Norbord Reports Third Quarter 2009 Results
- Press Release
- Source: Norbord Inc.
- On 6:00 am EDT, Friday October 30, 2009
<< Note: Financial references in US dollars unless otherwise indicated
Q3 2009 HIGHLIGHTS
- Generated positive EBITDA of $10 million; a $19 million improvement vs. Q3 2008 - Improved safety recordable rate by 55% year-over-year - Implemented a one-for-ten share consolidation >>
TORONTO, Oct. 30, 2009 /CNW/ - Norbord Inc. (TSX: NBD - News, NBD.WT - News) today reported a loss of $7 million or $0.16 per share in the third quarter of 2009. Norbord recorded losses of $18 million or $0.42 per share in the prior quarter and $18 million or $1.21 per share in the third quarter of 2008.Related Quotes
| Symbol | Price | Change |
|---|---|---|
| NBD.TO | 12.60 | 0.00 |
Norbord recorded positive EBITDA of $10 million in Q3 2009 compared to negative $2 million in Q2 2009 and negative $9 million in the same period last year. North American operations generated positive EBITDA of $9 million in Q3 2009 compared to negative $6 million in Q2 2009 and negative $2 million in Q3 2008. Norbord's European mills generated positive EBITDA of $5 million in Q3 2009 compared to positive $4 million in Q2 2009 and negative $5 million in Q3 2008.
"I'm pleased to report that positive EBITDA was recorded in both our North American and European operations this quarter," said Barrie Shineton, President and CEO. "This better result reflected a seasonal increase in North American OSB prices and the benefits of our continued work to reduce operating costs and improve product mix. Looking ahead, most market indicators remain weak. In my view, high unemployment and restrictions on credit availability for first time home buyers in the US and the UK will continue to impact housing and panel demand. We expect it will take 6 to 12 months for these trends to reverse and meaningful improvement to occur in new home construction."
Market Conditions
In North America, the North Central OSB benchmark price peaked at $191 and averaged $178 in the third quarter - $32 higher than the average price in the second quarter, but $23 lower than the same period last year. South East prices averaged $157 in the third quarter compared to $140 in the second quarter and $158 in third quarter of 2008. A modest seasonal increase in housing demand was supported, in part, by the $8,000 tax credit for new home buyers. This tax credit incentive expires at the end of November. Industry lobbying efforts are underway to extend or replace this credit with new housing incentives.
Experts continue to forecast actual US housing starts of approximately 0.55 million in 2009 and the current outlook for 2010 ranges from 0.6 million to 0.9 million starts.
In the UK, housing activity increased marginally during the quarter as investment buyers were more active in the market and house prices stabilized. While this is positive, industry experts cautioned that improved mortgage availability and increased first-time buying is needed for a housing market recovery to take hold. The "do-it-yourself" business segment experienced growth during the quarter and Norbord's European operation was well positioned to benefit from this development. Pricing for Norbord's European products (OSB, MDF and particleboard) was unchanged quarter over quarter.
Performance
Norbord's North American mills operated at approximately 65% of capacity in the third quarter. According to APA - The Engineered Wood Association, the OSB industry in North America operated at 60% of capacity. Norbord's European mills operated at 75% of capacity in the quarter.
Norbord's North American per unit OSB cash production costs decreased 3% from the previous quarter due to higher production volume, improved key input usage rates and lower operating costs. Norbord's North American per unit OSB cash production costs decreased 12% compared to the same quarter last year as lower input costs more than offset the impact of lower production volumes.
Positive EBITDA of $10 million and a $13 million decrease in non-cash working capital more than covered the $10 million interest expense and resulted in cash from operating activities of $15 million in the third quarter. The working capital improvement quarter over quarter was due to the seasonal decrease in log inventory, which more than offset bond coupon payments and a repayment of proceeds under the accounts receivable securitization program.
At quarter-end, Norbord had unutilized liquidity of $229 million consisting of cash and cash equivalents, revolving bank lines and the Brookfield debt facility. The Company's tangible net worth was $344 million and net debt to total capitalization (book basis) was 58% at the end of the quarter.
Capital investments totaled $3 million in the third quarter and $11 million year-to-date. Norbord's capital investment program has been limited to essential projects and is expected to total $15 million in 2009.
Developments
On October 13, 2009, the Company's Board of Directors authorized the implementation of a share consolidation on the basis of one post-consolidated common share for every ten pre-consolidated common shares. The effective date for the share consolidation was October 16, 2009 and Norbord's common shares began trading on a post-consolidated basis on the Toronto Stock Exchange on October 21, 2009. No fractional shares were issued. Norbord's common shares continue to trade on the Toronto Stock Exchange under the symbol 'NBD'. The new CUSIP number is 65548P403.
Additional Information
Please note that Norbord's third quarter 2009 letter to shareholders, news release, management's discussion & analysis, unaudited financial statements and notes to the financial statements have been filed on SEDAR (www.sedar.com) and are available in the investor section of the Company's website at www.norbord.com. Shareholders are encouraged to read this material.
