UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Commission file number: 001-32312

Novelis Inc.

(Exact name of registrant as specified in its charter)

Telephone: (404) 814-4200

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes o          No þ

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o          Accelerated filer o          Non-accelerated filer þ

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

      As of April 30, 2006, there were 74,005,649 common shares outstanding.

EXPLANATORY NOTE

      Concurrently with the filing of this quarterly report on Form 10-Q for the period ended September 30, 2005, we are filing amendments on Form 10-Q/ A to our quarterly reports on Form 10-Q for the periods ended March 31, 2005 and June 30, 2005, to reflect the restatement of our unaudited condensed consolidated and combined financial statements for the quarter ended March 31, 2005 and the quarter and six months ended June 30, 2005, to correct errors for:

      This quarterly report on Form 10-Q for the period ended September 30, 2005 was delayed pending our completion of the restatements and the related review of our reserves and contingencies, as well as adjustments to arrive at our opening balance sheet as of January 6, 2005.

Novelis Inc.

Index

PART I. FINANCIAL INFORMATION

Novelis Inc.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF INCOME (unaudited)

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

The accompanying notes are an integral part of the financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS (unaudited)

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

The accompanying notes are an integral part of the financial statements.

Novelis Inc.

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

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

The accompanying notes are an integral part of the financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (unaudited)

(in millions of US$)

The accompanying notes are an integral part of the financial statements.

Novelis Inc.

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF

SHAREHOLDERS’/INVESTED EQUITY (unaudited)

Nine Months Ended September 30, 2005

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

The accompanying notes are an integral part of the financial statements.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(unaudited)

(in millions of US$, except where indicated)

      Novelis Inc., formed in Canada on September 21, 2004, and its subsidiaries, is the world’s leading aluminum rolled products producer. We produce aluminum sheet and light gauge products where the end-use destination of the products includes the construction and industrial, beverage and food cans, foil products and transportation markets. As of September 30, 2005, we had operations on four continents, North America, South America, Asia and Europe, through 36 operating plants and three research facilities in 11 countries. In addition to aluminum rolled products plants, our South American businesses include bauxite mining, alumina refining and smelting facilities that are integrated with the rolling plants in Brazil. We are the only company of our size and scope focused solely on aluminum rolled products markets and capable of local supply of technically sophisticated products in all of these geographic regions.

      The accompanying unaudited condensed consolidated and combined financial statements should be read in conjunction with our audited combined financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission (SEC) in our Annual Report on Form 10-K for the year ended December 31, 2004. References herein to “Novelis”, the “Company”, “we”, “our”, or “us” refer to Novelis Inc. and its subsidiaries unless the context specifically requires otherwise. The accompanying (a) condensed combined balance sheet as of December 31, 2004, which has been derived from audited financial statements, and (b) unaudited condensed consolidated and combined financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In the opinion of management, the accompanying condensed consolidated and combined financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position as of September 30, 2005 and December 31, 2004; our results of operations for the three and nine months ended September 30, 2005 and 2004; and our cash flows for the nine months ended September 30, 2005 and 2004.

      On May 18, 2004, Alcan Inc. (Alcan) announced its intention to transfer its rolled products businesses into a separate company and to pursue a spin-off of that company to its shareholders. The rolled products businesses were managed under two separate operating segments within Alcan — Rolled Products Americas and Asia; and Rolled Products Europe. On January 6, 2005, Alcan and its subsidiaries contributed and transferred to us substantially all of the aluminum rolled products businesses operated by Alcan prior to its 2003 acquisition of Pechiney, together with some of Alcan’s alumina and primary metal-related businesses in Brazil, which are fully integrated with the rolled products operations there, as well as four former Pechiney rolling facilities in Europe, as their end-use markets and customers are more similar to ours.

      On January 6, 2005, the spin-off occurred following the approval by Alcan’s board of directors and shareholders, and the receipt of other required legal and regulatory approvals. Alcan shareholders received one Novelis common share for every five Alcan common shares held. Our common shares began trading on a “when issued” basis on the Toronto (TSX) and New York (NYSE) stock exchanges on January 6, 2005, with a distribution record date of January 11, 2005. “Regular Way” trading began on the TSX on January 7, 2005, and on the NYSE on January 19, 2005.

      We have determined that under the rules and regulations promulgated by the SEC, as of February 27, 2006, a majority of our outstanding shares were directly or indirectly held by U.S. residents and,

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

accordingly, we ceased to qualify as a foreign private issuer. We will henceforth assume the status of a domestic issuer for purposes of the Securities Exchange Act of 1934, as amended.

