Norbord Inc. (Form: 6-K, Received: 03/22/2019 09:00:09)

NORBORD INC.

Date: March 22, 2019

/s/ Elaine Toomey

Name: Elaine Toomey

Title: Assistant Corporate Secretary

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2019

Commission File Number: 001-37694

NORBORD INC.

(Translation of the registrant’s name into English)

1 Toronto Street, Suite 600, Toronto, Ontario, Canada, M5C 2W4

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☐ Form 40-F ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

The information contained in Exhibit 99.1 of this Form 6-K is incorporated by reference into the registrant’s registration statements on Form F-10 (File No. 333-215266), Form F-3 (File No. 333-220258) and Form S-8 (File Nos. 333-213179 and 333-211895).

The following document, which is attached as an exhibit hereto, is incorporated by reference herein:


Exhibit		Title

99.1		Management Proxy Circular for the Annual Meeting of Shareholders

99.2		Annual Report for the year ended December 31, 2018

99.3		Form of Proxy

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Exhibit 99.1

2019 NORBORD INC.

NOTICE AND MANAGEMENT

PROXY CIRCULAR

Annual Meeting of Shareholders

Thursday, May 2, 2019

LOGO

Notice of Annual Meeting of Shareholders and Availability of Investor Materials


Date:		Thursday, May 2, 2019
Time:		10:00 a.m.
Place:		The Albany Club, 91 King Street East, Toronto, Ontario, M5C 1G3

Business of the Meeting

1.	To receive the annual consolidated financial statements for the year ended December 31, 2018 and the auditor’s report on those statements (see Section (III)(1) of the Management Proxy Circular (the Circular));

2.	To elect Directors (see Section (III)(2) of the Circular);

3.	To appoint auditors and to authorize the Directors to fix their remuneration (see Section (III)(3) of the Circular); and

4.	To consider and approve, on an advisory basis, a resolution accepting the Company’s approach to executive compensation (see Section (III)(4) of the Circular).

We will also consider other business that may properly come before the meeting or any adjournment or postponement thereof. You have the right to receive notice of, and to vote at, the annual meeting if you are a Norbord Inc. shareholder at 5:00 p.m. (Toronto time) on March 4, 2019. The Circular provides additional information relating to the matters to be dealt with at the meeting.

A live webcast of the meeting will be available and can be accessed via www.norbord.com or www.newswire.ca.

Shareholders are entitled to vote at the meeting either in person or by proxy. This notice and Section II of the Circular tells you how to exercise your right to vote your shares.

Notice and Access

The Company is using the notice and access procedure (Notice and Access) adopted by the Canadian Securities Administrators for the delivery of the Circular, annual consolidated financial statements and related management’s discussion and analysis (MD&A) (collectively, the Meeting Materials). Under Notice and Access, you are still entitled to receive a form of proxy (or voting instruction form) enabling you to vote at the annual meeting. However, instead of receiving paper copies of the Meeting Materials, shareholders receive this notice of meeting which contains information about how to access the Meeting Materials electronically. The principal benefit of Notice and Access is to reduce costs and the environmental impact of producing and distributing large quantities of paper documents. Shareholders who have consented to electronic delivery of materials by filling out the last part of the form of proxy may receive this notice of meeting in an electronic format.

The Circular and form of proxy (or voting instruction form) provide additional information concerning the matters to be dealt with at the meeting. Shareholders are reminded to review all information contained in the Meeting Materials prior to voting.

For more information about Notice and Access procedures, please call AST Trust Company (Canada) toll-free at 1-888-433-6443.


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Websites Where Meeting Materials Are Posted

The Meeting Materials are available on the following notice and access webhosting site by AST Trust Company (Canada): www.meetingdocuments.com/astca/osb. The Meeting Materials are also available on the Company’s website, www.norbord.com, under the Company’s profile on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com and on the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system at www.sec.gov/edgar.shtml.

How to Obtain Paper Copies of Meeting Materials

All shareholders may request that paper copies of the Meeting Materials be sent to them by postal delivery at no cost to them. Requests may be made up to one year from the date that the Meeting Materials are posted on the Company’s website, and such requests may be made by calling AST Trust Company (Canada) toll-free at 1-888-433-6443 or by e-mail to fulfilment@astfinancial.com.

Requests must be received by 10:00 a.m. (Toronto time) on Wednesday, April 24, 2019 if you would like to receive the Meeting Materials in advance of the voting deadline and date of the annual meeting.

Voting

Registered Shareholders

Registered shareholders can attend and vote in person at the meeting by registering with AST Trust Company (Canada) on the day of the meeting. Registered shareholders can also vote by proxy up to 24 hours prior to the time of the meeting, as follows:

1.	By telephone: 1-888-489-5760.

2.	By the Internet: www.astvotemyproxy.com.

3.	By mail: return in the envelope provided, or in one addressed to AST Trust Company (Canada), Attention: Proxy Department, P.O. Box 721, Agincourt, Ontario M1S 0A1, or by facsimile to 416-368-2502, or toll-free to 1-866-781-3111.

4.	By e-mail: proxyvote@astfinancial.com.

Non-registered Shareholders

In most cases, a non-registered shareholder will receive a voting instruction form requesting voting instructions. Voting instruction forms include instructions on how to vote by telephone, fax or mail, or by the Internet and how the non-registered shareholder may attend and vote at the meeting in person (or have another person attend and vote on his or her behalf).

Less frequently, a non-registered shareholder will receive a form of proxy that has already been signed by the intermediary (typically a facsimile, stamped signature) that is restricted as to the number of shares beneficially owned by the non-registered shareholder but is otherwise incomplete. Such a non-registered shareholder should complete the form of proxy and deposit it as set out in “Execution and Deposit of Proxy” on page 8 of this Circular in order to vote.

If a non-registered shareholder who has received a form of proxy wishes to attend and vote at the meeting in person (or have another person attend and vote on his or her behalf), the non-registered shareholder must strike out the names of the persons in the proxy and insert the non-registered shareholder’s (or other such person’s) name in the blank space provided.

Non-registered shareholders should follow the instructions on the forms they receive and contact their intermediaries promptly if they need assistance.

By order of the Board of Directors,

/s/ Elaine Toomey

ELAINE G. TOOMEY

Assistant Corporate Secretary

Toronto, Ontario

March 4, 2019


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		4

Table of Contents


	PAGE

SECTION I – GENERAL INFORMATION		6
Date of Information		6
Currency		6
Common Shares Outstanding		6
Notice and Access		6
Voting Shares and Principal Shareholders		6
Reporting Concerns		7
Shareholder Proposals		7
Annual Report		7
Additional Information		7

SECTION II – VOTING INSTRUCTIONS		8
Solicitation of Proxies		8
Appointment of Proxyholders		8
Execution and Deposit of Proxy		8
Voting of Shares Represented by Management Proxy		8
Registered Shareholders		9
Non-registered Shareholders		9
Right of Revocation		10

SECTION III – BUSINESS OF THE MEETING		11
1. Annual Report and Financial Statements		11
2. Election of Directors		11
Director Nominees		12
Interlocking Directorships		20
Board Committees		20
Areas of Expertise		21
Number of Board and Committee Meetings Held		22
Non-employee Director Compensation		22
Cease Trade Orders, Bankruptcies, Penalties and Sanctions		22
3. Appointment of Auditors		23
Auditor Independence		23
2018 Audit and Recommendation		23
Principal Accounting Firm Fees		23
Description of Services		23
4. Advisory Vote on Executive Compensation		24
Statement of Principle		24
Purpose of “Say on Pay” Advisory Vote		24
Results of Advisory “Say on Pay” Vote		24
Form of Resolution		25


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		5



SECTION IV – EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS			26
Compensation Philosophy			26
Human Resources Committee			26
Named Executive Officers			28
Executive Compensation Programs and Administration			28
Compensation Advice and Benchmarking			29
Compensation Programs			30
1. Base Salary			31
2. Bonus			32
3. Long-Term Incentives			34
Stock Option Plan			34
Restricted Stock Unit Plan			36
Management Deferred Common Share Unit Plan			37
Employee Share Savings Plan			37
4. Benefits			38
5. Pension			38
Named Executive Officer Share Ownership			39
Performance and Compensation of President and Chief Executive Officer			40
Performance and Compensation of Other Named Executive Officers			43
Performance Graph			43
Compensation Information			44
Summary Compensation Table			44
Incentive Plan Awards			45
Securities Authorized for Issuance under Equity Compensation Plans			46
Pension Plan Benefits			47
Termination and Change of Control Provisions			48

SECTION V – DIRECTOR COMPENSATION			49
Non-employee Director Compensation			49

SECTION VI – CORPORATE GOVERNANCE			54
Corporate Governance Practices			54
Roles of Board of Directors, Chair and Lead Director			54
Meetings of the Board			55
Composition and Size of the Board			56
Committees of the Board			57
Board, Committee and Director Evaluation			58
Norbord Management			59
Role of President and CEO			59
Board Information			60
Orientation and Continuing Education			60
Board Renewal			60
Board Diversity			61
Communications Policy			63
Code of Business Conduct			63
Anti-hedging and Anti-monetization Policy			64
Directors’ Approval			64

Appendix A: Board of Directors – Terms of Reference			65


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		6

Section I – General Information

This Management Proxy Circular (the Circular) is supplied in connection with the solicitation of proxies by the management of Norbord Inc. (the Company or Norbord) for use at its annual meeting of shareholders to be held at The Albany Club, 91 King Street East, Toronto, Ontario, M5C 1G3, on Thursday, May 2, 2019, at 10:00 a.m. (local time) for the purposes outlined in this Circular under Section III – Business of the Meeting.

Date of Information

The information contained in this Circular is current as at March 4, 2019, unless otherwise stated.

Currency

All dollar amounts in this Circular are in Canadian dollars, unless otherwise specified.

Common Shares Outstanding

The number of common shares outstanding as at March 4, 2019 was 81,668,583. These common shares trade under the symbol OSB on the Toronto Stock Exchange (TSX) and on the New York Stock Exchange (NYSE).

Notice and Access

This Circular and associated materials for the Meeting (collectively, the Meeting Materials) are being sent to both registered and non-registered holders of the Company’s common shares using Notice and Access, the delivery procedures that allow Norbord to send shareholders paper copies of a notice of meeting and form of proxy (or voting information form) while providing shareholders access to electronic copies of the Meeting Materials over the Internet or to receive paper copies of the Meeting Materials if they so request within the prescribed time periods. For more information, please refer to the notice of meeting delivered to you.

Voting Shares and Principal Shareholders

Each registered holder of common shares on March 4, 2019 (the Record Date) will be entitled, either in person or by proxy, to one vote for each common share held on all matters to come before the meeting or any adjournment thereof.

To the knowledge of the Directors and officers of the Company, no person or company beneficially owns, directly or indirectly, or exercises control or direction over more than 10% of all common shares, except Brookfield Asset Management Inc. (Brookfield). As at March 4, 2019, Brookfield and its controlled affiliates owned 34,787,535 common shares, representing approximately 43% of the Company’s outstanding common shares.

Brookfield is a publicly traded company incorporated in Ontario, Canada with Class A Limited Voting Shares (Class A Shares) listed on the TSX, the NYSE and Euronext. Brookfield’s major shareholders are Partners Limited (Partners) and Partners’ 49%-owned affiliate, Partners Value Investments LP. The shareholders of Partners, directly and indirectly, consist of current senior executives and directors of Brookfield and its affiliates as well as a limited number of former senior executives. The shareholders of Partners collectively own, directly or indirectly, exercise control or direction over, have contractual arrangements, such as options, to acquire or otherwise hold beneficial or economic interests in approximately 20% of the Class A Shares of Brookfield on a fully diluted basis, and a 20% common equity interest in Brookfield. Partners owns all of the Class B Limited Voting Shares of Brookfield which entitles the holder thereof to, among other things, elect one-half of the directors of Brookfield. Mr. Cockwell, a Director of the Company, is a shareholder and director of Partners, as well as Brookfield.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		7

Reporting Concerns

Concerns relating to non-compliance with the Company’s Code of Business Conduct or its accounting practices, internal accounting controls or auditing matters may be directed in confidence to the Chair of Norbord’s Audit Committee as follows:

1.	By the Internet

www.clearviewconnects.com

2.	By telephone


North American Hotline		European Hotline
1-866-608-7287		00 800 9643 9643

By mail

ClearView Connects™, P.O. Box 11017, Toronto, Ontario M1E 1N0

Shareholder Proposals

The date for submission of shareholder proposals to be included in the Management Proxy Circular for the Company’s 2020 annual meeting of shareholders is December 4, 2019. Proposals must be received at the Company’s head office, at the address below, no later than such date.

Annual Report

Copies of Norbord’s annual report may be obtained by accessing Norbord’s public filings on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.shtml, or on Norbord’s website at www.norbord.com under “Investors” and “Financial Reports.”

Additional Information

Additional information relating to the Company can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Shareholders may contact the Company by mail at 1 Toronto Street, Suite 600, Toronto, Ontario M5C 2W4; telephone 416-365-0705; fax 416-777-4419; or e-mail info@norbord.com to request copies of the Company’s annual consolidated financial statements and MD&A.

Financial information for the Company’s most recently completed financial year is provided in its annual consolidated financial statements and MD&A, which are filed on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		8

Section II – Voting Instructions

Solicitation of Proxies

The management of the Company is soliciting your proxy. Solicitation is being made primarily by regular mail, but may be supplemented by telephone and the Internet, and in person by employees of the Company. The costs of the solicitation will be paid by the Company.

Appointment of Proxyholders

The persons named in the form of proxy are management representatives and Directors and/or officers of the Company. Each shareholder may, by properly marking, executing and depositing the form of proxy, appoint as proxyholder either the persons whose names are printed on the form of proxy or any other person, who need not be a shareholder, by inserting the name of the person in the space provided. The proxyholder may attend and act for the shareholder at the meeting and any adjournment thereof.

Execution and Deposit of Proxy

If a shareholder is an individual, the form of proxy must be executed by the shareholder or a duly authorized attorney of the shareholder. If a shareholder is a corporation, the form of proxy must be executed in the presence of a duly authorized attorney or officer of the corporation. Where a form of proxy is executed by an attorney or officer of a corporation, the authorizing documents (or notarized copies thereof) should accompany the form of proxy.

Executed forms of proxy must be deposited not less than 24 hours before the time of the meeting, or in the case of any postponement or adjournment of the meeting, not less than 24 hours before commencement, according to the instructions located on page 9 of this Circular.

Voting of Shares Represented by Management Proxy

Common shares represented by properly executed proxies in favour of the individuals whose names are printed thereon will be voted, or withheld from voting, in accordance with the choice specified in the proxy on any ballot that may be called for, but if no choice is specified, such common shares will be voted as follows:

1.	For the election as Directors of the Company each of the nominees listed on page 11 of this Circular;

2.	For the appointment of KPMG LLP as auditors of the Company, and the authority of the Directors to fix their remuneration; and

3.	For the advisory resolution accepting the Company’s approach to executive compensation.

The person appointed as proxy has discretionary authority to vote on amendments or variations to the matters being voted on, as identified in the notice of annual meeting of shareholders, and any other matters that may properly come before the meeting. At the time of finalizing this Circular, the management of the Company knows of no such amendments, variations or other matters to come before the meeting.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		9

Registered Shareholders

Registered shareholders hold a paper certificate or a direct registration system (DRS) statement that bears their name.

Registered shareholders can attend and vote in person at the meeting by registering with AST Trust Company (Canada) on the day of the meeting. Registered holders can also vote by proxy up to 24 hours prior to the time of the meeting, as follows:

1.	By telephone

Call 1-888-489-5760 from a touch-tone phone and follow the instructions (only available to residents of Canada or the US). Use the control number located on the proxy form. The proxy form does not need to be returned. Please note that, when voting by telephone, shareholders may not appoint a person as a proxyholder other than the management nominees named in the proxy form.

2.	By the Internet

Go to www.astvotemyproxy.com and follow the on-screen instructions. Use the control number located on the proxy form. The proxy form does not need to be returned.

3.	By mail or fax

Complete, date and sign the proxy form and return it by mail in the envelope provided, or in one addressed to AST Trust Company (Canada), Attention: Proxy Department, P.O. Box 721, Agincourt, Ontario M1S 0A1, or by facsimile to 416-368-2502 or toll-free 1-866-781-3111.

By e-mail

Complete, date and sign the proxy form and send a scanned copy by e-mail to proxyvote@astfinancial.com.

Non-registered Shareholders

Non-registered (or beneficial) shareholders hold their shares through a bank, trust company, securities broker or other intermediary.

Non-registered shareholders should follow the instructions on the forms they receive and contact their intermediaries promptly if they need assistance.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		10

Right of Revocation

A shareholder who has given a proxy has the power to revoke it in regard to any matter on which a vote has not already been cast pursuant to the authority conferred by the proxy and may do so:

1.	By voting again in any manner (telephone, Internet, mail, fax or e-mail); or

By depositing an instrument in writing revoking the proxy executed by the shareholder or by the shareholder’s attorney, authorized in writing to AST Trust Company (Canada); or to the registered office of Norbord Inc., 1 Toronto Street, Suite 600, Toronto, Ontario M5C 2W4 not less than 24 hours before the time of the meeting, or with the Chair of the meeting on the day of the meeting; or any adjournment thereof; or

3.	By any other manner permitted by law.

Non-registered shareholders wishing to revoke a voting instruction form or a waiver of the right to receive Meeting Materials that was given to an intermediary, and to vote, should follow the instructions for revocation provided by such intermediary.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		11

Section III – Business of the Meeting

1. Annual Report and Financial Statements

Registered shareholders and those non-registered shareholders who completed and returned last year’s card specifically requesting a copy were mailed a copy of the annual report.

The annual consolidated financial statements of the Company for the year ended December 31, 2018 and the auditor’s report on those statements will be presented at the meeting and shareholders will be given the opportunity to discuss these results with management.

2. Election of Directors

The articles of the Company provide that the Board of Directors (the Board) will consist of a minimum number of eight and a maximum number of 20 Directors. The Board has fixed the number of Directors to be elected at the annual meeting of shareholders at eight. The nominees will be voted on individually and the voting results for each nominee will be publicly disclosed. The individuals named in the form of proxy intend, unless otherwise directed, to vote FOR the election of a Board of Directors composed of the eight nominees listed below to serve until the next annual meeting of shareholders of the Company or until their successors are duly elected or appointed, unless any specified nominee is not available to act as a Director of the Company, in which event a substitute may be nominated.

The eight nominees proposed for election as Directors are:


Jack L. Cockwell		Paul A. Houston
Pierre Dupuis		Denise M. Nemchev
Paul E. Gagné		Lori A. Pearson
J. Peter Gordon		Peter C. Wijnbergen

Mr. Denis Turcotte will not be standing for re-election at the May 2, 2019 annual meeting of shareholders.

The Board and management of the Company recommend that shareholders vote FOR these nominees. The persons named in the form of proxy intend to vote FOR the election of each of these nominees unless the shareholder specifies that authority to do so is withheld.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		12

Director Nominees

The Board of Directors has determined that eight Directors are to be nominated for election this year. Seven of the nominees currently serve on the Board. All Directors were elected at the May 2, 2018 annual meeting of shareholders, other than Ms. Pearson who is being nominated to replace Mr. Turcotte who is not standing for re-election.

Further information on non-employee Directors relating to their compensation and share ownership begins on page 49.

LOGO

JACK L. COCKWELL

Age: 78

Toronto, Ontario

Canada

Director since 1987

Non-independent

Skills and experience:

• Board Governance

• Industry Knowledge/Experience

• Financial Literacy

• Analytical Decision-Making

• Capital Allocation

• Risks Assessment

• Mergers, Acquisitions, Divestitures

• Business Management

• Strategic Thinking/Managing or Leading Growth

• Management

Development/ Human Resources

• Chief

Executive Officer

Mr. Cockwell is a Director of Brookfield, a global asset manager. Mr. Cockwell was Group Chair of Brookfield from June 2002 to June 2016 and was President and Chief Executive Officer of Brookfield from 1991 to 2002. In January 2016, Mr. Cockwell was named to the Order of Canada for his civic engagement in the areas of education, conservation and history.

Norbord Board and Committees

Meeting Attendance

Board of Directors – Regular

4 of 4

Board of Directors – Special

2 of 3

Environmental, Health and Safety

3 of 3

Human Resources (Chair)

2 of 2

Public Company Directorships in the Past Five Years

• Brookfield Asset Management Inc. (1979 to present)

• Brookfield Office Properties Inc. (1999 to 2014)

• Teck Resources Limited (2009 to 2017)

Non-Public Company Affiliations in the Past Five Years

• Member of the Board of Governors of Ryerson University (2005 to 2015
and 2016 to present)

• Director of Waterfront Toronto Corporation (2006 to 2015)

• Chairman of Brookfield Partners Foundation (2007 to present)

• Member of the Board of Governors of Trails Youth Initiatives (2010 to
present)

• Heritage Governor of the Royal Ontario Museum (2012 to present)

Norbord Securities Held

Fiscal Year

Common
Shares

DSUs

Total
Common
Shares and
DSUs

Acquisition
Cost of
Common
Shares and
DSUs

Meets Share
Ownership
Guideline ⁽ ¹⁾

2018

24,128

n/a

24,128

457,035

n/a

2017

24,128

n/a

24,128

457,035

Change

—

Other securities held: Nil

2018 Annual Meeting Results

Votes in Favour

Votes Withheld

35,221,674 – 58.81%

24,673,408 – 41.19%

⁽¹⁾	Mr. Cockwell represents the Company’s principal shareholder, Brookfield, and as such, his Director fees are paid directly to Brookfield and he is exempt from the share ownership guideline.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		13

LOGO

PIERRE DUPUIS

Age: 74

St. Lambert, Quebec

Canada

Director since 1995

Independent

Skills and experience:

•	Board Governance

•	Financial Literacy

•	Analytical Decision-Making

•	Capital Allocation

•	Risks Assessment

•	Mergers, Acquisitions, Divestitures

•	Business Management

•	Marketing/Sales

•	Regional Knowledge (Non-Canadian)

•	Strategic Thinking/Managing or Leading Growth

•	Management Development/ Human Resources

•	Safety, Health and Environment

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.

Norbord Board and Committees

Meeting Attendance

Board of Directors – Regular

4 of 4

Board of Directors – Special

3 of 3

Audit (Chair)

4 of 4

Corporate Governance and Nominating

2 of 2

Environmental, Health and Safety

3 of 3

Human Resources

2 of 2

Public Company Directorships in the Past Five Years

n/a

Non-Public Company Affiliations in the Past Five Years

• Advisory Board Member of MAAX Bath Inc. (2009 to 2016)

Norbord Securities Held

Fiscal Year

Common
Shares

DSUs

Total
Common
Shares and
DSUs

Acquisition
Cost of
Common
Shares and
DSUs

Meets Share
Ownership
Guideline

2018

1,096

37,297

38,393

888,713

Yes

2017

1,096

32,564

33,660

677,372

Change

—

Other securities held: Nil

2018 Annual Meeting Results

Votes in Favour

Votes Withheld

57,603,947 – 96.17%

2,291,135 – 3.83%


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		14

LOGO

PAUL E. GAGNÉ,

CPA, CA

Age: 72

Senneville, Quebec

Canada

Director since 2015

Independent

Skills and experience:

•	Board Governance

•	Industry Knowledge/Experience

•	Financial Literacy

•	Analytical Decision-Making

•	Capital Allocation

•	Risks Assessment

•	Mergers, Acquisitions, Divestitures

•	Business Management

•	Regional Knowledge (Non-Canadian)

•	Strategic Thinking/Managing or Leading Growth

•	Community Relations

•	Management Development/ Human Resources

•	Chief Executive Officer

•	Safety, Health and Environment

Mr. Gagné, a retired executive, has extensive experience in the natural resource sector and is a Chartered Accountant. Mr. Gagné has several years of executive experience in the forest products industry including as President and Chief Executive Officer of Avenor Inc. (now part of Resolute Forest Products) and strategy consultant to Kruger Inc., a privately held producer of paper and tissue.

Norbord Board and Committees

Meeting Attendance

Board of Directors – Regular

4 of 4

Board of Directors – Special

3 of 3

Audit

4 of 4

Environmental, Health and Safety

3 of 3

Human Resources

2 of 2

Public Company Directorships in the Past Five Years

• Textron Inc. (1995 to present)

• Wajax Corporation (1996 to 2017)

• CAE Inc. (2005 to 2017)

• Ainsworth Lumber Co. Ltd. (2011 to 2015)

Non-Public Company Affiliations in the Past Five Years

• Ste. Anne’s Hospital Foundation (1999 to 2016)

• Asalco Inc. (2002 to 2015)

Norbord Securities Held

Fiscal Year

Common
Shares

DSUs

Total
Common
Shares and
DSUs

Acquisition
Cost of
Common
Shares and
DSUs

Meets Share
Ownership
Guideline

2018

630

24,802

25,432

795,255

Yes

2017

630

19,361

19,991

582,057

Change

—

Other securities held: Nil

2018 Annual Meeting Results

Votes in Favour

Votes Withheld

59,442,206 – 99.24%

452,876 – 0.76%


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		15

LOGO

J. PETER GORDON

Age: 58

Toronto, Ontario

Canada

Director since 2015

Non-independent

Chair

Skills and experience:

• Board Governance

•	Industry Knowledge/Experience

•	Financial Literacy

•	Analytical Decision-Making

•	Capital Allocation

•	Risks Assessment

•	Mergers, Acquisitions, Divestitures

•	Business Management

•	Marketing/Sales

•	Regional Knowledge (Non-Canadian)

•	Strategic Thinking/Managing or Leading Growth

•	Community Relations

•	Management Development/ Human Resources

•	Chief Executive Officer

•	Safety, Health and Environment

Mr. Gordon is a Managing Partner and Chief Operating Officer of Brookfield’s Private Equity Group, where he is responsible for the financial and operating performance of the Group’s broad portfolio of companies. He has over 25 years of industrial experience, principally in the mining and forest products industries, having held a number of senior management positions in the Brookfield portfolio companies.

Norbord Board and Committees

Meeting Attendance

Board of Directors (Chair) – Regular

4 of 4

Board of Directors (Chair) – Special

3 of 3

Corporate Governance and Nominating

2 of 2

Environmental, Health and Safety

3 of 3

Human Resources

2 of 2

Public Company Directorships in the Past Five Years

• Western Forest Products Inc. (2004 to 2006 and 2010 to 2014)

• Ainsworth Lumber Co. Ltd. (2010 to 2015)

• North American Palladium Ltd. (2015 to present)

Non-Public Company Affiliations in the Past Five Years

• Advisory Board Member of MAAX Bath Inc. (2009 to 2016)

• Advisory Board Member of GrafTech International Ltd. (2015 to 2018)

• Board member of BRK Ambiental (2017 to present)

• Board member of Unity Health Toronto (2017 to present)

Norbord Securities Held

Fiscal Year

Common
Shares

DSUs

Total
Common
Shares and
DSUs

Acquisition
Cost of
Common
Shares and
DSUs

Meets Share
Ownership
Guideline ⁽ ¹⁾

2018

n/a

2017

n/a

Change

n/a

Other securities held: Nil

2018 Annual Meeting Results

Votes in Favour

Votes Withheld

41,758,518 – 69.72%

18,136,564 – 30.28%

⁽¹⁾	Mr. Gordon represents the Company’s principal shareholder, Brookfield, and as such, his Director fees are paid directly to Brookfield and he is exempt from the share ownership guideline.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		16

LOGO

PAUL A. HOUSTON

Age: 69

Ashburn, Ontario

Canada

Director since 2015

Independent

Lead Director

Skills and experience:

•	Board Governance

•	Industry Knowledge/Experience

•	Financial Literacy

•	Analytical Decision-Making

•	Capital Allocation

•	Risks Assessment

•	Mergers, Acquisitions, Divestitures

•	Business Management

•	Marketing/Sales

•	Regional Knowledge (Non-Canadian)

•	Strategic Thinking/Managing or Leading Growth

•	Management Development/ Human Resources

•	Chief Executive Officer

•	Safety, Health and Environment

Mr. Houston is a retired executive who has served on a number of boards in Canada and the US, most recently with Ainsworth Lumber Co. Ltd. as Lead Director from 2009 to March 2015. Mr. Houston has been Lead Director of Norbord 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.

Norbord Board and Committees

Meeting Attendance

Board of Directors – Regular

4 of 4

Board of Directors – Special

3 of 3

Audit

4 of 4

Corporate Governance and Nominating (Chair)

2 of 2

Environmental, Health and Safety

3 of 3

Human Resources

2 of 2

Public Company Directorships in the Past Five Years

• Ainsworth Lumber Co. Ltd. (2008 to 2015)

Non-Public Company Affiliations in the Past Five Years

n/a

Norbord Securities Held

Fiscal Year

Common
Shares

DSUs

Total
Common
Shares and
DSUs

Acquisition
Cost of
Common
Shares and
DSUs

Meets Share
Ownership
Guideline

2018

30,000

27,808

57,808

1,278,166

Yes

2017

30,000

22,975

52,975

1,062,594

Change

—

Other securities held: Nil

2018 Annual Meeting Results

Votes in Favour

Votes Withheld

57,966,180 – 96.78%

1,928,902 – 3.22%


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		17

LOGO

DENISE M. NEMCHEV, MBA, B.Sc.

Age: 49

Warwick, Rhode Island

USA

Director since 2018

Independent

Skills and experience:

•	Board Governance

•	Financial Literacy

•	Analytical Decision-Making

•	Capital Allocation

•	Risks Assessment

•	Mergers, Acquisitions, Divestitures

•	Business Management

•	Marketing/Sales

•	Research/Product Development

•	Regional Knowledge (Non-Canadian)

•	Strategic Thinking/Managing/ Leading Growth

•	Management Development/ Human Resources

•	Chief Executive Officer

•	Safety, Health and Environment

Ms. Nemchev is President and Chief Executive Officer and a Director of tvONE Inc., a manufacturer and engineering company of professional audio and video equipment. Ms. Nemchev was President, Audio/Video Controls Segment of Nortek Inc., an air management and connectivity and control company, in 2014, and from 2013 to 2014 was Vice President, Business Transformation. From 2010 to 2013, Ms. Nemchev was Vice President, Product and Strategic Marketing of Stanley Black and Decker, the world’s largest power and hand tool company.

Norbord Board and Committees

Meeting Attendance

Board of Directors – Regular

2 of 2

Board of Directors – Special

2 of 2

Audit

2 of 2

Environmental, Health and Safety

2 of 2

Human Resources

1 of 1

Public Company Directorships in the Past Five Years

n/a

Non-Public Company Affiliations in the Past Five Years

• Advisory board member of Advancing Workplace Excellence (2006 to present)

• Board member of tvONE, Inc. (2016 to present)

Norbord Securities Held

Fiscal Year

Common
Shares

DSUs

Total
Common
Shares and
DSUs

Acquisition
Cost of
Common
Shares and
DSUs

Meets Share
Ownership
Guideline ⁽¹⁾

2018

—

1,192

51,305

Pending

2017

n/a

Change

n/a

Other securities held: Nil

2018 Annual Meeting Results

Votes in Favour

Votes Withheld

59,806,742 – 99.85%

88,340 – 0.15%

⁽¹⁾	Ms. Nemchev was elected a director on May 2, 2018. She has until May 3, 2023 to meet the share ownership guideline.


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LOGO

LORI A. PEARSON,

FCPA, FCA

Age: 57

Toronto, Ontario

Canada

New nominee

Non-independent

Skills and experience:

•	Board Governance

•	Financial Literacy

•	Analytical Decision-Making

•	Risks Assessment

•	Business Management

•	Regional Knowledge (Non-Canadian)

•	Strategic Thinking/Managing or Leading Growth

•	Management Development/ Human Resources

Ms. Pearson is a Managing Partner and the Chief Operating Officer for Brookfield. In this role, she is responsible for its asset management operations. Prior to joining Brookfield in 2003, she was head of Human Resources at EY’s Canadian tax practice. Ms. Pearson is a Chartered Accountant and has been named a Fellow by the Chartered Professional Accountants of Ontario, the profession’s highest mark of distinction, to recognize her career achievements, community involvement and the impact she has had on the accounting profession in Ontario.

Norbord Board and Committees

Meeting Attendance

n/a

Public Company Directorships in the Past Five Years

• n/a

Non-Public Company Affiliations in the Past Five Years

• Board member of Brookfield Foundation (2012 to present)

• Vice Chair of Pathways to Education in Canada (Director 2002/Vice Chair 2017 to present)

• Member of United Way Women Gaining Ground (2008 to present)

Norbord Securities Held

Fiscal Year

Common
Shares

DSUs

Total
Common
Shares and
DSUs

Acquisition
Cost of
Common
Shares and
DSUs

Meets
Share
Ownership
Guideline ⁽¹⁾

2018

n/a

2017

n/a

Change

n/a

Other securities held: Nil

2018 Annual Meeting Results

Votes in Favour

Votes Withheld

n/a

⁽¹⁾ Ms. Pearson represents the Company’s principal shareholder, Brookfield, and as such, her Director fees will be paid directly to Brookfield and she is exempt from the share ownership guideline.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		19

LOGO

PETER C. WIJNBERGEN

Age: 56

Toronto, Ontario

Canada

Director since 2014

Non-independent

Skills and experience:

• Board Governance

• Industry Knowledge/Experience

• Financial Literacy

• Analytical Decision-Making

• Capital Allocation

• Risks Assessment

• Mergers, Acquisitions, Divestitures

• Business Management

• Marketing/Sales

• Research/Product Development

• Strategic Thinking/Managing/ Leading Growth

• Management Development/ Human Resources

• Chief Executive Officer

• Safety, Health and Environment


Mr. Wijnbergen was appointed President and Chief Executive Officer of the Company in 2014. He served as Senior Vice President and Chief Operating Officer from September 2010 to December 2013 and prior thereto held senior leadership positions in operations, strategic planning, and sales, marketing and logistics.
Norbord Board and Committees										Meeting Attendance
Board of Directors – Regular Board of Directors – Special Mr. Wijnbergen is not a member of any Board committees.											4 of 4 3 of 3
Public Company Directorships in the Past Five Years
n/a
Non-Public Company Affiliations in the Past Five Years
n/a
Norbord Securities Held
Fiscal Year	Common Shares			DSUs			Total Common Shares and DSUs			Acquisition Cost of Common Shares and DSUs			Meets Share Ownership Guideline
2018		50,383			3,384			53,767		$	1,808,815			Yes
2017		40,996			2,954			43,950		$	1,375,034
Change		23	%		15	%		22	%		32	%

Other securities held: 523,000 options
2018 Annual Meeting Results
Votes in Favour										Votes Withheld
47,277,614 – 78.93%											12,617,467 – 21.07%


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Interlocking Directorships

As of the date of this Circular, there are no public company interlocking directorships among Norbord’s Director nominees.