Conference Call
Norbord will hold a conference call for analysts and institutional investors on Friday, October 30, 2009 at 11:00 a.m. ET. The call will be broadcast live over the Internet via www.norbord.com and www.newswire.ca. A replay number will be available approximately one hour after completion of the call and accessible until November 30, 2009 by dialing 1-888-203-1112 or 647-436-0148. The passcode is 4018181. Audio playback and a written transcript will be available on the Norbord website.
Norbord Profile
Norbord Inc. is an international producer of wood-based panels with assets of $1.0 billion, employing approximately 2,400 people at 14 plant locations in the United States, Europe and Canada. Norbord is one of the world's largest producers of oriented strand board (OSB). In addition to OSB, Norbord manufactures particleboard, medium density fibreboard (MDF), hardwood plywood and related value-added products. Norbord is a publicly traded company listed on the Toronto Stock Exchange under the symbols NBD and NBD.WT.
This news release contains forward-looking statements, as defined in applicable legislation. Often, but not always, words such as "believe," "will," "expect," "expects," "expected," "forecast," "estimate," "estimates," "estimated," "likely," "may," "agreed to," "would," and other expressions which are predictions of or indicate future events, trends or prospects and which do not relate to historical matters identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
Although Norbord believes it has a reasonable basis for making these forward-looking statements, readers are cautioned not to place undue reliance on such forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predictions, forecasts and other forward-looking statements will not occur. Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include: general economic conditions; risks inherent with product concentration; effects of competition and product pricing pressures; risks inherent with customer dependence; effects of variations in the price and availability of manufacturing inputs; risks inherent with a capital intensive industry; and other risks and factors described from time to time in filings with Canadian securities regulatory authorities.
Except as required by applicable laws, Norbord does not undertake to update any forward-looking statements, whether as a result of new information, future events or otherwise, or to publicly update or revise the above list of factors affecting this information. See the "Caution Regarding Forward-Looking Information" statement in the March 2, 2009 Annual Information Form and the cautionary statement contained in the "Forward-Looking Statements" section of the 2008 Management's Discussion and Analysis dated January 29, 2009.
J. Barrie Shineton President & Chief Executive Officer
October 30, 2009 To Our Shareholders,Norbord's positive EBITDA result of $10 million in the third quarter is a $12 million improvement over the prior quarter. This better result largely reflected a seasonal increase in North American OSB prices and the benefits of our continued work to reduce operating costs and improve product mix.
In North America, OSB benchmark prices reached their year-to-date peak in the third quarter, averaging $178 (7/16" - North Central). While this was a welcome development, third quarter OSB prices were still more than $20 lower than the same period last year. On a more positive note, we believe housing demand has finally reached the bottom. That said, there is significant debate amongst economists and housing industry forecasters regarding how long demand will stay at these very low levels before recovery occurs. Current US housing start forecasts for 2010 range from 0.6 million to 0.9 million, suggesting an average improvement of 30% over 2009's record low levels.
There were several encouraging developments in Europe during the quarter. Specifically, investment buyers re-entered the UK market and house prices have stabilized. However, industry experts cautioned that improved mortgage availability for first-time buyers is still needed for a more robust housing recovery to take hold. The 'do-it-yourself' (DIY) business segment, which has remained surprisingly steady to-date, reported sales growth in the third quarter. Norbord's European operations continued to benefit from this improvement due to our strong market position and established relationships with leading DIY retailers. And finally, the weaker Pound relative to the Euro provided a significant advantage for UK-based manufacturers again this quarter. In my view, this currency advantage will continue to have a positive impact on Norbord's business as it creates greater sales opportunities in the UK and allows us to expand our exports into Continental Europe.
You will recall that Norbord's Directors received shareholder approval at our annual & special shareholders meeting in April 2009 to implement a one-for-ten share consolidation. Effective October 16, 2009, Norbord moved forward with this initiative and our common shares are now trading on the Toronto Stock Exchange on a post-consolidated basis. Details regarding the rationale for the share consolidation were outlined in our 2009 Management Proxy Circular. A copy of the circular can be found on our website and I encourage you to read this material. In summary, management and the Board believe that a potentially higher share price will attract additional institutional investment interest and improve trading liquidity.
Looking ahead, we expect our business environment to remain challenging for another 6 to 12 months. High unemployment and restricted mortgage availability for first time home buyers in both the US and the UK will continue to constrain housing activity and related panel demand. High foreclosure rates in the US also remain a significant issue.
We have not changed our view that the current low level of housing activity is unsustainable and eventual recovery is a certainty. The financial crisis is behind us and the recession appears to be over - at least from a technical perspective. Near term, extraordinary stimulus efforts by governments are underway and a number of these initiatives specifically target housing and home buyers. Longer-term, the demographic realities of immigration and new household formations in the US will push housing demand back above the long-term average of 1.5 million starts.
I appreciate that, even for a cyclical business like OSB, this downturn has been exceptional in both depth and duration. I can assure you that Norbord continues to take proactive measures to stabilize and improve our balance sheet, achieve greater operating efficiencies and reduce overhead costs. Given time, housing will recover and our business is very well positioned for success when it does.
