U.S. SECURITIES AND EXCHANGE COMMISSION | |||
Washington, D.C. 20549 |
FORM 40-F |
☐ | Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934 |
ý | Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 |
NORBORD INC. (Exact name of registrant as specified in its charter) |
Canada | 2,400 | Not Applicable | ||
(Province or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number (if applicable)) | (I.R.S. Employer Identification Number) |
Title of Each Class | Name Of Exchange On Which Registered | |
Common Shares, Without Par Value | New York Stock Exchange |
ý Annual Information Form | ý Audited Annual Financial Statements | |
_________________________________________________ |
(a) | Annual Information Form, dated February 1, 2018 for the Year Ended December 31, 2017 (filed as Exhibit 99.1 hereto); |
(b) | Management’s Discussion and Analysis for the Annual Audited Consolidated Financial Statements for the Year Ended December 31, 2017 (filed as Exhibit 99.2 hereto); and |
(c) | Annual Audited Consolidated Financial Statements for the Year Ended December 31, 2017, and the Attestation Report of the Independent Registered Public Accounting Firm (filed as Exhibit 99.3 hereto). |
(a) | Certifications. See Exhibits 99.4 through 99.7 to this Form 40-F. |
(b) | Disclosure Controls and Procedures. |
(c) | Management’s Annual Report on Internal Control Over Financial Reporting. |
(d) | Attestation Report of the Independent Registered public Accounting Firm. |
(e) | Changes in Internal Control over Financial Reporting. During the fiscal year ended December 31, 2017, there were no changes in Norbord’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Norbord’s internal control over financial reporting. |
A. | Undertaking. |
B. | Consent to Service of Process. |
(1) | Norbord has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this report arises. |
(2) | Any change to the name or address of the agent for service of Norbord shall be communicated promptly to the Commission by amendment to Form F-X referencing the file number of Norbord. |
Date: February 2, 2018 | NORBORD INC. | |||||
By: | /s/ Robin E. Lampard | |||||
Name: Robin E. Lampard | ||||||
Title: Chief Financial Officer |
Exhibit | Description |
99.1 | Annual Information Form, dated February 1, 2018, for the Year Ended December 31, 2017 |
99.2 | Management’s Discussion and Analysis for the Annual Audited Consolidated Financial Statements for the Year Ended December 31, 2017 |
99.3 | Annual Audited Consolidated Financial Statements for the Year Ended December 31, 2017, and the Attestation Report of the Independent Registered Public Accounting Firm. |
99.4 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 |
99.5 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 |
99.6 | Section 1350 Certification of Chief Executive Officer |
99.7 | Section 1350 Certification of Chief Financial Officer |
99.8 | Consent of KPMG LLP |
TABLE OF CONTENTS |
Page | ||
CAUTION REGARDING FORWARD-LOOKING INFORMATION | 3 | |
CORPORATE STRUCTURE | 4 | |
GENERAL DEVELOPMENT OF THE BUSINESS | 4 | |
DESCRIPTION OF THE BUSINESS | 7 | |
RISKS OF THE BUSINESS | 11 | |
CAPITAL STRUCTURE | 15 | |
DIVIDENDS | 17 | |
MARKET FOR SECURITIES | 19 | |
DIRECTORS AND SENIOR EXECUTIVE OFFICERS | 20 | |
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS | 21 | |
MATERIAL CONTRACTS | 22 | |
TRANSFER AGENT AND REGISTRAR | 22 | |
AUDIT COMMITTEE | 23 | |
INTERESTS OF EXPERTS | 23 | |
ADDITIONAL INFORMATION | 24 | |
GLOSSARY | 25 | |
Appendix A – Audit Committee – Terms of Reference | 26 |
Norbord Inc. | 2018 Annual Information Form | Page 2 |
Norbord Inc. | 2018 Annual Information Form | Page 3 |
Name | Jurisdiction of Incorporation | Percentage of Voting Securities Owned | Date of Incorporation | ||||
Norbord Alabama Inc. | Alabama | 100 | % | 10/12/1999 | |||
Norbord Europe Ltd. | United Kingdom | 100 | % | 4/12/2012 | |||
Norbord Georgia LLC | Delaware | 100 | % | 12/31/2008 | |||
Norbord Minnesota Inc. | Delaware | 100 | % | 12/20/2006 | |||
Norbord Mississippi LLC | Delaware | 100 | % | 12/31/2008 | |||
Norbord NV | Belgium | 100 | % | 5/28/2004 | |||
Norbord South Carolina Inc. | South Carolina | 100 | % | 5/22/1998 | |||
Norbord Texas (Jefferson) Inc. | Delaware | 100 | % | 12/20/2006 | |||
Norbord Texas (Nacogdoches) Inc. | Delaware | 100 | % | 12/20/2006 |
Norbord Inc. | 2018 Annual Information Form | Page 4 |
Norbord Inc. | 2018 Annual Information Form | Page 5 |
Norbord Inc. | 2018 Annual Information Form | Page 6 |
2017 | 2016 | |||||
North America | 76 | % | 77 | % | ||
Europe | 24 | % | 23 | % | ||
Total | 100 | % | 100 | % |
Norbord Inc. | 2018 Annual Information Form | Page 7 |
MMsf-3/8” | Estimated Annual Capacity at Year-End 2017 | |
OSB | ||
100 Mile House, British Columbia | 440 | |
Barwick, Ontario | 510 | |
Bemidji, Minnesota | 470 | |
Chambord, Quebec(1) | 470 | |
Cordele, Georgia | 990 | |
Genk, Belgium | 450 | |
Grande Prairie, Alberta | 730 | |
Guntown, Mississippi | 450 | |
High Level, Alberta | 860 | |
Huguley, Alabama(2) | 500 | |
Inverness, Scotland(3) | 720 | |
Jefferson, Texas | 415 | |
Joanna, South Carolina | 650 | |
La Sarre, Quebec | 375 | |
Nacogdoches, Texas | 380 | |
8,410 | ||
Particleboard | ||
Cowie, Scotland | 405 | |
South Molton, England | 160 | |
565 | ||
MDF | ||
Cowie, Scotland | 380 | |
380 | ||
Total Panels | 9,355 |
(1) | In November 2016, Norbord exchanged ownership of its Val-d’Or OSB mill for Louisiana-Pacific Corporation’s curtailed Chambord OSB mill (the Quebec Mill Exchange). Production at Chambord has been curtailed since the third quarter of 2008. |
(2) | In January 2009, Norbord indefinitely curtailed production at its Huguley, Alabama OSB mill. The mill subsequently resumed operations in October 2017. |
(3) | During the fourth quarter of 2017, the estimated annual capacity increased from 395 MMsf-3/8" based on the substantial completion of the Inverness expansion project. |
Norbord Inc. | 2018 Annual Information Form | Page 8 |
Norbord Inc. | 2018 Annual Information Form | Page 9 |
Norbord Inc. | 2018 Annual Information Form | Page 10 |
Union | Mill Covered | Contract Expiry Date | ||
Pulp, Paper and Woodworkers of Canada (PPWC) | 100 Mile House, BC | In negotiation(1) | ||
Unifor | Barwick, ON | In negotiation(1) | ||
Unifor | La Sarre, QC | June 30, 2021 | ||
Unifor | Chambord, QC(2) | June 1, 2026 |
(1) | expected to be concluded in Q1 2018 |
(2) | mill indefinitely curtailed |
Sensitivity Factor | Impact on Adjusted EBITDA(1) (US $ millions) | ||||
OSB – North America | $10 per Msf–7/16” | $59(2) | |||
OSB – Europe | €10 per m3 | 12 |
(1) | Norbord defines Adjusted EBITDA as earnings (loss) determined in accordance with International Financial Reporting Standards (IFRS) before finance costs, income taxes, depreciation and amortization and other unusual or non-recurring items. Adjusted EBITDA is a non-IFRS financial measure that does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other companies. See the Non-IFRS Financial Measures section in Norbord’s 2017 Management’s Discussion and Analysis dated February 1, 2018 for a quantitative reconciliation of Adjusted EBITDA to earnings (the most directly comparable IFRS measure). |
Norbord Inc. | 2018 Annual Information Form | Page 11 |
Norbord Inc. | 2018 Annual Information Form | Page 12 |
• | net investments in foreign operations, limited to Norbord’s investment in its European operations which transact in both Pounds Sterling and Euros; |
• | net Canadian dollar-denominated monetary assets and liabilities; and |
• | committed or anticipated foreign currency-denominated transactions, primarily Canadian dollar costs in Norbord’s Canadian operations and Euro revenues in Norbord’s UK operations. |
Norbord Inc. | 2018 Annual Information Form | Page 13 |
Norbord Inc. | 2018 Annual Information Form | Page 14 |
Norbord Inc. | 2018 Annual Information Form | Page 15 |
• | $240 million of 5.375% senior secured notes due December 1, 2020; and |
• | $315 million of 6.25% senior secured notes due April 1, 2023. |
DBRS | Standard & Poor’s Ratings Services | Moody’s Investors Service | ||||||||||
Secured Notes | BB | BB+ | Ba1 | |||||||||
Issuer | BB | BB | Ba1 | |||||||||
Outlook | Stable | Stable | Stable |
Norbord Inc. | 2018 Annual Information Form | Page 16 |
(in C $) | Quarterly Dividend Declared per Common Share | |||||
Q2 2013 to Q4 2014 | $ | 0.60 | ||||
Q1 2015 & Q2 2015 | 0.25 | |||||
Q3 2015 to Q1 2017 | 0.10 | |||||
Q2 2017 | 0.30 | |||||
Q3 2017 | 0.50 | |||||
Q4 2017 | 0.60 |
($ millions) | 2017 | 2016 | 2015 | |||||||||
Cash distribution | $ | 101 | $ | 26 | $ | 40 | ||||||
Share distribution(1) | — | — | — | |||||||||
Total dividends on Common Shares | $ | 101 | $ | 26 | $ | 40 |
(1) | Common Shares distributed in the DRIP represented less than $1 million in 2017, 2016 and 2015. All Common Shares were issued from treasury. |
Norbord Inc. | 2018 Annual Information Form | Page 17 |
C $ | Common Shares | ||||||||||||||
Month | High | Low | Close | Volume | |||||||||||
January | $ | 34.71 | $ | 31.38 | $ | 32.30 | 2,006,663 | ||||||||
February | 40.06 | 32.08 | 38.66 | 3,120,287 | |||||||||||
March | 39.43 | 36.10 | 37.85 | 3,422,587 | |||||||||||
April | 42.49 | 37.86 | 42.26 | 3,600,903 | |||||||||||
May | 42.42 | 38.15 | 38.49 | 3,190,948 | |||||||||||
June | 41.08 | 38.00 | 40.37 | 2,282,412 | |||||||||||
July | 44.45 | 39.28 | 44.25 | 2,041,202 | |||||||||||
August | 44.65 | 40.51 | 43.00 | 5,893,309 | |||||||||||
September | 51.75 | 42.51 | 47.51 | 8,220,051 | |||||||||||
October | 51.40 | 43.75 | 46.50 | 11,561,812 | |||||||||||
November | 47.50 | 43.36 | 44.66 | 7,885,939 | |||||||||||
December | 44.80 | 41.30 | 42.55 | 5,172,451 |
US $ | Common Shares | ||||||||||||||
Month | High | Low | Close | Volume | |||||||||||
