Norbord Reports 2009 Year-End Results

Note: Financial references in US dollars unless otherwise indicated

HIGHLIGHTS

    
    -   Achieved breakeven EBITDA vs. a loss of $60 million in 2008
    -   Limited EBITDA loss from North American mills to $8 million vs.
        $51 million in 2008
    -   Generated positive EBITDA of $17 million in Europe vs. $4 million in
        2008
    -   Generated margin improvements of $29 million
    -   Improved safety performance by 50% to a 'best ever' OSHA rate of 0.96
    -   Completed program to divest non-core assets in North America
    -   Completed recapitalization program, including $200 million Rights
        Offering and financial covenant amendments
    

TORONTO, Jan. 29, 2010 /CNW/ - Norbord Inc. (TSX: NBD, NBD.WT) today reported a 2009 loss of $58 million or $1.35 per share compared to a loss of $115 million or $7.62 per share in 2008. The Company recorded a loss of $11 million or $0.25 per share in the fourth quarter compared to a loss of $30 million or $1.88 per share in the fourth quarter last year.

For the full year, Norbord generated breakeven EBITDA compared to negative EBITDA of $60 million in the prior year. Approximately $43 million of the year-over-year improvement was generated by the North American operations. Overhead cost reductions and lower input prices, especially resin and wax, had a significant positive impact on EBITDA results. In the fourth quarter, Norbord recorded positive EBITDA of $6 million versus negative EBITDA of $28 million in the fourth quarter last year. The quarterly EBITDA improvement was largely due to lower key input prices, higher European shipment volumes and the production curtailments taken at OSB mills in Huguley, Alabama and Jefferson, Texas.

"I am pleased with the progress made in 2009 to improve Norbord's earning potential," said Barrie Shineton, President and CEO. "As expected, markets for our building material products were weak again this year as the historic collapse in both US and UK housing activity and the fallout from the global financial market breakdown continued through most of 2009. Against this backdrop, Norbord conserved cash by curtailing considerable production capacity and reducing overhead costs. These actions, together with lower key input prices, led to our breakeven EBITDA result. We also completed significant recapitalization initiatives during the year.

While generating negative earnings is never acceptable, we head into 2010 with our 'house in order' and a more positive building materials market outlook, particularly in Europe."

Market Conditions

US housing starts in 2009 were approximately 0.55 million, down from 0.9 million in 2008, 1.35 million in 2007 and 1.8 million in 2006.

For the full year, North Central benchmark OSB prices averaged $163 per Msf (7/16-inch basis) compared to $172 per Msf in 2008. In the South East region, where 55% of Norbord's North American capacity is located, OSB prices averaged $148 per Msf in 2009 versus $143 per Msf in 2008.

In the fourth quarter, the North Central benchmark OSB prices averaged $172 per Msf, down $6 per Msf from the third quarter and up $2 per Msf from the fourth quarter of 2008. South East prices averaged $154 per Msf in the quarter, down $3 per Msf from the third quarter and up $17 per Msf from the fourth quarter of 2008.

North American housing markets and OSB prices declined throughout the first half of 2009, reached a bottom mid-year and began to trend up in the third and fourth quarters. The relative strength of fourth quarter OSB prices was due to weather-related log shortages and low distribution chain inventories. Demand was also supported in part by housing activity generated by the Home Buyer Tax Credit program as the original November 2009 deadline approached. This program was subsequently renewed until June 30, 2010 and expanded to include repeat home buyers.

In the UK, where the majority of Norbord's European assets are located, year-over-year housing starts declined 20%. However, the second half of the year saw a gradual improvement, with December 2009 housing prices 6% higher than the prior year.

European average prices declined by 20% for OSB, 16% for MDF and 6% for particleboard in 2009 versus 2008. Prices for all three product lines were under pressure at the beginning of 2009 and stabilized by mid-year. OSB prices began to recover, particularly in the fourth quarter, as a result of improved demand, low supply chain inventories and higher imported plywood prices across Europe.

Performance

Norbord's North American OSB mills operated at approximately 60% of capacity in both the fourth quarter and the full year compared to 80% of capacity in 2008. Norbord operated at approximately 80% of its European capacity throughout the year.

Norbord's North American per unit OSB production costs increased 8% in the fourth quarter versus the third quarter of 2009 due primarily to higher resin prices, lower production volumes, and higher energy and resin usages. OSB cash production costs in the quarter were still significantly lower than the prior year, down 11% versus the fourth quarter of 2008. For the full year, per unit OSB costs decreased 7% from 2008 as lower key input prices more than offset the impact of lower production volumes.

Norbord's Margin Improvement Program helped the Company improve its competitive position throughout the year, generating savings of $29 million in 2009 and more than $136 million over the past five years. These gains, largely driven by overhead reductions and higher-margin sales mix, more than offset the impact of rising input costs and curtailed production volume.

At year end, Norbord had unutilized liquidity of $241 million consisting of cash and cash equivalents, revolving bank lines and the Brookfield debt facility. The Company's tangible net worth was $334 million and net debt to total capitalization (book basis) was 58% at the end of 2009.

Capital investments totaled $14 million in 2009. In addition to investments in essential maintenance and safety programs, Norbord completed a significant project at its mill in Joanna, South Carolina to improve production efficiency.

Developments

As previously announced, the Company implemented a share consolidation on the basis of one post-consolidated common share for every ten pre-consolidated common shares. The effective date for the share consolidation was October 16, 2009 and Norbord's common shares began trading on a post-consolidated basis on the Toronto Stock Exchange on October 21, 2009. No fractional shares were issued. The exercise or conversion price and the number of Common Shares issuable under any of the Company's outstanding warrants, stock options and deferred share units were proportionately adjusted upon consolidation. Norbord's common shares continue to trade on the Toronto Stock Exchange under the symbol 'NBD'. The new CUSIP number is 65548P403.

In 2009, Norbord divested its non-core MDF assets in Deposit, New York and formed a joint venture for its non-core hardwood plywood business in Cochrane, Ontario.

Additional Information

Norbord's year-end 2009 letter to shareholders, news release, management's discussion & analysis, audited 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, January 29, 2010 at 11:00 a.m. ET. The call will be broadcast live over the Internet via www.norbord.com and www.newswire.ca. A replay number will be available approximately one hour after completion of the call and accessible until February 28, 2010 by dialing 1.888.203.1112 or 647.436.0148. The passcode is 9923940. 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 $1.0 billion, employing approximately 1,950 people at 14 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. Often, but not always, words such as "believe," "will," "expect," "expects," "expected," "forecast," "estimate," "estimates," "estimated," "likely," "may," "agreed to," "would," 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 2, 2009 Annual Information Form and the cautionary statement contained in the "Forward-Looking Statements" section of the 2009 Management's Discussion and Analysis dated January 29, 2010.

January 29, 2010

To our Shareholders,

Norbord was faced with significant challenges again in 2009. However, our performance through the year was better than we anticipated.

We started the year on the defensive. Markets for our building material products remained exceptionally weak due to the ongoing deterioration of housing activity in both the US and the UK. Our priorities were twofold: stabilize the balance sheet and conserve cash.

I'm pleased to report that we progressed well in both areas.

We completed a $200 million Rights Offering, amended bank line covenants, and made the difficult decision to suspend dividend payments. We recognize that the performance of our share price suffered following these actions, and as shareholders ourselves, we empathize with you. However, these were necessary measures that gave us access to sufficient liquidity to manage through the most severe housing downturn in history.

We also closed two of our oriented strand board (OSB) mills for an indefinite period of time and reduced production at six other mills to conserve cash. In total, we curtailed 40% of our OSB capacity in North America and 20% of our panel capacity in Europe throughout the year.

These efforts, along with our initiatives to lower overhead costs and a dramatic decline in manufacturing input prices, had a positive impact on our financial performance. We ended 2009 with breakeven EBITDA and limited losses to $58 million, a $57 million improvement over 2008.

Norbord Well Positioned for Eventual Housing Recovery

Negative earnings are never acceptable. However, we believe that Norbord is in a stronger position going in to 2010 than we were at this time last year.

A housing market recovery, albeit fragile, is evident in North America. Recent forecasts indicate that US housing starts will be in the 0.6 million to 0.8 million range in 2010. In our view, starts will likely be around the mid-point of the range, representing a 25% increase over 2009. Limited mortgage availability, high unemployment and an unprecedented level of foreclosures will continue to dampen any near-term housing strength in the US. Longer-term, the demand fundamentals of new household formations and immigration will eventually push housing starts back to the 25-year trend of 1.5 million per year.

Our European mills will benefit from economic recovery within the UK. Unemployment is moderating and credit availability has improved for most qualified home buyers in the UK. Our operations also benefit from the weak Pound Sterling relative to the Euro, a trend that provides both stronger local sales opportunities and new export opportunities for our UK-based business. The UK housing market differs from North America in that it does not have a large inventory of unsold homes and pent up demand for housing continues to grow. For these reasons, we expect the housing recovery and improved panel demand in the UK to outpace North America.

Norbord's sales strategy limits exposure to new home construction. Our sales to industrial and home improvement centres in 2009 were effective in limiting our exposure to cyclical new home construction. Sales growth in these market segments will be a key focus in 2010. Looking to 2011 and beyond, Norbord will maintain strong relationships with the biggest and the best national suppliers to home builders. Sales to this segment will grow as the housing recovery takes hold.

Our recapitalization program is complete and financial ratios are stable. We are operating well within our financial covenant ratios and believe we have sufficient access to liquidity to manage through the remainder of this housing downturn. We were also pleasantly surprised by the recent enactment of The Worker, Homeownership and Business Assistance Act in the US, which provided a $55 million tax refund for our business. This cash refund was recently received in January 2010 and will be used to further reduce our debt.