Thank you for your continued commitment to Norbord.
(signed) J. Barrie ShinetonThis letter includes forward-looking statements, as defined by applicable securities legislation. Often, but not always, forward-looking statements can be identified by the use of words such as "would," "expect," "positions," "when," "if," "should," "must," "believe," "view," "when," or variations of such words and phrases or statements that certain actions "may," "could," "must," "would," "might," or "will" be undertaken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievement expressed or implied by the forward-looking statements. See the cautionary language in the Forward-Looking Statements section of the 2008 Management's Discussion and Analysis dated January 29, 2009.
NORBORD INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED
SEPTEMBER 26, 2009 AND SEPTEMBER 27, 2008
(unaudited)
(US $ millions, except per 3rd Qtr 3rd Qtr 9 mos 9 mos
share information) 2009 2008 2009 2008
-------------------------------------------------------------------------
(note 2)
Net sales $ 192 $ 256 $ 522 $ 752
-------------------------------------------------------------------------
Earnings before interest,
income tax, depreciation,
provision for non-core
operation, foreign exchange
loss and litigation settlement 10 (9) (6) (32)
Interest expense (10) (11) (27) (37)
Interest and other income - - - 3
Provision for non-core
operation (note 15) (3) - (3) (4)
Foreign exchange loss - - (2) -
Litigation settlement (note 16) - - - (32)
-------------------------------------------------------------------------
Earnings before income tax
and depreciation (3) (20) (38) (102)
Depreciation (note 2) (10) (18) (37) (54)
Income tax recovery (note 10) 6 20 28 71
-------------------------------------------------------------------------
Earnings $ (7) $ (18) $ (47) $ (85)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share
(notes 1, 8 and 9)
- Basic & Diluted $ (0.16) $ (1.21) $ (1.10) $ (5.74)
-------------------------------------------------------------------------
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(See accompanying notes)
NORBORD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED
SEPTEMBER 26, 2009 AND SEPTEMBER 27, 2008
(unaudited)
3rd Qtr 3rd Qtr 9 mos 9 mos
(US $ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
(note 2)
CASH PROVIDED BY (USED FOR):
Operating Activities
Earnings $ (7) $ (18) $ (47) $ (85)
Items not affecting cash:
Depreciation 10 18 37 54
Future income taxes (6) (16) (28) (59)
Other 5 (5) 8 (6)
-------------------------------------------------------------------------
2 (21) (30) (96)
Net change in non-cash
working capital balances
(note 11) 13 13 (21) 95
-------------------------------------------------------------------------
15 (8) (51) (1)
-------------------------------------------------------------------------
Investing Activities
Investment in property,
plant and equipment (3) (7) (11) (22)
Realized net investment
hedge gain (loss) (note 14) (5) 20 1 5
Other 1 (2) 1 -
-------------------------------------------------------------------------
(7) 11 (9) (17)
-------------------------------------------------------------------------
Financing Activities
Revolving bank lines drawn
(repaid) (note 6) (4) (68) (28) 46
Brookfield debt facility drawn
(repaid) (note 6) - - (35) 75
Issue of common shares, net
(note 8) - - 97 -
Issue of warrants, net (note 8) - - 21 -
Repurchase of 8 1/8% debentures
(note 6) - - - (197)
Dividends paid - (9) - (25)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(4) (77) 55 (101)
-------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents $ 4 $ (74) $ (5) $ (119)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents,
beginning of period $ 11 $ 83 $ 20 $ 128
Cash and cash equivalents,
end of period (note 11) 15 9 15 9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
NORBORD INC.