January | $ | 26.46 | $ | 23.68 | $ | 24.82 | 176,220 | ||||||||
February | 30.49 | 24.55 | 29.00 | 361,119 | |||||||||||
March | 29.42 | 27.00 | 28.51 | 210,742 | |||||||||||
April | 31.29 | 28.38 | 31.07 | 364,416 | |||||||||||
May | 31.10 | 27.83 | 28.46 | 342,013 | |||||||||||
June | 31.93 | 28.16 | 31.14 | 251,077 | |||||||||||
July | 35.60 | 30.49 | 35.46 | 155,804 | |||||||||||
August | 35.65 | 32.23 | 34.43 | 503,893 | |||||||||||
September | 41.88 | 34.38 | 38.12 | 1,340,000 | |||||||||||
October | 41.14 | 33.97 | 36.05 | 2,600,000 | |||||||||||
November | 37.27 | 33.77 | 34.67 | 3,210,000 | |||||||||||
December | 35.15 | 32.22 | 33.81 | 2,050,000 |
Norbord Inc. | 2018 Annual Information Form | Page 18 |
Name and Location of Residence | Position and Office Held | Principal Occupation | Director Since | |||
JACK L. COCKWELL (1)(2) Toronto, Ontario, Canada | Director | Director, Brookfield Asset Management Inc. | 1987 | |||
PIERRE DUPUIS (1)(2)(3)(4) St. Lambert, Quebec, Canada | Director | Corporate Director | 1995 | |||
PAUL E. GAGNÉ(1)(2)(4) Senneville, Quebec, Canada | Director | Corporate Director | 2015 | |||
J. PETER GORDON(1)(2)(3) Toronto, Ontario, Canada | Director and Chair | Managing Partner, Brookfield Asset Management Inc. | 2015 | |||
PAUL A. HOUSTON(1)(2)(3)(4) Ashburn, Ontario, Canada | Director | Corporate Director | 2015 | |||
J. BARRIE SHINETON Toronto, Ontario, Canada | Director | Corporate Director | 2004 | |||
DENIS A. TURCOTTE (1)(2) Toronto, Ontario, Canada | Director | Managing Partner, Brookfield Capital Partners | 2012 | |||
PETER C. WIJNBERGEN Toronto, Ontario, Canada | Director and President & CEO | President and Chief Executive Officer, Norbord Inc. | 2014 |
(1) | Member of the Environmental, Health & Safety Committee. Mr. Turcotte is Chair of the Committee. |
(2) | Member of the Human Resources Committee. Mr. Cockwell is Chair of the Committee. |
(3) | Member of the Corporate Governance and Nominating Committee. Mr. Houston is Chair of the Committee. |
(4) | Member of the Audit Committee. Mr. Dupuis is Chair of the Committee. |
Name | Period Served | |||
JACK L. COCKWELL | 2004 to April 2009 | |||
PAUL E. GAGNÉ | 2004 to February 2011 | |||
J. PETER GORDON | 2007 to February 2011 |
Norbord Inc. | 2018 Annual Information Form | Page 19 |
Name and Location of Residence | Current Office and Principal Occupation | Year Appointed | ||
J. PETER GORDON Toronto, Ontario, Canada | Director and Chair Managing Partner, Brookfield Asset Management Inc. | 2015 | ||
PETER C. WIJNBERGEN Toronto, Ontario, Canada | President and Chief Executive Officer | 2014 | ||
ROBIN E. LAMPARD Toronto, Ontario, Canada | Senior Vice President and Chief Financial Officer | 2008 | ||
NIGEL A. BANKS Toronto, Ontario, Canada | Senior Vice President, Corporate Services | 2010 | ||
KARL R. MORRIS Glasgow, Scotland, UK | Senior Vice President, European Operations | 2005 | ||
BRUCE L. ALEXANDER North Vancouver, British Columbia, Canada | Senior Vice President, Sales, Marketing and Logistics | 2018 |
Norbord Inc. | 2018 Annual Information Form | Page 20 |
1. | Trust Indenture dated April 16, 2015 between Norbord Inc. and Computershare Trust Company, N.A. relating to the issuance of 6.25% Senior Secured Notes due April 16, 2023. |
2. | Trust Indenture dated November 26, 2013 between Norbord Inc. and Computershare Trust Company, N.A. relating to the issuance of 5.375% Senior Secured Notes due December 1, 2020. |
Norbord Inc. | 2018 Annual Information Form | Page 21 |
Service (US $ millions) | 2017 | 2016 | ||||
Audit | $ | 1.2 | $ | 0.8 | ||
Audit-related Fees | 0.1 | 0.1 | ||||
Tax | 0.2 | 0.1 | ||||
Other | — | — | ||||
Total | $ | 1.5 | $ | 1.0 |
Norbord Inc. | 2018 Annual Information Form | Page 22 |
Norbord Inc. | 2018 Annual Information Form | Page 23 |
Norbord Inc. | 2018 Annual Information Form | Page 24 |
1. | Financial information and reporting - |
(a) | to review and discuss with management and the external auditor, as appropriate: |
(i) | the annual audited financial statements and the interim financial statements including the accompanying Management’s Discussion and Analysis; and |
(ii) | other releases containing information taken from the Company’s financial statements prior to their release; and |
(b) | to recommend to the Board for approval the quarterly and annual financial filings; |
(c) | to review the Company’s financial reporting and accounting policies and any proposed material changes to them or their application; and |
(d) | to meet privately with the person responsible for the Company’s internal audit function as frequently as the Committee feels appropriate to fulfill its responsibilities, which will not be less frequently than annually, to discuss any items of concern. |
2. | Internal controls - to review, with the Chief Financial Officer (CFO), the external auditor and others, as appropriate, the Company's system of internal controls. |
3. | External audit - |
(a) | to recommend to the Board, for shareholder approval, the external auditor to examine the Company’s accounts, controls and financial statements on the basis that the external auditor is accountable to the Board and the Audit Committee as representatives of the shareholders of the Company; |
(b) | to evaluate the audit services provided by the external auditor, pre-approve all audit fees and recommend to the Board, if necessary, the replacement of the external auditor; |
(c) | to pre-approve any non-audit services to be provided to the Company or its subsidiaries by the external auditor and the fees for those services; |
(d) | to obtain and review at least annually a written report by the external auditor setting out the auditor’s internal quality control procedures, any material issues raised by the auditor’s internal quality control reviews and the steps taken to resolve those issues; |
(e) | to review at least annually the relationships between the Company and the external auditor in order to establish the independence of the external auditor; |
(f) | to oversee the work of the external auditor, including the resolution of disagreements between management and the external auditors regarding financial reporting; |
(g) | to communicate directly with the internal and external auditors; |
(h) | to meet privately with the external auditors as frequently as the Committee feels appropriate to fulfill its responsibilities; and |
(i) | to review and evaluate the lead partner of the auditor. |
4. | Risk management - to review and monitor the Company\u2019s major financial risks and risk management policies and the steps taken by management to mitigate those risks. |
Norbord Inc. | 2018 Annual Information Form | Page 25 |
5. | Compliance - |
(a) | to review the Company’s financial reporting procedures and policies relating to compliance with legal and regulatory requirements and to investigate any non-adherence to those procedures and policies; and |
(b) | to establish procedures for the receipt and treatment of any complaint regarding accounting, internal accounting controls or auditing matters including procedures for the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters. |
1. | Size - The Audit Committee will consist of a minimum of three Directors. The members of the Committee and the Chair are appointed by the Board upon the recommendation of the Corporate Governance and Nominating Committee and may be removed by the Board in its discretion. |
2. | Qualifications - All members of the Committee must be independent within the meaning of sections 1.4 and 1.5 of National Instrument 52-110. All members of the Committee must be financially literate, i.e., have the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the financial statements of the Company. |
3. | Meetings - The Committee will meet as frequently as it determines is appropriate to fulfill its responsibilities, which will not be less than four times a year and a portion of each meeting will be held without the presence of management. Quorum for meetings will be a majority of the members of the Committee. Notice of meetings of the Committee shall be given not less than 48 hours before the time when the meeting is to be held. The Committee may invite any member of management, employee or other person to attend any of its meetings. |
4. | Review of Financial Statements - The Committee will review the Company’s annual audited financial statements with the CEO and CFO and then the full Board. The Committee will review the interim financial statements with the CEO and CFO and will approve such documents prior to their filing. The external auditor will be present at these meetings. |
5. | Review of CEO and CFO Certification Process - In connection with its review of the annual audited financial statements and interim financial statements, the Committee will also review the process for the CEO and CFO certifications with respect to the financial statements and the Company’s disclosure and internal controls, including any material deficiencies or changes in those controls. |
6. | Review of Earnings and Other Releases - The Committee will review with the CFO any news release containing financial information taken from the Company’s financial statements prior to the release of the financial statements to the public. The Committee will satisfy itself that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements and will periodically assess the adequacy of those procedures |
7. | Approval of Audit and Non-Audit Services - In addition to recommending to the Board the external auditor to examine the Company’s financial statements and the compensation of the external auditor for audit services, the Committee must approve any use of that external auditor to provide non-audit services prior to its engagement. It is the Committee’s practice to restrict the non-audit services that may be provided by the external auditor in order to minimize relationships that could appear to impair the objectivity and independence of the external auditor. |