      In 2004 and prior years, Alcan was considered a related party due to its parent-subsidiary relationship with the Novelis entities. However, subsequent to the spin-off, Alcan is no longer a related party as defined in Financial Accounting Standards Board (FASB) Statement No. 57, Related Party Disclosures. Refer to Note 5 — Related Party Transactions.

      Concurrently with the filing of this quarterly report on Form 10-Q for the period ended September 30, 2005, we are filing amendments on Form 10-Q/ A to our quarterly reports on Form 10-Q for the periods ended March 31, 2005 and June 30, 2005, to reflect the restatement of our unaudited condensed consolidated and combined financial statements for the quarter ended March 31, 2005 and the quarter and six months ended June 30, 2005, to correct errors for:

      Our results of operations for the nine months ended September 30, 2005 were impacted by the out-of-period adjustments noted above. These out-of-period adjustments decreased our Net income by $2, net, for the nine months ended September 30, 2005.

      The agreements giving effect to the spin-off provide for various post-transaction adjustments and the resolution of outstanding matters, which are expected to be carried out by the parties by mid-2006. 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.

      We have entered into various agreements with Alcan including the use of transitional and technical services, the supply of Alcan’s metal and alumina, the licensing of certain of Alcan’s patents, trademarks and other intellectual property rights, and the use of certain buildings, machinery and equipment, technology and employees at certain facilities retained by Alcan, but required in our business.

      The unaudited condensed consolidated and combined financial statements for the nine months ended September 30, 2005 include the results for the period from January 1 to January 5, 2005 prior to our spin-off from Alcan, in addition to the results for the period from January 6 to September 30, 2005, as described below. The unaudited condensed combined financial results for the period from January 1 to January 5, 2005 present our operations and cash flows on a carve-out basis. The unaudited condensed consolidated balance sheet as of September 30, 2005 and results for the period from January 6 (the date

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

of the spin-off from Alcan) to September 30, 2005 present our results of operations, financial position and cash flows as a stand-alone entity.

      All income earned and cash flows generated by us as well as the risks and rewards of these businesses from January 1 to January 5, 2005 were primarily attributed to us and are included in our unaudited condensed consolidated results for the period from January 6 to September 30, 2005, with the exception of unrealized losses of $43 ($29 after-tax) arising from the change in market value of derivative contracts, primarily with Alcan. These mark-to-market losses for the period from January 1 to January 5, 2005 were recorded in the unaudited condensed consolidated and combined statements of income for the nine months ended September 30, 2005, and are reflected as a decrease in Owner’s net investment.

      The condensed combined balance sheet as of December 31, 2004 and the unaudited condensed combined financial statements for the third quarter and nine months ended September 30, 2004 (the historical combined financial statements) have been derived from the accounting records of Alcan using the historical results of operations and historical basis of assets and liabilities of the businesses subsequently transferred to us. Management believes the assumptions underlying the historical combined financial statements, including the allocations described below, are reasonable. However, the historical combined financial statements included herein may not necessarily reflect our results of operations, financial position and cash flows or what our results of operations, financial position and cash flows would have been had we been a stand-alone company during the periods presented. Alcan’s investment in the Novelis businesses, presented as Owner’s net investment in the condensed consolidated and combined and historical combined financial statements, includes the accumulated earnings of the businesses as well as cash transfers related to cash management functions performed by Alcan.

      As we were not a stand-alone company and operated as a part of Alcan prior to 2005, the historical combined financial statements include allocations of certain Alcan expenses, assets and liabilities, including the items described below.

      Alcan allocated general corporate expenses to us based on average head count and capital employed. Capital employed represents Total assets less Total current liabilities (excluding debt), Accrued post-retirement benefits, Deferred credits and other liabilities, and Deferred income taxes. These allocations are reflected in Selling, general and administrative expenses in the historical combined financial statements for the third quarter and nine months ended September 30, 2004.