CONSOLIDATED BALANCE SHEETS
Sep 26 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
(unaudited) (note 2)
ASSETS
Current assets:
Cash and cash equivalents $ 15 $ 20
Accounts receivable (note 3) 43 12
Tax receivable 6 13
Inventory (note 4) 75 81
-------------------------------------------------------------------------
139 126
Property, plant and equipment 869 885
Other assets (note 5) 8 33
-------------------------------------------------------------------------
$ 1,016 $ 1,044
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 137 $ 146
Long-term debt (note 6) 478 542
Other liabilities (note 7) 12 14
Future income taxes 45 74
Shareholders' equity 344 268
-------------------------------------------------------------------------
$ 1,016 $ 1,044
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-------------------------------------------------------------------------
(See accompanying notes)
NORBORD INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
FOR THE THIRD QUARTER AND NINE MONTHS ENDED
SEPTEMBER 26, 2009 AND SEPTEMBER 27, 2008
(unaudited)
3rd Qtr 3rd Qtr 9 mos 9 mos
(US $ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
(note 2)
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS'
EQUITY
Share Capital
Balance at beginning of period $ 335 $ 163 $ 238 $ 150
Dividend reinvestment plan - 5 - 18
Issue of common shares, net
(note 8) - - 97 -
-------------------------------------------------------------------------
Balance at end of period $ 335 $ 168 $ 335 $ 168
-------------------------------------------------------------------------
Contributed Surplus
Balance at beginning of period $ 38 $ 2 $ 17 $ 1
Stock-based compensation
(note 8) - - - 1
Issue of warrants, net (note 8) - - 21 -
-------------------------------------------------------------------------
Balance at end of period $ 38 $ 2 $ 38 $ 2
-------------------------------------------------------------------------
Retained Earnings
Balance at beginning of period $ (14) $ 109 $ 24 $ 204
Adoption of new accounting
recommendations (note 2) - - 2 1
-------------------------------------------------------------------------
Adjusted balance at
beginning of period (14) 109 26 205
Earnings (7) (18) (47) (85)
Common share dividends - (14) - (43)
-------------------------------------------------------------------------
Balance at end of period $ (21) $ 77 $ (21) $ 77
-------------------------------------------------------------------------
Accumulated Other Comprehensive
Income (Loss)
Balance at beginning of period $ (11) $ 2 $ (13) $ 4
Other comprehensive income
(loss) 3 (5) 5 (7)
-------------------------------------------------------------------------
Balance at end of period $ (8) $ (3) $ (8) $ (3)
-------------------------------------------------------------------------
Shareholders' equity $ 344 $ 244 $ 344 $ 244
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME (LOSS)
Earnings $ (7) $ (18) $ (47) $ (85)
Other comprehensive income
(loss):
Foreign currency translation 1 (1) - (6)
Future income taxes 2 (4) 5 (1)
-------------------------------------------------------------------------
3 (5) 5 (7)
-------------------------------------------------------------------------
Comprehensive income (loss) $ (4) $ (23) $ (42) $ (92)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
NORBORD INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(In US $, unless otherwise noted)
Note 1 - Basis of Presentation
------------------------------
The interim financial statements should be read in conjunction with the
most recently issued Annual Report of Norbord Inc. ("the Company"), which
includes information necessary or useful to understanding the Company's
business and financial statement presentation. In particular, the
Company's significant accounting policies and practices were presented in
Note 1 to the annual consolidated financial statements, and have been
consistently applied in the preparation of these interim financial
statements, except as described within Note 2 below.
The interim financial statements are unaudited. Financial information in
the interim consolidated financial statements, reflects information that
is, in the opinion of management, necessary to a fair statement of
results for the interim periods in accordance with Canadian generally
accepted accounting principles ("GAAP"). Certain prior period amounts
have been reclassified to conform to the current period's presentation.
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries including a newly formed joint venture, True
North Hardwood Plywood Inc., which has been proportionately consolidated
effective January 30, 2009. This hardwood plywood operation is non-core
and represents less than 5% of total sales.
On October 13, 2009, the Company's Board of Directors authorized the
consolidation of all the Company's issued and outstanding common shares
effective October 16, 2009. All references to common share and per common
share data for all periods presented in the consolidated financial
statements have been adjusted to reflect the common share consolidation
(notes 8 and 9).
Note 2 - Changes in Accounting Policies
---------------------------------------
Property, Plant and Equipment
In accordance with CICA Handbook Section 3061, Property, Plant and
Equipment, depreciation methods should be reviewed on a regular basis and
significant events may indicate a need to revise depreciation methods.
The Company had utilized the straight line method of depreciation for
production equipment which allocates cost equally to each period. In a
period of fluctuating production levels, the straight line depreciation
method does not result in rational allocation of the cost of equipment to
production. Consequently, effective March 29, 2009, the Company changed
to the unit of production depreciation method for its production assets.
This method allocates the equipment costs to the actual units produced
based on estimated annual capacity over the remaining useful life of the
assets. The impact of this change has been applied prospectively as a
change in an estimate and resulted in a $4 million reduction in
depreciation expense for the third quarter of 2009 and $8 million
reduction year to date.
Goodwill and Intangible Assets
In February 2008, the CICA issued Handbook Section 3064, Goodwill and
Intangible Assets, replacing Handbook Sections 3062, Goodwill and Other
Intangible Assets and 3450, Research and Development Costs and EIC
Abstract 27, Revenues and Expenditures during the Pre-Operating Period.
Section 3064 establishes standards for the recognition, measurement,
presentation and disclosure of goodwill subsequent to its initial
recognition and intangible assets by profit-oriented enterprises. This
new standard became effective January 1, 2009. The impact of adopting
this new standard was a $6 million increase to property, plant and
equipment, a $4 million decrease to other assets, a $1 million increase
to opening retained earnings, and a $1 million increase to future income
tax liability as at January 1, 2008. The impact of adopting this new
standard was a $2 million decrease to depreciation expense and a
$1 million increase to income tax expense for the year ended December 31,
2008. The increase to property, plant and equipment arises from the
concurrent retraction of EIC 27, Revenues and Expenditures during the
Pre-Operating Period. The Company has retroactively reclassified costs
incurred in the pre-operating period which were previously capitalized as
intangible assets to the cost of production equipment in accordance with
Section 3061, Property, Plant and Equipment. The costs include materials,
labour and overhead costs directly attributable to the construction of
the capital asset. The rate of depreciation is intended to fully
depreciate the cost over 25 years which approximates the useful life of
the production equipment. Previously the amortization period for these
capitalized costs was three years.
