Norbord Reports Third Quarter 2011 Results

Note:  Financial references in US dollars unless otherwise indicated.  All prior period comparative figures have been restated for IFRS.

Q3 2011 HIGHLIGHTS

• Achieved positive EBITDA of $12 million
• Margin improvement benefits accelerating; $21 million in gains year-to-date
• Record productivity at North American & European OSB mills in the quarter
• Backup refinancing plan put in place for 2012 bonds
• Nacogdoches, Texas mill achieved 1 million hours without a recordable injury

TORONTO, Oct. 28, 2011 /CNW/ - Norbord Inc. (TSX: NBD, NBD.WT) today reported positive EBITDA of $12 million in the third quarter of 2011 compared to $10 million in the second quarter of 2011 and $13 million in the third quarter of 2010.  North American operations generated EBITDA of $5 million this quarter versus break-even in the prior quarter and $4 million in the same quarter last year.  European operations generated EBITDA of $10 million this quarter versus $13 million in the prior quarter and $11 million in the same quarter last year.

Norbord recorded a loss of $1 million or $0.02 per share in the third quarter of 2011 compared to earnings of $1 million or $0.03 per share in the second quarter of 2011 and a loss of $4 million or $0.09 per share in the third quarter of 2010.

"We delivered positive EBITDA results again this quarter in spite of persistently difficult markets," said Barrie Shineton, President and CEO.  "I am especially pleased that our Margin Improvement Program continues to deliver better mill productivity and lower raw materials usage.  Both are key to offsetting the negative impact of higher raw material input prices.  In addition, our European business delivered another solid quarter.  Panel prices have held up in the face of ongoing economic uncertainty across Europe and slowing consumer discretionary spending in the UK."

"While I still expect panel markets in Europe to soften, we did not see any meaningful impact on our business in the third quarter.  In North America, we continue to respond to the stagnant housing market by shifting more of our sales volume to alternate end-uses."

"I'm also pleased with the modified financing arrangements we put in place this month. This gives us the financial flexibiity we need to manage what is clearly becoming an extended timeline for a housing recovery."

Market Conditions

In the US, year-to-date housing starts, including multi-family, are approximately 2% lower than last year.  The single family component, which is more important to the OSB industry, is down 12% year-over-year.  Despite this, OSB prices held up during the third quarter.  The North Central benchmark OSB price averaged $184 per thousand square feet (Msf) (7⁄16-inch basis) compared to $173 per Msf in the prior quarter and $180 per Msf during the same quarter last year.  US housing starts are expected to end the year below 0.6 million, marginally lower than the prior year and well below the 25-year historical annualized average of 1.5 million.

In Europe, overall panel demand softened slightly due to slowing construction and retail spending. Overall panel prices, however, continued their upward trend compared to both the prior quarter and the same quarter last year, reflecting the ongoing increases to wood, resin and energy costs.  Quarter-over-quarter, particleboard and MDF prices increased by 7% and 3%, respectively, while OSB prices eased 2%.  Year-over-year, average particleboard, MDF and OSB prices increased by 20%, 16% and 6%, respectively, in order to recover input cost escalation. Management expects European panel prices to moderate somewhat from the very robust levels of the past two years as both business and consumers react to the evolving sovereign debt crisis and increasing economic uncertainty.

Performance

In North America, third quarter OSB shipment volumes were 4% higher than the prior quarter. Norbord's operating OSB mills continued to run at approximately 85% of their capacity.  Including the two indefinitely closed mills in Huguley, Alabama and Jefferson, Texas, the North American operations ran at approximately 65% of estimated capacity in both the third and second quarters of 2011, slightly lower than the 70% in the third quarter of 2010.

Norbord's North American OSB unit cash production costs decreased by 1% versus both the prior quarter and the same quarter last year.  Excluding the impact of higher key input prices, unit costs decreased by 2% quarter-over-quarter and 4% year-over-year, the result of improved manufacturing productivity and lower raw materials usage.

In Europe, third quarter panel shipments were 6% lower versus the prior quarter but year-to-date shipments increased 15% compared to last year.  Norbord's European mills continued to run at capacity. European operations have generated EBITDA of $34 million year-to-date versus $25 million in 2010, a $9 million increase.  Higher shipment volumes and lower raw materials usage delivered the improvement while higher selling prices offset the impact of higher costs for all key inputs.

Margin Improvement Program benefits continue to accelerate.  The $21 million year-to-date gains come from a richer sales mix, improved production efficiencies as well as reduced raw materials usage and, in North America, have more than offset the impact of higher raw material prices.

Capital investments totaled $4 million in the third quarter and $16 million year-to-date. Norbord's total 2011 capital investment is expected to be $25 million.  This is modestly higher than last year due to the completion of the Cowie, Scotland particleboard mill upgrade in the second quarter.

Operating working capital was $65 million at period-end compared to $52 million in the prior quarter and $49 million in the prior year.  The quarter-over-quarter increase was primarily due to the timing of sales and collections of accounts receivable.  Accounts receivable performance is in line with prior periods.

At quarter-end, the Company's tangible net worth for financial covenant purposes was $352 million and net debt to total capitalization on a book basis was 53%.

Developments

Norbord intends to refinance its 2012 debentures prior to their July 1^st maturity, subject to favourable financial market conditions.  However, recognizing the current state of financial markets and to provide additional flexibility should this be required, Norbord put in place a backup refinancing plan for this bond maturity subsequent to quarter-end.  If needed, Norbord has the option to repay up to half of this $240 million maturity from its bank lines and the other half from a $120 million standby lending commitment from its largest shareholder, Brookfield Asset Management Inc. (Brookfield).  If utilized, the Brookfield loan would be secured pari passu with the bank lines and 2017 bonds, contain market standard terms and would be pre-payable at any time without penalty, so long as Brookfield is the holder.  In addition, the Company amended its $270 million committed revolving bank lines so that the net debt to total capitalization covenant is increased from 60% to 65%.