      The general corporate expense allocations are primarily for human resources, legal, treasury, insurance, finance, internal audit, strategy and public affairs and amounted to $6 and $23 for the third quarter and the nine months ended September 30, 2004, respectively. Total corporate office costs, including the amounts allocated, amounted to $11 and $31 for the third quarter and nine months ended September 30, 2004, respectively. The costs allocated are not necessarily indicative of the costs that would have been incurred had we performed these functions as a stand-alone company, nor are they indicative of costs that will be charged or incurred in the future. Subsequent to the spin-off, we perform the majority of these functions using our own resources or purchased services; however, for an interim period, certain services were provided by Alcan. As of March 2006, all but three of the approximately 130 service agreements between us and Alcan have ended. It is not practicable to estimate the amount of expenses we would have incurred for the third quarter and nine months ended September 30, 2004 had we been a stand-alone entity, unaffiliated with Alcan.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      Prior to the spin-off, certain of our entities had pension obligations primarily comprised of defined benefit plans in the U.S. and the U.K., unfunded pension benefits in Germany and lump sum indemnities payable upon retirement to employees of businesses in France, Italy, Korea and Malaysia. These pension benefits are managed separately and the related assets, liabilities and costs are included in both the unaudited condensed consolidated and combined and historical combined financial statements.

      Prior to the spin-off, Alcan managed defined benefit plans in Canada, the U.S., the U.K. and Switzerland that include some of our entities. Our share of these plans’ assets and liabilities is not included in the accompanying combined balance sheet as of December 31, 2004. The historical combined financial statements for the third quarter and nine months ended September 30, 2004, however, include an allocation of the costs of the plans. The costs vary depending on whether the entity was a subsidiary or a division of Alcan at that time. Pension costs of divisions of Alcan that were transferred to us were allocated based on the following methods: service costs were allocated based on a percentage of payroll costs; interest costs, the expected return on assets, and amortization of actuarial gains and losses were allocated based on a percentage of the projected benefit obligation (PBO); and prior service costs were allocated based on headcount. The total allocation of such pension costs amounted to $3 and $9 for the third quarter and nine months ended September 30, 2004, respectively. Pension costs of subsidiaries of Alcan that were transferred to us were accounted for on the same basis as a multi-employer pension plan whereby the subsidiaries’ contributions for the period were recognized as net periodic pension cost. There were no contributions by the subsidiaries for the third quarter and nine months ended September 30, 2004.

      Prior to the spin-off, Alcan provided post-retirement benefits in the form of unfunded healthcare and life insurance benefits to retired employees in Canada and the U.S. that include retired employees of some of our businesses. Our share of these plans’ liabilities is included in the historical combined balance sheet as of December 31, 2004 and our share of these plans’ costs is included in the historical combined statements of income for the third quarter and nine months ended September 30, 2004.

      Subsequent to the spin-off, certain changes were made to the Alcan plans covering our employees and we also established new pension plans, as described in Note 6 — Post-Retirement Benefits. Refer to Note 2 — Accounting Policies for our accounting policies related to the new pension plans.

      Income taxes for 2004 were calculated as if all of our operations had been separate tax paying legal entities, each filing a separate tax return in its local tax jurisdiction. For jurisdictions where there was no tax sharing agreement, amounts currently payable were included in Owner’s net investment.

      Cash and cash equivalents in the combined balance sheet as of December 31, 2004 are comprised of the cash and cash equivalents of our businesses, primarily in South America, Asia and parts of Europe, that perform their own cash management functions.

      Historically, Alcan performed cash management functions on behalf of certain of our businesses primarily in North America, the U.K., and other parts of Europe. Cash deposits from these businesses were transferred to Alcan on a regular basis. As a result, none of Alcan’s cash and cash equivalents was allocated to us in the historical combined financial statements. Transfers to and from Alcan were netted against Owner’s net investment. Subsequent to the spin-off, we are responsible for our own cash management functions.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      We obtain short and long-term financing from third parties and, prior to the spin-off, from related parties. Interest is charged on all short and long-term debt and is included in Interest expense in the accompanying unaudited condensed consolidated and combined statements of income.

      Historically, Alcan provided certain financing to us and incurred third party debt at the parent level. This financing is reflected in the combined balance sheet as of December 31, 2004 within the amounts due to Alcan and is interest-bearing as described in Note 5 — Related Party Transactions. As a result of this arrangement, the historical combined financial statements for the third quarter and nine months ended September 30, 2004 do not include an allocation of additional interest expense. Our interest expense as a stand-alone company is higher than that recognized in the historical combined financial statements for the third quarter and nine months ended September 30, 2004.

      During 2004, we entered into derivative contracts, primarily with Alcan, to manage some of our foreign currency and commodity price risk. These contracts are reported at their fair value on the balance sheet. Changes in the fair value of these derivatives are recorded in the accompanying unaudited condensed consolidated and combined statements of income in Other expenses (income) — net. The cash flows on the settlement of these derivative contracts are reported as part of net cash provided by operating activities in the condensed combined statement of cash flows for periods prior to the spin-off.