Credit Risk and Fair Value of Financial Assets and Financial Liabilities
In January 2009, the CICA issued EIC Abstract 173, Credit Risk and the
Fair Value of Financial Assets and Financial Liabilities. The EIC
requires the Company to take into account the Company's own credit risk
and the credit risk of the counterparty in determining the fair value of
financial assets and financial liabilities, including derivative
instruments. There is no material impact to the Company's financial
statement in adopting this new standard.
Future Changes in Accounting Policies
International Financial Reporting Standards (IFRS)
In February 2008, the Accounting Standards Board (AcSB) confirmed that
International Financial Reporting Standards (IFRS) will replace Canadian
GAAP for publicly accountable enterprises for financial periods beginning
on and after January 1, 2011.
Business Combinations
In January 2009, the CICA issued Handbook Section 1582, Business
Combinations, which requires that all assets and liabilities of an
acquired business will be recorded at fair value at acquisition.
Obligations for contingent considerations and contingencies will also be
recorded at fair value at the acquisition date. The standard also states
that acquisition-related costs will be expensed as incurred and that
restructuring charges will be expensed in periods after the acquisition
date. The new standard applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first
annual reporting period on or after January 1, 2011. The Company will
assess the impact of this new standard at the time of any applicable
acquisitions.
Consolidations and Non-Controlling Interests
In January 2009, the CICA issued Handbook Section 1601, Consolidations,
and Section 1602, Non-Controlling Interests. Section 1601 establishes
standards for the preparation of consolidated financial statements.
Section 1602 establishes standards for accounting for a non-controlling
interest in a subsidiary in consolidated financial statements subsequent
to a business combination. These standards apply to interim and annual
consolidated financial statements relating to fiscal years beginning on
or after January 1, 2011. The Company is currently assessing the impact
of this new standard on its financial statements.
Financial Instruments - Disclosures
In May 2009, the CICA amended Section 3862, Financial Instruments -
Disclosures, to include additional disclosure requirements about fair
market value measurements for financial instruments and liquidity risk
disclosures. These amendments require a three level hierarchy that
reflects the significance of the inputs used in making the fair value
measurements. Fair values of assets and liabilities included in Level 1
are determined by reference to quoted prices in active markets for
identical assets and liabilities. Assets and liabilities in Level 2
include valuations using inputs other than quoted prices for which all
significant outputs are observable, either directly or indirectly. Level
3 valuations are based on inputs that are unobservable and significant to
the overall fair value measurement. These amendments will be effective
for the Company on December 31, 2009.
Note 3 - Accounts Receivable
----------------------------
Norbord has an $85 million accounts receivable securitization program
with a highly rated financial institution. Under the program, Norbord has
transferred substantially all of its trade accounts receivable to the
financial institution, on a fully serviced basis, for the proceeds
consisting of cash and deferred purchase price. At period end, Norbord
recorded cash proceeds of $59 million (2008 - $68 million) relating to
this program.
The securitization program is subject to the following financial
covenants that the Company must comply with on a quarterly basis: minimum
tangible net worth of $300 million; and maximum net debt to total
capitalization, book basis, of 65%. At period end, the Company's tangible
net worth was $344 million and net debt to total capitalization, book
basis, was 58%. In addition, the program contains trade accounts
receivable portfolio performance covenants and standard reporting
requirements. The program is not subject to any credit-rating
requirements.
Note 4 - Inventory
------------------
Sep 26 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Raw materials $ 16 $ 20
Finished goods 34 32
Operating and maintenance supplies 25 29
-------------------------------------------------------------------------
$ 75 $ 81
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At period end, the provision to reflect inventories at the lower of cost
and net realizable value was $1 million (2008 - $3 million).
The amount of inventories recognized as an expense was as follows:
3rd Qtr 3rd Qtr 9 mos 9 mos
(US $ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cost of inventories $ 168 $ 252 $ 483 $ 741
Depreciation on property,
plant & equipment 9 17 36 53
-------------------------------------------------------------------------
$ 177 $ 269 $ 519 $ 794
-------------------------------------------------------------------------
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Note 5 - Other Assets
---------------------
Sep 26 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Unrealized net investment hedge gains (note 14) $ 2 $ 26
Unrealized interest rate swap gains (note 6 and 14) 4 6
Other 2 1
-------------------------------------------------------------------------
$ 8 $ 33
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The unrealized net investment hedge gains and unrealized interest rate
swap gains are offset by unrealized losses on the underlying exposures
being hedged.
