1. business and industrial
2. company
3. annual report

Peter Wijnbergen
President & CEO
October 28, 2014
To Our Shareholders,
The North American OSB market remained disappointing this quarter as the ramp-up of
industry capacity continues to outpace a more gradual than expected recovery in US
housing starts. This was reflected in Norbord’s financial performance, as we generated
just $15 million of EBITDA in Q3.
However, the metrics we can control continued to show strong improvement. Our North
American shipments increased 7% year-to-date and we continued to benefit from our
distribution channel diversification with volumes to our Big Box and industrial customers
up even further.
All our mills continued to operate well and four of them – La Sarre, Joanna, Inverness
and Genk – set new quarterly production records. In North America, our operations are
producing at stated capacity and maintaining manufacturing cost reductions, despite the
significant downtime we took in the quarter. In Europe, our production volume exceeded
stated capacity even though the Cowie particleboard mill undertook a two-week project
shutdown.
Our excellent operational performance as well as paybacks from our recent capital
investments are driving accelerating Margin Improvement Program (MIP) results. Yearto-date, we’ve realized $12 million in MIP gains as our mills are more efficiently
producing increased volumes and more higher-margin products.
Despite the negative headlines coming out of Europe, our business there continued to
generate a steady EBITDA contribution for the 18th quarter in a row. So far this year, our
panel shipments are up 6% and we have achieved double digit sales growth in our core
UK and German markets. The long-term market fundamentals remain favourable for
OSB capacity expansion in Europe and we continue to develop our plans on this front.
I am excited about the two major capital projects we completed this quarter. First, we
invested a total of $30 million over the past 12 months in our Joanna, South Carolina mill
to completely redesign, rebuild and automate the wood handling section of the plant. We
tied in this new equipment in September and have already been able to run the mill at
25% above its stated capacity on a weekly basis. This was a unique opportunity to
debottleneck our big continuous press and will position us well to serve the growing midAtlantic region.
Second, we invested $8 million to rebuild and enhance the dryer and energy system in
our Cowie, Scotland particleboard mill. This will allow us to improve the plant’s
efficiency and replace natural gas with biomass in the drying process. This project was
completed in September and early results are also positive.
1
The US housing market – the largest driver of OSB demand – continues to recover,
though at a more gradual pace than industry experts had originally predicted. Housing
starts are expected to increase by about 8% this year to almost 1 million. Looking ahead
to 2015, housing economists forecast starts will continue to improve – by approximately
15% – supporting increased demand for our products. In the near term, however, we will
continue to manage our production schedule as needed to adjust to the typically slowerdemand winter period.
We are grateful for your ongoing support of Norbord. Our strategic initiatives put us in an
excellent position to take full advantage of the US housing recovery and growing demand
in our core European markets. Our customer partnerships are strong and we continue to
make inroads in our key markets. Our mills are running better each year. I remain
confident that Norbord’s financial performance will improve in the coming quarters and
years.
This letter includes forward-looking statements, as defined by applicable securities legislation including
statements related to our strategy, projects, plans, future financial or operating performance and other
statements that express management’s expectations or estimates of future performance. Often, but not
always, forward-looking statements can be identified by the use of words such as “expect,” “suggest,”
“support,” “believe,” “should,” “potential,” “likely,” “continue,” “forecast,” “plan,” “indicate,”
“consider,” “future,” or variations of such words and phrases or statements that certain actions “may,”
“could,” “must,” “would,” “might,” or “will” be undertaken, occur or be achieved. Forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of Norbord to be materially different from any future results,
performance or achievement expressed or implied by the forward-looking statements. See the cautionary
language in the Forward-Looking Statements section of the 2013 Management’s Discussion and Analysis
dated January 29, 2014 and Q3 2014 Management’s Discussion and Analysis dated October 27, 2014.
2
News Release
NORBORD REPORTS THIRD QUARTER 2014 RESULTS; DECLARES QUARTERLY
DIVIDEND
Note: Financial references in US dollars unless otherwise indicated .
Q3 2014 HIGHLIGHTS





EBITDA of $15 million
Earnings of $5 million or $0.09 per diluted share
North American shipments up 7% year-to-date; European shipments up 6%
Quarterly production records at four OSB mills
Declared quarterly dividend of CAD $0.60 per share
TORONTO, ON (October 28, 2014) – Norbord Inc. (TSX: NBD) today reported EBITDA of $15 million
in the third quarter of 2014 compared to $33 million in the second quarter of 2014 and $45 million in the
third quarter of 2013. North American operations generated EBITDA of $7 million in the quarter versus
$24 million in the prior quarter and $36 million in the same quarter last year. European operations
generated EBITDA of $11 million in the quarter versus $12 million in both the prior quarter and the same
quarter last year.
“In response to challenging North American OSB market conditions, we moved most of our annual
maintenance shuts forward to the third quarter and curtailed additional production at several mills,” said
Peter Wijnbergen, President and CEO. “Despite this downtime, our mills ran very well – producing at
stated capacity and holding onto manufacturing cost improvements achieved in the first half of the year.
We generated $12 million in Margin Improvement gains so far this year and our recent capital
investments are starting to pay back.”
“In the near term, I expect North American OSB pricing to continue to move sideways with the slower
demand we traditionally experience at the end of the year. However, I remain optimistic that our OSB
sales will improve next year as the US housing recovery continues to unfold.”
“Our European performance remains strong, with year-to-date shipments up 6% on demand growth in our
core UK, German and Benelux markets. While OSB prices have been under pressure this year, we did
not see any significant impact on our overall results in the third quarter. Our mills continue to perform
well and are producing above stated capacity, a trend I expect will continue into next year.”
Norbord recorded earnings of $5 million or $0.09 per share (basic and diluted) in the third quarter of 2014
compared to $11 million or $0.21 per share ($0.20 per diluted share) in the prior quarter and $27 million
or $0.51 per share ($0.50 per diluted share) in the third quarter of 2013. Reported earnings in the current
and comparative periods included the following one-time items:
3
$ millions
Earnings before one-time items
Non-recurring income tax recovery
Earnings, as reported
Q3
2014
$ 5
$ 5
Q2
2014
$ 11
$ 11
Q3
2013
$ 18
9
$ 27
9 mos
2014
$ 18
5
$ 23
9 mos
2013
$ 138
9
$ 147
Market Conditions
In North America, year-to-date US housing starts were 10% higher than the same period in 2013 and
permits were 6% higher. US single family housing starts, which are more important for the OSB
industry, were 4% better versus last year. The consensus forecast from US housing economists is
currently just below 1.0 million starts in 2014, which would still be an 8% improvement over last year.
The North Central benchmark OSB price continued to trade in a tight range in the third quarter, while the
South East benchmark OSB price trended lower. The North Central benchmark averaged $216 per
thousand square feet (Msf) (7⁄16-inch basis), compared to $219 per Msf in the previous quarter and $252
per Msf in the same quarter last year. In the South East region, where more than half of Norbord’s North
American capacity is located, benchmark prices averaged $177 per Msf, compared to $199 per Msf in the
prior quarter and $207 per Msf in the same quarter last year.
Norbord’s core European panel markets in the UK, Germany and Benelux (where over 90% of the
Company’s panels are shipped) remained strong in the third quarter. Particleboard prices were up and
MDF prices held firm. However, OSB prices are under pressure as eastern European supply is being
redirected toward the west due to the ongoing conflict in the Ukraine. As a result of the lower OSB
prices, third quarter average panel prices were 3% lower than both the prior quarter and the same quarter
last year.
Performance
In North America, Norbord’s OSB shipments were in line with both the prior quarter and the same quarter
last year and increased 7% year-to-date.
The North American OSB mills produced at approximately 80% of stated capacity (including the two
curtailed mills in Huguley, Alabama and Val-d’Or, Quebec), compared to 85% in the prior quarter and
80% in the same quarter last year. The decrease versus the prior quarter is due to the timing of annual
maintenance shuts and additional production curtailments taken during the quarter. Despite this, two of
the Company’s North American OSB mills achieved quarterly production records.
Norbord’s North American OSB cash production costs per unit (before mill profit share) increased by 3%
versus both the prior quarter and the same quarter last year due to the timing impact of annual
maintenance shuts and higher year-over-year raw material prices. Unit costs decreased by 1% year-todate. Excluding the impact of raw material price changes and annual maintenance shuts, unit costs were
flat quarter-over-quarter, decreased 3% year-over-year and decreased 4% year-to-date due to lower raw
material use and improved mill productivity.
Norbord continues to work on rebuilding the press line at the curtailed Huguley, Alabama mill to prepare
it for restart. The Company has not set a restart date and will do so only when it is sufficiently clear that
customers require more product. Norbord does not expect to restart its curtailed mill in Val-d’Or, Quebec
in 2014, but will continue to monitor market conditions.
4
In Europe, Norbord’s shipments increased 10% versus the prior quarter, 13% versus the same quarter last
year and 6% year-to-date. During the quarter, Norbord completed a dryer upgrade project at the Cowie,
Scotland particleboard mill. Despite the downtime associated with this project, the European mills
produced at approximately 100% of stated capacity in the quarter, compared to 105% in the prior quarter
and 95% in the same quarter last year. The Company’s two European OSB mills achieved quarterly
production records.
Norbord’s mills delivered Margin Improvement Program (MIP) gains of $12 million year-to-date from
improved productivity, lower raw material use and a richer value-added product mix, partially offset by
the timing impact of annual maintenance shuts.
