Norbord Reports Third Quarter 2007 Results



    Note: Financial references in US dollars unless otherwise indicated

    HIGHLIGHTS

    
    -   Improved EBITDA to $30 million
    -   Recorded ROCE of 35% at European operations
    -   Generated positive EBITDA from North American operations
    -   Increased banking facilities by $35 million
    -   Re-certified mills at Cordele, Georgia and Jefferson, Texas as OSHA
        VPP-Star safety sites
    

    TORONTO, Oct. 24, 2007 /CNW/ - Norbord Inc. (TSX: NBD) today reported
EBITDA of $30 million in the third quarter, a $13 million increase over EBITDA
of $17 million in the prior quarter. The EBITDA improvement was largely due to
strong results from European operations again this quarter and North American
OSB price improvements.
    Norbord recorded a loss of $1 million or $0.00 per share in the third
quarter of 2007. This compares favourably to a loss of $15 million or
$0.11 per share in second quarter of 2007. Improved earnings in the third
quarter were due to higher EBITDA and lower depreciation. In the third quarter
of 2006, earnings were $7 million or $0.05 per share.
    "Norbord's European mills provided important earnings diversification
again this quarter, contributing EBITDA of $29 million and ROCE of 35%," said
Barrie Shineton, President and CEO.

    Market Conditions

    The North Central benchmark price averaged $177 in the quarter, up
$21 over last quarter. Norbord benefited from higher prices in the quarter,
however, the impact was limited by regional price variations. In the South
East region, where approximately 55% of Norbord's North American production
capacity is located, prices averaged $149 in the quarter, down $4 from the
second quarter. US housing start estimates continue to be revised down with
industry experts now expecting 2007 starts of 1.3 million to 1.4 million, well
below the 1.8 million level experienced in 2006.
    In Europe, prices for all Norbord's major product lines remained strong
in the quarter. Year-to-date, European panel prices are up more than 15% with
demand being driven by strong economic activity in Eastern Europe.

    Performance

    Norbord achieved record OSB production in the third quarter. Total OSB
production increased 10% over the same quarter last year as a result of the
ramp-up of the new line at Cordele as well as increased production from our
other mills.
    Norbord's North American per unit OSB cost increase was limited to 1%
over the prior quarter despite significantly higher resin prices.
Year-to-date, North American OSB per unit production costs are down 1% from
the prior year as wood prices, spending on supplies and maintenance, and lower
profit share offset higher resin prices. In Europe, wood and resin cost
pressures continue to negatively impact manufacturing costs.
    Capital investments totaled $8 million in the quarter and $29 million
year-to-date. For the full year, capital investments are expected to be
$35 million. Net debt to total capitalization was 32% on a market basis.

    Developments

    Ramp up of the new OSB line at Cordele continues to progress well.
Production on the new line reached 100% of design capacity in September and
volumes averaged 90% for the full quarter.
    Norbord took a total of 7 days of scheduled maintenance OSB downtime in
North America during the third quarter. Norbord expects to take approximately
14 days of scheduled OSB downtime in North America in the fourth quarter. In
addition, Norbord's OSB mill at Guntown, Mississippi will take an extended
shutdown in the first quarter of 2008 to conduct major maintenance on its
press line. The shutdown is expected to last 6 to 8 weeks and will reduce
Guntown's annual production by approximately 65 mmsf (3/8" basis) in 2008.
    Norbord increased its committed bank lines by $35 million in the third
quarter. As a result, Norbord has $231 million of unused committed liquidity
available.

    Quarterly Dividend

    The Board of Directors declared a quarterly dividend of CAD $0.10 per
common share, payable on December 21, 2007 to shareholders of record on
December 1, 2007.

    Conference Call

    Norbord will hold a conference call for investors on Wednesday,
October 24, 2007 at 10:00 a.m. ET. The call will be broadcast live over the
Internet via www.norbord.com and www.newswire.ca. A replay will be available
one hour following the call until November 23, 2007 by dialing 1.888.203.1112.
The pass code is 4077016. Audio playback will also be available on the Norbord
website.

    Norbord Profile

    Norbord Inc. is an international producer of wood-based panels with
assets of $1.4 billion, employing approximately 2,700 people at 15 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), hardwood
plywood and related value-added products. Norbord is a publicly traded company
listed on the Toronto Stock Exchange under the symbol NBD.

    This news release and attached Shareholders Letter contain
forward-looking statements, as defined in applicable legislation. The words
"forecast," "are expected," "should," "is on track to," "is expected," 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 and the US Securities and Exchange
Commission.
    Norbord does not undertake to update any forward-looking statements,
whether as a result of new information, future events or otherwise, or to
publicly update or revise the above list of factors affecting this
information. See the "Caution Regarding Forward-Looking Information" statement
in the March 1, 2007 Annual Information Form and the cautionary statement
contained in the "Forward-Looking Statements" section of the 2006 Management's
Discussion and Analysis dated January 31, 2007.

    
                           LETTER TO SHAREHOLDERS
                           ----------------------
    

    October 24, 2007

    Dear Norbord Shareholder,

    Norbord delivered EBITDA of $30 million, a significant increase over
EBITDA of $17 million last quarter. This achievement is the direct result of
positive contributions from our European operations. Our North American
operations also generated positive EBITDA during the quarter, due to our low
cost position and oriented strand board (OSB) price improvements.
    We maintain our view that OSB is the industry's best growth opportunity.
Without question, the North American OSB industry is facing a period of
prolonged weakness due to the combination of much lower US housing starts,
tighter mortgage lending conditions and the addition of new OSB capacity to
the market. Still, we believe the long term fundamentals that support North
American housing and OSB demand remain positive.
    Specifically, housing fundamentals - immigration, two-home ownership
rates and increased panel intensity - continue to support OSB growth. Housing
starts will recover when the unsold inventory of new and used homes returns to
more normalized levels. In addition, OSB is a low cost substitute for plywood
and will continue to take market share. We expect this substitution, along
with the other positive fundamentals will ultimately result in better demand
and prices for OSB.

    We believe our business strategy is effective and it will remain
consistent throughout the business cycle:

    Grow OSB business - the ramp up of our new line at Cordele, Georgia is
progressing very well and this investment represents a unique opportunity for
Norbord to grow its lowest-cost capacity.

    Own low cost assets - Norbord's capital expenditures are directed to
projects that improve productivity and lower costs.

    Maintain margin improvement culture - our Margin Improvement Program
(MIP) improves product mix, increases production and reduces costs. MIP is
ingrained in Norbord's culture and has delivered $185 million in savings over
the past five years.

    Focus on growth customers - Norbord's sales strategy targets customers
who are growing their own market share. We continue to produce OSB at record
levels, and more importantly, we are able to sell all that we produce.

    Allocate capital with discipline - our disciplined 2007 capital program
of $35 million reflects current market conditions. Capital this year was
limited to high-return projects, like our biomass heat-energy projects.

    We do not expect near-term relief from housing market pressures in North
America. US housing forecasts for 2008 have been revised down again to
1.2 million to 1.4 million. Overcapacity in North America remains an issue
with three additional mills expected to ramp up over the next year. We will
continue to control our costs, improve our product mix and increase our sales
to home centres to improve our competitive position.
    In Europe, our strategy of geographic diversification will continue to
help offset the decline in North American markets. Our European mills continue
to perform well and have delivered EBITDA of $73 million year-to-date, almost
three times their contribution in 2006. Norbord's excellent customer base,
first-rate logistics system and competitive cost position will ensure we
continue to benefit from strong European markets.
    Norbord's business is heavily weighted to OSB - a cyclical commodity. It
is important to remember that our business is managed to maximize shareholder
returns throughout the cycle.
    Our strategy continues to serve us well. Our management team is
innovative, motivated and committed. Norbord is very well-positioned to
benefit when the housing market recovers.
    Thank you for your continuing support.