      Stock option expense and other stock-based compensation expense in the condensed combined statements of income for the quarter and nine months ended September 30, 2004 includes the Alcan expenses related to the fair value of awards held by certain employees of Alcan’s Rolled Products businesses during the periods presented as well as an allocation, calculated based on the average of headcount and capital employed, for Alcan’s corporate office employees. These expenses are not necessarily indicative of what our expenses would have been had we been a separate stand-alone entity in 2004.

      Prior to the spin-off, we were not a separate legal entity with common shares outstanding. Earnings per share for the 2004 periods have been presented using our common shares outstanding and common share equivalents immediately after the completion of the spin-off on January 6, 2005.

      The unaudited condensed consolidated and combined financial statements are based upon accounting policies and methods of their application consistent with those used and described in our annual financial statements as contained in our most recent annual report, except for the accounting policies described below and the recently adopted accounting policies described in Note 3 — Accounting Changes. Certain reclassifications and revisions have been made to prior period amounts to conform to the current period presentation. Operating results for the third quarter and nine months ended September 30, 2005 are not necessarily indicative of the results for the year ended December 31, 2005.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      Cash and cash equivalents include cash, time deposits, and readily marketable securities with maturities of three months or less at the purchase date.

      The unaudited condensed consolidated and combined and historical combined financial statements include the accounts of subsidiaries that are controlled by Novelis, all of which are majority owned, as well as a variable interest entity in which we are the primary beneficiary. We use the equity method of accounting for investments in entities over which we have significant influence. Under the equity method of accounting, our investment is increased or decreased by our share of the undistributed net income or loss and deferred translation adjustments since acquisition. Investments in joint ventures over which we have an undivided interest in the assets and liabilities are consolidated to the extent of our ownership or participation in the assets and liabilities. All other investments in joint ventures are accounted for using the equity method. Other investments are accounted for using the cost method. Under the cost method, dividends received are recorded as income. Cost investments for which there is an active market are accounted for as available-for-sale. Intercompany balances and transactions, including profits in inventories, are eliminated in the unaudited condensed consolidated and combined and historical combined financial statements.

      Debt issuance costs related to our senior secured credit facilities are recorded in Deferred charges and other assets and amortized over the life of the related borrowing in Interest expense, using the “effective interest amortization” method. Interest expense does not include a commitment fee on an undrawn bridge financing facility, which is included in Other expenses (income) — net.

      Declaration of dividends will depend on, among other things, our financial resources, cash flows generated by our business, cash requirements, restrictions under the instruments governing our indebtedness, and other relevant factors. There can be no assurance that we will continue to pay dividends at the current rate or at all.

      Using appropriate actuarial methods and assumptions, we account for our defined benefit pension plans in accordance with FASB Statement No. 87, Employers’ Accounting for Pensions. Other post-retirement benefits are accounted for in accordance with FASB Statement No. 106, Employers’ Accounting for Post-Retirement Benefits Other than Pensions. Pension and post-retirement benefit obligations are actuarially calculated using management’s best estimates and are based on expected service period, salary increases and retirement ages of employees. Pension and post-retirement benefit expense includes the actuarially computed cost of benefits earned during the current service period, the interest cost on accrued obligations, the expected return on plan assets based on fair market value and the straight-line amortization of net actuarial gains and losses and adjustments due to plan amendments. All net actuarial gains and losses are amortized over the expected average remaining service lives of the employees.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      In December 2004, the FASB issued FASB Statement No. 123(R), Share-Based Payment, (FASB 123(R)), which is a revision to FASB Statement No. 123, Accounting for Stock-Based Compensation (FASB 123). FASB 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. We adopted the fair value based method of accounting for share-based payments effective January 1, 2004 using the retroactive restatement method described in FASB Statement No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. Currently, we use the Black-Scholes valuation model to estimate the value of stock options granted to employees. We expect to adopt FASB 123(R) on January 1, 2006, and expect to apply the modified prospective method upon adoption. The modified prospective method requires companies to record compensation cost beginning with the effective date based on the requirements of FASB 123(R) for all share-based payments granted after the effective date. All awards granted to employees prior to the effective date of FASB 123(R) that remain unvested at the adoption date will continue to be expensed over the remaining service period in accordance with FASB 123.

      In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47) Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143. FIN 47 clarifies that a conditional asset retirement obligation is a legal obligation to perform an asset retirement activity the timing or method of settlement of which is conditional on a future event. FIN 47 also clarifies that a conditional asset retirement obligation should be recognized if its fair value is reasonably estimable and provides guidance on when there is sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 should be applied no later than the end of the fiscal year 2005. The adoption of FIN 47 will not have a material impact on our financial position, results of operations or cash flows.

