##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    March 31, 2007oro

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

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

(I.R.S. employer
    identification number)3399 Peachtree Road NE,
    Suite 1500
    Atlanta, Georgia

30326(Address of principal executive
    offices)

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




---



##### 



TABLE OF
    CONTENTS
  PART I.


FINANCIAL
    INFORMATIONItem 1.


Financial
    StatementsCondensed
    Consolidated Statements of Operations and Comprehensive Loss
    (unaudited) Three Months Ended March 31, 2007 and
    March 31, 2006


2Condensed
    Consolidated Balance Sheets (unaudited)
    As of March 31, 2007 and December 31, 2006


3Condensed
    Consolidated Statements of Cash Flows (unaudited)
    Three Months Ended March 31, 2007 and March 31,
    2006


4Condensed
    Consolidated Statement of Shareholders Equity
    (unaudited)
    Three Months Ended March 31, 2007


5Notes to the
    Condensed Consolidated Financial Statements
    (unaudited)


6Item 2.


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


43Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


63Item 4.


Controls and
    Procedures


67PART II.


OTHER
    INFORMATIONItem 1.


Legal
    Proceedings


69Item 6.


Exhibits


71EX-31.1 SECTION 302 CERTIFICATION OF THE PEOEX-31.2 SECTION 302 CERTIFICATION OF THE PFOEX-32.1 SECTION 906 CERTIFICATION OF THE PEOEX-32.2 SECTION 906 CERTIFICATION OF THE PFO   1




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  Novelis
    Inc.
  CONDENSED
    CONSOLIDATED STATEMENTS OF OPERATIONS AND
 COMPREHENSIVE LOSS (unaudited)
 (in millions, except per share amounts)
  Three Months EndedMarch 31,2007


2006Net sales

$
2,630


$
2,319Cost of goods sold (exclusive of
    depreciation and amortization shown below)


2,447



2,135Selling, general and
    administrative expenses


99



92Depreciation and amortization


58



58Research and development expenses


8



9Restructuring charges 
    net


9



1Impairment charges on long-lived
    assets


8



Interest expense and amortization
    of debt issuance costs  net


50



48Equity in net income of
    non-consolidated affiliates


(3
)


(3
)Other (income)
    expenses  net


9



(49
)2,685



2,291Income (loss) before provision for
    taxes on income (loss) and minority interests share


(55
)


28Provision for taxes on income
    (loss)


7



102Loss before minority
    interests share


(62
)


(74
)Minority interests share


(2
)


Net loss


(64
)


(74
)Other comprehensive
    income  net of taxCurrency translation adjustment


11



37Change in fair value of effective
    portion of hedges  net


3



Postretirement benefit plans:Amortization of net actuarial loss


1



Change in minimum pension liability






(7
)Other comprehensive
    income  net of tax


15



30Comprehensive loss

$
(49
)

$
(44
)Loss per share:Net loss per share 
    basic and diluted

$
(0.85
)

$
(1.00
)Dividends per common
    share

$



$
0.09    2




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##### Table of Contents



Novelis
    Inc.
  CONDENSED
    CONSOLIDATED BALANCE SHEETS (unaudited)
 (in
    millions, except number of shares)
  March 31,


December 31,2007


2006ASSETSCurrent assetsCash and cash equivalents

$
128


$
73Accounts receivable (net of
    allowances of $29 in both 2007 and 2006) third parties


1,350



1,321 related parties


25



21Inventories


1,491



1,391Prepaid expenses and other current
    assets


39



42Current portion of fair value of
    derivative instruments


92



106Deferred income tax assets


19



9Total current assets


3,144



2,963Property, plant and
    equipment  net


2,098



2,143Goodwill


239



236Intangible assets  net


20



20Investment in and advances to
    non-consolidated affiliates


153



150Fair value of derivative
    instruments  net of current portion


55



44Deferred income tax assets


102



76Other long-term assets third parties


105



101 related parties


54



59Total assets

$
5,970


$
5,792LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt

$
143


$
144Short-term borrowings


245



133Accounts payable third parties


1,614



1,542 related parties


49



44Accrued expenses and other current
    liabilities


480



508Deferred income tax liabilities


73



61Total current
    liabilities


2,604



2,432Long-term debt  net of
    current portion


2,157



2,158Deferred income tax liabilities


103



81Accrued postretirement benefits


427



425Other long-term liabilities


352



3435,643



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


152



158Shareholders
    equityPreferred stock, no par value;
    unlimited number of first preferred and second preferred shares
    authorized; none issued and outstanding






Common stock, no par value;
    unlimited number of shares authorized; 75,357,660 and
    74,140,335 shares issued and outstanding as of
    March 31, 2007 and December 31, 2006, respectively






Additional paid-in capital


428



398Accumulated deficit


(263
)


(198
)Accumulated other comprehensive
    income (loss)


10



(5
)Total shareholders
    equity


175



195Total liabilities and
    shareholders equity

$
5,970


$
5,792    3




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##### Table of Contents



Novelis
    Inc.
  CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 (in
    millions)
  Three Months EndedMarch 31,2007


2006OPERATING ACTIVITIESNet loss

$
(64
)

$
(74
)Adjustments to determine net cash
    (used in) provided by operating activities:Depreciation and amortization


58



58Net gain on change in fair value of
    derivative instruments


(30
)


(54
)Deferred income taxes


(9
)


82Amortization of debt issuance costs


2



2Provision for uncollectible
    accounts receivable






2Equity in net income of
    non-consolidated affiliates


(3
)


(3
)Minority interests share


2



Impairment charges on long-lived
    assets


8



Share-based compensation


2



1Gain on sales of businesses,
    investments and assets  net






14Changes in assets and liabilities
    (net of effects from acquisitions and divestitures):Accounts receivable third parties


(25
)


(87
) related parties






(1
)Inventories


(95
)


(140
)Prepaid expenses and other current
    assets


3



(15
)Other long-term assets


(5
)


(1
)Accounts payable third parties


73



284 related parties


5



1Accrued expenses and other current
    liabilities


(22
)


1Accrued postretirement benefits


4



13Other long-term liabilities


9



12Net cash (used in) provided by
    operating activities


(87
)


95INVESTING ACTIVITIESCapital expenditures


(24
)


(21
)Disposal of business  net






(7
)Proceeds from sales of assets






2Changes to investment in and
    advances to non-consolidated affiliates


1



2Proceeds from loans
    receivable  net  related parties


1



7Net proceeds from settlement of
    derivative instruments


24



71Net cash provided by investing
    activities


2



54FINANCING ACTIVITIESPrincipal repayments


(1
)


(112
)Short-term borrowings 
    net


113



6Dividends common shareholders






(7
) minority interests






(13
)Debt issuance costs






(1
)Proceeds from the exercise of
    employee stock options


27



Windfall tax benefit on share-based
    compensation


1



Net cash provided by (used in)
    financing activities


140



(127
)Net increase in cash and cash
    equivalents


55



22Effect of exchange rate changes
    on cash balances held in foreign currencies






2Cash and cash
    equivalents  beginning of period


73



100Cash and cash
    equivalents  end of period

$
128


$
124Supplemental disclosures of cash
    flow information:Interest paid

$
84


$
76Income taxes paid


18



12    4




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##### Table of Contents



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





OtherCommon Stock


Paid-in


Accumulated


ComprehensiveShares


Amount


Capital


Deficit


Income (Loss)


TotalBalance as of December 31,
    2006


74,140,335


$



$
398


$
(198
)

$
(5
)

$
195Adjustment for uncertain tax
    positions














(1
)






(1
)2007 Activity:Net loss














(64
)






