40-F

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

(Check One)

☐ Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934

or

☒ Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2016

Commission file number: 001-37694

NORBORD INC.

(Exact name of registrant as specified in its charter)

Canada	2400	Not Applicable
(Province or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number (if applicable))	(I.R.S. Employer Identification Number)

1 Toronto Street, Suite 600

Toronto, Ontario, Canada, M5C 2W4

(416) 365-0705

(Address and Telephone Number of Registrant’s Principal Executive Offices)

Torys LLP

1114 Avenue of the Americas

23rd Floor

New York, New York 10036

Attention: Andrew J. Beck

(212) 880-6010

(Name, Address (Including Zip Code) and Telephone Number (Including Area Code)

of Agent For Service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of Each Class	Name Of Exchange On Which Registered
Common Shares, Without Par Value	New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

For annual reports, indicate by check mark the information filed with this Form:

☒  Annual Information Form ☒  Audited Annual Financial Statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 85,829,492 common shares.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒            No  ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes  ☐            No  ☐

FORM 40-F

Principal Documents

The following documents, filed as Exhibits 99.1 through 99.3 hereto, are hereby incorporated by reference into this Annual Report on Form 40-F (this “Form 40-F”):

(a) Annual Information Form, dated February 2, 2017 for the Year Ended December 31, 2016 (filed as Exhibit 99.1 hereto);

(b) Management’s Discussion and Analysis for the Annual Audited Consolidated Financial Statements for the Year Ended December 31, 2016 (filed as Exhibit 99.2 hereto); and

(c) Annual Audited Consolidated Financial Statements for the Year Ended December 31, 2016, including Consolidated Balance Sheets as at December 31, 2016 and December 31, 2015 and Consolidated Statements of Earnings, Comprehensive Income, Changes in Equity and Cash Flows for the Years Ended December 31, 2016 and December 31, 2015 and Related Notes, together with the Auditor’s Reports thereon, contained therein (filed as Exhibit 99.3 hereto).

NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This document includes forward-looking statements, as defined by applicable securities legislation. Often, but not always, forward-looking statements can be identified by the use of words such as “believes,” “expects,” “does not expect,” “targets,” “outlook,” “scheduled,” “estimates,” “forecasts,” “aims,” “predicts,” “plans,” “anticipates,” “intends” or variations of such words and phrases or negative versions thereof or statements that certain actions, events or results “may,” “could,” “would,” “should,” “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Norbord Inc. (“Norbord”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Examples of such statements include, but are not limited to, comments with respect to: (1) outlook for the markets for products; (2) expectations regarding future product pricing; (3) outlook for operations; (4) expectations regarding mill capacity; (5) objectives; (6) strategies to achieve those objectives; (7) expected financial results including the expected results of the Margin Improvement Program (MIP); (8) sensitivity to changes in product prices, such as the price of oriented strand board (“OSB”); (9) sensitivity to changes in foreign exchange rates; (10) sensitivity to key input prices, such as the price of fibre, resin, wax and energy; (11) expectations regarding compliance with environmental regulations; (12) expectations regarding income tax rates; (13) expectations regarding contingent liabilities and guarantees, including the outcome of pending litigation; (14) expectations regarding the amount, timing and benefits of capital investments; (15) expectations regarding the amount and timing of dividend payments; and (16) historical, forecasted and other forward-looking information published by third parties such as the U.S. Census Bureau, FEA (Forest Economic Advisors, LLC), APA – the Engineered Wood Association, Office for National Statistics and EUROCONSTRUCT which we may refer to but have not independently verified.

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. These factors include, but are not limited to: (1) assumptions in connection with the economic and financial conditions in the US, Europe, Canada and globally; (2) risks inherent to product concentration; (3) effects of competition and product pricing pressures; (4) risks inherent to customer dependence; (5) effects of variations in the price and availability of manufacturing inputs, including continued access to fiber resources at competitive prices; (6) availability of rail services and port facilities; (7) various events that could disrupt operations, including natural or catastrophic events and ongoing relations with employees; (8) impact of changes to, or non-compliance with, environmental regulations; (9) impact of any product liability claims in excess of insurance coverage; (10) risks inherent to a capital intensive industry; (11) impact of future outcomes of tax exposures; (12) effects of currency exposures and exchange rate fluctuations; (13) future operating costs; (14) availability of financing; (15) impact of future cross-border trade rulings or agreements; (16) ability to implement new or upgraded information technology infrastructure; and (17) impact of information technology service disruptions or failures.

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The above list of important factors affecting forward-looking information is not exhaustive. Additional factors are noted elsewhere, and reference should be made to the other risks discussed in the Exhibits, incorporated by reference into this Registration Statement. Except as required by applicable law, Norbord does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by, or on behalf of, Norbord, 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 Annual Information Form dated February 2, 2017, attached hereto as Exhibit 99.1 and the cautionary statement contained in the Forward-Looking Statements section of the 2016 Management’s Discussion and Analysis dated February 2, 2017, attached hereto as Exhibit 99.2.

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ADDITIONAL DISCLOSURE

Certifications and Disclosure Regarding Controls and Procedures

(a) Certifications. See Exhibits 99.4 through 99.7 to this Form 40-F.

(b) Disclosure Controls and Procedures.

As of the end of Norbord’s fiscal year ended December 31, 2016, Norbord’s principal executive officer and principal financial officer carried out an evaluation of the effectiveness of Norbord’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, Norbord’s principal executive officer and principal financial officer have concluded that as of the end of that fiscal year Norbord’s disclosure controls and procedures were effective to ensure that information required to be disclosed by Norbord in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (the “SEC”) rules and forms and (ii) accumulated and communicated to the registrant’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

It should be noted that, while Norbord’s principal executive officer and principal financial officer believe that Norbord’s disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that Norbord’s disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

(c) Management’s Annual Report on Internal Control Over Financial Reporting.

This Annual Report does not include a report of management’s assessment regarding internal control over financial reporting in accordance with rules of the SEC or an attestation report of Norbord’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

(d) Changes in Internal Control over Financial Reporting. During the fiscal year ended December 31, 2016, there were no changes in Norbord’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Norbord’s internal control over financial reporting.

Notices Pursuant to Regulation BTR

None.

Audit Committee Financial Experts

Norbord’s board of directors has determined that each of Pierre Dupuis, Paul E. Gagne, Paul A. Houston, and Denis A. Turcotte, members of its audit committee, is an “audit committee financial expert” (as such term is defined in Form 40-F) and that each member is “independent” (as defined in the listing standards of the New York Stock Exchange (the “NYSE”)).

Code of Ethics

Norbord has adopted a “code of ethics” (as that term is defined in Form 40-F), entitled Code of Business Conduct (the “Code of Conduct”), that applies to all of its directors, officers and designated employees.

The Code of Conduct, is available for viewing on Norbord’s website at www.Norbord.com and is available in print to any shareholder who requests it. Requests for copies of the Code of Conduct should be made by contacting: Elaine Toomey, Assistant Corporate Secretary, Norbord Inc., 1 Toronto Street, Suite 600, Toronto, Ontario, Canada, M5C 2W4, Telephone: (416) 365-0705, or by e-mail: info@norbord.com.

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All amendments to the Code of Conduct, and all waivers of the Code of Conduct with respect to any director, officer or employee of Norbord, will be posted promptly on Norbord’s website.

Principal Accountant Fees and Services

The information set forth under the heading “Audit Fees” in the Audit Committee section of Norbord’s annual information form for the fiscal year ended December 31, 2016, attached hereto as Exhibit 99.1, is incorporated by reference herein.

Pre-Approval Policies and Procedures

The information required is included under the heading “External Audit” in Appendix A – Audit Committee – Terms of Reference of the registrant’s Annual Information Form for the fiscal year ended December 31, 2016, incorporated by reference as Exhibit 99.1 to this Annual Report on Form 40-F.

Off-Balance Sheet Arrangements

Norbord does not have any off-balance sheet arrangements (as defined in General Instruction B.(11) of Form 40-F).

Tabular Disclosure of Contractual Obligations

The information provided in the registrant’s Management’s Discussion and Analysis for the Annual Audited Consolidated Financial Statements for the year ended December 31, 2016, attached hereto as Exhibit 99.2, contains Norbord’s disclosure of contractual obligations and is incorporated by reference herein.

Identification of the Audit Committee

Norbord has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of Norbord’s audit committee are: Paul E. Gagne, Paul A. Houston, Denis A. Turcotte and Pierre Dupuis (Chairman).

Mine Safety Disclosure

Not applicable.

DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES

Norbord is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this Form 40-F in accordance with Canadian disclosure requirements, which are different from those of the United States.

Norbord’s Annual Audited Consolidated Financial Statements for the year ended December 31, 2016, attached hereto as Exhibit 99.3, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Accordingly, Norbord’s financial statements, including those prepared after the date of this Form 40-F, may not be comparable to those prepared by U.S. companies. In addition, Norbord is not required to prepare a reconciliation of its financial statements between IFRS and U.S. generally accepted accounting principles, and has not quantified such differences, which may be significant.

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NYSE CORPORATE GOVERNANCE

As a foreign private issuer listed on the NYSE, Norbord is not required to comply with most of the NYSE corporate governance standards, so long as it complies with Canadian and Toronto Stock Exchange (“TSX”) corporate governance requirements. In order to claim such an exemption, however, Norbord must disclose the significant differences between its corporate governance practices and those required to be followed by U.S. domestic companies under the NYSE corporate governance standards.

The following is a summary of the significant ways in which Norbord’s corporate governance practices differ from those required to be followed by U.S. domestic issuers under NYSE’s corporate governance standards. Except as described in this summary, Norbord is in compliance with the NYSE corporate governance standards in all significant respects.

Communications with Non-Management Directors

Shareholders may send communications to Norbord’s non-management directors by writing to the Audit Committee Chair, c/o Elaine Toomey, Assistant Corporate Secretary, Norbord Inc., 1 Toronto Street, Suite 600, Toronto, Ontario, Canada, M5C 2W4, Telephone: (416) 365-0705, E-mail: info@norbord.com or to ClearView Connects^TM, P.O. Box 11017, Toronto, Ontario M1E 1N0, Telephone: 1-866-608-7287, www.clearviewconnects.com. Communications will be referred to the Audit Committee Chair for appropriate action. The status of all outstanding concerns addressed to the Audit Committee Chair will be reported to the Board of Directors as appropriate.

Corporate Governance

According to Section 303A.09 of the NYSE Listed Company Manual, a listed company must adopt and disclose a set of corporate governance guidelines with respect to specified topics. Such guidelines are required to be posted on the listed company’s website. Norbord operates under corporate governance principles that are consistent with the requirements of Section 303A.09 of the NYSE Listed Company Manual and Norbord’s corporate governance practices are available for viewing on its website at www.norbord.com under Corporate Governance.

Board and Committee Mandate

The mandates of Norbord’s Audit Committee, Corporate Governance and Nominating Committee, Environmental, Health and Safety Committee and Human Resources Committee (Compensation) are each available for viewing on Norbord’s website at www.norbord.com/about-us/corporate-governance, and are available in print to any shareholder who requests them. Requests for copies of these documents should be made by contacting Elaine Toomey, Assistant Corporate Secretary, Norbord Inc., 1 Toronto Street, Suite 600, Toronto, Ontario, Canada, M5C 2W4, Telephone: (416) 365-0705, or E-mail: info@norbord.com.

Shareholder Meeting Quorum Requirements

The NYSE governance rules do not contain a minimum quorum requirement for a shareholder meeting, but is of the opinion that the quorum required for any meeting of shareholders should be sufficiently high to ensure a representative vote. Norbord’s quorum requirement is set forth in its By-Laws. A quorum for a meeting of Norbord’s shareholders is two persons present in person and each entitled to vote thereat.

Shareholder Approval Requirement

In lieu of Section 312 of the NYSE’s Listed Company Manual, Norbord will follow the TSX rules for shareholder approval of new issuances of its common shares. Following the TSX rules, shareholder approval is required for certain issuances of shares that (i) materially affect control of Norbord or (ii) provide consideration to insiders in aggregate of 10% or greater of the market capitalization of the listed issuer and have not been negotiated at arm’s length. Shareholder approval is also required, pursuant to the TSX rules, in the case of private placements (x) for an aggregate number of listed securities issuable greater than 25% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, prior to the date of closing of the transaction if the price per security is less than the market price or (y) that during any six month period are to insiders for listed securities or options, rights or other entitlements to listed securities greater than 10% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, prior to the date of the closing of the first private placement to an insider during the six month period.

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Approval of Equity Compensation Plans

Section 303A.08 of the NYSE’s Listed Company Manual requires shareholder approval of all equity compensation plans and material revisions to such plans. The definition of “equity compensation plans” covers plans that provide for the delivery of both newly issued and treasury securities, as well as plans that rely on securities re-acquired in the open market by the issuing company for the purpose of redistribution to employees and directors. The TSX rules provide that only the creation of or certain material amendments to equity compensation plans that provide for new issuances of securities are subject to shareholder approval. Norbord follows the TSX rules with respect to the requirements for shareholder approval of equity compensation plans and material revisions to such plans.

Proxy Solicitation Requirements

The rules of the NYSE require the solicitation of proxies and delivery of proxy statements for all shareholder meetings of a listed company, and that proxies be solicited pursuant to a proxy statement that conforms to the proxy rules of the SEC. As a “foreign private issuer” as defined under the Exchange Act, Norbord is exempt from the proxy rules adopted by the SEC, and instead Norbord solicits proxies in accordance with the Canada Business Corporations Act, applicable Canadian securities laws, and the rules and policies of the TSX.

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UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

A. Undertaking.

Norbord undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F, the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

B. Consent to Service of Process.

(1) Norbord has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this report arises.

(2) Any change to the name or address of the agent for service of Norbord shall be communicated promptly to the Commission by amendment to Form F-X referencing the file number of Norbord.

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SIGNATURES

Pursuant to the requirements of the United States Securities Exchange Act of 1934, as amended, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.

Date: February 3, 2017	NORBORD INC.
	By:	/s/ Robin E. Lampard
		Name: Robin E. Lampard
		Title: Chief Financial Officer

EXHIBIT INDEX

Exhibit	Description
99.1	Annual Information Form, dated February 2, 2017, for the Year Ended December 31, 2016
99.2	Management’s Discussion and Analysis for the Annual Audited Consolidated Financial Statements for the Year Ended December 31, 2016
99.3	Annual Audited Consolidated Financial Statements for the Year Ended December 31, 2016, including Consolidated Statements of Financial Position as at December 31, 2016 and December 31, 2015 and Consolidated Statements of Comprehensive Income and Changes in Equity and Cash Flows for the Years Ended December 31, 2016 and December 31, 2015 and Related Notes, together with the Auditor’s Reports thereon, contained therein
99.4	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
99.5	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
99.6	Section 1350 Certification of Chief Executive Officer
99.7	Section 1350 Certification of Chief Financial Officer
99.8	Consent of KPMG LLP

EX-99.1

Exhibit 99.1

NORBORD INC.

Annual Information Form

February 2, 2017

TABLE OF CONTENTS

	Page
CAUTION REGARDING FORWARD-LOOKING INFORMATION		3
CORPORATE STRUCTURE		5
GENERAL DEVELOPMENT OF THE BUSINESS		6
DESCRIPTION OF THE BUSINESS		8
RISKS OF THE BUSINESS		12
CAPITAL STRUCTURE		17
DIVIDENDS		19
MARKET FOR SECURITIES		20
DIRECTORS AND SENIOR EXECUTIVE OFFICERS		21
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS		22
MATERIAL CONTRACTS		23
TRANSFER AGENT AND REGISTRAR		23
AUDIT COMMITTEE		24
INTERESTS OF EXPERTS		25
ADDITIONAL INFORMATION		25
GLOSSARY		26
Appendix A – Audit Committee – Terms of Reference		27

Norbord Inc. 2016 Annual Information Form Page 2

Unless otherwise noted, all information contained in this Annual Information Form (AIF) is as at December 31, 2016.

All dollar amounts in this AIF are in US dollars unless otherwise specified.

In this AIF, “Norbord” means Norbord Inc. and its consolidated subsidiaries and affiliates. “Company” means Norbord Inc. as a separate corporation, unless the context implies otherwise.

“Brookfield” means collectively Brookfield Asset Management Inc. and its consolidated subsidiaries and affiliates (other than Norbord), a related party, by virtue of a controlling equity interest in the Company.

FORWARD-LOOKING STATEMENTS

This document includes forward-looking statements, as defined by applicable securities legislation. Often, but not always, forward-looking statements can be identified by the use of words such as “believes,” “expects,” “targets,” “outlook,” “scheduled,” “estimates,” “represents,” “forecasts,” “aims,” “predicts,” “plans,” “projects,” “anticipates,” “intends”, “supports,” “continues,” “future” or variations of such words and phrases or negative versions thereof or statements that certain actions, events or results “may,” “could,” “would,” “should,” “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Examples of such statements include, but are not limited to, comments with respect to: (1) outlook for the markets for products; (2) expectations regarding future product pricing; (3) outlook for operations; (4) expectations regarding mill capacity; (5) objectives; (6) strategies to achieve those objectives; (7) expected financial results including the expected results of the MIP; (8) sensitivity to changes in product prices, such as the price of OSB; (9) sensitivity to changes in foreign exchange rates; (10) sensitivity to key input prices, such as the price of fibre, resin, wax and energy; (11) expectations regarding compliance with environmental regulations; (12) expectations regarding income tax rates; (13) expectations regarding contingent liabilities and guarantees, including the outcome of pending litigation; (14) expectations regarding the amount, timing and benefits of capital investments; (15) expectations regarding the amount and timing of dividend payments; and (16) historical, forecasted and other forward-looking information published by third parties such as the U.S. Census Bureau, FEA (Forest Economic Advisors, LLC), APA – the Engineered Wood Association, Office for National Statistics and EUROCONSTRUCT which we may refer to but have not independently verified.

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. These factors include, but are not limited to: (1) assumptions in connection with the economic and financial conditions in the US, Europe, Canada and globally; (2) risks inherent to product concentration and cyclicality; (3) effects of competition and product pricing pressures; (4) risks inherent to customer dependence; (5) effects of variations in the price and availability of manufacturing inputs, including continued access to fibre resources at competitive prices; (6) availability of rail services and port facilities; (7) various events that could disrupt operations, including natural or catastrophic events and ongoing relations with employees; (8) impact of changes to, or non-compliance with, environmental regulations; (9) impact of any product liability claims in excess of insurance coverage; (10) risks inherent to a capital intensive industry; (11) impact of future outcomes of tax exposures; (12) effects of currency exposures and exchange rate fluctuations; (13) future operating costs; (14) availability of financing; (15) impact of future cross-border trade rulings or agreements; (16) ability to implement new

Norbord Inc. 2016 Annual Information Form Page 3

or upgraded information technology infrastructure; and (17) impact of information technology service disruptions or failures.

The above list of important factors affecting forward-looking information is not exhaustive. Additional factors are noted elsewhere, and reference should be made to the other risks discussed in filings with Canadian and United States securities regulatory authorities. Except as required by applicable law, Norbord does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by, or on behalf of, the Company, 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.

(The remainder of this page is intentionally left blank)

Norbord Inc. 2016 Annual Information Form Page 4

CORPORATE STRUCTURE

Norbord Inc. was formed under the Canada Business Corporations Act on December 31, 1998 by the amalgamation of Noranda Forest Inc. and NFI Forest Holdings Ltd. The Company filed Articles of Arrangement and Restated Articles of Incorporation on June 30, 2004 to facilitate the transfer of its paper and timber business to a new public company, Fraser Papers Inc., and changed its name from Nexfor Inc. to Norbord Inc. The Company filed Articles of Amendment on October 16, 2009 in connection with its one for ten share consolidation effective the same date. On July 15, 2015, the Company filed Articles amalgamating Norbord Inc. and Ainsworth Lumber Co. Ltd. (Ainsworth).

The registered and principal office of Norbord Inc. is 1 Toronto Street, Suite 600, Toronto, Ontario, M5C 2W4. Norbord is an international producer of wood-based panels with approximately 2,600 employees and 17 plant locations in the United States, Canada and Europe. Norbord has assets of approximately $1.8 billion, net sales of more than $1.7 billion, and is the world’s largest producer of OSB. In addition to OSB, Norbord manufactures particleboard, MDF and related value-added products.

As at February 2, 2017, Brookfield owned approximately 53% of the outstanding common shares (Common Shares) of the Company.

The principal operating subsidiaries of the Company are:

Name	Jurisdiction of Incorporation	Percentage of Voting Securities Owned	Date of Incorporation
Norbord Alabama Inc.	Alabama	100%		10/12/1999
Norbord Europe Ltd.	United Kingdom	100%		04/12/2012
Norbord Georgia LLC	Delaware	100%		12/31/2008
Norbord Minnesota Inc.	Delaware	100%		12/20/2006
Norbord Mississippi LLC	Delaware	100%		12/31/2008
Norbord NV	Belgium	100%		05/28/2004
Norbord South Carolina Inc.	South Carolina	100%		05/22/1998
Norbord Texas (Jefferson) Inc.	Delaware	100%		12/20/2006
Norbord Texas (Nacogdoches) Inc.	Delaware	100%		12/20/2006

There are no voting or non-voting securities issued by any of the Company’s subsidiaries that are not 100% owned, directly or indirectly, by the Company.

Norbord Inc. 2016 Annual Information Form Page 5

GENERAL DEVELOPMENT OF THE BUSINESS

Changes in the Business 2014-2017

Quebec Mill Exchange

On October 28, 2016 the Company announced that it had reached an agreement with Louisiana-Pacific Corporation (LP) to swap ownership of its mill in Val-d’Or for LP’s mill in Chambord, Quebec. Production at both mills has been curtailed for a number of years. The non-monetary asset exchange transaction closed November 3, 2016. The Chambord mill has a stated capacity of 470 million square feet (3/8-inch basis) and the Val-d’Or mill has a stated capacity of 340 million square feet (3/8-inch basis).

Normal Course Issuer Bid

On October 28, 2016, the Company announced that it had received approval from the Toronto Stock Exchange (TSX) to renew its normal course issuer bid in accordance with TSX rules. Under the bid, the Company may purchase up to 4,280,997 of its Common Shares, representing 5% of the 85,619,946 issued and outstanding Common Shares as of October 20, 2016. Purchases under the bid will terminate on the earlier of November 2, 2017, the date Norbord completes its purchases pursuant to the notice of intention to make a normal course issuer bid filed with the TSX or the date of notice by Norbord of termination of the bid. As of the date of this AIF, the Company had not made any purchases under this bid or the previous bid which expired on November 2, 2016. Shareholders may obtain a copy of the notice filed with the TSX authorizing the bid without charge, by contacting the Company at (416) 365-0705 or info@norbord.com.

High Level Fire

On May 4, 2016, a fire started in the woodyard of the High Level, Alberta mill. Production was halted immediately while the fire was brought under control. The mill has an annual production capacity of 860 million square feet (3/8-inch basis) and has been ramping up toward full production since resuming operations in late 2013. The fire destroyed a portion of the mill’s log inventory. The mill returned to production approximately three weeks later. To date, the Company has recognized an insurance recovery of $15 million for the reimbursement of the lost log inventory, costs of fighting the fire, site restoration and business interruption.

NYSE Listing

On February 16, 2016, the Company announced that its shares had been authorized for listing on the New York Stock Exchange (NYSE). The shares began trading on the NYSE on February 19, 2016 under the symbol “OSB”. Concurrent with the NYSE listing, the Company changed its ticker symbol on the TSX to “OSB”.

Bank Line Amendments

In April 2016, the Company amended its committed revolving bank lines to increase the tangible net worth covenant to $500 million and extend the maturity date to May 2019. The bank lines are secured by a first lien on the Company’s North American OSB inventory and property, plant and equipment. This lien is shared pari passu with the holders of the 2017, 2020 and 2023 senior secured notes.

Inverness Project

On January 28, 2016, the Company announced a US $135 million investment over the next two years to modernize and expand its Inverness, Scotland OSB mill. Key supplier negotiations and site preparation activities commenced during the first quarter of 2016 and construction work started in the second quarter. The Company moved the unused second press from its Grande Prairie, Alberta mill for use in the

Norbord Inc. 2016 Annual Information Form Page 6

Inverness project, which is expected to shorten the project timeline by up to six months. Norbord expects the new line to start up in the second half of 2017, with no disruption to existing production capacity in the interim. The reinvested mill will have a stated capacity of 720 million square feet (3/8-inch basis), an increase of 325 million square feet over the Inverness mill’s current capacity.

Merger with Ainsworth

On December 8, 2014, the Company and Ainsworth announced that they had entered into an arrangement agreement under which the Company and Ainsworth would merge to create a leading global wood products company focused on OSB across North America, Europe and Asia (the Merger).

On March 31, 2015, the Merger was completed. Under the terms of the transaction, Norbord acquired all of the outstanding common shares of Ainsworth in an all-share transaction and Ainsworth shareholders received 0.1321 of a share of Norbord for each Ainsworth share. Norbord issued 31,830,328 Common Shares to Ainsworth shareholders on closing. Ainsworth common shares were de-listed from the TSX on April 2, 2015. A business acquisition report prepared in connection with the Merger was filed on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

Other Developments

In April 2015, the Company issued $315 million in senior secured notes due 2023 with an interest rate of 6.25%. The notes rank pari passu with the Company’s existing senior secured notes due in 2020 and 2017 and committed revolving bank lines. The Company used the proceeds to redeem, prior to maturity, the outstanding $315 million senior secured notes of Ainsworth due in 2017 that were assumed upon closing of the Merger.

In April 2015, the Company amended its accounts receivable securitization program with a third-party trust sponsored by a highly rated Canadian financial institution, increasing the program commitment by $25 million to $125 million to reflect the Merger.

Norbord Inc. 2016 Annual Information Form Page 7

DESCRIPTION OF THE BUSINESS

Principal Products and Markets

Norbord’s business comprises the manufacturing, sales, marketing and distribution of panelboards and related products used primarily in the construction of new homes or the renovation and repair of existing structures. In general, the business is affected by the level of housing starts, the level of home repairs, the availability and cost of financing, changes in industry capacity, changes in raw material prices, changes in foreign exchange rates (primarily the Canadian dollar, Pound Sterling and Euro currencies) and other operating costs.

Products are primarily sold to major retail chains, contractor supply yards and industrial users. Some mill products are sold to industrial customers for further processing or as components for other products. Norbord OSB products are sold in North America under the following brand names: Durastrand pointSIX®, Pinnacle® and Stabledge® (premium flooring), TruFlor pointSIX® and TruFlor® (commodity flooring), SteadiTred® (industrial), QuakeZone®, Tallwall®, Trubord™ and Windstorm™ (wall sheathing) and SolarBord™ (radiant barrier sheathing), TruDeck® (flat roof sheathing for large industrial/commercial buildings), and StableDeck® (utility trailer floors). In Europe, Norbord products are sold under the trademarks SterlingOSB® (OSB), Caberwood MDF® (MDF), Conti® and Caberboard® (particleboard).

The Company operates in North America and Europe. Sales revenues by geographic segment are determined based on the origin of shipment. In 2016, 77% of Norbord’s sales originated from North America (2015 – 70%) and 23% from Europe (2015 – 30%).

North America is the principal market destination for Norbord’s products. In 2016 and 2015, Norbord’s panel shipments by volume originated as follows:

	2016		2015
North America		77%		76%
Europe		23%		24%
Total		100%		100%

OSB is used principally for sheathing, flooring and roofing in home construction. According to the APA – the Engineered Wood Association, OSB production represented approximately 67% of total 2016 North American structural panel production. In Europe, OSB’s share of the structural panel market is lower than in North America due mainly to different housing construction methods; however, OSB use is growing rapidly in Europe. Norbord’s particleboard is used primarily in flooring and other construction applications. MDF applications include cabinet doors, mouldings and interior wall paneling.

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Principal Operating Interests

Information regarding Norbord’s estimated annual production capacity is set forth in the following table. The estimated annual production capacity is based on normal operating rates and normal production mixes under current market conditions, taking into account known constraints, such as permit restrictions. Factors such as market conditions, fluctuations in raw material availability, mechanical interruptions and the nature of current orders may cause actual production rates and mixes to vary significantly from the estimated production rates and mixes used to derive the estimated annual capacities shown.

MMsf-3/8”	Estimated          Annual          Capacity at          Year-End          2016
OSB
100 Mile House, British Columbia		440
Barwick, Ontario		510
Bemidji, Minnesota		470
Chambord, Quebec (1)		470
Cordele, Georgia		990
Genk, Belgium		450
Grande Prairie, Alberta		730
Guntown, Mississippi		450
High Level, Alberta		860
Huguley, Alabama (2)		500
Inverness, Scotland		395
Jefferson, Texas		415
Joanna, South Carolina		650
La Sarre, Quebec		375
Nacogdoches, Texas		380
		8,085
Particleboard
Cowie, Scotland		405
South Molton, England		160
		565
MDF
Cowie, Scotland		380
		380
Total Panels		9,030

⁽¹⁾  In November 2016, Norbord exchanged ownership of its Val-d’Or OSB mill for Louisiana-Pacific Corporation’s Chambord OSB mill. Production at both mills has been curtailed for a number of years.

⁽²⁾ In January 2009, Norbord indefinitely curtailed production at its Huguley, Alabama OSB mill.

In the US, Norbord employs multi-opening press technology at its Minnesota, Georgia, Mississippi, and two Texas OSB mills. Norbord employs continuous press technology at its South Carolina and Alabama OSB mills in the US. Continuous press technology allows for the production of OSB in non-standard sizes and with specialized performance characteristics. Most of the US mills’ production is sold in the domestic US market. All of these mills purchase their wood fibre requirements from outside sources with prices based on regional market dynamics. These mills are not unionized.

