Timminco 2008 Annual Report

In February 2008, the CICA approved Handbook Section 3064, “Goodwill and Intangible Assets”, replacing previous guidance. The new section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets subsequent to initial recognition. Standards concerning goodwill are unchanged. This new standard is applicable to fiscal years beginning on or after October 1, 2008. The Company is reviewing this standard, and has not yet determined the impact, if any, on the consolidated financial statements. In conjunction with this new standard, Handbook Section 1000, “Financial Statement Concepts”, has been amended to eliminate references that might be interpreted by some as permitting the recognition of assets that would not otherwise meet the definition of an asset or the recognition criteria.

Business Combinations

In January 2009, the CICA approved Handbook Section 1582 “Business Combinations”, replacing existing Section 1581 by the same name. It establishes standards for the accounting for a business combination. It provides the Canadian generally accepted accounting principles equivalent to International Financial Reporting Standard IFRS 3 Business Combinations (January 2008). The Section applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011. The CICA recommends that entities planning business combinations in the fiscal year beginning on or after January 1, 2010 adopt these new standards early to avoid restatement on transition to IFRS in 2011. Early adoption of the new standard is permitted.

Consolidated Financial Statements

In January 2009, the CICA approved Handbook Section 1601, “Consolidated Financial Statements” and Handbook Section 1602, “Non-controlling Interests” replacing existing Section 1600, “Consolidated Financial Statements”. This Section establishes standards for the preparation of consolidated financial statements. The Section applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. The CICA recommends that entities planning business combinations in the fiscal year beginning on or after January 1, 2010 adopt these new standards early to avoid restatement on transition to IFRS in 2011. Early adoption of the new standard is permitted.

Non-controlling Interests

In January 2009, the CICA approved Handbook Section 1602, “Non-controlling Interests”. It establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. It is equivalent to the corresponding provisions of International Financial Reporting Standard IAS 27, “Consolidated and Separate Financial Statements (January 2008)”. The Section applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. The CICA recommends that entities planning business combinations in the fiscal year beginning on or after January 1, 2010 adopt these new standards early to avoid restatement on transition to IFRS in 2011. Early adoption of the new standard is permitted.

Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

In January 2009, the CICA Emerging Issues Committee issued EIC-173, “Credit Risk and the Fair Value of Financial Assets and Financial Liabilities”. It requires an entity to consider its own credit risk and the credit risk of the counterparty in determining the fair value of financial assets and financial liabilities, including derivative instruments. This EIC is applicable retrospectively without restatements of prior periods to all financial assets and liabilities measured at fair value in interim and annual financial statements for periods ending on or after January 20, 2009. Retrospective application with restatement of prior periods is permitted but not required. The application of incorporating credit risk into the fair value may result in entities re-measuring the financial assets and financial liabilities as at the beginning of the period of adoption with any resulting difference recorded in retained earnings except when derivatives in a fair value hedging relationship are accounted for by the short cut method (the difference is adjusted to the hedged item) and for derivatives in a cash flow hedging relationship (the difference is recorded in accumulated other comprehensive income).

International Financial Reporting Standards (“IFRS”)

In February 2008, the Accounting Standards Board (“AcSB”) confirmed that Canadian GAAP for publicly traded enterprises will be converted to IFRS effective in calendar year 2011. IFRS uses a conceptual framework similar to Canadian GAAP but there are significant differences on recognition, measurement and disclosures. In the period leading up to the changeover, the AcSB will continue to issue accounting standards that are converged with IFRS such as IAS 2, “Inventories” and IAS 38, “Intangible Assets”, thus mitigating the impact of adopting IFRS at the changeover date.

The Company currently converts its internal financial statements to IFRS in order to report to its parent company and therefore has identified the significant differences between Canadian GAAP and IFRS in its accounts. In terms of the IFRS conversion process, the Company has therefore substantially completed the diagnostic stage. A formal review and documentation of IFRS accounting policy choices was performed on the parent company’s adoption of IFRS effective with its fiscal 2005 results. The Company will review and update these documents during fiscal 2009 to prepare for its formal adoption of IFRS. It is anticipated that the Company will adopt the same IFRS accounting policies that are used to report to its parent company on a retroactive basis.

Since the Company reports IFRS compliant financial results to its parent company, management has determined that the current information technology infrastructure will be sufficient for IFRS conversion and ongoing reporting requirements. Additionally, the Canadian accounting functions are sufficiently aware of IFRS reporting requirements in preparation for a formal implementation on January 1, 2011. It is not anticipated that the implementation of IFRS will have a significant effect on the Company’s control environment, internal controls over financial reporting or disclosure controls and procedures. The implementation of IFRS is not anticipated to result in material differences in the calculation of bank covenants as they are currently defined in the credit agreement.

The Company intends to formalize its IFRS conversion plan during fiscal 2009.