At quarter-end, Norbord had unutilized liquidity of $317 million, consisting of $262 million in revolving bank lines and $55 million in cash and cash equivalents.  This is in addition to the $120 million Brookfield standby commitment.

Lastly, Norbord intends to apply to the Toronto Stock Exchange (TSX) for approval to renew its normal course issuer bid for up to 5% of its Common Shares in accordance with TSX rules.  The bid will be subject to TSX acceptance and full details will be announced upon receipt of TSX consent.

Additional Information

Norbord's Q3 2011 letter to shareholders, news release, management's discussion & analysis, consolidated unaudited financial statements and notes to the financial statements have been filed on SEDAR (www.sedar.com) and are available in the investor section of the Company's website at www.norbord.com.  Shareholders are encouraged to read this material.

Conference Call

Norbord will hold a conference call for analysts and institutional investors on Friday, October 28, 2011 at 10:00 a.m. ET. The call will be broadcast live over the Internet via www.norbord.com and www.newswire.ca.  A replay number will be available approximately one hour after completion of the call and will be accessible until November 27, 2011 by dialing 1-888-203-1112 or 647-436-0148. The passcode is 1896904. Audio playback and a written transcript will be available on the Norbord website.

Norbord Profile

Norbord Inc. is an international producer of wood-based panels with assets of $1 billion, employing approximately 2,030 people at 13 plant locations in the United States, Europe and Canada. Norbord is one of the world's largest producers of oriented strand board (OSB). In addition to OSB, Norbord manufactures particleboard, medium density fibreboard (MDF) and related value-added products. Norbord is a publicly-traded company listed on the Toronto Stock Exchange under the symbols NBD and NBD.WT.

This news release contains forward-looking statements, as defined in applicable legislation, including statements related to our strategy, projects, plans, future financial or operating performance and other statements that express management's expectations or estimates of future performance. Often, but not always, words such as "expect," "should," "will," "will not," "forecasts," "suggest," "expects," "confident," "may," and other expressions which are predictions of or indicate future events, trends or prospects and which do not relate to historical matters identify forward-looking statements.  Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Although Norbord believes it has a reasonable basis for making these forward-looking statements, readers are cautioned not to place undue reliance on such forward-looking information.  By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predictions, forecasts and other forward-looking statements will not occur.  Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include:  general economic conditions; risks inherent with product concentration; effects of competition and product pricing pressures; risks inherent with customer dependence; effects of variations in the price and availability of manufacturing inputs; risks inherent with a capital intensive industry; and other risks and factors described from time to time in filings with Canadian securities regulatory authorities.

Except as required by applicable laws, Norbord does not undertake to update any forward-looking statements, whether as a result of new information, future events or otherwise, or to publicly update or revise the above list of factors affecting this information.  See the "Caution Regarding Forward-Looking Information" statement in the March 1, 2010 Annual Information Form and the cautionary statement contained in the "Forward-Looking Statements" section of the 2010 Management's Discussion and Analysis dated January 28, 2011 and Q3 2011 Management's Discussion and Analysis dated October 28, 2011.

October 28, 2011

To our Shareholders,

Norbord's third quarter EBITDA result of $12 million is a modest improvement over the previous quarter and the ninth consecutive quarter that we've delivered positive EBITDA.  This result reflects both the steady performance of our European operations and significant new benefits from our company-wide Margin Improvement Program (MIP).

Our North American operations delivered better financial performance this quarter, due in part to higher OSB prices.  The North Central benchmark price improved somewhat, averaging $184/Msf, an $11 increase over the previous quarter.  At the same time, quarterly shipments were up and our home improvement, industrial and export sales are strong.  Our strategic shift away from new home construction and toward these alternative end-users is enabling us to maintain our volumes despite the stagnant housing market. 

In Europe, our panel business had another solid quarter, generating $10 million of EBITDA.  Sales continued to outperform - panel prices were 11% higher on average and volume was up 6% over last year.  These price increases are necessary as we continue to experience escalating energy and wood costs across our European operations.

My last three shareholder letters highlighted the importance of Norbord's Margin Improvement Program.  These initiatives continue to deliver significant productivity gains and manufacturing cost reductions.  Our company-wide MIP target for 2011 is $30 million and I am pleased to report that, as of Q3, our operations have delivered more than 70% of this goal. 

The biggest single contributor to this year's MIP effort was the new resin technology we introduced early in 2010.  The result has been a steady improvement in both production line speeds and raw materials usage across all of our North American OSB mills.  The bottom-line impact of these benefits has pushed down manufacturing costs, effectively offsetting any negative impact from higher raw material input prices.  Looking to the next opportunity, in 2012 we will make our first investment in more extensive fines screening equipment at our mill in Nacogdoches, Texas.  This pilot initiative, if implemented across the Company, has the same potential upside as our resin conversion. 

In our third quarter disclosure documents, you will find reference to our upcoming July 2012 bond maturity.  Our intention is to refinance prior to the July maturity date.  However, recognizing that financial markets are volatile, we have also put in place a backup arrangement.  If needed, this will provide an option to repay up to half of the $240 million bond maturity from our bank lines and the other half from a $120 million term loan commitment from Brookfield, Norbord's largest shareholder.  This commitment is in addition to Norbord's more than $300 million of liquidity at quarter-end.  At the same time, our bank lines have been amended to widen the net debt to capitalization covenant from 60% to 65%.  This covenant amendment and the loan commitment will provide the flexibility and the liquidity Norbord needs to manage through what appears to be an extended timeline for economic recovery.

Little has changed in the North American housing market.  Total US housing starts for 2011 are now forecast to finish in the 570,000 range, slightly lower than 2010's levels.  I am becoming increasingly bearish about any near-term rebound in new home construction.  Weak employment numbers persist, house prices have not yet stabilized and the current mortgage lending environment discourages potential new home buyers. 