Capital investments totaled $24 million in the quarter and $66 million year-to-date. The full year target is
now estimated at $75 million as the Company took the opportunity to complete several strategic projects
during the annual maintenance shuts conducted in the third quarter. Key projects this year include the
rebuild of the wood handling end at the Joanna, South Carolina mill, the dryer upgrade at the Cowie,
Scotland particleboard mill and the fines screening project at the Cordele, Georgia mill. Also included is
approximately $10 million for preliminary work to rebuild the press line at the mothballed Huguley,
Alabama mill. Further investment to prepare this mill for restart has been deferred to 2015.
Operating working capital was $76 million compared to $96 million in the prior quarter and $66 million
in the prior year. Working capital decreased quarter-over-quarter, reflecting lower finished goods
inventory in Europe that was built up during the prior quarter in anticipation of the dryer project shut at
the Cowie, Scotland particleboard mill. The year-over-year increase was due to higher operating and
maintenance supplies inventory as a result of significant capital projects and the ramping up of the
Jefferson, Texas mill.
At quarter-end, Norbord had unutilized liquidity of $396 million, consisting of $54 million in cash and
$342 million in unused credit lines. The Company’s tangible net worth was $429 million and net debt to
total capitalization on a book basis was 48%. Both ratios remain well within bank covenants.
Dividend
The Board of Directors declared a quarterly dividend of CAD $0.60 per common share, payable on
December 21, 2014 to shareholders of record on December 1, 2014.
Additional Information
Norbord’s Q3 2014 letter to shareholders, news release, management’s discussion and analysis,
consolidated unaudited interim financial statements and notes to the financial statements have been filed
on SEDAR (www.sedar.com) and are available in the investor section of the Company’s website at
www.norbord.com. Shareholders are encouraged to read this material.
Conference Call
Norbord will hold a conference call for analysts and institutional investors on Tuesday, October 28, 2014
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 will be accessible until November 28, 2014 by dialing 1-888-203-1112 or 647-436-0148. The
passcode is 2306232. Audio playback and a written transcript will be available on the Norbord website.
5
An accompanying presentation will be available in the “Investors/Conference Call” section of
www.norbord.com prior to the start of the call.
Norbord Profile
Norbord Inc. is an international producer of wood-based panels with assets of more than $1 billion,
employing approximately 1,950 people at 13 plant locations in the United States, Europe and Canada.
Norbord is one of the world’s largest producers of oriented strand board (OSB). In addition to OSB,
Norbord manufactures particleboard, medium density fibreboard (MDF) and related value-added
products. Norbord is a publicly traded company listed on the Toronto Stock Exchange under the symbol
NBD.
-endContact:
Heather Colpitts
Manager, Corporate Affairs
Tel. (416) 365-0705
info@norbord.com
This news release contains forward-looking statements, as defined in applicable legislation, including statements related to our strategy,
projects, plans, future financial or operating performance and other statements that express management’s expectations or estimates of future
performance. Often, but not always, words such as “expect,” “believe,” “forecast,” “likely,” “support,” “target,” “consider,” “continue,”
“suggest,” “intend,” “should,” “appear,” “would,” “will,” “will not,” “plan,” “can,” “may,” and other expressions which are predictions of
or indicate future events, trends or prospects and which do not relate to historical matters identify forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of
Norbord to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
Although Norbord believes it has a reasonable basis for making these forward-looking statements, readers are cautioned not to place undue
reliance on such forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and
uncertainties, both general and specific, which contribute to the possibility that the predictions, forecasts and other forward-looking statements
will not occur. Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements
include: general economic conditions; risks inherent with product concentration; effects of competition and product pricing pressures; risks
inherent with customer dependence; effects of variations in the price and availability of manufacturing inputs; risks inherent with a capital
intensive industry; and other risks and factors described from time to time in filings with Canadian securities regulatory authorities.
Except as required by applicable laws, Norbord does not undertake to update any forward-looking statements, whether as a result of new
information, future events or otherwise, or to publicly update or revise the above list of factors affecting this information. See the “Caution
Regarding Forward-Looking Information” statement in the March 3, 2014 Annual Information Form and the cautionary statement contained in
the “Forward-Looking Statements” section of the 2013 Management’s Discussion and Analysis dated January 29, 2014 and Q3 2014
Management’s Discussion and Analysis dated October 27, 2014.
Norbord defines EBITDA as earnings before finance costs, income taxes, depreciation and non-recurring items. EBITDA is a non-International
Financial Reporting Standards (IFRS) financial measure, does not have any standardized meaning prescribed by IFRS and is therefore unlikely
to be comparable to similar measures presented by other companies. See “Non-IFRS Financial Measures” in Norbord’s 2013 Management
Discussion and Analysis dated January 29, 2014 and Q3 2014 Management’s Discussion and Analysis dated October 27, 2014 for a quantitative
reconciliation of EBITDA to earnings (the most directly comparable IFRS measure).
6
OCTOBER 27, 2014
Management’s Discussion and Analysis
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 unaudited interim financial statements as at and for the three and nine months ended September 27, 2014, which
follow this MD&A, and the audited annual financial statements for the year ended December 31, 2013 and the 2013
annual MD&A contained in the 2013 Annual Report. Financial data provided has been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board
(IASB). 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 statements contained in the Forward-Looking Statements section.
Earnings before finance costs, income taxes and depreciation (EBITDA), cash provided by operating activities per
share, operating working capital, total working capital, capital employed, return on capital employed (ROCE), return
on equity (ROE), net debt, tangible net worth, net debt to capitalization, book basis, and net debt to capitalization,
market basis, are non-IFRS financial measures described in the Non-IFRS Financial Measures section. Non-IFRS
financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies. Where appropriate, a quantitative reconciliation of the
non-IFRS financial measure to the most directly comparable IFRS measure is also provided.
BUSINESS OVERVIEW & STRATEGY
Norbord is an international producer of woodbased panels with 13 plant locations in the United
States, Europe and Canada. Norbord is one of the
world’s largest producers of oriented strand board
(OSB) with an annual capacity of 5.1 billion
square feet (Bsf) (3⁄8-inch basis). The core assets of
Norbord’s OSB business are located in the South
East region of the US. The Company is also a
significant producer of wood-based panels in the
United Kingdom. The geographical breakdown of
panel production capacity is approximately 73% in
North America and 27% in Europe. Norbord’s
business strategy is focused entirely on the wood
panels sector – in particular OSB – in North
America and Europe.
OSB Accounts for 85% of Norbord’s Business
Particleboard (EU),
9%
MDF (EU), 6%
OSB (EU), 12%
OSB (NA), 73%
Production Capacity by Product
NA = North America
EU = Europe
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
7
Norbord’s financial goal is to achieve top quartile ROE and ROCE among North American forest products companies.
As Norbord operates in a cyclical commodity business, Norbord interprets its financial goals over the cycle.
Protecting the balance sheet is an important element of Norbord’s financing strategy. Management believes that its
record of superior operational performance and prudent balance sheet management should enable it to access public
and private capital markets, subject to financial market conditions. At period-end, Norbord had unutilized liquidity of
$396 million, comprising $54 million in cash, $242 million in unutilized revolving bank lines and $100 million
undrawn under its accounts receivable securitization program.
SUMMARY
North American OSB demand continues to improve with US housing starts up 10% and single-family starts up 4%
year-to-date. However, industry supply from the six (re)started OSB mills continues to outstrip this growing demand.
As a result, North Central benchmark OSB prices averaged $216 per thousand square feet (Msf) (7⁄16-inch basis) in the
quarter, down slightly versus the second quarter, while the South East averaged $177 per Msf, down 11% versus the
second quarter. The $39 regional price spread between the North Central and South East benchmark OSB prices
reflects the ongoing ramp-up of recently restarted capacity and the uneven pace of the housing recovery in the South
East. Year-to-date, North Central benchmark OSB prices averaged $218 per Msf, down 36% over the prior year.
Against this challenging market backdrop, Norbord pulled forward the timing of some scheduled annual maintenance
shuts into the third quarter and curtailed additional production.
Norbord recorded EBITDA of $15 million in the third quarter, down $18 million compared to the prior quarter and
down $30 million compared to the same quarter last year. Despite the negative impact of the downtime and
maintenance work undertaken in the quarter, Norbord's operating mills continued to run well – producing at
approximately 100% of stated capacity and maintaining production cost gains achieved in the first half of the year. The
Company has generated significant Margin Improvement Program (MIP) gains as the paybacks from recent capital
investments ramp up. Norbord’s European panel business continues to provide steady results that are in line with both
comparative quarters.
Norbord recorded earnings of $5 million ($0.09 per basic share and diluted share) in the third quarter of 2014 compared
to $11 million ($0.21 per basic share; $0.20 per diluted share) in the prior quarter and $27 million ($0.51 per basic
share; $0.50 per diluted share) in the third quarter of 2013. Earnings decreased both year-over-year and quarter-overquarter due to lower North American OSB prices and the timing of scheduled annual maintenance shuts. Earnings in
the third quarter of 2014 include a $5 million ($0.09 per basic and diluted share) non-recurring income tax recovery.
Earnings in the third quarter of 2013 include a $9 million ($0.17 per basic and diluted share) non-recurring income tax
recovery. Year-to-date, Norbord recorded earnings of $23 million ($0.43 per basic and diluted share) compared to
earnings of $147 million ($2.93 per basic share; $2.76 per diluted share) in the prior year. The year-to-date earnings
decrease is primarily driven by lower North American OSB prices.
