Note: Financial references in US dollars unless otherwise indicated
Q2 2009 HIGHLIGHTS
- Generated positive cash flow from operations of $39 million
- Generated positive EBITDA of $4 million at European operations
- North American EBITDA loss reduced by 50% vs. Q1 2009
- Improved safety recordable rate by 50% year-over-yearTORONTO, July 31, 2009 /CNW/ - Norbord Inc. (TSX: NBD, NBD.WT) today
reported a loss of $18 million or $0.04 per share in the second quarter of
2009. Norbord recorded losses of $22 million or $0.05 per share in the prior
quarter and $36 million or $0.24 per share (includes one-time antitrust
litigation settlement charge) in the second quarter of 2008.
Norbord recorded negative EBITDA of $2 million in Q2 2009 compared to
negative $14 million in Q1 2009 and positive $1 million in the same period
last year. North American operations generated negative EBITDA of $6 million
in Q2 2009 compared to negative $12 million and $1 million in Q1 2009 and Q2
2008 respectively. Norbord's European mills generated positive EBITDA of $4
million compared to positive $1 million in Q1 2009 and $6 million in Q2 2008.
"The seasonal improvement in North American OSB prices materialized in
the quarter, although it was delayed until the end of June and the price
increase was muted relative to last year," said Barrie Shineton, President and
CEO. "Lower input prices, higher sales volumes, and our focus on lowering
operating working capital led to stronger financial results from our North
American OSB mills. Positive earnings from our European operations continued
in the second quarter due to input cost relief, better mill uptime and
positive results from ongoing cost reduction initiatives. I'm pleased with
these results given the depth and severity of the current cyclical downturn."
Market Conditions
North Central OSB benchmark prices averaged $146 in the quarter compared
to $154 in Q1 2009 and $179 in Q2 2008. OSB prices in the Southeast region
averaged $140 in the quarter versus $139 in the previous quarter and $155 in
Q2 2008. Demand from housing activity remained poor in the quarter as expert
forecasts for US housing starts in 2009 continued to average approximately
500,000. At the end of the second quarter, the level of annualized starts was
half of the rate set at the same time last year.
In the UK, consumer and business confidence indicators began to
stabilize, albeit at low levels, and housing starts showed some indication of
modest improvement. Confidence indicators on the Continent, especially
Germany, remained tenuous. Compared to the prior quarter, Norbord's product
prices declined 7% for OSB, 5% for MDF and 2% for particleboard.
Performance
Norbord's North American mills operated at approximately 60% of capacity
in the second quarter. According to APA - The Engineered Wood Association, OSB
mills in North America operated at 50% of capacity. Norbord's European mills
operated at 75% of capacity in the quarter.
North American OSB shipment volume increased 20% due to the seasonal
increase in demand quarter-over-quarter and an increase of four days in the
reporting period.
Norbord's North American per unit OSB production costs decreased 10%
quarter-over-quarter due to higher production volumes, lower prices for resin,
fibre and energy and improved key input usages.
Operating activities generated $39 million of cash in the second quarter
due mainly to a reduced investment in operating working capital. The working
capital improvement quarter-over-quarter was due to seasonally lower inventory
levels, increased proceeds from the accounts receivable securitization
program, increased accounts payable related to timing of bond coupon payments
and the collection of approximately $15 million of income tax refunds.
At quarter-end, Norbord had available liquidity of $220 million
consisting of cash and cash equivalents, unutilized bank lines and unutilized
term debt facilities. The Company's tangible net worth was $348 million and
net debt to total capitalization (book basis) was 58% at the end of the
quarter.
Capital investments totaled $3 million in the second quarter. Norbord's
capital investment program has been limited to essential projects and is
expected to be reduced to $15 million in 2009.
Developments
Effective Q2 2009, the Company has changed its depreciation methodology
for production equipment from straight line to units of production, which
resulted in depreciation expense reduction of $4 million in the quarter. The
units of production depreciation method allocates equipment capital costs to
actual production. This cost allocation is now more appropriate for Norbord
given the economic reality of ongoing production curtailments.
Additional Information
Please note that Norbord's second 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 also 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, July 31, 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 August 30, 2009, by dialing 647-436-0148 or
888-203-1112. The passcode is 4799623. 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 2,500 people at 15 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
July 31, 2009
To Our Shareholders,Norbord's second quarter EBITDA loss of $2 million was a $12 million
improvement over the prior quarter. This relatively stronger operating result,
while still negative, was due to increased North American OSB sales volumes,
relief from input prices and ongoing overhead initiatives. Our operating
activities generated $39 million of cash during the quarter, due mainly to a
lower investment in working capital. We used this cash to pay down our bank
lines. I'm pleased with our results given the persistent weakness in new home
construction and panel board markets.