Board Committees

There are four standing committees with specific mandates to assist the Board in carrying out its responsibilities. They are the Audit Committee; the Corporate Governance and Nominating Committee; the Environmental, Health and Safety Committee; and the Human Resources Committee. In addition, from time to time, the Board may establish special committees. The members of the standing committees are:


Audit Committee	Corporate Governance and Nominating Committee	Environmental, Health and Safety Committee	Human Resources Committee
Pierre Dupuis (Chair)	Pierre Dupuis	Jack L. Cockwell	Jack L. Cockwell (Chair)
Paul E. Gagné	J. Peter Gordon	Pierre Dupuis	Pierre Dupuis
Paul A. Houston	Paul A. Houston (Chair)	Paul E. Gagné	Paul E. Gagné
Denise M. Nemchev		J. Peter Gordon	J. Peter Gordon
		Paul A. Houston	Paul A. Houston
		Denise M. Nemchev	Denise M. Nemchev
		Denis A. Turcotte (Chair)	Denis A. Turcotte

If elected at the annual meeting, Ms. Pearson will become a member of the Environmental, Health and Safety and Human Resources committees.

In 2015, an Executive Committee of the Board of Directors, consisting of Messrs. Dupuis, Gordon (Chair) and Houston, was formed initially to monitor the progress of the merger of Ainsworth Lumber Co. Ltd. (Ainsworth) and the Company (the Merger). The Committee continues to meet regularly to monitor the Company’s progress against its strategic objectives and met eight times in 2018.


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Areas of Expertise

Norbord strives to ensure that the Board comprises Directors who possess a broad mix of skills and experience to support the Company’s governance and provide strategic advice to management. The table below lists the key skills and experience the Director nominees bring to the Board. The skills matrix is included in an annual survey completed by members of the Board. The results of the survey are reviewed by the Corporate Governance and Nominating Committee.

Skill or Experience

J. L. Cockwell

P. Dupuis

P. E. Gagné

J. P. Gordon

P. A. Houston

D. M. Nemchev

L. A. Pearson

P. C. Wijnbergen

Board Governance

✓ +

✓

Industry Knowledge/Experience

✓

✓ +

✓

Financial Literacy

✓ +

✓

Analytical Decision-Making

✓

Capital Allocation

✓

Risks Assessment

✓

Mergers, Acquisitions, Divestitures

✓

Business Management

✓ +

✓

✓ +

✓

Marketing/Sales

✓ +

✓

✓ +

Research/Product Development

✓ +

✓

Regional Knowledge

(Non-Canadian)

US
Europe
China

US
Europe
China
Japan

US
Europe
Japan

US
Europe
Asia/
Pacific

Strategic Thinking/Managing/ Leading Growth

✓

✓ +

✓

✓ +

✓

Community Relations

✓

Management Development/Human Resources

✓

✓ +

✓

✓ +

✓

✓ +

✓

Chief Executive Officer

✓

Safety, Health and Environment

✓

✓ =	Strong knowledge

✓	+ = Expert knowledge


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		22

Number of Board and Committee Meetings Held

The following is a list of the meetings of the Board and its standing committees held in 2018. The Director attendance records are included in the Director nominees table beginning on page 12.


Meeting	Number of Meetings
Board of Directors – Regular		4
Board of Directors – Special		3
Audit Committee		4
Corporate Governance and Nominating Committee		2
Environmental, Health and Safety Committee		3
Human Resources Committee		2

Non-employee Director Compensation

A detailed discussion of Director compensation can be found on page 49 of this Circular.

Cease Trade Orders, Bankruptcies, Penalties and Sanctions

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

Name

Period Served

Jack L. Cockwell

Paul E. Gagné

J. Peter Gordon

2004 to April 2009

2004 to February 2011

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 US 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.

Corporate Governance

Additional information on Board governance matters can be found on page 54 under Corporate Governance and in the Board’s Terms of Reference, located on page 65 of this Circular.


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3. Appointment of Auditors

KPMG LLP has been the Company’s auditors since February 28, 2007.

Auditor Independence

The Audit Committee has received representations from KPMG LLP regarding their independence and has considered the matters described below and other factors in arriving at its determination that KPMG LLP is independent of the Company.

2018 Audit and Recommendation

The Audit Committee has reviewed and discussed the Company’s 2018 annual consolidated financial statements with the management of Norbord, which has primary responsibility for their preparation. KPMG LLP is responsible for expressing an opinion on the Company’s annual consolidated financial statements. The Audit Committee has reviewed with KPMG LLP the matters that are required to be discussed, including financial statement disclosures, the quality of the Company’s financial reporting, and significant accounting policies.

Based on the reviews, considerations and discussions outlined above, the Audit Committee recommended to the Board, and the Board approved, the 2018 annual consolidated financial statements of the Company and authorized their inclusion in the Company’s annual report for the fiscal year ended December 31, 2018.

Principal Accounting Firm Fees

Audit services were provided by KPMG LLP in 2018 and 2017. It is the Company’s policy not to engage its auditors to provide services in connection with financial information systems design and implementation, or other services that may impair the objectivity of the auditors. The Company has implemented a procedure 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 or not the provision of such non-audit services is compatible with maintaining auditor independence.

The table below summarizes the fees paid to KPMG LLP in 2018 and 2017.


Service (US $ millions)	2018		2017
Audit	$	1.0	$	1.3
Audit-related Fees		0.1		0.1
Tax		0.1		0.2
Other		—		—

Total	$	1.2	$	1.6

Description of Services

Audit services include the annual financial statement audit of the Company and certain of its subsidiaries and the audit of the Company’s internal control over financial reporting. 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 2019 MANAGEMENT PROXY CIRCULAR		24

The Audit Committee recommends that shareholders vote FOR the appointment of KPMG LLP as auditors of the Company and authorize the Directors to fix their remuneration. The persons named in the enclosed form of proxy intend to vote FOR this appointment unless the shareholder specifies that authority to do so is withheld.

4. Advisory Vote on Executive Compensation

Statement of Principle

The Board believes that shareholders should have the opportunity to fully understand the objectives, philosophy and principles the Board has used in its approach to executive compensation decisions and to have an advisory vote on the Board’s approach to executive compensation.

Purpose of “Say on Pay” Advisory Vote

The purpose of the “Say on Pay” advisory vote is to provide appropriate Director accountability to the shareholders of the Company for the Board’s compensation decisions by giving shareholders a formal opportunity to provide their views on the disclosed objectives of the executive compensation plans, and on the plans themselves, for the past, current and future fiscal years.

While shareholders will provide their collective advisory vote, the Company’s Directors remain fully responsible for their compensation decisions and are not relieved of these responsibilities by a positive advisory vote by shareholders.

As this is an advisory vote, the results will not be binding upon the Board. However, the Board will take the results of the vote into account, as appropriate, when considering future compensation policies, procedures and decisions and in determining whether there is a need to significantly increase its engagement with shareholders on compensation and related matters. The Company will disclose the results of the shareholder advisory vote as part of its report on voting results for the meeting.

In the event that a significant number of shareholders oppose the resolution, the Board will consult with its shareholders, particularly those who are known to have voted against it, in order to understand their concerns and will review the Company’s approach to compensation in the context of those concerns. Shareholders who have voted against the resolution are encouraged to contact the Board to discuss their specific concerns.

Results of Advisory “Say on Pay” Vote

The Board will disclose to shareholders as soon as is practicable, ideally within six months of the vote and no later than in the Circular for its next annual meeting, a summary of the significant comments relating to compensation received from shareholders in the engagement process and an explanation of the changes to the compensation plans made or to be made by the Board, or why no changes will be made.

At the May 2, 2018 annual meeting, shareholders voted as follows on the advisory “Say on Pay” vote:


	Total Votes		% of Votes Cast
Votes in Favour		50,361,762		84.08
Votes Against		9,533,323		15.92

Total Votes Cast		59,895,085		100.00

No comments were received by the Company in 2018 on its approach to executive compensation.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		25

Form of Resolution

The Board recommends that shareholders indicate their support for the Company’s approach to executive compensation disclosed in this Circular by voting in favour of the following advisory resolution:

Resolved, on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, that the shareholders accept the approach to executive compensation disclosed in the Company’s Management Proxy Circular delivered in advance of the 2019 annual meeting of shareholders.

Approval of the above resolution will require an affirmative vote of a majority of the votes cast at the annual meeting of shareholders.

The persons named in the enclosed form of proxy intend to vote FOR this resolution unless the shareholder specifies that their common shares are to be voted against.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		26

Section IV – Executive Compensation Discussion and Analysis

Compensation Philosophy

Norbord’s compensation philosophy is to motivate and reward both corporate and individual performance. Performance is defined by Norbord as the ability to generate superior financial results relative to the competition, create long-term sustainable value for shareholders, foster an environment of teamwork and continuous improvement, and to be transparent in all dealings with the employees and shareholders of the Company.

This section outlines in detail the Company’s compensation structure and annual review process. It was prepared by management and has been reviewed by Norbord’s Human Resources Committee (HR Committee).

Human Resources Committee

Committee Members

All Board members, except for Mr. Wijnbergen, sit on the HR Committee. All of the HR Committee members have been senior executives of an organization with the human resources function reporting to them and have direct experience that is relevant to their responsibilities in executive compensation. Messrs. Gagné, Gordon and Houston have several years of experience as members of compensation committees of publicly traded companies. Ms. Nemchev has several years of experience as a compensation committee member for privately held companies. Ms. Pearson has three decades of experience in human resources management. For each member’s biography and expertise, see page 12 of this Circular. Messrs. Dupuis, Gagné, Houston and Ms. Nemchev also sit on the Audit Committee, which monitors risk and risk management.

Independence

The members of the HR Committee are independent within the meaning of section 1.4 of National Instrument 52 -110 , with the exception of Messrs. Cockwell, Gordon and Ms. Pearson, who are not considered to be independent under the Canadian securities rules and the rules of the TSX due to their affiliation with Brookfield. However, the Canadian Coalition for Good Governance’s policy, “Governance Differences of Equity Controlled Corporations,” published in October 2011, views these Directors as related and independent of management and who may participate as members of the Company’s HR Committee. The participation of these Directors helps to ensure an objective process for determining compensation of senior management and assists the deliberations of this Committee by bringing the views and perspectives of the principal shareholder.

Role of the HR Committee

The role of the HR Committee is to assist the Board in its oversight of the selection, development, evaluation and compensation of senior management of the Company. The HR Committee plays a key role in succession planning and, in particular, monitoring the performance of the President and Chief Executive Officer (CEO), recommending compensation for the CEO to the Board and approving the compensation of other senior management of the Company.

In order to fulfill its mandate, the HR Committee receives an annual report from management summarizing the achievements of senior management, including the CEO, relative to the business plan presented to the Board at the beginning of each year.

The CEO of the Company makes recommendations to the HR Committee with respect to executive compensation policy and the compensation to be paid to senior management of the Company, other than himself. He does not participate in the HR Committee meetings when his compensation is being discussed or determined.

The HR Committee met twice in 2018.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		27

Succession Planning

The HR Committee annually evaluates the Company’s succession plans to ensure that potential candidates have the required skills and experience to transition to new positions. This process includes potential successors being given assignments and projects to develop and prove their capability; professional leadership coaching to broaden their strategic perspective; and opportunities to interact with Board members in a variety of settings. Attendance at Board dinners also allows candidates to interact with Directors more informally. Each type of venue allows the Board to regularly assess management and potential successors.

The CEO presents succession planning reports for senior management to the HR Committee and Board in camera. These reports include the orderly succession of:

•

the CEO;

•

the CEO’s direct reports; and

•

senior management in other key positions.

Mr. Kevin Burke was promoted to Senior Vice President, North American Operations in February 2018. Prior to his promotion, he was Vice President, Operations – South. He has held senior operating roles within the Company since 2001.

Mr. Alan McMeekin was promoted to Senior Vice President, Europe upon the retirement of Mr. Karl Morris in April 2018. He has held senior finance and operating roles within the Company since 1999.

Mr. Mark Dubois-Phillips joined the Company as Vice President, Corporate Development in January 2018. In December 2018, he was promoted to Senior Vice President, Sales, Marketing and Logistics upon the departure of Mr. Bruce Alexander.

Compensation and Benefit Programs

The HR Committee is also responsible for reviewing the design and general competitiveness of the Company’s compensation and benefit programs. In addition, the HR Committee assists the Board in its oversight of the funding, investment management and related administration of all of the defined benefit and defined contribution employee retirement plans of the Company and its wholly-owned subsidiaries.

Risk Management

The HR Committee reviews and approves the Company’s compensation policies and practices, taking into account any risks associated therewith. As further described below, the components of Norbord’s executive compensation program are market standard and include base salary, bonus, long-term incentives in the form of stock options, as well as benefits and pension plans.

The Company’s compensation policies and practices include the following compensation and governance best practices that mitigate risk:

•

Annual incentive plan (AIP) awards are linked to a combination of individual performance against annual objectives and corporate financial performance measured by return on capital employed;

•

AIP awards have caps for the maximum payout;

•

HR Committee annually reviews and determines performance criteria for AIP awards;

•

Option awards are guided by pre-established formulae;

•

A compensation consultant is used to conduct regular compensation reviews;

•

Interests of Named Executive Officers (NEOs) are aligned with those of shareholders through share ownership guidelines and through holding options that appreciate in value alongside Norbord’s share price; and

•

NEOs and optionholders are prohibited from hedging their security holdings in the Company.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		28

Named Executive Officers

The following five individuals are the Company’s NEOs for the year ended December 31, 2018.

Peter C. Wijnbergen (1987 to present)

President and Chief Executive Officer

Mr. Wijnbergen was appointed CEO on January 1, 2014. He served as Senior Vice President and Chief Operating Officer from September 2010 to December 2013 and prior thereto held senior leadership positions in operations, strategic planning, and sales, marketing and logistics.

Robin E. Lampard (1996 to present)

Senior Vice President and Chief Financial Officer

Ms. Lampard was appointed Senior Vice President and Chief Financial Officer in February 2008 after being Vice President, Treasurer since 2002. Prior thereto, she held a number of progressively senior finance positions.

Alan G. McMeekin (1999 to present)

Senior Vice President, Europe

Mr. McMeekin joined Norbord in 1999. He held senior finance and logistics positions in Europe prior to his promotion in May 2010 to Vice President, Finance and Operations Europe, where he was responsible for the operation and financial performance of Norbord’s four European sites. In April 2018, Mr. McMeekin was promoted to Senior Vice President, Europe.

Kevin J. Burke (2001 to present)

Senior Vice President, North American Operations

Mr. Burke joined Norbord in 2001 in Cowie, Scotland, where he was later appointed General Manager of the mill. In 2010, he returned to the US and was appointed Regional General Manager, overseeing the Joanna, South Carolina and Huguley, Alabama mills. In 2012, he was promoted to Vice President, Operations – South, where he was responsible for the Company’s southern US operations. Mr. Burke was promoted to his current position in February 2018 and is responsible for all North American mills.

Nigel A. Banks (2010 to present)

Senior Vice President, Corporate Services

Mr. Banks joined Norbord as Senior Vice President, Corporate Services in 2010, overseeing Human Resources, Environment, Health and Safety and Information Technology. He has extensive experience in human resources management at the executive level, having worked in the mining, manufacturing, high tech, health care and lumber sectors in both South Africa and Canada for more than 25 years.

Executive Compensation Programs and Administration

Through its total compensation program, Norbord aims to attract, retain and motivate highly qualified senior managers. Performance incentives that are tied directly to increases in shareholder value are essential components of the program. In this regard, Norbord believes that compensation for senior management should be driven primarily by performance relative to the established plans and strategy of the business, and not by entitlement or seniority. In addition, as an operating company, Norbord expects its employees to achieve the highest level of performance with regard to protecting employee health and safety and the environment.

In the case of the Company’s CEO, these objectives are achieved by maintaining base salary below the median market levels in return for an opportunity to participate at a higher level in the growth in value of the Company’s common shares under the Company’s long-term incentive plans.

Base salaries and short-term incentive targets for the other NEOs are maintained near median market levels against industry benchmarks. The NEOs also participate in the Company’s long-term incentive plans.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		29

The main components of compensation for the senior management of the Company are:


Total Direct Compensation				Indirect Compensation

1. Base Salary	2. Bonus	3. Long-Term Incentives	+	4. Benefits	5. Pension
Pay for role and capability	Pay for annual performance against agreed-upon objectives	Pay for future performance and retention		Investment in employee health and well-being as well as perquisites	Investment in financial security after retirement

	“At-risk” payouts	“At-risk” awards

Compensation Advice and Benchmarking

The Company engages Willis Towers Watson (Towers) from time to time to provide advice on senior management compensation arrangements, including base salary adjustments, annual and long-term incentive target levels, changes to the design of compensation programs, and other miscellaneous compensation issues.

In making compensation decisions, Norbord also considers data published by other leading consulting companies and the US Forest Products Industry Compensation Association (FPICA), of which Norbord is a member.

The HR Committee has the authority to retain independent compensation advisors; however, to date, the HR Committee believes that the current compensation policies meet the objectives of the compensation philosophy described previously. The HR Committee also reviews the appropriateness of the peer comparators used in the Towers analysis based on revenues, type of business, business size and where executive talent would be sourced.

In 2018, Norbord engaged Towers to review the competitiveness of Norbord’s NEO and executive officer compensation. The core peer groups used to benchmark Norbord’s NEO and executive officer compensation include North American forest products companies and UK capital-intensive companies or divisions with similar scope and revenue to Norbord (with revenues between approximately 1/3 to 3 times that of Norbord).

Recognizing that executive talent can be attracted and retained from a broader range of companies, Towers also surveyed a number of companies operating in the energy services, chemicals, industrial manufacturing, metals and mining industries with revenues between 1/3 to 3 times that of Norbord. Comparator companies may change marginally from year to year depending on those participating in the Towers survey.

In addition to this comparative information, Norbord also reviewed industry-specific data obtained from FPICA and general manufacturing industry data obtained from surveys published by leading consulting companies.

North American Forest Products Peers


Boise Cascade Company	Canfor Corporation	Cascades Inc.

Clearwater Paper Corporation	Interfor Corporation	KapStone Paper and Packaging Corporation

Louisiana-Pacific Corporation	Neenah Paper, Inc.	P.H. Glatfelter Company

Schweitzer-Mauduit International, Inc.	Stella-Jones Inc.	West Fraser Timber Co. Ltd.

Western Forest Products Inc.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		30

UK Capital-Intensive Peers


Air Liquide S.A.	AWE	BAE Systems plc

Balfour Beatty plc	Ball Corporation	Bechtel Limited

Cobham plc	DS Smith plc	Ecolab Inc.

EDF Energy	Eni S.p.A.	Finning International

Fugro N.V.	Globeleq Ltd.	IMI plc

Innogy SE	Johnson Matthey plc	Kier Group plc

Mondi plc	National Grid plc	NSG Group

Ovo Energy Ltd.	Rolls-Royce Corp.	Smiths Group plc

Stolt-Nielsen M.S. Limited	Subsea 7 Ltd.	Tata Steel Europe Ltd.

Travis Perkins plc	Tullow Oil plc	Veolia Environment S.A.

Vinci SA

Every few years, the Company engages Towers to conduct a market review of executive compensation. In late 2018, the Company requested a review by Towers. The review provided the 25th, 50th and 75th percentiles of the following compensation elements for each NEO:

•

Salary;

•

Target bonus (% of salary);

•

Target total cash (TTC = salary + target bonus);

•

Expected value of long-term incentives (LTI) (% of salary); and

•

Total direct compensation (TDC = TTC + LTI).

In addition, Towers assists Norbord in developing base salary and bonus target ranges for each of the NEO positions, and a strategy to move NEOs through these ranges based on their experience and sustained level of performance. Increases to base salaries for NEOs were made based on the benchmarking provided by Towers. Base salaries for the NEOs can be found on page 31 of this Circular.

The following table summarizes the aggregate fees paid to Towers for services provided to the Company in respect of the 2018 and 2017 financial years.


Service	2018		2017
Executive compensation related fees	$	56,193		—
All other fees		—		—

Total	$	56,193		—

For 2018, no fees relating to non-executive compensation matters were paid to Towers.

Compensation Programs

The individual components of senior management compensation and the HR Committee’s approach to each are discussed in the following pages.


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1. Base Salary		Pay for role and capability

Base salaries of the Company’s senior management are reviewed annually to ensure that they are competitive and reflect the contribution of each individual.

The Company believes that base salaries should generally reflect the median level of salaries paid to senior management in similar positions at comparable North American forest products and other manufacturing companies, adjusted for geographic location and size based on sales volumes.

The base salary for the Company’s CEO is targeted below the market median so that there is a higher weighting to the long-term incentive plans that are focused on the growth in value of the Company’s common shares.

The base salaries of other senior management are generally near the market median for their respective roles, with consideration being given to their experience and sustained level of performance.

In January of each year, the CEO and HR Committee review the contribution that each member of senior management has made in delivering key business results. The CEO uses benchmark data and Consumer Price Index forecasts to support salary increase recommendations to the HR Committee. Typically, the size of the increases for senior management will be within the range of increases adopted for other salaried employees of the Company. Larger increases may be recommended for members of senior management who are performing above expectations and/or progressing through their salary ranges.

On January 31, 2019, the CEO reviewed the aforementioned Towers benchmark data with the HR Committee. Based on the market data (adjusted for inflation), company performance and the CEO’s recommendations for his direct reports, the HR Committee recommended and the Board approved the increases as reflected in the table below.


Named Executive Officer	Annual Salary at Dec. 31, 2018		Increase			Annual Salary at Apr. 1, 2019
Peter C. Wijnbergen (CEO)	$	650,000		7.5	%	$	700,000
Robin E. Lampard (CFO)	$	440,000		2.5	%	$	451,000
Alan G. McMeekin (SVP)	£	195,000		10.0	%	£	215,000
Kevin J. Burke (SVP)	US $	300,000		10.0	%	US $	330,000
Nigel A. Banks (SVP)	$	300,000		2.5	%	$	308,000


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2. Bonus		Pay for annual performance against agreed-upon objectives

The Company has an AIP that provides a cash incentive for senior management based on corporate and individual performance. The AIP complements Norbord’s practice of compensating senior management at the market median by providing an incentive to execute the annual business plan while striving for longer-term strategic goals.

For the AIP, the Company has adopted return on capital employed (ROCE) as its measure of company performance. ROCE is a measurement of financial performance, focusing on cash generation and the efficient use of capital. ROCE is calculated as Adjusted EBITDA (earnings determined in accordance with IFRS before finance costs, interest income, income taxes, depreciation, amortization and other unusual or non-recurring items) divided by average capital employed (sum of property, plant and equipment, intangible assets and operating working capital) during the fiscal year under consideration. ROCE, Adjusted EBITDA and capital employed are non-IFRS financial measures and may not be comparable to similar measures employed by other companies. These non-IFRS measures are further defined and discussed, and a quantitative reconciliation of each to the most directly comparable IFRS financial measure is provided, in the Company’s MD&A dated January 31, 2019. As Norbord operates in a cyclical commodity business, it monitors ROCE over the business cycle as a useful means of comparing the businesses in terms of efficiency of management. The Individual Performance Factor for each plan member is determined by measuring actual performance against previously agreed-upon objectives that contribute to the delivery of the business plan.

The formula for calculating this annual incentive bonus amount for each NEO is as follows:

Base Salary x Target Award x (2/3 Company Performance Factor + 1/3 Individual Performance Factor)

Where:

1.	Base salary equals annual base compensation.

2.	Target awards are expressed as a percentage of base salary. These targets have been established for each individual at approximately the median level of the annual incentive compensation plans administered by other North American forest products and manufacturing companies.

Towers’ December 2018 benchmarking confirmed that these targets are competitive at the median level with roles in comparable companies.

3.	The AIP for all of senior management, including the CEO, is based on two performance factors:

(a)

Company performance based on ROCE where the target ROCE, over the business cycle, is 21% and has a corresponding Company Performance Factor of 1.0. The maximum Company Performance Factor of 3.0 coincides with a ROCE of 30%. There is no Company Performance Factor and no payout, unless otherwise determined by the Board, if the ROCE is 4% or less and/or earnings are negative.

(b)

Individual performance measured against established objectives and including contribution to overall results. Individual performance is measured against a scale of zero to 2.0, where a factor of 1.0 denotes that all key objectives have been met. There is no payout on this Individual Performance Factor alone if the ROCE is 4% or less and/or earnings are negative, unless otherwise determined by the Board. (See page 41 for 2018 accomplishments and performance.)


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ROCE targets and corporate objectives are reviewed by the HR Committee at the beginning of each year. The CEO reviews with the HR Committee the individual performance of senior management and makes recommendations for the approval of incentive awards where warranted.

For fiscal 2018, the Company generated earnings of US $371 million, a ROCE of 47%, and bonuses were paid out as set out in the following table. NEO bonuses were based on the Company’s ROCE.


Named Executive Officer	2018 AIP Target as % of Base Salary			2018 Bonus
Peter C. Wijnbergen (CEO)		60	%	$	975,000
Robin E. Lampard (CFO)		50	%	$	550,000
Alan G. McMeekin (SVP)		40	%	£	196,000
Kevin J. Burke (SVP)		40	%	US $	306,000
Nigel A. Banks (SVP)		40	%	$	292,000


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3. Long-Term Incentives		Pay for future performance and retention

The Company’s long-term incentive plans for its senior management are as follows.

Stock Option Plan

The HR Committee believes that granting options is an effective way to:

1.	Recognize key employees for their contributions toward achieving corporate performance objectives;

2.	Ensure that senior management is committed to the longer-term interests of the Company and its shareholders; and

3.	Attract, retain and motivate employees to achieve corporate success.

The Company has had a stock option plan (SOP) since 1991.

The SOP is designed to focus executive attention on the long-term interests of the Company and growth in shareholder value. Officers and other employees of the Company and its affiliates are eligible to participate in the SOP. Currently, 12 executives of the Company hold options granted under the SOP. As of December 31, 2018, 1,551,875 common shares were issuable under options granted, representing 1.9% of the Company’s common shares outstanding at that date. The table “Securities Authorized for Issuance under Equity Compensation Plans for the Financial Year Ended December 31, 2018,” located on page 46, provides further details.

The number of common shares (i) issuable to insiders of the Company at any time; and (ii) issued to insiders within any one-year period, under the SOP and any other security-based compensation arrangement, cannot exceed 10% of the Company’s outstanding common shares.

To determine the size of grants, the HR Committee takes into consideration data provided by external consultants on competitive market practices within the Canadian forest products industry and a wider grouping of industrial companies. As a guideline, the size of grants is established as a multiple of base salary divided by the share price at the time of grant. The multiple used in this guideline is three times base salary for the CEO and two times base salary for the SVPs. The HR Committee may increase or decrease the size of the option grant based on its view of the relative contributions of plan participants toward meeting corporate objectives.

The exercise price of an option will be determined by the Board at the time it resolves to grant the option. Under the terms of the SOP, the date of grant of the option will not be earlier than the sixth trading day immediately following the date that the Board resolves to grant the option, provided that if the Board resolves to grant the option during a black-out period, the date of grant of the option will be the sixth trading day immediately following the expiration of the black-out period. The exercise price is calculated as the volume-weighted average price (VWAP) of a common share on the TSX for the five trading days preceding the date of grant.

Under the terms of the SOP, an option may be exercised for up to 10 years, subject to vesting at the annual rate of 20% per year beginning on the first anniversary of the date of grant. Unless otherwise determined by the Board, an option will expire immediately in the event of resignation or termination of employment with cause, within 90 days of termination of employment without cause, within six months of the death of an optionholder and in accordance with its terms on retirement. If the date on which an option expires occurs during or within 10 days after the last day of a black-out period, the expiry date of the option will be the last day of such 10-day period.

Options may be transferred to the permitted assigns of an optionholder as defined in National Instrument 45-106 (i.e., the spouse of the optionholder; an entity controlled by the optionholder or spouse; a registered retirement savings plan or registered retirement income fund of the optionholder or spouse; or a trustee, custodian or administrator acting on behalf of, or for, the benefit of the optionholder or spouse), except for US optionholders.


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The Company also has a UK Option Sub-Plan to the SOP, which provides for options up to £30,000 in value (based on grant price) to receive capital gains tax treatment for each UK option recipient. The UK Option Sub-Plan provides for the issuance of options under the more restricted terms required by HM Revenue and Customs (UK) to qualify the options for such treatment.

At December 31, 2018, the maximum number of common shares issuable under the SOP was 4,900,000 and the total number of common shares remaining available for future grants under the SOP was 551,660, representing 6% and less than 1%, respectively, of the Company’s common shares outstanding at that date.

Stock Option Plan Amendment Process

Shareholder approval is required in respect of any amendment to the SOP that would:

1.	Increase the maximum number of common shares issuable under the SOP (other than on a corporate reorganization);

2.	Reduce the exercise price of options to less than the market price of common shares on the date of the option grant;

3.	Reduce the exercise price of options for the benefit of an insider of the Company;

4.	Extend the expiry date of options for the benefit of an insider of the Company;

5.	Increase the maximum number of common shares issuable to insiders of the Company under the SOP; or

6.	Amend any of the limitations set out in 1 to 5 above.

Except as provided in the preceding list, the Board may amend the SOP as it considers necessary or desirable for the purposes of the Company.

With the exception of the foregoing changes, the Board has the discretion to make amendments, which it may deem necessary, without having to obtain shareholder approval. Such changes include, without limitation:

1.	Minor changes of a “housekeeping” nature;

Amending options under the plan, including with respect to the option period (provided that the period during which an option is exercisable does not exceed 10 years from the date on which the option is granted), vesting period, exercise method and frequency, and method of determining the subscription price, assignability, and effect of termination of a participant’s employment;

3.	Changing the class of participants who are eligible to participate under the plan;

4.	Advancing the date on which any option may be exercised; and

5.	Adding a cashless exercise feature, payable in cash or securities, whether or not it provides for a full deduction of the number of underlying shares from the plan reserve.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		36

Stock Option Plan Grants

On February 1, 2018, the Board approved the grant of options to purchase an aggregate of 210,000 common shares to five NEOs and seven other members of senior management of the Company. The date of grant was determined to be February 9, 2018, with an exercise price of $46.35, being the five-day VWAP prior to such date of grant. Of this aggregate amount, 145,000 options were granted to NEOs as follows:


Named Executive Officer	Number of Options Granted February 9, 2018		Grant Price		Expiry Date
Peter C. Wijnbergen (CEO)		60,000	$	46.35		February 9, 2028
Robin E. Lampard (CFO)		30,000	$	46.35		February 9, 2028
Alan G. McMeekin (SVP)		20,000	$	46.35		February 9, 2028
Kevin J. Burke (SVP)		20,000	$	46.35		February 9, 2028
Nigel A. Banks (SVP)		15,000	$	46.35		February 9, 2028

In November 2018, the Board advanced the granting of stock option awards that would normally occur in late January 2019 to November 2018. On November 2, 2018, the Board resolved to grant options to purchase an aggregate of 335,000 common shares to five NEOs and six other members of senior management of the Company. The date of grant was determined to be November 12, 2018, with an exercise price of $36.56 per share, being the five-day VWAP prior to such date of grant. Of this aggregate amount, 255,000 options were granted to NEOs as follows:


Named Executive Officer	Number of Options Granted November 12, 2018		Grant Price		Expiry Date
Peter C. Wijnbergen (CEO)		120,000	$	36.56		November 12, 2028
Robin E. Lampard (CFO)		50,000	$	36.56		November 12, 2028
Alan G. McMeekin (SVP)		30,000	$	36.56		November 12, 2028
Kevin J. Burke (SVP)		30,000	$	36.56		November 12, 2028
Nigel A. Banks (SVP)		25,000	$	36.56		November 12, 2028

The total number of options granted in 2018 represents less than 1% of the Company’s outstanding common shares as at March 4, 2019.

The following table sets forth the grant rate (“burn rate”) for options granted in 2018, 2017 and 2016 as a percentage of issued and outstanding common shares of the Company at the time of grant.


Year	Weighted Average Number of Outstanding Common Shares		Number of Options Granted		Percentage
2018		86,496,394		545,000		0.6	%
2017		86,154,426		190,000		0.2	%
2016		85,569,359		—		—

Restricted Stock Unit Plan

The Company has a restricted stock unit (RSU) plan to provide designated senior employees of the Company, or its subsidiaries, with compensation opportunities that are consistent with shareholder interests.

Units credited under this plan vest over three years (i.e., one-third on each of the first, second and third anniversary dates of the award). Holders are credited with additional units as and when dividends are paid on the Company’s common shares. The value of vested units is determined by multiplying the number of vested units by the closing price of the Company’s common shares traded on the TSX on the trading day such units vested. Such amount is paid in cash within 30 days of the vesting date.


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In August 2018 the Board made a one-time discretionary grant of an aggregate 150,600 RSUs to optionholders as compensation for not receiving the benefit of the Company’s $4.50 dividend declared on August 1, 2018. Of this aggregate amount, 112,700 RSUs were granted to NEOs as follows:


Named Executive Officer	Number of RSUs Granted
Peter C. Wijnbergen (CEO)		52,500
Robin E. Lampard (CFO)		37,200
Alan G. McMeekin (SVP)		10,500
Kevin J. Burke (SVP)		5,600
Nigel A. Banks (SVP)		6,900

Management Deferred Common Share Unit Plan

The Company has a deferred common share unit (DSU) plan that is designed to focus executive attention on the long-term interests of the Company and growth in shareholder value. Through this plan, participants can elect to defer receipt of all or part of their AIP bonus and/or up to 15% of their salary in the form of DSUs and improve their ability to meet the Company’s share ownership guidelines (see page 39). A DSU is a unit, equivalent in value to a common share, credited by means of a bookkeeping entry in the books of the Company.

Elections must be made outside of a black-out period by participants in the fiscal year immediately preceding the fiscal year in which such amounts are payable. US participants make the election with respect to their AIP bonus two fiscal years preceding the fiscal year in which such amounts are paid. Once the election is made, it is irrevocable. The plan also allows the Board to grant a discretionary DSU award to senior management without the requirement for the recipient to pre-elect to defer all or part of such discretionary award in DSUs.

Holders of DSUs are allotted additional DSUs as and when dividends are paid on the Company’s common shares.

Following the participant’s termination of employment with the Company, the participant will be paid in cash the market value of the common shares represented by the DSUs.

Mr. Burke contributed 10% of his 2018 salary to DSUs. No other DSUs were granted in 2018 except with respect to dividends credited on outstanding units (see page 39 – “Named Executive Officer Share Ownership” – for management’s DSU balances).