Housing market activity, particularly in the US, influences OSB demand and pricing. With over 70% of the Company’s
panel capacity located in North America, fluctuations in North American OSB demand and prices significantly affect
Norbord’s results. Year-to-date, approximately 50% of Norbord’s OSB sales volume went into the new home
construction sector. The remainder went into repair and remodelling, light commercial construction and industrial
applications. Management believes this distribution channel diversity provides opportunities to maximize profitability
while limiting the Company’s relative exposure to the new home construction segment during periods of soft housing
activity. As the US housing market recovery progresses, Norbord's shipment volume to the new home construction
sector will continue to grow.
On the cost side, fluctuations in raw material input prices significantly impact operating costs. Resin, fibre and energy
account for approximately 65% of Norbord's OSB cash production costs. The prices for these global commodities are
determined by economic and market conditions. In the first three quarters of 2014, raw material input prices were
higher than the same period last year. Management expects some relief on resin prices in the fourth quarter as oil prices
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
8
have declined more than 20% in the third quarter. Norbord will continue to pursue aggressive MIP initiatives to reduce
raw material usages and improve productivity to offset potentially higher uncontrollable costs.
The long-term fundamentals that support North American housing and OSB demand such as new household formations
and immigration are predicted to be strong. Norbord’s European operations are exposed to different market dynamics
relative to the North American operations and this has provided meaningful market and geographic diversification for
the Company. Combined with Norbord’s strong financial liquidity and solid customer partnerships, the Company is
well positioned to benefit from the continuing recovery in housing markets.
RESULTS OF OPERATIONS
(US $ millions, except per share information, unless otherwise noted)
Return on capital employed (ROCE)
Return on equity (ROE)
Earnings
Per Common Share
Basic earnings
Diluted earnings
Dividends paid
Sales
EBITDA
Depreciation
Investment in property, plant and equipment
Q3
2014
Q2
2014
Q3
2013
9 mos
2014
9 mos
2013
7%
5%
5
15%
10%
11
21%
21%
27
12%
7%
23
42%
45%
147
0.09
0.09
0.56
302
15
15
24
0.21
0.20
0.54
311
33
15
27
0.51
0.50
0.56
311
45
14
15
0.43
0.43
1.65
916
75
43
66
2.93
2.76
1.15
1,041
258
42
45
893
435
906
395
886
386
2,616
1,264
2,452
1,192
216
177
258
219
199
269
252
207
278
218
190
267
339
306
272
Shipments (MMsf–3⁄8")
North America
Europe
Indicative Average OSB Price
North Central ($/Msf–7⁄16")
South East ($/Msf–7⁄16")
Europe (€/m3)1
1 European indicative average OSB price represents the gross delivered price to the largest Continental market.
Total sales in the third quarter of 2014 were $302 million, compared to $311 million in both the second quarter of 2014
and the third quarter of 2013. Quarter-over-quarter, sales decreased by $9 million or 3%. In North America, sales
decreased by 8% due to both lower pricing (mainly in the South) and lower shipment volumes. In Europe, sales
increased by 4% due to higher panel shipment volumes.
Year-over-year, sales decreased by $9 million or 3% and year-to-date, sales decreased by $125 million or 12%. In
North America, sales decreased by 14% year-over-year and 25% year-to-date due to significantly lower OSB prices
that were partially offset by higher shipment volumes. In Europe, sales increased by 16% year-over-year and 14% yearto-date due to higher shipment volumes and the foreign exchange translation impact of a stronger Pound Sterling
relative to the US dollar.
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
9
Markets
North America is the principal market destination for
Norbord’s products. North American OSB comprised
67% of Norbord’s panel shipments by volume year-todate. Therefore, results of operations are most affected
by volatility in North American OSB prices and
demand. Europe comprised 33% of total shipments by
volume year-to-date. European panel prices are less
volatile than North American prices and therefore,
affect Norbord’s results to a lesser degree.
Norbord Focused on North American OSB Market
Panel Shipments
(YTD Volume by Market)
European
Panels
33%
North
American
OSB
67%
In North America, year-to-date US housing starts were 10% higher than the same period in 2013 and permits were 6%
higher. US single family housing starts, which are more important for the OSB industry, were only 4% better versus
last year. The consensus forecast from US housing economists currently stands at just below 1.0 million starts in 2014,
which would still be an 8% improvement over last year. Despite the significant rebound in housing starts since 2009,
total starts remain well below the long-term average of 1.5 million.
The North Central benchmark OSB price continued to trade in a tight range in the third quarter, while the South East
benchmark OSB price trended lower. The North Central benchmark OSB price averaged $216 per Msf for the quarter,
compared to $219 per Msf in the previous quarter and $252 per Msf in the same quarter last year. In the South East
region, where approximately 55% of Norbord’s North American capacity is located, prices averaged $177 per Msf in
the third quarter, compared to $199 per Msf in the prior quarter and $207 per Msf during the same quarter last year.
Approximately half of Norbord’s third quarter OSB sales volume went into the new home construction sector, while
the other half went into repair and remodelling, light commercial construction and industrial applications. Management
believes that this distribution channel diversity provides opportunities to maximize profitability while limiting the
Company’s relative exposure to the new home construction segment during periods of soft housing activity.
Management expects the Company’s sales volume to the new home construction sector will continue to grow as US
housing recovers to more normal levels.
Norbord’s core European panel markets in the UK, Germany and Benelux (over 90% of Norbord’s shipments)
remained strong in the third quarter. Year-over-year, particleboard prices increased by 8% and MDF prices were
unchanged. Versus the prior quarter, particleboard and MDF prices both held firm. However, OSB prices decreased by
11% year-over-year and 5% quarter-over-quarter as eastern European supply was redirected toward the west due to the
ongoing conflict in the Ukraine. As a result, third quarter average panel prices were 3% lower than both the prior
quarter and the same quarter last year.
Historically, the UK has been a net importer of panel products. For the past several years, the Pound Sterling has traded
in a range relative to the Euro that has been advantageous to Norbord’s primarily UK-based operations as it has
improved sales opportunities within the UK, slowed the flow of Continental European imports and supported
Norbord’s export program into the Continent. The Pound Sterling traded between 1.25 and 1.28 against the Euro in the
third quarter, a range that continued to benefit Norbord.
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
10
Operating Results
Q2
2014
Q3
2014
EBITDA (US $ millions)
North America
Europe
Unallocated
Total
$
$
7
11
(3)
15
$
24
12
(3)
33
$
Q3
2013
$
$
9 mos
2013
9 mos
2014
36 $
12
(3)
45 $
$ 234
34
(10)
$ 258
48
36
(9)
75
Norbord generated EBITDA of $15 million in the third quarter of 2014 compared to $33 million in the second quarter
of 2014 and $45 million in the third quarter of 2013. Year-to-date, the Company generated EBITDA of $75 million
compared to $258 million in the prior year. Lower North American OSB prices were the primary driver of the lower
EBITDA versus all comparative periods. In addition, the Company pulled forward the timing of some scheduled annual
maintenance shuts into the third quarter of 2014 which drove higher maintenance costs.
Major components of the change in EBITDA versus comparative periods are summarized in the variance table below:
Q3 2014
vs.
Q2 2014
(US $ millions)
EBITDA – current period
EBITDA – comparative period
Variance
$
$
1
15
33
(18)
Q3 2014
vs.
Q3 2013
$
$
15
45
(30)
9 mos 2014
vs.
9 mos 2013
$
$
75
258
(183)
Mill nets
(16)
(29)
(200)
Volume2
(2)
1
15
3
2
(1)
(8)
3
2
4
6
2
2
10
Key input prices
Key input usage
Mill profit share and bonus
Maintenance and other
Total
4
$
(6)
(18)
$
(7)
(30)
$
(6)
(183)
1 The mill nets variance represents the change in realized pricing across all products. Mill nets are calculated as sales (net of outbound freight costs) divided by shipment
volume.
2 The volume variance represents the impact of shipment volume changes across all products.
3 The key inputs include fibre, resin, wax and energy.
4 The maintenance and other category covers all remaining variances including labour and benefits, and the impact of foreign exchange.
North America
North American operations generated EBITDA of $7 million in the third quarter of 2014 versus $24 million in the
second quarter of 2014 and $36 million in the third quarter of 2013. Quarter-over-quarter, EBITDA decreased by
$17 million which was primarily driven by lower OSB prices and the timing of scheduled annual maintenance shuts,
partially offset by higher shipment volume and lower resin usages and prices. Average North Central OSB benchmark
prices remained stable, while average South East OSB benchmark prices were down 11% or $22 per Msf versus the
prior quarter. Year-over-year, EBITDA decreased by $29 million and year-to-date EBITDA decreased by $186 million.
The decrease versus both comparative periods was primarily due to significantly lower OSB prices, as well as higher
fibre and resin prices and higher maintenance shut costs. The benefit of higher shipment volumes, lower resin and wax
usages and lower mill profit share attributed to the lower results provided a partial offset. Year-over-year, average
North Central OSB benchmark prices decreased by 14% or $36 per Msf versus the same quarter last year while average
South East OSB benchmark prices were down 14% or $30 per Msf. Year-to-date, average North Central OSB
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
11
benchmark prices decreased by 36% or $121 per Msf while average South East OSB benchmark prices were down
38% or $116 per Msf.