    (signed)
    Barrie Shineton


    
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
                     ------------------------------------
                             THIRD QUARTER 2007
                             ------------------
    

    October 23, 2007

    The Management's Discussion and Analysis (MD&A) provides a review of the
significant developments that impacted Norbord's performance during the
period. Norbord's significant accounting policies and other financial
disclosures are contained in the audited annual financial statements and
accompanying notes. All financial references in the MD&A are stated in US
dollars unless otherwise noted.
    Some of the statements included or incorporated by reference in this MD&A
constitute forward-looking statements within the meaning of applicable
legislation. Forward-looking statements are based on various assumptions and
are subject to various risks. See the cautionary statement contained in the
Forward-Looking Statements section in this MD&A.
    EBITDA, EBITDA margin, operating working capital, total working capital,
capital employed, ROCE, ROE, net debt, net debt to capitalization, book basis,
net debt to capitalization, market basis and book value per share are non-GAAP
measures described in the Definitions section. Non-GAAP measures do not have
any standardized meaning prescribed by Canadian Generally Accepted Accounting
Principles (GAAP) and are therefore unlikely to be comparable to similar
measures presented by other companies. There are no directly comparable GAAP
measures to any of these measures. Where appropriate, a quantitative
reconciliation of the non-GAAP measure to the nearest comparable GAAP measure
is also provided.
    Additional information on Norbord, including the annual information form
and the 2006 annual report, containing the annual MD&A and audited annual
financial statements is available on SEDAR at www.sedar.com.

    Business Overview and Strategy

    Norbord is an international producer of wood-based panels with 15 plant
locations in the United States, Europe and Canada. It is one of the world's
largest producers of oriented strand board (OSB) with annual capacity of
5.0 billion square feet (3/8-inch basis). The core of Norbord's OSB business
is located in the US South. The Company is a significant producer of
wood-based panels in Europe. The geographical breakdown of panel production
capacity is 60% US, 27% Europe and 13% Canada.
    Norbord's business strategy is focused entirely on the wood panels sector
- in particular OSB - in North America and Europe.
    Norbord's financial goal is to achieve top quartile return on equity
(ROE) and cash return on capital employed (ROCE) among North American forest
products companies. Norbord met this target in 2005 and 2006.
    Maintaining a strong balance sheet is an important element of Norbord's
financing strategy. Norbord believes that its record of superior operational
performance and prudent balance sheet management should enable it to access
public and private capital markets on attractive terms. At the end of the
quarter, the Company believes that it was well positioned with a net debt to
capitalization of 32% on a market basis and 61% on a book basis.

    Summary

    Norbord's strategy of geographic diversification continued to be
substantiated as markets for Norbord's European and North American products
continued to move in different directions. In Europe, prices for Norbord's
products remained at relatively high levels due to strong market conditions,
particularly in Eastern Europe. In contrast, North American markets remained
challenging. North American OSB prices have retreated from the highs of recent
years, reflecting the sharp decline in US housing starts.
    In the quarter, Norbord generated $30 million of EBITDA, versus
$17 million in the previous quarter and $35 million in the third quarter of
2006. Year-to-date, $51 million of EBITDA was generated, versus $225 million
in the prior year. Notable in this third quarter result is the contribution
from European operations at $29 million, up from $26 million and $13 million
in the second quarter of 2007 and third quarter of 2006, respectively.
Year-to-date, European operations contributed $73 million, up from $25 million
in the same period of 2006.
    The Company recorded a loss of $1 million in the third quarter of 2007 or
$0.00 per share compared to a loss of $15 million or $0.11 per share in the
second quarter of 2007. Improved earnings in the quarter were due to higher
third quarter EBITDA and lower depreciation expense, as Norbord's estimate of
the useful life of its OSB assets was revised during the quarter.
    Net sales in the quarter were $292 million, compared to $288 million and
$291 million in the second quarter of 2007 and third quarter of 2006
respectively. Year-to-date, net sales were $841 million compared to
$993 million in 2006. The increase in European net sales, driven by higher
pricing and shipment volumes, was offset by lower net sales in North America.
In North America, the benefit on net sales of higher OSB shipment volumes was
more than offset by lower North American OSB prices.
    While weak North American OSB pricing is expected in the near term, the
long term fundamentals supporting North American housing and OSB demand
continue to be favourable. Management continues to believe that OSB is the
best growth product in the forest products industry.

    
    Results of Operations

    (US$ millions,
     except per share
     information, unless         3rd Qtr  2nd Qtr  3rd Qtr    9 mos    9 mos
     otherwise noted)               2007     2007     2006     2007     2006
    -------------------------------------------------------------------------

    Return on capital
     employed (ROCE)                  11%       6%      15%       7%      30%
    Return on equity (ROE)           (1)%    (15)%       6%    (10)%      27%
    Earnings per share
     - diluted                   $  0.00  $ (0.11) $  0.05  $ (0.22) $  0.68
    -------------------------------------------------------------------------

    Net sales                    $   292  $   288  $   291  $   841  $   993
    EBITDA                            30       17       35       51      225
    EBITDA margin                     10%       6%      12%       6%      23%
    Depreciation                      19       27       23       70       70
    Capital investments                8       12       39       29      116
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Shipments (MMsf 3/8")
    OSB                            1,060    1,161    1,076    3,333    3,206
    Particleboard(1)                 162      172      165      503      485
    MDF                              124      131      127      381      413
    Hardwood plywood                  19       19       18       58       60
    -------------------------------------------------------------------------

    Indicative OSB Prices
    Average OSB price - North
     Central ($/Msf 7/16")           177      156      181      159      234
    Average OSB price - South
     East ($/Msf 7/16")              149      153      181      146      265
    Average OSB price - Europe
     (euro/m(3))                     246      249      213      242      204
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Excludes particleboard consumed internally (33 MMsf, 36 MMsf,
        41 MMsf, 103 MMsf, 141 MMsf for each period, respectively).
    

