 
|                                                |                                                                    |         |     |       |        | 
|Total net adjustments                           |                                                                    |         | 18  |       |        |  | 11 |     
|                                                |                                                                    |         |     |       |        | 
|Net income (restated)                           |                                                                    |         |    |       |        |  | 22 |     
|                                                |                                                                    |         |     |       |        | 
|Earnings (loss) per share                       |                                                                    |         |     |       |        |  |    |     
|                                                | Net income (loss) per share  basic  as
    previously reported   |         |     | (0.24 | )      |  |    | 0.15 | 
|                                                | Misapplication of GAAP related to liability recognition            |         |     | 0.04  |        |  |    | 0.04 | 
|                                                | Errors in income tax accounting                                    |         |     | 0.20  |        |  |    | 0.05 | 
|                                                | Out-of-period adjustments                                          |         |     |      |        |  |    | 0.06 | 
|                                                |                                                                    |         |     |       |        | 
|                                                | Effect of restatement adjustments                                  |         |     | 0.24  |        |  |    | 0.15 | 
|                                                |                                                                    |         |     |       |        | 
|                                                | Net income per share  basic (restated)                            |         |     |      |        |  |    | 0.30 | 
|                                                |                                                                    |         |     |       |        | 
|                                                | Net income (loss) per share  diluted  as
    previously reported |         |     | (0.24 | )      |  |    | 0.15 | 
|                                                | Misapplication of GAAP related to liability recognition            |         |     | 0.04  |        |  |    | 0.04 | 
|                                                | Errors in income tax accounting                                    |         |     | 0.20  |        |  |    | 0.05 | 
|                                                | Out-of-period adjustments                                          |         |     |      |        |  |    | 0.06 | 
|                                                |                                                                    |         |     |       |        | 
|                                                | Effect of restatement adjustments                                  |         |     | 0.24  |        |  |    | 0.15 | 
|                                                |                                                                    |         |     |       |        | 
|                                                | Net income per share  diluted (restated)                          |         |     |      |        |  |    | 0.30 | 
|                                                |                                                                    |         |     |       |        | 

16



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)


|                                                        |                                                         |         |     |    |        |  |     |    |  
|------------------------------------------------------- | ------------------------------------------------------- | ------- | --- | -- | ------ |  | --- | -- | -
|                                                        |                                                         | 2005    |    
|                                                        |                                                         |         |    
|                                                        |                                                         | Second  |     |    | Six    | 
|Summary of increases (decreases) in Regional Income(A): |                                                         | Quarter |     |    | Months | 
|                                                        |                                                         |         |     |    |        | 
|Regional Income  as previously reported                |                                                         |         | 140 |    |        |  | 322 |   
|                                                        |                                                         |         |     |    |        | 
|Net adjustments                                         |                                                         |         |     |    |        |  |     |   
|                                                        | Misapplication of GAAP related to liability recognition |         |     | 4  |        |  |     | 4  |  
|                                                        | Other miscellaneous items                               |         |     | (3 | )      |  |     | (5 | )
|                                                        | Out-of-period adjustments                               |         |     |   |        |  |     | (6 | )
|                                                        |                                                         |         |     |    |        | 
|Total net adjustments                                   |                                                         |         | 1   |    |        |  | (7  | ) 
|                                                        |                                                         |         |     |    |        | 
|Regional Income (restated)                              |                                                         |         | 141 |    |        |  | 315 |   
|                                                        |                                                         |         |     |    |        | 






|    |  |                                                                                                                                                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | A discussion of Regional Income and a reconciliation of Regional
    Income to Income before income taxes and other items can be
    found in Note 17  Information by Operating
    Segments to our unaudited condensed consolidated and combined
    financial statements.

|                                                            |  |                |     |  |             |  |            |          |  |  |             |  |  |  |     | 
|----------------------------------------------------------- |  | -------------- | --- |  | ----------- |  | ---------- | -------- |  |  | ----------- |  |  |  | --- | 
|                                                            |  | 2005           |    
|                                                            |  |                |    
|                                                            |  | Second Quarter |     |  | Six Months  | 
|                                                            |  |                |     |  |             | 
|                                                            |  | As             |     |  |             |  | As         |          |  | 
|                                                            |  | Previously     |     |  |             |  | Previously |          |  | 
|Summary of restatement impact on Regional Income by region: |  | Reported       |     |  | As Restated |  |            | Reported |  |  | As Restated | 
|                                                            |  |                |     |  |             |  |            |          |  |  |             | 
|Novelis North America                                       |  |                | 34  |  |             |  | 35         |          |  |  | 91          |  |  |  | 87  | 
|Novelis Europe                                              |  |                | 58  |  |             |  | 55         |          |  |  | 115         |  |  |  | 109 | 
|Novelis Asia                                                |  |                | 29  |  |             |  | 27         |          |  |  | 59          |  |  |  | 57  | 
|Novelis South America                                       |  |                | 19  |  |             |  | 24         |          |  |  | 57          |  |  |  | 62  | 
|                                                            |  |                |     |  |             |  |            |          |  |  |             | 
|Total Regional Income                                       |  |                | 140 |  |             |  | 141        |          |  |  | 322         |  |  |  | 315 | 
|                                                            |  |                |     |  |             |  |            |          |  |  |             | 

17



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)


|                                                                                              |                   |                |       |       |              |  |      |          |   |  |       |       |  
|--------------------------------------------------------------------------------------------- | ----------------- | -------------- | ----- | ----- | ------------ |  | ---- | -------- | - |  | ----- | ----- | -
|                                                                                              |                   | 2005           |      
|                                                                                              |                   |                |      
|                                                                                              |                   | Second Quarter |      
|                                                                                              |                   |                |      
|                                                                                              |                   | As             |       |       |             
|Restatement effects on our condensed consolidated and combined statement                      |                   | Previously     |       |       |              |  | As   |         
|of income:                                                                                    |                   | Reported       |       |       | Restatements |  |      | Restated |  
|                                                                                              |                   |                |       |       |              |  |      |          |  
|Sales and operating revenues                                                                  |                   |                |       |       |              |  |      |          |   |  |       |      
|                                                                                              |  third parties   |                |       | 2,173 |              |  |      | (1       | ) |  |       | 2,172 |  
|                                                                                              |                   |                |       |       |              |  |      |          |  
|                                                                                              |                   |                | 2,173 |       |              |  | (1   | )        |   |  | 2,172 |      
|                                                                                              |                   |                |       |       |              |  |      |          |  
|Costs and expenses                                                                            |                   |                |       |       |              |  |      |          |   |  |       |      
|Cost of sales and operating expenses, excluding depreciation and
    amortization noted below |                   |                |       |       |              |  |      |          |   |  |       |      
|                                                                                              |  third parties   |                |       | 1,968 |              |  |      | (8       | ) |  |       | 1,960 |  
|Depreciation and amortization                                                                 |                   |                | 57    |       |              |  | 1    |          |   |  | 58    |      
|Selling, general and administrative expenses                                                  |                   |                | 76    |       |              |  | 3    |          |   |  | 79    |      
|Research and development expenses                                                             |                   |                | 11    |       |              |  |     |          |   |  | 11    |      
|Other expenses (income)  net                                                                 |                   |                |       |       |              |  |      |          |   |  |       |      
|                                                                                              |  third parties   |                |       | 11    |              |  |      | 2        |   |  |       | 13    |  
|                                                                                              |  related parties |                |       |      |              |  |      | (1       | ) |  |       | (1    | )
|Interest expense                                                                              |                   |                |       |       |              |  |      |          |   |  |       |      
|                                                                                              |  third parties   |                |       | 50    |              |  |      | (1       | ) |  |       | 49    |  
|                                                                                              |                   |                |       |       |              |  |      |          |  
|                                                                                              |                   |                | 2,173 |       |              |  | (4   | )        |   |  | 2,169 |      
|                                                                                              |                   |                |       |       |              |  |      |          |  
|Income before income taxes and other items                                                    |                   |                |      |       |              |  | 3    |          |   |  | 3     |      
|Income taxes                                                                                  |                   |                | 15    |       |              |  | (15  | )        |   |  |      |      
|                                                                                              |                   |                |       |       |              |  |      |          |  
|Income (loss) before other items                                                              |                   |                | (15   | )     |              |  | 18   |          |   |  | 3     |      
|Equity in net income of non-consolidated affiliates                                           |                   |                | 2     |       |              |  |     |          |   |  | 2     |      
|Minority interests in earnings of consolidated affiliates                                     |                   |                | (5    | )     |              |  |     |          |   |  | (5    | )    
|                                                                                              |                   |                |       |       |              |  |      |          |  
|Net income (loss)                                                                             |                   |                | (18   | )     |              |  | 18   |          |   |  |      |      
|                                                                                              |                   |                |       |       |              |  |      |          |  
|Earnings (loss) per share                                                                     |                   |                |       |       |              |  |      |          |   |  |       |      
|Net income (loss) per share  basic                                                           |                   |                | (0.24 | )     |              |  | 0.24 |          |   |  |      |      
|                                                                                              |                   |                |       |       |              |  |      |          |  
|Net income (loss) per share  diluted                                                         |                   |                | (0.24 | )     |              |  | 0.24 |          |   |  |      |      
|                                                                                              |                   |                |       |       |              |  |      |          |  

18



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)


|                                                                                              |                   |            |       |       |              |  |      |          |   |  |       |       |  
|--------------------------------------------------------------------------------------------- | ----------------- | ---------- | ----- | ----- | ------------ |  | ---- | -------- | - |  | ----- | ----- | -
|                                                                                              |                   | 2005       |      
|                                                                                              |                   |            |      
|                                                                                              |                   | Six Months |      
|                                                                                              |                   |            |      
|                                                                                              |                   | As         |       |       |             
|Restatement effects on our condensed consolidated and combined statement                      |                   | Previously |       |       |              |  | As   |         
|of income:                                                                                    |                   | Reported   |       |       | Restatements |  |      | Restated |  
|                                                                                              |                   |            |       |       |              |  |      |          |  
|Sales and operating revenues                                                                  |                   |            |       |       |              |  |      |          |   |  |       |      
|                                                                                              |  third parties   |            |       | 4,291 |              |  |      | (7       | ) |  |       | 4,284 |  
|                                                                                              |                   |            |       |       |              |  |      |          |  
|                                                                                              |                   |            | 4,291 |       |              |  | (7   | )        |   |  | 4,284 |      
|                                                                                              |                   |            |       |       |              |  |      |          |  
|Costs and expenses                                                                            |                   |            |       |       |              |  |      |          |   |  |       |      
|Cost of sales and operating expenses, excluding depreciation and
    amortization noted below |                   |            |       |       |              |  |      |          |   |  |       |      
|                                                                                              |  third parties   |            |       | 3,852 |              |  |      | (8       | ) |  |       | 3,844 |  
|Depreciation and amortization                                                                 |                   |            | 115   |       |              |  | 2    |          |   |  | 117   |      
|Selling, general and administrative expenses                                                  |                   |            | 152   |       |              |  | 12   |          |   |  | 164   |      
|Research and development expenses                                                             |                   |            | 19    |       |              |  |     |          |   |  | 19    |      
|Other expenses (income)  net                                                                 |                   |            |       |       |              |  |      |          |   |  |       |      
|                                                                                              |  third parties   |            |       | (3    | )            |  |      | (8       | ) |  |       | (11   | )
|                                                                                              |  related parties |            |       |      |              |  |      | (1       | ) |  |       | (1    | )
|Interest expense                                                                              |                   |            |       |       |              |  |      |          |   |  |       |      
|                                                                                              |  third parties   |            |       | 94    |              |  |      |         |   |  |       | 94    |  
|                                                                                              |                   |            |       |       |              |  |      |          |  
|                                                                                              |                   |            | 4,229 |       |              |  | (3   | )        |   |  | 4,226 |      
|                                                                                              |                   |            |       |       |              |  |      |          |  
|Income before income taxes and other items                                                    |                   |            | 62    |       |              |  | (4   | )        |   |  | 58    |      
|Income taxes                                                                                  |                   |            | 44    |       |              |  | (14  | )        |   |  | 30    |      
|                                                                                              |                   |            |       |       |              |  |      |          |  
|Income before other items                                                                     |                   |            | 18    |       |              |  | 10   |          |   |  | 28    |      
|Equity in net income of non-consolidated affiliates                                           |                   |            | 4     |       |              |  |     |          |   |  | 4     |      
|Minority interests in earnings of consolidated affiliates                                     |                   |            | (11   | )     |              |  | 1    |          |   |  | (10   | )    
|                                                                                              |                   |            |       |       |              |  |      |          |  
|Net income                                                                                    |                   |            | 11    |       |              |  | 11   |          |   |  | 22    |      
|                                                                                              |                   |            |       |       |              |  |      |          |  
|Earnings per share                                                                            |                   |            |       |       |              |  |      |          |   |  |       |      
|Net income per share  basic                                                                  |                   |            | 0.15  |       |              |  | 0.15 |          |   |  | 0.30  |      
|                                                                                              |                   |            |       |       |              |  |      |          |  
|Net income per share  diluted                                                                |                   |            | 0.15  |       |              |  | 0.15 |          |   |  | 0.30  |      
|                                                                                              |                   |            |       |       |              |  |      |          |  

19



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)