Quarter-over-quarter and year-over-year, Norbord’s North American OSB cash production costs per unit (excluding
mill profit share) increased by 3% driven by the timing of scheduled annual maintenance shuts. Year-over-year, raw
material prices were higher, while they decreased quarter-over-quarter as Benzene prices (which is a key resin
feedstock) trended down from record highs. Year-to-date, unit costs decreased by 1% driven by lower raw material
usages and higher production volume which more than offset higher raw material prices and the timing of scheduled
annual maintenance shuts. Excluding the impact of raw material price changes and maintenance shuts, unit costs were
flat quarter-over-quarter, decreased 3% year-over-year and decreased 4% year-to-date due to improved productivity
and lower raw material usages.
Norbord’s North American OSB mills produced at approximately 80% of stated capacity in the third quarter of 2014
compared to approximately 85% in the second quarter of 2014 and 80% in the third quarter of 2013. The decrease
versus prior quarter is due to the timing of scheduled annual maintenance shuts and additional production curtailments.
Despite this, two of the Company’s OSB mills achieved quarterly production records.
Excluding the indefinitely curtailed mills (Huguley, Alabama and Val-d’Or, Quebec), Norbord's operating mills
produced at approximately 100% of stated capacity in the third quarter of 2014 compared to 100% in both the second
quarter of 2014 and the third quarter of 2013. Year-over-year, operating mill capacity utilization remained flat as the
impact of maintenance shuts during the quarter was offset by the inclusion of the Jefferson, Texas mill's capacity which
was still ramping up in the third quarter of 2013.
Production has remained indefinitely suspended at the Huguley, Alabama mill since the first quarter of 2009, and at the
Val-d'Or, Quebec mill since the third quarter of 2012. Norbord does not currently expect to restart its curtailed mill in
Val-d'Or, Quebec in 2014, but will continue to monitor market conditions. As previously announced, Norbord has
begun rebuilding the press line at the curtailed Huguley, Alabama mill to prepare it for restart. The Company has not
set a restart date and will only do so when it is sufficiently clear that customers require more product. These two mills
represent 19% of Norbord's capacity in North America.
Europe
European operations generated EBITDA of $11 million in the third quarter of 2014 versus $12 million in both the
second quarter of 2014 and third quarter of 2013. Year-to-date, European operations generated EBITDA of $36 million
in 2014 versus $34 million in 2013. Quarter-over-quarter, the slight decrease in EBITDA was due to lower average
panel prices, partially offset by lower raw material prices and usages. Year-over-year and year-to-date, higher average
MDF and particleboard prices, higher shipment volumes, and the foreign exchange translation impact of a stronger
Pound Sterling offset the impact of lower OSB prices, and higher labour and supplies and maintenance costs associated
with additional down days taken relative to the comparative periods.
In the quarter, Norbord completed a dryer upgrade at the Cowie, Scotland particleboard mill. Notwithstanding the
downtime associated with this project, Norbord’s European mills produced at approximately 100% of stated capacity in
the third quarter of 2014 compared to approximately 105% in the second quarter of 2014 and approximately 95% in the
third quarter of 2013. The Company's two OSB mills achieved quarterly production records.
Margin Improvement Program (MIP)
Margin improvement represents the Company’s single most important operating focus. The prices of resin, fibre and
energy, which account for approximately 65% of Norbord’s OSB cash production costs, are determined by economic
and market conditions and are, to a large degree, uncontrollable. These costs have risen through most of the past
decade, particularly in 2013 as the broader economic recovery gained traction. The Company realized MIP gains of
$12 million year-to-date. These gains, measured relative to 2013 at constant prices and exchange rates, limited the
impact that higher raw material prices had on year-to-date earnings. Contributions to MIP included improved
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
12
productivity, lower raw material usages, and a richer value-added product mix offset partially by the timing of
scheduled annual maintenance shuts.
FINANCE COSTS, DEPRECIATION AND INCOME TAX
Finance costs
Depreciation
Income tax (recovery) expense
Q2
2014
Q3
2014
(US $ millions)
$
8
15
(13)
$
Q3
2013
7
15
-
$
9 mos
2013
9 mos
2014
9
14
(5)
$
$
23
43
(14)
27
42
42
Depreciation
The Company uses the units-of-production depreciation method for its production equipment. The fluctuation in
quarterly depreciation expense reflects relative changes in production levels by mill.
Income Tax
An income tax recovery of $13 was recorded on the pre-tax loss of $8 million in the third quarter of 2014. Year-to-date,
an income tax recovery of $14 million was recorded on pre-tax income of $9 million. The effective tax rate differs from
the statutory rate principally due to rate differences on foreign activities and fluctuations in relative currency values.
Included in the third quarter of 2014 is a $5 million ($0.09 per basic and diluted share) non-recurring income tax
recovery which is comprised of: (i) the recognition and utilization of certain tax attributes that offset taxes previously
expensed; and (ii) the recognition of a previously unrecognized deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
Q3
2014
(US $ millions, except per share information, unless otherwise noted)
Cash provided by operating activities
Cash provided by operating activities per share
Operating working capital
Total working capital
Investment in property, plant and equipment
Net debt to capitalization, market basis
Net debt to capitalization, book basis
$
22 $
0.41
76
138
24
22%
48%
Q2
2014
Q3
2013
20 $
0.37
96
191
27
19%
44%
63
1.18
66
314
15
12%
28%
$
9 mos
2014
9 mos
2013
16 $
0.30
209
4.16
45
66
At period-end, Norbord had unutilized liquidity of $396 million, comprising $54 million in cash, $242 million in
unutilized revolving bank lines and $100 million undrawn under the accounts receivable securitization program.
Senior Secured Notes Due 2017
The Company’s senior secured notes due 2017 bear an interest rate that varies with the Company’s credit ratings,
which are currently Ba2, and, accordingly, the interest rate on the notes is 7.70%.
At October 27, 2014, Norbord’s long-term debt and issuer ratings were:
Secured Notes
Issuer
Outlook
DBRS
Standard & Poor’s
Ratings Services
Moody’s
Investors Service
BB
BB-
Ba2
BB
Stable
BBPositive
Ba2
Stable
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
13
Senior Secured Notes Due 2020
In November 2013, the Company issued $240 million in senior secured notes due 2020 with an interest rate of
5.375%. The notes rank pari passu with the Company’s existing senior secured notes due in 2017 and committed
revolving bank lines. The Company used the proceeds to early redeem the existing $165 million 6.25% senior secured
notes due 2015 and $75 million 6.25% senior unsecured notes due 2015.
Revolving Bank Lines
In December 2013, the Company renewed its committed revolving bank lines, extending the maturity by one year. All
other material terms of the bank lines remain unchanged. The Company has a total aggregate commitment of
$245 million which matures in May 2016 and bears interest at money market rates plus a margin that varies with the
Company’s credit rating. The bank lines are secured by a first lien on the Company’s North American OSB inventory
and property, plant and equipment. This lien is shared pari passu with holders of the 2017 and 2020 senior secured
notes.
The bank lines contain two quarterly financial covenants: minimum tangible net worth of $250 million and maximum
net debt to total capitalization, book basis, of 65%. The IFRS transitional adjustments to shareholders’ equity of
$21 million at January 1, 2011 are added back for the purposes of the tangible net worth calculation. In addition, other
comprehensive income movement subsequent to January 1, 2011 is excluded from the tangible net worth calculation.
Net debt includes total debt, principal value, less cash and cash equivalents plus letters of credit issued. At period-end,
the Company’s tangible net worth was $429 million for financial covenant purposes. Net debt to total capitalization,
book basis, was 48%.
Accounts Receivable Securitization
The Company has a $100 million accounts receivable securitization program with a third-party trust sponsored by a
highly rated Canadian financial institution. The program is revolving and has an evergreen commitment subject to
termination on 12 months’ notice. Under the program, Norbord has transferred substantially all of its present and
future trade accounts receivable to the trust, on a fully serviced basis, for proceeds consisting of cash and deferred
purchase price. However, the asset derecognition criteria under IFRS have not been met and the transferred accounts
receivable remain recorded as an asset.
At period-end, Norbord had transferred but continued to recognize $121 million in accounts receivable but did not
have any drawings relating to this financing program. The level of accounts receivable transferred under the program
fluctuates with the level of shipment volumes, product prices and foreign exchange rates. The amount of drawings
under the program at any point in time depends on the level of accounts receivable transferred, timing of cash
settlements and fluctuates with the Company’s cash requirements. Any drawings are presented as other long-term debt
on the balance sheet and are excluded from the net debt to capitalization calculation for financial covenant purposes.
The securitization program contains no financial covenants. However, the program is subject to minimum credit-rating
requirements. The Company must maintain a long-term issuer credit rating of at least single B(mid) or the equivalent.
Other Liquidity and Capital Resources
Operating working capital, consisting of accounts receivable and inventory less accounts payable and accrued
liabilities, was $76 million at period-end, compared to $96 million in the prior quarter and $66 million in the prior year.
The Company aims to continuously minimize the amount of capital held as operating working capital and takes actions
to manage it at minimal levels.
Quarter-over-quarter, operating working capital decreased by $20 million primarily due to lower finished goods
inventory in Europe that was built up in the prior quarter in anticipation of the shutdown taken to complete the dryer
project at the Cowie, Scotland particleboard mill and higher accrued capital expenditures from the completed project.