Although our European panel business has been a solid performer all year, I do expect the very robust demand of the past two years to ease.  Norbord's customers in both the UK and across the Eurozone have become cautious as they react to the economic uncertainty stemming from the sovereign debt crisis.  In spite of this, UK house builders, who are Norbord's largest customer group, are in good financial shape and remain optimistic about next year.  They are well positioned to respond to an expected increase in demand, driven by unprecedented low new home inventory levels.

While our business environment over the next two quarters will be challenging, I continue to be pleased with Norbord's progress.  In North America, margin improvement initiatives are delivering solid results, our manufacturing costs are dropping and we are successfully repositioning sales away from new home construction.  In Europe, our operations are performing well and are running at capacity.  And finally, our modified bank arrangements give us comfort that we have the financial flexibility we need over the longer term.

I still believe the underlying demographics support an eventual housing recovery.  The longer we remain in this trough, the stronger the recovery will be when it takes hold.  And Norbord will benefit when it does.

I look forward to reporting on our progress next quarter.

(signed)
Barrie Shineton

This letter includes forward-looking statements, as defined by applicable securities legislation including statements related to our strategy, projects, plans, margin improvements, 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," "should," "expect," "suggest," "likely," "would," 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 2010 Management's Discussion and Analysis dated January 28, 2011 and Q3 2011 Management's Discussion and Analysis dated October 28, 2011.

Consolidated Balance Sheets

(unaudited) (US $ millions)		Note		Oct 1 2011			Dec 31 2010
Assets
Current assets
	Cash and cash equivalents		$	55		$	111
	Accounts receivable	4		121			90
	Tax receivable			4			6
	Inventory	5		97			84
				277			291
Non-current assets
	Property, plant and equipment			791			814
	Other assets	6		7			13
				798			827
			$	1,075		$	1,118
Liabilities and Shareholders' Equity
Current liabilities
	Accounts payable and accrued liabilities		$	153		$	164
	Current portion of long-term debt	7		244			-
				397			164
Non-current liabilities
	Long-term debt	7		195			443
	Other long-term debt	4		62			60
	Other liabilities	8		43			35
	Deferred income taxes			57			85
				357			623
Shareholders' equity				321			331
			$	1,075		$	1,118

(See accompanying notes)

Consolidated Statements of Earnings

(unaudited) Periods ended Oct 1 and Sep 25 (US $ millions, except per share information)			Q3 2011			Q3 2010^1			9 mos 2011			9 mos 2010^1
Sales		$	242		$	229		$	736		$	722
Earnings before interest, income tax and depreciation			12			13			36			93
Interest expense			(8)			(8)			(24)			(25)
Earnings before income tax and depreciation			4			5			12			68
Depreciation			(13)			(13)			(40)			(38)
Income tax			8			4			26			(8)
Earnings		$	(1)		$	(4)		$	(2)		$	22
Earnings per common share
	Basic	$	(0.02)		$	(0.09)		$	(0.05)		$	0.51
	Diluted		(0.02)			(0.09)			(0.05)			0.49

¹ Refer to note 3 for effects of adoption of IFRS
(See accompanying notes)

Consolidated Statements of Comprehensive (Loss)/Income

(unaudited) Periods ended Oct 1 and Sep 25 (US $ millions)			Q3 2011			Q3 2010^1			9 mos 2011			9 mos       2010^1
Earnings		$	(1)		$	(4)		$	(2)		$	22
Other comprehensive (loss) income, net of tax
	Foreign currency translation (loss) gain on foreign operations		(10)			13			(1)			(3)
	Net gain (loss) on hedge of net investment in foreign operations		2			(7)			(2)			3
	Actuarial loss on defined benefit pension obligation		(7)			(3)			(7)			(8)
			(15)			3			(10)			(8)
Comprehensive (loss) income		$	(16)		$	(1)		$	(12)		$	14

¹ Refer to note 3 for effects of adoption of IFRS
(See accompanying notes)

Consolidated Statements of Changes in Shareholders' Equity

(unaudited) Periods ended Oct 1 and Sep 25 (US $ millions)	Note		Q3 2011			Q3 2010^1			9 mos 2011			9 mos 2010^1
Share capital
Balance, beginning of period		$	340		$	340		$	340		$	335
Issue of common shares, net			-			-			-			5
Balance, end of period		$	340		$	340		$	340		$	340
Contributed surplus
Balance, beginning of period		$	42		$	41		$	41		$	40
Stock-based compensation	9		1			-			2			1
Balance, end of period		$	43		$	41		$	43		$	41
Retained earnings
Balance, beginning of period		$	(55)		$	(39)		$	(54)		$	(60)
Earnings			(1)			(4)			(2)			22
Other comprehensive loss			(7)			(3)			(7)			(8)
Balance, end of period		$	(63)		$	(46)		$	(63)		$	(46)
Accumulated Other Comprehensive Income
Balance, beginning of period		$	9		$	-		$	4		$	6
Other comprehensive (loss) income			(8)			6			(3)			-
Balance, end of period	9	$	1		$	6		$	1		$	6
Shareholders' equity		$	321		$	341		$	321		$	341

¹ Refer to note 3 for effects of adoption of IFRS
(See accompanying notes)

Consolidated Statements of Cash Flows

(unaudited) Periods ended Oct 1 and Sep 25 (US $ millions)		Note		Q3 2011			Q3 2010^1			9 mos 2011			9 mos 2010^1
CASH PROVIDED BY (USED FOR):
Operating Activities
Earnings			$	(1)		$	(4)		$	(2)		$	22
Items not affecting cash:
	Depreciation			13			13			40			38
	Deferred income tax			(9)			(4)			(28)			8
Other items				(2)			1			2			2
				1			6			12			70
Net change in non-cash operating working capital balances		11		(15)			5			(58)			(33)
Net change in tax receivable				-			(2)			2			52
				(14)			9			(44)			89
Investing Activities
Investment in property, plant and equipment				(4)			(3)			(13)			(9)
Realized net investment hedge (loss) gain		13		(1)			3			(3)			12
Other				-			1			-			(1)
				(5)			1			(16)			2
Financing Activities
Accounts receivable securitization (repayments) proceeds				(3)			(7)			5			(10)
Debt issue costs				-			(2)			(1)			(2)
Revolving bank lines repayments				-			-			-			(27)
Issue of shares				-			-			-			2
				(3)			(9)			4			(37)
Cash and Cash Equivalents
(Decrease) increase during the period				(22)			1			(56)			54
Balance, beginning of period				77			73			111			20
Balance, end of period		11	$	55		$	74		$	55		$	74