8. | Hiring Guidelines for Independent Auditor Employees - The Committee will adopt guidelines regarding the hiring of any partner, employee, reviewing tax professional or other person providing audit assurance to the external auditor of the Company on any aspect of its Audit Report of the Company’s financial statements in order to ensure the objectivity and independence of the external auditor. |
9. | Audit Partner Rotation - The Committee will ensure that the lead audit partner assigned by the external auditor to the Company, as well as the independent review partner charged with reviewing the financial statements of the Company, are changed at least every five years. |
10. | Process for Handling Complaints about Accounting Matters - The Committee has established the following procedure for the receipt and treatment of any complaint received by the Company regarding accounting, internal accounting controls or auditing matters: |
(a) | The Company will make available and make known special mail and e-mail addresses and telephone numbers for receiving complaints regarding accounting, internal accounting controls or auditing matters; |
Norbord Inc. | 2018 Annual Information Form | Page 26 |
(b) | Copies of complaints received will be sent to the members of the Committee; |
(c) | All complaints will be investigated by the Company’s finance staff, except as otherwise directed by the Committee. The Committee may request that outside advisors be retained to investigate any complaint; and |
(d) | The status of each complaint will be reported on a quarterly basis to the Committee and, if the Committee so directs, to the full Board. The Company’s Code of Business Conduct prohibits any Director, officer or employee of the Company from retaliating or taking any adverse action against anyone for raising or helping to resolve a complaint. |
11. | Evaluation - The Committee will conduct and present to the Board an annual evaluation of the performance of the Committee and the adequacy of these terms of reference and recommend any proposed change to the Board for approval. |
12. | Management - The Committee shall meet privately with members of management as frequently as the Committee feels appropriate to fulfill its responsibilities. |
13. | Access to Independent Advisors - The Committee may at any time retain outside advisors at the expense of the Company, subject to the approval of the Chair of the Board. |
14. | Other Matters - The Committee will conduct reviews and, where appropriate, recommend action by the Board, on matters within its responsibilities and, on: |
(a) | The Annual Information Form to be filed by the Company; |
(b) | Regular reports on outstanding litigation that could have a material effect on the Company; |
(c) | An annual certificate of the CEO attesting that senior management of the Company have received and agreed to be bound by the Company’s Code of Business Conduct and as to compliance with the Code; |
(d) | An annual report on officers’ expenses; |
(e) | An annual report on consulting and legal fees paid by the Company; |
(f) | An annual report on the Company's insurance coverage and costs; and |
(g) | Periodic review of significant taxation matters. |
Norbord Inc. | 2018 Annual Information Form | Page 27 |
(MMsf–3/8”) | Estimated Annual Capacity at Year-End 2017 | |
OSB | ||
100 Mile House, British Columbia | 440 | |
Barwick, Ontario | 510 | |
Bemidji, Minnesota | 470 | |
Chambord, Quebec(1) | 470 | |
Cordele, Georgia | 990 | |
Genk, Belgium | 450 | |
Grande Prairie, Alberta | 730 | |
Guntown, Mississippi | 450 | |
High Level, Alberta | 860 | |
Huguley, Alabama(2) | 500 | |
Inverness, Scotland(3) | 720 | |
Jefferson, Texas | 415 | |
Joanna, South Carolina | 650 | |
La Sarre, Quebec | 375 | |
Nacogdoches, Texas | 380 | |
8,410 | ||
Particleboard | ||
Cowie, Scotland | 405 | |
South Molton, England | 160 | |
565 | ||
MDF | ||
Cowie, Scotland | 380 | |
380 | ||
Total Panels | 9,355 |
(1) | In November 2016, Norbord exchanged ownership of its Val-d’Or OSB mill for Louisiana-Pacific Corporation’s curtailed Chambord OSB mill (the Asset Exchange). Production at Chambord has been curtailed since the third quarter of 2008. |
(2) | In January 2009, Norbord indefinitely curtailed production at its Huguley, Alabama OSB mill. The mill subsequently resumed operations in October 2017. |
(3) | During the fourth quarter of 2017, the estimated annual capacity increased from 395 MMsf-3/8" based on the substantial completion of the Inverness expansion project. |
Financial Goal | 2017 Accomplishments | |
1. Generate cash. | • | Achieved Adjusted EBITDA of $672 million and ROCE of 45%. |
• | Increased North American Adjusted EBITDA to $638 million from $352 million in 2016, benefiting from 31% higher average North Central benchmark OSB prices during the year. | |
• | European Adjusted EBITDA was steady at $41 million despite significantly higher resin prices and start-up of the new Inverness, Scotland line. | |
• | Generated operating cash flow of $608 million, almost double from $313 million in 2016. | |
2. Protect the balance sheet. | • | Moody’s Investors Service upgraded the Company's issuer credit rating from Ba2 to Ba1 and Standard & Poor’s Ratings Services upgraded from BB- to BB. DBRS confirmed at BB and upgraded its outlook from Negative to Stable. |
• | Ended the year with unutilized liquidity of $592 million (including $241 million in cash and cash equivalents), net debt to capitalization on a book basis of 21% and tangible net worth of $1,248 million. | |
The table below summarizes the six key components of Norbord’s business strategy and its performance in each area in 2017: | ||
Strategic Priority | 2017 Performance | |
1. Develop a world-class safety culture. | • | Completed Occupational Safety and Health Administration (OSHA) recordable injury-free year at four mills (Genk, Belgium; Huguley, Alabama; Jefferson, Texas; and La Sarre, Quebec). |
• | Recertified Bemidji, Minnesota; Nacogdoches, Texas and Cowie, Scotland mills under Norbord's Safety Star program. | |
• | Achieved an overall OSHA injury rate of 0.74 for 2017, matching best-ever performance. | |
2. Pursue growth in OSB. | • | Increased production volume at North American OSB and European panel mills by 4% and 3%, respectively, over 2016. |
• | Set annual production records at nine of 15 operating mills: Bemidji, Minnesota; Cordele, Georgia; Grande Prairie, Alberta; High Level, Alberta; Jefferson, Texas; La Sarre, Quebec; Nacogdoches, Texas; Genk, Belgium and Cowie, Scotland. | |
• | Substantially completed construction of European OSB capacity modernization and expansion in Inverness, Scotland in the fourth quarter of 2017. The new line started up in October 2017, with no disruption to existing production capacity. | |
• | Restarted previously curtailed Huguley, Alabama mill in October 2017 to meet customer demand. | |
• | Secured long-term wood supply and 8-year labour contract for curtailed Chambord, Quebec mill. Evaluating capital investment required to prepare mill for eventual restart when warranted by customer demand. | |
3. Own high-quality assets with low-cost positions. | • | Completed fifth year of capital reinvestment strategy, focused on improving productivity and reducing manufacturing costs. |
• | North American and European panel cash production costs per unit (excluding mill profit share) increased by 5% and 11%, respectively, as improved productivity and raw material usage were more than offset by higher resin prices and the pre-operating costs at Huguley, Alabama and Inverness, Scotland. | |
4. Maintain a margin-focused operating culture. | • | Generated $12 million in Margin Improvement Program (MIP) gains across the Company from improved productivity and lower raw material usage, despite offset from higher maintenance costs incurred to ensure mill production reliability in strong markets. |
5. Focus on growth customers through best-in-class service and product development. | • | Increased North American shipments by 3% with 17% growth in specialty products volume. |
• | Specialty products, which encompass industrial and export end uses, now represent 25% of total shipments, up from 22% in 2016. | |
• | Increased European OSB shipments by 5% with key UK and German market volumes up by 7% and 4%, respectively. | |
6. Allocate capital with discipline. | • | Invested $253 million in capital projects (including $101 million for Inverness expansion and $37 million for Huguley restart) to maintain the Company’s assets and high standards for environmental and safety performance, improve production efficiency and reduce manufacturing costs. |
• | Increased quarterly dividend three times (from C $0.10 to C $0.60) during the year and paid dividends of $101 million. | |
• | Permanently repaid $200 million senior secured debt at maturity in February 2017. |
(US $ millions, except per share information, unless otherwise noted) | 2017 | 2016 | 2015 | ||||||
SALES AND EARNINGS | |||||||||
Sales | 2,177 | 1,766 | 1,509 | ||||||
Operating income | 549 | 280 | 31 | ||||||
Adjusted EBITDA(1) | 672 | 385 | 125 | ||||||
Earnings (loss) | 436 | 183 | (56 | ) | |||||
Adjusted earnings (loss)(1) | 389 | 174 | (12 | ) | |||||
PER COMMON SHARE EARNINGS | |||||||||
Earnings (loss), basic(2) | 5.06 | 2.14 | (0.66 | ) | |||||
Adjusted earnings (loss), basic(1,3) | 4.51 | 2.03 | (0.14 | ) | |||||
Dividends declared(4) | 1.50 | 0.40 | 0.70 | ||||||
BALANCE SHEET | |||||||||
Total assets | 2,103 | 1,799 | 1,635 | ||||||
Long-term debt(5) | 548 | 746 | 745 | ||||||
