Note: Financial references in US dollars unless otherwise indicated
Q3 2010 HIGHLIGHTS
- Achieved 5th consecutive quarter of positive EBITDA and operating cash flow
- Achieved positive EBITDA of $12 million, $2 million better than Q3 2009
- Continued strong market conditions in Europe - OSB prices up 30% vs. Q3 2009
- Achieved Norbord Safety Star certification at Cordele GA mill
TORONTO, Oct. 27 /CNW/ - Norbord Inc. (TSX: NBD, NBD.WT) today reported positive EBITDA of $12 million in Q3 2010 compared to $71 million in Q2 2010 and $10 million in Q3 2009. North American operations generated positive EBITDA of $4 million in Q3 2010, compared to $63 million in Q2 2010 and $9 million in Q3 2009. Norbord's European operations generated positive EBITDA of $10 million in Q3 2010, compared to $10 million in Q2 2010 and $5 million in Q3 2009.
Norbord recorded a loss of $7 million or $0.16 per share in the third quarter. Norbord recorded earnings of $37 million or $0.85 per share in the prior quarter and a loss of $7 million or $0.16 per share in the same quarter last year.
"I'm pleased that we were able to adjust quickly to the OSB price correction in Q3 as demand stalled when the home buyer tax incentives expired and new home market activity slowed," said Barrie Shineton, President and CEO. "By limiting our exposure to the new home construction segment, we increased both production and shipment volumes overall versus the same period last year. In the UK, we continued to benefit from the jump in construction activity that carried over from last quarter and supported strong panel pricing, particularly OSB."
"Our 2010 results will be much improved over the prior year. Our balance sheet is in good shape and we have strong liquidity. We expect markets to have no real momentum until later in 2011 when improvements in both new home construction and total OSB demand should be apparent."
Market Conditions
North American benchmark OSB prices declined throughout the third quarter in light of seasonally weaker housing activity and continued market softness. The expiration of the US Home Buyer Tax Credit in May pulled forward home buying demand into the early part of 2010. North Central benchmark OSB prices ranged from $207 to $160 and averaged $180 in the third quarter. In the South East region, where over half of Norbord's North American capacity is located, prices averaged $156. OSB demand and prices are expected to remain near cycle bottom levels during the seasonally softer winter months.
Expert forecasts suggest US housing starts will not exceed 0.6 million in 2010, well below the historical average of 1.5 million. Norbord believes OSB prices will continue to be volatile until a meaningful recovery in the US housing market takes hold. Approximately 40% of the Company's North American OSB sales goes directly into the new home construction sector. The other 60% goes into repair and remodeling, light commercial construction and industrial applications, providing meaningful distribution channel diversification.
European OSB markets continued to show strength again this quarter as efforts to rebuild depleted new home inventories boosted construction activity. European OSB prices improved 9% quarter-over-quarter and 37% year-over-year. Particleboard and MDF markets remained resilient and prices increased on average by 3% quarter-over-quarter and 8% year-over-year.
Performance
Norbord's operating North American OSB mills ran at approximately 90% of their capacity in the third quarter compared to 100% in the prior quarter and 85% in the same quarter last year. Norbord's two indefinitely closed mills in Texas and Alabama have not operated since the first quarter of 2009 and represent 20% of the Company's North American OSB capacity. All of Norbord's European mills operated at full capacity again this quarter versus 100% in the prior quarter and 75% in the same quarter last year. As market and economic conditions warrant, Norbord expects to curtail production when necessary to conserve cash, manage inventory and maximize operating results.
Norbord's North American OSB production cash costs per unit decreased 1% versus the prior quarter on lower employee profit share costs and lower resin and fibre prices. Cash costs were up 13% versus the same quarter last year due to higher fibre and resin prices, which were at cyclical lows in 2009. Supplies and maintenance costs were also higher reflecting increased production volume this year.
At the end of the third quarter, Norbord had unused liquidity of $313 million consisting of cash and cash equivalents of $76 million and undrawn revolving bank lines of $237 million. The Company's tangible net worth was $362 million and net debt to total capitalization, book basis, was 51%.
Capital investments totaled $3 million in the third quarter. Norbord's 2010 capital investment program will be limited to essential capital projects and is expected to total $15 million.