(64
)Issuance of common stock from the
    exercise of employee stock options


1,217,325







27











27Share-based compensation










2











2Currency translation adjustment


















11



11Change in fair value of effective
    portion of hedges  net


















3



3Postretirement benefit plans:Amortization of net actuarial loss


















1



1Windfall tax benefit on
    share-based compensation










1











1Balance as of March 31,
    2007


75,357,660


$



$
428


$
(263
)

$
10


$
175    5




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##### Table of Contents



Novelis
    Inc.
  NOTES
    TO THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS (unaudited)
  1.
    Business
    and Summary of Significant Accounting Policies  Organization
    and Description of Business
      Form 10-K
  Rule 10-01 Regulation S-X.
      Recently
    Issued Accounting Standards
  The Fair Value
    Option for Financial Assets and Financial Liabilities
 6




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Fair Value Measurements Disclosures about Fair Value of Financial
    Instruments.
  Fair Value Measurements
    2.
    Potential
    Acquisition of Novelis Common Stock      and/or Hart-Scott-Rodino
   7




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
      Other (income)
    expenses  net
  3.
    Disposal
    of Business  Other (income)
    expenses  net
  4.
    Restructuring
    Programs    Restructuring charges  net
  Other ExitSeverance Reserves


Related


TotalCorporate


Total


Reserves


RestructuringEurope


and Other


Severance


Europe


ReservesBalance as of December 31,
    2006

$
14


$
1


$
15


$
19


$
34Provisions
    (recoveries)  net


9







9







9Cash payments


(4
)


(1
)


(5
)


(1
)


(6
)Adjustments  other


(1
)






(1
)






(1
)Balance as of March 31,
    2007

$
18


$



$
18


$
18


$
36  8




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  5.
    Inventories    March 31, 2007


December 31, 2006Finished goods

$
369


$
404Work in process


359



283Raw materials


684



626Supplies


128



1261,540



1,439Allowances


(49
)


(48
)Inventories

$
1,491


$
1,391   6.
    Property,
    Plant and Equipment    March 31, 2007


December 31, 2006Land and property rights

$
97


$
97Buildings


895



894Machinery and equipment


4,691



4,6735,683



5,664Accumulated depreciation and
    amortization


(3,674
)


(3,608
)2,009



2,056Construction in progress


89



87Property, plant and
    equipment  net

$
2,098


$
2,143   7.
    Investment
    in and Advances to Non-Consolidated Affiliates and Related Party
    Transactions    OwnershipAffiliate Name

Ownership Structure

PercentageAluminium Norf GmbH

Corporation


50
%Consorcio Candonga

Unincorporated Joint Venture


50
%EuroNorca Partners

General Partnership


50
%MiniMRF LLC

Limited Liability Company


50
%Deutsche Aluminium Verpackung
    Recycling GmbH

Corporation


30
%France Aluminium Recyclage S.A.

Public Limited Company


20
%  9




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
        Three Months Ended March 31,2007


2006Net sales

$
127


$
132Costs, expenses and provisions for
    taxes on income


122



124Net income

$
5


$
8     Three Months Ended March 31,2007


2006Purchases of tolling services,
    electricity and inventoriesAluminium Norf GmbH (A)

$
61


$
52Consorcio Candonga (B)


3



3Petrocoque S.A. Industria e
    Comercio (C)


N/A



1     (A)
    
    We purchase tolling services (the conversion of customer-owned
    metal) from Aluminium Norf GmbH.(B)
    
    We purchase electricity from Consorcio Candonga for our
    operations in South America.(C)
    
    We purchase calcined-coke from Petrocoque S.A. Industria e
    Comercio (Petrocoque) for use in our smelting operations in
    South America. As previously discussed, we sold our interest in
    Petrocoque in November 2006. They are not considered a related
    party in 2007.    March 31, 2007


December 31, 2006Accounts receivable (A)

$
25


$
21Other long-term receivables (A)


54



59Accounts payable (B)


49



44     (A)
    
    The balances represent current and non-current portions of a
    loan due from Aluminium Norf GmbH.(B)
    
    We purchase tolling services from Aluminium Norf GmbH and
    electricity from Consorcio Candonga. 10




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   8.
    Accrued
    Expenses and Other Current Liabilities    March 31, 2007


December 31, 2006Accrued compensation and benefits

$
138


$
130Accrued settlement of legal claim


39



39Accrued interest payable


24



56Accrued income taxes


9



17Current portion of fair value of
    derivative instruments


33



42Other current liabilities


237



224Accrued expenses and other current
    liabilities

$
480


$
508   9.
    Long-Term
    Debt    Interest


March 31,


December 31,Rates(A)


2007


2006Novelis Inc.Floating rate Term Loan B,
    due 2012


7.61
%(B)

$
259


$
2597.25% Senior Notes, due 2015


7.25
%


1,400



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


7.61
%(B)


449



449Novelis Switzerland
    S.A.Capital lease obligation, due 2020
    (Swiss francs (CHF) 56 million)


7.50
%


46



47Capital lease obligation, due 2011
    (CHF 4 million)


2.49
%


4



4Novelis Korea LimitedBank loan, due 2007


4.55
%


70



70Bank loan, due 2007 (Korean won
    (KRW) 40 billion)


4.80
%


42



43Bank loan, due 2007 (KRW
    25 billion)


4.45
%


27



27Bank loans, due 2008 through 2011
    (KRW 1 billion)


4.01
%(C)


1



1OtherOther debt, due 2007 through 2012


2.45
%(C)


2



2Total debt






2,300



2,302Less: current portion






(143
)


(144
)Long-term debt  net
    of current portion





$
2,157


$
2,158     (A)
    
    Interest rates are as of March 31, 2007 and exclude the
    effects of amortization of debt issuance costs.(B)
    
    The interest rate for the Floating rate Term Loan B
    includes an increased applicable margin in effect through
    March 31, 2008 and excludes the effect of any related
    interest rate swaps, as discussed below.(C)
    
    Weighted average interest rate. 11




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   Senior
    Secured Credit Facilities
        Interest expense and amortization of debt issuance
    costs  net Other long-term
    assets
      Other
    long-term assets Interest expense and amortization of
    debt issuance costs  net
 12




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
        7.25% Senior
    Notes
  Other
    long-term assets Interest expense and amortization of
    debt issuance costs  net
       13




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
     Korean
    Bank Loans
          Other
    Agreements
  deposit-and-guarantee
  Interest
    Rate Swaps
  3-month 3-month
  Capital
    Lease Obligations
      Short
    Term Borrowings and Lines of Credit
   14




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
        10.
    Accumulated
    Other Comprehensive Income (Loss)    Three Months Ended March 31,2007


2006Net change in foreign currency
    translation adjustments

$
11


$
41Net change in fair value of
    effective portion of hedges


7



(7
)Postretirement benefit plans:Amortization of net actuarial loss


2



Net other comprehensive income
    adjustments, before income tax effect


20



34Income tax effect


(5
)


(4
)Other comprehensive income

$
15


$
30     March 31, 2007


December 31, 2006Foreign currency translation
    adjustments

$
144


$
133Fair value of effective portion of
    hedges  net


(43
)


(46
)Net actuarial loss


(82
)


(83
)Net prior service cost


(8
)


(8
)Net transition obligation


(1
)


(1
)Accumulated other comprehensive
    income (loss)

$
10


$
(5
)   11.
    Share-Based
    Compensation  Share-Based Payment,
 15




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Selling,
    general and administrative expenses
  Compensation
    to be Settled in Stock
  2006
    Stock Options
      WeightedAverageWeighted