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
14
Year-over-year, operating working capital increased by $10 million primarily due to higher operating and maintenance
supplies inventory as a result of significant capital projects and the ramping up of the Jefferson, Texas mill, and lower
accounts payable driven by reduced incentive accruals in North America. These were partially offset by higher accrued
capital expenditures from the completed dryer project at the Cowie, Scotland particleboard mill.
Total working capital, which includes operating working capital plus cash and cash equivalents and tax receivable, was
$138 million at period-end compared to $191 million in the prior quarter and $314 million in the prior year. Quarterover-quarter, the decrease is attributed to lower cash and cash equivalents and the decrease in operating working
capital. Year-over-year, the decrease is primarily attributed to lower cash and cash equivalents at the end of the third
quarter of 2014.
Operating activities generated $22 million in cash ($0.41 per share) in the third quarter of 2014 compared to
$20 million ($0.37 per share) in the prior quarter and $63 million ($1.18 per share) in the third quarter of 2013. Yearto-date, operating activities generated $16 million ($0.30 per share) compared to $209 million ($4.16 per share) in the
prior year. Operating cash generation was in line quarter-over-quarter as the decline in operating working capital and
collection of taxes receivable were mostly offset by lower EBITDA. The lower operating cash generation versus the
prior year is primarily the result of lower EBITDA in the current year and the increase in operating working capital.
INVESTMENTS
Investment in Property, Plant and Equipment
Investment in property, plant and equipment was $24 million (which includes $1 million of capitalized interest costs) in
the third quarter of 2014. This compares to $27 million in the second quarter of 2014 and $15 million in the third
quarter of 2013. Year-to-date, investment in property, plant and equipment was $66 million (which includes $1 million
of capitalized interest costs), compared to $45 million in 2013.
Norbord’s 2014 investment in property, plant and equipment is estimated to be approximately $75 million as the
Company took the opportunity to complete several strategic projects during the scheduled annual maintenance shuts
pulled forward into the third quarter. Key 2014 projects include the rebuild of the wood handling end at the Joanna,
South Carolina mill, the dryer upgrade at the Cowie, Scotland particleboard mill and the fines screening project at the
Cordele, Georgia mill. Also included is approximately $10 million for preliminary work to rebuild the press line at the
mothballed Huguley, Alabama mill. Further spending to prepare this mill for restart has been deferred to 2015.
CAPITALIZATION
At October 27, 2014, there were 53.4 million common shares outstanding. In addition, 1.6 million stock options were
outstanding, of which approximately 48% were vested.
In March 2014, Norbord renewed its normal course issuer bid in accordance with Toronto Stock Exchange (TSX) rules.
Under the bid, the Company may purchase up to 2,670,496 of its common shares, representing 5% of the Company's
issued and outstanding common shares of 53,409,926 as of February 24, 2014. Purchases under the bid will terminate
on the earlier of March 5, 2015, the date Norbord completes its purchases pursuant to the notice of intention to make a
normal course issuer bid filed with the TSX, or the date Norbord provides notice of termination of the bid. No share
purchases were made under this bid or the Company’s previous bid that expired on February 4, 2014.
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
15
Dividends
On April 29, 2013, the Company's Board of Directors approved a new variable dividend policy which targets the payout to shareholders of a portion of expected future free cash flow over the cycle. In 2014, the Board of Directors
declared quarterly dividends of CAD $0.60 per common share, which were paid on March 21, 2014, June 21, 2014 and
September 21, 2014.
The amount of future dividends under the Company's dividend policy, and the declaration and payment thereof, will be
based upon the Company's financial position, results of operations, cash flow, capital requirements and restrictions
under the Company's existing revolving bank lines and senior notes, as well as broader market and economic
conditions, among other factors, and shall be in compliance with applicable law. The Board of Directors retains the
power to modify, suspend or cancel the Company's dividend policy in any manner and at any time as it may deem
necessary or appropriate in the future. For these reasons, as well as others, there can be no assurance that dividends in
the future will be equal or similar to the amount described above or that the Board of Directors will not decide to
suspend or discontinue the payment of cash dividends in the future.
FINANCIAL INSTRUMENTS
The Company utilizes various derivative financial instruments to manage risk and make better use of capital. The fair
values of these instruments are reflected on the Company’s balance sheet and are disclosed in note 11 to the condensed
consolidated interim financial statements.
TRANSACTIONS WITH RELATED PARTIES
In the normal course of operations, the Company enters into various transactions on market terms with related parties
which have been measured at exchange value and are recognized in the condensed consolidated interim financial
statements. The following transactions have occurred between the Company and Brookfield during the normal course
of business.
Other
The Company provides certain administrative services to Brookfield which are charged on a cost recovery basis. In
addition, the Company periodically purchases goods from or engages the services of Brookfield for various financial,
real estate and other business advisory services. In 2014, the fees for services rendered and cost of goods purchased
were less than $1 million.
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
16
SELECTED QUARTERLY INFORMATION
(US $ millions, except per share information,
unless otherwise noted)
KEY PERFORMANCE METRICS
Return on capital employed (ROCE)
Return on equity (ROE)
Cash provided by (used for) operating activities
Cash provided by (used for) operating activities
per share
SALES AND EARNINGS
Sales
EBITDA
Earnings
PER COMMON SHARE EARNINGS
Basic earnings
Diluted earnings
Dividends paid
KEY STATISTICS
Shipments (MMsf–3⁄8")
North America
Europe
Indicative Average OSB Price
North Central ($/Msf–7⁄16")
South East ($/Msf–7⁄16")
Europe (€/m3)1
Q3
Q2
2014
Q1
Q4
Q3
Q2
2013
Q1
20122
Q4
7%
5%
22
15%
10%
20
13%
6%
(26)
13%
2%
35
21%
21%
63
48%
46%
101
55%
60%
45
33%
42%
86
0.41
0.37 (0.49)
0.68
1.18
1.91
1.01
1.98
302
15
5
311
33
11
303
27
7
302
29
2
311
45
27
365
102
53
365
111
67
322
70
38
0.09
0.09
0.56
0.21
0.20
0.54
0.13
0.13
0.54
0.04
0.04
0.56
0.51
0.50
0.56
1.00
0.99
0.59
1.51
1.26
-
0.86
0.76
-
893
435
906
395
817
434
887
375
886
386
810
406
756
400
779
380
216
177
258
219
199
269
219
193
273
245
192
276
252
207
278
347
313
273
417
396
265
332
296
259
1 European indicative average OSB price represents the gross delivered price to the largest Continental market.
2 2012 figures have been restated for the adoption of the amendments to IAS 19.
Quarterly results are impacted by seasonal factors such as weather and building activity. Market demand varies
seasonally, as homebuilding activity and repair and renovation work – the principal end uses of 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.
Operating working capital is typically built up in the first quarter of the year due primarily to log inventory purchases
in the Northern regions of North America and the payment of mill profit share and bonuses across the Company. Logs
are generally consumed in the spring and summer months. The price of and demand for OSB in North America are
significant variables affecting the comparability of Norbord’s results over the past eight quarters. Fluctuations in
earnings during that time mirror fluctuations in the price of and demand for OSB in North America. The Company
estimates that the annualized impact on EBITDA of a $10 per Msf (7⁄16-inch basis) change in the North American OSB
price, when operations are running at full capacity, is approximately $36 million or $0.67 per basic share (pre-tax).
Regional pricing variations, particularly in the Southern US, make the North Central benchmark price a useful, albeit
imperfect, proxy for overall North American OSB pricing. Similarly in Europe, regional pricing variations and product
mix make the European OSB indicative price a useful, albeit imperfect, proxy for overall European OSB pricing.
Further, competition 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 benchmarks for both North America and
Europe.
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
17
Global commodity prices affect the prices of key raw material input costs, primarily fibre, resin, wax and energy. In
2012, input prices increased compared to the prior year and this price escalation intensified in 2013. In 2014, this
upward pressure on input costs has started to level off.
Norbord has relatively low exposure to the Canadian dollar due to a comparatively small manufacturing base in
Canada, which comprises 12% of its panel production capacity. The Company estimates that the unfavourable impact
of a one-cent (US) increase in the value of the Canadian dollar would negatively impact annual EBITDA by
approximately $1 million when both of Norbord’s Canadian OSB mills operate at capacity.
Items not related to ongoing business operations that had a significant impact on quarterly results include:
Costs on Early Debt Extinguishment − Included in the fourth quarter of 2013 is a $17 million ($0.32 per basic and
diluted share) premium (pre-tax) paid on the early extinguishment of the Company's outstanding $240 million 6.25%
senior notes due in 2015 and a related $3 million ($0.06 per basic and diluted share) write-off of unamortized debt
issue costs.
Income Taxes − Included in the third quarter of 2014 is a $5 million ($0.09 per basic and diluted share) non-recurring
income tax recovery comprised of: (i) the recognition and utilization of certain tax attributes that offset taxes
previously expensed; and (ii) the recognition of a previously unrecognized deferred tax asset. Included in the fourth
quarter of 2013 is a $9 million ($0.17 per basic and diluted share) income tax recovery related to the recognition of a
non-recurring deferred tax asset. Included in the third quarter of 2013 is a $9 million ($0.17 per basic and diluted
share) non-recurring income tax recovery as a result of the recognition and utilization of certain tax attributes that
offset taxes previously expensed as well as a reduction in substantively enacted tax rates in the UK.
CHANGES IN ACCOUNTING STANDARDS
(i)
Levies
On May 20, 2013, the IASB issued International Financial Reporting Interpretations Committee 21, Levies (IFRIC 21)
which provides guidance on when to recognize a liability to pay a levy imposed by government that is accounted for in
accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. IFRIC 21 became effective for the
Company on January 1, 2014 and did not have any impact on its interim financial statements.