Developments
As announced last quarter, Norbord applied to the Toronto Stock Exchange (TSX) and received approval to conduct a normal course issuer bid in accordance with TSX rules. Under the bid, the Company may purchase up to 2,176,198 of its Common Shares, representing approximately 5% of the 43,523,979 issued and outstanding Common Shares as of August 31, 2010. Purchases under the bid may commence on September 17, 2010 and will terminate on the earlier of September 16, 2011, the date Norbord completes its purchases pursuant to the notice of intention to make a normal course issuer bid filed with the TSX or the date of notice by Norbord of termination of the bid.
Additional Information
Norbord's Q3 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 Wednesday, October 27, 2010 at 11:00 a.m. ET. The call will be broadcast live over the Internet via www.norbord.com and www.newswire.ca. A replay number will be available approximately one hour after completion of the call and accessible until November 24, 2010 by dialing 1.888.203.1112 or 647.436.0148. The passcode is 7884176. 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 "will," "should," "will not," "expected," "forecasts," "suggest," "expects," "may," 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 Q3 2010 Management's Discussion and Analysis dated October 27, 2010.
October 27, 2010
To our Shareholders,
I am pleased to report another positive financial quarter for Norbord. The Company generated $12 million of EBITDA, a modest improvement over the same quarter last year and the fifth consecutive quarter that we have delivered both positive EBITDA and operating cash flow. At the same time I'm disappointed that the robust OSB pricing environment we experienced in North American markets in the first half of the year did not carry over into this quarter. OSB benchmark prices that peaked at $395 in the second quarter fell spectacularly, averaging just $180 in this quarter. With the benefit of hindsight, it is now clear that the expiry of the US Home Buyer Tax Credit in April hurt new home construction activity by pulling forward buyer interest and home sales into the first half of this year.
Our North American mills were able to respond quickly and pull back production to match softer order files. We operated about 70% of our capacity in the quarter, a good result when compared to the overall industry operating rate of 55%. Fortunately, Norbord continues to be somewhat less directly exposed than others to the new home construction market segment. Today more than 60% of our sales volume ships directly to repair and remodelling and industrial end use applications. This OSB end user diversification is continuing to evolve and we believe that, in the current market dynamic of low demand and excess capacity, Norbord benefits by always having a home for its production capacity.
In Europe, the jump in construction activity in the first half of the year carried over into the third quarter. OSB prices were 37% higher than the same period last year and contributed to another strong result from our UK- and Belgium-based panelboard operations. We are watching current economic developments closely as the UK government has recently announced it is withdrawing stimulus support and implementing the most significant public sector job and spending cutbacks since the 1930's. While implications for our industry are not yet clear, I believe the current 'bull market' for panel products will ease with prices peaking in the fourth quarter. However, underlying demand dynamics, limited imports and a weak pound sterling suggest a reasonably positive outlook for our European based business in 2011 and results should be similar to this year.
Raw material input prices, particularly wood and resin, remain a concern for Norbord in both North America and Europe. These costs have stabilized this quarter but at levels that are 10% higher than the same period last year. While the trend is for lower input prices in North America, the adjustment over the next several quarters will happen more slowly than I would like.
We have provided extensive disclosure in our MD&A on the impact of Norbord's upcoming conversion to International Financial Reporting Standards. These accounting changes will impact all Canadian public companies next year. Management's message to shareholders is that you should not expect any significant impact on future EBITDA as we make this financial reporting transition in 2011. And of course cash flow is not impacted by these new accounting rules.
Looking forward, I expect panelboard prices in both North America and Europe to reflect softer seasonal demand this winter before recovering in the second quarter next year. In the US, the inventory of distressed homes for sale and the uncertain employment picture continue to impact housing sentiment. However, with new home inventories now at 40-year lows and affordability at all time high levels, we should expect a meaningful recovery in housing construction once these structural issues are worked through. In the UK, pent-up demand from a longer term, chronic shortage of new home supply suggests a sharp rebound in construction once credit and mortgage restrictions are eased. Although progress is likely to be uneven and at times slow, I expect to see a housing recovery and improvements in OSB demand start to take hold later next year.
