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
Norbord recorded positive EBITDA of
"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
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
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
At quarter-end, Norbord had unutilized liquidity of
Capital investments totaled
Developments
On
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
Norbord Profile
Norbord Inc. is an international producer of wood-based panels with assets of
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
J. Barrie Shineton President & Chief Executive Officer
To Our Shareholders,
Norbord's positive EBITDA result of
In
There were several encouraging developments in
You will recall that Norbord's Directors received shareholder approval at our annual & special shareholders meeting in
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 Shineton
This 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
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) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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, [email protected]
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