RemainingAverage


Contractual


AggregateNumber of


Exercise


Term


IntrinsicOptions


Price


(In Years)


ValueOptions outstanding as of
    December 31, 2006


858,500


$
25.53Granted






Exercised






Forfeited/Cancelled


(32,650
)

$
25.53Expired






Options outstanding as of
    March 31, 2007


825,850


$
25.53



6.6


$
15,344,293Options exercisable as of
    March 31, 2007





$







$
    16




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Share-Based
    Payment
    Three Months EndedMarch 31, 2007Expected volatility

42.20 to 46.40%Weighted average volatility

44.30%Dividend yield

0.16%Risk-free interest rate

4.68 to 4.71%Expected life

1.00 to 4.75 years     Novelis
    Conversion Plan of 2005
   17




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##### Table of Contents



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


RemainingAverage


Contractual


AggregateNumber of


Exercise


Term


IntrinsicOptions


Price


(In Years)


ValueOptions outstanding as of
    December 31, 2006


2,514,277


$
21.84Granted






Exercised


(1,217,325
)

$
21.95Forfeited/Cancelled






Expired






Options outstanding as of
    March 31, 2007


1,296,952


$
21.74



6.2


$
29,012,758Options exercisable as of
    March 31, 2007


725,860


$
21.67



6.0


$
16,291,327       Three MonthsEndedMarch 31, 2007Expected volatility

30.30%Weighted-average volatility

30.30%Dividend yield

1.56%Risk-free interest rate

2.88 to 3.73%Expected life

0.70 to 5.70 years        18




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   Recognition
    Awards
        WeightedAverageNumber of


Grant DateShares


Fair ValueRecognition Awards as of
    December 31, 2006


145,800


$
23.15Granted






Vested






Forfeited/Cancelled






Recognition Awards as of
    March 31, 2007


145,800


$
23.15       Compensation
    to be Settled in Cash
  Stock
    Appreciation Rights
   19




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##### Table of Contents



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


Contractual


AggregateNumber of


Average


Term


IntrinsicSARs


Exercise Price


(In Years)


ValueSARs outstanding as of
    December 31, 2006


381,090


$
25.53Granted






Exercised






Forfeited/Cancelled


(1,090
)

$
25.53Expired






SARs outstanding as of
    March 31, 2007


380,000


$
25.53



6.6


$
7,060,400SARs exercisable as of
    March 31, 2007





$







$
     .
 20




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
     Expected volatility

40.70 to 44.70%Weighted average volatility

42.70%Dividend yield

NoneRisk-free interest rate

4.51 to 4.59%Expected life

0.57 to 4.32 years     Stock
    Price Appreciation Unit Plan
      WeightedAverageRemainingWeighted


Contractual


AggregateNumber of


Average


Term


IntrinsicSPAUs


Exercise Price


(In Years)


ValueSPAUs outstanding as of
    December 31, 2006


418,405


$
22.04Granted






Exercised


(117,788
)

$
22.29Forfeited/Cancelled






Expired






SPAUs outstanding as of
    March 31, 2007


300,617


$
21.94



6.8


$
6,665,913SPAUs exercisable as of
    March 31, 2007


98,378


$
21.33



6.6


$
2,240,678   .
 21




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
     Expected volatility

38.20 to 40.80%Weighted average volatility

39.91%Dividend yield

NoneRisk-free interest rate

4.51 to 4.56%Expected life

2.25 to 4.37 years         Deferred
    Share Unit Plan for Non-Executive Directors
    and/or
    AggregateNumber of


Redemption


IntrinsicDDSUs


Price


ValueDDSUs outstanding as of
    December 31, 2006


112,039


$
27.11Granted


7,060Exercised (paid out)


(12,521
)Forfeited


Expired/Cancelled


DDSUs outstanding as of
    March 31, 2007


106,578


$
44.09


$
4,698,535    22




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   Novelis
    Founders Performance Awards
         23




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   Compensation
    Cost
  Selling, general and administrative expenses
  Three MonthsEndedMarch 31,2007


2006Compensation to be Settled in
    Stock:Novelis 2006 Incentive Plan

$
0.9


$
Novelis Conversion Plan of 2005


0.3



0.8Recognition Awards


0.5



1.7



0.8Compensation to be Settled in
    Cash:Novelis 2006 Incentive Plan (Stock
    Appreciation Rights)


1.4



Stock Price Appreciation Unit Plan


4.4



1.5Total Shareholder Returns
    Performance Plan






(0.8
)Deferred Share Unit Plan for
    Non-Executive Directors


2.2



0.3Novelis Founders Performance Awards


6.0



1.514.0



2.5Total Share-Based Compensation
    Expense

$
15.7


$
3.3   12.
    Postretirement
    Benefit Plans    Pension Benefits


Other Postretirement BenefitsThree Months


Three MonthsEnded


EndedMarch 31,


March 31,2007


2006


2007


2006Service cost

$
12


$
10


$
1


$
1Interest cost


12



10



2



2Expected return on assets


(11
)


(9
)






Amortization actuarial losses


1



1



1



 prior service cost






1







Net periodic benefit cost

$
14


$
13


$
4


$
3    24




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   Employer
    Contributions to Plans
        Three MonthsEndedMarch 31,2007


2006Funded pension plans

$
10


$
9Unfunded pension plans


6



3Savings and defined contribution
    pension plans


3



3Total contributions

$
19


$
15     13.
    Currency
    Losses (Gains)  Other
    (income) expenses  net
  Three MonthsEndedMarch 31,2007


2006Net loss (gain) on change in fair
    value of currency derivative instruments

$
(5
)

$
16Net loss (gain) on translation of
    monetary assets and liabilities


6



(5
)$
1


$
11   Accumulated other comprehensive income (loss)
  Three Months EndedMarch 31,2007


2006Cumulative currency translation
    adjustment  beginning of period

$
133


$
(35
)Effect of changes in exchange rates


11



37Cumulative currency translation
    adjustment  end of period

$
144


$
2   14.
    Financial
    Instruments and Commodity Contracts   25




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##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
        Accumulated other comprehensive loss Shareholders equity
      As of March 31, 2007Net FairMaturity Dates

Assets


Liabilities


ValueForeign exchange forward contracts

2007 through 2011

$
16


$
(20
)

$
(4
)Interest rate swaps

2007 through 2008


2







2Cross-currency swaps

2007 through 2015


6



(90
)


(84
)Aluminum forward contracts

2007 through 2009


60



(8
)


52Aluminum options

2007


1







1Electricity swap

2016


60







60Embedded derivative instruments

2007


1







1Natural gas swaps

2007


1







1Total fair value




147



(118
)


29Less: current portion (A)




92



(33
)


59Noncurrent portion (A)



$
55


$
(85
)

$
(30
)   26




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  As of December 31, 2006Net FairMaturity Dates

Assets


Liabilities


ValueForeign exchange forward contracts

2007 through 2011

$
12


$
(20
)

$
(8
)Interest rate swaps

2007 through 2008


2







2Cross-currency swaps

2007 through 2015


4



(95
)


(91
)Aluminum forward contracts

2007 through 2009


67



(12
)


55Aluminum options

2007


2







2Electricity swap

2016


47







47Embedded derivative instruments

2007


16







16Natural gas swaps

2007






(2
)


(2
)Total fair value




150



(129
)


21Less: current portion (A)




106



(42
)


64Noncurrent portion (A)



$
44


$
(87
)

$
(43
)     (A)
    