FUTURE CHANGES IN ACCOUNTING STANDARDS
(i)
Revenues
In May 2014, the IASB issued International Financial Reporting Standard 15, Revenues from Contracts with Customers
(IFRS 15) which replaces the existing revenue recognition guidance with a new framework to determine the timing of
revenue recognition and the measurement of revenue. IFRS 15 is effective for the year ending December 31, 2017. The
Company is currently assessing the impact of IFRS 15 on its financial statements.
(ii)
Financial Instruments
In July 2014, the IASB published the complete version of International Financial Reporting Standard 9, Financial
Instruments (IFRS 9) which replaces most of the guidance in IAS 39 and includes amended guidance for the
classification and measurement of financial assets by introducing a fair value through other comprehensive income
category for certain debt instruments. It also contains a new impairment model which will result in earlier recognition
of losses. IFRS 9 is effective for the year ending December 31, 2018. The Company is currently assessing the impact of
IFRS 9 on its financial statements.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
There were no changes in the Company’s internal controls over financial reporting during the three months ended
September 27, 2014 that have materially affected, or are reasonably likely to materially affect, its internal controls over
financial reporting.
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
18
NON-IFRS FINANCIAL MEASURES
The following non-IFRS financial measures have been used in this MD&A. Non-IFRS financial measures do not have
any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures
presented by other companies. Each non-IFRS financial measure is defined below. Where appropriate, a quantitative
reconciliation of the non-IFRS financial measure to the most directly comparable IFRS measure is provided.
EBITDA is earnings determined in accordance with IFRS before finance costs, income taxes and depreciation. 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 indicators of relative operating performance.
The following table reconciles EBITDA to the most directly comparable IFRS measure:
Earnings
Add: Finance costs
Add: Depreciation
Add: Income tax (recovery) expense
EBITDA
Q2
2014
Q3
2014
(US $ millions)
$
$
5
8
15
(13)
15
$
$
11
7
15
33
Q3
2013
$
$
9 mos
2013
9 mos
2014
27
9
14
(5)
45
$
$
$
23
23
43
(14)
75
147
27
42
42
258
$
Cash provided by operating activities per share is cash provided by operating activities divided by the basic
weighted average number of common shares outstanding during the period.
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, accounts payable and
accrued liabilities 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.
(US $ millions)
Accounts receivable
Inventory
Accounts payable and accrued liabilities
Operating working capital
Sep 27, 2014
$
$
143
116
(183)
76
Jun 28, 2014
$
$
Dec 31, 2013
146 $
131
(181)
96 $
130
120
(206)
44
Sep 28, 2013
$
$
140
111
(185)
66
Total working capital is operating working capital plus cash and cash equivalents and tax receivable less bank
advances, if any.
(US $ millions)
Operating working capital
Cash and cash equivalents
Tax receivable
Total working capital
Sep 27, 2014
$
$
76
54
8
138
Jun 28, 2014
$
$
96
83
12
191
Dec 31, 2013
$
$
44
193
11
248
Sep 28, 2013
$
$
66
239
9
314
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
19
Capital employed is the sum of property, plant and equipment, operating working capital, tax receivable and other
assets less any unrealized balance sheet losses included in other liabilities. Capital employed is a measure of the total
investment in a business in terms of property, plant and equipment, operating working capital, tax receivable and other
assets.
(US $ millions)
Property, plant and equipment
Accounts receivable
Tax receivable
Inventory
Accounts payable and accrued liabilities
Other assets
Capital employed
Sep 27, 2014
$
$
Jun 28, 2014
812 $
143
8
116
(183)
896 $
809 $
146
12
131
(181)
917 $
Dec 31, 2013
Sep 28, 2013
794 $
130
11
120
(206)
849 $
766
140
9
111
(185)
1
842
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, it 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 equity) is earnings divided by common shareholders’ equity. ROE is a measure that allows common
shareholders to determine how effectively their invested capital is being employed. As Norbord operates in a cyclical
commodity business, it looks at ROE over the cycle and targets top-quartile performance among North American
forest products companies.
Net debt is the principal value of long-term debt, including the current portion and bank advances, if any, less cash and
cash equivalents. Net debt is a useful indicator of a company’s debt position. Net debt comprises:
(US $ millions)
Long-term debt, principal value
Less: Cash and cash equivalents
Net debt
Add: Letters of credit
Net debt for financial covenant purposes
Sep 27, 2014
$
$
440
(54)
386
3
389
Jun 28, 2014
$
$
440 $
(83)
357
3
360 $
Dec 31, 2013
Sep 28, 2013
440 $
(193)
247
4
251 $
440
(239)
201
4
205
Tangible net worth consists of shareholders’ equity. A minimum tangible net worth is one of two financial covenants
contained in the Company’s committed bank lines. For financial covenant purposes, effective January 1, 2011, tangible
net worth excludes all IFRS transitional adjustments and all movement in cumulative other comprehensive income
subsequent to January 1, 2011.
(US $ millions)
Shareholders’ equity
Add: IFRS transitional adjustments
Add: Other comprehensive income movement1
Tangible net worth
Sep 27, 2014
$
$
399
21
9
429
Jun 28, 2014
$
$
438 $
21
(6)
453 $
Dec 31, 2013
476
21
(5)
492
Sep 28, 2013
$
$
498
21
519
1 Subsequent to January 1, 2011.
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
20
Net debt to capitalization, book basis, is net debt divided by the sum of net debt and tangible net worth. Net debt to
capitalization on a 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, is one of two financial covenants contained in the Company’s committed bank lines.
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. 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, it believes the market basis to be superior to the book basis in
measuring the true strength and flexibility of its balance sheet.
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
21
FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements, as defined by applicable securities legislation. Often, but not
always, forward-looking statements can be identified by the use of words such as “believes,” “expects,” “targets,”
“outlook,” “scheduled,” “estimates,” “forecasts,” “aims,” “predicts,” “plans,” “projects”, “anticipates,” or “intends” or
variations of such words and phrases or negative versions thereof or statements that certain actions, events or results
“may,” “could,” “would,” “should,” “might” or “will” be taken, occur or be achieved. 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) outlook for operations; (4) expectations regarding mill
capacity; (5) objectives; (6) strategies to achieve those objectives; (7) expected financial results including the expected
results of the MIP; (8) sensitivity to changes in product prices, such as the price of OSB; (9) sensitivity to changes in
foreign exchange rates; (10) sensitivity to key input prices, such as the price of fibre, resin, wax and energy; (11)
expectations regarding income tax rates; (12) expectations regarding compliance with environmental regulations;
(13) expectations regarding contingent liabilities and guarantees, including the outcome of pending litigation; (14)
expectations regarding the amount, timing and benefits of capital investments; and (15) expectations regarding the
amount and timing of dividend payments.
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. These factors include,
but are not limited to: (1) assumptions in connection with the economic and financial conditions in the US, Europe,
Canada and globally; (2) risks inherent to product concentration; (3) effects of competition and product pricing
pressures; (4) risks inherent to customer dependence; (5) effects of variations in the price and availability of
manufacturing inputs, including continued access to fibre resources at competitive prices; (6) various events that could
disrupt operations, including natural or catastrophic events and ongoing relations with employees; (7) impact of
changes to, or non-compliance with, environmental regulations; (8) impact of any product liability claims in excess of
insurance coverage; (9) risks inherent to a capital intensive industry; (10) impact of future outcomes of certain tax
exposures; and (11) effects of currency exposures and exchange rate fluctuations.
The above list of important factors affecting forward-looking information is not exhaustive. Additional factors are
noted elsewhere, and reference should be made to the other risks discussed in filings with Canadian securities
regulatory authorities. Except as required by applicable law, Norbord does not undertake to update any forwardlooking statements, whether written or oral, that may be made from time to time by, or on behalf of, the Company,
whether as a result of new information, future events or otherwise, or to publicly update or revise the above list of
factors affecting this information. See the “Caution Regarding Forward-Looking Information” statement in the March
3, 2014 Annual Information Form and the cautionary statement contained in the “Forward-Looking Statements”
section of the 2013 Management’s Discussion and Analysis dated January 29, 2014.
Some of the statements included in this MD&A constitute forward-looking statements that are based on various assumptions and are subject to
various risks. See the cautionary statement contained in the Forward-Looking Statements section.