Net debt for financial covenant purposes(1) | 333 | 619 | 751 | ||||||
Net debt to capitalization, market basis(1) | 11 | % | 25 | % | 32 | % | |||
Net debt to capitalization, book basis(1) | 21 | % | 41 | % | 51 | % | |||
KEY STATISTICS | |||||||||
Shipments (MMsf–3/8”) | |||||||||
North America | 6,066 | 5,888 | 5,497 | ||||||
Europe | 1,867 | 1,779 | 1,740 | ||||||
Indicative average OSB price | |||||||||
North Central ($/Msf–7/16”) | 353 | 269 | 209 | ||||||
South East ($/Msf–7/16”) | 330 | 245 | 187 | ||||||
Western Canada ($/Msf–7/16”) | 326 | 234 | 169 | ||||||
Europe (€/m3)(6) | 239 | 233 | 224 | ||||||
KEY PERFORMANCE METRICS | |||||||||
Return on capital employed (ROCE)(1) | 45 | % | 27 | % | 9 | % | |||
Return on equity (ROE)(1) | 47 | % | 30 | % | (2 | )% | |||
Cash provided by operating activities | 608 | 313 | 24 | ||||||
Cash provided by operating activities per share(1) | 7.05 | 3.66 | 0.28 |
(1) | Non-IFRS measure; see Non-IFRS Financial Measures section. |
(2) | Basic and diluted earnings (loss) per share are the same except diluted earnings per share for 2017 is $5.03 and 2016 is $2.13. |
(3) | Basic and diluted Adjusted earnings (loss) per share are the same except diluted Adjusted earnings per share for 2017 is $4.49 and 2016 is $2.02. |
(4) | Dividends declared per share stated in Canadian dollars. |
(5) | Includes current and non-current long-term debt. |
(6) | European indicative average OSB price represents the gross delivered price to the largest continental market. |
(US $ millions) | 2017 | 2016 | 2015 | |||||||||
Earnings (loss) | $ | 436 | $ | 183 | $ | (56 | ) | |||||
Add: Finance costs | 32 | 52 | 55 | |||||||||
Add: Depreciation and amortization | 107 | 94 | 86 | |||||||||
Add: Income tax expense (recovery) | 81 | 61 | (27 | ) | ||||||||
Add: Loss on disposal of assets | 12 | — | 1 | |||||||||
Add: Stock-based compensation and related costs | 3 | 2 | 2 | |||||||||
Add: Pre-operating costs related to Inverness project | 1 | — | — | |||||||||
Less: Gain on Asset Exchange | — | (16 | ) | — | ||||||||
Add: Merger transaction costs | — | — | 8 | |||||||||
Add: Severance costs related to Merger | — | — | 2 | |||||||||
Add: Other costs incurred to achieve Merger synergies | — | 8 | 5 | |||||||||
Add: Costs related to High Level fire | — | 1 | — | |||||||||
Add: Costs on early extinguishment of Ainsworth Notes | — | — | 25 | |||||||||
Add: Foreign exchange on Ainsworth Notes | — | — | 28 | |||||||||
Less: Gain on derivative financial instrument on Ainsworth Notes | — | — | (4 | ) | ||||||||
Adjusted EBITDA(1) | $ | 672 | $ | 385 | $ | 125 |
(1) | Non-IFRS measure; see Non-IFRS Financial Measures section. |
(US $ millions) | 2017 | 2016 | 2015 | |||||||||
Earnings (loss) | $ | 436 | $ | 183 | $ | (56 | ) | |||||
Add: Loss on disposal of assets | 12 | — | 1 | |||||||||
Add: Stock-based compensation and related costs | 3 | 2 | 2 | |||||||||
Add: Pre-operating costs related to Inverness project | 1 | — | — | |||||||||
Less: Gain on Asset Exchange | — | (16 | ) | — | ||||||||
Add: Merger transaction costs | — | — | 8 | |||||||||
Add: Severance costs related to Merger | — | — | 2 | |||||||||
Add: Other costs incurred to achieve Merger synergies | — | 8 | 5 | |||||||||
Add: Costs related to High Level fire | — | 1 | — | |||||||||
Add: Costs on early extinguishment of Ainsworth Notes | — | — | 25 | |||||||||
Add: Foreign exchange on Ainsworth Notes | — | — | 28 | |||||||||
Less: Gain on derivative financial instrument on Ainsworth Notes | — | — | (4 | ) | ||||||||
Add: Reported income tax expense (recovery) | 81 | 61 | (27 | ) | ||||||||
Adjusted pre-tax earnings (loss) | 533 | 239 | (16 | ) | ||||||||
Less: Income tax (expense) recovery at statutory rate(1) | (144 | ) | (65 | ) | 4 | |||||||
Adjusted earnings (loss)(2) | $ | 389 | $ | 174 | $ | (12 | ) |
(1) | Represents Canadian combined federal and provincial statutory rate. |
(2) | Non-IFRS measure; see Non-IFRS Financial Measures section. |
(US $ millions, unless otherwise noted) | 2017 | 2016 | ||||
Sales | 2,177 | 1,766 | ||||
Adjusted EBITDA(1) | 672 | 385 | ||||
Adjusted EBITDA margin(1) | 31 | % | 22 | % | ||
Depreciation and amortization | 107 | 94 | ||||
Additions to property, plant and equipment and intangible assets | 257 | 107 | ||||
Shipments (MMsf–3/8”) | 7,933 | 7,667 | ||||
Indicative Average OSB Price | ||||||
North Central ($/Msf–7/16”) | 353 | 269 | ||||
South East ($/Msf–7/16”) | 330 | 245 | ||||
Western Canada ($/Msf–7/16”) | 326 | 234 | ||||
Europe (€/m3)(2) | 239 | 233 |
(1) | Non-IFRS measure; see Non-IFRS Financial Measures section. |
(2) | European indicative average OSB price represents the gross delivered price to the largest continental market. |
(MMsf–3/8”) | 2017 | 2016 | ||||
North America | 6,066 | 5,888 | ||||
Europe | 1,867 | 1,779 | ||||
Total | 7,933 | 7,667 |
North American Region | % of Norbord’s Estimated Annual Operating Capacity(1) | 2017 ($/Msf-7/16”) | 2016 ($/Msf-7/16”) | ||||||||
North Central | 14 | % | $ | 353 | $ | 269 | |||||
South East | 38 | % | 330 | 245 | |||||||
Western Canada | 30 | % | 326 | 234 |
(1) | Excludes the indefinitely curtailed Chambord, Quebec mill which represents 6% of estimated annual capacity. |
(US $ millions) | 2017 | 2016 | ||||||
North America | $ | 1,747 | $ | 1,361 | ||||
Europe | 430 | 405 | ||||||
Total | $ | 2,177 | $ | 1,766 |
(MMsf–3/8”) | 2017 | 2016 | ||||
North America | 6,133 | 5,900 | ||||
Europe | 1,825 | 1,780 | ||||
Total | 7,958 | 7,680 |
Adjusted EBITDA(1) (US $ millions) | 2017 | 2016 | ||||||
North America | $ | 638 | $ | 352 | ||||
Europe | 41 | 41 | ||||||
Unallocated | (7 | ) | (8 | ) | ||||
Total | $ | 672 | $ | 385 |
(1) | Non-IFRS measure; see Non-IFRS Financial Measures section. |
(US $ millions) | 2017 vs. 2016 | ||
Adjusted EBITDA – current period | $ | 672 | |
Adjusted EBITDA – comparative period | 385 | ||
Variance | 287 | ||
Mill nets(1) | 363 | ||
Volume(2) | 22 | ||
Key input prices(3) | (37 | ) | |
Key input usage(3) | — | ||
Mill profit share and bonus | (15 | ) | |
Other operating costs and foreign exchange(4) | (46 | ) | |
Total | $ | 287 |
(1) | The mill nets variance represents the estimated impact of changes 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 other operating costs and foreign exchange category covers all remaining variances including labour and benefits, maintenance, costs to prepare the Huguley mill for restart and costs to start up the new Inverness line. |
(US $ millions) | 2017 | 2016 | ||||||
Finance costs | $ | (32 | ) | $ | (52 | ) | ||
Depreciation and amortization | (107 | ) | (94 | ) | ||||
Income tax expense | (83 | ) | (61 | ) |
(US $ millions, except per share information, unless otherwise noted) | 2017 | 2016 | ||||||
Cash provided by operating activities | $ | 608 | $ | 313 | ||||
Cash provided by operating activities per share(1) | 7.05 | 3.66 | ||||||
Operating working capital | 127 | 118 | ||||||
Total working capital | 295 | 278 | ||||||
Additions to property, plant and equipment and intangible assets | 257 | 107 | ||||||
Net debt to capitalization, market basis(1) | 11 | % | 25 | % | ||||
Net debt to capitalization, book basis(1) | 21 | % | 41 | % |
(1) | Non-IFRS measure; see Non-IFRS Financial Measures section. |
● | the IFRS transitional adjustments to shareholders’ equity of $21 million at January 1, 2011 are added back; |
● | changes to other comprehensive income subsequent to January 1, 2011 are excluded; |
● | intangible assets (other than timber rights and software acquisition and development costs) are excluded; and |
● | the impact of the change in functional currency of Ainsworth on shareholders’ equity of $155 million is excluded. |
(US $ millions) | Dec 31, 2017 | Dec 31, 2016 | ||||||
Long-term debt, principal value | $ | 555 | $ | 755 | ||||
Less: Cash and cash equivalents | (241 | ) | (161 | ) | ||||
Net debt | 314 | 594 | ||||||
Add: Letters of credit | 19 | 25 | ||||||
Net debt for financial covenant purposes | $ | 333 | $ | 619 | ||||
Shareholders’ equity | $ | 1,019 | $ | 650 | ||||
Add: Other comprehensive income change(1) | 53 | 79 | ||||||
Add: Impact of Ainsworth changing functional currencies | 155 | 155 | ||||||
Add: IFRS transitional adjustments | 21 | 21 | ||||||
Tangible net worth for financial covenant purposes | $ | 1,248 | $ | 905 | ||||
Total capitalization | $ | 1,581 | $ | 1,524 | ||||
Net debt to capitalization, market basis | 11 | % | 25 | % | ||||
Net debt to capitalization, book basis | 21 | % | 41 | % |
(1) | Cumulative subsequent to January 1, 2011. |
Payments Due by Period | ||||||||||||||||||||||||||||
(US $ millions) | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | |||||||||||||||||||||
Long-term debt, including interest | $ | 33 | $ | 33 | $ | 273 | $ | 19 | $ | 19 | $ | 325 | $ | 702 | ||||||||||||||
Purchase commitments | 100 | 76 | 11 | 5 | 5 | 5 | 202 | |||||||||||||||||||||
Operating leases | 5 | 4 | 3 | 2 | 1 | 2 | 17 | |||||||||||||||||||||
Reforestation obligations | 2 | — | — | — | — | 1 | 3 | |||||||||||||||||||||
Total | $ | 140 | $ | 113 | $ | 287 | $ | 26 | $ | 25 | $ | 333 | $ | 924 |
(US $ millions) | 2017 | 2016 | ||||||
Increased productivity and cost reduction | $ | 103 | $ | 38 | ||||
Inverness project | 101 | 33 | ||||||
Maintenance of business | 34 | 21 | ||||||
Environmental and safety | 8 | 8 | ||||||
Capitalized interest | 7 | 1 | ||||||
Total | $ | 253 | $ | 101 |
At December 31 | 2017 | 2016 | ||||||
Shares outstanding (millions) | 86.4 | 85.8 | ||||||
Dividends (US $ millions) | $ | 101 | $ | 26 | ||||
Market price at year-end (C $) | $ | 42.55 | $ | 33.91 |
(C $) | Quarterly Dividend Declared per Common Share | |||
Q2 2013 to Q4 2014 | $ | 0.60 | ||
Q1 2015 & Q2 2015 | 0.25 | |||
Q3 2015 to Q1 2017 | 0.10 | |||