    In Europe, Norbord's prices for all major products held firm or continued
to improve in the third quarter. Year-to-date, Norbord's European panel prices
all posted double digit gains with average realized pricing for OSB and MDF up
almost 20% and particleboard up almost 15%.
    The strengthening market conditions in Europe were partially offset by
continued cost pressures for fibre and resin. A number of initiatives have
been undertaken to address these cost pressures including the installation of
biomass heat energy systems at Genk, Belgium OSB and Cowie, Scotland MDF and
the 2006 restructuring of Cowie MDF and South Molton, England particleboard
and lamination. Norbord expects that these initiatives will result in higher
overall margin contribution from the European mills.
    Improved European results provide a timely contribution as North American
OSB prices have retreated from the highs of recent years. In the nine-month
period, North Central benchmark North American OSB prices averaged $159 per
Msf (7/16 - inch basis) compared to $234 in the same period of 2006. The
decline in North American OSB prices, which began in the second quarter of
2006, is the result of lower housing starts in the US. New home construction
is the principal end use for OSB, accounting for about 70% of demand in 2006.
North American OSB prices have also been impacted by an increase in production
capacity as a number of new mills have come on stream. Relatively weak pricing
levels are expected to persist through 2008 as a result of weaker overall
demand and the impact of additional capacity.
    In the quarter, North Central benchmark OSB prices averaged $177, up $21
over the second quarter. Norbord benefited from higher prices in the quarter,
however, the impact was limited by regional pricing variations. In the South
East region, where approximately 55% of Norbord's North American capacity is
located, prices averaged $149 in the quarter, down $4 compared to the second
quarter.
    Throughout the cycle, Norbord took steps to prepare itself for this
cyclical downturn by focusing on cost containment and developing a higher
margin product mix. The Margin Improvement Program (MIP) has helped Norbord
concentrate on improving its competitive position, generating $185 million of
margin improvement over the past five years. These gains helped to offset the
impact of rising input costs and management believes its relative competitive
position in the industry has improved over this time. Gains from MIP were
$16 million year-to-date, measured relative to 2006 at constant prices and
exchange rates. Norbord's MIP target for the full year 2007 is $25 million.
    Ramp up of the new OSB line at Cordele continues to outperform. The
expansion added approximately 550 million square feet (3/8-inch basis) of
production capacity at a capital cost of $135 million and increased Norbord's
global OSB production capacity by 12%. This expansion should further
strengthen Norbord's position as one of the lowest cost OSB producers in North
America. Production on the line was 90% of capacity for the full quarter and
75% year-to-date. The results from this line were capitalized until April 2007
while the facility remained in its start-up phase. Accordingly, any benefit
from the additional volume from the new OSB line was not reflected in EBITDA,
or the EBITDA variance, until the second quarter. During the first quarter
$3 million was capitalized as start-up costs.
    Norbord achieved record OSB production in the quarter. The additional
volume from the new OSB line at Cordele and increased European OSB volume
offset the reduced volume from Jefferson, Texas. The Jefferson mill began
operating at 70% of capacity in the quarter due to regional wood shortages.
Year-to-date, overall OSB production increased by 10%, principally due to the
additional volume from the new line at Cordele.
    Year-to-date Norbord's OSB shipments are at record levels, a notable
achievement in light of current North American OSB market conditions and
continued validation of the Company's customer strategy.
    In the quarter, Norbord's North American per unit OSB cash production
costs, including employee profit share, were up 1% over the prior quarter
principally due to higher resin price. Production costs were in line with the
third quarter of 2006 as the benefit of higher volume, lower fibre price and
lower profit share offset the higher resin prices. Year-to-date, production
costs were down 1% over the prior year as lower wood prices, spending on
supplies and maintenance and profit share offset higher resin prices.
    Major components of the change in EBITDA versus comparative periods are
summarized in the following variance table.

    
                                     3rd Qtr 2007  3rd Qtr 2007   9 mos 2007
    EBITDA Variance                       vs.           vs.           vs.
    (US$ millions)                   2nd Qtr 2007  3rd Qtr 2006   9 mos 2006
    -------------------------------------------------------------------------
    EBITDA - current period             $    30       $    30        $    51
    EBITDA - comparative period              17            35            225
    -------------------------------------------------------------------------
    Variance                            $    13       $    (5)       $  (174)
    -------------------------------------------------------------------------

    Mill nets(1)                        $    15       $    (4)       $  (179)
    Volume(2)                                (3)            4             23
    Key input prices(3)                      (3)           (1)           (12)
    Key input usage(3)                        2            (1)             1
    Other(4)                                  2            (3)            (7)
    -------------------------------------------------------------------------
                                        $    13       $    (5)       $  (174)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The mill net variance represents the change in realized pricing
        across all products. Mill net is calculated as net sales divided by
        shipment volume.
    (2) The volume variance represents the impact of shipment volume changes
        across all products.
    (3) Key inputs include fibre, resin and energy.
    (4) Other category covers all remaining variances including, supplies and
        maintenance, labour and benefits, and the impact of foreign exchange.


    Interest, Depreciation and Income Tax

                                 3rd Qtr  2nd Qtr  3rd Qtr    9 mos    9 mos
    (US$ millions)                  2007     2007     2006     2007     2006
    -------------------------------------------------------------------------

    Interest and other income    $     -  $     3  $     -  $     4  $     3
    Interest expense                 (13)     (14)      (7)     (36)     (22)
    Depreciation                     (19)     (27)     (23)     (70)     (70)
    Income tax recovery (expense)      1        6        2       19      (38)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Interest and other income were in line with prior year and down
$3 million over the prior quarter due to higher average cash balances in the
prior quarter. Interest expense of $13 million was in line with the prior
quarter. Year-to-date interest expense is higher than 2006 due to additional
interest on borrowings under the Company's committed bank lines and the
February issuance of $200 million of senior notes maturing in 2017.
    In accordance with the Company's policy, depreciation rates for property,
plant and equipment are assessed from time to time to ensure they continue to
approximate their useful life. Effective July 1, 2007, management's estimate
of the useful life for its OSB assets was changed from 15 years to 25 years.
This change in estimate was accounted for prospectively. The impact of this
change in estimate on third quarter depreciation was a reduction of
$9 million. Depreciation expense increased in the second quarter of 2007 by
$3 million as depreciation of the new OSB line commenced in that quarter.
    A tax recovery of $1 million was recorded in the quarter on a pre-tax
loss of $2 million. Year-to-date, a tax recovery of $19 million was recorded
on a pre-tax loss of $51 million. The effective tax rate differs from the
statutory rate principally due to rate differences on foreign activities and
fluctuations in relative currency values.
    In 2005 and 2006, Norbord paid $163 million in income and income-related
taxes, principally in North America. Losses incurred in 2007 can be carried
back and applied against taxes paid for a cash refund in 2008. Losses incurred
in the first nine months of 2007 would result in a refund of approximately
$50 million.

    
    Liquidity and Capital Resources


    (US$ millions, except
     per share information,      3rd Qtr  2nd Qtr  3rd Qtr    9 mos    9 mos
     unless otherwise noted)        2007     2007     2006     2007     2006
    -------------------------------------------------------------------------

    Cash provided by (used for)
     operating activities        $   (18) $    11  $    37  $   (57) $   137
    Cash provided by (used for)
     operating activities
     per share                     (0.12)    0.07     0.26    (0.39)    0.96
    -------------------------------------------------------------------------

    Operating working capital        127       79       70      127       70
    Total working capital            175      162       66      175       66
    Capital investments                8       12       39       29      116
    Net debt to capitalization,
     market basis                     32%      32%      24%      32%      24%
    Net debt to capitalization,
     book basis                       61%      59%      51%      61%      51%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    In addition to cash on hand of $48 million and cash generated from
operations, the Company has $235 million of committed unsecured revolving bank
lines available to support short-term liquidity requirements. During the
quarter, the Company increased its committed unsecured revolving bank lines by
$35 million from $200 million. At September 29, 2007, $231 million was
available and $4 million was utilized for letters of credit. These committed
bank lines mature in 2010, bear interest at money market rates plus a margin
that varies with the Company's credit rating, and contain certain financial
covenants which the Company must comply with on a quarterly basis.
    Operating working capital, consisting of accounts receivable and
inventory less accounts payable and accrued liabilities, at September 29, 2007
was $127 million compared to $70 million at September 30, 2006 and $33 million
at December 31, 2006. The additional investment in operating working capital
is driven by strategic initiatives and positive European business conditions.
    Higher European sales prices and volume has led to higher accounts
receivable balances. It should be noted that standard European collection
terms are significantly longer than in North America, amplifying the effect of
these increases. In addition, to support and grow its European business,
Norbord increased its export of OSB from North America to Europe in the third
quarter. The inventory build due to longer shipping times, and differences in
North American and European collection terms has necessitated an increase in
Norbord's working capital investment.
    In North America, additional volume from the new OSB line at Cordele
impacted operating working capital balances. At the same time, Norbord has
strategically grown sales to home centres. Managing inventories for home
centres has added to working capital. Relative to year-end, operating working
capital has further increased due to a lower North American profit share
accrual.
    Total working capital at September 29, 2007 was $175 million including
$48 million in cash and cash equivalents.
    Operating activities consumed $18 million of cash in the quarter as the
increased investment in operating working capital offset higher earnings.
Year-to-date operating activities consumed $57 million compared to generating
$137 million in the same period of 2006. The decrease is principally due to
higher earnings in the comparable period and the increased investment in
operating working capital in the current year.
    In the first quarter the Company issued $200 million of senior notes due
in 2017 with an interest rate of 6.45% which are subject to a credit ratings
based coupon step-up provision. At period end the interest rate was 6.70%. The
notes were issued to pre-fund the March 2008 debenture maturity.
    Cash dividends of $8 million were paid in the quarter, reflecting
continued increased participation in the Company's Dividend Reinvestment
Program (DRIP), which permits Canadian shareholders to elect to receive their
dividends in the form of common shares. A $19 million recouponing payment was
made in the second quarter on cross-currency swaps which are designated as
hedges against the Company's net investments in Europe. This was offset by an
unrealized gain on the net investments being hedged.
    Norbord's net debt stood at $592 million at quarter end, representing 32%
of capitalization on a market basis and 61% of capitalization on a book basis.
Norbord believes its record of superior operational performance and prudent
balance sheet management should enable it to retain access to public and
private capital markets on attractive terms.