Employee Share Savings Plan

Messrs. Wijnbergen, Burke, Banks and Ms. Lampard participate in the employee share savings plan (ESSP). Canadian and US salaried employees may join the ESSP after one year of service and may contribute up to 10% of their gross salary and bonus to purchase common shares through regular payroll deductions. NEOs may contribute up to 15% of their gross salary and bonus toward ESSP share purchases as a vehicle to meeting the share ownership guidelines.

As an incentive to invest in the Company, Norbord makes a 30% matching contribution on the participant’s first 5% of base salary and bonus invested. Participants may make withdrawals twice per year. During 2018, Messrs. Wijnbergen and Burke contributed 10% of their respective salaries and Mr. Banks and Ms. Lampard contributed 5% of their salaries toward ESSP share purchases. All common shares purchased under the ESSP are purchased on the open market.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		38


4. Benefits		Investment in employee health and well-being as well as perquisites

In addition to competitive medical, dental and insurance benefits (through a benefits plan), Norbord offers executives an annual health and wellness assessment, contributions towards a fitness club membership, financial planning assistance and a car allowance.


5. Pension		Investment in financial security after retirement

All Norbord employees are eligible to participate in one of the Company’s pension plans. This benefit is provided because it is a competitive practice in the forest products industry and with other potential employers of key senior executive officers.

Prior to January 2006, all Canadian salaried employees participated in the Norbord defined benefit (DB) retirement annuity plan (RAP). The HR Committee and management took a proactive approach to managing the ongoing liabilities of this plan and, on January 1, 2006, the RAP was closed to new entrants in favour of a defined contribution (DC) plan design. DC plan provisions were added to the RAP, and existing RAP participants were given the choice to continue to accrue service under the DB provision or to commence accruing under the new DC provision all within the RAP.

Mr. Wijnbergen elected to continue participating in the DB provisions of the RAP. Recognized remuneration for the purposes of determining pension benefits under this plan includes base salary and bonus. The pension benefit is determined as 1.75% multiplied by the best five-year average earnings less 1/70th of the CPP/QPP benefit, multiplied by the number of years of DB pension service (the service under the CPP/QPP benefit is limited to 35 years). DB pension benefits are reduced by 3% per year for retirement earlier than age 65. These pension benefits are payable for life and are guaranteed for a single plan member for five years. Upon death, adjusted payments of 66-2/3% of the benefit continue to the surviving spouse.

Ms. Lampard elected to commence accruing DC benefits within the RAP beginning in January 2006, prior to which she accrued DB entitlements within the RAP. Under the DC provisions, Norbord provides a basic allocation of 4% of pensionable earnings and a matching contribution of up to 3% of pensionable earnings, up to the limits imposed by the Income Tax Act . Mr. Banks commenced participating in the DC plan upon hire in 2010. Ms. Lampard and Mr. Banks received a matching contribution of 3% in 2018.

Pension benefits that exceed the Income Tax Act limits are paid from a supplemental employee retirement plan (SERP). Recognized remuneration for the purpose of determining pension benefits under this plan includes base salary only for DB provisions, and base salary plus bonus for the DC provisions. To limit the Company’s retirement benefit liability to employees accruing under this plan, a remuneration level of $225,000 has been established as the maximum annual remuneration eligible for pension calculations for the DB plan, and the DC plan is capped at the Income Tax Act limit for company contributions. This maximum is to be reviewed periodically in both general and individual applications.

Mr. Burke participates in Norbord’s 401(k) plan made available to its US employees. Norbord provides a basic allocation of 4% of pensionable earnings and a matching contribution of up to 2% of pensionable earnings, up to the limits imposed by the Internal Revenue Service. Mr. Burke also has a deferred entitlement in the UK Group personal pension plan (UKGPP) arising from his employment in Europe. No Company contributions have been made to Mr. Burke’s UKGPP since Mr. Burke moved to the US in 2010.

The Company contributes up to 15% of Mr. McMeekin’s gross earnings into his retirement plan, which is a combination of the self-invested personal pension plan (SIPP) and an individual savings account (ISA).


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		39

The following table lists the Company’s pension plans in which the NEOs participate.


Named Executive Officer	Defined Benefit	DB SERP	Defined Contribution	DC SERP	SIPP/ISA or 401(k)
Peter C. Wijnbergen (CEO)	✓	✓
Robin E. Lampard (CFO)	Pre-2006	Pre-2006	Since 2006	Since 2006
Alan G. McMeekin (SVP)					✓
Kevin J. Burke (SVP)					✓
Nigel A. Banks (SVP)			✓	✓

US executives can defer up to 50% of their base salary and some or all of their annual incentive into a deferred compensation account. The money must remain in the account until they cease employment and is invested in one or more investment options designated by Norbord and selected by the executive. The executives can take the cash either in a lump sum or in annual instalments when they leave the Company.

Named Executive Officer Share Ownership

In order to motivate management to maximize the long-term value of the Company’s assets and business operations, the Board established guidelines for the minimum ownership of common shares and/or DSUs of the Company by its NEOs. The minimum amount to be invested is two times base salary for the CEO, and one times base salary for the other NEOs, based on the acquisition cost of the common shares and/or DSUs acquired.

An NEO is encouraged to accumulate the minimum share ownership in a systematic manner over a five-year period following the date of his/her designation as an NEO. An NEO can improve his/her ability to meet the requirement by contributing bonus amounts and acquiring units in the DSU plan or by acquiring common shares through the ESSP.

Share prices of all public companies are subject to market volatility. As a result, NEO share ownership guidelines are based on acquisition cost. In addition, to remove the uncontrollable impact of foreign exchange, share ownership guidelines reflect a “once met, always met” standard. This means that if an NEO has met his or her applicable ownership guideline multiple and subsequent changes in the foreign exchange rate cause the value of his or her ownership to fall below the applicable threshold, the NEO will be considered to be in compliance with the guidelines so long as he or she continues to hold the number of shares that were owned at the time when he or she achieved the required threshold.

Acquisition Cost

The following table presents the total number of common shares of the Company and/or DSUs held by each NEO as at December 31, 2018, and the acquisition cost of such common shares and DSUs.


Named Executive Officer	NEO Since		Number of Common Shares		Acquisition Cost of Common Shares ⁽¹⁾		Number of DSUs ⁽²⁾		Acquisition Cost of DSUs ⁽¹⁾		Total Number of Common Shares and DSUs		Total Acquisition Cost of Common Shares and DSUs ⁽¹⁾		Total Acquisition Cost as a Multiple of 2018 Salary ⁽³⁾
Peter C. Wijnbergen (CEO)		2004		50,383	$	1,575,729		3,384		233,086		53,767	$	1,808,815		2.8x
Robin E. Lampard (CFO)		2008		27,292		647,305		—		—		27,292		647,305		1.5x
Alan G. McMeekin (SVP) ⁽⁴⁾		2018		3,000		63,900		—		—		3,000		63,900		0.2x
Kevin J. Burke (SVP) ⁽⁴⁾		2016		8,849		409,982		929		41,587		9,778		451,569		1.2x
Nigel A. Banks (SVP)		2018		3,352		106,778		353		5,935		3,705		112,713		0.4x

Total				92,876	$	2,803,694		4,666	$	280,608		97,542	$	3,084,302

⁽¹⁾

The acquisition cost of the common shares is the market price paid by an NEO upon the acquisition of common shares, or the exercise price in respect of common shares acquired and held through the exercise of stock options. The acquisition cost of a DSU is the cumulative value of an NEO’s AIP award or base salary contributed to the DSU plan or other DSU amounts approved by the Board and includes the value of dividends credited thereon.

⁽²⁾	Amounts in this column represent the NEO’s cumulative DSU holdings, including dividends credited thereon.

⁽³⁾	Based on the 2018 salaries disclosed on page 31. Salaries for Messrs. McMeekin and Burke were converted using the exchange rates in footnote 4.

⁽⁴⁾

Mr. McMeekin has until 2023 to meet the share ownership guideline. The 2018 average foreign exchange rate used to translate Mr. McMeekin’s 2018 salary to Canadian dollars is £1 = C $1.7293. While Mr. Burke has until December 31, 2021 to meet the share ownership guideline, he already meets the guideline. The 2018 average foreign exchange rate used to translate Mr. Burke’s 2018 salary to Canadian dollars is US $1 = C $1.2964. Mr. Banks has until 2023 to meet the share ownership guideline.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		40

Market Value

The following table presents the total number of common shares of the Company and/or DSUs held by each NEO as at December 31, 2018 and their market value.


Named Executive Officer	NEO Since		Number of Common Shares		Market Value of Common Shares ⁽¹⁾		Number of DSUs ⁽²⁾		Market Value of DSUs ⁽¹⁾		Total Number of Common Shares and DSUs		Total Market Value of Common Shares and DSUs ⁽¹⁾		Total Market Value as a Multiple of 2018 Salary ⁽³⁾
Peter C. Wijnbergen (CEO)		2004		50,383	$	1,828,903		3,384	$	122,839		53,767	$	1,951,742		3.0x
Robin E. Lampard (CFO)		2008		27,292		990,700		—		—		27,292		990,700		2.3x
Alan G. McMeekin (SVP) ⁽⁴⁾		2018		3,000		108,900		—		—		3,000		108,900		0.3x
Kevin J. Burke (SVP) ⁽⁴⁾		2016		8,849		321,219		929		33,723		9,778		354,942		0.9x
Nigel A. Banks (SVP)		2018		3,352		121,678		353		12,814		3,705		134,492		0.5x

Total				92,876	$	3,371,400		4,666	$	169,376		97,542	$	3,540,776

⁽¹⁾	Based on $36.30, the closing price of the Company’s common shares on the TSX on December 31, 2018.

⁽²⁾	Amounts in this column represent the NEO’s cumulative DSU holdings, including dividends credited thereon.

⁽³⁾	Based on the 2018 salaries disclosed on page 31. Salaries for Messrs. McMeekin and Burke were converted using the exchange rates in footnote 4.

⁽⁴⁾	The 2018 average foreign exchange rate used to translate Mr. McMeekin’s 2018 salary to Canadian dollars is £1 = C $1.7293. The 2018 average foreign exchange rate used to translate Mr. Burke’s 2018 salary to Canadian dollars is US $1 = C $1.2964.

Performance and Compensation of President and Chief Executive Officer

Norbord’s CEO base salary is reviewed annually and is set below the median level for comparable companies. The CEO’s below market median base salary is offset by an opportunity to participate at a higher level in the growth in value of the Company’s common shares through participation in the Company’s long-term incentive plans.

Norbord’s CEO participates in the AIP and his target award under the AIP for 2018 was 60% of annual base salary. The AIP is payable based on a two-thirds ROCE calculation and one-third on the fulfillment of established individual performance criteria. These individual performance criteria include:

•

The leadership of the organization in meeting annual objectives;

•

The strategic positioning of the Company for profitable future growth and success; and

•

The management of succession plans to provide continuity of senior management, including that of the CEO.

The HR Committee assessed Mr. Wijnbergen’s overall performance against the following previously agreed-upon 2018 financial goals and strategic objectives, and in consideration of how the Company had been positioned to benefit from the housing recoveries in its key markets.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		41

The following table is presented in US dollars, the Company’s functional and presentation currency.


Financial Goal		2018 Accomplishments
1. Generate cash.		• Achieved Adjusted EBITDA of $724 million, up from $672 million in 2017, and ROCE of 47% compared to 45% in 2017. • Increased North American Adjusted EBITDA to $652 million from $638 million in 2017, benefiting from 7% higher shipment volume. • More than doubled European Adjusted EBITDA from $41 million in 2017 to $86 million, benefiting from higher panel prices. • Generated operating cash flow of $608 million, in line with 2017.

2. Protect the balance sheet.		• Moody’s Investors Service confirmed the Company’s issuer credit rating at Ba1 with a Stable outlook. Standard & Poor’s Ratings Services confirmed at BB and upgraded its outlook from Stable to Positive. DBRS confirmed at BB and upgraded its outlook from Stable to Positive. • Ended the year with unutilized liquidity of $490 million (including $128 million in cash and cash equivalents), net debt to capitalization on a book basis of 28% and tangible net worth of $1,132 million.


Strategic Priority		2018 Performance
1. Develop a world-class safety culture.		• Completed Occupational Safety and Health Administration (OSHA) recordable injury-free year at two mills (Grande Prairie, Alberta and Nacogdoches, Texas). • Recertified La Sarre, Quebec and Jefferson, Texas mills under Norbord’s updated Safety Star program. • Achieved an overall OSHA recordable incident rate of 0.78 per 100 full-time employees for 2018, in line with 2017 performance.

2. Pursue growth in OSB.		• Increased production volume at North American OSB and European panel mills by 5% and 2%, respectively, over 2017. • Set annual production records at seven of 16 operating mills: Cordele, Georgia; High Level, Alberta; Jefferson, Texas; La Sarre, Quebec; Nacogdoches, Texas; Genk, Belgium; and Inverness Scotland. • Completed debottlenecking project at the Grande Prairie, Alberta mill which increased stated capacity by 100 MMsf (3/8-inch basis). • Commenced capital investment required to prepare the curtailed Chambord, Quebec mill for eventual restart when warranted by customer demand.

3. Own high-quality assets with low-cost positions.		• Completed sixth year of capital reinvestment strategy, focused on improving productivity and product mix, and reducing manufacturing costs. • Renegotiated five-year and six-year union contracts at Barwick, Ontario and 100 Mile House, British Columbia mills, respectively, on competitive terms.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		42


Strategic Priority		2018 Performance
4. Maintain a margin-focused operating culture.		• Margin Improvement Program (MIP) gains from richer product mix and improved productivity were offset by higher maintenance-related costs, raw material usages and costs associated with executing on strategic capital and sales growth initiatives. These costs included adding in-house technical and engineering expertise and investing in sales, marketing and production resources. Further, the excellent start-up and ramp-up of the Huguley, Alabama and Inverness, Scotland mills were excluded from 2018 MIP calculation.

5. Focus on growth customers through best-in-class service and product development.		• Increased North American shipments by 7% with 83% of the growth from non-commodity products. • Specialty products, which encompass industrial and export end uses, represent 25% of the 7% higher total shipments. • Increased OSB shipments to the Company’s core UK market by 6%.

6. Allocate capital with discipline.		• Invested $204 million in capital projects to maintain the Company’s assets and high standards for environmental and safety performance, improve production efficiency and reduce manufacturing costs. • Paid out total dividends of $412 million including C $4.50 per share during third quarter, reflecting exceptionally strong free cash flow generation during second quarter. • Repurchased 3.8 million common shares under Normal Course Issuer Bid (NCIB) program, returning $102 million cash to shareholders. In January 2019, repurchased an additional 1.4 million common shares for $38 million, exhausting the current NCIB limit.

7. Succession.		• Mr. Burke, who has been with Norbord since 2001, was promoted to Senior Vice President, North American Operations in February 2018. He has held various senior operating roles since joining the Company in 2001. • As a result of Mr. Morris retiring in April 2018, Mr. McMeekin was promoted to Senior Vice President, Europe. Mr. McMeekin has held various senior finance and operating roles since joining the Company in 1999. • Mr. Dubois-Phillips was hired in January 2018 into a newly created role of Vice President, Corporate Development to support the development and implementation of the Company’s strategy. Mr. Dubois-Phillips was promoted to Senior Vice President, Sales, Marketing and Logistics in December 2018, upon the departure of Mr. Alexander.

The Board credited Mr. Wijnbergen and senior management with the financial and operational performance delivered in 2018.

In 2018, the Board approved an 8% increase in Mr. Wijnbergen’s salary from $600,000 to $650,000 and, in 2019, a 7.5% increase to $700,000.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		43

Performance and Compensation of Other Named Executive Officers

Each year, the CEO reviews with the HR Committee the performance of all of his direct reports and recommends changes to their compensation as warranted. On January 31, 2019, based on the recommendations of the CEO, the Board approved increases to base salaries and approved bonus awards for the four NEOs (NEO compensation disclosure begins on page 28 of this Circular). Options were granted to all NEOs in February 2018 and November 2018 (option grant disclosure is on page 36).

Performance Graph

The following graph assumes that $100 was invested on December 31, 2013 in Norbord’s common shares, the S&P/TSX Composite Index and the S&P/TSX Materials Index, respectively. The computations assume that all dividends are reinvested on the dividend payment date.

Five-Year Cumulative Total Shareholder Return on $100 Investment

Assuming Reinvestment of Dividends

December 31, 2013 – December 31, 2018

LOGO


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		44

NEO compensation has increased over the five-year period ended December 31, 2018 primarily as a result of the achievement of the Company’s business objectives. The HR Committee considers a number of factors and performance elements when determining compensation for senior management, including shareholder return. The at-risk components of executive pay consist of (a) the AIP bonus, which is based on the Company’s performance (measured through ROCE), as well as individual performance factors based on pre-determined business objectives; and (b) options, which are directly correlated to the share price and are therefore aligned with shareholder returns. As Messrs. McMeekin and Burke reside in the UK and US, respectively, foreign exchange fluctuations have contributed to changes in the Canadian dollar equivalent of their British Pound-based and US dollar-based salaries.

Compensation Information

Summary Compensation Table

The following table contains the compensation awarded to, earned by, paid to, or payable to each NEO in 2018, 2017 and 2016. Total compensation earned by the NEOs in 2018 represented 0.5% of the Company’s cost of sales and general and administrative expenses.


Name and Principal Position	Year		Salary		Share- Based Awards (RSUs) ⁽¹⁾		Option- Based Awards ⁽²⁾		Non-equity Incentive Plan Compensation ⁽³⁾		Pension Value ⁽⁴⁾		All Other Compensation ⁽⁵⁾		Total Compensation
Peter C. Wijnbergen		2018	$	637,500	$	2,226,000	$	733,950	$	975,000	$	41,210	$	84,049	$	4,697,709
President and CEO		2017	$	575,000		—	$	537,600	$	975,000	$	44,710	$	76,520	$	2,208,830
		2016	$	483,750		—		—	$	663,000	$	43,764	$	63,490	$	1,254,004
Robin E. Lampard		2018	$	433,750	$	1,577,280	$	330,000	$	550,000	$	26,500	$	34,621	$	2,952,151
Senior Vice President		2017	$	411,250		—	$	268,800	$	505,000	$	26,230	$	42,582	$	1,253,862
and CFO		2016	$	387,500		—		—	$	441,000	$	26,010	$	35,358	$	889,868
Alan G. McMeekin ⁽⁶⁾		2018	$	331,222	$	445,200	$	207,675	$	338,943		—	$	102,322	$	1,425,362
Senior Vice President,		2017	$	273,662		—	$	153,600	$	279,257		—	$	42,796	$	749,315
Europe		2016	$	279,369		—		—	$	109,568		—	$	75,601	$	464,538
Kevin J. Burke ⁽⁷⁾		2018	$	385,380	$	237,440	$	207,675	$	396,698		—	$	84,963	$	1,312,156
Senior Vice President,		2017	$	345,619		—	$	115,200	$	355,679		—	$	74,877	$	891,375
North American Operations		2016	$	330,869		—		—	$	200,045		—	$	50,515	$	581,429
Nigel A. Banks		2018	$	295,000	$	292,560	$	165,000	$	292,000	$	26,500	$	36,635	$	1,107,695
Senior Vice President,		2017	$	277,500		—	$	153,600	$	273,000	$	26,230	$	35,693	$	766,023
Corporate Services		2016	$	262,500		—		—	$	231,000	$	26,010	$	32,379	$	551,889

⁽¹⁾

Amounts in this column represent a one-time discretionary RSU grant to optionholders as compensation for not receiving the benefit of the $4.50 dividend declared on August 1, 2018. The methodology used to calculate the fair value of the RSUs on date of grant is the Black-Scholes option pricing model.

⁽²⁾

Although the HR Committee makes option award decisions based on their nominal value, the amounts in this column represent the value of options issued on the date of grant derived by applying the Black-Scholes option pricing model discounted at 25% to reflect Norbord-specific share price assumptions, and the five-year vesting provisions of the SOP. No options were granted in 2016 in light of the (then newly elected) Canadian federal government indicating in its platform that it intended to make certain tax-related changes, including changes to the tax treatment of stock options. The Board advanced the granting of stock option awards that would normally occur in late January 2016 to December 2015 and in late January 2019 to November 2018.

⁽³⁾	Amounts in this column represent AIP bonuses earned in the applicable year.

⁽⁴⁾	Amounts in this column include the service costs for both the RAP and the SERP, and the Company’s basic and matching contributions under the DC provisions of these plans.

⁽⁵⁾

Amounts in this column include (a) ESSP matching contributions paid, where applicable, by the Company to an NEO of 30% on the first 5% of an NEO’s base salary and bonus contributed; (b) the Company’s contributions to Mr. McMeekin’s SIPP/ISA of $82,550 (2018); $23,201 (2017), and $55,298 (2016); (c) the value of perquisites for the NEOs, which include an annual health assessment, fitness club membership, vacation days sold and car allowance (car allowances represent 28% (median) of the perquisites for each NEO); (d) the Company’s contributions to Mr. Burke’s 401(k) plan of $47,130 (2018), $32,597 (2017) and $24,995 (2016).

⁽⁶⁾

The average foreign exchange rates used to convert Mr. McMeekin’s compensation from Pound Sterling to Canadian dollars are £1 = C $1.7293 (2018); £1 = C $1.6722 (2017) and £1 = C $1.7962 (2016). Mr. McMeekin’s salary in Pounds Sterling was £191,535 (2018), £163,654 (2017) and £155,534 (2016). His total compensation was £824,242 (2018), £448,102 (2017) and £258,623 (2016).

⁽⁷⁾

The average foreign exchange rates used to convert Mr. Burke’s compensation from US dollars to Canadian dollars are US $1 = C $1.2964 (2018), US $1 = C $1.2981 (2017) and C $1.3248 (2016). Mr. Burke’s salary was US $297,269 (2018), US $266,250 (2017) and US $249,750 (2016). His total compensation was US $1,012,154 (2018), US $686,677 (2017) and US $438,881 (2016).


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		45

Option-Based and Share-Based Awards

Incentive Plan Awards

The following table provides information on all outstanding options, RSUs and DSUs awarded to each NEO, including the value of unexercised in-the-money options as at December 31, 2018.


	Option-Based Awards ⁽¹⁾								Share-Based Awards
Name	Number of Securities Underlying Unexercised Options		Option Exercise Price		Option Expiration Date		Value of Unexercised In-the-Money Options ⁽¹⁾		Number of Shares or Units of Shares That Have Not Vested (RSUs)		Market or Payout Value of Share- Based Awards That Have Not Vested (RSUs) ⁽²⁾		Market or Payout Value of Vested Share-Based Awards Not Paid Out or Distributed (DSUs) ⁽²⁾
Peter C. Wijnbergen		33,000	$	9.96		January 31, 2022	$	869,220		53,426	$	1,939,364	$	122,839
President and CEO		20,000	$	30.70		February 4, 2023	$	112,000
		100,000	$	30.41		February 3, 2024	$	589,000
		50,000	$	28.28		January 30, 2025	$	401,000
		70,000	$	26.29		December 10, 2025	$	700,700
		70,000	$	34.96		February 10, 2027	$	93,800
		60,000	$	46.35		February 9, 2028		—
		120,000	$	36.56		November 12, 2028		—
Robin E. Lampard		65,000	$	18.21		February 2, 2020	$	1,175,850		37,856	$	1,374,173		—
Senior Vice President		70,000	$	14.93		February 1, 2021	$	1,495,900
and CFO		20,000	$	30.70		February 4, 2023	$	112,000
		20,000	$	30.41		February 3, 2024	$	117,800
		25,000	$	28.28		January 30, 2025	$	200,500
		35,000	$	26.29		December 10, 2025	$	350,350
		35,000	$	34.96		February 10, 2027	$	46,900
		30,000	$	46.35		February 9, 2028		—
		50,000	$	36.56		November 12, 2028		—
Alan G. McMeekin		5,970	$	30.70		February 4, 2023	$	33,432		10,685	$	387,866		—
Senior Vice President,		1,516	$	31.06		February 4, 2023	$	7,944
Europe		15,000	$	30.41		February 3, 2024	$	88,350
		25,000	$	28.28		January 30, 2025	$	200,500
		20,000	$	26.29		December 10, 2025	$	200,200
		20,000	$	34.96		February 10, 2027	$	26,800
		20,000	$	46.35		February 9, 2028		—
		30,000	$	36.56		November 12, 2028		—
Kevin J. Burke		1,500	$	30.70		February 4, 2023	$	8,400		5,699	$	206,874	$	33,723
Senior Vice President,		3,000	$	30.41		February 3, 2024	$	17,670
North American		6,000	$	28.28		January 30, 2025	$	48,120
Operations		12,000	$	26.29		December 10, 2025	$	120,120
		15,000	$	34.96		February 10, 2027	$	20,100
		20,000	$	46.35		February 9, 2028		—
		30,000	$	36.56		November 12, 2028		—
Nigel A. Banks		3,000	$	30.41		February 3, 2024	$	17,670		7,022	$	254,899	$	12,814
Senior Vice President,		10,000	$	28.28		January 30, 2025	$	80,200
Corporate Services		12,000	$	26.29		December 10, 2025	$	120,120
		16,000	$	34.96		February 10, 2027	$	21,440
		15,000	$	46.35		February 9, 2028		—
		25,000	$	36.56		November 12, 2028		—

⁽¹⁾	Amounts in this column represent the difference between the closing price of the Company’s common shares on the TSX on December 31, 2018 of $36.30 and the exercise price of the option multiplied by the number of unexercised options (both vested and unvested) at December 31, 2018.

⁽²⁾	Amounts in this column represent the number of RSUs or DSUs, including dividend units, multiplied by the closing price of the Company’s common shares on the TSX on December 31, 2018 of $36.30.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		46

Incentive Plan Awards – Value Vested or Earned during the Year

The following table shows the value of all incentive plan awards vested or earned for each NEO in 2018.


Name	Option-Based Awards – Value Vested during the Year		Share-Based Awards – Value Vested during the Year ⁽¹⁾		Non-equity Incentive Plan Compensation – Value Earned during the Year ⁽²⁾
Peter C. Wijnbergen	$	786,420	$	19,174	$	975,000
President and CEO
Robin E. Lampard	$	331,950		—	$	550,000
Senior Vice President and CFO
Alan G. McMeekin ⁽³⁾	$	229,043		—	$	338,943
Senior Vice President, Europe
Kevin J. Burke ⁽⁴⁾	$	133,125	$	55,474	$	396,698
Senior Vice President, North American Operations
Nigel A. Banks	$	251,650	$	1,998	$	292,000
Senior Vice President, Corporate Services

⁽¹⁾	The amounts for Mr. Wijnbergen and Mr. Banks represent dividends credited on holdings in the DSU plan. Mr. Burke contributed 10% of his 2018 salary to DSUs.

⁽²⁾	The amounts in this column comprise AIP bonuses.

⁽³⁾	The 2018 average foreign exchange rate used to convert Mr. McMeekin’s compensation from Pound Sterling to Canadian dollars is £1 = C $1.7293.

⁽⁴⁾	The 2018 average foreign exchange rate used to convert Mr. Burke’s compensation from US dollars to Canadian dollars is US $1 = C $1.2964

Securities Authorized for Issuance under Equity Compensation Plans

for the Financial Year Ended December 31, 2018

Number of
Securities to Be
Issued upon
Exercise of
Outstanding
Options
(a)

Weighted Average
Exercise Price of
Outstanding
Options
(b)

Number of
Securities
Remaining
Available for
Future Issuance
under Equity
Compensation
Plans (excluding
Securities
Reflected in
Column (a))
(c)

Equity compensation plans approved by securityholders

1,551,875

⁽¹⁾

23.84

551,660

⁽²⁾

Equity compensation plans not approved by securityholders

n/a

Total

1,551,875

⁽¹⁾

23.84

551,660

⁽²⁾

⁽¹⁾	This amount represents less than 2% of the Company’s outstanding common shares at December 31, 2018.

⁽²⁾	This amount represents less than 1% of the Company’s outstanding common shares at December 31, 2018.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		47

Pension Plan Benefits

Defined Benefit Plan Table

The following table describes the value of DB pension plan arrangements for each NEO. Messrs. Burke, Banks and McMeekin do not participate in the DB pension plan.


			Annual Benefits Payable ⁽¹⁾
Name	Years of Credited Service at Dec. 31, 2018 ⁽²⁾		Accrued Lifetime Pension at Dec. 31, 2018		Projected Lifetime Pension at Retirement Date (Age 65)		Accrued Liability at Dec. 31, 2017		Total Compensatory Change ⁽³⁾		Non-compensatory Change			Accrued Liability at Dec. 31, 2018
Peter C. Wijnbergen		32	$	117,907	$	151,966	$	1,473,416	$	41,210	$	5,788		$	1,520,414
President and CEO
Robin E. Lampard ⁽⁴⁾		10	$	40,665	$	40,665	$	477,878		—	$	(984	)	$	476,894
Senior Vice President and CFO

⁽¹⁾	Assumptions – Accrued Liabilities:


Discount Rate:
RAP Accrued Liability		3.5% per annum as of December 31, 2017; 3.75% per annum as of December 31, 2018
PRP Accrued Liability		3.3% per annum as of December 31, 2017; 3.6% per annum as of December 31, 2018
Lump Sum Rate (RAP only):		3.2% per annum as of December 31, 2017; 3.25% per annum as of December 31, 2018
Increase in pensionable earnings:		3.00% per annum
General Wage Growth (increases in YMPE and CRA maximum pension):		2.50% per annum


Mortality Table:		95% of the rates of the Private Sector Canadian Pensioner Mortality Table (CPM2014Priv) with future improvements based on CPM-B project scale
Lump Sum Election Rate (RAP only):		50% on retirements and terminations
Lump Sum Mortality Table:		2014 Canadian Pensioner Mortality Table (CPM2014) combined with the mortality improvement scale CPM-B

Assumptions – Estimated Annual Benefit:
Salary Scale:		For benefits accrued at Normal Retirement Date, we assumed members will continue to earn 2018 base earnings and 100% of target bonuses until retirement.
CRA maximum pension:		2019 maximum pension of $3,025.56 per year of service projected using 2.50% per annum to pension commencement
Normal Retirement Date:		The later of age 65 and December 31, 2018

⁽²⁾	These amounts represent years of credited service in the RAP.

⁽³⁾	These amounts represent additional pension accrual related to 2018 service, changes in earnings, and plan changes for both the RAP and SERP.

⁽⁴⁾	Ms. Lampard ceased participating in the DB provisions of the RAP and commenced accruing under the DC provisions effective January 1, 2006. Her service in the DB plan is frozen at 10 years.


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Defined Contribution Plans Table

The following table shows the value of investments held by the NEOs participating in the Company’s DC pension plans. Since Mr. McMeekin participates in a SIPP and Mr. Burke participates in a 401(k) plan, the amounts contributed by the Company are not reflected below but are included in the summary compensation table under “All Other Compensation” on page 44 of this Circular.


Name	Accumulated Value at Dec. 31, 2017		Total Compensatory Change ⁽¹⁾		Accumulated Value at Dec. 31, 2018
Peter C. Wijnbergen(2)	$	159,647		—	$	157,737
President and CEO
Robin E. Lampard(3)	$	885,448	$	26,500	$	871,075
Senior Vice President and CFO
Nigel A. Banks	$	296,138	$	26,500	$	321,064
Senior Vice President, Corporate Services

⁽¹⁾	These amounts represent employer contributions to the Company’s DC pension plans.

⁽²⁾	Mr. Wijnbergen participates in a flex component of the RAP on a voluntary basis within prescribed limits. Flex contributions are deposited in a separate DC account and enable participants to enhance their RAP DB on benefit retirement.

⁽³⁾	Ms. Lampard, as a member accruing benefits under the DC provisions of the RAP, is no longer eligible to contribute to the flex component of the RAP but has outstanding balances from her participation prior to 2006 that are included in the table.

Termination and Change of Control Provisions

There are no employment contracts between any of the NEOs and the Company that have change of control or termination provisions.

The following table provides a summary of the treatment, unless otherwise determined by the HR Committee, under each long-term incentive plan for different changes in employment status.


Long-Term Incentive Plan	Retirement	Death	Resignation/ Termination	Change of Control
Stock Options	Vested and unvested options continue for the term of the option.	Six months to exercise vested options.	If employment is terminated without cause, 90 days after termination date to exercise vested options or options that become vested during that period. Otherwise, vested and unvested options are forfeited.	The Board may in its discretion determine the manner in which all unexercised options granted under the SOP will be treated, including accelerating the vesting of options.

DSUs	Vested DSUs and 50% of unvested DSUs to be redeemed with timing of payment at participant’s election for non-US taxpayers.	Unvested DSUs vest immediately and all DSUs to be redeemed with timing of payment at beneficiary’s election for non-US taxpayers.	Vested DSUs and 50% of unvested DSUs to be redeemed with timing of payment at participant’s election for non-US taxpayers.	The Board may make reasonable and appropriate adjustments with respect to DSUs to preserve the intended benefits of the participants, in order to adjust for the effect of a change of control.

RSUs	The unvested RSUs continue to be governed by the plan.	The HR Committee will determine whether all unvested Units will become fully vested or immediately expire and terminate.	Unvested RSUs immediately expire.	Unless otherwise determined by the HR Committee in the event of a sale of assets or other reorganization, the unvested RSUs will immediately expire and terminate.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		49

Section V – Director Compensation

Non-employee Director Compensation

The following section reflects compensation for all non-employee Directors. As Mr. Wijnbergen was an employee of the Company in 2018, he did not receive compensation for his role on the Board. See page 44 for Mr. Wijnbergen’s compensation as President and CEO.

The Corporate Governance and Nominating Committee is responsible for recommending compensation for the Company’s Directors. The Company’s objective is to ensure that Director compensation is market competitive; that it reflects the time, responsibilities and risks involved in serving on the Board of Directors; and that it aligns the interests of each Director with those of the Company’s shareholders and other stakeholders.

Non-employee Director compensation is comprised of Director fees and discretionary DSU awards. The Company does not have any pension or other retirement plans for its Directors. Directors are reimbursed for any travel expenses they incur while attending Board and committee meetings. The Committee reviews Director compensation every two years and analyzes general surveys of the year-over-year practices of Director compensation.

Non-employee Director Fees

The Corporate Governance and Nominating Committee reviews Director fees every two years to ensure they remain market competitive. On February 1, 2018, the Committee reviewed the current fees and recommended to the Board and the Board approved an increase to the annual Board retainer (Directors other than the Chair) of $5,000, effective April 1, 2018. These fees are comparable with similarly sized companies in the Canadian public marketplace. The next bi-annual review is in 2020.