Q2 2017 | 0.30 | |||
Q3 2017 | 0.50 | |||
Q4 2017 | 0.60 |
(US $ millions) | 2017 | 2016 | ||||||
Salaries, incentives and short-term benefits | $ | 4 | $ | 3 | ||||
Share-based awards | 1 | 1 | ||||||
$ | 5 | $ | 4 |
2017 | 2016 | |||||||||||||||||||||||
(US $ millions, except per share information, unless otherwise noted) | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||
SALES AND EARNINGS | ||||||||||||||||||||||||
Sales | 596 | 578 | 536 | 467 | 482 | 453 | 447 | 384 | ||||||||||||||||
Operating income | 172 | 169 | 135 | 73 | 87 | 87 | 67 | 39 | ||||||||||||||||
Adjusted EBITDA(1) | 204 | 200 | 165 | 103 | 115 | 115 | 94 | 61 | ||||||||||||||||
Earnings | 160 | 130 | 97 | 49 | 61 | 55 | 44 | 23 | ||||||||||||||||
Adjusted earnings(1) | 123 | 121 | 95 | 50 | 55 | 58 | 41 | 20 | ||||||||||||||||
PER COMMON SHARE EARNINGS | ||||||||||||||||||||||||
Earnings, basic(2) | 1.85 | 1.51 | 1.13 | 0.57 | 0.71 | 0.64 | 0.51 | 0.27 | ||||||||||||||||
Adjusted earnings, basic(1,3) | 1.42 | 1.40 | 1.10 | 0.58 | 0.64 | 0.68 | 0.48 | 0.23 | ||||||||||||||||
Dividends declared(4) | 0.60 | 0.50 | 0.30 | 0.10 | 0.10 | 0.10 | 0.10 | 0.10 | ||||||||||||||||
BALANCE SHEET | ||||||||||||||||||||||||
Total assets | 2,103 | 1,951 | 1,772 | 1,725 | 1,799 | 1,718 | 1,654 | 1,670 | ||||||||||||||||
Long-term debt(5) | 548 | 548 | 547 | 547 | 746 | 746 | 745 | 745 | ||||||||||||||||
Net debt for financial covenant purposes(1) | 333 | 449 | 567 | 580 | 619 | 705 | 751 | 749 | ||||||||||||||||
Net debt to capitalization, market basis(1) | 11 | % | 15 | % | 20 | % | 20 | % | 25 | % | 29 | % | 31 | % | 32 | % | ||||||||
Net debt to capitalization, book basis(1) | 21 | % | 28 | % | 36 | % | 38 | % | 41 | % | 45 | % | 48 | % | 50 | % | ||||||||
KEY STATISTICS | ||||||||||||||||||||||||
Shipments (MMsf–3/8”) | ||||||||||||||||||||||||
North America | 1,562 | 1,537 | 1,536 | 1,431 | 1,601 | 1,463 | 1,487 | 1,337 | ||||||||||||||||
Europe | 440 | 474 | 474 | 479 | 447 | 438 | 459 | 435 | ||||||||||||||||
Indicative average OSB price | ||||||||||||||||||||||||
North Central ($/Msf–7/16”) | 379 | 409 | 330 | 293 | 285 | 301 | 264 | 226 | ||||||||||||||||
South East ($/Msf–7/16”) | 355 | 354 | 320 | 292 | 263 | 256 | 245 | 215 | ||||||||||||||||
Western Canada ($/Msf–7/16”) | 328 | 388 | 324 | 265 | 236 | 265 | 242 | 191 | ||||||||||||||||
Europe (€/m3)(6) | 262 | 233 | 230 | 226 | 230 | 235 | 237 | 230 | ||||||||||||||||
KEY PERFORMANCE METRICS | ||||||||||||||||||||||||
Return on capital employed (ROCE)(1) | 52 | % | 52 | % | 44 | % | 29 | % | 30 | % | 32 | % | 26 | % | 18 | % | ||||||||
Return on equity (ROE)(1) | 51 | % | 58 | % | 51 | % | 30 | % | 34 | % | 41 | % | 31 | % | 16 | % | ||||||||
Cash provided by operating activities | 222 | 203 | 144 | 39 | 130 | 97 | 83 | 3 | ||||||||||||||||
Cash provided by operating activities per share(1) | 2.57 | 2.36 | 1.67 | 0.45 | 1.52 | 1.13 | 0.97 | 0.04 |
(1) | Non-IFRS measure; see Non-IFRS Financial Measures section. |
(2) | Basic and diluted earnings per share are the same except diluted earnings per share for Q4 2017 is $1.84, Q3 2017 is $1.50 and Q2 2017 is $1.12. |
(3) | Basic and diluted Adjusted earnings per share are the same except diluted Adjusted earnings per share for Q4 2017 is $1.41, Q3 2017 is $1.39 and Q3 2016 is $0.67. |
(4) | Dividends declared per share stated in Canadian dollars. |
(5) | Includes current and non-current long-term debt. |
(6) | European indicative average OSB price represents the gross delivered price to the largest continental market. |
(US $ millions) | Q4 2017 | Q3 2017 | Q2 2017 | Q1 2017 | Q4 2016 | Q3 2016 | Q2 2016 | Q1 2016 | ||||||||||||||||||||||||
Earnings | $ | 160 | $ | 130 | $ | 97 | $ | 49 | $ | 61 | $ | 55 | $ | 44 | $ | 23 | ||||||||||||||||
Add: Loss on disposal of assets | 3 | 2 | 2 | 5 | — | — | — | — | ||||||||||||||||||||||||
Add: Stock-based compensation and related costs | — | 1 | 1 | 1 | 1 | 1 | — | — | ||||||||||||||||||||||||
Add: Pre-operating costs related to Inverness project | — | 1 | — | — | — | — | — | — | ||||||||||||||||||||||||
Less: Gain on Asset Exchange | — | — | — | — | (16 | ) | — | — | — | |||||||||||||||||||||||
Add: Other costs incurred to achieve Merger synergies | — | — | — | — | 1 | 4 | 2 | 1 | ||||||||||||||||||||||||
Add: Costs related to High Level fire | — | — | — | — | — | — | 1 | — | ||||||||||||||||||||||||
Add: Reported income tax expense | 6 | 32 | 30 | 13 | 29 | 19 | 10 | 3 | ||||||||||||||||||||||||
Adjusted pre-tax earnings | 169 | 166 | 130 | 68 | 76 | 79 | 57 | 27 | ||||||||||||||||||||||||
Less: Income tax expense at statutory rate(1) | (46 | ) | (45 | ) | (35 | ) | (18 | ) | (21 | ) | (21 | ) | (16 | ) | (7 | ) | ||||||||||||||||
Adjusted earnings | $ | 123 | $ | 121 | $ | 95 | $ | 50 | $ | 55 | $ | 58 | $ | 41 | $ | 20 |
(1) | Represents Canadian combined federal and provincial statutory rate. |
(US $ millions) | Q4 2017 | Q3 2017 | Q2 2017 | Q1 2017 | Q4 2016 | Q3 2016 | Q2 2016 | Q1 2016 | ||||||||||||||||||||||||
Earnings | $ | 160 | $ | 130 | $ | 97 | $ | 49 | $ | 61 | $ | 55 | $ | 44 | $ | 23 | ||||||||||||||||
Add: Finance costs | 6 | 7 | 8 | 11 | 13 | 13 | 13 | 13 | ||||||||||||||||||||||||
Add: Depreciation and amortization | 29 | 27 | 27 | 24 | 26 | 23 | 24 | 21 | ||||||||||||||||||||||||
Add: Income tax expense | 6 | 32 | 30 | 13 | 29 | 19 | 10 | 3 | ||||||||||||||||||||||||
Add: Loss on disposal of assets | 3 | 2 | 2 | 5 | — | — | — | — | ||||||||||||||||||||||||
Add: Stock-based compensation and related costs | — | 1 | 1 | 1 | 1 | 1 | — | — | ||||||||||||||||||||||||
Add: Pre-operating costs related to Inverness project | — | 1 | — | — | — | — | — | — | ||||||||||||||||||||||||
Less: Gain on Asset Exchange | — | — | — | — | (16 | ) | — | — | — | |||||||||||||||||||||||
Add: Other costs incurred to achieve Merger synergies | — | — | — | — | 1 | 4 | 2 | 1 | ||||||||||||||||||||||||
Add: Costs related to High Level fire | — | — | — | — | — | — | 1 | — | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 204 | $ | 200 | $ | 165 | $ | 103 | $ | 115 | $ | 115 | $ | 94 | $ | 61 |
North American Region | % of Norbord’s Estimated Annual Operating Capacity(1) | Q4 2017 ($/Msf-7/16”) | Q3 2017 ($/Msf-7/16”) | Q4 2016 ($/Msf-7/16”) | |||||||||||
North Central | 14 | % | $ | 379 | $ | 409 | $ | 285 | |||||||
South East | 38 | % | 355 | 354 | 263 | ||||||||||
Western Canada | 30 | % | 328 | 388 | 236 |
(1) | Excludes the indefinitely curtailed Chambord, Quebec mill which represents 6% of estimated annual capacity. |
(US $ millions) | Q4 2017 vs. Q3 2017 | Q4 2017 vs. Q4 2016 | ||||||
Adjusted EBITDA – current period | $ | 204 | $ | 204 | ||||
Adjusted EBITDA – comparative period | 200 | 115 | ||||||
Variance | 4 | 89 | ||||||
Mill nets(1) | 21 | 115 | ||||||
Volume(2) | — | (5 | ) | |||||
Key input prices(3) | (1 | ) | (11 | ) | ||||
Key input usage(3) | (8 | ) | (2 | ) | ||||
Mill profit share and bonus | — | (4 | ) | |||||
Other operating costs and foreign exchange(4) | (8 | ) | (4 | ) | ||||
Total | $ | 4 | $ | 89 |
(1) | The mill nets variance represents the estimated impact of changes 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 other operating costs and foreign exchange category covers all remaining variances including labour and benefits, maintenance, costs to prepare the Huguley mill for restart and costs to start up the new Inverness line. |
(US $ millions) | Q4 2017 | Q3 2017 | Q4 2016 | |||||||||
North America | $ | 195 | $ | 184 | $ | 108 | ||||||
Europe | 12 | 14 | 10 | |||||||||
Unallocated | (3 | ) | 2 | (3 | ) | |||||||
Total | $ | 204 | $ | 200 | $ | 115 |
DBRS | Standard & Poor’s Ratings Services | Moody’s Investors Service | |||
Secured notes | BB | BB+(1) | Ba1(2) | ||
Issuer | BB | BB(1) | Ba1(2) | ||
Outlook | Stable(3) | Stable(1) | Stable |
(1) | Ratings on both the secured notes and the issuer were upgraded from BB- and the Outlook was revised from Positive in August 2017. |
(2) | Ratings on both the secured notes and the issuer were upgraded from Ba2 in March 2017. |
(3) | Outlook upgraded from Negative in May 2017. |
(i) | Income Taxes |
(ii) | Cash Flow Statement Disclosure |
(iii) | Foreign Currency Translation |
(i) | Financial Instruments |
(ii) | Revenue from Contracts with Customers |
(iii) | Share-based Payment |
(iv) | Foreign Currency Transactions and Advance Consideration |
(v) | Leases |
(vi) | Uncertainty over Income Tax Treatments |
(i) | Functional Currency |
(ii) | Income Taxes |
(i) | Inventory |
(ii) | Property, Plant and Equipment and Intangible Assets |
(iii) | Employee Benefit Plans |
(iv) | Income Taxes |
(v) | Financial Instruments |
Sensitivity Factor | Impact on Adjusted EBITDA (US $ millions) | |
OSB – North America | $10 per Msf–7/16” | $59 |
OSB – Europe | €10 per m3 | 12 |
● | net investments in foreign operations, limited to Norbord’s investment in its European operations which transact in both Pounds Sterling and Euros; |
● | net Canadian dollar-denominated monetary assets and liabilities; and |
● | committed or anticipated foreign currency-denominated transactions, primarily Canadian dollar costs in Norbord’s Canadian operations and Euro revenues in Norbord’s UK operations. |
(US $ millions) | 2017 | 2016 | 2015 | |||||||||
Earnings (loss) | $ | 436 | $ | 183 | $ | (56 | ) | |||||
Add: Loss on disposal of assets | 12 | — | 1 | |||||||||
Add: Stock-based compensation and related costs | 3 | 2 | 2 | |||||||||
Add: Pre-operating costs related to Inverness project | 1 | — | — | |||||||||
Less: Gain on Asset Exchange | — | (16 | ) | — | ||||||||
Add: Other costs incurred to achieve Merger synergies | — | 8 | 5 | |||||||||
Add: Merger transaction costs | — | — | 8 | |||||||||
Add: Severance costs related to Merger | — | — | 2 | |||||||||
Add: Costs related to High Level fire | — | 1 | — | |||||||||