    The amounts of the current and long-term portions of fair values
    under assets are each presented in the accompanying condensed
    consolidated balance sheets. The amounts of the current and
    noncurrent portions of fair values under liabilities are
    included in Accrued expenses and other current liabilitiesand Other long-term liabilities, respectively, in the
    accompanying condensed consolidated balance sheets.  15.
    Other
    (Income) Expenses  Net    Three MonthsEndedMarch 31,2007


2006Gains on change in fair value of
    derivative instruments  net

$
(30
)

$
(54
)Sale transaction fees


32



Loss on disposal of business






15Exchange (gains)
    losses  net


6



(5
)Gains on disposals of property,
    plant and equipment  net






(1
)Other (income)
    expenses  net


1



(4
)$
9


$
(49
)   Other (income)
    expenses  net
  16.
    Income
    Taxes  Accounting for
    Income Taxes. Interim Financial Reporting,
 27




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Accounting for Income Taxes
    in Interim Periods
    Three Months EndedMarch 31,2007


2006Pre-tax income (loss) before
    equity in net income of non-consolidated affiliates and minority
    interests share

$
(58
)

$
25Canadian statutory tax rate


33
%


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

$
(19
)

$
8Increase (decrease) in tax rate
    resulting from:Exchange translation items


6



10Exchange remeasurement of deferred
    income taxes


2



3Change in valuation allowances


23



33Expense/income items with no tax
    effect  net


1



3Tax rate differences on foreign
    earnings


(6
)


44Other  net






1Provision for taxes on income
    (loss)

$
7


$
102Effective tax rate


(12
)%


408
%      28




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
      Adoption
    of FASB Interpretation No. 48
  Accounting for Uncertainty in Income
    Taxes. Shareholders equity Accumulated deficit
  1999-2003.
  ther long-term assets  third
    parties
    Provision for taxes on income Provision for
    taxes on income (loss)
  17.
    Loss Per
    Share     29




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
       Three MonthsEndedMarch 31,2007


2006Numerator:Net loss (in millions)

$
(64
)

$
(74
)Denominator:Weighted average number of
    outstanding shares  basic


74,928,318



74,005,649Effect of dilutive shares






Weighted average number of
    outstanding shares  diluted


74,928,318



74,005,649Loss per share:Net loss per share 
    basic and diluted

$
(0.85
)

$
(1.00
)   18.
    Commitments
    and Contingencies  Primary
    Supplier
    Legal
    Proceedings
  Reynolds Boat Case. C04-0175RJB.
   30




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Accrued expenses
    and other current liabilities Prepaid expenses and other current assets
  Accrued expenses and other current
    liabilities
    Coke Lawsuits.
     31




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
    Anheuser-Busch Litigation.
        Environmental
    Matters
  Oswego North Ponds. (a wholly-owned
   32




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   Brazil
    Tax Matters
  Other long-term assets Other long-term
    liabilities
  Guarantees
    of Indebtedness
    
    certain of our wholly-owned and majority-owned
    subsidiaries; and
    Aluminium Norf GmbH, which is a fifty percent (50%) owned joint
    venture that does not meet the requirements for consolidation
    under FASB Interpretation No. 46 (Revised),
    Consolidation of Variable Interest Entities.        Maximum Potential


Liability CarryingType of Entity

Future Payment


ValueWholly-owned subsidiaries

$
76


$
60Majority-owned subsidiaries


3



Aluminium Norf GmbH


13



   19.
    Segment
    and Major Customer Information    Disclosure About the Segments of
    an Enterprise and
 33




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Related Information.
  Form 10-K
  Other (income)
    expenses  net.
    Corporate and Other
  Selected
    Segment Financial Information
  Adjustment toEliminateAs of and for the Three

North








South


Proportional


CorporateMonths Ended March 31, 2007

America


Europe


Asia


America


Consolidation


and Other


TotalNet sales (to third parties)

$
925


$
1,057


$
413


$
235


$



$



$
2,630Intersegment sales






1



3



12







(16
)


Regional Income (Loss)


(17
)


86



17



56











142Depreciation and amortization


16



24



14



11



(8
)


1



58Capital expenditures


9



11



3



4



(4
)


1



24Total assets


1,566



2,543



1,110



821



(114
)


44



5,970   34




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Adjustment toEliminateAs of and for the Three

North








South


Proportional


CorporateMonths Ended March 31, 2006

America


Europe


Asia


America


Consolidation


and Other


TotalNet sales (to third parties)

$
895


$
826


$
394


$
209


$
(5
)

$



$
2,319Intersegment sales










3



7







(10
)


Regional Income


58



57



25



41











181Depreciation and amortization


18



23



14



11



(9
)


1



58Capital expenditures


8



9



1



4



(3
)


2



21Total assets


1,600



2,296



1,038



798



(87
)


98



5,743     Three Months EndedMarch 31,2007


2006Total Regional Income

$
142


$
181Interest expense and amortization
    of debt issuance costs


(54
)


(51
)Gains on cash settlement of
    derivative instruments  net, included in Regional
    Income


(33
)


(53
)Gains on change in fair value of
    derivative instruments  net


30



54Depreciation and amortization


(58
)


(58
)Impairment charges on long-lived
    assets


(8
)


Minority interests share


(2
)


Adjustment to eliminate
    proportional consolidation (A)


(9
)


(8
)Restructuring charges 
    net


(9
)


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






(14
)Corporate selling, general and
    administrative expenses


(26
)


(26
)Other corporate costs 
    net (B)


(30
)


4Provision for taxes on income
    (loss)


(7
)


(102
)Net loss

$
(64
)

$
(74
)     (A)
    
    Our financial information for our segments (including Regional
    Income) includes the results of our non-consolidated affiliates
    on a proportionately consolidated basis, which is consistent
    with the way we manage our business segments. However, under
    GAAP, these non-consolidated affiliates are accounted for using
    the equity method of accounting. Therefore, in order to
    reconcile Total Regional Income to Net loss, the proportional
    Regional Income of these non-consolidated affiliates is removed
    from Total Regional Income, net of our share of their net
    after-tax results, which is reported as Equity in net income
    of non-consolidated affiliateson our condensed consolidated
    statements of operations. See Note 7  Investment
    in and Advances to Non-consolidated Affiliates and Related Party
    Transactions for further information about these
    non-consolidated affiliates.(B)
    
    During the first quarter of 2007, we incurred expenses of $32
    million in connection with the potential acquisition of our
    common stock by Hindalco as described in Note 2 
    Potential Acquisition of Novelis Common Stock. 35




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
   Information
    about Major Customers
    Three Months EndedMarch 31,2007


2006Net sales to Rexam (in millions)

$
407


$
332Percentage of total net sales


15.5
%


14.3
%  36




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  20.
    Supplemental
    Guarantor Information      Novelis
    Inc.
  Consolidating
    Statement of Operations
 (In
    millions)
  Three Months Ended March 31, 2007Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedNet sales

$
378


$
2,228


$
723


$
(699
)

$
2,630Cost of goods sold (exclusive of
    depreciation and amortization shown below)


374



2,094



675



(696
)


2,447Selling, general and
    administrative expenses


10



69



20







99Depreciation and amortization


3



38



17







58Research and development expenses


5



2



1







8Restructuring charges 
    net






9











9Impairment charges on long-lived
    assets






8











8Interest expense and amortization
    of debt issuance costs  net


7



39



4







50Equity in net income (loss) of
    affiliates


14



(3
)






(14
)


(3
)Other (income)
    expenses  net


29



(20
)










9442



2,236



717



(710
)


2,685Income (loss) before provision for
    taxes on income (loss) and minority interests share


(64
)


(8
)


6



11



(55
)Provision for taxes on income
    (loss)