Each Director who is not an employee of the Company is entitled to the following annual retainer fees:


Fee Type	Effective April 1, 2018
Board chair retainer	$	165,000
Annual retainer (Directors other than Chair)	$	110,000
Audit chair	$	15,000
All other committee chairs	$	10,000
Executive committee member	$	5,000


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		50

Deferred Share Unit Plan for Non-employee Directors

The Company maintains a DSU plan for non-employee Directors that is designed to focus Directors on the long-term interests of the Company and growth in shareholder value. Under this plan, Directors of the Company who are not officers or employees of the Company or its affiliates may elect to take a percentage of their annual Director fees in the form of DSUs. Elections must be received by the Assistant Corporate Secretary of the Company in the fiscal year preceding the fiscal year in which such fees are paid. A Director who holds DSUs is credited with additional DSUs as and when cash dividends are paid on the Company’s common shares. DSUs are paid out in cash to Directors when they step down from the Board in accordance with the terms of the DSU plan.

The Company may at any time grant a discretionary award, payable in DSUs only, to an eligible Director, regardless of whether he or she has elected during the year of the grant to receive Director fees in DSUs. No discretionary DSUs were awarded in 2018.

Non-employee Director Compensation Table

The following table shows the amounts earned by non-employee Directors for the year ended December 31, 2018.


Name	Fees Earned Taken in Cash		Fees Earned Taken in DSUs		Share- Based Awards		Option- Based Awards		Non-equity Incentive Plan Compensation		Pension Value		All Other Compensation ⁽¹⁾		Total
Jack L. Cockwell ⁽²⁾	$	118,750	$	—		—		—		—		—	$	—	$	118,750
Pierre Dupuis		128,750		—		—		—		—		—		—		128,750
Paul E. Gagné		—		108,750		—		—		—		—		—		108,750
J. Peter Gordon ⁽²⁾		170,000		—		—		—		—		—		—		170,000
Paul A. Houston		61,875		61,875		—		—		—		—		—		123,750
Denise M. Nemchev		33,000		49,500		—		—		—		—		—		82,500
Barrie Shineton ⁽³⁾		26,250		—		—		—		—		—		9,605		35,855
Denis A. Turcotte ⁽²⁾⁽³⁾		118,750		—		—		—		—		—		—		118,750

Total	$	657,375	$	220,125		—		—		—		—	$	9,605	$	887,105

⁽¹⁾	Amounts in this column represent medical consulting services received by Mr. Shineton.

⁽²⁾	Messrs. Cockwell, Gordon and Turcotte represent the Company’s principal shareholder, Brookfield, and as such their fees are paid directly to Brookfield.

⁽³⁾	Mr. Shineton ceased to be a director on May 3, 2018. Mr. Turcotte is not standing for re-election at the May 2, 2019 annual meeting of shareholders.


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Non-employee Director Option-Based and Share-Based Awards

The Board ceased granting options to non-employee Directors in January 2003. In 2018, Mr. Shineton held DSUs, which were granted to him while serving as President and CEO of the Company. The following table provides information on all DSUs held by each non-employee Director that were outstanding on December 31, 2018.


	Option-Based Awards								Share-Based Awards
Name	Number of Securities Underlying Unexercised Options		Option Exercise Price		Option Expiration Date		Value of Unexercised In-the-Money Options		Number of Shares or Units of Shares That Have Not Vested (RSUs)		Market or Payout Value of Share-Based Awards That Have Not Vested (RSUs)		Market or Payout Value of Vested Share-Based Awards Not Paid Out or Distributed (DSUs) ⁽¹⁾
Pierre Dupuis		—		—		—		—		—		—	$	1,353,881

Paul E. Gagné		—		—		—		—		—		—	$	900,313

Paul A. Houston		—		—		—		—		—		—	$	1,009,430

Denise M. Nemchev		—		—		—		—		—		—	$	43,270

J. Barrie Shineton ⁽²⁾		—		—		—		—		—		—	$	630,785

Denis A. Turcotte ⁽²⁾		—		—		—		—		—		—	$	282,850

⁽¹⁾	Amounts in this column represent the number of DSUs (including dividends credited thereon) multiplied by the closing price of the Company’s common shares on the TSX on December 31, 2018 of $36.30.

⁽²⁾	Mr. Shineton ceased to be a Director on May 3, 2018. Mr. Turcotte is not standing for re-election at the May 2, 2019 annual meeting of shareholders.

Non-employee Director Incentive Plan Awards – Value Vested or Earned during the Year

The following table shows the value of all DSUs vested or earned by non-employee Directors in 2018.


Name	Option-Based Awards – Value Vested during the Year		Share-Based Awards – Value Vested during the Year ⁽¹⁾		Non-equity Incentive Plan Compensation – Value Earned during the Year
Pierre Dupuis		—	$	211,341		—

Paul E. Gagné		—	$	240,698		—

Paul A. Houston		—	$	214,571		—

Denise M. Nemchev		—	$	51,305		—

J. Barrie Shineton ⁽²⁾⁽³⁾		—	$	186,684		—

Denis A. Turcotte ⁽²⁾⁽³⁾		—	$	44,155		—

⁽¹⁾

Amounts in this column represent Director fees received as DSUs during 2018 valued as at the vesting date (including dividends credited thereon). DSUs granted to non-employee Directors vest immediately, although the non-employee Directors are not entitled to receive any payment in respect of the value of their DSUs until they cease to be Directors.

⁽²⁾	Amounts for Messrs. Shineton and Turcotte represent dividends credited on DSUs in 2018.

⁽³⁾	Mr. Shineton ceased to be a Director on May 3, 2018. Mr. Turcotte is not standing for re-election at the May 2, 2019 annual meeting of shareholders.


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Non-employee Director Share Ownership

The Board requires each non-employee Director to own, directly or indirectly, common shares or DSUs equal in value to at least three times the 2018 annual Board retainer ($330,000), based on the acquisition cost of the common shares or DSUs held. New Directors have five years from the date of joining the Board to achieve the minimum share ownership guidelines. Directors are encouraged to accumulate the minimum share ownership in a systematic manner over the five-year accumulation period. All of the Directors exceed the share ownership guideline. Messrs. Cockwell, Gordon and Turcotte represent the Company’s principal shareholder, Brookfield, and as such, their fees are directly paid to Brookfield and they are exempt from the share ownership guidelines. As discussed in greater detail under “Deferred Share Unit Plan for Non-employee Directors” on page 50, non-employee Directors may elect to take all or part of their annual Director fees in DSUs.

Acquisition Cost

The following table presents the total number of common shares and DSUs of the Company held by each non-employee Director as at December 31, 2018, and the acquisition cost of such common shares and DSUs.


Name	Director Since		Number of Common Shares		Acquisition Cost of Common Shares ⁽¹⁾		Number of DSUs		Acquisition Cost of DSUs ⁽¹⁾		Total Number of Common Shares and DSUs		Total Acquisition Cost of Common Shares and DSUs ⁽¹⁾		Total Acquisition Cost as a Multiple of 2018 Annual Board Retainer
Jack L. Cockwell ⁽²⁾		1987		24,128	$	457,035		—	$	—		24,128	$	457,035		4.2x
Pierre Dupuis		1995		1,096		60,639		37,297		828,074		38,393		888,713		8.1x
Paul E. Gagné		2015		630		9,658		24,802		785,597		25,432		795,255		7.2x
J. Peter Gordon ⁽²⁾		2015		—		—		—		—		—		—		—
Paul A. Houston		2015		30,000		419,866		27,808		858,300		57,808		1,278,166		11.6x
Denise M. Nemchev ⁽³⁾		2018		—		—		1,192		51,305		1,192		51,305		0.5x
Denis A. Turcotte ⁽²⁾⁽⁴⁾		2012		15,106		176,178		7,792		232,747		22,898		408,925		3.7x

Total				70,960	$	1,123,376		98,891	$	2,756,023		169,851	$	3,879,399

⁽¹⁾

The acquisition cost of the common shares is the market price paid by a Director upon the acquisition of common shares, or the exercise price of common shares acquired through the exercise of stock options. The acquisition cost of a DSU is the cumulative value of a Director’s fees contributed to the DSU plan, or other non-employee Director DSU amounts approved by the Board, and includes the dividends credited thereon.

⁽²⁾	Messrs. Cockwell, Gordon and Turcotte represent the Company’s principal shareholder, Brookfield, and as such their fees are directly paid to Brookfield and they are exempt from the share ownership guideline.

⁽³⁾	Ms. Nemchev has until May 2, 2023 to meet the share ownership guideline.

⁽⁴⁾	Mr. Turcotte is not standing for re-election at the May 2, 2019 annual meeting of shareholders.


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Market Value

The following table presents the total number of common shares and DSUs held by each Director at December 31, 2018 and their market value.


Name	Director Since		Number of Common Shares		Market Value of Common Shares ⁽¹⁾		Number of DSUs		Market Value of DSUs ⁽¹⁾		Total Number of Common Shares and DSUs		Total Market Value of Common Shares and DSUs ⁽¹⁾		Total Market Value as a Multiple of 2018 Annual Board Retainer
Jack L. Cockwell ⁽²⁾		1987		24,128	$	875,846		—		—		24,128	$	875,846		8.0x
Pierre Dupuis		1995		1,096		39,785		37,297	$	1,353,881		38,393		1,393,666		12.7x
Paul E. Gagné		2015		630		22,869		24,802		900,313		25,432		923,182		8.4x
J. Peter Gordon ⁽²⁾		2015		—		—		—		—		—		—		—
Paul A. Houston		2015		30,000		1,089,000		27,808		1,009,430		57,808		2,098,430		19.1x
Denise M. Nemchev		2018		—		—		1,192		43,270		1,192		43,270		0.4x
Denis A. Turcotte ⁽²⁾⁽³⁾		2012		15,106		548,348		7,792		282,850		22,898		831,198		7.6x

Total				70,960	$	2,575,848		98,891	$	3,589,744		169,851	$	6,165,592

⁽¹⁾	Based on $36.30, the closing price of the Company’s common shares on the TSX on December 31, 2018.

⁽²⁾	Messrs. Cockwell, Gordon and Turcotte represent the Company’s principal shareholder, Brookfield, and as such their fees are directly paid to Brookfield and they are exempt from the share ownership guideline.

⁽³⁾	Mr. Turcotte is not standing for re-election at the May 2, 2019 annual meeting of shareholders.

Indebtedness of Directors and Executive Officers

There is no outstanding indebtedness to the Company or any of its subsidiaries by any of its current or former Directors, executive officers or employees. The Company’s policy is not to make any loans to Directors, executive officers or employees.


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Section VI – Corporate Governance

Corporate Governance Practices

Norbord is committed to following sound corporate governance policies and practices to ensure that the interests of stakeholders, including shareholders, employees, creditors and the communities in which the Company operates, are continuously maintained.

Role of Board of Directors

The Board of Directors is responsible for overseeing the management of Norbord’s affairs directly and through its Committees. At all times, the Board intends to act in the best interests of Norbord.

Among its principal responsibilities, the Board:

•

Reviews and approves Norbord’s overall business strategy and its annual business plan;

•

Reviews the risks and alternatives in Norbord’s business to ensure that appropriate systems or plans are in place to manage these risks;

•

Reviews and approves strategic initiatives and capital investment plans to ensure that Norbord’s proposed actions are consistent with stakeholders’ reasonable objectives and expectations;

•

Appoints the CEO and approves the appointment of senior management;

•

Establishes a compensation plan for the CEO and approves the compensation of senior management;

•

Assesses management’s performance against approved business plans and key industry performance indicators;

•

Reviews succession and development plans for senior management;

•

Reviews and approves disclosure controls and procedures, internal controls and procedures for financial reporting, and compliance with the Code of Business Conduct intended to ensure integrity within Norbord;

•

Approves Norbord’s financial reports to shareholders;

•

Sets the Company’s dividend policy and approves dividend payments, when appropriate;

•

Ensures the effective operation of the Board and its Committees;

•

Ensures policies and processes are in place to address key business issues of the Company, including financial, environment, health and safety, business conduct, pension management and communications; and

•

Approves significant and material issues. In addition to those matters that must, by law, be approved by the Board, Norbord’s Board also must approve:

•

Any capital disposition or expenditure in excess of $3 million and any cost overrun on any project in excess of $2 million;

•

Any new third-party loan agreement or guarantee for an amount in excess of $10 million;

•

Changes in senior management at the Company; and

•

Any other material agreement or arrangement that is not in the ordinary course of business of the Company.


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Role of Chair

The Board of Directors has adopted the following written position description for the Chair of the Board. The Chair is appointed by the Board of Directors. The role of the Chair is as follows:

1.	Manage the business of the Board and ensure that the functions identified in the terms of reference of the Board are being effectively carried out by the Board and its committees;

2.	Ensure that all Directors receive the information required for the proper performance of their duties;

3.	Ensure that the appropriate committee structure is in place, and recommend appointments to such committees;

4.	Lead in the annual review of Director and Board performance and make recommendations for changes when appropriate; and

5.	Work with the CEO and senior management to monitor progress on strategic planning, policy implementation and succession planning.

Role of Lead Director

As long as the Chair of the Board is not independent, the Board shall appoint a Lead Director at the first Board meeting held after the annual shareholders meeting. The Board has adopted the following written position description for the Lead Director:

1.	Provide leadership to ensure the Board works in an independent, cohesive fashion;

2.	Chair meetings of any independent committees of the Board;

3.	Act as liaison between the independent members of the Board and the Chair of the Board on sensitive issues;

4.	Chair the portion of regular Board meetings held without the non-independent Directors;

5.	Call meetings of the independent Directors when necessary and appropriate; and

6.	Perform such other duties as the Board may from time to time designate.

Meetings of the Board

The Board of Directors meets at least quarterly, with additional meetings scheduled when required. While most Board meetings are held at the Norbord corporate office in Toronto, meetings are periodically held at an operating location. This gives the Directors an opportunity to improve their understanding of the operations of Norbord. The Board meeting agenda is set by the Chair, with input from the CEO and Chief Financial Officer.


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Composition and Size of the Board

The Company’s Articles provide that the Board shall have a minimum of eight and a maximum of 20 Directors. The Corporate Governance and Nominating Committee has examined the size of the Board and has concluded that eight is an appropriate number of Directors for the Company. The nominees for the Board of Directors comprise eight Directors, including four independent Directors and three non-independent Directors, who are related to the Company’s principal shareholder, Brookfield, and one non-independent Director who is the current CEO. The Board considers that this combination leads to a constructive exchange of views in Board deliberations, resulting in objective, balanced and informed decision-making.

The Company’s Directors represent a diverse base of business skills and experiences to ensure effective oversight and reporting.

Independent Directors – Four of Eight

Pierre Dupuis

Paul E. Gagné

Paul A. Houston

Denise M. Nemchev

Non-independent Directors – Four of Eight


Jack L. Cockwell		Director of Brookfield
J. Peter Gordon		Managing Partner and Chief Operating Officer, Brookfield Private Equity Group
Lori A. Pearson		Managing Partner and Chief Operating Officer, Brookfield
Peter C. Wijnbergen		Current President and CEO

The Board does not consider the four non-independent nominees to have any relationship that could reasonably be expected to interfere with the exercise of their independent judgement.

It is the policy and practice of the Board that all Board and committee meetings include a session without the non-independent Directors or management present. In the case of the Audit Committee, each meeting also includes a session with only the external auditors and the Committee.

Majority Voting

The Board requires any Director to immediately offer his or her resignation if he or she has not received at least a majority (50% + 1 vote) of the votes cast by shareholders at a meeting in favour of his or her election to the Board. The Board will evaluate the impact of the change on the composition of the Board and accept or reject the resignation as appropriate within 90 days of the date of the relevant shareholders meeting. Any Director who tenders a resignation pursuant to this policy will not be permitted to participate in any meeting of the Board or its committees at which the resignation is considered. The Board will accept the resignation absent exceptional circumstances. If the Board accepts the resignation, the resignation will be effective upon acceptance and the Board may:

(a)	leave such position vacant,

(b)	fill the vacancy by appointing a new Director who the Board considers will merit the confidence of the shareholders, or

(c)	call a special meeting of shareholders to fill the position.

The Company will promptly issue a press release upon the Directors making a decision on whether to accept or reject a resignation tendered pursuant to this policy, including the reasons for any rejection, and provide a copy to the TSX.

This majority voting policy does not apply where an election involves a proxy battle (a meeting at which the number of Directors nominated for election is greater than the number of seats available on the Board). A copy of this policy is available on the Company’s website at www.norbord.com.


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Change in Personal Circumstances

A Director must offer his or her resignation to the Board if there has been a relevant change in his or her personal circumstances, or if he or she has not attended at least 75% of the regularly scheduled Board and relevant committee meetings in the most recent 12-month period. The Board will evaluate the impact of the change on the composition of the Board and accept or reject the resignation as deemed advisable. In 2018, other than Mr. Shineton, who was unable to attend one regularly scheduled Board meeting due to a scheduling conflict, all Directors attended 100% of the regularly scheduled Board meetings.

Committees of the Board

Board committees assist in the effective functioning of the Company’s Board of Directors. The composition of the Board committees ensures that the views of independent Directors are effectively represented.

Norbord’s Board of Directors has four standing committees: the Audit Committee; the Corporate Governance and Nominating Committee; the Environmental, Health and Safety Committee; and the Human Resources Committee. It is the Board’s policy that each committee meets without management present for a portion of each of its meetings.

Special committees may be formed from time to time, as required, to review particular matters or transactions.

In 2015, an Executive Committee of the Board of Directors, consisting of Messrs. Dupuis, Gordon (Chair) and Houston, was formed initially to monitor the progress of the Merger. The Committee continues to meet regularly to monitor the Company’s progress against its strategic objectives.

Full terms of reference for each of the standing committees are available on the Company’s website at www.norbord.com.

Role of Committee Chair

The Board of Directors has adopted the following written position description for all Board committee chairs. The chair of each committee of the Board is appointed by the Board at the first Board meeting held after the annual shareholders meeting. The role of each committee chair is as follows:

1.	Ensure that the activities of the committee are consistent with the committee terms of reference;

2.	Ensure that the committee meets as many times as necessary to effectively carry out its duties and responsibilities;

3.	In cooperation with Norbord’s management team, as appropriate, review meeting agendas to ensure all required business is brought before the committee to enable the committee to carry out its duties and responsibilities;

4.	Report to the Board at the next Board meeting following any committee meeting or upon the signing of a written resolution approving a decision or recommendation of the committee;

5.	Provide leadership to enable the committee to act as an effective team in carrying out its duties and responsibilities; and

6.	Carry out any other appropriate duties and responsibilities as assigned by the Board or delegated to the committee.


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Audit Committee

The Audit Committee, composed entirely of independent Directors within the meaning of sections 1.4 and 1.5 of National Instrument 52-110, assists 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 reviews the independence, qualifications and performance of the external auditor of the Company. Its duties also include reviewing and monitoring the Company’s major financial risks and risk management policies and approving quarterly and annual financial filings.

Corporate Governance and Nominating Committee

The Corporate Governance and Nominating Committee is responsible for the development and monitoring of the Company’s corporate governance practices, Disclosure Policy and Code of Business Conduct. Its duties include the identification and recommendation of potential nominees or appointees to the Board, and the assessment of the effectiveness of the Board, its size and composition, its committee structure, and the individual performance of its Directors. The Committee also recommends compensation for Directors.

In considering and seeking potential nominees to the Board, the Committee assesses the skills and expertise of its current Board to determine the complementary skills and experience that any potential candidates should possess. The Committee seeks candidates through recommendations sought from the current Board and Committee members and, when necessary, through recruitment firms. Once candidates have been identified, they are contacted to confirm their interest, credentials and availability to serve on the Board. Interviews of candidates are then conducted by members of the Committee and a recommendation is made to the Board.

Environmental, Health and Safety Committee

The mandate of the Environmental, Health and Safety Committee is to assist the Board in carrying out its responsibilities with respect to health, safety and environmental issues. The Committee reviews compliance with relevant Board resolutions and with the Company’s environmental and health and safety policies, and assesses the effectiveness of the Company’s environmental management processes and health and safety programs, including the review of internal audits of these processes and programs.

Human Resources Committee

The Human Resources Committee approves the Company’s compensation and benefits policy and monitors its implementation. It reviews management succession plans and considers appointments of senior management of the Company. The Committee annually assesses the performance of the CEO against agreed targets and recommends the CEO’s compensation to the Board. Together with the CEO, the Committee reviews the performance of senior management of the Company and makes compensation recommendations to the Board. The Human Resources Committee is responsible for overseeing the funding, investment management and administration of Norbord employee retirement plans.

Board, Committee and Director Evaluation

The Board believes that a regular and formal process of evaluation improves the performance of the Board as a whole, its committees and individual Directors. The Corporate Governance and Nominating Committee annually evaluates the Board to ensure that it is functioning effectively and in the best interests of shareholders. The evaluation includes a detailed questionnaire, completed by each Director, inviting comments and suggestions on areas for improvement. The Chair of the Board holds private interviews with each Director annually to discuss the operations of the Board and its committees and to provide any feedback on the individual’s contribution. The Chair reviews the results of the evaluation with the Corporate Governance and Nominating Committee and the Board.


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These evaluations assess the Board in four specific areas:

•

Overall Board governance;

•

Managing management;

•

Strategy and corporate performance; and

•

Board effectiveness.

In 2018, this evaluation determined that the Board operated effectively.

In addition to the performance of the Board, the Corporate Governance and Nominating Committee annually evaluates the performance of each committee of the Board. These evaluations focus on each committee’s success in meeting its terms of reference as well as its overall effectiveness as a committee. In 2018, the Corporate Governance and Nominating Committee and each committee of the Board evaluated the Board committees’ performance as effective.

The Board has developed written position descriptions for the Chair of the Board, the Lead Director, the chair of each committee and the CEO (see pages 55, 57 and the “Role of President and CEO” section below).

The performance of individual Board members is also evaluated. Each Director receives a list of questions to address in completing a self-assessment. This review is conducted by the Chair and presented to the Corporate Governance and Nominating Committee for its consideration and as a basis for recommending the Directors to be nominated for election at the next annual meeting of shareholders.

As part of the Board, committee and individual Director evaluation processes, opportunities to improve are implemented as identified. In 2016, the Committee recommended that the Company restore gender diversity to the Board. Disclosure regarding Board diversity can be found on page 61 of this Circular.

Norbord Management

The primary responsibility of management is to create long-term value in the Company based on an approved business strategy and action plan. The Board of Directors is responsible for ensuring that the performance of management is adequate and for bringing about any management change that will enable Norbord to perform satisfactorily. Norbord’s corporate governance principles are intended to encourage autonomy and effective decision-making by management while ensuring scrutiny by Norbord’s Board of Directors and its committees.

Role of President and CEO

The Board of Directors has adopted the following written description of the role of the President and CEO. The President and CEO reports to, and is accountable to, the Board of Directors. The President and CEO’s role is as follows:

1.	Provide leadership of the Company and, subject to approved policies and direction by the Board, manage the operation, organization and administration of the Company;

2.	Present to the Board for approval a long-term vision for the Company together with strategies to achieve that vision, the risks and alternatives to these strategies, and specific steps and performance indicators that will enable the Board to evaluate progress on implementing such strategies;

3.	Propose to the Board for approval annual capital and operating plans that implement the Company’s strategies together with key financial and other performance goals for the Company’s activities, and report regularly to the Board on the progress against these goals;

4.	Act as the primary spokesperson for the Company to all its stakeholders;

5.	Present to the Board for approval annually an assessment of the Company’s management resources together with a succession plan that provides for the orderly succession of senior management, including the recruitment, training and development required;

6.	Recommend to the Board the appointment or termination of any officer of the Company other than the Chair; and

7.	Develop and implement the systems and processes to support the policies established by the Board.


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Board Information

The information provided by Norbord management to the Board of Directors is critical to the Board’s effectiveness. In addition to reports presented to the Board at regular meetings, the Board is also informed on a timely basis by management of corporate developments and key decisions by management in pursuing Norbord’s strategic plan.

All Directors have the opportunity to meet and participate in work sessions with management to obtain insight into the operations and business of the Company. Directors are also free to consult with members of management whenever they so require, and to engage outside advisors with the Chair’s authorization.

Orientation and Continuing Education

The Corporate Governance and Nominating Committee is responsible for providing an orientation and education program for new Directors. Each new Director is provided with information outlining the role of the Board, committees and Directors. New Directors must, within three months of becoming a Director, spend one day at the head office of the Company for personal briefings by senior management on the Company’s strategic plan, the nature and operation of the business, major risks and other key business matters.

In January 2018, Ms. Nemchev attended a full-day orientation session with senior management at the Company’s head office.

Periodically, the Company holds off-site Board meetings at one of its mill locations to provide the Directors with ongoing information on the Company’s operations. Speakers on specialized industry topics are periodically invited to provide Directors with current and detailed information on the markets for the Company’s products. Directors are advised on an ongoing basis of changes in applicable laws and regulations.

Board Renewal

Director Recruitment

The Corporate Governance and Nominating Committee has the authority and responsibility to establish criteria for the selection of Directors, to retain search firms for the recruitment of Director nominees as necessary, to review and assess the competencies and skills of persons proposed for appointment or election to the Board, and to submit to the Board the names of persons to be nominated for election as Directors at the annual meeting of shareholders or to be appointed to fill vacancies between annual meetings. The Corporate Governance and Nominating Committee maintains an “evergreen” list of candidates to ensure highly skilled individuals are quickly identified to fill planned or unplanned vacancies. Candidates are assessed in relation to the criteria established by the Board (as set out in this Circular) to ensure that the Board has a diverse and appropriate mix of backgrounds, skills and perspectives necessary to promote sound governance and Board effectiveness.

Board and Committee Assessment

To ensure adequate Board renewal, the Corporate Governance and Nominating Committee conducts annual Director, Board and committee assessments. These assessments include an evaluation of the tenure and performance of individual Directors and a review of the composition and effectiveness of the Board and its committees. Further detail on the annual assessments can be found on page 58, “Board, Committee and Director Evaluation.”

The Corporate Governance and Nominating Committee also conducts an annual skills matrix survey to ensure the Board possesses the requisite experience, expertise, and business and operational insight for the effective stewardship of the Company. The Board skills matrix can be found on page 21, “Areas of Expertise.”

The results of this annual evaluation and survey are reported to the Board together with the recommendations from the Corporate Governance and Nominating Committee for any changes to the composition of the Board.


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Director Tenure

The Company does not currently have a mandatory retirement age for Directors, nor has it adopted term limits. The Board’s view is that these mechanisms are arbitrary, overly prescriptive and that its shareholders are best served by a balance between long-standing Directors who have developed in-depth knowledge about the Company and the need for renewal and fresh perspectives. Further, the Board does not consider a long tenure to be a detriment to the Company or that it would prevent a Director from acting independently of management. The Corporate Governance and Nominating Committee reviews the composition of the Board on an annual basis, in relation to approved Director criteria and skill requirements, and recommends changes, as appropriate, to renew the Board.

If all the Director nominees are elected at the meeting, the Board’s average tenure will be seven years. The Company’s tenure profile is reflected in the following graph.

LOGO

Board Diversity

Norbord is committed to diversity on the Board of Directors. It is Norbord’s policy to foster an environment that respects people’s dignity, ideas and beliefs, thereby ensuring equity and diversity.

Diversity at Norbord includes characteristics such as religion, race, ethnicity, language, gender, sexual orientation, disability, age or any other area of potential differentiation. Until recently, the Board had two long-standing directorships held by women. Ms. Margot Northey served for 12 years from 2000 until her retirement in 2012, and Ms. Dian Cohen served for 28 years from 1987 until 2015 when she retired from the Board upon the Merger. Following the Merger, the Board consisted of five nominee Directors from Norbord and three from Ainsworth. In January 2016, the Corporate Governance and Nominating Committee reviewed the composition of the new Board and recommended that it would be in the best interests of the Company to restore gender diversity at the Board level. Accordingly, effective January 27, 2016, the Board updated its Diversity Policy to the following:

•

Board appointments will be based on merit and will consider only those candidates who are highly qualified based on their experience, functional expertise, and personal skills and qualities, having due regard for the benefits of diversity on the Board, so that each nominee possesses the necessary requirements to serve effectively as a Director.

•

In the Director identification and selection process, diversity on the Board, including gender diversity, will influence succession planning and be a key criterion in adding new members to the Board.

•

The Board has a gender diversity target of ensuring that at least two of its independent directors are women by the year 2019.


NORBORD 2019 MANAGEMENT PROXY CIRCULAR		62

The Corporate Governance and Nominating Committee annually reviews and assesses progress against the Diversity Policy and reports to the Board thereon.

The Corporate Governance and Nominating Committee may engage outside consultants to assist in the search for qualified candidates to help meet the Board’s skill and diversity objectives.

In 2017, the Corporate Governance and Nominating Committee engaged a recruitment firm in its search for a female candidate to replace Mr. Shineton who retired from the Board at the May 3, 2018 annual meeting of shareholders. A short list of three female US residents with engineering backgrounds and experience in sales, marketing and product development were interviewed, and Ms. Nemchev was nominated and elected a Director at the May 3, 2018 annual meeting of shareholders. Ms. Nemchev’s biography can be found on page 17 of this Circular.

In 2018, upon notification of Mr. Turcotte’s intention to not stand for re-election at the upcoming annual meeting of shareholders, Brookfield conducted an internal search to replace him. This resulted in the nomination of Ms. Pearson as Brookfield’s third representative, whose biography can be found on page 18 of this Circular. If Ms. Pearson is elected at the May 2, 2019 annual meeting of shareholders, the Company will have met its goal of having two female directors on its Board by 2019.

Representation of Women in Executive Officer Positions

Norbord is committed to a hiring process that is fair, objective, equitable, non-discriminatory and in compliance with all applicable legislation and good governance. Hiring is done on the principle of merit, and is guided by values that support diversity, respect, integrity and accountability. The Company’s Recruitment Policy is designed to:

•

Hire the best qualified individual for the position.

•

Ensure a hire is fair and based on merit and cultural fit within the organization in order to maximize the candidate’s success in the organization.

•

Ensure that compensation is commensurate with experience, reflects market value of the position and internal equity within the organization, and focuses on long-term value creation.

While the Company has not adopted targets for women in executive officer positions given its practice to recruit executives from the broadest possible talent pool based on merit, the recruitment process for all positions across the Company requires that the pool of candidates includes a meaningful number of women.

As at December 31, 2018, one woman (10%) held an executive officer position and seven women (13%) held positions at the senior management level. The senior management group includes the Senior Vice President and Chief Financial Officer; Vice President, Finance and Corporate Controller; Director, Taxation; Director, Operations Services; Director, Human Resources; Director, Norbord Technology Centre; and Director, Procurement. This is in line with the Company’s total employee base, of which 10% are women.

Management Remuneration

Norbord’s remuneration policies are intended to provide a direct link between competitive industry compensation and company and individual performance. Bonus compensation is reviewed annually by the CEO and the Human Resources Committee and approved by the Board of Directors. Periodic reviews of compensation practices are carried out to ensure that management is fairly rewarded based on performance.


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Communications Policy

Norbord keeps shareholders informed of its activities and progress through a comprehensive annual report, quarterly reports and news releases. A regularly updated website (www.norbord.com) provides additional information about the Company, including statutory filings and supplemental information provided to financial analysts and investors.

Directors and management meet with Norbord shareholders at the annual meeting, held in Toronto, and are available to respond to shareholder questions.

Norbord’s investor relations program seeks to ensure that investors’ inquiries are responded to in a timely manner. Management meets on a regular basis with investment analysts and financial advisors to ensure that accurate information is available to investors, including quarterly conference calls and webcasts to discuss Norbord’s performance. Norbord also endeavours to ensure that news media are kept apprised of developments as they occur. All Norbord communications are carried out in accordance with the Company’s Disclosure Policy, which is posted on Norbord’s website at www.norbord.com. This ensures fairness, accuracy and timeliness in reporting material information that is likely to affect the price of Norbord’s publicly traded securities.

Code of Business Conduct

The Board of Directors has adopted a written Code of Business Conduct (the Code) prescribing the minimum moral and ethical standards of conduct required of all Directors, officers and employees of the Company and its wholly owned subsidiaries. A copy of the Code is available on the Company’s website at www.norbord.com.

The Corporate Governance and Nominating Committee is charged with reviewing the Code on an annual basis and recommending proposed changes to the Board for approval. In 2015, the Code was revised to include the Company’s enhanced anti-bribery and anti-corruption policies and emphasizes the Company’s commitment to conducting business in compliance with all applicable anti-bribery and anti-corruption laws and practices.

The Company provides, on an annual basis, a copy of the Code to all employees, requiring them to sign an acknowledgment that they have received, read and understand the contents of the Code and agree to adhere to the same.

All employees are required to disclose in writing to their supervisors all activities, investments or businesses that might create an actual or potential conflict of interest with their duties to the Company. Directors are required to consult with the Chair of the Board with respect to potential conflicts and abstain from voting when such matters are before the Board for approval.

All violations of law or of the Code must be reported. The Company has implemented an ethics reporting system allowing Directors, officers and employees to report, in confidence, a violation of law or of the Code to the Chair of the Audit Committee through Norbord’s ethics reporting system, ClearView Connects, which can be accessed from the Company’s website at www.norbord.com. The Chair of the Audit Committee provides the Board with a quarterly report on matters brought to the Chair’s attention.


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Anti-hedging and Anti-monetization Policy

On January 29, 2014, the Company adopted an anti-hedging and anti-monetization policy. Under that policy, no Director or member of senior management (including the NEOs) may, directly or indirectly, engage in any kind of hedging transaction that could reduce or limit the Director’s or senior management’s economic risk with respect to the Director’s or senior management’s holdings, ownership or interest in common shares or other securities of the Company, including, without limitation, outstanding stock options, deferred share units, restricted stock units or other compensation awards the value of which are derived from, referenced to or based on the value or market price of common shares in the capital of the Company or other securities of the Company.

Directors’ Approval

The contents and delivery of this Circular have been approved by the Directors of the Company.

/s/ Elaine Toomey

ELAINE G. TOOMEY

Assistant Corporate Secretary

Toronto, Ontario

March 4, 2019


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Appendix A

Board of Directors – Terms of Reference

Role of Board

The role of the Board of Directors is to supervise the business and affairs of the Company, which are conducted by its officers and employees under the direction of the Chief Executive Officer (CEO), to enhance the long-term value of the Company. The Board is elected by the shareholders to oversee management to ensure that the best interests of the Company as a responsible corporate citizen are advanced in a manner that recognizes the concerns of stakeholders in the Company, including its shareholders, creditors, employees, suppliers, customers and the communities in which it operates.