      In May 2005, the FASB issued FASB Staff Position (FSP) No. EITF 00-19-1, Application of EITF Issue No. 00-19 to Freestanding Financial Instruments Originally Issued as Employee Compensation. The FSP was issued to clarify the application of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, to freestanding financial instruments originally issued as employee compensation that can be settled only by delivering registered shares. This FSP clarifies that a requirement to deliver registered shares, in and of itself, will not result in liability classification for freestanding financial instruments originally issued as employee compensation. This clarification is consistent with the FASB’s intent in issuing FASB 123(R). We will apply the guidance in this FSP in accordance with the effective date and transition provisions of FASB 123(R).

      In June 2005, the FASB ratified the consensus reached in EITF Issue No. 05-5, Accounting for Early Retirement or Postemployment Programs with Specific Features (Such As Terms Specified in Altersteilzeit Early Retirement Arrangements) (EITF 05-5). EITF 05-5 addresses the timing of recognition of salaries, bonuses and additional pension contributions associated with certain early retirement arrangements typical in Germany (as well as similar programs). The EITF also specifies the accounting for government subsidies related to these arrangements. EITF 05-5 is effective in fiscal years beginning after December 15, 2005. The adoption of EITF 05-5 is not expected to have a material impact on our financial position, results of operations or cash flows.

      In June 2005, the FASB issued Staff Position (FSP) FAS 143-1, Accounting for Electronic Equipment Waste Obligations. FSP FAS 143-1 addresses the accounting for obligations associated with Directive 2002/96/ EC on Waste Electrical and Electronic Equipment (the Directive) of the European Union (EU) which is subject to transformation into the respective national laws. Under the Directive, the waste management obligation remains with the commercial user until the historical waste equipment (put

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

on the market before August 13, 2005) is replaced. At that time the waste management obligation for the equipment may be transferred to the producer of the replacement equipment depending on the transformation of the Directive into national law by the EU member country. If the commercial user does not replace the equipment, the obligation remains with that user until the equipment is disposed. FSP FAS 143-1 requires the commercial user to apply the provisions of FASB 143, Accounting for Asset Retirement Obligations, to the obligation associated with historical waste equipment. FSP FAS 143-1 will have to be applied in the first reporting period ending after the date the law is adopted by the applicable EU member countries. The adoption of FSP FAS 143-1 did not have a material impact on our financial position, results of operations or cash flows.

      In July 2005, the FASB issued FSP No. APB 18-1, Accounting by an Investor for Its Proportionate Share of Accumulated Other Comprehensive Income of an Investee Accounted for under the Equity Method in Accordance with APB Opinion No. 18 upon a Loss of Significant Influence, to provide guidance on how an investor should account for its proportionate share of an investee’s equity adjustments for other comprehensive income (OCI) upon a loss of significant influence. The FSP states that an investor’s proportionate share of an investee’s equity adjustments for OCI should be offset against the carrying value of the investment at the time significant influence is lost. To the extent that the offset results in a carrying value of the investment that is less than zero, an investor should (a) reduce the carrying value of the investment to zero and (b) record the remaining balance in income. The guidance in this FSP is effective for us as of the first reporting period beginning after July 12, 2005. Upon adoption of this FSP, any amount of an investee’s equity adjustments for OCI recorded in the shareholders’ equity of the investor, relating to an investment for which the reporting entity no longer has an ability to exercise significant influence, should be offset against the carrying value of the investment. The amount that is offset should not include any items of accumulated OCI, relating to unrealized gains and losses recorded in accordance with FASB Statement No. 115 (FASB 115), Accounting for Certain Investments in Debt and Equity Securities, that are recorded by an investor for an investment that is accounted for as an available-for-sale security in accordance with FASB 115 upon adoption of this FSP. If comparative financial statements are provided for earlier periods, those financial statements shall be retrospectively adjusted to reflect application of the provisions of this FSP. There is no impact on our consolidated financial position, results of operations or cash flows from this FSP.

