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Press release from CNW Group


Friday, January 28, 2011

NORBORD REPORTS STRONGER 2010 RESULTS; GENERATES POSITIVE EARNINGS ON IMPROVED EBITDA06:00 EST Friday, January 28, 2011Note:  Financial references in US dollars unless otherwise indicatedHIGHLIGHTSAchieved positive EBITDA of $105 million vs. break-even in 2009European EBITDA more than doubled from $17 million in 2009 to $36 million Ramped up North American OSB production in improved pricing environmentNorth Central benchmark OSB price increased 34% vs. the prior year to levels not seen since 2006 Indicative European OSB price increased 25% from 2009Employee days lost due to injury down 80%, a best-ever resultTORONTO, Jan. 28, 2011 /CNW/ - Norbord Inc. (TSX: NBD, NBD.WT) today reported positive EBITDA of $105 million versus break-even EBITDA in 2009.  The year-over-year improvement is due largely to higher North American OSB and European panel prices and higher shipment volumes.  North American OSB generated a year-over-year EBITDA improvement of $90 million driven by strong second quarter results, while Norbord's European panel operations generated a $19 million year-over-year EBITDA improvement.  In the fourth quarter, Norbord recorded positive EBITDA of $13 million versus $12 million in the previous quarter and $6 million in the fourth quarter of 2009.Norbord recorded earnings of $17 million or $0.39 per share (basic) for the full year versus a loss of $58 million or $1.35 per share in 2009.  The Company recorded a loss of $2 million or $0.05 per share in the fourth quarter, excluding the impact of a $6 million after-tax or $0.14 per share non-cash write-down of its investment in a non-core business.  In the fourth quarter of 2009, the Company incurred a loss of $11 million or $0.25 per share. "Our 2010 results exceeded our expectations," said Barrie Shineton, President and CEO.  "In North America, our customer and product strategy enabled us to run more capacity and to benefit from a stronger pricing environment throughout the year.  In Europe, our EBITDA more than doubled on the back of particularly robust OSB markets. While I'm pleased that Norbord generated positive annual earnings for our shareholders this year, we recognize that we still have a long way to go before our financial performance is back to acceptable levels.""We expect the overall business environment in 2011 to generally mirror Norbord's experience in the past year. We are seeing the beginnings of a slow recovery for the US housing market, which should start taking hold in the second half of the year. Norbord will be well-positioned to generate stronger results once that occurs."Market ConditionsUS housing starts were 0.59 million in 2010, up modestly from 0.55 million in 2009, but significantly below the long-term annual average of 1.5 million. For the full year, the North Central benchmark OSB price averaged $219 per Msf (7⁄16-inch basis) compared to $163 per Msf in 2009.  In the South East region, where approximately 55% of Norbord's North American OSB capacity is located, prices were somewhat lower than in the North Central region, averaging $198 per Msf, compared to $148 per Msf last year. In the fourth quarter, North Central benchmark OSB prices averaged $191, up $11 from the third quarter and up $19 from the fourth quarter of 2009.  South East prices averaged $165 in the quarter, up $9 from the third quarter and up $11 from the fourth quarter of 2009. In 2010, the US housing market remained challenging while OSB demand and prices continued to be volatile.  The first half of the year saw surging North Central benchmark OSB prices that peaked at $395 per Msf in May before retreating to more sustainable levels in the second half of the year.  The first-half price run-up was largely influenced by several unique factors that resulted in overall demand outstripping the ability of both producers and distributors to respond in a timely manner.  Second-half housing activity was softer as the May expiry of the US first-time home buyer tax credit pulled home buying demand forward into the first half of the year.In the UK, where the majority of Norbord's European assets are located, housing starts increased by 30% over 2009 as house builders replenished their inventories of new homes. The European OSB market was particularly robust in 2010, building on the recovery that began at the end of 2009.  The 25% year-over-year increase in average indicative OSB prices was driven by firmer end-use demand, inventory re-stocking and substitution for plywood.  Particleboard and MDF prices also strengthened during the year, increasing a more modest 5% and 6%, respectively, reflecting the recovery of higher input costs. MDF exports to Continental Europe increased by 46%.Although the Euro weakened somewhat during the year versus the Pound Sterling, the currency remained in a range that continued to benefit Norbord's UK-based operations. PerformanceNorbord's operating North American OSB mills ran at approximately 90% of their capacity in 2010 compared to 80% in 2009.  Including the indefinitely closed mills, North American operations ran at 70% of capacity in 2010, compared to 60% in 2009.  In Europe, mills operated at approximately 95% of capacity in 2010, up 15% from the previous year.For the full year, Norbord's North American per unit OSB cash production costs increased 8% over the prior year. The benefit of higher production volume was offset by higher resin and fibre prices, higher supplies and maintenance costs as a result of running more production in 2010, employee profit share payouts, and the foreign exchange impact of the strengthening Canadian dollar. In the fourth quarter, North American per unit OSB cash production costs decreased by 1% over the third quarter of 2010 due to higher production volume and lower key input prices and usages.  