|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |       | 
|------------------------------------------------------- | ----------------- | ------------------- | ----- | ----- | ------------ |  | -------- | -------- | - |  | ----------------- | ----- |  | ------------ | ---- | ---- | - |  | ----- | ----- | 
|                                                        |                   | As of June 30, 2005 |       |       |             
|                                                        |                   |                     |       |       | As           | 
|                                                        |                   | As                  |       |       |              |  | Restated |         
|Restatement and reclassification effects on             |                   | Previously          |       |       |              |  | As       |          |   |  |                   | and   | 
|our condensed consolidated balance sheet:               |                   | Reported            |       |       | Restatements |  |          | Restated |   |  | Reclassifications |       |  | Reclassified |     
|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |     
|ASSETS                                                 
|Current assets                                          |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |      
|Cash and cash equivalents                               |                   |                     | 129   |       |              |  | (2       | )        |   |  | 127               |       |  |              |     |      |   |  | 127   |      
|Trade receivables                                       |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |      
|                                                        |  third parties   |                     |       | 1,030 |              |  |          | 43       |   |  |                   | 1,073 |  |              |      |     |   |  |       | 1,073 | 
|Other receivables                                       |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |      
|                                                        |  third parties   |                     |       | 249   |              |  |          | (193     | ) |  |                   | 56    |  |              |      | (51  | ) |  |       | 5     | 
|                                                        |  related parties |                     |       | 35    |              |  |          |         |   |  |                   | 35    |  |              |      |     |   |  |       | 35    | 
|Prepaid expenses                                        |                   |                     |      |       |              |  |         |          |   |  |                  |       |  |              | 51   |      |   |  | 51    |      
|Inventories                                             |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |      
|                                                        | Aluminum          |                     |       | 962   |              |  |          | 3        |   |  |                   | 965   |  |              |      |     |   |  |       | 965   | 
|                                                        | Raw materials     |                     |       | 18    |              |  |          |         |   |  |                   | 18    |  |              |      |     |   |  |       | 18    | 
|                                                        | Other supplies    |                     |       | 142   |              |  |          |         |   |  |                   | 142   |  |              |      |     |   |  |       | 142   | 
|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |     
|                                                        |                   |                     | 1,122 |       |              |  | 3        |          |   |  | 1,125             |       |  |              |     |      |   |  | 1,125 |      
|Other current assets                                    |                   |                     |      |       |              |  | 154      |          |   |  | 154               |       |  |              |     |      |   |  | 154   |      
|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |     
|Total current assets                                    |                   |                     | 2,565 |       |              |  | 5        |          |   |  | 2,570             |       |  |              |     |      |   |  | 2,570 |      
|Deferred charges and other assets                       |                   |                     | 235   |       |              |  | 25       |          |   |  | 260               |       |  |              | (98  | )    |   |  | 162   |      
|Long-term receivables from related parties              |                   |                     | 82    |       |              |  | (1       | )        |   |  | 81                |       |  |              |     |      |   |  | 81    |      
|Property, plant and equipment, net                      |                   |                     | 2,181 |       |              |  | 13       |          |   |  | 2,194             |       |  |              |     |      |   |  | 2,194 |      
|Investments in non-consolidated affiliates              |                   |                     |      |       |              |  |         |          |   |  |                  |       |  |              | 98   |      |   |  | 98    |      
|Intangible assets                                       |                   |                     | 30    |       |              |  |         |          |   |  | 30                |       |  |              |     |      |   |  | 30    |      
|Goodwill                                                |                   |                     | 248   |       |              |  | (18      | )        |   |  | 230               |       |  |              |     |      |   |  | 230   |      
|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |     
|Total assets                                            |                   |                     | 5,341 |       |              |  | 24       |          |   |  | 5,365             |       |  |              |     |      |   |  | 5,365 |      
|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |     
|                                                       
|LIABILITIES AND SHAREHOLDERS EQUITY                   
|Current liabilities                                     |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |      
|Current portion of long-term debt                       |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |      
|                                                        |  third parties   |                     |       | 3     |              |  |          |         |   |  |                   | 3     |  |              |      |     |   |  |       | 3     | 
|Short-term borrowings                                   |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |      
|                                                        |  third parties   |                     |       | 23    |              |  |          | (1       | ) |  |                   | 22    |  |              |      |     |   |  |       | 22    | 
|Accounts payable, trade                                 |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |      
|                                                        |  third parties   |                     |       | 1,302 |              |  |          | 37       |   |  |                   | 1,339 |  |              |      | (556 | ) |  |       | 783   | 
|                                                        |  related parties |                     |       | 37    |              |  |          |         |   |  |                   | 37    |  |              |      |     |   |  |       | 37    | 
|Accrued expenses                                        |                   |                     |      |       |              |  |         |          |   |  |                  |       |  |              | 435  |      |   |  | 435   |      
|Interest payable                                        |                   |                     |      |       |              |  |         |          |   |  |                  |       |  |              | 51   |      |   |  | 51    |      
|Accrued income taxes                                    |                   |                     |      |       |              |  |         |          |   |  |                  |       |  |              | 41   |      |   |  | 41    |      
|Other current liabilities                               |                   |                     |      |       |              |  |         |          |   |  |                  |       |  |              | 29   |      |   |  | 29    |      
|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |     
|Total current liabilities                               |                   |                     | 1,365 |       |              |  | 36       |          |   |  | 1,401             |       |  |              |     |      |   |  | 1,401 |      
|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |     
|Long-term debt, net of current portion                  |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |      
|                                                        |  third parties   |                     |       | 2,757 |              |  |          |         |   |  |                   | 2,757 |  |              |      |     |   |  |       | 2,757 | 
|Accrued post-retirement benefits                        |                   |                     |      |       |              |  |         |          |   |  |                  |       |  |              | 306  |      |   |  | 306   |      
|Deferred credits and other liabilities                  |                   |                     | 486   |       |              |  | 14       |          |   |  | 500               |       |  |              | (306 | )    |   |  | 194   |      
|Deferred income taxes                                   |                   |                     | 198   |       |              |  | (35      | )        |   |  | 163               |       |  |              |     |      |   |  | 163   |      
|Minority interests in equity of consolidated affiliates |                   |                     | 144   |       |              |  |         |          |   |  | 144               |       |  |              |     |      |   |  | 144   |      
|Shareholders equity                                    |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |      |      |   |  |       |      
|Additional paid-in capital                              |                   |                     | 434   |       |              |  |         |          |   |  | 434               |       |  |              |     |      |   |  | 434   |      
|Retained earnings                                       |                   |                     | 27    |       |              |  | 10       |          |   |  | 37                |       |  |              |     |      |   |  | 37    |      
|Accumulated other comprehensive income (loss)           |                   |                     | (70   | )     |              |  | (1       | )        |   |  | (71               | )     |  |              |     |      |   |  | (71   | )    
|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |     
|Total shareholders equity                              |                   |                     | 391   |       |              |  | 9        |          |   |  | 400               |       |  |              |     |      |   |  | 400   |      
|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |     
|Total liabilities and shareholders equity              |                   |                     | 5,341 |       |              |  | 24       |          |   |  | 5,365             |       |  |              |     |      |   |  | 5,365 |      
|                                                        |                   |                     |       |       |              |  |          |          |   |  |                   |       |  |              |     

20



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)


|                                                                                |  |                                |      |   |              |  |     |          |  |  |      |  
|------------------------------------------------------------------------------- |  | ------------------------------ | ---- | - | ------------ |  | --- | -------- |  |  | ---- | -
|                                                                                |  | Six Months Ended June 30, 2005 |     
|                                                                                |  |                                |     
|                                                                                |  | As                             |      |   |             
|Restatement effects on our condensed consolidated and combined statement        |  | Previously                     |      |   |              |  | As  |         
|of cash flows:                                                                  |  | Reported                       |      |   | Restatements |  |     | Restated | 
|                                                                                |  |                                |      |   |              |  |     |          | 
|Cash and cash equivalents  beginning of period                                 |  |                                | 31   |   |              |  |    |          |  |  | 31   |  
|Net cash provided by operating activities                                       |  |                                | 288  |   |              |  | (57 | )        |  |  | 231  |  
|Net cash provided by investing activities                                       |  |                                | 336  |   |              |  | 67  |          |  |  | 403  |  
|Net cash used in financing activities                                           |  |                                | (522 | ) |              |  | (12 | )        |  |  | (534 | )
|                                                                                |  |                                |      |   |              |  |     |          | 
|Net increase in cash and cash equivalents                                       |  |                                | 102  |   |              |  | (2  | )        |  |  | 100  |  
|Effect of exchange rate changes on cash balances held in foreign
    currencies |  |                                | (4   | ) |              |  |    |          |  |  | (4   | )
|                                                                                |  |                                |      |   |              |  |     |          | 
|Cash and cash equivalents  end of period                                       |  |                                | 129  |   |              |  | (2  | )        |  |  | 127  |  
|                                                                                |  |                                |      |   |              |  |     |          | 



|   |                   
|-- | ------------------
|4. | ACCOUNTING CHANGES



| |                                                 
| | ------------------------------------------------
| | Stock Options and Other Stock-Based Compensation





| |                                            
| | -------------------------------------------
| | Consolidation of Variable Interest Entities

Consolidation of Variable Interest
Entities




21



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




|   |                       
|-- | ----------------------
|5. | RESTRUCTURING PROGRAMS



| |                              
| | -----------------------------
| | 2005 Restructuring Activities





| |                              
| | -----------------------------
| | 2004 Restructuring Activities





| |         
| | --------
| | Pechiney







| |                                    
| | -----------------------------------
| | Other 2004 Restructuring Activities









| |                           
| | --------------------------
| | 2001 Restructuring Program





22



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)








|                                                                            |  |           |     |       |            |  |    |       |  |  |       |   |  |  |     |  
|--------------------------------------------------------------------------- |  | --------- | --- | ----- | ---------- |  | -- | ----- |  |  | ----- | - |  |  | --- | -
|                                                                            |  |           |     | Asset |            |  |    |       | 
|                                                                            |  | Severance |     |       | Impairment |  |    |       |  | 
|                                                                            |  | Costs     |     |       | Provisions |  |    | Other |  |  | Total |  
|                                                                            |  |           |     |       |            |  |    |       |  |  |       |  
|Provision balance as of January 1, 2004                                     |  |           | 19  |       |            |  |   |       |  |  | 15    |   |  |  | 34  |  
|Year Ended December 31, 2004 activity:                                      |  |           |     |       |            |  |    |       |  |  |       |   |  |  |     |  
|Charges (recoveries) recorded in the statement of income                    |  |           | 10  |       |            |  | 8  |       |  |  | (1    | ) |  |  | 17  |  
|Liabilities recorded in the allocation of the Pechiney purchase
    price   |  |           | 19  |       |            |  |   |       |  |  | 4     |   |  |  | 23  |  
|Cash payments  net                                                         |  |           | (14 | )     |            |  |   |       |  |  | (5    | ) |  |  | (19 | )
|Non-cash charges (recoveries)                                               |  |           |    |       |            |  | (8 | )     |  |  | 6     |   |  |  | (2  | )
|                                                                            |  |           |     |       |            |  |    |       |  |  |       |  
|Provision balance as of December 31, 2004                                   |  |           | 34  |       |            |  |   |       |  |  | 19    |   |  |  | 53  |  
|Six Months Ended June 30, 2005 activity (restated):                         |  |           |     |       |            |  |    |       |  |  |       |   |  |  |     |  
|Recoveries recorded in the statement of income (restated)                   |  |           | (3  | )     |            |  |   |       |  |  |      |   |  |  | (3  | )
|Recoveries credited against Goodwill (restated)                             |  |           | (4  | )     |            |  |   |       |  |  |      |   |  |  | (4  | )
|Cash payments  net (restated)                                              |  |           | (12 | )     |            |  |   |       |  |  | (4    | ) |  |  | (16 | )
|Effect of exchange rate changes on ending provision balances
    (restated) |  |           | (3  | )     |            |  |   |       |  |  | (2    | ) |  |  | (5  | )
|                                                                            |  |           |     |       |            |  |    |       |  |  |       |  
|Provision balance as of June 30, 2005 (restated)                            |  |           | 12  |       |            |  |   |       |  |  | 13    |   |  |  | 25  |  
|                                                                            |  |           |     |       |            |  |    |       |  |  |       |  



| |                  
| | -----------------
| | Subsequent Events







23



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)






|   |                           
|-- | --------------------------
|6. | RELATED PARTY TRANSACTIONS

Related Party Disclosures,


|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |   |  |  |     |  
|-------------------------------------------------------------------------------------- |  | ------- | -- | - | ---------- |  | --- | ---- |  |  | ---- | - |  |  | --- | -
|                                                                                       |  | Second  |    |   |           
|                                                                                       |  | Quarter |    |   | Six Months | 
|                                                                                       |  |         |    |   |            | 
|Periods ended June 30                                                                  |  | 2005    |    |   | 2004       |  |     | 2005 |  |  | 2004 |  
|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |  
|Sales and operating revenues                                                           |  |         |    |   |            |  |     |      |  |  |      |   |  |  |     |  
|Alcan(A)                                                                               |  |         |   |   |            |  | 124 |      |  |  |     |   |  |  | 216 |  
|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |  
|Cost of sales and operating expenses                                                   |  |         |    |   |            |  |     |      |  |  |      |   |  |  |     |  
|Alcan(A)                                                                               |  |         |   |   |            |  | 112 |      |  |  |     |   |  |  | 192 |  
|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |  
|Research and development expenses                                                      |  |         |    |   |            |  |     |      |  |  |      |   |  |  |     |  
|Alcan(B)                                                                               |  |         |   |   |            |  | 12  |      |  |  |     |   |  |  | 18  |  
|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |  
|Interest expense                                                                       |  |         |    |   |            |  |     |      |  |  |      |   |  |  |     |  
|Alcan(C)                                                                               |  |         |   |   |            |  | 9   |      |  |  |     |   |  |  | 17  |  
|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |  
|Other expenses (income)  net                                                          |  |         |    |   |            |  |     |      |  |  |      |   |  |  |     |  
|Service fee income(D)                                                                  |  |         |   |   |            |  | (18 | )    |  |  |     |   |  |  | (27 | )
|Service fee expense(E)                                                                 |  |         |   |   |            |  | 10  |      |  |  |     |   |  |  | 19  |  
|Interest income(F)                                                                     |  |         |   |   |            |  | (6  | )    |  |  |     |   |  |  | (11 | )
|Derivatives(G)                                                                         |  |         |   |   |            |  | 36  |      |  |  |     |   |  |  | (8  | )
|Other                                                                                  |  |         | (1 | ) |            |  |    |      |  |  | (1   | ) |  |  | 6   |  
|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |  
|Total other expenses (income)  net arising from
    transactions with Alcan           |  |         | (1 | ) |            |  | 22  |      |  |  | (1   | ) |  |  | (21 | )
|Interest income from Aluminium Norf GmbH                                               |  |         |   |   |            |  | (1  | )    |  |  |     |   |  |  | (1  | )
|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |  
|Total other expenses (income)  net arising from
    transactions with related parties |  |         | (1 | ) |            |  | 21  |      |  |  | (1   | ) |  |  | (22 | )
|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |  
|Purchase of inventory/tolling services                                                 |  |         |    |   |            |  |     |      |  |  |      |   |  |  |     |  
|Aluminium Norf GmbH                                                                    |  |         | 51 |   |            |  | 48  |      |  |  | 102  |   |  |  | 96  |  
|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |  
|Alcan(H)                                                                               |  |         |   |   |            |  | 490 |      |  |  |     |   |  |  | 983 |  
|                                                                                       |  |         |    |   |            |  |     |      |  |  |      |  






|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|(A) |  | We purchase from and sell materials to Alcan in the ordinary
    course of business.

24



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




|    |  |                                                                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) |  | These expenses represent an allocation of research and
    development expenses incurred by Alcan on behalf of Novelis.                                                                                                                                       
|   
|(C) |  | As discussed further below and in Note 12 
    Short-Term Borrowings and Note 13  Long-Term
    Debt, we had various short-term borrowings and long-term debt
    payable to Alcan where interest was charged on both a fixed and
    a floating rate basis.
|   
|(D) |  | Service fee income arises from sales of research and development
    and other corporate services to Alcan.                                                                                                                                                   
|   
|(E) |  | Service fee expense arises from the purchase of corporate
    services from Alcan.                                                                                                                                                                            
|   
|(F) |  | Represents interest income earned on outstanding advances and
    loans to Alcan.                                                                                                                                                                             
|   
|(G) |  | Alcan was the counterparty to most of our metal and currency
    derivatives.                                                                                                                                                                                 
|   
|(H) |  | Alcan is our primary third party supplier of prime and sheet
    ingot. Refer to Note 15  Commitments and
    Contingencies.                                                                                                                                 



|                                       |  |          |    |  |              |  |       | 
|-------------------------------------- |  | -------- | -- |  | ------------ |  | ----- | 
|                                       |  | June 30, |    |  | December 31, | 
|As of                                  |  | 2005     |    |  | 2004         | 
|                                       |  |          |    |  |              | 
|Trade receivables                      |  |          |    |  |              |  |       | 
|Alcan(A)                               |  |          |   |  |              |  | 87    | 
|                                       |  |          |    |  |              | 
|Other receivables                      |  |          |    |  |              |  |       | 
|Alcan(B)                               |  |          |   |  |              |  | 801   | 
|Aluminium Norf GmbH(C)                 |  |          | 35 |  |              |  | 45    | 
|                                       |  |          |    |  |              | 
|                                       |  |          | 35 |  |              |  | 846   | 
|                                       |  |          |    |  |              | 
|Long-term receivables                  |  |          |    |  |              |  |       | 
|Alcan                                  |  |          |   |  |              |  | 2     | 
|Aluminium Norf GmbH(C)                 |  |          | 81 |  |              |  | 102   | 
|                                       |  |          |    |  |              | 
|                                       |  |          | 81 |  |              |  | 104   | 
|                                       |  |          |    |  |              | 
|Current portion of long-term debt      |  |          |    |  |              |  |       | 
|Alcan(D)                               |  |          |   |  |              |  | 290   | 
|                                       |  |          |    |  |              | 
|Short-term borrowings                  |  |          |    |  |              |  |       | 
|Alcan(E)                               |  |          |   |  |              |  | 312   | 
|                                       |  |          |    |  |              | 
|Accounts payable, trade                |  |          |    |  |              |  |       | 
|Alcan(A)                               |  |          |   |  |              |  | 356   | 
|Aluminium Norf GmbH(A)                 |  |          | 37 |  |              |  | 45    | 
|                                       |  |          |    |  |              | 
|                                       |  |          | 37 |  |              |  | 401   | 
|                                       |  |          |    |  |              | 
|Long-term debt, net of current portion |  |          |    |  |              |  |       | 
|Alcan(D)                               |  |          |   |  |              |  | 2,307 | 
|                                       |  |          |    |  |              | 






|    |  |                                                                                                                                                                          
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | We purchase from and sell materials to Alcan and we purchase
    services from an investee accounted for under the equity method,
    in the ordinary course of business.