Authority and Responsibilities

The Board of Directors meets regularly to review reports by management on the performance of the Company. In addition to the general supervision of management, the Board, directly or through its committees, performs the following functions:

1.	Strategic Planning – overseeing the strategic planning process within the Company and reviewing, approving, on at least an annual basis, and monitoring the strategic plan for the Company, including fundamental financial and business strategies and objectives;

2.	Risk Assessment – assessing the major risks facing the Company and reviewing and monitoring appropriate systems to manage those risks;

3.	CEO – developing a position description for the CEO, including the corporate objectives that the CEO is responsible for meeting, and selecting, evaluating and compensating the CEO;

4.	Senior Management – overseeing the selection, evaluation and compensation of senior management, and monitoring succession planning;

5.	Communication – reviewing and monitoring communications by and to the Company, including its disclosure policy and a system for receiving feedback from stakeholders in the Company;

6.	Maintaining Integrity – reviewing and monitoring the controls and procedures within the Company to maintain a culture of integrity, including its internal controls and procedures for financial reporting and compliance with its Code of Business Conduct; and

7.	Corporate Governance – reviewing and maintaining the corporate governance principles and guidelines of the Company.

In addition to those matters that must, by law, be approved by the Board, specific Board approval must be obtained for:

1.	Any capital disposition or expenditure in excess of $3 million and any cost overrun on any project in excess of $2 million;

2.	Any new third-party loan agreement or guarantee for an amount in excess of $10 million;

3.	Changes in senior management at the Company; and

4.	Any other material agreement or arrangement that is not in the ordinary course of business of the Company.


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Composition and Procedures

Size of Board and Selection Process – The Directors of the Company are elected each year by the shareholders at the annual meeting of shareholders. The Corporate Governance and Nominating Committee proposes to the full Board the nominees for election to the Board, and the Board proposes a slate of nominees to the shareholders for election. Any shareholder may propose a nominee for election to the Board either by means of a shareholder proposal upon compliance with the requirements prescribed by the Canada Business Corporations Act , or at the annual meeting. The Board also determines the number of Directors on the Board, subject to a minimum of eight and a maximum of 20. Between annual meetings, the Board may appoint Directors to serve until the next annual meeting.

Qualifications – Directors should have the highest personal and professional ethics and values and be committed to advancing the best interests of the Company. They should possess skills and competencies in areas that are relevant to the Company’s activities. A majority of the Directors will be “independent” Directors within the meaning of section 1.4 of National Instrument 52-110 .

Election of Directors – The Board requires any Director to offer his or her resignation if he or she has not received at least 50% of the votes cast at the annual meeting of shareholders in favour of his or her election to the Board. The Board will evaluate the impact of the change on the composition of the Board and accept or reject the resignation as appropriate. If the Board accepts the resignation, the Board may:

(a) leave such position vacant,

(b) fill the vacancy by appointing a new Director who the Board believes will merit the confidence of the shareholders, or

This majority voting policy does not apply where an election involves a proxy battle.

Share Ownership – The Board requires each Director to own, directly or indirectly, common shares or deferred share units equal in value to at least three times the annual Director retainer fee based on the acquisition cost of the common shares or deferred share units. New Directors will have five years from the date of joining the Board to achieve this minimum share ownership guideline.

Change in Personal Circumstances – The Board requires any Director to offer his or her resignation if there has been a relevant change in his or her personal circumstances, or if he or she has not attended at least 75% of the regularly scheduled Board and relevant committee meetings in the most recent 12-month period. The Board will evaluate the impact of the change on the composition of the Board and accept or reject the resignation as appropriate.

Orientation and Continuing Education – The Corporate Governance and Nominating Committee is responsible for overseeing the orientation and continuing education programs for new and existing Directors. The CEO and the Chief Financial Officer are responsible for providing an orientation and education program for new Directors. Each new Director must, within three months of becoming a Director, spend one day at the head office of the Company for personal briefings by senior management on the Company’s strategic plan, major risks and other key business matters. The Directors are provided with information on an ongoing basis relating to the operations of the Company and changes in applicable law, and they tour the different facilities of the Company.

Meetings – The Board has at least four scheduled meetings a year. The Board is responsible for its agenda. Prior to each Board meeting, the CEO will discuss with the Chair of the Board agenda items for the meeting. Quorum for meetings will be a majority of the Board members. Notice of meetings of the Board shall be given not less than 48 hours before the time when the meeting is to be held. Materials for each meeting are distributed to the Directors in advance and Directors are expected to review such materials prior to the meeting. At the conclusion of each Board meeting, the independent Directors meet without the non-independent Directors or management present.


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Committees – The Board has established the following standing committees to assist the Board in discharging its responsibilities – Audit Committee; Corporate Governance and Nominating Committee; Environmental, Health and Safety Committee; and Human Resources Committee. Special committees are established from time to time to assist the Board in connection with specific matters. The chair of each committee reports to the Board following meetings of the committee. The terms of reference of the Board and each standing committee are reviewed annually by the Board. Committee chairs and members are appointed annually following the annual meeting of shareholders.

Evaluation – The Corporate Governance and Nominating Committee performs an annual evaluation of the effectiveness of the Board as a whole, the committees of the Board and the contributions of individual Directors. Each standing committee also conducts an evaluation of its performance and terms of reference, and reports the results to the Board for its consideration.

10.

Compensation – The Corporate Governance and Nominating Committee recommends to the Board the compensation for non-management Directors. In reviewing the adequacy and form of compensation and benefits, the Committee seeks to ensure that the compensation reflects the responsibilities and risks involved in being a Director of the Company, and seeks to align the interests of the Directors with the best interests of the shareholders and bondholders.

11.	Access to Independent Advisors – The Board and any committee may at any time retain outside financial, legal and/or other advisors at the expense of the Company. Any Director may, subject to the approval of the Chair of the Board, retain an independent advisor at the expense of the Company.

12.	Feedback from Stakeholders – The CEO will ensure that the Board is kept apprised of noteworthy stakeholder feedback and, where the Board deems it appropriate, a member of the Board may respond directly to stakeholders in this regard.

LOGO

Exhibit 99.2

NORBORD / 2018

ANNUAL REPORT

Norbord Inc. is the world’s largest producer of oriented strand board (OSB), with assets of $1.9 billion. We employ approximately 2,700 people at 17 plant locations in the US, Canada and Europe.

Norbord is a publicly traded company listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE) under the symbol OSB.

North America

Norbord manufactures OSB for home construction, repair and remodelling, and specialty applications (including industrial and export end uses). Norbord owns 13 OSB mills in North America located in the Southern US, Western Canada, Quebec, Ontario and Minnesota. Norbord employs approximately 1,900 people in North America.

Europe

Norbord is the UK’s largest producer of wood-based panel products. Our European mills manufacture a range of OSB, medium density fibreboard (MDF) and particleboard products for the home construction, furniture and do-it-yourself markets. In Europe, the Company employs approximately 800 people and operates three mills in the UK and one in Belgium

Contents


1		Financial Highlights
2		Letter to Shareholders
4		2018 Financial Table of Contents
5		Management’s Discussion and Analysis
42		Consolidated Financial Statements
74		Five-Year Historical Review
75		Selected Quarterly Information
77		Glossary
78		Board of Directors
78		Senior Management
79		Corporate Information

Unless otherwise noted, all information in this

annual report is as of January 31, 2019.

Financial Highlights

Years ended December 31


(US $ millions, except per share information, unless otherwise noted)	2018			2017			2016
SALES AND EARNINGS
Sales		2,424			2,177			1,766
Operating income		504			549			280
Adjusted EBITDA ⁽¹⁾		724			672			385
Earnings (loss)		371			436			183
Adjusted earnings ⁽¹⁾		412			389			174
PER COMMON SHARE EARNINGS
Earnings, basic		4.29			5.06			2.14
Earnings, diluted		4.27			5.03			2.13
Adjusted earnings, basic ⁽¹⁾		4.76			4.51			2.03
Adjusted earnings, diluted ⁽¹⁾		4.74			4.99			2.02
Dividends declared ⁽²⁾		6.30			1.50			0.40
BALANCE SHEET
Total assets		1,942			2,103			1,799
Long-term debt ⁽³⁾		550			548			746
Net debt for financial covenant purposes ⁽¹⁾		435			333			619
Net debt to capitalization, market basis ⁽¹⁾		13	%		11	%		25	%
Net debt to capitalization, book basis ⁽¹⁾		28	%		21	%		41	%
KEY STATISTICS
Shipments (MMsf–3/8”)
North America		6,484			6,066			5,888
Europe		1,825			1,867			1,779
Indicative average OSB price
North Central ($/Msf–7/16”)		351			353			269
South East ($/Msf–7/16”)		315			330			245
Western Canada ($/Msf–7/16”)		307			326			234
Europe ( € /m3) ⁽⁴⁾		294			239			233
KEY PERFORMANCE METRICS
Return on capital employed (ROCE) ⁽¹⁾		47	%		45	%		27	%
Return on equity (ROE) ⁽¹⁾		42	%		47	%		30	%
Cash provided by operating activities		608			608			313
Cash provided by operating activities per share ⁽¹⁾		7.03			7.05			3.66
Stock price (TSX) (C $)
High		58.46			51.75			35.67
Low		32.29			31.38			19.90
Close		36.30			42.55			33.91
Average daily stock TSX trading volume (in thousands)		363			233			177
Average daily stock NYSE trading volume (in thousands) ⁽⁵⁾		165			46			12

⁽¹⁾	Non-IFRS measure; see the Non-IFRS Financial Measures section on page 37.

⁽²⁾	Dividends declared per share stated in Canadian dollars.

⁽³⁾	Includes current and non-current long-term debt.

⁽⁴⁾	European indicative average OSB price represents the gross delivered price to the largest continental market.

⁽⁵⁾	Norbord listed its shares on NYSE effective February 19, 2016.

NORBORD 2018 ANNUAL REPORT 1

To Our Shareholders,

2018 was the best financial year in Norbord’s history. Our company delivered a record $724 million of Adjusted EBITDA as we produced and shipped more product from our mills and North American OSB prices remained well above historical trends for much of the year. Our European business had an excellent year, more than doubling its EBITDA contribution to $86 million. Our success enabled us to return more than half a billion dollars to our shareholders through a combination of dividends and share buybacks.

These results were underpinned by solid operational performance across the Company, as seven of our mills set annual production records. Most importantly, our employees continued to work safely and achieved an OSHA recordable injury rate of 0.78. We are encouraged that our employees continue to prioritize safety, even as we invested more than $200 million in productivity and cost reduction initiatives at our mills. These investments will also support our ongoing efforts to expand our specialty product sales. The exceptional operating cash flow we generated last year preserved our strong balance sheet and we ended the year with $490 million of liquidity, including more than $125 million in cash.

While 2018 was a banner year for Norbord, US housing sentiment turned negative in the fall and this affected stock market perceptions of companies in our industry. In November, December and January, we saw this as a compelling opportunity to buy back 5.2 million of our shares at prices which we believe are significantly below their intrinsic value – a strategic use of our capital to enhance shareholder value.

Our perspective on the markets

In 2018, we experienced significant volatility in North American OSB prices that is not unusual in our industry. Let me put this recent market volatility in context. The first half of 2018 saw an extraordinary increase in benchmark OSB prices due to a combination of strong demand growth and weather-related logistics issues which constrained supply, particularly in the west. The weather improved and logistics issues were resolved in time for the spring homebuilding season, but by the fall, the pace of US housing growth began to slow as home buyers were faced with higher home prices and rising mortgage interest rates. As the year drew to a close and we entered the seasonally slowest time of year, particularly wet weather in the US south further constrained homebuilding activity and OSB demand.

This market volatility was reflected in our 2018 financial results, with well above average Adjusted EBITDA in the first three quarters of the year followed by below average results in the fourth quarter, which continued into January.

We continue to share the view of housing experts that the industry is experiencing a temporary pause rather than a directional shift. The underlying market fundamentals remain supportive with low unemployment and solid wage growth underpinning consumer confidence and household formation finally moving back above the long-term average. US housing starts continue to grow, albeit at a modest pace, with the experts’ current forecast averaging 1.28 million starts for 2019. Demand for lower-cost entry-level homes remains particularly strong, though we believe home builders need time to adapt their offerings to meet this need. Mortgage interest rates increased by more than 1% (from just under 4% to approximately 5%) during 2018, but have since moderated down about half a percent.

2 NORBORD 2018 ANNUAL REPORT

Outside of housing, we see continued solid growth in other OSB end uses; 83% of our incremental 2018 volumes were specialty and non-commodity products. We have been investing to support the production and sale of more OSB for non-traditional end uses and we believe this will support further North American OSB demand growth.

The picture in Europe is even more favourable. Strong demand growth driven by increasing substitution for imported panels contributed to our outstanding European results in 2018, and we expect this trend to continue. The new finishing end at our Inverness, Scotland OSB mill is now complete and will unlock the capacity of the modernized and expanded press line. Further, our Board has approved an incremental £35 million investment at Inverness to add a second stranding and drying line to the mill. The expanded mill layout was predisposed for this next phase of growth which will allow us to continue steadily increasing our production volume in each of the next five years to support our European customers’ growing needs.

Priorities for 2019

We will continue to manage the business by closely aligning to the needs of our customers. We took more than 130 mill-days of downtime during the fourth quarter of 2018 and will continue to produce only what we can sell.

For 2019, we have budgeted approximately $150 million for ongoing investments in our mills to reduce manufacturing costs and ensure we can support growth in our specialty product sales. The budget includes a portion of the Inverness phase 2 investment. We will also continue to prepare our Chambord, Quebec mill for an eventual restart, though no decision has been made about the timing. Work on the long lead-time items is well underway and, similar to our approach at Huguley, Alabama, we will continue to manage the pace of the rebuild based on market conditions.

Norbord has a track record of superior returns on invested capital versus our peers and we have returned over $1.5 billion in cash to our shareholders over the past 15 years, through both dividends and share buybacks. We remain committed to returning excess cash to shareholders, and our variable dividend policy gives us the flexibility to prudently balance capital allocation decisions with the inherent cyclicality in our business.

With record annual earnings, strong operational and sales performance, and excellent customer relationships, we continue to be a clear leader in the OSB industry. Our diversification strategy is designed to mitigate volatility and deliver value even in times of market uncertainty. Combined with our strong balance sheet and liquidity, we believe Norbord is well positioned for the year ahead.

We believe it is an excellent time to be invested in Norbord and thank our shareholders for their continuing support.

Peter Wijnbergen

President & CEO

This letter includes forward-looking statements, as defined by applicable securities legislation, including statements related to our strategy, projects, plans, future financial or operating performance, market outlook, and other statements that express management’s expectations or estimates of future performance. Often, but not always, forward-looking statements can be identified by the use of words such as “expect,” “suggest,” “support,” “believe,” “should,” “potential,” “likely,” “continue,” “forecast,” “plan,” “indicate,” “consider,” “future,” or variations of such words and phrases or statements that certain actions “may,” “could,” “must,” “would,” “might,” or “will” be undertaken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. See the cautionary language in the Forward-Looking Statements section of the 2018 Management’s Discussion and Analysis dated January 31, 2019 on page 42.

See the Non-IFRS Financial Measures section on page 37.

NORBORD 2018 ANNUAL REPORT 3

2018 Financial Table of Contents


Management’s Discussion and analysis
Introduction			5
Business Overview			6
Strategy			7
Summary			9
2017 Comparison Against 2016			11
Outlook for 2019			12
Results of Operations			12
Finance Costs, Interest Income, Depreciation and Amortization, and Income Tax			16
Liquidity and Capital Resources			17
Investments			19
Capitalization			21
Transactions with Related Parties			22
Selected Quarterly Information			24
Fourth Quarter Results			27
Financial Policies			29
Changes in Accounting Policies			30
Future Changes in Accounting Policies			30
Significant Accounting Policies, Judgements and Estimates			31
Risks and Uncertainties			32
Assessment of and Changes in Internal Controls and Disclosure Controls over Financial Reporting			36
Non-IFRS Financial Measures			36
Forward-Looking Statements			41


Consolidated Financial Statements
Management’s Responsibility for the Financial Statements			42
Independent Auditors’ Report			43
Management’s Report on Internal Control over Financial Statements			44
Independent Auditors’ Report on Internal Control			45
Consolidated Balance Sheets			46
Consolidated Statements of Earnings			47
Consolidated Statements of Comprehensive Income			47
Consolidated Statements of Changes in Shareholders’ Equity			48
Consolidated Statements of Cash Flows			49
Notes to the Consolidated Financial Statements			50

4 NORBORD 2018 ANNUAL REPORT

JANUARY 31, 2019

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 2018 relative to 2017. The information in this MD&A should be read in conjunction with the audited consolidated financial statements as at and for the years ended December 31, 2018 and 2017.

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 holding a significant 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.shtml.

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 an 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. 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 EBITDA margin, 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.

NORBORD 2018 ANNUAL REPORT 5

BUSINESS OVERVIEW

Norbord is a leading global manufacturer of wood-based panels with 17 mills in the United States (US), Canada and Europe. Norbord is the largest global producer of oriented strand board (OSB) with annual capacity of 9 billion square feet (Bsf) (3/8-inch basis). In North America, Norbord owns 13 OSB mills located in the Southern region of the US, Western Canada, Quebec, Ontario and Minnesota. In Europe, the Company operates an OSB mill, two particleboard production facilities and one medium density fibreboard (MDF) production facility in the United Kingdom (UK), and one OSB mill in Belgium and is the UK’s largest panel producer. The Company reports its operations in two geographic segments, North America and Europe, with 79% of its panel production capacity in North America and 21% 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 2,700 people at December 31, 2018.

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 2018
OSB
100 Mile House, British Columbia		440
Barwick, Ontario		510
Bemidji, Minnesota ⁽¹⁾		550
Chambord, Quebec ^(1,2)		550
Cordele, Georgia ⁽¹⁾		1,040
Genk, Belgium		450
Grande Prairie, Alberta ⁽¹⁾		830
Guntown, Mississippi		450
High Level, Alberta		860
Huguley, Alabama		500
Inverness, Scotland		720
Jefferson, Texas ⁽¹⁾		500
Joanna, South Carolina		650
La Sarre, Quebec ⁽¹⁾		500
Nacogdoches, Texas ⁽¹⁾		420

		8,970	⁽¹⁾

Particleboard
Cowie, Scotland		405
South Molton, England		160

		565

MDF
Cowie, Scotland		380

		380

Total Panels		9,915

(1)	Norbord’s total OSB capacity increased by 560 MMsf-3/8” effective December 31, 2018 based on recent capital investments and improved efficiency.

(2)	In November 2016, Norbord exchanged ownership of its Val-d’Or OSB mill for Louisiana-Pacific Corporation’s curtailed Chambord OSB mill (the Asset Exchange). Production at Chambord has been curtailed since the third quarter of 2008.

6 NORBORD 2018 ANNUAL REPORT

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 2018:


Financial Goal	2018 Accomplishments
1. Generate cash.	•	Achieved Adjusted EBITDA of $724 million, up from $672 million in 2017, and ROCE of 47% compared to 45% in 2017.

	•	Increased North American Adjusted EBITDA to $652 million from $638 million in 2017, benefiting from 7% higher shipment volume.

	•	More than doubled European Adjusted EBITDA from $41 million in 2017 to $86 million, benefiting from higher panel prices.

	•	Generated operating cash flow of $608 million, in line with 2017.

2. Protect the balance sheet.	•	Moody’s Investors Service confirmed the Company’s issuer credit rating at Ba1 with a Stable outlook. Standard & Poor’s Ratings Services confirmed at BB and upgraded outlook from Stable to Positive. DBRS confirmed at BB and upgraded outlook from Stable to Positive.

	•	Ended the year with unutilized liquidity of $490 million (including $128 million in cash and cash equivalents), net debt to capitalization on a book basis of 28% and tangible net worth of $1,132 million.

NORBORD 2018 ANNUAL REPORT 7

The table below summarizes the six key components of Norbord’s business strategy and its performance in each area in 2018:


Strategic Priority	2018 Performance
1. Develop a world-class safety culture.	•	Completed Occupational Safety and Health Administration (OSHA) recordable injury-free year at two mills (Grande Prairie, Alberta and Nacogdoches, Texas).

	•	Recertified La Sarre, Quebec and Jefferson, Texas mills under Norbord’s updated Safety Star program.

	•	Achieved an overall OSHA recordable injury rate of 0.78 per 100 full-time employees for 2018, in line with 2017 performance.

2. Pursue growth in OSB.	•	Increased production volume at North American OSB and European panel mills by 5% and 2%, respectively, over 2017.

	•	Set annual production records at seven of 16 operating mills: Cordele, Georgia; High Level, Alberta; Jefferson, Texas; La Sarre, Quebec; Nacogdoches, Texas; Genk, Belgium; and Inverness, Scotland.

	•	Completed debottlenecking project at Grande Prairie, Alberta mill, which increased stated capacity by 100 MMsf (3/8-inch basis).

	•	Commenced capital investment required to prepare curtailed Chambord, Quebec mill for eventual restart when warranted by customer demand.

3. Own high-quality assets with low-cost positions.	•	Completed sixth year of capital reinvestment strategy, focused on improving productivity and product mix, and reducing manufacturing costs.

	•	Renegotiated five-year and six-year union contracts at Barwick, Ontario and 100 Mile House, British Columbia mills, respectively, on competitive terms.

4. Maintain a margin-focused operating culture.	•	Margin Improvement Program (MIP) gains from richer product mix and improved productivity were offset by higher maintenance-related costs, raw material usages and costs associated with executing on strategic capital and sales growth initiatives. These costs included adding in-house technical and engineering expertise and investing in sales, marketing and production resources. Further, the excellent ramp-up of the Huguley, Alabama and Inverness, Scotland mills was excluded from 2018 MIP calculation.

5. Focus on growth customers through best-in-class service and product development.	•	Increased North American shipments by 7% with 83% of the growth from non-commodity products.
	•	Specialty products, which encompass industrial and export end uses, represent 25% of the 7% higher total shipments.
	•	Increased OSB shipments to the Company’s core UK market by 6%.

6. Allocate capital with discipline.	•	Invested $204 million in capital projects to maintain the Company’s assets and high standards for environmental and safety performance, improve production efficiency and reduce manufacturing costs.

	•	Paid out total dividends of $412 million including C $4.50 per share during third quarter reflecting exceptionally strong free cash flow generation during second quarter.

	•	Repurchased 3.8 million common shares under Normal Course Issuer Bid (NCIB), returning $102 million cash to shareholders. In January 2019, repurchased an additional 1.4 million common shares for $38 million, exhausting the current NCIB limit.

8 NORBORD 2018 ANNUAL REPORT

SUMMARY


(US $ millions, except per share information, unless otherwise noted)	2018			2017			2016
SALES AND EARNINGS
Sales		2,424			2,177			1,766
Operating income		504			549			280
Adjusted EBITDA ⁽¹⁾		724			672			385
Earnings		371			436			183
Adjusted earnings ⁽¹⁾		412			389			174
PER COMMON SHARE EARNINGS
Earnings, basic		4.29			5.06			2.14
Earnings, diluted		4.27			5.03			2.13
Adjusted earnings, basic ⁽¹⁾		4.76			4.51			2.03
Adjusted earnings, diluted ⁽¹⁾		4.74			4.49			2.02
Dividends declared ⁽²⁾		6.30			1.50			0.40
BALANCE SHEET
Total assets		1,942			2,103			1,799
Long-term debt ⁽³⁾		550			548			746
Net debt for financial covenant purposes ⁽¹⁾		435			333			619
Net debt to capitalization, market basis ⁽¹⁾		13	%		11	%		25	%
Net debt to capitalization, book basis ⁽¹⁾		28	%		21	%		41	%
KEY STATISTICS
Shipments (MMsf–3/8”)
North America		6,484			6,066			5,888
Europe		1,825			1,867			1,779
Indicative average OSB price
North Central ($/Msf–7/16”)		351			353			269
South East ($/Msf–7/16”)		315			330			245
Western Canada ($/Msf–7/16”)		307			326			234
Europe (€/m ³ ) ⁽⁴⁾		294			239			233
KEY PERFORMANCE METRICS
Return on capital employed (ROCE) ⁽¹⁾		47	%		45	%		27	%
Return on equity (ROE) ⁽¹⁾		42	%		47	%		30	%
Cash provided by operating activities		608			608			313
Cash provided by operating activities per share ⁽¹⁾		7.03			7.05			3.66

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

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

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

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

Total sales increased by $247 million or 11% in 2018 primarily due to higher shipment volumes in North America and higher European panel prices.

North American OSB demand continued to improve, driven by a gradual increase in new home construction and strong growth in repair-and-remodel and industrial end uses. Full-year housing starts data for 2018 has not yet been published due to the US government shutdown. As of November 2018, year-to-date US housing starts were up 5% compared to 2017, with single-family starts 4% higher. The North American North Central OSB benchmark price averaged $351 per thousand square feet (Msf) (7/16-inch basis) in 2018, down 1% versus 2017, while the South East OSB benchmark price averaged $315 per Msf, down 5% versus 2017, and the Western Canada OSB benchmark price averaged $307 per Msf, down 6% versus 2017. Supported by the production from the Huguley, Alabama mill, which restarted in the fourth quarter of 2017, Norbord’s North American shipment volume increased 7% in 2018 to meet increasing customer demand.

NORBORD 2018 ANNUAL REPORT 9

Norbord’s European panel business generated very strong financial results despite the continued uncertainty from the “Brexit” (UK withdrawal from the European Union) referendum result, as economic fundamentals in the Company’s core markets in the UK and Germany remained robust. Norbord’s European total panel shipment volume decreased by 2% in 2018 due to changes in product mix.

Against this market backdrop, Norbord generated operating income of $504 million in 2018, down from $549 million in 2017, and Adjusted EBITDA of $724 million in 2018, up from $672 million in 2017 primarily due to higher realized North American OSB pricing despite lower benchmark prices and higher European panel prices, and increased North American shipment volumes, partially offset by higher raw material prices, higher maintenance costs, and costs to ramp up the new Inverness, Scotland line. Included in operating income in 2018 is a pre-tax non-cash impairment of assets charge of $80 million (see 100 Mile House below). On the controllable side of the business, MIP gains from richer product mix and improved productivity were offset by higher maintenance-related costs, raw material usages and costs associated with executing on strategic capital and sales growth initiatives. These costs included adding in-house technical and engineering expertise and investing in sales, marketing and production resources.

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


(US $ millions)	2018			2017		2016
Earnings	$	371		$	436	$	183
Add: Finance costs		37			32		52
Less: Interest income		(4	)		—		—
Add: Depreciation and amortization		134			107		94
Add: Income tax expense		100			81		61
Add: Impairment of assets		80			—		—
Add: Loss on disposal of assets		2			12		—
Add: Stock-based compensation and related costs		4			3		2
Add: Pre-operating costs related to Inverness project		—			1		—
Less: Gain on Asset Exchange		—			—		(16	)
Add: Other costs incurred to achieve merger synergies		—			—		8
Add: Costs related to High Level fire		—			—		1

Adjusted EBITDA ⁽¹⁾	$	724		$	672	$	385

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

Norbord recorded earnings of $371 million ($4.29 per basic share and $4.27 per diluted share) in 2018 versus $436 million ($5.06 per basic share and $5.03 per diluted share) in 2017. Excluding the impact of non-recurring or other items and using a normalized Canadian statutory tax rate, Norbord recorded Adjusted earnings of $412 million ($4.76 per basic share and $4.74 per diluted share) in 2018, compared to $389 million ($4.51 per basic share and $4.49 per diluted share) in 2017. Adjusted earnings improved in 2018 primarily due to the higher Adjusted EBITDA.

10 NORBORD 2018 ANNUAL REPORT

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


(US $ millions)	2018			2017			2016
Earnings	$	371		$	436		$	183
Add: Impairment of assets		80			—			—
Add: Loss on disposal of assets		2			12			—
Add: Stock-based compensation and related costs		4			3			2
Add: Pre-operating costs related to Inverness project		—			1			—
Less: Gain on Asset Exchange		—			—			(16	)
Add: Other costs incurred to achieve merger synergies		—			—			8
Add: Costs related to High Level fire		—			—			1
Add: Reported income tax expense		100			81			61

Adjusted pre-tax earnings		557			533			239
Less: Income tax expense at statutory rate ⁽¹⁾		(145	)		(144	)		(65	)

Adjusted earnings ⁽²⁾	$	412		$	389		$	174

(1)	Represents Canadian combined federal and provincial statutory rate (2018 – 26%; 2017 and 2016 – 27%).

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

ROCE was 47% compared to 45% 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 27% to 47% and has averaged 24% over the past 15 years. Norbord remains well positioned to benefit from increasing demand for OSB from non-traditional end uses in North America and growing demand in the Company’s core European markets in the years ahead.

2017 COMPARISON AGAINST 2016

In 2017, sales increased by $411 million or 23% from 2016. In North America, sales increased by 28% due to significantly higher prices and a 3% increase in shipment volumes. Average North Central, South East and Western Canada OSB benchmark prices increased by $84, $85 and $92 per Msf, respectively, which represent increases of 31%, 35% and 39%, respectively, compared to 2016. In Europe, sales increased by 6% due to higher panel prices and a 5% increase in shipment volumes, partially offset by the foreign exchange impact of a weaker Pound Sterling relative to the US dollar.

Against this market backdrop, Norbord generated operating income of $549 million in 2017, up significantly from $280 million in 2016, and Adjusted EBITDA of $672 million in 2017 versus $385 million in 2016 primarily due to higher North American OSB and European panel prices and increased shipment volumes, partially offset by higher resin prices, higher profit share costs attributed to higher earnings, higher maintenance costs, and costs related to preparing the Huguley, Alabama mill for restart. On the controllable side of the business, Norbord generated $12 million of MIP gains in 2017, measured relative to 2016 at constant prices and exchange rates, primarily from improved productivity and lowerraw material usage despite offsets from higher maintenance costs incurred to ensure mill production reliability instrong markets.

Norbord recorded earnings of $436 million ($5.06 per basic share and $5.03 per diluted share) in 2017 versus $183 million ($2.14 per basic share and $2.13 per diluted share) in 2016. Excluding the impact of non-recurring or other items and using a normalized Canadian statutory tax rate, Norbord recorded Adjusted earnings of $389 million ($4.51 per basic share and $4.49 per diluted share) in 2017, compared to $174 million ($2.03 per basic share and $2.02 per diluted share) in 2016. Adjusted earnings improved in 2017 primarily due to the higher Adjusted EBITDA.

NORBORD 2018 ANNUAL REPORT 11

OUTLOOK FOR 2019

US housing starts remain below the long-term annual average of 1.5 million and have been recovering more gradually than in any prior cycle. Industry experts are forecasting US housing starts ranging from 1.27 million to 1.31 million in 2019, with an average of 1.28 million, which would represent a modest increase of 1% over 2018. In addition, Norbord expects continued solid growth in repair-and-remodel and industrial demand in 2019. According to the APA – The Engineered Wood Association (APA), the North American OSB industry produced approximately 23.5 Bsf (3/8-inch basis) in 2018, which is approximately 87% of the OSB industry’s operating production capacity. Most industry experts expect this ratio to remain stable in 2019, with increasing demand absorbing the additional supply from the five mills (three idle, two greenfield) that came online in the last two years. Although Norbord has commenced rebuilding and preparing its indefinitely curtailed mill in Chambord, Quebec for an eventual restart, the Company has not yet made a restart decision, and will only do so when it is sufficiently clear that customers require more product.

The economic fundamentals in Norbord’s core European markets (UK, Germany, BeNeLux) remain robust. Both UK and German housing starts were in line with the prior year. Due to the continued weakened Pound Sterling during the post-Brexit referendum period, the cost of imported panels has been rising, which is keeping UK domestically produced panels more competitive. Norbord expects to produce more OSB in 2019 as the new finishing end in Inverness, Scotland is complete and is being commissioned, which will debottleneck the new larger production line that started up during the fourth quarter of 2017.

On the input cost side, raw material prices are expected to rise slightly in 2019 as resin and wax prices move 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’s strong balance sheet, competitive cost position, diversified sales strategy and solid customer partnerships leave the Company well positioned for the years ahead.

RESULTS OF OPERATIONS


(US $ millions, unless otherwise noted)	2018			2017
Sales		2,424			2,177
Adjusted EBITDA ⁽¹⁾		724			672
Adjusted EBITDA margin ⁽¹⁾		30	%		31	%
Depreciation and amortization		134			107
Additions to property, plant and equipment and intangible assets		205			257

Shipments (MMsf–3/8”)		8,309			7,933
Indicative Average OSB Price
North Central ($/Msf–7/16”)		351			353
South East ($/Msf–7/16”)		315			330
Western Canada ($/Msf–7/16”)		307			326
Europe (€/m3) ⁽²⁾		294			239

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

(2)	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 78% of Norbord’s panel shipments in 2018. Therefore, results of operations are most affected by changes in North American OSB prices and demand. However, Norbord continues to execute on its recent strategy of expanding North American sales of OSB into new specialty applications to complement the existing strong commodity products business. Europe comprised 22% of total shipments in 2018. European panel prices have historically been less volatile than North American prices, and therefore affect Norbord’s results to a lesser degree.

12 NORBORD 2018 ANNUAL REPORT

Shipments


(MMsf–3/8”)	2018		2017
North America		6,484		6,066
Europe		1,825		1,867

Total		8,309		7,933

North America

According to the APA, new home construction is the largest end use for the OSB industry in North America, accounting for approximately 57% of OSB consumption in 2018. Full-year housing start data for 2018 has not yet been published due to the US government shutdown. As of November 2018, year-to-date US housing starts were up 5% versus the same period in 2017, and the seasonally adjusted annualized pace of permits, the more forward-looking indicator, was 1.33 million. Single-family starts (which use approximately three times more OSB than multi-family) increased by 4%, and represented 70% of total starts, down slightly from 71% in 2017. Despite the significant rebound in new home construction since the low of 0.55 million in 2009, US housing starts remain 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 4% in 2018 to approximately 23.5 Bsf (3/8-inch basis), representing 68% of total North American structural panel production and 87% of the OSB industry’s operating production capacity (82% of industry installed capacity). This compares to an estimated operating rate of 91% in 2017. Plywood production, the other main structural panel, decreased by 2% to approximately 10.8 Bsf (3/8-inch basis).

North American benchmark OSB prices remained well above historical averages for most of 2018. Benchmark OSB prices increased steadily in the first half of the year due to increased demand and logistics constraints caused by poor weather before declining in the fall as homebuyers adjusted to higher home prices and mortgage interest rates. The North Central benchmark OSB price ranged from a high of $445 per Msf (7/16-inch basis) in June to a low of $203 per Msf in December and averaged $351 per Msf 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⁾			2018 ($/Msf–7/16”)		2017 ($/Msf–7/16”)
North Central		14	%	$	351	$	353
South East		38	%		315		330
Western Canada		30	%		307		326

(1)	Capacity figures based on the periods presented and exclude the indefinitely curtailed Chambord, Quebec mill, which represented 6% of estimated annual capacity.

Norbord’s North American shipment volume increased by 7% in 2018. Approximately half of Norbord’s sales volume went to the new home construction sector in 2018, in line with the previous year. The other half went into repair-and-remodelling, light commercial construction and specialty applications (which include industrial and export end uses). 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.