5



2







7Income (loss) before minority
    interests share


(64
)


(13
)


4



11



(62
)Minority interests share










(2
)






(2
)Net income (loss)

$
(64
)

$
(13
)

$
2


$
11


$
(64
)  37




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Consolidating
    Statement of Operations
    (In millions)
  Three Months Ended March 31, 2006Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedNet sales

$
370


$
1,960


$
673


$
(684
)

$
2,319Cost of goods sold (exclusive of
    depreciation and amortization shown below)


355



1,822



635



(677
)


2,135Selling, general and
    administrative expenses


13



63



16







92Depreciation and amortization


4



38



16







58Research and development expenses


6



3











9Restructuring charges
    (recoveries)  net










1







1Interest expense and amortization
    of debt issuance costs  net


11



32



5







48Equity in net income (loss) of
    affiliates


31



(3
)






(31
)


(3
)Other (income)
    expenses  net


17



(68
)


2







(49
)437



1,887



675



(708
)


2,291Income (loss) before provision for
    taxes on income (loss) and minority interests share


(67
)


73



(2
)


24



28Provision for taxes on income
    (loss)


7



70



25







102Income (loss) before minority
    interests share


(74
)


3



(27
)


24



(74
)Minority interests share


















Net income (loss)

$
(74
)

$
3


$
(27
)

$
24


$
(74
)  38




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Consolidating
    Balance Sheet
 (In
    millions)
  As of March 31, 2007Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedASSETSCurrent assetsCash and cash equivalents

$
6


$
71


$
51


$



$
128Accounts receivable  net
    of allowances third parties


36



903



411







1,350 related parties


416



500



58



(949
)


25Inventories


65



1,008



421



(3
)


1,491Prepaid expenses and other current
    assets


3



26



10







39Current portion of fair value of
    derivative instruments






88



4







92Deferred income tax assets


3



12



4







19Total current assets


529



2,608



959



(952
)


3,144Property, plant and
    equipment  net


112



1,225



761







2,098Goodwill






29



210







239Intangible assets  net






18



2







20Investments


362



153







(362
)


153Fair value of derivative
    instruments  net of current portion






55











55Deferred income tax assets


1



66



35







102Other long-term assets


1,231



160



132



(1,364
)


159Total assets

$
2,235


$
4,314


$
2,099


$
(2,678
)

$
5,970LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt

$



$
3


$
140


$



$
143Short-term borrowings third parties






241



4







245 related parties


15



529



61



(605
)


Accounts payable third parties


116



938



560







1,614 related parties


69



240



84



(344
)


49Accrued expenses and other current
    liabilities


63



317



100







480Deferred income tax liabilities






73











73Total current
    liabilities


263



2,341



949



(949
)


2,604Long-term debt  net of
    current portion third parties


1,659



496



2







2,157 related parties






1,116



248



(1,364
)


Deferred income tax liabilities






89



14







103Accrued postretirement benefits


19



293



115







427Other long-term liabilities


119



214



19







3522,060



4,549



1,347



(2,313
)


5,643Commitments and contingenciesMinority interests in equity of
    consolidated affiliates










152







152Shareholders
    equityPreferred stock


















Common stock


















Additional paid-in capital


428















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


(263
)


(458
)


575



(117
)


(263
)Accumulated other comprehensive
    income


10



223



25



(248
)


10Total shareholders
    equity


175



(235
)


600



(365
)


175Total liabilities and
    shareholders equity

$
2,235


$
4,314


$
2,099


$
(2,678
)

$
5,970  39




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Consolidating
    Balance Sheet
    (In millions)
  As of December 31, 2006Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedASSETSCurrent
    assetsCash and cash equivalents

$
3


$
37


$
33


$



$
73Accounts receivable  net
    of allowances third parties


40



864



417







1,321 related parties


399



414



52



(844
)


21Inventories


56



963



372







1,391Prepaid expenses and other current
    assets


2



30



10







42Current portion of fair value of
    derivative instruments






102



4







106Deferred income tax assets


2



1



6







9Total current assets


502



2,411



894



(844
)


2,963Property, plant and
    equipment  net


114



1,253



776







2,143Goodwill






28



208







236Intangible assets  net






18



2







20Investments


409



150







(409
)


150Fair value of derivative
    instruments  net of current portion






44











44Deferred income tax assets


17



22



37







76Other long-term assets


1,224



161



129



(1,354
)


160Total assets

$
2,266


$
4,087


$
2,046


$
(2,607
)

$
5,792LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent
    liabilitiesCurrent portion of long-term debt

$



$
3


$
141


$



$
144Short-term borrowings third parties






129



4







133 related parties


7



502



63



(572
)


Accounts payable third parties


108



914



520







1,542 related parties


47



207



62



(272
)


44Accrued expenses and other current
    liabilities


96



320



92







508Deferred income tax liabilities






60



1







61Total current
    liabilities


258



2,135



883



(844
)


2,432Long-term debt  net of
    current portion third parties


1,659



497



2







2,158 related parties






1,107



247



(1,354
)


Deferred income tax liabilities


16



49



16







81Accrued postretirement benefits


21



296



108







425Other long-term liabilities


117



204



22







3432,071



4,288



1,278



(2,198
)


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










158







158Shareholders
    equity














Preferred stock


















Common stock


















Additional paid-in capital


398















398Retained earnings/(accumulated
    deficit)/owners net investment


(198
)


(410
)


585



(175
)


(198
)Accumulated other comprehensive
    income (loss)


(5
)


209



25



(234
)


(5
)Total shareholders
    equity


195



(201
)


610



(409
)


195Total liabilities and
    shareholders equity

$
2,266


$
4,087


$
2,046


$
(2,607
)

$
5,792  40




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Consolidating
    Statement of Cash Flows
    (In millions)
  Three Months Ended March 31, 2007Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedOPERATING ACTIVITIESNet cash (used in) provided by
    operating activities

$
(30
)

$
(55
)

$
50


$
(52
)

$
(87
)INVESTING ACTIVITIESCapital expenditures


(2
)


(16
)


(6
)






(24
)Changes to investment in and
    advances to non-consolidated affiliates






1











1Proceeds from loans
    receivable  net related parties






1











1Net proceeds from settlement of
    derivative instruments






24











24Net cash (used in) provided by
    investing activities


(2
)


10



(6
)






2FINANCING ACTIVITIESPrincipal repayments






(1
)










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






113











113 related parties


7



5



(12
)






Dividends common shareholders






(38
)


(14
)


52



Proceeds from the exercise of
    employee stock options


27















27Windfall tax benefit on
    share-based compensation


1















1Net cash provided by (used in)
    financing activities


35



79



(26
)


52



140Net increase in cash and cash
    equivalents


3



34



18







55Cash and cash
    equivalents  beginning of period


3



37



33







73Cash and cash
    equivalents  end of period

$
6


$
71


$
51


$



$
128  41




---



##### Table of Contents



Novelis
    Inc.
  NOTES TO
    THE CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
    (unaudited)  (Continued)
  Novelis
    Inc.
  Consolidating
    Statement of Cash Flows
    (In millions)
  Three Months Ended March 31, 2006Non-Parent


Guarantors


Guarantors


Eliminations


ConsolidatedOPERATING ACTIVITIESNet cash provided by operating
    activities

$
14


$
145


$
48


$
(112
)

$
95INVESTING ACTIVITIESCapital expenditures


(3
)


(13
)


(5
)






(21
)Disposal of business 
    net


(7
)














(7
)Proceeds from sales of assets






2











2Changes to investment in and
    advances to non-consolidated affiliates






2











2Proceeds from loans
    receivable  net related parties


60



7







(60
)


