SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
Commission file number 1-3677
ALCAN INC.
(Exact name of registrant as specified in its charter)
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CANADA |
Inapplicable | ||
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(State or Other Jurisdiction of |
(I.R.S. Employer Identification No.) | ||
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Incorporation or Organization) |
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1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2 |
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(Address of Principal Executive Offices and Postal Code) |
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(514) 848-8000 |
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(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 Ö No ____
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes Ö No ____
At June 30, 2003, the registrant had 321,739,502 shares of common stock (without nominal or par value) outstanding.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management’s discussion and analysis of financial conditions and results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Disclosure Controls and Procedures.
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
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PART I –
FINANCIAL INFORMATION In this report, all dollar amounts are stated in U.S. dollars and all quantities in metric tons, or tonnes, unless indicated otherwise. A tonne is 1,000 kilograms, or 2,204.6 pounds. The word "Company" refers to Alcan Inc. and, where applicable, one or more of its consolidated subsidiaries. |
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ALCAN INC. |
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INTERIM CONSOLIDATED STATEMENT OF INCOME |
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(unaudited) |
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Periods ended June 30 |
Second Quarter |
Six Months |
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(in millions of US$, except per share amounts) |
2003 |
2002 |
2003 |
2002 |
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Sales and operating revenues |
3,468 |
3,146 |
6,681 |
6,034 |
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Costs and expenses |
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Cost of sales and operating expenses |
2,751 |
2,473 |
5,286 |
4,760 |
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Depreciation and amortization |
231 |
212 |
455 |
411 |
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Selling, administrative and general expenses |
176 |
142 |
339 |
280 |
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Research and development expenses |
32 |
27 |
61 |
55 |
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Interest (note 12) |
56 |
49 |
104 |
99 |
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Restructuring, impairment and other special charges (note 6) |
(16) |
6 |
(14) |
20 |
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Other expenses - net |
52 |
43 |
109 |
50 |
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3,282 |
2,952 |
6,340 |
5,675 |
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Income from continuing operations |
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before income taxes and other items |
186 |
194 |
341 |
359 |
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Income taxes (note 9) |
151 |
122 |
292 |
201 |
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Income from continuing operations |
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before other items |
35 |
72 |
49 |
158 |
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Equity income |
1 |
2 |
1 |
3 |
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Minority interests |
(12) |
(2) |
(13) |
(2) |
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Income from continuing operations |
24 |
72 |
37 |
159 |
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Loss from discontinued operations (note 3) |
(113) |
(1) |
(113) |
(2) |
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Net income (Loss) |
(89) |
71 |
(76) |
157 |
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Dividends on preference shares |
1 |
1 |
3 |
2 |
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Net income (Loss) attributable to common shareholders |
(90) |
70 |
(79) |
155 |
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Net income (Loss) per common share - basic and diluted (note 4) |
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Income from continuing operations |
0.07 |
0.22 |
0.10 |
0.49 |
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Loss from discontinued operations |
(0.35) |
- |
(0.35) |
(0.01) |
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Net Income (Loss) |
(0.28) |
0.22 |
(0.25) |
0.48 |
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Dividends per common share |
0.30 |
0.15 |
0.45 |
0.30 |
The accompanying notes are an integral part of the interim financial statements.
2
ALCAN INC.
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INTERIM CONSOLIDATED STATEMENT OF RETAINED EARNINGS |
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| (unaudited) | ||
| Six months ended June 30 (in millions of US$) |
2003 |
2002 |
| Retained earnings - beginning of year - as reported |
3,503 |
4,074 |
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Accounting change - Impairment of goodwill as at January 1, 2002 (note 2) |
- |
(748) |
| As restated |
3,503 |
3,326 |
| Net income (Loss) |
(76) |
157 |
| Dividends | ||
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- Common |
(145) |
(96) |
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- Preference |
(3) |
(2) |
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Retained earnings - end of period |
3,279 |
3,385 |
The accompanying notes are an integral part of the interim financial statements.