¹ Refer to note 3 for effects of adoption of IFRS
(See accompanying notes)

Notes to the Consolidated Financial Statements

(unaudited)
(in US $, unless otherwise noted)

In these notes, "Norbord" means Norbord Inc. and all of its consolidated subsidiaries and affiliates, and "Company" means Norbord Inc. as a separate corporation, unless the context implies otherwise.  "Brookfield" means Brookfield Asset Management Inc. or any of its consolidated subsidiaries and affiliates, a related party, by virtue of a controlling equity interest in the Company.

NOTE 1. NATURE AND DESCRIPTION OF THE COMPANY
Norbord is an international producer of wood-based panels with 13 plant locations in the United States, Europe and Canada.  Norbord is a publicly-traded company listed on the Toronto Stock Exchange under the symbols NBD and NBD.WT.  The Company is incorporated under the Canada Business Corporations Act and is headquartered in Toronto, Ontario, Canada.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of Compliance
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Statements, as issued by the International Accounting Standards Board (IASB) and using the accounting policies the Company expects to adopt in its consolidated financial statements as at, and for the year ending December 31, 2011.  The accounting policies the Company expects to adopt in its financial statements as at, and for the year ending December 31, 2011, are disclosed in note 2 of the Company's interim financial statements as at, and for the quarter ended April 2, 2011, which are available on www.sedar.com.

These interim financial statements should be read in conjunction with the Company's 2010 annual financial statements and in consideration of the International Financial Reporting Standards (IFRS) transition disclosures included in note 3 of these financial statements, and the Company's interim financial statements as at, and for the quarter ended April 2, 2011.

These financial statements were authorized for issuance by the Board of Directors of the Company on October 27, 2011.

(b)	Future Changes in Accounting Policies
	(i)    Transfers of Financial Assets In October 2010, the IASB amended IFRS 7, Financial Instruments: Disclosures and added additional disclosure requirements for financial assets that have been transferred but not derecognized in accordance with IAS 39, Financial Instruments:  Recognition and Measurement (IAS 39).  The amendments are effective for annual periods beginning on or after July 1, 2011, so will be effective for the year ending December 31, 2012.  The Company's accounts receivable securitization program meets the definition of a transferred financial asset that is not derecognized.  The Company will supplement the existing disclosures on the program in note 4 accordingly.
	(ii)    Financial Instruments IFRS 9, Financial Instruments (IFRS 9) was issued by the IASB on November 12, 2009 and will replace IAS 39.  IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39.  The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of its financial assets.  The new standard requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39.  IFRS 9 also provides for new measurement guidance for financial liabilities designated at fair value through profit or loss.  IFRS 9 is effective for annual periods beginning on or after January 1, 2013, so will be effective for the year ending December 31, 2013.  The Company has not yet determined the impact of IFRS 9 on its financial statements.
	(iii)    Consolidation In May 2011, the IASB issued the following new standards:
	IFRS 10, Consolidated Financial Statements, which will replace SIC-12 Consolidation-Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements; IFRS 11, Joint Arrangements which will replace IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities-Non-monetary Contributions by Venturers; and IFRS 12, Disclosure of Interests in Other Entities
	These new standards provide more guidance on the identification of entities and joint arrangements that should be included in the consolidated statements of a parent company and also require additional disclosure of all forms of interests that an entity holds.  The standards are effective for annual periods beginning on or after January 1, 2013 with early adoption permitted and will be effective for the year ending December 31, 2013.  The Company has not yet determined the impact of these standards on its financial statements.
	(iv)    Fair Value Measurement In May 2011, the IASB issued IFRS 13, Fair Value Measurement (IFRS 13) which provides a revised definition of fair value, establishes a framework for measuring fair value and sets out disclosure requirements for when fair value measurement is required or permitted under IFRS.  IFRS 13 is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted and will be effective for the year ending December 31, 2013.  The Company has not yet determined the impact of IFRS 13 on its financial statements.
	(v)    Employee Future Benefits In June 2011, the IASB amended IAS 19, Employee Benefits (IAS 19).  The main amendments include the requirement to immediately recognize actuarial gains and losses in Other Comprehensive Income/(Loss) (OCI), the replacement of the calculation of both the expected return on the plan assets and the interest cost of the pension obligation with the interest cost on the net deficit, the clarification on specific measurement issues and enhanced disclosure requirements.  The amendments are effective for annual periods beginning on or after January 1, 2013 with early adoption permitted and will be effective for the year ending December 31, 2013.  The Company has not yet determined the impact of these amendments on its financial statements.
	(vi)    Other Comprehensive Income In June 2011, the IASB amended IAS 1, Presentation of Financial Statements (IAS 1) to require the grouping together of OCI items that may be reclassified to the Statement of Earnings within OCI.  The amendment is effective for annual periods beginning on or after July 1, 2012 and will be effective for the year ending December 31, 2013.  The Company has not yet determined the impact of this amendment on its financial statements.

