Note: Financial references in US dollars unless otherwise indicated
Q2 2010 HIGHLIGHTS
- Achieved positive EBITDA of $71 million, a $62 million improvement vs. Q1 2010 - Recorded positive earnings of $37 million, EPS of $0.85 - Increased North American OSB shipments 35% vs. Q1 2010 - Extended maturity of bank lines and added seventh bank to group - Finalized new A/R securitization program - Achieved VPP Star safety certification at Guntown MS mill
TORONTO, July 22, 2010 /CNW/ - Norbord Inc. (TSX: NBD, NBD.WT) today reported positive earnings of $37 million or $0.85 per share in the second quarter of 2010, a significant improvement from losses of $5 million or $0.12 per share in the prior quarter and $18 million or $0.42 per share in the same quarter last year.
Norbord recorded EBITDA of $71 million in Q2 2010 compared to $9 million in Q1 2010 and negative $2 million in Q2 2009. North American operations generated EBITDA of $63 million in Q2 2010, an improvement of $55 million and $69 million compared to Q1 2010 and Q2 2009 respectively. Norbord's European operations generated EBITDA of $10 million in Q2 2010, compared to $5 million and $4 million recorded in Q1 2010 and Q2 2009 respectively.
"I am pleased to report very strong second quarter earnings," said Barrie Shineton, President and CEO. "All our operating mills ran full out this quarter and we benefitted from the run-up in North American OSB prices. As we have said for some time, the recovery in both US housing starts and OSB demand is fragile. Economic news continues to be mixed, however a housing recovery is taking hold and we remain confident that our financial performance will continue to improve on the prior year."
Market Conditions
North Central benchmark OSB prices ranged from $195 to $395 and averaged $295 in the second quarter. In the South East region, where over half of Norbord's North American capacity is located, prices averaged $277.
Expert forecasts for 2010 US housing starts range from 0.6 million to 0.7 million, well below the historical average of 1.5 million. News relating to housing activity has been mixed and Norbord expects this uncertainty will continue through the remainder of the year. However, actual year-to-date housing starts were 14% higher than last year and Norbord's second quarter North American OSB sales volume to its three core market segments increased 35% over the first quarter of 2010.
In the UK, year-to-date housing starts improved more than 75% over last year supporting stronger panel demand. On the continent German housing starts were up a more modest 3%. European OSB prices improved 14% quarter-over-quarter due to high plywood prices, lower imports from the US and stronger demand. Particleboard and MDF prices increased by 4% quarter-over-quarter.
Performance
Norbord's operating North American OSB mills ran at approximately 100% of their capacity in the second quarter compared to 85% in the prior quarter and 80% 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 in the quarter versus 90% in the first quarter of 2010 and 75% in the second quarter of 2009. 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 4% versus the prior quarter on improved operating performance. Cash costs increased 11% versus the same quarter last year as higher fibre and resin prices more than offset the benefit of higher production volumes.
At the end of the second quarter, Norbord had cash and cash equivalents of $74 million and revolving bank lines were undrawn. The Company's tangible net worth was $360 million and net debt to total capitalization, book basis, was 51%.
Capital investments totaled $5 million in the second quarter. Norbord's 2010 capital investment program will be limited to essential capital projects and is expected to be $15 million, unless market conditions warrant investments at a higher level.
Developments
During the quarter, Norbord entered into an $85 million accounts receivable securitization program with a third party trust sponsored by a highly rated Canadian bank to replace the existing program. The new program has an evergreen commitment subject to termination on twelve months notice. The facility contains no financial covenants and is subject to a minimum credit rating requirement of single B (mid) or the equivalent.
Subsequent to quarter-end, Norbord increased its committed revolving bank lines from $205 million to $245 million by adding a seventh lender to its bank group and extended the maturity date to May 2013. Coincident with these amendments, Norbord cancelled its $50 million debt facility with Brookfield. Pro forma for these changes, Norbord had unused liquidity of $311 million at the end of the second quarter.
Norbord announced today that it has extended the expiry date of its small shareholder selling program to August 30, 2010. The program gives registered or beneficial holders of 99 or fewer Common Shares the opportunity to sell all of their Common Shares without incurring commission charges. Additional information concerning this program can be obtained by contacting the Company's transfer agent - CIBC Mellon Trust Company by telephone at 416.643.5500 or toll-free at 1.800.387.0825, or through e-mail to [email protected] - or Norbord at 416.643.8830 or 1.888.667.2673.