Europe

In Europe, Norbord’s core panel markets remained robust, with continued OSB demand growth in key markets. In the UK, where three of Norbord’s four European mills are located, GDP growth was 1.3%, unemployment remained low at 4.2% and housing starts activity was steady. In Germany, Norbord’s largest continental European market, GDP growth was 1.6% while housing starts were in line with the previous year. Norbord’s European shipment volume decreased by 2% due to changes in product mix and in local currency terms, average panel prices for the full year improved 24% from 2017.

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 2018, the Pound Sterling weakened from a high of 1.16 to a low of 1.10 versus the Euro and averaged 1.13 compared to 1.14 in 2017.

NORBORD 2018 ANNUAL REPORT 13

Sales


(US $ millions)	2018		2017
North America	$	1,907	$	1,747
Europe		517		430

Total	$	2,424	$	2,177

Total sales increased by $247 million or 11% in 2018. In North America, sales increased by 9% primarily due to a 7% increase in shipment volumes and higher realized prices despite average North Central, South East and Western Canada OSB benchmark prices decreasing by $2, $15 and $19 per Msf, respectively, which represents a decrease of 1%, 5% and 6%, respectively, compared to 2017. In Europe, sales increased by 20% due to higher panel prices, partially offset by a 2% decrease in shipment volumes.

Production


(MMsf–3/8”)	2018		2017
North America		6,430		6,133
Europe		1,858		1,825

Total		8,288		7,958

Total production volume increased by 4% or 330 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 including the new larger Inverness line that remained bottlenecked by its old finishing end until the end of 2018 when new finishing end equipment came online.

North America

North American production volume increased by 5% or 297 MMsf (3/8-inch basis) in 2018 primarily due to the additional production from the Huguley, Alabama mill that restarted in October 2017. Annual production records were achieved at five mills including Cordele, Georgia; High Level, Alberta; Jefferson, Texas; La Sarre, Quebec; and Nacogdoches, Texas.

At year-end, Norbord restated its annual North American OSB mill capacity, reflecting higher production line speeds from converting to PMDI resin technology and subsequent capital invested over the past six years to debottleneck certain mills. The result was an increase of 560 MMsf (3/8-inch basis) or 7% of Norbord’s North American OSB capacity. Almost all of the Company’s production growth since 2015 has been shipped into value-added and specialty product end uses.

Production has remained indefinitely suspended at the Chambord, Quebec mill since the third quarter of 2008. In 2018, the Board of Directors approved a $71 million investment to rebuild and prepare the mill for an eventual restart when warranted by customer demand (see Chambord Rebuild Project). A restart decision has not yet been made, but Norbord will continue to monitor market conditions. This mill represents 7% of Norbord’s restated annual estimated capacity in North America.

Excluding the Chambord mill and the portion of 2017 that the Huguley mill was curtailed, Norbord’s operating mills produced at 95% of their stated capacity in 2018 compared to 96% in 2017. Including the indefinitely curtailed mills, Norbord’s mills produced at 89% of installed capacity in 2018, compared to 85% in 2017.

100 Mile House

The Company recorded a pre-tax non-cash impairment charge of $80 million against the carrying value of the 100 Mile House, British Columbia mill’s fixed assets as at December 31, 2018, reflecting the reduction in the annual allowable cut (timber allowed to be harvested from Crown lands each year) starting in 2019 and the longer-term trend of high wood costs in the region. The Company previously announced that it had temporarily suspended production at its mill due to a wood shortage in the second quarter of 2018, which was the result of nearby wildfires during the third quarter of 2017. The impairment charge was calculated as the difference between the carrying value of the mill’s fixed assets and its recoverable amount which is based on fair value less costs of disposal. The fair value less costs of disposal calculations use discounted cash flow projections that employ the key assumptions as outlined in the Significant Accounting Policies, Judgements and Estimates section. The Company considers a range of reasonably possible amounts to use for key assumptions and decides upon amounts that represent management’s best estimates. Subject to market conditions, the mill continues to operate and the Company remains able to keep wood supplied to the mill.

14 NORBORD 2018 ANNUAL REPORT

Europe

European production volume increased by 2% or 33 MMsf (3/8-inch basis). Annual production records were achieved at the OSB mills in Genk, Belgium and Inverness, Scotland. All of Norbord’s panel mills ran on full production schedules excluding maintenance and holiday shutdowns and produced at 88% of installed capacity in 2018. During the fourth quarter of 2017, Norbord’s stated annual production capacity for Europe was increased by 325 MMsf (3/8-inch basis), reflecting the substantial completion of the new line at Inverness, Scotland. Capacity utilization was 99% in 2017 (excluding the portion of the year that the new line at Inverness was being constructed).

Operating Results


Adjusted EBITDA ⁽¹⁾ (US $ millions)	2018			2017
North America	$	652		$	638
Europe		86			41
Unallocated		(14	)		(7	)

Total	$	724		$	672

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

Norbord generated Adjusted EBITDA of $724 million in 2018, compared to $672 million in 2017. North American operations generated Adjusted EBITDA of $652 million compared to $638 million in the prior year. Norbord’s European operations generated Adjusted EBITDA of $86 million, up from $41 million in 2017.

North America

Norbord’s North American Adjusted EBITDA increased by $14 million primarily due to higher realized OSB prices despite lower benchmark prices and shipment volumes with a partial offset from higher resin prices, higher maintenance costs and the foreign exchange impact of a stronger Canadian dollar.

Europe

Norbord’s European operations delivered very strong results, benefiting from higher average panel prices. Adjusted EBITDA increased by $45 million as higher average panel prices were only partially offset by higher wood, resin and energy prices, and costs related to ramping up the new line at the Inverness, Scotland mill.

Corporate

The lower Adjusted EBITDA result in the Unallocated segment in 2017 was a result of gains from realized foreign currency monetary hedges.

NORBORD 2018 ANNUAL REPORT 15

Adjusted EBITDA Variance

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


(US $ millions)	2018 vs. 2017
Adjusted EBITDA – current period	$	724
Adjusted EBITDA – comparative period		672

Variance		52

Mill nets ⁽¹⁾		100
Volume ⁽²⁾		46
Key input prices ⁽³⁾		(44	)
Key input usage ⁽³⁾		2
Mill profit share and bonus		(6	)
Other operating costs and foreign exchange ⁽⁴⁾		(46	)

Total	$	52

(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, maintenance, and costs to ramp up the new Inverness, Scotland line.

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 9% primarily due to higher shipment volumes but also due to higher realized prices. In Europe, sales increased by 20% due to stronger average panel prices.

On the cost side, fluctuations in uncontrollable raw material prices significantly impact operating costs. In 2018, average resin prices were significantly higher than the prior year in both North America and Europe. Resin prices are indexed to widely used industrial chemicals derived from oil and gas products. North American and European fibre prices were higher also in 2018. 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.

For 2018, MIP gains from richer product mix and improved productivity were offset by higher maintenance-related costs, raw material usages and costs associated with executing on strategic capital and sales growth initiatives. These costs included adding in-house technical and engineering expertise and investing in sales, marketing and production resources. MIP is measured against prior year at constant prices and exchange rates. Improved productivity and lower raw material usage at the restarted Huguley, Alabama and expanded Inverness, Scotland mills were considered uncontrollable in the first year of operations and therefore excluded from the 2018 MIP calculation. These mills are expected to generate MIP gains in 2019.

In 2018, Norbord’s North American OSB cash production costs per unit (excluding mill profit share) increased 4% over the prior year due to higher raw material prices and higher maintenance-related costs.

FINANCE COSTS, INTEREST INCOME, DEPRECIATION AND AMORTIZATION, AND INCOME TAX


(US $ millions)	2018			2017
Finance costs	$	(37	)	$	(32	)
Interest income		4			—
Depreciation and amortization		(134	)		(107	)
Income tax expense		(100	)		(81	)

16 NORBORD 2018 ANNUAL REPORT

Finance Costs

Finance costs increased in 2018 compared to 2017 primarily due to interest costs of $7 million capitalized on qualifying assets in 2017 partially offset by the repayment of the $200 million senior secured notes in February 2017.

The effective interest rate on Norbord’s debt-related obligations was 5.9% as at December 31, 2018 and December 31, 2017.

Interest Income

Interest income of $4 million (2017 – $nil) was earned during the year from cash on hand.

Depreciation and Amortization

Depreciation expense in 2018 was $27 million higher compared to 2017 due to higher production volumes, as the Company uses the units-of-production method for its production equipment, and the higher level of investment in production equipment in recent years.

Income Tax

A tax expense of $100 million was recorded in 2018 on the pre-tax earnings of $471 million and a tax expense of $81 million was recorded in 2017 on the pre-tax earnings of $517 million. The effective tax rate of 21% (2017 – 16%) differs from the Canadian statutory rate principally due to rate differences on foreign activities, fluctuations in relative currency values and the recognition of non-recurring income tax recoveries. In addition, as a result of the US tax reform legislation enacted in December 2017, the Company recognized a net income tax recovery of $35 million in 2017 on the remeasurement of deferred tax assets and liabilities due to the impact of the US federal tax rate reduction from 35% to 21%.

In 2018 and 2017, the Company made net cash tax payments of $117 million and $2 million, respectively.

At December 31, 2018, the Company has operating loss carryforwards of C $19 million expiring in 2037 and capital losses of C $126 million that can be carried forward indefinitely from operations in Canada. The Company also has operating loss carryforwards of €32 million from operations in Belgium that can be carried forward indefinitely. These loss carryforwards may be utilized before expiry to eliminate cash taxes otherwise payable and will preserve future cash flows. Certain benefits relating to the above losses have been recognized and included in deferred income tax assets in the consolidated financial statements. The Company reviews its deferred income tax assets at each balance sheet date and recognizes amounts that, in the judgement of management, are probable to be utilized.

LIQUIDITY AND CAPITAL RESOURCES


(US $ millions, except per share information, unless otherwise noted)	2018			2017
Cash provided by operating activities	$	608		$	608
Cash provided by operating activities per share ⁽¹⁾		7.03			7.05
Operating working capital ⁽¹⁾		88			127
Total working capital ⁽¹⁾		188			295
Additions to property, plant and equipment and intangible assets		205			257
Net debt to capitalization, market basis ⁽¹⁾		13	%		11	%
Net debt to capitalization, book basis ⁽¹⁾		28	%		21	%

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

At year-end, the Company had unutilized liquidity of $490 million, comprising $128 million in cash and cash equivalents, $237 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 3.3 years. Norbord’s net debt for financial covenant purposes was $435 million at December 31, 2018, which includes long-term debt of $555 million less cash and cash equivalents of $128 million plus letters of credit and guarantees of $8 million.

Senior Secured Notes Due 2020

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

NORBORD 2018 ANNUAL REPORT 17

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. The maturity date of the aggregate commitment is May 2021. 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 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 year-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 are excluded;

•

impairment of assets charge for 2018 is excluded;

•

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

•

the impact of the 2015 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 year-end, the Company’s tangible net worth was $1,132 million and net debt for financial covenant purposes was $435 million. Net debt to capitalization, book basis, was 28%. The Company was in compliance with the financial covenants at year-end.

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


(US $ millions)	Dec 31, 2018			Dec 31, 2017
Long-term debt, principal value	$	555		$	555
Less: Cash and cash equivalents		(128	)		(241	)

Net debt		427			314
Add: Letters of credit and guarantees		8			19

Net debt for financial covenant purposes	$	435		$	333

Shareholders’ equity	$	823		$	1,019
Add: Impairment of assets (net of tax)		59			—
Add: Other comprehensive income change ⁽¹⁾		74			53
Add: Impact of Ainsworth changing functional currencies		155			155
Add: IFRS transitional adjustments		21			21

Tangible net worth for financial covenant purposes	$	1,132		$	1,248

Total capitalization	$	1,567		$	1,581

Net debt to capitalization, market basis		13	%		11	%
Net debt to capitalization, book basis		28	%		21	%

(1)	Cumulative subsequent to January 1, 2011.

Debt Issue Costs

Amortization expense related to debt issue costs for 2018 was $2 million (2017 – $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 derecognition criteria under IFRS have not been met and the transferred accounts receivable remain recorded as an asset.

18 NORBORD 2018 ANNUAL REPORT

At year-end, Norbord had transferred but continued to recognize $123 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 2018, there were no drawings.

The securitization program contains no financial covenants. However, the program is subject to minimum credit rating requirements. The Company must maintain a long-term issuer credit rating of at least single B(mid) or the equivalent. As at January 31, 2019, Norbord’s ratings were BB (DBRS), BB (Standard & Poor’s Ratings Services) and Ba1 (Moody’s Investors Service).

Other Liquidity and Capital Resources

Operating working capital, consisting of accounts receivable, inventory and prepaids less accounts payable and accrued liabilities, decreased by $39 million during the year to $88 million at year-end, compared to $127 million at December 31, 2017. The year-over-year decrease was primarily due to lower accounts receivable and inventory, and higher accounts payable and accrued liabilities. Lower accounts receivable was primarily attributed to lower North American pricing and shipment volumes. Lower inventory was primarily a result of the timing of resin purchases. Higher accounts payable and accrued liabilities were primarily attributed to higher accrued capital expenditures, the timing of payments and higher mill profit share accruals attributed to higher earnings excluding the impairment charge. 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 taxes receivable less taxes payable, was $188 million as at December 31, 2018, compared to $295 million at December 31, 2017. The decrease is primarily attributed to the lower cash balance and operating working capital, partially offset by the lower taxes payable.

Operating activities generated $608 million of cash or $7.03 per share in 2018, compared to $608 million or $7.05 per share in 2017. Cash generation has remained very strong as the higher Adjusted EBITDA and lower operating working capital were offset by higher tax payments in 2018.

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


											Payments Due by Period
(US $ millions)	2019		2020		2021		2022		2023		Thereafter		Total
Long-term debt, including interest	$	34	$	273	$	19	$	19	$	325	$	—	$	670
Purchase commitments		37		24		14		9		5		47		136
Operating leases		7		5		3		2		2		5		24
Reforestation obligations		1		1		—		—		—		—		2

Total	$	79	$	303	$	36	$	30	$	332	$	52	$	832

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)	2018		2017
Increased productivity and cost reduction	$	144	$	103
Maintenance of business		39		34
Inverness project		12		101
Environmental and safety		9		8
Capitalized interest		—		7

Total	$	204	$	253

NORBORD 2018 ANNUAL REPORT 19

The focus of the Company’s capital reinvestment strategy is to improve production efficiency and product mix, reduce manufacturing costs and maintain the Company’s assets and high standards for environmental and safety performance. Investment in property, plant and equipment in 2018 was $204 million ($205 million including intangible assets), representing approximately 152% of depreciation and amortization (90% excluding the capital expenditure on the specific projects discussed below).

Key 2018 projects included the Grande Prairie, Alberta debottlenecking project, installation of the new finishing line as part of the Inverness, Scotland project and the rebuild project at Chambord, Quebec (all described below). Key 2017 projects included the Inverness project (described below), completion of the investment to restart the Huguley, Alabama mill in October 2017, and completion of the fines screening project at the La Sarre, Quebec mill.

Norbord is planning to make capital investments of approximately $150 million in 2019 for maintenance of business projects and projects focused on reducing manufacturing costs across the mills, as well as a portion of the Chambord, Quebec mill rebuild and Inverness, Scotland phase 2 projects (both described below). It will also include investments to support the Company’s strategy to increase the production of specialty products for industrial applications and exports. 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, including moving the unused second press from the Grande Prairie, Alberta mill. The project was substantially completed and the new line started up in the fourth quarter of 2017, with no disruption to existing production capacity, and the mill’s stated capacity was increased from 395 to 720 MMsf (3/8-inch basis). Additional capital spending of $12 million was invested in 2018 to install a new finishing end which was completed during the fourth quarter. A total of $146 million was invested in the project, which was 8% above the $135 million budget due to significant fluctuations in the relative values of the Pound Sterling, Euro and US dollar currencies over the life of the project. The investment was funded with cash on hand and cash generated from operations.

In January 2019, the Board of Directors approved a $46 million (£35 million) second phase investment to further expand capacity at the Inverness, Scotland mill by 225 MMsf (3/8-inch basis) (200,000 cubic metres) through the addition of a second wood room and dryer. This project is expected to take approximately two years to complete and is consistent with the Company’s strategy of growing its European OSB capacity to serve rapid consumption growth in its key markets.

Grande Prairie Debottlenecking Project

The Grande Prairie, Alberta mill is one of the largest single-line OSB facilities in the world but the mill was bottlenecked in the areas before the forming line and press. During the year, the Company completed a project to redeploy the wood handling, heat energy and drying equipment from the unfinished and unused second production line to debottleneck the existing first line and support growing demand from key customers. The project was completed in the fourth quarter of 2018 and the mill’s stated capacity was increased by 100 MMsf (3/8-inch basis). Further savings are anticipated to be realized through reduced wood and natural gas usage. A total of $68 million was invested in the project, of which $44 million was invested during 2018.

Chambord Rebuild Project

Production has remained suspended at the Chambord, Quebec mill since the third quarter of 2008. The Company believes North American OSB demand will continue to grow. In order to support this anticipated growth, in August 2018 the Board of Directors approved a $71 million investment to rebuild and prepare the mill for an eventual restart. The Company has not yet made a restart decision, however, and will only do so when it is sufficiently clear that customers require more product. The project involves replacing the dryers and investing in the wood handling and finishing areas to debottleneck the mill’s manufacturing process and reduce manufacturing costs, as well as upgrades in process and personal safety systems, electrical systems and environmental equipment to bring the mill up to current standards after a decade of curtailment. The government of Quebec is investing up to C $4.8 million (US $3.6 million) in the project; less than $1 million was received during 2018. Further, the Company’s investment will qualify for Canadian investment tax credits and Quebec’s rebate program for large electricity users which will reduce cash income taxes and electricity costs, respectively, once the mill is operational. The mill’s stated capacity has been increased by 80 MMsf (3/8-inch basis). Capital spending of $27 million was invested during 2018.

20 NORBORD 2018 ANNUAL REPORT

Huguley Woodroom Project

In 2018, the Company began preliminary engineering work to plan for the rebuild and automation of the wood handling section of the Huguley, Alabama mill. A similar project was undertaken at the sister Joanna, South Carolina mill in 2014, which enabled a capacity increase of 150 MMsf (3/8-inch basis) from debottlenecking the continuous press production line. Capital spending of $1 million was invested during 2018.

Investment in Intangible Assets

In 2018, investment in intangible assets was $1 million (2017 – $4 million) consisting of the investment in software acquisition and development costs.

CAPITALIZATION

Common Share Information


At December 31	2018		2017
Shares outstanding (millions)		83.3		86.4
Dividends (US $ millions)	$	417	$	101
Market price at year-end (C $)	$	36.30	$	42.55

The decrease in shares outstanding during 2018 was primarily related to share repurchases (see Normal Course Issuer Bid), partially offset by stock option exercises. At January 31, 2019, there were 81.7 million common shares outstanding. The average daily volume traded on the Toronto Stock Exchange (TSX) during 2018 was approximately 363,000 shares compared to approximately 233,000 shares in 2017, and the average daily volume traded on the New York Stock Exchange (NYSE) was approximately 165,000 shares, up from approximately 46,000 shares in 2017.

Normal Course Issuer Bid

In October 2018, Norbord renewed its normal course issuer bid (NCIB) in accordance with TSX rules. Under the bid, Norbord may purchase up to 5,191,965 of its common shares, representing 10% of the Company’s public float of 51,919,654 common shares as of October 22, 2018, pursuant to TSX rules (a total of 86,387,210 common shares were issued and outstanding as of such date). Daily purchases of common shares may not exceed 79,704 subject to the Company’s ability to make “block” purchases under the rules of the TSX. During the year, 3.8 million shares were purchased under this bid at a cost of $102 million.

In December 2018, the Company entered into an automatic share purchase plan (ASPP) in order to facilitate the repurchase of its common shares under its NCIB during the regularly scheduled quarterly trading blackout period. As at December 31, 2018, an obligation for the future repurchase of shares under the ASPP of $38 million was recognized in accrued liabilities. In January 2019, the Company repurchased an additional 1.4 million shares under the ASPP and the Company has now exhausted the current NCIB limit with a total of 5.2 million shares repurchased for $140 million.

Norbord believed that the market price of its common shares was attractive as they were trading significantly below replacement cost and management’s view of intrinsic value and that the purchase of these common shares was an appropriate use of the Company’s funds in light of potential benefits to remaining shareholders.

Purchases were made on the open market by Norbord through the facilities of the TSX, the NYSE or Canadian or US alternative trading systems, if eligible, in accordance with the requirements of the TSX and applicable securities laws. The price that Norbord paid for any such common shares was the market price of such shares at the time of acquisition. Common shares purchased under the bid were cancelled.

Under its prior bid that commenced on November 3, 2017 and expired on November 2, 2018, Norbord previously sought and received approval from the TSX to repurchase up to 5,142,773 common shares. Norbord did not acquire any common shares under that bid.

NORBORD 2018 ANNUAL REPORT 21

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:


(C $)	Quarterly Dividend Declared per Common Share
Q2 2013 to Q4 2014	$	0.60
Q1 2015 & Q2 2015		0.25
Q3 2015 to Q1 2017		0.10
Q2 2017		0.30
Q3 2017		0.50
Q4 2017 to Q2 2018		0.60
Q3 2018		4.50
Q4 2018		0.60

The dividend level was decreased 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 dividend level was increased three times during 2017, reflecting the strength in North American benchmark OSB prices and resulting robust operating cash flow for the Company, the positive market outlook for the Company’s products and the continuing expectation that free cash flow will be sufficient to fund current growth and other capital investment commitments for the foreseeable future. In the third quarter of 2018, a dividend of C $4.50 was paid as a result of the exceptionally strong free cash flow generated in the second quarter. The dividend level returned to C $0.60 in the fourth quarter of 2018.

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, 2018, options on 1.6 million common shares were outstanding, with 41% vested. The exercise prices for the outstanding options range from C $9.96 to C $46.35, with expiry on various dates up to 2028. In 2018, 0.3 million stock options were exercised (2017 – 0.6 million stock options) resulting in the issuance of 0.3 million common shares (2017 – 0.6 million common shares) for total proceeds of $4 million (2017 – $7 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 2018:

Brookfield

As at December 31, 2018, 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.

The Company periodically engages the services of Brookfield for various financial, real estate and other business services. In 2018, the fees for services rendered were less than $1 million (2017 – less than $1 million).

Other

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 2018, net sales of $92 million (2017 – $78 million) were made to Interex. At year-end, $2 million (December 31, 2017 – $3 million) due from Interex was included in accounts receivable. At year-end, the investment in Interex was less than $1 million (December 31, 2017 – less than $1 million).

22 NORBORD 2018 ANNUAL REPORT

Compensation of Key Management Personnel

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


(US $ millions)	2018		2017
Salaries, incentives and short-term benefits	$	4	$	4
Share-based awards		2		1

	$	6	$	5

NORBORD 2018 ANNUAL REPORT 23

SELECTED QUARTERLY INFORMATION


	2018												2017
(US $ millions, except per share information, unless otherwise noted)	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
SALES AND EARNINGS
Sales		501			640			707			576			596			578			536			467
Operating (loss) income		(46	)		175			236			139			172			169			135			73
Adjusted EBITDA ⁽¹⁾		70			211			273			170			204			200			165			103
(Loss) earnings		(28	)		130			174			95			160			130			97			49
Adjusted earnings ⁽¹⁾		26			123			167			96			123			121			95			50
PER COMMON SHARE EARNINGS
(Loss) earnings, basic		(0.32	)		1.50			2.01			1.10			1.85			1.51			1.13			0.57
(Loss) earnings, diluted		(0.32	)		1.49			2.00			1.09			1.84			1.50			1.12			0.57
Adjusted earnings, basic ⁽¹⁾		0.30			1.42			1.93			1.11			1.42			1.40			1.10			0.58
Adjusted earnings, diluted ⁽¹⁾		0.30			1.41			1.92			1.10			1.41			1.39			1.10			0.58
Dividends declared ⁽²⁾		0.60			4.50			0.60			0.60			0.60			0.50			0.30			0.10
BALANCE SHEET
Total assets		1,942			2,130			2,250			2,097			2,103			1,951			1,772			1,725
Long-term debt		550			549			549			549			548			548			547			547
Net debt for financial covenant purposes ⁽¹⁾		435			377			276			422			333			449			567			580
Net debt to capitalization, market basis ⁽¹⁾		13	%		10	%		8	%		13	%		11	%		15	%		20	%		22	%
Net debt to capitalization, book basis ⁽¹⁾		28	%		23	%		16	%		24	%		21	%		28	%		36	%		38	%
KEY STATISTICS
Shipments (MMsf–3/8”)
North America		1,602			1,687			1,674			1,521			1,562			1,537			1,536			1,431
Europe		452			467			445			461			440			474			474			479
Indicative average OSB price
North Central ($/Msf–7/16”)		243			363			426			370			379			409			330			293
South East ($/Msf–7/16”)		203			305			419			331			355			354			320			292
Western Canada ($/Msf–7/16”)		184			281			403			359			328			388			324			265
Europe (€/m ³ ) ⁽³⁾		299			305			298			274			262			233			230			226
KEY PERFORMANCE METRICS
Return on capital employed (ROCE) ⁽¹⁾		17	%		51	%		65	%		42	%		52	%		52	%		44	%		29	%
Return on equity (ROE) ⁽¹⁾		10	%		44	%		58	%		37	%		51	%		58	%		51	%		30	%
Cash provided by operating activities		126			228			250			4			222			203			144			39
Cash provided by operating activities per share ⁽¹⁾		1.46			2.63			2.89			0.05			2.57			2.36			1.67			0.45

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

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

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

24 NORBORD 2018 ANNUAL REPORT

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 realized North American OSB price, when operations are running at full capacity (restated as at December 31, 2018), is approximately $64 million or $0.78 per basic share (approximately $52 million or $0.64 per basic share based on the last 12 months of production). 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, volume and trade discounts, and negotiated prices on industrial and export products 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. Prices for resin, a petroleum-based product, generally follow global oil prices, and have been trending higher since the third quarter of 2016.

Norbord has significant exposure to the Canadian dollar with approximately 37% of its global (47% of North America) 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 $6 million when all six of Norbord’s Canadian OSB mills operate at full capacity. Norbord also has exposure to the Euro as all but one of the Company’s European production facilities are located in the UK and export sales to the continent are denominated in Euros. The Company estimates that the favourable impact of a one-pence (UK) decrease in the value of the Euro would positively impact annual Adjusted EBITDA by less than $1 million when all UK production facilities operate at full capacity.

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

Impairment of Assets – Included in the fourth quarter of 2018 is an $80 million ($0.93 per basic and $0.92 per diluted share) non-cash pre-tax loss related to an impairment charge at the Company’s 100 Mile House, British Columbia mill.

Loss on Disposal of Assets – Included in the fourth quarter of 2018 is a $2 million ($0.02 per basic and diluted share)non-cash loss related to obsolete operating and maintenance supplies. As a result of investments in production equipment placed in service in 2017, included in the fourth quarter of 2017 is a $3 million ($0.03 per basic and diluted shares)non-cash loss primarily related to maintenance parts for decommissioned production equipment. Included in the third quarter of 2017 is a $2 million ($0.02 per basic and diluted share) non-cash loss for similar costs. Included in the second quarter of 2017 is a $2 million ($0.02 per basic and diluted share) non-cash loss related to decommissioned production equipment. Included in the first quarter of 2017 is a $5 million ($0.06 per basic and diluted share) non-cash loss for similar costs (see Investment in Property, Plant and Equipment).

Stock-based Compensation and Related Costs – Included in the third quarter of 2018 is $2 million ($0.02 per basic and diluted share) of stock-based compensation and related revaluation costs. Included in the second and first quarters of 2018, and third, second and first quarters of 2017 is $1 million ($0.01 per basic and diluted share) of similar costs.

Costs Related to Inverness Expansion Project – Included in the third quarter of 2017 is $1 million ($0.01 per basic and diluted share) of pre-operating costs related to the Inverness expansion project.

NORBORD 2018 ANNUAL REPORT 25

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


(US $ millions)	Q4 2018			Q3 2018			Q2 2018			Q1 2018			Q4 2017			Q3 2017			Q2 2017			Q1 2017
(Loss) earnings	$	(28	)	$	130		$	174		$	95		$	160		$	130		$	97		$	49
Add: Impairment of assets		80			—			—			—			—			—			—			—
Add: Loss on disposal of assets		2			—			—			—			3			2			2			5
Add: Stock-based compensation and related costs		—			2			1			1			—			1			1			1
Add: Pre-operating costs related to Inverness project		—			—			—			—			—			1			—			—
Add: Reported income tax (recovery) expense		(26	)		37			53			36			6			32			30			13

Adjusted pre-tax earnings		28			169			228			132			169			166			130			68
Less: Income tax expense at statutory rate ⁽¹⁾		(2	)		(46	)		(61	)		(36	)		(46	)		(45	)		(35	)		(18	)

Adjusted earnings	$	26		$	123		$	167		$	96		$	123		$	121		$	95		$	50

(1)	Represents Canadian combined federal and provincial statutory rate (2018 – 26%; 2017 – 27%). Q1 to Q3 of 2018 were based on the 27% rate and a true up for the full year rate of 26% was reflected in Q4.

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


(US $ millions)	Q4 2018			Q3 2018			Q2 2018			Q1 2018		Q4 2017		Q3 2017		Q2 2017		Q1 2017
(Loss) earnings	$	(28	)	$	130		$	174		$	95	$	160	$	130	$	97	$	49
Add: Finance costs		9			10			10			8		6		7		8		11
Less: Interest income		(1	)		(2	)		(1	)		—		—		—		—		—
Add: Depreciation and amortization		34			34			36			30		29		27		27		24
Add: Income tax (recovery) expense		(26	)		37			53			36		6		32		30		13
Add: Impairment of assets		80			—			—			—		—		—		—		—
Add: Loss on disposal of assets		2			—			—			—		3		2		2		5
Add: Stock-based compensation and related costs		—			2			1			1		—		1		1		1
Add: Pre-operating costs related to Inverness project		—			—			—			—		—		1		—		—

Adjusted EBITDA	$	70		$	211		$	273		$	170	$	204	$	200	$	165	$	103

26 NORBORD 2018 ANNUAL REPORT

FOURTH QUARTER RESULTS

Sales in the quarter were $501 million, compared to $640 million in the third quarter of 2018 and $596 million in the fourth quarter of 2017. Quarter-over-quarter, sales decreased by $139 million primarily due to lower North American OSB prices and shipment volumes. Year-over-year, sales decreased by $95 million primarily due to lower North American OSB prices, partially offset by higher European panel prices and an increase in shipment volumes.

In the fourth quarter, North Central benchmark OSB prices averaged $243 per Msf (7/16-inch basis), down significantly versus both comparative periods as the pace of US housing growth decelerated in the second half of the year as homebuyers adjusted to higher home prices and mortgage interest rates. Combined with the usual seasonal slowdown, this negatively impacted North American prices and volumes in the fourth quarter. 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 2018 ($/Msf–7/16”)		Q3 2018 ($/Msf–7/16”)		Q4 2017 ($/Msf–7/16”)
North Central		14	%	$	243	$	363	$	379
South East		38	%		203		305		355
Western Canada		30	%		184		281		328

(1)	Capacity figures based on the periods presented and exclude the indefinitely curtailed Chambord, Quebec mill, which represented 6% of estimated annual capacity.

In local currency terms, European average panel prices were in line quarter-over-quarter but increased 20% year-over-year.

In North America, shipments were 5% lower than the prior quarter due to seasonality of demand and timing of annual maintenance shuts and other downtime. Shipments were up 3% compared to the same quarter last year largely from the Company’s Huguley, Alabama mill which restarted during the fourth quarter of 2017. In Europe, shipment volumes were down by 3% compared to the prior quarter primarily due to seasonality. European shipments were 3% higher compared to the same quarter last year due to timing.

Norbord’s North American OSB operating mills produced at 89% of capacity in the fourth quarter of 2018, compared to 99% in the third quarter of 2018 and 94% in the fourth quarter of 2017 (excluding the portion of the quarter that the Huguley mill was curtailed). Norbord’s European mills produced at 89% of capacity in the fourth quarter of 2018, compared to 87% in the third quarter of 2018 and 94% in the fourth quarter of 2017 (excluding the portion of the quarter that the new OSB line at Inverness, Scotland was being constructed).

Norbord recorded an operating loss of $46 million in the fourth quarter of 2018 compared to operating income of $175 million in the third quarter of 2018 and $172 million in the fourth quarter of 2017. Norbord’s Adjusted EBITDA for the fourth quarter was down $141 million from the third quarter of 2018 and $134 million from the fourth quarter of 2017. Operating income and Adjusted EBITDA have decreased versus both comparative periods primarily due to lower North American OSB prices. In addition, the operating loss for the fourth quarter of 2018 includes a non-cash pre-tax impairment of assets charge of $80 million (see 100 Mile House above).

NORBORD 2018 ANNUAL REPORT 27

Adjusted EBITDA changes are summarized in the variance table below:


(US $ millions)	Q4 2018 vs. Q3 2018			Q4 2018 vs. Q4 2017
Adjusted EBITDA – current period	$	70		$	70
Adjusted EBITDA – comparative period		211			204

Variance		(141	)		(134	)

Mill nets ⁽¹⁾		(110	)		(112	)
Volume ⁽²⁾		(18	)		(4	)
Key input prices ⁽³⁾		(3	)		(13	)
Key input usage ⁽³⁾		(5	)		6
Mill profit share and bonus		6			4
Other operating costs and foreign exchange ⁽⁴⁾		(11	)		(15	)

Total	$	(141	)	$	(134	)

(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, maintenance, and costs to ramp up the new Inverness, Scotland line.

Adjusted EBITDA is generated from the following geographic segments:


(US $ millions)	Q4 2018			Q3 2018			Q4 2017
North America	$	50		$	190		$	195
Europe		24			23			12
Unallocated		(4	)		(2	)		(3	)

Total	$	70		$	211		$	204

Norbord’s North American operations generated Adjusted EBITDA of $50 million in the fourth quarter of 2018 versus $190 million in the third quarter of 2018 and $195 million in the fourth quarter of 2017. Quarter-over-quarter, the decrease of $140 million was primarily attributed to lower OSB prices, lower shipment volumes, seasonally higher raw material usages, and the timing of maintenance shuts and related costs, partially offset by lower mill profit share costs attributed to lower earnings excluding the impairment charge. The year-over-year decrease of $145 million was primarily attributed to significantly lower OSB prices, higher raw material prices and higher maintenance-related costs, partially offset by lower mill profit share costs attributed to lower earnings excluding the impairment charge.

