Norbord Reports Third Quarter 2010 Results

Oct 27, 2010 | Posted in Corporate News

J. Barrie Shineton
President & CEO
October 27, 2010

To our Shareholders,
I am pleased to report another positive financial quarter for Norbord. The Company
generated $12 million of EBITDA, a modest improvement over the same quarter last year
and the fifth consecutive quarter that we have delivered both positive EBITDA and
operating cash flow. At the same time I’m disappointed that the robust OSB pricing
environment we experienced in North American markets in the first half of the year did
not carry over into this quarter. OSB benchmark prices that peaked at $395 in the second
quarter fell spectacularly, averaging just $180 in this quarter. With the benefit of
hindsight, it is now clear that the expiry of the US Home Buyer Tax Credit in April hurt
new home construction activity by pulling forward buyer interest and home sales into the
first half of this year.

Our North American mills were able to respond quickly and pull back production to
match softer order files. We operated about 70% of our capacity in the quarter, a good
result when compared to the overall industry operating rate of 55%. Fortunately,
Norbord continues to be somewhat less directly exposed than others to the new home
construction market segment. Today more than 60% of our sales volume ships directly to
repair and remodelling and industrial end use applications. This OSB end user
diversification is continuing to evolve and we believe that, in the current market dynamic
of low demand and excess capacity, Norbord benefits by always having a home for its
production capacity.

In Europe, the jump in construction activity in the first half of the year carried over into
the third quarter. OSB prices were 37% higher than the same period last year and
contributed to another strong result from our UK- and Belgium-based panelboard
operations. We are watching current economic developments closely as the UK
government has recently announced it is withdrawing stimulus support and implementing
the most significant public sector job and spending cutbacks since the 1930’s. While
implications for our industry are not yet clear, I believe the current ‘bull market’ for panel
products will ease with prices peaking in the fourth quarter. However, underlying
demand dynamics, limited imports and a weak pound sterling suggest a reasonably
positive outlook for our European based business in 2011 and results should be similar to
this year.

Raw material input prices, particularly wood and resin, remain a concern for Norbord in
both North America and Europe. These costs have stabilized this quarter but at levels
that are 10% higher than the same period last year. While the trend is for lower input
prices in North America, the adjustment over the next several quarters will happen more
slowly than I would like.

We have provided extensive disclosure in our MD&A on the impact of Norbord’s
upcoming conversion to International Financial Reporting Standards. These accounting
changes will impact all Canadian public companies next year. Management’s message to
shareholders is that you should not expect any significant impact on future EBITDA as
we make this financial reporting transition in 2011. And of course cash flow is not
impacted by these new accounting rules.

Looking forward, I expect panelboard prices in both North America and Europe to reflect
softer seasonal demand this winter before recovering in the second quarter next year. In
the US, the inventory of distressed homes for sale and the uncertain employment picture
continue to impact housing sentiment. However, with new home inventories now at 40-
year lows and affordability at all time high levels, we should expect a meaningful
recovery in housing construction once these structural issues are worked through. In the
UK, pent-up demand from a longer term, chronic shortage of new home supply suggests
a sharp rebound in construction once credit and mortgage restrictions are eased.
Although progress is likely to be uneven and at times slow, I expect to see a housing
recovery and improvements in OSB demand start to take hold later next year.
In the meantime, Norbord’s management continues to work hard to be certain the
company’s organization and operations are well positioned for an eventual recovery. In
North America we have high quality, well maintained assets and strong customer
partnerships. Our European operations generate more predictable and stable cash flows.
Our balance sheet is solid and we are comfortable with our liquidity. And finally, the
longer-term fundamentals are favourable and will continue supporting OSB demand. I
remain confident Norbord will generate superior financial performance when the housing
recovery finally takes hold.

I look forward to reporting on our progress next quarter.

This letter includes forward-looking statements, as defined by applicable securities legislation including statements related to our strategy, projects, plans, future financial or operating performance and other statements that express management’s expectations or estimates of future performance. Often, but not always, forward-looking statements can be identified by the use of words such as “believe,” “will,”
“suggest,” “should,” “would,” “expect,” “likely,” or variations of such words and phrases or statements
that certain actions “may,” “could,” “must,” “would,” “might,” or “will” be undertaken, occur or be
achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of Norbord to be materially different from
any future results, performance or achievement expressed or implied by the forward-looking statements.
See the cautionary language in the Forward-Looking Statements section of the 2009 Management’s
Discussion and Analysis dated January 29, 2010 and Q3 2010 Management’s Discussion and Analysis
dated October 27, 2010.