25



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




|    |  |                                                                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) |  | The balance at December 31, 2004 includes various
    short-term floating rate notes totaling Euro 266 million
    and $55 maturing within one year that were settled by Alcan in
    2005 as part of our spin-off.
|   
|(C) |  | The balances represent current and non-current portions of a
    loan to an investee accounted for under the equity method.                                                                                        
|   
|(D) |  | We had various loans payable to Alcan as of December 31,
    2004 as described in Note 13  Long-Term Debt
    that were repaid in the first quarter of 2005.                                                      
|   
|(E) |  | The balance at December 31, 2004 is comprised of loans due
    to Alcan in various currencies including Euro 193 million
    and GBP 20 million that were repaid in 2005 as part of our
    spin-off.              



|   |                         
|-- | ------------------------
|7. | POST-RETIREMENT BENEFITS







| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) In the U.S., for our employees previously participating
    in the Alcancorp Pension Plan and the Alcan Supplemental
    Executive Retirement Plan, Alcan agreed to recognize up to one
    year of additional service in its plan as long as such employee
    worked for us and we paid to Alcan the normal cost (in the case
    of the Alcancorp Pension Plan) and the current service cost (in
    the case of the Alcan Supplemental Executive Retirement Plan);                               
|
| | b) In the U.K., the sponsorship of the Alusuisse Holdings
    U.K. Ltd Pension Plan was transferred from Alcan to us and
    renamed the Novelis U.K. Pension Plan. No new plan was
    established. Approximately 400 of our employees who previously
    participated in the British Alcan RILA Plan remained in that
    plan for 2005. We are responsible for remitting to Alcan both
    the employee and employer contributions as agreed with the
    trustees of the plan for the 2005 year; and
|
| | c) In Switzerland, we became a participating employer in
    the Alcan Swiss Pension Plans and our employees are
    participating in these plans for up to one year (or longer with
    Alcan approval) provided we make the required pension
    contributions.                                                                                                                                                                                                                                       







| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Novelis Pension Plan (Canada)  The Novelis
    Pension Plan (Canada) provides for pensions calculated on
    service (no cap) and eligible earnings which consist of the
    average annual salary and the short-term incentive award up to
    its target during the 36 consecutive months when they were the
    greatest. The normal form of payment of pensions is a lifetime
    annuity with either a guaranteed minimum of 60 monthly
    payments or a 50% lifetime pension to the surviving spouse.

26



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pension Plan for Officers  The Pension Plan
    for Officers (PPO) provides for pensions calculated on
    service up to 20 years as an officer of Novelis or of Alcan
    and eligible earnings which consist of the excess of the average
    annual salary and target short-term incentive award during the
    60 consecutive months when they were the greatest over eligible
    earnings in the U.S. Plan or the U.K. Plan, as applicable.
    The normal form of payment of pensions is a lifetime annuity.
    Pensions will not be subject to any deduction for social
    security or other offset amounts.





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) New salaried employees (new as of January 1, 2005
    in the U.S. and as of January 1, 2006 in Canada and the
    U.K.) will participate in Defined Contribution
    (DC) retirement plan arrangements rather than Defined
    Benefit (DB) plans. The Novelis board of directors also
    approved the adoption of the Novelis Savings and Retirement Plan
    effective December 1, 2005 replacing the Alcancorp
    Employees Savings Plan (for U.S. salaried employees)
    and adding a retirement account feature to the plan;                                                                                                                                                                                                   
|
| | b) As a result of the spin-off, account balances in the
    Alcancorp Employees Savings Plans (Salaried Plan and
    Hourly Plan) were transferred to the new Novelis Savings and
    Retirement Plan (for salaried employees) and the new Novelis
    Hourly Savings Plan (for hourly union employees). To
    accomplish this transfer, a freeze was placed on all account
    activity including loan requests, withdrawals, distributions,
    fund exchanges (transfers), contribution allocation changes and
    account balance inquiries during the transition period. The
    freeze began on December 2, 2005 and ended during the week
    of December 11, 2005; and                                                         
|
| | c) Pursuant to the Employee Matters Agreement
    (EMA) between Alcan and Novelis, active Novelis transferred
    employees continue to participate in the Alcancorp Pension Plan
    (ACPP) until December 31, 2005. Effective
    October 28, 2005, the Novelis board of directors approved
    the adoption of Novelis DB pension arrangements (to be called
    the Novelis Pension Plan (NPP) in the U.S.) for employees
    who participated in a DB plan with Alcan. Under the terms of the
    EMA and subject to Internal Revenue Service (IRS) requirements,
    assets and liabilities will be transferred from ACPP to the new
    NPP. Similar, but not identical, actions will occur in Canada
    and the U.K. for pensions.





27



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




|                              |  |                  |    |   |                |  |            |         |  |  |            |   |  |      |     |   |      |  |   |      |  |  |      |  |  |  |   |  |  |  |   | 
|----------------------------- |  | ---------------- | -- | - | -------------- |  | ---------- | ------- |  |  | ---------- | - |  | ---- | --- | - | ---- |  | - | ---- |  |  | ---- |  |  |  | - |  |  |  | - | 
|                              |  | Pension Benefits |    |   | Other Benefits | 
|                              |  |                  |    |   |                | 
|                              |  | Second           |    |   |                |  | Second     |         |  | 
|                              |  | Quarter          |    |   | Six Months     |  |            | Quarter |  |  | Six Months |  
|                              |  |                  |    |   |                |  |            |         |  |  |            |  
|Periods ended June 30         |  | 2005             |    |   | 2004           |  |            | 2005    |  |  | 2004       |   |  | 2005 |     |   | 2004 |  |   | 2005 |  |  | 2004 | 
|                              |  |                  |    |   |                |  |            |         |  |  |            |   |  |      |     |   |      |  |   |      |  |  |      | 
|                              |  | (restated)       |    |   |                |  | (restated) |         |  |  |            |   |  |      |     |   |      | 
|Service cost                  |  |                  | 5  |   |                |  | 5          |         |  |  | 9          |   |  |      | 10  |   |      |  | 1 |      |  |  | 1    |  |  |  | 2 |  |  |  | 1 | 
|Interest cost                 |  |                  | 7  |   |                |  | 7          |         |  |  | 15         |   |  |      | 14  |   |      |  | 3 |      |  |  | 1    |  |  |  | 6 |  |  |  | 3 | 
|Expected return on assets     |  |                  | (6 | ) |                |  | (6         | )       |  |  | (12        | ) |  |      | (12 | ) |      |  |  |      |  |  |     |  |  |  |  |  |  |  |  | 
|Amortization                  |  |                  |    |   |                |  |            |         |  |  |            |   |  |      |     |   |      |  |   |      |  |  |      |  |  |  |   |  |  |  |   | 
| actuarial losses            |  |                  | 2  |   |                |  | 1          |         |  |  | 4          |   |  |      | 2   |   |      |  |  |      |  |  |     |  |  |  |  |  |  |  |  | 
| prior service cost          |  |                  | 1  |   |                |  | 1          |         |  |  | 2          |   |  |      | 2   |   |      |  |  |      |  |  |     |  |  |  |  |  |  |  |  | 
|Curtailment/ settlement gains |  |                  |   |   |                |  | (19        | )       |  |  |           |   |  |      | (19 | ) |      |  |  |      |  |  |     |  |  |  |  |  |  |  |  | 
|                              |  |                  |    |   |                |  |            |         |  |  |            |   |  |      |     |   |      |  |   |      |  |  |      | 
|Net periodic benefit cost     |  |                  | 9  |   |                |  | (11        | )       |  |  | 18         |   |  |      | (3  | ) |      |  | 4 |      |  |  | 2    |  |  |  | 8 |  |  |  | 4 | 
|                              |  |                  |    |   |                |  |            |         |  |  |            |   |  |      |     |   |      |  |   |      |  |  |      | 



wind-up




| |                       
| | ----------------------
| | Employer Contributions





28



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




|   |                              
|-- | -----------------------------
|8. | OTHER EXPENSES (INCOME)  NET



|                                                                                               |  |                |     |   |            |  |            |      |  |  |      |   |  |  |     |  
|---------------------------------------------------------------------------------------------- |  | -------------- | --- | - | ---------- |  | ---------- | ---- |  |  | ---- | - |  |  | --- | -
|                                                                                               |  | Second Quarter |     |   | Six Months | 
|                                                                                               |  |                |     |   |            | 
|Periods ended June 30                                                                          |  | 2005           |     |   | 2004       |  |            | 2005 |  |  | 2004 |  
|                                                                                               |  |                |     |   |            |  |            |      |  |  |      |  
|                                                                                               |  | (restated)     |     |   |            |  | (restated) |      |  | 
|Restructuring costs (recoveries)  net                                                         |  |                | (1  | ) |            |  | 2          |      |  |  | (3   | ) |  |  | 2   |  
|Asset impairment provisions                                                                    |  |                | 1   |   |            |  |           |      |  |  | 1    |   |  |  |    |  
|Gain on disposals of fixed assets(A)                                                           |  |                | (10 | ) |            |  |           |      |  |  | (11  | ) |  |  | (6  | )
|Interest income                                                                                |  |                | (2  | ) |            |  | (7         | )    |  |  | (4   | ) |  |  | (13 | )
|Realized gains on monetization of cross-currency interest rate
    swaps                       |  |                | (45 | ) |            |  |           |      |  |  | (45  | ) |  |  |    |  
|Realized gains on derivatives(B)                                                               |  |                | (7  | ) |            |  |           |      |  |  | (15  | ) |  |  |    |  
|Exchange losses                                                                                |  |                | 17  |   |            |  | 2          |      |  |  | 5    |   |  |  | 3   |  
|Unrealized (gains) losses on change in market value and
    reclassification of derivatives(C) |  |                | 59  |   |            |  | 27         |      |  |  | 43   |   |  |  | (15 | )
|Service fee expense  net                                                                      |  |                |    |   |            |  | 1          |      |  |  |     |   |  |  | 1   |  
|Bridge financing commitment fee                                                                |  |                |    |   |            |  |           |      |  |  | 11   |   |  |  |    |  
|Provisions for legal and environmental reserves                                                |  |                |    |   |            |  |           |      |  |  | 6    |   |  |  |    |  
|Other                                                                                          |  |                |    |   |            |  |           |      |  |  |     |   |  |  | 14  |  
|                                                                                               |  |                |     |   |            |  |            |      |  |  |      |  
|                                                                                               |  |                | 12  |   |            |  | 25         |      |  |  | (12  | ) |  |  | (14 | )
|                                                                                               |  |                |     |   |            |  |            |      |  |  |      |  






|    |  |                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | Includes a gain on the sale of land in Asia of ($11).                                                                                                                                                                                                                                                           
|   
|(B) |  | Includes metal, natural gas and energy derivatives.                                                                                                                                                                                                                                                             
|   
|(C) |  | Included in the six months ended June 30, 2005 is $43 in
    pre-tax unrealized losses ($29 after-tax) on the change in
    market value of derivative contracts, primarily with Alcan, for
    the period from January 1 to January 5, 2005, as described
    in Note 1  Background and Basis of Presentation.



|   |             
|-- | ------------
|9. | INCOME TAXES



|                      |  |                |    |   |            |  |            |      |  |  |      |   |  |  |    | 
|--------------------- |  | -------------- | -- | - | ---------- |  | ---------- | ---- |  |  | ---- | - |  |  | -- | 
|                      |  | Second Quarter |    |   | Six Months | 
|                      |  |                |    |   |            | 
|Periods ended June 30 |  | 2005           |    |   | 2004       |  |            | 2005 |  |  | 2004 |  
|                      |  |                |    |   |            |  |            |      |  |  |      |  
|                      |  | (restated)     |    |   |            |  | (restated) |      |  | 
|Current               |  |                | 9  |   |            |  | 27         |      |  |  | 67   |   |  |  | 51 | 
|Deferred              |  |                | (9 | ) |            |  | (4         | )    |  |  | (37  | ) |  |  | 15 | 
|                      |  |                |    |   |            |  |            |      |  |  |      |  
|                      |  |                |   |   |            |  | 23         |      |  |  | 30   |   |  |  | 66 | 
|                      |  |                |    |   |            |  |            |      |  |  |      |  



29



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




|                                           |                                                           |            |    |           |          |  |    |     |   
|------------------------------------------ | --------------------------------------------------------- | ---------- | -- | --------- | -------- |  | -- | --- | --
|                                           |                                                           | Six Months |   
|                                           |                                                           |            |   
|Period ended June 30                       |                                                           | 2005       |    |           | 2005     | 
|                                           |                                                           |            |    |           |          | 
|                                           |                                                           | (restated) |    |           | Tax Rate | 
|                                           |                                                           |            |    | Component |         
|Income before income taxes and other items |                                                           |            | 58 |           |          |  |    |    
|Income taxes at statutory rate             |                                                           |            | 19 |           |          |  | 33 | %  
|Adjustments to the statutory rate:         |                                                           |            |    |           |          |  |    |    
|                                           | Difference in effective tax rates of foreign subsidiaries |            |    | (4        | )        |  |    | (7  | )%
|                                           | Unrealized benefit on losses                              |            |    | 19        |          |  |    | 33  | % 
|                                           | Out-of-period adjustments                                 |            |    | (7        | )        |  |    | (12 | )%
|                                           | Exchange translation items                                |            |    | (4        | )        |  |    | (7  | )%
|                                           | Taxes relating to the spin-off transaction                |            |    | (1        | )        |  |    | (2  | )%
|                                           | Reduced-rate or tax-exempt items                          |            |    | 4         |          |  |    | 7   | % 
|                                           | Other  net                                               |            |    | 4         |          |  |    | 7   | % 
|                                           |                                                           |            |    |           |          | 
|Income taxes at effective rate             |                                                           |            | 30 |           |          |  | 52 | %  
|                                           |                                                           |            |    |           |          | 





|    |                   
|--- | ------------------
|10. | EARNINGS PER SHARE



|                                                   |                                               |                |   |       |            |  |            |       |  |  |      |       |  |  |      |       | 
|-------------------------------------------------- | --------------------------------------------- | -------------- | - | ----- | ---------- |  | ---------- | ----- |  |  | ---- | ----- |  |  | ---- | ----- | 
|                                                   |                                               | Second Quarter |   |       | Six Months | 
|                                                   |                                               |                |   |       |            | 
|Periods ended June 30                              |                                               | 2005           |   |       | 2004       |  |            | 2005  |  |  | 2004 |      
|                                                   |                                               |                |   |       |            |  |            |       |  |  |      |      
|                                                   |                                               | (restated)     |   |       |            |  | (restated) |       |  | 
|Numerator:                                         |                                               |                |   |       |            |  |            |       |  |  |      |       |  |  |      |      
|                                                   | Net income                                    |                |   |      |            |  |            | 45    |  |  |      | 22    |  |  |      | 114   | 
|                                                   |                                               |                |   |       |            |  |            |       |  |  |      |      
|Denominator (number of common shares in millions): |                                               |                |   |       |            |  |            |       |  |  |      |       |  |  |      |      
|                                                   | Weighted average number of outstanding shares |                |   | 73.99 |            |  |            | 73.99 |  |  |      | 73.99 |  |  |      | 73.99 | 
|                                                   | Effect of dilutive shares(A)                  |                |   |      |            |  |            | 0.44  |  |  |      | 0.23  |  |  |      | 0.44  | 
|                                                   |                                               |                |   |       |            |  |            |       |  |  |      |      
|                                                   | Adjusted number of outstanding shares         |                |   | 73.99 |            |  |            | 74.43 |  |  |      | 74.22 |  |  |      | 74.43 | 
|                                                   |                                               |                |   |       |            |  |            |       |  |  |      |      
|Earnings per share  basic (in US$)                |                                               |                |  |       |            |  | 0.61       |       |  |  | 0.30 |       |  |  | 1.54 |      
|                                                   |                                               |                |   |       |            |  |            |       |  |  |      |      
|Earnings per share  diluted (in US$)              |                                               |                |  |       |            |  | 0.61       |       |  |  | 0.30 |       |  |  | 1.53 |      
|                                                   |                                               |                |   |       |            |  |            |       |  |  |      |      






|    |                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Since there was no net income in the second quarter, dilutive
    shares have been excluded from the computation of dilutive
    earnings per share for the second quarter of 2005 since there
    would be no impact.