OSB cash production costs increased by 3% over the fourth quarter of 2009 as improved key input usages and higher production volume were offset by higher resin and fibre prices, supplies and maintenance costs.Resin, fibre and energy, which account for approximately 65% of Norbord's cash production costs, increased sharply over the five-year period preceding 2009.  Margin Improvement Program gains of $16 million in 2010 limited the impact that higher raw material prices had on earnings.At year-end, Norbord had unutilized liquidity of $348 million, comprising $235 million in undrawn revolving bank lines and $113 million in cash and cash equivalents.  The Company's tangible net worth was $352 million and net debt to total capitalization on a book basis was 49%. Capital investments were constrained to essential capital projects totaling $16 million in 2010.  Norbord's 2011 capital investments are planned at $25 million, which includes an infrastructure investment at the Cowie, Scotland particleboard mill that is expected to increase production capacity and reduce manufacturing costs. DevelopmentsIn January 2011, True North Hardwood Plywood Inc. announced the winding-down of its hardwood plywood operation in Cochrane, Ontario.  In the fourth quarter, Norbord recorded a $6 million after-tax ($0.14 per share) non-cash provision for its 50% investment in this business.Additional InformationNorbord's year-end 2010 letter to shareholders, news release, management's discussion & analysis, annual consolidated audited financial statements and notes to the financial statements have been filed on SEDAR ( and are available in the investor section of the Company's website at  Shareholders are encouraged to read this material.Conference CallNorbord will hold a conference call for analysts and institutional investors on Friday, January 28, 2011 at 11:00 a.m. ET. The call will be broadcast live over the Internet via and  A replay number will be available approximately one hour after completion of the call and will be accessible until February 28, 2011 by dialing 1-888-203-1112 or 647-436-0148. The passcode is 6532094. Audio playback and a written transcript will be available on the Norbord website.Norbord ProfileNorbord Inc. is an international producer of wood-based panels with assets of $1.0 billion, employing approximately 2,030 people at 13 plant locations in the United States, Europe and Canada. Norbord is one of the world's largest producers of oriented strand board (OSB). In addition to OSB, Norbord manufactures particleboard, medium density fibreboard (MDF) and related value-added products. Norbord is a publicly traded company listed on the Toronto Stock Exchange under the symbols NBD and NBD.WT.This news release contains forward-looking statements, as defined in applicable legislation, including statements related to our strategy, projects, plans, future financial or operating performance and other statements that express management's expectations or estimates of future performance. Often, but not always, words such as "expect," "should," "will," "will not," "forecasts," "suggest," "expects," "may," and other expressions which are predictions of or indicate future events, trends or prospects and which do not relate to historical matters identify forward-looking statements.  Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.Although Norbord believes it has a reasonable basis for making these forward-looking statements, readers are cautioned not to place undue reliance on such forward-looking information.  By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predictions, forecasts and other forward-looking statements will not occur.  Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include:  general economic conditions; risks inherent with product concentration; effects of competition and product pricing pressures; risks inherent with customer dependence; effects of variations in the price and availability of manufacturing inputs; risks inherent with a capital intensive industry; and other risks and factors described from time to time in filings with Canadian securities regulatory authorities.Except as required by applicable laws, Norbord does not undertake to update any forward-looking statements, whether as a result of new information, future events or otherwise, or to publicly update or revise the above list of factors affecting this information.  See the "Caution Regarding Forward-Looking Information" statement in the March 1, 2010 Annual Information Form and the cautionary statement contained in the "Forward-Looking Statements" section of the 2010 Management's Discussion and Analysis dated January 28, 2011.January 28, 2011To our Shareholders,I am pleased to report our first positive earnings since 2006.  Norbord generated earnings of $0.39 per share on EBITDA of $105 million in 2010, a meaningful improvement on the breakeven result of the prior year.  This reflects much stronger performance from our European business, better OSB prices in North America and higher capacity utilization across all of the Company's operations.After a slower start in the first quarter, 2010 turned out to be a much better year for Norbord.  North American OSB prices improved, particularly in the second quarter when they peaked at almost $400.  Panel demand was stronger allowing our North American mills to operate more of their capacity and our European mills to run flat out.  Our European operations had an excellent year, generating more than double the cash flow of last year.  And we continued to tightly manage working capital, finishing the year at our lowest-ever level.I believe the worst is behind us.  Today, we have a strong balance sheet, we are cash flow positive and have successfully managed through the toughest downturn in our industry's history. Our share price has recovered significantly over the last two years, but it still values Norbord's assets well below their replacement cost.  We have put in place a normal course issuer bid that allows us to buy back up to 5% of our outstanding common shares, a sound investment should our cash flow support it.Norbord's House is in OrderOur balance sheet is solid.  