    Investments and Divestitures

    Capital Investments

    Capital investments were $29 million year-to-date (third quarter -
$8 million). Norbord's 2007 capital investments are expected to be $35 million
plus $3 million of interest capitalized in the first quarter related to the
new line at Cordele. Capital investments for 2007 include biomass heat energy
systems at Genk and Nacogdoches, Texas. The 2007 capital investments will be
funded with cash on hand, cash generated from operations and, if necessary,
drawings under the Company's committed bank lines.

    Non-Core Asset Sale

    In the second quarter of 2007, the I-joist mill in Juniper, New Brunswick
was sold. There was no gain or loss on the disposition. In the fourth quarter
of 2006, a $13 million provision was taken in relation to these assets
following the indefinite closure of the mill.

    
    Selected Quarterly Information

                                   2007                  2006           2005
    (US$ millions, except    ------------------------------------------------
     per share information,  3rd   2nd    1st    4th   3rd   2nd   1st   4th
     unless otherwise noted) Qtr   Qtr    Qtr    Qtr   Qtr   Qtr   Qtr   Qtr
    -------------------------------------------------------------------------

    Cash provided by
     (used for) operating
     activities              (18)   11    (50)    54    37    70    30   121
    Cash provided by
     (used for) operating
     activities per share  (0.12) 0.07  (0.34)  0.37  0.26  0.49  0.21  0.83
    Return on capital
     employed (ROCE)          11%    6%     2%     8%   15%   33%   46%   46%
    Return on equity (ROE)   (1)% (15)%  (15)%   (1)%    6%   27%   43%   41%
    -------------------------------------------------------------------------

    Net Sales                292   288    261    259   291   334   368   351
    EBITDA                    30    17      4     22    35    79   111   110
    Earnings                  (1)  (15)   (16)    (1)    7    33    58    52

    Earnings per share
      Basic                 0.00 (0.11) (0.11)  0.00  0.05  0.23  0.40  0.36
      Diluted               0.00 (0.11) (0.11) (0.01) 0.05  0.23  0.40  0.36
    -------------------------------------------------------------------------

    OSB shipments
     (MMsf 3/8")           1,060 1,161  1,112  1,083 1,076 1,048 1,082 1,021
    Average OSB price
     - North Central
     ($/Msf 7/16")           177   156    145    166   181   238   285   317
    Average OSB price
     - South East
     ($/Msf 7/16")           149   153    138    141   181   249   303   336
    Average OSB price
     - Europe (euro/m(3))    246   249    234    219   213   204   197   182
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The price of OSB is the primary factor affecting the comparability of
Norbord's results over the past eight quarters. Fluctuations in earnings
during that time mirror fluctuations in the price of OSB in North America. The
Company estimates the annualized impact of a $10 per Msf (7/16-inch basis)
change in the North American OSB price on EBITDA in 2007 is approximately
$35 million or approximately $0.16 per share. Regional pricing variations,
particularly in the US South, make the North Central benchmark price a useful,
albeit imperfect, proxy for overall North American OSB pricing. Further,
premiums obtained on value added products, the pricing lag effect of
maintaining an order file, and volume and trade discounts cause realized
prices to differ from the benchmark.
    Norbord has a relatively low exposure to the Canadian dollar due to a
comparatively small manufacturing base in Canada, comprising 13% of panel
production capacity. The Company estimates the unfavourable impact of a US
one cent increase in the Canadian dollar to negatively impact annual EBITDA by
approximately $1 million.
    Quarterly results are also impacted by seasonal factors such as weather
and building activity. Market demand varies seasonally, as building activity
and repair and renovation work, the principal end use for Norbord's products,
are generally stronger in the spring and summer months. Adverse weather can
also limit access to logging areas, which can affect the supply of fibre to
Norbord's operations. Shipment volumes and commodity prices are affected by
these factors as well as by global supply and demand conditions.
    Items not related to ongoing business operations that had a significant
impact on fourth quarter 2006 results include pre-tax income of $7 million
($0.03 per share) due to softwood lumber duty refunds, the $13 million
provision ($0.06 per share) for non-core operation and tax recovery of
$4 million ($0.03 per share) due to the resolution of several income tax audit
items relating to prior taxation years. In addition, in the third quarter of
2007, management's estimate of the useful life of its OSB assets changed from
15 years to 25 years. The impact of this change in estimate on depreciation
expense was a $9 million reduction. In the second quarter of 2007,
depreciation expense increased $3 million as depreciation commenced on the new
OSB line at Cordele.

    Common Shares

    At October 23, 2007, there were 145.9 million common shares outstanding.
In addition, 2.4 million stock options were outstanding, of which
approximately 40% were fully vested.

    Changes in Accounting Policies and Significant Accounting Estimates

    In accordance with the Company's policy, depreciation rates for property,
plant and equipment are assessed from time to time to ensure they continue to
approximate their useful life. Effective July 1, 2007, management's estimate
of the useful life for its OSB assets was changed from 15 years to 25 years.
This change in estimate was accounted for prospectively. The impact of this
change in estimate on third quarter deprecation was a reduction of $9 million.
    Effective January 1, 2007, the Company adopted new accounting
recommendations from the Canadian Institute of Chartered Accountants (CICA),
Handbook Section 1530, Comprehensive Income, Section 1651, Foreign Currency
Translation, Section 3251, Equity, Section 3855, Financial Instruments -
Recognition and Measurement, Section 3861, Financial Instruments - Disclosure
and Presentation and Section 3865 Hedges.
    Section 1530 established standards for reporting and presenting a
comprehensive income statement. Section 3855 requires all financial assets and
financial liabilities to be classified as one of five categories. Financial
assets are to be classified as either held for trading, available for sale,
held to maturity or loans and receivables. Financial liabilities are to be
classified as either held for trading or other financial liabilities. All
financial assets and financial liabilities are to be carried at fair value in
the consolidated balance sheet, except held to maturity, loans and receivables
and other financial liabilities which are carried at amortized cost.
    Subsequent accounting for changes in fair value will depend on initial
classification. Realized and unrealized gains and losses on financial assets
and liabilities that are held for trading will continue to be recorded in the
consolidated statement of earnings. Unrealized gains and losses on financial
assets that are held as available for sale are to be recorded in other
comprehensive income until realized, at which time they will be recorded in
the consolidated statement of earnings. During the quarter, the Company did
not have any financial assets or liabilities other than cash & cash
equivalents which would be designated as either held for trading or available
for sale.
    Section 3865 specifies the criteria that must be satisfied in order for
hedge accounting to be applied and the accounting for each of the permitted
hedging strategies: fair value hedges, cash flow hedges and hedges of foreign
currency exposures of net investments in self sustaining foreign operations.
    In accordance with these new standards there has been a retroactive
adjustment to reclassify the negative $8 million of cumulative translation
adjustment as of January 1, 2006 and $2 million as of January 1, 2007 as
accumulated other comprehensive income. There was no impact to opening
retained earnings on adoption of these accounting recommendations.
    The CICA has issued several new accounting standards including: Section
1535, Capital Disclosures, Section 3031, Inventories, Section 3862, Financial
Instruments - Disclosure, and Section 3863, Financial Instruments -
Presentation. The Company will adopt these new standards effective January 1,
2008 and is currently assessing the impact of adoption on its consolidated
financial statements.
    Section 1535 specifies the requirements for the disclosure of information
relating to objectives, policies and processes for managing capital.
    Section 3031 relates to the accounting for inventories and revises and
enhances the requirements for assigning costs to inventories.
    Section 3862 and Section 3863 replace Section 3861, Financial Instruments
- Disclosure and Presentation, and revise and enhance the disclosure
requirements and carry forward the presentation requirements.