The benefits of overhead cost reduction initiatives are being realized. Our already lean corporate structure was pared down further in 2009 to reflect the smaller size of our business. We have reduced overhead costs by 30% since 2007 by eliminating bonus payments, reducing headcount and cutting most consulting and travel expenses. The full benefit of our decision to indefinitely curtail two OSB mills will flow through and have a positive impact on our 2010 results.

2009: Best Ever Safety Results

In 2009, we reduced our overall incident rate by approximately 50% compared to 2008, achieving our 'best ever' OSHA rate of 0.96. The mills in Genk, Belgium; Cordele, Georgia and Nacogdoches, Texas each completed the year without a single recordable injury. This significant improvement is due in part to company-wide involvement in the Norbord Safety Leadership Program. It also reflects our commitment to achieve Norbord Safety Star status, a program based on OSHA's Voluntary Protection Program (VPP) Star certification, at all Norbord mills.

Improved Business Outlook

We enter 2010 on the offensive. Recapitalization initiatives are complete. We have adjusted our production capacity to conserve cash. Our customer strategy has limited our exposure to new home construction. And, the worst of the global economic downturn is behind us. The shape of housing recovery in North America and Europe will be difficult to predict - but I believe it will take hold and gain momentum as we move through the year.

We appreciate that the current downturn has been difficult for both our employees and our shareholders. However, we fully expect to generate strong shareholder returns as the housing recovery takes hold in both North America and the UK.

Thank you for your continued support.

    
    (signed)
    J. Barrie Shineton
    

This letter includes forward-looking statements, as defined by applicable securities legislation. Often, but not always, forward-looking statements can be identified by the use of words such as "would," "expect," "positions," "when," "if," "should," "must," "believe," "view," "when," or variations of such words and phrases or statements that certain actions "may," "could," "must," "would," "might," or "will" be undertaken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievement expressed or implied by the forward-looking statements. See the cautionary language in the Forward-Looking Statements section of the 2009 Management's Discussion and Analysis dated January 29, 2010.

JANUARY 29, 2010

Management's Responsibility for the Financial Statements

The accompanying consolidated financial statements and all information in this annual report are the responsibility of management and have been approved by the Board of Directors.

The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. Financial statements are not precise since they include certain amounts based upon estimates and judgments. When alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances in order to ensure that the consolidated financial statements are presented fairly, in all material respects, in accordance with Canadian generally accepted accounting principles.

The Company maintains systems of internal controls, which are designed to provide reasonable assurance that accounting records are reliable and to safeguard the Company's assets.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee.

The Audit Committee is appointed by the Board and reviews the consolidated financial statements and management's discussion and analysis; considers the report of the external auditors; assesses the adequacy of the internal controls of the Company; approves the services provided by the external auditors; examines the fees and expenses for audit services; and recommends to the Board the independent auditors for appointment by the shareholders. The Committee reports its findings to the Board of Directors for consideration when approving the consolidated financial statements for issuance to the shareholders.

January 29, 2010

    
    J. Barrie Shineton                   Robin E. Lampard
    President and Chief Executive        Senior Vice President and Chief
    Officer                              Financial Officer
    

Auditors' Report

To the Shareholders of Norbord Inc.

We have audited the consolidated balance sheets of Norbord Inc. as at December 31, 2009 and 2008, and the consolidated statements of earnings, cash flows, changes in shareholders' equity and comprehensive income, and for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

January 28, 2010

    
    Chartered Accountants, Licensed Public Accountants
    Toronto, Canada



    Consolidated Statements of Earnings

    -------------------------------------------------------------------------
    Years ended December 31 (US $ millions, except
     per share information)                                 2009        2008
    -------------------------------------------------------------------------
    Net sales                                          $     718   $     943
    -------------------------------------------------------------------------
    Earnings before interest, income tax,
     depreciation, provision for non-core operation,
     foreign exchange loss and litigation settlement           -         (60)
    Provision for non-core operation (note 11)                (4)         (4)
    Foreign exchange loss                                     (3)          -
    Interest expense (notes 3 and 7)                         (36)        (49)
    Interest and other income                                  -           3
    Litigation settlement (note 19)                            -         (32)
    -------------------------------------------------------------------------
    Earnings before income tax and depreciation              (43)       (142)
    Depreciation (note 2)                                    (48)        (68)
    Income tax recovery (note 12)                             33          95
    -------------------------------------------------------------------------
    Earnings                                           $     (58)  $    (115)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per common share (note 10)
     Basic and diluted                                 $   (1.35)  $   (7.62)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



    Consolidated Statements of Cash Flows

    -------------------------------------------------------------------------
    Years ended December 31 (US $ millions)                 2009        2008
    -------------------------------------------------------------------------

    CASH PROVIDED BY (USED FOR):

    Operating Activities
    Earnings                                           $     (58)  $    (115)
    Items not affecting cash:
      Depreciation (note 2)                                   48          68
      Future income taxes (note 12)                           22         (80)
    Other items (note 13)                                      9         (22)
    -------------------------------------------------------------------------
                                                              21        (149)
    Net change in non-cash operating working capital
     balances (note 13)                                      (11)         51
    Net change in tax receivable                             (45)         85
    -------------------------------------------------------------------------
                                                             (35)        (13)
    -------------------------------------------------------------------------
    Investing Activities
    Investment in property, plant and equipment              (14)        (27)
    Realized net investment hedge gain (loss) (note 16)       (2)         26
    Other                                                      3           3
    -------------------------------------------------------------------------
                                                             (13)          2
    -------------------------------------------------------------------------
    Financing Activities
    Revolving bank lines drawn (repaid) (note 7)             (34)         19
    Brookfield debt facility drawn (repaid) (note 7)         (35)         35
    Issue of common shares, net (note 9)                      97          65
    Issue of warrants, net (note 9)                           21          14
    Repurchase of 8 - 1/8% debentures (note 7)                 -        (197)
    Dividends paid                                             -         (33)
    -------------------------------------------------------------------------
                                                              49         (97)
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash equivalents   $       1   $    (108)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash and cash equivalents, beginning of year       $      20   $     128
    Cash and cash equivalents, end of year (note 13)          21          20
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



    Consolidated Balance Sheets

    -------------------------------------------------------------------------
    As at December 31 (US $ millions)                       2009        2008
    -------------------------------------------------------------------------
    Assets
    Current assets:
      Cash and cash equivalents (note 13)              $      21   $      20
      Accounts receivable (note 3)                            27          12
      Tax receivable (note 12)                                57          13
      Inventory (note 4)                                      71          81
    -------------------------------------------------------------------------
                                                             176         126

    Property, plant and equipment (note 5)                   860         885
    Other assets (note 6)                                      7          33
    -------------------------------------------------------------------------
                                                       $   1,043   $   1,044
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity
    Current liabilities:
      Accounts payable and accrued liabilities              $140        $146

    Long-term debt (note 7)                                  471         542
    Other liabilities (note 8)                                 9          14
    Future income taxes (note 12)                             89          74
    Shareholders' equity (note 9)                            334         268
    -------------------------------------------------------------------------
                                                       $   1,043   $   1,044
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



    On behalf of the Board:

    Robert J. Harding                    J. Barrie Shineton
    Chair                                President and Chief Executive
                                         Officer



    Consolidated Statements of Changes in Shareholders' Equity and
    Comprehensive Income

    -------------------------------------------------------------------------
    Years ended December 31 (US $ millions)                 2009        2008
    -------------------------------------------------------------------------

    CONSOLIDATED STATEMENTS OF CHANGES IN
     SHAREHOLDERS' EQUITY

    Share Capital
    Balance, beginning of year                         $     238   $     150
    Issue of common shares, net (note 9)                      97          65
    Dividend reinvestment plan (note 9)                        -          23
    -------------------------------------------------------------------------
    Balance, end of year                               $     335   $     238
    -------------------------------------------------------------------------

    Contributed Surplus
    Balance, beginning of year                         $      17   $       1
    Issue of warrants, net (note 9)                           21          14
    Stock-based compensation (note 9)                          1           2
    -------------------------------------------------------------------------
    Balance, end of year                               $      39   $      17
    -------------------------------------------------------------------------

    Retained Earnings
    Balance, beginning of year                         $      24   $     204
    Adoption of new accounting standards (note 2)              2           1
    -------------------------------------------------------------------------
    Adjusted balance, beginning of year                       26         205
    Earnings                                                 (58)       (115)
    Common share dividends                                     -         (56)
    Future income taxes - acquisition of control
     (note 12)                                                 -          (8)
    -------------------------------------------------------------------------
    Balance, end of year                               $     (32)  $      26
    -------------------------------------------------------------------------

    Accumulated Other Comprehensive Income (Loss)
    Balance, beginning of year                         $     (13)  $       4
    Other comprehensive income (loss)                          5         (17)
    -------------------------------------------------------------------------
    Balance, end of year                               $      (8)  $     (13)
    -------------------------------------------------------------------------
    Shareholders' equity                               $     334   $     268
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONSOLIDATED STATEMENTS OF COMPREHENSIVE
     INCOME (LOSS)

    Earnings                                           $     (58)  $    (115)
    Other comprehensive income (loss):
      Foreign currency translation                             -         (10)
      Future income taxes                                      5          (7)
    -------------------------------------------------------------------------
    Comprehensive income (loss)                        $     (53)  $    (132)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



    Notes to the Consolidated Financial Statements
    (in US $, unless otherwise noted)

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

    NOTE 1. ACCOUNTING POLICIES

    Basis of Presentation

    The consolidated financial statements include the accounts of the Company
    and all of its subsidiaries including a newly formed joint venture, True
    North Hardwood Plywood Inc., which has been proportionately consolidated
    effective January 31, 2009. This hardwood plywood operation is non-core
    and represents less than 5% of both total sales and assets.