The seasonal improvement in North American OSB prices was delayed until
the end of June. The price increase was muted relative to last year, as there
was more than enough industry supply to meet the continued poor demand. We do
not expect demand to strengthen in the second half of the year as experts
continue to forecast 2009 housing starts at about 0.5 million. Although we
believe we are now approaching the bottom of the housing market, we anticipate
that activity will remain at low levels for the next year. We've been
successful in expanding our sales base by growing with big box and industrial
customers. This strategy provides better market balance and reduces our
exposure to cyclical new home construction.
Our European operations delivered EBITDA of positive $4 million in the
second quarter. Consumer confidence indicators and housing starts have
strengthened slightly in the UK. We are encouraged by the tentative signs of
improvement, however, economic recovery on the Continent, particularly
Germany, does not appear to have the same momentum. Norbord remains focused on
increasing sales volume to new and existing customers, building on the uptime
improvements achieved by our mills to-date and continuing our program of
overhead cuts.
As I told you last quarter, Norbord is planning for a business recovery
that takes hold in 2011. We believe that we have the right operating plan,
adequate liquidity and the necessary support from our majority shareholder to
survive this unprecedented downturn and thrive when markets recover.
Thank you for your continued support during this challenging point in our
history. I look forward to updating you on our progress throughout the year.(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 SECOND QUARTER AND SIX MONTHS ENDED
JUNE 27, 2009 AND JUNE 28, 2008
(unaudited)
(US $ millions, except per 2nd Qtr 2nd Qtr 6 mos 6 mos
share information) 2009 2008 2009 2008
-------------------------------------------------------------------------
(note 2) (note 2)
Net sales $ 174 $ 262 $ 330 $ 496
-------------------------------------------------------------------------
Earnings before interest,
income tax, depreciation,
foreign exchange loss,
provision for non-core
operation and litigation
settlement (2) 1 (16) (23)
Interest expense (9) (11) (17) (26)
Interest and other income - 2 - 3
Foreign exchange loss - - (2) -
Litigation settlement (note 15) - (32) - (32)
Provision for non-core
operation (note 16) - - - (4)
-------------------------------------------------------------------------
Earnings before income tax
and depreciation (11) (40) (35) (82)
Depreciation (note 2) (12) (17) (27) (36)
Income tax recovery (note 10) 5 21 22 51
-------------------------------------------------------------------------
Earnings $ (18) $ (36) $ (40) $ (67)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share
(note 9)
- Basic $ (0.04) $ (0.24) $ (0.09) $ (0.45)
- Diluted $ (0.04) $ (0.24) $ (0.09) $ (0.45)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
NORBORD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED
JUNE 27, 2009 AND JUNE 28, 2008
(unaudited)
2nd Qtr 2nd Qtr 6 mos 6 mos
(US $ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
(note 2) (note 2)
CASH PROVIDED BY (USED FOR):
Operating Activities
Earnings $ (18) $ (36) $ (40) $ (67)
Items not affecting cash:
Depreciation 12 17 27 36
Future income taxes (5) (18) (22) (43)
Other 3 - 3 (1)
-------------------------------------------------------------------------
(8) (37) (32) (75)
Net change in non-cash working
capital balances (note 11) 47 125 (34) 82
-------------------------------------------------------------------------
39 88 (66) 7
-------------------------------------------------------------------------
Investing Activities
Investment in property, plant
and equipment (3) (10) (8) (15)
Realized net investment hedge
gain (loss) (note 14) 4 - 6 (15)
Other (1) - - 2
-------------------------------------------------------------------------
- (10) (2) (28)
-------------------------------------------------------------------------
Financing Activities
Revolving bank lines drawn
(repaid) (note 6) (39) (32) (24) 114
Issue of common shares, net
(note 8) - - 97 -
Issue of warrants, net (note 8) - - 21 -
Brookfield debt facility drawn
(repaid) (note 6) - 20 (35) 75
Repurchase of 8 1/8% debentures
(note 6) - - - (197)
Dividends paid - (8) - (16)
-------------------------------------------------------------------------
(39) (20) 59 (24)
-------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents $ - $ 58 $ (9) $ (45)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents,
beginning of period $ 11 $ 25 $ 20 $ 128
Cash and cash equivalents,
end of period (note 11) 11 83 11 83
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
NORBORD INC.