    Class Action Lawsuit

    Norbord and eight other North American OSB producers have been named as
defendants in several lawsuits filed in the US District Court for the Eastern
District of Pennsylvania. The lawsuits allege that these nine North American
OSB producers violated US and various state antitrust and other laws by
allegedly agreeing to fix prices and reduce the supply of OSB from June 1,
2002 through the present.
    During the quarter, the district court certified a class of persons and
entities that purchased OSB in the US directly from any of the named North
American OSB producers between June 1, 2002 and the present. This class is
seeking injunctive relief and damages under US federal antitrust law. The
district court also certified a class of persons and entities who, as end
users, indirectly purchased for their own use and not for resale, new OSB
manufactured and sold by one or more of the named North American OSB producers
between June 1, 2002 and the present. This class is seeking injunctive relief
under US federal antitrust law.
    The district court is still considering the extent to which it will
certify classes of indirect purchasers for purposes of pursuing claims under
state laws. As of October 23, 2007, the district court has certified for
purposes of pursuing claims under state laws a class consisting of persons and
entities residing in eleven states who, as end users, indirectly purchased for
their own use, and not for resale, new OSB manufactured and sold by one or
more of the named North American OSB producers between June 1, 2002 and the
present. This class is seeking damages, injunctive, and other relief under
state laws.
    Norbord believes that the lawsuits are entirely without merit and intends
to defend this matter vigorously.

    Environmental Matters

    Norbord's operations are subject to a range of general and industry
specific environmental laws and regulations relating to air emissions,
wastewater discharges, solid and hazardous waste management, plant and
wildlife protection, and site remediation. Norbord believes that all of its
facilities are in substantial compliance with these matters. Failure to comply
with applicable environmental laws and regulations could result in fines,
penalties or other enforcement actions which could impact Norbord's production
capacity or increase Norbord's production costs.
    Maximum Achievable Control Technology (MACT) regulations, designed to
reduce hazardous air emissions, took effect in the US in 2004. The new
standards apply to more than 200 mills manufacturing plywood, OSB, MDF,
particleboard and other wood composite panels. Existing mills were required to
demonstrate compliance by October 2008.
    A number of environmental advocacy groups launched legal action against
the US Environmental Protection Agency (EPA) challenging several aspects of
the rules. In June 2007, the US Court of Appeals made several important
decisions in this litigation. Two decisions will impact Norbord's MACT
compliance plans. First, the courts removed the health based low risk
compliance option, which was expected to exempt three Norbord operations. The
cost of complying with the amended rules is estimated to be $4 million in
addition to the $8 million investment already planned. Second, the courts
reinstated the original October 2007 compliance deadline. Individual states,
however, have the authority to grant 12-month extensions and the Company has
extended or is working to extend the deadlines where necessary.

    Internal Controls Over Financial Reporting

    During the third quarter, Norbord Inc. ceased voluntary filing certain
reports with the US Securities and Exchange Commission. Documents publicly
filed by the Company may be accessed through the Internet on Norbord's website
at www.norbord.com or on the System for Electronic Document Analysis and
Retrieval (SEDAR) at www.sedar.com.
    The assessment of the Company's internal controls over financial
reporting is governed by Canadian National Instrument 52-109. Under this
National Instrument, the timetable for Norbord to meet the requirement for
management's assessment of effectiveness of internal controls over financial
reporting is December 31, 2008. There is no requirement for the independent
audit of management's assessment. Based on the work done to date, the Company
expects it will comply with these requirements.
    Internal controls over financial reporting are designed to provide
reasonable assurance regarding the reliability of financial reporting and
compliance with Canadian generally accepted accounting principles. There have
been no changes in Norbord's internal control over financial reporting during
the interim period ended September 29, 2007 that have materially affected or
are reasonably likely to materially affect its internal control over financial
reporting.

    Definitions

    The following non-GAAP measures have been used in this MD&A. Non-GAAP
measures do not have any standardized meaning prescribed by GAAP and are
therefore unlikely to be comparable to similar measures presented by other
companies. There are no directly comparable GAAP measures to any of these
measures. Each non-GAAP measure is defined below. Where appropriate, a
quantitative reconciliation of the non-GAAP measure to the nearest comparable
GAAP measure is provided.

    EBITDA is earnings determined in accordance with GAAP before interest,
income taxes, depreciation and amortization. Norbord views EBITDA as a measure
of gross profit and interprets EBITDA trends as an indicator of relative
operating performance. EBITDA is presented as a useful indicator of a
company's ability to incur and service debt and meet capital expenditure
requirements. The following table reconciles EBITDA to the nearest comparable
GAAP measure:

    
    -------------------------------------------------------------------------
                                 3rd Qtr  2nd Qtr  3rd Qtr    9 mos    9 mos
    (US$ millions)                  2007     2007     2006     2007     2006
    -------------------------------------------------------------------------

    Earnings                     $    (1) $   (15) $     7  $   (32) $    98
    Add: Interest expense             13       14        7       36       22
    Less: Interest and
     other income                      -       (3)       -       (4)      (3)
    Add: Income tax                   (1)      (6)      (2)     (19)      38
    Add: Depreciation                 19       27       23       70       70
    -------------------------------------------------------------------------

    EBITDA                       $    30  $    17  $    35  $    51  $   225
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    EBITDA margin (%) is EBITDA as a percentage of net sales.

    Operating working capital is accounts receivable plus inventory less
accounts payable.

    Total working capital is operating working capital plus cash and cash
equivalents less bank advances.

    Capital employed is the sum of property, plant and equipment, operating
working capital and other assets less any unrealized net investment hedge
losses included in other liabilities. The following table reconciles capital
employed to the nearest comparable GAAP measure:

    -------------------------------------------------------------------------
                                                    Sep 29   Jun 30   Dec 31
    (US$ millions)                                    2007     2007     2006
    -------------------------------------------------------------------------

    Property, plant and equipment                  $   981  $   985  $ 1,008
    Accounts receivable                                195      173      163
    Inventory                                          125      112       98
    Accounts payable and accrued liabilities          (193)    (206)    (228)
    Other assets                                         6        7        7
    Unrealized balance sheet hedge gain (loss)(1)      (21)     (14)     (25)
    -------------------------------------------------------------------------

    Capital employed                               $ 1,093  $ 1,057  $ 1,023
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Included in other liabilities

    ROCE (return on capital employed) is EBITDA divided by average capital
employed. The ratio is expressed on an annualized basis. ROCE is a measurement
of financial performance, focusing on cash generation and the efficient use of
capital.