In the meantime, Norbord's management continues to work hard to be certain the company's organization and operations are well positioned for an eventual recovery. In North America we have high quality, well maintained assets and strong customer partnerships. Our European operations generate more predictable and stable cash flows. Our balance sheet is solid and we are comfortable with our liquidity. And finally, the longer-term fundamentals are favourable and will continue supporting OSB demand. I remain confident Norbord will generate superior financial performance when the housing recovery finally takes hold.
I look forward to reporting on our progress next quarter.
(signed)
J. Barrie Shineton
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 "believe," "will," "suggest," "should," "would," "expect," "likely," 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 Q3 2010 Management's Discussion and Analysis dated October 27, 2010.
Consolidated Statements of Earnings
(unaudited) | |||||
Periods ended September 25 and September 26 (US $ millions, except per share information) |
Q3 2010 |
Q3 2009 |
9 mos 2010 |
9 mos 2009 |
|
Net sales | $ 211 | $ 192 | $ 673 | $ 522 | |
Earnings before interest, income tax, depreciation, provision for non-core operation and foreign exchange loss | 12 | 10 | 92 | (6) | |
Interest expense | (8) | (10) | (25) | (27) | |
Interest and other income | - | - | 1 | - | |
Provision for non-core operation | - | (3) | - | (3) | |
Foreign exchange loss | - | - | - | (2) | |
Earnings before income tax and depreciation | 4 | (3) | 68 | (38) | |
Depreciation | (12) | (10) | (34) | (37) | |
Income tax recovery (expense) | 1 | 6 | (9) | 28 | |
Earnings | $ (7) | $ (7) | $ 25 | $ (47) | |
Earnings per common share (note 9) | |||||
Basic | $ (0.16) | $ (0.16) | $ 0.58 | $(1.10) | |
Diluted | (0.16) | (0.16) | 0.56 | (1.10) |
(See accompanying notes)
Consolidated Statements of Cash Flows
(unaudited) Periods ended September 25 and September 26 (US $ millions) |
|
Q3 2010 |
Q3 2009 |
9 mos 2010 |
9 mos 2009 |
|||||||||||||||||||||
Cash provided by (used for): | ||||||||||||||||||||||||||
Operating Activities | ||||||||||||||||||||||||||
Earnings | $ (7) | $ (7) | $ 25 | $ (47) | ||||||||||||||||||||||
Items not affecting cash: | ||||||||||||||||||||||||||
Depreciation | 12 | 10 | 34 | 37 | ||||||||||||||||||||||
Future income taxes | (1) | (6) | 9 | (28) | ||||||||||||||||||||||
Other items | 1 | 5 | 2 | 8 | ||||||||||||||||||||||
5 | 2 | 70 | (30) | |||||||||||||||||||||||
Net change in non-cash operating working capital (note 10) | - | 12 | (42) | (34) | ||||||||||||||||||||||
Net change in tax receivable | (2) | 1 | 52 | 13 | ||||||||||||||||||||||
3 | 15 | 80 | (51) | |||||||||||||||||||||||
Investing Activities | ||||||||||||||||||||||||||
Investment in property, plant and equipment | (3) | (3) | (9) | (11) | ||||||||||||||||||||||
Realized net investment hedge gain (loss) (note 12) | 3 | (5) | 12 | 1 | ||||||||||||||||||||||
Other | 1 | 1 | (1) | 1 | ||||||||||||||||||||||
1 | (7) | 2 | (9) | |||||||||||||||||||||||
Financing Activities | ||||||||||||||||||||||||||
Revolving bank lines repaid (note 6) | - | (4) | (27) | (24) | ||||||||||||||||||||||
Debt issue costs (note 6) | (2) | - | (2) | (4) | ||||||||||||||||||||||
Brookfield debt facility repaid | - | - | - | (35) | ||||||||||||||||||||||
Issue of common shares, net | - | - | 2 | 97 | ||||||||||||||||||||||
Issue of warrants, net | - | - | - | 21 | ||||||||||||||||||||||
(2) | (4) | (27) | 55 | |||||||||||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||||||||
Increase (decrease) | 2 | 4 | 55 | (5) | ||||||||||||||||||||||
Balance, beginning of period | 74 | 11 | 21 | 20 | ||||||||||||||||||||||
Balance, end of period (note 10) | $ 76 | $15 | $ 76 | $15 |
(See accompanying notes)
Consolidated Balance Sheets