    Effective October 16, 2009, the Company consolidated all of its issued
    and outstanding common shares on the basis of one post-consolidation
    common share for every 10 pre-consolidation common share (notes 9 and
    10). All references to common share and per common share data for all
    periods presented in the consolidated financial statements have been
    adjusted to reflect the common share consolidation.

    Use of Estimates

    The preparation of financial statements in conformity with Canadian
    generally accepted accounting principles (GAAP) requires management to
    make estimates and assumptions that affect the reported amounts of assets
    and liabilities and the disclosure of contingent assets and liabilities
    at the date of the financial statements and the reported amounts of
    revenues and expenses during the reporting period. Actual results could
    differ from those estimates. Significant estimates are required in
    assessing net recoverable amounts and net realizable values,
    depreciation, tax and other provisions, hedge effectiveness and fair
    value.

    Cash and Cash Equivalents

    Cash and cash equivalents consist of demand deposits and investment grade
    money market securities and bank term deposits with maturities of 90 days
    or less from the date of purchase. Cash and cash equivalents are recorded
    at cost, which approximates market value.

    Inventories

    Inventories of raw materials and operating and maintenance supplies are
    valued at the lower of cost and net realizable value, with cost
    determined on an average cost basis.

    Inventories of finished goods are valued at the lower of cost and net
    realizable value, with cost determined on an average cost basis. Cost
    includes direct material, direct labour and an allocation of overhead.

    Property, Plant and Equipment

    Property, plant and equipment are recorded at cost. Property and plant
    includes land and buildings. Buildings are depreciated on a straight-line
    basis over 20 to 40 years. Production equipment is depreciated using the
    units of production basis effective March 29, 2009 (note 2). This method
    amortizes the cost of equipment over the estimated units that will be
    produced during its estimated useful life which ranges from 10 to 25
    years. The rates of depreciation are intended to fully depreciate
    manufacturing and non-manufacturing assets over their useful life. These
    periods are assessed from time to time to ensure that they continue to
    approximate the useful lives of the related assets.

    Property, plant and equipment are tested for recoverability whenever
    events or changes in circumstances indicate that the carrying amount may
    not be recoverable. The recoverability assessment is based on the
    Company's estimates and assumptions. If these estimates change in the
    future, the Company could be required to reduce the carrying value of
    property, plant and equipment resulting in an impairment charge.

    Employee Future Benefits

    Norbord sponsors various defined benefit and defined contribution pension
    plans, which cover substantially all employees and are funded in
    accordance with applicable plan and regulatory requirements. The benefits
    under Norbord's defined benefit pension plans are generally based on an
    employee's length of service and the final five years' average salary,
    and the plans do not provide for indexation of benefit payments.

    The measurement date for all defined pension plans is December 31. The
    obligations associated with Norbord's defined benefit pension plans are
    actuarially valued using the projected unit credit method pro-rated on
    services, management's best estimate assumptions for expected investment
    performance, salary escalation and health care cost trend rates, and a
    current market discount rate. For the purpose of calculating the expected
    return on plan assets, those assets are measured at fair value. Prior
    service costs related to plan amendments and transitional assets are
    amortized on a straight-line basis over the estimated average remaining
    service lives (EARSL) of the employee groups. The net actuarial gains or
    losses in excess of 10% of the greater of the accrued benefit obligation
    and the fair value of plan assets are amortized on a straight-line basis
    over EARSL.

    Financial Instruments

    The Company utilizes derivative financial instruments solely to manage
    its foreign currency, interest rate, and commodity price exposures in the
    ordinary course of business. Derivatives are not used for trading or
    speculative purposes. All hedging relationships, risk management
    objectives, and hedging strategies are formally documented and
    periodically assessed to ensure that the changes in the value of these
    derivatives are highly effective in offsetting changes in the fair
    values, net investments or cash flows of the hedged exposures.
    Accordingly, all gains and losses (realized and unrealized, as
    applicable) on such derivatives are recognized in the same manner as
    gains and losses on the underlying exposure being hedged. Any resulting
    carrying amounts are included in other assets if there is an unrealized
    gain on the derivative, or in other liabilities if there is an unrealized
    loss on the derivative.

    The fair value of the Company's derivative financial instruments are
    determined by using quoted prices in active markets for identical assets
    and liabilities. These fair values reflect the estimated amount that the
    Company would have paid or received if required to settle all outstanding
    contracts at year-end. This fair value represents a point-in-time
    estimate that may not be relevant in predicting the Company's future
    earnings or cash flows.

    The Company is exposed to credit risk in the event of non-performance by
    its derivative counterparties. However, the Company's Board-approved
    financial policies require that derivative transactions be executed only
    with approved highly rated counterparties under master netting
    agreements; therefore, the Company does not anticipate any non-
    performance. The fair value measurements of the Company's derivative
    financial instruments are classified as Level 2 of a three-level
    hierarchy as fair value of these derivative instruments include
    observable market inputs.

    The carrying value of the Company's non-derivative financial instruments
    approximates fair value, except where disclosed in these notes. Fair
    values disclosed are determined using actual quoted market prices or, if
    not available, indicated prices based on similar publicly-traded
    instruments.

    Debt Issue Costs

    The Company accounts for transaction costs that are directly attributable
    to the issuance of long-term debt by deducting such costs from the
    carrying value of the long-term debt. The capitalized transaction costs
    are amortized to earnings over the term of the related long-term debt.

    Income Taxes

    The Company uses the asset and liability method of accounting for income
    taxes. Accordingly, future tax assets and liabilities are recognized for
    the future tax consequences attributable to differences between the
    financial statement carrying amounts of existing assets and liabilities
    and their respective tax bases. Future tax assets and liabilities are
    measured using enacted or substantively enacted tax rates expected to
    apply to taxable income in the years in which those temporary differences
    are expected to be recovered or settled. In addition, the effect on
    future tax assets and liabilities of a change in tax rates is recognized
    in income in the year that includes the enactment or substantive
    enactment date. The Company assesses recoverability of future income tax
    assets based on the Company's estimates and assumptions. Future income
    tax assets are recorded at an amount that the Company considers is more
    likely than not to be realized.

    Stock Options

    The Company accounts for stock options using the fair value method. Under
    the fair value method, compensation expense for options is measured at
    the grant date using the Black-Scholes option pricing model and
    recognized in earnings on a straight-line basis over the vesting period.

    Warrants

    The Company accounts for warrants using the fair value method. Under the
    fair value method, the value of warrants is measured at the issue date
    using the Black-Scholes option pricing model, reduced by any related
    issue costs.

    Revenue Recognition

    Net sales are recognized when the risks and rewards of ownership pass to
    the purchaser. This is generally when goods are shipped. Sales are
    recorded net of third-party transportation and discounts.

    Sales are governed by contract or by standard industry terms. Revenue is
    not recognized prior to the completion of those terms. The majority of
    product is shipped via third-party transport on a freight-on-board
    shipping point basis. In all cases, product is subject to quality testing
    by the Company to ensure it meets applicable standards prior to shipment.

    Translation of Foreign Currencies

    The accounts of subsidiaries having a functional currency other than the
    US dollar are translated using the current rate method. Gains or losses
    on translation are deferred and included in accumulated other
    comprehensive income. Gains or losses on foreign currency-denominated
    balances and transactions that are designated as hedges of net
    investments in these subsidiaries are reported in the same manner as
    translation adjustments.

    Monetary assets and liabilities denominated in currencies other than an
    entity's functional currency are translated at the rate of exchange
    prevailing at year-end. Gains or losses on translation of these items are
    included in the consolidated statements of earnings. Gains or losses on
    transactions that hedge these items are also included in the consolidated
    statements of earnings.

    Gains or losses on transactions that serve to hedge future foreign
    currency-denominated cash flows are recognized and reported in the same
    manner as the cash flows being hedged.

    NOTE 2. CHANGES IN ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING
    ESTIMATES

    Property, Plant and Equipment

    In accordance with Canadian Institute of Chartered Accountants (CICA)
    Handbook Section 3061, Property, Plant and Equipment, depreciation
    methods should be reviewed on a regular basis and significant events may
    indicate a need to revise depreciation methods. The Company had utilized
    the straight line method of depreciation for production equipment, which
    allocates cost equally to each period. In a period of fluctuating
    production levels, the straight line depreciation method does not result
    in rational allocation of the cost of equipment to production.
    Consequently, effective March 29, 2009, the Company changed to the unit
    of production depreciation method for its production assets. This method
    allocates the equipment costs to the actual units produced based on
    estimated annual capacity over the remaining useful lives of the assets.
    The impact of this change has been applied prospectively as a change in
    an estimate, and it resulted in a $12 million reduction in depreciation
    expense in 2009.