    ROE (return on equity) is earnings available to common shareholders
(earnings) divided by common shareholders' equity. The ratio is expressed on
an annualized basis. ROE is a measure for common shareholders to determine how
effectively their money is being employed.

    Net debt is the principal value of long-term debt including the current
portion and bank advances less cash and cash equivalents. Net debt is a useful
indicator of a company's debt position. Net debt is comprised of:

    -------------------------------------------------------------------------
                                                    Sep 29   Jun 30   Dec 31
    (US$ millions)                                    2007     2007     2006
    -------------------------------------------------------------------------

    Long-term debt                                 $   640  $   640  $   480
    Bank advances                                        -        -        -
    Cash and cash equivalents                          (48)     (83)     (20)
    -------------------------------------------------------------------------

    Net debt                                       $   592  $   557  $   460
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Net debt to capitalization, book basis is net debt divided by the sum of
net debt and shareholders' equity. Net debt to capitalization, book basis is a
measure of a company's relative debt position. Norbord interprets this measure
as an indicator of the relative strength and flexibility of its balance sheet.

    Net debt to capitalization, market basis is net debt divided by the sum
of net debt and market capitalization. Market capitalization is the number of
common shares outstanding at period end multiplied by the trailing 12-month
average per share market price. Market basis capitalization is intended to
correct for the low historical book value of Norbord's asset base relative to
its fair value. Net debt to capitalization, market basis is a key measure of a
company's relative debt position and Norbord interprets this measure as an
indicator of the relative strength and flexibility of its balance sheet. While
the Company considers both book and market basis metrics, the Company believes
the market basis to be superior to the book basis in measuring the true
strength and flexibility of its balance sheet.

    Book value per share is common shareholders' equity divided by common
shares outstanding.

    Forward-Looking Statements

    This document contains forward-looking statements, as defined in
applicable legislation. The words "believes," "believe," "should," "expect,"
"expected," "will," "aim," "estimates," "estimated," "goal," 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.
    Examples of such statements include, but are not limited to, comments
with respect to: (1) outlook for the markets for products; (2) expectations
regarding future product pricing: (3) the outlook for operations; (4)
expectations regarding mill capacity and production volumes; (5) objectives;
(6) strategies to achieve those objectives; (7) sensitivity to changes in
product prices, such as the price of OSB; (8) sensitivity to changes in
foreign exchange rates; (9) margin improvement program targets; (10)
expectations regarding contingent liabilities, lawsuits and guarantees,
including the outcome of pending litigation; (11) expectations regarding the
amount, timing and benefits of capital investments; and (12) expectations
regarding the amount and timing of tax refunds.
    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 and the US Securities and Exchange
Commission.
    Norbord does not undertake to update any forward-looking statements,
whether as a result of new information, future events or otherwise, or to
publicly update or revise the above list of factors affecting this
information. See the "Caution Regarding Forward-Looking Information" statement
in the March 1, 2007 Annual Information Form and the cautionary statement
contained in the "Forward-Looking Statements" section of the 2006 Management's
Discussion and Analysis dated January 31, 2007.


    
                                 NORBORD INC.
                     CONSOLIDATED STATEMENTS OF EARNINGS

    (unaudited)

    (US $ millions, except                3rd Qtr  3rd Qtr    9 mos    9 mos
     per share information)                  2007     2006     2007     2006
    -------------------------------------------------------------------------

    Net sales                             $   292  $   291  $   841  $   993
    -------------------------------------------------------------------------

    Earnings before interest,
     income tax and depreciation               30       35       51      225

    Interest and other income                   -        -        4        3
    Interest expense                          (13)      (7)     (36)     (22)
    -------------------------------------------------------------------------

    Earnings before income tax
     and depreciation                          17       28       19      206

    Depreciation                              (19)     (23)     (70)     (70)
    Income tax (note 7)                         1        2       19      (38)
    -------------------------------------------------------------------------

    Earnings                              $    (1) $     7  $   (32) $    98
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per common share (note 6)
      - Basic                             $  0.00  $  0.05  $ (0.22) $  0.68
      - Diluted                           $  0.00  $  0.05  $ (0.22) $  0.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



                                NORBORD INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (unaudited)

                                          3rd Qtr  3rd Qtr    9 mos    9 mos
    (US $ millions)                          2007     2006     2007     2006
    -------------------------------------------------------------------------

    CASH PROVIDED BY (USED FOR):

    Operating Activities
    Earnings                              $    (1) $     7  $   (32) $    98
    Items not affecting cash:
      Depreciation                             19       23       70       70
      Future income taxes (note 7)              3       13      (16)      22
    Other items                                (2)      (5)       -       (9)
    -------------------------------------------------------------------------
                                               19       38       22      181

    Net change in non-cash working
     capital balances                         (37)      (1)     (79)     (44)
    -------------------------------------------------------------------------

                                              (18)      37      (57)     137
    -------------------------------------------------------------------------

    Investing Activities
    Capital investments                        (8)     (39)     (29)    (116)
    Other (note 8)                             (1)      (4)     (20)      (3)
    -------------------------------------------------------------------------

                                               (9)     (43)     (49)    (119)
    -------------------------------------------------------------------------

    Financing Activities
    Issue of senior notes (note 3)              -        -      198        -
    Other debt incurred (repaid),
     net (note 3)                               -       26      (40)      26
    Dividends                                  (8)    (135)     (24)    (160)
    Repurchase of common shares (note 5)        -        -        -      (29)
    Issue of common shares (note 5)             -        -        -        1
    -------------------------------------------------------------------------

                                               (8)    (109)     134     (162)
    -------------------------------------------------------------------------

    Increase (decrease) in cash
     and cash equivalents                 $   (35) $  (115) $    28  $  (144)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash and cash equivalents,
     beginning of period                  $    83  $   126  $    20  $   155
    Cash and cash equivalents,
     end of period                             48       11       48       11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



                                NORBORD INC.
                         CONSOLIDATED BALANCE SHEETS

                                                             Sep 29   Dec 31
    (US $ millions)                                            2007     2006
    -------------------------------------------------------------------------
                                                         (unaudited)
    ASSETS
    Current assets:
      Cash and cash equivalents                             $    48  $    20
      Accounts receivable                                       195      163
      Inventory                                                 125       98
      Future income taxes                                         3        3
    -------------------------------------------------------------------------
                                                                371      284

    Property, plant and equipment                               981    1,008
    Other assets                                                  6        7
    -------------------------------------------------------------------------

                                                            $ 1,358  $ 1,299
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
      Accounts payable and accrued liabilities              $   193  $   228
      Current portion of long-term debt (note 3)                201        -
    -------------------------------------------------------------------------
                                                                394      228

    Long-term debt (note 3)                                     440      480
    Other liabilities (note 4)                                   39       44
    Future income taxes                                         100      113
    Shareholders' equity (note 5)                               385      434
    -------------------------------------------------------------------------

                                                            $ 1,358  $ 1,299
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



                                NORBORD INC.
                CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                          AND COMPREHENSIVE INCOME

    (unaudited)
                                          3rd Qtr  3rd Qtr    9 mos    9 mos
    (US $ millions)                          2007     2006     2007     2006
    -------------------------------------------------------------------------

    Retained Earnings
    Balance, beginning of period          $   248  $   324  $   305  $   412
    Earnings                                   (1)       7      (32)      98
    Common share dividends                    (14)     (13)     (40)    (166)
    Repurchase of common shares (note 5)        -        -        -      (26)
    -------------------------------------------------------------------------

    Balance, end of period                $   233  $   318  $   233  $   318
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Comprehensive Income
    Earnings                              $    (1) $     7  $   (32) $    98

    Other comprehensive income:
      Net change in unrealized
       cumulative translation
       gains (losses)                           4        3        5        6
    -------------------------------------------------------------------------

    Comprehensive Income                  $     3  $    10  $   (27) $   104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



                                 NORBORD INC.
           NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

    (unaudited)

    (In US$, unless otherwise noted)
    

    Note 1 - Basis of Presentation
    ------------------------------
    The interim financial statements are unaudited and follow the accounting
    policies summarized in the notes to the annual consolidated financial
    statements, except as noted in note 2, below.