Our efforts over the past three years to stabilize our finances are largely complete.  We extended our bank lines, added a seventh lender and put in place a more flexible accounts receivable securitization program.  Today, we have unutilized bank lines and cash on hand totalling $348 million, which is sufficient liquidity to support our operating initiatives and fund our capital allocation priorities.Our focus as a low-cost OSB producer is sharper.  We have continued to streamline our North American operations by exiting non-core businesses.  We sold our Deposit MDF mill late in 2009 and we wrote down our investment in the Cochrane hardwood plywood joint venture at year-end.  Today, our North American operations consist solely of high-quality, well-located OSB facilities.Continuous improvement drives productivity and margin gains.  In 2010, we implemented new resin technology across all of our North American OSB operations. We expect the full benefit of this margin improvement initiative to flow through to our 2011 results through faster line operating speeds, higher sales margins and a richer value-added product mix.  Initial feedback from customers suggests that these changes have been well received in the market.Diversified sales minimize exposure to cyclical new home construction.  Today, almost two-thirds of Norbord's North American OSB is directed to home improvement centres and industrial customers and away from the new home construction sector.  This diversification strategy has served us well through the downturn, allowing Norbord to operate 70% of its OSB capacity in 2010, compared to the industry-wide operating rate of about 60%.The time is right to re-invest.  We appropriately constrained capital investments to minimal levels for the last three years.  Now, our improving cash flows and more positive near-term outlook support a modest ramp up in capital spending.  A significant project to upgrade our European particleboard assets will be complete by mid-2011, enabling Norbord to reposition its product offering and compete on an equal footing with the newest generation of particleboard capacity.We are closer to our goal of world-class safety performance.  Last year, Norbord achieved a best-ever safety incident rate of 0.96.  This year, our days lost due to injury - an important injury severity measure - decreased by 80% to just 82 days across the entire company, another best-ever result.  Our Guntown, Cordele and Nacogdoches mills achieved Safety Star certifications, a program based on OSHA's Voluntary Protection Program (VPP).  Four more of our facilities will meet this rigorous safety standard in 2011.  And both our Cordele and Nacogdoches mills completed their second calendar year without a single recordable injury, an exceptional, industry-leading achievement.Proactive succession planning further strengthens our management team.  In September, we promoted Peter Wijnbergen to the newly-created position of Chief Operating Officer with responsibility for our North American operations.  As well, Nigel Banks joined our team in November as a successor to Bob Kinnear who will retire from his role as Senior Vice President, Corporate Services this year.  Both these appointments ensure organizational continuity as we execute on our strategic priorities.Outlook for 2011The housing market in North America is improving, but slowly.  Experts are not yet predicting a sharp rebound in housing starts and more recently have adjusted their forecasts down, closer to 2010 levels.  We expect that overall OSB demand in 2011 will look very similar to last year.  Good working capital practices are keeping inventories low across the supply chain.  Small changes in either supply or demand are likely to result in ongoing price volatility.  It's my view that the general economic news will improve and unemployment levels will fall throughout this year, leading to better new home construction activity and improving OSB demand and prices in the second half.In Europe, the bull market for OSB peaked late in 2010.  However, prices are holding and we expect this positive panel market dynamic to continue well into this year. A favourable exchange rate continues to support our UK-based manufacturing by limiting competing imports and providing a unique opportunity to export our panels to the Continent.  We expect to run our European mills at capacity in 2011.There are some industry developments that we are watching closely.  In North America, the broader economic recovery could drive higher raw material prices that may be difficult to pass on should the housing recovery lag. In Europe, government biomass energy incentive programs could put further pressure on wood fibre prices.  We will continue to 'push the envelope' on controllable costs to mitigate this potential input cost risk.Norbord is Well-PositionedThe recovery phase of this housing cycle is approaching and Norbord will enter it a stronger company.  We have high-quality, low-cost facilities that are running at relatively higher operating rates.  We have strong customer partnerships. We have continued to grow our sales with key customers throughout the cyclical downturn.  Our European operations are providing meaningful and stable earnings.  The long-term fundamentals supporting housing demand are favourable. Norbord is well-positioned to generate superior returns once the recovery takes hold.On behalf of everyone at Norbord, I thank you for your continued support.  I look forward to reporting on our progress throughout the year.(signed)J. Barrie ShinetonThis letter includes forward-looking statements, as defined by applicable securities legislation including statements related to our strategy, projects, plans, future financial or operating performance and other statements that express management's expectations or estimates of future performance.  