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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

                           For the quarterly period ended: June 30, 2004

Commission file number 1-1143

Inco Limited

(Name of Registrant as specified in its charter)
     
Canada
   98-0000676
(Jurisdiction of Incorporation)   (I.R.S. Employer Identification No.)

145 King Street West, Suite 1500, Toronto, Ontario M5H 4B7*

(Address of principal executive offices, including zip code)

(416) 361-7511

(Telephone number)

     The Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Act”) during the preceding twelve 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.

      The Registrant is an accelerated filer (as defined in Rule 12b-2 under the Act).

      Unless otherwise stated, dollar amounts in this Report are expressed in United States currency.

      Common Shares outstanding at June 30, 2004: 187,538,813 shares, no par value.

      * Notices and communications from the Securities and Exchange Commission may be sent to S.F. Feiner, Executive Vice-President, General Counsel and Secretary, 145 King Street West, Suite 1500, Toronto, Ontario M5H 4B7. His telephone number is (416) 361-7680.

 

PART I — FINANCIAL INFORMATION

Item 1.     Financial Statements

INCO LIMITED AND SUBSIDIARIES

Consolidated Statement of Earnings

(Unaudited)

                                   
Three Months Ended Six Months Ended
June 30, June 30,
(in millions of United States dollars except per share amounts) 2004 2003 2004 2003
(Restated) (Restated)
Revenues
                                
Net sales
  $ 992     $ 599     $ 2,086     $ 1,192  
Other income, net (Note 3)
    10       13       15       41  
     
     
     
     
 
      1,002       612       2,101       1,233  
     
     
     
     
 
Costs and expenses (income)
                                
Cost of sales and other expenses, excluding depreciation and depletion
    580       412       1,137       831  
Depreciation and depletion
    62       59       119       113  
Selling, general and administrative
    41       36       75       60  
Research and development
    7       9       16       14  
Exploration
    6       6       12       12  
Currency translation adjustments
    (18 )     72       (33 )     150  
Interest expense
    6       12       14       26  
Asset impairment charge (Note 4)
    201       —       201       —  
Goro project suspension
    3       6       (3 )     6  
     
     
     
     
 
      888       612       1,538       1,212  
     
     
     
     
 
Earnings before income and mining taxes and minority interest
    114       —       563       21  
Income and mining taxes (Note 5)
    106       (76 )     266       (99 )
     
     
     
     
 
Earnings before minority interest
    8       76       297       120  
Minority interest
    22       12       56       23  
     
     
     
     
 
Net earnings (loss)
     (14 )     64       241       97  
Accretion of convertible debt, net of tax (Note 10)
    (2 )     (1 )     (4 )     (3 )
Dividends on preferred shares
    —       —       —       (6 )
Premium on redemption of preferred shares
    —       —       —       (15 )
     
     
     
     
 
Net earnings (loss) applicable to common shares
  $ (16 )   $ 63     $ 237     $ 73  
     
     
     
     
 
Net earnings (loss) per common share (Note 9)
                               
 
Basic
  $ (0.09 )   $ 0.34     $ 1.27     $ 0.40  
     
     
     
     
 
 
Diluted
  $ (0.09 )   $ 0.34     $ 1.19     $ 0.39  
     
     
     
     
 

See Notes to Consolidated Financial Statements.

2

 

INCO LIMITED AND SUBSIDIARIES

Consolidated Statement of Retained Earnings (Deficit)

(Unaudited)

                 
Six Months Ended
June 30,
(in millions of United States dollars) 2004 2003
(Restated)
Deficit at beginning of period, as previously reported
  $ (226 )   $ (335 )
Change in accounting policy (Note 2)
    20       4  
     
     
 
Deficit at beginning of year, as restated
    (206 )     (331 )
Net earnings
    241       97  
Accretion of convertible debt, net of tax (Note 10)
    (4 )     (3 )
Dividends on preferred shares
    —       (6 )
Premium on redemption of preferred shares
    —       (15 )
     
     
 
Retained earnings (deficit) at end of period
  $ 31     $ (258 )
     
     
 

See Notes to Consolidated Financial Statements.

3

 

INCO LIMITED AND SUBSIDIARIES

Consolidated Balance Sheet

(Unaudited)

                   
June 30, December 31,
(in millions of United States dollars) 2004 2003
(Restated)
ASSETS
Current assets
                
Cash and cash equivalents (Note 14)
  $ 774     $ 418  
Accounts receivable
    490       435  
Inventories (Note 14)
    839       746  
Other
    157       112  
     
     
 
Total current assets
    2,260       1,711  
Property, plant and equipment (Note 14)
    6,960       7,033  
Deferred charges and other assets
    336       319  
     
     
 