30



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)








|    |                                                   
|--- | --------------------------------------------------
|11. | SALES AND FORFAITING OF TRADE ACCOUNTS RECEIVABLES







|                                                |  |         |    |  |            |  |    |      |  |  |      |  |  |  |    | 
|----------------------------------------------- |  | ------- | -- |  | ---------- |  | -- | ---- |  |  | ---- |  |  |  | -- | 
|                                                |  | Second  |    |  |           
|                                                |  | Quarter |    |  | Six Months | 
|                                                |  |         |    |  |            | 
|Periods ended June 30                           |  | 2005    |    |  | 2004       |  |    | 2005 |  |  | 2004 | 
|                                                |  |         |    |  |            |  |    |      |  |  |      | 
|Receivables forfaited during the period         |  |         | 73 |  |            |  | 48 |      |  |  | 124  |  |  |  | 95 | 
|                                                |  |         |    |  |            |  |    |      |  |  |      | 
|Expense recognized due to forfaiting activities |  |         | 1  |  |            |  | 1  |      |  |  | 1    |  |  |  | 1  | 
|                                                |  |         |    |  |            |  |    |      |  |  |      | 

|                                  |  |          |    |  |              |  |    | 
|--------------------------------- |  | -------- | -- |  | ------------ |  | -- | 
|                                  |  | June 30, |    |  | December 31, | 
|As of                             |  | 2005     |    |  | 2004         | 
|                                  |  |          |    |  |              | 
|Forfaited receivables outstanding |  |          | 55 |  |              |  | 50 | 
|                                  |  |          |    |  |              | 



|    |                      
|--- | ---------------------
|12. | SHORT-TERM BORROWINGS



31



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)








|    |               
|--- | --------------
|13. | LONG-TERM DEBT

|                                                                          |  |          |       |   |              |  |       |  
|------------------------------------------------------------------------- |  | -------- | ----- | - | ------------ |  | ----- | -
|                                                                          |  | June 30, |       |   | December 31, | 
|As of                                                                     |  | 2005     |       |   | 2004         | 
|                                                                          |  |          |       |   |              | 
|DUE TO RELATED PARTIES                                                    |  |          |       |   |              |  |       |  
|Total related party debt(A)                                               |  |          |      |   |              |  | 2,597 |  
|Less: current portion                                                     |  |          |      |   |              |  | (290  | )
|                                                                          |  |          |       |   |              | 
|Long-term related party debt, net of current portion                      |  |          |      |   |              |  | 2,307 |  
|                                                                          |  |          |       |   |              | 
|DUE TO THIRD PARTIES                                                      |  |          |       |   |              |  |       |  
|Novelis Inc.                                                              |  |          |       |   |              |  |       |  
|Floating rate Term Loan B, due 2012(B)                                    |  |          | 411   |   |              |  |      |  
|7.25% Senior Notes, due 2015(D)                                           |  |          | 1,400 |   |              |  |      |  
|Novelis Corporation                                                       |  |          |       |   |              |  |       |  
|Floating rate Term Loan B, due 2012(B)(C)                                 |  |          | 714   |   |              |  |      |  
|Novelis Switzerland S.A.                                                  |  |          |       |   |              |  |       |  
|Capital lease obligation, due 2020 (Swiss Francs (CHF)
    62 million)(E) |  |          | 48    |   |              |  |      |  
|Novelis Korea Limited(F)                                                  |  |          |       |   |              |  |       |  
|Bank loan, due 2008                                                       |  |          | 50    |   |              |  |      |  
|Bank loan, due 2007                                                       |  |          | 70    |   |              |  | 70    |  
|Bank loan, due 2007 (Korean won (KRW) 40 billion)                         |  |          | 39    |   |              |  | 39    |  
|Bank loan, due 2007 (KRW 25 billion)                                      |  |          | 24    |   |              |  | 24    |  
|Bank loans, due 2005/2011 (KRW 2 billion)                                 |  |          | 2     |   |              |  | 2     |  
|Other                                                                     |  |          |       |   |              |  |       |  
|Other debt, due 2009                                                      |  |          | 2     |   |              |  | 5     |  
|                                                                          |  |          |       |   |              | 
|Total third party debt                                                    |  |          | 2,760 |   |              |  | 140   |  
|Less: current portion                                                     |  |          | (3    | ) |              |  | (1    | )
|                                                                          |  |          |       |   |              | 
|Long-term third party debt, net of current portion                        |  |          | 2,757 |   |              |  | 139   |  
|                                                                          |  |          |       |   |              | 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | All of our related party debt of $2,597 as of December 31,
    2004 was payable to Alcan and was fully repaid in the first
    quarter of 2005. The related party debt was comprised of a
    combination of fixed and floating rate debt of $1,392 and fixed
    rate promissory notes (Alcan Notes) obtained in December 2004 of
    $1,205. The Alcan Notes as of December 31, 2004, plus
    additional Alcan Notes of $170

32



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | issued in January 2005 comprised the $1,375 bridge financing
    provided by Alcan as a result of the spin-off transaction
    described in Note 1  Background and Basis of
    Presentation. The Alcan Notes were repaid in February 2005 with
    the net proceeds from the $1,400
    10-year Senior Notes
    issued in February 2005 (note (D) below).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(B) |  | In connection with the spin-off transaction described in
    Note 1  Background and Basis of Presentation, we
    entered into senior secured credit facilities providing for
    aggregate borrowings of up to $1,800. These facilities consist
    of: (1) a $1,300 seven-year senior secured Term Loan B
    facility, bearing interest at LIBOR plus 1.75% (the effective
    rate at June 30, 2005 was 4.96% assuming the selection of
    3-month LIBOR as our
    borrowing choice), all of which was borrowed on January 10,
    2005, and (2) a $500 five-year multi-currency revolving credit
    facility. The Term Loan B facility consists of an $825 Term
    Loan B in the U.S. and a $475 Term Loan B in Canada.
    The proceeds of the Term Loan B facility were used in
    connection with the spin-off transaction to refinance our
    related party debt with Alcan and to pay related fees and
    expenses. Debt issuance costs incurred in relation to these
    facilities have been recorded in Deferred charges and other
    assets and are being amortized over the life of the related
    borrowing in Interest using the effective interest
    amortization method.
|   
|    |  | The credit agreement relating to the senior secured credit
    facilities includes customary affirmative and negative
    covenants, as well as financial covenants relating to our
    maximum total leverage ratio, minimum interest coverage ratio,
    and minimum fixed charge coverage ratio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | The credit agreement for the $1,800 facility requires that we
    deliver quarterly and audited annual financial statements to the
    lenders within a specified period of time. Due to the
    restatement described in Note 3  Restatement of
    Financial Statements, we sought and obtained the consent from
    our lenders to extend the financial statement filing and
    reporting deadlines under the credit agreement to June 15,
    2006 for our
    Form 10-Q for the
    quarter ended September 30, 2005; to September 29,
    2006 for our
    Form 10-K for the
    year ended December 31, 2005; to October 31, 2006 for
    our Form 10-Q for
    the quarter ended March 31, 2006; to November 30, 2006
    for our Form 10-Q
    for the quarter ending June 30, 2006; and to
    December 29, 2006 for our
    Form 10-Q for the
    quarter ending September 30, 2006.                                                                                                                                                                                                                                                                                                        
|   
|    |  | As of March 31, 2006, we had $855 outstanding under the
    $1,800 facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(C) |  | We have entered into interest rate swaps to fix the interest
    rate on $310 of the Novelis Corporation floating rate Term
    Loan B debt at an effective weighted average interest rate
    of 5.5% for periods of up to three years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(D) |  | On February 3, 2005, we issued $1,400 aggregate principal
    amount of senior unsecured debt securities (Senior Notes). The
    Senior Notes, which were priced at par, bear interest at 7.25%
    and will mature on February 15, 2015. The net proceeds of
    the Senior Notes were used to repay the Alcan Notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Under the indenture that governs the Senior Notes, we are
    subject to certain restrictive covenants applicable to incurring
    additional debt and providing additional guarantees, paying
    dividends beyond certain amounts and making other restricted
    payments, sales and transfer of assets, certain consolidations
    or mergers and certain transactions with affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | The indenture governing the Senior Notes provides that we file a
    registration statement for registered notes to be exchanged for
    the notes privately placed to the original investors. The
    registration statement was declared effective by the SEC on
    September 27, 2005. Under the indenture and the related
    registration rights agreement, we were required to complete an
    exchange offer for the Senior Notes by November 11, 2005.
    We did not complete the exchange offer by that date. As a
    result, we began to accrue additional special interest at a rate
    of 0.25% from November 11, 2005. In addition,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

33



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | the indenture and the registration rights agreement provide that
    the rate of additional special interest increases 0.25% during
    each subsequent 90-day
    period until the exchange offer closes, with the maximum amount
    of additional special interest being 1.00% per year. The
    rate of additional special interest is currently 0.75%. If we do
    not complete the exchange offer by August 8, 2006, the rate
    of additional special interest will increase to 1.00%. We expect
    to file a post-effective amendment to the registration statement
    registering the Senior Notes being issued in the exchange offer
    and complete the exchange as soon as practicable following the
    date we are current on our reporting requirements. We will cease
    paying additional special interest once the exchange offer is
    completed.
|   
|    |  | Under the indenture, we are also required to deliver to the
    trustee a copy of our periodic reports filed with the SEC within
    time periods specified for filing by SEC rules. Our failure to
    timely file our quarterly report on
    Form 10-Q for the
    quarter ended September 30, 2005, our annual report on
    Form 10-K for the
    year ended December 31, 2005 and our quarterly report on
    Form 10-Q for the
    quarter ended March 31, 2006 gave certain rights to the
    trustee and the noteholders under the indenture to accelerate
    maturity of the Senior Notes if they provide us notice and we do
    not cure the breach within 60 days. However, neither the
    trustee nor the noteholders have provided us such a notice to
    date. As a result, we continue to classify the Senior Notes as
    long-term.                  
|   
|(E) |  | In connection with the spin-off, we entered into a fifteen-year
    capital lease agreement with Alcan for assets in Sierre,
    Switzerland, which has an implied interest rate of 7.5% and
    calls for fixed quarterly payments of $1 (1.7 million CHF).
    The following table presents future minimum payments under this
    capital lease as of June 30, 2005:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                                          |  |  |     |  
|--------------------------------------------------------- |  |  | --- | -
|Payments in Year Ended December 31                        |  | 
|                                                          |  | 
|Remainder of 2005                                         |  |  | 3   |  
|2006                                                      |  |  | 5   |  
|2007                                                      |  |  | 5   |  
|2008                                                      |  |  | 5   |  
|2009                                                      |  |  | 6   |  
|2010                                                      |  |  | 6   |  
|Thereafter                                                |  |  | 51  |  
|                                                          |  |  |    
|Total payments                                            |  |  | 81  |  
|Less: interest portion                                    |  |  | (33 | )
|                                                          |  |  |    
|Total capital lease obligation included in long-term debt |  |  | 48  |  
|                                                          |  |  |    



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(F) |  | In 2004, Novelis Korea Limited (Novelis Korea), formerly Alcan
    Taihan Aluminium Limited, entered into a $70 floating rate
    long-term loan which was subsequently swapped for a 4.55% fixed
    rate KRW 73 billion loan and into two long-term floating
    rate loans of $39 (KRW 40 billion) and $24 (KRW
    25 billion), which were then swapped for fixed rate loans
    of 4.80% and 4.45%, respectively. In 2005, interest on another
    loan for $2 (KRW 2 billion) ranged from 3.00% to 4.47%
    (2004: 3.00% to 5.50%). In February 2005, Novelis Korea entered
    into a $50 million floating rate long-term loan which was
    subsequently swapped for a 5.30% fixed rate KRW 51 billion
    loan.





34



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)








|    |                                              
|--- | ---------------------------------------------
|14. | FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS

Related Party Disclosures










| |                                   
| | ----------------------------------
| | Financial Instruments  Fair Value





|    |                              
|--- | -----------------------------
|15. | COMMITMENTS AND CONTINGENCIES





35



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)






| |                  
| | -----------------
| | Legal Proceedings



Reynolds Boat Case.






| |                      
| | ---------------------
| | Environmental Matters





36



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)


clean-up




Oswego North Ponds.




Borgofranco.


