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Attention Business/Financial Editors
Norbord Reports Q2 2008 Results
Note: Financial references in US dollars unless otherwise indicated
<<
Q2 2008 HIGHLIGHTS
- Generated company-wide EBITDA of $1 million; a $25 million
improvement vs. Q1 2008
- Recorded EBITDA of $6 million from European operations
- Received tax refunds of $85 million
- Improved OSHA safety rate 25% year-to-date
- Average North Central OSB benchmark price increased 30% quarter-over-
quarter
>>
TORONTO, July 25 /CNW/ - Norbord Inc. (TSX:NBD) today reported positive
EBITDA of $1 million in the second quarter, a $25 million increase over an
EBITDA loss of $24 million in the prior quarter. The EBITDA improvement was
largely due to North American OSB price increases experienced throughout the
quarter.
Before a charge relating to industry-wide antitrust litigation, Norbord
recorded a loss of $15 million in Q2 2008 or $0.10 per share compared to a
loss of $31 million or $0.21 per share in the prior quarter and a loss of
$15 million or $0.11 per share in Q2 2007. After the litigation settlement
charge of $32 million (pre-tax) or $0.15 per share (after-tax), Norbord's Q2
2008 loss was $37 million or $0.25 per share.
"Our second quarter results reflect a temporary improvement in North
American OSB pricing and the continued positive contributions from our
European mills," said Barrie Shineton, President and CEO. "The seasonal boost
in North American OSB prices was welcome, however, we continue to believe that
our industry will remain under considerable pressure throughout the remainder
of the year."
Market Conditions
North Central (NC) benchmark OSB prices averaged $179 in Q2 2008 versus
$137 in Q1 2008. In the South East region, where approximately 55% of
Norbord's North American capacity is located, prices averaged $155 in the
quarter, up from $121 in Q1 2008. The modest improvement in OSB prices (NC OSB
prices reached $210 in June) reflects the seasonal increase in construction
demand. In addition, widespread curtailments were taken across the industry.
According to APA - The Engineered Wood Association, approximately 40% of the
industry's North American OSB production capacity was curtailed during Q2
2008.
In Europe, economic weakness intensified across the UK and the Continent
during the second quarter. In the UK, mortgage lenders tightened credit terms,
resulting in lower home sales and a drop in housing prices. Compared to the
prior quarter, OSB prices were down 5%, and MDF and particleboard prices
declined approximately 3%.
Developments
On May 5, 2008, Norbord announced that it had reached a $32 million
settlement agreement in the antitrust litigation against the OSB industry to
limit the risks and costs associated with a prolonged trial. The Company
expects to pay $17 million in Q3 2008 and the remainder of the settlement
amount in Q4 2008. Norbord vigorously contested the plaintiffs' allegations
and vehemently denies that it violated US antitrust or any other laws. A copy
of the related news release can be found at www.norbord.com or www.sedar.com.
Norbord received $85 million in cash tax refunds during the quarter
relating to the carryback of losses incurred in 2007. The Company expects to
receive an additional tax refund of approximately $5 million later in the
year.
At the end of the quarter, Norbord had $187 million of liquidity
consisting of cash, unused bank lines and term debt facilities. Subsequent to
quarter-end, Norbord concluded an additional $35 million commitment under its
accounts receivable securitization program, bringing Norbord's total committed
liquidity to $222 million. The Company is considering various alternatives to
further strengthen its liquidity position and conserve cash.
Performance
Norbord completed its previously announced press frame replacement and
forming line re-build at Guntown, Mississippi during the quarter. The project
was completed on-time and on-budget and the mill has resumed full production.
In the quarter, Norbord's North American per unit OSB cash production
costs were 6% lower than the first quarter of 2008. This decrease is largely
due to strong operating performance across the Company. Cash production costs
will be challenged throughout the second half of the year by global resin and
energy price increases.
In North America, Norbord curtailed 11% or 101 mill days of its OSB
production during the second quarter. This compares to 170 mill days curtailed
in the prior quarter. Norbord will continue its practice of monitoring the
financial performance of each mill and will suspend operations when cash
losses exceed shutdown costs.
Norbord curtailed 8% of its European OSB and particleboard capacity
during the quarter to manage inventory levels.
Investments in property, plant and equipment totaled $15 million
year-to-date; $10 million in the second quarter. Norbord's net debt was 33% on
a market basis and 59% on a book basis.
Quarterly Dividend
The Board of Directors declared a quarterly dividend of CAD $0.10 per
common share, payable on September 21, 2008 to shareholders of record on
September 1, 2008.
Conference Call
Norbord will hold a conference call for investors on Friday, July 25,
2008 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 25, 2008, by dialing 647-436-0148 or 888-203-1112. The passcode is
8999340. Audio playback will be available on the Norbord website.
Norbord Profile
Norbord Inc. is an international producer of wood-based panels with
assets of $1.3 billion, employing approximately 2,700 people at 15 plant
locations in the United States, Europe and Canada. Norbord is one of the
world's largest producers of oriented strand board (OSB). In addition to OSB,
Norbord manufactures particleboard, medium density fibreboard (MDF), hardwood
plywood and related value-added products. Norbord is a publicly traded company
listed on the Toronto Stock Exchange under the symbol NBD.
This news release and attached Shareholders Letter contain
forward-looking statements, as defined in applicable legislation. Often, but
not always, words such as "believe," "will," "expects," 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 and the US Securities and Exchange
Commission.
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 1, 2008 Annual Information Form and the
cautionary statement contained in the "Forward-Looking Statements" section of
the 2007 Management's Discussion and Analysis dated January 31, 2008.
<<
LETTER TO SHAREHOLDERS
----------------------
>>
July 25, 2008
Dear Norbord Shareholder,
Norbord's second quarter EBITDA of $1 million was a $25 million
improvement over the prior quarter. This stronger operating result reflected a
seasonal improvement in North American OSB pricing, a strong operating
performance from our mills and a continued positive contribution from our
European operations.
North American benchmark OSB prices were up 30% in the quarter. This
improvement was welcome, however, prices are expected to moderate throughout
the rest of this year as US housing starts for 2008 are now forecast to be
less than 1.0 million. There are several market adjustments that must occur
before we see a meaningful improvement in housing starts and stronger OSB
prices: the high inventory of new and used homes needs to be absorbed; housing
affordability must return to pre-bubble norms; and mortgage lenders have to
put first time buyers back into the housing market. We continue to believe
that all these things will happen, although not likely before 2010.
Our European operations delivered EBITDA of $6 million in the second
quarter. Economic conditions on the Continent and in the UK now mirror the
challenges we face in North America. In the UK, mortgage lenders tightened
credit terms, resulting in lower home sales and a drop in housing prices. To
maintain our leadership position in this environment, Norbord is focused on
containing costs and growing sales to both new and existing customers.
We continued to take steps during the quarter to protect Norbord's
balance sheet and to ensure sufficient liquidity to manage through the cycle.
At the end of the quarter, Norbord had $187 million of liquidity consisting of
cash, unused bank lines and term debt facilities. Shortly after quarter end,
Norbord increased its accounts receivable securitization program by
$35 million, bringing Norbord's total available liquidity to $222 million. Our
current liquidity position supported another dividend payment this quarter.
However, we are in unusually difficult markets and we expect demand and
pricing challenges will last for some time. Prudent management of our
liquidity and cash position remains a key priority.
The next two years will be difficult for panel board producers in both
North America and Europe. Norbord has the right strategy, good management and
the necessary support from Brookfield Asset Management - our major shareholder
- to emerge from this cycle a stronger company.
Thank you for your continuing support.
(signed)
Barrie Shineton
President & Chief Executive Officer
<<
MANAGEMENT'S DISCUSSION AND ANALYSIS
SECOND QUARTER 2008
>>
July 23, 2008
INTRODUCTION
The Management's Discussion and Analysis (MD&A) provides a review of the
significant developments that impacted Norbord's performance during the
period. The information in this section should be read in conjunction with the
financial statements, which follow this MD&A. Norbord's significant accounting
policies and other financial disclosures are contained in the audited annual
financial statements and accompanying notes. Additional information on
Norbord, including documents publicly filed by the Company, is available on
the Company's website at www.norbord.com or the System for Electronic Document
Analysis and Retrieval (SEDAR) at www.sedar.com. All financial references in
the MD&A are stated in US dollars unless otherwise noted.
Some of the statements included or incorporated by reference in this MD&A
constitute forward-looking statements within the meaning of applicable
securities legislation. Forward-looking statements are based on various
assumptions and are subject to various risks. See the cautionary statement
contained in the Forward-Looking Statements section.
EBITDA, operating working capital, total working capital, capital
employed, ROCE, ROE, net debt, net debt to capitalization, book basis and net
debt to capitalization, market basis are non-GAAP financial measures described
in the Non-GAAP Financial Measures section. Non-GAAP financial measures do not
have any standardized meaning prescribed by Canadian Generally Accepted
Accounting Principles (GAAP) and are therefore unlikely to be comparable to
similar measures presented by other companies. Where appropriate, a
quantitative reconciliation of the non-GAAP financial measure to the most
directly comparable GAAP measure is also provided.