Add: Costs on early extinguishment of Ainsworth Notes | — | — | 25 | |||||||||
Add: Foreign exchange on Ainsworth Notes | — | — | 28 | |||||||||
Less: Gain on derivative financial instrument on Ainsworth Notes | — | — | (4 | ) | ||||||||
Add: Reported income tax expense (recovery) | 81 | 61 | (27 | ) | ||||||||
Adjusted pre-tax earnings (loss) | 533 | 239 | (16 | ) | ||||||||
Less: Income tax (expense) recovery at statutory rate(1) | (144 | ) | (65 | ) | 4 | |||||||
Adjusted earnings (loss) | $ | 389 | $ | 174 | $ | (12 | ) |
(US $ millions) | 2017 | 2016 | 2015 | |||||||||
Earnings (loss) | $ | 436 | $ | 183 | $ | (56 | ) | |||||
Add: Finance costs | 32 | 52 | 55 | |||||||||
Add: Depreciation and amortization | 107 | 94 | 86 | |||||||||
Add: Income tax expense (recovery) | 81 | 61 | (27 | ) | ||||||||
Add: Loss on disposal of assets | 12 | — | 1 | |||||||||
Add: Stock-based compensation and related costs | 3 | 2 | 2 | |||||||||
Add: Pre-operating costs related to Inverness project | 1 | — | — | |||||||||
Less: Gain on Asset Exchange | — | (16 | ) | — | ||||||||
Add: Other costs incurred to achieve Merger synergies | — | 8 | 5 | |||||||||
Add: Merger transaction costs | — | — | 8 | |||||||||
Add: Severance costs related to Merger | — | — | 2 | |||||||||
Add: Costs related to High Level fire | — | 1 | — | |||||||||
Add: Costs on early extinguishment of Ainsworth Notes | — | — | 25 | |||||||||
Add: Foreign exchange on Ainsworth Notes | — | — | 28 | |||||||||
Less: Gain on derivative financial instrument on Ainsworth Notes | — | — | (4 | ) | ||||||||
Adjusted EBITDA | $ | 672 | $ | 385 | $ | 125 |
2017 | ||||||||||||||||
(US $ millions) | North America | Europe | Unallocated | Total | ||||||||||||
EBITDA(1) | $ | 627 | $ | 39 | $ | (10 | ) | $ | 656 | |||||||
Add: Loss on disposal of assets | 11 | 1 | — | 12 | ||||||||||||
Add: Stock-based compensation and related costs | — | — | 3 | 3 | ||||||||||||
Add: Pre-operating costs related to Inverness project | — | 1 | — | 1 | ||||||||||||
Adjusted EBITDA | $ | 638 | $ | 41 | $ | (7 | ) | $ | 672 |
2016 | ||||||||||||||||
(US $ millions) | North America | Europe | Unallocated | Total | ||||||||||||
EBITDA(1) | $ | 363 | $ | 41 | $ | (14 | ) | $ | 390 | |||||||
Add: Stock-based compensation and related costs | — | — | 2 | 2 | ||||||||||||
Less: Gain on Asset Exchange | (16 | ) | — | — | (16 | ) | ||||||||||
Add: Other costs incurred to achieve Merger synergies | 4 | — | 4 | 8 | ||||||||||||
Add: Costs related to High Level fire | 1 | — | — | 1 | ||||||||||||
Adjusted EBITDA | $ | 352 | $ | 41 | $ | (8 | ) | $ | 385 |
2015 | ||||||||||||||||
(US $ millions) | North America | Europe | Unallocated | Total | ||||||||||||
EBITDA(1) | $ | 95 | $ | 38 | $ | (75 | ) | $ | 58 | |||||||
Add: Stock-based compensation and related costs | — | — | 2 | 2 | ||||||||||||
Add: Loss on disposal of assets | 1 | — | — | 1 | ||||||||||||
Add: Other costs incurred to achieve Merger synergies | — | — | 5 | 5 | ||||||||||||
Add: Merger transaction costs | — | — | 8 | 8 | ||||||||||||
Add: Severance costs related to Merger | — | — | 2 | 2 | ||||||||||||
Add: Costs on early extinguishment of Ainsworth Notes | — | — | 25 | 25 | ||||||||||||
Add: Foreign exchange on Ainsworth Notes | — | — | 28 | 28 | ||||||||||||
Add: Gain on derivative financial instrument on Ainsworth Notes | — | — | (4 | ) | (4 | ) | ||||||||||
Adjusted EBITDA | $ | 96 | $ | 38 | $ | (9 | ) | $ | 125 |
(US $ millions) | 2017 | 2016 | ||||||
Accounts receivable | $ | 174 | $ | 141 | ||||
Inventory | 224 | 185 | ||||||
Prepaids | 11 | 10 | ||||||
Accounts payable and accrued liabilities | (282 | ) | (218 | ) | ||||
Operating working capital | $ | 127 | $ | 118 |
(US $ millions) | 2017 | 2016 | ||||||
Operating working capital | $ | 127 | $ | 118 | ||||
Cash and cash equivalents | 241 | 161 | ||||||
Taxes receivable | 1 | — | ||||||
Taxes payable | (74 | ) | (1 | ) | ||||
Total working capital | $ | 295 | $ | 278 |
(US $ millions) | 2017 | 2016 | ||||||
Property, plant and equipment | $ | 1,421 | $ | 1,262 | ||||
Intangible assets | 24 | 22 | ||||||
Accounts receivable | 174 | 141 | ||||||
Inventory | 224 | 185 | ||||||
Prepaids | 11 | 10 | ||||||
Accounts payable and accrued liabilities | (282 | ) | (218 | ) | ||||
Capital employed | $ | 1,572 | $ | 1,402 |
(US $ millions) | 2017 | 2016 | ||||||
Long-term debt, principal value | $ | 555 | $ | 755 | ||||
Less: Cash and cash equivalents | (241 | ) | (161 | ) | ||||
Net debt | 314 | 594 | ||||||
Add: Letters of credit | 19 | 25 | ||||||
Net debt for financial covenant purposes | $ | 333 | $ | 619 |
(US $ millions) | 2017 | 2016 | ||||||
Shareholders’ equity | $ | 1,019 | $ | 650 | ||||
Add: Other comprehensive income movement(1) | 53 | 79 | ||||||
Add: Impact of Ainsworth changing functional currencies | 155 | 155 | ||||||
Add: IFRS transitional adjustments | 21 | 21 | ||||||
Tangible net worth | $ | 1,248 | $ | 905 |
/s/ Peter Wijnbergen | /s/ Robin Lampard | |
PETER C. WIJNBERGEN | ROBIN E. LAMPARD | |
President and Chief Executive Officer | Senior Vice President and Chief Financial Officer |
/s/ Peter Wijnbergen | /s/ Robin Lampard | |
PETER C. WIJNBERGEN | ROBIN E. LAMPARD | |
President and Chief Executive Officer | Senior Vice President and Chief Financial Officer |
(US $ millions) | Note | Dec 31, 2017 | Dec 31, 2016 | |||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 241 | $ | 161 | ||||
Accounts receivable | 3 | 174 | 141 | |||||
Taxes receivable | 1 | — | ||||||
Inventory | 4 | 224 | 185 | |||||
Prepaids | 11 | 10 | ||||||
651 | 497 | |||||||
Non-current assets | ||||||||
Property, plant and equipment | 5 | 1,421 | 1,262 | |||||
Intangible assets | 6 | 24 | 22 | |||||
Deferred income tax assets | 13 | 4 | 4 | |||||
Other assets | 7 | 3 | 14 | |||||
1,452 | 1,302 | |||||||
$ | 2,103 | $ | 1,799 | |||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 282 | $ | 218 | ||||
Taxes payable | 74 | 1 | ||||||
Current portion of long-term debt | 8 | — | 200 | |||||
356 | 419 | |||||||
Non-current liabilities | ||||||||
Long-term debt | 8 | 548 | 546 | |||||
Other liabilities | 9 | 29 | 27 | |||||
Deferred income tax liabilities | 13 | 151 | 157 | |||||
728 | 730 | |||||||
Shareholders’ equity | 1,019 | 650 | ||||||
$ | 2,103 | $ | 1,799 |
/s/ Peter Gordon | /s/ Peter Wijnbergen | |||
J. PETER GORDON | PETER C. WIJNBERGEN | |||
Chair | President and Chief Executive Officer |
Years ended December 31 (US $ millions, except per share information) | Note | 2017 | 2016 | |||||
Sales | 21 | $ | 2,177 | $ | 1,766 | |||
Cost of sales | (1,499 | ) | (1,378 | ) | ||||
General and administrative expenses | (10 | ) | (14 | ) | ||||
Depreciation and amortization | 21 | (107 | ) | (94 | ) | |||
Loss on disposal of assets | 4, 5 | (12 | ) | — | ||||
Operating income | 549 | 280 | ||||||
Non-operating (expense) income: | ||||||||
Finance costs | 12 | (32 | ) | (52 | ) | |||
Gain on asset exchange | 22 | — | 16 | |||||
Earnings before income tax | 517 | 244 | ||||||
Income tax expense | 13 | (81 | ) | (61 | ) | |||
Earnings | $ | 436 | $ | 183 | ||||
Earnings per common share | 15 | |||||||
Basic | $ | 5.06 | $ | 2.14 | ||||
Diluted | 5.03 | 2.13 |
Years ended December 31 (US $ millions) | Note | 2017 | 2016 | |||||
Earnings | $ | 436 | $ | 183 | ||||
Other comprehensive income (loss), net of tax | ||||||||
Items that will not be reclassified to earnings: | ||||||||
Actuarial (loss) gain on post-employment obligation | 10, 13 | (3 | ) | 5 | ||||
Items that may be reclassified subsequently to earnings: | ||||||||
Foreign currency translation gain (loss) on foreign operations | 13 | 29 | (37 | ) | ||||
Other comprehensive income (loss), net of tax | 26 | (32 | ) | |||||
Comprehensive income | $ | 462 | $ | 151 |
Years ended December 31 (US $ millions) | Note | 2017 | 2016 | |||||
Share capital | ||||||||
Balance, beginning of year | $ | 1,341 | $ | 1,334 | ||||
Issue of common shares upon exercise of options and Dividend Reinvestment Plan | 14 | 9 | 7 | |||||
Balance, end of year | $ | 1,350 | $ | 1,341 | ||||
Merger reserve | 14 | $ | (96 | ) | $ | (96 | ) | |
Contributed surplus | ||||||||
Balance, beginning of year | $ | 9 | $ | 10 | ||||
Stock-based compensation | 14 | 1 | 1 | |||||
Stock options exercised | 14 | (2 | ) | (2 | ) | |||
Balance, end of year | $ | 8 | $ | 9 | ||||
Retained deficit | ||||||||
Balance, beginning of year | $ | (402 | ) | $ | (559 | ) | ||
Earnings | 436 | 183 | ||||||
Common share dividends | (101 | ) | (26 | ) | ||||
Balance, end of year(i) | $ | (67 | ) | $ | (402 | ) | ||
Accumulated other comprehensive loss | ||||||||
Balance, beginning of year | $ | (202 | ) | $ | (170 | ) | ||
Other comprehensive income (loss) | 26 | (32 | ) | |||||
Balance, end of year | 14 | $ | (176 | ) | $ | (202 | ) | |
Shareholders’ equity | $ | 1,019 | $ | 650 |
(i) Retained deficit comprised of: | ||||||||
Deficit arising on cashless exercise of warrants in 2013 | 14 | $ | (263 | ) | $ | (263 | ) | |
All other retained earnings (deficit) | 196 | (139 | ) | |||||
$ | (67 | ) | $ | (402 | ) |
Years ended December 31 (US $ millions) | Note | 2017 | 2016 | |||||
CASH PROVIDED BY (USED FOR): | ||||||||
Operating activities | ||||||||
Earnings | $ | 436 | $ | 183 | ||||
Items not affecting cash: | ||||||||
Depreciation and amortization | 21 | 107 | 94 | |||||
Deferred income tax | 13 | (9 | ) | 57 | ||||
Gain on asset exchange | 22 | — | (16 | ) | ||||
Loss on disposal of assets | 4, 5 | 12 | — | |||||
Other items | 16 | (8 | ) | (2 | ) | |||
538 | 316 | |||||||
Net change in non-cash operating working capital balances | 16 | (18 | ) | (5 | ) | |||
Net change in taxes receivable, taxes payable and investment tax credit receivable | 88 | 2 | ||||||
608 | 313 | |||||||
Investing activities | ||||||||
