Note: Financial references in US dollars unless otherwise indicated
Q1 2010 HIGHLIGHTS
- Achieved positive EBITDA of $9 million, a $23 million improvement vs.
Q1 2009
- Received cash tax refund of $55 million
- Announced intent to initiate small shareholder selling program
TORONTO, April 27, 2010 /CNW/ - Norbord Inc. (TSX: NBD, NBD.WT) today reported positive EBITDA of $9 million in Q1 2010 compared to positive EBITDA of $6 million in Q4 2009 and negative EBITDA of $14 million in the same quarter last year. North American operations generated positive EBITDA of $8 million in Q1 2010, an improvement of $7 million and $20 million compared to the fourth and first quarters of 2009 respectively. Norbord's European operations generated positive EBITDA of $5 million in Q1 2010, compared to $7 million and $1 million recorded in the fourth and first quarters of 2009 respectively.
Norbord recorded a loss of $5 million or $0.12 per share in the first quarter of 2010. Norbord recorded a loss of $11 million or $0.25 per share in the prior quarter and a loss of $22 million or $0.52 per share in the first quarter of 2009.
"We are encouraged by the positive momentum in our financial performance," said Barrie Shineton, President and CEO. "However, severe weather in the quarter negatively impacted both costs and productivity at almost all of our operations. Wet and cold weather in the US South restricted log supply and extended mill curtailments. In the UK, record snowfall shut down logging operations and panel sales stalled as customers stayed home. These issues eased in March and are now largely behind us. OSB prices, particularly in North America, continue to rise and we anticipate reporting stronger results in the second quarter."
Market Conditions
North American North Central benchmark OSB prices averaged $212 in the quarter compared to $169 in Q4 2009 and $154 in Q1 2009. In the South East region, where approximately 55% of Norbord's North American capacity is located, prices averaged $197 in the quarter, up $43 and $58 from the fourth and first quarters of 2009, respectively. Across all regions, benchmark OSB prices in April 2010 have averaged well above the first quarter levels. The Company expects EBITDA for the month of April to be approximately $17 million.
Expert forecasts for US housing starts in 2010 now average 0.6 million to 0.7 million. Management believes a more meaningful recovery in US housing activity needs to take hold before the recent upward pricing trend is sustainable.
In Europe, OSB prices improved 7% versus the prior quarter due to weather-related wood supply constraints, rising fibre costs and a reduction of OSB imports from North America. Quarter-over-quarter, particleboard and MDF prices increased by 3% and 1% respectively, although sales volumes were down 6%.
Performance
Norbord's North American OSB mills operated at approximately 65% of capacity in the first quarter compared to 60% in the fourth and first quarters of 2009. Subject to market conditions, Norbord expects to operate its North American mills, excluding its two indefinitely closed mills in Texas and Alabama, at full capacity in the second quarter. The indefinitely closed mills represent 20% of Norbord's North American capacity. Norbord's European mills operated at approximately 90% of capacity in the first quarter of 2010 versus 80% in the fourth and first quarters of 2009. Norbord expects European production to approach full capacity in the second quarter of 2010, subject to market conditions.
Norbord's North American OSB production cash costs per unit increased 4% versus the same quarter last year. Cold and wet weather conditions in the US South impacted wood availability, production costs and operating performance. Higher OSB prices more than offset the negative impact of higher manufacturing costs during the quarter.
In January 2010, Norbord received a $55 million tax refund related to the extension of the loss carry-back period from two to five years. At the end of the first quarter, Norbord had unutilized liquidity of $243 million consisting of cash and cash equivalents, revolving bank lines and the Brookfield debt facility. The Company's tangible net worth was $322 million and net debt to total capitalization, book basis, was 58%.
Capital investments totaled $1 million in the first quarter. Norbord's 2010 capital investment program will be limited to essential projects and is expected to be $10 million to $15 million, unless market conditions warrant investments at a higher level.