22
Consolidated Balance Sheets
(unaudited)
(US $ millions)
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Tax receivable
Inventory
Note
Sep 27, 2014
$
3
4
Non-current assets
Property, plant and equipment
Deferred income tax assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities
Non-current liabilities
Long-term debt
Other liabilities
Deferred income tax liabilities
5
6
Shareholders’ equity
7
54
143
8
116
321
Dec 31, 2013
$
193
130
11
120
454
$
812
17
829
1,150
$
794
14
808
1,262
$
183
$
206
$
434
27
107
568
399
1,150
$
433
27
120
580
476
1,262
(See accompanying notes)
23
Consolidated Statements of Earnings
(unaudited)
Periods ended Sep 27 and Sep 28 (US $ millions, except per share
information)
Sales
Cost of sales
General and administrative expenses
Earnings before finance costs, income tax and depreciation
$
Finance costs
Earnings before income tax and depreciation
Depreciation
Income tax recovery (expense)
Earnings
Earnings per common share
Basic
Diluted
Q3
2014
Note
$
Q3
2013
302
(284)
(3)
15
$ 311
(263)
(3)
45
(8)
7
(15)
13
5
(9)
36
(14)
5
27
$
9 mos
2014
$
$
9 mos
2013
916
(832)
(9)
75
$ 1,041
(773)
(10)
258
(23)
52
(43)
14
23
(27)
231
(42)
(42)
$ 147
8
$
0.09
0.09
$ 0.51
0.50
$
0.43
0.43
$ 2.93
2.76
(See accompanying notes)
Consolidated Statements of Comprehensive
Income (Loss)
(unaudited)
Periods ended Sep 27 and Sep 28 (US $ millions)
Q3
2014
Earnings
Other comprehensive income, net of tax
Items that will not be reclassified to earnings:
Actuarial gain (loss) on post-employment obligation
Items that may be reclassified subsequently to earnings:
Foreign currency translation (loss) gain on foreign
operations
$
Comprehensive (loss) income
$
5
Q3
2013
$
-
(15)
(15)
(10)
$
27
$
9 mos
2014
9 mos
2013
23
$ 147
1
(3)
13
14
41
(11)
(14)
9
$
16
(1)
15
$ 162
(See accompanying notes)
24
Consolidated Statements of Changes in
Shareholders’ Equity
(unaudited)
Periods ended Sep 27 and Sep 28 (US $ millions)
Share capital
Balance, beginning of period
Issue of common shares
Balance, end of period
Contributed surplus
Balance, beginning of period
Stock-based compensation
Warrants and stock options exercised
Balance, end of period
$
7,12
$
$
7
7,12
$
Retained earnings
Balance, beginning of period
Earnings
Common share dividends
Warrants exercised
7
Other comprehensive income (loss)
Balance, end of periodi
Accumulated other comprehensive (loss) income
Balance, beginning of period
Other comprehensive (loss) income
Balance, end of period
Shareholders' equity
Q3
2014
Note
7
$
$
Q3
2013
$
662
662
656
2
658
$
$
6
1
7
7
7
$
$
(244)
5
(30)
(269)
$
$
14
(15)
$
$
$
(1)
399
$
$
(170)
27
(30)
1
(172)
(8)
13
5
498
9 mos
2014
$
661
1
662
$
$
6
1
7
$
$
(201)
23
(88)
(3)
(269)
$
9 mos
2013
$
$
$
$
$
$
$
10
(11)
$
$
$
(1)
399
$
$
346
312
658
44
1
(38)
7
(11)
147
(61)
(263)
16
(172)
6
(1)
5
498
(See accompanying notes)
i
Retained earnings comprised of:
Deficit arising on cashless exercise of warrants in 2013 (note 7)
All other retained earnings
$
$
-
$ $ -
$
(263)
(6)
$ (263)
91
25
Consolidated Statements of Cash Flows
(unaudited)
Periods ended Sep 27 and Sep 28 (US $ millions)
Q3
2014
Note
Q3
2013
9 mos
2014
9 mos
2013
CASH PROVIDED BY (USED FOR):
Operating activities
Earnings
Items not affecting cash:
Depreciation
Deferred income tax
Other items
Net change in non-cash operating working capital balances
Net change in tax receivable
$
9
9
Investing activities
Investment in property, plant and equipment
Financing activities
Dividends
Debt issue costs
Issue of common shares, net
Cash and cash equivalents
(Decrease) increase during period
Balance, beginning of period
Balance, end of period
9
5
$
27
$
23
$
147
15
(11)
(8)
1
17
4
22
14
(2)
4
43
24
(4)
63
43
(16)
(3)
47
(34)
3
16
42
42
4
235
(17)
(9)
209
(21)
(15)
(66)
(48)
(30)
(30)
(30)
1
(29)
(88)
(1)
(89)
(61)
11
(50)
19
220
239
(139)
193
54
111
128
239
(29)
83
$ 54
$
$
$
(See accompanying notes)
26
Notes to the Consolidated Financial Statements
(in US $, unless otherwise noted)
In these notes, “Norbord” means Norbord Inc. and all of its consolidated subsidiaries and affiliates, and “Company”
means Norbord Inc. as a separate corporation, unless the context implies otherwise. “Brookfield” means Brookfield
Asset Management Inc. or any of its consolidated subsidiaries and affiliates, which are related parties by virtue of
Brookfield holding a controlling equity interest in the Company.
NOTE 1. NATURE AND DESCRIPTION OF THE COMPANY
Norbord is an international producer of wood-based panels with 13 plant locations in the United States, Europe and
Canada. Norbord is a publicly traded company listed on the Toronto Stock Exchange under the symbol NBD. The
Company is incorporated under the Canada Business Corporations Act and is headquartered in Toronto, Ontario,
Canada.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance
These condensed consolidated interim financial statements (interim financial statements) have been prepared in
accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as issued by the
International Accounting Standards Board (IASB) on a basis consistent with the accounting policies the Company
disclosed in its audited consolidated financial statements as at, and for the year ended December 31, 2013, except as
noted below. These interim financial statements do not contain all of the disclosures that are required in annual
financial statements prepared under IFRS and should be read in conjunction with the Company’s 2013 audited annual
financial statements, which includes information necessary or useful to understanding the Company’s business and
financial statement presentation.
These interim financial statements were authorized for issuance by the Board of Directors of the Company on October
27, 2014.
(b)
Changes in Accounting Standards
The Company has adopted the following new standard effective January 1, 2014. This change was made in accordance
with the applicable transitional provisions.
Levies
On May 20, 2013, the IASB issued International Financial Reporting Interpretations Committee 21, Levies (IFRIC 21)
which provides guidance on when to recognize a liability to pay a levy imposed by government that is accounted for in
accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. IFRIC 21 became effective for the
Company on January 1, 2014 and did not have any impact on its interim financial statements.
(c) Future Changes in Accounting Standards
Revenue
In May 2014, the IASB issued International Financial Reporting Standard 15, Revenues from Contracts with Customers
(IFRS 15) which replaces the existing revenue recognition guidance with a new framework to determine the timing of
revenue recognition and the measurement of revenue. IFRS 15 is effective for the year ending December 31, 2017. The
Company is currently assessing the impact of IFRS 15 on its financial statements.
Financial Instruments
In July 2014, the IASB published the complete version of International Financial Reporting Standard 9, Financial
Instruments (IFRS 9) which replaces most of the guidance in IAS 39 and includes amended guidance for the
27
classification and measurement of financial assets by introducing a fair value through other comprehensive income
category for certain debt instruments. It also contains a new impairment model which will result in earlier recognition
of losses. IFRS 9 is effective for the year ending December 31, 2018. The Company is currently assessing the impact of
IFRS 9 on its financial statements.
NOTE 3. ACCOUNTS RECEIVABLE
The Company has a $100 million accounts receivable securitization program with a third-party trust sponsored by a
highly rated Canadian financial institution. The program is revolving and has an evergreen commitment subject to
termination on 12 months’ notice. Under the program, Norbord has transferred substantially all of its present and future
trade accounts receivable to the trust, on a fully serviced basis, for proceeds consisting of cash and deferred purchase
price. However, the asset derecognition criteria under IFRS have not been met and the transferred accounts receivable
remain recorded as an asset.
At period-end, Norbord had transferred but continued to recognize $121 million (December 31, 2013 – $113 million) in
accounts receivable but did not have any drawings (December 31, 2013 – $nil) relating to this financing program. The
level of accounts receivable transferred under the program fluctuates with the level of shipment volumes, product prices
and foreign exchange rates. The amount of drawings under the program at any point in time depends on the level of
accounts receivable transferred, timing of cash settlements and fluctuates with the Company’s cash requirements. Any
drawings are presented as other long-term debt on the balance sheet and are excluded from the net debt to capitalization
calculation for financial covenant purposes (note 10).
The securitization program contains no financial covenants. However, the program is subject to minimum credit-rating
requirements. The Company must maintain a long-term issuer credit rating of at least single B (mid) or the equivalent.
As at October 27, 2014, Norbord’s ratings were BB (DBRS), BB- (Standard & Poor’s Ratings Services) and Ba2
(Moody’s Investors Service).
NOTE 4. INVENTORY
(US $ millions)
Sep 27, 2014
Raw materials
Finished goods
Operating and maintenance supplies
$
$
27
45
44
116
Dec 31, 2013
$
$
31
48
41
120
At period-end, the provision to reflect inventories at the lower of cost and net realizable value was $2 million
(December 31, 2013 – $1 million).
The amount of inventory recognized as an expense was as follows:
Q3
2014
(US $ millions)
Cost of inventories
Depreciation on property, plant and equipment
$
$
275
15
290
Q3
2013
$
$
253
14
267
9 mos
2014
$
$
805
43
848
9 mos
2013
$
$
745
42
787
28
NOTE 5. LONG-TERM DEBT
(US $ millions)
Principal value
Senior secured notes due 2017
5.375% senior secured notes due 2020
Sep 27, 2014
$
200
240
440
(6)
434
Debt issue costs
$
Dec 31, 2013
$
200
240
440
(7)
433
$
Revolving Bank Lines
The Company has a total aggregate commitment of $245 million in revolving bank lines which mature in May 2016
and bears interest at money market rates plus a margin that varies with the Company’s credit rating. The bank lines are
secured by a first lien on the Company’s North American OSB inventory and property, plant and equipment. This lien
is shared pari passu with holders of the 2017 and 2020 senior secured notes.