    Goodwill and Intangible Assets

    In February 2008, the CICA issued Handbook Section 3064, Goodwill and
    Intangible Assets, replacing Handbook Sections 3062, Goodwill and Other
    Intangible Assets and 3450, Research and Development Costs and Emerging
    Issues Committee (EIC) Abstract 27, Revenues and Expenditures during the
    Pre-Operating Period. Section 3064 establishes standards for the
    recognition, measurement, presentation and disclosure of goodwill
    subsequent to its initial recognition and intangible assets by profit-
    oriented enterprises. This new standard became effective January 1, 2009.
    The impact of adopting this new standard was a $6 million increase in
    property, plant and equipment, a $4 million decrease in other assets, a
    $1 million increase in opening retained earnings, and a $1 million
    increase in future income tax liability as at January 1, 2008. The impact
    of adopting this new standard was a $2 million decrease in depreciation
    expense and a $1 million increase in income tax expense for the year
    ended December 31, 2008. The increase to property, plant and equipment
    arises from the concurrent retraction of EIC Abstract 27. The Company has
    retroactively reclassified costs incurred in the pre-operating period
    which were previously capitalized as intangible assets to the cost of
    production equipment in accordance with Section 3061, Property, Plant and
    Equipment. The costs include materials, labour and overhead costs
    directly attributable to the construction of the capital asset. The rate
    of depreciation is intended to fully depreciate the cost over 25 years
    which approximates the useful life of the production equipment.
    Previously, the amortization period for these capitalized costs was three
    years.

    Credit Risk and Fair Value of Financial Assets and Financial Liabilities

    In January 2009, the CICA issued EIC Abstract 173, Credit Risk and the
    Fair Value of Financial Assets and Financial Liabilities. The EIC
    requires the Company to take into account the Company's own credit risk
    and the credit risk of the counterparty in determining the fair value of
    financial assets and financial liabilities, including derivative
    instruments. There is no material impact on the Company's financial
    statements in adopting this new standard.

    Financial Instruments - Disclosures

    In May 2009, the CICA amended Section 3862, Financial Instruments -
    Disclosures, to include additional disclosure requirements about fair
    market value measurements for financial instruments and liquidity risk
    disclosures. These amendments require a three-level hierarchy that
    reflects the significance of the inputs used in making the fair value
    measurements. Fair values of assets and liabilities included in Level 1
    are determined by reference to quoted prices in active markets for
    identical assets and liabilities. Assets and liabilities in Level 2
    include valuations using inputs other than quoted prices for which all
    significant outputs are observable, either directly or indirectly. Level
    3 valuations are based on inputs that are unobservable and significant to
    the overall fair value measurement. This new standard became effective
    for the Company on December 31, 2009, and the related disclosure is
    included in note 1 to the consolidated financial statements.

    FUTURE CHANGES IN ACCOUNTING POLICIES

    International Financial Reporting Standards (IFRS)

    In February 2008, the Accounting Standards Board (AcSB) confirmed that
    International Financial Reporting Standards (IFRS) will replace Canadian
    GAAP for publicly accountable enterprises for financial periods beginning
    on or after January 1, 2011.

    Business Combinations

    In January 2009, the CICA issued Handbook Section 1582, Business
    Combinations, which requires that all assets and liabilities of an
    acquired business will be recorded at fair value at acquisition.
    Obligations for contingent considerations and contingencies will also be
    recorded at fair value at the acquisition date. The standard also states
    that acquisition-related costs will be expensed as incurred and that
    restructuring charges will be expensed in periods after the acquisition
    date. The new standard applies prospectively to business combinations for
    which the acquisition date is on or after the beginning of the first
    annual reporting period on or following January 1, 2011. The Company will
    assess the impact of this new standard at the time of any applicable
    acquisitions.

    Consolidations and Non-Controlling Interests

    In January 2009, the CICA issued Handbook Section 1601, Consolidations,
    and Section 1602, Non-Controlling Interests. Section 1601 establishes
    standards for the preparation of consolidated financial statements.
    Section 1602 establishes standards for accounting for a non-controlling
    interest in a subsidiary in consolidated financial statements subsequent
    to a business combination. These standards apply to interim and annual
    consolidated financial statements relating to fiscal years beginning on
    or after January 1, 2011. The Company is currently assessing the impact
    of this new standard on its financial statements.

    NOTE 3. ACCOUNTS RECEIVABLE

    Norbord has an $85 million accounts receivable securitization program
    with a highly rated financial institution. The program commenced in
    November 2007 for an initial commitment period of 10 months with
    automatic extensions each four-month anniversary date unless terminated
    by either party prior to such an anniversary date. 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.
    Norbord can increase or decrease the cash component of proceeds on each
    settlement date, subject to the program limit.

    At December 31, 2009, Norbord recorded cash proceeds of $62 million (2008
    - $68 million) relating to this program. The utilization charge, which is
    based on money market rates plus a fixed margin, and other program fees
    are recorded as interest expense. In 2009, the utilization charge and
    program fees included in interest expense totalled $2 million (2008 - $2
    million).

    The securitization program is subject to the following financial
    covenants with which the Company must comply on a quarterly basis:
    minimum tangible net worth of $300 million and maximum net debt to total
    capitalization on a book basis of 65%. At year-end, the Company's
    tangible net worth was $334 million and net debt to total capitalization
    on a book basis was 58%. In addition, the program contains trade accounts
    receivable portfolio performance covenants and standard reporting
    requirements. The program is not subject to any credit-rating
    requirements.

    NOTE 4. INVENTORY

    -------------------------------------------------------------------------
    (US $ millions)                                         2009        2008
    -------------------------------------------------------------------------
    Raw materials                                      $      13   $      20
    Finished goods                                            33          32
    Operating and maintenance supplies                        25          29
    -------------------------------------------------------------------------
                                                       $      71   $      81
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at December 31, 2009, the provision to reflect inventories at the
    lower of cost and net realizable value was $1 million (2008 -
    $3 million).

    The amount of inventory recognized as an expense during the year was:

    -------------------------------------------------------------------------
    (US $ millions)                                         2009        2008
    -------------------------------------------------------------------------
    Cost of inventories                                $     680   $     949
    Depreciation on property, plant & equipment               47          67
    -------------------------------------------------------------------------
                                                       $     727   $   1,016
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 5. PROPERTY, PLANT AND EQUIPMENT

    -------------------------------------------------------------------------
    (US $ millions)                       2009                          2008
    -------------------------------------------------------------------------
                            Accumul-                      Accumul-
                                ated                          ated
                            Depreci-  Net Book            Depreci-  Net Book
                      Cost     ation     Value      Cost     ation     Value
    -------------------------------------------------------------------------
    Land               $12       $ -       $12       $12       $ -       $12
    Buildings          236       116       120       232       105       127
    Production
     equipment       1,495       767       728     1,476       730       746
    -------------------------------------------------------------------------
                    $1,743      $883      $860    $1,720      $835      $885
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at December 31, 2009, production equipment includes construction in
    progress of $1 million (2008 - $4 million).

    NOTE 6. OTHER ASSETS

    -------------------------------------------------------------------------
    (US $ millions)                                         2009        2008
    -------------------------------------------------------------------------
    Unrealized net investment hedge gains (note 16)    $       2   $      26
    Unrealized interest rate swap gains (note 16)              4           6
    Other                                                      1           1
    -------------------------------------------------------------------------
                                                       $       7   $      33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    NOTE 7. LONG-TERM DEBT

    -------------------------------------------------------------------------
    (US $ millions)                                          2009       2008
    -------------------------------------------------------------------------
    Principal value
    7 1/4% debentures due 2012                           $    240   $    240
    Senior notes due 2017                                     200        200
    Revolving bank lines                                       27         57
    Brookfield debt facility                                    -         35
    -------------------------------------------------------------------------
                                                              467        532
    Debt issue costs                                           (6)        (4)
    Deferred interest rate swap gains                           6          8
    Unrealized interest rate swap gains (note 6)                4          6
    -------------------------------------------------------------------------
                                                         $    471   $    542
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Maturities of long-term debt are as follows:
    -------------------------------------------------------------------------
    (US $ millions)      2010    2011    2012    2013    Thereafter    Total
    -------------------------------------------------------------------------
    Maturities of
     long-term debt     $   -   $  27   $ 240   $   -         $ 200    $ 467
    -------------------------------------------------------------------------

    As at December 31, 2009, the effective interest rate on the Company's
    debt-related obligations including the impact of the interest rate swaps
    was 6.1% (2008 - 6.2%). Interest expense on long-term debt for the year,
    including the impact of interest rate swaps, was $34 million (2008 - $45
    million). Total interest paid during the year was $34 million (2008 - $53
    million).

    Senior Notes Due in 2017

    The Company's senior notes, due in 2017, bear an interest rate that
    varies with the Company's credit ratings. As at December 31, 2009, the
    interest rate was 7.95% (2008 - 7.95%). The average interest rate in 2009
    was 7.95% (2008 - 7.61%).

    Revolving Bank Lines

    In April 2009, the Company completed amendments to its committed
    revolving bank lines. Under the amended terms, an aggregate commitment of
    $205 million has been extended to May 2011 and bears interest at money
    market rates plus a margin that varies with the Company's credit rating.
    The bank lines are secured by a first lien on the Company's North
    American oriented strand board (OSB) inventory and property, plant and
    equipment. This lien is shared pari passu with holders of the 2012
    debentures, 2017 senior notes, and Brookfield debt facility.

    The bank lines contain two quarterly financial covenants: minimum
    tangible net worth of $250 million and maximum net debt to total
    capitalization on a book basis of 70%. Effective January 1, 2011, the
    maximum net debt to total capitalization on a book basis covenant will be
    reduced to 60%. Net debt includes total debt less any drawings under the
    Brookfield debt facility, less cash and cash equivalents plus letters of
    credit issued. At year-end, the Company's tangible net worth was
    $334 million and net debt for financial covenant purposes was
    $454 million (note 15). Net debt to total capitalization on a book basis
    was 58%.

    As at December 31, 2009, $27 million of the revolving bank lines was
    drawn as cash, $8 million was utilized for letters of credit, and $170
    million was available to support short-term liquidity requirements.