(US $ millions) | Sep 25 2010 (unaudited) |
Dec 31 2009 | |||||||||||||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ 76 | $ 21 | |||||||||||||||||||||||||||||||||||||||
Accounts receivable (note 3) | 59 | 27 | |||||||||||||||||||||||||||||||||||||||
Tax receivable | 5 | 57 | |||||||||||||||||||||||||||||||||||||||
Inventory (note 4) | 80 | 71 | |||||||||||||||||||||||||||||||||||||||
220 | 176 | ||||||||||||||||||||||||||||||||||||||||
Property, plant and equipment | 829 | 860 | |||||||||||||||||||||||||||||||||||||||
Other assets (note 5) | 8 | 7 | |||||||||||||||||||||||||||||||||||||||
$ 1,057 | $ 1,043 | ||||||||||||||||||||||||||||||||||||||||
Liabilities and Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities | $ 144 | $ 140 | |||||||||||||||||||||||||||||||||||||||
Long-term debt (note 6) | 444 | 471 | |||||||||||||||||||||||||||||||||||||||
Other liabilities (note 7) | 9 | 9 | |||||||||||||||||||||||||||||||||||||||
Future income taxes | 98 | 89 | |||||||||||||||||||||||||||||||||||||||
Shareholders' equity (note 8) | 362 | 334 | |||||||||||||||||||||||||||||||||||||||
$ 1,057 | $ 1,043 |
(See accompanying notes)
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income (Loss)
(unaudited) Periods ended September 25 and September 26 (US $ millions) |
Q3 2010 |
Q3 2009 |
9 mos 2010 |
9 mos 2009 |
|||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY | |||||||||||||||||
Share Capital | |||||||||||||||||
Balance, beginning of period | $ 340 | $ 335 | $ 335 | $ 238 | |||||||||||||
Issue of common shares, net (note 8) | - | - | 5 | 97 | |||||||||||||
Balance, end of period | $ 340 | $ 335 | $ 340 | $ 335 | |||||||||||||
Contributed Surplus | |||||||||||||||||
Balance, beginning of period | $ 40 | $ 38 | $ 39 | $ 17 | |||||||||||||
Issue of warrants, net | - | - | - | 21 | |||||||||||||
Stock based compensation | - | - | 1 | - | |||||||||||||
Balance, end of period | $ 40 | $ 38 | $ 40 | $ 38 | |||||||||||||
Retained Earnings | |||||||||||||||||
Balance, beginning of period | $ - | $ (14) | $ (32) | $ 26 | |||||||||||||
Earnings | (7) | (7) | 25 | (47) | |||||||||||||
Balance, end of period | $ (7) | $ (21) | $ (7) | $ (21) | |||||||||||||
Accumulated Other Comprehensive Loss | |||||||||||||||||
Balance, beginning of period | $ (20) | $ (11) | $ (8) | $ (13) | |||||||||||||
Other comprehensive income (loss) | 9 | 3 | (3) | 5 | |||||||||||||
Balance, end of period | $ (11) | $ (8) | $ (11) | $ (8) | |||||||||||||
Shareholders' equity | $ 362 | $ 344 | $ 362 | $ 344 | |||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||
Earnings | $ (7) | $ (7) | $ 25 | $ (47) | |||||||||||||
Other comprehensive income (loss) | |||||||||||||||||
Foreign currency translation | 6 | 1 | (2) | - | |||||||||||||
Future income taxes | 3 | 2 | (1) | 5 | |||||||||||||
9 | 3 | (3) | 5 | ||||||||||||||
Comprehensive income (loss) | $ 2 | $ (4) | $ 22 | $ (42) |
(See accompanying notes)
Notes to the Consolidated Financial Statements
(unaudited)
(in US $, unless otherwise noted)
Note 1. Accounting Policies
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the requirements of the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1751, Interim Financial Statements. The interim financial statements should be read in conjunction with the most recently issued annual consolidated financial statements included in the 2009 Annual Report of Norbord Inc. ("the Company"), which includes information and note disclosure 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 present 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 that were not previously recognized by the acquiree will be expensed in periods after the acquisition date. The new standard applies 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 apply the new standard at the time of any applicable acquisitions after adoption.
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 does not expect these new standards to have any impact on the financial statements.
Note 3. Accounts Receivable
Norbord has an $85 million securitization program with a third party trust sponsored by a highly rated Canadian financial institution. The program has an evergreen commitment subject to termination on twelve months notice. Under the program, Norbord has transferred substantially all of its present and future trade accounts receivable to the trust, on a fully serviced basis, for proceeds consisting of cash and deferred purchase price. At period end, Norbord recorded cash proceeds of $51 million (2009 - $62 million) relating to this program.
The securitization program contains no financial covenants however the program is subject to minimum credit-ratings requirements. The Company must maintain a long-term issuer credit rating of at least single B (mid) or the equivalent. As at October 26, 2010, Norbord's ratings were BB (DBRS), BB- (Standard & Poor's Ratings Services) and Ba3 (Moody's Investors Service).
Note 4. Inventory
(US $ millions) | Sep 25 2010 | Dec 31 2009 | ||||||||||||||||||||||||||||||||||||||||||||
Raw materials | $ 17 | $ 13 | ||||||||||||||||||||||||||||||||||||||||||||
Finished goods | 39 | 33 | ||||||||||||||||||||||||||||||||||||||||||||
Operating and maintenance supplies | 24 | 25 | ||||||||||||||||||||||||||||||||||||||||||||
$ 80 | $ 71 |
At period end, the provision to reflect inventories at the lower of cost and net realizable value was $1 million (2009 - $1 million).
The amount of inventory recognized as an expense was as follows:
Periods ended September 25 and September 26 (US $ millions) | Q3 2010 |
Q3 2009 |
9 mos 2010 |
9 mos 2009 |
||||||||||||||||||||||
Cost of inventories | $ 188 | $ 168 | $ 548 | $ 483 | ||||||||||||||||||||||
Depreciation on property, plant & equipment | 12 | 9 | 34 | 36 | ||||||||||||||||||||||
$ 200 | $ 177 | $ 582 | $ 519 |
Note 5. Other Assets
(US $ millions) | Sep 25 2010 | Dec 31 2009 | |||||||||||||||||||||||||||||||||||||
Unrealized interest rate swap gains (note 12) | $ 6 | $ 4 | |||||||||||||||||||||||||||||||||||||
Unrealized net investment hedge gains (note 12) | - | 2 | |||||||||||||||||||||||||||||||||||||
Other | 2 | 1 | |||||||||||||||||||||||||||||||||||||
$ 8 | $ 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
(US $ millions) | Sep 25 2010 | Dec 31 2009 | |||||||||||||||||||||||||||||||||||||||||||||
Principal value | |||||||||||||||||||||||||||||||||||||||||||||||
7 1⁄4% debentures due 2012 | $ 240 | $ 240 | |||||||||||||||||||||||||||||||||||||||||||||
Senior notes due 2017 | 200 | 200 | |||||||||||||||||||||||||||||||||||||||||||||
Revolving bank lines | - | 27 | |||||||||||||||||||||||||||||||||||||||||||||
440 | 467 | ||||||||||||||||||||||||||||||||||||||||||||||
Debt issue costs | (6) | (6) | |||||||||||||||||||||||||||||||||||||||||||||
Deferred interest rate swap gains | 4 | 6 | |||||||||||||||||||||||||||||||||||||||||||||
Unrealized interest rate swap gains (note 5) | 6 | 4 | |||||||||||||||||||||||||||||||||||||||||||||
$ 444 | $ 471 |
Revolving Bank Lines
The Company has committed revolving bank lines of $245 million which mature in May 2013 and bear 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 and 2017 senior notes. At period end, the amount of revolving bank lines drawn as cash was nil, $8 million was utilized for letters of credit, and $237 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 65%. Effective January 1, 2011, the maximum net debt to total capitalization, book basis covenant reduces to 60%. Net debt includes total debt less cash and cash equivalents plus letters of credit issued. At period end, the Company's tangible net worth was $362 million and net debt for financial covenant purposes was $372 million. Net debt to total capitalization, book basis, was 51%.
Debt Issue Costs
Debt issue costs include transaction costs that are directly attributable to the issuance of long-term debt. The capitalized transaction costs are amortized to earnings over the term of the related long-term debt. Year-to-date, debt issue costs have increased by $2 million (2009 - $4 million) related to the renegotiation of the revolving bank lines and year-to-date amortization expense was $2 million (2009 - $3 million).
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
(US $ millions) | Sep 25 2010 | Dec 31 2009 | |||||||||||||||||||||||||||||||||||||||
Unrealized net investment hedge losses (note 12) | $ 5 | $ - | |||||||||||||||||||||||||||||||||||||||
Accrued employee benefits | 2 | 6 | |||||||||||||||||||||||||||||||||||||||
Other | 2 | 3 | |||||||||||||||||||||||||||||||||||||||
$ 9 | $ 9 |
The unrealized net investment hedge losses are offset by unrealized gains on the underlying exposures being hedged.
Note 8. Shareholders' Equity
Stock Options
Year-to-date, 0.5 million options were granted under the stock option plan (2009 - 1 million). Stock option expense of $1 million was recorded against contributed surplus (2009 - less than $1 million). Year-to-date, 0.3 million common shares were issued as a result of options exercised under the stock option plan for proceeds of $2 million (2009 - less than $1 million).
Note 9. Earnings per Common Share
Periods ended September 25 and September 26 (US $ millions, except per share information) |
Q3 2010 |
Q3 2009 |
9 mos 2010 |
9 mos 2009 |
||
Earnings available to common shareholders | $ (7) | $ (7) | $ 25 | $ (47) | ||
Common shares (millions): | ||||||
Weighted average number of common shares outstanding | 43.5 | 43.2 | 43.4 | 42.9 | ||
Stock options (1) | - | - | 0.4 | - | ||
Warrants (1) | - | - | 1.1 | - | ||
Diluted number of common shares | 43.5 | 43.2 | 44.9 | 42.9 | ||
Earnings per common share: | ||||||
Basic | $ (0.16) | $ (0.16) | $ 0.58 | $ (1.10) | ||
Diluted | (0.16) | (0.16) | 0.56 | (1.10) |
(1) Applicable when there are positive earnings available to shareholders 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:
Periods ended September 25 and September 26 (US $ millions) | Q3 2010 |
Q3 2009 |
9 mos 2010 |
9 mos 2009 |
|||||||||||||||||
Cash provided by (used for): | |||||||||||||||||||||
Accounts receivable | $ (3) | $ (3) | $ (35) | $ (25) | |||||||||||||||||
Inventory | 9 | 12 | (10) | 5 | |||||||||||||||||
Accounts payable and accrued liabilities | (6) | 3 | 3 | (14) | |||||||||||||||||
$ - | $ 12 | $ (42) | $ (34) |
Cash and cash equivalents comprise: | |||||||||||||||||||||||||||||||||||||
(US $ millions) | Sep 25 2010 | Sep 26 2009 | |||||||||||||||||||||||||||||||||||
Cash | $ 50 | $ 8 | |||||||||||||||||||||||||||||||||||
Cash equivalents | 26 | 7 | |||||||||||||||||||||||||||||||||||
$ 76 | $ 15 |
Note 11. Capital Management
Norbord's capital structure at period end consisted of the following:
(US $ millions) | Sep 25 2010 | Dec 31 2009 | ||||||||||||||||||||||||||||||||
Long-term debt, principal value | $ 440 | $ 467 | ||||||||||||||||||||||||||||||||
Less: Cash and cash equivalents | (76) | (21) | ||||||||||||||||||||||||||||||||
Net debt | 364 | 446 | ||||||||||||||||||||||||||||||||
Add: Letters of credit | 8 | 8 | ||||||||||||||||||||||||||||||||
Net debt for financial covenant purposes | 372 | 454 | ||||||||||||||||||||||||||||||||
Shareholders' equity | 362 | 334 | ||||||||||||||||||||||||||||||||
Tangible net worth | 362 | 334 | ||||||||||||||||||||||||||||||||
Total capitalization | $ 734 | $ 788 | ||||||||||||||||||||||||||||||||
Net debt to capitalization, book basis | 51% | 58% | ||||||||||||||||||||||||||||||||
Net debt to capitalization, market basis | 37% | 48% |
Note 12. Financial Instruments
Non-Derivative Financial Instruments
The net book values and fair values of non-derivative financial instruments were as follows:
Sep 25 2010 | Dec 31 2009 | ||||||