3
ALCAN INC.
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INTERIM CONSOLIDATED BALANCE SHEET (unaudited for 2003) |
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(in millions of US$) |
June 30, 2003 |
December 31, 2002 |
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ASSETS |
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Current assets |
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Cash and time deposits |
127 |
109 |
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Trade receivables |
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(net of allowances of $61 in 2003 and $58 in 2002) |
1,550 |
1,264 |
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Other receivables |
432 |
542 |
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Inventories |
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• Aluminum operating segments |
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. Aluminum |
964 |
905 |
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. Raw materials |
432 |
390 |
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. Other supplies |
305 |
296 |
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1,701 |
1,591 |
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• Packaging operating segment |
519 |
368 |
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2,220 |
1,959 |
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Current assets held for sale (note 3) |
83 |
76 |
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4,412 |
3,950 |
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Deferred charges and other assets |
665 |
666 |
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Property, plant and equipment |
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• Cost (excluding Construction work in progress) |
18,402 |
17,630 |
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• Construction work in progress |
704 |
570 |
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• Accumulated depreciation |
(8,654) |
(8,107) |
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10,452 |
10,093 |
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| Intangible assets, net of accumulated amortization of $69 in 2003 and $53 in 2002 |
319 |
318 |
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Goodwill |
2,353 |
2,303 |
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Long-term assets held for sale (note 3) |
72 |
208 |
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Total assets |
18,273 |
17,538 |
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The accompanying notes are an integral part of the interim financial statements.
4
ALCAN INC.
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INTERIM CONSOLIDATED BALANCE SHEET (cont'd) (unaudited for 2003) |
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(in millions of US$) |
June 30, 2003 |
December 31, 2002 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities |
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Payables and accrued liabilities |
2,509 |
2,294 |
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Short-term borrowings |
348 |
381 |
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Debt maturing within one year |
235 |
295 |
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Current liabilities of operations held for sale (note 3) |
41 |
47 |
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3,133 |
3,017 |
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Debt not maturing within one year (note 13) |
3,517 |
3,186 |
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Deferred credits and other liabilities |
1,631 |
1,418 |
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Deferred income taxes |
1,198 |
1,120 |
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Long-term liabilities of operations held for sale (note 3) |
8 |
22 |
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Minority interests |
195 |
150 |
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Shareholders' equity |
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Redeemable non-retractable preference shares |
160 |
160 |
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Common shareholders' equity |
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• Common shares |
4,711 |
4,703 |
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• Retained earnings |
3,279 |
3,503 |
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• Deferred translation adjustments |
441 |
259 |
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8,431 |
8,465 |
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8,591 |
8,625 |
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Commitments and contingencies (note 11) |
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Total liabilities and shareholders' equity |
18,273 |
17,538 |
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The accompanying notes are an integral part of the interim financial statements.
5
ALCAN INC.
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INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) |
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Periods ended June 30 (in millions of US$) |
Second Quarter |
Six Months |
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2003 |
2002 |
2003 |
2002 |
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OPERATING ACTIVITIES |
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| Income from continuing operations |
24 |
72 |
37 |
159 |
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Adjustments to determine cash from operating activities: |
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Depreciation and amortization |
231 |
212 |
455 |
411 |
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Deferred income taxes |
44 |
36 |
69 |
40 |
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Asset impairment provisions |
8 |
9 |
8 |
9 |
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Gain on sales of businesses and investment - net |
(51) |
- |
(51) |
- |
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Change in operating working capital: |
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• Change in receivables |
112 |
38 |
71 |
51 |
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• Change in inventories |
(40) |
(10) |
(60) |
23 |
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• Change in payables |
(47) |
(2) |
(36) |
(91) |
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• Total change in operating working capital |
25 |
26 |
(25) |
(17) |
| Change in deferred charges, other assets, deferred credits and other liabilities - net |
33 |
40 |
106 |
65 |
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Other - net |
19 |
(2) |
24 |
(8) |
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Cash from operating activities in continuing operations |
333 |
393 |
623 |
659 |
| Cash from (used for) operating activities in discontinued operations (note 3) |
3 |
7 |
7 |
(1) |
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Cash from operating activities |
336 |
400 |
630 |
658 |
The accompanying notes are an integral part of the interim financial statements.