BUSINESS OVERVIEW AND STRATEGY
Norbord is an international producer of wood-based panels with 15 plant
locations in the US, the UK, Canada and Belgium. It is one of the world's
largest producers of oriented strand board (OSB) with annual capacity of
5.0 billion square feet (3/8-inch basis). The core of Norbord's OSB business
is located in the South East region of the US. In addition, the Company is a
significant producer of wood-based panels in Europe. The geographical
breakdown of Norbord's panel production capacity is 73% North America and 27%
Europe.
Norbord's business strategy is focused entirely on the wood panels sector
- in particular OSB - in North America and Europe.
Norbord's financial goal is to achieve top quartile return on equity
(ROE) and cash return on capital employed (ROCE) among North American forest
products companies. As Norbord operates in a cyclical commodity business,
Norbord interprets its financial goal over the cycle. Norbord believes that it
has met this target in four of the past five years.
Protecting the balance sheet is an important element of Norbord's
financing strategy. Norbord believes that its record of superior operational
performance and prudent balance sheet management should enable it to access
public and private capital markets. At the end of the quarter, the Company had
a net debt to capitalization of 33% on a market basis and 59% on a book basis.
The Company is considering various alternatives to further strengthen its
liquidity position and conserve cash.
SUMMARY
Results of operations are most affected by the volatility in North
American OSB prices. The relative strength of European panel markets also
affects results, although to a lesser degree. European market pricing remained
relatively strong in the quarter after pricing moderated from the
exceptionally robust levels experienced in 2007. While North American markets
experienced a rise in OSB pricing in the quarter, this price improvement is
expected to moderate through the remainder of the year. North American markets
remain under pressure principally due to the sharp decline in US housing
starts.
Management continues to believe that OSB will remain one of the best
growth products in the forest products industry. Demand and pricing for North
American OSB is expected to remain weak in the near term. The long term
fundamentals supporting North American housing and OSB demand are forecast to
be strong. Norbord's European business is exposed to different market dynamics
than the North American business. Management believes that this provides
meaningful earnings diversification, while capitalizing on Norbord's strength
as a panel producer.
Norbord recorded EBITDA of positive $1 million in the quarter, versus
negative $24 million in the previous quarter and positive $17 million in the
second quarter of 2007. North America OSB mills ran well in the quarter and
achieved break-even EBITDA results. The higher EBITDA in the second quarter
relative to the prior quarter is principally due to higher OSB prices in North
America. European markets have declined in 2008 from exceptional levels in
2007. Rising global energy and resin prices continue to impact the business
because Norbord's European products are more energy and resin intensive.
The Company recorded a loss of $37 million ($0.25 per share) in the
second quarter of 2008 compared to a loss of $31 million ($0.21 per share) and
$15 million ($0.11 per share) in the first quarter of 2008 and second quarter
of 2007, respectively. Norbord's second quarter results include a $32 million
pre-tax antitrust litigation settlement charge ($0.15 earnings per share),
detailed below, to limit the risks and costs associated with a prolonged
trial. Norbord vehemently denies that it violated US antitrust or any other
laws. In the first quarter of 2008, results include a $4 million pre-tax
charge ($0.02 earnings per share) relating to severance for the permanent
closure of a particleboard line at the Genk, Belgium site.
LITIGATION SETTLEMENT
Norbord and eight other North American OSB producers have been named as
defendants in several lawsuits filed in the US District Court for the Eastern
District of Pennsylvania. The lawsuits allege that these nine North American
OSB producers violated US and various state antitrust and other laws by
allegedly agreeing to fix prices and reduce the supply of OSB from June 1,
2002 through the present.
The Court has certified the following classes: A nationwide class of
persons and entities that purchased OSB in the US directly from any of the
defendant North American OSB producers between June 1, 2002 and February 24,
2006; a nationwide class of persons who, as end users, indirectly purchased in
the US for their own use, and not for resale, new OSB manufactured and sold by
one or more of the defendant North American OSB producers between June 1, 2002
and February 24, 2006 (other than persons who purchased OSB only as part of a
house or other structure); and a multi-state class of residents of seventeen
States who, as end users, indirectly purchased in the US for their own use,
and not for resale, new OSB manufactured and sold by one or more of the
defendant North American OSB producers between June 1, 2002 and February 24,
2006 (other than persons who purchased OSB only as part of a house or other
structure). All three classes seek damages or injunctive or other relief under
applicable laws.
Norbord has entered into a settlement agreement with the certified class
of direct purchasers of OSB to limit the risks and costs associated with a
prolonged trial. Norbord has vigorously contested the plaintiffs' allegations
and continues to deny that it violated US antitrust or any other laws. Under
the terms of the settlement agreement, which is subject to Court approval,
Norbord will pay $30 million into an escrow account for the benefit of members
of the direct purchaser class. A first payment of $15 million is due on or
before July 25, 2008 and the remainder is due on or before October 24, 2008.
As allowed by Court order, a small number of class members have chosen to
opt out of the direct purchaser class. Norbord estimates that the purchases by
these entities represents between 10% and 15% of defendants' sales to direct
purchasers of OSB during the class period. Each of these entities is entitled
to pursue its own individual "opt-out" claims against Norbord and the other
defendants. If any of them do so, Norbord will be entitled to a partial refund
of the $30 million settlement amount paid to the direct purchaser class.
Norbord has also reached an agreement in principle to pay $2 million in
settlement of the claims asserted on behalf of the certified classes of
indirect purchasers of OSB. The final settlement agreement with the indirect
purchasers will also be subject to Court approval. The Court has not yet set a
deadline by which members of the certified classes of indirect purchasers of
OSB must exercise, if they choose to do so, their right to opt out of the
classes.
<<
RESULTS OF OPERATIONS
(US$ millions, except
per share information, 2nd Qtr 1st Qtr 2nd Qtr 6 mos 6 mos
unless otherwise noted) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Return on capital
employed (ROCE) 0% (9)% 6% (5)% 4%
Return on equity (ROE) (50)% (37)% (15)% (44)% (15)%
Earnings per share -
diluted $ (0.25) $ (0.21) $ (0.11) $ (0.46) $ (0.22)
-------------------------------------------------------------------------
Net sales $ 262 $ 234 $ 288 $ 496 $ 549
EBITDA 1 (24) 17 (23) 21
Depreciation 18 19 27 37 51
Investment in property,
plant and equipment 10 5 12 15 21
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Shipments (MMsf 3/8")
OSB 1,114 959 1,161 2,073 2,273
Particleboard(1) 102 131 172 233 341
MDF 117 111 131 228 257
Hardwood plywood 15 15 19 30 39
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Indicative OSB Prices
Average OSB price -
North Central
($/Msf 7/16") 179 137 156 159 152
Average OSB price -
South East ($/Msf 7/16") 155 121 153 139 150
Average OSB price -
Europe ((euro)/m(3)) 210 220 249 215 241
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(1) Excludes particleboard consumed internally (30 MMsf, 35 MMsf,
36 MMsf, 65 MMsf, 70 MMsf for each period, respectively).
>>
Net sales in the quarter were $262 million, compared to $234 million and
$288 million in the first quarter of 2008 and the second quarter of 2007,
respectively. Year-to-date net sales were $496 million versus $549 million in
the same prior year period. OSB shipment volume and changes in North American
OSB benchmark pricing principally drives the fluctuation in net sales.
Markets
North American OSB comprises 66% of Norbord's panel shipments by volume,
therefore, results from operations are most affected by volatility in the
North American OSB prices. European panel markets comprise 30% of shipments
and also affect Norbord's results, although to a lesser degree.
In the quarter, North American North Central benchmark OSB prices
averaged $179, an improvement of $42 and $23 from the first quarter of 2008
and the second quarter of 2007, respectively. In the South East region, where
approximately 55% of Norbord's North American capacity is located, prices
averaged $155 in the second quarter versus $121 last quarter and $153 in the
same period last year. The second quarter traditionally reflects a seasonal
increase in housing construction demand. In addition, there were widespread
curtailments taken across the industry. The price improvement is expected to
moderate through the remainder of the year.
New home construction is the principal end use for OSB, accounting for
about 65% of demand in 2007. The steep decline in US housing starts began in
the second quarter of 2006 and is not expected to show near-term signs of
improvement. North American OSB prices have also been impacted by an increase
in capacity as a number of new mills have come on stream since OSB prices
peaked in 2004. Weak OSB pricing is expected to persist through 2008.