Often, but not always, forward-looking statements can be identified by the use of words such as "believe," "should," "expect," "suggest," "likely," "would," or variations of such words and phrases or statements that certain actions "may," "could," "must," "would," "might," or "will" be undertaken, occur or be achieved.  Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievement expressed or implied by the forward-looking statements.  See the cautionary language in the Forward-Looking Statements section of the 2010 Management's Discussion and Analysis dated January 28, 2011.JANUARY 28, 2011Management'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 judgements. 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 28, 2011(signed)J. BARRIE SHINETON President and Chief Executive Officer (signed)ROBIN E. LAMPARDSenior Vice President and Chief Financial OfficerIndependent Auditors' ReportTo the Shareholders of Norbord Inc.We have audited the accompanying consolidated financial statements of Norbord Inc., which comprise the consolidated balance sheets as at December 31, 2010 and December 31, 2009, the consolidated statements of earnings, changes in shareholders' equity and comprehensive income, and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.Management's Responsibility for the ConsolidatedFinancial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.Auditors' ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidatedfinancial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidatedfinancial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidatedfinancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinions. OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Norbord Inc. as at December 31, 2010 and December 31, 2009, and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.(signed)KPMG LLPChartered Accountants, Licensed Public AccountantsJanuary 27, 2011Toronto, OntarioConsolidated Statements of Earnings    Years Ended December 31 (US $ millions, except per share information)20102009Net sales$892$718Earnings before interest, income tax, depreciation, provision for  non-core operation, and foreign exchange loss105-Interest expense (notes 3 and 7)(34)(36)Provision for non-core operation (note 11)(6)(4)Foreign exchange loss-(3)Earnings before income tax and depreciation65(43)Depreciation(45)(48)Income tax (note 12)(3)           33Earnings$17$(58)Earnings per common share (note 10)   Basic$0.39$(1.35) Diluted0.38(1.35)(See accompanying notes)Consolidated Statements of Cash Flows    Years Ended December 31 (US $ millions)20102009CASH PROVIDED BY (USED FOR):  Operating Activities  Earnings$17$(58)Items not affecting cash   Depreciation4548 Future income taxes (note 12)322Other items (note 13)59 7021Net change in non-cash operating working capital balances (note 13)8(11)Net change in tax receivable52(45) 130(35)Investing Activities  Investment in property, plant and equipment(16)(14)Realized net investment hedge gain (loss) (note 16)6(2)Other(1)3 (11)(13)Financing Activities  Revolving bank lines repaid (note 7)(27)(29)Debt issue costs (note 7)(2)(5)Issue of common shares, net (note 9)297Issue of warrants, net (note 9)-21Brookfield debt facility repaid-(35) (27)49Cash and Cash Equivalents  Increase921Balance, beginning of year2120Balance, end of year (note 13)$113$21(See accompanying notes) Consolidated Balance Sheets    As at December 31 (US $ millions)20102009Assets  Current assets   Cash and cash equivalents (note 13)$113$21 Accounts receivable (note 3)3027 Tax receivable (note 12)657 Inventory (note 4)7971 228176Property, plant and equipment (note 5)821860Other assets (note 6)137 $1,062$1,043Liabilities and Shareholders' Equity  Current liabilities   Accounts payable and accrued liabilities$166$140   Long-term debt (note 7)443471Other liabilities (note 8)79Future income taxes (note 12)9489Shareholders' equity (note 9)352334 $1,062$1,043(See accompanying notes) On behalf of the Board:(signed)ROBERT J. HARDINGChair(signed)J. BARRIE SHINETONPresident and Chief Executive Officer  Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income (Loss)    Years Ended December 31 (US $ millions)20102009CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY  Share Capital  Balance, beginning of year$335$238Issue of common shares, net (note 9)597Balance, end of year340335Contributed Surplus  Balance, beginning of year3917Issue of warrants, net (note 9)-21Stock-based compensation (note 9)11Balance, end of year4039Retained Earnings  Balance, beginning of year(32)26Earnings17(58)Balance, end of year(15)(32)Accumulated Other Comprehensive Income (Loss)   Balance, beginning of year(8) (13)Other comprehensive income (loss)(5)5Balance, end of year(13)(8)Shareholders' equity$352 $334CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)  Earnings$17$(58)Other comprehensive income (loss)   Foreign currency translation(3)- Future income taxes(2)5Comprehensive income (loss)$12$(53)(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 PresentationThe consolidated financial statements include the accounts of the Company and all of its subsidiaries.Use of EstimatesThe 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 EquivalentsCash 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.InventoriesInventories 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, an allocation of overhead and depreciation.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. 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 these assets over their useful lives. 