Note 6 - Long-Term Debt
-----------------------
-------------------------------------------------------------------------
Sep 26 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Principal value
7 1/4% debentures due 2012 $ 240 $ 240
Senior notes due 2017 200 200
Revolving bank lines 33 57
Brookfield debt facility - 35
-------------------------------------------------------------------------
473 532
Debt issue costs (5) (4)
Deferred interest rate swap gains 6 8
Unrealized interest rate swap gains (notes 5 and 14) 4 6
-------------------------------------------------------------------------
$ 478 $ 542
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Revolving Bank Lines
The Company has committed revolving bank lines of $205 million which
mature in May 2011 and bear interest at money market rates plus a margin
that varies with the Company's credit rating. At period end, $33 million
of the revolving bank lines was drawn as cash, $8 million was utilized
for letters of credit, and $164 million was available to support short-
term liquidity requirements.
The bank lines contain two quarterly financial covenants: minimum
tangible net worth of $250 million and maximum net debt to total
capitalization, book basis of 70%. Effective January 1, 2011, the maximum
net debt to total capitalization, book basis covenant reduces to 60%. Net
debt includes total debt less drawings under the Brookfield debt facility
less cash and cash equivalents plus letters of credit issued. At period
end, the Company's tangible net worth was $344 million and net debt for
financial covenant purposes was $466 million. Net debt to total
capitalization was 58% on a book basis.
The bank lines are secured by a first lien on the Company's North
American OSB inventory and property, plant and equipment. This lien is
shared pari passu with holders of the 2012 debentures, 2017 senior notes,
and Brookfield debt facility.
Brookfield Debt Facility
The Company has a debt facility with Brookfield of $50 million which
bears interest equal to the greater of 8% and US base rate plus 1/2%,
matures in June 2011 and is subordinated to the revolving bank lines. Any
drawings under the facility are treated as tangible net worth for
financial covenant purposes. In January 2009, the Company repaid
$35 million of the Brookfield debt facility using proceeds from the
Rights Offering (note 8).
Interest Rate Swaps
At period end, the Company had $115 million (2008 - $115 million) in
interest rate swaps outstanding. The terms of these swaps correspond to
the terms of the underlying hedged debt.
8 1/8% Debentures Repaid in 2008
In the first quarter of 2008, the 8 1/8% debentures with a principal
value of $197 million were repurchased and a corresponding amount of
interest rate swaps matured.
Note 7 - Other Liabilities
--------------------------
Sep 26 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Unrealized net investment hedge losses (note 14) $ 3 $ 8
Accrued pension and post-retirement benefits 2 2
Other 7 4
-------------------------------------------------------------------------
$ 12 $ 14
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The unrealized net investment hedge losses are offset by unrealized gains
on the underlying exposures being hedged.
Note 8 - Shareholders' Equity
-----------------------------
During the quarter, the number of issued and outstanding common shares
changed as follows:
3rd Qtr 3rd Qtr 9 mos 9 mos
(in millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Common shares outstanding,
beginning of period 43.2 14.9 26.9 14.7
Issued:
Issue of common shares, net - - 16.3 -
Dividend reinvestment plan - 0.1 - 0.3
-------------------------------------------------------------------------
Common shares outstanding, end
of period 43.2 15.0 43.2 15.0
-------------------------------------------------------------------------
Unexercised stock options 1.3 0.3 1.3 0.3
Unexercised warrants 13.6 - 13.6 -
-------------------------------------------------------------------------
Total diluted common shares,
end of period 58.1 15.3 58.1 15.3
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Share Consolidation
On April 29, 2009, the Company's shareholders passed a special resolution
approving the amendment of Norbord's restated articles of incorporation
to consolidate its issued and outstanding common shares on the basis of
one post-consolidation common share for each 10 pre-consolidation common
shares. The Company's shareholders authorized the Board to effect the
share consolidation, if and when it was deemed to be in the best interest
of the Company, up to October 31, 2009.
On October 13, 2009, the Company's Board of Directors authorized the
consolidation of all the Company's issued and outstanding common shares
effective October 16, 2009. The Company's shares began trading on a
consolidated basis on October 21, 2009. At period end, the outstanding
common shares were reduced from 431.8 million to 43.2 million to reflect
the impact of the common share consolidation. At period end, 136.3 common
share purchase warrants were outstanding. As a result of the common share
consolidation, ten whole common share purchase warrants entitle the
holder to purchase one common share at a price of CAD $13.60 at any time
prior to December 24, 2013.
All references to share and per share data for all periods presented in
the consolidated financial statements and Management's Discussion and
Analysis have been adjusted for the common share consolidation (notes 1
and 9).
Rights Offering
On January 6, 2009, pursuant to a Standby Purchase Agreement entered into
in connection with a Rights Offering (the "Offering") filed in November
2008, Brookfield Asset Management Inc. ("Brookfield") completed the
standby commitment through which it purchased an additional 16.3 million
common shares and 81.5 million common share purchase warrants for gross
proceeds of approximately $120 million (CAD $144 million). Share issue
costs, including the standby fee paid to Brookfield based on 1% of the
gross proceeds of the Offering, were approximately $2 million. Net
proceeds received were used to repay drawings under the Brookfield debt
facility and revolving bank lines.