    Brookfield Debt Facility

    Concurrent with the amendments to the revolving bank lines described
    above, the Company amended its debt facility with Brookfield. This
    facility decreased from $100 million to $50 million, bears interest equal
    to the greater of 8% or US base rate plus 1/2%, matures in June 2011 and
    is subordinated to the revolving bank lines. Any drawings under the
    facility are treated as tangible net worth for financial covenant
    purposes.

    In January 2009, the Company repaid $35 million of the Brookfield debt
    facility using proceeds from the Rights Offering (note 9). As at December
    31, 2009, the facility was undrawn. Interest expense and the standby fee
    on the facility were less than $1 million for the year (2008 -
    $4 million).

    Interest Rate Swaps

    As at December 31, 2009, the Company had outstanding interest rate swaps
    of $115 million (2008 - $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.

    8 1/8% Debentures Repaid in 2008

    In the first quarter of 2008, the 8 1/8% debentures with a principal
    value of $197 million were repurchased by the Company.

    NOTE 8. OTHER LIABILITIES

    -------------------------------------------------------------------------
    (US $ millions)                                          2009       2008
    -------------------------------------------------------------------------
    Accrued employee benefits                            $      6   $      3
    Unrealized net investment hedge losses (note 16)            -          8
    Other liabilities                                           3          3
    -------------------------------------------------------------------------
                                                         $      9   $     14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The unrealized net investment hedge losses are offset by unrealized gains
    on the underlying exposures being hedged.

    NOTE 9. SHAREHOLDERS' EQUITY

    -------------------------------------------------------------------------
    (US $ millions)                                          2009       2008
    -------------------------------------------------------------------------
    Capital stock:
      Share capital                                      $    335   $    238
      Contributed surplus                                      39         17
    -------------------------------------------------------------------------
                                                              374        255
    Retained earnings                                         (32)        26
    Accumulated other comprehensive loss                       (8)       (13)
    -------------------------------------------------------------------------
                                                         $    334   $    268
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Rights Offering

    On January 6, 2009, pursuant to a Standby Purchase Agreement entered into
    in connection with a Rights Offering ("the Offering") filed in November
    2008, Brookfield completed the standby commitment through which it
    purchased an additional 16.3 million common shares and 81.5 million
    common share purchase warrants for gross proceeds of approximately
    $120 million (CAD $144 million) (note 18). Share issue costs, including
    the standby fee paid to Brookfield based on 1% of the gross proceeds of
    the Offering, were approximately $2 million.

    On December 24, 2008, the Company issued 11.0 million common shares and
    54.8 million warrants to shareholders that exercised rights under the
    Offering and received gross proceeds of $79 million (CAD $96 million).

    Net proceeds from the Offering were used to repay drawings under the
    Brookfield debt facility and revolving bank lines.

    Share Capital

    -------------------------------------------------------------------------
                                             2009                       2008
    -------------------------------------------------------------------------

                           Shares          Amount     Shares          Amount
                         (million)  (US$ millions)  (million)  (US$ millions)
    -------------------------------------------------------------------------
    Common shares
     outstanding,
     beginning of year       26.9   $         238       14.7   $         150
    Issue of common shares,
     net                     16.3              97       11.0              65
    Dividend reinvestment
     plan (note 18)             -               -        1.2              23
    -------------------------------------------------------------------------
    Common shares
     outstanding, end of
     year                    43.2   $         335       26.9   $         238
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at December 31, 2009, the authorized capital stock of the Company is
    as follows: an unlimited number of Class A and Class B preferred shares,
    an unlimited number of non-voting participating shares and an unlimited
    number of common shares.

    Share Consolidation

    On April 29, 2009, the Company's shareholders passed a special resolution
    approving the amendment of Norbord's restated articles of incorporation
    to consolidate its issued and outstanding common shares on the basis of
    one post-consolidation common share for every 10 pre-consolidation common
    shares. The Company's shareholders authorized the Board to effect the
    share consolidation, if and when it was deemed to be in the best interest
    of the Company, up to October 31, 2009.

    On October 13, 2009, the Company's Board of Directors authorized the
    consolidation of all of the Company's issued and outstanding common
    shares effective October 16, 2009. The Company's shares began trading on
    a consolidated basis on October 21, 2009. The outstanding common shares
    were reduced from 431.8 million to 43.2 million to reflect the impact of
    the common share consolidation.

    All references to common share and per common share data for all periods
    presented in the consolidated financial statements have been adjusted to
    reflect the common share consolidation (notes 1 and 10).

    Contributed Surplus

    Contributed surplus is comprised of transactions on account of warrants
    issued under the Offering and stock options issued under the Company's
    stock option plan.

    Warrants

    -------------------------------------------------------------------------
                                             2009                       2008
    -------------------------------------------------------------------------
                         Warrants          Amount   Warrants          Amount
                         (million)  (US$ millions)  (million)  (US$ millions)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Balance, beginning
     of year                  54.8  $          14          -   $          -
    Issue of warrants         81.5             21       54.8              14
    -------------------------------------------------------------------------
    Balance, end of year     136.3  $          35       54.8   $          14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pursuant to the Standby Purchase Agreement entered into in connection
    with the Offering, 81.5 million warrants were issued to Brookfield on
    January 6, 2009. On December 24, 2008, the Company issued 54.8 million
    warrants to shareholders that exercised rights under the Offering. As a
    result of the share consolidation, 10 whole common share purchase
    warrants entitle the holder to purchase one common share at a price of
    CAD $13.60 at any time prior to December 24, 2013.

    Stock Options

    -------------------------------------------------------------------------
                                              2009                      2008
    -------------------------------------------------------------------------
                                          Weighted                  Weighted
                                           Average                   Average
                             Options      Exercise     Options      Exercise
                           (millions)  Price (CAD$)  (millions)  Price (CAD$)
    -------------------------------------------------------------------------
    Balance, beginning
     of year                     0.3    $    73.70         0.2    $    77.30
    Options granted              1.0          6.50         0.1         60.90
    Options exercised              -             -           -         14.10
    -------------------------------------------------------------------------
    Balance, end of year         1.3    $    21.47         0.3    $    73.70
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Exercisable at year-end      0.2    $    68.19         0.1    $    64.70
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Under the Company's stock option plan, the Board of Directors of the
    Company may issue stock options to certain employees of the Company.
    These options vest over a five-year period and expire ten years from the
    date of issue. In 2009, stock option expense of $1 million was recorded
    against contributed surplus (2008 - $2 million). As a result of the share
    consolidation, the exercise prices and outstanding options were adjusted
    by a factor of 10.

    The following table summarizes the weighted average exercise prices and
    the weighted average remaining contractual life of the balances of stock
    options outstanding at December 31, 2009:

    -------------------------------------------------------------------------
                          Options Outstanding              Options Vested
    -------------------------------------------------------------------------
                                 Weighted   Weighted                Weighted
     Range of                     Average    Average                 Average
      Exercise                  Remaining   Exercise                Exercise
      Prices                  Contractual      Price                   Price
      (CAD$)          Options        Life      (CAD$)    Options       (CAD$)
    -------------------------------------------------------------------------
    $0.10               6,850        1.08   $   0.10       6,850    $   0.10
    $5.40 - $6.50   1,010,818        9.02       6.49      10,818        5.40
    $8.40 - $11.70     11,058        2.37       9.22      11,058        9.22
    $38.30             23,080        4.08      38.30      23,080       38.30
    $60.09             90,630        8.10      60.09      18,126       60.09
    $87.30 - $111.30  152,510        6.22      97.14      89,438       97.64
    -------------------------------------------------------------------------
                    1,294,946        8.44   $  21.47     159,370    $  68.19
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 10. EARNINGS PER COMMON SHARE

    -------------------------------------------------------------------------
    (US $ millions, except per share information,
     unless otherwise noted)                               2009         2008
    -------------------------------------------------------------------------
    Earnings available to common shareholders          $    (58)    $   (115)
    -------------------------------------------------------------------------
    Common shares (millions):
      Weighted average number of common shares
       outstanding                                         42.9         15.1
      Stock options (1)                                       -            -
      Warrants (1)                                            -            -
    -------------------------------------------------------------------------
    Diluted number of common shares                        42.9         15.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per common share:
      Basic and diluted                                $  (1.35)    $  (7.62)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Applicable when the weighted average share price for the year was
        greater than the exercise price for vested stock options and
        warrants.

    Stock options issued under the Company's stock option plan (note 9) and
    warrants issued under the Offering (note 9) were excluded from the
    calculation of diluted earnings per common share because the impact would
    be anti-dilutive. If dilutive in the future, they would be included to
    the extent that the exercise prices were less than the average market
    price of the Company's common shares during the year.

    NOTE 11. PROVISION FOR NON-CORE OPERATION

    In 2009, the Company recorded a $4 million provision, primarily for the
    write-down of certain property, plant and equipment and inventory to net
    realizable value relating to the sale of a medium density fibreboard
    (MDF) mill in Deposit, New York, for proceeds of $2 million.

    In 2008, the Company recorded a $4 million provision relating to
    severance arising from the permanent closure of a particleboard line at
    the Genk, Belgium site. The provision was substantially paid in 2008.

    NOTE 12. INCOME TAX

    Future income taxes reflect the net tax effects of temporary differences
    between the carrying amounts of assets and liabilities in the financial
    statements and the amounts used for income tax purposes.