Norbord announces that it intends to apply to the Toronto Stock Exchange (TSX) for approval to conduct a normal course issuer bid for up to 5% of its Common Shares in accordance with TSX rules. The normal course issuer bid will be subject to TSX acceptance. Full details of the bid will be announced upon receipt of TSX consent.
Additional Information
Norbord's Q2 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 Thursday, July 22, 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 August 20, 2010 by dialing 1.888.203.1112 or 647.436.0148. The passcode is 3444670. 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," "forecasts," "expects," "expected," "intends to," "estimates," "may," "believes," 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 Q2 2010 Management's Discussion and Analysis dated July 22, 2010.
July 22, 2010
To our Shareholders,
My previous shareholder letter suggested that Norbord would realize improved second quarter results and that 2010 overall would be a better year. This quarter, I am pleased to report our strongest financial performance since 2006. Norbord's positive EBITDA of $71 million in the second quarter is a $62 million improvement over the first quarter and an even bigger gain on the prior year. I am also pleased that our bottom line earnings of $37 million and earnings per share of $0.85 have exceeded industry analysts' expectations.
This good result was largely influenced by several unique supply and demand factors that played out in North America in the lead up to the second quarter.
- Housing demand bounced along the bottom at historically low levels late last year. In light of this low demand, Norbord continued the indefinite curtailment of two mills and other North American producers also curtailed their capacity. - Wholesalers, distributors, and retailers of OSB reduced inventories to very low levels as they focused on their own working capital initiatives. - Unusually wet and cold weather in the first quarter, particularly in the US South, restricted access to forests and curtailed log deliveries to mills.
These developments limited the speed of the supply response to both the spring ramp-up in construction activity and a year-over-year improvement in actual housing starts. All of Norbord's operating mills ran at capacity during the quarter. However, overall demand outstripped the ability of both producers and distributors of OSB to increase supply. This resulted in surging North American OSB prices that peaked at over $300 in May before retreating to more sustainable levels by quarter-end. Fortunately, Norbord's operations were well positioned in the second quarter to capture the full benefit of this stronger market.
Our European operations also had a stronger quarter, delivering EBITDA that was double the first quarter's result. All European panel prices moved higher with OSB prices improving by almost 15%. Our European mills also produced at capacity this quarter and the benefit of these stronger prices was reflected in our financial results.
In our press release and disclosure documents you will find a reference to the steps we have taken to further improve Norbord's liquidity. Our bank lines have been extended by two years and are now committed to us until the middle of 2013. A seventh lender has joined our bank group increasing our bank line commitments to $245 million. And finally, a new A/R securitization program has been put in place that provides us with additional flexibility. The cash flow from the second quarter has improved our financial ratios and we have taken the opportunity to fully pay down our bank lines. With a comfortable balance sheet and $74 million of cash in the bank at quarter-end, Norbord is well positioned to support its operations as they continue to focus on productivity gains and new margin improvement initiatives.
Media reports on the housing recovery continue to be mixed and the June housing numbers did not meet economists' expectations. Yet the situation is improving for most home builders. Actual US housing starts and building permits are up almost 15% over last year and new home inventories are at their lowest level in 40 years. In our UK market housing starts are up over 75% so far this year. Although progress in both Europe and North America is likely to be slow and uneven, I do believe a housing recovery is underway. And I continue to be encouraged by the longer-term demographic realities of immigration, new household formations and replacement homes that must eventually push US housing demand back above the long-term average of 1.5 million starts.
In the meantime, Norbord has the right customer strategy, our mills are running well and our financial house is in order. We've delivered a strong result this quarter and are well positioned to benefit from the housing market recovery that is taking hold. I remain confident Norbord's financial performance will continue to improve.
I look forward to reporting on our progress later this 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," "positioned," "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 Q2 2010 Management's Discussion and Analysis dated July 22, 2010.