37



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)






| |                  
| | -----------------
| | Judicial Deposits









|    |                            
|--- | ---------------------------
|16. | COMPREHENSIVE INCOME (LOSS)



|                                   |                                                                                                                                                                             |                |     |     |            |  |            |      |   |  |      |      |   |  |     |     |  
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | --- | --- | ---------- |  | ---------- | ---- | - |  | ---- | ---- | - |  | --- | --- | -
|                                   |                                                                                                                                                                             | Second Quarter |     |     | Six Months | 
|                                   |                                                                                                                                                                             |                |     |     |            | 
|Periods ended June 30              |                                                                                                                                                                             | 2005           |     |     | 2004       |  |            | 2005 |   |  | 2004 |     
|                                   |                                                                                                                                                                             |                |     |     |            |  |            |      |   |  |      |     
|                                   |                                                                                                                                                                             | (restated)     |     |     |            |  | (restated) |      |   | 
|Net income                         |                                                                                                                                                                             |                |    |     |            |  | 45         |      |   |  | 22   |      |   |  | 114 |    
|Other comprehensive income (loss): |                                                                                                                                                                             |                |     |     |            |  |            |      |   |  |      |      |   |  |     |    
|                                   | Net change in deferred translation adjustments                                                                                                                              |                |     | (93 | )          |  |            | (5   | ) |  |      | (146 | ) |  |     | (44 | )
|                                   | Net change in minimum pension liability, net of taxes of ($1)
    and ($7), respectively, for the second quarter and six months
    ended June 30, 2005 (2004: nil and nil) |                |     |    |            |  |            |     |   |  |      | (13  | ) |  |     |    |  
|                                   |                                                                                                                                                                             |                |     |     |            |  |            |      |   |  |      |     
|Comprehensive income (loss)        |                                                                                                                                                                             |                | (93 | )   |            |  | 40         |      |   |  | (137 | )    |   |  | 70  |    
|                                   |                                                                                                                                                                             |                |     |     |            |  |            |      |   |  |      |     



|                                              |  |            |     |   |              |  |     |  
|--------------------------------------------- |  | ---------- | --- | - | ------------ |  | --- | -
|                                              |  | June 30,   |     |   | December 31, | 
|As of                                         |  | 2005       |     |   | 2004         | 
|                                              |  |            |     |   |              | 
|                                              |  | (restated) |     |   |             
|Deferred translation adjustments              |  |            | (26 | ) |              |  | 120 |  
|Minimum pension liability                     |  |            | (45 | ) |              |  | (32 | )
|                                              |  |            |     |   |              | 
|Accumulated other comprehensive income (loss) |  |            | (71 | ) |              |  | 88  |  
|                                              |  |            |     |   |              | 



|    |                                  
|--- | ---------------------------------
|17. | INFORMATION BY OPERATING SEGMENTS



38



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)








| |                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) BGP excluded restructuring costs related only to major
    corporate-wide acquisitions or initiatives whereas Regional
    Income excludes all restructuring costs;                                                                                                           
|
| | b) BGP included pension costs based on the normal current
    service cost with all actuarial gains, losses and other
    adjustments being included in Intersegment and other. Regional
    Income includes all these pension costs in the applicable
    operating segment; and
|
| | c) BGP excluded certain corporate non-operating costs
    incurred by an operating segment and included such costs in
    Intersegment and other. Under the current management structure,
    these costs remain in the operating segment.                                       









| |                      
| | ---------------------
| | Novelis North America





| |               
| | --------------
| | Novelis Europe





| |             
| | ------------
| | Novelis Asia



39



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




| |                      
| | ---------------------
| | Novelis South America





| |          
| | ---------
| | Corporate





| |                   
| | ------------------
| | Risk Concentration





| |                                       
| | --------------------------------------
| | Selected Segment Operating Information



|                                            |  |         |     |   |            |  |     |      |  |  |      |   |  |  |     |  
|------------------------------------------- |  | ------- | --- | - | ---------- |  | --- | ---- |  |  | ---- | - |  |  | --- | -
|                                            |  | Second  |     |   |           
|                                            |  | Quarter |     |   | Six Months | 
|                                            |  |         |     |   |            | 
|Periods ended June 30                       |  | 2005    |     |   | 2004       |  |     | 2005 |  |  | 2004 |  
|                                            |  |         |     |   |            |  |     |      |  |  |      |  
|Sales and operating revenues  intersegment |  |         |     |   |            |  |     |      |  |  |      |   |  |  |     |  
|Novelis North America                       |  |         |    |   |            |  | 4   |      |  |  | 1    |   |  |  | 5   |  
|Novelis Europe                              |  |         | 9   |   |            |  | 8   |      |  |  | 28   |   |  |  | 13  |  
|Novelis Asia                                |  |         | 2   |   |            |  | 2   |      |  |  | 5    |   |  |  | 4   |  
|Novelis South America                       |  |         | 14  |   |            |  | 19  |      |  |  | 30   |   |  |  | 27  |  
|Eliminations                                |  |         | (25 | ) |            |  | (33 | )    |  |  | (64  | ) |  |  | (49 | )
|                                            |  |         |     |   |            |  |     |      |  |  |      |  
|                                            |  |         |    |   |            |  |    |      |  |  |     |   |  |  |    |  
|                                            |  |         |     |   |            |  |     |      |  |  |      |  



|                                                             |  |                |       |   |            |  |            |      |  |  |       |   |  |  |       |  
|------------------------------------------------------------ |  | -------------- | ----- | - | ---------- |  | ---------- | ---- |  |  | ----- | - |  |  | ----- | -
|                                                             |  | Second Quarter |       |   | Six Months | 
|                                                             |  |                |       |   |            | 
|Periods ended June 30                                        |  | 2005           |       |   | 2004       |  |            | 2005 |  |  | 2004  |  
|                                                             |  |                |       |   |            |  |            |      |  |  |       |  
|                                                             |  | (restated)     |       |   |            |  | (restated) |      |  | 
|Sales and operating revenues  third and related
    parties |  |                |       |   |            |  |            |      |  |  |       |   |  |  |       |  
|Novelis North America                                        |  |                | 841   |   |            |  | 749        |      |  |  | 1,664 |   |  |  | 1,419 |  
|Novelis Europe                                               |  |                | 833   |   |            |  | 767        |      |  |  | 1,639 |   |  |  | 1,523 |  
|Novelis Asia                                                 |  |                | 359   |   |            |  | 298        |      |  |  | 697   |   |  |  | 566   |  
|Novelis South America                                        |  |                | 143   |   |            |  | 117        |      |  |  | 291   |   |  |  | 235   |  
|Adjustments for equity-accounted joint ventures              |  |                | (4    | ) |            |  | (2         | )    |  |  | (7    | ) |  |  | (4    | )
|                                                             |  |                |       |   |            |  |            |      |  |  |       |  
|                                                             |  |                | 2,172 |   |            |  | 1,929      |      |  |  | 4,284 |   |  |  | 3,739 |  
|                                                             |  |                |       |   |            |  |            |      |  |  |       |  

40



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




|                                                                 |  |                |     |   |            |  |            |      |  |  |      |   |  |  |      |  
|---------------------------------------------------------------- |  | -------------- | --- | - | ---------- |  | ---------- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                 |  | Second Quarter |     |   | Six Months | 
|                                                                 |  |                |     |   |            | 
|Periods ended June 30                                            |  | 2005           |     |   | 2004       |  |            | 2005 |  |  | 2004 |  
|                                                                 |  |                |     |   |            |  |            |      |  |  |      |  
|                                                                 |  | (restated)     |     |   |            |  | (restated) |      |  | 
|Regional Income                                                  |  |                |     |   |            |  |            |      |  |  |      |   |  |  |      |  
|Novelis North America                                            |  |                | 35  |   |            |  | 72         |      |  |  | 87   |   |  |  | 141  |  
|Novelis Europe                                                   |  |                | 55  |   |            |  | 56         |      |  |  | 109  |   |  |  | 98   |  
|Novelis Asia                                                     |  |                | 27  |   |            |  | 23         |      |  |  | 57   |   |  |  | 43   |  
|Novelis South America                                            |  |                | 24  |   |            |  | 44         |      |  |  | 62   |   |  |  | 72   |  
|                                                                 |  |                |     |   |            |  |            |      |  |  |      |  
|Total Regional Income                                            |  |                | 141 |   |            |  | 195        |      |  |  | 315  |   |  |  | 354  |  
|Corporate                                                        |  |                | 31  |   |            |  | (10        | )    |  |  | 6    |   |  |  | (20  | )
|Depreciation and amortization                                    |  |                | (58 | ) |            |  | (57        | )    |  |  | (117 | ) |  |  | (118 | )
|Adjustments for equity-accounted joint ventures                  |  |                | (10 | ) |            |  | (10        | )    |  |  | (22  | ) |  |  | (21  | )
|Change in market value of derivatives                            |  |                | (61 | ) |            |  | (27        | )    |  |  | (42  | ) |  |  | 22   |  
|Restructuring, rationalization and impairment recoveries (costs) |  |                | 9   |   |            |  | (2         | )    |  |  | 12   |   |  |  | 5    |  
|Interest expense                                                 |  |                | (49 | ) |            |  | (19        | )    |  |  | (94  | ) |  |  | (38  | )
|                                                                 |  |                |     |   |            |  |            |      |  |  |      |  
|Income before income taxes and other items                       |  |                | 3   |   |            |  | 70         |      |  |  | 58   |   |  |  | 184  |  
|                                                                 |  |                |     |   |            |  |            |      |  |  |      |  



|                                              |  |          |       |   |              |  |       |  
|--------------------------------------------- |  | -------- | ----- | - | ------------ |  | ----- | -
|                                              |  | June 30, |       |   | December 31, | 
|As of                                         |  | 2005     |       |   | 2004         | 
|                                              |  |          |       |   |              | 
|Novelis North America                         |  |          | 1,459 |   |              |  | 1,406 |  
|Novelis Europe                                |  |          | 2,186 |   |              |  | 2,885 |  
|Novelis Asia                                  |  |          | 985   |   |              |  | 954   |  
|Novelis South America                         |  |          | 761   |   |              |  | 779   |  
|Corporate, eliminations and other adjustments |  |          | (26   | ) |              |  | (70   | )
|                                              |  |          |       |   |              | 
|                                              |  |          | 5,365 |   |              |  | 5,954 |  
|                                              |  |          |       |   |              | 



|    |                          
|--- | -------------------------
|18. | SUPPLEMENTARY INFORMATION



|                      |  |                |    |  |            |  |            |      |  |  |      |  |  |  |    | 
|--------------------- |  | -------------- | -- |  | ---------- |  | ---------- | ---- |  |  | ---- |  |  |  | -- | 
|                      |  | Second Quarter |    |  | Six Months | 
|                      |  |                |    |  |            | 
|Periods ended June 30 |  | 2005           |    |  | 2004       |  |            | 2005 |  |  | 2004 | 
|                      |  |                |    |  |            |  |            |      |  |  |      | 
|                      |  | (restated)     |    |  |            |  | (restated) |      |  | 
|Interest paid         |  |                | 23 |  |            |  | 20         |      |  |  | 43   |  |  |  | 38 | 
|Income taxes paid     |  |                | 24 |  |            |  | 24         |      |  |  | 28   |  |  |  | 36 | 

41



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




|    |                            
|--- | ---------------------------
|19. | PREFERRED AND COMMON SHARES



| |                                         
| | ----------------------------------------
| | Authorized and Outstanding Share Capital





|                 |  |            |           |                   |      |  |              |      |  |  |      | 
|---------------- |  | ---------- | --------- | ----------------- | ---- |  | ------------ | ---- |  |  | ---- | 
|                 |  |            |           | Outstanding as of |     
|                 |  |            |           |                   |     
|                 |  |            |           | June 30,          |      |  | December 31, |     
|                 |  | Authorized |           |                   | 2005 |  |              | 2004 | 
|                 |  |            |           |                   |      |  |              |      | 
|Preferred Shares |  |            | Unlimited |                   |      |  | None         |      |  |  | None | 
|Common Shares    |  |            | Unlimited |                   |      |  | 73,993,006   |      |  |  | None | 



| |                                
| | -------------------------------
| | Description of Preferred Shares





| |                             
| | ----------------------------
| | Description of Common Shares









42



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




| |                        
| | -----------------------
| | Shareholder Rights Plan







|    |                                                 
|--- | ------------------------------------------------
|20. | STOCK OPTIONS AND OTHER STOCK-BASED COMPENSATION



| |              
| | -------------
| | Stock Options



Accounting
for Stock-Based Compensation


|                           |  |      |       |  |      |  |       | 
|-------------------------- |  | ---- | ----- |  | ---- |  | ----- | 
|                           |  | 2005 |       |  | 2004 | 
|                           |  |      |       |  |      | 
|Dividend yield(%)          |  |      | 1.56  |  |      |  | 1.85  | 
|Expected volatility(%)     |  |      | 30.30 |  |      |  | 27.87 | 
|Risk-free interest rate(%) |  |      | 3.73  |  |      |  | 4.56  | 
|Expected life (years)      |  |      | 5.47  |  |      |  | 6.00  | 

43



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)




| |                                   
| | ----------------------------------
| | Compensation To Be Settled in Cash



| |                                   
| | ----------------------------------
| | Stock Price Appreciation Unit Plan





| |                                           
| | ------------------------------------------
| | Total Shareholder Returns Performance Plan





| |                                                     
| | ----------------------------------------------------
| | Deferred Share Unit Plan For Non-Executive Directors





| |                                    
| | -----------------------------------
| | Novelis Founders Performance Awards



44



---



##### Table of Contents



Novelis Inc.


NOTES TO THE CONDENSED CONSOLIDATED AND


COMBINED FINANCIAL STATEMENTS
(unaudited)  (Continued)


(in millions of US$, except where indicated)






| |                          
| | -------------------------
| | Deferred Share Agreements





| |                  
| | -----------------
| | Compensation Cost



45



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

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.


OVERVIEW






|                                  |  |                    |       |  |                  |  |       |          |            |  |      |    |  |      |       |  |          |  |       |  |  |  |     |   
|--------------------------------- |  | ------------------ | ----- |  | ---------------- |  | ----- | -------- | ---------- |  | ---- | -- |  | ---- | ----- |  | -------- |  | ----- |  |  |  | --- | --
|                                  |  | Three Months Ended |       |  | Six Months Ended | 
|                                  |  | June 30            |       |  | June 30          | 
|                                  |  |                    |       |  |                  | 
|                                  |  | 2005               |       |  | 2004             |  |       | % Change |            |  | 2005 |    |  | 2004 |       |  | % Change | 
|                                  |  |                    |       |  |                  |  |       |          |            |  |      |    |  |      |       |  |          | 
|                                  |  | (restated)         |       |  |                  |  |       |          | (restated) |  |      |    |  |     
|                                  |  | ($ in millions)    |      
|Sales and operating revenues      |  |                    | 2,172 |  |                  |  | 1,929 |          |            |  | 13   | %  |  |      | 4,284 |  |          |  | 3,739 |  |  |  | 15  | % 
|Regional Income(A)                |  |                    | 141   |  |                  |  | 195   |          |            |  | (28  | )% |  |      | 315   |  |          |  | 354   |  |  |  | (11 | )%
|Net income                        |  |                    |      |  |                  |  | 45    |          |            |  | (100 | )% |  |      | 22    |  |          |  | 114   |  |  |  | (81 | )%
|Rolled products shipments (kt)(B) |  |                    | 730   |  |                  |  | 709   |          |            |  | 3    | %  |  |      | 1,443 |  |          |  | 1,392 |  |  |  | 4   | % 
|Total assets                      |  |                    | 5,365 |  |                  |  | 6,920 |          |            |  | (22  | )% |  |      | 5,365 |  |          |  | 6,920 |  |  |  | (22 | )%
|Free cash flow(C)                 |  |                    | 140   |  |                  |  | (80   | )        |            |  | 275  | %  |  |      | 221   |  |          |  | 29    |  |  |  | 662 | % 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | Regional Income comprises earnings before interest, income
    taxes, equity income, minority interests, depreciation and
    amortization and excludes certain items, such as corporate,
    restructuring costs, impairment and other rationalization
    charges. These items are managed by our corporate head office,
    which focuses on strategy development and oversees governance,
    policy, legal compliance, human resources and finance matters.
    Regional Income is the measure by which management evaluates the
    profitability and financial performance of our operating
    segments. A discussion of Regional Income and a reconciliation
    of Regional Income to Income before income taxes and other items
    can be found under the caption Operating Segment
    Review  Reconciliation.
|   
|    |  | Financial information for the regional groups includes the
    results of certain joint ventures on a proportionately
    consolidated basis, which is consistent with the way the
    regional groups are managed. Under GAAP, these joint ventures
    are accounted for under the equity method. Therefore, in order
    to reconcile Regional Income to Income before income taxes and
    other items, the Regional Income attributable to these joint
    ventures is removed from Regional Income for us and the net
    after-tax results are reported as equity income.                                                                                                                                                                                                                                              
|   
|    |  | The change in the fair market value of derivatives, with the
    exception of unrealized gains or losses on certain cash flow
    hedges, has been removed from individual regional results and is
    shown on a separate line in the reconciliation between total
    Regional Income and Income before income taxes and other items.
    This presentation provides a portrayal of our underlying
    regional group results that is in line with our portfolio
    approach to risk management.                                                                                                                                                                                                                                                                                                                           

46



---



##### Table of Contents





|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) |  | Rolled product shipments include conversion of customer-owned
    metal (tolling) and are presented in kilotonnes (kt). One kt is
    equal to 1,000 metric tonnes. One metric tonne is the equivalent
    of 2,204.6 pounds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(C) |  | Free cash flow (which is a non-GAAP financial measure) consists
    of cash provided by operating activities plus or minus capital
    expenditures, premiums paid and net proceeds on derivatives and
    dividends. Dividends include those paid by our less than
    wholly-owned subsidiaries to their minority shareholders and
    dividends paid by us to our common shareholders. Management
    believes that free cash flow is relevant to investors as it
    provides a measure of the cash generated internally that is
    available for debt service and other value creation
    opportunities. However, free cash flow does not necessarily
    represent cash available for discretionary activities, as
    certain debt service obligations must be funded out of free cash
    flow. We believe the line on our unaudited condensed
    consolidated and combined statement of cash flows entitled
    Cash provided by operating activities is the most
    directly comparable GAAP measure to free cash flow. Our method
    of calculating free cash flow may not be consistent with that of
    other companies. A reconciliation of Cash provided by operating
    activities to free cash flow can be found under the caption
    Liquidity and Capital Resources  Operating
    Activities.