At period-end, none of the revolving bank lines were drawn as cash, $3 million was utilized for letters of credit and
$242 million was available to support short-term liquidity requirements.
The bank lines contain two quarterly financial covenants: minimum tangible net worth of $250 million and maximum
net debt to total capitalization, book basis, of 65%. The IFRS transitional adjustments to shareholders’ equity of
$21 million at January 1, 2011 are added back for the purposes of the tangible net worth calculation. In addition, OCI
movement subsequent to January 1, 2011 is excluded from the tangible net worth calculation. Net debt includes total
debt, principal value, less cash and cash equivalents plus letters of credit issued. At period-end, the Company’s tangible
net worth for financial covenant purposes was $429 million and net debt for financial covenant purposes was $389
million. Net debt to total capitalization, book basis, was 48% (note 10).
NOTE 6. OTHER LIABILITIES
(US $ millions)
Defined benefit pension obligation
Accrued employee benefits
Sep 27, 2014
$
$
18
9
27
Dec 31, 2013
$
$
17
10
27
NOTE 7. SHAREHOLDERS’ EQUITY
Stock Options
Year-to-date, 0.2 million stock options were granted (2013 – 0.1 million stock options) under the Company’s stock
option plan. Year-to-date, stock option expense was $1 million (2013 – $1 million) and was recorded against
contributed surplus. Year-to-date, no common shares were issued (2013 – 0.9 million common shares) as a result of
options exercised under the stock option plan (2013 – for proceeds of $11 million).
29
Amendment to Warrant Indenture
On March 25, 2013, the Company amended certain terms of its Warrant Indenture dated December 24, 2008 by
executing a Supplemental Warrant Indenture to include a cashless exercise feature. This feature allowed warrant
holders to elect to exercise their warrants on a cashless basis, and receive common shares based on the in-the-money
value of their warrants. The warrants expired on December 24, 2013. In 2013, a total of 134.4 million warrants (nine
months ended September 28, 2013 – 133.7 million warrants) were exercised on a cashless basis resulting in the
issuance of 8.4 million common shares (nine months ended September 28, 2013 – 8.4 million common shares). As
required under IFRS, for the nine months ended September 28, 2013 the cashless exercise of the warrants resulted in:
• an increase in share capital of $298 million, representing the fair value on the date of exercise of the common
shares issued in exchange for the in-the-money value of the warrants;
• a decrease in contributed surplus of $35 million, representing the book value of the warrants recorded at the
time of their issuance; and
• a decrease in retained earnings of $263 million, reflecting the difference between these two amounts.
Accumulated Other Comprehensive (Loss) Income
(US $ millions)
Sep 27, 2014
Dec 31, 2013
Foreign currency translation gain on investment in foreign operations
Net loss on hedge of net investment in foreign operations
Accumulated other comprehensive (loss) income, net of tax
$
$
7
(8)
(1)
$
18
(8)
10
$
NOTE 8. EARNINGS PER COMMON SHARE
Q3
2014
(US $ millions, except share and per share information, unless otherwise noted)
Earnings available to common shareholders
Common shares (millions):
Weighted average number of common shares outstanding
Stock options1
Warrants1
Diluted number of common shares
Earnings per common share:
Basic
Diluted
$
5
Q3
2013
$
27
53.4
0.5
53.9
53.2
0.6
0.1
53.9
$ 0.09
0.09
$ 0.51
0.50
9 mos
2014
$
$
23
9 mos
2013
$
147
53.4
0.5
53.9
50.2
0.6
2.5
53.3
0.43
0.43
$ 2.93
2.76
1 Applicable if dilutive and when the weighted average daily closing share price for the period was greater than the exercise price for stock options and
warrants. The warrants expired on December 24, 2013.
30
NOTE 9. SUPPLEMENTAL CASH FLOW INFORMATION
The net change in non-cash operating working capital balance comprises:
Q3
2014
(US $ millions)
Cash provided by (used for):
Accounts receivable
Inventory
Accounts payable and accrued liabilities
$
3
18
(4)
17
$
Q3
2013
$
$
6
(5)
23
24
9 mos
2014
$
$
9 mos
2013
$
(13)
7
(28)
(34)
$
(16)
(12)
11
(17)
Cash interest and income taxes comprises:
Q3
2014
(US $ millions)
Cash interest paid
Cash income taxes (received) paid, net
$
8
(5)
Q3
2013
$
8
1
9 mos
2014
$
9 mos
2013
$
23
(1)
24
8
Cash and cash equivalents comprises:
(US $ millions)
Sep 27, 2014
Cash
Cash equivalents
$
$
Sep 28, 2013
$
54
54
$
155
84
239
NOTE 10. CAPITAL MANAGEMENT
Norbord’s capital structure at period-end consisted of the following:
(US $ millions)
Long-term debt, principal value
Less: Cash and cash equivalents
Net debt
Add: Letters of credit
Net debt for financial covenant purposes
Shareholders' equity
Add: IFRS transitional adjustments
Less: Other comprehensive income movement1
Tangible net worth for financial covenant purposes
Total capitalization
Net debt to capitalization, book basis
Net debt to capitalization, market basis
Note
5
Sep 27, 2014
$
5
$
Dec 31, 2013
440 $
(54)
386
3
389
440
(193)
247
4
251
399
21
9
429
476
21
(5)
492
818
48%
22%
$
743
34%
14%
1 Cumulative subsequent to January 1, 2011 (note 5).
31
NOTE 11. FINANCIAL INSTRUMENTS
Non-Derivative Financial Instruments
The net book values and fair values of non-derivative financial instruments were as follows:
Sep 27, 2014
(US $ millions)
Financial Instrument Category
Financial assets:
Cash and cash equivalents
Accounts receivable
Fair value through profit or loss
Net Book
Value
$
Loans and receivables
$
Financial liabilities:
Accounts payable and accrued liabilities
Long-term debt
Other liabilities
Other financial liabilities
$
Other financial liabilities
Other financial liabilities
$
Fair
Value
Dec 31, 2013
Net Book
Value
Fair
Value
54 $
143
197 $
54 $
143
197 $
193 $
130
323 $
193
130
323
183 $
434
27
644 $
183 $
457
27
667 $
206 $
433
27
666 $
206
462
27
695
Derivative Financial Instruments
At period-end, the Company had a foreign currency forward contract representing a notional amount of
CAD $16 million (December 31, 2013 – CAD $1 million) in place to buy US dollars and sell Canadian dollars with a
maturity of October 2014. The fair value of this contract at period-end is an unrealized gain of less than $1 million
(December 31, 2013 – an unrealized loss of less than $1 million).
At period-end, the Company had foreign currency options representing a notional amount of €55 million (December
31, 2013 – €100 million) in place to buy UK Sterling and sell Euros with maturities between October 2014 and August
2015. The fair value of these contracts at period-end is an unrealized gain of less than $1 million (December 31, 2013 –
an unrealized gain of less than $1 million).
Derivative instruments are measured at fair value as determined using valuation techniques under level 2 of the fair
value hierarchy. The fair values of over-the-counter derivative financial instruments are based on broker quotes or
observable market rates. Those quotes are tested for reasonableness by discounting expected future cash flows using
market interest and exchanges rates for a similar instrument at the measurement date. Fair values reflect the credit risk
of the instrument for the Company and counterparty when appropriate. Year-to-date, realized gains on the Company’s
matured currency hedges were less than $1 million (2013 – less than $1 million). 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 12. RELATED PARTY TRANSACTIONS
In the normal course of operations, the Company enters into various transactions on market terms with related parties
which have been measured at exchange value and recognized in the consolidated financial statements. The following
transactions have occurred between the Company and its related parties during the normal course of business.
Warrants
On March 25, 2013, Brookfield exercised all of its warrants on a cashless basis and received 8.2 million common
shares (note 7).
32
Other
The Company provided certain administrative services to Brookfield which were charged on a cost recovery basis. In
addition, the Company periodically purchases goods from or engages the services of Brookfield for various financial,
real estate and other business advisory services. Year-to-date, the fees for services rendered and the cost of goods
purchased were less than $1 million (2013 – $3 million).
NOTE 13. GEOGRAPHIC SEGMENTS
The Company operates principally in North America and Europe. Sales by geographic segment are determined based
on the origin of shipment and therefore include export sales.
Q3 2014
North
America
(US $ millions)
Sales
EBITDA1
Depreciation
Investment in property, plant and equipment
$
170
7
11
14
Europe
$
132
11
4
10
Unallocated
$
(3)
-
Total
$
302
15
15
24
Q3 2013
North
America
(US $ millions)
Sales
EBITDA1
Depreciation
Investment in property, plant and equipment
$
197
36
9
10
Europe
$
114
12
5
5
Unallocated
$
(3)
-
Total
$
311
45
14
15
9 mos 2014
North
America
(US $ millions)
Sales
EBITDA1
Depreciation
Investment in property, plant and equipment
Property, plant and equipment
$
522
48
32
49
673
Europe
$
394
36
11
17
139
Unallocated
$
(9)
-
Total
$
916
75
43
66
812
9 mos 2013
North
America
(US $ millions)
Sales
EBITDA1
Depreciation
Investment in property, plant and equipment
Property, plant and equipment2
1
EBITDA is earnings before finance costs, income tax and depreciation.
2
Balance as at December 31, 2013.
$
696
234
28
36
656
Europe
$
345
34
14
9
138
Unallocated
$
(10)
-
Total
$
1,041
258
42
45
794
33