In Canada, Norbord also employs multi-opening press technology at its British Columbia OSB mill, one of the two Alberta (Grande Prairie) OSB mills, the Ontario OSB mill and the two Quebec OSB mills.

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Norbord employs continuous press technology at its other Alberta (High Level) OSB mill. A significant portion of the production of the Canadian mills is shipped to the US and offshore export markets (Western mills). The wood fibre requirements for these mills are obtained primarily from Crown land under long-term forest management agreements with the provincial governments and also from other outside sources, with prices based on regional market dynamics. The two Alberta mills are non-unionized and the other Canadian mills are unionized.

All employees in the North American operating mills, with the exception of 100 Mile House, British Columbia and Barwick, Ontario, participate in profit sharing programs whereby a percentage of each mill’s operating income is shared equally across all employees at that mill.

Norbord’s mill in Cowie, Scotland is a large operation with a continuous press MDF production line and a continuous press particleboard line. The South Molton, England particleboard mill employs single-opening press technology and is integrated with laminating operations and a flat-pack furniture manufacturing facility. The OSB mill in Inverness, Scotland employs two multi-opening press lines which will be replaced with one state-of-the-art continuous press line upon completion of the $135 million reinvestment, anticipated to start up in the second half of 2017. All of Norbord’s UK mills purchase their wood fibre requirements from outside sources with prices based on regional market dynamics. These mills are all unionized.

The Genk, Belgium OSB mill employs continuous press technology. The Genk mill purchases its wood fibre requirements on the open market from a combination of public and private sources in the region. The mill is unionized.

Manufacturing Inputs

Wood fibre, resin, wax and energy are the principal raw material inputs used in the production of Norbord’s panelboard products.

Wood Fibre

Norbord does not own any timberlands and purchases timber, wood chips and other wood fibre as well as recycled materials on the open market in competition with other users of such resources.

Norbord’s wood fibre supply comes from several different sources. In the US, roundwood logs are primarily sourced from private and industry-owned woodlands. In Canada, Norbord holds forest licences and agreements to source roundwood logs from Crown timberlands, which are supplemented by open market and private purchases. In Europe, wood fibre is purchased from government and private landowners.

Resin and Wax

Resin and wax is sourced through tolling arrangements with outside suppliers with prices for the underlying feedstocks based on global indices. These feedstocks are widely-used industrial chemicals derived from oil and gas, such as benzene, phenol and methanol. Feedstock prices are influenced by global supply and demand conditions, and have exhibited significant volatility over time.

Energy

Norbord’s manufacturing processes generate residual wood material that cannot be used in the final product. This material can be used as a biomass fuel to produce heat. Approximately 75% of Norbord’s total manufacturing energy needs and all of Norbord’s OSB process heat requirements are met with biomass fuel.

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Norbord also procures electricity and natural gas for its manufacturing and air emissions control processes. Energy prices have experienced significant volatility in recent years, particularly in deregulated markets. In 2016, approximately 26% of Norbord’s natural gas consumption was used to generate electricity and process heat at Norbord’s Cowie, Scotland operations. An additional 25% was used to operate air emissions control equipment in Norbord’s US plants.

Seasonality and Cyclicality of Business

Quarterly financial results are impacted by seasonal factors such as weather and building activity. Market demand varies seasonally, as homebuilding activity and repair and renovation work – the principal end uses of Norbord’s products – are generally stronger in the spring and summer months. Adverse weather can also limit access to logging areas, which can affect the supply of fibre to Norbord’s operations. Shipment volumes and commodity prices are affected by these factors as well as by global supply and demand conditions.

Operating working capital is typically built up in the first quarter of the year due primarily to winter log inventory purchases in the Northern regions of North America and Europe. This inventory is generally consumed in the spring and summer months.

Competitive Conditions

The wood-based panels industry is a highly competitive business environment in which companies compete, to a large degree, on the basis of price. Factors including production costs, freight charges and market dynamics between producing and consuming regions have an impact on the competitive position of all potential structural panel suppliers in a given market. OSB’s significant cost advantage over plywood continues to support long-term OSB market growth. Norbord’s principal market destination is the United States where it competes with North American and, in some instances, foreign producers. Most of Norbord’s European products are sold in the United Kingdom, Germany and the BeNeLux region where it competes primarily with other European producers.

Research and Development

Norbord carries out research and applied technology programs, identifying new techniques to improve production and product quality, develop new products and minimize the environmental impact of its operations. The Company operates a central laboratory facility in St. Laurent, Quebec. In addition, the Company performs contract work at a number of industry-wide organizations including FPInnovations and the Alberta Innovates Technology Futures aimed at reducing production costs and developing new products.

Environment, Health and Safety

Norbord’s Environment, Health and Safety Policies are available on Norbord’s website at www.norbord.com.

Norbord measures its performance against environment, health and safety targets in three areas: 1) injury frequency and severity; 2) environmental compliance; and 3) environment, health and safety management systems. Norbord conducts audits on its operations on a regular schedule to ensure continuing high standards of performance.

Norbord’s operations are subject to a range of general and industry-specific environmental laws and regulations relating to air emissions, wastewater discharges, solid and hazardous waste management, plant and wildlife protection and site remediation.

In the fall of 2016, the Paris Agreement (Agreement) resulting from the United Nations Framework Convention on Climate Change entered into force. At present, Canada, the European Union and the

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United Kingdom have all ratified the agreement. The Canadian federal government and the four provinces in which Norbord operates have enacted regulations to meet greenhouse gas reduction obligations through carbon taxes or cap-and-trade initiatives. Currently, none of these programs have a significant direct financial impact on Norbord’s operations. Although the United States is a signatory to the Agreement, it has not been ratified by the US Senate and therefore is not legally binding. There are currently no greenhouse gas regulatory initiatives that are expected to negatively impact Norbord’s US operations.

All of Norbord’s UK operations entered into the Kyoto climate change energy efficiency agreements in 2001, which has to-date resulted in more than £39 million in tax and energy efficiency cost savings. A cap-and-trade carbon trading program has been in place in Europe since 2005. Biomass heat energy generating units have enabled the European mills to comply with energy efficiency targets and have resulted in a surplus of carbon credits across Norbord’s European business. Since 2005 surplus credits traded on environmental exchanges have resulted in approximately £5 million in additional income. In 2016, Norbord expects to have sufficient credits to meet compliance commitments.

Norbord holds third party verified sustainable forest management and fibre sourcing certification from the Sustainable Forestry Initiative^® (SFI^®) program, and chain-of-custody certificates from the SFI^® program and the Forest Stewardship Council^® forest certification program and the Programme for the Endorsement of Forest Certification (PEFC).

Human Resources

Norbord’s corporate head office is in Toronto, Canada. Norbord employs approximately 2,600 people at its operations in the US, Canada and Europe. Approximately 40% of these employees are represented by labour unions. All of Norbord’s UK and Belgian union contracts are evergreen. Norbord’s North American union contracts expire as follows:

Union	Mill Covered	Contract Expiry Date
Pulp, Paper and Woodworkers of Canada (PPWC)	100 Mile House, BC	June 30, 2017
Unifor	Barwick, ON	July 31, 2017
Unifor	Chambord, QC(1)	June 1, 2018
Unifor	La Sarre, QC	June 30, 2021

⁽¹⁾   mill indefinitely curtailed

RISKS OF THE BUSINESS

Norbord is exposed to a number of risks and uncertainties in the normal course of its business which could have a material adverse effect on the Company’s business, financial position, operating results and cash flows. A discussion of some of the major risks and uncertainties follows.

Product Concentration and Cyclicality

OSB accounts for almost 90% of Norbord’s panel production capacity. The price of OSB is one of the most volatile in the wood products industry. Norbord’s concentration on OSB increases its sensitivity to product pricing and may result in a high degree of sales and earnings volatility.

Norbord’s financial performance is principally dependent on the selling price of its products. Most of Norbord’s products are traded commodities for which no liquid futures markets exist. The markets for most of Norbord’s products are highly cyclical and characterized by periods of supply and demand imbalance, during which its product prices have tended to fluctuate significantly. In addition, since many of Norbord’s products are used for new home construction, seasonal and annual weather changes can affect demand and sales volumes. These imbalances, which may affect different areas of Norbord’s

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business at different times, are influenced by numerous factors that are beyond Norbord’s control and include: changes in global and regional production capacity for a particular product or group of products; changes in the end use of those products, or the increased use of substitute products; a significant increase in longer-term interest rates; changes in the availability of mortgage financing; and the overall level of economic activity in the regions in which Norbord conducts business. In the past, Norbord has been negatively affected by declines in product pricing and has taken production downtime to manage working capital and minimize cash losses. Severe and prolonged weakness in the markets for Norbord’s products, particularly OSB, could seriously harm the Company’s financial position, operating results and cash flows, including the ability to satisfy interest and principal payments on outstanding debt.

Based on operations running at full capacity, the following table shows the approximate annualized impact of changes in product prices on Adjusted EBITDA:

	Sensitivity Factor	Impact on    Adjusted EBITDA (1)    (US $ millions)
OSB – North America	$10 per Msf–7/16”	$59
OSB – Europe	€10 per m3	8

⁽¹⁾ Norbord defines Adjusted EBITDA as earnings (loss) determined in accordance with International Financial Reporting Standards (IFRS) before finance costs, income taxes, depreciation and amortization and other unusual or non-recurring items. Adjusted EBITDA is a non-IFRS financial measure that does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other companies. See the Non-IFRS Financial Measures section in Norbord’s 2016 Management’s Discussion and Analysis dated February 2, 2017 for a quantitative reconciliation of Adjusted EBITDA to earnings (the most directly comparable IFRS measure).

Liquidity

Norbord relies on long-term borrowings, access to revolving bank lines and an accounts receivable securitization program to fund its ongoing operations. The Company’s ability to refinance or renew such facilities is dependent upon financial market conditions. Although Norbord has notes maturing in 2017, 2020 and 2023 and has bank lines that are committed to May 2019, financing may not be available when required or may not be available on commercially favourable or otherwise satisfactory terms in the future.

Competition

The wood-based panels industry is a highly competitive business environment in which companies compete, to a large degree, on the basis of price. Norbord’s principal market is the US, where it competes with North American and, in some instances, foreign producers. Norbord’s European operations compete primarily with other European producers. Certain competitors may have lower-cost facilities than Norbord. Norbord’s ability to compete in these and other markets is dependent on a variety of factors, such as manufacturing costs, availability of key production inputs, continued free access to markets, customer service, product quality, financial resources and currency exchange rates. In addition, competitors could develop new cost-effective substitutes for Norbord’s wood-based panels, or building codes could be changed making the use of Norbord’s products less attractive for certain applications.

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Customer Dependence

Norbord sells its products primarily to major retail chains, contractor supply yards and industrial manufacturers, and faces strong competition for the business of significant customers. Norbord generally does not have contractual assurances of future sales. As a result, the loss of a significant customer or any significant customer order cancellations could negatively affect the Company’s sales and earnings. Continued consolidation in the retail industry could expose Norbord to increased concentration of customer dependence and increase customers’ ability to exert pricing pressure on Norbord.

Cross Border Trade

Norbord’s future performance is dependent upon international trade and, in particular, cross-border trade between Canada and the United States and between the United Kingdom and European Union. Access to markets in the United States and other countries may be affected from time to time by various trade-related events. The Company’s financial condition and results of operations could be materially adversely affected by trade rulings, the failure to reach or adopt trade agreements, the imposition of customs duties or other tariffs, or an increase in trade restrictions in the future.

Manufacturing Inputs

Norbord is exposed to commodity price risk on most of its manufacturing inputs, which principally comprise wood fibre, resin, wax 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 the Company’s control. Norbord may not be able to hedge the purchase price of manufacturing inputs or pass increased costs on to its customers.

Fibre Resource

Fibre for Norbord’s OSB mills comes from roundwood logs while the MDF and particleboard mills source fibre in the form of roundwood logs, wood chips, sawdust and recycled wood. Norbord’s wood fibre supply comes from several different sources. In the US, roundwood logs are primarily sourced from private and industry-owned woodlands. In Canada, Norbord holds forest licences and agreements to source roundwood logs from Crown timberlands, which are supplemented by open market and private purchases. In Europe, wood fibre is purchased from government and private landowners.

When Norbord purchases timber, wood chips, fibre and other wood recycled materials on the open market, it is in competition with other uses of such resources, where prices are influenced by factors beyond Norbord’s control. Fibre supply could also be influenced by natural events, such as forest fires, severe weather conditions, insect epidemics and other natural disasters, which may increase wood fibre costs, restrict access to wood fibre or force production curtailments. In addition, Norbord’s supply and cost of fibre may be negatively impacted by increased demand resulting from market-based or legislative initiatives to use wood-based biomass materials in the production of heat, electricity or other bio-based products.

In Canada, the Crown licences and agreements require the payment of stumpage fees for the timber harvested and compliance with specified operating, rehabilitation and silviculture management practices. They can be revoked or cancelled for non-performance and contain terms and conditions that could, under certain circumstances, result in a reduction of annual allowable timber that may be harvested by Norbord without any compensation. The Company may not be able to renew or replace the Crown licences when they come due. Any changes to government regulations and policies governing forest management practices could adversely affect the Company’s access to, or increase the cost of, wood fibre.

Aboriginal groups have claimed substantial portions of land in various Canadian provinces over which they claim aboriginal title, or in which they have a traditional interest, and for which they are seeking compensation from various levels of government. The results of these claims and related forest policy

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mechanisms may adversely affect the supply of wood fibre and the commercial terms of supply agreements with provincial governments.

Currency Exposures

Norbord reports its financial results in US dollars. A portion of Norbord’s product prices and costs are influenced by relative currency values (particularly the Pound Sterling, Euro and Canadian dollar). Significant fluctuations in relative currency values could negatively affect the cost competitiveness of the Company’s facilities, the value of its foreign investments, the results of its operations and its financial position.

Norbord’s foreign exchange exposure arises from the following sources:

• net investments in foreign operations, limited to Norbord’s investment in its European operations which transact in both Pounds Sterling and Euros;

• net Canadian dollar-denominated monetary assets and liabilities; and

• committed or anticipated foreign currency-denominated transactions, primarily Canadian dollar costs in Norbord’s Canadian operations and Euro revenues in Norbord’s UK operations.

Third-Party Transportation Services

Norbord relies on third-party transportation services for delivery of products to customers as well as for delivery of raw materials from suppliers. The majority of products manufactured and raw materials used are transported by rail or truck, which are highly regulated. Transportation rates and fuel surcharges are influenced by factors beyond Norbord’s control. Any failure of third-party transportation providers to deliver finished goods or raw materials in a timely manner, including failure caused by adverse weather conditions could harm the Company’s reputation, negatively affect customer relationships or disrupt production at the Company’s mills.

Employee Retention and Labour Relations

Norbord’s success depends in part on its ability to attract and retain senior management and other key employees. Competition for qualified personnel depends on economic and industry conditions, competitors’ hiring practices and the effectiveness of Norbord’s compensation programs. The loss of, or inability to recruit and retain, any such personnel could impact the Company’s ability to execute on its strategy.

Norbord’s US employees are non-unionized while its UK, Belgian and most of its Canadian mill employees are unionized – representing approximately 40% of the workforce. All of Norbord’s UK and Belgian union contracts are evergreen. Canadian union contracts typically cover a three- to five-year term, and the current contracts with Unifor (formerly the Communications, Energy and Paperworkers Union) representing members at the OSB mills in Barwick, Ontario, Chambord, Quebec and La Sarre, Quebec expire July 31, 2017, June 1, 2018 and June 30, 2021 respectively. The current contract with the Pulp, Paper and Woodworkers of Canada (PPWC) representing members at the OSB mill in 100 Mile House, British Columbia expires June 30, 2017. Strikes or work stoppages could result in lost production and sales, higher costs or supply constraints if Norbord is unable to negotiate acceptable contracts with its various trade unions upon expiry.

Environmental Matters

Norbord’s operations are subject to a range of general and industry-specific environmental laws and regulations relating to air emissions, wastewater discharges, solid and hazardous waste management, plant and wildlife protection and site remediation. Failure to comply with applicable environmental laws and regulations could result in fines, penalties or other enforcement actions that could impact Norbord’s production capacity or increase its production costs. The Company has incurred, and expects to continue

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to incur, capital expenditures and operating costs to comply with applicable environmental laws and regulations. In addition, environmental laws and regulations could become more stringent in the future.

International Sales

A portion of the Company’s sales are exported to customers in developing markets. International sales present a number of risks and challenges, including but not limited to the effective marketing of the Company’s products in foreign countries, collectability of accounts receivable, tariffs and other barriers to trade and recessionary environments in foreign economies. Although the Company purchases credit insurance on all export sales, revenues could be negatively impacted by any customer losses.

Product Liability and Legal Proceedings

Norbord produces a variety of wood-based panels that are used in new home construction, repair-and-remodelling of existing homes, furniture and fixtures, and industrial applications. In the normal course of business, the end users of Norbord’s products have in the past made, and could in the future make, claims with respect to the fitness for use of its products or claims related to product quality or performance issues. In addition, Norbord has been in the past and may in the future be involved in legal proceedings related to antitrust, negligence, personal injury, property damage and other claims against the Company or its predecessors. Norbord could face increased costs if any future claims exceed purchased insurance coverage.

Capital Intensity

The production of wood-based panels is capital intensive. There can be no assurance that key pieces of equipment will not need to be repaired or replaced. In certain circumstances, the costs of repairing or replacing equipment, and the associated downtime of the affected production line, may not be insurable.

Tax Exposures

Norbord takes various positions in the normal course of business of filing its tax returns, and there can be no assurance that tax authorities will not challenge such filing positions. In addition, Norbord is subject to further uncertainties concerning the interpretation and application of tax laws in various operating jurisdictions. Norbord provides for known estimated tax exposures in all jurisdictions. These exposures are settled primarily through the closure of audits with the jurisdictional taxing authorities. However, future settlements could differ materially from the Company’s estimated liabilities.

Defined Benefit Pension Plan Funding

Although Norbord’s defined benefit pension plans are largely closed to new entrants, the Company continues to be subject to market risk on the plan assets and obligations related to existing members. Defined benefit pension plan funding requirements are based on actuarial valuations that make assumptions about the long-term expected rate of return on assets, salary escalation, life expectancy and discount rates. The Company’s latest funding valuations indicate the plans are in a solvency deficit position and therefore Norbord is required to make cash funding contributions. If actual experience differs from these assumptions or any of these assumptions change such that the solvency deficit increases, the Company would be required to increase cash funding contributions, reducing the availability of such funds for other corporate purposes.

Information Technology Infrastructure

In order to optimize performance, the Company regularly implements business process improvement initiatives and invests capital to upgrade its information technology infrastructure. These initiatives may involve risks to the operations and the Company may experience difficulties during the transition to these new or upgraded systems and processes. Difficulties in implementing new or upgraded information

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systems or significant system failures could disrupt operations and have a material adverse effect on the business.

Cyber Security

Norbord relies on information technology to support the Company’s operations and to maintain business records. Some systems are internally managed and some are maintained by third-party service providers. Norbord and its service providers employ what the Company believes are adequate security measures. A security failure of that technology, security breaches of company, customer, employee, and vendor information as well as a disruption of business resulting from a natural disaster, hardware or software corruption, failure or error, telecommunications system failure, service provider error, intentional or unintentional personnel actions or other disruptions could disrupt operations and have a material adverse effect on the business. Further, such disruptions could expose the Company to potential liability or other proceedings by affected individuals, business partners and/or regulators. As a result, Norbord could face increased costs if any future claims exceed purchased insurance coverage.

CAPITAL STRUCTURE

Description of Share Capital

The authorized share capital of the Company consists of an unlimited number of Class A Preferred Shares, an unlimited number of Class B Preferred Shares, an unlimited number of Non-Voting Participating Shares and an unlimited number of Common Shares. As at February 2, 2017 there were 85.8 million Common Shares outstanding. No other shares are outstanding. For information on Common Shares issued to Ainsworth shareholders pursuant to the Merger, see “General Development of the Business – Changes in the Business 2014-2017 – Merger with Ainsworth.”

The following is a summary of the principal attributes of the Common Shares, the Class A Preferred Shares, the Class B Preferred Shares and the Non-Voting Participating Shares of Norbord. For a complete description of the terms of Norbord’s share capital, refer to Norbord’s Restated Articles of Incorporation filed on SEDAR at www.sedar.com and on the Electronic Data Gathering, Analysis and Retrieval system (EDGAR) at www.sec.gov.

Common Shares

The holders of Common Shares are entitled to one vote per share at all meetings of shareholders. They are entitled to receive dividends if, as and when declared by the Directors ratably with any holders of the Non-Voting Participating Shares, subject to the attributes of each series of Non-Voting Participating Shares. In the event of any liquidation, dissolution or winding up, subject to the rights of holders of any Class A Preferred Shares and Class B Preferred Shares, the holders of Common Shares are entitled to participate ratably with any holders of Non-Voting Participating Shares in any distribution of the assets of the Company, subject to the attributes of each series of Non-Voting Participating Shares.

Class A Preferred Shares

The Class A Preferred Shares are issuable in series. The Directors of the Company are empowered to fix the number of shares in and the designation and attributes of each series, which may include voting rights. The Class A Preferred Shares are entitled to priority over the Class B Preferred Shares, the Non-Voting Participating Shares and the Common Shares with respect to the payment of dividends and the distribution of assets of the Company in the event of any liquidation, dissolution or winding up of Norbord.

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Class B Preferred Shares

The Class B Preferred Shares are issuable in series. The Directors of the Company are empowered to fix the number of shares in and the designation and attributes of each series, which may include voting rights. The Class B Preferred Shares are entitled to priority over the Non-Voting Participating Shares and the Common Shares with respect to the payment of dividends and the distribution of assets of the Company in the event of any liquidation, dissolution or winding up of the Company.

Non-Voting Participating Shares

The Non-Voting Participating Shares are issuable in series. The Directors of the Company are empowered to fix the number of shares in and the designation and attributes of each series, which may include a preferential dividend or a priority in any distribution of assets of the Company. Subject thereto, the holders of Non-Voting Participating Shares are entitled to receive dividends if, as and when declared by the Directors ratably with the holders of Common Shares and, in the event of any liquidation, dissolution or winding up, subject to the rights of the holders of any Class A Preferred Shares and Class B Preferred Shares, to participate ratably with the holders of Common Shares in any distribution of the assets of the Company.

Description of Debt Securities

At February 2, 2017, Norbord had issued and outstanding senior debt securities as follows:

• $200 million of 7.70% senior secured notes due February 15, 2017;

• $240 million of 5.375% senior secured notes due December 1, 2020; and

• $315 million of 6.25% senior secured notes due April 1, 2023.

The 7.70% senior secured notes are subject to a credit ratings-based coupon step-up provision. Interest is payable semi-annually and the debt securities are non-callable except at a make-whole price. The Company intends to permanently repay the 7.70% senior secured notes at maturity.

Credit Ratings

Maintaining a stable balance sheet is an important element of Norbord’s financing strategy. Norbord believes that its record of superior operational performance and prudent balance sheet management will enable it to access public and private capital markets (subject to financial market conditions).

As at February 2, 2017, the Company’s long-term debt and issuer ratings were:

	DBRS		Standard &     Poor’s Ratings Services		Moody’s     Investors Service
Secured Notes		BB		BB-		Ba2
Issuer		BB		BB-		Ba2
Outlook		Negative		Positive		Stable

Credit ratings are intended to provide investors with an independent measure of the credit quality of any securities issue. The credit ratings accorded to debt securities by the rating agencies are not recommendations to purchase, hold or sell the debt securities, as such ratings do not comment on market price or suitability for a particular investor. There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if, in its judgement, circumstances warrant.

DBRS credit ratings are on a long-term debt rating scale that ranges from AAA to D, which represents the range from highest to lowest quality of such securities rated. According to DBRS, a rating of BB is the fifth highest of ten major categories, and debt securities rated BB are defined to be speculative and non-

Norbord Inc. 2016 Annual Information Form Page 18

investment grade. Rating categories AA through CCC are denoted by the subcategories “high” and “low”. The absence of either a “high” or “low” designation indicates the rating is in the “middle” of the category.

S&P credit ratings are on a long-term debt rating scale that ranges from AAA to D, which represents the range from highest to lowest quality of such securities rated. According to S&P, the BB rating is the fifth highest of ten major categories, and debt securities rated BB or lower are regarded as having significant speculative characteristics. Debt securities rated BB are less vulnerable to non-payment than other speculative issues; however, they face major ongoing uncertainties or exposure to adverse business, financial or economic conditions. The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (–) sign to show relative standing within the major rating categories.

Moody’s credit ratings are on a long-term debt rating scale that ranges from Aaa to C, which represents the range from highest to lowest quality of such securities rated. According to Moody’s, a rating of Ba is the fifth highest of nine major categories, and debt securities rated Ba are judged to have speculative elements and are subject to substantial credit risk. Moody’s applies numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the security ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking and the modifier 3 indicates a ranking in the lower end of that generic rating category.

DIVIDENDS

On April 29, 2013, the Company’s Board of Directors approved a variable dividend policy which targets the payout to shareholders of a portion of expected future free cash flow through the cycle. The Company’s intention is that the dividend will reflect the cyclicality, not the seasonality, of the business. Under this policy, the Board of Directors has declared dividends of CAD $0.10 per Common Share in each of the last six quarters, CAD $0.25 per Common Share in the first two quarters of 2015 and CAD $0.60 per Common Share in the seven quarters prior thereto. The Board of Directors adjusted the dividend level twice during 2015 to maintain flexibility in the Company’s capital structure as well as to fund growth and other attractive capital investment opportunities.

The amount of future dividends under the Company’s dividend policy, and the declaration and payment thereof, will be based upon the Company’s financial position, results of operations, cash flow, capital requirements and restrictions under the Company’s existing revolving bank lines and senior notes, as well as broader market and economic conditions, among other factors, and shall be in compliance with applicable law. The Board retains the power to amend the Company’s dividend policy in any manner and at any time as it may deem necessary or appropriate in the future. For these reasons, as well as others, there can be no assurance that dividends in the future will be equal or similar to the amount described above or that the Board will not decide to suspend or discontinue the payment of cash dividends in the future.

The Company has a Dividend Reinvestment Plan (DRIP) whereby shareholders resident in Canada can elect to receive their dividends in Common Shares.

The table below summarizes the total dividends on Common Shares declared by the Board, the amounts paid out in cash and the amounts distributed as shares under the DRIP for the preceding three financial years.

($ millions)	2016		2015		2014
Cash distribution		$26		$40		$115
Share distribution (1)		-		-		1
Total dividends on Common Shares		$26		$40		$116

  ⁽¹⁾ Common Shares distributed in the DRIP represented less than $1 million in 2016 and 2015.

Norbord Inc. 2016 Annual Information Form Page 19

MARKET FOR SECURITIES

Common Shares

The Company’s Common Shares trade on the TSX and the NYSE under the symbol OSB.

TSX Trading Data

In 2016, the Company’s Common Shares traded on the TSX in a range between CAD $19.44 and CAD $36.00 per share, ending the year at CAD $33.91.

CAD $	Common Shares
Month	High		Low		Close		Volume
January	$	26.91	$	22.56	$	24.46		4,621,073
February (1)		24.50		19.44		22.24		4,411,232
March		26.19		22.08		25.84		3,357,702
April		27.34		23.11		25.01		2,413,198
May		28.78		25.10		28.25		2,615,899
June		29.10		24.42		25.26		2,540,169
July		33.10		24.22		32.90		4,781,704
August		33.93		30.22		31.50		4,539,174
September		33.98		30.55		33.70		2,985,093
October		35.47		31.06		31.55		4,018,890
November		33.84		28.91		33.62		4,963,310
December		36.00		33.21		33.91		3,321,103

⁽¹⁾  Prior to February 18, 2016, the Company’s Common Shares traded under the symbol “NBD”. The ticker symbol on the TSX changed to “OSB” on February 19, 2016.

NYSE Trading Data

In 2016, the Company’s Common Shares traded on the NYSE in a range between USD $14.00 and USD $27.32 per share, ending the year at USD $25.25.

US $	Common Shares
Month	High		Low		Close		Volume
January	$	-	$	-	$	-		-
February (1)		17.34		14.00		16.35		24,879
March		20.58		16.46		19.94		188,548
April		20.96		18.53		20.00		157,779
May		22.00		19.57		21.60		177,563
June		22.50		17.94		19.72		199,387
July		25.40		18.67		25.40		240,351
August		25.82		23.64		24.07		271,813
September		25.98		23.50		25.72		219,511
October		26.75		23.20		23.66		278,733
November		25.20		21.40		25.07		622,247
December		27.32		24.83		25.25		261,907

⁽¹⁾ On February 19, 2016 the Company’s Common Shares began trading on the NYSE under the symbol “OSB”. The above table discloses data from February 19, 2016, when the Company’s Common Shares began trading on the NYSE.

Norbord Inc. 2016 Annual Information Form Page 20

DIRECTORS AND SENIOR EXECUTIVE OFFICERS

Directors

The Directors of the Company are set out below. They hold office until the next annual meeting of shareholders or until their successors are elected or appointed.

Name and Location of Residence	Position and Office Held	Principal Occupation	Director   Since
JACK L. COCKWELL (1)(2)   Toronto, Ontario, Canada	Director	Director, Brookfield Asset Management Inc.	1987
PIERRE DUPUIS (1)(2)(3)(4)   Sutton, Quebec, Canada	Director	Corporate Director	1995
PAUL E. GAGNE(1)(2)(4)   Senneville, Quebec, Canada	Director	Corporate Director	2015
J. PETER GORDON(1)(2)(3)   Toronto, Ontario, Canada	Director and Chair	Managing Partner, Brookfield Asset Management Inc.	2015
PAUL A. HOUSTON(1)(2)(3)(4)   Brooklin, Ontario, Canada	Director	Corporate Director	2015
J. BARRIE SHINETON   Toronto, Ontario, Canada	Director and Vice Chair	Corporate Director	2004
DENIS A. TURCOTTE (1)(2)(4)   Sault Ste. Marie, Ontario, Canada	Director	President and Chief Executive Officer, North Channel Management and North Channel Capital Partners	2012
PETER C. WIJNBERGEN   Toronto, Ontario, Canada	Director and President & CEO	President and Chief Executive Officer, Norbord Inc.	2014

  ⁽¹⁾   Member of the Environmental, Health & Safety Committee. Mr. Turcotte is Chair of the Committee.

  ⁽²⁾   Member of the Human Resources Committee. Mr. Cockwell is Chair of the Committee.

  ⁽³⁾   Member of the Corporate Governance and Nominating Committee. Mr. Houston is Chair of the Committee.

  ⁽⁴⁾   Member of the Audit Committee. Mr. Dupuis is Chair of the Committee.

All of the Directors have held their principal occupations shown in the above table for the past five years, except for Messrs. Cockwell, Shineton and Wijnbergen.

Mr. Cockwell was Group Chair of Brookfield from June 2002 to June 2016.

Mr. Shineton was appointed Vice Chair of the Board on January 29, 2014 after retiring as President and Chief Executive Officer of the Company where he held such position from 2004 through 2013.

Mr. Wijnbergen was appointed President and Chief Executive Officer on January 1, 2014 after serving as Senior Vice President and Chief Operating Officer from September 2010 through December 2013.

Cease Trade Orders, Bankruptcies, Penalties and Sanctions

The following Directors served as directors of Fraser Papers Inc. (Fraser).

Name	Period Served
JACK L. COCKWELL	2004 to April 2009
PAUL E. GAGNE	2004 to February 2011
J. PETER GORDON	2007 to February 2011

In June 2009, Fraser initiated a court-supervised restructuring under the Companies’ Creditors Arrangement Act and also filed for protection pursuant to Chapter 15 of the U.S. Bankruptcy Code. As part of its restructuring, Fraser sold all of its operating assets and distributed the proceeds from the sale. Fraser’s common shares were suspended from trading on the TSX on June 23, 2009 and delisted on July 22, 2009. On March 10, 2011, the Ontario Securities commission issued a cease trade order against Fraser, and on June 23, 2011, Fraser was dissolved.

Norbord Inc. 2016 Annual Information Form Page 21

Code of Business Conduct

Norbord has a Code of Business Conduct (Code) that sets out the expected conduct of the Company’s Directors, officers and employees, and those of its subsidiaries, in relation to honesty, integrity and compliance with all legal and regulatory requirements, including conflicts of interest. The Board reviews the Code every year, most recently on October 27, 2016. The Code is available on the Company’s website at www.norbord.com as well as on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

Senior Executive Officers

The senior executive officers of the Company are shown in the following table:

Name and Location of Residence	Current Office and Principal Occupation	Year   Appointed
J. PETER GORDON   Toronto, Ontario, Canada	Director and Chair Managing Partner, Brookfield Asset Management Inc.	2015
J. BARRIE SHINETON   Toronto, Ontario, Canada	Director and Vice Chair Corporate Director	2014
PETER C. WIJNBERGEN   Toronto, Ontario, Canada	President and Chief Executive Officer	2014
ROBIN E. LAMPARD   Toronto, Ontario, Canada	Senior Vice President and Chief Financial Officer	2008
NIGEL A. BANKS   Toronto, Ontario, Canada	Senior Vice President, Corporate Services	2010
KARL R. MORRIS   Glasgow, Scotland, UK	Senior Vice President, European Operations	2005
MICHAEL J. DAWSON   Toronto, Ontario, Canada	Senior Vice President, Sales, Marketing and Logistics	2008

For those senior executive officers of the Company appointed to their principal occupations within the past five years, their prior occupations during this period were as follows:

Mr. Shineton was appointed Vice Chair of the Board on January 29, 2014 after serving as President and Chief Executive Officer of the Company from 2004 through 2013.

Mr. Wijnbergen was appointed President and Chief Executive Officer on January 1, 2014 after serving as Senior Vice President and Chief Operating Officer from September 2010 through December 2013.

As at February 2, 2017, the Directors and senior executive officers of the Company as a group directly own or exercise control or direction over 0.2 million Common Shares of the Company (representing less than 1%), and none of the voting securities of any of the Company’s subsidiaries.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Except as set out below or as otherwise set out in this AIF, no Director or officer of the Company, no person who beneficially owns, directly or indirectly, more than 10% of the Norbord Common Shares and no associate or affiliate of the foregoing persons has any material interest in any transaction within the past three years or during the current financial year that has materially affected or will materially affect Norbord. The following transactions have occurred between the Company and Brookfield during the normal course of business:

Norbord Inc. 2016 Annual Information Form Page 22

Ownership of Ainsworth Shares

Prior to the Merger, Brookfield owned 77,673,443 common shares of Ainsworth. Under the terms of the Merger, Ainsworth shareholders, including Brookfield, received 0.1321 of a Common Share of Norbord for each Ainsworth common share held. Following completion of the Merger on March 31, 2015, Brookfield owned, directly and indirectly, 45,407,241 Common Shares of Norbord representing approximately 53% of the issued and outstanding Norbord Common Shares.

MATERIAL CONTRACTS

Norbord has entered into the following material contracts, other than in the ordinary course of business:

1. Trust Indenture dated April 16, 2015 between Norbord Inc. and Computershare trust Company, N.A. relating to the issuance of 6.25% Senior Secured Notes due April 16, 2023.

2. Trust Indenture dated November 26, 2013 between Norbord Inc. and Computershare Trust Company, N.A. relating to the issuance of 5.375% senior secured notes due December 1, 2020.

3. Trust Indenture dated February 14, 2007 between Norbord (Delaware) GP I, Norbord Inc., and Computershare Trust Company N.A., relating to the issuance of 6.45% notes due February 15, 2017.

TRANSFER AGENT AND REGISTRAR

The principal transfer agent and registrar for the Common Shares is CST Trust Company, P.O. Box 7010, Adelaide Street Postal Station, Toronto, Ontario, M5C 2W9, Telephone: 1-800-387-0825, e-mail: inquiries@canstockta.com. The co-transfer agent and registrar is American Stock Transfer & Trust Company, LLC, 6201, 15^th Avenue, Brooklyn, NY 11219, Telephone: 1-800-937-5449, e-mail: info@amstock.com.

Norbord Inc. 2016 Annual Information Form Page 23

AUDIT COMMITTEE

The Audit Committee is appointed by the Board and, among other things: assists the Board in its oversight of the integrity of the financial and related information of the Company through the review of 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; 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. The full terms of reference of the Audit Committee are included in this AIF as Appendix A.

The Audit Committee includes the following Directors, each of whom has been determined by the Board of Directors to be “independent” and “financially literate”, as such terms have been defined in National Instrument 52-110. The Board has selected each of the following individuals based upon their education and experience, as same is relevant to his or her responsibilities as a member of the audit committee:

Pierre Dupuis (Chair)

Paul E. Gagné

Paul A. Houston

Denis A. Turcotte

Mr. Dupuis is a Corporate Director. From 1999 to 2005, Mr. Dupuis was Vice President and Chief Operating Officer of Dorel Industries Inc., a global consumer products company. Prior to his appointment at Dorel, Mr. Dupuis was President and Chief Operating Officer of Transcontinental Inc., a Canadian printing and publishing company.

Mr. Gagné, a retired executive, has extensive experience in the natural resource sector and is a Chartered Accountant. He is currently serving as Chairman of the Board of Wajax Corporation, a leading distributor and service provider of mobile equipment, power systems and industrial components.

Mr. Houston is a retired executive who has served on a number of boards in Canada and the US, most recently with Ainsworth as Lead Director from 2009 to March 2015. Mr. Houston has been Lead Director of the Company since May 2015. He has over 12 years of CEO experience in a variety of industries, most recently serving as President and Chief Executive Officer of the Alderwoods group, a $1.2 billion US company. He has also operated businesses in Canada, US and Europe.

Mr. Turcotte is President and Chief Executive Officer of North Channel Management and North Channel Capital Partners, both consulting, private investment and management companies. Mr. Turcotte was President and Chief Executive Officer and a Director of Algoma Steel Inc. (Algoma), an integrated flat products steel company, from 2002 through 2008 and was named CEO of the year by Canadian Business Magazine in 2006. Prior to joining Algoma, he was President of the Paper Group and Executive Vice President of Corporate Development and Strategy of Tembec Inc., a forest products company, from 1999 to 2002.

As part of its mandate, the Audit Committee assesses the independence of the Company’s auditors. From time to time the Company’s auditors also provide non-audit services to Norbord. It is the Company’s policy not to engage its auditors to provide services that may impair their objectivity or that are specifically forbidden by law or regulation. The Company has implemented procedures to ensure that any engagement of the auditors for non-audit services receives prior clearance by the Audit Committee. In approving any such engagement, the Audit Committee will consider whether the provision of such non-audit services is compatible with maintaining the auditors’ independence.

Norbord Inc. 2016 Annual Information Form Page 24

Audit Fees

For the year 2016, Norbord paid a total of $1.0 million (2015 – $1.2 million) to the Company’s auditors for all services. The following provides details on these billings:

Service (US $ millions)	2016		2015
Audit	$	0.8		$1.0
Audit-related Fees		0.1		0.1
Tax		0.1		0.1
Other		–		–
Total	$	1.0		$1.2

Audit services include the annual financial statement audit of the Company and certain of its subsidiaries. They also include the review of the Company’s unaudited interim financial statements and services associated with securities regulatory filings.

Audit-related services include audits of the Company’s pension plans and special-purpose non-statutory audits of divisions of the Company.

Tax services include tax advisory and compliance services.

Norbord did not engage the Company’s auditors to perform other non-audit services.

Norbord did not rely on the deminimus exemption provided by paragraph (c)(y)(i) of Rule 2-01 of the US Securities and Exchange Commission Regulation S-X in 2016 or 2015.

INTERESTS OF EXPERTS

The Company’s auditors are KPMG LLP, an independent public accounting firm of Toronto, Canada. KPMG LLP is independent within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario (registered name of The Institute of Chartered Accountants of Ontario) and the rules and standards of the Public Company Accounting Oversight Board (United States) and the securities laws and regulations administered by the U.S. Securities and Exchange Commission.

ADDITIONAL INFORMATION

The Management Proxy Circular dated March 3, 2017 will contain additional information concerning the Company including Directors’ and officers’ remuneration and indebtedness, principal holders of Common Shares and its stock option and share purchase plans. Additional financial information about the Company is included in Norbord’s audited consolidated financial statements and Management’s Discussion and Analysis for the year ended December 31, 2016.

These documents and additional information about the Company and its operations can be found on Norbord’s website at www.norbord.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Norbord Inc. 2016 Annual Information Form Page 25

GLOSSARY

m³: Cubic metre. A measure of volume equal to approximately 1,130 square feet ( ³/₈-inch basis).

MDF: Medium density fibreboard. A panelboard produced by chemically bonding highly refined wood fibres of uniform size under heat and pressure.

Msf (MMsf): Measurement for panel products equal to a thousand (million) square feet. This measurement is calculated on either a ³/₈-inch or ⁷/₁₆-inch thick basis.

OSB: Oriented strand board. An engineered structural wood panel produced by chemically bonding wood strands in a uniform direction under heat and pressure.

Panelboard: Oriented strand board, particleboard, medium density fibreboard and plywood.

Particleboard: A panelboard produced by chemically bonding clean sawdust, small wood particles and recycled wood fibre under heat and pressure.

Plywood: A panelboard produced by chemically bonding thin layers of solid wood veneers.

Norbord Inc. 2016 Annual Information Form Page 26

APPENDIX A – AUDIT COMMITTEE – TERMS OF REFERENCE

Role of Audit Committee

The role of the Audit Committee is to assist the Board in its oversight of the integrity of the financial and related information of the Company including its financial statements, the internal controls and procedures for financial reporting and the processes for monitoring compliance with legal and regulatory requirements and to review the independence, qualifications and performance of the external auditor of the Company. Management is responsible for the preparation, presentation and integrity of the financial statements and for establishing and maintaining the above noted controls, procedures and processes and the Audit Committee is appointed by the Board to review and monitor them.

Authority and Responsibilities

In carrying out its role, the Audit Committee has the following authority and responsibilities:

1. Financial information and reporting –

(a) to review and discuss with management and the external auditor, as appropriate:

(i) the annual audited financial statements and the interim financial statements including the accompanying Management’s Discussion and Analysis; and

(ii) other releases containing information taken from the Company’s financial statements prior to their release; and

(b) to recommend to the Board for approval the quarterly and annual financial filings;

(c) to review the Company’s financial reporting and accounting policies and any proposed material changes to them or their application; and

(d) to meet privately with the person responsible for the Company’s internal audit function as frequently as the Committee feels appropriate to fulfill its responsibilities, which will not be less frequently than annually, to discuss any items of concern.

2. Internal controls – to review, with the Chief Financial Officer (CFO), the external auditor and others, as appropriate, the Company’s system of internal controls.

3. External audit –

(a) to recommend to the Board, for shareholder approval, the external auditor to examine the Company’s accounts, controls and financial statements on the basis that the external auditor is accountable to the Board and the Audit Committee as representatives of the shareholders of the Company;

(b) to evaluate the audit services provided by the external auditor, pre-approve all audit fees and recommend to the Board, if necessary, the replacement of the external auditor;

(c) to pre-approve any non-audit services to be provided to the Company or its subsidiaries by the external auditor and the fees for those services;

(d) to obtain and review at least annually a written report by the external auditor setting out the auditor’s internal quality control procedures, any material issues raised by the auditor’s internal quality control reviews and the steps taken to resolve those issues;

(e) to review at least annually the relationships between the Company and the external auditor in order to establish the independence of the external auditor;

(f) to oversee the work of the external auditor, including the resolution of disagreements between management and the external auditors regarding financial reporting;

(g) to communicate directly with the internal and external auditors;

Norbord Inc. 2016 Annual Information Form Page 27

(h) to meet privately with the external auditors as frequently as the Committee feels appropriate to fulfill its responsibilities; and

(i) to review and evaluate the lead partner of the auditor.

4. Risk management – to review and monitor the Company’s major financial risks and risk management policies and the steps taken by management to mitigate those risks.

5. Compliance –

(a) to review the Company’s financial reporting procedures and policies relating to compliance with legal and regulatory requirements and to investigate any non-adherence to those procedures and policies; and

(b) to establish procedures for the receipt and treatment of any complaint regarding accounting, internal accounting controls or auditing matters including procedures for the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters.

Composition and Procedures

1. Size – The Audit Committee will consist of a minimum of three Directors. The members of the Committee and the Chair are appointed by the Board upon the recommendation of the Corporate Governance and Nominating Committee and may be removed by the Board in its discretion.

2. Qualifications – All members of the Committee must be “independent” within the meaning of sections 1.4 and 1.5 of National Instrument 52-110. All members of the Committee must be “financially literate”, i.e., have the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the financial statements of the Company.

3. Meetings – The Committee will meet as it determines is appropriate to fulfill its responsibilities, which will not be less than four times a year and a portion of each meeting will be held without the presence of management. Quorum for meetings will be a majority of the members of the Committee. Notice of meetings of the Committee shall be given not less than 48 hours before the time when the meeting is to be held. The Committee may invite any member of management, employee or other person to attend any of its meetings.

4. Review of Financial Statements – The Committee will review the Company’s annual audited financial statements with the CEO and CFO and then the full Board. The Committee will review the interim financial statements with the CEO and CFO and will approve such documents prior to their filing. The external auditor will be present at these meetings.

5. Review of CEO and CFO Certification Process – In connection with its review of the annual audited financial statements and interim financial statements, the Committee will also review the process for the CEO and CFO certifications with respect to the financial statements and the Company’s disclosure and internal controls, including any material deficiencies or changes in those controls.

6. Review of Earnings and Other Releases – The Committee will review with the CFO any news release containing financial information taken from the Company’s financial statements prior to the release of the financial statements to the public. The Committee will satisfy itself that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements and will periodically assess the adequacy of those

Norbord Inc. 2016 Annual Information Form Page 28

procedures.

7. Approval of Audit and Non-Audit Services – In addition to recommending to the Board the external auditor to examine the Company’s financial statements and the compensation of the external auditor for audit services, the Committee must approve any use of that external auditor to provide non-audit services prior to its engagement. It is the Committee’s practice to restrict the non-audit services that may be provided by the external auditor in order to minimize relationships that could appear to impair the objectivity and independence of the external auditor.

8. Hiring Guidelines for Independent Auditor Employees – The Committee will adopt guidelines regarding the hiring of any partner, employee, reviewing tax professional or other person providing audit assurance to the external auditor of the Company on any aspect of its Audit Report of the Company’s financial statements in order to ensure the objectivity and independence of the external auditor.

9. Audit Partner Rotation – The Committee will ensure that the lead audit partner assigned by the external auditor to the Company, as well as the independent review partner charged with reviewing the financial statements of the Company, are changed at least every five years.

10. Process for Handling Complaints about Accounting Matters – The Committee has established the following procedure for the receipt and treatment of any complaint received by the Company regarding accounting, internal accounting controls or auditing matters:

(a) The Company will make available and make known special mail and e-mail addresses and telephone numbers for receiving complaints regarding accounting, internal accounting controls or auditing matters;

(b) Copies of complaints received will be sent to the members of the Committee;

(c) All complaints will be investigated by the Company’s finance staff, except as otherwise directed by the Committee. The Committee may request that outside advisors be retained to investigate any complaint; and

(d) The status of each complaint will be reported on a quarterly basis to the Committee and, if the Committee so directs, to the full Board. The Company’s Code of Business Conduct prohibits any Director, officer or employee of the Company from retaliating or taking any adverse action against anyone for raising or helping to resolve a complaint.

11. Evaluation – The Committee will conduct and present to the Board an annual evaluation of the performance of the Committee and the adequacy of these terms of reference and recommend any proposed change to the Board for approval.

12. Management – The Committee may at any time retain outside advisors at the expense of the Company, subject to the approval of the Chair of the Board.

13. Access to Independent Advisors – The Committee may at any time retain outside advisors at the expense of the Company, subject to the approval of the Chair of the Board.

14. Other Matters – The Committee will conduct reviews and, where appropriate, recommend action by the Board, on matters within its responsibilities and, on:

(a) The Annual Information Form to be filed by the Company;

(b) Regular reports on outstanding litigation that could have a material effect on the Company;

Norbord Inc. 2016 Annual Information Form Page 29

(c) An annual certificate of the CEO attesting that senior management of the Company have received and agreed to be bound by the Company’s Code of Business Conduct and as to compliance with the Code;

(d) An annual report on officers’ expenses;

(e) An annual report on consulting and legal fees paid by the Company;

(f) An annual report on the Company’s insurance coverage and costs; and

(g) Periodic review of significant taxation matters.

Norbord Inc. 2016 Annual Information Form Page 30

EX-99.2

Exhibit 99.2

FEBRUARY 2, 2017

Management’s Discussion and Analysis

INTRODUCTION

This Management’s Discussion and Analysis (MD&A) provides a review of the significant developments that impacted Norbord’s performance during 2016 relative to 2015. The information in this section should be read in conjunction with the audited consolidated financial statements as at and for the years ended December 31, 2016 and 2015.

In this MD&A, “Norbord” or the “Company” means Norbord Inc. and all of its consolidated subsidiaries and affiliates, 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.

Additional information on Norbord, including the Company’s annual information form and other documents publicly filed by the Company, is available on the Company’s website at www.norbord.com, the System for Electronic Document Analysis and Retrieval (SEDAR) administered by the Canadian Securities Administrators (the CSA) at www.sedar.com and on the Electronic Data Gathering, Analysis and Retrieval System (EDGAR) section of the US Securities and Exchange Commission (the SEC) website at www.sec.gov/edgar/searchedgar/companysearch.html.

Some of the statements included or incorporated by reference in this MD&A constitute forward-looking statements within the meaning of applicable securities legislation. Forward-looking statements are based on various assumptions and are subject to various risks. See the cautionary statement contained in the Forward-Looking Statements section.

The Company has prepared this MD&A with reference to National Instrument 51-102 – Continuous Disclosure Obligations of the CSA. The Company is an eligible issuer under the Multijurisdictional Disclosure System (MJDS) and complies with the US reporting requirements by filing its Canadian disclosure documents with the SEC. As a MJDS issuer, the Company is permitted to prepare this MD&A in accordance with the disclosure requirements of the CSA, whose requirements are different from those of the SEC.

To enhance shareholders’ understanding, certain three-year historical financial and statistical information is presented. Norbord’s significant accounting policies and other financial disclosures are contained in the audited financial statements and accompanying notes, which follow this MD&A. All financial references in the MD&A are stated in US dollars unless otherwise noted.

In evaluating the Company’s business, management uses non-International Financial Reporting Standards (IFRS) financial measures which, in management’s view, are important supplemental measures of the Company’s performance and believes that they are frequently used by investors, securities analysts and other interested persons in the evaluation of Norbord and other similar companies. In this MD&A, the following non-IFRS financial measures have been used: Adjusted EBITDA, Adjusted earnings (loss), Adjusted earnings (loss) per share, cash provided by operating activities per share, operating working capital, total working capital, capital employed, return on capital employed (ROCE), return on equity (ROE), net debt for financial covenant purposes, tangible net worth, net debt to capitalization, book basis, and net debt to capitalization, market basis. These non-IFRS financial measures are described in the Non-IFRS Financial Measures section. Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable

to similar measures presented by other companies that may have different financing and capital structures and/or tax rates. Where appropriate, a quantitative reconciliation of the non-IFRS financial measure to the most directly comparable IFRS measure is also provided.

BUSINESS OVERVIEW

Norbord is a leading global manufacturer of wood-based panels with 17 plant locations in the United States (US), Canada and Europe. After the completion of the merger with Ainsworth Lumber Co. Ltd. (Ainsworth) on March 31, 2015, Norbord became the largest global producer of oriented strand board (OSB) with annual capacity of 8 billion square feet (Bsf) ( ³⁄₈-inch basis). In North America, Norbord owns 13 OSB production facilities located in the Southern region of the US, Western Canada, Quebec, Ontario and Minnesota. In Europe, the Company operates an OSB production facility, two particleboard mills and one medium density fibreboard (MDF) mill in the United Kingdom (UK) and one OSB production facility in Belgium and is the UK’s largest panel producer. The Company reports its operations in two geographic segments, North America and Europe with 80% of its panel production capacity in North America and 20% in Europe. Norbord’s business strategy is focused entirely on the wood-based panels sector – in particular OSB – in North America, Europe and Asia. Norbord employed approximately 2,600 people at December 31, 2016.

The table below summarizes the estimated annual production capacity (installed capacity), in millions of square feet (MMsf) ( ³⁄₈-inch basis), at year-end for each mill:

MMsf–3/8”	Estimated         Annual Capacity at         Year-End         2016
OSB
100 Mile House, British Columbia		440
Barwick, Ontario		510
Bemidji, Minnesota		470
Chambord, Quebec(1)		470
Cordele, Georgia		990
Genk, Belgium		450
Grande Prairie, Alberta		730
Guntown, Mississippi		450
High Level, Alberta		860
Huguley, Alabama(2)		500
Inverness, Scotland		395
Jefferson, Texas		415
Joanna, South Carolina		650
La Sarre, Quebec		375
Nacogdoches, Texas		380
		8,085
Particleboard
Cowie, Scotland		405
South Molton, England		160
		565
MDF
Cowie, Scotland		380
		380
Total Panels		9,030

⁽¹⁾  In November 2016, Norbord exchanged ownership of its Val-d’Or OSB mill for Louisiana-Pacific Corporation’s Chambord OSB mill. Production at both mills has been curtailed for a number of years.

⁽²⁾  In January 2009, Norbord indefinitely curtailed production at its Huguley OSB mill.

QUEBEC MILL EXCHANGE

On October 28, 2016, the Company reached an agreement with Louisiana-Pacific Corporation (LP) to exchange OSB mills in the province of Quebec (the Asset Exchange) for no cash consideration. The Asset Exchange closed on November 3, 2016, with the Company swapping ownership of its mill in Val-d’Or for LP’s mill in Chambord. Production at both mills has been curtailed for a number of years. The Chambord mill has an estimated annual capacity of 470 million square feet ( ³⁄₈-inch basis) and the Val-d’Or mill has an estimated annual capacity of 340 million square feet ( ³⁄₈-inch basis).

The Asset Exchange was accounted for as a non-monetary transaction in accordance with IAS 16, Property, plant and equipment, where the cost of property, plant and equipment acquired in exchange for non-monetary assets are measured at the fair value of the assets given up. Accordingly, the Chambord assets received were recorded at the fair value of the Val-d’Or assets exchanged. The Chambord liabilities assumed were recorded at their fair values. The Asset Exchange resulted in the following net changes to the Company’s financial results and position:

(US $ millions)
Consolidated Statement of Earnings
Gain on asset exchange	$	16
Income tax expense		(4)
Gain on asset exchange, net	$	12
Consolidated Balance Sheet
Cash	$	7
Property, plant and equipment		11
Other liabilities		(2)
Deferred income tax liabilities		(4)
Increase in net assets	$	12

As part of the Asset Exchange, the Company received $7 million cash relating to the removal of a restrictive land-use covenant.

HIGH LEVEL FIRE

On May 4, 2016, a fire started in the wood yard of the High Level, Alberta mill. Production was halted immediately while the fire was brought under control. The mill has an installed production capacity of 860 million square feet (3/8-inch basis) and has been ramping up toward full production since resuming operations in late 2013. The fire destroyed a portion of the mill’s log inventory. The mill returned to production approximately three weeks later.

During the year, the Company has recognized the following amounts:

(US $ millions)
Write-off of log inventory destroyed by the fire	$	(7)
Costs of fire fighting and site restoration		(7)
Insurance recovery for the reimbursement of the lost log inventory, fire fighting costs and site restoration		13
Insurance claim deductible, net		(1)
Insurance recovery for business interruption		2
Net insurance claim recoverable	$	1

As of year-end, $13 million of insurance proceeds had been received and $2 million was included in accounts receivable. The insurance claim process is ongoing.

MERGER WITH AINSWORTH

On March 31, 2015, Norbord completed its merger with Ainsworth (the Merger). The Merger created the largest global OSB producer and brought together Norbord’s manufacturing cost leadership with Ainsworth’s track record of innovation in product development. It also allows Norbord to better serve the Company’s North American customers as well as gain access to small but growing Asian markets.

By the third quarter of 2016, Norbord had captured $45 million in cumulative (annual run rate) synergies from the Merger, within 18 months of closing. These synergies have resulted from reduced corporate overhead costs, optimization of sales and logistics, procurement savings, the sharing of operational best practices and implementing best practices related to operating working capital management such as optimizing inventory levels and customer/supplier payment terms. Since the Merger, the Company has incurred one-time costs of $15 million to achieve these synergies, of which $7 million was incurred in 2015 and $8 million in 2016. In addition to these synergies, the Merger is enabling the Company to avoid significant cash outlays it would otherwise incur for capital projects. Norbord estimates this capital cost avoidance at $35 million, which includes utilizing formerly idle assets throughout the Company. As the Merger synergies target has now been fully realized, the Company will continue to report progress on continuous improvement initiatives through the Margin Improvement Program (MIP).

In 2015, the Company elected not to account for the Merger as a business combination under IFRS 3 Business Combinations, as the transaction represents a combination of entities under common control of Brookfield. Accordingly, the book values of the two entities were combined and no adjustments were made to reflect fair values or to recognize any new assets or liabilities of either entity.

Post-Merger, Norbord and Ainsworth operate as a single company; this MD&A reviews the combined company’s performance for the years ended December 31, 2015 and 2016. All 2014 comparatives have been restated as if the companies had always been combined, except where noted.

STRATEGY

Norbord’s business strategy is focused entirely on the wood panels sector – in particular OSB – in North America and Europe. Norbord’s financial goal is to achieve top-quartile ROCE among North American forest products companies over the business cycle and the Company believes it has met this goal.

Protecting the balance sheet is an important element of Norbord’s financing strategy. Management believes that its record of superior operational performance, disciplined capital allocation and prudent balance sheet management will enable it to access public and private capital markets (subject to financial market conditions). In this regard, Norbord accomplished the following in 2016:

Financial Goal	2016 Accomplishments
1.    Generate cash.	•	Achieved Adjusted EBITDA of $383 million and ROCE of 27%.
	•	Increased North American Adjusted EBITDA to $352 million from $95 million in 2015, benefiting from 29% higher North Central benchmark OSB prices during the year.
	•	Increased European Adjusted EBITDA to $41 million from $38 million despite 11% weaker exchange rate used to translate from Pounds Sterling to US Dollars.
	•	Generated operating cash flow of $313 million up, significantly from $24 million in 2015.
2.    Protect the balance sheet.	•	Renewed $245 million committed revolving bank lines and extended term to May 2019.
	•	Reaffirmed issuer credit ratings with DBRS (BB), Moody’s Investors Service (Ba2), and Standard & Poor’s Rating Services (BB-) with S&P outlook revised upwards to Positive.
	•	Ended the year with unutilized liquidity of $506 million (including $161 million in cash and cash equivalents), net debt to capitalization on a book basis of 41% and tangible net worth of $905 million.

The table below summarizes the six key components of Norbord’s business strategy and the Company’s performance in each area in 2016:

Strategic Priority		2016 Performance
1.	Develop a world-class safety culture.	•	Completed Occupational Safety and Health Administration (OSHA) recordable injury-free year at three mills (Genk, Belgium; Guntown, Mississippi; and Jefferson, Texas).
		•	Recertified Guntown, Mississippi, La Sarre, Quebec, and Inverness, Scotland mills under Norbord Safety Star program.
		•	Achieved an overall OSHA injury rate of 0.97 for 2016 – a 32% improvement from the previous year.
		•	Experienced two serious incidents, including a fatality at the Cowie, Scotland mill, despite excellent progress on safety performance over past decade.
2.	Pursue growth in OSB.	•	Exchanged curtailed OSB mills in the province of Quebec with LP. Norbord swapped its Val-d’Or mill (stated capacity of 340 MMsf) for LP’s mill in Chambord (stated capacity of 470 MMsf).
		•	Increased production volume at North American and European panel mills by 7% and 2%, respectively, over 2015.
		•	Set annual production records at seven of 15 operating mills: Cordele, Georgia; Jefferson, Texas; Joanna, South Carolina; La Sarre, Quebec; Nacogdoches, Texas; Genk, Belgium and Inverness, Scotland mills.
		•	Commenced on-site construction of European OSB capacity expansion in Inverness, Scotland, in the second quarter of 2016. The new line is expected to start up in the second half of 2017, with no disruption to existing production capacity in the interim.
3.	Own high-quality assets with low-cost positions.	•	Completed fourth year of capital reinvestment strategy, focused on improving productivity and reducing manufacturing costs. Key 2016 projects included fines screening at the La Sarre, Quebec and Joanna, South Carolina mills and a finishing end upgrade at the High Level, Alberta mill.
		•	Continued work to rebuild the press line and prepare the Huguley, Alabama mill for a future restart.
		•	Reduced North American and European panel cash production costs per unit by 3% and 2%, respectively, from improved productivity, lower raw material usage as well as lower resin and energy prices and the weaker Canadian dollar.
4.	Maintain a margin-focused operating culture.	•	Generated $15 million in MIP gains across the Company from improved productivity and lower raw material usage despite offset from higher maintenance-related costs.
		•	Delivered $45 million (cumulative, annualized) Ainsworth synergies target within six quarters post-Merger from corporate overhead reductions, product mix and logistics optimization, procurement savings and operational best practices sharing.
5.	Focus on growth customers through best-in-class service and product development.	•	Increased North American shipments by 7% – increasing sales of value-added products into housing sector by 16% and increasing ‘specialty’ products volume to 24% of total shipments.
		•	Increased OSB shipments to key UK and German markets by 12% and 1%, respectively.
6.	Allocate capital with discipline.	•	Invested $101 million in capital projects (including $33 million for Inverness expansion) to maintain the Company’s assets and high standards for environmental performance, improve production efficiency and reduce

	manufacturing costs.
•	Announced intention to permanently repay $200 million 7.7% senior notes at maturity in February 2017.Paid dividends of $26 million during the year.
•	Dual-listed Norbord’s shares on the New York Stock Exchange in February 2016, reflecting growing US investor base.

  SUMMARY

(US $ millions, except per share information, unless otherwise noted)	2016		2015			2014
SALES AND EARNINGS
Sales		1,766		1,509			1,601
Operating income		280		31			30
Adjusted EBITDA(1)		383		122			115
Earnings (loss)		183		(56	)		(39)
Adjusted earnings (loss)(1)		175		(14	)		(17)
PER COMMON SHARE EARNINGS
Earnings (loss), basic(2)		2.14		(0.66	)		(0.46)
Adjusted earnings (loss), basic (1,3)		2.04		(0.17	)		(0.20)
Dividends declared(4)		0.40		0.70			2.40
BALANCE SHEET
Total assets		1,799		1,635			1,802
Long-term debt(5)		746		745			748
Net debt for financial covenant purposes(1,6)		619		751			418
Net debt to capitalization, market basis(1,6)		25%		32%			26%
Net debt to capitalization, book basis(1,6)		41%		51%			51%
KEY STATISTICS
Shipments (MMsf–3/8”)
North America		5,888		5,497			5,266
Europe		1,779		1,740			1,663
Indicative average OSB price
North Central ($/Msf–7/16”)		269		209			218
South East ($/Msf–7/16”)		245		187			188
Western Canada ($/Msf–7/16”)		234		169			196
Europe (€/m3)(7)		233		224			262
KEY PERFORMANCE METRICS
Return on capital employed (ROCE)(1)		27%		9%			8%
Return on equity (ROE)(1)		30%		(2)%			(2)%
Cash provided by operating activities		313		24			16
Cash provided by operating activities per share(1)		3.64		0.28			0.19

⁽¹⁾  Non-IFRS measure; see Non-IFRS Financial Measures section.

⁽²⁾  Basic and diluted earnings (loss) per share are the same except diluted earnings per share for 2016 is $2.13.

⁽³⁾  Basic and diluted Adjusted earnings (loss) per share are the same except diluted Adjusted earnings per share for 2016 is $2.03.

⁽⁴⁾  Dividends declared per share stated in Canadian dollars.

⁽⁵⁾  Includes current and non-current long-term debt.

⁽⁶⁾  2014 figures have not been restated for the Merger as financial covenants pre-Merger were based on Norbord on a standalone basis.

⁽⁷⁾  European indicative average OSB price represents the gross delivered price to the largest continental market.

Total sales increased by $257 million or 17% in 2016 due to higher North American prices and an increase in shipment volumes in both North America and Europe, partially offset by the foreign exchange impact of a weaker Pound Sterling to the US dollar when translating European sales and lower European panel prices.

North American OSB demand continues to improve, driven by a gradual rebound in new home construction and strong growth in repair-and-remodel and industrial end-uses. US housing starts were approximately 1.17 million in 2016, up 5% compared to 2015, with single-family starts 9% higher. The North American North

Central OSB benchmark price averaged $269 per thousand square feet (Msf) (7/16-inch basis) in 2016, up 29% versus 2015, while the South East OSB benchmark price averaged $245 per Msf, up 31% versus 2015, and the Western Canada OSB benchmark price averaged $234 per Msf, up 38% versus 2015. Norbord produced 7% more OSB in North America in 2016 to meet improving customer demand, representing 94% of operating capacity compared to 88% in 2015.

Norbord’s European panel business continued to generate steady financial results despite the unexpected outcome of the “Brexit” referendum (UK withdrawal from the European Union), as demand in the Company’s core markets in the UK and Germany remains strong. In response to improving economic fundamentals, the European operations produced 2% more volume in 2016, representing 99% of capacity in 2016 compared to 97% in 2015.

Against this market backdrop, Norbord generated operating income of $280 million in 2016 up significantly from $31 million in 2015, and Adjusted EBITDA of $383 million in 2016 versus $122 million in 2015 primarily due to higher North American OSB prices, increased shipment volumes, lower resin and energy prices, and improved raw material usages partially offset by higher profit share costs attributed to higher earnings and higher supplies and maintenance costs. On the controllable side of the business, Norbord generated $15 million of MIP gains in 2016, measured relative to 2015 at constant prices and exchange rates, primarily from improved productivity and lower raw material usage despite offset from higher maintenance-related costs.

The following table reconciles Adjusted EBITDA to the most directly comparable IFRS measure:

(US $ millions)	2016			2015			2014
Earnings (loss)	$	183		$	(56	)	$	(39)
Add: Finance costs		52			55			53
Add: Depreciation and amortization		94			86			85
Add: Income tax expense (recovery)		61			(27	)		(35)
Less: Gain on asset exchange		(16	)		-			-
Add: Merger transaction costs		-			8			10
Add: Severance costs related to Merger		-			2			-
Add: Other costs incurred to achieve Merger synergies		8			5			-
Add: Costs related to High Level Fire		1			-			-
Add: Costs on terminated LP acquisition		-			-			2
Add: Costs on early extinguishment of Ainsworth Notes		-			25			-
Add: Foreign exchange on Ainsworth Notes		-			28			28
Less: (Gain) loss on derivative financial instrument on Ainsworth Notes		-			(4	)		11
Adjusted EBITDA	$	383		$	122		$	115

Norbord recorded earnings of $183 million ($2.14 per basic share and $2.13 per diluted share) in 2016 versus a loss of $56 million ($0.66 loss per basic and diluted share) in 2015. Excluding the impact of non-recurring items (which includes the gain on the Asset Exchange, costs related to the $315 million senior secured notes due 2017 of Ainsworth (Ainsworth Notes), which were redeemed prior to maturity in the second quarter of 2015, severance and other costs incurred to achieve Merger synergies and Merger transaction costs) and using a normalized Canadian statutory tax rate, Norbord recorded Adjusted earnings of $175 million ($2.04 per basic share and $2.03 per diluted share) in 2016 compared to an Adjusted loss of $14 million ($0.17 Adjusted loss per basic and diluted share) in 2015. Adjusted earnings improved in 2016 primarily due to significantly higher North American OSB prices and shipment volumes.

The following table reconciles Adjusted earnings (loss) to the most directly comparable IFRS measure:

(US $ millions)	2016			2015			2014
Earnings (loss)	$	183		$	(56	)	$	(39)
Less: Gain on asset exchange		(16	)		-			-
Add: Merger transaction costs		-			8			10
Add: Severance costs related to Merger		-			2			-
Add: Other costs incurred to achieve Merger synergies		8			5			-
Add: Costs related to High Level fire		1			-			-
Add: Costs on terminated LP acquisition		-			-			2
Add: Costs on early extinguishment of Ainsworth Notes		-			25			-
Add: Foreign exchange on Ainsworth Notes		-			28			28
Less: (Gain) loss on derivative financial instrument on Ainsworth Notes		-			(4	)		11
Add: Reported income tax expense (recovery)		61			(27	)		(35)
Adjusted pre-tax earnings (loss)		237			(19	)		(23)
Less: Income tax (expense) recovery at statutory rate(1)		(62	)		5			6
Adjusted earnings (loss)	$	175		$	(14	)	$	(17)

⁽¹⁾  Represents Canadian combined federal and provincial statutory rate.

Pre-tax ROCE averaged 27% compared to 9% in the prior year. ROCE is a non-IFRS measurement of financial performance, focusing on cash generation and the effective use of capital. As Norbord operates in a cyclical commodity business, it interprets ROCE over the cycle as a useful means of comparing businesses in terms of efficiency of management (see Non-IFRS Financial Measures section). Over the past three years, Norbord’s ROCE has ranged from 8% to 27% and has averaged 22% over the past 14 years. Norbord remains well positioned to benefit from the US housing market recovery and growing demand in the Company’s core European markets in the years ahead.

2015 COMPARISON AGAINST 2014

In 2015, sales decreased by $92 million or 6% from 2014. In North America, sales decreased by 3% due to lower OSB prices, which were partially offset by a 4% increase in shipment volumes. Average North Central and Western Canada OSB benchmark prices decreased by 4% and 14%, respectively, compared to 2014 and average South East prices remained flat. In Europe, sales decreased by 11% due to lower OSB and MDF prices, and the foreign exchange impact of a weaker Pound Sterling relative to the US dollar, offset partially by an increase in shipment volumes.

Against this market backdrop, Norbord generated operating income of $31 million in 2015, in line with $30 million in 2014 and Adjusted EBITDA of $122 million in 2015 versus $115 million in 2014. Lower resin prices, the foreign exchange impact of a weaker Canadian dollar, increased production volume and improved raw material usages mitigated lower OSB prices in both North America and Europe. On the controllable side of the business, Norbord generated $43 million of MIP gains in 2015, measured relative to 2014 at constant prices and exchange rates, primarily from higher productivity and lower raw material usages.

Norbord recorded a loss of $56 million ($0.66 loss per basic and diluted share) in 2015 versus $39 million ($0.46 loss per basic and diluted share) in 2014. Excluding the impact of non-recurring items (costs on the early extinguishment of the Ainsworth Notes, severance and other costs incurred to achieve Merger synergies and Merger transaction costs), and using a normalized Canadian statutory tax rate, Norbord recorded an Adjusted loss of $14 million ($0.17 loss per basic and diluted share) in 2015 compared to an Adjusted loss of $17 million ($0.20 loss per basic and diluted share) in 2014. The change in Adjusted loss year-over-year is in line with the change in Adjusted EBITDA.

OUTLOOK FOR 2017

US housing starts continue to remain well below the long-term annual average of 1.5 million and are recovering more gradually than in any prior cycle. Industry experts are forecasting US housing starts ranging from 1.19 million to 1.40 million in 2017, with an average of 1.25 million which would represent an increase of 7% over 2016. In addition, Norbord expects continued solid growth in repair-and-remodel and industrial demand in 2017. According to the APA – the Engineered Wood Association (APA), the North American OSB industry produced at 88% of operating capacity in 2016 and industry experts expect this ratio to increase in 2017. Norbord continues to rebuild the press line at the curtailed Huguley, Alabama mill to prepare it for a future restart. The Company has not set a restart date and will only do so when it is sufficiently clear that customers require more product. Norbord does not expect to restart its indefinitely curtailed mill in Chambord, Quebec in 2017, but will continue to monitor market conditions.

The economic fundamentals in Norbord’s core European markets (UK, Germany, BeNeLux) continue to recover. German housing starts were up 16% in 2016 while UK housing starts were in line with the prior year. Due to the weakened Pound Sterling after the Brexit referendum, the cost of imported panels has been rising which is making UK domestically produced panels more competitive. Norbord expects to continue to run all panel mills at capacity with the new line in Inverness planned to start up in the second half the year.

On the input cost side, raw material prices are expected to increase modestly in 2017 as resin, natural gas, wax and electricity prices are anticipated to rise with increasing oil prices. As in previous years, Norbord will continue to pursue aggressive MIP initiatives to reduce raw material usage and improve productivity to offset inflation and other uncontrollables in its manufacturing cost structure.

Norbord is planning to make capital investments of $90 million in 2017 for maintenance of business projects and projects focused on reducing manufacturing costs and increasing productivity across the Company’s mills. In addition, Norbord expects to invest most of the remaining $102 million budgeted to complete the Inverness, Scotland expansion. A further $30 million will be required to complete the necessary refurbishment work at Huguley, once a decision is made to restart the mill.

Norbord’s competitive cost position, diversified sales strategy and solid customer partnerships leave the Company well positioned for the continuing recovery in housing markets and Norbord expects it will benefit from stronger OSB demand in the years ahead. Norbord intends to use a combination of free cash flow and its strong financial liquidity to permanently repay its $200 million senior notes maturing in February 2017.

RESULTS OF OPERATIONS

(US $ millions, unless otherwise noted)	2016		2015
Sales		1,766		1,509
Adjusted EBITDA		383		122
Adjusted EBITDA margin		22%		8%
Depreciation and amortization		94		86
Investment in property, plant and equipment & intangible assets		107		70
Shipments (MMsf–3/8”)		7,667		7,237
Indicative Average OSB Price
North Central ($/Msf–7/16”)		269		209
South East ($/Msf–7/16”)		245		187
Western Canada ($/Msf–7/16”)		234		169
Europe (€/m3)(1)		233		224

⁽¹⁾ European indicative average OSB price represents the gross delivered price to the largest continental market.

Markets

North America is the principal market destination for Norbord’s products. North American OSB comprised 77% of Norbord’s panel shipments in 2016. Therefore, results of operations are most affected by volatility in North American OSB prices and demand. Europe comprised 23% of total shipments in 2016. European panel prices have historically been less volatile than North American prices, and therefore affect Norbord’s results to a lesser degree.

Shipments

MMsf–3/8”	2016		2015
North America		5,888		5,497
Europe		1,779		1,740
Total		7,667		7,237

North America

According to the APA, new home construction is the primary end use for the OSB industry in North America, accounting for approximately 55% of OSB consumption in 2016. US housing starts were approximately 1.17 million in 2016, up 5% from 1.11 million in 2015, and the December seasonally-adjusted annualized pace of permits, the more forward-looking indicator, was 1.21 million. Single-family starts (which use approximately three times more OSB than multi-family) increased by 9%. Despite the significant rebound in new home construction since the low of 0.55 million in 2009, US housing starts remain well below the long-term annual average of 1.5 million. For context, 100,000 housing starts consume approximately 1 Bsf (3/8-inch basis) of structural panels (OSB and plywood).

According to the APA, North American OSB production increased by 7% in 2016 to approximately 21.8 Bsf (3/8-inch basis), representing 67% of total North American structural panel production and 88% of the OSB industry’s operating production capacity (77% of industry installed capacity). Plywood production increased by 0.7% to approximately 10.8 Bsf (3/8-inch basis).

North American benchmark OSB prices improved significantly as the year progressed. OSB prices drifted downward in the first quarter before rising in the second quarter and then leveling out in the third quarter. North Central benchmark OSB prices improved significantly in 2016 – from a low of $213 per Msf ( ⁷⁄₁₆-inch basis) in February to a high of $310 per Msf in the summer, finishing the year at $282 per Msf, and averaged $269 per Msf ( ⁷⁄₁₆-inch basis) for the year. The table below summarizes benchmark OSB prices by region for the relevant years:

North American Region	% of Norbord’s estimated annual operating capacity(1)		2016 ($/Msf-7/16”)		2015 ($/Msf-7/16”)
North Central		16%		$  269		$  209
South East		33%		245		187
Western Canada		32%		234		169

⁽¹⁾ Excludes the currently curtailed Chambord, Quebec and Huguley, Alabama mills which represents 13% of estimated annual capacity.

Norbord’s North American OSB mills produced at 94% of operating capacity (83% of installed capacity) in 2016, up from 88% of operating capacity (77% of installed capacity) in 2015, and shipment volume increased by 7% in 2016. Approximately half of Norbord’s sales volume went to the new home construction sector in 2016, in line with the previous year. The other half went into repair-and-remodelling, light commercial construction, industrial applications and export markets. Management believes that this diversification provides opportunities to maximize profitability while limiting the Company’s relative exposure to the new home construction segment during periods of soft housing activity. Management expects the Company’s sales volume to the new home construction sector will continue to grow as US housing recovers to more normal levels.

Europe

In Europe, Norbord’s core panel markets remained strong, with double-digit OSB demand growth in both the UK and Germany. In the UK, where three of Norbord’s four European mills are located, GDP grew at 2%, unemployment dropped below 5% and housing starts activity remained firm. In Germany, Norbord’s largest continental European market, housing starts increased 16% representing the eighth consecutive year of growth. In this improving environment, Norbord’s European mills produced at 99% of stated capacity in 2016 compared to 97% in 2015.

European panel prices translated into US dollars were impacted by the significant devaluation of the Pound Sterling following the Brexit referendum in June 2016. In local currency terms, OSB prices in the UK were down 5% on average but have firmed by about 5% since their post-Brexit lows. On the continent, OSB prices were up slightly on average, after firming in the first half and softening in the second half. UK particleboard and MDF prices were 4% lower due to sales mix.

Historically, the UK has been a net importer of panel products and Norbord is the largest domestic producer. A weaker Pound Sterling relative to the Euro is advantageous to Norbord’s primarily UK-based operations as it improves sales opportunities within the UK and supports Norbord’s export program into the continent. In 2016, the Pound Sterling weakened from a high of 1.36 to a low of 1.10 versus the Euro and averaged 1.22 compared to 1.38 in 2015.

Sales

(US $ millions)	2016		2015
North America	$	1,361	$	1,055
Europe		405		454
Total	$	1,766	$	1,509

Total sales increased by $257 million or 17% in 2016. In North America, sales increased by 29% due to higher prices and a 7% increase in shipment volumes. Average North Central, South East and Western Canada OSB benchmark prices increased by $60, $58 and $65 per Msf, respectively, which represents an increase of 29%, 31% and 38%, respectively, compared to 2015. In Europe, sales decreased by 11% due primarily to the foreign exchange impact of a weaker Pound Sterling relative to the US dollar and lower panel prices, offset partially by an increase in shipment volumes.

Production

(MMsf–3/8”)	2016		2015
North America		5,900		5,500
Europe		1,780		1,745
Total		7,680		7,245

Total production volume increased by 6% or 435 million square feet (MMsf) ( ³⁄₈-inch basis). The Company ramped up its North American capacity to meet increased OSB demand and its European panel mills continued to run on full production schedules.

North America

North American production volume increased by 7% or 400 MMsf ( ³⁄₈-inch basis) in 2016 due to productivity gains from the Company’s operating mills and fewer maintenance shuts and market curtailments. Annual production records were achieved at the mills in Cordele, Georgia; Jefferson, Texas; Joanna, South Carolina; La Sarre, Quebec; and Nacogdoches, Texas.

Production has remained indefinitely suspended at the Huguley, Alabama mill since the first quarter of 2009, and at the Chambord, Quebec mill (acquired through the Asset Exchange) since the third quarter of 2008. Norbord does not currently expect to restart its curtailed mill in Chambord, Quebec in 2017, but will continue to monitor market conditions. As previously announced, Norbord continues to rebuild the press line at the

curtailed Huguley, Alabama mill to prepare it for future restart. The Company has not set a restart date and will only do so when it is sufficiently clear that customers require more product. These two mills represent 13% of Norbord’s annual estimated capacity in North America.

Excluding the indefinitely curtailed mills (Huguley, Alabama and Chambord, Quebec), Norbord’s operating mills produced at 94% of their installed capacity in 2016. This compares to 88% in 2015. Including the indefinitely curtailed mills, Norbord’s mills produced at 83% of installed capacity in 2016, compared to 77% in 2015.

Europe

European production volume increased by 2% or 35 MMsf ( ³⁄₈-inch basis). Annual production records were achieved at the OSB mills in Inverness, Scotland and Genk, Belgium. All of Norbord’s panel mills ran on full production schedules in 2016 excluding maintenance and holiday shutdowns and produced at 99% of capacity in 2016, compared to 97% in 2015.

Operating Results
Adjusted EBITDA (US $ millions)	2016			2015
North America	$	352		$	95
Europe		41			38
Unallocated		(10	)		(11)
Total	$	383		$	122

Norbord generated Adjusted EBITDA of $383 million in 2016, compared to $122 million in 2015. North American operations generated Adjusted EBITDA of $352 million, compared to $95 million in the prior year. Norbord’s European operations generated Adjusted EBITDA of $41 million, compared to $38 million in the prior year, a year-over-year increase of $3 million. Unallocated costs were $1 million lower in 2016 due to the realization of Merger synergies.

North America

Norbord’s North American Adjusted EBITDA increased by $257 million primarily due to higher OSB prices as well as higher shipment volumes, lower resin and energy prices, improved raw material usages and the foreign exchange benefit of a weaker Canadian dollar with a partial offset from higher supplies and maintenance costs partially attributed to higher production and higher profit share costs attributed to higher earnings.

Europe

Norbord’s European operations delivered another solid year, benefiting from continued strong demand in the Company’s core UK and German markets and despite the translation impact of a weaker Pound Sterling versus the US dollar. The Adjusted EBITDA increase of $3 million in 2016 was primarily driven by lower resin and energy prices, improved raw material usages and higher shipment volumes partially offset by lower average panel prices and the foreign exchange impact of a weaker Pound Sterling versus the US dollar.

Adjusted EBITDA Variance

The components of the Adjusted EBITDA change are summarized in the variance table below:

(US $ millions)	2016 vs. 2015
Adjusted EBITDA – current period	$	383
Adjusted EBITDA – comparative period		122
Variance		261
Mill nets(1)		219
Volume(2)		33
Key input prices(3)		21
Key input usage(3)		11
Mill profit share and bonus		(10)
Other operating costs and foreign exchange(4)		(13)
Total	$	261

⁽¹⁾  The mill nets variance represents the estimated impact of changes in realized pricing across all products. Mill nets are calculated as sales (net of outbound freight costs) divided by shipment volume.

⁽²⁾  The volume variance represents the impact of shipment volume changes across all products.

⁽³⁾  The key inputs include fibre, resin, wax and energy.

⁽⁴⁾  The other operating costs and foreign exchange category covers all remaining variances including labour and benefits, and maintenance.

On the sales side, housing market activity, particularly in the US, influences OSB demand and pricing. Fluctuations in North American OSB demand and prices significantly affect Norbord’s results. In North America, sales increased by 29% primarily due to stronger OSB prices and higher shipment volumes. In Europe, sales decreased by 11% due to lower panel prices and the foreign exchange impact of a weaker Pound Sterling relative to the US dollar, offset partially by higher shipment volumes.

On the cost side, fluctuations in uncontrollable raw material prices significantly impact operating costs. In 2016, average resin prices were lower than the prior year in both North America and Europe which provided input cost relief to panel producers, although they trended up modestly in the second half of 2016. Resin prices are indexed to widely used industrial chemicals derived from oil and gas products. North American and European fibre prices were in line with 2015. Norbord does not own any timberlands; therefore, it purchases timber and wood chips as well as recycled wood materials on the open market in competition with other users of such resources, where prices are influenced by factors beyond Norbord’s control.

The Company realized MIP gains of $15 million in 2016 measured relative to 2015 at constant prices and exchange rates. Contributions to MIP included improved productivity and lower raw material usage partially offset by higher supplies and maintenance-related costs.

In 2016, Norbord’s North American OSB cash production costs per unit (excluding mill profit share) decreased 3% over the prior year driven by increased production volume, improved raw material usages, lower resin and energy prices and the foreign exchange impact of a weaker Canadian dollar, partially offset by higher supplies and maintenance costs.

FINANCE COSTS, COSTS ON AINSWORTH NOTES, DEPRECIATION AND AMORTIZATION, AND INCOME TAX

(US $ millions)	2016		2015
Finance costs		$    (52)		$   (55)
Foreign exchange loss on Ainsworth Notes		-		(28)
Gain on derivative financial instrument on Ainsworth Notes		-		4
Costs on early debt extinguishment of Ainsworth Notes		-		(25)
Depreciation and amortization		(94)		(86)
Income tax (expense) recovery		(61)		27

Finance Costs

Finance costs decreased in 2016 compared to 2015 due to the benefit of re-financing of the Ainsworth Notes at a lower interest rate during 2015 and $1 million (2015 – less than $1 million) in interest costs were capitalized on qualifying assets.

The effective interest rate on Norbord’s debt-related obligations was 6.4% as at December 31, 2016, and 6.2% as at December 31, 2015.

Foreign Exchange Loss on Ainsworth Notes

The Ainsworth Notes were denominated in US dollars and Ainsworth’s functional currency was Canadian dollars prior to the Merger. As a result, upon revaluation to Canadian dollars, Ainsworth recorded foreign exchange losses due to the strengthening of the US dollar.

Gain on Derivative Financial Instrument on Ainsworth Notes

The Ainsworth Notes contained an embedded call option and this derivative was recorded initially at fair value with revaluation gains and losses subsequently. This derivative was extinguished when the Ainsworth Notes were redeemed prior to maturity.

Costs on Early Debt Extinguishment of Ainsworth Notes

In 2015, the Company incurred $25 million to redeem the Ainsworth Notes prior to maturity.

Depreciation and Amortization

Depreciation expense in 2016 was $6 million higher compared to 2015 due to higher production volumes as the Company uses the units-of-production method for its production equipment. Amortization expense is $2 million higher compared to 2015 due to the amortization of the timber rights intangible asset acquired in 2015.

Income Tax

A tax expense of $61 million was recorded in 2016 on the pre-tax earnings of $244 million and a tax recovery of $27 million was recorded in 2015 on the pre-tax loss of $83 million. The effective tax rate differs from the statutory rate principally due to rate differences on foreign activities, fluctuations in relative currency values and the recognition of certain non-recurring income tax recoveries.

In 2016, the Company made net cash tax payments of $2 million. In 2015, the Company received net cash tax refunds of $4 million related to losses carried back and over instalments.

At December 31, 2016, the Company had operating loss carryforwards for tax purposes of € 32 million from operations in Belgium. These losses can be carried forward indefinitely to offset future taxable income in Belgium. The Company also has operating loss carryforwards for tax purposes of CAD $186 million and US $132 million from operations in Canada and the US, respectively, which expire between 2026 and 2036. In addition, the Company has capital losses of CAD $116 million which can be carried forward indefinitely. These loss carryforwards may be utilized over the next several years to eliminate cash taxes otherwise payable, and will preserve future cash flows. Certain deferred tax assets in respect of tax losses and other attributes have been recognized and included in deferred income taxes in the consolidated financial statements. The Company reviews its deferred income tax assets at each balance sheet date and reduces the amount recognized to the extent, in the judgement of management, it is not probable to be realized.

LIQUIDITY AND CAPITAL RESOURCES

(US $ millions, except per share information, unless otherwise noted)	2016		2015
Cash provided by operating activities		$    313		$    24
Cash provided by operating activities per share		3.66		0.28
Operating working capital		118		125
Total working capital		278		134
Investment in property, plant and equipment & intangible assets		107		70
Net debt to capitalization, market basis		25%		32%
Net debt to capitalization, book basis		41%		51%

At year-end, the Company had unutilized liquidity of $506 million, comprising $161 million in cash and cash equivalents, $220 million in revolving bank lines and $125 million undrawn under its accounts receivable securitization program. Norbord has no investments in, or other direct exposure to, US sub-prime mortgages, US auction rate securities or Canadian asset-backed commercial paper.

The Company’s outstanding long-term debt has a weighted average term of 3.9 years. Norbord’s net debt for financial covenant purposes was $619 million at December 31, 2016, which includes long-term debt of $755 million less cash and cash equivalents of $161 million plus letters of credit of $25 million.

Senior Secured Notes Due 2017

The Company’s $200 million senior secured notes due February 2017 bear an interest rate that varies with the Company’s credit ratings. The interest rate has been 7.70% since August 15, 2013. The Company intends to permanently repay these notes at maturity using cash on hand, cash generated from operations and if necessary, by drawing upon the accounts receivable securitization program or committed revolving bank lines.

Senior Secured Notes Due 2020

The Company’s $240 million senior secured notes due December 2020 bear an interest rate of 5.375%.

Senior Secured Notes Due 2023

The Company’s $315 million senior secured notes due April 2023 bear an interest rate of 6.25%.

Revolving Bank Lines

The Company has an aggregate commitment of $245 million which bears interest at money market rates plus a margin that varies with the Company’s credit rating. During the year, the Company amended these bank lines to reset the tangible net worth covenant to $500 million and extend the maturity date to May 2019. The bank lines are secured by a first lien on the Company’s North American OSB inventory and property, plant and equipment. This lien is shared pari passu with the holders of the 2017, 2020 and 2023 senior secured notes.

The bank lines contain two quarterly financial covenants: minimum tangible net worth of $500 million and maximum net debt to total capitalization, book basis, of 65%. For the purposes of the tangible net worth calculation, the following adjustments have been made as at period-end:

● the IFRS transitional adjustments to shareholders’ equity of $21 million at January 1, 2011 are added back;

● changes to other comprehensive income subsequent to January 1, 2011 is excluded;

● intangible assets (other than timber rights and software acquisition and development costs) are excluded; and

● the impact of the change in functional currency of Ainsworth on shareholders’ equity of $155 million is excluded.

Net debt for financial covenant purposes includes total debt, principal amount excluding any drawings on the accounts receivable securitization program, less cash and cash equivalents, plus letters of credit issued and any bank advances. At period-end, the Company’s tangible net worth was $905 million and net debt for

financial covenant purposes was $619 million. Net debt to capitalization, book basis, was 41%. The Company was in compliance with the financial covenants at period-end.

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

(US $ millions)	Dec 31, 2016			Dec 31, 2015
Long-term debt, principal value	$	755		$	755
Add: Other long-term debt		-			30
Less: Cash and cash equivalents		(161	)		(9	)
Net debt		594			776
Less: Other long-term debt		-			(30	)
Add: Letters of credit		25			5
Net debt for financial covenant purposes		619			751
Shareholders’ equity		650			519
Less: Intangible assets(1)		-			(18	)
Add: Other comprehensive income change(2)		79			47
Add: Impact of Ainsworth changing functional currencies		155			155
Add: IFRS transitional adjustments		21			21
Tangible net worth for financial covenant purposes		905			724
Total capitalization	$	1,524		$	1,475
Net debt to capitalization, market basis		25%			32%
Net debt to capitalization, book basis		41%			51%

⁽¹⁾  Timber rights and software development costs were excluded from the definition of intangible assets when the bank lines were renewed in June 2016.

⁽²⁾  Cumulative subsequent to January 1, 2011.

Debt Issue Costs

Amortization expense related to debt issue costs for 2016 was $2 million (2015 – $2 million).

Accounts Receivable Securitization

The Company has a $125 million multi-currency accounts receivable securitization program with a third-party trust sponsored by a highly rated Canadian financial institution. The program is revolving and has an evergreen commitment 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. However, the asset de-recognition criteria under IFRS have not been met and the transferred accounts receivable remain recorded as an asset.

At year-end, Norbord had transferred but continued to recognize $125 million in trade accounts receivable, and recorded drawings of $nil relating to this financing program as Other long-term debt. The level of accounts receivable transferred under the program fluctuates with the level of shipment volumes, product prices and foreign exchange rates. The amount Norbord chooses to draw under the program at any point in time depends on the level of accounts receivable transferred, timing of cash settlements and fluctuates with the Company’s cash requirements. Any drawings 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. The utilization charge, which is based on money market rates plus a margin, and other program fees are recorded as finance costs. During 2016, the utilization charge on drawings ranged from 1.5% to 2.1%.

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 February 2, 2017, Norbord’s ratings were BB (DBRS), BB- (Standard & Poor’s Ratings Services) and Ba2 (Moody’s Investors Service).

Other Liquidity and Capital Resources

Operating working capital, consisting of accounts receivable and inventory and prepaids less accounts payable and accrued liabilities, decreased by $7 million during the year to $118 million at year-end, compared to $125 million at December 31, 2015. The year-over-year decrease was primarily due to higher accounts payable and accrued liabilities partially offset by higher accounts receivable and inventory. Higher accounts payable was primarily attributed to higher mill profit share accruals attributed to higher earnings, higher accrued capital expenditures and the timing of payments. Higher accounts receivable was primarily attributed to higher North American pricing and higher sales volume in the fourth quarter of 2016. Higher inventory is a result of higher operating and maintenance supplies due to the timing of maintenance shuts. The Company aims to minimize the amount of capital held as operating working capital and continued to manage it at minimal levels throughout the year.

Total working capital, which includes operating working capital plus cash and cash equivalents and income taxes receivable less income taxes payable, was $278 million as at December 31, 2016, compared to $134 million at December 31, 2015. The increase is primarily attributed to the higher cash balance, partially offset by the lower operating working capital.

Operating activities generated $313 million of cash or $3.66 per share in 2016, compared to $24 million or $0.28 per share in 2015. The significantly higher cash generation is mainly attributed to the higher Adjusted EBITDA in 2016.

The following table summarizes the aggregate amount of future cash outflows for contractual obligations:

Payments Due by Period
(US $ millions)	2017		2018		2019		2020		2021		Thereafter		Total
Long-term debt, including interest	$	241	$	34	$	33	$	272	$	20	$	345	$	945
Purchase commitments		100		45		28		4		4		10		191
Operating leases		4		3		1		1		1		2		12
Reforestation obligations		-		-		-		-		1		1		2
Total	$	345	$	82	$	62	$	277	$	26	$	358	$	1,150

Note: The above table does not include pension and post-employment benefits plan obligations, which are discussed in the Risks and Uncertainties – Defined Benefit Pension Plan Funding section.

INVESTMENTS

Investment in Property, Plant and Equipment

(US $ millions)	2016		2015
Increased productivity and cost reduction	$	71	$	24
Maintenance of business		21		24
Environmental		8		13
Capitalized interest		1		-
Total	$	101	$	61

The focus of the Company’s capital reinvestment strategy is to improve production efficiency, reduce manufacturing costs across the Company’s mills and maintain high standards for environmental performance. Investment in property, plant and equipment in 2016 was $101 million ($107 million including intangible assets), representing approximately 110% of depreciation.

Key 2016 projects included the Inverness project (described below), fines screening projects at the La Sarre, Quebec and Joanna, South Carolina mills, the finishing end upgrade at the High Level, Alberta mill and additional work to rebuild the press line at the curtailed Huguley, Alabama mill. Key 2015 projects included fines screening projects at the Guntown, Mississippi and Jefferson, Texas mills, and wood-handling projects at the Genk, Belgium and Inverness, Scotland mills.

Norbord is planning to make capital investments of $90 million in 2017 for maintenance of business projects and projects focused on reducing manufacturing costs and increasing productivity across the mills. In addition, Norbord expects to invest most of the remaining $102 million budgeted to complete the Inverness, Scotland expansion (described below). A further $30 million will be required to complete the necessary refurbishment work at Huguley, once a decision is made to restart the mill. These investments will be funded with cash on hand, cash generated from operations and, if necessary, drawings under the Company’s accounts receivable securitization program or committed revolving bank lines.

Inverness Project

In January 2016, the Board of Directors approved the investment of $135 million over the subsequent two years to modernize and expand the Company’s Inverness, Scotland OSB mill. On-site work commenced in the second quarter of 2016 and the unused second press from the Grande Prairie, Alberta mill was moved to Inverness during the third quarter. Norbord expects the new line to start up in the second half of 2017, with no disruption to existing production capacity in the interim. Capital spending of $33 million was incurred in 2016. During the year, $3 million of the Highlands & Islands Enterprise development grant was received which offsets expenditures incurred. The investment is being funded with cash on hand, cash generated from operations and, if necessary, drawings under the Company’s accounts receivable securitization program or committed revolving bank lines.

Investment in Intangible Assets

In 2016, investment in intangible assets was $6 million and consisted of the investment in software acquisition and development costs. In 2015, investment in intangible assets was $9 million and consisted of the acquisition of timber rights under a wood tenure agreement and investment in software acquisition and development costs.

CAPITALIZATION

Common Share Information

At December 31	2016		2015
Shares outstanding (millions)		85.8		85.4
Dividends (US $ millions)	$	26	$	40
Market price at year-end (CAD $)	$	33.91	$	26.95

The increase in shares outstanding during 2016 is primarily related to stock option exercises. At February 2, 2017, there were 85.8 million common shares outstanding. The average daily volume traded on the Toronto Stock Exchange (TSX) during 2016 was approximately 177,000 shares compared to approximately 222,000 shares in 2015 and the average daily volume traded on the New York Stock Exchange since listing on February 19, 2016 was approximately 12,000 shares.

In October 2016, Norbord renewed its normal course issuer bid (NCI) in accordance with TSX rules. Under the bid, the Company may purchase up to 4,280,997 of its common shares, which represented approximately 5% of the 85.6 million issued and outstanding common shares as at October 20, 2016. Purchases under the bid will terminate on the earlier of November 2, 2017, the date Norbord completes its purchases pursuant to the notice of intention to make a NCI bid filed with the TSX, or the date Norbord provides notice of termination of the bid. As at February 2, 2017, no share purchases have been made under this bid or the Company’s previous bid that expired on November 2, 2016. Shareholders may obtain a copy of the notice filed with the TSX renewing the NCI, without charge, by contacting the Company.

Dividends

Norbord’s variable dividend policy targets the payment to shareholders of a portion of free cash flow based upon the Company’s financial position, results of operations, cash flow, capital requirements and restrictions under the Company’s revolving bank lines, as well as the market outlook for the Company’s principal products and broader market and economic conditions, among other factors. Under this policy, the Board of Directors has declared the following dividends and has adjusted the level twice to maintain flexibility in the Company’s capital structure as well as to fund growth and other attractive capital investment opportunities:

(in CAD $)	Quarterly dividend declared per common share
Q2-2013 to Q4-2014		$    0.60
Q1-2015 & Q2-2015		0.25
Q3-2015 to Q4-2016		0.10

The Board retains the discretion to amend the Company’s dividend policy in any manner and at any time as it may deem necessary or appropriate in the future. For these reasons, as well as others, the Board in its sole discretion can decide to increase, maintain, decrease, suspend or discontinue the payment of cash dividends in the future.

Stock Options

As at December 31, 2016, options on 1.8 million common shares were outstanding, with 64% vested. The exercise prices for the outstanding options range from CAD $6.50 to CAD $91.60, with expiry on various dates up to 2026. In 2016, 0.4 million stock options were exercised (2015 – 0.2 million stock options) resulting in the issuance of 0.4 million common shares for total proceeds of $4 million (2015 – $2 million).

TRANSACTIONS WITH RELATED PARTIES

In the normal course of operations, the Company enters into various transactions 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 its related parties during 2016:

Indemnity Commitment

As at December 31, 2016, 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.

Other

The Company periodically engages the services of Brookfield for various financial, real estate and other business advisory services. In 2016, the fees for services rendered were less than $1 million (2015 – less than $1 million).

Sales to Asian markets are handled by Interex Forest Products Ltd. (Interex), a cooperative sales company over which Norbord, as a 25% shareholder, has significant influence. In 2016, net sales of $62 million (2015 – $48 million) were made to Interex. At year-end, $2 million (December 31, 2015 – $3 million) due from Interex was included in accounts receivable.

Compensation of Key Management Personnel

The remuneration of Directors and other key management personnel was as follows:

(US $ millions)	2016		2015
Salaries, incentives and short-term benefits	$	3	$	2
Share-based awards		1		1
	$	4	$	3

SELECTED QUARTERLY INFORMATION

							2016										2015
(US $ millions, except per share information, unless otherwise noted)	Q4		Q3		Q2		Q1		Q4		Q3			Q2			Q1
SALES AND EARNINGS
Sales		482		453		447		384		415		378			365			351
Operating income (loss)		87		87		67		39		33		8			(4	)		(6	)
Adjusted EBITDA(1)		114		114		94		61		57		30			19			16
Earnings (loss)		61		55		44		23		13		(9	)		(23	)		(37	)
Adjusted earnings (loss)(1)		55		58		42		20		16		(4	)		(12	)		(14	)
PER COMMON SHARE EARNINGS
Earnings (loss), basic and diluted		0.71		0.64		0.51		0.27		0.15		(0.11	)		(0.27	)		(0.43	)
Adjusted earnings (loss), basic(1,2)		0.64		0.68		0.49		0.23		0.19		(0.05	)		(0.14	)		(0.16	)
Dividends declared(3)		0.10		0.10		0.10		0.10		0.10		0.10			0.25			0.25
BALANCE SHEET
Total assets		1,799		1,718		1,654		1,670		1,635		1,653			1,670			1,738
Long-term debt(4)		746		746		745		745		745		744			744			749
Net debt for financial covenant purposes(1,5)		619		705		751		749		751		758			749			442
Net debt to capitalization, market basis(1,5)		25%		29%		31%		32%		32%		32%			30%			29%
Net debt to capitalization, book basis(1,5)		41%		45%		48%		50%		51%		51%			50%			53%
KEY STATISTICS
Shipments (MMsf–3/8”)
North America		1,601		1,463		1,487		1,337		1,459		1,409			1,375			1,254
Europe		447		438		459		435		425		453			438			424
Indicative average OSB price
North Central ($/Msf–7/16”)		285		301		264		226		242		204			193			193
South East ($/Msf–7/16”)		263		256		245		215		221		176			174			175
Western Canada ($/Msf–7/16”)		236		265		242		191		204		158			152			159
Europe (€/m3)(6)		230		235		237		230		226		220			218			232
KEY PERFORMANCE METRICS
Return on capital employed (ROCE)(1)		30%		32%		26%		18%		15%		8%			5%			4%
Return on equity (ROE)(1)		33%		41%		31%		16%		11%		(3)%			(9)%			(10)%
Cash provided by (used for) operating activities		130		97		83		3		56		23			(3	)		(52	)
Cash provided by (used for) operating activities per share(1)		1.52		1.13		0.97		0.04		0.66		0.27			(0.04	)		(0.61	)

⁽¹⁾ Non-IFRS measure; see Non-IFRS Financial Measures section.

⁽²⁾ Basic and diluted Adjusted earnings (loss) per share are the same except diluted Adjusted earnings per share for Q3 2016 is $0.67.

⁽³⁾  Dividends declared per share stated in Canadian dollars.

⁽⁴⁾  Includes current and non-current long-term debt.

⁽⁵⁾  Q1-2015 figures have not been restated for the Merger as financial covenants pre-Merger were based on Norbord on a standalone basis.

⁽⁶⁾ European indicative average OSB price represents the gross delivered price to the largest continental market.

Quarterly results are impacted by seasonal factors such as weather and building activity. Market demand varies seasonally, as homebuilding activity and repair and remodelling work – the principal end uses of Norbord’s products – are generally stronger in the spring and summer months. Adverse weather can also limit access to logging areas, which can affect the supply of fibre to Norbord’s operations. OSB shipment volumes and prices are affected by these factors as well as by global supply and demand conditions.

Operating working capital is typically built up in the first quarter of the year due primarily to log inventory purchases in the Northern regions of North America and Europe. This inventory is generally consumed in the spring and summer months.

The demand for and the price of OSB in North America are significant variables affecting the comparability of Norbord’s results over the past eight quarters. Fluctuations in earnings during that time mirror fluctuations in the demand for and the price of OSB in North America. The Company estimates that the annualized impact on Adjusted EBITDA of a $10 per Msf ( ⁷⁄₁₆-inch basis) change in the North American OSB price, when operations are running at full capacity, is approximately $59 million or $0.69 per basic share. Regional pricing variations, particularly in the Southern US and Western Canada, make the North Central benchmark price a useful, albeit imperfect, proxy for overall North American OSB pricing. Similarly in Europe, regional pricing variations and product mix also make the European OSB indicative price a useful, albeit imperfect, proxy for overall European OSB pricing. Further, premiums obtained on value-added products, the pricing lag effect of maintaining an order file, and volume and trade discounts cause realized prices to differ from the benchmarks for both North America and Europe.

Global commodity prices affect the prices of key raw material inputs, primarily wood fibre, resin, wax and energy which had been increasing as the broader US economic recovery gained traction. However, prices for resin, a petroleum-based product, trended down significantly along with oil prices starting in the fourth quarter of 2014, reversing a decade-long upward trend. Resin prices started a modest upward trend in the third quarter of 2016.

Norbord has significant exposure to the Canadian dollar with approximately 37% of its panel production capacity located in Canada. The Company estimates that the favourable impact of a one-cent (US) decrease in the value of the Canadian dollar would positively impact annual Adjusted EBITDA by approximately $3 million when all six of Norbord’s Canadian OSB mills operate at capacity.

Items not related to ongoing business operations that had a significant impact on quarterly results include:

Gain on Asset Exchange – Included in the fourth quarter of 2016 is a $16 million ($0.19 per basic and diluted share) gain recognized on the Quebec Asset Exchange transaction.

Merger Transaction Costs – Included in the second quarter of 2015 is $1 million ($0.01 per basic and diluted share) of transaction costs related to the Merger. Included in the first quarter of 2015 is $7 million ($0.08 per basic and diluted share) of transaction costs related to the Merger.

Severance Incurred to Achieve Merger Synergies – Included in the second quarter of 2015 is $2 million ($0.02 per basic and diluted share) of severance costs incurred to achieve synergies from the Merger.

Other Costs Incurred to Achieve Merger Synergies – Included in the fourth quarter of 2016 is $1 million ($0.01 per basic and diluted share) of other costs incurred to achieve synergies from the Merger including consulting and professional fees. Included in the third quarter of 2016 is $4 million ($0.05 per basic and diluted share) of other costs incurred to achieve synergies from the Merger, including consulting and professional fees, and costs expensed to dismantle certain idle equipment at the Grande Prairie, Alberta mill which was moved to be used in the Inverness project. Included in the second quarter of 2016 is $2 million ($0.02 per basic and diluted share) of other costs incurred to achieve synergies from the Merger including consulting and professional fees. Included in the first quarter of 2016 is $1 million ($0.01 per basic and diluted share), $3 million ($0.03 per basic and diluted share) in the fourth quarter of 2015 and $1 million ($0.01 per basic and diluted share) in the second quarter of 2015 of similar costs. Included in the first quarter of 2015 is $1 million ($0.01 per basic and diluted share) of costs associated with the immediate vesting of certain Ainsworth stock options upon closing of the Merger.

Costs Related to High Level fire – Included in the second quarter of 2016 is a $1 million ($0.01 per basic and diluted share) insurance claim deductible related to the High Level fire that occurred during the quarter.

Costs on Early Debt Extinguishment – Included in the second quarter of 2015 is a $13 million ($0.15 per basic and diluted share) premium paid on the early redemption of the Ainsworth Notes, an $11 million ($0.13 per basic and diluted share) write-off of the related financial instrument on the call options embedded in the Ainsworth Notes and a related $1 million ($0.01 per basic and diluted share) write-off of net unamortized debt issue costs.

Foreign Exchange Loss on Ainsworth Notes – Included in the first quarter of 2015 is a $28 million ($0.33 per basic and diluted share) foreign exchange loss due to the revaluation of the Ainsworth Notes to Canadian dollars since the Ainsworth Notes were denominated in US dollars and Ainsworth’s functional currency was Canadian dollars prior to the Merger.

Gain on Derivative Financial Instrument on Ainsworth Notes – Included in the first quarter of 2015 is a $4 million ($0.05 per basic and diluted share) revaluation gain on the embedded call option contained in the Ainsworth Notes. This derivative was extinguished when the Ainsworth Notes were early redeemed.

The following table reconciles Adjusted earnings (loss) to the most directly comparable IFRS measure:

(US $ millions)	Q4 2016			Q3 2016			Q2 2016			Q1 2016			Q4 2015			Q3 2015			Q2 2015			Q1 2015
Earnings (loss)	$	61		$	55		$	44		$	23		$	13		$	(9	)	$	(23	)	$	(37	)
Less: Gain on asset exchange		(16	)		-			-			-			-			-			-			-
Add: Merger transaction costs		-			-			-			-			-			-			1			7
Add: Severance incurred to achieve Merger synergies		-			-			-			-			-			-			2			-
Add: Other costs incurred to achieve Merger synergies		1			4			2			1			3			-			1			1
Add: Costs related to High Level fire		-			-			1			-			-			-			-			-
Add: Costs on early extinguishment of Ainsworth Notes		-			-			-			-			-			-			25			-
Add: Foreign exchange loss on Ainsworth Notes		-			-			-			-			-			-			-			28
Less: Gain on derivative financial instrument on Ainsworth Notes		-			-			-			-			-			-			-			(4	)
Add: Reported income tax expense (recovery)		29			19			10			3			6			3			(22	)		(14	)
Adjusted pre-tax earnings (loss)		75			78			57			27			22			(6	)		(16	)		(19	)
Less: Income tax (expense) recovery at statutory rate(1)		(20	)		(20	)		(15	)		(7	)		(6	)		2			4			5
Adjusted earnings (loss)	$	55		$	58		$	42		$	20		$	16		$	(4	)	$	(12	)	$	(14	)

⁽¹⁾  Represents Canadian combined federal and provincial statutory rate.

The following table reconciles Adjusted EBITDA to the most directly comparable IFRS measure:

(US $ millions)	Q4 2016			Q3 2016		Q2 2016		Q1 2016		Q4 2015		Q3 2015			Q2 2015			Q1  2015
Earnings (loss)	$	61		$	55	$	44	$	23	$	13	$	(9	)	$	(23	)	$	(37)
Add: Finance costs		13			13		13		13		14		14			13			14
Add: Depreciation and amortization		26			23		24		21		21		22			22			21
Add: Income tax expense (recovery)		29			19		10		3		6		3			(22	)		(14)
Less: Gain on asset exchange		(16	)		-		-		-		-		-			-			-
Add: Merger transaction costs		-			-		-		-		-		-			1			7
Add: Severance incurred to achieve Merger synergies		-			-		-		-		-		-			2			-
Add: Other costs incurred to achieve Merger synergies		1			4		2		1		3		-			1			1
Add: Costs related to High Level fire		-			-		1		-		-		-			-			-
Add: Costs on early extinguishment of Ainsworth Notes		-			-		-		-		-		-			25			-
Add: Foreign exchange loss on Ainsworth Notes		-			-		-		-		-		-			-			28
Less: Gain on derivative financial instrument on Ainsworth Notes		-			-		-		-		-		-			-			(4)
Adjusted EBITDA	$	114		$	114	$	94	$	61	$	57	$	30		$	19		$	16

FOURTH QUARTER RESULTS

Sales in the quarter were $482 million, compared to $453 million in the third quarter of 2016 and $415 million in the fourth quarter of 2015. Quarter-over-quarter, sales increased by $29 million due to higher shipment volumes primarily due to the increased fiscal days in the period. Year-over-year, sales increased $67 million primarily due to higher North American OSB prices and an increase in North American shipment volumes.

In the fourth quarter, North Central benchmark OSB prices averaged $285 per Msf ( ⁷⁄₁₆-inch basis). The table below summarizes benchmark OSB prices by region for the relevant quarters:

North American Region	% of Norbord’s estimated annual operating capacity(1)		Q4 2016 ($/Msf-7/16”)		Q3 2016 ($/Msf-7/16”)		Q4 2015 ($/Msf-7/16”)
North Central		16%		$  285		$  301		$  242
South East		33%		263		256		221
Western Canada		32%		236		265		204

⁽¹⁾  Excludes Chambord, Quebec and Huguley, Alabama mills currently curtailed which represents 13% of estimated annual capacity.

In Europe, reported prices in US dollar terms continued to be impacted by the significant devaluation of the Pound Sterling following the Brexit referendum. In local currency terms, particleboard prices declined by 2% quarter-over-quarter, OSB prices were flat and MDF prices were up 1%. Year-over-year, OSB prices were up 1% while MDF and particleboard prices were down 1% and 5%, respectively.

In North America, shipments were 9% higher than the prior quarter as there were eight more fiscal days in the fourth quarter. Shipments were up 10% compared to the same quarter last year due to improved OSB demand supported by increased mill productivity. In Europe, shipment volumes were up by 2% compared to the prior quarter primarily due to the increased fiscal days. European shipments were 5% higher compared to the same quarter last year due to increased demand in all key panel markets.

Norbord’s North American OSB operating mills produced at 94% of capacity in the fourth quarter of 2016, compared to 95% in the third quarter of 2016 and 84% in the fourth quarter of 2015. Norbord’s European mills produced at 95% of capacity in the fourth quarters of both 2016 and 2015, compared to 99% in the third quarter of 2016.

Norbord recorded operating income of $87 million in both the fourth and third quarters of 2016 and $33 million in the fourth quarter of 2015. Norbord’s Adjusted EBITDA for the fourth quarter was in line with the third quarter of 2016 and double the result for the fourth quarter of 2015.

Adjusted EBITDA changes are summarized in the variance table below:

(US $ millions)	Q4 2016 vs. Q3 2016			Q4 2016 vs. Q4 2015
Adjusted EBITDA – current period	$	114		$	114
Adjusted EBITDA – comparative period		114			57
Variance		-			57
Mill nets(1)		1			53
Volume(2)		17			17
Key input prices(3)		1			2
Key input usage(3)		(4	)		1
Mill profit share and bonus		(1	)		(4	)
Other operating costs and foreign exchange(4)		(14	)		(12	)
Total	$	-		$	57

⁽¹⁾  The mill nets variance represents the estimated impact of changes in realized pricing across all products. Mill nets are calculated as sales (net of outbound freight costs) divided by shipment volume.

⁽²⁾  The volume variance represents the impact of shipment volume changes across all products.

⁽³⁾  The key inputs include fibre, resin, wax and energy.

⁽⁴⁾  The other operating costs and foreign exchange category covers all remaining variances including labour and benefits, and maintenance.

Adjusted EBITDA is generated from the following geographic segments:

(US $ millions)	Q4 2016			Q3 2016			Q4 2015
North America	$	108		$	106		$	51
Europe		10			10			10
Unallocated		(4	)		(2	)		(4	)
Total	$	114		$	114		$	57

Norbord’s North American operations generated Adjusted EBITDA of $108 million in the fourth quarter of 2016, versus $106 million in the third quarter of 2016 and $51 million in the fourth quarter of 2015. Quarter-over-quarter, the increase of $2 million was primarily attributed to the impact of eight additional fiscal days in the fourth quarter, partially offset by the timing of annual maintenance shuts. The year-over-year increase of $57 million was primarily attributed to higher OSB prices, higher shipment volume and the timing of annual maintenance shuts, partially offset by higher mill profit share costs attributed to higher earnings.

In the fourth quarter, Norbord’s North American OSB cash production costs per unit (excluding mill profit share) increased 2% versus the third quarter of 2016 due to the timing of annual maintenance shuts, partially offset by the impact of eight additional fiscal days in the fourth quarter. Unit costs decreased by 2% versus the fourth quarter of 2015 as the timing of annual maintenance shuts was partially offset by higher supplies and maintenance costs.

Norbord’s European operations generated Adjusted EBITDA of $10 million in the fourth quarter of 2015, in line with all comparative periods. Quarter-over-quarter, the benefit of lower energy prices was offset by higher maintenance costs. Year-over-year the benefit of lower energy prices was offset by the translation impact of a weaker Pound Sterling.

Unallocated costs are higher than the third quarter of 2016 due to bonus accruals attributed to higher earnings but in line with the fourth quarter of 2015.

Norbord recorded earnings of $61 million ($0.71 per basic share and diluted share) in the fourth quarter of 2016, up from $55 million ($0.64 per basic and diluted share) in the third quarter of 2016 and $13 million ($0.15 per basic and diluted share) in the fourth quarter of 2015.

Excluding the impact of non-recurring items and using a normalized Canadian statutory tax rate, Norbord recorded Adjusted earnings of $55 million ($0.64 per basic share and diluted share) in the fourth quarter of 2016 compared to $58 million ($0.68 per basic share and $0.67 per diluted share) in the prior quarter and $16 million ($0.19 per basic and diluted share) in the fourth quarter of 2015. Quarter-over-quarter Adjusted earnings decreased by $3 million primarily due to higher depreciation and amortization expense. Year-over-year Adjusted earnings increased by $39 million primarily due to higher North American OSB pricing and higher shipment volumes, partially offset by higher profit share costs attributed to higher earnings.

FINANCIAL POLICIES

Capital Allocation

Norbord considers effective capital allocation to be critical to its success. Capital is invested only when Norbord expects returns to exceed pre-determined thresholds, taking into consideration both the degree and magnitude of the relative risks and rewards and, if appropriate, strategic considerations in the establishment of new business activities or maintenance of existing business activities. Post-investment reviews are conducted on capital investment decisions to assess the results against planned project returns.

Liquidity

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

At year-end, the Company had unutilized liquidity of $506 million, comprising $161 million in cash and cash equivalents, $125 million undrawn under its accounts receivable securitization program and $220 million in unutilized committed revolving bank lines with nine international financial institutions, available to support its liquidity requirements.

Credit Ratings

Maintaining a stable balance sheet is an important element of Norbord’s financing strategy. Norbord believes that its record of superior operational performance and prudent balance sheet management will enable it to access public and private capital markets (subject to financial market conditions).

At February 2, 2017, Norbord’s long-term debt and issuer ratings were:

	DBRS		Standard & Poor’s Ratings Services		Moody’s     Investors Service
Secured Notes		BB		BB-		Ba2
Issuer		BB		BB-		Ba2
Outlook		Negative		Positive(1)		Stable

⁽¹⁾ Upgraded from Stable in November 2016.

Credit ratings are intended to provide investors with an independent measure of the credit quality of any securities issue. The credit ratings accorded to debt securities by the rating agencies are not recommendations to purchase, hold or sell the debt securities, as such ratings do not comment on market price or suitability for a particular investor. There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if, in its judgement, circumstances warrant.

Use of Financial Instruments

Norbord uses derivative financial instruments solely for the purpose of managing its interest rate, foreign exchange and commodity price exposures, as further detailed in the Risks and Uncertainties section. These activities are governed by Board-approved financial policies that cover risk identification, tolerance, measurement and reporting. Derivative transactions are executed only with approved high-quality counterparties under master netting agreements. 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 and, accordingly, all gains and losses on these instruments are recognized in the same manner as the item being hedged.

FUTURE CHANGES IN ACCOUNTING POLICIES

(i) Income Taxes

In January 2016, the IASB issued amendments to clarify the requirements for recognizing deferred tax assets on unrealized losses. The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base. They also clarify certain other aspects of accounting for deferred tax assets. The amendments are effective for the year beginning January 1, 2017. The Company does not expect these amendments to have a significant impact on its financial statements.

(ii) Cash Flow Statement Disclosure

In January 2016, the IASB issued an amendment to IAS 7, Statement of Cash Flows, introducing additional disclosure requirements for liabilities arising from financing activities. The amendments are effective for the year beginning January 1, 2017. The Company does not expect this amendment to have a significant impact on its financial statements.

(iii) Financial Instruments

In July 2014, the IASB issued the final publication of International Financial Reporting Standard 9, Financial Instruments (IFRS 9), superseding IAS 39, Financial Instruments. IFRS 9 includes amended guidance for the classification and measurement of financial assets by introducing a fair value through other comprehensive income category for certain debt instruments. It also includes a new general hedge accounting standard which will align hedge accounting more closely with risk management and contains a new impairment model which could result in earlier recognition of losses. IFRS 9 is effective for the year beginning on or after January 1, 2018 with early adoption permitted. The Company is currently assessing the impact of IFRS 9 on its financial statements.

(iv) Revenue from Contracts with Customers

In May 2014, the IASB issued International Financial Reporting Standard 15, Revenues from Contracts with Customers (IFRS 15) which replaces the existing revenue recognition guidance with a new framework to determine the timing of revenue recognition and the measurement of revenue. In September 2015, the IASB formalized a one-year deferral of the effective date to the year beginning on or after January 1, 2018. In April 2016, the IASB issued an amendment clarifying the guidance on identifying performance obligations, licenses of intellectual property and principal versus agent, and to provide additional practical expedients upon transition. The Company is currently assessing the impact of IFRS 15 on its financial statements.

(v) Share-Based Payments

In June 2016, the IASB issued an amendment to IFRS 2, Share-based Payment, clarifying the accounting for certain types of share-based payment transactions. The amendments provide requirements on accounting for the effects of vesting and non-vesting conditions of cash-settled share-based payments, withholding tax obligations for share-based payments with a net settlement feature, and when a modification to the terms of a share-based payment changes the classification of the

transaction from cash-settled to equity-settled. The amendments are effective for the year beginning on or after January 1, 2018. The Company does not expect this amendment to have a significant impact on its financial statements.

(vi) Foreign Currency Transactions and Advance Consideration

In December 2016, the IFRS Interpretations Committee of the IASB issued IFRIC 22, Foreign Currency Transactions and  Advance Consideration (IFRIC 22). The Interpretation addresses how to determine the date of the transaction when applying IAS 21, The Effects of Changes in Foreign Exchange Rates. The date of transaction determines the exchange rate to be used on initial recognition of the related asset, expense or income. The Interpretation is effective for the year beginning on or after January 1, 2018. The Company is currently assessing the impact of IFRIC 22 on its financial statements.

(vii) Leases

In January 2016, the IASB issued International Financial Reporting Standard 16, Leases (IFRS 16) which replaces the existing lease accounting guidance. IFRS 16 requires all leases to be reported on the balance sheet unless certain criteria for exclusion are met. IFRS 16 is effective for the year beginning on or after January 1, 2019 with early adoption permitted if IFRS 15 is also adopted at the same time. The Company is currently assessing the impact of IFRS 16 on its financial statements.

SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATES

The preparation of financial statements in conformity with IFRS requires management to select appropriate accounting policies to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. In particular, significant accounting policies, judgements and estimates utilized in the normal course of preparing the Company’s financial statements require management to make critical determinations that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. Actual results could materially differ from those estimates. For further information on the Company’s significant accounting policies, refer to note 2 of the consolidated financial statements.

In making estimates and judgements, management relies on external information and observable conditions where possible, supplemented by internal analysis as required. These estimates and judgements have been applied in a manner consistent with prior periods and there are no known trends, commitments, events or uncertainties that we believe will materially affect the methodology or assumptions utilized in making these estimates and judgements in these financial statements. The significant estimates and judgements used in determining the recorded amount for assets and liabilities in the financial statements include the following:

Judgements

Information about management’s judgements made in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are:

(i) Functional currency

The Company assesses the relevant factors related to the primary economic environment in which its entities operate to determine the functional currency.

(ii) Income Taxes

In the normal course of operations, judgement is required in assessing tax interpretations, regulations and legislation and in determining the provision for income taxes, deferred tax assets and liabilities. To the extent that a recognition or de-recognition of a deferred tax asset is required, current period earnings or OCI will be affected.

Estimates

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended December 31, 2016 are:

(i) Inventory

The Company estimates the net realizable value of its inventory using estimates regarding future selling prices.

(ii) Property, Plant and Equipment and Intangible Assets

When indicators of impairment are present and the value in use of property, plant and equipment and intangible assets needs to be determined, the Company uses the following critical estimates: the timing of forecasted revenues; future selling prices and margins; future sales volumes; maintenance and other capital expenditures; discount rates; useful lives; and residual values.

(iii) Reforestation Obligation

The future estimated reforestation obligation is accrued and charged to earnings on the basis of the volume of timber cut. The estimates of reforestation obligation are based upon various judgements and assumptions using historical experience. Both the precision and reliability of such estimates are subject to uncertainties and, as additional information becomes known, these estimates are subject to change.

(iv) Employee Benefit Plans

The net obligations associated with the defined benefit pension plans are actuarially valued using: the projected unit credit method; management’s best estimates for salary escalation, inflation and life expectancy; and a current market discount rate to match the timing and amount of pension payments.

(v) Income Taxes

Current income tax assets and liabilities are measured at the amount expected to be paid to tax authorities, net of recoveries, based on the tax rates and laws enacted or substantively enacted at the balance sheet date.

Deferred income tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that the deductions, tax credits and tax losses can be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability settled, based on the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

(vi) Financial Instruments

The critical assumptions and estimates used in determining the fair value of financial instruments are: equity and commodity prices; future interest rates; the relative creditworthiness of the Company to its counterparties; estimated future cash flows; discount rates; and volatility utilized in option valuations.

RISKS AND UNCERTAINTIES

Norbord is exposed to a number of risks and uncertainties in the normal course of its business which could have a material adverse effect on the Company’s business, financial position, operating results and cash flows. A discussion of some of the major risks and uncertainties follows.

Product Concentration and Cyclicality

OSB accounts for almost 90% of Norbord’s panel production capacity. The price of OSB is one of the most volatile in the wood products industry. Norbord’s concentration on OSB increases its sensitivity to product pricing and may result in a high degree of sales and earnings volatility.

Norbord’s financial performance is principally dependent on the selling price of its products. Most of Norbord’s products are traded commodities for which no liquid futures markets exist. The markets for most of Norbord’s products are highly cyclical and characterized by periods of supply and demand imbalance, during which its product prices have tended to fluctuate significantly. In addition, since many of Norbord’s products

are used for new home construction, seasonal and annual weather changes can affect demand and sales volumes. These imbalances, which may affect different areas of Norbord’s business at different times, are influenced by numerous factors that are beyond Norbord’s control and include: changes in global and regional production capacity for a particular product or group of products; changes in the end use of those products, or the increased use of substitute products; a significant increase in longer-term interest rates; changes in the availability of mortgage financing; and the overall level of economic activity in the regions in which Norbord conducts business. In the past, Norbord has been negatively affected by declines in product pricing and has taken production downtime to manage working capital and minimize cash losses. Severe and prolonged weakness in the markets for Norbord’s products, particularly OSB, could seriously harm the Company’s financial position, operating results and cash flows, including the ability to satisfy interest and principal payments on outstanding debt.

Based on operations running at full capacity, the following table shows the approximate annualized impact of changes in product prices on Adjusted EBITDA:

	Sensitivity Factor	Impact on Adjusted EBITDA   (US $ millions)
OSB – North America	$10 per Msf–7/16”	$59
OSB – Europe	€10 per m3	8

Liquidity

Norbord relies on long-term borrowings, access to revolving bank lines and an accounts receivable securitization program to fund its ongoing operations. The Company’s ability to refinance or renew such facilities is dependent upon financial market conditions. Although Norbord has notes maturing in 2017, 2020 and 2023 and has bank lines that are committed to May 2019, financing may not be available when required or may not be available on commercially favourable or otherwise satisfactory terms in the future.

Competition

The wood-based panels industry is a highly competitive business environment in which companies compete, to a large degree, on the basis of price. Norbord’s principal market is the US, where it competes with North American and, in some instances, foreign producers. Norbord’s European operations compete primarily with other European producers. Certain competitors may have lower-cost facilities than Norbord. Norbord’s ability to compete in these and other markets is dependent on a variety of factors, such as manufacturing costs, availability of key production inputs, continued free access to markets, customer service, product quality, financial resources and currency exchange rates. In addition, competitors could develop new cost-effective substitutes for Norbord’s wood-based panels, or building codes could be changed making the use of Norbord’s products less attractive for certain applications.

Customer Dependence

Norbord sells its products primarily to major retail chains, contractor supply yards and industrial manufacturers, and faces strong competition for the business of significant customers. Norbord generally does not have contractual assurances of future sales. As a result, the loss of a significant customer or any significant customer order cancellations could negatively affect the Company’s sales and earnings. Continued consolidation in the retail industry could expose Norbord to increased concentration of customer dependence and increase customers’ ability to exert pricing pressure on Norbord.

Cross Border Trade

Norbord’s future performance is dependent upon international trade and, in particular, cross-border trade between Canada and the United States and between the United Kingdom and European Union. Access to markets in the United States and other countries may be affected from time to time by various trade-related events. The Company’s financial condition and results of operations could be materially adversely affected by

trade rulings, the failure to reach or adopt trade agreements, the imposition of customs duties or other tariffs, or an increase in trade restrictions in the future.

Manufacturing Inputs

Norbord is exposed to commodity price risk on most of its manufacturing inputs, which principally comprise wood fibre, resin, wax 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 the Company’s control. Norbord may not be able to hedge the purchase price of manufacturing inputs or pass increased costs on to its customers.

Fibre Resource

Fibre for Norbord’s OSB mills comes from roundwood logs while the MDF and particleboard mills source fibre in the form of roundwood logs, wood chips, sawdust and recycled wood. Norbord’s wood fibre supply comes from several different sources. In the US, roundwood logs are primarily sourced from private and industry-owned woodlands. In Canada, Norbord holds forest licences and agreements to source roundwood logs from Crown timberlands, which are supplemented by open market and private purchases. In Europe, wood fibre is purchased from government and private landowners.

When Norbord purchases timber, wood chips, fibre and other wood recycled materials on the open market, it is in competition with other uses of such resources, where prices are influenced by factors beyond Norbord’s control. Fibre supply could also be influenced by natural events, such as forest fires, severe weather conditions, insect epidemics and other natural disasters, which may increase wood fibre costs, restrict access to wood fibre or force production curtailments. In addition, Norbord’s supply and cost of fibre may be negatively impacted by increased demand resulting from market-based or legislative initiatives to use wood-based biomass materials in the production of heat, electricity or other bio-based products.

In Canada, the Crown licences and agreements require the payment of stumpage fees for the timber harvested and compliance with specified operating, rehabilitation and silviculture management practices. They can be revoked or cancelled for non-performance and contain terms and conditions that could, under certain circumstances, result in a reduction of annual allowable timber that may be harvested by Norbord without any compensation. The Company may not be able to renew or replace the Crown licences when they come due. Any changes to government regulations and policies governing forest management practices could adversely affect the Company’s access to, or increase the cost of, wood fibre.

Aboriginal groups have claimed substantial portions of land in various Canadian provinces over which they claim aboriginal title, or in which they have a traditional interest, and for which they are seeking compensation from various levels of government. The results of these claims and related forest policy mechanisms may adversely affect the supply of wood fibre and the commercial terms of supply agreements with provincial governments.

Currency Exposures

Norbord reports its financial results in US dollars. A portion of Norbord’s product prices and costs are influenced by relative currency values (particularly the Pound Sterling, Euro and Canadian dollar). Significant fluctuations in relative currency values could negatively affect the cost competitiveness of the Company’s facilities, the value of its foreign investments, the results of its operations and its financial position.

Norbord’s foreign exchange exposure arises from the following sources:

^○  net investments in foreign operations, limited to Norbord’s investment in its European operations which transact in both Pounds Sterling and Euros;

^○  net Canadian dollar-denominated monetary assets and liabilities; and

^○  committed or anticipated foreign currency-denominated transactions, primarily Canadian dollar costs in Norbord’s Canadian operations and Euro revenues in Norbord’s UK operations.

Third-Party Transportation Services

Norbord relies on third-party transportation services for delivery of products to customers as well as for delivery of raw materials from suppliers. The majority of products manufactured and raw materials used are transported by rail or truck, which are highly regulated. Transportation rates and fuel surcharges are influenced by factors beyond Norbord’s control. Any failure of third-party transportation providers to deliver finished goods or raw materials in a timely manner, including failure caused by adverse weather conditions could harm the Company’s reputation, negatively affect customer relationships or disrupt production at the Company’s mills.

Employee Retention and Labour Relations

Norbord’s success depends in part on its ability to attract and retain senior management and other key employees. Competition for qualified personnel depends on economic and industry conditions, competitors’ hiring practices and the effectiveness of Norbord’s compensation programs. The loss of, or inability to recruit and retain, any such personnel could impact the Company’s ability to execute on its strategy.

Norbord’s US employees are non-unionized while its UK, Belgian and most of its Canadian mill employees are unionized – representing approximately 40% of the workforce. All of Norbord’s UK and Belgian union contracts are evergreen. Canadian union contracts typically cover a three- to five-year term, and the current contracts with Unifor (formerly the Communications, Energy and Paperworkers Union) representing members at the OSB mills in Barwick, Ontario, Chambord, Quebec and La Sarre, Quebec expire July 31, 2017, June 1, 2018 and June 30, 2021 respectively. The current contract with the Pulp, Paper and Woodworkers of Canada (PPWC) representing members at the OSB mill in 100 Mile House, British Columbia expires June 30, 2017. Strikes or work stoppages could result in lost production and sales, higher costs or supply constraints if Norbord is unable to negotiate acceptable contracts with its various trade unions upon expiry.

Environmental Matters

Norbord’s operations are subject to a range of general and industry-specific environmental laws and regulations relating to air emissions, wastewater discharges, solid and hazardous waste management, plant and wildlife protection and site remediation. Failure to comply with applicable environmental laws and regulations could result in fines, penalties or other enforcement actions that could impact Norbord’s production capacity or increase its production costs. The Company has incurred, and expects to continue to incur, capital expenditures and operating costs to comply with applicable environmental laws and regulations. In addition, environmental laws and regulations could become more stringent in the future.

International Sales

A portion of the Company’s sales are exported to customers in developing markets. International sales present a number of risks and challenges, including but not limited to the effective marketing of the Company’s products in foreign countries, collectability of accounts receivable, tariffs and other barriers to trade and recessionary environments in foreign economies. Although the Company purchases credit insurance on all export sales, revenues could be negatively impacted by any customer losses.

Product Liability and Legal Proceedings

Norbord produces a variety of wood-based panels that are used in new home construction, repair-and-remodelling of existing homes, furniture and fixtures, and industrial applications. In the normal course of business, the end users of Norbord’s products have in the past made, and could in the future make, claims with respect to the fitness for use of its products or claims related to product quality or performance issues. In addition, Norbord has been in the past and may in the future be involved in legal proceedings related to antitrust, negligence, personal injury, property damage and other claims against the Company or its predecessors. Norbord could face increased costs if any future claims exceed purchased insurance coverage.

Capital Intensity

The production of wood-based panels is capital intensive. There can be no assurance that key pieces of equipment will not need to be repaired or replaced. In certain circumstances, the costs of repairing or replacing equipment, and the associated downtime of the affected production line, may not be insurable.

Tax Exposures

Norbord takes various positions in the normal course of business of filing its tax returns, and there can be no assurance that tax authorities will not challenge such filing positions. In addition, Norbord is subject to further uncertainties concerning the interpretation and application of tax laws in various operating jurisdictions. Norbord provides for known estimated tax exposures in all jurisdictions. These exposures are settled primarily through the closure of audits with the jurisdictional taxing authorities. However, future settlements could differ materially from the Company’s estimated liabilities.

Defined Benefit Pension Plan Funding

Although Norbord’s defined benefit pension plans are largely closed to new entrants, the Company continues to be subject to market risk on the plan assets and obligations related to existing members. Defined benefit pension plan funding requirements are based on actuarial valuations that make assumptions about the long-term expected rate of return on assets, salary escalation, life expectancy and discount rates. The Company’s latest funding valuations indicate the plans are in a solvency deficit position and therefore Norbord is required to make cash funding contributions. If actual experience differs from these assumptions or any of these assumptions change such that the solvency deficit increases, the Company would be required to increase cash funding contributions, reducing the availability of such funds for other corporate purposes.

Information Technology Infrastructure

In order to optimize performance, the Company regularly implements business process improvement initiatives and invests capital to upgrade its information technology infrastructure. These initiatives may involve risks to the operations and the Company may experience difficulties during the transition to these new or upgraded systems and processes. Difficulties in implementing new or upgraded information systems or significant system failures could disrupt operations and have a material adverse effect on the business.

Cyber Security

Norbord relies on information technology to support the Company’s operations and to maintain business records. Some systems are internally managed and some are maintained by third-party service providers. Norbord and its service providers employ what the Company believes are adequate security measures. A security failure of that technology, security breaches of company, customer, employee, and vendor information as well as a disruption of business resulting from a natural disaster, hardware or software corruption, failure or error, telecommunications system failure, service provider error, intentional or unintentional personnel actions or other disruptions could disrupt operations and have a material adverse effect on the business. Further, such disruptions could expose the Company to potential liability or other proceedings by affected individuals, business partners and/or regulators. As a result, Norbord could face increased costs if any future claims exceed purchased insurance coverage.

ASSESSMENT OF AND CHANGES IN INTERNAL CONTROLS AND DISCLOSURE CONTROLS OVER FINANCIAL REPORTING

In accordance with the requirements of National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the operating effectiveness of the Company’s internal control over financial reporting. Management of Norbord is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the CEO and CFO, and it is effected by management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the International Accounting Standards Board.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 and management believes that the Company’s internal control over financial reporting is operating effectively. Management’s assessment was based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the CEO and CFO have concluded that Norbord’s internal control over financial reporting, as defined in NI 52-109, is designed and operating effectively. There have been no changes in Norbord’s internal control over financial reporting during the year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the CEO and CFO, on a timely basis so that appropriate decisions can be made regarding annual and interim financial statement disclosure. An evaluation of the effectiveness of the design and operation of disclosure controls and procedures was conducted as of December 31, 2016 by Norbord’s management, including the CEO and CFO. Based on this evaluation, the CEO and CFO have concluded that Norbord’s disclosure controls and procedures, as defined in NI 52-109, are effective.

NON-IFRS FINANCIAL MEASURES

The following non-IFRS financial measures have been used in this MD&A. Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Each non-IFRS financial measure is defined below. Where appropriate, a quantitative reconciliation of the non-IFRS financial measure to the most directly comparable IFRS measure is provided.

Adjusted earnings (loss) is defined as earnings (loss) determined in accordance with IFRS before unusual or non-recurring items and using a normalized income tax rate. Non-recurring items include the gain on the Quebec asset exchange, costs related to the Merger, costs related to the proposed acquisition of Ainsworth by LP that was terminated in 2014, foreign exchange on the Ainsworth Notes and fair value movements on the financial instrument associated with the Ainsworth Notes and costs on early debt extinguishment. The actual income tax recovery (expense) is deducted (added back) and a tax recovery (expense) calculated at the Canadian combined federal and provincial statutory rate is added (deducted). Adjusted earnings (loss) per share is Adjusted earnings (loss) divided by the weighted average number of common shares outstanding.

The following table reconciles Adjusted earnings (loss) to the most directly comparable IFRS measure:

(US $ millions)	2016			2015			2014
Earnings (loss)	$	183			$  (56	)		$  (39	)
Less: Gain on asset exchange		(16	)		-			-
Add: Merger transaction costs		-			8			10
Add: Severance costs related to Merger		-			2			-
Add: Other costs incurred to achieve Merger synergies		8			5			-
Add: Costs related to High Level Fire		1			-			-
Add: Costs on terminated LP acquisition		-			-			2
Add: Costs on early extinguishment of Ainsworth Notes		-			25			-
Add: Foreign exchange on Ainsworth Notes		-			28			28
Less: (Gain) loss on derivative financial instrument on Ainsworth Notes		-			(4	)		11
Add: Reported income tax expense (recovery)		61			(27	)		(35	)
Adjusted pre-tax earnings (loss)		237			(19	)		(23	)
Less: Income tax (expense) recovery at statutory rate(1)		(62	)		5			6
Adjusted earnings (loss)	$	175			$  (14	)		$  (17	)

⁽¹⁾ Represents Canadian combined federal and provincial statutory rate.

Adjusted EBITDA is defined as earnings (loss) determined in accordance with IFRS before finance costs, income taxes, depreciation and amortization, and other unusual or non-recurring items. Non-recurring items include the gain on the Quebec asset exchange, costs related to the Merger, costs related to the proposed acquisition of Ainsworth by LP that was terminated in 2014, foreign exchange on the Ainsworth Notes and fair value movements on the financial instrument associated with the Ainsworth Notes and costs on early debt extinguishment. As Norbord operates in a cyclical commodity business, Norbord interprets Adjusted EBITDA over the cycle as a useful indicator of the Company’s ability to incur and service debt and meet capital expenditure requirements. In addition, Norbord views Adjusted EBITDA as a measure of gross profit and interprets Adjusted EBITDA trends as indicators of relative operating performance.

The following table reconciles Adjusted EBITDA to the most directly comparable IFRS measure:

(US $ millions)	2016			2015			2014
Earnings (loss)	$	183		$	(56	)	$	(39	)
Add: Finance costs		52			55			53
Add: Depreciation and amortization		94			86			85
Add: Income tax expense (recovery)		61			(27	)		(35	)
Less: Gain on asset exchange		(16	)		-			-
Add: Merger transaction costs		-			8			10
Add: Severance costs related to Merger		-			2			-
Add: Other costs incurred to achieve Merger synergies		8			5			-
Add: Costs related to High Level Fire		1			-			-
Add: Costs on terminated LP acquisition		-			-			2
Add: Costs on early extinguishment of Ainsworth Notes		-			25			-
Add: Foreign exchange on Ainsworth Notes		-			28			28
Less: (Gain) loss on derivative financial instrument on Ainsworth Notes		-			(4	)		11
Adjusted EBITDA	$	383		$	122		$	115

EBITDA margin (%) is defined as Adjusted EBITDA as a percentage of sales. When compared with industry statistics and prior periods, Adjusted EBITDA margin can be a useful indicator of operating efficiency and a company’s ability to compete successfully with its peers. Norbord interprets Adjusted EBITDA margin trends as indicators of relative operating performance.

Operating working capital is defined as accounts receivable plus inventory plus prepaids less accounts payable and accrued liabilities. Operating working capital is a measure of the investment in accounts receivable, inventory, prepaids, accounts payable and accrued liabilities required to support operations. The Company aims to minimize its investment in operating working capital; however, the amount will vary with seasonality, and sales expansions and contractions.

(US $ millions)	2016			2015
Accounts receivable	$	141		$	135
Inventory		185			181
Prepaids		10			10
Accounts payable and accrued liabilities		(218	)		(201	)
Operating working capital	$	118		$	125

Total working capital is operating working capital plus cash and cash equivalents and taxes receivable less bank advances, if any and taxes payable.

(US $ millions)	2016		2015
Operating working capital	$	118	$	125
Cash and cash equivalents		161		9
Taxes receivable		-		2
Taxes payable		(1)		(2	)
Total working capital	$	278	$	134

Capital employed is defined as the sum of property, plant and equipment, intangible assets and operating working capital. Capital employed is a measure of the total investment in a business in terms of property, plant and equipment, intangible assets and operating working capital.

(US $ millions)	2016			2015
Property, plant and equipment	$	1,262		$	1,260
Intangible assets		22			18
Accounts receivable		141			135
Inventory		185			181
Prepaids		10			10
Accounts payable and accrued liabilities		(218	)		(201	)
Capital employed	$	1,402		$	1,403

ROCE (return on capital employed) is Adjusted EBITDA divided by average capital employed. ROCE is a measurement of financial performance, focusing on cash generation and the effective use of capital. As Norbord operates in a cyclical commodity business, it monitors ROCE over the cycle as a useful means of comparing businesses in terms of efficiency of management. Norbord targets top-quartile ROCE among North American forest products companies over the cycle.

ROE (return on equity) is Adjusted earnings (loss) divided by common shareholders’ equity. ROE is a measure that allows common shareholders to determine how effectively their invested capital is being employed. As Norbord operates in a cyclical commodity business, it looks at ROE over the cycle and targets top-quartile performance among North American forest products companies.

Cash provided by (used for) operating activities per share is calculated as cash provided by (used for) operating activities as determined under IFRS, divided by the weighted average number of common shares outstanding.

Net debt is the principal value of long-term debt, including the current portion, other long-term debt and bank advances, if any, less cash and cash equivalents. Net debt for financial covenant purposes is Net debt excluding other long-term debt and including letters of credit outstanding. Net debt is a useful indicator of a company’s debt position. Net debt comprises:

(US $ millions)	2016			2015
Long-term debt, principal value	$	755		$	755
Add: Other long-term debt		-			30
Less: Cash and cash equivalents		(161	)		(9	)
Net debt		594			776
Less: Other long-term debt		-			(30	)
Add: Letters of credit		25			5
Net debt for financial covenant purposes	$	619		$	751

Tangible net worth consists of shareholders’ equity including certain adjustments. A minimum tangible net worth is one of two financial covenants contained in the Company’s committed bank lines. For financial covenant purposes, effective January 1, 2011, tangible net worth excludes all IFRS transitional adjustments and all movement in cumulative other comprehensive income subsequent to January 1, 2011 (includes those movements related to the translation of Ainsworth in prior periods).

(US $ millions)	2016		2015
Shareholders’ equity	$	650	$	519
Less: Intangible assets(1)		-		(18	)
Add: Other comprehensive income movement(2)		79		47
Add: Impact of Ainsworth adopting USD as its functional currency		155		155
Add: IFRS transitional adjustments		21		21
Tangible net worth	$	905	$	724

⁽¹⁾ Timber rights and software development costs were excluded from the definition of intangible assets when the bank lines were renewed in June 2016.

⁽²⁾ Cumulative subsequent to January 1, 2011.

Net debt to capitalization, book basis, is net debt for financial covenant purposes divided by the sum of net debt for financial covenant purposes and tangible net worth. Net debt to capitalization on a book basis is a measure of a company’s relative debt position. Norbord interprets this measure as an indicator of the relative strength and flexibility of its balance sheet. In addition, a maximum net debt to capitalization, book basis, is one of two financial covenants contained in the Company’s committed bank lines.

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

FORWARD-LOOKING STATEMENTS

This document includes forward-looking statements, as defined by applicable securities legislation. Often, but not always, forward-looking statements can be identified by the use of words such as “believes,” “expects,” “targets,” “outlook,” “scheduled,” “estimates,” “represents,” “forecasts,” “aims,” “predicts,” “plans,” “projects,” “anticipates,” “intends,” “supports,” “continues,” “future” or variations of such words and phrases or negative versions thereof or statements that certain actions, events or results “may,” “could,” “would,” “should,” “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Examples of such statements include, but are not limited to, comments with respect to: (1) outlook for the markets for products; (2) expectations regarding future product pricing; (3) outlook for operations; (4) expectations regarding mill capacity; (5) objectives; (6) strategies to achieve those objectives; (7) expected financial results including the expected results of the MIP; (8) sensitivity to changes in product prices, such as the price of OSB; (9) sensitivity to changes in foreign exchange rates; (10) sensitivity to key input prices, such as the price of fibre, resin, wax and energy; (11) expectations regarding compliance with environmental regulations; (12) expectations regarding income tax rates; (13) expectations regarding contingent liabilities and guarantees, including the outcome of pending litigation; (14) expectations regarding the amount, timing and benefits of capital investments; (15) expectations regarding the amount and timing of dividend payments; and (16) historical, forecasted and other forward-looking information published by third parties such as the U.S. Census Bureau, FEA (Forest Economic Advisors, LLC), APA – the Engineered Wood Association, Office for National Statistics and EUROCONSTRUCT which we may refer to but have not independently verified.

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. These factors include, but are not limited to: (1) assumptions in connection with the economic and financial conditions in the US, Europe, Canada and globally; (2) risks inherent to product concentration and cyclicality; (3) effects of competition and product pricing pressures; (4) risks inherent to customer dependence; (5) effects of variations in the price and availability of manufacturing inputs, including continued access to fibre resources at competitive prices; (6) availability of rail services and port facilities; (7) various events that could disrupt operations, including natural or catastrophic events and ongoing relations with employees; (8) impact of changes to, or non-compliance with, environmental regulations; (9) impact of any product liability claims in excess of insurance coverage; (10) risks inherent to a capital intensive industry; (11) impact of future outcomes of tax exposures; (12) effects of currency exposures and exchange rate fluctuations; (13) future operating costs; (14) availability of financing; (15) impact of future cross-border trade rulings or agreements; (16) ability to implement new or upgraded information technology infrastructure; and (17) impact of information technology service disruptions or failures.

The above list of important factors affecting forward-looking information is not exhaustive. Additional factors are noted elsewhere, and reference should be made to the other risks discussed in filings with Canadian and United States securities regulatory authorities. Except as required by applicable law, Norbord does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by, or on behalf of, the Company, 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.

EX-99.3

Exhibit 99.3

Management’s Responsibility for the Financial Statements

The accompanying consolidated financial statements have been prepared by the Company’s management which is responsible for their integrity, consistency, objectivity and reliability. To fulfill this responsibility, the Company maintains policies, procedures and systems of internal control to ensure that its reporting practices and accounting and administrative procedures are appropriate to provide a high degree of assurance that relevant and reliable financial information is produced and assets are safeguarded. These controls include the careful selection and training of employees, the establishment of well-defined areas of responsibility and accountability for performance, and the communication of policies and code of conduct throughout the Company. In addition, the Company maintains an internal audit function that conducts periodic audits of the Company’s operations.

These consolidated financial statements have been prepared in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board, and where appropriate, reflect estimates based on management’s judgment. The financial information presented throughout the Management’s Discussion and Analysis is generally consistent with the information contained in the accompanying consolidated financial statements.

The consolidated financial statements have been further reviewed and approved by the Board of Directors acting through its Audit Committee, which is comprised of directors who are neither officers nor employees of the Company, and who are independent of the Company’s controlling shareholder. The Audit Committee, which meets with the auditors and management to review the activities of each and reports to the Board of Directors, oversees management’s responsibilities for the financial reporting and internal control systems. The auditors have full and direct access to the Audit Committee and meet periodically with the committee both with and without management present to discuss their audit and related findings.

February 2, 2017

/s/ Peter Wijnbergen	/s/ Robin Lampard
PETER C. WIJNBERGEN	ROBIN E. LAMPARD
President and Chief Executive Officer	Senior Vice President and Chief Financial Officer

  Independent Auditors’ Report

	KPMG LLP
	Bay Adelaide Centre	Telephone	(416) 777-8500
	333 Bay Street Suite 4600	Fax	(416) 777-8818
	Toronto ON M5H 2S5	Internet	www.kpmg.ca
	Canada

To the Shareholders of Norbord Inc.

We have audited the accompanying consolidated financial statements of Norbord Inc. (“the Company”), which comprise the consolidated balance sheets as at December 31, 2016 and December 31, 2015, the consolidated statements of earnings, comprehensive income, changes in shareholders’ equity 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 Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, 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’ Responsibility

Our 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 consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial 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 consolidated financial 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 consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2016 and December 31, 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

February 2, 2017

Toronto, Canada

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.

Consolidated Balance Sheets

(US $ millions)	Note		Dec 31, 2016		Dec 31, 2015
Assets
Current assets
Cash and cash equivalents			$	161	$	9
Accounts receivable		4		141		135
Taxes receivable				-		2
Inventory		5		185		181
Prepaids				10		10
				497		337
Non-current assets
Property, plant and equipment		6		1,262		1,260
Intangible assets		7		22		18
Deferred income tax assets		14		4		5
Other assets		8		14		15
				1,302		1,298
			$	1,799	$	1,635
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities			$	218	$	201
Taxes payable				1		2
Current portion of long-term debt		9		200		-
				419		203
Non-current liabilities
Long-term debt		9		546		745
Other long-term debt		4		-		30
Other liabilities		10, 11		27		31
Deferred income tax liabilities		14		157		107
				730		913
Shareholders’ equity		15		650		519
			$	1,799	$	1,635

(See accompanying notes)

Commitments and Contingencies (note 21)

On behalf of the Board:

/s/ Peter Gordon	/s/ Peter Wijnbergen
J. PETER GORDON	PETER C. WIJNBERGEN
Chair	President and Chief Executive Officer

Consolidated Statements of Earnings

Years ended December 31 (US $ millions, except per share information)	Note	2016			2015
Sales	23	$	1,766		$	1,509
Cost of sales	12		(1,378	)		(1,376	)
General and administrative expenses	12		(14	)		(16	)
Depreciation and amortization	6, 7		(94	)		(86	)
Operating income			280			31
Non-operating (expense) income:
Finance costs	13		(52	)		(55	)
Gain on asset exchange	3		16				-
Foreign exchange loss on Ainsworth Notes	9		-			(28	)
Costs on early debt extinguishment	9		-			(25	)
Gain on derivative financial instrument on Ainsworth Notes	9		-			4
Merger transaction costs			-			(8	)
Severance costs related to Merger			-			(2	)
Earnings (loss) before income tax			244			(83	)
Income tax (expense) recovery	14		(61	)		27
Earnings (loss)		$	183		$	(56	)
Earnings (loss) per common share	17
Basic		$	2.14		$	(0.66	)
Diluted			2.13			(0.66	)

(See accompanying notes)

Consolidated Statements of Comprehensive Income

Years ended December 31 (US $ millions)	Note		2016			2015
Earnings (loss)			$	183		$	(56	)
Other comprehensive income (loss), net of tax
Items that will not be reclassified to earnings:
Actuarial gain on post-employment obligation		11, 14		5			4
Items that may be reclassified subsequently to earnings:
Foreign currency translation loss on foreign operations		14		(37	)		(52	)
Other comprehensive loss, net of tax				(32	)		(48	)
Comprehensive income (loss)			$	151		$	(104	)

(See accompanying notes)

Consolidated Statements of Changes in Shareholders’ Equity

Years ended December 31 (US $ millions)	Note		2016			2015
Share capital
Balance, beginning of year			$	1,334		$	1,331
Issue of common shares upon exercise of options and Dividend Reinvestment Plan		15		7			3
Balance, end of year			$	1,341		$	1,334
Merger reserve		15	$	(96	)	$	(96	)
Contributed surplus
Balance, beginning of year			$	10		$	9
Stock-based compensation		15		1			1
Stock options exercised		15		(2	)		-
Balance, end of year			$	9		$	10
Retained deficit
Balance, beginning of year			$	(559	)	$	(463	)
Earnings (loss)				183			(56	)
Common share dividends				(26	)		(40	)
Balance, end of year(i)			$	(402	)	$	(559	)
Accumulated other comprehensive loss
Balance, beginning of year			$	(170	)	$	(122	)
Other comprehensive loss				(32	)		(48	)
Balance, end of year		15	$	(202	)	$	(170	)
Shareholders’ equity			$	650		$	519

(See accompanying notes)

(i) Retained earnings comprised of:
Deficit arising on cashless exercise of warrants in 2013 (note 15)	$	(263	)	$	(263	)
All other retained earnings		(139	)		(296	)
	$	(402	)	$	(559	)

Consolidated Statements of Cash Flows

Years ended December 31 (US $ millions)	Note		2016			2015
CASH PROVIDED BY (USED FOR):
Operating activities
Earnings (loss)			$	183		$	(56	)
Items not affecting cash:
Depreciation and amortization				94			86
Deferred income tax		14		57			(25	)
Gain on asset exchange		3		(16	)		-
Gain on derivative financial instrument on Ainsworth Notes		9		-			(4	)
Foreign exchange loss on Ainsworth Notes		9		-			28
Other items		18		(2	)		14
				316			43
Net change in non-cash operating working capital balances		18		(5	)		(21	)
Net change in tax receivable				2			2
				313			24
Investing activities
Investment in property, plant and equipment				(95	)		(59	)
Investment in intangible assets				(6	)		(9	)
Proceeds received on asset exchange		3		7			-
				(94	)		(68	)
Financing activities
Common share dividends paid				(26	)		(40	)
Accounts receivable securitization (repayments) drawings, net		4		(30	)		30
Issue of common shares		15		4			2
Issuance of debt				-			315
Debt issue costs				-			(6	)
Repayment of debt				-			(315	)
Premium on early debt extinguishment of Ainsworth Notes		9		-			(13	)
				(52	)		(27	)
Foreign exchange revaluation on cash and cash equivalents held				(15	)		(12	)
Cash and cash equivalents
Increase (decrease) during year				152			(83	)
Balance, beginning of year				9			92
Balance, end of year			$	161		$	9

(See accompanying notes, including note 18 for supplemental cash flow information)

Notes to the Consolidated Financial Statements

(in US $, unless otherwise noted)

In these consolidated financial statement 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, which are related parties by virtue of a controlling equity interest in the Company.

NOTE 1. NATURE AND DESCRIPTION OF THE COMPANY

Norbord is an international producer of wood-based panels with 17 plant locations in the United States, Europe and Canada. Norbord is a publicly traded company listed on the Toronto Stock Exchange (TSX) and also began trading on the New York Stock Exchange (NYSE) on February 19, 2016. The ticker symbol on both exchanges is “OSB”. The Company is incorporated under the Canada Business Corporations Act and is headquartered in Toronto, Ontario, Canada.

On March 31, 2015, Norbord completed a merger (the Merger) with Ainsworth Lumber Co. Ltd. (Ainsworth). The Merger was accounted for as a business combination of entities under common control as both entities were under common control of Brookfield. Accordingly, the combination was completed on a book value basis and no adjustments were made to reflect fair values or to recognize any new assets or liabilities of either entity.

Prior to the completion of the Merger, Brookfield controlled approximately 52% and 55% of the outstanding common shares of the Company and Ainsworth, respectively. Brookfield now controls approximately 53% of the outstanding common shares of the Company.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

(a)      Statement of Compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and with Interpretations of the International Financial Reporting Interpretations Committee. These financial statements were authorized for issuance by the Board of Directors of the Company on February 2, 2017.

(b)      Basis of Presentation

These consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries.

(c)      Basis of Measurement

These consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair value (as described in note 20).

(d)      Functional and Presentation Currency

The US dollar is the presentation currency of the Company. Each of the Company’s subsidiaries determines its functional currency, and items included in the financial statements of each subsidiary are measured using that functional currency. The functional currency of North American operations is the US dollar and the functional currency of European operations is the Pound Sterling.

(e)      Foreign Currency Translation

Assets and liabilities of foreign operations having a functional currency other than the US dollar are translated at the rate of exchange prevailing at the reporting date, and revenues and expenses at average rates during the period. Gains or losses on translation are included as a component of shareholders’ equity 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 operations are reported in the same manner.

Foreign currency-denominated monetary assets and liabilities of the Company and its subsidiaries are translated using the rate of exchange prevailing at the reporting date. Gains or losses on translation of these items are included in earnings. Gains or losses on transactions that hedge these items are also included in earnings. Revenue and expenses are measured at average rates during the period. Foreign currency-denominated non-monetary assets and liabilities, measured at historic cost, are translated at the rate of exchange at the transaction date. Foreign exchange gains or losses arising from intercompany loans to foreign operations, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income (OCI).

(f)      Business Combinations

The Company has elected not to account for the Merger as a business combination under IFRS 3, Business Combinations, as the transaction represents a combination of entities under common control of Brookfield. Accordingly, the combination was completed on a book value basis and no adjustments were made to reflect fair values or to recognize any new assets or liabilities of either entity.

(g)      Cash and Cash Equivalents

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

(h)      Inventories

Inventories of finished goods, 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. The cost of finished goods inventories includes direct material, direct labour and an allocation of overhead.

(i)      Property, Plant and Equipment

Property, plant and equipment is recorded at cost less accumulated depreciation. Borrowing costs are included as part of the cost of a qualifying asset. 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. This method amortizes the cost of equipment over the estimated units to be produced during its estimated useful life, which ranges from 10 to 25 years. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The rates of depreciation are intended to fully depreciate manufacturing and non-manufacturing assets over their useful lives. These periods are assessed at least annually to ensure that they continue to approximate the useful lives of the related assets.

Property, plant and equipment is tested for impairment only when there is an indication of impairment. 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 to the higher of fair value less costs of disposal and value in use. Fair value is measured at the sale price of the asset or group of assets in an arm’s length transaction. Value in use is based on the cash flows of the asset or group of assets, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The projection of future cash flows takes into account the relevant operating plans and management’s best estimate of the most probable set of conditions anticipated to prevail. Where an impairment loss exists, it is recorded against earnings. If an impairment loss subsequently reverses, the carrying amount of the asset is increased to the lesser of the revised estimate of recoverable amount and the carrying value that would have remained had no impairment loss been recognized previously. IFRS requires such reversals to be recognized in earnings if certain criteria are met.

(j)      Intangible Assets

Intangible assets consist of timber rights and software acquisition and development costs. Intangible assets are recorded at cost less accumulated amortization. Timber rights are amortized in accordance with the substance of the agreements (either on a straight-line basis or based on the volume of timber harvested). Software costs are amortized on a straight-line basis over their estimated useful lives and commence once the software is put into service. Amortization methods, useful lives and residual values are assessed at least annually. If the Company identifies events or changes in circumstances which may indicate that their carrying amount may not be recoverable, the intangible assets would be reviewed for impairment as described in note 2(i) above.

(k)      Reforestation Obligations

For certain operations, timber is harvested under various licences issued by the provinces of British Columbia and Alberta, which include future requirements for reforestation. The fair value of the future estimated reforestation obligation is accrued and recognized in cost of sales on the basis of the volume of timber harvested; fair value is determined by discounting the estimated future cash flows using a credit adjusted risk-free rate. Subsequent changes to fair value resulting from the passage of time and revisions to fair value calculations are recognized in earnings as they occur.

(l)      Employee Future Benefits

Norbord sponsors various defined benefit and defined contribution pension plans, which cover substantially all employees and are funded in accordance with applicable plan and regulatory requirements. The benefits under Norbord’s defined benefit pension plans are generally based on an employee’s length of service and their final five years’ or career average salary. 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, management’s best estimate assumptions, salary escalation, inflation, life expectancy, and a current market discount rate. Assets are measured at fair value. The obligation in excess of plan assets is recorded as a liability. All actuarial gains or losses are recognized immediately through OCI.

(m)      Financial Instruments

The Company periodically 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 observable market inputs for similar 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 period-end. 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. 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 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.

(n)      Debt Issue Costs

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

(o)      Income Taxes

The Company uses the asset and liability method of accounting for income taxes and provides for temporary differences between the tax basis and carrying amounts of assets and liabilities. Accordingly, deferred tax assets and liabilities are recognized for all deductible temporary differences, carryforward of unused tax credits and unused tax losses to the extent that it is probable that the deductions, tax credits and tax losses can be utilized. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to the year when the asset is realized or the liability is settled, based on the tax rates and laws that have been enacted or substantively enacted at the balance sheet date. In addition, the effect of a change in tax rates on deferred tax assets and liabilities is recognized in earnings in the year of enactment or substantive enactment. Current and deferred income taxes relating to items recognized directly in other comprehensive income are also recognized directly in other comprehensive income. The Company assesses recoverability of deferred tax assets based on the Company’s estimates and assumptions. At the end of each reporting period, the Company reassesses unrecognized deferred tax assets. Previously unrecognized tax assets are recognized to the extent that it has become probable that future taxable profit will support their realization, or derecognized to the extent it is no longer probable that the tax assets will be recovered.

The Company has certain non-monetary assets and liabilities for which the tax reporting currency is different from the functional currency. Translation gains or losses arising on the remeasurement of these items at current exchange rates versus historic exchange rates give rise to a temporary difference for which a deferred tax asset or liability and deferred tax expense (recovery) is recorded.

(p)      Share-Based Payments

The Company issues both equity-settled and cash-settled share-based awards to certain employees, officers and directors. Both types of awards are accounted for using the fair value method.

Equity-settled share-based awards are issued in the form of stock options that vest evenly over a five-year period. The fair value of the awards on the grant date is determined using a fair value model (Black-Scholes option pricing model). Each tranche of the award is considered to be a separate grant based on its respective vesting period. The fair value of each tranche is determined separately on the date of grant and recognized as compensation expense, net of forfeiture estimate, over the term of its respective vesting period, with a corresponding increase to contributed surplus. Upon exercise of the award, the issued shares are recorded at the corresponding amount in contributed surplus, plus the cash proceeds received.

Cash-settled share-based awards are issued in the form of restricted stock units (RSUs) and deferred stock units (DSUs). The fair value of the liability for RSUs is determined using the Black-Scholes option pricing model. The liability for the DSUs are fair valued using the closing price of the Company’s common shares on the grant date. DSUs are initially measured at fair value at the grant date, and subsequently re-measured to fair value at each reporting date until settlement. The liability related to cash-settled awards is recorded in other liabilities.

(q)      Revenue Recognition

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 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.

(r)      Government Grants

Government grants relating to the acquisition of property, plant and equipment is recorded as a reduction of the cost of the asset to which it relates, with any depreciation calculated on the net amount over the related asset’s useful life. Government grants relating to income or for the reimbursement of costs are recognized in earnings in the period they become receivable and deducted against the costs for which the grants were intended to compensate.

(s)      Impairment of Non-Derivative Financial Assets

Financial assets not classified at fair value through profit or loss are assessed at each reporting date to determine whether there is objective evidence of impairment.

(t)      Measurements of Fair Value

A number of the Company’s accounting policies and disclosures require the measurement of fair value, for both financial and non-financial assets and liabilities.

The Company has an established framework with respect to the measurement of fair values. If third-party information, such as broker quotes or pricing services, is used to measure fair values, then management assesses the evidence obtained from these sources to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation technique as follows:

Level 1	–	unadjusted quoted prices available in active markets for identical assets or liabilities;
Level 2	–	inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3	–	inputs for the asset or liability that are not based on observable market data (unobservable inputs).

(u)      Critical Judgements and Estimates

The preparation of the consolidated financial statements in conformity with IFRS requires management to make critical judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ materially from those estimates. Such differences in estimates are recognized when realized on a prospective basis.

In making estimates and judgements, management relies on external information and observable conditions where possible, supplemented by internal analysis as required. These estimates and judgements have been applied in a manner consistent with prior periods and there are no known trends, commitments, events or uncertainties that we believe will materially affect the methodology or assumptions utilized in making these estimates and judgements in these financial statements. The significant estimates and judgements used in determining the recorded amount for assets and liabilities in the financial statements include the following:

A.    Judgements

Information about management’s judgements made in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are:

(i) Functional Currency

The Company assesses the relevant factors related to the primary economic environment in which its entities operate to determine the functional currency.

(ii) Income Taxes

In the normal course of operations, judgement is required in assessing tax interpretations, regulations and legislation and in determining the provision for income taxes, deferred tax assets and liabilities. These judgments are subject to various uncertainties concerning the interpretation and application of tax laws in the filing of its tax returns in operating jurisdictions, which could materially affect the Company’s earnings or cash flows. There can be no assurance that the tax authorities will not challenge the Company’s filing positions. To the extent that a recognition or derecognition of a deferred tax asset is required, current period earnings or OCI will be affected.

B.    Estimates

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended December 31, 2016 are:

(i) Inventory

The Company estimates the net realizable value of its inventory using estimates regarding future selling prices.

(ii) Property, Plant and Equipment and Intangible Assets

When indicators of impairment are present and the value in use of property, plant and equipment and intangible assets need to be determined, the Company uses the following critical estimates: the timing of forecasted revenues; future selling prices and margins; future sales volumes; maintenance and other capital expenditures; discount rates; useful lives; and residual values.

(iii) Reforestation Obligation

The future estimated reforestation obligation is accrued and charged to earnings on the basis of the volume of timber cut. The estimates of reforestation obligation are based upon various judgements and assumptions using historical experience. Both the precision and reliability of such estimates are subject to uncertainties and, as additional information becomes known, these estimates are subject to change.

(iv) Employee Benefit Plans

The net obligations associated with the defined benefit pension plans are actuarially valued using: the projected unit credit method; management’s best estimates for salary escalation, inflation and life expectancy; and a current market discount rate to match the timing and amount of pension payments.

(v) Income Taxes

Current income tax assets and liabilities are measured at the amount expected to be paid to tax authorities, net of recoveries, based on the tax rates and laws enacted or substantively enacted at the balance sheet date.

Deferred income tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that the deductions, tax credits and tax losses can be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability settled, based on the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

(vi) Financial Instruments

The critical assumptions and estimates used in determining the fair value of financial instruments are: equity and commodity prices; future interest rates; the relative creditworthiness of the Company to its counterparties; estimated future cash flows; discount rates; and volatility utilized in option valuations.

(v) Future Changes in Accounting Policies

(i) Income Taxes

In January 2016, the IASB issued amendments to clarify the requirements for recognizing deferred tax assets on unrealized losses. The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base. They also clarify certain other aspects of accounting for deferred tax assets. The amendments are effective for the year beginning January 1, 2017. The Company does not expect these amendments to have a significant impact on its financial statements.

(ii) Cash Flow Statement Disclosure

In January 2016, the IASB issued an amendment to IAS 7, Statement of Cash Flows, introducing additional disclosure requirements for liabilities arising from financing activities. The amendments are effective for the year beginning January 1, 2017. The Company does not expect this amendment to have a significant impact on its financial statements.

(iii) Financial Instruments

In July 2014, the IASB issued the final publication of International Financial Reporting Standard 9, Financial Instruments (IFRS 9), superseding IAS 39, Financial Instruments. IFRS 9 includes amended guidance for the classification and measurement of financial assets by introducing a fair value through other comprehensive income category for certain debt instruments. It also includes a new general hedge accounting standard which will align hedge accounting more closely with risk management and contains a new impairment model which could result in earlier recognition of losses. IFRS 9 is effective for the year beginning on or after January 1, 2018 with early adoption permitted. The Company is currently assessing the impact of IFRS 9 on its financial statements.

(iv) Revenue from Contracts with Customers

In May 2014, the IASB issued International Financial Reporting Standard 15, Revenues from Contracts with Customers (IFRS 15) which replaces the existing revenue recognition guidance with a new framework to determine the timing of revenue recognition and the measurement of revenue. In September 2015, the IASB formalized a one-year deferral of the effective date to the year beginning on or after January 1, 2018. In April 2016, the IASB issued an amendment clarifying the guidance on identifying performance obligations, licenses of intellectual property and principal versus agent, and to provide additional practical expedients upon transition. The Company is currently assessing the impact of IFRS 15 on its financial statements.

(v) Share-Based Payments

In June 2016, the IASB issued an amendment to IFRS 2, Share-based Payment, clarifying the accounting for certain types of share-based payment transactions. The amendments provide requirements on accounting for the effects of vesting and non-vesting conditions of cash-settled share-based payments, withholding tax obligations for share-based payments with a net settlement feature, and when a modification to the terms of a share-based payment changes the classification of the transaction from cash-settled to equity-settled. The amendments are effective for the year beginning on or after January 1, 2018. The Company does not expect this amendment to have a significant impact on its financial statements.

(vi) Foreign Currency Transactions and Advance Consideration

In December 2016, the IFRS Interpretations Committee of the IASB issued IFRIC 22, Foreign Currency Transactions and Advance Consideration (IFRIC 22). The Interpretation addresses how to determine the date of the transaction when applying IAS 21, The effects of changes in foreign exchange rates. The date of transaction determines the exchange rate to be used on initial recognition of the related asset, expense

or income. The Interpretation is effective for the year beginning on or after January 1, 2018. The Company is currently assessing the impact of IFRIC 22 on its financial statements.

(vii) Leases

In January 2016, the IASB issued International Financial Reporting Standard 16, Leases (IFRS 16) which replaces the existing lease accounting guidance. IFRS 16 requires all leases to be reported on the balance sheet unless certain criteria for exclusion are met. IFRS 16 is effective for the year beginning on or after January 1, 2019 with early adoption permitted if IFRS 15 is also adopted at the same time. The Company is currently assessing the impact of IFRS 16 on its financial statements.

NOTE 3. ASSET EXCHANGE AGREEMENT

On October 28, 2016, the Company reached an agreement with Louisiana-Pacific Corporation (LP) to exchange OSB mills in the province of Quebec (the Asset Exchange) for no cash consideration. The Asset Exchange closed on November 3, 2016, with the Company swapping ownership of its mill in Val-d’Or for LP’s mill in Chambord. The Asset Exchange was accounted for as a non-monetary transaction in accordance with IAS 16, Property, plant and equipment, where the cost of property, plant and equipment acquired in exchange for non-monetary assets are measured at the fair value of the assets given up. Accordingly, the Chambord assets received were recorded at the fair value of the Val-d’Or assets exchanged. The Chambord liabilities assumed were recorded at their fair values. The Asset Exchange resulted in the following net changes to the Company’s financial results and position:

(US $ millions)	Note
Consolidated Statement of Earnings
Gain on asset exchange			$	16
Income tax expense				(4	)
Gain on asset exchange, net			$	12
Consolidated Balance Sheet
Cash			$	7
Property, plant and equipment		6		11
Other liabilities		10		(2	)
Deferred income tax liabilities				(4	)
Increase in net assets			$	12

As part of the Asset Exchange, the Company received $7 million cash relating to the removal of a restrictive land-use covenant.

NOTE 4. ACCOUNTS RECEIVABLE

The Company has a $125 million multi-currency accounts receivable securitization program with a third-party trust sponsored by a highly rated Canadian financial institution. The program is revolving and has an evergreen commitment 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. However, the asset de-recognition criteria under IFRS have not been met and the transferred accounts receivable remain recorded as an asset.

At year-end, Norbord had transferred but continued to recognize $125 million (December 31, 2015 – $122 million) in trade accounts receivable, and Norbord recorded drawings of $nil as Other long-term debt (December 31, 2015 – $30 million) relating to this financing program. The level of accounts receivable transferred under the program fluctuates with the level of shipment volumes, product prices and foreign exchange rates. The amount Norbord chooses to draw under the program at any point in time depends on the level of accounts receivable transferred, timing of cash settlements and fluctuates with the Company’s cash requirements. Any drawings 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 19). The utilization charge, which is based on money market rates plus a margin, and other program fees are recorded as finance costs. For the year, the utilization charge on drawings ranged from 1.5% to 2.1%.

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 February 2, 2017, Norbord’s ratings were BB (DBRS), BB- (Standard & Poor’s Ratings Services) and Ba2 (Moody’s Investors Service).

NOTE 5. INVENTORY

(US $ millions)	Dec 31, 2016		Dec 31, 2015
Raw materials	$	55	$	52
Finished goods		61		65
Operating and maintenance supplies		69		64
	$	185	$	181

At year-end, the provision to reflect inventories at the lower of cost and net realizable value was less than $1 million (December 31, 2015 – provision of less than $1 million).

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

(US $ millions)	Land			Buildings			Production Equipment			Construction in Progress			Total
Cost
December 31, 2014	$	12		$	321		$	1,298		$	84		$	1,715
Additions		-			-			-			61			61
Disposals		-			-			(5	)		-			(5	)
Transfers		-			1			46			(47	)		-
Effect of foreign exchange		-			(22	)		(63	)		(3	)		(88	)
December 31, 2015		12			300			1,276			95			1,683
Additions(1)		-			-			-			101			101
Net change from Asset Exchange (note 3)		1			5			4			-			10
Disposals		-			-			(3	)		-			(3	)
Transfers		-			8			49			(57	)		-
Effect of foreign exchange		(1	)		(2	)		(43	)		(3	)		(49	)
December 31, 2016	$	12		$	311		$	1,283		$	136		$	1,742
Accumulated depreciation
December 31, 2014	$	-		$	75		$	299		$	-		$	374
Depreciation		-			16			70			-			86
Disposals		-			-			(4	)		-			(4	)
Effect of foreign exchange		-			(6	)		(27	)		-			(33	)
December 31, 2015		-			85			338			-			423
Depreciation		-			16			76			-			92
Disposals		-			-			(3	)		-			(3	)
Net change from Asset Exchange (note 3)		-			(1	)		-			-			(1	)
Effect of foreign exchange		-			-			(31	)		-			(31	)
December 31, 2016	$	-		$	100		$	380		$	-		$	480
(US $ millions)	Land			Buildings			Production Equipment			Construction in Progress			Total
Net
December 31, 2015	$	12		$	215		$	938		$	95		$	1,260
December 31, 2016		12			211			903			136			1,262

⁽¹⁾ Net of government grants of $3 million received related to the Inverness expansion project.

In 2016, $1 million interest costs (2015 – less than $1 million) were capitalized and included as part of the cost of qualifying assets.

NOTE 7. INTANGIBLE ASSETS

(US $ millions)	Cost		Accumulated  Amortization		Net Book Value
December 31, 2014		$     27		$     17		$     10
Additions		9		-		9
Effect of foreign exchange		(2)		(1)		(1)
December 31, 2015		34		16		18
Additions		6		2		4
Disposals		(1)		(1)		-
December 31, 2016		$     39		$    17		$     22

NOTE 8. OTHER ASSETS

(US $ millions)	Dec 31, 2016		Dec 31, 2015
Investment tax credit receivable	$	13		$          13
Other		1		2
	$	14		$          15

NOTE 9. LONG-TERM DEBT

(US $ millions)	Dec 31, 2016		Dec 31, 2015
Principal value
7.7% senior secured notes due February 2017	$	200		$            200
5.375% senior secured notes due December 2020		240		240
6.25% senior secured notes due April 2023		315		315
		755		755
Debt issue costs		(9)		(10)
Less: Current portion		(200)		-
	$	546		$            745

Maturities of long-term debt are as follows:

(US $ millions)	2017		2018		2019		2020		2021		Thereafter		Total
Maturities of long-term debt	$	200	$	-	$	-	$	240	$	-	$	315	$	755

As at December 31, 2016, the effective interest rate on the Company’s debt-related obligations was 6.4% (2015 – 6.2%).

Senior Secured Notes Due 2017

The Company’s senior secured notes due in February 2017 bear a fixed interest rate that varies with the changes in the Company’s credit ratings. In 2016 and 2015, the interest rate was 7.70%. The notes rank pari passu with the Company’s existing senior secured notes due in 2020 and 2023 and committed revolving bank lines.

Senior Secured Notes Due 2020

The Company’s senior secured notes due in December 2020 bear a fixed interest rate of 5.375%. The notes rank pari passu with the Company’s existing senior secured notes due in 2017 and 2023 and committed revolving bank lines.

Senior Secured Notes Due 2023

The Company’s senior secured notes due in April 2023 bear a fixed interest rate of 6.25%. The notes rank pari passu with the Company’s existing senior secured notes due in 2017 and 2020 and committed revolving bank lines. The Company used the proceeds to redeem, prior to maturity, the Ainsworth $315 million senior secured notes due 2017 (Ainsworth Notes) that were assumed upon closing of the Merger (see note 1).

The Ainsworth Notes were denominated in US dollars and Ainsworth’s functional currency was Canadian dollars prior to the Merger. As a result, upon revaluation to Canadian dollars, Ainsworth recorded foreign exchange losses due to the strengthening of the US dollar. The Ainsworth Notes contained an embedded call option and this derivative was recorded initially at fair value with revaluation gains and losses subsequently. As a result of the early redemption, a premium of $13 million was paid, a $1 million charge related to net unamortized debt issue costs was recorded and an $11 million charge to extinguish the related derivative financial instrument was recognized.

Revolving Bank Lines

The Company has an aggregate commitment of $245 million under committed revolving bank lines which bear interest at money market rates plus a margin that varies with the Company’s credit rating. In 2016, the Company amended these bank lines to reset the tangible net worth covenant to $500 million and extend the maturity date of the total aggregate commitment from May 2018 to May 2019. The bank lines are secured by a first lien on the Company’s North American OSB inventory and property, plant and equipment. This lien is shared pari passu with holders of the 2017, 2020 and 2023 senior secured notes.

At year-end, none of the revolving bank lines were drawn as cash, $25 million (2015 – $5 million) was utilized for letters of credit and $220 million (2015 – $240 million) was available to support short-term liquidity requirements.

The revolving bank lines contain two quarterly financial covenants: minimum tangible net worth of $500 million and maximum net debt to total capitalization, book basis (note 19), of 65%. The Company was in compliance with the financial covenants at year-end.

Debt Issue Costs

Finance expense related to amortization of debt issue costs for 2016 was $2 million (2015 – $2 million).

NOTE 10. OTHER LIABILITIES

(US $ millions)	Note		Dec 31, 2016		Dec 31, 2015
Defined benefit pension obligation(1)		11	$	18	$	23
Accrued employee benefits		15		5		5
Reforestation obligation				2		3
Other				2		-
			$	27	$	31

⁽¹⁾ Includes $2 million assumed as a result of the Asset Exchange (see notes 3 and 11).

NOTE 11. EMPLOYEE BENEFIT PLANS

Pension Plans

Norbord has a number of pension plans in which participation is available to substantially all employees. Norbord’s obligations under its defined benefit pension plans are determined periodically through the preparation of actuarial valuations. All of Norbord’s pension plans are up-to-date on their actuarial valuations in accordance with regulatory requirements.

Information about Norbord’s defined benefit pension obligation and assets is as follows:

(US $ millions)	2016		2015
Change in accrued benefit obligation during the year
Accrued benefit obligation, beginning of year	$	140	$	164
Current service cost		3		3
Interest on accrued benefit obligation		6		6
Benefits paid		(9)		(8)
Net actuarial loss arising from changes to:
Demographic assumptions		-		1
Financial assumptions		5		-
Experience adjustments		-		(1)
Increase arising from the Asset Exchange (see note 3)		6		-
Foreign currency exchange rate impact		1		(25)
Accrued benefit obligation, end of year(1)	$	152	$	140
Change in plan assets during the year
Plan assets, beginning of year	$	117	$	130
Interest income		5		5
Remeasurement gains:
Return on plan assets (excluding interest income)		10		(1)
Employer contributions		7		12
Benefits paid		(9)		(8)
Administrative expenses and taxes		-		(1)
Increase arising from the Asset Exchange (see note 3)		4		-
Foreign currency exchange rate impact		-		(20)
Plan assets, end of year(1)	$	134	$	117
Funded status
Accrued benefit obligation	$	152	$	140
Plan assets		(134)		(117)
Accrued benefit obligation in excess of plan assets	$	18	$	23

⁽¹⁾ All plans have accrued benefit obligations in excess of plan assets with the exception of the UK plan.

The components of benefit expense recognized in the statement of earnings are as follows:

(US $ millions)	2016		2015
Current service cost	$	3	$	3
Interest cost		1		1
Administrative expense		-		1
Net periodic pension expense	$	4	$	5

The significant weighted average actuarial assumptions are as follows:

	2016		2015
Used in calculation of accrued benefit obligation, end of year
Discount rate		3.7%		4.0%
Rate of compensation increase		2.8%		3.0%
Used in calculation of net periodic pension expense for the year
Discount rate		3.9%		3.9%
Rate of compensation increase		2.8%		3.0%

The impact of a change to the significant actuarial assumptions on the accrued benefit obligation as at December 31, 2016 is as follows:

(US $ millions)	Increase		Decrease
Discount rate (0.5% change)	$	(11)	$	12
Compensation rate (1.0% change)		4		(3)
Future life expectancy (1 year movement)		3		(3)
Retirement age (1 year movement)		(2)		-

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

	Dec 31, 2016		Dec 31, 2015
Asset category
Equity investments		57%		53%
Fixed income investments		40%		41%
Cash		3%		6%
Total assets		100%		100%

Cost of sales includes $11 million (2015 – $10 million) related to contributions to Norbord’s defined contribution pension plans.

NOTE 12. EMPLOYEE COMPENSATION AND BENEFITS

Included in Cost of sales and General and administrative expenses are the following:

(US $ millions)	Dec 31, 2016		Dec 31, 2015
Short-term employee compensation and benefits	$	178	$	167
Long-term employee compensation and benefits		30		28
Share-based payments		2		3
	$	210	$	198

NOTE 13. FINANCE COSTS

The components of finance costs were as follows:

(US $ millions)	2016		2015
Interest on long-term debt(1)	$	47	$	49
Interest on other long-term debt		1		1
Amortization of debt issue costs		2		2
Revolving bank lines fees and other		1		2
		51		54
Net interest expense on net pension obligation		1		1
Total finance costs	$	52	$	55

⁽¹⁾ Net of capitalized interest of $1 million and less than $1 million, respectively (note 6).

NOTE 14. INCOME TAX

Deferred income tax balances reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities in the balance sheet and the amounts used for income tax purposes.

The source of deferred income tax balances is as follows:

(US $ millions)	Dec 31, 2016		Dec 31, 2015
Property, plant and equipment, differences in basis	$	(248)		$        (265)
Benefit of tax loss carryforwards		87		149
Other temporary differences in basis		8		14
Net deferred income taxes liabilities	$	(153)		$        (102)

(US $ millions)	Dec 31, 2016		Dec 31, 2015
Deferred income tax assets	$	4	$	5
Deferred income tax liabilities		(157)		(107)
Net deferred income taxes liabilities	$	(153)	$	(102)

As at December 31, 2016, the Company had the following approximate unused tax loss available to carry forward:

	Amount (millions)		Latest Expiry Year
Tax loss carryforwards
Belgium		€32		Indefinite
Canada – non-capital loss		CAD $186		2036
Canada – capital loss		CAD $116		Indefinite
United States		US $132		2031

The loss carryforwards may be utilized over the next several years to eliminate cash taxes otherwise payable. Certain deferred tax benefits relating to the above losses have been included in deferred income taxes in the consolidated financial statements. At each balance sheet date, the Company assesses its deferred income tax assets and recognizes the amounts that, in the judgement of management, are probable to be utilized. During the year, the Company has recognized $2 million in net deferred tax assets (2015 – $13 million in net deferred assets not recognized) relating to prior years’ losses and temporary differences. The Company also recognized $7 million net deferred tax assets (2015 – $4 million net deferred tax liabilities) related to items which were recorded in OCI. Of the total tax losses noted, the Company has not recognized € 23 million (2015 – € 23 million) in Belgium loss and CAD $116 million (2015 – CAD $286 million) capital loss and these unused tax loss do not expire.

In addition, the Company also has not recognized the following State tax loss and deductible temporary differences with the expiry date, if applicable:

	Amount (millions)
Deductible temporary differences	US   $67
United States – State tax loss (2021 – 2036)(1)	US $289

⁽¹⁾ Aggregate loss from the States where our mills are located, excluding Texas.

The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognized as at December 31, 2016 is $698 million (December 31, 2015 – $690 million).

Income tax expense (recovery) recognized in the statement of earnings comprises the following:

(US $ millions)	2016			2015
Current income tax	$	4		$	(2	)
Deferred income tax		57			(25	)
Income tax expense (recovery)	$	61		$	(27	)
Income tax expense (recovery) is calculated as follows:
(US $ millions)	2016			2015
Income (loss) before income tax	$	244		$	(83	)
Income tax expense (recovery) at combined Canadian federal and provincial statutory rate of 27% (2015 – 26%)		66			(21	)
Effect of:
Rate differences on foreign activities		(7	)		(16	)
Non-recognition (recognition) of the benefit of prior years’ tax losses and other deferred tax assets		(2	)		13
Non-recognition of deferred tax assets relating to foreign exchange gain		2			5
Current income tax (recovery) expense not previously recognized		2			(8	)
Income tax expense (recovery)	$	61		$	(27	)
Income tax (expense) recovery recognized in the statement of comprehensive income comprises the following:
(US $ millions)	2016			2015
Actuarial gain on post-employment obligation	$	5		$	4
Tax		-			-
Net of tax	$	5		$	4
Foreign currency translation loss on foreign operations	$	(44	)	$	(48	)
Tax		7			(4	)
Net of tax	$	(37	)	$	(52	)

NOTE 15. SHAREHOLDERS’ EQUITY

Share Capital

	2016				2015
	Shares (millions)		Amount (US $ millions)		Shares (millions)		Amount (US $ millions)
Common shares outstanding, beginning of year		85.4	$	1,334		53.5	$	662
Issuance of common shares upon exercise of options and Dividend Reinvestment Plan		0.4		7		0.1		3
Issue of common shares upon closing of Merger		-		-		31.8		669
Common shares outstanding, end of year		85.8	$	1,341		85.4	$	1,334

As at December 31, 2016, 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.

Contributed Surplus

Contributed surplus at December 31, 2016 comprises amounts related to compensation expense on stock options issued under the Company’s stock option plan.

Share-based Payments

Stock Options

	2016					2015
	Options (millions)			Weighted Average Exercise Price (CAD $)		Options (millions)			Weighted Average Exercise Price (CAD $)
Balance, beginning of year		2.3		$	24.79		1.6		$	26.81
Options granted		-			-		0.5			27.21
Options converted upon closing of Merger		-			-		0.4			17.53
Options exercised		(0.4	)		14.93		(0.2	)		16.73
Options expired		(0.1	)		111.30		-			-
Balance, end of year		1.8		$	25.28		2.3		$	24.79
Exercisable at year-end		1.2		$	25.18		1.3		$	25.72

Under the Company’s stock option plan, the Board of Directors 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. During the year, no stock options were granted (2015 – 0.5 million) and stock option expense of $1 million was recorded with a corresponding increase in contributed surplus (2015 – $1 million).

The table below outlines the significant assumptions used during the period to estimate the fair value of options granted:

	2016		2015
Risk-free interest rate		-		0.7%
Expected volatility		-		30%
Dividend yield		-		2.5%
Expected option life (years)		-		5
Share price (in Canadian dollars)		-	$	27.05
Exercise price (in Canadian dollars)		-	$	27.21
Weighted average fair value per option granted (in Canadian dollars)		-	$	3.96

In 2016, 0.4 million common shares (2015 – 0.2 million common shares) were issued as a result of options exercised under the stock option plan for total proceeds of $4 million (2015 – $2 million). The weighted average share price on the date of exercise for 2016 was $31.71 (2015 – $27.03).

The following table summarizes the weighted average exercise prices and the weighted average remaining contractual life of the stock options outstanding at December 31, 2016:

			Options Outstanding				Options Exercisable
Range of Exercise Prices (CAD $)	Options		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price (CAD $)		Options		Weighted Average Exercise Price (CAD $)
$6.50–$10.00		461,995		4.67		$       9.57		361,995		$       9.46
$10.01–$15.00		213,012		4.02		14.69		213,012		14.69
$15.01–$20.00		154,210		3.18		18.09		154,210		18.09
$20.01–$25.00		17,989		6.36		21.82		17,989		21.82
$25.01–$30.00		504,722		8.41		27.29		124,722		27.51
$30.01–$35.00		334,472		6.73		30.52		156,984		30.55
$60.90		90,630		1.10		60.90		90,630		60.90
$91.60		70,800		0.12		91.60		70,800		91.60
		1,847,830		5.53		$     25.28		1,190,342		$     25.18

Restricted and Deferred Stock Units

The Company has a Restricted Stock Unit (RSU) Plan granted to designated employees of the Company, or its subsidiaries. Units credited under this plan vest over three years. Such amount is paid in cash within 30 days of the vesting date. In addition, holders are credited with additional units as and when dividends are paid on the Company’s common shares.

The Company also has a Deferred Common Share Unit (DSU) Plan granted to senior management and directors. A DSU is a unit equivalent in value to a common share. Following the participant’s termination of employment with the Company, the participant will be paid the market value of the common shares represented by the DSUs in cash. Holders of DSUs are allotted additional DSUs as and when dividends are paid on the Company’s common shares.

As at December 31, 2016, the total liability outstanding related to these plans was $4 million (December 31, 2015 – $3 million), of which $3 million (December 31, 2015 – $2 million) is recorded in other liabilities and $1 million (December 31, 2015 – $1 million) is recorded in accounts payable and accrued liabilities.

Dividend Reinvestment Plan

During the year, less than $1 million of dividends were reinvested in common shares (2015 – $1 million).

Merger Reserve

Merger reserve represents the difference between the fair value of the Norbord common shares on the date of issuance, and the book value of the Ainsworth equity exchanged upon closing of the Merger (note 1).

Amendment to Warrant Indenture

On March 25, 2013, the Company amended certain terms of its Warrant Indenture dated December 24, 2008 by executing a Supplemental Warrant Indenture to include a cashless exercise feature. This feature allowed warrant holders to elect to exercise their warrants on a cashless basis, and receive common shares based on the in-the-money value of their warrants. The warrants expired on December 24, 2013. In 2013, a total of 134.4 million warrants were exercised on a cashless basis resulting in the issuance of 8.4 million common shares. As required under IFRS, for the year ended December 31, 2013, the cashless exercise of the warrants resulted in:

● An increase in share capital of $298 million, representing the fair value on the date of exercise of the common shares issued in exchange for the in-the-money value of the warrants;

● A decrease in contributed surplus of $35 million, representing the book value of the warrants recorded at the time of their issuance; and

● A decrease in retained earnings of $263 million, reflecting the difference between these two amounts.

Accumulated Other Comprehensive Loss

(US $ millions)	Dec 31, 2016		Dec 31, 2015
Foreign currency translation loss on investment in foreign operations, net of tax of $(3) (December 31, 2015 – $(10))	$	(167)	$	(130)
Net loss on hedge of net investment in foreign operations, net of tax of $3 (December 31, 2015 – $3)		(8)		(8)
Actuarial loss on defined benefit pension obligation, net of tax of $9 (December 31, 2015 – $8)		(27)		(32)
Accumulated other comprehensive loss, net of tax	$	(202)	$	(170)

NOTE 16. HIGH LEVEL FIRE

On May 4, 2016, a fire started in the wood yard of the High Level, Alberta mill. Production was halted immediately while the fire was brought under control. The fire destroyed a portion of the mill’s log inventory. The Company incurred costs to control the fire and restore the mill. The mill returned to production approximately three weeks later. The Company has insurance coverage for property damage and business interruption. During the year, the following amounts were recognized in cost of sales related to the fire:

(US $ millions)
Write-off of log inventory destroyed by the fire	$	(7)
Costs of fire fighting and site restoration		(7)
Insurance recovery for the reimbursement of the lost log inventory, fire fighting costs and site restoration		13
Insurance claim deductible, net		(1)
Insurance recovery for business interruption		2
Net insurance claim recoverable	$	1

At year-end, $13 million of insurance proceeds had been received and $2 million is included in accounts receivable. The insurance claim is ongoing

NOTE 17. EARNINGS PER COMMON SHARE

(US $ millions, except share and per share information, unless otherwise noted)	2016		2015
Earnings (loss) available to common shareholders	$	183	$	(56	)
Common shares (millions):
Weighted average number of common shares outstanding		85.6		85.4
Dilutive stock options(1)		0.5		-
Diluted number of common shares		86.1		85.4
Earnings (loss) per common share:
Basic	$	2.14	$	(0.66	)
Diluted		2.13		(0.66	)

  ⁽¹⁾ Applicable if dilutive and when the weighted average daily closing share price for the year was greater than the exercise price for stock options. At year-end, there were 0.5 million stock options (December 31, 2015 – 2.3 million) that were not taken into account in the calculation of diluted earnings per share because their effect was anti-dilutive.

NOTE 18. SUPPLEMENTAL CASH FLOW INFORMATION

Other items comprises:

(US $ millions)	2016			2015
Stock-based compensation	$	2		$	1
Pension funding (greater) less than expense		(4	)		(9	)
Cash interest paid less than interest expense		-			4
Amortization of debt issue costs		2			2
Unrealized foreign exchange gain		(1	)		-
Costs on early debt extinguishment		-			25
Other		(1	)		(9	)
	$	(2	)	$	14

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

(US $ millions)	2016			2015
Cash (used for) provided by:
Accounts receivable	$	(20	)	$	(16	)
Prepaids		-			1
Inventory		(10	)		10
Accounts payable and accrued liabilities		25			(16	)
	$	(5	)	$	(21	)
Cash interest and income taxes comprises:
(US $ millions)	2016			2015
Cash interest paid	$	50		$	48
Cash income taxes paid (recovered), net		2			(4	)

NOTE 19. CAPITAL MANAGEMENT

The capital of the Company consists of the components of equity and debt obligations. 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. The two key measures used are defined as follows:

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 (if any) 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, less certain adjustments.

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 year-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.

NOTE 20. FINANCIAL INSTRUMENTS

Norbord 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.

Norbord’s financial risk management activities are governed by Board-approved financial policies that cover risk identification, tolerance, measurement, hedging limits, hedging products, authorization levels and reporting. Derivative

contracts that are deemed to be highly effective in offsetting changes in the fair value, net investment or cash flows of hedged items are designated as hedges of specific exposures. Gains and losses on these instruments are recognized in the same manner as the item being hedged. Hedge ineffectiveness, if any, is measured and included in current period earnings.

Market Risk

Norbord purchases commodity inputs, issues debt at fixed and floating interest rates, invests surplus cash, sells product, 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 periodically uses derivatives as part of its overall financial risk management policy to manage certain exposures to market risk that result from these activities.

Commodity Price Risk

Norbord is exposed to commodity price risk on most of its manufacturing inputs, which principally comprise 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 or, if unfeasible, purchase financial hedges where liquid markets exist.

At December 31, 2016, Norbord has economically hedged approximately 9% of its 2017 expected natural gas consumption by locking in the price directly with its suppliers. Approximately 56% of Norbord’s forecasted electricity consumption is purchased in regulated markets, and Norbord has hedged approximately 41% of its 2017 deregulated electricity consumption. While these contracts are derivatives, they are exempt from being accounted for as financial instruments as they were normal purchases for the purpose of receipt.

Interest Rate Risk

Norbord’s financing strategy is to access public and private capital markets to raise long-term core financing, and to utilize the banking market to provide committed standby credit facilities supporting 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.

Currency Risk

Norbord’s primary foreign exchange exposure arises from the following sources:

^○  Net investments in foreign operations, limited to Norbord’s investment in its European operations which transact in both Pounds Sterling and Euros;

^○  Canadian dollar-denominated monetary assets and liabilities; and

^○  Committed or anticipated foreign currency-denominated transactions, primarily Canadian dollar costs in Norbord’s Canadian operations and Euro revenues in Norbord’s UK operations.

Under the Company’s risk management policy, the Company may hedge up to 100% of its significant balance sheet foreign exchange exposures by entering into cross-currency swaps and forward foreign exchange contracts. The Company may also 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 Risk

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

Norbord operates in a cyclical commodity business. Accounts receivable credit risk is mitigated through established credit management techniques, including conducting financial and other assessments to establish and monitor a customer’s creditworthiness, setting customer limits, monitoring exposures against these limits and, in some instances, purchasing credit insurance or obtaining trade letters of credit. At year-end, the key performance metrics on the Company’s accounts receivable are in line with prior years. As at December 31, 2016, the provision for doubtful accounts was less than $1 million (December 31, 2015 – less than $1 million).

Under an accounts receivable securitization program (note 4), 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, 2016, Norbord had no drawings (December 31, 2015 – $30 million drawings) 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 year-end consisted 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 Risk

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

At December 31, 2016, Norbord had $161 million in cash and cash equivalents, $125 million undrawn under its accounts receivable securitization program and $220 million in unutilized committed revolving bank lines.

Financial Liabilities

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

											Payments Due by Year
(US $ millions)	2017		2018		2019		2020		2021		Thereafter		Total
Principal	$	200	$	-	$	-	$	240	$	-	$	315	$	755
Interest		41		34		33		32		20		30		190
Long-term debt, including interest	$	241	$	34	$	33	$	272	$	20	$	345	$	945

Note: The above table does not include pension and post-employment benefit plan obligations.

Non-Derivative Financial Instruments

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

		Dec 31, 2016				Dec 31, 2015
(US $ millions)	Financial Instrument Category	Net Book Value		Fair Value		Net Book Value		Fair Value
Financial assets:
Cash and cash equivalents	Fair value through profit or loss	$	161	$	161	$	9	$	9
Accounts receivable	Loans and receivables		141		141		135		135
		$	302	$	302	$	144	$	144
Financial liabilities:
Accounts payable and accrued liabilities	Other financial liabilities	$	218	$	218	$	201	$	201
Long-term debt(1)	Other financial liabilities		755		777		755		760
Other long-term debt	Other financial liabilities		-		-		30		30
Other liabilities	Other financial liabilities		27		27		31		31
		$	1,000	$	1,022	$	1,017	$	1,022

⁽¹⁾ Principal value of Long-term debt excluding debt issue costs of $9 million (2015 – $10 million) (note 9).

Derivative Financial Instruments

Canadian dollar monetary hedge

At year-end, the Company has foreign currency forward contracts representing a notional amount of CAD $49 million (December 31, 2015 – CAD $1 million) in place to sell US dollars and buy Canadian dollars with maturities of January 2017. The fair value of these contracts at year-end is an unrealized loss of less than $1 million (December 31, 2015 – an unrealized gain of less than $1 million); the carrying value of the derivative instrument is equivalent to the unrealized loss at year-end. In 2016, realized gains on the Company’s matured hedges were less than $1 million (2015 – $1 million). A 1% change in the exchange rate would result in a less than $1 million impact.

Derivative instruments are measured at fair value as determined using valuation techniques under Level 2 of the fair value hierarchy. The fair values of over-the-counter derivative financial instruments are based on broker quotes or observable market rates. Those quotes are tested for reasonableness by discounting expected future cash flows using market interest and exchange rates for a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument for the Company and counterparty when appropriate. 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 21. COMMITMENTS AND CONTINGENCIES

The Company has provided certain guarantees, 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. In the normal course of its business activities, the Company is subject to claims and legal actions that may be made against its customers, suppliers and others. While the final outcome with respect to actions outstanding or pending as at period-end cannot be predicted with certainty, the Company believes the resolution will not have a material effect on the Company’s financial position, financial performance, or cash flows.

The Company has entered into various commitments as follows:

	Payments Due by Period
(US $ millions)	Less than 1 Year		1–5 Years		Thereafter		Total
Purchase commitments	$	100	$	81	$	10	$	191
Operating leases		4		6		2		12
Reforestation obligations		-		1		1		2
	$	104	$	88	$	13	$	205

Purchase commitments relate to the purchase of property, plant and equipment and long-term purchase contracts with minimum fixed payment amounts, of which $57 million relates to the Inverness expansion project.

NOTE 22. RELATED PARTY TRANSACTIONS

In the normal course of operations, Norbord enters into various transactions with related parties which have been measured at exchange value and recognized in the consolidated financial statements. The following transactions have occurred between Norbord and its related parties during the normal course of business.

Indemnity Commitment

As at December 31, 2016, 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.

Other

Norbord periodically engages the services of Brookfield for various financial, real estate and other business advisory services. In 2016, the fees for services rendered were less than $1 million (2015 – less than $1 million).

Sales to Asian markets are handled by Interex Forest Products Ltd. (Interex), a cooperative sales company over which Norbord, as a 25% shareholder, has significant influence. In 2016, net sales of $62 million (2015 – $48 million) were made to Interex. At year-end, $2 million (December 31, 2015 – $3 million) due from Interex was included in accounts receivable.

Compensation of Key Management Personnel

The remuneration of Directors and other key management personnel was as follows:

(US $ millions)	2016		2015
Salaries, incentives and short-term benefits	$	3	$	2
Share-based awards		1		1
	$	4	$	3

NOTE 23. GEOGRAPHIC SEGMENTS

The Company operates principally in North America and Europe. Sales by geographic segment are determined based on the origin of shipment.

								2016
(US $ millions)	North America		Europe		Unallocated			Total
Sales		$        1,361	$	405	$	-		$	1,766
EBITDA(1)		363		41		(14	)		390
Depreciation and amortization		80		14		-			94
Investment in property, plant and equipment		60		41		-			101
Property, plant and equipment		1,126		136		-			1,262
								2015
(US $ millions)	North America		Europe		Unallocated			Total
Sales		$       1,055		$       454		$             -		$	1,509
EBITDA(1)		95		38		(75	)		58
Depreciation and amortization		71		15		-			86
Investment in property, plant and equipment		50		11		-			61
Property, plant and equipment		1,139		121		-			1,260

⁽¹⁾ EBITDA is a non-IFRS financial measure, which the Company uses to assess segment performance and operating results. The Company defines EBITDA as earnings (loss) before finance costs, income tax, and depreciation and amortization. Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies.

NOTE 24. PRIOR PERIOD COMPARATIVES

Certain 2015 figures have been reclassified to conform with the current year’s presentation.

EX-99.4

Exhibit 99.4

CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Peter C. Wijnbergen, certify that:

1. I have reviewed this annual report on Form 40-F of Norbord Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 3, 2017

/s/ Peter C. Wijnbergen

Peter C. Wijnbergen

President and Chief Executive Officer

(Principal Executive Officer)

EX-99.5

Exhibit 99.5

CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robin E. Lampard, certify that:

1. I have reviewed this annual report on Form 40-F of Norbord Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 3, 2017

/s/ Robin E. Lampard

Robin E. Lampard

Chief Financial Officer

(Principal Financial Officer)

EX-99.6

Exhibit 99.6

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Norbord Inc. (the “Company”) on Form 40-F for the year ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter C. Wijnbergen, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Peter C. Wijnbergen
	Peter C. Wijnbergen
	President and Chief Executive Officer
	February 3, 2017

EX-99.7

Exhibit 99.7

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Norbord Inc. (the “Company”) on Form 40-F for the year ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robin E. Lampard, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Robin E. Lampard
	Robin E. Lampard
	Chief Financial Officer
	February 3, 2017

EX-99.8

Exhibit 99.8

	KPMG LLP
	Bay Adelaide Centre	Telephone (416) 777-8500
	Suite 4600	Fax (416) 777-8818
	333 Bay Street	www.kpmg.ca
	Toronto, ON
	M5H 2S5

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the inclusion in this annual report on Form 40-F of our Independent Auditors’ Report dated February 2, 2017 addressed to the shareholders of Norbord Inc. (the “Company”), on the consolidated financial statements comprising the consolidated balance sheets as at December 31, 2016 and December 31, 2015, the consolidated statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information, which is contained in this annual report on Form 40-F of the Company for the fiscal year ended December 31, 2016.

We also consent to the incorporation by reference in the Registration Statements on Form F-10 (No. 333-215266), on Form S-8 (No. 333-211895) and on Form S-8 (No. 333-213179) of the Company of our report to the shareholders’ of the Company dated February 2, 2017 referred to above. We also consent to the reference to us under the heading “Interest of Experts”, which appears in the Annual Information Form which is filed as an exhibit to, and incorporated by reference in this Annual Report on Form 40-F, which is incorporated by reference in such Registration Statements.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

February 3, 2017

Toronto, Canada