    Income tax recovery comprises the following:
    -------------------------------------------------------------------------
    (US $ millions)                                        2009         2008
    -------------------------------------------------------------------------
    Current income tax                                 $     55     $     15
    Future income tax                                       (22)          80
    -------------------------------------------------------------------------
    Income tax recovery                                $     33     $     95
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The differences between income taxes computed using statutory tax rates
    and income tax as recorded are as follows:

    -------------------------------------------------------------------------
    (US $ millions)                                        2009         2008
    -------------------------------------------------------------------------
    Earnings before income tax                         $    (91)    $   (210)
    -------------------------------------------------------------------------
    Income tax recovery at combined statutory rates         (29)         (64)
    Effect of:
      Rate differences on foreign activities                (39)         (31)
      Non-recognition of the benefit of current year's
       tax losses                                            23           12
      Foreign exchange gain (loss)                            8          (17)
      Other                                                   4            5
    -------------------------------------------------------------------------
    Income tax recovery                                $    (33)    $    (95)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The income tax effects of temporary differences that give rise to future
    income taxes are as follows:

    -------------------------------------------------------------------------
    (US $ millions)                                        2009         2008
    -------------------------------------------------------------------------
    Property, plant and equipment                      $   (153)    $   (170)
    Benefit of tax loss carry forwards                       87          112
    Investment tax credits                                    5            8
    Other future income tax liabilities                       7          (12)
    -------------------------------------------------------------------------
                                                            (54)         (62)
    Valuation allowance                                     (35)         (12)
    -------------------------------------------------------------------------
    Future income taxes, net                           $    (89)    $    (74)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Comprised of:
      Current future income tax asset                  $      -     $      -
      Long-term future income tax liability                 (89)         (74)
    -------------------------------------------------------------------------
                                                       $    (89)    $    (74)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Income and income-related tax refunds (net) received during the year were
    $10 million (2008 - $75 million). In November 2009, the United States
    (US) government passed The Worker, Homeownership and Business Assistance
    Act which extended the current US loss carry back period from two to five
    years with respect to either the 2008 or 2009 net operating losses. As a
    result, the Company has carried back its 2008 losses to the prior years
    and has recorded a net tax receivable of approximately $55 million as at
    December 31, 2009. This tax refund was received subsequent to year-end.

    As at December 31, 2009, the Company had tax operating loss carryforwards
    of approximately (pnds stlg)11 million and (euro)45 million from
    operations in the United Kingdom and Belgium, respectively. These losses
    can be carried forward indefinitely to offset future taxable income. The
    Company has tax operating losses of CAD $53 million and US $117 million
    from operations  in Canada and the United States, respectively, which
    expire between 2028 and 2029. The Company also has approximately
    CAD $7 million worth of Investment Tax Credits (ITCs) available to
    reduce future Canadian tax liabilities. The ITCs expire between 2010 and
    2020. The loss carryforwards and credits may be utilized over the next
    several years to eliminate cash taxes otherwise payable, and they will
    enhance future cash flows. Certain future tax benefits have been included
    in future income taxes in the consolidated financial statements. A
    valuation allowance was recorded related to future income tax assets
    that, in the judgement of management, are not likely to be realized.

    Rights Offering

    On December 24, 2008, upon completion of their basic subscription
    privilege under the Offering (note 9), Brookfield's ownership interest in
    the Company increased to approximately 60%. As at December 31, 2008,
    Canadian tax legislation prohibited capital losses from being used to
    shelter capital gains realized in fiscal periods subsequent to the
    acquisition of control date. As a result of Brookfield's acquisition of
    control for Canadian tax purposes, future income tax assets of $8 million
    were charged to retained earnings in the fourth quarter of 2008 relating
    to capital loss carryforwards not available for future use in Canada.
    These tax attributes were reinstated and recorded through the statement
    of earnings in 2009 as a result of Canadian income tax legislation which
    was substantively enacted during the year permitting the election to
    apply available capital losses against unrealized built-in gains on
    certain eligible assets as at the acquisition of control date.

    NOTE 13. SUPPLEMENTAL CASH FLOW INFORMATION

    Other items under operating activities comprise:

    -------------------------------------------------------------------------
    (US $ millions)                                        2009         2008
    -------------------------------------------------------------------------
    Cash provided by (used for):
      Amortization of deferred interest rate
       swap gains (note 7)                             $     (2)    $     (3)
      Pension funding greater than pension
       expense (note 14)                                     (1)          (1)
      Income and income-related tax payments (note 12)        -          (10)
      Provision for non-core operation (note 11)              4            -
      Other                                                   8           (8)
    -------------------------------------------------------------------------
                                                       $      9     $    (22)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The net change in non-cash operating working capital balance comprises:

    -------------------------------------------------------------------------
    (US $ millions)                                        2009         2008
    -------------------------------------------------------------------------
    Cash provided by (used for):
      Accounts receivable                              $     (8)    $     36
      Inventory                                               9           37
      Accounts payable and accrued liabilities              (12)         (22)
    -------------------------------------------------------------------------
                                                       $    (11)    $     51
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash and cash equivalents comprises:

    -------------------------------------------------------------------------
    (US $ millions)                                        2009         2008
    -------------------------------------------------------------------------
    Cash                                               $      8     $     17
    Cash equivalents                                         13            3
    -------------------------------------------------------------------------
                                                       $     21     $     20
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 14. EMPLOYEE BENEFIT PLANS

    Pension Plans

    Norbord has a number of pension plans in which participation is available
    to substantially all employees. Norbord's obligations under its defined
    benefit pension plans are determined periodically through the preparation
    of actuarial valuations, which are generally required every three years.
    The most recent actuarial valuation was conducted as of December 31,
    2006. The next valuation to be conducted as of December 31, 2009 will be
    completed and filed by September 30, 2010.

    Information about the Company's defined benefit pension plans is as
    follows:

    -------------------------------------------------------------------------
    (US $ millions)                                        2009         2008
    -------------------------------------------------------------------------
    Change in Accrued Benefit Obligation
     During the Year:
    Accrued benefit obligation, beginning of year      $     54     $     81
      Employee contributions                                  -            1
      Current service cost                                    1            2
      Interest on accrued benefit obligation                  4            4
      Benefits paid                                          (4)          (5)
      Net actuarial loss (gain)                               6          (13)
      Foreign currency exchange rate impact                   8          (15)
      Transfer                                                -           (1)
    -------------------------------------------------------------------------
    Accrued benefit obligation, end of year(1)         $     69     $     54
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Change in Plan Assets During the Year:
    Plan assets, beginning of year                     $     40     $     59
      Actual return on plan assets                            7           (7)
      Employer contributions                                  3            4
      Employee contributions                                  -            1
      Benefits paid                                          (4)          (5)
      Foreign currency exchange rate impact                   6          (11)
      Transfer                                                -           (1)
    -------------------------------------------------------------------------
    Plan assets, end of year(1)                        $     52     $     40
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Reconciliation of Funded Status:
    Accrued benefit obligation                         $     69     $     54
    Plan assets                                              52           40
    -------------------------------------------------------------------------
    Accrued benefit obligation in excess of
     plan assets                                            (17)         (14)
      Unamortized net actuarial loss                         22           18
      Unamortized prior service costs                         -            -
      Unamortized net transitional asset                     (4)          (4)
    -------------------------------------------------------------------------
    Net accrued benefit (liability)                    $      1     $      -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) All plans have accrued benefit obligations in excess of plan assets.



    -------------------------------------------------------------------------
    (US $ millions)                                        2009         2008
    -------------------------------------------------------------------------
    Components of Net Periodic Pension Expense:
    Current service cost                               $      1     $      2
    Interest on accrued benefit obligation                    4            4
    Actual return on plan assets                             (7)           7
    Net actuarial loss (gain)                                 6          (13)
    Difference between actual and expected return
     on plan assets                                           2          (11)
    Difference between actual and recognized net
     actuarial gain (loss)                                   (4)          15
    Amortization of transition asset                          -           (1)
    -------------------------------------------------------------------------
    Net periodic pension expense                       $      2     $      3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Significant Weighted Average Actuarial
     Assumptions:
    Used in calculation of net periodic pension
     expense for the year:
      Discount rate                                        6.4%         5.3%
      Expected long-term rate of return on
       plan assets                                         7.7%         7.8%
      Rate of compensation increase                        3.6%         3.7%
    Used in calculation of accrued benefit
     obligation, end of year:
      Discount rate                                        5.9%         6.4%
      Rate of compensation increase                        3.6%         3.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The weighted average asset allocation of Norbord's defined benefit
    pension plan assets is as follows:

    -------------------------------------------------------------------------
    (US $ millions)                                        2009         2008
    -------------------------------------------------------------------------
    Asset category:
      Equity investments                                    62%          54%
      Fixed income investments                              38%          46%
    -------------------------------------------------------------------------
    Total assets                                           100%         100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating costs include $4 million (2008 - $5 million) related to
    contributions to Norbord's defined contribution pension plans.

    NOTE 15. CAPITAL MANAGEMENT

    Norbord's capital management objective is to achieve top-quartile return
    on equity (ROE) and cash return on capital employed (ROCE) over the
    business cycle among North American forest products companies to enable
    it to retain access to public and private capital markets, subject to
    financial market conditions. This objective is unchanged from the prior
    year.

    Norbord monitors its capital structure using two key measures of its
    relative debt position. While the Company considers both book and market
    basis metrics, the Company believes the market basis to be superior to
    the book basis in measuring the true strength and flexibility of its
    balance sheet.

    Net debt to capitalization, book basis, is net debt divided by the sum of
    net debt and tangible net worth. Net debt consists of the principal value
    of long-term debt, including the current portion and bank advances less
    cash and cash equivalents and drawings under the Brookfield debt
    facility. Consistent with the treatment under the Company's financial
    covenants, drawings under the Brookfield debt facility are excluded from
    net debt and treated as a component of tangible net worth, and letters of
    credit are included in net debt. Tangible net worth consists of
    shareholders' equity and drawings under the Brookfield debt facility.