Investment in property, plant and equipment | (240 | ) | (95 | ) | ||||
Investment in intangible assets | (4 | ) | (6 | ) | ||||
Proceeds received on asset exchange | 22 | — | 7 | |||||
(244 | ) | (94 | ) | |||||
Financing activities | ||||||||
Common share dividends paid | (101 | ) | (26 | ) | ||||
Repayment of debt | 8 | (200 | ) | — | ||||
Issue of common shares | 14 | 7 | 4 | |||||
Accounts receivable securitization repayments, net | 3 | — | (30 | ) | ||||
(294 | ) | (52 | ) | |||||
Foreign exchange revaluation on cash and cash equivalents held | 10 | (15 | ) | |||||
Cash and cash equivalents | ||||||||
Increase during year | 80 | 152 | ||||||
Balance, beginning of year | 161 | 9 | ||||||
Balance, end of year | $ | 241 | $ | 161 |
Level 1 | – | unadjusted quoted prices available in active markets for identical assets or liabilities; |
Level 2 | – | inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and |
Level 3 | – | inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
(i) | Inventory |
(ii) | Property, Plant and Equipment and Intangible Assets |
(iii) | Employee Benefit Plans |
(iv) | Income Taxes |
(v) | Financial Instruments |
(i) | Income Taxes |
(ii) | Cash Flow Statement Disclosure |
(iii) | Foreign Currency Translation |
(vi) | Uncertainty over Income Tax Treatments |
(US $ millions) | Dec 31, 2017 | Dec 31, 2016 | |||||
Raw materials | $ | 68 | $ | 55 | |||
Finished goods | 74 | 61 | |||||
Operating and maintenance supplies | 82 | 69 | |||||
$ | 224 | $ | 185 |
(US $ millions) | Note | Land | Buildings | Production Equipment | Construction in Progress | Total | ||||||||||||||
Cost | ||||||||||||||||||||
December 31, 2015 | $ | 12 | $ | 300 | $ | 1,276 | $ | 95 | $ | 1,683 | ||||||||||
Additions(1) | — | — | — | 101 | 101 | |||||||||||||||
Net change from asset exchange | 22 | 1 | 5 | 4 | — | 10 | ||||||||||||||
Disposals | — | — | (3 | ) | — | (3 | ) | |||||||||||||
Transfers | — | 8 | 49 | (57 | ) | — | ||||||||||||||
Effect of foreign exchange | (1 | ) | (2 | ) | (43 | ) | (3 | ) | (49 | ) | ||||||||||
December 31, 2016 | 12 | 311 | 1,283 | 136 | 1,742 | |||||||||||||||
Additions(1) | — | — | 1 | 252 | 253 | |||||||||||||||
Disposals | — | (2 | ) | (16 | ) | — | (18 | ) | ||||||||||||
Transfers | — | 31 | 268 | (299 | ) | — | ||||||||||||||
Effect of foreign exchange | — | 3 | 13 | 9 | 25 | |||||||||||||||
December 31, 2017 | $ | 12 | $ | 343 | $ | 1,549 | $ | 98 | $ | 2,002 | ||||||||||
Accumulated depreciation | ||||||||||||||||||||
December 31, 2015 | $ | — | $ | 85 | $ | 338 | $ | — | $ | 423 | ||||||||||
Depreciation | — | 16 | 76 | — | 92 | |||||||||||||||
Disposals | — | — | (3 | ) | — | (3 | ) | |||||||||||||
Net change from asset exchange | 22 | — | (1 | ) | — | — | (1 | ) | ||||||||||||
Effect of foreign exchange | — | — | (31 | ) | — | (31 | ) | |||||||||||||
December 31, 2016 | — | 100 | 380 | — | 480 | |||||||||||||||
Depreciation | — | 17 | 88 | — | 105 | |||||||||||||||
Disposals | — | — | (10 | ) | — | (10 | ) | |||||||||||||
Effect of foreign exchange | — | 1 | 5 | — | 6 | |||||||||||||||
December 31, 2017 | $ | — | $ | 118 | $ | 463 | $ | — | $ | 581 | ||||||||||
Net | ||||||||||||||||||||
December 31, 2016 | $ | 12 | $ | 211 | $ | 903 | $ | 136 | $ | 1,262 | ||||||||||
December 31, 2017 | 12 | 225 | 1,086 | 98 | 1,421 |
(US $ millions) | Cost | Accumulated Amortization | Net Book Value | ||||||||
December 31, 2015 | $ | 34 | $ | 16 | $ | 18 | |||||
Additions | 6 | 2 | 4 | ||||||||
Disposals | (1 | ) | (1 | ) | — | ||||||
December 31, 2016 | 39 | 17 | 22 | ||||||||
Additions | 4 | 2 | 2 | ||||||||
Effect of foreign exchange | 1 | 1 | — | ||||||||
December 31, 2017 | $ | 44 | $ | 20 | $ | 24 |
(US $ millions) | Note | Dec 31, 2017 | Dec 31, 2016 | |||||
Defined benefit pension asset | 10 | $ | 2 | $ | — | |||
Foreign currency forward contracts | 18 | 1 | — | |||||
Investment tax credit receivable | — | 13 | ||||||
Other | — | 1 | ||||||
$ | 3 | $ | 14 |
(US $ millions) | Dec 31, 2017 | Dec 31, 2016 | |||||
Principal value | |||||||
7.7% senior secured notes due February 2017 | $ | — | $ | 200 | |||
5.375% senior secured notes due December 2020 | 240 | 240 | |||||
6.25% senior secured notes due April 2023 | 315 | 315 | |||||
555 | 755 | ||||||
Less: Unamortized debt issue costs | (7 | ) | (9 | ) | |||
Less: Current portion | — | (200 | ) | ||||
$ | 548 | $ | 546 |
(US $ millions) | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | ||||||||||||||||||||
Maturities of long-term debt | $ | — | $ | — | $ | 240 | $ | — | $ | — | $ | 315 | $ | 555 |
(US $ millions) | Note | Dec 31, 2017 | Dec 31, 2016 | |||||
Defined benefit pension obligation | 10 | $ | 20 | $ | 18 | |||
Accrued employee benefits | 14 | 6 | 5 | |||||
Reforestation obligation | 2 | 2 | ||||||
Other | 1 | 2 | ||||||
$ | 29 | $ | 27 |
(US $ millions) | Note | 2017 | 2016 | |||||
Change in accrued benefit obligation during the year | ||||||||
Accrued benefit obligation, beginning of year | $ | 152 | $ | 140 | ||||
Current service cost | 3 | 3 | ||||||
Interest on accrued benefit obligation | 6 | 6 | ||||||
Benefits paid | (12 | ) | (9 | ) | ||||
Net actuarial loss arising from changes to: | ||||||||
Financial assumptions | 7 | 5 | ||||||
Increase arising from the asset exchange | 22 | — | 6 | |||||
Foreign currency exchange rate impact | 11 | 1 | ||||||
Accrued benefit obligation, end of year(1) | $ | 167 | $ | 152 | ||||
Change in plan assets during the year | ||||||||
Plan assets, beginning of year | $ | 134 | $ | 117 | ||||
Interest income | 5 | 5 | ||||||
Remeasurement gains: | ||||||||
Return on plan assets (excluding interest income) | 5 | 10 | ||||||
Employer contributions | 7 | 7 | ||||||
Benefits paid | (12 | ) | (9 | ) | ||||
Increase arising from the asset exchange | 22 | — | 4 | |||||
Foreign currency exchange rate impact | 10 | — | ||||||
Plan assets, end of year(1) | $ | 149 | $ | 134 | ||||
Funded status | ||||||||
Accrued benefit obligation | $ | 167 | $ | 152 | ||||
Plan assets | (149 | ) | (134 | ) | ||||
Accrued benefit obligation in excess of plan assets(1) | $ | 18 | $ | 18 |
(US $ millions) | 2017 | 2016 | |||||
Current service cost | $ | 3 | $ | 3 | |||
Interest cost | 1 | 1 | |||||
Net periodic pension expense | $ | 4 | $ | 4 |
2017 | 2016 | ||||
Used in calculation of accrued benefit obligation, end of year | |||||
Discount rate | 3.4 | % | 3.7 | % | |
Rate of compensation increase | 2.9 | % | 2.8 | % | |
Used in calculation of net periodic pension expense for the year | |||||
Discount rate | 3.7 | % | 3.9 | % | |
Rate of compensation increase | 2.9 | % | 2.8 | % |
(US $ millions) | Increase | Decrease | |||||
Discount rate (0.5% change) | $ | (13 | ) | $ | 14 | ||
Compensation rate (1.0% change) | 3 | (3 | ) | ||||
Future life expectancy (1 year movement) | 4 | (4 | ) | ||||
Retirement age (1 year movement) | (2 | ) | — |
Dec 31, 2017 | Dec 31, 2016 | ||||
Asset category | |||||
Equity investments | 55 | % | 57 | % | |
Fixed income investments | 45 | % | 40 | % | |
Cash | — | 3 | % | ||
Total assets | 100 | % | 100 | % |
(US $ millions) | 2017 | 2016 | |||||
Short-term employee compensation and benefits | $ | 203 | $ | 178 | |||
Long-term employee compensation and benefits | 32 | 30 | |||||
Share-based payments | 2 | 2 | |||||
$ | 237 | $ | 210 |
(US $ millions) | 2017 | 2016 | |||||
Interest on long-term debt(1) | $ | 27 | $ | 47 | |||
Interest on other long-term debt | 1 | 1 | |||||
Amortization of debt issue costs | 2 | 2 | |||||
Revolving bank lines fees and other | 1 | 1 | |||||
31 | 51 | ||||||
Net interest expense on net pension obligation | 1 | 1 | |||||
Total finance costs | $ | 32 | $ | 52 |
(US $ millions) | Dec 31, 2017 | Dec 31, 2016 | |||||
Property, plant and equipment, differences in basis | $ | (200 | ) | $ | (248 | ) | |
Benefit of tax loss carryforwards | 38 | 87 | |||||
Other temporary differences in basis | 15 | 8 | |||||
Net deferred income tax liabilities | $ | (147 | ) | $ | (153 | ) |
(US $ millions) | Dec 31, 2017 | Dec 31, 2016 | |||||
Deferred income tax assets | $ | 4 | $ | 4 | |||
Deferred income tax liabilities | (151 | ) | (157 | ) | |||
Net deferred income tax liabilities | $ | (147 | ) | $ | (153 | ) |
Amount (millions) | Latest Expiry Year | |||
Tax loss carryforwards | ||||
United States | US $149 | 2037 | ||
Canada – capital loss | C $126 | Indefinite | ||
Canada – non-capital loss | C $22 | 2037 | ||
Belgium | €32 | Indefinite | ||
United Kingdom | £1 | Indefinite |
(US $ millions) | ||||
United States – State tax loss (2021–2037)(1) | $ | 303 | ||
United States – State tax credits (2019–2026) | 60 |
(US $ millions) | 2017 | 2016 | |||||
Current income tax expense | $ | 90 | $ | 4 | |||
Deferred income tax (recovery) expense | (9 | ) | 57 | ||||
Income tax expense | $ | 81 | $ | 61 |
(US $ millions) | 2017 | 2016 | |||||
Earnings before income tax | $ | 517 | $ | 244 | |||
Income tax expense at combined Canadian federal and provincial statutory rate of 27% (2016 – 27%) | 140 | 66 | |||||
Effect of: | |||||||
Change in tax rates and new legislation | (35 | ) | — | ||||
Rate differences on foreign activities | (12 | ) | (7 | ) | |||
Recognition of the benefit of prior years’ tax losses and other deferred tax assets | (14 | ) | (2 | ) | |||
Non-recognition of deferred tax assets relating to foreign exchange gain | 1 | 2 | |||||
Current income tax expense not previously recognized | — | 2 | |||||
Other | 1 | — | |||||
Income tax expense | $ | 81 | $ | 61 | |||
Income tax (expense) recovery recognized in the statement of comprehensive income comprises the following: | |||||||
(US $ millions) | 2017 | 2016 | |||||
Actuarial (loss) gain on post-employment obligation | $ | (3 | ) | $ | 5 | ||
Tax | — | — | |||||
Net of tax | $ | (3 | ) | $ | 5 | ||