Total assets
  $ 9,556     $ 9,063  
     
     
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
                
Long-term debt due within one year
  $ 101     $ 103  
Accounts payable
    257       253  
Accrued payrolls and benefits
    163       165  
Other accrued liabilities
    358       332  
Income and mining taxes payable
    260       27  
     
     
 
Total current liabilities
    1,139       880  
Deferred credits and other liabilities
                
Long-term debt (Note 6)
    1,368       1,409  
Deferred income and mining taxes
    1,697       1,706  
Post-retirement benefits
    600       603  
Asset retirement obligation (Note 8)
    144       141  
Minority interest
    460       442  
     
     
 
Total liabilities
    5,408       5,181  
     
     
 
Commitments and contingencies (Note 12) 
                
Shareholders’ equity
                
Convertible debt (Note 10)
    612       606  
     
     
 
Common shareholders’ equity
               
 
Common shares issued and outstanding 187,538,813 (2003 — 186,915,865 shares) (Note 9)
    2,874       2,858  
 
Warrants (Note 11)
    62       62  
 
Contributed surplus (Note 15)
    569       562  
 
Retained earnings (deficit)
    31       (206 )
     
     
 
      3,536       3,276  
     
     
 
Total shareholders’ equity
    4,148       3,882  
     
     
 
Total liabilities and shareholders’ equity
  $ 9,556     $ 9,063  
     
     
 

See Notes to Consolidated Financial Statements.

4

 

INCO LIMITED AND SUBSIDIARIES

Consolidated Statement of Cash Flows

(Unaudited)

                                     
Three Months Ended Six Months Ended
June 30, June 30,
(in millions of United States dollars) 2004 2003 2004 2003
(Restated) (Restated)
Operating activities
                                
 
Earnings before minority interest
  $ 8     $ 76     $ 297     $ 120  
 
Charges not affecting cash Depreciation and depletion
    62       59       119       113  
   
Deferred income and mining taxes
    26       (72 )     42       (52 )
   
Asset impairment charge
    201       —       201       —  
   
Other
    5       40       8       72  
 
Decrease (increase) in non-cash working capital related to operations
                               
   
Accounts receivable
    5       43       (54 )     (27 )
   
Inventories
    4       (30 )     (93 )     (50 )
   
Accounts payable and accrued liabilities
    (24 )     (12 )     18       (53 )
   
Income and mining taxes payable
    66       (41 )     234       (162 )
   
Other
    (9 )     6       (43 )     (3 )
 
Other
    (5 )     12       (10 )     25  
     
     
     
     
 
 
Net cash provided by (used for) operating activities
    339       81       719       (17 )
     
     
     
     
 
Investing activities
                                
 
Capital expenditures
    (156 )     (128 )     (295 )     (291 )
 
Other
    8       15       (20 )     14  
     
     
     
     
 
 
Net cash used for investing activities
    (148 )     (113 )     (315 )     (277 )
     
     
     
     
 
Financing activities
                                
 
Repayments of long-term debt
    (2 )     (176 )     (48 )     (224 )
 
Long-term borrowings
    —       6       —       8  
 
Convertible debt issued
    —       —       —       470  
 
Common shares issued
    2       —       14       4  
 
Preferred shares redeemed
    —       (487 )     —       (487 )
 
Preferred dividends paid
    —       —       —       (6 )
 
Dividends paid to minority interest
    (14 )     (1 )     (15 )     (2 )
 
Other
    1       (3 )     1       (3 )
     
     
     
     
 
 
Net cash used for financing activities
    (13 )     (661 )     (48 )     (240 )
     
     
     
     
 
Net increase (decrease) in cash and cash equivalents
     178       (693 )     356       (534 )
Cash and cash equivalents at beginning of period
    596       1,246       418       1,087  
     
     
     
     
 
Cash and cash equivalents at end of period
   $ 774     $ 553     $ 774     $ 553  
     
     
     
     
 

See Notes to Consolidated Financial Statements.

5

 

INCO LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in millions of United States dollars except number of shares and per share amounts)

 
Note 1. Basis of Presentation

      The unaudited consolidated financial statements presented herein have been prepared in accordance with generally accepted accounting principles (GAAP) in Canada (see Note 16 for significant differences between Canadian GAAP and United States GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments considered necessary for a fair presentation of results for the periods reported have been included. These adjustments consist only of normal recurring adjustments. Results of operations for the three-month and six-month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004 or any other interim period. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003 (“2003 Annual Report on Form 10-K”).

 
Note 2. Changes in Accounting Policies
 
     (a) Depreciation and depletion expense

      Effective January 1, 2004, on a retroactive basis, we changed the method in which we calculate depreciation and depletion expense. Under the previous method, we depleted mine development costs on a composite basis. Total historical capitalized costs and estimated future development costs relating to our developed and undeveloped estimated proven and probable ore reserves were depleted using the unit-of-production method based on total developed and undeveloped estimated proven and probable ore reserves in our twenty-year mine plan. Under the revised me