CONSOLIDATED BALANCE SHEETS
Jun 27 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
(unaudited) (note 2)
ASSETS
Current assets:
Cash and cash equivalents $ 11 $ 20
Accounts receivable (note 3) 42 12
Tax receivable 4 13
Inventory (note 4) 89 81
-------------------------------------------------------------------------
146 126
Property, plant and equipment 880 885
Other assets (note 5) 5 33
-------------------------------------------------------------------------
$ 1,031 $ 1,044
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 136 $ 146
Long-term debt (note 6) 480 542
Other liabilities (note 7) 15 14
Future income taxes 52 74
Shareholders' equity (note 8) 348 268
-------------------------------------------------------------------------
$ 1,031 $ 1,044
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
NORBORD INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
FOR THE SECOND QUARTER AND SIX MONTHS ENDED
JUNE 27, 2009 AND JUNE 28, 2008
(unaudited)
2nd Qtr 2nd Qtr 6 mos 6 mos
(US $ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
(note 2) (note 2)
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS'
EQUITY
Share Capital
Balance at beginning of period $ 335 $ 156 $ 238 $ 150
Dividend reinvestment plan - 7 - 13
Issue of common shares, net
(note 8) - - 97 -
-------------------------------------------------------------------------
Balance at end of period $ 335 $ 163 $ 335 $ 163
-------------------------------------------------------------------------
Contributed Surplus
Balance at beginning of period $ 38 $ 1 $ 17 $ 1
Stock-based compensation
(note 8) - 1 - 1
Issue of warrants, net (note 8) - - 21 -
-------------------------------------------------------------------------
Balance at end of period $ 38 $ 2 $ 38 $ 2
-------------------------------------------------------------------------
Retained Earnings
Balance at beginning of period $ 4 $ 160 $ 24 $ 204
Adoption of new accounting
recommendations (note 2) - - 2 1
-------------------------------------------------------------------------
Adjusted balance at beginning
of period 4 160 26 205
Earnings (18) (36) (40) (67)
Common share dividends - (15) - (29)
-------------------------------------------------------------------------
Balance at end of period $ (14) $ 109 $ (14) $ 109
-------------------------------------------------------------------------
Accumulated Other Comprehensive
Income (Loss)
Balance at beginning of period $ (14) $ 4 $ (13) $ 4
Other comprehensive income
(loss) 3 (2) 2 (2)
-------------------------------------------------------------------------
Balance at end of period $ (11) $ 2 $ (11) $ 2
-------------------------------------------------------------------------
Shareholders' equity $ 348 $ 276 $ 348 $ 276
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME (LOSS)
Earnings $ (18) $ (36) $ (40) $ (67)
Other comprehensive income
(loss):
Foreign currency translation (1) (3) (1) (5)
Future income taxes 4 1 3 3
-------------------------------------------------------------------------
3 (2) 2 (2)
-------------------------------------------------------------------------
Comprehensive income (loss) $ (15) $ (38) $ (38) $ (69)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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.
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 second quarter of 2009.
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 of 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 present and future 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 $63 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 $348 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
------------------
Jun 27 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Raw materials $ 21 $ 20
Finished goods 41 32
Operating and maintenance supplies 27 29
-------------------------------------------------------------------------
$ 89 $ 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:
2nd Qtr 2nd Qtr 6 mos 6 mos
(US $ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cost of inventories $ 161 $ 244 $ 315 $ 489
Depreciation on property,
plant & equipment 12 17 27 36
-------------------------------------------------------------------------
$ 173 $ 261 $ 342 $ 525
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 5 - Other Assets
---------------------
Jun 27 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Unrealized net investment hedge gains (note 14) $ - $ 26
Unrealized interest rate swap gains (note 14) 4 6
Other 1 1
-------------------------------------------------------------------------
$ 5 $ 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
-----------------------
-------------------------------------------------------------------------
Jun 27 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 37 57
Brookfield debt facility - 35
-------------------------------------------------------------------------
477 532
Debt issue costs (7) (4)
Deferred interest rate swap gains 6 8
Unrealized interest rate swap gains (notes 5 and 7) 4 6
-------------------------------------------------------------------------
$ 480 $ 542
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revolving Bank Lines
During the quarter, the Company completed amendments to its committed
revolving bank lines. Under the amended terms, the aggregate commitment
of $205 million has been extended to May 2011 and bears interest at money
market rates plus a margin that varies with the Company's credit rating.