Foreign currency translation gain (loss) on foreign operations | $ | 31 | $ | (44 | ) | ||
Tax | (2 | ) | 7 | ||||
Net of tax | $ | 29 | $ | (37 | ) |
2017 | 2016 | |||||||||||
Shares (millions) | Amount (US $ millions) | Shares (millions) | Amount (US $ millions) | |||||||||
Common shares outstanding, beginning of year | 85.8 | $ | 1,341 | 85.4 | $ | 1,334 | ||||||
Issuance of common shares upon exercise of options and Dividend Reinvestment Plan | 0.6 | 9 | 0.4 | 7 | ||||||||
Common shares outstanding, end of year | 86.4 | $ | 1,350 | 85.8 | $ | 1,341 |
2017 | 2016 | |||||||||||
Options (millions) | Weighted Average Exercise Price (C $) | Options (millions) | Weighted Average Exercise Price (C $) | |||||||||
Balance, beginning of year | 1.8 | $ | 25.28 | 2.3 | $ | 24.79 | ||||||
Options granted | 0.2 | 34.96 | — | — | ||||||||
Options exercised | (0.6 | ) | 15.16 | (0.4 | ) | 14.93 | ||||||
Options expired | — | — | (0.1 | ) | 111.30 | |||||||
Balance, end of year | 1.4 | $ | 27.23 | 1.8 | $ | 25.28 | ||||||
Exercisable at year-end | 0.8 | $ | 25.03 | 1.2 | $ | 25.18 |
2017 | 2016 | ||||
Risk-free interest rate | 1.1 | % | — | ||
Expected volatility | 30 | % | — | ||
Dividend yield | 1.1 | % | — | ||
Expected option life (years) | 5 | — | |||
Share price (in Canadian dollars) | $37.72 | — | |||
Exercise price (in Canadian dollars) | $34.96 | — | |||
Weighted average fair value per option granted (in Canadian dollars) | $ 7.47 | — |
Options Outstanding | Options Exercisable | |||||||||||||
Range of Exercise Prices (C $) | Options | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price (C $) | Options | Weighted Average Exercise Price (C $) | |||||||||
$6.50–$10.00 | 157,000 | 4.08 | $ | 9.96 | 157,000 | $ | 9.96 | |||||||
$10.01–$15.00 | 129,862 | 2.98 | 14.58 | 129,862 | 14.58 | |||||||||
$15.01–$20.00 | 108,210 | 2.22 | 18.04 | 108,210 | 18.04 | |||||||||
$20.01–$25.00 | 11,409 | 6.45 | 21.44 | 11,409 | 21.44 | |||||||||
$25.01–$30.00 | 457,420 | 7.42 | 27.25 | 172,420 | 27.32 | |||||||||
$30.01–$35.00 | 458,696 | 7.16 | 32.35 | 158,702 | 30.53 | |||||||||
$60.90 | 90,630 | 0.10 | 60.90 | 90,630 | 60.90 | |||||||||
1,413,227 | 6.00 | $ | 27.23 | 828,233 | $ | 25.03 |
(US $ millions) | Dec 31, 2017 | Dec 31, 2016 | |||||
Foreign currency translation loss on investment in foreign operations, net of tax of $(5) (December 31, 2016 – $(3)) | $ | (138 | ) | $ | (167 | ) | |
Net loss on hedge of net investment in foreign operations, net of tax of $3 (December 31, 2016 – $3) | (8 | ) | (8 | ) | |||
Actuarial loss on defined benefit pension obligation, net of tax of $9 (December 31, 2016 – $9) | (30 | ) | (27 | ) | |||
Accumulated other comprehensive loss, net of tax | $ | (176 | ) | $ | (202 | ) |
• | 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. |
(US $ millions, except share and per share information, unless otherwise noted) | 2017 | 2016 | |||||
Earnings available to common shareholders | $ | 436 | $ | 183 | |||
Common shares (millions): | |||||||
Weighted average number of common shares outstanding | 86.2 | 85.6 | |||||
Dilutive stock options(1) | 0.4 | 0.5 | |||||
Diluted number of common shares | 86.6 | 86.1 | |||||
Earnings per common share: | |||||||
Basic | $ | 5.06 | $ | 2.14 | |||
Diluted | 5.03 | 2.13 |
(US $ millions) | Note | 2017 | 2016 | |||||
Stock-based compensation | $ | 4 | $ | 2 | ||||
Pension funding greater than expense | (3 | ) | (3 | ) | ||||
Cash interest paid greater than interest expense | (6 | ) | — | |||||
Amortization of debt issue costs | 12 | 2 | 2 | |||||
Unrealized (gain) loss on outstanding forwards | 18 | (1 | ) | 1 | ||||
Unrealized foreign exchange gain on translation of monetary balances | (4 | ) | (1 | ) | ||||
Unrealized foreign exchange gain on translation of tax balances | (1 | ) | — | |||||
Other | 1 | (3 | ) | |||||
$ | (8 | ) | $ | (2 | ) |
(US $ millions) | 2017 | 2016 | ||||||
Cash (used for) provided by: | ||||||||
Accounts receivable | $ | (33 | ) | $ | (20 | ) | ||
Prepaids | (1 | ) | — | |||||
Inventory | (37 | ) | (10 | ) | ||||
Accounts payable and accrued liabilities | 53 | 25 | ||||||
$ | (18 | ) | $ | (5 | ) | |||
Cash interest and income taxes comprise: | ||||||||
(US $ millions) | 2017 | 2016 | ||||||
Cash income taxes paid, net | $ | 2 | $ | 2 |
(US $ millions) | 2017 | 2016 | |||||
Long-term debt | $ | (198 | ) | $ | — | ||
Other long-term debt | — | (30 | ) | ||||
Accrued interest on long-term debt | (6 | ) | 2 | ||||
Net decrease in financial liabilities | $ | (204 | ) | $ | (28 | ) |
(US $ millions) | 2017 | 2016 | |||||
Cash movements: | |||||||
Repayment of debt | $ | (200 | ) | $ | — | ||
Interest paid | (42 | ) | (50 | ) | |||
A/R securitization repayments | — | (30 | ) | ||||
(242 | ) | (80 | ) | ||||
Non-cash movements: | |||||||
Amortization of debt issue costs | 2 | 2 | |||||
Interest expense | 36 | 50 | |||||
38 | 52 | ||||||
Net decrease in financial liabilities | $ | (204 | ) | $ | (28 | ) |
• | net investments in foreign operations, limited to Norbord's investment in its European operations which transact in both Pounds Sterling and Euros; |
• | Canadian dollar-denominated monetary assets and liabilities; and |
• | committed or anticipated foreign currency-denominated transactions, primarily Canadian dollar costs in Norbord's Canadian operations and Euro revenues in Norbord's UK operations. |
Payments Due by Year | |||||||||||||||||||||||||||
(US $ millions) | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | ||||||||||||||||||||
Principal | $ | — | $ | — | $ | 240 | $ | — | $ | — | $ | 315 | $ | 555 | |||||||||||||
Interest | 33 | 33 | 33 | 19 | 19 | 10 | 147 | ||||||||||||||||||||
Long-term debt, including interest | $ | 33 | $ | 33 | $ | 273 | $ | 19 | $ | 19 | $ | 325 | $ | 702 |
Dec 31, 2017 | Dec 31, 2016 | |||||||||||||||
(US $ millions) | Financial Instrument Category | Net Book Value | Fair Value | Net Book Value | Fair Value | |||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | Fair value through profit or loss | $ | 241 | $ | 241 | $ | 161 | $ | 161 | |||||||
Accounts receivable | Loans and receivables | 174 | 174 | 141 | 141 | |||||||||||
Other assets | Loans and receivables | 2 | 2 | — | — | |||||||||||
$ | 417 | $ | 417 | $ | 302 | $ | 302 | |||||||||
Financial liabilities: | ||||||||||||||||
Accounts payable and accrued liabilities | Other financial liabilities | $ | 282 | $ | 282 | $ | 218 | $ | 218 | |||||||
Long-term debt(1) | Other financial liabilities | 555 | 597 | 755 | 777 | |||||||||||
Other liabilities | Other financial liabilities | 29 | 29 | 27 | 27 | |||||||||||
$ | 866 | $ | 908 | $ | 1,000 | $ | 1,022 |
Payments Due by Period | |||||||||||||||
(US $ millions) | Less than 1 Year | 1–5 Years | Thereafter | Total | |||||||||||
Purchase commitments | $ | 100 | $ | 97 | $ | 5 | $ | 202 | |||||||
Operating leases | 5 | 10 | 2 | 17 | |||||||||||
Reforestation obligations | 2 | — | 1 | 3 | |||||||||||
$ | 107 | $ | 107 | $ | 8 | $ | 222 |
(US $ millions) | 2017 | 2016 | |||||
Salaries, incentives and short-term benefits | $ | 4 | $ | 3 | |||
Share-based awards | 1 | 1 | |||||
$ | 5 | $ | 4 |
Note | 2017 | |||||||||||||||
(US $ millions) | North America | Europe | Unallocated | Total | ||||||||||||
Sales | $ | 1,747 | $ | 430 | $ | — | $ | 2,177 | ||||||||
EBITDA(1) | 627 | 39 | (10 | ) | 656 | |||||||||||
Depreciation and amortization | 5, 6 | 94 | 13 | — | 107 | |||||||||||
Additions to property, plant and equipment | 5 | 142 | 111 | — | 253 | |||||||||||
Property, plant and equipment | 5 | 1,168 | 253 | — | 1,421 | |||||||||||
2016 | ||||||||||||||||
(US $ millions) | North America | Europe | Unallocated | Total | ||||||||||||
Sales | $ | 1,361 | $ | 405 | $ | — | $ | 1,766 | ||||||||
EBITDA(1) | 363 | 41 | (14 | ) | 390 | |||||||||||
Depreciation and amortization | 5, 6 | 80 | 14 | — | 94 | |||||||||||
Additions to property, plant and equipment | 5 | 60 | 41 | — | 101 | |||||||||||
Property, plant and equipment | 5 | 1,126 | 136 | — | 1,262 |
(US $ millions) | Note | 2016 | ||
Consolidated Statement of Earnings | ||||
Gain on asset exchange | $ | 16 | ||
Income tax expense | (4 | ) | ||
Gain on asset exchange, net | $ | 12 | ||
Consolidated Balance Sheet | ||||
Cash | $ | 7 | ||
Property, plant and equipment | 5 | 11 | ||
Other liabilities | 9 | (2 | ) | |
Deferred income tax liabilities | (4 | ) | ||
Increase in net assets | $ | 12 |
1. | I have reviewed this annual report on Form 40-F of Norbord Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Peter Wijnbergen |
Peter C. Wijnbergen President and Chief Executive Officer (Principal Executive Officer) |
1. | I have reviewed this annual report on Form 40-F of Norbord Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Robin Lampard |
Robin E. Lampard Chief Financial Officer (Principal Financial Officer) |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: | /s/ Peter Wijnbergen |
Peter C. Wijnbergen | |
President and Chief Executive Officer | |
February 2, 2018 |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: | /s/ Robin Lampard |
Robin E. Lampard | |
Chief Financial Officer | |
February 2, 2018 |
• | our Report of Independent Registered Public Accounting Firm dated February 1, 2018 addressed to the shareholders and directors of Norbord Inc. (the “Company”), on the consolidated financial statements comprising the consolidated balance sheets as at December 31, 2017 and December 31, 2016, the consolidated statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and the related notes, comprising a summary of significant accounting policies and other explanatory information; and |
• | our Report of Independent Registered Public Accounting Firm dated February 1, 2018 on the Company’s internal control over financial reporting as of December 31, 2017, |
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