7Net proceeds from settlement of
    derivative instruments






77



(6
)






71Net cash provided by (used in)
    investing activities


50



75



(11
)


(60
)


54FINANCING ACTIVITIESPrincipal repayments third parties


(29
)


(51
)


(32
)






(112
) related parties






(60
)






60



Short-term borrowings 
    net third parties






6











6 related parties






3



(3
)






Dividends preference shares






(12
)






12



 common shareholders


(7
)


(85
)


(15
)


100



(7
) minority interests










(13
)






(13
)Debt issuance costs


(1
)














(1
)Net cash used in financing
    activities


(37
)


(199
)


(63
)


172



(127
)Net increase (decrease) in cash
    and cash equivalents


27



21



(26
)






22Effect of exchange rate changes
    on cash balances held in foreign currencies










2







2Cash and cash
    equivalents  beginning of period


2



34



64







100Cash and cash
    equivalents  end of period

$
29


$
55


$
40


$



$
124  42




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  FORWARD
    LOOKING STATEMENTS
  The following information should be read together with our
    unaudited consolidated 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.
    Form 10-K Form 10-K
  GENERAL
    Potential
    Acquisition of Novelis Common Stock
  Form 10-K
    and/or Hart-Scott-Rodino
 43




---



##### Table of Contents



HIGHLIGHTS
    
    Shipments and selected financial information are as follows:  Three Months EndedMarch 31,2007


2006($ in millions)Shipments (kt (A)):Rolled products


732



741Ingot products (B)


40



41Total shipments


772



782Net Sales

$
2,630


$
2,319Net Loss

$
(64
)

$
(74
)Increase (Decrease) in Total Debt
    (C)

$
110


$
(103
)       (B)
    Ingot products shipments include primary ingot in Brazil,
    foundry products sold in Korea and Europe, secondary ingot in
    Europe and other miscellaneous recyclable aluminum sales.(C)
    Change in total debt since December 31, 2006 and 2005,
    respectively.   Rolled products shipments decreased in 2007 in North
    America and Asia, offset partially by increases in Europe and
    South America. In North America, shipments declined due to
    reduced demand from the original equipment manufacturers
    (OEM)/distributor market and lower automotive demand with
    U.S. manufacturers. In Asia, shipments declined as Chinese
    export competition eroded sales in the industrial and light
    gauge markets. European shipments increased into the can and
    foil markets while South America benefited from higher can
    shipments. 44




---



##### Table of Contents



 London Metal Exchange (LME) pricing for aluminum
    (metal) was an average of 16% higher during the first quarter of
    2007 than the same period for 2006. Net sales for the first quarter ended March 31,
    2007 increased from the same period for 2006 primarily due to
    the rise in LME prices. However, the benefit of higher LME
    prices was limited by metal price ceilings in sales contracts
    representing approximately 10% of our total shipments in 2007
    and 20% of our total shipments in 2006. During the first
    quarters of 2007 and 2006, we were unable to pass through
    approximately $80 million and $95 million,
    respectively, of metal purchase costs associated with sales
    under these contracts. The metal price ceilings are discussed in
    more detail below. Our total debt increased by $110 million during
    the first quarter of 2007, principally as a result of increased
    short-term borrowings necessary to fund working capital
    requirements driven by higher metal prices. Our cumulative debt
    reduction since our inception in January 2005 is
    $406 million, or 14%. During the first quarters of 2007 and 2006 we
    recognized pre-tax gains of $30 million and
    $54 million, respectively, related to the change in fair
    value of derivative instruments. These amounts are included in
    Other (income) expenses  net in our accompanying
    condensed consolidated statements of operations. Regional Income
    includes approximately $33 million and $53 million of
    cash-settled derivative gains for our first quarters ended
    March 31, 2007 and 2006, respectively. These derivative
    instruments and the related accounting are discussed in more
    detail below.  OUR
    BUSINESS
  Business
    Model and Key Concepts
    METAL
    PRICE CEILINGS
      METAL
    PRICE LAG
   45




---



##### Table of Contents



RISK
    MITIGATION
    and/or
    Accounting for Derivative
    Instruments and Hedging Activities.
  INTERNAL
    CONTROLS
  Form 10-K
 46




---



##### Table of Contents



SPIN-OFF
    FROM ALCAN
    Post-Transaction
    Adjustments
    Agreements
    between Novelis and Alcan
  Form 10-K
  OPERATIONS
    AND SEGMENT REVIEW
      First Quarter


Percent2007


2006


ChangeShipments
    (kt)Rolled products, including tolling
    (the conversion of customer-owned metal)


732



741



(1.2
)%Ingot products, including primary
    and secondary ingot and recyclable aluminum


40



41



(2.4
)%Total shipments


772



782



(1.3
)%  47




---



##### Table of Contents



First Quarter


Percent2007


2006


Change($ in millions)Results of OperationsNet sales

$
2,630


$
2,319



13.4
%Cost and expensesCost of goods sold (exclusive of
    depreciation and amortization shown below)


2,447



2,135



14.6
%Selling, general and
    administrative expenses


99



92



7.6
%Depreciation and amortization


58



58




%Research and development expenses


8



9



(11.1
)%Restructuring charges 
    net


9



1



800.0
%Impairment charges on long-lived
    assets


8







n.m.Interest expense and amortization
    of debt issuance costs  net


50



48



4.2
%Equity in net income of
    non-consolidated affiliates


(3
)


(3
)



%Other (income)
    expenses  net


9



(49
)


(118.4
)%2,685



2,291



17.2
%Income (loss) before provision for
    taxes on income (loss) and minority interests share


(55
)


28



(296.4
)%Provision for taxes on income
    (loss)


7



102



(93.1
)%Loss before minority
    interests share


(62
)


(74
)


(16.2
)%Minority interests share


(2
)






n.m.Net loss

$
(64
)

$
(74
)


(13.5
)%     Percent2007


2006


ChangeLondon Metal Exchange
    PricesAluminum (per metric tonne, and
    presented in U.S. dollars):Closing cash price as of
    March 31,

$
2,792


$
2,513



11.1
%Average cash price during the
    quarters ended March 31,

$
2,800


$
2,420



15.7
%   U.S. DollarFirst Quarter


Strengthen/2007


2006


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


1.320



1.207



(9.4
)%Brazilian real per U.S. dollar


2.100



2.166



(3.0
)%South Korean won per
    U.S. dollar


941



967



(2.7
)%Canadian dollar per
    U.S. dollar


1.167



1.150



1.5
%   First Quarter


Percent2007


2006


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

$
57.54


$
62.48



(7.9
)%Natural GasAverage Henry Hub contract
    settlement price (per MMBTU) (A)

$
6.77


$
8.97



(24.5
)%   _
    _
   48




---



##### Table of Contents



RESULTS
    OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2007 COMPARED
    TO THE QUARTER ENDED MARCH 31, 2006
  Shipments
    Net
    sales
    Costs and
    expenses
    First Quarter2007


2006% of





% of$ in millions


net sales


$ in millions


net salesCost of goods sold (exclusive of
    depreciation and amortization)

$
2,447



93.0
%

$
2,135



92.1
%Selling, general and
    administrative expenses


99



3.8
%


92



4.0
%Depreciation and amortization


58



2.2
%


58



2.5
%Research and development expenses


8



0.3
%


9



0.4
%Restructuring charges 
    net


9



0.3
%


1




%Impairment charges on long-lived
    assets


8



0.3
%






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


50



1.9
%


48



2.0
%Equity in net income of
    non-consolidated affiliates


(3
)


(0.1
)%


(3
)