    Net debt to capitalization, market basis, is net debt divided by the sum
    of net debt and market capitalization. Net debt is calculated as outlined
    above under net debt, to capitalization, book basis. Market
    capitalization is the number of common shares outstanding at period end
    multiplied by the trailing 12-month average per share market price.
    Market basis capitalization is intended to correct for the low historical
    book value of Norbord's asset base relative to its fair value.

    Norbord's capital structure at period end consisted of the following:

    -------------------------------------------------------------------------
    (US $ millions)                                        2009         2008
    -------------------------------------------------------------------------
    Long-term debt, principal value                    $    467     $    532
    Less: Drawings under Brookfield debt facility(1)          -          (35)
    Less: Cash and cash equivalents                         (21)         (20)
    -------------------------------------------------------------------------
    Net debt                                                446          477
    Plus: Letters of credit                                   8            -
    -------------------------------------------------------------------------
    Net debt for financial covenant purposes                454          477
    -------------------------------------------------------------------------
    Shareholders' equity                                    334          268
    Plus: Drawings under Brookfield debt facility(1)          -           35
    -------------------------------------------------------------------------
    Tangible net worth                                      334          303
    -------------------------------------------------------------------------
    Total capitalization                               $    788     $    780
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net debt to capitalization, book basis                   58%          61%
    Net debt to capitalization, market basis                 48%          32%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Drawings under the Company's Brookfield debt facility are treated as
        equity for bank line financial covenant purposes.

    The Company's $205 million in committed revolving bank lines contain the
    following financial covenants related to capital management that the
    Company must comply with on a quarterly basis: minimum tangible net worth
    of $250 million and maximum net debt to total capitalization on a book
    basis of 70%. Effective January 1, 2011, the maximum net debt to total
    capitalization on a book basis covenant will be reduced to 60%. Drawings
    under the Company's Brookfield debt facility are treated as equity for
    bank line financial covenant purposes. At year-end, the Company's
    tangible net worth was $334 million and net debt to total capitalization
    on a book basis was 58%.

    Pursuant to the Offering (note 9), the Company raised $79 million
    (CAD $96 million) of shareholders' equity in December 2008 and a further
    $120 million (CAD $144 million) in January 2009. Related share issue
    costs were approximately $2 million. The net proceeds were used to repay
    drawings under the Brookfield debt facility and revolving bank lines.

    NOTE 16. FINANCIAL INSTRUMENTS

    Norbord has exposure to market, counterparty credit, and liquidity risk.
    Norbord's primary risk management objective is to protect the Company's
    balance sheet, earnings and cash flow in support of achieving top-
    quartile return on equity (ROE) and cash return on capital employed
    (ROCE) among North American forest products companies.


    Norbord's financial risk management activities are governed by Board-
    approved financial policies that cover risk identification, tolerance,
    measurement, hedging limits, hedging products, authorization levels, and
    reporting. Derivative contracts that are deemed to be highly effective in
    offsetting changes in the fair value, net investment or cash flows of
    hedged items are designated as hedges of specific exposures. Gains and
    losses on these instruments are recognized in the same manner as the item
    being hedged. Hedge ineffectiveness, if any, is measured and included in
    current period earnings.

    Market Risk

    Norbord purchases commodity inputs, issues debt at fixed and floating
    interest rates, invests surplus cash, sells product and purchases inputs
    in foreign currencies, and invests in foreign operations. These
    activities expose the Company to market risk from changes in commodity
    prices, interest rates and foreign exchange rates, which affect the
    Company's balance sheet, earnings and cash flows. The Company uses
    derivatives as part of its overall financial risk management policy to
    manage certain exposures to market risk that result from these
    activities.

    Commodity Price Risk

    Norbord is exposed to commodity price risk on most of its manufacturing
    inputs, principally wood fibre, resin and energy. These manufacturing
    inputs are purchased primarily on the open market in competition with
    other users of such resources and prices are influenced by factors beyond
    Norbord's control.

    Norbord monitors market developments in all commodity prices to which it
    is materially exposed. No liquid futures markets exist for the majority
    of Norbord's commodity inputs but, where possible, Norbord will hedge a
    portion of its commodity price exposure up to Board-approved limits in
    order to reduce the potential negative impact of rising commodity input
    prices. Should Norbord decide to hedge any of this exposure, it will
    lock-in prices directly with its suppliers and, if unfeasible, purchase
    financial hedges where liquid markets exist.

    At December 31, 2009, Norbord has hedged approximately 35% of its 2010
    expected natural gas consumption by locking-in the price directly with
    its suppliers. Approximately 70% of Norbord's electricity is purchased in
    regulated markets, and Norbord has hedged approximately 25% of its 2010
    deregulated electricity consumption. While these contracts are
    derivatives, they are exempt from being accounted for as financial
    instruments as they were normal purchases for the purpose of receipt.

    Interest Rate Risk

    Norbord's financing strategy is to access public and private capital
    markets to raise long-term core financing and utilize the banking market
    to provide committed standby credit facilities to support its short-term
    cash flow needs. The Company has fixed-rate debt, which subjects it to
    interest rate price risk, and has floating-rate debt, which subjects it
    to interest rate cash flow risk. In addition, the Company invests surplus
    cash in bank deposits and short-term money market securities.

    The Company enters into interest rate swaps to convert a portion of its
    debt from fixed to floating rates. At period end, $115 million in
    interest rate swaps were outstanding (note 7). The terms of these swaps
    correspond to the terms of the underlying hedged debt.

    From time to time, the Company can recoupon its portfolio of interest
    rate swaps to more efficiently manage cash flow and credit exposure. Any
    gains or losses realized are deferred and amortized over the remaining
    term of the debt against which the swaps were designated as hedges. At
    period end, $6 million in interest rate swap gains were deferred and
    included in the carrying value of long-term debt in the consolidated
    balance sheet (note 7). In 2009, amortization of $2 million (2008 -
    $3 million) was included in interest expense (note 13).

    Currency Risk

    Norbord's foreign exchange exposure arises from the following sources:
    -   Net investments in self-sustaining foreign operations, limited to
        Norbord's investment in its European operations
    -   Net Canadian dollar-denominated monetary assets and liabilities
    -   Committed or anticipated foreign currency-denominated transactions,
        primarily Canadian dollar costs in Norbord's Canadian operations and
        Euro revenues in Norbord's UK operations

    The Company's policy is to manage all significant balance sheet foreign
    exchange exposures by entering into cross-currency swaps and forward
    foreign exchange contracts. The Company may hedge a portion of future
    foreign currency-denominated cash flows using forward foreign exchange
    contracts or options for periods up to three years in order to reduce the
    potential negative effect of a strengthening Canadian dollar versus the
    US dollar, or a weakening Euro versus the Pound Sterling.

    Counterparty Credit Risk

    Norbord invests surplus cash in bank deposits and short-term money market
    securities, sells its product to customers on standard market credit
    terms, and uses derivatives to manage its market risk exposures. These
    activities expose the Company to counterparty credit risk that would
    result if the counterparty failed to meet its obligations in accordance
    with the terms and conditions of its contracts with the Company.

    Norbord operates in a cyclical commodity business. Accounts receivable
    credit risk is mitigated through established credit management
    techniques, including conducting financial and other assessments to
    establish and monitor a customer's creditworthiness, setting customer
    limits, monitoring exposures against these limits, and in some instances,
    purchasing credit insurance or obtaining trade letters of credit. At
    period end, the key performance metrics on the Company's accounts
    receivable are in line with prior periods. As at December 31, 2009, the
    provision for doubtful accounts was two $1 million (2008 - less
    than $1 million). In 2009, Norbord had two customers whose purchases
    represented greater than 10% of total net sales.

    Under an accounts receivable securitization program, Norbord has
    transferred substantially all of its present and future trade accounts
    receivable to a highly rated financial institution, on a fully serviced
    basis, for proceeds consisting of cash and deferred purchase price. At
    December 31, 2009, Norbord recorded cash proceeds of $62 million (2008 -
    $68 million) relating to this program. The fair value of the deferred
    purchase price approximates its carrying value as a result of the short
    accounts receivable collection cycle and negligible historical credit
    losses.

    Surplus cash is only invested with counterparties meeting minimum credit
    quality requirements and issuer and concentration limits. Derivative
    transactions are executed only with approved high-quality counterparties
    under master netting agreements. The Company monitors and manages its
    concentration of counterparty credit risk on an ongoing basis.

    The Company's maximum counterparty credit exposure at period end consists
    of the carrying amount of cash and cash equivalents and accounts
    receivable, which approximates fair value, and the fair value of
    derivative financial assets.

    Liquidity Risk

    Norbord strives to maintain sufficient financial liquidity at all times
    in order to participate in investment opportunities as they arise, as
    well as to withstand sudden adverse changes in economic circumstances.
    Management forecasts cash flows for its current and subsequent fiscal
    years to identify financing requirements. These requirements are then
    addressed through a combination of committed credit facilities and access
    to capital markets.

    At period end, Norbord had $21 million in cash and cash equivalents, $170
    million in unutilized committed revolving bank lines and $50 million
    unutilized under the Brookfield debt facility.

    Management believes that, subject to achieving its business plans, the
    Company has sufficient liquidity for the foreseeable future.