In Europe, economic weakness intensified across the UK and the Continent
during the second quarter. In the UK, mortgage lenders tightened credit terms,
resulting in lower home sales and a drop in housing prices. Many European
panel producers took downtime to balance inventory levels. At Norbord,
approximately 8% of European capacity was curtailed. OSB prices were down 5%
and MDF and particleboard prices declined approximately 3% compared to the
first quarter of 2008.
Operating Results
In total, Norbord generated EBITDA of $1 million in the second quarter
and negative $23 million year-to-date versus $17 million and $21 million in
the comparable prior year periods, respectively.
Norbord's North American operations generated an EBITDA loss of
$1 million in the second quarter, and $30 million year-to-date versus
$2 million and $10 million in the comparable prior year periods, respectively.
North American OSB operations achieved break-even EBITDA in the quarter driven
by a modest rise in North American benchmark OSB prices. Norbord expects the
rebound in OSB prices to moderate. In addition to higher prices, Norbord's
North American OSB mills ran notably well in the quarter which further
benefited financial performance. The North American OSB oversupply situation
continued in the early part of the second quarter and most producers, Norbord
included, continued taking downtime. Norbord's North American OSB mills
operated at approximately 90% of capacity in the quarter, compared to
approximately 80% in the first quarter of 2008 and 99% in the second quarter
of 2007.
The break-even result from North American OSB operations is a positive
achievement in light of continued pressure from rising global energy and resin
prices. In the quarter, Norbord's North American per unit OSB cash production
costs, including employee profit share, decreased by 6% over the first quarter
of 2008 but increased 4% over the second quarter of 2007. The decrease in cash
costs as compared to the first quarter is principally due to the benefit of
higher production volumes and lower key input usages partially offset by
higher resin and energy prices. The increase in cash costs as compared to the
second quarter of 2007 is due to higher key input prices and the impact of
lower production volumes. This is partially offset by lower usages and
reduction in other costs such as labour, supplies and maintenance.
European results continue to provide a positive financial contribution in
spite of continued cost pressure on key input pricing and the current European
market conditions. Norbord's European operations generated EBITDA of
$6 million in the second quarter and $13 million year-to-date versus
$26 million and $44 million in the comparable prior year periods,
respectively. European pricing and markets have retreated in 2008 from the
exceptional levels of 2007. The European business was disproportionately
impacted by rising global energy prices because Norbord's European products
are more energy and resin intensive. A number of initiatives have been
undertaken to address these cost pressures including the permanent closure of
a particleboard line at the Genk site during the first quarter and the
installation of biomass heat energy systems at Genk OSB and Cowie, Scotland
MDF in 2007. Norbord expects that these initiatives will result in relatively
higher overall margin contribution from the European mills.
Throughout the cycle, Norbord took steps to prepare itself for this
cyclical downturn by focusing on cost containment and a higher margin product
mix. The Margin Improvement Program (MIP) has helped Norbord to improve its
competitive position, generating over $165 million of savings in the past
five years. These gains have helped to offset the impact of industry-wide
rising input costs and management believes its relative competitive position
has improved over this time. MIP gains from prior years have been maintained
and MIP gains resulting from key input usage improvements and from marketing
and sales initiatives were successful in offsetting the impact of the
production curtailments year-to-date.
The major components of the change in EBITDA versus comparative periods
are summarized in the following variance table.
<<
2nd Qtr 2008 2nd Qtr 2008 6 mos 2008
EBITDA Variance vs. vs. vs.
(US$ millions) 1st Qtr 2008 2nd Qtr 2007 6 mos 2007
-------------------------------------------------------------------------
EBITDA - current period $ 1 $ 1 $ (23)
EBITDA - comparative period (24) 17 21
-------------------------------------------------------------------------
Variance $ 25 $ (16) $ (44)
-------------------------------------------------------------------------
Mill nets(1) $ 18 $ 13 $ 17
Volume(2) 7 (12) (26)
Key input prices(3) - (24) (38)
Key input usage(3) 3 4 5
Other(4) (3) 3 (2)
-------------------------------------------------------------------------
$ 25 $ (16) $ (44)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The mill net variance represents the change in realized pricing
across all products. Mill net is calculated as net sales divided by
shipment volume.
(2) The volume variance represents the impact of shipment volume changes
across all products.
(3) Key inputs include fibre, resin and energy.
(4) Other category covers all remaining variances including, supplies and
maintenance, labour and benefits, and the impact of foreign exchange.
INTEREST, DEPRECIATION AND INCOME TAX
2nd Qtr 1st Qtr 2nd Qtr 6 mos 6 mos
(US$ millions) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Interest and other income $ 2 $ 1 $ 3 $ 3 $ 4
Interest expense (11) (15) (14) (26) (23)
Depreciation (18) (19) (27) (37) (51)
Income tax recovery (expense) 21 30 6 51 18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Interest and other income was relatively consistent with prior periods.
Interest expense decreased as compared to the first quarter of 2008 primarily
due to the repurchase of the 8 1/8% debentures in the latter part of the first
quarter which was partially replaced with drawings under the Company's
committed unsecured revolving bank lines at lower interest rates.
Depreciation in the first and second quarter of 2008 was lower relative
to 2007 as management's estimate of the useful life for its OSB assets was
changed from 15 years to 25 years effective July 1, 2007. The impact of this
change in estimate on depreciation was a reduction of $9 million per quarter.
A tax recovery of $21 million was recorded in the quarter on a pre-tax
loss of $58 million. The effective tax rate differs from the statutory rate
principally due to rate differences on foreign activities and fluctuations in
relative currency values.
In 2005 and 2006, Norbord paid $163 million in income and income-related
taxes, principally in North America. Losses incurred in 2007 can be carried
back for a cash refund in 2008. Losses incurred in 2007 will result in a cash
refund of approximately $90 million in 2008, of which $85 million was received
in the second quarter.
<<
LIQUIDITY AND CAPITAL RESOURCES
(US$ millions, except per
share information, 2nd Qtr 1st Qtr 2nd Qtr 6 mos 6 mos
unless otherwise noted) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Cash provided by (used for)
operating activities $ 88 $ (81) $ 11 $ 7 $ (39)
Cash provided by (used for)
operating activities
per share 0.60 (0.55) 0.07 0.05 (0.27)
-------------------------------------------------------------------------
Operating working capital 13 58 79 13 79
Total working capital 112 179 162 112 162
Investment in property,
plant and equipment 10 5 12 15 21
Net debt to capitalization,
market basis 33% 35% 32% 33% 32%
Net debt to capitalization,
book basis 59% 61% 59% 59% 59%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
The Company is considering various alternatives to further strengthen its
liquidity position and conserve cash.
Subsequent to period end, Norbord concluded an additional $35 million
commitment on its accounts receivable securitization facility increasing the
program limit from $50 million to $85 million.
In the first quarter, the Company concluded a $100 million unsecured term
debt facility with its major shareholder at an interest rate equal to the
greater of 8% and US base rate plus 1/2%. The facility matures in 2010 and is
subordinated to the Company's committed unsecured revolving bank lines. Any
drawings under the facility are treated as equity and included in the
determination of tangible net worth for bank line covenant purposes. At
June 28, 2008, $25 million was unutilized under this facility with $75 million
drawn.
In addition to the term debt facility, the Company has cash and cash
equivalents of $83 million, and $235 million of committed unsecured revolving
bank lines to support short-term liquidity requirements. At June 28, 2008,
$79 million of the revolving bank lines was unutilized and $156 million was
utilized - $152 million drawn as cash and $4 million utilized for letters of
credit. These committed bank lines mature in 2010, bear interest at money
market rates plus a margin that varies with the Company's credit rating, and
contain the following financial covenants which the Company must comply with
on a quarterly basis: minimum tangible net worth of $300 million; and maximum
net debt to total capitalization, book basis of 65%. At quarter-end, the
Company's tangible net worth was $349 million versus the minimum $300 million
covenant; and net debt to total capitalization, book basis was 59% versus the
maximum 65% covenant.
Operating activities generated $88 million of cash in the quarter, the
majority of this relates to the collection of $85 million in income tax
refunds. Relative to the first quarter of 2008, cash generated by operations
is higher principally due to receipt of the income tax refunds, a seasonal
reduction in working capital and lower earnings in the comparable period.
Year-to-date operating activities generated $7 million compared to consuming
$39 million due to the income tax refunds received and higher earnings in
2007. Cash generated in the quarter is higher as compared to the comparable
period in 2007 due primarily to the income tax refunds.
Dividends of $15 million were declared in the quarter of which $8 million
was paid in cash and $7 million was distributed under the Company's Dividend
Reinvestment Program (DRIP). The DRIP permits Canadian shareholders to elect
to receive their dividends in the form of common shares. The Company realized
a loss of $15 million in the first quarter on its matured net investment
hedges. The realized loss was offset by an unrealized gain on the net
investments being hedged.