Stock Options
In the first quarter, 1.0 million options were granted under the stock
option plan. Earnings include $1 million related to stock-based
compensation expense. Year-to-date less than 0.1 million common shares
were issued as a result of options exercised under the stock option plan
for proceeds of less than $1 million.
Note 9 - Earnings per Common Share
----------------------------------
Earnings per common share are calculated as follows:
(US $ millions, except per
share information, unless 3rd Qtr 3rd Qtr 9 mos 9 mos
otherwise noted) 2009 2008 2009 2008
-------------------------------------------------------------------------
Earnings available to common
shareholders $ (7) $ (18) $ (47) $ (85)
------------------------------------------
------------------------------------------
Common shares (millions):
Weighted average number of
common shares outstanding 43.2 14.9 42.9 14.8
Stock options - - - -
Warrants - - - -
------------------------------------------
Diluted number of common
shares 43.2 14.9 42.9 14.8
------------------------------------------
------------------------------------------
Earnings per common share:
Basic and Diluted (notes 1
and 8) $ (0.16) $ (1.21) $ (1.10) $ (5.74)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Stock options issued under the Company's stock option plan and warrants
issued under the Offering (note 8) were excluded from the calculation of
diluted earnings per common share because the impact would be
anti-dilutive. If dilutive in the future, they would be included to the
extent that the exercise prices were less than the average market price
of the Company's common shares during the year.
Note 10 - Income Tax
--------------------
As a result of the acquisition of control of the Company by Brookfield on
December 24, 2008, future income tax assets of $8 million were charged to
retained earnings in the fourth quarter of 2008. These tax attributes
were reinstated and recorded through the statement of earnings in the
first quarter of 2009 when Canadian income tax legislation was
substantively enacted.
Note 11 - Supplemental Cash Flow Information
--------------------------------------------
The net change in non-cash working capital balance comprises:
3rd Qtr 3rd Qtr 9 mos 9 mos
(US $ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by (used for):
Accounts receivable $ (3) $ 33 $ (25) $ 6
Tax receivable 1 3 13 85
Inventory 12 18 5 13
Accounts payable and accrued
liabilities 3 (41) (14) (9)
-------------------------------------------------------------------------
$ 13 $ 13 $ (21) $ 95
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents comprise:
Sep 26 Sep 27
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Cash $ 8 $ 6
Cash equivalents 7 3
-------------------------------------------------------------------------
$ 15 $ 9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 12 - Related Party Transactions
------------------------------------
Rights Offering
In connection with the Offering (note 8), the Company entered into a
Standby Purchase Agreement with Brookfield, in which Brookfield agreed to
exercise all of its rights and to purchase any units not otherwise
subscribed for by other shareholders of the Company. On December 24,
2008, Brookfield paid $72 million (CAD $87 million) to purchase
9.9 million common shares and 49.6 million common share purchase warrants
through their basic subscription privilege which increased their
ownership interest to approximately 60% of the Company's issued and
outstanding common shares. Ten whole common share purchase warrants
entitle the holder to purchase one common share at a price of CAD $13.60
at any time prior to December 24, 2013. On January 6, 2009, Brookfield
paid $120 million (CAD $144 million) to acquire 16.3 million common
shares and 81.5 million common share purchase warrants under the Standby
Purchase Agreement, increasing their ownership interest to approximately
75%. A standby fee of approximately $2 million was paid to Brookfield
based on 1% of the gross proceeds of the Offering.
Brookfield Debt facility
The Company has a debt facility with Brookfield of $50 million which
bears an interest rate equal to the greater of 8% and US base rate plus
1/2% and is subordinated to the revolving bank lines (note 6). Interest
paid on the Brookfield debt facility was less than $1 million (2008 -
less than $1 million) year to date.
Other
The Company provided certain administrative services to Brookfield or its
affiliates which were charged on a cost recovery basis and were less than
$1 million (2008 - less than $1 million) year to date. In addition, the
Company periodically engages the services of Brookfield or its affiliates
for various financial, real estate and other business advisory services.
The fees for these services were charged at market rates and were less
than $1 million (2008 - less than $1 million) year to date.
Note 13 - Capital Management
----------------------------
Norbord's capital structure at period end consisted of the following:
Sep 26 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Long-term debt, principal value $ 473 $ 532
Less: Drawings under Brookfield debt facility(1) - (35)
Less: Cash and cash equivalents (15) (20)
-------------------------------------------------------------------------
Net debt 458 477
Add: Letters of credit 8 -
-------------------------------------------------------------------------
Net debt for financial covenant purposes 466 477
-------------------------------------------------------------------------
Shareholders' equity 344 268
Plus: Drawings under Brookfield debt facility(1) - 35
-------------------------------------------------------------------------
Tangible net worth 344 303
-------------------------------------------------------------------------
Total capitalization 810 780
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net debt to capitalization, book basis 58% 61%
Net debt to capitalization, market basis 48% 32%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Drawings under the Brookfield debt facility are treated as tangible
net worth for financial covenant purposes.