RESTATEMENT


10-Q






| |   |                                                         
| | - | --------------------------------------------------------
| |  | misapplication of GAAP related to liability recognition;
|
| |  | income tax accounting;                                  
|
| |  | other miscellaneous items; and                          
|
| |  | out-of-period
    adjustments.                          



47



---



##### Table of Contents



HIGHLIGHTS


Net Income.


Shipments.


Regional Income.


Financing Activity. year-to


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 2005 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 2004






| |                  
| | -----------------
| | Net Income (loss)





| |   |                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Gain on the monetization of cross-currency interest rate swaps
    of inter-company debt amounting to $37 million in 2005;                                                                          
|
| |  | Gain on the sale of land in our Asia region of $11 million
    in 2005;                                                                                                                             
|
| |  | Unrealized losses on the change in market value of derivatives
    of $40 million in the second quarter of 2005, compared to
    unrealized losses in the second quarter of 2004 of
    $17 million;
|
| |  | Foreign currency balance sheet translation losses of
    $21 million in the second quarter of 2005, mainly in South
    America, compared to a gain of $6 million in the second
    quarter of 2004;
|
| |  | Tax benefits in connection with our spin-off from Alcan of
    $7 million;                                                                                                                          
|
| |  | Gain in the second quarter 2004 of $13 million on a change
    in the pension plan for our South American operations; and                                                                           
|
| |  | As a stand-alone company, our interest expense increased by
    $19 million in the second quarter of 2005 compared to the
    2004 carve-out allocations from Alcan.                                

48



---



##### Table of Contents







| |                                           
| | ------------------------------------------
| | Sales and Operating Revenues and Shipments





| |                   
| | ------------------
| | Costs and Expenses











49



---



##### Table of Contents





| |             
| | ------------
| | Income Taxes



OPERATING SEGMENT REVIEW










| |    |                                                                                                                                                                                                                                                                               
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | BGP excluded restructuring costs related only to major
    corporate-wide acquisitions or initiatives whereas Regional
    Income excludes all restructuring costs;                                                                                                           
|
| | b) | BGP included pension costs based on the normal current service
    cost with all actuarial gains, losses and other adjustments
    being included in Intersegment and other. Regional Income
    includes all these pension costs in the applicable operating
    segment; and
|
| | c) | BGP excluded certain corporate non-operating costs incurred by
    an operating segment and included such costs in Intersegment and
    other. Under the current management structure, these costs
    remain in the operating segment.                                       

50



---



##### Table of Contents





| |               
| | --------------
| | Reconciliation



|                                                                |  |                 |     |   |      |  |     |          |  |  |      |   
|--------------------------------------------------------------- |  | --------------- | --- | - | ---- |  | --- | -------- |  |  | ---- | --
|                                                                |  | Second Quarter  |     |   |     
|                                                                |  |                 |     |   |     
|                                                                |  | 2005            |     |   | 2004 |  |     | % Change | 
|                                                                |  |                 |     |   |      |  |     |          | 
|                                                                |  | (restated)      |     |   |      |  |    
|                                                                |  | ($ in millions) |    
|Regional Income by segment                                      |  |                 |     |   |      |  |     |          |  |  |      |   
|Novelis North America                                           |  |                 | 35  |   |      |  | 72  |          |  |  | (51  | )%
|Novelis Europe                                                  |  |                 | 55  |   |      |  | 56  |          |  |  | (2   | )%
|Novelis Asia                                                    |  |                 | 27  |   |      |  | 23  |          |  |  | 17   | % 
|Novelis South America                                           |  |                 | 24  |   |      |  | 44  |          |  |  | (45  | )%
|                                                                |  |                 |     |   |      |  |     |          | 
|Total Regional Income                                           |  |                 | 141 |   |      |  | 195 |          |  |  | (28  | )%
|Corporate(A)                                                    |  |                 | 31  |   |      |  | (10 | )        |  |  | (410 | )%
|Depreciation and amortization                                   |  |                 | (58 | ) |      |  | (57 | )        |  |  | 2    | % 
|Adjustments for equity-accounted joint ventures(B)              |  |                 | (10 | ) |      |  | (10 | )        |  |  |     |   
|Change in market value of derivatives                           |  |                 | (61 | ) |      |  | (27 | )        |  |  | 126  | % 
|Restructuring rationalization and impairment recoveries (costs) |  |                 | 9   |   |      |  | (2  | )        |  |  | (550 | )%
|Interest expense                                                |  |                 | (49 | ) |      |  | (19 | )        |  |  | 158  | % 
|                                                                |  |                 |     |   |      |  |     |          | 
|Income before income taxes and other items                      |  |                 | 3   |   |      |  | 70  |          |  |  | (96  | )%
|                                                                |  |                 |     |   |      |  |     |          | 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | Corporate includes the $45 million gain realized on the
    monetization of cross-currency interest rate swaps in the second
    quarter of 2005.                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(B) |  | Our financial information for our segments includes the results
    of certain joint ventures on a proportionately consolidated
    basis, which is consistent with the way the business groups are
    managed. However, under GAAP, these joint ventures are accounted
    for under the equity method. Therefore, in order to reconcile to
    income before income taxes and other items, the Regional Income
    of these joint ventures is removed from our Regional Income and
    the net after-tax results are reported as equity income.



| |                      
| | ---------------------
| | Novelis North America



|                                    |  |                 |       |  |      |  |            |          |  |  |     |   
|----------------------------------- |  | --------------- | ----- |  | ---- |  | ---------- | -------- |  |  | --- | --
|                                    |  | Second Quarter  |       |  |     
|                                    |  |                 |       |  |     
|North America                       |  | 2005            |       |  | 2004 |  |            | % Change | 
|                                    |  |                 |       |  |      |  |            |          | 
|                                    |  | (restated)      |       |  |      |  | (restated) |         
|                                    |  | ($ in millions) |      
|Sales and operating revenues        |  |                 | 841   |  |      |  | 749        |          |  |  | 12  | % 
|Regional Income                     |  |                 | 35    |  |      |  | 72         |          |  |  | (51 | )%
|Rolled product shipments (kt)       |  |                 | 283   |  |      |  | 289        |          |  |  | (2  | )%
|Regional Income per tonne ($/tonne) |  |                 | 124   |  |      |  | 249        |          |  |  | (50 | )%
|Depreciation                        |  |                 | 18    |  |      |  | 17         |          |  |  | 6   | % 
|Capital expenditures                |  |                 | 11    |  |      |  | 6          |          |  |  | 83  | % 
|Total assets                        |  |                 | 1,459 |  |      |  | 2,879      |          |  |  | (49 | )%



51



---



##### Table of Contents











| |               
| | --------------
| | Novelis Europe



|                                    |  |                 |       |  |      |  |            |          |  |  |     |   
|----------------------------------- |  | --------------- | ----- |  | ---- |  | ---------- | -------- |  |  | --- | --
|                                    |  | Second Quarter  |       |  |     
|                                    |  |                 |       |  |     
|Europe                              |  | 2005            |       |  | 2004 |  |            | % Change | 
|                                    |  |                 |       |  |      |  |            |          | 
|                                    |  | (restated)      |       |  |      |  | (restated) |         
|                                    |  | ($ in millions) |      
|Sales and operating revenues        |  |                 | 833   |  |      |  | 767        |          |  |  | 9   | % 
|Regional Income                     |  |                 | 55    |  |      |  | 56         |          |  |  | (2  | )%
|Rolled product shipments (kt)       |  |                 | 263   |  |      |  | 256        |          |  |  | 3   | % 
|Regional Income per tonne ($/tonne) |  |                 | 209   |  |      |  | 219        |          |  |  | (5  | )%
|Depreciation                        |  |                 | 25    |  |      |  | 24         |          |  |  | 4   | % 
|Capital expenditures                |  |                 | 15    |  |      |  | 22         |          |  |  | (32 | )%
|Total assets                        |  |                 | 2,186 |  |      |  | 2,372      |          |  |  | (8  | )%







52



---



##### Table of Contents





| |             
| | ------------
| | Novelis Asia



|                                    |  |                 |     |  |      |  |            |          |  |  |    |  
|----------------------------------- |  | --------------- | --- |  | ---- |  | ---------- | -------- |  |  | -- | -
|                                    |  | Second Quarter  |     |  |     
|                                    |  |                 |     |  |     
|Asia                                |  | 2005            |     |  | 2004 |  |            | % Change | 
|                                    |  |                 |     |  |      |  |            |          | 
|                                    |  | (restated)      |     |  |      |  | (restated) |         
|                                    |  | ($ in millions) |    
|Sales and operating revenues        |  |                 | 359 |  |      |  | 298        |          |  |  | 20 | %
|Regional Income                     |  |                 | 27  |  |      |  | 23         |          |  |  | 17 | %
|Rolled product shipments (kt)       |  |                 | 123 |  |      |  | 115        |          |  |  | 7  | %
|Regional Income per tonne ($/tonne) |  |                 | 220 |  |      |  | 200        |          |  |  | 10 | %
|Depreciation                        |  |                 | 12  |  |      |  | 11         |          |  |  | 9  | %
|Capital expenditures                |  |                 | 7   |  |      |  | 4          |          |  |  | 75 | %
|Total assets                        |  |                 | 985 |  |      |  | 948        |          |  |  | 4  | %







| |                      
| | ---------------------
| | Novelis South America



|                                    |  |                 |     |  |      |  |            |          |  |  |     |   
|----------------------------------- |  | --------------- | --- |  | ---- |  | ---------- | -------- |  |  | --- | --
|                                    |  | Second Quarter  |     |  |     
|                                    |  |                 |     |  |     
|South America                       |  | 2005            |     |  | 2004 |  |            | % Change | 
|                                    |  |                 |     |  |      |  |            |          | 
|                                    |  | (restated)      |     |  |      |  | (restated) |         
|                                    |  | ($ in millions) |    
|Sales and operating revenues        |  |                 | 143 |  |      |  | 117        |          |  |  | 22  | % 
|Regional Income                     |  |                 | 24  |  |      |  | 44         |          |  |  | (45 | )%
|Rolled product shipments (kt)       |  |                 | 61  |  |      |  | 49         |          |  |  | 24  | % 
|Regional Income per tonne ($/tonne) |  |                 | 393 |  |      |  | 898        |          |  |  | (56 | )%
|Depreciation                        |  |                 | 11  |  |      |  | 12         |          |  |  | (8  | )%
|Capital expenditures                |  |                 | 5   |  |      |  | 4          |          |  |  | 25  | % 
|Total assets                        |  |                 | 761 |  |      |  | 808        |          |  |  | (6  | )%



53



---



##### Table of Contents







RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
2005 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2004






| |           
| | ----------
| | Net Income





| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Gain on the monetization of cross-currency interest swaps of
    inter-company debt amounting to $37 million in 2005;                                                                 
|
| |  | Gain on the sale of land in Asia of $11 million in 2005;                                                                                                                              
|
| |  | Unrealized losses on the change in market value of derivatives
    of $29 million in the first half of 2005, compared to
    unrealized gains in the first half of 2004 of $8 million;
|
| |  | Foreign currency balance sheet translation losses of
    $21 million in the first half of 2005. The first half of
    2004 recorded a gain of $5 million;                             
|
| |  | Start-up and spin
    related costs amounting to $13 million in 2005;                                                                                                                 
|
| |  | Gain in the first half of 2004 of $13 million on a change
    in our South American pension plan;                                                                                     
|
| |  | As a stand-alone company, our interest expense increased by
    $37 million in the first half of 2005 compared to the 2004
    carve-out allocations from Alcan; and                  
|
| |  | Out-of-period
    adjustments resulting in an increase to net income of
    $2 million.                                                                                               





| |                                           
| | ------------------------------------------
| | Sales and Operating Revenues and Shipments



54



---



##### Table of Contents







| |                   
| | ------------------
| | Costs and Expenses





start-up








| |             
| | ------------
| | Income Taxes

out-of


55



---



##### Table of Contents



OPERATING SEGMENT REVIEW




| |               
| | --------------
| | Reconciliation



|                                           |                                                          |                 |     |      |      |  |     |          |   |  |     |      |   
|------------------------------------------ | -------------------------------------------------------- | --------------- | --- | ---- | ---- |  | --- | -------- | - |  | --- | ---- | --
|                                           |                                                          | Six Months      |     |      |     
|                                           |                                                          |                 |     |      |     
|                                           |                                                          | 2005            |     |      | 2004 |  |     | % Change |  
|                                           |                                                          |                 |     |      |      |  |     |          |  
|                                           |                                                          | (restated)      |     |      |      |  |    
|                                           |                                                          | ($ in millions) |    
|Regional Income by segment                 |                                                          |                 |     |      |      |  |     |          |   |  |     |     
|                                           | Novelis North America                                    |                 |     | 87   |      |  |     | 141      |   |  |     | (38  | )%
|                                           | Novelis Europe                                           |                 |     | 109  |      |  |     | 98       |   |  |     | 11   | % 
|                                           | Novelis Asia                                             |                 |     | 57   |      |  |     | 43       |   |  |     | 33   | % 
|                                           | Novelis South America                                    |                 |     | 62   |      |  |     | 72       |   |  |     | (14  | )%
|                                           |                                                          |                 |     |      |      |  |     |          |  
|Total Regional Income                      |                                                          |                 | 315 |      |      |  | 354 |          |   |  | (11 | )%  
|                                           | Corporate(A)                                             |                 |     | 6    |      |  |     | (20      | ) |  |     | (130 | )%
|                                           | Depreciation and amortization                            |                 |     | (117 | )    |  |     | (118     | ) |  |     | (1   | )%
|                                           | Adjustments for equity-accounted joint ventures(B)       |                 |     | (22  | )    |  |     | (21      | ) |  |     | 5    | % 
|                                           | Change in market value of derivatives                    |                 |     | (42  | )    |  |     | 22       |   |  |     | (291 | )%
|                                           | Restructuring, rationalization and impairment recoveries |                 |     | 12   |      |  |     | 5        |   |  |     | 140  | % 
|                                           | Interest expense                                         |                 |     | (94  | )    |  |     | (38      | ) |  |     | (147 | )%
|                                           |                                                          |                 |     |      |      |  |     |          |  
|Income before income taxes and other items |                                                          |                 | 58  |      |      |  | 184 |          |   |  | (68 | )%  
|                                           |                                                          |                 |     |      |      |  |     |          |  






|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Corporate includes the $45 million gain realized on the
    monetization of cross-currency interest rate swaps in the second
    quarter of 2005.