Operating working capital, consisting of accounts receivable and
inventory less accounts payable and accrued liabilities was $13 million at
period end compared to $58 million at March 31, 2008 and $79 million at the
end of the second quarter of 2007. The decreased operating working capital
relative to the prior quarter is principally due to the $32 million accrual
for the litigation settlement. The second quarter 2007 balance is higher as
$50 million of accounts receivable were sold under a securitization facility
established in the fourth quarter of 2007.
Total working capital at June 28, 2008 was $112 million which includes
$83 million in cash and cash equivalents and $16 million of tax receivable.
Norbord's net debt stood at $509 million at period end, representing 33%
of capitalization on a market basis and 59% of capitalization on a book basis.
Norbord believes its record of superior operational performance and prudent
balance sheet management should enable it to retain access to public and
private capital markets.
INVESTMENTS AND DIVESTITURES
Investment in Property, Plant and Equipment
Investment in property, plant and equipment was $15 million year-to-date
(second quarter - $10 million). Norbord's 2008 investment in property, plant
and equipment has been limited to $30 million to reflect market conditions.
The 2008 capital investments will be funded with cash on hand, cash generated
from operations, and if necessary, drawings under the Company's committed bank
lines.
Provision for Non-Core Operation
In the first quarter of 2008, the Company recorded a $4 million provision
relating to severance arising on the permanent closure of a particleboard line
at the Genk site. Operations at the Genk OSB line were not impacted. The
particleboard line comprises older technology and was considered non-core at
the time the site was acquired in 2004. The Genk mill was acquired to expand
Norbord's OSB presence in Europe and accordingly the majority of the purchase
price was allocated to the OSB line.
CAPITALIZATION
Common Shares
At July 23, 2008, there were 149.4 million common shares outstanding. In
addition, 3.3 million stock options were outstanding, of which approximately
34% were fully vested.
Long-Term Debt Repurchase
In March 2008, the 8 1/8% debentures with a principal value of
$197 million were repurchased. The repurchase was pre-funded by the February
2007 issuance of $200 million of senior notes due in 2017 which was completed
one year early to mitigate potential refinancing risk.
Credit Ratings
In the second quarter, Dominion Bond Rating Service (DBRS) downgraded
Norbord's senior unsecured credit ratings from BBB(low) to BB(high) reflecting
the negative market outlook. This has no impact on borrowing costs and Norbord
believes its record of superior operational performance and prudent balance
sheet management should enable it to retain access to public and private
capital markets.
<<
As at July 23, 2008, ratings on Norbord's senior unsecured debentures
were:
-------------------------------------------------------------------------
Dominion Bond Standard & Poor's Moody's
Service Ratings Services Investors Service
-------------------------------------------------------------------------
Rating BB(high) BB Ba2
Outlook Negative Negative Negative
-------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
2008 2007 2006
(US$ millions, ------------------------------------------------------
except per share
information,
unless otherwise 2nd 1st 4th 3rd 2nd 1st 4th 3rd
noted) Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
-------------------------------------------------------------------------
Cash provided by
(used for)
operating
activities 88 (81) 72 (18) 11 (50) 54 37
Cash provided by
(used for)
operating
activities per
share 0.60 (0.55) 0.49 (0.12) 0.07 (0.34) 0.37 0.26
Return on capital
employed (ROCE) 0% (9)% (3)% 11% 6% 2% 8% 15%
Return on equity
(ROE) (50)% (37)% (14)% (1)% (15)% (15)% (1)% 6%
-------------------------------------------------------------------------
Net Sales 262 234 263 292 288 261 259 291
EBITDA 1 (24) (9) 30 17 4 22 35
Earnings (37) (31) (13) (1) (15) (16) (1) 7
Earnings per share
Basic (0.25) (0.21) (0.09) 0.00 (0.11) (0.11) 0.00 0.05
Diluted (0.25) (0.21) (0.09) 0.00 (0.11) (0.11) (0.01) 0.05
-------------------------------------------------------------------------
OSB shipments
(MMsf 3/8") 1,114 959 1,130 1,060 1,161 1,112 1,083 1,076
Average OSB price
- North Central
($/Msf 7/16") 179 137 165 177 156 145 166 181
Average OSB price
- South East
($/Msf 7/16") 155 121 132 149 153 138 141 181
Average OSB price
- Europe
((euro)/m(3)) 210 220 234 246 249 234 219 213
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
The price of OSB is the primary variable affecting the comparability of
Norbord's results over the past eight quarters. Fluctuations in earnings
during that time mirror fluctuations in the price of OSB in North America. The
Company estimates the annualized impact of a $10 per Msf (7/16-inch basis)
change in the North American OSB price on EBITDA based on total North American
capacity is approximately $36 million or approximately $0.15 per share.
Regional pricing variations, particularly in the US South, make the North
Central benchmark price a useful, albeit imperfect, proxy for overall North
American OSB pricing. Further, premiums obtained on value added products, the
pricing lag effect of maintaining an order file, and volume and trade
discounts cause realized prices to differ from the benchmark.
Norbord has a relatively low exposure to the Canadian dollar due to a
comparatively small manufacturing base in Canada, comprising 12% of panel
production capacity. The Company estimates the unfavourable impact of a US
one cent increase in the Canadian dollar to negatively impact annual EBITDA by
approximately $1 million.
Quarterly results are also impacted by seasonal factors such as weather
and building activity. Market demand varies seasonally, as home building
activity and repair and renovation work, the principal end use for Norbord's
products, are generally stronger in the spring and summer months. Adverse
weather can also limit access to logging areas, which can affect the supply of
fibre to Norbord's operations. Shipment volumes and commodity prices are
affected by these factors as well as by global supply and demand conditions.
Items not related to ongoing business operations that had a significant
impact on quarterly results include the $32 million pre-tax expense
($0.15 earnings per share) related to the litigation settlement in the second
quarter of 2008, and, in the first quarter of 2008, the $4 million pre-tax
expense ($0.02 earnings per share) related to the severance for the permanent
closure of a particleboard line at the Genk site. In addition, the rate of
depreciation has not been constant over the past eight quarters as management
changed its estimate of the useful life of its OSB assets from 15 years to
25 years effective in the third quarter of 2007. The impact of this change in
estimate on depreciation expense was approximately a $9 million reduction per
quarter.
CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2008, the Company adopted new accounting
recommendations from the Canadian Institute of Chartered Accountants (CICA),
Handbook Section 1535, Capital Disclosures, Section 3031, Inventories,
Section 3862, Financial Instruments - Disclosure, and Section 3863, Financial
Instruments - Presentation.
Section 1535 specifies the requirements for the disclosure of both
qualitative and quantitative information that enable users of financial
statements to evaluate the Company's objectives, policies and processes for
managing capital. This disclosure is contained in note 11 to the interim
consolidated financial statements.
Section 3031 relates to the accounting for inventories and revises and
enhances the requirements for assigning costs to inventories. The impact of
adopting this new standard was a $1 million adjustment to opening retained
earnings and a $3 million reclassification of certain capital spare parts from
operating and maintenance supplies inventory to property, plant and equipment.
The opening retained earnings adjustment arises due to prior years'
depreciation on the reclassified capital spare parts and a lower opening
carrying value of certain finished goods and raw material inventory.
Inventories of raw materials and operating maintenance supplies are valued at
the lower of cost and net realizable value, with cost determined on an average
cost basis. Previously, the Company valued these inventories at the lower of
cost and replacement cost. The capital spare parts reclassified to property,
plant and equipment from operating and maintenance supplies inventory are
recorded as production equipment at cost and are depreciated on a straight
line basis. The rates of depreciation are intended to fully depreciate the
assets over two to five years, which approximate their useful lives.
Section 3862 and Section 3863 replace Section 3861, Financial Instruments
- Disclosure and Presentation, and revise and enhance the disclosure
requirements and carry forward the presentation requirements. This disclosure
is contained in note 12 to the interim consolidated financial statements.
In February 2008, the CICA issued a new accounting standard,
Section 3064, Goodwill and Intangible Assets, which establishes standards for
the recognition, measurement, presentation and disclosure of goodwill and
intangible assets. The Company will adopt this new standard in the first
quarter 2009 and is currently assessing the impact of adoption on its
consolidated financial statements.
In February 2008, the CICA's Accounting Standard Board (AcSB) announced
that Canadian public companies will adopt International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board
(IASB) effective January 1, 2011. Early adoption is permissible. The Company
is currently assessing the impact and date of adoption on its consolidated
financial statements.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Internal controls over financial reporting are designed to provide
reasonable assurance regarding the reliability of financial reporting and
compliance with Canadian GAAP. There have been no changes in Norbord's
internal controls over financial reporting during the interim period ended
June 28, 2008 that have materially affected or are reasonably likely to
materially affect its internal controls over financial reporting.
NON-GAAP FINANCIAL MEASURES
The following non-GAAP financial measures have been used in this MD&A.