(0.1
)%Other (income)
    expenses  net


9



0.3
%


(49
)


(2.1
)%$
2,685



102.0
%

$
2,291



98.8
%   Cost of goods sold.
  Selling, general and administrative expenses
    (SG&A).
 49




---



##### Table of Contents



Restructuring.
  Interest expense and amortization of debt issuance
    costs  net.
  Other (income) expenses  net.
  Other(Income)Expenses  NetOther (income)
    expenses  net for the quarter ended March 31,
    2006

$
(49
)Sale transaction fees in 2007


32Gains of $30 million on the
    change in fair value of derivative instruments in 2007, compared
    to gains of $54 million in 2006


24Loss on disposal of business in
    2006 of $15 million


(15
)Exchange losses of $6 million
    in 2007 compared to gains of $5 million in 2006


11Other  net


6Other (income)
    expenses  net for the quarter ended March 31,
    2007

$
9     Provision
    for taxes on income (loss)
     50




---



##### Table of Contents



Net
    loss
    OPERATING
    SEGMENT REVIEW FOR THE QUARTER ENDED MARCH 31, 2007
    COMPARED TO THE QUARTER ENDED MARCH 31, 2006
  Regional
    Income
      Disclosure About the Segments of
    an Enterprise and Related Information.
     51




---



##### Table of Contents



Reconciliation
    First Quarter2007


2006Regional Income
    (Loss)North America

$
(17
)

$
58Europe


86



57Asia


17



25South America


56



41Total Regional Income


142



181Interest expense and amortization
    of debt issuance costs


(54
)


(51
)Gains on cash settlement of
    derivative instruments  net, included in Regional
    Income


(33
)


(53
)Gains on change in fair value of
    derivative instruments  net


30



54Depreciation and amortization


(58
)


(58
)Impairment charges on long-lived
    assets


(8
)


Minority interests share


(2
)


Adjustment to eliminate
    proportional consolidation (A)


(9
)


(8
)Restructuring charges 
    net


(9
)


(1
)Losses on disposals of property,
    plant and equipment and businesses  net






(14
)Corporate selling, general and
    administrative expenses


(26
)


(26
)Other corporate costs 
    net (B)


(30
)


4Provision for taxes on income
    (loss)


(7
)


(102
)Net loss

$
(64
)

$
(74
)     (A)
    
    Our financial information for our segments (including Regional
    Income) includes the results of our non-consolidated affiliates
    on a proportionately consolidated basis, which is consistent
    with the way we manage our business segments. However, under
    GAAP, these non-consolidated affiliates are accounted for using
    the equity method of accounting. Therefore, in order to
    reconcile Total Regional Income to Net loss, the proportional
    Regional Income of these non-consolidated affiliates is removed
    from Total Regional Income, net of our share of their net
    after-tax results, which is reported as Equity in net income of
    non-consolidated affiliates in the accompanying condensed
    consolidated statements of operations. See
    Note 7  Investment in and Advances to
    Non-consolidated Affiliates and Related Party Transactions to
    our condensed consolidated financial statements for further
    information about these non-consolidated affiliates.(B)
    
    During the first quarter of 2007, we incurred expenses of
    $32 million in connection with the potential acquisition of
    our common stock by Hindalco as described in
    Note 2  Potential Acquisition of Novelis Common
    Stock in the accompanying condensed and consolidated financial
    statements.  OPERATING
    SEGMENT RESULTS
  North
    America
   52




---



##### Table of Contents



First Quarter


Percent2007


2006


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


268



289



(7.3
)%Ingot products


18



17



5.9
%Total shipments


286



306



(6.5
)%Net sales

$
925


$
895



3.4
%Regional Income (Loss)

$
(17
)

$
58



(129.3
)%Total assets

$
1,566


$
1,600



(2.1
)%   Shipments
    Net
    sales
    Regional
    Income
    Europe
   53




---



##### Table of Contents



First Quarter


Percent2007


2006


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


282



266



6.0
%Ingot products


5



8



(37.5
)%Total shipments


287



274



4.7
%Net sales

$
1,057


$
826



28.0
%Regional Income

$
86


$
57



50.9
%Total assets

$
2,543


$
2,296



10.8
%   Shipments
    Net
    sales
    Regional
    Income
    Total
    assets
    Asia
   54




---



##### Table of Contents



First Quarter


Percent2007


2006


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


107



118



(9.3
)%Ingot products


10



10




%Total shipments


117



128



(8.6
)%Net sales

$
413


$
394



4.8
%Regional Income

$
17


$
25



(32.0
)%Total assets

$
1,110


$
1,038



6.9
%   Shipments
    Net
    sales
    Regional
    Income
    South
    America
      First Quarter


Percent2007


2006


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


75



68



10.3
%Ingot products


7



6



16.7
%Total shipments


82



74



10.8
%Net sales

$
235


$
209



12.4
%Regional Income

$
56


$
41



36.6
%Total assets

$
821


$
798



2.9
%  55




---



##### Table of Contents



Shipments
    Net
    sales
    Regional
    Income
    LIQUIDITY
    AND CAPITAL RESOURCES
    Operating
    Activities
       56




---



##### Table of Contents



First Quarter2007


2006


Change($ in millions)Net cash (used in) provided by
    operating activities

$
(87
)

$
95


$
(182
)Dividends






(7
)


7Capital expenditures


(24
)


(21
)


(3
)Net proceeds from settlement of
    derivative instruments


24



71



(47
)Free cash flow

$
(87
)

$
138


$
(225
)   March 31,


December 31,2007


2006


ChangeEnding cash and cash equivalents

$
128


$
73


$
55       Financing
    Activities
  Overview
    Senior
    Secured Credit Facilities
       57




---



##### Table of Contents



7.25% Senior
    Notes
         58




---



##### Table of Contents



Interest
    Rate Swaps
  3-month 3-month
  Investing
    Activities
    First Quarter2007


2006


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

$
24


$
71


$
(47
)Capital expenditures


(24
)


(21
)


(3
)Proceeds from loans
    receivable  net


1



7



(6
)Payments related to disposal of
    business






(7
)


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


1



2



(1
)Proceeds from sales of assets






2



(2
)Net cash provided by investing
    activities

$
2


$
54


$
(52
)        59




---



##### Table of Contents



OFF-BALANCE
    SHEET ARRANGEMENTS
    
    any obligation under certain guarantees or contracts;
    a retained or contingent interest in assets transferred to an
    unconsolidated entity or similar entity or similar arrangement
    that serves as credit, liquidity or market risk support to that
    entity for such assets;
    any obligation under certain derivative instruments; and
    any obligation under a material variable interest held by the
    registrant in an unconsolidated entity that provides financing,
    liquidity, market risk or credit risk support to the registrant,
    or engages in leasing, hedging or research and development
    services with the registrant.    Derivative
    Instruments
  Form 10-Q.
        As of March 31, 2007Net FairMaturity Dates

Assets


Liabilities


ValueForeign exchange forward contracts

2007 through 2011

$
16


$
(20
)

$
(4
)Interest rate swaps

2007 through 2008


2







2Cross-currency swaps

2007 through 2015


6



(90
)


(84
)Aluminum forward contracts

2007 through 2009


60



(8
)


52Aluminum options

2007


1







1Electricity swap

2016


60







60Embedded derivative instruments

2007


1







1Natural gas swaps

2007


1







1Total fair value




147



(118
)


29Less: current portion




92



(33
)


59Noncurrent portion



$
55


$
(85
)