NOTE 3. TRANSITION TO IFRS
The Company has adopted IFRS effective January 1, 2011.  Prior to the adoption of IFRS, the Company prepared its financial statements in accordance with Canadian GAAP.  The Company's financial statements for the year ending December 31, 2011 will be the first annual financial statements that comply with IFRS.  Accordingly, the Company will make an unreserved statement of compliance with IFRS beginning with its 2011 annual financial statements.  The Company's transition date is January 1, 2010 (the "transition date") and the Company has prepared its opening IFRS balance sheet as at that date.  These financial statements have been prepared in accordance with the accounting policies described in note 2 of the Company's financial statements as at, and for the quarter ended April 2, 2011.  The Company will ultimately prepare its opening balance sheet and financial statements for 2010 and 2011 by applying existing IFRS with an effective date of December 31, 2011 or prior.  Accordingly, the opening balance sheet and financial statements for 2010 and 2011 may differ from these financial statements.

(a) Reconciliation of Shareholders' Equity as Reported Under Canadian GAAP to IFRS
The following is a reconciliation of the Company's shareholders' equity reported in accordance with Canadian GAAP to its shareholders' equity in accordance with IFRS at September 25, 2010.

Shareholders' Equity (US $ millions)				Share Capital			Contributed Surplus			Retained Earnings			Accumulated Other Comprehensive Income			Total
As reported under Canadian GAAP - Sept 25, 2010			$	340		$	40		$	(7)		$	(11)		$	362
IFRS adjustments^1
	(i)	Employee benefits		-			-			(29)			-			(29)
	(ii)	Property, plant and equipment
		Depreciation on deemed cost adjustment		-			-			(8)			-			(8)
		Foreign exchange on deemed cost adjustment		-			-			-			3			3
	(iii)	Consistency in accounting policies		-			-			4			1			5
	(iv)	Share-based compensation		-			1			(1)			-			-
	(v)	Deferred income tax		-			-			8			-			8
	(vi)	Cumulative translation account		-			-			(13)			13			-
Total IFRS adjustments				-			1			(39)			17			(21)
As reported under IFRS - Sept 25, 2010			$	340		$	41		$	(46)		$	6		$	341

¹ Refer to Notes for Canadian GAAP to IFRS Reconciliations

(b) Reconciliation of Earnings as Reported Under Canadian GAAP to IFRS

The following is a reconciliation of the Company's earnings reported in accordance with Canadian GAAP to its earnings in accordance with IFRS for the three month and nine month periods ended September 25, 2010.

(US $ millions)				Q3 2010			9 mos 2010
Earnings as reported under Canadian GAAP			$	(7)		$	25
IFRS adjustments^1
	(ii)	Property, plant and equipment		(1)			(4)
		Depreciation on deemed cost adjustment
	(iii)	Consistency in accounting policies		1			-
	(v)	Deferred income tax		3			1
Total IFRS adjustments				3			(3)
Earnings as reported under IFRS			$	(4)		$	22

¹ Refer to Notes for Canadian GAAP to IFRS Reconciliations

(c) Reconciliation of Comprehensive Income as Reported Under Canadian GAAP to IFRS
The following is a reconciliation of the Company's comprehensive income reported in accordance with Canadian GAAP to its comprehensive loss in accordance with IFRS for the three month and nine month periods ended September 25, 2010.

(US $ millions)					Q3 2010			9 mos 2010
Comprehensive income as reported under Canadian GAAP				$	2		$	22
IFRS adjustments^1
Differences in Canadian GAAP to IFRS earnings noted in 3(b)					3			(3)
	(i)	Employee benefits			(4)			(11)
	(ii)	Property, plant and equipment
			Foreign exchange on deemed cost adjustment		(3)			3
	(v)	Deferred income tax			1			3
Total IFRS adjustments					(3)			(8)
Comprehensive income as reported under IFRS				$	(1)		$	14

¹ Refer to Notes for Canadian GAAP to IFRS Reconciliations

(d) Reconciliation of Cash Flows as Reported Under Canadian GAAP to IFRS
There were no material adjustments to the cash flow statement as a result of the conversion to IFRS.