Non-GAAP financial measures do not have any standardized meaning prescribed by
GAAP and are therefore unlikely to be comparable to similar measures presented
by other companies. Each non-GAAP financial measure is defined below. Where
appropriate, a quantitative reconciliation of the non-GAAP financial measure
to the most directly comparable GAAP measure is provided.
EBITDA is calculated as earnings determined in accordance with GAAP
before interest, provision for non-core operation, income tax, depreciation
and amortization. As Norbord operates in a cyclical commodity business,
Norbord interprets EBITDA over the cycle as a useful indicator of the
company's ability to incur and service debt and meet capital expenditure
requirements. In addition, Norbord views EBITDA as a measure of gross profit
and interprets EBITDA trends as an indicator of relative operating
performance. The following table reconciles EBITDA to the most directly
comparable GAAP measure:
<<
-------------------------------------------------------------------------
2nd Qtr 1st Qtr 2nd Qtr 6 mos 6 mos
(US$ millions) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Earnings $ (37) $ (31) $ (15) $ (68) $ (31)
Add: Provision for non-core
operation - 4 - 4 -
Add: Litigation settlement 32 - - 32 -
Add: Interest expense 11 15 14 26 23
Less: Interest and other income (2) (1) (3) (3) (4)
Add: Income tax (21) (30) (6) (51) (18)
Add: Depreciation 18 19 27 37 51
-------------------------------------------------------------------------
EBITDA $ 1 $ (24) $ 17 $ (23) $ 21
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Operating working capital is accounts receivable plus inventory less
accounts payable and accrued liabilities. Operating working capital is a
measure of the investment in accounts receivable, inventory and accounts
payable required to support operations. The Company aims to minimize its
investment in operating working capital, however, the amount will vary with
seasonality, and sales expansions and contractions.
Total working capital is operating working capital plus cash and cash
equivalents and tax receivable less bank advances.
Capital employed is the sum of property, plant and equipment, operating
working capital and other assets less any unrealized net investment hedge loss
included in other liabilities. Capital employed is a measure of the total
investment in a business in terms of property, plant, equipment, operating
working capital and other assets. The following table details the composition
of capital employed:
<<
-------------------------------------------------------------------------
Jun 28 Mar 29 Dec 31
(US$ millions) 2008 2008 2007
-------------------------------------------------------------------------
Property, plant and equipment $ 956 $ 965 $ 968
Accounts receivable 101 97 83
Tax receivable 16 96 89
Inventory 133 140 131
Accounts payable and accrued liabilities (221) (179) (191)
Other assets 5 6 5
Unrealized net investment hedge loss(1) (9) (6) (8)
-------------------------------------------------------------------------
Capital employed $ 981 $ 1,119 $ 1,077
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Included in other liabilities
>>
ROCE (return on capital employed) is EBITDA divided by average capital
employed. ROCE is a measurement of financial performance, focusing on cash
generation and the efficient use of capital. As Norbord operates in a cyclical
commodity business, Norbord interprets ROCE over the cycle as a useful means
of comparing businesses in terms of efficiency of management and viability of
products. Norbord targets top quartile ROCE among North American forest
products companies over the cycle.
ROE (return on common equity) is earnings available to common
shareholders (earnings less preferred share dividends) divided by common
shareholders' equity. ROE is a measure for common shareholders to determine
how effectively their invested capital is being employed. As Norbord operates
in a cyclical commodity business, Norbord looks at ROE over the cycle and
targets top quartile performance among North American forest products
companies.
Net debt consists of the principal value of long-term debt including the
current portion and bank advances less cash and cash equivalents and drawings
under the term debt facility. Consistent with the treatment under the
Company's bank line financial covenants, drawings under the term debt facility
are excluded from net debt and treated as a component of tangible net worth.
Net debt is a useful indicator of a company's debt position. Net debt
comprises:
<<
-------------------------------------------------------------------------
Jun 28 Mar 29 Dec 31
(US$ millions) 2008 2008 2007
-------------------------------------------------------------------------
Long-term debt $ 667 $ 679 $ 478
Less: Drawings under term debt facility(1) (75) (55) -
Current portion of long-term debt - - 197
Cash and cash equivalents (83) (25) (128)
-------------------------------------------------------------------------
Net debt $ 509 $ 599 $ 547
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Drawings under the Company's term debt facility are treated as equity
for bank line financial covenant purposes.
>>
Tangible net worth consists of shareholders' equity and drawings under
the term debt facility. A minimum tangible net worth of $300 million is one of
the two financial covenants contained in the Company's committed bank lines.
At period end the Company's tangible net worth was $349 million.
<<
Jun 28 Dec 31
(US$ millions) 2008 2007
-------------------------------------------------------------------------
Shareholders equity $ 274 $ 360
Plus: Drawings under term debt facility(1) 75 -
-------------------------------------------------------------------------
Tangible net worth $ 349 $ 360
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Drawings under the Company's term debt facility are treated as equity
for bank line financial covenant purposes.
>>
Net debt to capitalization, book basis is net debt divided by the sum of
net debt and tangible net worth. Net debt to capitalization, book basis is a
measure of a company's relative debt position. Norbord interprets this measure
as an indicator of the relative strength and flexibility of its balance sheet.
In addition, a maximum net debt to capitalization, book basis of 65% is one of
the two financial covenants contained in the Company's committed bank lines.
At period end net debt to capitalization, book basis was 59%.
Net debt to capitalization, market basis is net debt divided by the sum
of net debt and market capitalization. Market capitalization is the number of
common shares outstanding at period end multiplied by the trailing 12-month
average per share market price. Market basis capitalization is intended to
correct for the low historical book value of Norbord's asset base relative to
its fair value. Net debt to capitalization, market basis is a key measure of a
company's relative debt position and Norbord interprets this measure as an
indicator of the relative strength and flexibility of its balance sheet. While
the Company considers both book and market basis metrics, the Company believes
the market basis to be superior to the book basis in measuring the true
strength and flexibility of its balance sheet.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements, as defined in
applicable legislation. The words "goal," "believes," "believe," "should,"
"expect," "expected," "forecast," "estimates," "estimated," 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.
Examples of such statements include, but are not limited to, comments
with respect to: (1) outlook for the markets for products; (2) expectations
regarding future product pricing: (3) the outlook for operations;
(4) expectations regarding mill capacity and production volumes; (5)
objectives; (6) strategies to achieve those objectives; (7) access to public
and private capital markets (8) sensitivity to changes in product prices, such
as the price of OSB; (9) sensitivity to changes in foreign exchange rates;
(10) margin improvement program targets; (11) expectations regarding
contingent liabilities, lawsuits and guarantees, including the outcome of
pending litigation; (12) expectations regarding the amount, timing and
benefits of capital investments; and (13) expectations regarding the amount
and timing of tax refunds.
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 1, 2008 Annual Information Form and the
cautionary statement contained in the "Forward-Looking Statements" section of
the 2007 Management's Discussion and Analysis dated January 31, 2008.
<<
NORBORD INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(US $ millions, except 2nd Qtr 2nd Qtr 6 mos 6 mos
per share information) 2008 2007 2008 2007
-------------------------------------------------------------------------
Net sales $ 262 $ 288 $ 496 $ 549
-------------------------------------------------------------------------
Earnings before interest, income tax,
depreciation, provision for
non-core operation and
litigation settlement 1 17 (23) 21
Litigation settlement (note 13) (32) - (32) -
Provision for non-core operation
(note 8) - - (4) -
Interest and other income 2 3 3 4
Interest expense (11) (14) (26) (23)
-------------------------------------------------------------------------
Earnings before income tax
and depreciation (40) 6 (82) 2
Depreciation (18) (27) (37) (51)
Income tax 21 6 51 18
-------------------------------------------------------------------------
Earnings $ (37) $ (15) $ (68) $ (31)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share (note 7)
- Basic $ (0.25) $ (0.11) $ (0.46) $ (0.22)
- Diluted $ (0.25) $ (0.11) $ (0.46) $ (0.22)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
NORBORD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
2nd Qtr 2nd Qtr 6 mos 6 mos
(US $ millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR):
Operating Activities
Earnings $ (37) $ (15) $ (68) $ (31)
Items not affecting cash:
Depreciation 18 27 37 51
Future income taxes (18) (6) (43) (19)
Other items - 3 (1) 2
-------------------------------------------------------------------------
(37) 9 (75) 3
Net change in non-cash working
capital balances 125 2 82 (42)
-------------------------------------------------------------------------
88 11 7 (39)
-------------------------------------------------------------------------
Investing Activities
Investment in property,
plant and equipment (10) (12) (15) (21)
Other (note 9) - (19) (13) (19)
-------------------------------------------------------------------------
(10) (31) (28) (40)
-------------------------------------------------------------------------
Financing Activities
Repurchase of 8 1/8% debentures
(note 4) - - (197) -
Drawings under term debt facility
(note 4) 20 - 75 -
Issue of senior notes (note 4) - - - 198
Other debt incurred (note 4) (32) (87) 114 (40)
Dividends (8) (8) (16) (16)
-------------------------------------------------------------------------
(20) (95) (24) 142
-------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents $ 58 $ (115) $ (45) $ 63
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents,
beginning of period $ 25 $ 198 $ 128 $ 20
Cash and cash equivalents,
end of period 83 83 83 83
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
NORBORD INC.