      In September 2005, the FASB ratified Emerging Issues Task Force Issue No. 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty (EITF 04-13). EITF 04-13 discusses whether inventory purchase and sales transactions with the same counterparty that are entered into in contemplation of one another should be combined and treated as a nonmonetary exchange and addresses (a) under what circumstances should two or more transactions with the same counterparty (counterparties) be viewed as a single nonmonetary transaction within the scope of APB Opinion No. 29, Accounting for Nonmonetary Transactions (APB 29) and Financial Accounting Standard No. 153, Exchanges of Nonmonetary Assets, an Amendment of APB 29 (FAS 153) and (b) if nonmonetary transactions within the scope of APB 29 and FAS 153 involve inventory, are there any circumstances under which the transactions should be recognized at fair value. The pronouncement is effective for new inventory arrangements entered into, or modifications or renewals of existing inventory arrangements occurring in interim or annual reporting periods beginning after March 15, 2006. We do not expect that this pronouncement will have a material effect on our financial position, results of operations or cash flows.

      We have determined that all other recently issued accounting pronouncements do not apply to us.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      Effective January 1, 2004, Alcan retroactively adopted the fair value recognition provisions of FASB 123 for stock options granted to employees. Both the unaudited condensed consolidated and combined and historical combined financial statements include the compensation cost for options granted to certain of our employees. In addition, the historical combined financial statements include an allocation of expenses for Alcan’s corporate office employees. Beginning January 1, 1999, all periods were restated to reflect compensation cost as if the fair value method had been applied for awards issued to these employees after January 1, 1995. We apply the fair value recognition provisions of FASB 123 to our new stock option plans as described in Note 19 — Stock Options and Other Stock-Based Compensation.

      Effective January 1, 2004, Alcan adopted the provisions of FASB Interpretation No. 46(R) (FIN 46(R), revised December 2003), Consolidation of Variable Interest Entities. In 2004, Alcan determined it was the primary beneficiary of Logan Aluminum Inc. (Logan), a variable interest entity. As a result, both the unaudited condensed consolidated and combined and condensed combined balance sheets include the assets and liabilities of Logan. Logan is a joint venture that manages a tolling arrangement for us and an unrelated party. At the date of adoption of FIN 46(R), Alcan recorded assets of $38 and liabilities of $38 related to Logan that were previously not recorded on its balance sheet. Prior periods were not restated.

      Our investment plus any unfunded pension liability related to Logan totaled $37 as of December 31, 2004 and represents our maximum exposure to loss. Creditors of Logan do not have recourse to our general credit as a result of including Logan in our unaudited condensed consolidated and combined financial statements.

      In 2006, we announced an agreement with Atlante Srla for the sale of land in Borgofranco, Italy, that is currently occupied by one of our casting alloy plants. We had previously announced on November 3, 2005, our decision to close the facility by the end of March 2006. Atlante Srla, a new Italian energy company, plans to develop a business on the site and took possession of approximately three-quarters of the land on April 1, 2006, with the balance transferring at a later date. We will retain responsibility for environmental remediation of the site, including the elimination of any remaining salt cake byproduct from the casting alloys operation.

      In the third quarter of 2005, we recorded charges of $12 in connection with the sale of Borgofranco. Approximately $6 is for environmental remediation while the remainder is related to asset write-downs and redundancies. We expect to record additional charges of $2 in the fourth quarter of 2005 for asset write-downs and a further charge of approximately $3 in the first quarter of 2006 for redundancies and decommissioning.

      In line with our objective of value maximization, we undertook various restructuring initiatives in 2004.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      In the fourth quarter of 2004, we recorded liabilities of $23 for restructuring costs in connection with the exit of certain operations of Pechiney and these costs were recorded in the allocation of the purchase price of Pechiney as of December 31, 2004. These costs relate to a plant closure in Flemalle, Belgium (Novelis Europe) and comprise $19 of severance costs and $4 of other charges. No further charges are expected to be incurred in relation to this plant closure.

      In 2005, we recorded recoveries of $4 in connection with the operations of Pechiney. These recoveries were credited against the Goodwill associated with the Pechiney acquisition.

      In the third quarter of 2004, we incurred restructuring charges of $19 relating to the consolidation of our U.K. aluminum sheet-rolling activities in Rogerstone, Wales (Novelis Europe) in order to improve competitiveness through better capacity utilization and economies of scale. Production ceased at the rolling mill in Falkirk, Scotland (Novelis Europe) in December 2004 and the facility was closed in the first quarter of 2005. The charges of $19 include $6 of severance costs, $8 of asset impairment charges, $2 of pension costs, $2 of decommissioning and environmental costs and $1 of other charges, which were recorded in Other expenses (income) — net in the historical combined statement of income.