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.
The amended 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 $348 million and net debt for
financial covenant purposes was $475 million. Net debt to total
capitalization was 58% on a book basis.
At period end, $37 million of the revolving bank lines was drawn as cash,
$9 million was utilized for letters of credit, and $159 million was
available to support short-term liquidity requirements.
Brookfield Debt Facility
In January 2009, the Company repaid $35 million of the Brookfield debt
facility using proceeds from the Rights Offering (note 8). Concurrent
with the bank line amendments, the Company revised its debt facility with
Brookfield. The facility was decreased from $100 million to $50 million,
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.
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
--------------------------
Jun 27 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Unrealized net investment hedge losses (note 14) $ 8 $ 8
Accrued pension and post-retirement benefits 2 2
Other 5 4
-------------------------------------------------------------------------
$ 15 $ 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:
2nd Qtr 2nd Qtr 6 mos 6 mos
(in millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Common shares outstanding,
beginning of period 431.7 148.2 268.7 146.8
Issued :
Issue of common shares, net - - 163.0 -
Issue of common shares -
stock options - - - 0.1
Dividend reinvestment plan - 1.2 - 2.5
-------------------------------------------------------------------------
Common shares outstanding,
end of period 431.7 149.4 431.7 149.4
-------------------------------------------------------------------------
Unexercised stock options 13.0 3.3 13.0 3.3
Unexercised warrants 136.3 - 136.3 -
-------------------------------------------------------------------------
Total diluted common shares,
end of period 581.0 152.7 581.0 152.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 163 million
common shares and 81.5 million 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, 10 million options were granted under the stock
option plan. Earnings include less than $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.
Share Consolidation
On March 2, 2009, Norbord proposed a special resolution to shareholders
to approve 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. On April 29, 2009, the Company's shareholders authorized the
Board to effect the share consolidation, if and when it is deemed to be
in the best interest of the Company. The Board may elect to effect the
share consolidation no later than October 31, 2009. If the share
consolidation has not proceeded by that point, the shareholders'
authorization will expire.
Note 9 - Earnings per Common Share
----------------------------------
Earnings per common share are calculated as follows:
(US $ millions, except per
share information, 2nd Qtr 2nd Qtr 6 mos 6 mos
unless otherwise noted) 2009 2008 2009 2008
-------------------------------------------------------------------------
Earnings available to common
shareholders $ (18) $ (36) $ (40) $ (67)
-------------------------------------------
-------------------------------------------
Common shares (millions):
Weighted average number of
common shares outstanding 431.7 148.3 427.2 147.6
Stock options - - - -
Warrants - - - -
-------------------------------------------
Diluted number of common
shares 431.7 148.3 427.2 147.6
-------------------------------------------
-------------------------------------------
Earnings per common share:
Basic $ (0.04) $ (0.24) $ (0.09) $ (0.45)
Diluted $ (0.04) $ (0.24) $ (0.09) $ (0.45)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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:
2nd Qtr 2nd Qtr 6 mos 6 mos
(US $ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by (used for):
Accounts receivable $ 10 $ (9) $ (22) $ (27)
Tax receivable 12 85 12 82
Inventory 10 7 (7) (5)
Accounts payable and accrued
liabilities 15 42 (17) 32
-------------------------------------------------------------------------
$ 47 $ 125 $ (34) $ 82
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents comprise:
June 27 June 28
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Cash $ 4 $ 16
Cash equivalents 7 67
-------------------------------------------------------------------------
$ 11 $ 83
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
99.1 million common shares and 49.6 million warrants through their basic
subscription privilege which increased their ownership interest to
approximately 60% of the Company's issued and outstanding common shares.
On January 6, 2009, Brookfield paid $120 million (CAD $144 million) to
acquire 163.0 million common shares and 81.5 million 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
During the quarter, concurrent with the bank line amendments (note 6),
the Brookfield debt facility decreased from $100 million to $50 million,
was extended to June 2011, 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. Year-to-date interest paid on the Brookfield debt facility was
less than $1 million (2008 - less than $1 million).
Other
During the quarter, the Company provided certain administrative services
to Brookfield or its affiliates which were charged on a cost recovery
basis. In addition, the Company periodically engages the services of
Brookfield or its affiliates for various financial, real estate and other
business advisory services. Year-to-date the fees for these services were
less than $1 million (2008 - less than $1 million) and were charged at
market rates.