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 BenefitsNorbord 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 benefit 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 long-term expected rate of return on plan assets, salary escalation, life expectancy 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, which is known as the "corridor" method.Financial InstrumentsThe 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 values 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 is based on 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, indicative prices based on similar publicly-traded instruments.Debt Issue CostsThe 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 on a straight-line basis over the term of the related long-term debt.Income TaxesThe 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 OptionsThe 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.WarrantsThe 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 RecognitionNet 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 CurrenciesThese consolidated financial statements are presented in US dollars, which is the Company's functional currency. The accounts of self-sustaining subsidiaries that have 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 of integrated operations 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. FUTURE CHANGES IN ACCOUNTING POLICIESInternational Financial Reporting StandardsIn 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. The Company will adopt IFRS for the year ending December 31, 2011.Business CombinationsIn January 2009, the Canadian Institute of Chartered Accountants (CICA) issued Handbook Section 1582, Business Combinations, which requires that all assets and liabilities of an acquired business be recorded at fair value at the acquisition date. Obligations for contingent consideration 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 after January 1, 2011. The Company will apply this new standard at the time of any applicable acquisitions.Consolidations and Non-Controlling InterestsIn 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 the 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 does not expect these new standards to have any impact on the financial statements.NOTE 3. ACCOUNTS RECEIVABLEIn June 2010, the Company entered into an $85 million accounts receivable securitization program to sell its receivables to a third-party trust, sponsored by a highly rated Canadian financial institution, to replace the preceding program. The program has an evergreen commitment that is subject to termination on 12 months' notice. Under the program, Norbord has transferred substantially all of its present and future trade accounts receivable to the trust, on a fully serviced basis, for proceeds consisting of cash and deferred purchase price.At December 31, 2010, Norbord recorded cash proceeds of $60 million (2009 - $62 million) relating to this program. The utilization charge, which is based on money market rates plus a margin, and other program fees are recorded as interest expense. In 2010, the utilization charge and program fees included in interest expense totalled $1 million (2009 - $2 million).The securitization program contains no financial covenants; however, the program is subject to minimum credit-rating requirements. The Company must maintain a long-term issuer credit rating of at least single B(mid) or the equivalent. As at January 28, 2011, Norbord's ratings were BB(low) (Dominion Bond Rating Service), BB- (Standard & Poor's Ratings Services) and Ba3 (Moody's Investors Service).NOTE 4. INVENTORY            (US $ millions)    2010    2009Raw materials    $18    $13Finished goods    38    33Operating and maintenance supplies    23    25     $79    $71As at December 31, 2010, the provision to reflect inventories at the lower of cost and net realizable value was less than $1 million (2009 - $1 million).The amount of inventory recognized as an expense during the year was:          (US $ millions)   2010    2009Cost of inventories   $743    $680Depreciation on property, plant and equipment   45    47    $788    $727NOTE 5. PROPERTY, PLANT AND EQUIPMENT                  (US $ millions)     2010  2009   Cost Accumulated Depreciation  Net BookValue  Cost AccumulatedDepreciation  Net Book ValueLand  $11 $ -  $11  $12 $ -  $12Buildings  232 121  111  236 116  120Production equipment  1,460 761  699  1,495 767  728   $1,703 $882  $821  $1,743 $883  $860NOTE 6. OTHER ASSETS          (US $ millions)   2010   2009Unrealized interest rate swap gains (note 16)   $5   $4Unrealized net investment hedge gains (note 16)   3   2Unrealized monetary hedge gains (note 16)   2   -Other   3   1    $13   $7The unrealized interest rate swap gains, unrealized net investment hedge gains and unrealized monetary hedge gains are offset by unrealized losses on the underlying exposures being hedged.NOTE 7. LONG-TERM DEBT         (US $ millions)   2010   2009Principal Value        71⁄4% debentures due 2012   $240   $240Senior notes due 2017   200   200Revolving bank lines   -   27    440   467Debt issue costs   (5)   (6)Deferred interest rate swap gains   3   6Unrealized interest rate swap gains (note 6)   5   4    $443   $471Maturities of long-term debt are as follows:                  (US $ millions)  2011  2012  2013  2014 Thereafter  TotalMaturities of long-term debt  $-  $240  $-  $- $200  $440As at December 31, 2010, the effective interest rate on the Company's debt-related obligations, including the impact of the interest rate swaps, was 6.2% (2009 - 6.1%). Interest expense on long-term debt for the year, including the impact of interest rate swaps, was $32 million (2009 - $34 million). Total interest paid during the year was $32 million (2009 - $34 million).Senior Notes Due in 2017The Company's senior notes, due in 2017, bear an interest rate that varies with the Company's credit ratings. As at December 31, 2010, the interest rate was 7.95% (2009 - 7.95%). The average interest rate in 2010 was 7.95% (2009 - 7.95%).Revolving Bank LinesIn July 2010, the Company increased its committed revolving bank lines from $205 million to $245 million and extended the maturity from May 2011 to May 2013. The bank lines bear interest at money market rates plus a margin that varies with the Company's credit rating. The bank lines are secured by a first lien on the Company's North American oriented strand board (OSB) inventory and property, plant and equipment. This lien is shared pari passu with holders of the 2012 debentures and 2017 senior notes. As at December 31, 2010, none of the revolving bank lines was drawn as cash, $10 million was utilized for