      In 2004, we incurred restructuring charges of $6 (Q1: nil; Q2: nil; Q3: $1; Q4: $5), relating to the closure and restructuring of corporate offices and a plant in Germany, comprised of $5 (Q1: nil; Q2: nil; Q3: $1; Q4: $4) for severance costs and $1 (Q1: nil; Q2: nil; Q3: nil; Q4: $1) related to costs to consolidate facilities, which were recorded in Other expenses (income) — net in the historical combined statement of income. No further charges are expected to be incurred in relation to these restructuring activities.

      In 2005, we recorded recoveries of $1 in connection with 2004 restructuring program activities in Nachterstedt, Germany (Q1: $1; Q2: nil; Q3: nil).

      In 2001, Alcan implemented a restructuring program, resulting in a series of plant sales, closures and divestitures throughout the organization. A detailed business portfolio review was undertaken in 2001 to identify high cost operations, excess capacity and non-core products. Impairment charges were recognized as a result of negative projected cash flows and recurring losses. These charges related principally to buildings, machinery and equipment. This program was essentially completed in 2003.

      In 2004, we recorded recoveries related to the 2001 restructuring program comprised of $7 (Q1: $7; Q2: nil; Q3: nil; Q4: nil) relating to a gain on the sale of assets related to the closure of facilities in Glasgow, U.K. (Novelis Europe) and a recovery of $1 (Q1: nil; Q2: $1; Q3: nil; Q4: nil) relating to a provision in the U.S. (Novelis North America).

      In 2005, we recorded recoveries of $2 in connection with 2001 restructuring program activities in Rogerstone, Wales (Q1: $1; Q2: $1; Q3: nil).

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      The schedule provided below shows details of the provision balances, related cash payments and recoveries for the significant restructuring activities included in Other expenses (income) — net in the unaudited condensed consolidated and combined statements of income:

      In connection with our 2004 restructuring activities, we received $7 in proceeds from the sale of land at the closed rolling mill in Falkirk, Scotland (Novelis Europe) in October 2005 resulting in a gain of $7.

      In March 2006, we announced additional actions in the restructuring of our European operations, with the sale of our aluminum rolling mill in Annecy, France to private equity firm American Industrial Acquisition Corporation and the reorganization of our plants in Ohle and Ludenscheid, Germany, including the closure of two non-core business lines located within those facilities. We will record a pre-tax accounting charge of approximately $14 in connection with the sale of the Annecy plant, and a pre-tax accounting charge in the $10 to $12 range for the restructuring of the Ohle and Ludenscheid operations for the first quarter of 2006. These charges include redundancy costs and the write-off of assets on the balance sheet.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      The following table describes the nature and amounts of transactions that we had with related parties during the quarter and nine months ended September 30, 2005 and 2004. In 2004, Alcan was considered a related party to Novelis. However, subsequent to the spin-off, Alcan is no longer a related party as defined in FASB Statement No. 57, Related Party Disclosures, and accordingly, all transactions between Novelis and Alcan are third party transactions.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      The table below describes the nature of and the period-end balances that we have with related parties:

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      Our pension obligations relate to funded defined benefit pension plans we have established in the United States, Canada and the United Kingdom, unfunded pension benefits primarily in Germany, and lump sum indemnities payable upon retirement to employees of businesses in France, Korea, Malaysia and Italy. Pension benefits are generally based on the employee’s service and either on a flat dollar rate or on the highest average eligible compensation before retirement. In addition, some of our entities participate in defined benefit plans managed by Alcan in the U.S., the U.K. and Switzerland.

      In 2005, the following transactions transpired related to existing Alcan pension plans covering our employees:

      For the quarter and nine months ended September 30, 2005, we contributed $4 and $11, respectively, to the Alcan sponsored plans described above.

      The following plans were newly established in 2005 to replace the Alcan pension plans that previously covered our employees (other Alcan pension plans covering our employees were assumed by us):

      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.

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.

      The board of directors reviewed management’s recommendations with respect to certain modifications of our post-retirement benefit plans. On October 28, 2005, our board of directors approved and adopted the following changes related to post-retirement benefit plans:

      These transfers of assets and liabilities may have a material impact on our financial statements in 2006. We are unable to determine the amount with certainty at this time, as the relevant employee elections have not been made.

      Alcan provides unfunded health care and life insurance benefits to retired employees in Canada and the United States, which include retired employees of some of our businesses. Our share of these plans’ liabilities and costs are included in the historical combined financial statements. We expect to pay benefits of $6 in 2005 related to these plans from operating cash flows.

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      Components of net periodic benefit cost are shown in the table below:

      The expected long-term rate of return on plan assets is 7.5% in 2005.

      In the quarter ended June 30, 2004, we recognized a $19 settlement gain on the wind-up of the Brazilian operations’ defined benefit plan.