(US $ millions) | Financial Instrument Classification |
Net Book Value |
Fair Value |
Net Book Value |
Fair Value |
||
Financial Assets: | |||||||
Cash and cash equivalents | Held-for-trading | $ 76 | $ 76 | $ 21 | $ 21 | ||
Accounts receivable | Loans and receivables | 59 | 59 | 27 | 27 | ||
Tax receivable | Loans and receivables | 5 | 5 | 57 | 57 | ||
$ 140 | $ 140 | $ 105 | $ 105 | ||||
Financial Liabilities: | |||||||
Accounts payable and accrued liabilities | Other liabilities | $ 144 | $ 144 | $ 140 | $ 140 | ||
Long-term debt | Other liabilities | 444 | 444 | 471 | 474 | ||
$ 588 | $ 588 | $ 611 | $ 614 |
Derivative Financial Instruments
Information about derivative financial instruments was as follows:
Sep 25 2010 | Dec 31 2009 | |||||||||
(US $ millions, unless otherwise noted) |
Notional Value | Unrealized Gain (Loss) at Period End(1) |
Notional Value | Unrealized Gain at Period End(1) |
||||||
Currency hedges: | ||||||||||
Net investment | ||||||||||
UK | £56 | $(3) | £56 | $1 | ||||||
Belgium | €30 | (2) | €40 | 1 | ||||||
Monetary position | ||||||||||
Canadian Dollar | CAD $56 | - | CAD $9 | - | ||||||
Euro | €10 | (1) | - | - | ||||||
Interest rate hedges: | ||||||||||
Interest rate swaps | $115 | 6 | - | 4 |
(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:
Periods ended September 25 and September 26 (US $ millions) | Q3 2010 |
Q3 2009 |
9 mos 2010 |
9 mos 2009 |
||||||||||
Realized gain (loss) on currency hedges: | ||||||||||||||
Net investment | ||||||||||||||
UK | $ 2 | $ (3) | $ 6 | $ 9 | ||||||||||
Belgium | 1 | (2) | 6 | (8) | ||||||||||
Monetary position | ||||||||||||||
Canadian Dollar | 1 | 1 | 1 | 2 | ||||||||||
Committed Transaction | - | - | - | (2) | ||||||||||
$ 4 | $ (4) | $ 13 | $ 1 |
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.
Secondary Offering
On March 30, 2010, upon completion of the secondary offering of Norbord's common shares, Brookfield's ownership decreased from approximately 73% to 52% of common shares outstanding.
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. Year-to-date, 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.
Q3 2010 | ||||
Quarter ended September 25 (US $ millions) | North America | Europe | Unallocated | Total |
Net sales | $ 122 | $ 89 | $ - | $ 211 |
EBITDA(1) | 4 | 10 | (2) | 12 |
Depreciation | 7 | 5 | - | 12 |
Investment in property, plant and equipment | 2 | 1 | - | 3 |
Q3 2009 | ||||
Quarter ended September 26 (US $ millions) | North 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 |
9 mos 2010 | ||||
9 months ended September 25 (US $ millions) | North America | Europe | Unallocated | Total |
Net sales | $ 423 | $ 250 | $ - | $ 673 |
EBITDA(1) | 75 | 25 | (8) | 92 |
Depreciation | 21 | 13 | - | 34 |
Investment in property, plant and equipment | 7 | 2 | - | 9 |
Property, plant and equipment | 653 | 175 | 1 | 829 |
9 mos 2009 | ||||
9 months ended September 26 (US $ millions) | North America | Europe | Unallocated | Total |
Net sales | $ 300 | $ 222 | $ - | $ 522 |
EBITDA(1) | (9) | 10 | (7) | (6) |
Depreciation | 23 | 13 | 1 | 37 |
Investment in property, plant and equipment | 10 | 1 | - | 11 |
Property, plant and equipment(2) | 665 | 193 | 2 | 860 |
(1) EBITDA is earnings before interest, income tax, depreciation, provision for non-core operation, and foreign exchange loss.
(2) Balance as at December 31, 2009.
For further information:
Robin Lampard
Senior Vice President & Chief Financial Officer
Tel. (416) 365-0705
[email protected]
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