Note 13 - Capital Management
----------------------------
Norbord's capital structure at period end consisted of the following:
Jun 27 Dec 31
(US $ millions) 2009 2008
-------------------------------------------------------------------------
Long-term debt, principal value $ 477 $ 532
Less: Drawings under Brookfield debt facility(1) - (35)
Less: Cash and cash equivalents (11) (20)
-------------------------------------------------------------------------
Net debt 466 477
Add: Letters of credit 9 -
-------------------------------------------------------------------------
Net debt for financial covenant purposes 475 477
-------------------------------------------------------------------------
Shareholders' equity 348 268
Plus: Drawings under Brookfield debt facility(1) - 35
-------------------------------------------------------------------------
Tangible net worth 348 303
-------------------------------------------------------------------------
Total capitalization 823 780
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net debt to capitalization, book basis 58% 61%
Net debt to capitalization, market basis 37% 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:
-------------------------------------------------------------------------
Jun 27 Dec 31
2009 2008
-------------------------------------------------------------------------
Net Book Fair Net Book Fair
(US $ millions) Value Value Value Value
-------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 11 $ 11 $ 20 $ 20
Accounts receivable 42 42 12 12
Tax receivable 4 4 13 13
-------------------------------------------------------------------------
$ 57 $ 57 $ 45 $ 45
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial Liabilities:
Accounts payable and accrued
liabilities $ 136 $ 136 $ 146 $ 146
Long-term debt 480 419 542 376
-------------------------------------------------------------------------
$ 616 $ 555 $ 688 $ 522
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information about derivative financial instruments was as follows:
-------------------------------------------------------------------------
Jun 27 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)97 $(6) (pnds stlg)103 $26
Belgium (euro)59 (2) (euro)79 (8)
Monetary liabilities CAD $3 - CAD $18 -
Future Committed Transaction - - 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:
2nd Qtr 2nd Qtr 6 mos 6 mos
(US $ millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Realized gain (loss) on
currency hedges:
Net Investment
UK $ 9 $ 2 $ 12 $ (6)
Belgium (5) (2) (6) (9)
Monetary liabilities
Canadian 1 (2) 1 1
-------------------------------------------------------------------------
$ 5 $ (2) $ 7 $ (14)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 - Litigation Settlement
-------------------------------
In 2007, Norbord and eight other North American OSB producers were named
as defendants in several lawsuits filed in the US District Court for the
Eastern District of Pennsylvania. The lawsuits alleged that these nine
North American OSB producers violated US and various state antitrust and
other laws by allegedly agreeing to fix prices and reduce the supply of
OSB from June 1, 2002 through to at least February 2006. In January 2007,
the Court certified three classes of persons and entities that purchased
OSB in the US directly or indirectly from any of the defendant North
American OSB producers between June 1, 2002 and February 24, 2006.
Although Norbord vigorously contested the plaintiffs' allegations and
continues to deny that it violated US antitrust or any other laws,
Norbord entered into settlement agreements in May 2008 with the certified
classes of direct and indirect purchasers of OSB to limit the risks and
costs associated with a prolonged trial. 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 16 - Provision For Non-Core Operation
------------------------------------------
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 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
2nd Qtr 2009 America Europe Unallocated Total
-------------------------------------------------------------------------
Net sales $ 101 $ 73 $ - $ 174
EBITDA(1) (6) 4 - (2)
Depreciation 8 4 - 12
Investment in property, plant
and equipment 3 - - 3
2nd Qtr 2008
-------------------------------------------------------------------------
Net sales $ 151 $ 111 $ - $ 262
EBITDA(1) (1) 6 (4) 1
Depreciation 10 7 - 17
Investment in property, plant
and equipment 10 - - 10
6 mos 2009
-------------------------------------------------------------------------
Net sales $ 186 $ 144 $ - $ 330
EBITDA(1) (18) 5 (3) (16)
Depreciation 18 9 - 27
Property, plant and equipment 675 202 3 880
Investment in property, plant
and equipment 8 - - 8
6 mos 2008
-------------------------------------------------------------------------
Net sales $ 266 $ 230 $ - $ 496
EBITDA(1) (30) 13 (6) (23)
Depreciation 21 15 - 36
Property, plant and equipment 696 262 4 962
Investment in property, plant
and equipment 15 - - 15
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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, (416) 643-8838, anita.veel@norbord.com