CONSOLIDATED BALANCE SHEETS
Jun 28 Dec 31
(US $ millions) 2008 2007
-------------------------------------------------------------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 83 $ 128
Accounts receivable 101 83
Tax receivable 16 89
Inventory (note 3) 133 131
-------------------------------------------------------------------------
333 431
Property, plant and equipment 956 968
Other assets 5 5
-------------------------------------------------------------------------
$ 1,294 $ 1,404
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 13) $ 221 $ 191
Current portion of long-term debt (note 4) - 199
-------------------------------------------------------------------------
221 390
Long-term debt (note 4) 669 480
Other liabilities (note 5) 21 18
Future income taxes 109 156
Shareholders' equity (note 6) 274 360
-------------------------------------------------------------------------
$ 1,294 $ 1,404
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
NORBORD INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(unaudited)
2nd Qtr 2nd Qtr 6 mos 6 mos
(US $ millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Share Capital
Balance at beginning of period $ 156 $ 131 $ 150 $ 127
Dividend reinvestment plan (note 6) 7 6 13 10
-------------------------------------------------------------------------
Balance at end of period $ 163 $ 137 $ 163 $ 137
-------------------------------------------------------------------------
Contributed Surplus
Balance at beginning of period $ 1 $ 1 $ 1 $ -
Stock-based compensation 1 - 1 1
-------------------------------------------------------------------------
Balance at end of period $ 2 $ 1 $ 2 $ 1
-------------------------------------------------------------------------
Retained Earnings
Balance at beginning of period $ 159 $ 277 $ 205 $ 305
Adoption of new accounting
recommendations (note 2) - - (1) -
-------------------------------------------------------------------------
Adjusted balance at beginning
of period 159 277 204 305
Earnings (37) (15) (68) (31)
Common share dividends (15) (14) (29) (26)
-------------------------------------------------------------------------
Balance at end of period $ 107 $ 248 $ 107 $ 248
-------------------------------------------------------------------------
Accumulated Other Comprehensive
Income
Balance at beginning of period $ 4 $ 3 $ 4 $ 2
Other comprehensive income (2) - (2) 1
-------------------------------------------------------------------------
Balance at end of period $ 2 $ 3 $ 2 $ 3
-------------------------------------------------------------------------
Shareholders' equity $ 274 $ 389 $ 274 $ 389
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Earnings $ (37) $ (15) $ (68) $ (31)
Other comprehensive income
Net change in unrealized
cumulative translation gains (2) - (2) 1
-------------------------------------------------------------------------
Other comprehensive income $ (2) $ - $ (2) $ 1
-------------------------------------------------------------------------
Comprehensive income $ (39) $ (15) $ (70) $ (30)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See accompanying notes)
NORBORD INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(In US$, unless otherwise noted)
>>
Note 1 - Basis of Presentation
------------------------------
The interim financial statements are unaudited and follow the accounting
policies summarized in the notes to the annual consolidated financial
statements, except as noted in note 2, below.
The interim financial statements do not conform in all respects to the
disclosure requirements of Canadian generally accepted accounting
principles for annual financial statements and should, therefore, be read
in conjunction with the annual consolidated financial statements of
Norbord Inc. 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 are presented as Note 1 to the annual consolidated
financial statements. Certain prior period amounts have been reclassified
to conform to the current period's presentation.
Note 2 - Changes in Accounting Policies
---------------------------------------
Effective January 1, 2008, the Company adopted new accounting
recommendations from the Canadian Institute of Chartered Accountants
(CICA), Handbook Section 1535, Capital Disclosures, Section 3031,
Inventories, Section 3862, Financial Instruments - Disclosure, and
Section 3863, Financial Instruments - Presentation.
Section 1535 specifies the requirements for the disclosure of both
qualitative and quantitative information that enable users of financial
statements to evaluate the Company's objectives, policies and processes
for managing capital (note 11).
Section 3031 relates to the accounting for inventories and revises and
enhances the requirements for assigning costs to inventories. The impact
of adopting this new standard was a $1 million adjustment to opening
retained earnings and a $3 million reclassification of certain capital
spare parts from operating and maintenance supplies inventory to
property, plant and equipment. The opening retained earnings adjustment
arises due to prior years' depreciation on the reclassified capital spare
parts and a lower opening carrying value of certain finished goods and
raw material inventory. Inventories of raw materials and operating
maintenance supplies are valued at the lower of cost and net realizable
value, with cost determined on an average cost basis. Previously, the
Company valued these inventories at the lower of cost and replacement
cost. The capital spare parts reclassified to property, plant and
equipment from operating and maintenance supplies inventory are recorded
as production equipment at cost and are depreciated on a straight line
basis. The rates of depreciation are intended to fully depreciate the
assets over two to five years, which approximate their useful lives.
Section 3862 and Section 3863 replace Section 3861, Financial Instruments
- Disclosure and Presentation, and revise and enhance the disclosure
requirements and carry forward the presentation requirements (note 12).
The CICA issued a new accounting standard, Section 3064, Goodwill and
intangible assets, which establishes standards for the recognition,
measurement, presentation and disclosure of goodwill and intangible
assets. The Company will adopt this new standard in the first quarter
2009 and is currently assessing the impact of adoption on its
consolidated financial statements.
In February 2008, the CICA's Accounting Standard Board (AcSB) announced
that Canadian public companies will adopt International Financial
Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB) effective January 1, 2011. Early adoption is
permissible. The Company is currently assessing the impact and date of
adoption on its consolidated financial statements.
<<
Note 3 - Inventory
------------------
Inventory is comprised of:
Jun 28 Dec 31
(US$ millions) 2008 2007
-------------------------------------------------------------------------
Raw materials $ 32 $ 40
Finished goods 70 59
Operating and maintenance supplies 31 32
-------------------------------------------------------------------------
$ 133 $ 131
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
The amount of inventory recognized as an expense during the quarter was
$262 million (six month period - $526 million) which includes $18 million
(six month period - $37 million) of depreciation expense on property,
plant & equipment. There was no write down of inventories required
relating to the lower of cost and net realizable value at period end.
<<
Note 4 - Long-Term Debt
-----------------------
(US$ millions) Book Value
-------------------------------------------------------------------------
Fair
Value
Principal Adjust- Jun 28 Dec 31
Value ments 2008 2007
-------------------------------------------------------------------------
8 1/8% debentures due 2008 $ - $ - $ - $ 197
7 1/4% debentures due 2012 240 5 245 247
Senior notes due 2017 200 (3) 197 197
Term debt facility 75 - 75 -
Other debt 152 - 152 38
-------------------------------------------------------------------------
667 2 669 679
Less current portion of
long-term debt - - - (199)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ 667 $ 2 $ 669 $ 480
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
In January 2008, the Company concluded a $100 million unsecured term debt
facility with a related company at an interest rate equal to the greater
of 8% and US base rate plus 1/2%. The facility matures in 2010 and is
subordinated to the Company's committed unsecured revolving bank lines.
Any drawings under the facility are treated as tangible net worth for
bank line covenant purposes. At period end, $75 million was drawn as
cash.
In the first quarter, the 8 1/8% debentures with a principal value of
$197 million were repurchased and a corresponding amount of interest rate
swaps matured. In addition, $50 million of interest rate swaps matured.
At June 28, 2008, the Company had $115 million (December 31, 2007 -
$362 million) of interest rate swaps outstanding. The terms of these
swaps correspond to the terms of the underlying hedged debt.
The Company has committed unsecured revolving bank lines of $235 million
which mature in 2010, bear interest at money market rates plus a margin
that varies with the Company's credit rating, and contain financial
covenants (note 11). At period end, $79 million of these lines was
unutilized with $152 million drawn as cash and $4 million was utilized
for letters of credit.
In the first quarter of 2007, the Company issued $200 million of senior
notes due in 2017 with an interest rate that varies with the Company's
credit ratings. At quarter end, the rate was 7.45%.
<<
Note 5 - Other Liabilities
--------------------------
Jun 28 Dec 31
(US$ millions) 2008 2007
-------------------------------------------------------------------------
Unrealized net investment hedge losses (note 12) $ 9 $ 8
Accrued pension and post-retirement benefits 4 3
Unrealized interest rate swap losses (note 12) 2 3
Other liabilities 6 4
-------------------------------------------------------------------------
$ 21 $ 18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
The unrealized net investment hedge and interest rate swap losses are
offset by unrealized gains on the underlying exposures being hedged.
Note 6 - Shareholders' Equity
-----------------------------
In the first quarter, 1.0 million options were granted under the stock
option plan. For the six-months ended June 28, 2008, $1 million related
to stock-based compensation was expensed.