Notes for Canadian GAAP to IFRS Reconciliations

(i)	Employee Benefits
	Unfunded Pension Obligation Under Canadian GAAP, accrued pension benefit obligation in excess of plan assets for defined benefit pension plans only required disclosure in the notes to the consolidated financial statements.  Under IAS 19, the obligation in excess of plan assets is recorded as a liability on the balance sheet.
	Actuarial Gains and Losses Under Canadian GAAP, actuarial gains and losses were recognized in earnings on a systematic and consistent basis, subject to a minimum required amortization based on a "corridor" approach.  Unrecognized actuarial gains and losses below the corridor were deferred.  Under IFRS, in accordance with the Company's IFRS 1 election, any deferred actuarial gains and losses as at the Company's IFRS measurement date of January 1, 2009, Brookfield's IFRS transition date, were recognized immediately through a component of shareholders' equity in retained earnings.  Post-adoption, the Company elected to recognize all actuarial gains and losses immediately through OCI and as a component of shareholders' equity in retained earnings.
(ii)	Plant, Property and Equipment
	Deemed Cost Upon transition to IFRS, the Company elected to measure its property, plant and equipment at fair value as its deemed cost.  Certain items of property, plant and equipment in the North American operations had a fair value of $30 million above their book value under Canadian GAAP and certain items of property, plant and equipment in the European operations had a fair value of $30 million below their book value under Canadian GAAP.  The net effect of these fair value measurements was nil on a consolidated basis on January 1, 2009.  The fair value measurement was based on January 1, 2009.  The Company determined the fair value of certain items of property, plant and equipment using an income approach.  Fair value measurements were prepared internally using a discounted cash flow model taking into consideration forecasts and assumptions of future cash flows and a discount rate based on the Company's weighted average cost of capital as at the measurement date.  All subsequent depreciation under IFRS is based on this deemed cost.
	Component Accounting Both IFRS and Canadian GAAP require property, plant and equipment to be disaggregated into components and depreciated separately.  Under Canadian GAAP, component accounting was interpreted and applied more generally.  The Company has applied the guidance under IFRS, IAS 16, Property, Plant and Equipment, and disaggregated its property, plant and equipment into components and reviewed the useful life of each separable component.  For certain components of property, plant and equipment, useful lives were reassessed and the effect of these changes in estimates will accelerate the expected depreciation expense under IFRS.
	Impairments Under both Canadian GAAP and IFRS, an asset or group of assets is tested for impairment only when there is an indication of impairment.  Under Canadian GAAP, impairment testing of an asset or group of assets is a two-step approach:  first, the carrying value of an asset or group of assets is compared to the undiscounted future cash flows to determine whether impairment exists.  If impairment exists, then the second step is the measurement of the impairment by comparing the carrying value of the asset or group of assets to their fair value, as calculated using the present value of future cash flows.  Under IFRS, IAS 36, Impairment of Assets, impairment testing is a one-step approach for both testing and measurement, with the carrying value of the asset or group of assets compared directly with the higher of fair value less costs to sell and value in use.  Fair value is measured at the sales price of the asset or group of assets in an arm's length transaction.  Value in use is based on the discounted future cash flows of the asset or group of assets.  This may potentially result in write-downs where the carrying value of an asset or group of assets was previously supported under Canadian GAAP on an undiscounted cash flow basis.  Furthermore, while Canadian GAAP prohibits the reversals of impairment losses recognized in prior periods, IFRS requires such reversals to be recognized if certain criteria are met.
	The Company assessed impairment under IFRS for property, plant and equipment as at December 31, 2010 and December 31, 2009, and concluded no impairment existed.
	(iii) Consistency in Accounting Policies
	IFRS requires consistency of accounting policies across subsidiaries.  The Company aligned the accounting policies of all of its subsidiaries under IFRS resulting in an adjustment on the Company's IFRS measurement date of January 1, 2009 and in subsequent periods.
(iv)	Share-Based Payments
	The Company issues share-based awards in the form of stock options that vest evenly over a five-year period.  Under Canadian GAAP, the Company recognized the fair value of the award, determined at the time of the grants, on a straight-line basis over the five-year vesting period.  Under IFRS 2, Share-Based Payments, the fair value of each tranche of the award is considered to be a separate grant based on its vesting period.  The fair value of each tranche is determined separately and recognized as compensation expense over the term of its respective vesting period.  Accordingly, compensation expense under IFRS will be recognized at an accelerated rate compared to under Canadian GAAP.
(v)	Income Taxes
	Tax Effect of IFRS Accounting Adjustments Deferred income tax is adjusted to reflect the change in temporary differences resulting from the IFRS adjustments described above.
	Translation of Non-Monetary Assets and Liabilities The Company has certain non-monetary assets and liabilities for which the tax reporting currency is different from its functional currency.  Under Canadian GAAP, any translation gains or losses arising on the remeasurement of these items at current exchange rates versus historic exchange rates do not give rise to a deferred income tax asset or liability.  Under IFRS, IAS 12, Income Taxes, such translation gains or losses do give rise to a temporary difference that is recorded as a deferred tax asset or liability.
(vi)	Cumulative Translation Account
	Upon transition to IFRS, Norbord elected under IFRS 1, First-time Adoption of International Financial Reporting Standards, to reset all cumulative translation differences to zero as at January 1, 2009, Brookfield's IFRS transition date.
(vii)	Accounts Receivable Securitization
	Under Canadian GAAP, the Company's accounts receivable securitization program was treated as a true sale of accounts receivable and the receivables were derecognized as the Company had transferred substantially all of its present and future trade accounts receivable to a third party trust sponsored by a highly rated Canadian financial institution, on a fully serviced basis, for proceeds consisting of cash and deferred purchase price.  Under IAS 39, the securitization program does not meet the criteria for a sale transaction and is treated as a financing arrangement.  Accordingly an adjustment to the balance sheet to recognize the related accounts receivable and long-term debt is required.
(viii)	Investment in a Joint Venture
	The Company has a 50% interest in a joint-venture hardwood plywood business which ceased operations effective December 2010.  This operation was non-core and represented less than 1% of total assets.  Under Canadian GAAP, the Company proportionately consolidated its 50% interest in the joint venture in the consolidated financial statements.  Under IAS 31, Interests in Joint Ventures, the Company elected to account for its investment under the equity method.
(ix)	Revenue recognition
	Under Canadian GAAP, the Company presented outbound freights costs as a reduction of sales.  Under IFRS, IAS 18, Revenues, the Company revenues should only take into account trade discounts and volume rebates.  As a consequence, the Company has presented sales gross of outbound freight costs.

NOTE 4. ACCOUNTS RECEIVABLE
The Company has an $85 million accounts receivable securitization program with a third party trust sponsored by a highly rated Canadian financial institution.  The program has an evergreen commitment subject to termination on twelve months' notice.  Under the program, Norbord has transferred substantially all of its present and future trade accounts receivable to the financial institution, on a fully serviced basis, for proceeds consisting of cash and deferred purchase price. However, the asset derecognition criteria under IFRS have not been met and the transferred accounts receivables remain recorded as an asset.

At period-end, Norbord recorded cash proceeds of $62 million (December 31, 2010 - $60 million) relating to this program.  The cash proceeds are presented as other long-term debt on the balance sheet and are excluded from the net debt to capitalization calculation for financial covenant purposes (note 12).

The securitization program contains no financial covenants. However, the program is subject to minimum credit-rating requirements.  The Company must maintain a long-term issuer credit rating of at least single B (mid) or the equivalent.  As at October 27, 2011, Norbord's ratings were BB (low) (DBRS), BB- (Standard & Poor's) and Ba3 (Moody's).

NOTE 5. INVENTORY
	(US $ millions)			Oct 1 2011			Dec 31 2010
	Raw materials		$	22		$	18
	Finished goods			45			38
	Operating & maintenance supplies			30			28
			$	97		$	84

At period-end, the provision to reflect inventories at the lower of cost and net realizable value was $1 million (December 31, 2010 - less than $1 million).