$
(30
)  60




---



##### Table of Contents



Guarantees
    of Indebtedness
    Maximum


LiabilityPotential Future


CarryingType of Entity

Payment


ValueWholly-owned Subsidiaries

$
76


$
60Majority-owned Subsidiaries


3



Aluminium Norf GmbH


13



   deposit-and-guarantee
    Other
    CONTRACTUAL
    OBLIGATIONS
  Form 10-K
    DIVIDENDS
    CRITICAL
    ACCOUNTING POLICIES AND ESTIMATES
  Form 10-K
  RECENT
    ACCOUNTING STANDARDS
  The Fair Value
    Option for Financial Assets and Financial Liabilities
 61




---



##### Table of Contents



Fair Value Measurements, and
    No. 107, Disclosures about Fair Value of Financial
    Instruments.
  Fair Value Measurements
    SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET
    DATA
  Form 10-Q
    
    the level of our indebtedness and our ability to generate cash; 62




---



##### Table of Contents




    changes in the prices and availability of aluminum (or premiums
    associated with such prices) or other materials and raw
    materials we use;
    the effect of metal price ceilings in certain of our sales
    contracts;
    the effectiveness of our metal hedging activities, including our
    internal used beverage can (UBC) and smelter hedges;
    relationships with, and financial and operating conditions of,
    our customers and suppliers;
    fluctuations in the supply of, and prices for, energy in the
    areas in which we maintain production facilities;
    our ability to access financing for future capital requirements;
    continuing obligations and other relationships resulting from
    our spin-off from Alcan;
    changes in the relative values of various currencies;
    factors affecting our operations, such as litigation,
    environmental remediation and
    clean-up
    costs, labor relations and negotiations, breakdown of equipment
    and other events;
    economic, regulatory and political factors within the countries
    in which we operate or sell our products, including changes in
    duties or tariffs;
    competition from other aluminum rolled products producers as
    well as from substitute materials such as steel, glass, plastic
    and composite materials;
    changes in general economic conditions;
    our ability to improve and maintain effective internal control
    over financial reporting and disclosure controls and procedures
    in the future;
    changes in the fair value of derivative instruments;
    cyclical demand and pricing within the principal markets for our
    products as well as seasonality in certain of our
    customers industries;
    changes in government regulations, particularly those affecting
    taxes, environmental, health or safety compliance;
    changes in interest rates that have the effect of increasing the
    amounts we pay under our principal credit agreement and other
    financing agreements; and
    the risk that the potential acquisition of our common stock by
    Hindalco may not be completed in a timely manner or at all.  Form 10-K
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk    marked-to-market
 63




---



##### Table of Contents



Commodity
    Price Risks
    Aluminum
          and/or
   64




---



##### Table of Contents



Sensitivities
    Pre-TaxDecline in

Loss inRate/Price

Fair Value($ In millions)Aluminum Forward Contracts


10
%

$
(42
)Aluminum Put Options


10
%


   Electricity
    and Natural Gas
        Sensitivities
    Pre-TaxDecline in

Loss inRate/Price

Fair Value($ In millions)Electricity


10
%

$
(12
)Natural Gas


10
%


(1
)   Foreign
    Currency Exchange Risks
   65




---



##### Table of Contents



non-U.S. dollar
    Form 10-K
  Sensitivities
    Pre-TaxIncrease (Decrease) in


Loss inExchange Rate


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


10
%

$
(56
)Korean won


(10
)%


(25
)Brazilian real


10
%


(20
)Canadian dollar


10
%


(9
)    66




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##### Table of Contents



Pre-TaxChange in

Loss inRate

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


10
%

$
(67
)   Interest
    Rate Risks
        Sensitivities
    Pre-TaxChange in


Loss inRate


Fair Value($ In millions)Interest Rate Swap
    ContractsNorth America


(10
)%

$
Asia


(10
)%


   Item 4.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
    Form 10-Q Rule 13a-15(e)
 67




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##### Table of Contents



Form 10-K
  Changes
    in Internal Control Over Financial Reporting
  Rule 13a-15(f)
  Remediation
    Plan for Material Weakness Existing as of March 31,
    2007
  Form 10-K
 68




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##### Table of Contents



PART II.
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings  Reynolds Boat Case. C04-0175RJB.
          Coke Lawsuits.
 69




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##### Table of Contents



Anheuser-Busch Litigation.
       70




---



##### Table of Contents



Item 6.
    Exhibits  ExhibitNo.

Description2
.1

Arrangement Agreement by and among
    Hindalco Industries Limited, AV Aluminum Inc. and Novelis Inc.,
    dated as of February 10, 2007 (incorporated by reference to
    Exhibit 2.1 to our Current Report on
    Form 8-K
    filed on February 13, 2007)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 Notes,
    dated as of February 3, 2005, between the Company, the
    guarantors named on the signature pages thereto and The Bank of
    New York Trust Company, N.A., as trustee (incorporated by
    reference to Exhibit 4.1 to our Current Report on
    Form 8-K
    filed on February 3, 2005 (File No. 001-32312))4
.4

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

Form of Note for
    71/4% Senior
    Notes due 2015 (incorporated by reference to Exhibit 4.1 to
    the
    Form S-4
    filed by Novelis Inc. on August 3, 2005 (File
    No. 331-127139))4
.6

First Amendment to the Shareholder
    Rights Agreement between Novelis Inc. and CIBC Mellon Trust
    Company, dated as of February 10, 2007 (incorporated by
    reference to our Current Report on
    Form 8-K
    file on February 13, 2007)10
.1

Letter Agreement between Novelis
    Inc. and Edward A. Blechschmidt dated as of January 16,
    2007 (incorporated by reference to Exhibit 10.1 to our Current
    Report on
    form 8-K
    filed on January 19, 2007)31
.1

Section 302 Certification of
    Principal Executive Officer31
.2

Section 302 Certification of
    Principal Financial Officer32
.1

Section 906 Certification of
    Principal Executive Officer32
.2

Section 906 Certification of
    Principal Financial Officer  71




---



##### Table of Contents



SIGNATURES
      By:
    /s/  Rick
    Dobson      By:
    /s/  Robert
    M. Patterson       72




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description2
.1

Arrangement Agreement by and among
    Hindalco Industries Limited, AV Aluminum Inc. and Novelis Inc.,
    dated as of February 10, 2007 (incorporated by reference to
    Exhibit 2.1 to our Current Report on
    Form 8-K
    filed on February 13, 2007)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 Notes,
    dated as of February 3, 2005, between the Company, the
    guarantors named on the signature pages thereto and The Bank of
    New York Trust Company, N.A., as trustee (incorporated by
    reference to Exhibit 4.1 to our Current Report on
    Form 8-K
    filed on February 3, 2005 (File No. 001-32312))4
.4

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

Form of Note for
    71/4% Senior
    Notes due 2015 (incorporated by reference to Exhibit 4.1 to
    the
    Form S-4
    filed by Novelis Inc. on August 3, 2005 (File
    No. 331-127139))4
.6

First Amendment to the Shareholder
    Rights Agreement between Novelis Inc. and CIBC Mellon Trust
    Company, dated as of February 10, 2007 (incorporated by
    reference to our Current Report on
    Form 8-K
    file on February 13, 2007)10
.1

Letter Agreement between Novelis
    Inc. and Edward A. Blechschmidt dated as of January 16,
    2007 (incorporated by reference to Exhibit 10.1 to our Current
    Report on
    form 8-K
    filed on January 19, 2007)31
.1

Section 302 Certification of
    Principal Executive Officer31
.2

Section 302 Certification of
    Principal Financial Officer32
.1

Section 906 Certification of
    Principal Executive Officer32
.2

Section 906 Certification of
    Principal Financial Officer  73