In the fourth quarter, Norbord’s North American OSB cash production costs per unit (excluding mill profit share) increased 9% versus the third quarter of 2018 due to seasonally higher raw material usages, the timing of annual maintenance shuts and other downtime. Unit costs increased by 10% versus the fourth quarter of 2017 due to lower production volume, higher raw material prices and higher maintenance-related costs.

Norbord’s European operations generated Adjusted EBITDA of $24 million in the fourth quarter of 2018 which is $1 million higher than the third quarter of 2018 and $12 million higher than the same quarter last year. Quarter-over-quarter, improved productivity and lower maintenance-related costs were partially offset by higher raw material prices. Year-over-year, higher average panel prices and improved raw material usages were partially offset by higher raw material prices.

Norbord recorded a loss of $28 million ($0.32 per basic and diluted share) in the fourth quarter of 2018, down from earnings of $130 million ($1.50 per basic share and $1.49 per diluted share) in the third quarter of 2018 and earnings of $160 million ($1.85 per basic share and $1.84 per diluted share) in the fourth quarter of 2017. Included in the fourth quarter of 2018 is an $80 million non-cash pre-tax impairment of assets charge (see 100 Mile House above). Included in the fourth quarter of 2017 is a $35 million net income tax recovery due to the impact of the US federal tax rate reduction from 35% to 21% on the remeasurement of deferred tax assets and liabilities.

28 NORBORD 2018 ANNUAL REPORT

Excluding the impact of non-recurring items and using a normalized Canadian statutory tax rate, Norbord recorded Adjusted earnings of $26 million ($0.30 per basic and diluted share) in the fourth quarter of 2018 compared to $123 million ($1.42 per basic share and $1.41 per diluted share) in the prior quarter and $123 million ($1.42 per basic share and $1.41 per diluted share) in the fourth quarter of 2017. Adjusted earnings decreased versus both comparative periods primarily due to the lower Adjusted EBITDA.

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 $490 million, comprising $128 million in cash and cash equivalents, $125 million undrawn under its accounts receivable securitization program and $237 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 January 31, 2019, Norbord’s long-term debt and issuer ratings were:

DBRS

Standard & Poor’s
Ratings Services

Moody’s Investors
Service

Secured notes

BB+

Ba1

Issuer

Ba1

Outlook

Positive

⁽¹⁾

Positive

⁽²⁾

Stable

(1)	Outlook upgraded from Stable in May 2018.

(2)	Outlook upgraded from Stable in September 2018.

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.

NORBORD 2018 ANNUAL REPORT 29

CHANGES IN ACCOUNTING POLICIES

(i)

Financial Instruments

In July 2014, the International Accounting Standards Board (IASB) issued the final publication of IFRS 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 aligns hedge accounting more closely with risk management and contains a new impairment model which could result in earlier recognition of losses. IFRS 9 became effective for Norbord on January 1, 2018 and did not have a material impact on its consolidated financial statements.

(ii)

Revenue from Contracts with Customers

In May 2014, the IASB issued IFRS 15, Revenue 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. IFRS 15 and the related amendments became effective for Norbord on January 1, 2018 and did not have a material impact on its consolidated financial statements. The accounting policy has been updated accordingly.

(iii)

Share-based Payment

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 amendment became effective for Norbord on January 1, 2018 and did not have an impact on its consolidated financial statements.

(iv)

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. IFRIC 22 became effective for Norbord on January 1, 2018 and did not have a material impact on its consolidated financial statements.

FUTURE CHANGES IN ACCOUNTING POLICIES

(i)

Leases

In January 2016, the IASB issued IFRS 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 related to short-term and low value leases are met. Norbord intends to adopt IFRS 16 in its financial statements for the annual period beginning on January 1, 2019 using a modified retrospective approach with the cumulative effect of adopting IFRS 16 recognized as an adjustment to opening retained earnings as at January 1, 2019. Comparative information will not be restated.

Norbord has completed an assessment of the impact on its consolidated financial statements including an inventory of all outstanding leases, the impact of applying selected practical expedients and recognition exemptions, and selecting a software tool for calculating and maintaining Norbord’s lease arrangements. Based on this assessment, Norbord expects to recognize new assets (right-of-use assets) and liabilities (lease liabilities) for its operating leases of property and equipment of approximately $20 million to $25 million. In addition, the nature of expenses related to these leases will now change because IFRS 16 replaces the straight line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. No significant impact is expected on Norbord’s covenant calculations. No impact is expected for Norbord’s existing finance leases.

(ii)

Uncertainty over Income Tax Treatments

In June 2017, the IFRS Interpretations Committee of the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments (IFRIC 23). The interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The interpretation is effective for the annual period beginning on January 1, 2019. Norbord does not expect IFRIC 23 to have any impact on its consolidated financial statements.

30 NORBORD 2018 ANNUAL REPORT

(iii)

Financial Instruments

In October 2017, the IASB issued amendments to IFRS 9 with regards to prepayment features with negative compensation. These amendments are effective for the annual period beginning on January 1, 2019, and clarify that a financial asset containing prepayment features with negative compensation may be measured at amortized cost or fair value through other comprehensive income when eligibility conditions are met. Norbord has assessed its financial instruments and does not expect these amendments to have any impact on its consolidated financial statements.

(iv)

Employee Benefits

In February 2018, the IASB issued amendments to IAS 19, Employee Benefits . The amendments are effective for the annual period beginning on January 1, 2019 and clarify the actuarial assumptions to be used for defined benefit pension plans upon plan amendment, curtailment or settlement. Norbord does not expect these amendments to have any impact on its consolidated financial statements upon adoption.

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

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 derecognition of a deferred tax asset is required, current period earnings or other comprehensive income (OCI) will be affected.

Estimates

Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended December 31, 2018 are:

(i)

Inventory

The Company estimates the net realizable value of its finished goods and raw material inventory using estimates regarding future selling prices. The net realizable value of operating and maintenance supplies inventory uses estimates regarding replacement costs.

(ii)

Property, Plant and Equipment and Intangible Assets

When indicators of impairment are present and the recoverable amount 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; future raw materials availability; maintenance and other capital expenditures; discount rates; tax rates and undepreciated capital cost of assets for tax purposes; useful lives; and residual values.

NORBORD 2018 ANNUAL REPORT 31

(iii)

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.

(iv)

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.

(v)

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 approximately 90% of Norbord’s panel production capacity. The price of commodity grades 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, including the US housing market, 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 (primarily in the US, Canada, Japan and Western Europe), 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 and the Company’s share price.

Based on operations running at full capacity (based on the restated capacity as at December 31, 2018), the following table shows the approximate annualized impact of changes in realized product prices on Adjusted EBITDA:


	Sensitivity Factor			Impact on Adjusted EBITDA (US $ millions)
OSB – North America	$	10 per Msf–7/16”		$	64
OSB – Europe		€10 per 000 m	³		11

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 its credit ratings and financial market conditions. Although Norbord has notes maturing in 2020 and 2023 and has bank lines that are committed to May 2021, financing may not be available when required or may not be available on commercially favourable or otherwise satisfactory terms in the future.

32 NORBORD 2018 ANNUAL REPORT

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 and freight 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. In 2018, Norbord had no customer whose purchases represented greater than 10% of total sales. Norbord generally does not have contractual assurances of future sales. As a result, the loss of a significant customer, any significant customer order cancellations or bad debts 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 US and between the UK and European Union. Access to markets in the US 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.

NORBORD 2018 ANNUAL REPORT 33

Currency Exposures

Norbord reports its financial results in US dollars. A portion of Norbord’s product prices and costs is influenced by relative currency values (particularly the Canadian dollar, Pound Sterling and Euro). 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 and could affect the Company’s sales and profitability. 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 35% 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 representing members at the OSB mills in La Sarre, Quebec, Barwick, Ontario and Chambord, Quebec expire on June 30, 2021, July 31, 2022 and June 1, 2026, respectively. The contract with the Pulp, Paper and Woodworkers of Canada (PPWC) representing members at the OSB mill in 100 Mile House, British Columbia expires on June 30, 2023. 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 and Other Regulations

Norbord’s operations are subject to a range of general and industry-specific laws and regulations that apply to most of the Company’s business activities. This includes environmental laws and regulations relating to air emissions, wastewater discharges, solid and hazardous waste management, plant and wildlife protection and site remediation. Further, the Company is required to obtain approvals, permits and licences for the operation of its manufacturing facilities which impose conditions that must be complied with. Failure to comply with applicable 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 laws and regulations. In addition, laws and regulations could become more stringent or subject to different interpretation 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.

34 NORBORD 2018 ANNUAL REPORT

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, or that operation of the Company’s manufacturing facilities could not otherwise be disrupted unexpectedly, for example by adverse weather, labour disputes, information technology disruptions, power outages, fire, explosion or other hazards. 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

In the normal course of business, Norbord takes various positions in the filing of 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.

Potential Future Changes in Tax Laws

The Company’s structure is based on prevailing taxation law and practice in the local jurisdictions in which it operates. The Company is aware that new taxation rules could be enacted or that existing rules could be applied in a manner that subjects its profits to additional taxation or otherwise has a material adverse effect on its profitability, results of operations, financial condition or the trading price of its securities. Management is continually monitoring changes in tax policy, tax legislation (including in relation to taxation rates), and the interpretation of tax policy or legislation or practice that could have such an effect.

US Tax Reform Legislation

On December 22, 2017, US federal income tax reform legislation known as the Tax Cuts and Jobs Act was signed into law. Among a number of significant changes to the US federal income tax laws, the Tax Cuts and Jobs Act reduces the marginal US corporate income tax rate from 35% to 21%, limits the deduction for net interest expense, shifts the US toward a modified territorial tax system, and imposes new taxes to combat erosion of the US federal income tax base. Although the Company has recognized a net income tax recovery due to the reduction of the income tax rate, the long-term tax effect of the Tax Cuts and Jobs Act on Norbord, whether adverse or favourable, is uncertain, and may not become evident for some period of time.

Defined Benefit Pension Plan Funding

Although Norbord’s defined benefit pension plans are 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 or going concern 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 or going concern 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.

NORBORD 2018 ANNUAL REPORT 35

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 IASB.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 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.

On April 1, 2018, Norbord successfully implemented a new Enterprise Resource Planning (ERP) system in the Company’s European operations. As a result, financial and operating transactions are recorded utilizing modern functionality provided by the new ERP system. This new system is not in response to any identified deficiency or weakness in internal controls over financial reporting but to replace an aging system. The system implementation was designed, in part, to enhance the overall system of internal controls over financial reporting through further automation of various business processes. Except for the preceding change, there have been no changes in Norbord’s internal control over financial reporting during the year ended December 31, 2018 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, 2018 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 is defined as earnings determined in accordance with IFRS before unusual or non-recurring items and using a normalized income tax rate. Non-recurring items include the 2018 impairment of assets charge, gain on the 2016 Quebec Asset Exchange, costs related to Norbord’s 2015 merger with Ainsworth Lumber Co. Ltd. (Ainsworth) (the Merger), pre-operating costs related to the 2017 Inverness, Scotland expansion project and costs related to the 2016 High Level, Alberta fire. Other items include non-cash losses on disposal of assets and stock-based compensation and related revaluation costs. The actual income tax expense is added back and a tax expense calculated at the Canadian combined federal and provincial statutory rate is deducted. Adjusted earnings per share is Adjusted earnings divided by the weighted average number of common shares outstanding.

36 NORBORD 2018 ANNUAL REPORT

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


(US $ millions)	2018			2017			2016
Earnings	$	371		$	436		$	183
Add: Impairment of assets		80			—			—
Add: Loss on disposal of assets		2			12			—
Add: Stock-based compensation and related costs		4			3			2
Add: Pre-operating costs related to Inverness project		—			1			—
Less: Gain on Asset Exchange		—			—			(16	)
Add: Other costs incurred to achieve Merger synergies		—			—			8
Add: Costs related to High Level fire		—			—			1
Add: Reported income tax expense		100			81			61

Adjusted pre-tax earnings		557			533			239
Less: Income tax expense at statutory rate ⁽¹⁾		(145	)		(144	)		(65	)

Adjusted earnings	$	412		$	389		$	174

(1)	Represents Canadian combined federal and provincial statutory rate (2018 – 26%; 2017 and 2016 – 27%).

Adjusted EBITDA is defined as earnings determined in accordance with IFRS before finance costs, income taxes, depreciation, amortization and other unusual or non-recurring items. Non-recurring items include the 2018 impairment of assets charge, gain on the 2016 Quebec Asset Exchange, costs related to the Merger, pre-operating costs related to the 2017 Inverness expansion project and costs related to the 2016 High Level fire. Other items include non-cash losses on disposal of assets and stock-based compensation and related revaluation costs. 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)	2018			2017		2016
Earnings	$	371		$	436	$	183
Add: Finance costs		37			32		52
Less: Interest income		(4	)		—		—
Add: Depreciation and amortization		134			107		94
Add: Income tax expense		100			81		61
Add: Impairment of assets		80			—		—
Add: Loss on disposal of assets		2			12		—
Add: Stock-based compensation and related costs		4			3		2
Add: Pre-operating costs related to Inverness project		—			1		—
Less: Gain on Asset Exchange		—			—		(16	)
Add: Other costs incurred to achieve Merger synergies		—			—		8
Add: Costs related to High Level fire		—			—		1

Adjusted EBITDA	$	724		$	672	$	385

NORBORD 2018 ANNUAL REPORT 37

The following tables reconcile Adjusted EBITDA per geographic segment to the most directly comparable IFRS measure:


	2018
(US $ millions)	North America			Europe		Unallocated			Total
EBITDA ⁽¹⁾	$	570		$	86	$	(18	)	$	638
Add: Impairment of assets		80			—		—			80
Add: Loss on disposal of assets		2			—		—			2
Add: Stock-based compensation and related costs		—			—		4			4

Adjusted EBITDA	$	652		$	86	$	(14	)	$	724


	2017
(US $ millions)	North America			Europe		Unallocated			Total
EBITDA ⁽¹⁾	$	627		$	39	$	(10	)	$	656
Add: Loss on disposal of assets		11			1		—			12
Add: Stock-based compensation and related costs		—			—		3			3
Add: Pre-operating costs related to Inverness project		—			1		—			1

Adjusted EBITDA	$	638		$	41	$	(7	)	$	672


	2016
(US $ millions)	North America			Europe		Unallocated			Total
EBITDA ⁽¹⁾	$	363		$	41	$	(14	)	$	390
Add: Stock-based compensation and related costs		—			—		2			2
Less: Gain on Asset Exchange		(16	)		—		—			(16	)
Add: Other costs incurred to achieve Merger synergies		4			—		4			8
Add: Costs related to High Level fire		1			—		—			1

Adjusted EBITDA	$	352		$	41	$	(8	)	$	385

(1)	EBITDA is defined as earnings before finance costs, interest income, income tax, depreciation and amortization.

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 with sales expansions and contractions.


(US $ millions)	2018			2017
Accounts receivable	$	149		$	174
Inventory		220			224
Prepaids		12			11
Accounts payable and accrued liabilities		(293	)		(282	)

Operating working capital	$	88		$	127

38 NORBORD 2018 ANNUAL REPORT

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)	2018			2017
Operating working capital	$	88		$	127
Cash and cash equivalents		128			241
Taxes receivable		—			1
Taxes payable		(28	)		(74	)

Total working capital	$	188		$	295

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)	2018			2017
Property, plant and equipment	$	1,402		$	1,421
Intangible assets		20			24
Accounts receivable		149			174
Inventory		220			224
Prepaids		12			11
Accounts payable and accrued liabilities		(293	)		(282	)

Capital employed	$	1,510		$	1,572

ROCE (return on capital employed) is Adjusted EBITDA divided by average annual or quarterly 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 business 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 divided by common shareholders’ equity adjusted for the 2018 impairment of assets charge and the accrued share purchases as at December 31, 2018. 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.


(US $ millions)	2018		2017
Shareholders’ equity	$	823	$	1,019
Add: Impairment of assets (net of tax)		59		—
Add: Common shares to be repurchased and cancelled		42		—

Shareholders’ equity for ROE	$	924	$	1,019

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

NORBORD 2018 ANNUAL REPORT 39

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)	2018			2017
Long-term debt, principal value	$	555		$	555
Less: Cash and cash equivalents		(128	)		(241	)

Net debt		427			314
Add: Letters of credit and guarantees		8			19

Net debt for financial covenant purposes	$	435		$	333

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 the 2018 net impairment of assets charge, 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)	2018		2017
Shareholders’ equity	$	823	$	1,019
Add: Impairment of assets (net of tax)		59		—
Add: Other comprehensive income movement ⁽¹⁾		74		53
Add: Impact of Ainsworth changing functional currencies		155		155
Add: IFRS transitional adjustments		21		21

Tangible net worth	$	1,132	$	1,248

(1)	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.

40 NORBORD 2018 ANNUAL REPORT

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,” “suggests,” “considers,” “potential,” “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 US Census Bureau, FEA (Forest Economic Advisors, LLC), APA, Office for National Statistics and EUROCONSTRUCT which the Company may refer to but has 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 transportation services, including truck and 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 or other 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) potential future changes in tax laws; (13) effects of currency exposures and exchange rate fluctuations; (14) future operating costs; (15) availability of financing; (16) impact of future cross border trade rulings or agreements; (17) ability to implement new or upgraded information technology infrastructure; and (18) 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 US 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.

NORBORD 2018 ANNUAL REPORT 41

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.


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

Toronto, Canada

January 31, 2019

42 NORBORD 2018 ANNUAL REPORT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors Norbord Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Norbord Inc. (the Company) as of December 31, 2018 and December 31, 2017, the related consolidated statements of earnings, comprehensive income, cash flows, and changes in shareholders’ equity for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the financial performance and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated January 31, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2007.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Canada

January 31, 2019

NORBORD 2018 ANNUAL REPORT 43

Management’s Report on Internal Control over Financial Statements

The Company’s management 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 International Financial Reporting Standards 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, 2018 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.

Norbord’s internal control over financial reporting as of December 31, 2018, has been audited by KPMG LLP, the Independent Registered Public Accounting Firm, who also audited Norbord’s consolidated financial statements for the year ended December 31, 2018. As stated in the Report of Independent Registered Public Accounting Firm, KPMG LLP expressed an unqualified opinion on the effectiveness of Norbord’s internal control over financial reporting as of December 31, 2018.



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

Toronto, Canada

January 31, 2019

44 NORBORD 2018 ANNUAL REPORT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Shareholders and Board of Directors Norbord Inc.:

Opinion on Internal Control over Financial Reporting

We have audited Norbord Inc.’s (the Company) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of earnings, comprehensive income, cash flows, and changes in shareholders’ equity for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated January 31, 2019 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report on Form 40-F under the section entitled “Certifications and Disclosures Regarding Controls and Procedures”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Canada

January 31, 2019

NORBORD 2018 ANNUAL REPORT 45

Consolidated Balance Sheets


(US $ millions)	Note		Dec 31, 2018		Dec 31, 2017
Assets
Current assets
Cash and cash equivalents			$	128	$	241
Accounts receivable		3		149		174
Taxes receivable				—		1
Inventory		4		220		224
Prepaids				12		11

				509		651
Non-current assets
Property, plant and equipment		5		1,402		1,421
Intangible assets		6		20		24
Deferred income tax assets		13		6		4
Other assets		7		5		3

				1,433		1,452

			$	1,942	$	2,103

Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities			$	293	$	282
Accrued liability under ASPP		14		42		—
Taxes payable				28		74

				363		356
Non-current liabilities
Long-term debt		8		550		548
Other liabilities		9		34		29
Deferred income tax liabilities		13		172		151

				756		728

Shareholders’ equity				823		1,019

			$	1,942	$	2,103

(See accompanying notes)

Commitments and Contingencies (note 19)

Subsequent Events (notes 3, 14)

On behalf of the Board:


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

46 NORBORD 2018 ANNUAL REPORT

Consolidated Statements of Earnings


Years ended December 31, (US $ millions, except per share information)	Note		2018			2017
Sales		21	$	2,424		$	2,177
Cost of sales				(1,686	)		(1,499	)
General and administrative expenses				(18	)		(10	)
Depreciation and amortization		21		(134	)		(107	)
Loss on disposal of assets, net		4, 5		(2	)		(12	)
Impairment of assets		5		(80	)		—

Operating income				504			549
Non-operating expense:
Finance costs		12		(37	)		(32	)
Interest income		12		4			—

Earnings before income tax				471			517
Income tax expense		13		(100	)		(81	)

Earnings			$	371		$	436

Earnings per common share		15
Basic			$	4.29		$	5.06
Diluted				4.27			5.03

(See accompanying notes)

Consolidated Statements of Comprehensive Income


Years ended December 31, (US $ millions)	Note		2018			2017
Earnings			$	371		$	436
Other comprehensive (loss) income, net of tax
Items that will not be reclassified to earnings:
Actuarial loss on post-employment obligation		10, 13		—			(3	)
Items that may be reclassified subsequently to earnings:
Foreign currency translation (loss) gain on foreign operations		13		(21	)		29

Other comprehensive (loss) income, net of tax				(21	)		26

Comprehensive income			$	350		$	462

(See accompanying notes)

NORBORD 2018 ANNUAL REPORT 47

Consolidated Statements of Changes in Shareholders’ Equity


Years ended December 31, (US $ millions)	Note		2018			2017
Share capital
Balance, beginning of year			$	1,350		$	1,341
Issue of common shares upon exercise of options and DRIP		14		11			9
Common shares repurchased and cancelled		14		(57	)		—
Common shares to be repurchased and cancelled under ASPP		14		(24	)		—

Balance, end of year			$	1,280		$	1,350

Merger reserve		14	$	(96	)	$	(96	)

Contributed surplus
Balance, beginning of year			$	8		$	9
Stock-based compensation		14		1			1
Stock options exercised		14		(1	)		(2	)
Common shares repurchased and cancelled		14		(4	)		—

Balance, end of year			$	4		$	8

Retained deficit
Balance, beginning of year			$	(67	)	$	(402	)
Earnings				371			436
Common share dividends				(417	)		(101	)
Common shares repurchased and cancelled		14		(37	)		—
Common shares to be repurchased and cancelled under ASPP		14		(18	)		—

Balance, end of year ⁽ⁱ⁾			$	(168	)	$	(67	)

Accumulated other comprehensive loss
Balance, beginning of year			$	(176	)	$	(202	)
Other comprehensive (loss) income				(21	)		26

Balance, end of year		14	$	(197	)	$	(176	)

Shareholders’ equity			$	823		$	1,019

(See accompanying notes)


⁽ⁱ⁾ *Retained deficit comprised of:*
Deficit arising on cashless exercise of warrants in 2013	14	$	(263	)	$	(263	)
All other retained earnings			95			196

		$	(168	)	$	(67	)

48 NORBORD 2018 ANNUAL REPORT

Consolidated Statements of Cash Flows


Years ended December 31, (US $ millions)	Note		2018			2017
CASH PROVIDED BY (USED FOR):
Operating activities
Earnings			$	371		$	436
Items not affecting cash:
Depreciation and amortization		5, 6		134			107
Deferred income tax		13		19			(9	)
Impairment of assets		5		80			—
Loss on disposal of assets, net		4, 5		2			12
Other items		16		(5	)		(8	)

			601			538
Net change in non-cash operating working capital balances		16		52			(18	)
Net change in taxes receivable and taxes payable				(45	)		88

			608			608

Investing activities
Investment in property, plant and equipment				(210	)		(240	)
Investment in intangible assets				(1	)		(4	)

				(211	)		(244	)

Financing activities
Common share dividends paid				(411	)		(101	)
Repayment of debt				—			(200	)
Repurchase of common shares		14		(98	)		—
Issue of common shares		14		4			7

				(505	)		(294	)

Foreign exchange revaluation on cash and cash equivalents held				(5	)		10

Cash and cash equivalents
(Decrease) increase during year				(113	)		80
Balance, beginning of year				241			161

Balance, end of year			$	128		$	241

(See accompanying notes, including note 16 for supplemental cash flow information)

NORBORD 2018 ANNUAL REPORT 49

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 holding a significant equity interest in the Company.

At year-end, Brookfield’s interest was approximately 42% of the outstanding common shares of the Company. Subsequent to year-end, Brookfield’s interest increased to approximately 43% as a result of the Company repurchasing its common shares under an automatic share purchase plan (ASPP) under its Normal Course Issuer Bid (NCIB) (note 14).

NOTE 1. NATURE AND DESCRIPTION OF THE COMPANY

Norbord is an international producer of wood-based panels with 17 mills in the United States (US), Europe and Canada. Norbord is a publicly traded company listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). 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.

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 January 31, 2019.

(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 18) and certain long-lived assets measured at fair value for impairment assessments (as described in note 5).

(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 other comprehensive income (OCI). Gains or losses on foreign currency-denominated balances and transactions that are designated as hedges of net investments, if any, in these operations are reported in the same manner.

Foreign currency-denominated monetary assets and liabilities are translated using the rate of exchange prevailing at the reporting date. Gains or losses on translation of these items are included in earnings and reported as general and administrative expenses, with the exception of gains and losses on translation of foreign currency-denominated deferred tax assets and liabilities, taxes payable and receivable, and investment tax credit receivable, if any. Gains and losses on these items are included in earnings and reported as income tax expense. Gains or losses on transactions that economically hedge these items are also included in earnings. Foreign currency-denominated revenue and expenses are translated 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 are considered to form part of the net investment in the foreign operation, are recognized in OCI.

50 NORBORD 2018 ANNUAL REPORT

(f) Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits, as well as 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.

(g)

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.

(h)

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 method. 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 its 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.

(i)

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 is less than the recoverable amount, the intangible assets would be reviewed for impairment as described in note 2(h) above.

(j)

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 final five years’ 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 for salary escalation, inflation and 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 and any plans with assets in excess of obligations are recorded as an asset. All actuarial gains or losses are recognized immediately through OCI.

NORBORD 2018 ANNUAL REPORT 51

(k)

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, if any, 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 has been determined 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.

(l)

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 amount 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.

(m)

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.

52 NORBORD 2018 ANNUAL REPORT

(n)

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 liabilities 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 remeasured to fair value at each reporting date until settlement. The liability related to cash-settled awards is recorded in other liabilities.

(o)

Revenue Recognition

Revenue is recognized when control of the goods has transferred to the purchaser and collectibility is reasonably assured. This is generally when goods are shipped, which is also when the performance obligations have been fulfilled under either the terms of the related sales contract or standard industry terms. The majority of product is shipped via third-party transport on a freight-on-board shipping point basis. Revenues are recorded net of discounts and incentives but inclusive of freight. In all cases, product is subject to quality testing by the Company to ensure it meets applicable standards prior to shipment.

(p)

Government Grants

Government grants relating to the acquisition of property, plant and equipment are 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.

(q)

Impairment of Non-Derivative Financial Assets

The credit risk of financial assets not classified at fair value through profit or loss is assessed at each reporting date. When the credit risk of a financial asset has increased, a provision for expected credit losses will be recorded and recognized in earnings.

(r)

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 at 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:

NORBORD 2018 ANNUAL REPORT 53

(s)

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; 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.

Judgements

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 their 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 judgements 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 or liability is required, current period earnings or OCI will be affected.

Estimates

Significant assumptions and estimates used in determining the recorded amounts for assets, liabilities, revenues and expenses in the consolidated financial statements for the year ended December 31, 2018 are:

(i)

Inventory

The Company estimates the net realizable value of its finished goods and raw materials inventory using estimates regarding future selling prices. The net realizable value of operating and maintenance supplies inventory uses estimates regarding replacement costs.

(ii)

Property, Plant and Equipment and Intangible Assets

(iii)

Employee Benefit Plans

(iv)

Income Taxes

54 NORBORD 2018 ANNUAL REPORT

Deferred income tax assets are recognized for all deductible temporary differences and 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.

(v)

Financial Instruments

(t)

Changes in Accounting Policies

(i)

Financial Instruments

(ii)

Revenue from Contracts with Customers

(iii)

Share-based Payment

(iv)

Foreign Currency Transactions and Advance Consideration

NORBORD 2018 ANNUAL REPORT 55

(u)

Future Changes in Accounting Policies

(i)

Leases

Norbord has completed an assessment of the impact on its consolidated financial statements including an inventory of all outstanding leases, the impact of applying selected practical expedients and recognition exemptions, and selecting a software tool for calculating and maintaining Norbord’s lease arrangements. Based on this assessment, Norbord expects to recognize new assets (right-of-use assets) and liabilities (lease liabilities) for its operating leases of property and equipment of approximately $20 million to $25 million. In addition, the nature of expenses related to these leases will now change because IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. No significant impact is expected on Norbord’s financial covenant calculations (note 8). No impact is expected for Norbord’s existing finance leases.

(ii)

Uncertainty over Income Tax Treatments

(iii)

Financial Instruments

(iv)

Employee Benefits

56 NORBORD 2018 ANNUAL REPORT

NOTE 3. ACCOUNTS RECEIVABLE

The Company has the ability to draw up to $125 million under a 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 derecognition 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 $123 million (December 31, 2017 – $153 million) in trade accounts receivable, and Norbord recorded drawings of $nil as other long-term debt (December 31, 2017 – $nil) 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 and 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 17). 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, there were no utilization charges on drawings (2017 – utilization charges ranged from 1.5% to 2.6%).

The securitization program contains no financial covenants; however, the program is subject to minimum credit-rating requirements. The Company must maintain a long-term issuer credit rating of at least single B (mid) or the equivalent. As at January 31, 2019, Norbord’s ratings were BB (DBRS), BB (Standard & Poor’s Ratings Services) and Ba1 (Moody’s Investors Service).

NOTE 4. INVENTORY


(US $ millions)	Dec 31, 2018		Dec 31, 2017
Raw materials	$	72	$	68
Finished goods		69		74
Operating and maintenance supplies		79		82

	$	220	$	224

At year-end, the provision to reflect inventories at the lower of cost and net realizable value was $20 million (December 31, 2017 – $14 million). A portion of the change in inventory provision of $2 million (2017 – $4 million) has been recognized in loss on disposal of assets on the statement of earnings. The remaining change in inventory provision of $4 million (2017 – $nil) has been included in cost of sales.

NORBORD 2018 ANNUAL REPORT 57

NOTE 5. PROPERTY, PLANT AND EQUIPMENT


(US $ millions)	Land		Buildings			Production Equipment			Construction in Progress			Total
Cost
December 31, 2016	$	12	$	311		$	1,283		$	136		$	1,742
Additions ⁽¹⁾		—		—			1			252			253
Disposals		—		(2	)		(16	)		—			(18	)
Transfers		—		31			268			(299	)		—
Effect of foreign exchange		—		3			13			9			25

December 31, 2017		12		343			1,549			98			2,002
Additions ⁽²⁾		—		—			—			204			204
Disposals		—		—			(19	)		—			(19	)
Impairment		—		(25	)		(55	)		—			(80	)
Transfers		—		36			178			(212	)		2
Effect of foreign exchange		—		(4	)		(20	)		5			(19	)

December 31, 2018	$	12	$	350		$	1,633		$	95		$	2,090

Accumulated depreciation
December 31, 2016	$	—	$	100		$	380		$	—		$	480
Depreciation		—		17			88			—			105
Disposals		—		—			(10	)		—			(10	)
Effect of foreign exchange		—		1			5			—			6

December 31, 2017		—		118			463			—			581
Depreciation		—		19			112			—			131
Disposals		—		—			(19	)		—			(19	)
Effect of foreign exchange		—		(1	)		(4	)		—			(5	)

December 31, 2018	$	—	$	136		$	552		$	—		$	688

Net
December 31, 2017	$	12	$	225		$	1,086		$	98		$	1,421
December 31, 2018		12		214			1,081			95			1,402

(1)	Net of government grants of $13 million received related to the Inverness expansion project.

(2)	Net of government grants of less than $1 million received related to the Chambord project.

In 2018, an impairment loss of $80 million was recorded with respect to the Company’s mill in 100 Mile House, British Columbia reflecting the reduction in the annual allowable cut (timber allowed to be harvested from Crown lands each year) starting in 2019 and the longer-term trend of high wood costs in the region. The recoverable amount of this cash-generating unit’s (CGU) assets has been determined based on fair value less costs of disposal. The recoverable amount is categorized as Level 3 fair value measure.

The fair value less costs of disposal calculations use discounted cash flow projections that employ the following key assumptions as outlined in note 2(s). The Company considers a range of reasonably possible amounts to use for key assumptions and decides upon amounts that represent management’s best estimates. In the normal course, the Company makes changes to key assumptions so that they reflect current (at time of test) economic conditions, updates of historical information used to develop the key assumptions and changes (if any) in the Company’s debt ratings. The key assumptions for cash flow projections are based upon approved financial forecasts and are discounted at a consolidated after-tax notional rate of 9.9%.

In 2018, interest costs of $nil (2017 – $7 million) were capitalized and included in the cost of qualifying assets within additions.

58 NORBORD 2018 ANNUAL REPORT

NOTE 6. INTANGIBLE ASSETS


(US $ millions)	Cost			Accumulated Amortization			Net Book Value
December 31, 2016	$	39		$	(17	)	$	22
Additions		4			(2	)		2
Effect of foreign exchange		1			(1	)		—

December 31, 2017		44			(20	)		24
Additions		1			(3	)		(2	)
Effect of foreign exchange		(2	)		—			(2	)

December 31, 2018	$	43		$	(23	)	$	20

NOTE 7. OTHER ASSETS


(US $ millions)	Note		Dec 31, 2018		Dec 31, 2017
Defined benefit pension asset		10	$	4	$	2
Unrealized monetary hedge gain		18		—		1
Other				1		—

			$	5	$	3

NOTE 8. LONG-TERM DEBT


(US $ millions)	Dec 31, 2018			Dec 31, 2017
Principal value
5.375% senior secured notes due December 2020	$	240		$	240
6.25% senior secured notes due April 2023		315			315

		555			555
Less: Unamortized debt issue costs		(5	)		(7	)

	$	550		$	548

Maturities of long-term debt are as follows:


(US $ millions)	2019		2020		2021		2022		2023		Thereafter		Total
Maturities of long-term debt	$	—	$	240	$	—	$	—	$	315	$	—	$	555

As at December 31, 2018, the weighted average effective interest rate on the Company’s debt-related obligations was 5.9% (2017 – 5.9%).

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 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 2020 and committed revolving bank lines.

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. The maturity date of the total aggregate commitment is May 2021. 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 2020 and 2023 senior secured notes.

At year-end, none (2017 – none) of the revolving bank lines were drawn as cash, $8 million (2017 – $19 million) was utilized for letters of credit and guarantees and $237 million (2017 – $226 million) was available to support short-term liquidity requirements.

NORBORD 2018 ANNUAL REPORT 59

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 17), 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 2018 was $2 million (2017 – $2 million).