    Financial Liabilities

    The following table summarizes the aggregate amount of contractual future
    cash outflows for the Company's financial liabilities:

    -------------------------------------------------------------------------
                                                      Payments Due by Period

    (US $ millions)       2010     2011     2012     2013  Thereafter  Total
    -------------------------------------------------------------------------
    Principal            $   -    $  27    $ 240    $   -       $ 200  $ 467
    Interest                31       30       30       16          55    162
    -------------------------------------------------------------------------
    Long-term debt,
     including interest  $  31    $  57    $ 270    $  16       $ 255  $ 629
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Non-Derivative Financial Instruments

    The net book values and fair values of non-derivative financial
    instruments at year-end were as follows:

                                       2009                      2008
    -------------------------------------------------------------------------
                  Financial
                 Instrument
    (US $           Classif- Net Book         Fair     Net Book         Fair
     millions)      ication     Value        Value        Value        Value
    -------------------------------------------------------------------------
    Financial
     Assets:
      Cash             Held-
       and cash         for-
       equivalents  trading     $  21        $  21        $  20        $  20

                      Loans
                        and
      Accounts       receiv-
       receivable     ables        27           27           12           12

                      Loans
                        and
      Tax            receiv-
       receivable     ables        57           57           13           13
    -------------------------------------------------------------------------
                                $ 105        $ 105        $  45        $  45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Financial
     Liabilities:
      Accounts
       payable
       and            Other
       accrued       liabil-
       liabilities    ities     $ 140        $ 140        $ 146        $ 146

                      Other
      Long-term      liabil-
       debt           ities       471          474          542          376
    -------------------------------------------------------------------------
                                $ 611        $ 614        $ 688        $ 522
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Derivative Financial Instruments

    Information about derivative financial instruments at year-end was as
    follows:

    -------------------------------------------------------------------------
                                                                        2009
    -------------------------------------------------------------------------
                                     Unrealized
    (US $ millions,                  gain/(loss)      Realized
     unless otherwise     Notional    at period     gain/(loss)  Sensitivity
     noted)                  Value        end(1)  year-to-date  to 1% change
    -------------------------------------------------------------------------
    Currency hedges:
      Net investment
        UK          (pnds stlg) 56        $   1          $   8         $   1
        Belgium          (euro) 40            1            (10)            1
      Monetary
       liabilities         CAD $ 9            -              2             -
    Interest rate
     hedges:
      Interest rate
       swaps                  $115            4              -             1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                                                        2008
    -------------------------------------------------------------------------
                                     Unrealized
    (US $ millions,                  gain/(loss)      Realized
     unless otherwise      Notional   at period     gain/(loss)  Sensitivity
     noted)                   Value       end(1)  year-to-date  to 1% change
    -------------------------------------------------------------------------
    Currency hedges:
      Net investment
        UK          (pnds stlg) 103      $   26         $   14         $   2
        Belgium          (euro)  79          (8)            12             1
      Monetary
       liabilities         CAD $ 18           -             (5)            -
    Future Committed
     Transaction (note 9)  CAD $144           1              -             1
    Interest rate hedges:
      Interest rate swaps      $115           6              -             1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The carrying values of the derivative financial instruments are
    equivalent to the unrealized gain (loss) at period end.

    Realized and unrealized gains and losses on derivative financial
    instruments are offset by realized and unrealized losses and gains on the
    underlying exposures being hedged. The fair values of the Company's
    derivative and non derivative financial instruments are determined by
    using quoted prices in active markets for identical assets and
    liabilities (Level 1).

    NOTE 17. COMMITMENTS AND CONTINGENCIES

    Tax Exposures

    In the normal course of operations, the Company is subject to various
    uncertainties concerning the interpretation and application of tax laws
    in the filing of its tax returns in operating jurisdictions that could
    materially affect the Company's cash flows. There can be no assurance
    that the tax authorities will not challenge the Company's filing
    positions.

    The Company is engaged in ongoing discussions with tax authorities
    regarding the Company's transfer pricing methodology. These tax
    authorities could challenge the validity of the Company's policies which
    generally involve areas of taxation open to various interpretations and a
    significant degree of judgment in applying the tax law to the Company's
    circumstances. If the tax authorities are successful in challenging the
    Company's transfer pricing methodology, it may have a material adverse
    effect on the Company's results of operations or cash flows. Norbord uses
    all available information in determining its transfer pricing methodology
    and in seeking to manage transfer pricing and other taxation issues to a
    satisfactory conclusion. Taking account of external professional advice,
    the Company continues to believe that its taxable income has been
    reported in accordance with tax law requirements and has not recorded a
    provision related to this matter. The ultimate resolution of this matter
    is dependent upon continuing negotiations with the relevant tax
    authorities and potentially appeals under the tax law.

    Other

    The Company has provided certain commitments and indemnifications,
    including those related to former businesses. The maximum amounts from
    many of these items cannot be reasonably estimated at this time. However,
    in certain circumstances, the Company has recourse against other parties
    to mitigate the risk of loss.

    The Company has entered into various commitments as follows:

    -------------------------------------------------------------------------
                                                      Payments Due by Period

    (US $ millions)          2010    2011    2012    2013  Thereafter  Total
    -------------------------------------------------------------------------
    Purchase obligations    $  34   $  21   $   7   $   5       $  24  $  91
    Operating leases            2       1       1       1           2      7
    -------------------------------------------------------------------------
                            $  36   $  22   $   8   $   6       $  26  $  98
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 18. 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.

    Rights Offering

    In connection with the Offering (note 9), the Company entered into a
    Standby Purchase Agreement with Brookfield, in which Brookfield agreed to
    exercise all of its rights and to purchase any units not otherwise
    subscribed to by other shareholders of the Company. On December 24,
    2008, Brookfield paid $72 million (CAD $87 million) to purchase 9.9
    million common shares and 49.6 million common share purchase warrants
    through their basic subscription privilege, which increased their
    ownership interest to approximately 60% of the Company's issued and
    outstanding common shares. Ten whole common share purchase warrants
    entitle the holder to purchase one common share at a price of CAD $13.60
    at any time prior to December 24, 2013. On January 6, 2009, Brookfield
    paid $120 million (CAD $144 million) to acquire 16.3 million common
    shares and 81.5 million common share purchase warrants under the Standby
    Purchase Agreement, increasing its ownership interest to approximately
    75%. A standby fee of approximately $2 million was paid to Brookfield
    based on 1% of the gross proceeds of the Offering.

    Brookfield Debt Facility

    Concurrent with the amendments to the revolving bank lines (note 7), the
    Company decreased its debt facility with Brookfield from $100 million to
    $50 million. The facility bears interest equal to the greater of 8% or
    US base rate plus 1/2%, matures in June 2011 and is subordinated to the
    revolving bank lines. Any drawings under the facility are treated as
    tangible net worth for financial covenant purposes. In January 2009, the
    Company repaid $35 million of the facility with proceeds from the Rights
    Offering (note 9). As at December 31, 2009, the facility was undrawn.
    Interest expense and the standby fee on the facility were less than
    $1 million for the year (2008 - $ 4 million).

    Indemnity Commitment

    As at December 31, 2009, total future costs related to a 1999 asset
    purchase agreement between the Company and Brookfield for which Norbord
    provided an indemnity are estimated at less than $1 million and are
    included in other liabilities in the consolidated balance sheet.

    Dividend Reinvestment Plan (DRIP)

    In 2008, Brookfield elected to receive all of its dividends totaling
    $21 million as common shares which were distributed under the Company's
    Dividend Reinvestment Program (DRIP). The DRIP permits Canadian
    shareholders to elect to receive their dividends as common shares. In
    November 2008, the Company announced the suspension of quarterly dividend
    payments on its common shares.

    Other

    The Company provides certain administrative services to Brookfield or its
    affiliates which were charged on a cost recovery basis. In addition, the
    Company periodically engages the services of Brookfield or its affiliates
    for various financial, real estate and other business advisory services.
    In 2009, the fees for these services were less than $1 million (2008 -
    less than $1 million) and were charged at market rates.

    NOTE 19. LITIGATION SETTLEMENT

    In May 2008, Norbord entered into settlement agreements related to an
    antitrust litigation lawsuit to limit the risks and costs associated with
    a prolonged trial. Norbord vigorously contests the plaintiffs'
    allegations and continues to vehemently deny that it violated US
    antitrust or any other laws. Under the terms of the settlement
    agreements, in 2008, Norbord paid $30 million into an escrow account for
    the benefit of members of the direct purchaser class and $2 million into
    an escrow account for the benefit of members of the indirect purchaser
    classes.

    NOTE 20. GEOGRAPHIC SEGMENTS

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

    -------------------------------------------------------------------------
                                                                        2009
    -------------------------------------------------------------------------
                                North
    (US $ millions)           America       Europe  Unallocated        Total
    -------------------------------------------------------------------------
    Net sales                 $   406      $   312      $     -      $   718
    EBITDA(1)                      (8)          17           (9)           -
    Depreciation                   29           18            1           48
    Property, plant and
     equipment                    665          193            2          860
    Investment in property,
     plant and equipment           12            2            -           14
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                                        2008
    -------------------------------------------------------------------------
                                North
    (US $ millions)           America       Europe  Unallocated        Total
    -------------------------------------------------------------------------
    Net sales                 $   538      $   405      $     -      $   943
    EBITDA(1)                     (51)           4          (13)         (60)
    Depreciation                   41           26            1           68
    Property, plant and
     equipment                    688          194            3          885
    Investment in property,
     plant and equipment           25            2            -           27
    -------------------------------------------------------------------------
    (1) EBITDA is earnings before interest, income tax, depreciation,
        provision for non-core operation, foreign exchange loss and
        litigation settlement.

    NOTE 21. COMPARATIVE FIGURES

    Certain 2008 figures have been reclassified to conform with current
    year's presentation.
    

SOURCE Norbord Inc.

For further information: For further information: Anita Veel, Director, Corporate & Regulatory Affairs, Tel. (416) 643-8838, anita.veel@norbord.com


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