For the six-months ended June 28, 2008, 0.1 million common shares were
issued as a result of options exercised under the stock option plan for
proceeds of less than $1 million.
During the quarter, 1.2 million common shares (six-month period -
2.5 million) were issued in lieu of cash dividends of $7 million
(six-month period - $13 million) under the Company's dividend
reinvestment plan.
Note 7 - Earnings per Common Share
----------------------------------
Earnings per common share are calculated as follows:
<<
(US$ millions, except
per share information, 2nd Qtr 2nd Qtr 6 mos 6 mos
unless otherwise noted) 2008 2007 2008 2007
-------------------------------------------------------------------------
Earnings available to
common shareholders $ (37) $ (15) $ (68) $ (31)
------------------------------------
------------------------------------
Common shares (millions):
Weighted average number of
common shares outstanding 148.3 144.4 147.6 144.2
Stock options - - - -
------------------------------------
Diluted number of common shares 148.3 144.4 147.6 144.2
------------------------------------
------------------------------------
Earnings per common share:
Basic $ (0.25) $ (0.11) $ (0.46) $ (0.22)
Diluted $ (0.25) $ (0.11) $ (0.46) $ (0.22)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Stock options issued under the Company's stock option plan were excluded
in the calculation of diluted number of common shares. If dilutive in the
future, stock options would be included to the extent the exercise price
of those options was less than the average market price of the Company's
common shares during the period.
Note 8 - Provision For Non-Core Operation
-----------------------------------------
In the first quarter, the Company recorded a $4 million provision
relating to severance arising on the permanent closure of a particleboard
line at the Genk, Belgium site.
Note 9 - Supplemental Cash Flow Information
-------------------------------------------
Other investing activities comprises:
2nd Qtr 2nd Qtr 6 mos 6 mos
(US$ millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Cash provided by (used for):
Recouponing payment, net $ - $ (19) $ - $ (17)
Realized net investment hedge
gains (losses) (note 12) - (2) (15) (1)
Other - 2 2 (1)
-------------------------------------------------------------------------
$ - $ (19) $ (13) $ (19)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents comprises:
June 28 June 30
(US$ millions) 2008 2007
-------------------------------------------------------------------------
Cash $ 16 $ 14
Cash equivalents 67 69
-------------------------------------------------------------------------
$ 83 $ 83
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Note 10 - Related Party Transactions
------------------------------------
The Company's major shareholder has various interests over which it has
control or otherwise has significant influence (a "related company" or
collectively "related companies").
During the quarter, the Company provided certain administrative services
to a related company which were charged on a cost recovery basis. In
addition, the Company periodically engages the services of related
companies for various financial, real estate and other business advisory
services. The total fees for the above noted services were less than
$1 million in the quarter, and were charged at market rates.
In January 2008, the Company concluded a $100 million unsecured term debt
facility with its major shareholder (note 4).
Note 11 - Capital Management
----------------------------
Norbord's capital management objective is to achieve top-quartile return
on equity (ROE) and cash return on capital employed (ROCE) over the
business cycle among North American forest products companies to enable
it to retain access to public and private capital markets. This objective
is unchanged from the prior year.
Norbord monitors its capital structure using two key measures of its
relative debt position. While the Company considers both book and market
basis metrics, the Company believes the market basis to be superior to
the book basis in measuring the true strength and flexibility of its
balance sheet:
Net debt to capitalization, book basis, is net debt divided by the sum of
net debt and tangible net worth. Net debt consists of the principal value
of long-term debt including the current portion and bank advances less
cash and cash equivalents and drawings under the term debt facility.
Consistent with the treatment under the Company's bank line financial
covenants, drawings under the term debt facility are excluded from net
debt and treated as a component of tangible net worth. Tangible net worth
consists of shareholders' equity and drawings under the term debt
facility.
Net debt to capitalization, market basis, is net debt divided by the sum
of net debt and market capitalization. Net debt is calculated as outlined
above under net debt to capitalization, book basis. Market capitalization
is the number of common shares outstanding at period end multiplied by
the trailing 12-month average per share market price. Market basis
capitalization is intended to correct for the low historical book value
of Norbord's asset base relative to its fair value.
Norbord's capital structure at period end consisted of the following:
<<
Jun 28 Dec 31
(US$ millions) 2008 2007
-------------------------------------------------------------------------
Long-term debt, principal value $ 667 $ 478
Add: Current portion of long-term debt - 197
Less: Drawings under term debt facility(1) (75) -
Cash and cash equivalents (83) (128)
-------------------------------------------------------------------------
Net debt 509 547
-------------------------------------------------------------------------
Shareholders equity 274 360
Plus: Drawings under term debt facility(1) 75 -
-------------------------------------------------------------------------
Tangible net worth 349 360
-------------------------------------------------------------------------
Total capitalization 858 907
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net debt to capitalization, book basis 59% 60%
Net debt to capitalization, market basis 33% 30%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Drawings under the Company's term debt facility are treated as equity
for bank line financial covenant purposes.
>>
The Company's $235 million of committed unsecured revolving bank lines
contain the following financial covenants related to capital management
that the Company must comply with on a quarterly basis: minimum tangible
net worth of $300 million, and maximum net debt to total capitalization,
book basis, of 65%. Drawings under the Company's term debt facility are
treated as equity for bank line financial covenant purposes. At period
end, the Company's tangible net worth was $349 million versus the minimum
$300 million covenant; and net debt to total capitalization, book basis,
was 59% versus the maximum 65% covenant.
Note 12 - Financial Instruments
-------------------------------
Norbord has exposure to market, counterparty credit, and liquidity risk.
Norbord's primary risk management objective is to protect the Company's
balance sheet, earnings and cash flow in support of achieving top-
quartile return on equity (ROE) and cash return on capital employed
(ROCE) among North American forest products companies.
Norbord's financial risk management activities are governed by Board-
approved financial policies that cover risk identification, tolerance,
measurement, hedging limits, hedging products, authorization levels, and
reporting. Derivative contracts that are deemed to be highly effective in
offsetting changes in the fair value, net investment or cash flows of
hedged items are designated as hedges of specific exposures. Gains and
losses on these instruments are recognized in the same manner as the item
being hedged. Hedge ineffectiveness, if any, is measured and included in
current period earnings.
Market Risk
-----------
Norbord purchases commodity inputs, issues debt at fixed and floating
interest rates, invests surplus cash, sells product and purchases inputs
in foreign currencies, and invests in foreign operations. These
activities expose the Company to market risk from changes in commodity
prices, interest rates and foreign exchange rates, which affect the
Company's balance sheet, earnings and cash flows. The Company uses
derivatives as part of its overall financial risk management policy to
manage certain exposures to market risk that result from these
activities.
Commodity Price Risk
Norbord is exposed to commodity price risk on most of its manufacturing
inputs, principally wood fibre, resin and energy. These manufacturing
inputs are purchased primarily on the open market in competition with
other users of such resources and prices are influenced by factors beyond
Norbord's control.
Norbord monitors market developments in all commodity prices to which it
is materially exposed. No liquid futures markets exist for the majority
of Norbord's commodity inputs but, where possible, Norbord will hedge a
portion of its commodity price exposure up to Board-approved limits in
order to reduce the potential negative impact of rising commodity input
prices. Should Norbord decide to hedge any of this exposure, it will lock
in prices directly with its suppliers and, if unfeasible, purchase
financial hedges where liquid markets exist.
At July 23, 2008, Norbord has hedged approximately 50% of its 2008
expected natural gas consumption by locking in the price directly with
its suppliers. Approximately 65% of Norbord's electricity is purchased in
regulated markets and Norbord has hedged approximately 45% of its 2008
deregulated electricity consumption. While these contracts are
derivatives, they are exempt from being accounted for as financial
instruments as they were normal purchases for the purpose of receipt.
Interest Rate Risk
Norbord's financing strategy is to access public and private capital
markets to raise long-term core financing and utilize the banking market
to provide committed standby credit facilities to support its short-term
cash flow needs. The Company has fixed-rate debt, which subjects it to
interest rate price risk, and has floating-rate debt, which subjects it
to interest rate cash flow risk. In addition, the Company invests surplus
cash in bank deposits and short-term money market securities.
The Company enters into interest rate swaps to convert a portion of its
debt from fixed to floating rates. At period end, $115 million of
interest rate swaps were outstanding. The terms of these swaps correspond
to the terms of the underlying hedged debt.
From time to time the Company can recoupon its portfolio of interest rate
swaps to more efficiently manage cash flow and credit exposure. Any gains
or losses realized are deferred and amortized over the remaining term of
the debt against which the swaps were designated as hedges. At period
end, $9 million of gains were deferred and included in the carrying value
of long-term debt in the consolidated balance sheet. Amortization of
$1 million (six-month period - $2 million) was included in interest
expense during the quarter.