News Release


Note: Financial references in US dollars unless otherwise indicated


  • Achieved 5th consecutive quarter of positive EBITDA and operating cash flow
  • Achieved positive EBITDA of $12 million, $2 million better than Q3 2009
  • Continued strong market conditions in Europe – OSB prices up 30% vs. Q3 2009
  • Achieved Norbord Safety Star certification at Cordele GA mill

TORONTO, ON (October 27, 2010) – Norbord Inc. (TSX: NBD, NBD.WT) today reported positive EBITDA of $12 million in Q3 2010 compared to $71 million in Q2 2010 and $10 million in Q3 2009.  North American operations generated positive EBITDA of $4 million in Q3 2010, compared to $63 million in Q2 2010 and $9 million in Q3 2009. Norbord’s European operations generated positive EBITDA of $10 million in Q3 2010, compared to $10 million in Q2 2010 and $5 million in Q3 2009. Norbord recorded a loss of $7 million or $0.16 per share in the third quarter. Norbord recorded earnings of $37 million or $0.85 per share in the prior quarter and a loss of $7 million or $0.16 per share in the same quarter last year.

“I’m pleased that we were able to adjust quickly to the OSB price correction in Q3 as demand stalled when the home buyer tax incentives expired and new home market activity slowed,” said Barrie Shineton, President and CEO. “By limiting our exposure to the new home construction segment, we increased both production and shipment volumes overall versus the same period last year. In the UK, we continued to benefit from the jump in construction activity that carried over from last quarter and supported strong panel pricing, particularly OSB.”

“Our 2010 results will be much improved over the prior year. Our balance sheet is in good shape and we
have strong liquidity. We expect markets to have no real momentum until later in 2011 when
improvements in both new home construction and total OSB demand should be apparent.”

Market Conditions

North American benchmark OSB prices declined throughout the third quarter in light of seasonally
weaker housing activity and continued market softness. The expiration of the US Home Buyer Tax
Credit in May pulled forward home buying demand into the early part of 2010. North Central benchmark
OSB prices ranged from $207 to $160 and averaged $180 in the third quarter. In the South East region,
where over half of Norbord’s North American capacity is located, prices averaged $156. OSB demand
and prices are expected to remain near cycle bottom levels during the seasonally softer winter months.

Expert forecasts suggest US housing starts will not exceed 0.6 million in 2010, well below the historical
average of 1.5 million. Norbord believes OSB prices will continue to be volatile until a meaningful
recovery in the US housing market takes hold. Approximately 40% of the Company’s North American
OSB sales volume goes directly into the new home construction sector. The other 60% goes into repair
and remodeling, light commercial construction and industrial applications, providing meaningful
distribution channel diversification.

European OSB markets continued to show strength again this quarter as efforts to rebuild depleted new
home inventories boosted construction activity. European OSB prices improved 9% quarter-over-quarter
and 37% year-over-year. Particleboard and MDF markets remained resilient and prices increased on
average by 3% quarter-over-quarter and 8% year-over-year.


Norbord’s operating North American OSB mills ran at approximately 90% of their capacity in the third
quarter compared to 100% in the prior quarter and 85% in the same quarter last year. Norbord’s two
indefinitely closed mills in Texas and Alabama have not operated since the first quarter of 2009 and
represent 20% of the Company’s North American OSB capacity. All of Norbord’s European mills
operated at full capacity again this quarter versus 100% in the prior quarter and 75% in the same quarter
last year. As market and economic conditions warrant, Norbord expects to curtail production when
necessary to conserve cash, manage inventory and maximize operating results.

Norbord’s North American OSB production cash costs per unit decreased 1% versus the prior quarter on
lower employee profit share costs and lower resin and fibre prices. Cash costs were up 13% versus the
same quarter last year due to higher fibre and resin prices, which were at cyclical lows in 2009. Supplies
and maintenance costs were also higher reflecting increased production volume this year.
At the end of the third quarter, Norbord had unused liquidity of $313 million consisting of cash and cash
equivalents of $76 million and undrawn revolving bank lines of $237 million. The Company’s tangible
net worth was $362 million and net debt to total capitalization, book basis, was 51%.
Capital investments totaled $3 million in the third quarter. Norbord’s 2010 capital investment program
will be limited to essential capital projects and is expected to total $15 million.


As announced last quarter, Norbord applied to the Toronto Stock Exchange (TSX) and received approval
to conduct a normal course issuer bid in accordance with TSX rules. Under the bid, the Company may
purchase up to 2,176,198 of its Common Shares, representing approximately 5% of the 43,523,979 issued
and outstanding Common Shares as of August 31, 2010. Purchases under the bid may commence on
September 17, 2010 and will terminate on the earlier of September 16, 2011, the date Norbord completes
its purchases pursuant to the notice of intention to make a normal course issuer bid filed with the TSX or
the date of notice by Norbord of termination of the bid.

Additional Information

Norbord’s Q3 2010 letter to shareholders, news release, management’s discussion & analysis,
consolidated unaudited financial statements and notes to the financial statements have been filed on
SEDAR ( and are available in the investor section of the Company’s website at Shareholders are encouraged to read this material.

Conference Call

Norbord will hold a conference call for analysts and institutional investors on Wednesday, October 27,
2010 at 11:00 a.m. ET. The call will be broadcast live over the Internet via and A replay number will be available approximately one hour after completion of the
call and accessible until November 24, 2010 by dialing 1.888.203.1112 or 647.436.0148. The passcode is
7884176. Audio playback and a written transcript will be available on the Norbord website.

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