Note 14 - Financial Instruments
-------------------------------
The net book values and fair values of non-derivative financial
instruments were as follows:
-------------------------------------------------------------------------
Sep 26 Dec 31
2009 2008
-------------------------------------------------------------------------
Net Book Fair Net Book Fair
(US $ millions) Value Value Value Value
-------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 15 $ 15 $ 20 $ 20
Accounts receivable 43 43 12 12
Tax receivable 6 6 13 13
-------------------------------------------------------------------------
$ 64 $ 64 $ 45 $ 45
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial Liabilities:
Accounts payable and accrued
liabilities $ 137 $ 137 $ 146 $ 146
Long-term debt 478 463 542 376
-------------------------------------------------------------------------
$ 615 $ 600 $ 688 $ 522
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information about derivative financial instruments was as follows:
-------------------------------------------------------------------------
Sep 26 Dec 31
2009 2008
-------------------------------------------------------------------------
Unrealized Unrealized
gain/(loss) gain/(loss)
(In millions and in US $ Notional at period Notional at period
unless otherwise noted) Value end(1) Value end(1)
-------------------------------------------------------------------------
Currency hedges:
Net investment
UK (pnds stlg)64 $ 2 (pnds stlg)103 $ 26
Belgium (euro)44 (3) (euro)79 (8)
Monetary liabilities CAD $17 - CAD $18 -
Future Committed
Transaction (note 8) - - CAD $144 1
Interest rate hedges:
Interest rate swaps $ 115 4 $ 115 6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The carrying values of the derivative financial instruments are
equivalent to the unrealized gain/(loss) at period end.
The gains and losses recognized on the Company's matured currency hedges
were:
3rd Qtr 3rd Qtr 9 mos 9 mos
(US $ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Realized gain (loss) on
currency hedges:
Net Investment
UK $ (3) $ 9 $ 9 $ 3
Belgium (2) 11 (8) 2
Committed Transaction (note 8) - - (2) -
Monetary liabilities
Canadian 1 (1) 2 -
-------------------------------------------------------------------------
$ (4) $ (19) $ 1 $ 5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Realized and unrealized gains and losses on derivative financial
instruments are offset by realized and unrealized losses and gains on the
underlying exposures being hedged.
Note 15 - Provision For Non-Core Operation
------------------------------------------
In the third quarter of 2009, the Company recorded a $3 million provision
for the write-down of certain property, plant and equipment and inventory
to net realizable value relating to the sale of a MDF mill in Deposit,
New York for proceeds of $1.85 million to be closed in the fourth quarter
of 2009.
In the first quarter of 2008, the Company recorded a $4 million provision
relating to severance arising on the permanent closure of a particleboard
line at the Genk, Belgium site. The provision was substantially paid in
2008.
Note 16 - Litigation Settlement
-------------------------------
In the second quarter of 2008, Norbord entered into settlement agreements
related to an antitrust litigation lawsuit to limit the risks and costs
associated with a prolonged trial. Norbord vigorously contests the
plaintiffs' allegations and continues to vehemently deny that it violated
US antitrust or any other laws. Under the terms of the settlement
agreements, in 2008, Norbord paid $30 million into an escrow account for
the benefit of members of the direct purchaser class and $2 million into
an escrow account for the benefit of members of the indirect purchaser
classes.
Note 17 - Geographic Segments
-----------------------------
The Company has a single reportable segment. The Company operates
principally in North America and Europe. Net sales by geographic segment
are determined based on the origin of shipment and therefore include
export sales.
-------------------------------------------------------------------------
North
3rd Qtr 2009 America Europe Unallocated Total
-------------------------------------------------------------------------
Net sales $ 114 $ 78 $ - $ 192
EBITDA(1) 9 5 (4) 10
Depreciation 5 4 1 10
Investment in property, plant
and equipment 2 1 - 3
3rd Qtr 2008
-------------------------------------------------------------------------
Net sales $ 158 $ 98 $ - $ 256
EBITDA(1) (2) (5) (2) (9)
Depreciation 11 6 1 18
Investment in property, plant
and equipment 5 2 - 7
9 mos 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net sales $ 300 $ 222 $ - $ 522
EBITDA(1) (9) 10 (7) (6)
Depreciation 23 13 1 37
Property, plant and equipment 671 196 2 869
Investment in property, plant
and equipment 10 1 - 11
9 mos 2008
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net sales $ 424 $ 328 $ - $ 752
EBITDA(1) (32) 8 (8) (32)
Depreciation 32 21 1 54
Property, plant and equipment 692 235 3 930
Investment in property, plant
and equipment 20 2 - 22
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) EBITDA is earnings determined in accordance with GAAP before
interest, provision for non-core operation, income tax, foreign
exchange loss, litigation settlement, depreciation and amortization.
Norbord views EBITDA as a measure of gross profit and interprets
EBITDA trends as an indicator of relative operating performance.
For further information
Anita Veel, Director, Corporate & Regulatory Affairs, Tel. (416) 643-8838, anita.veel@norbord.com
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