Consolidated Statements of Earnings ------------------------------------------------------------------------- (unaudited) Quarters ended June 26 and June 27 (US $ millions, except per share Q2 Q2 6 mos 6 mos information) 2010 2009 2010 2009 ------------------------------------------------------------------------- Net sales $ 278 $ 174 $ 462 $ 330 ------------------------------------------------------------------------- Earnings before interest, income tax, depreciation and foreign exchange loss 71 (2) 80 (16) Interest expense (9) (9) (17) (17) Interest and other income 1 - 1 - Foreign exchange loss - - - (2) ------------------------------------------------------------------------- Earnings before income tax and depreciation 63 (11) 64 (35) Depreciation (12) (12) (22) (27) Income tax (expense) recovery (14) 5 (10) 22 ------------------------------------------------------------------------- Earnings $ 37 $ (18) $ 32 $ (40) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per common share (note 9) Basic $ 0.85 $ (0.42) $ 0.74 $ (0.94) Diluted 0.81 (0.42) 0.69 (0.94) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (See accompanying notes) Consolidated Statements of Cash Flows ------------------------------------------------------------------------- (unaudited) Quarters ended June 26 and Q2 Q2 6 mos 6 mos June 27 (US $ millions) 2010 2009 2010 2009 ------------------------------------------------------------------------- Cash provided by (used for): Operating Activities Earnings $ 37 $ (18) $ 32 $ (40) Items not affecting cash: Depreciation 12 12 22 27 Future income taxes 14 (5) 10 (22) Other items - 3 1 3 ------------------------------------------------------------------------- 63 (8) 65 (32) Net change in non-cash operating working capital (note 10) 15 35 (42) (46) Net change in tax receivable (3) 12 54 12 ------------------------------------------------------------------------- 75 39 77 (66) ------------------------------------------------------------------------- Investing Activities Investment in property, plant and equipment (5) (3) (6) (8) Realized net investment hedge gain (note 12) 8 4 9 6 Other (2) (1) (2) - ------------------------------------------------------------------------- 1 - 1 (2) ------------------------------------------------------------------------- Financing Activities Revolving bank lines repaid (note 6) (18) (39) (27) (24) Brookfield debt facility repaid - - - (35) Issue of common shares, net 2 - 2 97 Issue of warrants, net - - - 21 ------------------------------------------------------------------------- (16) (39) (25) 59 ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents $ 60 $ - $ 53 $ (9) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents, beginning of period $ 14 $ 11 $ 21 $ 20 Cash and cash equivalents, end of period (note 10) 74 11 74 11 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (See accompanying notes) Consolidated Balance Sheets ------------------------------------------------------------------------- Jun 26 Dec 31 2010 2009 (US $ millions) (unaudited) ------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 74 $ 21 Accounts receivable (note 3) 54 27 Tax receivable 3 57 Inventory (note 4) 88 71 ------------------------------------------------------------------------- 219 176 Property, plant and equipment 825 860 Other assets (note 5) 14 7 ------------------------------------------------------------------------- $ 1,058 $ 1,043 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 145 $ 140 Long-term debt (note 6) 446 471 Other liabilities (note 7) 5 9 Future income taxes 102 89 Shareholders' equity (note 8) 360 334 ------------------------------------------------------------------------- $ 1,058 $ 1,043 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (See accompanying notes) Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income ------------------------------------------------------------------------- (unaudited) Quarters ended June 26 and Q2 Q2 6 mos 6 mos June 27 (US $ millions) 2010 2009 2010 2009 ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Share Capital Balance, beginning of period $ 335 $ 335 $ 335 $ 238 Issue of common shares, net (note 8) 5 - 5 97 ------------------------------------------------------------------------- Balance, end of period $ 340 $ 335 $ 340 $ 335 ------------------------------------------------------------------------- Contributed Surplus Balance, beginning of period $ 39 $ 38 $ 39 $ 17 Issue of warrants, net - - - 21 Stock based compensation 1 - 1 - ------------------------------------------------------------------------- Balance, end of period $ 40 $ 38 $ 40 $ 38 ------------------------------------------------------------------------- Retained Earnings Balance, beginning of period $ (37) $ 4 $ (32) $ 26 Earnings 37 (18) 32 (40) ------------------------------------------------------------------------- Balance, end of period $ - $ (14) $ - $ (14) ------------------------------------------------------------------------- Accumulated Other Comprehensive Loss Balance, beginning of period $ (15) $ (14) $ (8) $ (13) Other comprehensive (loss) income (5) 3 (12) 2 ------------------------------------------------------------------------- Balance, end of period $ (20) $ (11) $ (20) $ (11) ------------------------------------------------------------------------- Shareholders' equity $ 360 $ 348 $ 360 $ 348 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Earnings $ 37 $ (18) $ 32 $ (40) Other comprehensive (loss) income Foreign currency translation (3) (1) (8) (1) Future income taxes (2) 4 (4) 3 ------------------------------------------------------------------------- (5) 3 (12) 2 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Comprehensive income (loss) $ 32 $ 15 $ 20 $ (38) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 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 On June 16, 2010, the Company entered into an $85 million securitization program to sell its receivables to a third party trust sponsored by a highly rated Canadian financial institution, to replace the existing program. The new 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 $59 million (2009 - $62 million) relating to this program. The new 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 July 21, 2010, Norbord's ratings were BB (DBRS), BB- (Standard & Poor's Ratings Services) and Ba3 (Moody's Investors Service). NOTE 4. INVENTORY ------------------------------------------------------------------------- (US $ millions) Jun 26 Dec 31 2010 2009 ------------------------------------------------------------------------- Raw materials $ 19 $ 13 Finished goods 44 33 Operating and maintenance supplies 25 25 ------------------------------------------------------------------------- $ 88 $ 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: ------------------------------------------------------------------------- Quarters ended June 26 and Q2 Q2 6 mos 6 mos June 27 (US $ millions) 2010 2009 2010 2009 ------------------------------------------------------------------------- Cost of inventories $ 194 $ 161 $ 360 $ 315 Depreciation on property, plant & equipment 12 12 22 27 ------------------------------------------------------------------------- $ 206 $ 173 $ 382 $ 342 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 5. OTHER ASSETS ------------------------------------------------------------------------- Jun 26 Dec 31 (US $ millions) 2010 2009 ------------------------------------------------------------------------- Unrealized net investment hedge gains (note 12) $ 7 $ 2 Unrealized interest rate swap gains (note 12) 5 4 Other 2 1 ------------------------------------------------------------------------- $ 14 $ 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 ------------------------------------------------------------------------- Jun 26 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 - 27 ------------------------------------------------------------------------- 440 467 Debt issue costs (4) (6) Deferred interest rate swap gains 5 6 Unrealized interest rate swap gains (note 5) 5 4 ------------------------------------------------------------------------- $ 446 $ 471 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Revolving Bank Lines In July 2010, the Company increased its committed revolving bank lines from $205 million to $245 million and extended the maturity to May 2013. Coincident with these amendments, the Company cancelled the $50 million Brookfield debt facility which was undrawn. The bank lines 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 $197 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 $360 million and net debt for financial covenant purposes was $374 million. Net debt to total capitalization, book basis, was 51%. 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 ------------------------------------------------------------------------- Jun 26 Dec 31 (US $ millions) 2010 2009 ------------------------------------------------------------------------- Accrued employee benefits $ 2 $ 6 Other liabilities 3 3 ------------------------------------------------------------------------- $ 5 $ 9 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 8. SHAREHOLDERS' EQUITY Warrants Year-to-date, 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 In the first quarter, 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 ------------------------------------------------------------------------- Quarters ended June 26 and June 27 (US $ millions, except per share Q2 Q2 6 mos 6 mos information) 2010 2009 2010 2009 ------------------------------------------------------------------------- Earnings available to common shareholders $ 37 $ (18) $ 32 $ (40) ------------------------------------------------------------------------- Common shares (millions): Weighted average number of common shares outstanding 43.5 43.2 43.4 42.7 Stock options(1) 0.4 - 0.4 - Warrants(1) 1.9 - 2.3 - ------------------------------------------------------------------------- Diluted number of common shares 45.8 43.2 46.1 42.7 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per common share: Basic $ 0.85 $ (0.42) $ 0.74 $ (0.94) Diluted 0.81 (0.42) 0.69 (0.94) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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: ------------------------------------------------------------------------- Quarters ended June 26 and Q2 Q2 6 mos 6 mos June 27 (US $ millions) 2010 2009 2010 2009 ------------------------------------------------------------------------- Cash provided by (used for): Accounts receivable $ (12) $ 10 $ (32) $ (22) Inventory 4 10 (19) (7) Accounts payable and accrued liabilities 23 15 9 (17) ------------------------------------------------------------------------- $ 15 $ 35 $ (42) $ (46) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents comprise: ------------------------------------------------------------------------- Jun 26 Jun 27 (US $ millions) 2010 2009 ------------------------------------------------------------------------- Cash $ 74 $ 4 Cash equivalents - 7 ------------------------------------------------------------------------- $ 74 $ 11 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 11. CAPITAL MANAGEMENT Norbord's capital structure at period end consisted of the following: ------------------------------------------------------------------------- Jun 26 Dec 31 (US $ millions) 2010 2009 ------------------------------------------------------------------------- Long-term debt, principal value $ 440 $ 467 Less: Cash and cash equivalents (74) (21) ------------------------------------------------------------------------- Net debt 366 446 Add: Letters of credit 8 8 ------------------------------------------------------------------------- Net debt for financial covenant purposes 374 454 ------------------------------------------------------------------------- Shareholders' equity 360 334 ------------------------------------------------------------------------- Tangible net worth 360 334 ------------------------------------------------------------------------- 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: ------------------------------------------------------------------------- Jun 26 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 $ 74 $ 74 $ 21 $ 21 Accounts receivable Loans and receivables 54 54 27 27 Tax receivable Loans and receivables 3 3 57 57 ------------------------------------------------------------------------- $ 131 $ 131 $ 105 $ 105 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Financial Liabilities: Accounts payable and accrued liabilities Other liabilities $ 145 $ 145 $ 140 $ 140 Long-term debt Other liabilities 446 440 471 474 ------------------------------------------------------------------------- $ 591 $ 585 $ 611 $ 614 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Derivative Financial Instruments Information about derivative financial instruments was as follows: ------------------------------------------------------------------------- Jun 26 2010 Dec 31 2009 ------------------------------------------------------------------------- (US $ millions, Unrealized Unrealized unless Gain Gain otherwise at Period at Period noted) Notional Value End(1) Notional Value End(1) ------------------------------------------------------------------------- Currency hedges: Net investment UK (pnds stlg)42 $3 (pnds stlg)56 $1 Belgium (euro)25 4 (euro)40 1 Monetary position UK (pnds stlg)14 - - - Belgium (euro)15 - - - Canadian CAD $8 - 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. The gains and losses recognized on the Company's matured currency hedges were: ------------------------------------------------------------------------- Quarters ended June 26 and Q2 Q2 6 mos 6 mos June 27 (US $ millions) 2010 2009 2010 2009 ------------------------------------------------------------------------- Realized gain (loss) on currency hedges: Net investment UK $ 3 $ 9 $ 4 $ 12 Belgium 5 (5) 5 (6) Monetary position Canadian - 1 - 1 ------------------------------------------------------------------------- $ 8 $ 5 $ 9 $ 7 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 and therefore include export sales. ------------------------------------------------------------------------- Q2 2010 ------------------------------------------------------------------------- Quarter ended June 26 (US $ millions) North America Europe Unallocated Total ------------------------------------------------------------------------- Net sales $ 192 $ 86 $ - $ 278 EBITDA(1) 63 10 (2) 71 Depreciation 8 4 - 12 Investment in property, plant and equipment 4 1 - 5 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Q2 2009 ------------------------------------------------------------------------- Quarter ended June 27 (US $ millions) North America Europe Unallocated Total ------------------------------------------------------------------------- Net sales $ 101 $ 73 $ - $ 174 EBITDA(1) (6) 4 - (2) Depreciation 8 4 - 12 Investment in property, plant and equipment 3 - - 3 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 6 mos 2010 ------------------------------------------------------------------------- 6 months ended June 26 (US $ millions) North America Europe Unallocated Total ------------------------------------------------------------------------- Net sales $ 301 $ 161 $ - $ 462 EBITDA(1) 71 15 (6) 80 Depreciation 14 8 - 22 Property, plant and equipment 656 167 2 825 Investment in property, plant and equipment 5 1 - 6 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 6 mos 2009 ------------------------------------------------------------------------- 6 months ended June 27 (US $ millions) North America Europe Unallocated Total ------------------------------------------------------------------------- Net sales $ 186 $ 144 $ - $ 330 EBITDA(1) (18) 5 (3) (16) Depreciation 18 9 - 27 Property, plant and equipment 675 202 3 880 Investment in property, plant and equipment 8 - - 8 ------------------------------------------------------------------------- (1) EBITDA is earnings before interest, income tax, depreciation, and foreign exchange loss.
For further information: Robin Lampard, Senior Vice President & Chief Financial Officer, Tel. (416) 365-0705, [email protected]
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