      Our pension funding policy is to contribute the amount required to provide for contractual benefits attributed to service to date, and to amortize unfunded actuarial liabilities, for the most part over periods of 15 years or less. We previously disclosed in our historical combined financial statements for the year ended December 31, 2004 that we expected to contribute $10 to our funded pension plans in 2005. The contributions are expected to be fully comprised of cash. As of September 30, 2005, $14 has been contributed, and we expect to contribute an additional $2 over the remainder of the year. The additional contributions are necessary to fund pension plan deficits in certain countries as well as new pension plans created subsequent to our spin-off. We also expect to pay $9 of unfunded pension benefits and lump sum indemnities from operating cash flows in 2005.

      We also participate in savings plans in Canada and the U.S. as well as defined contribution pension plans in Malaysia and Brazil. We expect to make contributions of $9 to these plans in 2005 ($8 in 2004).

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

      The following table presents the components of Other expenses (income) — net:

      The provision (benefit) for income taxes is comprised of the following:

      The effective tax rates for the nine months ended September 30, 2005 and 2004 were 60% and 42%, respectively, compared to the Canadian statutory rate of 33% for both periods. For the nine months ended

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

September 30, 2005, the reconciliation of income taxes at the Canadian statutory rates to our effective rate is as follows:

      The 2004 historical combined financial statements were prepared on a carve-out basis. A comparison of our nine months 2004 effective rate to the statutory rate would not be meaningful.

      We use the treasury stock method to calculate the dilutive effect of stock options and other stock equivalents (dilutive shares). The following table shows the information used in the calculation of basic and diluted earnings per share:

      Options to purchase an aggregate of 2,707,171 of our common shares were held by our employees as of September 30, 2005. Of these, 2,696,070 options to purchase common shares at an average exercise price of $21.57 per share were dilutive for the third quarter ended September 30, 2005. For the nine months ended September 30, 2005, 1,366,028 options to purchase common shares at an average exercise

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

price of $19.43 per share are dilutive. These dilutive stock options are equivalent to 342,493 of our common shares for the third quarter and 203,052 for the nine months ended September 30, 2005. Additionally, there are 41,652 Director Deferred Share Units (DDSUs) (see Note 19 — Stock Options and Other Stock-Based Compensation) for the third quarter and nine months ended September 30, 2005 that were included as dilutive shares. The number of anti-dilutive Novelis options held by our employees for the third quarter and nine months ended September 30, 2005 was 11,101 and 1,341,143, respectively.

      For both the third quarter and the nine months ended September 30, 2004 under rules applicable to carve-out statements, the effect of dilutive stock options was calculated based on an aggregate of 1,356,735 Alcan common shares held by Novelis employees. Of these, 685,285 options to purchase Alcan common shares at an average exercise price of CAN$38.86 (US$29.96) per share were dilutive for both the third quarter and nine months ended September 30, 2004. These dilutive stock options were equivalent to 443,351 of Novelis common shares for both the third quarter and nine months ended September 30, 2004. The number of anti-dilutive Alcan options held by Novelis employees as of September 30, 2004 was 671,450.

      Prior to the spin-off, we transferred third party trade receivables to Alcan, a related party, which were then subsequently sold to a financial institution under Alcan’s accounts receivable securitization program. Subsequent to the spin-off, we have not securitized any of our third party trade receivables.

      Novelis Korea Limited forfaits trade receivables in the ordinary course of business. These trade receivables are typically outstanding for 60 to 120 days. Forfaiting is a non-recourse method to manage credit and interest rate risks. Under this method, customers contract to pay a financial institution. The institution assumes the risk of non-payment and remits the invoice value (net of a fee) to us after presentation of a proof of delivery of goods to the customer. We do not retain a financial or legal interest in these receivables, and they are not included in the accompanying unaudited condensed consolidated and combined balance sheets.

      The table below summarizes forfaiting activities for the periods presented:

      Our Brazilian operations accelerate their cash collections by factoring, without recourse, trade receivables that are unencumbered by pledge restrictions. Under this method, customers are directed to pay invoices to a financial institution, but are not contractually required to do so. The financial institution pays us any invoices it has approved for payment (net of a fee). We do not retain financial or legal interest in these receivables, and they are not included in the accompanying unaudited condensed

Novelis Inc.

NOTES TO THE CONDENSED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS (unaudited) — (Continued)

(in millions of US$, except where indicated)

consolidated and combined balance sheets. The following table summarizes our factoring activities for the periods presented: