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Press release from CNW Group

Norbord Reports Second Quarter 2011 Results

Friday, July 29, 2011

Norbord Reports Second Quarter 2011 Results06:00 EDT Friday, July 29, 2011Note: Financial references in US dollars unless otherwise indicated.  All prior period comparative figures have been restated for IFRS.Q2 2011 HIGHLIGHTSAchieved positive EBITDA of $10 millionEuropean operations generated positive EBITDA for 10th consecutive quarterNorth American OSB production costs declined 4% vs. the prior quarter due to improved productivity and raw material usagesCordele, Georgia recognized by APA as the industry's safest large mill for 2nd consecutive yearCowie, Scotland first European mill to achieve Norbord Safety Star certification TORONTO, July 29, 2011 /CNW/ - Norbord Inc. (TSX: NBD, NBD.WT) today reported positive EBITDA of $10 million in the second quarter of 2011 compared to $14 million in the first quarter of 2011 and $72 million in the second quarter of 2010.  North American operations generated break-even EBITDA this quarter versus $7 million in the prior quarter and $64 million in the same quarter last year.  European operations generated EBITDA of $13 million this quarter versus $11 million in the prior quarter and $10 million in the same quarter last year.Norbord recorded earnings of $1 million or $0.03 per share in the second quarter of 2011 compared to a loss of $2 million or $0.05 per share in the first quarter of 2011 and earnings of $33 million or $0.76 per share in the second quarter of 2010. Earnings in the second quarter of 2011 include a $7 million or $0.16 per share income tax recovery due to the recognition of a non-recurring income tax benefit."I am pleased with our positive EBITDA result in the second quarter, despite declining new home construction activity in the US and fragile North American OSB prices," said Barrie Shineton, President and CEO.  "Our European mills ran exceptionally well this quarter and generated positive EBITDA for the tenth consecutive quarter.  European panel markets remain strong and our UK-based business continues to benefit from a currency advantage that supports both domestic and export sales volume.  In North America, OSB cash production costs are declining due to improved productivity and lower raw material usages, all the direct result of our Margin Improvement Program initiatives.""I expect our European business to continue to deliver solid results for the remainder of the year. And while I am cautious about North American OSB prices in the face of declining US housing numbers in the second quarter, I am confident that Norbord's diversified customer base and limited exposure to new home construction will minimize the impact of this uncertain pricing environment."Market ConditionsIn North America, new home construction activity has continued to decline with housing starts 5% lower year-to-date compared to last year.  More importantly for the OSB industry, single family housing starts are down 17% versus last year.  North American OSB prices in the second quarter were significantly lower than the same quarter last year as the exceptional pricing environment of last year did not repeat itself. Benchmark OSB prices were also lower than the prior quarter as the typical seasonal price increase did not materialize.  North Central benchmark OSB prices averaged $173 per thousand square feet (Msf) (7⁄16-inch basis) this quarter compared to $198 per Msf in the prior quarter and $295 per Msf in the same quarter last year. Expert forecasts for US housing starts in 2011 are being revised down and now range from 0.55 and 0.60 million, even lower than last year and well below the 25-year historical average of 1.5 million.In Europe, panel markets continued to show strength and producers continued to increase prices to recover rising input costs.  Quarter-over-quarter, average particleboard, MDF and OSB prices increased by approximately 12%, 8% and 6%, respectively.  Year-over-year and year-to-date, average OSB, particleboard and MDF prices increased by an average of 15%.PerformanceIn North America, year-to-date OSB shipment volumes were consistent with the prior year despite curtailing 10% more capacity this year. Norbord's operating OSB mills continued to run at approximately 85% of their capacity this quarter.  Including the two indefinitely closed mills, the North American operations ran at approximately 65% of estimated capacity in the first and second quarters of 2011 compared to 75% in the second quarter of 2010.Norbord's North American OSB cash production costs per unit decreased by 4% versus the prior quarter and 1% versus the same quarter last year.  Higher productivity and lower raw material usages more than offset higher resin prices.In Europe, panel shipment volume remained consistent with the prior quarter, but is up approximately 20% year-to-date compared to last year.  Norbord's European mills ran full out except for three weeks of downtime related to the Cowie, Scotland particleboard mill upgrade.  The European mills produced at approximately 105% of estimated capacity in the first and second quarters of 2011, or 115% excluding the Cowie project downtime.  This compares to 100% in the second quarter of 2010.  The European EBITDA improvement year-to-date was driven by higher panel prices and shipment volumes and lower raw material usages, which outpaced higher raw material prices.Norbord's Margin Improvement Program (MIP) has realized $12 million in net gains year-to-date.  MIP contributions include improved production efficiencies and raw material usages as well as a richer sales mix and reduced overhead costs.  These savings have helped offset the negative impact of higher raw material input prices, higher maintenance costs and weaker North American OSB prices.Capital investments totaled $4 million in the second quarter of 2011 compared to $8 million in the prior quarter and $5 million in the second quarter of 2010.  Norbord's total 2011 capital investment is expected to be $25 million, which is modestly higher than last year.  This includes the Cowie particleboard mill upgrade that was completed on time and on budget during the second quarter, and will provide improved operating flexibility and reduced manufacturing costs.  The line restarted successfully and is already exceeding project expectations.The Company's operating working capital was consistent with the prior year.  Finished goods inventory remains at minimal levels and accounts receivable performance is in line with prior periods.  The Company's tangible net worth for financial covenant purposes was $352 million and net debt to total capitalization on a book basis was 51%.Additional InformationNorbord's Q2 2011 letter to shareholders, news release, management's discussion & analysis, consolidated unaudited financial statements and notes to the financial statements have been filed on SEDAR (www.sedar.com) and are available in the investor section of the Company's website at www.norbord.com.  Shareholders are encouraged to read this material.Conference CallNorbord will hold a conference call for analysts and institutional investors on Friday, July 29, 2011 at 1:00 p.m. ET. The call will be broadcast live over the Internet via www.norbord.com and www.newswire.ca.  A replay number will be available approximately one hour after completion of the call and will be accessible until August 29, 2011 by dialing 1-888-203-1112 or 647-436-0148. The passcode is 2274397. 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 billion, employing approximately 2,030 people at 13 plant locations in the United States, Europe and Canada. Norbord is one of the world's largest producers of oriented strand board (OSB). In addition to OSB, Norbord manufactures particleboard, medium density fibreboard (MDF) and related value-added products. Norbord is a publicly traded company listed on the Toronto Stock Exchange under the symbols NBD and NBD.WT.This news release contains forward-looking statements, as defined in applicable legislation, including statements related to our strategy, projects, plans, future financial or operating performance and other statements that express management's expectations or estimates of future performance. Often, but not always, words such as "expect," "should," "will," "will not," "forecasts," "suggest," "expects," "confident," "may," and other expressions which are predictions of or indicate future events, trends or prospects and which do not relate to historical matters identify forward-looking statements.  Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.Although Norbord believes it has a reasonable basis for making these forward-looking statements, readers are cautioned not to place undue reliance on such forward-looking information.  By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predictions, forecasts and other forward-looking statements will not occur.  Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include:  general economic conditions; risks inherent with product concentration; effects of competition and product pricing pressures; risks inherent with customer dependence; effects of variations in the price and availability of manufacturing inputs; risks inherent with a capital intensive industry; and other risks and factors described from time to time in filings with Canadian securities regulatory authorities.Except as required by applicable laws, Norbord does not undertake to update any forward-looking statements, whether as a result of new information, future events or otherwise, or to publicly update or revise the above list of factors affecting this information.  See the "Caution Regarding Forward-Looking Information" statement in the March 1, 2010 Annual Information Form and the cautionary statement contained in the "Forward-Looking Statements" section of the 2010 Management's Discussion and Analysis dated January 28, 2011 and Q2 2011 Management's Discussion and Analysis dated July 29, 2011.  July 29, 2011To our Shareholders,Norbord's second quarter EBITDA result of $10 million reflects both the continuing strong performance of our European operations and ongoing benefits from our expanded Margin Improvement Program (MIP).  While I am pleased the EBITDA result was positive, persistent weaker-than-expected OSB pricing in North America created a challenging operating quarter for the Company. In North America, disappointing housing starts and supply chain inventory reductions impacted demand and resulted in softer OSB prices in what usually is a seasonally strong quarter.  North Central benchmark OSB prices averaged $173/Msf in the second quarter, a significant drop from the exceptional pricing environment of the same period last year when prices averaged $295.  Fortunately, our diversified customer base continues to provide options for Norbord as orders from our home improvement, industrial and export customers all grew once again this quarter.Europe is a much more positive story.  Our European panels business performed well again this quarter, generating a first half EBITDA result that is almost double last year's.  Shipments were 10% higher this quarter and prices for all panel products were 12-15% stronger year-over-year.  Our UK-based mills continue to benefit from the weak Pound Sterling versus the Euro that both limits competing panel imports and allows us to expand exports to the Continent.  This opportunity has been particularly timely and has effectively offset a slowdown in non-construction panel sales in the UK.US housing continues to bounce along at cyclical lows without any immediate sign of improvement.  Housing starts have decreased 5% year-over-year and economists are now predicting 2011 numbers to be in the 550,000 to 600,000 range.  Persistent high unemployment, declining housing prices, foreclosures and tighter mortgage lending continue to be a drag on the market.  Until these structural impediments are worked through, any turnaround in new home construction will be limited.However, good things are happening at Norbord.  Our MIP initiatives are expected to generate more than $30 million in improvements this year.  Almost one-half of this ambitious target will come from the successful conversion to a new resin technology that we started implementing in mid-2010.  We are already seeing improved quarter-over-quarter manufacturing costs and a step change in daily production rates across all our North American OSB mills.  We also continue to find opportunities to direct sales away from new home construction and to new customers in the home repair and remodelling and industrial market segments.Our European mills continue to run at full capacity and panel shipments are up 20% year-to-date compared to last year.  A significant upgrade to our European particleboard facility in Scotland was completed on time and on budget in June.  We've had an excellent start-up and although it is still early days, the line is delivering material usage reductions and line speed improvements beyond our expectations.  These early results suggest that this project will easily exceed the justification criteria set out when it was approved. Looking ahead to the third quarter, I have a couple of concerns.  First, I am becoming increasingly cautious about any potential for improved North American OSB prices in the near term.  Although we have strong order files heading into Q3, the OSB market is likely to remain challenging in the face of unbalanced supply and the lagging pace of single family home construction.  Second, discretionary consumer spending in the UK has dropped sharply and is now affecting our do-it-yourself kitchen sales.  In response, we are moving quickly to reconfigure our South Molton manufacturing site to reduce overhead costs and balance production in light of what I believe is a structural change in demand for this product. While we face obvious short-term headwinds, I am still positive about the long-term outlook for our business.  New and innovative margin improvement initiatives are delivering gains that will continue to offset increases in raw material prices.  Inventory levels remain low and operating working capital will remain tightly managed, as always.  We have over $300 million in liquidity and debt markets continue to be open for business. Things will get better, the long-term fundamentals supporting a more robust housing market are favourable and Norbord will perform well alongside any meaningful housing recovery.I look forward to reporting on our progress next quarter.(signed) Barrie ShinetonThis letter includes forward-looking statements, as defined by applicable securities legislation including statements related to our strategy, projects, plans, margin improvements, future financial or operating performance and other statements that express management's expectations or estimates of future performance.  Often, but not always, forward-looking statements can be identified by the use of words such as "believe," "should," "expect," "suggest," "likely," "would," or variations of such words and phrases or statements that certain actions "may," "could," "must," "would," "might," or "will" be undertaken, occur or be achieved.  Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievement expressed or implied by the forward-looking statements. See the cautionary language in the Forward-Looking Statements section of the 2010 Management's Discussion and Analysis dated January 28, 2011 and Q2 2011 Management's Discussion and Analysis dated July 29, 2011. Consolidated Balance Sheets                (unaudited) (US $ millions)    Note    Jul 2 2011    Dec 31 2010Assets               Current assets                Cash and cash equivalents       $ 77  $          111 Accounts receivable    4               106                  90 Tax receivable                         4                    6 Inventory    5                  99                  84                     286                291                Non-current assets                Property, plant and equipment                    805                814 Other assets    6                    6                  13                     811                827        $      1,097  $       1,118                Liabilities and Shareholders' Equity               Current liabilities                Accounts payable and accrued liabilities       $         153  $          164 Current portion of long-term debt    7               245                   -                      398                164                Non-current liabilities                Long-term debt    7               196                443 Other long-term debt    4                  69                  60 Other liabilities    8                  33                  35 Deferred income taxes                       65                  85                     363                623                Shareholders' equity                    336                331        $      1,097  $       1,118(See accompanying notes)Consolidated Statements of Earnings                       (unaudited)Periods ended July 2 and June 26 (US $ millions, except per share information)      Q22011    Q220101    6 mos2011    6 mos20101Sales    $ 241  $ 296  $ 494  $ 493Earnings before interest, income tax and depreciation      10    72    24    80                       Interest expense      (8)    (9)    (16)    (17)Earnings before income tax and depreciation      2    63    8    63                       Depreciation      (13)    (14)    (27)    (25)Income tax      12    (16)    18    (12)Earnings    $ 1  $ 33  $ (1)  $ 26                       Earnings per common share                       Basic    $ 0.03  $ 0.76  $ (0.02)  $ 0.60 Diluted      0.03    0.72    (0.02)    0.561 Refer to Note 3 for effects of adoption of IFRS(See accompanying notes)Consolidated Statements of Comprehensive Income/(Loss)                       (unaudited)Periods ended July 2 and June 26 (US $ millions)      Q22011    Q220101    6 mos2011    6 mos20101Earnings    $ 1  $ 33  $ (1)  $ 26Other comprehensive (loss) income, net of tax                       Foreign currency translation gain (loss) on foreign operations      1    (2)    9    (16) Net gain (loss) on hedge of net investment in foreign operations       1    2    (4)    10 Actuarial loss on defined benefit pension obligation      (2)    (3)    -    (5)       -     (3)    5    (11)Comprehensive income    $ 1  $ 30  $ 4  $ 151 Refer to Note 3 for effects of adoption of IFRS(See accompanying notes)Consolidated Statements of Changes in Shareholders' Equity                          (unaudited)Periods ended July 2 and June 26 (US $ millions)    Note    Q2 2011    Q220101    6 mos2011    6 mos20101Share capital                         Balance, beginning of period       $ 340  $ 335  $ 340  $ 335Issue of common shares, net         -    5    -     5Balance, end of period       $ 340  $ 340  $ 340  $ 340Contributed surplus                         Balance, beginning of period       $ 42  $ 40  $ 41  $ 40Stock-based compensation    9    -      1    1    1Balance, end of period       $ 42  $ 41  $ 42  $ 41Retained earnings                         Balance, beginning of period       $ (54)  $ (69)  $ (54)  $ (60)Earnings         1    33    (1)    26Other comprehensive loss         (2)    (3)    -    (5)Balance, end of period       $ (55)  $ (39)  $ (55)  $ (39)Accumulated Other Comprehensive Income                         Balance, beginning of period       $ 7  $ -  $ 4  $ 6Other comprehensive income (loss)         2    -    5    (6)Balance, end of period    9  $ 9  $ -  $ 9  $ -Shareholders' equity       $ 336  $ 342  $ 336  $ 3421 Refer to Note 3 for effects of adoption of IFRS(See accompanying notes)Consolidated Statements of Cash Flows                         (unaudited)Periods ended July 2 and June 26 (US $ millions)    Note    Q22011    Q220101     6 mos2011    6 mos20101CASH PROVIDED BY (USED FOR):                         Operating Activities                         Earnings       $ 1  $ 33  $ (1)  $ 26Items not affecting cash:                          Depreciation         13    14    27    25 Income tax         (12)    16    (18)    12Other items         (2)    (2)        3    1          -    61    11    64Net change in non-cash operating working capital balances    11    2     12        (43)    (38)Net change in tax receivable         1    (3)        2    54          3       70     (30)    80Investing Activities                         Investment in property, plant and equipment         (1)    (5)    (9)    (6)Realized net investment hedge (loss) gain    13    (3)    8    (2)    9Other         (2)    (2)    -    (2)          (6)    1    (11)    1Financing Activities                         Accounts receivable securitization (repayments) proceeds         (2)    5    8    (3)Debt issue costs         (1)    -    (1)    -Revolving bank lines repaid         -    (18)    -     (27)Issue of shares         -    2    -    2          (3)    (11)    7    (28)Cash and Cash Equivalents                         (Decrease) increase during the period         (6)    60    (34)    53Balance, beginning of period         83    13    111    20Balance, end of period    11  $ 77  $ 73  $ 77  $ 731 Refer to Note 3 for effects of adoption of IFRS(See accompanying notes)Notes to the Consolidated Financial Statements(unaudited)(in US $, unless otherwise noted)In these notes, "Norbord" means Norbord Inc. and all of its consolidated subsidiaries and affiliates, and "Company" means Norbord Inc. as a separate corporation, unless the context implies otherwise.  "Brookfield" means Brookfield Asset Management Inc. or any of its consolidated subsidiaries and affiliates, a related party, by virtue of a controlling equity interest in the Company.NOTE 1. NATURE AND DESCRIPTION OF THE COMPANYNorbord is an international producer of wood-based panels with 13 plant locations in the United States, Europe and Canada.  Norbord is a publicly traded company listed on the Toronto Stock Exchange under the symbols NBD and NBD.WT.  The Company is incorporated under the Canada Business Corporations Act and is headquartered in Toronto, Ontario, Canada.NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (a)   Statement of ComplianceThese condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Statements, as issued by the International Accounting Standards Board ("IASB") and using the accounting policies the Company expects to adopt in its consolidated financial statements as at, and for the year ending December 31, 2011.  The accounting policies the Company expects to adopt in its financial statements as at, and for the year ending December 31, 2011, are disclosed in Note 2 of the Company's interim financial statements as at, and for the quarter ended April 2, 2011.These interim financial statements should be read in conjunction with the Company's 2010 annual financial statements and in consideration of the International Financial Reporting Standards ("IFRS") transition disclosures included in Note 3 of these financial statements, and the Company's interim financial statements as at, and for the quarter ended April 2, 2011.These financial statements were authorized for issuance by the Board of Directors of the Company on July 28, 2011.(b)   Future Changes in Accounting Policies    (i) Transfers of Financial Assets    In October 2010, the IASB amended IFRS 7, Financial Instruments: Disclosures and added additional disclosure requirements for financial assets that have been transferred but not derecognized in accordance with IAS 39, Financial Instruments:  Recognition and Measurement ("IAS 39").  The amendments are effective for annual periods beginning on or after July 1, 2011, so will be effective for the year ending December 31, 2012. The Company is currently assessing the impact of these amendments on its financial statements.    (ii)  Financial Instruments    IFRS 9, Financial Instruments ("IFRS 9") was issued by the IASB on November 12, 2009 and will replace IAS 39.  IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39.  The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets.  The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39.  IFRS 9 is effective for annual periods beginning on or after January 1, 2013, so will be effective for the year ending December 31, 2013.  The Company has not yet determined the impact of IFRS 9 on its financial statements.    (iii) Consolidation    In May 2011, the IASB issued the following new standards:IFRS 10, Consolidated Financial Statements, which will replace SIC-12 Consolidation—Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements;IFRS 11, Joint Arrangements which will replace IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities—Non-monetary Contributions by Venturers; andIFRS 12, Disclosure of Interests in Other Entities    These new standards provide more guidance on the identification of entities and joint arrangements that should be included in the consolidated statements of a parent company and also require additional disclosure of all forms of interests that an entity holds.  The standards are effective for annual periods beginning on or after January 1, 2013 with early adoption permitted, and will be effective for the year ending December 31, 2013.  The Company has not yet determined the impact of these standards on its financial statements.    (iv) Fair Value Measurement    In May 2011, the IASB issued IFRS 13, Fair Value Measurement ("IFRS 13") which provides a revised definition of fair value, establishes a framework for measuring fair value and sets out disclosure requirements for when fair value measurement is required or permitted under IFRS.  IFRS 13 is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted, and will be effective for the year ending December 31, 2013.  The Company has not yet determined the impact of IFRS 13 on its financial statements.    (v) Employee Future Benefits    In June 2011, the IASB amended IAS 19, Employee Benefits ("IAS 19").  The main amendments include the requirement to immediately recognize actuarial gains and losses in Other Comprehensive Income/(Loss) ("OCI"), the replacement of the calculation of both the expected return on the plan assets and the interest cost of the pension obligation with the interest cost on the net deficit, the clarification on specific measurement issues, and enhanced disclosure requirements.  The amendments are effective for annual periods beginning on or after January 1, 2013 with early adoption permitted, and will be effective for the year ending December 31, 2013.  The Company has not yet determined the impact of these amendments on its financial statements.    (vi) Other Comprehensive Income    In June 2011, the IASB amended IAS 1, Presentation of Financial Statements ("IAS 1") to require the grouping together of OCI items that may be reclassified to the Statement of Earnings within OCI.  The amendment is effective for annual periods beginning on or after July 1, 2012, and will be effective for the year ending December 31, 2013.  The Company has not yet determined the impact of this amendment on its financial statements.NOTE 3. TRANSITION TO IFRSThe Company has adopted IFRS effective January 1, 2011.  Prior to the adoption of IFRS the Company prepared its financial statements in accordance with Canadian GAAP.  The Company's financial statements for the year ending December 31, 2011 will be the first annual financial statements that comply with IFRS.  Accordingly, the Company will make an unreserved statement of compliance with IFRS beginning with its 2011 annual financial statements.  The Company's transition date is January 1, 2010 (the "transition date") and the Company has prepared its opening IFRS balance sheet as at that date.  These financial statements have been prepared in accordance with the accounting policies described in Note 2 of the Company's financial statements as at, and for the quarter ended April 2, 2011.  The Company will ultimately prepare its opening balance sheet and financial statements for 2010 and 2011 by applying existing IFRS with an effective date of December 31, 2011 or prior. Accordingly, the opening balance sheet and financial statements for 2010 and 2011 may differ from these financial statements.(a)   Reconciliation of Shareholders' Equity as Reported Under Canadian GAAP to IFRSThe following is a reconciliation of the Company's shareholders' equity reported in accordance with Canadian GAAP to its shareholders' equity in accordance with IFRS at June 26, 2010.                          Shareholders' Equity(US $ millions)    ShareCapital    ContributedSurplus    RetainedEarnings    Accumulated OtherComprehensive Income    TotalAs reported under Canadian GAAP - Jun 26, 2010  $  340  $  40  $  -  $  (20)  $  360                          IFRS adjustments1                          (i) Employee benefits          -          -          (25)    -          (25) (ii) Property, plant and equipment                           Depreciation on deemed cost adjustment          -          -          (7)          -          (7)   Foreign exchange on deemed cost adjustment          -          -          -          6          6 (iii) Consistency in accounting policies          -          -          3          1          4 (iv) Share-based compensation          -          1          (1)          -          - (v)Deferred income tax          -          -          4          -          4 (vi) Cumulative translation account          -          -          (13)          13          -Total IFRS adjustments          -          1          (39)          20          (18)As reported under IFRS - Jun 26, 2010  $  340  $  41  $  (39)  $  -  $  3421 Refer to Notes for Canadian GAAP to IFRS Reconciliations(b)   Reconciliation of Earnings as Reported Under Canadian GAAP to IFRSThe following is a reconciliation of the Company's earnings reported in accordance with Canadian GAAP to its earnings in accordance with IFRS for the three month and six month periods ended June 26, 2010.           (US $ millions)    Q22010    6 mos2010Earnings as reported under Canadian GAAP  $   37  $    32           IFRS adjustments1               (ii) Property, plant and equipment            Depreciation on deemed cost adjustment            (2)            (3) (iii) Consistency in accounting policies            -            (1) (v) Deferred income tax            (2)            (2)Total IFRS adjustments            (4)            (6)Earnings as reported under IFRS  $    33  $    261 Refer to Notes for Canadian GAAP to IFRS Reconciliations(c)    Reconciliation of Comprehensive Income as Reported Under Canadian GAAP to IFRSThe following is a reconciliation of the Company's comprehensive income reported in accordance with Canadian GAAP to its comprehensive loss in accordance with IFRS for the three month and six month periods ended June 26, 2010.  (US $ millions)    Q22010    6 mos2010Comprehensive income as reported under Canadian GAAP  $       32  $  20IFRS adjustments1          Differences in Canadian GAAP to IFRS earnings noted in 3(b)         (4)          (6) (i)Employee benefits          (4)         (7) (ii)Property, plant and equipment                       Foreign exchange on deemed cost adjustment          5          6 (v)Deferred income tax         1          2Total IFRS adjustments      (2)         (5)Comprehensive income as reported under IFRS  $  30  $  151 Refer to Notes for Canadian GAAP to IFRS Reconciliations(d)   Reconciliation of Cash Flows as Reported Under Canadian GAAP to IFRSThere were no material adjustments to the cash flow statement as a result of the conversion to IFRS.Notes for Canadian GAAP to IFRS Reconciliations(i)    Employee Benefits    Unfunded Pension Obligation    Under Canadian GAAP, accrued pension benefit obligation in excess of plan assets for defined benefit pension plans only required disclosure in the notes to the consolidated financial statements.  Under IAS 19, the obligation in excess of plan assets is recorded as a liability on the balance sheet.    Actuarial Gains and Losses    Under Canadian GAAP actuarial gains and losses were recognized in earnings on a systematic and consistent basis, subject to a minimum required amortization based on a "corridor" approach. Unrecognized actuarial gains and losses below the corridor were deferred.  Under IFRS, in accordance with the Company's IFRS 1 election, any deferred actuarial gains and losses as at the Company's IFRS measurement date of January 1, 2009, Brookfield's IFRS transition date, were recognized immediately through a component of shareholders' equity in retained earnings.  Post-adoption, the Company elected to recognize all actuarial gains and losses immediately through OCI and as a component of shareholders' equity in retained earnings.  In the Company's interim financial statements as at, and for the quarter ended April 2, 2011, these gains and losses were presented as a component of shareholders' equity in accumulated other comprehensive income instead of retained earnings.(ii)    Plant, Property and Equipment    Deemed Cost    Upon transition to IFRS, the Company elected to measure its property, plant and equipment at fair value as its deemed cost.  Certain items of property, plant and equipment in the North American operations had a fair value of $30 million above their book value under Canadian GAAP and certain items of property, plant and equipment in the European operations had a fair value of $30 million below their book value under Canadian GAAP.  The net effect of these fair value measurements was nil on a consolidated basis on January 1, 2009.  The fair value measurement was based on January 1, 2009.  The Company determined the fair value of certain items of property, plant and equipment using an income approach.  Fair value measurements were prepared internally using a discounted cash flow model taking into consideration forecasts and assumptions of future cash flows and a discount rate based on the Company's weighted average cost of capital as at the measurement date.  All subsequent depreciation under IFRS is based on this deemed cost.    Component Accounting    Both IFRS and Canadian GAAP require property, plant and equipment to be disaggregated into components and depreciated separately.  Under Canadian GAAP, component accounting was interpreted and applied more generally.  The Company has applied the guidance under IFRS, IAS 16, Property, Plant and Equipment, and disaggregated its property, plant and equipment into components and reviewed the useful life of each separable component.  For certain components of property, plant & equipment, useful lives were reassessed and the effect of these changes in estimates will accelerate the expected depreciation expense under IFRS.    Impairments    Under both Canadian GAAP and IFRS, an asset or group of assets is tested for impairment only when there is an indication of impairment.  Under Canadian GAAP, impairment testing of an asset or group of assets is a two-step approach:  first, the carrying value of an asset or group of assets is compared to the undiscounted future cash flows to determine whether impairment exists.  If impairment exists, then the second step is the measurement of the impairment by comparing the carrying value of the asset or group of assets to their fair value, as calculated using the present value of future cash flows.  Under IFRS, IAS 36, Impairment of Assets, impairment testing is a one-step approach for both testing and measurement, with the carrying value of the asset or group of assets compared directly with the higher of fair value less costs to sell and value in use.  Fair value is measured at the sales price of the asset or group of assets in an arm's length transaction.  Value in use is based on the discounted future cash flows of the asset or group of assets.  This may potentially result in write-downs where the carrying value of an asset or group of assets was previously supported under Canadian GAAP on an undiscounted cash flow basis.  Furthermore, while Canadian GAAP prohibits the reversals of impairment losses recognized in prior periods, IFRS requires such reversals to be recognized if certain criteria are met.    The Company assessed impairment under IFRS for property, plant and equipment as at December 31, 2010 and December 31, 2009, and concluded no impairment existed.(iii)    Consistency in Accounting Policies     IFRS requires consistency of accounting policies across subsidiaries.  The Company aligned the accounting policies of all of its subsidiaries under IFRS resulting in an adjustment on the Company's IFRS measurement date of January 1, 2009 and in subsequent periods.(iv)    Share-Based Payments    The Company issues share-based awards in the form of stock options that vest evenly over a five-year period.  Under Canadian GAAP, the Company recognized the fair value of the award, determined at the time of the grants, on a straight-line basis over the five-year vesting period.  Under IFRS 2, Share-Based Payments, the fair value of each tranche of the award is considered to be a separate grant based on its vesting period.  The fair value of each tranche is determined separately and recognized as compensation expense over the term of its respective vesting period.  Accordingly, compensation expense under IFRS will be recognized at an accelerated rate compared to under Canadian GAAP.(v)    Income Taxes    Tax Effect of IFRS Accounting Adjustments    Deferred income tax is adjusted to reflect the change in temporary differences resulting from the IFRS adjustments described above.    Translation of Non-Monetary Assets and Liabilities    The Company has certain non-monetary assets and liabilities for which the tax reporting currency is different from its functional currency.  Under Canadian GAAP, any translation gains or losses arising on the remeasurement of these items at current exchange rates versus historic exchange rates do not give rise to a deferred income tax asset or liability.  Under IFRS, IAS 12, Income Taxes, such translation gains or losses do give rise to a temporary difference that is recorded as a deferred tax asset or liability.(vi)    Cumulative Translation Account    Upon transition to IFRS, Norbord elected under IFRS 1, First-time Adoption of International Financial Reporting Standards, to reset all cumulative translation differences to zero as at January 1, 2009, Brookfield's IFRS transition date.(vii)    Accounts Receivable Securitization    Under Canadian GAAP, the Company's accounts receivable securitization program was treated as a true sale of accounts receivable and the receivables were derecognized as the Company had transferred substantially all of its present and future trade accounts receivable to a third party trust sponsored by a highly rated Canadian financial institution, on a fully serviced basis, for proceeds consisting of cash and deferred purchase price.  Under IAS 39, the securitization program does not meet the criteria for a sale transaction and is treated as a financing arrangement.  Accordingly an adjustment to the balance sheet to recognize the related accounts receivable and long-term debt is required.(viii)   Investment in a Joint Venture    The Company has a 50% interest in a joint-venture hardwood plywood business which ceased operations effective December 2010.  This operation was non-core and represented less than 1% of total assets.  Under Canadian GAAP, the Company proportionately consolidated its 50% interest in the joint venture in the consolidated financial statements.  Under IAS 31, Interests in Joint Ventures, the Company elected to account for its investment under the equity method.(ix)    Revenue recognition    Under Canadian GAAP, the Company presented outbound freights costs as a reduction of sales.  Under IFRS, IAS 18, Revenues, the Company revenues should only take into account trade discounts and volume rebates.  As a consequence, the Company has presented sales exclusive of outbound freight costs.NOTE 4. ACCOUNTS RECEIVABLEThe Company has an $85 million accounts receivable securitization program with a third party trust sponsored by a highly rated Canadian financial institution.  The program has an evergreen commitment subject to termination on twelve months notice.  Under the program, Norbord has transferred substantially all of its present and future trade accounts receivable to the financial institution, on a fully serviced basis, for proceeds consisting of cash and deferred purchase price. However, the asset derecognition criteria under IFRS have not been met and the transferred accounts receivables remain recorded as an asset.At period-end, Norbord recorded cash proceeds of $69 million (December 31, 2010 - $60 million) relating to this program.  The cash proceeds are presented as other long-term debt on the balance sheet and are excluded from the net debt to capitalization calculation for financial covenant purposes (Note 12).The securitization program contains no financial covenants. However, the program is subject to minimum credit-rating requirements.  The Company must maintain a long-term issuer credit rating of at least single B (mid) or the equivalent.  As at July 28, 2011, Norbord's ratings were BB (low) (DBRS), BB- (Standard & Poor's) and Ba3 (Moody's).NOTE 5. INVENTORY          (US $ millions)    Jul 2 2011    Dec 31 2010Raw materials  $ 26  $ 18Finished goods                  44     38Operating & maintenance supplies                  29     28   $ 99   $ 84At period-end, the provision to reflect inventories at the lower of cost and net realizable value was $1 million (December 31, 2010 - less than $1 million).The amount of inventory recognized as an expense was as follows:(US $ millions)    Q2 2011    Q22010    6 mos2011    6 mos2010Cost of inventories  $ 220  $ 218  $ 446  $ 402Depreciation on property, plant & equipment    13    14    27    25   $ 233  $ 232  $ 473  $ 427NOTE 6. OTHER ASSETS          (US $ millions)    Jul 2 2011    Dec 31 2010Unrealized interest rate swap gains (note 13)  $ 4  $ 5Unrealized monetary hedge gains (note 13)    1    2Unrealized net investment hedge gains (note 13)    1    3Other    -    3   $ 6  $ 13Unrealized interest rate swap gains, unrealized monetary hedge gains and the unrealized net investment hedge gains are offset by unrealized losses on the underlying exposures being hedged.NOTE 7. LONG-TERM DEBT          (US $ millions)    Jul 2 2011    Dec 31 2010Principal value          7 1/4% debentures due 2012  $ 240  $ 240Senior notes due 2017    200    200     440    440Debt issue costs    (5)    (5)Deferred interest rate swap gains    2    3Unrealized interest rate swap gains    4    5     441    443Less: Current portion    (245)    -   $ 196  $ 443Revolving Bank LinesThe Company has aggregate committed revolving bank lines of $270 million which mature in May 2014 and bear interest at money market rates plus a margin that varies with the Company's credit rating. At period-end, none of the revolving bank lines was drawn as cash, $10 million was utilized for letters of credit, and $260 million was available to support short-term liquidity requirements.The bank lines contain two quarterly financial covenants; minimum tangible net worth of $250 million and maximum net debt to total capitalization, book basis of 60%. As a result of the bank line renewal completed in 2010, the IFRS transitional adjustments to shareholders' equity of $21 million at January 1, 2011 are added back for the purposes of the tangible net worth calculation. In addition, cumulative other comprehensive income is excluded from the tangible net worth calculation subsequent to January 1, 2011.  Net debt includes total debt, principal value, less cash and cash equivalents plus letters of credit issued. At period-end, the Company's tangible net worth for financial covenant purposes was $352 million and net debt for financial covenant purposes was $373 million (Note 12). Net debt to total capitalization was 51% on a book basis.Interest Rate SwapsAt period-end, the Company had outstanding interest rate swaps of $115 million (December 31, 2010 - $115 million). The terms of these swaps correspond to the terms of the underlying hedged debt.  The unrealized interest rate swap gains are offset by unrealized losses on the underlying exposures being hedged within interest expense.NOTE 8. OTHER LIABILITIES          (US $ millions)    Jul 2 2011    Dec 31 2010Defined benefit pension obligation  $ 26  $ 28Accrued employee benefits    4    6Unrealized net investment hedge loss (note 13)    2    -Other    1    1   $ 33  $ 35The unrealized net investment hedge loss is offset by unrealized gains on the underlying exposures being hedged.NOTE 9. SHAREHOLDERS' EQUITYStock OptionsYear-to-date, 0.6 million options were granted under the stock option plan. Earnings include $1 million related to stock-based compensation expense. Year-to-date, 0.1 million common shares were issued as a result of options exercised under the stock option plan for proceeds of less than $1 million.Accumulated Other Comprehensive Loss          (US $ millions)    Jul 2 2011    Dec 31 2010Foreign currency translation gain on foreign operations  $ 20  $ 11Net loss on hedge of net investment in foreign operations    (11)    (7)Accumulated other comprehensive loss  $ 9  $ 4NOTE 10. EARNINGS PER COMMON SHARE                    (US $ millions, except share and per share information, unless otherwise noted)    Q22011    Q22010    6 mos2011    6 mos2010Earnings available to common shareholders  $ 1  $ 33  $ (1)  $ 26                     Common shares (millions):                     Weighted average number of common shares outstanding    43.6    43.5    43.6    43.4 Stock options1    0.3    0.4    -    0.4 Warrants1    -    1.9    -    2.3Diluted number of common shares    43.9    45.8    43.6    46.1Earnings per common share:                     Basic  $ 0.03  $ 0.76  $ (0.02)  $ 0.60 Diluted    0.03    0.72    (0.02)    0.561 Applicable if dilutive and when the weighted average share price for the period was greater than the exercise price for vested stock options and warrants.NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION The net change in non-cash operating working capital balance comprises:(US $ millions)    Q22011    Q22010    6 mos2011    6 mos2010Cash used for                     Accounts receivable  $ 9  $ (17)  $ (16)  $ (30) Inventory    (3)    5    (20)    (18) Accounts payable and accrued liabilities    (4)    24    (7)    10   $ 2  $ 12  $ (43)  $ (38)                     Cash income taxes and interest comprises:                    (US $ millions)    Q2 2011    Q22010    6 mos 2011    6 mos2010Cash interest paid  $ 9  $ 1  $ 25  $ 17Cash taxes received (paid), net    1    (5)    1    53                     Cash and cash equivalents comprises:                    (US $ millions)              Jul 2 2011    Jun 26 2010Cash            $ 46  $ 73Cash equivalents              31    -             $ 77  $ 73NOTE 12. CAPITAL MANAGEMENTNorbord's capital structure at period-end consisted of the following:         (US $ millions)    Jul 2 2011   Dec 31, 20101Long-term debt, principal value (note 7)  $ 440 $ 440Less: Cash and cash equivalents    (77)   (113)Net debt    363   327Add:  Letters of credit    10   10Net debt for financial covenant purposes    373   337Shareholders' equity    336   352Add: IFRS transitional adjustments    21   -Less: Cumulative other comprehensive income subsequent to   January 1, 2011    (5)   -Tangible net worth for financial covenant purposes    352   352Total capitalization  $ 725 $ 689Net debt to capitalization, book basis    51%   49%Net debt to capitalization, market basis    39%   35%1 Figures have not been restated for IFRS.  Effective January 1, 2011, the Company's lending agreement provides for the following adjustments to covenant calculations as a result of the changeover to IFRS : (i) the exclusion of accounts receivable securitization proceeds from the net debt calculation; (ii) the add-back of IFRS transitional adjustments to shareholders' equity, as at January 1, 2011 (to a maximum of $30 million), for the purposes of the tangible net worth calculation; and (iii) the exclusion of cumulative other comprehensive income from the tangible net worth calculation, subsequent to January 1, 2011.NOTE 13. FINANCIAL INSTRUMENTSNon-Derivative Financial InstrumentsThe net book values and fair values of non-derivative financial instruments were as follows:       Jul 2 2011    Dec 31 2010(US $ millions)Financial Instrument Category    Net BookValue    Fair Value    Net BookValue    FairValueFinancial assets:                      Cash and cash equivalentsFair value through profit or loss  $ 77  $ 77  $ 111  $ 111 Accounts receivableLoans and Receivables    106    106    90    90    $ 183  $ 183  $ 201  $ 201                      Financial liabilities:                      Accounts payable and accrued liabilitiesAmortized cost  $ 153  $ 153  $ 164  $ 164 Long-term debtAmortized cost    441    450    443    447 Other long-term debtAmortized cost    69    69    60    60 Other liabilitiesAmortized cost    33    33    35    35    $ 696  $ 705  $ 702  $ 706Derivative Financial InstrumentsInformation about derivative financial instruments was as follows:          Jul 2 2011         Dec 31 2010(US $ millions, unless otherwise noted)    NotionalValue    Unrealized (Loss) Gain at Period-End1    NotionalValue    UnrealizedGain atPeriod-End1Currency hedges:                     Net investment                      Belgium    €25   $(2)    €40   $1  UK    £51    1    £47    2 Monetary position                      Canadian dollar    CAD $82    1    CAD $78    2Interest rate hedges:                     Interest rate swaps    $115    4    $115    51 The carrying values of the derivative financial instruments are equivalent to the unrealized gain (loss) at period-end.The gains (losses) recognized on the Company's matured currency hedges were:(US $ millions)    Q22011    Q22010    6 mos2011    6 mos2010Net investment                     Belgium  $ (1)  $ 5  $ -  $ 5 UK    (2)    3    (2)    4Monetary position                     Canadian Dollar    (1)    -    3    -   $ (4)  $ 8  $ 1  $ 9Realized and unrealized gains and losses on derivative financial instruments are offset by realized and unrealized losses and gains on the underlying exposures being hedged.NOTE 14. RELATED PARTY 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.Year-to-date, the Company provided certain administrative services to Brookfield or its affiliates which was charged on a cost recovery basis. In addition, the Company periodically engaged the services of Brookfield or its affiliates for various financial, real estate and other business advisory services. Year-to-date, the fees for these services were less than $1 million (2010 - less than $1 million) and were charged at market rates.NOTE 15. GEOGRAPHIC SEGMENTSThe Company has a single reportable segment. The Company operates principally in North America and Europe. Sales by geographic segment are determined based on the origin of shipment and therefore include export sales.                                         Q2 2011(US $ millions)    North America    Europe    Unallocated    TotalSales  $ 124  $ 117  $ -  $ 241EBITDA1    -    13    (3)    10Depreciation    9    4    -    13Investment in property, plant and equipment    2    2    -    4                                         Q2 2010(US $ millions)    North America    Europe    Unallocated    TotalSales  $ 204  $ 92  $ -  $ 296EBITDA1    64    10    (2)    72Depreciation    10    4    -    14Investment in property, plant and equipment    4    1    -    5                                         6 mos 2011(US $ millions)    North America    Europe    Unallocated    TotalSales  $ 257  $ 237  $ -  $ 494EBITDA1    7    24    (7)    24Depreciation    17    10    -    27Investment in property, plant and equipment    5    7    -    12Property, plant and equipment    653    152    -    805                                         6 mos 2010(US $ millions)    North America    Europe    Unallocated    TotalSales  $ 320  $ 173  $ -  $ 493EBITDA1    72    14    (6)    80Depreciation    17    8    -    25Investment in property, plant and equipment    5    1    -    6Property, plant and equipment2    665    148    1    8141 EBITDA is earnings before interest, income tax and depreciation.2 Balance as at December 31, 2010.       For further information: Contact: Heather Colpitts Manager, Corporate Affairs Tel. (416) 365-0705info@norbord.com