letters of credit and $235 million was available to support short-term liquidity requirements.The bank lines contain two quarterly financial covenants: minimum tangible net worth of $250 million and maximum net debt to total capitalization on a book basis of 65%. Effective January 1, 2011, the maximum net debt to total capitalization on a book basis covenant was reduced to 60%. Net debt includes total debt less cash and cash equivalents plus letters of credit issued. As at December 31, 2010, the Company's tangible net worth was $352 million and net debt for financial covenant purposes was $337 million (note 15). Net debt to total capitalization on a book basis was 49%.Brookfield Debt FacilityConcurrent with the amendments made to the revolving bank lines described above, the Company cancelled the $50 million Brookfield debt facility, which was undrawn. The facility bore interest equal to the greater of 8% or US base rate plus ½%, and was subordinated to the revolving bank lines. Any drawings under the facility were treated as tangible net worth for financial covenant purposes. The standby fee on the facility was less than $1 million in 2010 (2009 - less than $1 million).Debt Issue CostsIn 2010, debt issue costs of $2 million (2009 - $5 million), related to the renegotiation of the revolving bank lines, were paid. Amortization expense related to debt issue costs for 2010 was $3 million (2009 - $3 million).Interest Rate SwapsAs at December 31, 2010, the Company had outstanding interest rate swaps of $115 million (2009 - $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.NOTE 8. OTHER LIABILITIES          (US $ millions)   2010   2009Accrued employee benefits   $6   $6Other   1   3    $7   $9NOTE 9. SHAREHOLDERS' EQUITYShare Capital          2010  2009   Shares(millions)  Amount (US $ millions)  Shares(millions)  Amount(US $millions)Common shares outstanding, beginning of year  43.2  $335  26.9  $238Issue of common shares, net  0.3  5  16.3  97Common shares outstanding, end of year  43.5  $340  43.2  $335As at December 31, 2010, 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.In January 2009, pursuant to a Standby Purchase Agreement entered into in connection with a Rights Offering filed in November 2008, Brookfield completed the standby commitment through which it purchased an additional 16.3 million common shares and warrants, entitling it to purchase 8.1 million common shares for net proceeds of $118 million.Contributed SurplusContributed surplus comprises transactions on account of the warrants issued by Norbord and stock options issued under the Company's stock option plan.Warrants                    2010     2009   Warrants(millions)  Amount (US $ millions)  Warrants(millions)  Amount(US $millions)Balance, beginning of year  136.3  $35  54.8  $14Issue of warrants  -  -  81.5  21Balance, end of year  136.3  $35  136.3  $35As at December 31, 2010, the Company had 136.3 million common share purchase warrants outstanding, entitling holders to purchase 13.6 million common shares, at a price of CAD $13.60 per share, at any time prior to December 24, 2013.Stock Options                 2010    2009   Options (millions) Weighted Average Exercise Price(CAD $)  Options(millions) WeightedAverageExercise Price(CAD $)Balance, beginning of year  1.3 $21.47  0.3 $73.70Options granted  0.5 18.10  1.0 6.50Options exercised  (0.3) 6.50  - -Balance, end of year  1.5 $23.73  1.3 $21.47Exercisable at year-end  0.3 $58.61  0.2 $68.19Under 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 10 years from the date of issue. In 2010, stock option expense of $1 million was recorded against contributed surplus (2009 - $1 million). 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, 2010:             OptionsOutstanding Options ExercisableRange of Exercise Prices (CAD $) Options Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price (CAD $) Options Weighted Average ExercisePrice (CAD $)$0.10 5,130 0.08 $0.10 5,130 $0.10$5.40-$6.50  667,518 8.00 6.49 67,518 6.36$8.40-$12.05 17,500 6.49 10.52 7,500 8.49$18.21 540,000 9.09 18.21 - -$38.30 22,450 3.07 38.30 22,450 38.30$60.90 90,630 7.10 60.90 36,252 60.90$87.30-$111.30 151,810 5.21 97.13 117,144 97.68  1,495,038 7.94 $23.73 255,994 $58.61NOTE 10. EARNINGS PER COMMON SHARE          (US $ millions, except per share information, unless otherwise noted)   2010   2009Earnings available to common shareholders   $17   $(58)Common shares (millions)         Weighted average number of common shares outstanding   43.4   42.9 Stock options(1)   0.4   - Warrants(1)   0.6   -Diluted number of common shares   44.4   42.9Earnings per common share         Basic   $0.39   $(1.35) Diluted   0.38   (1.35)(1) Applicable when there are positive earnings available to shareholders and when the weighted average share price for the year was greater than the exercise price for vested stock options and warrants.NOTE 11. PROVISION FOR NON-CORE OPERATIONIn 2010, the Company recorded a $6 million provision relating to its 50% investment in a hardwood plywood joint venture operation - True North Hardwood Plywood Inc. This operation was non-core and represented less than 1% of total assets.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 non-core medium density fibreboard (MDF) mill in Deposit, New York, for proceeds of $2 million.NOTE 12. INCOME TAXFuture 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 comprises the following:         (US $ millions)   2010   2009Current income tax   $-   $55Future income tax   (3)   (22)Income tax   $(3)   $33The differences between income taxes, computed using statutory tax rates and income tax as recorded, are as follows:         (US $ millions)   2010   2009Earnings before income tax   $20   $(91)Income tax at combined statutory rates   (6)   29Effect of:         Rate differences on foreign activities   1   39 Non-recognition of the benefit of current year's tax losses   6   (23) Foreign exchange gain   (1)   (8) Non-deductible permanent differences   (2)   (1) Other   (1)   (3)Income tax   $(3)   $33The income tax effects of temporary differences that give rise to future income taxes are as follows:         (US $ millions)   2010   2009Property, plant and equipment   $(161)   $(153)Benefit of tax loss carryforwards   86   87Investment tax credits   5   5Other future income tax assets   4   7    (66)   (54)Valuation allowance   (28)   (35)Future income taxes, net   $(94)   $(89)Comprised of:         Current future income tax asset   $-   $- Long-term future income tax liability   (94)   (89)    $(94)   $(89)Income and income-related tax refunds (net) received during the year totalled $52 million (2009 - $10 million).As at December 31, 2010, the Company had the following approximate tax attributes available to carry forward:            Amount  Latest Expiry YearTax loss carryforwards        United Kingdom   £6  Indefinite Belgium   €44  Indefinite Canada   CAD $57  2028 United States   US $133  2029Investment Tax Credits        Canada   CAD $6  2029The 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.NOTE 13. SUPPLEMENTAL CASH FLOW INFORMATIONOther items under operating activities comprise:         (US $ millions)   2010   2009Cash provided by (used for):         Amortization of deferred interest rate swap gains (note 7)   $(3)   $(2) Pension funding greater than pension expense (note 14)   (2)   (1) Provision for non-core operation (note 11)   6   4 Other   4   8    $5   $9The net change in non-cash operating working capital balance comprises:         (US $ millions)   2010   2009Cash provided by (used for):         Accounts receivable   $(7)   $(8) Inventory   (11)   9 Accounts payable and accrued liabilities   26   (12)    $8   $(11)Cash and cash equivalents comprise:         (US $ millions)   2010   2009Cash   $91   $8Cash equivalents   22   13    $113   $21NOTE 14. EMPLOYEE BENEFIT PLANSPension PlansNorbord 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. The most recent actuarial valuation was conducted as of December 31, 2009. Information about Norbord's defined benefit pension plans is as follows:       (US $ millions)  2010  2009Change in Accrued Benefit Obligation During the Year      Accrued benefit obligation, beginning of year  $69  $54 Current service cost  1  1 Interest on accrued benefit obligation  4  4 Benefits paid  (4)  (4) Net actuarial loss  10  6 Foreign currency exchange rate impact  4  8Accrued benefit obligation, end of year(1)  $84  $69Change in Plan Assets During the Year      Plan assets, beginning of year  $52  $40 Actual return on plan assets  4  7 Employer contributions  4  3 Benefits paid  (4)  (4) Foreign currency exchange rate impact  3  6Plan assets, end of year(1)  $59  $52Reconciliation of Funded Status      Accrued benefit obligation  $84  $69Plan assets  59  52Accrued benefit obligation in excess of plan assets  (25)  (17) Unamortized net actuarial loss  32  22 Unamortized net transitional asset  (4)  (4)Accrued benefit asset  $3  $1(1) All plans have accrued benefit obligations in excess of plan assets.       (US $ millions)  2010  2009Components of Net Periodic Pension Expense       Current service cost  $1  $1Interest on accrued benefit obligation  4  4Actual return on plan assets  (4)  (7)Net actuarial loss  10  6Difference between actual and expected return on plan assets  -  2Difference between actual and recognized net actuarial loss  (9)  (4)Net periodic pension expense  $2  $2Significant Weighted Average Actuarial Assumptions       Used in calculation of net periodic pension expense for the year       Discount rate  5.9%  6.4% Expected long-term rate of return on plan assets  7.7%  7.7% Rate of compensation increase  3.6%  3.6%Used in calculation of accrued benefit obligation, end of year       Discount rate  5.1%  5.9% 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)   2010   2009Asset category         Equity investments   61%   62% Fixed income investments   37%   38% Cash   2%   0%Total assets   100%   100%Operating costs include $5 million (2009 - $4 million) related to contributions to Norbord's defined contribution pension plans.NOTE 15. CAPITAL MANAGEMENTNorbord'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, it 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. Consistent with the treatment under the Company's financial covenants, letters of credit are included in net debt. Tangible net worth consists of shareholders' equity.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)   2010   2009Long-term debt, principal value   $440   $467Less: Cash and cash equivalents   (113)   (21)Net debt   327   446Add: Letters of credit   10   8Net debt for financial covenant purposes   337   454Shareholders' equity   352   334Tangible net worth   352   334Total capitalization   $689   $788Net debt to capitalization, book basis   49%   58%Net debt to capitalization, market basis   35%   48%The Company's committed revolving bank lines of $245 million 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 65%. Effective January 1, 2011, the maximum net debt to total capitalization on a book basis covenant was reduced to 60%. At year-end, the Company's tangible net worth was $352 million and net debt to total capitalization on a book basis was 49%.NOTE 16. FINANCIAL INSTRUMENTSNorbord has exposure to market, commodity price, interest rate, currency, 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 RiskNorbord 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 affects 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 RiskNorbord is exposed to commodity price risk on most of its manufacturing inputs, which are principally comprised of 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, 2010, Norbord has hedged approximately 40% of its 2011 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 10% of its 2011 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 RiskNorbord'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, $3 million in interest rate swap gains were deferred and included in the carrying value of long-term debt in the consolidated