Developments
Norbord announced today that it will seek regulatory approval to proceed with a small shareholder selling program in the second quarter of 2010. Details of this program will be announced subject to receipt of regulatory approval.
Subsequent to quarter-end, Norbord announced the completion of a secondary offering of common shares by Brookfield, through a wholly-owned subsidiary. Brookfield and its affiliates now own approximately 22.8 million common shares, representing a 52% interest in the Corporation. Brookfield also holds warrants to purchase an additional 13 million comon shares.
Additional Information
Norbord's Q1 2010 letter to shareholders, news release, management's discussion & analysis, consolidated 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 Tuesday, April 27, 2010 at 2:00 p.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 May 27, 2010 by dialing 1(888) 203-1112 or (647) 436-0148. The passcode is 4641422. 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 1,950 people at 14 plant locations in the United States, Europe and Canada. Norbord is one of the world's largest producers of oriented strand board (OSB). In addition to OSB, Norbord manufactures particleboard, medium density fibreboard (MDF) 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, including statements related to our strategy, projects, plans, future financial or operating performance and other statements that express management's expectations or estimates of future performance. 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 3, 2010 Annual Information Form and the cautionary statement contained in the "Forward-Looking Statements" section of the 2009 Management's Discussion and Analysis dated January 29, 2010 and Q1 2010 Management's Discussion and Analysis dated April 27, 2010.
April 27, 2010
To our Shareholders,
I am encouraged by the continued improvement in Norbord's financial performance. Norbord's positive EBITDA result of $9 million in the first quarter is a $3 million improvement from the prior quarter and a $23 million improvement compared to last year. This better result largely reflected stronger than expected North American OSB prices.
However, I do recognize that our results in the quarter did not meet analysts' expectations. This is because we were not able to translate all of the $40 increase in quarter-over-quarter OSB prices into earnings.
I am reluctant to point to weather as the reason for our performance variability in the first quarter. However, it is a fact that Norbord experienced some extremely difficult weather conditions in January and February across much of our operating geography.
Persistent rain across the US South and record snowfall in the UK led to significant company-wide curtailments and higher manufacturing costs. In the UK, panel sales stalled as building sites froze up and customers stayed home. Taken together, these issues negatively impacted EBITDA by approximately $10 million in the quarter.
These weather issues eased in March and are now largely behind us. Panel prices, especially in North America, continue to rise and our financial results in April are already much improved. We anticipate reporting stronger results in the second quarter and we believe that 2010 overall will be a better year.
However, I must caution that we will need to see a more meaningful recovery in US housing activity before this recent OSB price improvement trend is sustained longer term. High unemployment and home foreclosures, particularly in the US, remain an issue. For these reasons, we expect the recovery to be protracted and uneven.
Nevertheless, I do believe a housing recovery in both North America and Europe is underway. The government stimulus initiatives that targeted housing and home buyers have been helpful. Low home prices and attractive mortgage rates continue to make housing very affordable and there are clear signs that home buyers are re-entering the market. In the US, experts are forecasting 2010 housing starts of 0.6 million to 0.7 million, a 20% improvement from the low point in 2009. Housing in the UK is also recovering, with a 25% improvement forecast for the year.
I remain confident that the demographic realities of immigration, new household formations and replacement homes will eventually push housing demand back above the long-term average of 1.5 million starts. In the meantime, we will continue to improve the operating performance of Norbord's mills, keep costs down and strengthen customer relationships as we plan for a business recovery that will gain traction in 2011.
I look forward to reporting on our progress throughout the year.
(signed)
J. Barrie Shineton
President & CEO
This letter includes forward-looking statements, as defined by applicable securities legislation including statements related to our strategy, projects, plans, future financial or operating performance and other statements that express management's expectations or estimates of future performance. 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 2009 Management's Discussion and Analysis dated January 29, 2010 and Q1 2010 Management's Discussion and Analysis dated April 27, 2010.