    The interim financial statements do not conform in all respects to the
    disclosure requirements of Canadian generally accepted accounting
    principles for annual financial statements and should, therefore, be read
    in conjunction with the annual consolidated financial statements of
    Norbord Inc. which includes information necessary or useful to
    understanding the Company's business and financial statement
    presentation. In particular, the Company's significant accounting
    policies and practices are presented as Note 1 to the annual consolidated
    financial statements. Certain prior period amounts have been reclassified
    to conform to the current period's presentation.

    Note 2 - Changes in Accounting Policies and Significant Accounting
    ------------------------------------------------------------------
    Estimates
    ---------
    Effective January 1, 2007, the Company adopted new accounting
    recommendations from the Canadian Institute of Chartered Accountants
    (CICA), Handbook Section 1530, Comprehensive Income, Section 1651,
    Foreign Currency Translation, Section 3251, Equity, Section 3855,
    Financial Instruments - Recognition and Measurement, Section 3861,
    Financial Instruments - Disclosure and Presentation and Section 3865
    Hedges.

    Section 1530 established standards for reporting and presenting a
    comprehensive income statement.

    Section 3855 requires all financial assets and financial liabilities to
    be classified as one of five categories. Financial assets are to be
    classified as either held for trading, available for sale, held to
    maturity or loans and receivables. Financial liabilities are to be
    classified as either held for trading or other financial liabilities. All
    financial assets and financial liabilities are to be carried at fair
    value in the consolidated balance sheet, except held to maturity, loans
    and receivables and other financial liabilities which are carried at
    amortized cost.

    Subsequent accounting for changes in fair value will depend on initial
    classification. Realized and unrealized gains and losses on financial
    assets and liabilities that are held for trading will continue to be
    recorded in the consolidated statement of earnings. Unrealized gains and
    losses on financial assets that are held as available for sale are to be
    recorded in other comprehensive income until realized, at which time they
    will be recorded in the consolidated statement of earnings. During the
    quarter, the Company did not have any financial assets or liabilities
    other than cash & cash equivalents which would be designated as either
    held for trading or available for sale.

    Section 3865 specifies the criteria that must be satisfied in order for
    hedge accounting to be applied and the accounting for each of the
    permitted hedging strategies: fair value hedges, cash flow hedges and
    hedges of foreign currency exposures of net investments in self
    sustaining foreign operations.

    In accordance with these new standards there has been a retroactive
    adjustment to reclassify the negative $8 million of cumulative
    translation adjustment as of January 1, 2006 and $2 million as of
    January 1, 2007 as accumulated other comprehensive income. There was no
    impact to opening retained earnings on adoption of these new accounting
    recommendations.

    In accordance with the Company's policy, depreciation rates for property,
    plant and equipment are assessed from time to time to ensure they
    continue to approximate their useful life. Effective July 1, 2007,
    management's estimate of the useful life for its OSB assets was changed
    from 15 years to 25 years. This change in estimate was accounted for
    prospectively. The impact of this change in estimate on third quarter
    deprecation was a reduction of $9 million.

    The CICA has issued several new accounting standards including: Section
    1535, Capital Disclosures, Section 3031, Inventories, Section 3862,
    Financial Instruments - Disclosure, and Section 3863, Financial
    Instruments - Presentation. The Company will adopt these new standards
    effective January 1, 2008 and is currently assessing the impact of
    adoption on its consolidated financial statements.

    Section 1535 specifies the requirements for the disclosure of information
    relating to objectives, policies and processes for managing capital.

    Section 3031 relates to the accounting for inventories and revises and
    enhances the requirements for assigning costs to inventories.

    Section 3862 and Section 3863 replace Section 3861, Financial Instruments
    - Disclosure and Presentation, and revise and enhance the disclosure
    requirements and carry forward unchanged the presentation requirements.

    
    Note 3 - Long-Term Debt
    -----------------------

    (US$ millions)                                            Book Value
    -------------------------------------------------------------------------
                                            Fair Value
                                  Principal     Adjust-    Sep 29     Dec 31
                                      Value      ments       2007       2006
    -------------------------------------------------------------------------

    8 1/8% debentures due 2008    $     200  $       1  $     201  $     200
    7 1/4% debentures due 2012          240          3        243        240
    6.70% senior notes due 2017         200         (3)       197          -
    Other debt                            -          -          -         40
    -------------------------------------------------------------------------
                                        640          1        641        480
    Less current portion of
     long-term debt:
      8 1/8% debentures due 2008       (200)        (1)      (201)         -
    -------------------------------------------------------------------------
                                  $     440  $       -  $     440  $     480
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    At September 29, 2007, the Company had $365 million (December 31, 2006 -
    $365 million) of interest rate swaps outstanding. The terms of these
    swaps correspond to the terms of the underlying hedged debt.

    The Company has committed unsecured revolving bank lines of $235 million
    which mature in 2010, bear interest at money market rates that vary with
    the Company's credit rating, and contain certain financial covenants
    which the Company must comply with on a quarterly basis. At quarter end,
    $231 million was available to support short-term liquidity requirements
    and $4 million was utilized for letters of credit.

    In the first quarter, the Company issued $200 million of senior notes due
    in 2017 with an interest rate of 6.45% which are subject to a credit
    ratings based coupon step-up provision. At period end the rate was 6.70%.
    The notes were issued to pre-fund the March 2008 debenture maturity.

    
    Note 4 - Other Liabilities
    --------------------------

                                                             Sep 29   Dec 31
    (US$ millions)                                             2007     2006
    -------------------------------------------------------------------------

    Unrealized net investment hedge losses (note 10)        $    21  $    25
    Unrealized interest rate swap losses                          8        -
    Accrued pension and post-retirement benefits                  4        4
    Deferred interest rate swap gains                             -       11
    Other liabilities                                             6        4
    -------------------------------------------------------------------------
                                                            $    39  $    44
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    Note 5 - Shareholders' Equity
    -----------------------------

                                                             Sep 29   Dec 31
    (US$ millions)                                             2007     2006
    -------------------------------------------------------------------------

    Capital stock:
      Common shares                                         $   143  $   127
      Contributed surplus                                         2        -
    -------------------------------------------------------------------------
                                                                145      127
    Retained earnings                                           233      305
    Accumulated other comprehensive income                        7        2
    -------------------------------------------------------------------------
                                                            $   385  $   434
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Summary of common share transactions:

                                        9 mos ended          12 mos ended
                                       Sep 29, 2007          Dec 31, 2006
                                  --------------------- ---------------------
                                                Amount                Amount
                                     Shares       (US$     Shares       (US$
                                   (million)  millions)  (million)  millions)
    -------------------------------------------------------------------------
    Balance at beginning of period    143.8  $     127      144.8  $     118
    Dividend reinvestment plan          1.9         16        1.4         11
    Issue of common shares              0.2          -        0.3          1
    Repurchase of common shares           -          -       (2.7)        (3)
    -------------------------------------------------------------------------
    Balance at end of period          145.9  $     143      143.8  $     127
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the first quarter, 0.8 million options were granted under the stock
    option plan. Year-to-date, cost of sales include $1 million related to
    stock based compensation expense.