The amount of inventory recognized as an expense was as follows:
	(US $ millions)		Q3 2011			Q3 2010			9 mos 2011			9 mos 2010
	Cost of inventories	$	216		$	209		$	662		$	611
	Depreciation on property, plant & equipment		12			13			39			38
		$	228		$	222		$	701		$	649

NOTE 6. OTHER ASSETS
	(US $ millions)			Oct 1 2011			Dec 31 2010
	Unrealized net investment hedge gains (note 13)		$	4		$	3
	Unrealized interest rate swap gains (note 13)			3			5
	Unrealized monetary hedge gains (note 13)			-			2
	Other			-			3
			$	7		$	13

Unrealized net investment hedge gains, unrealized interest rate swap gains and unrealized monetary hedge gains are offset by unrealized losses on the underlying exposures being hedged.

NOTE 7. LONG-TERM DEBT
	(US $ millions)		Oct 1 2011			Dec 31 2010
	Principal value
	7 1/4% debentures due 2012	$	240		$	240
	Senior notes due 2017		200			200
			440			440
	Debt issue costs		(5)			(5)
	Deferred interest rate swap gains		1			3
	Unrealized interest rate swap gains		3			5
			439			443
	Less: Current portion		(244)			-
		$	195		$	443

Standby Term Loan
Subsequent to quarter-end, Brookfield committed to put in place a $120 million standby term loan to be used to repay up to half of the 2012 debentures, if necessary.  The maturity date would extend beyond the revolving bank lines and up to a 10-year period.  The term loan would contain market standard terms at the time of borrowing except that the Company would have the right to prepay the loan at any time without penalty, so long as Brookfield is the holder.   The term loan would be secured pari passu with the bank lines and holders of the 2017 senior notes.

Revolving Bank Lines
Subsequent to quarter-end, the Company amended its $270 million committed revolving bank lines to: (i) allow the Company the option to utilize up to $120 million of the bank lines to repay up to half of the 2012 debentures, if necessary; and (ii) to widen one of its two quarterly financial covenants, such that the maximum net debt to total capitalization, book basis, increases from 60% to 65%.

The bank lines mature in May 2014 and bear interest at money market rates plus a margin that varies with the Company's credit rating. The bank lines are secured by a first lien on the Company's North American OSB inventory and property, plant and equipment.  This lien is shared pari passu with holders of the 2012 debentures and 2017 senior notes.  At period-end, none of the revolving bank lines was drawn as cash, $8 million was utilized for letters of credit and $262 million was available to support short-term liquidity requirements.

The bank lines contain two quarterly financial covenants: minimum tangible net worth of $250 million and maximum net debt to total capitalization, book basis, of 65%. As a result of the bank line renewal completed in 2010, the IFRS transitional adjustments to shareholders' equity of $21 million at January 1, 2011 are added back for the purposes of the tangible net worth calculation. In addition, other comprehensive income movement subsequent to January 1, 2011 is excluded from the tangible net worth calculation.  Net debt includes total debt, principal value, less cash and cash equivalents plus letters of credit issued. At period-end, the Company's tangible net worth for financial covenant purposes was $352 million and net debt for financial covenant purposes was $393 million (note 12). Net debt to total capitalization was 53% on a book basis.

Interest Rate Swaps
At period-end, the Company had outstanding interest rate swaps of $115 million (December 31, 2010 - $115 million). The terms of these swaps correspond to the terms of the underlying hedged debt.  The unrealized interest rate swap gains are offset by unrealized losses on the underlying exposures being hedged within interest expense.

NOTE 8. OTHER LIABILITIES
	(US $ millions)			Oct 1 2011			Dec 31 2010
	Defined benefit pension obligation		$	34		$	28
	Accrued employee benefits			4			6
	Unrealized monetary hedge loss (note 13)			5			-
	Other			-			1
			$	43		$	35

The unrealized monetary hedge loss is offset by unrealized gains on the underlying exposures being hedged.

NOTE 9. SHAREHOLDERS' EQUITY

Stock Options
Year-to-date, 0.6 million options were granted under the stock option plan.  Earnings include $2 million related to stock-based compensation expense. Year-to-date, 0.1 million common shares were issued as a result of options exercised under the stock option plan for proceeds of less than $1 million.

Accumulated Other Comprehensive Loss
	(US $ millions)			Oct 1 2011			Dec 31 2010
	Foreign currency translation gain on foreign operations		$	10		$	11
	Net loss on hedge of net investment in foreign operations			(9)			(7)
	Accumulated other comprehensive loss		$	1		$	4

NOTE 10. EARNINGS PER COMMON SHARE
	(US $ millions, except share and per share information, unless otherwise noted)			Q3 2011			Q3 2010			9 mos 2011			9 mos 2010
	Earnings available to common shareholders		$	(1)		$	(4)		$	(2)		$	22
	Common shares (millions):
		Weighted average number of common shares outstanding		43.6			43.5			43.6			43.4
		Stock options^1		-			-			-			0.4
		Warrants^1		-			-			-			1.1
	Diluted number of common shares			43.6			43.5			43.6			44.9
	Earnings per common share:
		Basic	$	(0.02)		$	(0.09)		$	(0.05)		$	0.51
		Diluted		(0.02)			(0.09)			(0.05)			0.49

¹ Applicable if dilutive and when the weighted average share price for the period was greater than the exercise price for vested stock options and warrants.

NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION

The net change in non-cash operating working capital balance comprises:
	(US $ millions)			Q3 2011			Q3 2010			9 mos 2011			9 mos 2010
	Cash (provided by) used for
		Accounts receivable	$	(13)		$	4		$	(29)		$	(26)
		Inventory		3			7			(17)			(11)
		Accounts payable and accrued liabilities		(5)			(6)			(12)			4
			$	(15)		$	5		$	(58)		$	(33)
	Cash income taxes and interest comprises:
	(US $ millions)			Q3 2011			Q3 2010			9 mos 2011			9 mos 2010
	Cash interest paid		$	7		$	16		$	32		$	33
	Cash taxes (paid) received, net			(1)			(1)			-			52
	Cash and cash equivalents comprises:
	(US $ millions)									Oct 1 2011			Sep 25 2010
	Cash								$	53		$	48
	Cash equivalents									2			26
									$	55		$	74

NOTE 12. CAPITAL MANAGEMENT

Norbord's capital structure at period-end consisted of the following:
	(US $ millions)			Oct 1 2011			Dec 31, 2010^1
	Long-term debt, principal value (note 7)			$        440		$	440
	Less: Cash and cash equivalents			(55)			(113)
	Net debt			385			327
	Add:  Letters of credit			8			10
	Net debt for financial covenant purposes			393			337
	Shareholders' equity			321			352
	Add: IFRS transitional adjustments			21			-
	Less: Other comprehensive income movement^2			10			-
	Tangible net worth for financial covenant purposes			352			352
	Total capitalization			$        745		$	689
	Net debt to capitalization, book basis			53%			49%
	Net debt to capitalization, market basis			43%			35%

^1

Figures have not been restated for IFRS.  Effective January 1, 2011, the Company's lending agreement provides for the following adjustments to covenant calculations as a result of the changeover to IFRS : (i) the exclusion of accounts receivable securitization proceeds from the net debt calculation; (ii) the add-back of IFRS transitional adjustments to shareholders' equity, as at January 1, 2011 (to a maximum of $30 million), for the purposes of the tangible net worth calculation; and (iii) the exclusion of cumulative other comprehensive income from the tangible net worth calculation, subsequent to January 1, 2011.

^2

Subsequent to January 1, 2011.

NOTE 13. FINANCIAL INSTRUMENTS

Non-Derivative Financial Instruments

The net book values and fair values of non-derivative financial instruments were as follows:
								Oct 1 2011						Dec 31 2010
(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		$	55		$	55		$	111		$	111
	Accounts receivable	Loans and receivables			121			121			90			90
				$	176		$	176		$	201		$	201
Financial liabilities:
	Accounts payable and accrued liabilities	Amortized cost		$	153		$	153		$	164		$	164
	Long-term debt	Amortized cost			439			418			443			447
	Other long-term debt	Amortized cost			62			62			60			60
	Other liabilities	Amortized cost			43			43			35			35
				$	697		$	676		$	702		$	706

Derivative Financial Instruments

Information about derivative financial instruments was as follows:
								Oct 1 2011						Dec 31 2010
(US $ millions, unless otherwise noted)					Notional Value			Unrealized Gain (Loss) at Period-End^1			Notional Value			Unrealized Gain at Period-End^1
Currency hedges:
	Net investment
		Belgium			€ 15		$	2			€ 40		$	1
		UK			£41			2			£47			2
	Monetary position
		Canadian dollar			CAD $87			(5)			CAD $78			2
Interest rate hedges:
	Interest rate swaps				$115			3			$115			5

¹ The carrying values of the derivative financial instruments are equivalent to the unrealized gain (loss) at period-end.

The (losses) gains recognized on the Company's matured currency hedges were:
(US $ millions)				Q3 2011			Q3 2010			9 mos 2011			9 mos 2010
Net investment
	Belgium		$	(2)		$	1		$	(2)		$	6
	UK			1			2			(1)			6
Monetary position
	Canadian Dollar			(1)			1			2			1
			$	(2)		$	4		$	(1)		$	13

Realized and unrealized gains and losses on derivative financial instruments are offset by realized and unrealized losses and gains on the underlying exposures being hedged.

NOTE 14. RELATED PARTY TRANSACTIONS
In the normal course of operations, the Company enters into various transactions on market terms with related parties which have been measured at exchange value and recognized in the consolidated financial statements. The following transactions have occurred between the Company and Brookfield during the normal course of business.

Year-to-date, the Company provided certain administrative services to Brookfield or its affiliates which were charged on a cost recovery basis. In addition, the Company periodically engages the services or purchases goods from Brookfield or its affiliates for various financial, real estate and other business advisory services. Year-to-date, the fees and cost for these services and goods were $2 million (2010 - less than $1 million) and were charged at market rates.

Subsequent to quarter-end, the Company entered into a $120 million standby term loan commitment with Brookfield (note 7).

NOTE 15. GEOGRAPHIC SEGMENTS
The Company has a single reportable segment. The Company operates principally in North America and Europe. Sales by geographic segment are determined based on the origin of shipment and therefore include export sales.

				Q3 2011
(US $ millions)	North America	Europe	Unallocated	Total
Sales	$       131	$          111	$             -	$        242
EBITDA^1	5	10	(3)	12
Depreciation	8	4	1	13
Investment in property, plant and equipment	3	1	-	4
				Q3 2010
(US $ millions)	North America	Europe	Unallocated	Total
Sales	$         134	$             95	$             -	$         229
EBITDA^1	4	11	(2)	13
Depreciation	8	5	-	13
Investment in property, plant and equipment	2	1	-	3
				9 mos 2011
(US $ millions)	North America	Europe	Unallocated	Total
Sales	$       388	$          348	$             -	$        736
EBITDA^1	12	34	(10)	36
Depreciation	25	14	1	40
Investment in property, plant and equipment	8	8	-	16
Property, plant and equipment	648	143	-	791
				9 mos 2010
(US $ millions)	North America	Europe	Unallocated	Total
Sales	$         454	$           268	$             -	$         722
EBITDA^1	76	25	(8)	93
Depreciation	25	13	-	38
Investment in property, plant and equipment	7	2	-	9
Property, plant and equipment^2	665	148	1	814

¹ EBITDA is earnings before interest, income tax and depreciation.

² Balance as at December 31, 2010.

 

 

 

 

 

 

 

For further information:

Heather Colpitts
Manager, Corporate Affairs
Tel. [phone]
[e-mail]