Currency Risk
Norbord's foreign exchange exposure arises from the following sources:
<<
- Net investments in self-sustaining foreign operations, limited to
Norbord's investment in its European operations
- Net Canadian dollar-denominated monetary assets and liabilities
- Committed or anticipated foreign currency denominated transactions,
primarily Canadian dollar costs in Norbord's Canadian operations and
Euro revenues in Norbord's UK operations
>>
The Company's policy is to hedge all significant balance sheet foreign
exchange exposures using cross-currency swaps and forward foreign
exchange contracts. The Company may hedge a portion of future foreign
currency denominated cash flows using forward foreign exchange contracts
or options for periods up to three years in order to reduce the potential
negative effect of a strengthening Canadian dollar versus the US dollar
or a weakening Euro versus the Pound Sterling.
Each US one-cent change in the value of the Canadian dollar impacts
annualized pre-tax earnings by approximately $1 million in 2008. Each
Pound Sterling one-pence change in the value of the Euro impacts pre-tax
earnings by approximately (pnds stlg) 1 million in 2008.
Counterparty Credit Risk
------------------------
Norbord invests surplus cash in bank deposits and short-term money market
securities, sells its product to customers on standard market credit
terms, and uses derivatives to manage its market risk exposures. These
activities expose the Company to counterparty credit risk that would
result if the counterparty failed to meet its obligations in accordance
with the terms and conditions of its contracts with the Company.
Accounts receivable credit risk is mitigated through established credit
management techniques, including conducting financial and other
assessments to establish and monitor a customer's creditworthiness,
setting customer limits, monitoring exposures against these limits, and
in some instances, purchasing credit insurance or obtaining trade letters
of credit. Under an accounts receivable securitization program, Norbord
has transferred substantially all of its present and future trade
accounts receivable to a highly rated financial institution, on a fully
serviced basis, for proceeds consisting of cash and deferred purchase
price. At period end, Norbord recorded cash proceeds of $50 million and a
deferred purchase price of $79 million under this program. The fair value
of the deferred purchase price approximates its carrying value as a
result of the short accounts receivable collection cycle and negligible
historical credit losses.
Surplus cash is only invested with counterparties meeting minimum credit
quality requirements and issuer and concentration limits. Derivative
transactions are executed only with approved high-quality counterparties
under master netting agreements. The Company monitors and manages its
concentration of counterparty credit risk on an ongoing basis.
The Company's maximum counterparty credit exposure at period end consists
of the carrying amount of cash and cash equivalents and accounts
receivable, which approximates fair value, and the fair value of
derivative financial assets.
Liquidity Risk
--------------
Norbord strives to maintain sufficient financial liquidity at all times
in order to participate in investment opportunities as they arise, as
well as to withstand sudden adverse changes in economic circumstances.
Management forecasts cash flows for its current and subsequent fiscal
years to identify financing requirements. These requirements are then
addressed through a combination of committed credit facilities and access
to capital markets.
At period end, Norbord had $83 million of cash and cash equivalents,
$79 million of unutilized committed unsecured revolving bank lines and
$25 million unutilized under an unsecured term debt facility.
The following table summarizes the aggregate amount of contractual future
cash outflows for the Company's financial liabilities:
<<
Payments Due by Period
---------------------------------------------------
Less than One-Three Four-Five After Five
(US$ millions) Total One Year Years Years Years
-------------------------------------------------------------------------
Long-term debt,
including interest 900 44 301 295 260
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fair Values
The carrying and fair values of non-derivative financial instruments as
at period end were as follows:
Carrying Fair
(US$ millions) Value Value
-------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 83 $ 83
Accounts receivable 101 101
Tax receivable 16 16
-------------------------------------------------------------------------
$ 200 $ 200
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial Liabilities:
Accounts payable and accrued liabilities $ 221 $ 221
Long-term debt 669 601
-------------------------------------------------------------------------
$ 890 $ 822
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Information about derivative financial instruments at period end was as
follows:
Unrealized Realized
gain/(loss) gain/(loss) Sensitivity
(In millions and in US$ Notional at period during the to 1%
unless otherwise noted) Value end(1) period change
-------------------------------------------------------------------------
Currency hedges:
Net investment
UK (pnds stlg) 114 (7) (6) 1
Belgium (euro) 82 (2) (9) 1
Monetary liabilities CAD $25 - 1 -
Interest rate hedges:
Interest rate swaps $115 (2) - 1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The carrying values of the derivative financial instruments are
equivalent to the unrealized gain/(loss) at period end.
>>
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 - Litigation Settlement
-------------------------------
Norbord and eight other North American OSB producers have been named as
defendants in several lawsuits filed in the US District Court for the
Eastern District of Pennsylvania. The lawsuits allege that these nine
North American OSB producers violated US and various state antitrust and
other laws by allegedly agreeing to fix prices and reduce the supply of
OSB from June 1, 2002 through the present.
The Court has certified the following classes: A nationwide class of
persons and entities that purchased OSB in the US directly from any of
the defendant North American OSB producers between June 1, 2002 and
February 24, 2006; a nationwide class of persons who, as end users,
indirectly purchased in the US for their own use, and not for resale, new
OSB manufactured and sold by one or more of the defendant North American
OSB producers between June 1, 2002 and February 24, 2006 (other than
persons who purchased OSB only as part of a house or other structure);
and a multi-state class of residents of seventeen States who, as end
users, indirectly purchased in the US for their own use, and not for
resale, new OSB manufactured and sold by one or more of the defendant
North American OSB producers between June 1, 2002 and February 24, 2006
(other than persons who purchased OSB only as part of a house or other
structure). All three classes seek damages or injunctive or other relief
under applicable laws.
Norbord has entered into a settlement agreement with the certified class
of direct purchasers of OSB in the OSB antitrust Litigation to limit the
risks and costs associated with a prolonged trial. Norbord has vigorously
contested the plaintiffs' allegations and continues to deny that it
violated US antitrust or any other laws. Under the terms of the
settlement agreement, which is subject to Court approval, Norbord will
pay $30 million into an escrow account for the benefit of members of the
direct purchaser class. A first payment of $15 million is due on or
before July 25, 2008 and the remainder is due on or before October 24,
2008.
As allowed by Court order, a small number of class members have chosen to
opt out of the direct-purchaser class. Norbord estimates that the
purchases by these entities represents between 10% and 15% of defendants'
sales to direct purchasers of OSB during the class period. Each of these
entities is entitled to pursue its own individual "opt-out" claims
against Norbord and the other defendants. If any of them do so, Norbord
will be entitled to a partial refund of the $30 million settlement amount
paid to the direct-purchaser class.
Norbord has also reached an agreement in principle to pay $2 million in
settlement of the claims asserted on behalf of the certified classes of
indirect purchasers of OSB. The final settlement agreement with the
indirect purchasers will also be subject to Court approval. The Court has
not yet set a deadline by which members of the certified classes of
indirect purchasers of OSB must exercise, if they choose to do so, their
right to opt out of the classes.
Note 14 - Geographic Segments
-----------------------------
The Company has a single reportable segment. The Company operates
principally in North America and Europe. Net sales by geographic segment
are determined based on the origin of shipment and therefore include
export sales.
<<
(US$ millions)
-------------------------------------------------------------------------
North Un-
2nd Qtr 2008 America Europe allocated Total
-------------------------------------------------------------------------
Net sales $ 151 $ 111 $ - $ 262
EBITDA(1) (1) 6 (4) 1
Depreciation 11 7 - 18
Property, plant
and equipment 690 262 4 956
Investment in property,
plant and equipment 10 - - 10
2nd Qtr 2007
-------------------------------------------------------------------------
Net sales $ 156 $ 132 $ - $ 288
EBITDA(1) (2) 26 (7) 17
Depreciation 18 9 - 27
Property, plant
and equipment 708 273 4 985
Investment in property,
plant and equipment 8 4 - 12
6 mos 2008
-------------------------------------------------------------------------
Net sales $ 266 $ 230 $ - $ 496
EBITDA(1) (30) 13 (6) (23)
Depreciation 22 15 - 37
Property, plant
and equipment 690 262 4 956
Investment in property,
plant and equipment 15 - - 15
6 mos 2007
-------------------------------------------------------------------------
Net sales $ 290 $ 259 $ - $ 549
EBITDA(1) (10) 44 (13) 21
Depreciation 33 18 - 51
Property, plant
and equipment 708 273 4 985
Investment in property,
plant and equipment 15 6 - 21
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) EBITDA is calculated as earnings determined in accordance with GAAP
before interest, income tax, depreciation and amortization, provision
for non-core operation and litigation settlement. Norbord views
EBITDA as a measure of gross profit and interprets EBITDA trends as
an indicator of relative
>>
-30-
/For further information: Anita Veel, Director, Corporate Affairs, (416)
643-8838, anita.veel@norbord.com/
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