    Summary of accumulated other comprehensive income movements:

                                                            9 mos     12 mos
                                                            ended      ended
                                                           Sep 29,    Dec 31,
    (US$ millions)                                           2007       2006
    -------------------------------------------------------------------------
    Balance at beginning of period                      $       -  $       -
    Adoption of new accounting recommendations (note 2)         2         (8)
    Other comprehensive income                                  5         10
    -------------------------------------------------------------------------
    Balance at end of period                            $       7  $       2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 6 - Earnings per Common Share
    ----------------------------------
    Earnings per common share are calculated as follows:

    (US$ millions, except
     per share information,               3rd Qtr  3rd Qtr    9 mos    9 mos
     unless otherwise noted)                 2007     2006     2007     2006
    -------------------------------------------------------------------------

    Earnings available to common
     shareholders                         $    (1) $     7  $   (32) $    98
                                         ------------------------------------
                                         ------------------------------------

    Common shares (millions):
    Weighted average number of
     common shares outstanding              145.2    142.9    144.5    143.5
      Stock options                           0.2      0.4      0.2      0.6
                                         ------------------------------------
      Diluted number of common shares       145.4    143.3    144.7    144.1
                                         ------------------------------------
                                         ------------------------------------

    Earnings per common share:
      Basic                               $  0.00  $  0.05  $ (0.22) $  0.68
      Diluted                             $  0.00  $  0.05  $ (0.22) $  0.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Stock options issued under the Company's stock option plan were included
    in the calculation of diluted number of common shares to the extent the
    exercise price of those options was less than the average market price of
    the Company's common shares during the period.

    Note 7 - Income Tax
    -------------------
    Interim income tax is calculated based on expected annual effective
    tax rates.

                                          3rd Qtr  3rd Qtr    9 mos    9 mos
    (US$ millions)                           2007     2006     2007     2006
    -------------------------------------------------------------------------
    (expense) recovery

    Current income tax                    $     4  $    15  $     3  $   (16)
    Future income tax                          (3)     (13)      16      (22)
    -------------------------------------------------------------------------
    Income tax                            $     1  $     2  $    19  $   (38)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 8 - Supplemental Cash Flow Information
    -------------------------------------------
    Other investing activities comprises:

                                          3rd Qtr  3rd Qtr    9 mos    9 mos
    (US$ millions)                           2007     2006     2007     2006
    -------------------------------------------------------------------------

    Cash provided by (used for):
      Recouponing payment, net (note 10)  $     -  $     -  $   (17) $     -
      Realized net investment hedge
       gains (losses) (note 10)                (1)       -       (2) $    (7)
      Other                                     -       (4)      (1)       4
    -------------------------------------------------------------------------
                                          $    (1) $    (4) $   (20) $    (3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Note 9 - Related Party Transactions
    -----------------------------------
    The Company's major shareholder has various interests over which it has
    control or otherwise has significant influence (a "related company" or
    collectively "related companies").

    During the quarter, the Company provided certain administrative services
    to a related company which was charged on a cost recovery basis. In
    addition, the Company periodically engages the services of related
    companies for various financial, real estate and other business advisory
    services. The total fees for the above noted services were less than
    $1 million in the quarter, and were charged at market rates.

    Note 10 - Commitments and Contingencies
    ---------------------------------------
    Foreign Exchange Hedges
    -----------------------
    The Company has outstanding forward foreign exchange contracts of
    pnds stlg 6 million (2006 - pnds stlg 6 million) and euro 79 million
    (2006 - euro 58 million) and cross-currency swaps of pnds stlg
    125 million (2006 - pnds stlg 125 million), which are designated as
    hedges against its net investments in Europe. Year-to-date, the Company
    realized a loss of $2 million (2006 - loss of $7 million) on its matured
    net investment hedges, and at period end, the Company had an unrealized
    loss of $21 million (2006 - loss of $19 million) on its outstanding net
    investment hedges. In addition, during the second quarter, the Company
    paid $19 million, and during the first quarter received $2 million to
    recoupon its cross-currency swaps. Realized and unrealized losses are
    offset by realized and unrealized gains on the net investments being
    hedged.

    In addition, at period end, the Company has outstanding forward foreign
    exchange contracts of CAD $51 million (2006 - CAD $15 million), which
    serve to hedge certain Canadian dollar-denominated monetary liabilities.
    Year-to-date, the Company realized a gain of $4 million (2006 - nil) on
    its matured monetary liability hedges, and at period end, the Company had
    an unrealized gain of $2 million (2006 - nil) on these outstanding
    hedges. Realized and unrealized gains, if any, are offset by realized and
    unrealized losses on the monetary liabilities being hedged.

    The Company has entered into forward foreign exchange contracts of
    CAD$10 million, which are designated as a hedge of future Canadian
    dollar-denominated net costs. At period end, the Company had an
    unrealized gain of nil (2006 - nil) on the outstanding hedges.

    Class Action Lawsuit
    --------------------
    Norbord and eight other North American OSB producers have been named as
    defendants in several lawsuits filed in the US District Court for the
    Eastern District of Pennsylvania. The lawsuits allege that these nine
    North American OSB producers violated US and various state antitrust and
    other laws by allegedly agreeing to fix prices and reduce the supply of
    OSB from June 1, 2002 through the present.

    During the quarter, the district court certified a class of persons and
    entities that purchased OSB in the US directly from any of the named
    North American OSB producers between June 1, 2002 and the present. This
    class is seeking injunctive relief and damages under US federal antitrust
    law. The district court also certified a class of persons and entities
    who, as end users, indirectly purchased for their own use and not for
    resale, new OSB manufactured and sold by one or more of the named North
    American OSB producers between June 1, 2002 and the present. This class
    is seeking injunctive relief under US federal antitrust law.

    The district court is still considering the extent to which it will
    certify classes of indirect purchasers for purposes of pursuing claims
    under state laws. As of October 23, 2007, the district court has
    certified for purposes of pursuing claims under state laws a class
    consisting of persons and entities residing in eleven states who, as end
    users, indirectly purchased for their own use, and not for resale, new
    OSB manufactured and sold by one or more of the named North American OSB
    producers between June 1, 2002 and the present. This class is seeking
    damages, injunctive, and other relief under state laws.

    Norbord believes that the lawsuits are entirely without merit and intends
    to defend this matter vigorously.

    Note 11 - 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.

    
    (US$ millions)
    -------------------------------------------------------------------------
                                      North                    Un-
    3rd Qtr 2007                    America     Europe  allocated      Total
    -------------------------------------------------------------------------

    Net sales                     $     154  $     138  $       -  $     292
    EBITDA(1)                             3         29         (2)        30
    Depreciation                          9          9          1         19
    Property, plant and equipment       701        276          4        981
    Capital investments                   3          5          -          8

    3rd Qtr 2006
    -------------------------------------------------------------------------

    Net sales                     $     180  $     111  $       -  $     291
    EBITDA(1)                            31         13         (9)        35
    Depreciation                         15          8          -         23
    Property, plant and equipment       720        263          4        987
    Capital investments                  33          6          -         39

    9 mos 2007
    -------------------------------------------------------------------------

    Net sales                     $     444  $     397  $       -  $     841
    EBITDA(1)                            (7)        73        (15)        51
    Depreciation                         42         27          1         70
    Property, plant and equipment       701        276          4        981
    Capital investments                  18         11          -         29

    9 mos 2006
    -------------------------------------------------------------------------

    Net sales                     $     671  $     322  $       -  $     993
    EBITDA(1)                           215         25        (15)       225
    Depreciation                         44         25          1         70
    Property, plant and equipment       720        263          4        987
    Capital investments                 106         10          -        116
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) EBITDA is earnings before interest, income tax and depreciation.
    





For further information:

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


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