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) |  | Our financial information for our segments includes the results
    of certain joint ventures on a proportionately consolidated
    basis, which is consistent with the way the business groups are
    managed. However, under GAAP, these joint ventures are accounted
    for under the equity method. Therefore, in order to reconcile to
    income before income taxes and other items, the Regional Income
    of these joint ventures is removed from our Regional Income and
    the net after-tax results are reported as equity income.



| |                      
| | ---------------------
| | Novelis North America



|                                    |  |                 |       |  |      |  |            |          |  |  |     |   
|----------------------------------- |  | --------------- | ----- |  | ---- |  | ---------- | -------- |  |  | --- | --
|                                    |  | Six Months      |       |  |     
|                                    |  |                 |       |  |     
|North America                       |  | 2005            |       |  | 2004 |  |            | % Change | 
|                                    |  |                 |       |  |      |  |            |          | 
|                                    |  | (restated)      |       |  |      |  | (restated) |         
|                                    |  | ($ in millions) |      
|Sales and operating revenues        |  |                 | 1,664 |  |      |  | 1,419      |          |  |  | 17  | % 
|Regional Income                     |  |                 | 87    |  |      |  | 141        |          |  |  | (38 | )%
|Rolled product shipments (kt)       |  |                 | 567   |  |      |  | 563        |          |  |  | 1   | % 
|Regional Income per tonne ($/tonne) |  |                 | 153   |  |      |  | 250        |          |  |  | (39 | )%
|Depreciation                        |  |                 | 36    |  |      |  | 34         |          |  |  | 6   | % 
|Capital expenditures                |  |                 | 23    |  |      |  | 17         |          |  |  | 35  | % 
|Total assets                        |  |                 | 1,459 |  |      |  | 2,879      |          |  |  | (49 | )%



56



---



##### Table of Contents





out-of






| |               
| | --------------
| | Novelis Europe



|                                    |  |                 |       |  |      |  |            |          |  |  |     |   
|----------------------------------- |  | --------------- | ----- |  | ---- |  | ---------- | -------- |  |  | --- | --
|                                    |  | Six Months      |       |  |     
|                                    |  |                 |       |  |     
|Europe                              |  | 2005            |       |  | 2004 |  |            | % Change | 
|                                    |  |                 |       |  |      |  |            |          | 
|                                    |  | (restated)      |       |  |      |  | (restated) |         
|                                    |  | ($ in millions) |      
|Sales and operating revenues        |  |                 | 1,639 |  |      |  | 1,523      |          |  |  | 8   | % 
|Regional Income                     |  |                 | 109   |  |      |  | 98         |          |  |  | 11  | % 
|Rolled product shipments (kt)       |  |                 | 516   |  |      |  | 505        |          |  |  | 2   | % 
|Regional Income per tonne ($/tonne) |  |                 | 211   |  |      |  | 194        |          |  |  | 9   | % 
|Depreciation                        |  |                 | 51    |  |      |  | 52         |          |  |  | (2  | )%
|Capital expenditures                |  |                 | 22    |  |      |  | 32         |          |  |  | (31 | )%
|Total assets                        |  |                 | 2,186 |  |      |  | 2,372      |          |  |  | (8  | )%







57



---



##### Table of Contents





| |             
| | ------------
| | Novelis Asia



|                                    |  |                 |     |  |      |  |            |          |  |  |    |  
|----------------------------------- |  | --------------- | --- |  | ---- |  | ---------- | -------- |  |  | -- | -
|                                    |  | Six Months      |     |  |     
|                                    |  |                 |     |  |     
|Asia                                |  | 2005            |     |  | 2004 |  |            | % Change | 
|                                    |  |                 |     |  |      |  |            |          | 
|                                    |  | (restated)      |     |  |      |  | (restated) |         
|                                    |  | ($ in millions) |    
|Sales and operating revenues        |  |                 | 697 |  |      |  | 566        |          |  |  | 23 | %
|Regional Income                     |  |                 | 57  |  |      |  | 43         |          |  |  | 33 | %
|Rolled product shipments (kt)       |  |                 | 237 |  |      |  | 223        |          |  |  | 6  | %
|Regional Income per tonne ($/tonne) |  |                 | 241 |  |      |  | 193        |          |  |  | 25 | %
|Depreciation                        |  |                 | 25  |  |      |  | 23         |          |  |  | 9  | %
|Capital expenditures                |  |                 | 10  |  |      |  | 8          |          |  |  | 25 | %
|Total assets                        |  |                 | 985 |  |      |  | 948        |          |  |  | 4  | %







| |                      
| | ---------------------
| | Novelis South America



|                                    |  |                 |     |  |      |  |            |          |  |  |     |   
|----------------------------------- |  | --------------- | --- |  | ---- |  | ---------- | -------- |  |  | --- | --
|                                    |  | Six Months      |     |  |     
|                                    |  |                 |     |  |     
|South America                       |  | 2005            |     |  | 2004 |  |            | % Change | 
|                                    |  |                 |     |  |      |  |            |          | 
|                                    |  | (restated)      |     |  |      |  | (restated) |         
|                                    |  | ($ in millions) |    
|Sales and operating revenues        |  |                 | 291 |  |      |  | 235        |          |  |  | 24  | % 
|Regional Income                     |  |                 | 62  |  |      |  | 72         |          |  |  | (14 | )%
|Rolled product shipments (kt)       |  |                 | 123 |  |      |  | 101        |          |  |  | 22  | % 
|Regional Income per tonne ($/tonne) |  |                 | 504 |  |      |  | 713        |          |  |  | (29 | )%
|Depreciation                        |  |                 | 22  |  |      |  | 24         |          |  |  | (8  | )%
|Capital expenditures                |  |                 | 8   |  |      |  | 7          |          |  |  | 14  | % 
|Total assets                        |  |                 | 761 |  |      |  | 808        |          |  |  | (6  | )%





58



---



##### Table of Contents



year-to out-of


LIQUIDITY AND CAPITAL RESOURCES






| |                     
| | --------------------
| | Operating Activities



|                                              |  |                 |     |   |      |  |      |  
|--------------------------------------------- |  | --------------- | --- | - | ---- |  | ---- | -
|                                              |  | Six Months      |    
|                                              |  |                 |    
|Free Cash Flow                                |  | 2005            |     |   | 2004 | 
|                                              |  |                 |     |   |      | 
|                                              |  | (restated)      |     |   |     
|                                              |  | ($ in millions) |    
|Net income                                    |  |                 | 22  |   |      |  | 114  |  
|Unrealized losses (gains) on derivatives      |  |                 | 43  |   |      |  | (15  | )
|Other non-cash income items(A)                |  |                 | (2  | ) |      |  | 127  |  
|Increase (decrease) in interest payable       |  |                 | 48  |   |      |  |     |  
|Increase in accrued income taxes              |  |                 | 22  |   |      |  | 8    |  
|Other changes in assets and liabilities(B)    |  |                 | 98  |   |      |  | (143 | )
|                                              |  |                 |     |   |      | 
|Net cash provided by operating activities     |  |                 | 231 |   |      |  | 91   |  
|Dividends                                     |  |                 | (21 | ) |      |  | (3   | )
|Premiums paid and net proceeds on derivatives |  |                 | 70  |   |      |  |     |  
|Capital expenditures                          |  |                 | (59 | ) |      |  | (59  | )
|                                              |  |                 |     |   |      | 
|Free cash flow(C)                             |  |                 | 221 |   |      |  | 29   |  
|                                              |  |                 |     |   |      | 
|Ending cash balance                           |  |                 | 127 |   |      |  | 28   |  
|                                              |  |                 |     |   |      | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Other non-cash income items comprise: Depreciation and
    amortization, Deferred income taxes, Write-off and amortization
    of debt issue costs, Provision for uncollectible accounts, Gains
    from sale of fixed assets, Equity in net income of
    non-consolidated affiliates, Provision for asset impairments,
    Stock option compensation and realized losses (gains) on
    derivatives.



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) |  | Other changes in assets and liabilities comprise: increases or
    decreases in Accounts receivable (third and related parties),
    Prepaid expenses, Inventories, Other current assets, Accounts
    payable trade (third and related parties), Accrued expenses,
    Deferred charges and other assets, Accrued post-retirement
    benefits, Deferred credits and other liabilities and other
    items  net.                                                                                                                                                                                                                                                                                                                                                   
|   
|(C) |  | Free cash flow (which is a non-GAAP measure) consists of cash
    provided by operating activities plus or minus capital
    expenditures, premiums paid and net proceeds on derivatives and
    dividends. Dividends include those paid by our less than
    wholly-owned subsidiaries to their minority shareholders and
    dividends to our common shareholders. Management believes that
    free cash flow is relevant to investors as it provides a measure
    of the cash generated internally that is available for debt
    service and other value creation opportunities. However, free
    cash flow does not necessarily represent cash available for
    discretionary activities, as certain debt service obligations
    must be funded out of free

59



---



##### Table of Contents



| |  |                                                                                                                                                                                                                                                                                                                                         
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cash flow. We believe the line on our unaudited condensed
    consolidated and combined statement of cash flows entitled
    Cash provided by operating activities is the most
    directly comparable measure to free cash flow. Our method of
    calculating free cash flow may not be consistent with that of
    other companies.







| |                     
| | --------------------
| | Investing Activities



|                                      |  |                 |     |   |      |  |            |          |  |  |    |   
|------------------------------------- |  | --------------- | --- | - | ---- |  | ---------- | -------- |  |  | -- | --
|                                      |  | Six Months      |     |   |     
|                                      |  |                 |     |   |     
|Capital Expenditures and Depreciation |  | 2005            |     |   | 2004 |  |            | % Change | 
|                                      |  |                 |     |   |      |  |            |          | 
|                                      |  | (restated)      |     |   |      |  | (restated) |         
|                                      |  | ($ in millions) |    
|Capital expenditures                  |  |                 | 59  |   |      |  | 59         |          |  |  |   |   
|Depreciation and amortization expense |  |                 | 117 |   |      |  | 118        |          |  |  | (1 | )%
|Capital reinvestment rate(A)          |  |                 | 50  | % |      |  | 50         | %        |  |  |    |   






|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(A) | Capital expenditures as a percentage of depreciation and
    amortization expense.





| |                     
| | --------------------
| | Financing Activities

year-to


10-year




60



---



##### Table of Contents



3-month
















10-K




| |                                       
| | --------------------------------------
| | Restatement Effects on Debt Agreements

10-Q 10-K 10-Q




61



---



##### Table of Contents



10-Q 10-K 10-Q 10-Q 10-Q




90-day


10-Q 10-K 10-Q


COMMODITY PRICE RISKS










62



---



##### Table of Contents



CONTRACTUAL OBLIGATIONS


3-5


10-K,


ACCOUNTING POLICIES


10-K


RECENTLY ISSUED ACCOUNTING STANDARDS


Share-Based Payment, Accounting for Stock-Based
Compensation Accounting for
Stock-Based Compensation  Transition and
Disclosure.


Accounting for Conditional Asset Retirement
Obligations  an interpretation of FASB Statement
No. 143.


00-19 Application of EITF Issue
No. 00-19 to
Freestanding Financial Instruments Originally Issued as Employee
Compensation. 00-19, Accounting for Derivative Financial


63



---



##### Table of Contents



Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock,


Accounting for Early Retirement or
Postemployment Programs with Specific Features (Such As Terms
Specified in Altersteilzeit Early Retirement Arrangements) 05-5). 05-5 05-5 05-5


143-1, Accounting for Electronic Equipment Waste Obligations. 143-1 143-1 Accounting for Asset Retirement Obligations, 143-1 143-1




SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND
MARKET DATA






64



---



##### Table of Contents







| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | continuing obligations and other relationships resulting from
    our spin-off from Alcan;                                                                   
|
| |  | 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 price) or other raw materials we use;                               
|
| |  | fluctuations in the supply of, and prices for, energy in the
    areas in which we maintain production facilities;                                           
|
| |  | our ability to access financing for future capital requirements;                                                                                             
|
| |  | changes in the relative values of various currencies;                                                                                                        
|
| |  | factors affecting our operations, such as litigation, 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;                                                                                                                      
|
| |  | changes to and volatility of metal prices;                                                                                                                   
|
| |  | our ability to improve and maintain effective internal control
    over financial reporting and disclosure controls and procedures
    in the future;        
|
| |  | our ability to properly account for adjustments made to arrive
    at our opening balance sheet as of January 6, 2005;                                       
|
| |  | changes in market value of derivatives;                                                                                                                      
|
| |  | the effectiveness of our hedging activities, including our
    internal used beverage can (UBC) and smelter hedges;                                          
|
| |  | cyclical demand and pricing within the principal markets for our
    products as well as seasonality in certain of our
    customers industries; and        
|
| |  | changes in government regulations, particularly those affecting
    environmental, health or safety compliance.                                              

S-4,







|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures about Market
    Risk

(in millions of US$, except foreign currency denominations
and LME prices)