balance sheets (note 7). In 2010, amortization of $3 million (2009 - $2 million) was included in interest expense (note 13).Currency RiskNorbord's foreign exchange exposure arises from the following sources:Net investments in self-sustaining foreign operations, limited to Norbord's investment in its European operationsNet Canadian dollar-denominated monetary assets and liabilitiesCommitted or anticipated foreign currency-denominated transactions, primarily Canadian dollar costs in Norbord's Canadian operations and Euro revenues in Norbord's UK operationsThe 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 of 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 RiskNorbord 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, 2010, the provision for doubtful accounts was less than $1 million (2009 - $1 million). In 2010, Norbord had one customer 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 third party trust, sponsored by a highly rated Canadian financial institution, on a fully serviced basis, for proceeds consisting of cash and deferred purchase price. At December 31, 2010, Norbord recorded cash proceeds of $60 million (2009 - $62 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 approximate fair value, and the fair value of derivative financial assets.Liquidity RiskNorbord 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 $113 million in cash and cash equivalents and $235 million in unutilized committed revolving bank lines.Financial LiabilitiesThe following table summarizes the aggregate amount of contractual future cash outflows for the Company's financial liabilities:              Payments Due by Period(US $ millions) 2011 2012 2013 2014 ThereafterTotalPrincipal $ - $240 $ - $ - $200$440Interest 32 32 16 16 40136Long-term debt, including interest $32 $272 $16 $16 $240$576Non-Derivative Financial InstrumentsThe net book values and fair values of non-derivative financial instruments at year-end were as follows:                 2010   2009(US $ millions) Financial InstrumentClassification Net Book Value Fair Value Net BookValue FairValueFinancial assets           Cash and cash equivalents Held-for-trading $113 $113 $21 $21 Accounts receivable Loans and receivables 30 30 27 27    $143 $143 $48 $48Financial liabilities           Accounts payable and accrued liabilities Other liabilities $166 $166 $140 $140 Long-term debt Other liabilities 443 447 471 474    $609 $613 $611 $614Derivative Financial InstrumentsInformation about derivative financial instruments at year-end is as follows: 2010(US $ millions, unless otherwise noted) Notional ValueUnrealized Gain at PeriodEnd(1)Realized Gain for the Year Sensitivity to 1% ChangeCurrency hedges      Net investment       UK £47$2$2$1  Belgium €40141 Monetary position       Canadian dollar CAD $78211      Interest rate hedges      Interest rate swaps $1155-1 2009(US $ millions, unless otherwise noted) NotionalValueUnrealizedGain atPeriodEnd(1)RealizedGain (Loss)for the YearSensitivityto 1%ChangeCurrency hedges      Net investment       UK £56$1$8$1  Belgium €401(10)1 Monetary position       Canadian dollar CAD $9-2-      Interest rate hedges      Interest rate swaps $1154-1(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. NOTE 17. COMMITMENTS AND CONTINGENCIESTax ExposuresIn 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.In 2010, the Company concluded its discussions with tax authorities, regarding its transfer pricing methodology, with no material effect on the Company's results of operations or cash flows.OtherThe 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)  2011  2012  2013  2014 Thereafter  TotalPurchase obligations  $58  $46  $20  $5 $18  $147Operating leases  3  2  2  1 2  10   $61  $48  $22  $6 $20  $157NOTE 18. RELATED PARTY TRANSACTIONSIn 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.Secondary OfferingOn March 10, 2010, Brookfield and the Company entered into an agreement with a syndicate of investment dealers to complete a secondary offering of Norbord's common shares. Under the agreement, the syndicate purchased 9 million common shares at a price of CAD $16.70 per common share, for gross proceeds of CAD $150 million, on March 30, 2010. Brookfield offered 8.7 million shares and the Company's senior management offered 0.3 million shares. Upon completion of the secondary offering, Brookfield's ownership decreased to approximately 52% of common shares outstanding. Norbord did not receive any proceeds from the offering. Brookfield Debt Facility Concurrent with the amendments to the revolving bank lines (note 7), the Company cancelled the $50 million Brookfield debt facility, which was undrawn.Indemnity CommitmentAs at December 31, 2010, 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 sheets.OtherThe Company provides certain administrative services to Brookfield and its affiliates which are charged on a cost recovery basis. In addition, the Company periodically engages the services of Brookfield and its affiliates for various financial, real estate and other business advisory services. In 2010, the fees for these services were less than $1 million (2009 - less than $1 million) and were charged at market rates.NOTE 19. GEOGRAPHIC SEGMENTSThe 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.                     2010(US $ millions) North America  Europe Unallocated  TotalNet sales $541  $351 $-  $892 EBITDA(1) 82  36 (13)  105Depreciation 27  18 -  45Property, plant and equipment 647  173 1  821Investment in property, plant and equipment 9  7 -  16                                2009(US $ millions) North America  Europe Unallocated  TotalNet sales $406  $312 $-  $718EBITDA(1) (8)  17 (9)  -Depreciation 29  18 1  48Property, plant and equipment 665  193 2  860Investment in property, plant and equipment 12  2 -  14(1) EBITDA is earnings before interest, income tax, depreciation, provision for non-core operation and foreign exchange loss.For further information: Robin Lampard Senior Vice President & Chief Financial Officer Tel. (416)