6
ALCAN INC.
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INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd) (unaudited) |
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Periods ended June 30 (in millions of US$) |
Second Quarter |
Six Months |
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2003 |
2002 |
2003 |
2002 |
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FINANCING ACTIVITIES |
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New debt |
501 |
51 |
505 |
182 |
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Debt repayments |
(261) |
(21) |
(346) |
(192) |
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240 |
30 |
159 |
(10) |
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Short-term borrowings - net |
(40) |
(49) |
(64) |
(175) |
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Common shares issued |
3 |
4 |
8 |
10 |
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Dividends |
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• Alcan shareholders (including preference) |
(50) |
(49) |
(100) |
(98) |
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• Minority interests |
(1) |
(2) |
(10) |
(3) |
| Cash from (used for) financing activities in continuing operations |
152 |
(66) |
(7) |
(276) |
| Cash used for financing activities in discontinued operations (note 3) |
(1) |
- |
(4) |
(1) |
| Cash from (used for) financing activities |
151 |
(66) |
(11) |
(277) |
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INVESTMENT ACTIVITIES |
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Property, plant and equipment |
(206) |
(152) |
(337) |
(257) |
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Business acquisitions (note 14) |
(343) |
(172) |
(348) |
(172) |
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(549) |
(324) |
(685) |
(429) |
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| Net proceeds from disposal of businesses, investments and other assets |
47 |
11 |
53 |
47 |
| Cash used for investment activities in continuing operations |
(502) |
(313) |
(632) |
(382) |
| Cash used for investment activities in discontinued operations (note 3) |
(2) |
(3) |
(4) |
(5) |
| Cash used for investment activities |
(504) |
(316) |
(636) |
(387) |
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Effect of exchange rate changes on cash and time deposits |
3 |
7 |
4 |
8 |
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Increase (Decrease) in cash and time deposits |
(14) |
25 |
(13) |
2 |
| Cash of subsidiaries consolidated - net |
30 |
- |
30 |
- |
| Cash and time deposits - beginning of period |
111 |
96 |
110 |
119 |
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Cash and time deposits - end of period |
127 |
121 |
127 |
121 |
The accompanying notes are an integral part of the interim financial statements.
7
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ALCAN INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 (Unaudited) (in millions of US$, except per share amounts) |
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1. |
ACCOUNTING
POLICIES
The unaudited interim consolidated financial statements are based upon accounting policies and methods of their application consistent with those used and described in the Company's annual financial statements, except for the recently adopted accounting policies described below. The interim financial statements do not include all of the financial statement disclosures included in the annual financial statements prepared in accordance with Canadian generally accepted accounting principles (GAAP) and therefore should be read in conjunction with the most recent annual financial statements.
Recently Adopted Accounting Policies Impairment of Long-lived Assets On January 1, 2003, the Company elected to early adopt the Canadian Institute of Chartered Accountants (CICA) section 3063, Impairment of Long-lived Assets. Under this standard, an impairment loss is recognized when the carrying amount of a long-lived asset held for use is not recoverable and exceeds its fair value. An impairment loss of $8 relating to the packaging operations was recorded in the second quarter of 2003. Disposal of
Long-lived Assets and Discontinued Operations
On January 1, 2003, the Company elected to early
adopt the CICA section 3475, Disposal of Long-lived Assets and Discontinued
Operations. Under this standard, a long-lived asset to be disposed of by
sale is measured at the lower of its carrying amount or fair value less cost
to sell, and is not amortized while classified as held for sale. Assets and
liabilities classified as held for sale are reported as assets held for sale and
liabilities of operations held for sale on the balance sheet. A long-lived
asset to be disposed of other than by sale, such as by abandonment, before
the end |