65



---



##### Table of Contents



Interest Rates


10-K








10-K




66



---



##### Table of Contents



Foreign Currency Derivatives




|                                             |                       |                                       |     |         |      |  |     |      |  |      |      |      |          |        |   |      |        |  |    |       |  |  |     |  |  |  |    |   | 
|-------------------------------------------- | --------------------- | ------------------------------------- | --- | ------- | ---- |  | --- | ---- |  | ---- | ---- | ---- | -------- | ------ | - | ---- | ------ |  | -- | ----- |  |  | --- |  |  |  | -- | - | 
|                                             |                       |                                       |     |         |      |  |     |      |  | 2009 |      |      | Total    |        |   |     
|                                             |                       |                                       |     |         |      |  |     |      |  | and  |      |      | Notional |        |   | Fair |       
|                                             |                       | 2005                                  |     |         | 2006 |  |     | 2007 |  |      | 2008 |      |          | Beyond |   |      | Amount |  |    | Value | 
|                                             |                       |                                       |     |         |      |  |     |      |  |      |      |      |          |        |   |      |        |  |    |       | 
|                                             |                       | (Notional amounts in millions of US$) |    
|FORWARD CONTRACTS                            |                       |                                       |     |         |      |  |     |      |  |      |      |      |          |        |   |      |        |  |    |       |  |  |     |  |  |  |    |  
|To purchase USD against the foreign currency |                       |                                       |     |         |      |  |     |      |  |      |      |      |          |        |   |      |        |  |    |       |  |  |     |  |  |  |    |  
|CHF Notional Amount                          |                       |                                       | 12  |         |      |  | 11  |      |  |      | 2    |      |          |        | 2 |      |        |  | 1  |       |  |  | 28  |  |  |  | (1 | )
|                                             | Average contract rate |                                       |     | 1.28    |      |  |     | 1.35 |  |      |      | 1.29 |          |        |   | 1.26 |        |  |    | 1.24  |  |  |     |  |  |  |    |   | 
|To sell USD against the foreign currency     |                       |                                       |     |         |      |  |     |      |  |      |      |      |          |        |   |      |        |  |    |       |  |  |     |  |  |  |    |  
|CAD Notional Amount                          |                       |                                       | 2   |         |      |  |    |      |  |      |     |      |          |        |  |      |        |  |   |       |  |  | 2   |  |  |  |   |  
|                                             | Average contract rate |                                       |     | 1.26    |      |  |     |     |  |      |      |     |          |        |   |     |        |  |    |      |  |  |     |  |  |  |    |   | 
|CHF Notional Amount                          |                       |                                       | 16  |         |      |  |    |      |  |      |     |      |          |        |  |      |        |  |   |       |  |  | 16  |  |  |  |   |  
|                                             | Average contract rate |                                       |     | 1.28    |      |  |     |     |  |      |      |     |          |        |   |     |        |  |    |      |  |  |     |  |  |  |    |   | 
|KRW Notional Amount                          |                       |                                       | 58  |         |      |  |    |      |  |      |     |      |          |        |  |      |        |  |   |       |  |  | 58  |  |  |  | (1 | )
|                                             | Average contract rate |                                       |     | 1,011.5 |      |  |     |     |  |      |      |     |          |        |   |     |        |  |    |      |  |  |     |  |  |  |    |   | 
|To purchase EUR against the foreign currency |                       |                                       |     |         |      |  |     |      |  |      |      |      |          |        |   |      |        |  |    |       |  |  |     | 
|GBP Notional Amount                          |                       |                                       | 53  |         |      |  | 3   |      |  |      | 2    |      |          |        |  |      |        |  | 33 |       |  |  | 91  |  |  |  | (1 | )
|                                             | Average contract rate |                                       |     | 0.68    |      |  |     | 0.72 |  |      |      | 0.74 |          |        |   |     |        |  |    | 0.74  |  |  |     |  |  |  |    |   | 
|CAD Notional Amount                          |                       |                                       | 2   |         |      |  |    |      |  |      |     |      |          |        |  |      |        |  |   |       |  |  | 2   |  |  |  |   |  
|                                             | Average contract rate |                                       |     | 1.52    |      |  |     |     |  |      |      |     |          |        |   |     |        |  |    |      |  |  |     |  |  |  |    |   | 
|USD Notional Amount                          |                       |                                       | 13  |         |      |  |    |      |  |      |     |      |          |        |  |      |        |  |   |       |  |  | 13  |  |  |  |   |  
|                                             | Average contract rate |                                       |     | 1.22    |      |  |     |     |  |      |      |     |          |        |   |     |        |  |    |      |  |  |     |  |  |  |    |   | 
|To sell EUR against the foreign currency     |                       |                                       |     |         |      |  |     |      |  |      |      |      |          |        |   |      |        |  |    |       |  |  |     |  |  |  |    |  
|GBP Notional Amount                          |                       |                                       | 66  |         |      |  | 16  |      |  |      |     |      |          |        |  |      |        |  |   |       |  |  | 82  |  |  |  | 2  |  
|                                             | Average contract rate |                                       |     | 0.68    |      |  |     | 0.71 |  |      |      |     |          |        |   |     |        |  |    |      |  |  |     |  |  |  |    |   | 
|CHF Notional Amount                          |                       |                                       | 14  |         |      |  | 8   |      |  |      | 4    |      |          |        | 4 |      |        |  | 3  |       |  |  | 33  |  |  |  | (1 | )
|                                             | Average contract rate |                                       |     | 1.52    |      |  |     | 1.50 |  |      |      | 1.46 |          |        |   | 1.44 |        |  |    | 1.43  |  |  |     |  |  |  |    |   | 
|USD Notional Amount                          |                       |                                       | 202 |         |      |  | 128 |      |  |      | 76   |      |          |        |  |      |        |  | 5  |       |  |  | 411 |  |  |  | 9  |  
|                                             | Average contract rate |                                       |     | 1.25    |      |  |     | 1.25 |  |      |      | 1.27 |          |        |   |     |        |  |    | 1.13  |  |  |     |  |  |  |    |   | 
|To purchase GBP against the foreign currency |                       |                                       |     |         |      |  |     |      |  |      |      |      |          |        |   |      |        |  |    |       |  |  |     | 
|CHF Notional Amount                          |                       |                                       | 7   |         |      |  |    |      |  |      |     |      |          |        |  |      |        |  |   |       |  |  | 7   |  |  |  |   |  
|                                             | Average contract rate |                                       |     | 2.23    |      |  |     |     |  |      |      |     |          |        |   |     |        |  |    |      |  |  |     |  |  |  |    |   | 
|USD Notional Amount                          |                       |                                       | 46  |         |      |  | 2   |      |  |      | 2    |      |          |        | 1 |      |        |  |   |       |  |  | 51  |  |  |  | (1 | )
|                                             | Average contract rate |                                       |     | 1.82    |      |  |     | 1.79 |  |      |      | 1.79 |          |        |   | 1.79 |        |  |    |      |  |  |     |  |  |  |    |   | 
|To sell GBP against the foreign currency     |                       |                                       |     |         |      |  |     |      |  |      |      |      |          |        |   |      |        |  |    |       |  |  |     |  |  |  |    |  
|CHF Notional Amount                          |                       |                                       | 8   |         |      |  |    |      |  |      |     |      |          |        |  |      |        |  |   |       |  |  | 8   |  |  |  |   |  
|                                             | Average contract rate |                                       |     | 2.16    |      |  |     |     |  |      |      |     |          |        |   |     |        |  |    |      |  |  |     |  |  |  |    |   | 
|USD Notional Amount                          |                       |                                       | 32  |         |      |  |    |      |  |      |     |      |          |        |  |      |        |  |   |       |  |  | 32  |  |  |  | 1  |  
|                                             | Average contract rate |                                       |     | 1.84    |      |  |     |     |  |      |      |     |          |        |   |     |        |  |    |      |  |  |     |  |  |  |    |   | 



67



---



##### Table of Contents



10-K


Derivative Commodity Contracts











|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Restatement


10-Q/ 10-Q/ 10-Q/ 10-Q 10-Q 10-K 10-Q




Evaluation of disclosure controls and procedures


10-Q, 13a-15(e) 15d-15(e) 10-Q,


68



---



##### Table of Contents



10-Q 8-K 10-Q


10-Q/


Material weaknesses




Internal Control-Integrated Framework






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lack of sufficient resources in our accounting and finance
    organization. We lacked a sufficient complement of personnel
    with a level of financial reporting expertise commensurate with
    our financial reporting requirements, which resulted in our not
    maintaining effective controls over the financial statement
    close and reporting process. Specifically, as a result of our
    separation from Alcan, which involved a series of complex
    transactions, including corporate restructurings and refinancing
    activities, we lacked sufficient resources to properly perform
    the quarterly financial statement close processes, including the
    review of certain account reconciliations and financial
    statement preparation and disclosures. Further, we did not
    maintain an effective internal audit function. Following our
    separation from Alcan, there was a lack of leadership of the
    internal audit function and lack of independence of internal
    audit personnel from the finance and accounting function due to
    the lines of reporting, which impacted the effectiveness of the
    monitoring of our internal control over financial reporting.
    This control deficiency contributed to the material weaknesses
    discussed below.
|
| |  | Inadequate monitoring of non-routine and non-systematic
    transactions. We did not have effective controls in place to
    monitor and accurately record non-routine and non-systematic
    transactions. Specifically, the accounting for the spin-related
    capital and debt transactions required to form Novelis was
    not adequately monitored to ensure that these transactions were
    appropriately accounted for in accordance with GAAP. This
    control deficiency primarily affected Additional paid-in
    capital, Deferred translation adjustments and Income taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

69



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Accounting for accrued expenses. We did not maintain
    effective controls over the completeness and accuracy of certain
    of our accrued liabilities and related expense accounts, in
    particular, the ongoing monitoring of developments affecting our
    accrued liabilities. Specifically, lines of communication
    between our internal legal department and external counsel in
    Brazil were inadequate to timely identify and accurately report
    new developments in legal proceedings to ensure they were
    accounted for in accordance with GAAP. In addition, we did not
    maintain effective controls to ensure that liabilities related
    to Brazilian labor claims were accurately presented and
    appropriately reviewed to ensure recognition in the proper
    period in accordance with GAAP. These matters primarily affected
    Deferred credits and other liabilities, Cost of sales and
    operating expenses and Other expenses (income)  net.                      
|
| |  | Accounting for income taxes. We did not maintain
    effective controls over the completeness, accuracy, presentation
    and disclosure of our accounting for income taxes, including the
    determination of income tax expense, income taxes payable and
    deferred income tax assets and liabilities. Specifically, we did
    not maintain effective controls to (1) timely record
    additional income taxes related to the deemed disposal of
    goodwill, (2) account for income taxes on the currency
    translations related to intercompany loans to our European
    subsidiaries, (3) ensure that proper allocation of currency
    gains/losses between capital and operating were used in
    calculating the quarterly effective tax rate, and
    (4) account for the income taxes on the currency impact of
    spin-related loan repayments. This control deficiency affected
    Income taxes, Accrued income taxes, Deferred income taxes and
    Accumulated other comprehensive income.
|
| |  | Accounting for certain derivative transactions. We did
    not maintain effective controls over the evaluation,
    documentation and accounting for certain derivative
    transactions, including transactions that we attempted to
    qualify for hedge accounting, in compliance with GAAP, which
    affected the accounting for Cost of sales and operating
    expenses, Other expenses (income)  net, Other
    comprehensive income (loss) and related balance sheet accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



10-Q/


Remediation efforts






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Efforts to strengthen accounting and finance
    department through additional professional staff. We have
    hired a number of additional professional staff over the past
    several months with the skills and experience needed for a
    global public company of our size and complexity, including an
    individual with expertise in and responsibility for derivative
    accounting. We will continue to seek to strengthen our
    accounting and finance department and strive to appropriately
    balance the allocation of full-time staff and consultants. In
    addition, our global tax director will be relocating from Europe
    to our corporate headquarters in Atlanta, Georgia, in the third
    quarter of 2006 to strengthen our tax reporting at the corporate
    and regional levels. The development of adequate corporate level
    accounting and finance oversight is still ongoing. We are still
    recruiting accounting and finance personnel and do

70



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | not yet have permanent resources in place sufficient to close
    our books without significant reliance on third-party
    contractors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | 2. Hiring of chief internal auditor. In January
    2006, a new chief internal auditor was hired. The new chief
    internal auditor reports to our Audit Committee and has been
    charged with the responsibility of improving the overall
    effectiveness of the internal audit function. In addition, the
    new chief internal auditor has been charged with overseeing our
    Section 404 evaluation of internal control over financial
    reporting, which will include evaluating and recommending
    improvements in the existing system of internal control at both
    the entity and business group level and establishing a mechanism
    to monitor the effectiveness of internal controls on an ongoing
    basis.                                    
|
| | 3. Use of outside consultants and advisors. While we
    ultimately intend to reduce our reliance on outside consultants,
    for the near term we have engaged additional outside consultants
    and advisors to assist management in oversight and preparation
    of our financial statements, periodic reports filed with the SEC
    and related matters. As we strengthen our accounting and finance
    department, we intend to transition more of these functions to
    full-time staff.                                                                                                                                                                                                                                                                         
|
| | 4. Increased communication internally and with outside
    advisors. We have increased communication by and among
    senior management, external advisors and other third parties
    relevant to the disclosure process. Specifically, the chief
    executive officer meets weekly with his management team to
    review operational developments and he receives written
    departmental reports from his executive team monthly. The board
    of directors receives timely and regular updates on issues of
    importance. The chief executive officer also prepares a monthly
    report to the board of directors highlighting operational and
    financial results which is also distributed to his executive
    team.                                        
|
| | 5. Centralized accounting and finance group. We
    began in May 2005 to relocate the corporate financial
    consolidation group, which includes key accounting and finance
    personnel, to Atlanta, Georgia, with our executive officers and
    other key corporate level functions, to improve coordination of
    our financial reporting processes. The relocation process was
    completed in July 2005.                                                                                                                                                                                                                                                                                                                                                          
|
| | 6. Enhanced efforts to identify non-routine
    transactions. We have initiated monthly meetings to identify
    non-routine transactions and their related accounting treatment
    at an early stage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 7. Disclosure controls and procedures improvements.
    With respect to the preparation of periodic reports to be filed
    with the SEC, we have instituted more regular meetings of key
    personnel involved in the process and developed detailed
    checklists and timetables with appropriate responsibilities and
    structural processes. In addition, we are utilizing a system of
    uniform document management (e.g., numbering, dating, and
    red-lining drafts) and improved coordination of the drafting
    process with respect to our earnings releases and periodic
    reports.                                                                                                                                                                   
|
| | 8. Corporate level review. Several corporate level
    accounting and finance review practices have been implemented to
    improve oversight into regional accounting issues, including a
    global review of balance sheet accounts requiring judgment and
    estimates, reconciliation of Additional paid-in capital accounts
    and Deferred translation adjustments and global reconciliation
    of movements in the fair market value of derivatives. We have
    also implemented enhanced reporting procedures within our legal,
    accounting and finance departments to improve the timeliness and
    effectiveness of reporting of legal matters (and the details
    surrounding our legal proceedings) through our accounting and
    finance department.





71



---



##### Table of Contents



Changes in internal control over financial reporting and
related matters


10-Q/A




72



---



##### Table of Contents






PART II. OTHER INFORMATION







|        |          
|------- | ---------
|Item 6. | Exhibits.

|            |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 3  | .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 Senior Notes, dated as of
    February 3, 2005, between Novelis, 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 Novelis, 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))
|           
|            | 10 | .1          |  | Deferred Share Agreement, dated as of July 1, 2002, between
    Alcan Corporation and Martha Finn Brooks (incorporated by
    reference to Exhibit 10.1 to the Form 8-K filed by
    Novelis Inc. on August 1, 2005 (File No. 001-32312))                                                                                                                                                                                     
|           
|            | 10 | .2          |  | Amendment to Deferred Share Agreement, dated as of July 27,
    2005, between Novelis Inc. and Martha Finn Brooks (incorporated
    by reference to Exhibit 10.2 to the Form 8-K filed by
    Novelis Inc. on August 1, 2005 (File No. 001-32312))                                                                                                                                                                            
|           
|            | 11 |             |  | Computation of per share earnings (provided in Note 10 to
    the Notes to the Unaudited Condensed Consolidated and Combined
    Financial Statements included in this report under the caption
    Earnings Per Share)                                                                                                                                                                                                     
|           
|            | 31 | .1          |  | Certificate of the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                      
|           
|            | 31 | .2          |  | Certificate of the Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                      
|           
|            | 32 | .1          |  | Certificate of the Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                   
|           
|            | 32 | .2          |  | Certification of the Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                 

73



---



##### Table of Contents



SIGNATURES






| |             
| | ------------
| | NOVELIS INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ Geoffrey P. Batt

| |                              
| | -----------------------------
| |                              
| | Geoffrey P. Batt             
| | Chief Financial Officer      
| | (Principal Financial Officer)



| |     |                     
| | --- | --------------------
| | By: | /s/ Jo-Ann Longworth

| |                             
| | ----------------------------
| |                             
| | Jo-Ann Longworth            
| | Principal Accounting Officer



74



---



##### Table of Contents



EXHIBIT INDEX


|            |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 3  | .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 Senior Notes, dated as of
    February 3, 2005, between Novelis, 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 Novelis, 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))
|           
|            | 10 | .1          |  | Deferred Share Agreement, dated as of July 1, 2002, between
    Alcan Corporation and Martha Finn Brooks (incorporated by
    reference to Exhibit 10.1 to the Form 8-K filed by
    Novelis Inc. on August 1, 2005) (File No. 001-32312)                                                                                                                                                                                     
|           
|            | 10 | .2          |  | Amendment to Deferred Share Agreement, dated as of July 27,
    2005, between Novelis Inc. and Martha Finn Brooks (incorporated
    by reference to Exhibit 10.2 to the Form 8-K filed by
    Novelis Inc. on August 1, 2005) (File No. 001-32312)                                                                                                                                                                            
|           
|            | 11 |             |  | Computation of per share earnings (provided in Note 10 to
    the Notes to the Unaudited Condensed Consolidated and Combined
    Financial Statements included in this report under the caption
    Earnings Per Share)                                                                                                                                                                                                     
|           
|            | 31 | .1          |  | Certificate of the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                      
|           
|            | 31 | .2          |  | Certificate of the Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                      
|           
|            | 32 | .1          |  | Certificate of the Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                   
|           
|            | 32 | .2          |  | Certification of the Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                 

75