Consolidated Statements of Earnings
-------------------------------------------------------------------------
(unaudited)
Quarters ended March 27 and March 28
(US $ millions, except per share information) Q1 2010 Q1 2009
-------------------------------------------------------------------------
Net sales $ 184 $ 156
-------------------------------------------------------------------------
Earnings before interest, income tax, depreciation
and foreign exchange loss 9 (14)
Interest expense (8) (8)
Foreign exchange loss - (2)
-------------------------------------------------------------------------
Earnings before income tax and depreciation 1 (24)
Depreciation (10) (15)
Income tax recovery 4 17
-------------------------------------------------------------------------
Earnings $ (5) $ (22)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share (note 9)
Basic and Diluted $ (0.12) $ (0.52)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
Consolidated Statements of Cash Flows
-------------------------------------------------------------------------
(unaudited)
Quarters ended March 27 and March 28 (US $ millions) Q1 2010 Q1 2009
-------------------------------------------------------------------------
Cash provided by (used for):
Operating Activities
Earnings $ (5) $ (22)
Items not affecting cash:
Depreciation 10 15
Future income taxes (4) (17)
Other items 1 -
-------------------------------------------------------------------------
2 (24)
Net change in non-cash operating working capital
balances (note 10) (57) (81)
Net change in tax receivable 57 -
-------------------------------------------------------------------------
2 (105)
-------------------------------------------------------------------------
Investing Activities
Investment in property, plant and equipment (1) (5)
Realized net investment hedge gain (note 12) 1 2
Other - 1
-------------------------------------------------------------------------
- (2)
-------------------------------------------------------------------------
Financing Activities
Revolving bank lines drawn (repaid) (note 6) (9) 15
Brookfield debt facility drawn (repaid) (note 8) - (35)
Issue of common shares, net (note 8) - 97
Issue of warrants, net (note 8) - 21
-------------------------------------------------------------------------
(9) 98
-------------------------------------------------------------------------
Decrease in cash and cash equivalents $ (7) $ (9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents, beginning of period $ 21 $ 20
Cash and cash equivalents, end of period (note 10) 14 11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
Consolidated Balance Sheets
-------------------------------------------------------------------------
Mar 27 Dec 31
2010 2009
(US $ millions) (unaudited)
-------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents (note 10) $ 14 $ 21
Accounts receivable (note 3) 43 27
Tax receivable - 57
Inventory (note 4) 92 71
-------------------------------------------------------------------------
149 176
Property, plant and equipment 837 860
Other assets (note 5) 16 7
-------------------------------------------------------------------------
$ 1,002 $ 1,043
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 122 $ 140
Long-term debt (note 6) 463 471
Other liabilities (note 7) 9 9
Future income taxes 86 89
Shareholders' equity (note 8) 322 334
-------------------------------------------------------------------------
$ 1,002 $ 1,043
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
Consolidated Statements of Changes in
Shareholders' Equity and Comprehensive Income
-------------------------------------------------------------------------
(unaudited)
Quarters ended March 27 and March 28 (US $ millions) Q1 2010 Q1 2009
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
Share Capital
Balance, beginning of period $ 335 $ 238
Issue of common shares, net (note 8) - 97
-------------------------------------------------------------------------
Balance, end of period $ 335 $ 335
-------------------------------------------------------------------------
Contributed Surplus
Balance, beginning of period $ 39 $ 17
Issue of warrants, net (note 8) - 21
-------------------------------------------------------------------------
Balance, end of period $ 39 $ 38
-------------------------------------------------------------------------
Retained Earnings
Balance, beginning of period $ (32) $ 26
Earnings (5) (22)
-------------------------------------------------------------------------
Balance, end of period $ (37) $ 4
-------------------------------------------------------------------------
Accumulated Other Comprehensive Loss
Balance, beginning of period $ (8) $ (13)
Other comprehensive loss (7) (1)
-------------------------------------------------------------------------
Balance, end of period $ (15) $ (14)
-------------------------------------------------------------------------
Shareholders' equity $ 322 $ 363
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Earnings $ (5) $ (22)
Other comprehensive loss
Foreign currency translation (5) -
Future income taxes (2) (1)
-------------------------------------------------------------------------
Comprehensive loss $ (12) $ (23)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
Notes to the Consolidated Financial Statements
(unaudited)
(in US $, unless otherwise noted)
NOTE 1. ACCOUNTING POLICIES
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.
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 an interest in a joint venture which has been proportionately consolidated.
NOTE 2. 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 or 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 following 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.
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 proceeds consisting of cash and deferred purchase price. At period end, Norbord recorded cash proceeds of $54 million (2009 - $62 million) relating to this program.
The securitization program is subject to the following financial covenants with which the Company must comply on a quarterly basis: minimum tangible net worth of $300 million, and maximum net debt to total capitalization on a book basis of 65%. At period end, the Company's tangible net worth was $322 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
-------------------------------------------------------------------------
Mar 27 Dec 31
(US $ millions) 2010 2009
-------------------------------------------------------------------------
Raw materials $ 24 $ 13
Finished goods 43 33
Operating and maintenance supplies 25 25
-------------------------------------------------------------------------
$ 92 $ 71
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At period end, the provision to reflect inventories at the lower of cost and net realizable value was $nil (2009 - $1 million).
The amount of inventory recognized as an expense was as follows:
-------------------------------------------------------------------------
(US $ millions) Q1 2010 Q1 2009
-------------------------------------------------------------------------
Cost of inventories $ 166 $ 154
Depreciation on property, plant & equipment 10 15
-------------------------------------------------------------------------
$ 176 $ 169
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 5. OTHER ASSETS
-------------------------------------------------------------------------
Mar 27 Dec 31
(US $ millions) 2010 2009
-------------------------------------------------------------------------
Unrealized net investment hedge gains (note 12) $ 11 $ 2
Unrealized interest rate swap gains (note 12) 5 4
Other - 1
-------------------------------------------------------------------------
$ 16 $ 7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
Mar 27 Dec 31
(US $ millions) 2010 2009
-------------------------------------------------------------------------
Principal value
7 1/4% debentures due 2012 $ 240 $ 240
Senior notes due 2017 200 200
Revolving bank lines 18 27
-------------------------------------------------------------------------
458 467
Debt issue costs (5) (6)
Deferred interest rate swap gains 5 6
Unrealized interest rate swap gains (note 5) 5 4
-------------------------------------------------------------------------
$ 463 $ 471
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, $18 million of the revolving bank lines was drawn as cash, $8 million was utilized for letters of credit, and $179 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 $322 million and net debt for financial covenant purposes was $452 million. Net debt to total capitalization, book basis, was 58%.
Interest Rate Swaps
At period end, the Company had outstanding interest rate swaps of $115 million (2009 - $115 million). The terms of these swaps correspond to the terms of the underlying hedged debt. The unrealized interest rate swap gains are offset by unrealized losses on the underlying exposures being hedged.
NOTE 7. OTHER LIABILITIES
-------------------------------------------------------------------------
Mar 27 Dec 31
(US $ millions) 2010 2009
-------------------------------------------------------------------------
Accrued employee benefits $ 6 $ 6
Other liabilities 3 3
-------------------------------------------------------------------------
$ 9 $ 9
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NOTE 8. SHAREHOLDERS' EQUITY
Rights Offering
On January 6, 2009, pursuant to a Standby Purchase Agreement in connection with a Rights Offering (the Offering), Brookfield 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). A standby fee of approximately $2 million was paid to Brookfield based on 1% of the gross proceeds of the Offering. Proceeds from the Offering, net of share issue costs, were used to repay drawings under the Brookfield debt facility and revolving bank lines.
Warrants
During the quarter, less than 0.1 million common shares were issued as a result of warrants exercised for proceeds of less than $1 million (2009 - nil).
Stock Options
During the quarter, 0.5 million options were granted under the stock option plan (2009 - 0.1 million). Stock option expense of less than $1 million was recorded against contributed surplus (2009 - less than $1 million).
During the quarter, less than 0.1 million common shares (2009 - less than 0.1 million) were issued as a result of options exercised under the stock option plan for proceeds of less than $1 million (2009 - less than $1 million).
NOTE 9. EARNINGS PER COMMON SHARE
-------------------------------------------------------------------------
(US $ millions, except per share information,
unless otherwise noted) Q1 2010 Q1 2009
-------------------------------------------------------------------------
Earnings available to common shareholders $ (5) $ (22)
-------------------------------------------------------------------------
Common shares (millions):
Weighted average number of common shares outstanding 43.2 42.3
Stock options (1) - -
Warrants (1) - -
-------------------------------------------------------------------------
Diluted number of common shares 43.2 42.3
-------------------------------------------------------------------------
Earnings per common share:
Basic and diluted $ (0.12) $ (0.52)
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-------------------------------------------------------------------------
(1) Applicable if dilutive and when the weighted average share price for
the period was greater than the exercise price for vested stock
options and warrants.
NOTE 10. SUPPLEMENTAL CASH FLOW INFORMATION
The net change in non-cash operating working capital balance comprises:
-------------------------------------------------------------------------
(US $ millions) Q1 2010 Q1 2009
-------------------------------------------------------------------------
Cash provided by (used for):
Accounts receivable $ (20) $ (32)
Inventory (23) (17)
Accounts payable and accrued liabilities (14) (32)
-------------------------------------------------------------------------
$ (57) $ (81)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents comprises:
-------------------------------------------------------------------------
(US $ millions) Q1 2010 Q1 2009
-------------------------------------------------------------------------
Cash $ 10 $ 6
Cash equivalents 4 5
-------------------------------------------------------------------------
$ 14 $ 11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 11. CAPITAL MANAGEMENT
Norbord's capital structure at period end consisted of the following:
-------------------------------------------------------------------------
Mar 27 Dec 31
(US $ millions) 2010 2009
-------------------------------------------------------------------------
Long-term debt, principal value $ 458 $ 467
Add: Drawings under Brookfield debt facility(1) - -
Less: Cash and cash equivalents (14) (21)
-------------------------------------------------------------------------
Net debt 444 446
Add: Letters of credit 8 8
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Net debt for financial covenant purposes 452 454
-------------------------------------------------------------------------
Shareholders' equity 322 334
Add: Drawings under Brookfield debt facility(1) - -
-------------------------------------------------------------------------
Tangible net worth 322 334
-------------------------------------------------------------------------
Total capitalization $ 774 $ 788
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net debt to capitalization, book basis 58% 58%
Net debt to capitalization, market basis 43% 48%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Drawings under the Company's Brookfield debt facility are treated as
equity for bank line financial covenant purposes.
NOTE 12. FINANCIAL INSTRUMENTS
Non-Derivative Financial Instruments
The net book values and fair values of non-derivative financial instruments were as follows:
-------------------------------------------------------------------------
Mar 27 2010 Dec 31 2009
-------------------------------------------------------------------------
Net Net
Financial Instrument Book Fair Book Fair
(US $ millions) Classification Value Value Value Value
-------------------------------------------------------------------------
Financial Assets:
Cash and cash
equivalents Held-for-trading $ 14 $ 14 $ 21 $ 21
Accounts
receivable Loans and receivables 43 43 27 27
Tax receivable Loans and receivables - - 57 57
-------------------------------------------------------------------------
$ 57 $ 57 $ 105 $ 105
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial
Liabilities:
Accounts payable
and accrued
liabilities Other liabilities $ 122 $ 122 $ 140 $ 140
Long-term debt Other liabilities 463 468 471 474
-------------------------------------------------------------------------
$ 585 $ 590 $ 611 $ 614
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Derivative Financial Instruments
Information about derivative financial instruments was as follows:
-------------------------------------------------------------------------
Mar 27 2010 Dec 31 2009
-------------------------------------------------------------------------
Unrealized Unrealized
(US $ millions, Gain at Gain at
unless otherwise Notional Period Notional Period
noted) Value End(1) Value End(1)
-------------------------------------------------------------------------
Currency hedges:
Net investment
UK (pnds stlg)56 $7 (pnds stlg)56 $1
Belgium (euro)40 4 (euro)40 1
Monetary
liabilities CAD $19 - CAD $9 -
Interest rate
hedges:
Interest rate
swaps $115 5 - 4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The carrying values of the derivative financial instruments are
equivalent to the unrealized gain at period end.
During the quarter, the Company realized a $1 million gain (2009 - $3 million gain) on its matured UK net investment hedges, $nil (2009 - $1 million loss) on its matured Belgium net investment hedges and $nil (2009 - $nil) on its matured monetary liability hedges.
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 13. RELATED PARTY TRANSACTIONS
In the normal course of operations, the Company enters into various transactions on market terms with related parties which have been measured at exchange value and recognized in the consolidated financial statements. The following transactions have occurred between the Company and Brookfield during the normal course of business.
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. At period end, the facility was undrawn (2009 - nil).
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 to by other shareholders of the Company. On January 6, 2009, upon completion of the standby commitment, Brookfield increased its ownership interest to approximately 73%.
Secondary Offering
On March 10, 2010, Brookfield and the Company entered into an agreement with a syndicate of investment dealers to complete a secondary offering of Norbord's common shares. Under the agreement, the syndicate purchased 9 million common shares at a purchase price of CAD $16.70 per common share for gross proceeds of CAD $150 million on March 30, 2010. Brookfield offered 8.7 million shares and the Company's senior management offered 0.3 million shares. Brookfield also granted the underwriters an over-allotment option, exercisable in whole, or in part, at any time for a period of 30 days from closing, to purchase up to an additional 0.9 million shares. On March 30, 2010, upon completion of the secondary offering, but before giving effect to the over-allotment option, Brookfield's ownership decreased to approximately 52% of common shares outstanding. Norbord did not receive any proceeds from the offering.
Other
During the quarter the Company provided certain administrative services to Brookfield or its affiliates which was charged on a cost recovery basis. In addition, the Company periodically engaged the services of Brookfield or its affiliates for various financial, real estate and other business advisory services. During the quarter, the fees for these services were less than $1 million (2009 - less than $1 million) and were charged at market rates.
NOTE 14. 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.
-------------------------------------------------------------------------
Q1 2010
-------------------------------------------------------------------------
North
(US $ millions) America Europe Unallocated Total
-------------------------------------------------------------------------
Net sales $ 109 $ 75 $ - $ 184
EBITDA(1) 8 5 (4) 9
Depreciation 6 4 - 10
Property, plant and
equipment 660 175 2 837
Investment in
property, plant and
equipment 1 - - 1
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-------------------------------------------------------------------------
Q1 2009
-------------------------------------------------------------------------
North
(US $ millions) America Europe Unallocated Total
-------------------------------------------------------------------------
Net sales $ 85 $ 71 $ - $ 156
EBITDA(1) (12) 1 (3) (14)
Depreciation 10 5 - 15
Property, plant and
equipment 680 184 3 867
Investment in
property, plant and
equipment 5 - - 5
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(1) EBITDA is earnings before interest, income tax, depreciation, and
foreign exchange loss.
For further information: Anita Veel, Director, Corporate & Regulatory Affairs, Tel. (416) 643-8838, [email protected]
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