NOTE 9. OTHER LIABILITIES


(US $ millions)	Note		Dec 31, 2018		Dec 31, 2017
Defined benefit pension obligation		10	$	20	$	20
Accrued employee benefits		14		6		6
Reforestation obligation				2		2
Unrealized monetary hedge loss		18		3		—
Other				3		1

			$	34	$	29

NOTE 10. 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 obligations and assets is as follows:


(US $ millions)	2018			2017
Change in accrued benefit obligation during the year
Accrued benefit obligation, beginning of year	$	167		$	152
Current service cost		3			3
Interest on accrued benefit obligation		6			6
Benefits paid		(11	)		(12	)
Net actuarial (gain) loss arising from changes to:
Demographic assumptions		(1	)		—
Financial assumptions		(6	)		7
Foreign currency exchange rate impact		(14	)		11

Accrued benefit obligation, end of year ⁽¹⁾	$	144		$	167

Change in plan assets during the year
Plan assets, beginning of year	$	149		$	134
Interest income		5			5
Remeasurement (losses) gains:
Return on plan assets (excluding interest income)		(9	)		5
Employer contributions		6			7
Benefits paid		(11	)		(12	)
Administrative expenses		—			—
Foreign currency exchange rate impact		(12	)		10

Plan assets, end of year ⁽¹⁾	$	128		$	149

Funded status
Accrued benefit obligation	$	144		$	167
Plan assets		(128	)		(149	)

Accrued benefit obligation in excess of plan assets ⁽¹⁾	$	16		$	18

(1)	All plans have accrued benefit obligations in excess of plan assets with the exception of the UK plan, which has been presented as other assets.

60 NORBORD 2018 ANNUAL REPORT

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


(US $ millions)	2018		2017
Current service cost	$	3	$	3
Interest cost		1		1

Net periodic pension expense	$	4	$	4

The significant weighted average actuarial assumptions are as follows:


	2018			2017
Used in calculation of accrued benefit obligation, end of year
Discount rate		3.7	%		3.4	%
Rate of compensation increase		2.6	%		2.9	%
Used in calculation of net periodic pension expense for the year
Discount rate		3.2	%		3.7	%
Rate of compensation increase		2.6	%		2.9	%

The impact of a change to the significant actuarial assumptions on the accrued benefit obligation as at December 31, 2018 is as follows:


(US $ millions)	Increase			Decrease
Discount rate (0.5% change)	$	(10	)	$	11
Compensation rate (1.0% change)		2			(2	)
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, 2018			Dec 31, 2017
Asset category
Equity investments		45	%		55	%
Fixed income investments		54	%		45	%
Cash		1	%		—	%

Total assets		100	%		100	%

Cost of sales and general and administrative expenses include $13 million (2017 – $12 million) related to contributions to Norbord’s defined contribution pension plans.

NORBORD 2018 ANNUAL REPORT 61

NOTE 11. EMPLOYEE COMPENSATION AND BENEFITS

Included in cost of sales and general and administrative expenses are the following:


(US $ millions)	2018		2017
Short-term employee compensation and benefits	$	216	$	203
Long-term employee compensation and benefits		33		32
Share-based compensation		4		2

	$	253	$	237

NOTE 12. FINANCE COSTS AND INTEREST INCOME

The components of finance costs were as follows:


(US $ millions)	2018		2017
Interest on long-term debt ⁽¹⁾	$	33	$	27
Interest on other long-term debt		—		1
Amortization of debt issue costs		2		2
Revolving bank lines fees and other		1		1

		36		31
Net interest expense on net pension obligation		1		1

Total finance costs	$	37	$	32

(1)	Net of capitalized interest of $7 million for 2017 (note 5).

Interest income consists of income earned on cash and cash equivalents.

NOTE 13. 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, 2018			Dec 31, 2017
Property, plant and equipment, differences in basis	$	(187	)	$	(200	)
Benefit of tax loss carryforwards		12			38
Other temporary differences in basis		9			15

Net deferred income tax liabilities	$	(166	)	$	(147	)


(US $ millions)	Dec 31, 2018			Dec 31, 2017
Deferred income tax assets	$	6		$	4
Deferred income tax liabilities		(172	)		(151	)

Net deferred income tax liabilities	$	(166	)	$	(147	)

62 NORBORD 2018 ANNUAL REPORT

As at December 31, 2018, the Company had the following tax losses available for carry forward:


	Amount (millions)		Latest Expiry Year
Tax loss carryforwards
Canada – capital loss	C $	126		Indefinite
Canada – non-capital loss	C $	19		2037
Belgium – trading loss	€	32		Indefinite
United Kingdom – non-trading loss	£	1		Indefinite

The loss carryforwards may be utilized before expiry to eliminate cash taxes otherwise payable. Certain benefits relating to the above losses have been included in deferred income tax assets in the consolidated financial statements. At each balance sheet date, the Company reviews its deferred income tax assets and recognizes amounts that, in the judgement of management, are probable to be utilized. During the year, the Company recognized $4 million in net deferred tax assets (2017 – $14 million) relating to prior years’ losses and temporary differences. The Company also recognized no net deferred tax liabilities (2017 – $2 million net deferred tax liabilities) related to items which were recorded in OCI. Of the total tax losses noted, the Company has not recognized €19 million (2017 – €23 million) loss carryforwards in Belgium and C $126 million (2017 – C $126 million) capital loss carryforwards in Canada.

In addition, the Company has not recognized the following tax attributes:


(US $ millions)
United States – State tax loss (2021–2037) ⁽¹⁾	$	199
United States – State tax credits (2019–2026)		59

(1)	Aggregate loss from the states where Norbord’s 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, 2018 is $843 million (December 31, 2017 – $869 million).

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


(US $ millions)	2018		2017
Current income tax expense	$	81	$	90
Deferred income tax expense (recovery)		19		(9	)

Income tax expense	$	100	$	81

NORBORD 2018 ANNUAL REPORT 63

As a result of the US tax reform legislation enacted in December 2017, the Company recognized a net income tax recovery in 2017 of $35 million due to the impact of the US federal tax rate reduction from 35% to 21% on the remeasurement of deferred tax assets and liabilities. The income tax expense is calculated as follows:


(US $ millions)	2018			2017
Earnings before income tax	$	471		$	517

Income tax expense at combined Canadian federal and provincial statutory rate of 26% (2017 – 27%)		122			140
Effect of:
Change in tax rates and new legislation		—			(35	)
Rate differences on foreign activities		(14	)		(12	)
Recognition of the benefit of prior years’ tax losses and other deferred tax assets		(4	)		(14	)
Remeasurement of deferred tax liabilities, net		(3	)		—
Non-recognition of deferred tax assets relating to foreign exchange gain		—			1
Other		(1	)		1

Income tax expense	$	100		$	81

Income tax expense recognized in the statement of comprehensive income comprises the following:


(US $ millions)	2018			2017
Actuarial loss on post-employment obligation	$	—		$	(3	)
Tax		—			—

Net of tax	$	—		$	(3	)

Foreign currency translation (loss) gain on foreign operations	$	(21	)	$	31
Tax		—			(2	)

Net of tax	$	(21	)	$	29

NOTE 14. SHAREHOLDERS’ EQUITY

Share Capital


	2018						2017
	Shares (millions)			Amount (US $ millions)			Shares (millions)		Amount (US $ millions)
Common shares outstanding, beginning of year		86.4		$	1,350			85.8	$	1,341
Issuance of common shares upon exercise of options and Dividend Reinvestment Plan		0.5			11			0.6		9
Shares repurchased and cancelled in 2018		(3.6	)		(57	)		—		—
Shares repurchased in 2018 and cancelled in 2019		(0.2	)		(2	)		—		—
Shares to be repurchased and cancelled under ASPP in 2019		(1.4	)		(22	)		—		—

Common shares outstanding, end of year		81.7		$	1,280			86.4	$	1,350

As at December 31, 2018, 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.

Normal Course Issuer Bid Program

In October 2018, the Company renewed its Normal Course Issuer Bid (NCIB) in accordance with Toronto Stock Exchange (TSX) rules. Under the NCIB, the Company may purchase up to 5,191,965 of its common shares, representing 10% of Norbord’s public float of 51,919,654 as of October 22, 2018, pursuant to TSX rules (a total of 86,387,210 common shares were issued and outstanding as of such date). Daily purchases of common shares may not exceed 79,704 subject to the Company’s ability to make “block” purchases under the rules of the TSX.

64 NORBORD 2018 ANNUAL REPORT

During the year, the Company repurchased and cancelled 3.6 million common shares under its current NCIB program for a total cost of $98 million. Of the total cost, $57 million represents a reduction in share capital, $4 million was charged to contributed surplus and the remaining $37 million was charged to retained earnings. As at December 31, 2018, an additional 0.2 million shares had been purchased but not yet cancelled and $4 million related to these shares was included in accrued liabilities.

In December 2018, the Company entered into an automatic share purchase plan (ASPP) in order to facilitate the repurchase of its common shares under its NCIB during the regularly scheduled quarterly trading blackout period. As at December 31, 2018, an obligation for the future repurchase of shares under the ASPP of $38 million has been recognized in accrued liabilities. In January 2019, the Company repurchased and cancelled an additional 1.4 million shares under the ASPP and the Company has now exhausted the current NCIB limit with a total of 5.2 million shares purchased for $140 million.

Purchases were made on the open market by the Company through the facilities of the TSX, the NYSE or Canadian or US alternative trading systems, if eligible, in accordance with the requirements of the TSX and applicable securities laws. The price that the Company paid for any such common shares was the market price of such shares at the time of acquisition. Common shares purchased under the NCIB were cancelled.

Dividend Reinvestment Plan

During the year, $6 million of dividends were reinvested in common shares (2017 – less than $1 million).

Merger Reserve

On March 31, 2015, the Company and Ainsworth Lumber Co. Ltd. (Ainsworth) completed an arrangement under which the Company acquired all of the outstanding common shares of Ainsworth in an all-share transaction. The Company elected not to account for this transaction as a business combination under IFRS 3, Business Combinations , as the transaction represented 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.

The merger reserve represents the difference between the fair value of the Norbord common shares on the date of issuance and the book value of Ainsworth’s net assets exchanged.

Contributed Surplus

Contributed surplus at December 31, 2018 and 2017 comprises amounts related to compensation expense on stock options issued under the Company’s stock option plan.

Share-based Payments

Stock Options


	2018					2017
	Options (millions)			Weighted Average Exercise Price (C $)		Options (millions)			Weighted Average Exercise Price (C $)
Balance, beginning of year		1.4		$	27.23		1.8		$	25.28
Options granted		0.5			40.33		0.2			34.96
Options exercised		(0.3	)		19.83		(0.6	)		15.16

Balance, end of year		1.6		$	31.02		1.4		$	27.23

Exercisable at year-end		0.6		$	23.84		0.8		$	25.03

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, 0.5 million stock options were granted (2017 – 0.2 million stock options) and a stock option expense of $1 million was recorded with a corresponding increase in contributed surplus (2017 – $1 million).

NORBORD 2018 ANNUAL REPORT 65

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


	2018			2017
Risk-free interest rate		2.3	%		1.1	%
Expected volatility		30	%		30	%
Dividend yield		6.0	%		1.1	%
Expected option life (years)		5			5
Share price (in Canadian dollars)	$	39.40		$	37.72

Exercise price (in Canadian dollars)	$	40.33		$	34.96

Weighted average fair value per option granted (in Canadian dollars)	$	4.03		$	7.47

In 2018, 0.3 million common shares (2017 – 0.6 million common shares) were issued as a result of options exercised under the stock option plan for total cash proceeds of $4 million (2017 – $7 million) plus $1 million (2017 – $2 million) representing the vested fair value of the stock options. The weighted average share price on the date of exercise for 2018 was C $48.66 (2017 – C $41.89).

The following table summarizes the weighted average exercise prices and the weighted average remaining contractual life of the stock options outstanding at December 31, 2018:


			Options Outstanding				Options Exercisable
Range of Exercise Prices (C $)	Options		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price (C $)		Options		Weighted Average Exercise Price (C $)
$6.50–$10.00		58,000		3.09	$	9.96		58,000	$	9.96
$10.01–$15.00		87,362		1.93		14.40		87,362		14.40
$15.01–$20.00		88,210		1.25		18.00		88,210		18.00
$20.01–$25.00		8,107		5.45		21.44		8,107		21.44
$25.01–$30.00		379,000		6.58		27.13		189,000		27.05
$30.01–$35.00		406,196		6.31		32.52		211,696		31.19
$35.01–$40.00		335,000		9.87		36.56		—		—
$45.01–$50.00		190,000		9.11		46.35		—		—

		1,551,875		6.83	$	31.02		642,375	$	23.84

Restricted and Deferred Stock Units

The Company has a Restricted Stock Unit (RSU) Plan for designated employees of the Company and its subsidiaries. An RSU is a unit equivalent in value to a common share. Units credited under this plan vest equally over three years. Vested amounts are 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 for senior management and Directors. A DSU is a unit equivalent in value to a common share. Following the participant’s termination of services with the Company, the participant will be paid in cash the market value of the common shares represented by the DSUs. In addition, holders are credited with additional units as and when dividends are paid on the Company’s common shares.

As at December 31, 2018, the total liability outstanding related to these plans was $6 million (December 31, 2017 – $5 million), of which $4 million (December 31, 2017 – $3 million) is recorded in other liabilities and $2 million (December 31, 2017 – $2 million) is recorded in accounts payable and accrued liabilities.

66 NORBORD 2018 ANNUAL REPORT

Accumulated Other Comprehensive Loss


(US $ millions)	Dec 31, 2018			Dec 31, 2017
Foreign currency translation loss on investment in foreign operations, net of tax of $(5) (December 31, 2017 – $(5))	$	(159	)	$	(138	)
Net loss on hedge of net investment in foreign operations, net of tax of $3 (December 31, 2017 – $3) ⁽¹⁾		(8	)		(8	)
Actuarial loss on defined benefit pension obligation, net of tax of $9 (December 31, 2017 – $9)		(30	)		(30	)

Accumulated other comprehensive loss, net of tax	$	(197	)	$	(176	)

(1)	No net investment hedges were entered into during 2018 and 2017.

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.

NOTE 15. EARNINGS PER COMMON SHARE


(US $ millions, except share and per share information, unless otherwise noted)	2018		2017
Earnings available to common shareholders	$	371	$	436

Common shares (millions):
Weighted average number of common shares outstanding		86.5		86.2
Dilutive stock options ⁽¹⁾		0.4		0.4

Diluted number of common shares		86.9		86.6

Earnings per common share:
Basic	$	4.29	$	5.06
Diluted		4.27		5.03

(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 0.2 million stock options (December 31, 2017 – 0.1 million) that were not taken into account in the calculation of diluted earnings per share because their effect was anti-dilutive.

NORBORD 2018 ANNUAL REPORT 67

NOTE 16. SUPPLEMENTAL CASH FLOW INFORMATION

Other items comprise:


(US $ millions)	Note		2018			2017
Stock-based compensation			$	4		$	4
Pension funding greater than expense				(2	)		(3	)
Cash interest paid greater than interest expense				—			(6	)
Amortization of debt issue costs		12		2			2
Unrealized loss (gain) on outstanding forwards		18		3			(1	)
Unrealized foreign exchange gain on translation of monetary balances				(9	)		(4	)
Other				(3	)		—

			$	(5	)	$	(8	)

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


(US $ millions)	2018			2017
Cash provided by (used for):
Accounts receivable	$	19		$	(33	)
Prepaids		(1	)		(1	)
Inventory		6			(37	)
Accounts payable and accrued liabilities		28			53

	$	52		$	(18	)

Cash interest and income taxes comprise:


(US $ millions)	2018			2017
Cash interest paid	$	34		$	42
Cash interest received		(4	)		—
Cash taxes paid		126			3
Cash taxes recovered		(9	)		(1	)

The net change in financial liabilities comprises:


(US $ millions)	2018		2017
Long-term debt	$	2	$	(198	)
Accrued interest on long-term debt		—		(6	)

Net increase (decrease) in financial liabilities	$	2	$	(204	)

Cash and non-cash movements in financial liabilities comprise:


(US $ millions)	2018			2017
Cash movements:
Repayment of debt	$	—		$	(200	)
Interest paid		(34	)		(42	)

		(34	)		(242	)

Non-cash movements:
Amortization of debt issue costs		2			2
Interest expense		34			36

		36			38

Net increase (decrease) in financial liabilities	$	2		$	(204	)

68 NORBORD 2018 ANNUAL REPORT

NOTE 17. 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 18. FINANCIAL INSTRUMENTS

Norbord has exposure to market, commodity price, interest rate, currency, counterparty credit and liquidity risks. 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, 2018, Norbord has economically hedged approximately 5% (December 31, 2017 – 6%) of its 2019 expected natural gas consumption by locking in the price directly with its suppliers. Approximately 57% (2017 – 62%) of Norbord’s forecasted electricity consumption is purchased in regulated markets, and Norbord has hedged approximately 30% (December 31, 2017 – 43%) of its 2019 deregulated electricity consumption. While these contracts are derivatives, they are exempt from being accounted for as financial instruments as they are considered normal purchases for the purpose of consumption.

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.

NORBORD 2018 ANNUAL REPORT 69

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. Refer to Non-Derivative Financial Instruments and Derivative Financial Instruments sections below.

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, 2018, the provision for doubtful accounts was less than $1 million (December 31, 2017 – less than $1 million). In 2018, Norbord had no customers (2017 – one customer) whose purchases represented greater than 10% of total sales.

Under an accounts receivable securitization program (note 3), 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, 2018, Norbord had no drawings (December 31, 2017 – no 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 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, 2018, Norbord had $128 million in cash and cash equivalents, $125 million undrawn under its accounts receivable securitization program and $237 million in unutilized committed revolving bank lines.

70 NORBORD 2018 ANNUAL REPORT

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)	2019		2020		2021		2022		2023		Thereafter		Total
Principal	$	—	$	240	$	—	$	—	$	315	$	—	$	555
Interest		34		33		19		19		10		—		115

Long-term debt, including interest	$	34	$	273	$	19	$	19	$	325	$	—	$	670

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, 2018				Dec 31, 2017
(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	$	128	$	128	$	241	$	241
Accounts receivable		Amortised cost		149		149		174		174
Other assets		Amortised cost		4		4		2		2

			$	281	$	281	$	417	$	417

Financial liabilities:
Accounts payable and accrued liabilities		Amortised cost	$	293	$	293	$	282	$	282
Automatic share purchase plan accrual		Amortised cost		42		42		—		—
Long-term debt ⁽¹⁾		Amortised cost		555		556		555		597
Other liabilities		Amortised cost		34		34		29		29

			$	924	$	925	$	866	$	908

(1)	Principal value of long-term debt excluding debt issue costs of $5 million (2017 – $7 million) (note 8).

Derivative Financial Instruments

Canadian Dollar Monetary Hedge

At December 31, 2018, the Company had foreign currency forward contracts with various financial institutions representing a notional amount of C $143 million (December 31, 2017 – C $41 million) in place to sell US dollars and buy Canadian dollars with maturities in January 2019. The fair value of these contracts at year-end is an unrealized loss of $3 million (December 31, 2017 – an unrealized gain of $1 million); the carrying value of the derivative instrument is equivalent to the unrealized loss at year-end and is included in other liabilities. In 2018, realized losses on the Company’s matured hedges were $3 million (2017 – gains of $4 million) and are included in earnings. A one-cent change in the exchange rate would result in a $1 million impact.

Euro Cash Flow Hedge

At year-end, the Company had foreign currency options representing a notional amount of €30 million (December 31, 2017 – €60 million) in place to buy Pounds Sterling and sell Euros with maturities between January 2019 and June 2019. The fair value of these contracts at year-end is an unrealized gain of less than $1 million (December 31, 2017 – less than $1 million). A one-cent 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 and are recorded in earnings as they occur.

NORBORD 2018 ANNUAL REPORT 71

NOTE 19. 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	$	37	$	52	$	47	$	136
Operating leases		7		12		5		24
Reforestation obligations		1		1		—		2

	$	45	$	65	$	52	$	162

Purchase commitments relate to the purchase of property, plant and equipment and long-term purchase contracts with minimum fixed payment amounts.

NOTE 20. 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.

Brookfield

Norbord periodically engages the services of Brookfield for various financial, real estate and other business services. In 2018, the fees for services rendered were less than $1 million (2017 – less than $1 million).

Other

Compensation of Key Management Personnel

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


(US $ millions)	2018		2017
Salaries, incentives and short-term benefits	$	4	$	4
Share-based awards		2		1

	$	6	$	5

72 NORBORD 2018 ANNUAL REPORT

NOTE 21. GEOGRAPHIC SEGMENTS

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


	Note									2018
(US $ millions)			North America		Europe		Unallocated			Total
Sales			$	1,907	$	517	$	—		$	2,424
EBITDA ⁽¹⁾				570		86		(18	)		638
Depreciation and amortization		5, 6		111		23		—			134
Additions to property, plant and equipment		5		186		19		—			205
Property, plant and equipment		5		1,159		243		—			1,402

										2017
(US $ millions)			North America		Europe		Unallocated			Total
Sales			$	1,747	$	430	$	—		$	2,177
EBITDA ⁽¹⁾				627		39		(10	)		656
Depreciation and amortization		5, 6		94		13		—			107
Additions to property, plant and equipment		5		142		111		—			253
Property, plant and equipment		5		1,168		253		—			1,421

(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 before finance costs, interest income, income tax, 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.

NORBORD 2018 ANNUAL REPORT 73

Five-Year Historical Review


(unaudited)
(in US $ millions, except per share information)	2018			2017			2016			2015			2014
EARNINGS
Sales	$	2,424		$	2,177		$	1,766		$	1,509		$	1,601

Adjusted EBITDA ⁽¹⁾		724			672			385			125			119
Depreciation and amortization		(134	)		(107	)		(94	)		(86	)		(85	)
Finance costs, net		(33	)		(32	)		(52	)		(55	)		(53	)
Impairment of assets		(80	)		—			—			—			—
Loss on disposal of assets		(2	)		(12	)		—			(1	)		(2	)
Stock-based compensation and related costs		(4	)		(3	)		(2	)		(2	)		(2	)
Pre-operating costs related to Inverness project		—			(1	)		—			—			—
Gain on Asset Exchange		—			—			16			—			—
Merger transaction costs		—			—			—			(8	)		(10	)
Severance and other costs to achieve Merger synergies		—			—			(8	)		(7	)		—
Costs related to High Level fire		—			—			(1	)		—			—
Costs on early debt extinguishment		—			—			—			(25	)		—
Foreign exchange loss on Ainsworth Notes		—			—			—			(28	)		(28	)
Gain (loss) on derivative financial instrument on Ainsworth Notes		—			—			—			4			(11	)
Costs related to terminated LP acquisition		—			—			—			—			(2	)

Earnings (loss) before income tax		471			517			244			(83	)		(74	)
Income tax (expense) recovery		(100	)		(81	)		(61	)		27			35

Earnings (loss)		371			436			183			(56	)		(39	)

Adjusted earnings (loss) ⁽¹⁾	$	412		$	389		$	174		$	(12	)	$	(15	)

Per common share
Earnings (loss), basic	$	4.29		$	5.06		$	2.14		$	(0.66	)	$	(0.46	)
Earnings (loss), diluted		4.27			5.03			2.13			(0.66	)		(0.46	)
Adjusted earnings (loss), basic ⁽¹⁾		4.76			4.51			2.03			(0.14	)		(0.18	)
Adjusted earnings (loss), diluted ⁽¹⁾		4.74			4.49			2.02			(0.14	)		(0.18	)

FINANCIAL POSITION
Cash and cash equivalents	$	128		$	241		$	161		$	9		$	92
Operating working capital ⁽¹⁾		88			127			118			125			106
Property, plant and equipment		1,402			1,421			1,262			1,260			1,341
Net debt for financial covenant purposes ^(1,2)		435			333			619			751			418
Tangible net worth for financial covenant purposes ^(1,2)		1,132			1,248			905			724			404
Net debt to capitalization, book basis ^(1,2)		28	%		21	%		41	%		51	%		51	%

CASH FLOW
Cash provided by operating activities	$	608		$	608		$	313		$	24		$	16
Cash used for investing activities		(211	)		(244	)		(94	)		(68	)		(113	)
Cash used for financing activities		(505	)		(294	)		(52	)		(27	)		(125	)
Foreign exchange revaluation on cash and cash equivalents held		(5	)		10			(15	)		(12	)		(13	)

(Decrease) increase in cash and cash equivalents	$	(113	)	$	80		$	152		$	(83	)	$	(235	)

PER COMMON SHARE
Dividends declared (C $)	$	6.30		$	1.50		$	0.40		$	0.70		$	2.40
Stock price (TSX) (C $)
High		58.46			51.75			35.67			29.07			32.92
Low		32.29			31.38			19.90			19.14			20.82
Close		36.30			42.55			33.91			26.95			26.34

(1)	Non-IFRS measure; see the Non-IFRS Financial Measures section on page 37.

(2)	2014 figures have not been restated for the Merger as financial covenants pre-Merger were based on Norbord on a standalone basis.

74 NORBORD 2018 ANNUAL REPORT

Selected Quarterly Information


(unaudited) (in US $ millions, except per share information)	Q1			Q2			Q3			Q4			2018 Total
Sales
North America	$	448		$	577		$	508		$	374		$	1,907
Europe		128			130			132			127			517

Total		576			707			640			501			2,424

Adjusted EBITDA ⁽¹⁾
North America		156			256			190			50			652
Europe		18			21			23			24			86
Unallocated		(4	)		(4	)		(2	)		(4	)		(14	)

Total		170			273			211			70			724

Depreciation and amortization		(30	)		(36	)		(34	)		(34	)		(134	)
Finance costs, net		(8	)		(9	)		(8	)		(8	)		(33	)
Impairment of assets		—			—			—			(80	)		(80	)
Loss on disposal of assets		—			—			—			(2	)		(2	)
Stock-based compensation and related costs		(1	)		(1	)		(2	)		—			(4	)
Pre-operating costs related to Inverness project		—			—			—			—			—

Earnings (loss) before income tax		131			227			167			(54	)		471
Income tax (expense) recovery		(36	)		(53	)		(37	)		26			(100	)

Earnings		95			174			130			(28	)		371

Adjusted earnings ⁽¹⁾	$	96		$	167		$	123		$	26		$	412

Per common share
Earnings (loss), basic	$	1.10		$	2.01		$	1.50		$	(0.32	)	$	4.29
Earnings (loss), diluted		1.09			2.00			1.49			(0.32	)		4.27
Adjusted earnings, basic ⁽¹⁾		1.11			1.93			1.42			0.30			4.76
Adjusted earnings, diluted ⁽¹⁾		1.10			1.92			1.41			0.30			4.74
Cash provided by operating activities ⁽¹⁾		0.05			2.89			2.63			1.46			7.03
Dividends declared ⁽²⁾		0.60			0.60			4.50			0.60			6.30

Key performance metrics
Return on capital employed (ROCE) ⁽¹⁾		42	%		65	%		51	%		17	%		47	%
Net debt for financial covenant purposes ⁽¹⁾	$	422		$	276		$	377		$	435
Tangible net worth for financial covenant purposes ⁽¹⁾		1,305			1,441			1,278			1,132
Net debt to capitalization, market basis ⁽¹⁾		13	%		8	%		10	%		13	%
Net debt to capitalization, book basis ⁽¹⁾		24	%		16	%		23	%		28	%

(1)	Non-IFRS measure; see the Non-IFRS Financial Measures section on page 37.

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

NORBORD 2018 ANNUAL REPORT 75


(unaudited) (in US $ millions, except per share information)	Q1			Q2			Q3			Q4			2017 Total
Sales
North America	$	367		$	431		$	464		$	485		$	1,747
Europe		100			105			114			111			430

Total		467			536			578			596			2,177

Adjusted EBITDA ⁽¹⁾
North America		102			157			184			195			638
Europe		6			9			14			12			41
Unallocated		(5	)		(1	)		2			(3	)		(7	)

Total		103			165			200			204			672

Depreciation and amortization		(24	)		(27	)		(27	)		(29	)		(107	)
Finance costs		(11	)		(8	)		(7	)		(6	)		(32	)
Impairment of assets		—			—			—			—			—
Loss on disposal of assets		(5	)		(2	)		(2	)		(3	)		(12	)
Stock-based compensation and related costs		(1	)		(1	)		(1	)		—			(3	)
Pre-operating costs related to Inverness project		—			—			(1	)		—			(1	)

Earnings before income tax		62			127			162			166			517
Income tax expense		(13	)		(30	)		(32	)		(6	)		(81	)

Earnings		49			97			130			160			436

Adjusted earnings ⁽¹⁾	$	50		$	95		$	121		$	123		$	389

Per common share
Earnings, basic	$	0.57		$	1.13		$	1.51		$	1.85		$	5.06
Earnings, diluted		0.57			1.12			1.50			1.84			5.03
Adjusted earnings, basic ⁽¹⁾		0.58			1.10			1.40			1.42			4.51
Adjusted earnings, diluted ⁽¹⁾		0.58			1.10			1.39			1.41			4.49
Cash provided by operating activities ⁽¹⁾		0.45			1.67			2.36			2.57			7.05
Dividends declared ⁽²⁾		0.10			0.30			0.50			0.60			1.50

Key performance metrics
Return on capital employed (ROCE) ⁽¹⁾		29	%		44	%		52	%		52	%		45	%
Net debt for financial covenant purposes ⁽¹⁾	$	580		$	567		$	449		$	333
Tangible net worth for financial covenant purposes ⁽¹⁾		951			1,028			1,128			1,248
Net debt to capitalization, market basis ⁽¹⁾		22	%		20	%		15	%		11	%
Net debt to capitalization, book basis ⁽¹⁾		38	%		36	%		28	%		21	%

(1)	Non-IFRS measure; see the Non-IFRS Financial Measures section on page 37.

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

76 NORBORD 2018 ANNUAL REPORT

Glossary

Bsf: Measurement for panel products equal to a billion square feet. This measurement is calculated on either a 3/8-inch or 7/16-inch thick basis.

m ³ : 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 2018 ANNUAL REPORT 77

Board of Directors

Jack Cockwell

Director since 1987

Director, Brookfield Asset

Management Inc.

Pierre Dupuis

Director since 1995

Corporate Director

Paul Gagné

Director since 2015

Corporate Director

Peter Gordon

Chair

Director since 2015

Managing Partner and

Chief Operating Officer,

Brookfield Private Equity Group

Paul Houston

Lead Director

Director since 2015

Corporate Director

Denise Nemchev

Director since 2018

President and Chief

Executive Officer,

tvONE Inc.

Denis Turcotte

Director since 2012

Managing Partner,

Brookfield Private Equity Group

Peter Wijnbergen

Director since 2014

President and Chief

Executive Officer,

Norbord Inc.

Additional details on Norbord’s Directors are provided in the Management Proxy Circular dated March 4, 2019, which is available on Norbord’s website at www.norbord.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Senior Management

Peter Gordon

Chair

Peter Wijnbergen

President and

Chief Executive Officer

Robin Lampard

Senior Vice President and

Chief Financial Officer

Nigel Banks

Senior Vice President,

Corporate Services

Mark Dubois-Phillips

Senior Vice President,

Sales, Marketing and Logistics

Kevin Burke

Senior Vice President,

North American Operations

Alan McMeekin

Senior Vice President,

Europe

78 NORBORD 2018 ANNUAL REPORT

Corporate Information

Norbord Inc.

1 Toronto Street, Suite 600

Toronto, Ontario

M5C 2W4

416-365-0705

1-888-667-2673

www.norbord.com

info@norbord.com

TSX and NYSE stock symbol: OSB

Sales

Toronto, Ontario

416-365-0705

1-800-387-1740

Cowie, Scotland

011-44-1786-819220

2019 Financial Calendar

Norbord Year-End December 31

(dates on or about)

Q1 Earnings Release May 2, 2019

Q2 Earnings Release August 1, 2019

Q3 Earnings Release October 31, 2019

Q4 and 2019 Full Year February 5, 2020

Annual Meeting of Shareholders

Thursday, May 2, 2019 at 10:00 a.m.

The Albany Club

91 King Street East

Toronto, Ontario

M5C 1G3

Media and Investor Relations

Heather Colpitts

Senior Manager, Corporate Affairs

416-365-0705

info@norbord.com

Shareholder Inquiries

Elaine Toomey

Assistant Corporate Secretary

416-365-0705

info@norbord.com

Shareholder Information

Main Transfer Agent & Registrar

AST Trust Company (Canada)

1 Toronto Street, Suite 1200

Toronto, Ontario

M5C 2V6

416-682-3860

1-800-387-0825

inquiries@astfinancial.com

Co-Transfer Agent & Registrar

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY

11219

1-800-937-5449

718-236-2641

info@amstock.com

To receive additional copies of this report, please

NORBORD 2018 ANNUAL REPORT 79

Exhibit 99.3

LOGO

NORBORD INC.

FORM OF PROXY

ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON THURSDAY, MAY 2, 2019

The undersigned holder (shareholder) of common shares of NORBORD INC. hereby appoints J. PETER GORDON , Chair of the Company, or, failing him, PETER C. WIJNBERGEN , President and CEO of the Company, or, instead of and to the exclusion of either of the foregoing, , with the full power of substitution, as nominee of the undersigned, to attend and act for and on behalf of the undersigned at the Annual Meeting of Shareholders of the Company to be held on Thursday, May 2, 2019 , and at any postponement or adjournment thereof, to the same extent and with the same power as if the undersigned were personally present at said meeting or such postponement or adjournment thereof and, without limiting the generality of the power hereby conferred, the nominees named above are specifically directed to vote as indicated below ( or, if no direction is given, for the matters below ):

1.	Election of Directors

VOTE FOR, OR WITHHOLD FROM VOTING FOR, election of any of the following individuals as Directors of the Company, as specified below:


	For	Withhold		For	Withhold
1 Jack L. Cockwell	☐	☐	5 Paul A. Houston	☐	☐
2 Pierre Dupuis	☐	☐	6 Denise M. Nemchev	☐	☐
3 Paul E. Gagné	☐	☐	7 Lori A. Pearson	☐	☐
4 J. Peter Gordon	☐	☐	8 Peter C. Wijnbergen	☐	☐

2.	Appointment of Auditors

VOTE FOR ☐ OR WITHHOLD FROM VOTING FOR ☐ the appointment of KPMG LLP as auditors of the Company and authorizing the directors to fix their remuneration.

3.	Advisory Vote on Executive Compensation

ON AN ADVISORY BASIS VOTE FOR ☐ OR AGAINST ☐ the resolution accepting the Company’s approach to executive compensation.

In addition, the undersigned confers discretionary authority upon the persons named above in respect of amendments or variations to matters identified in the notice of meeting and in respect of other matters that may properly come before the meeting.

This proxy is solicited on behalf of the management of the Company. Shareholders have the right to appoint a person to represent them at the meeting, other than nominees designated above, and each may exercise such right by inserting the name of his/her nominee in the blank space provided above for that purpose. If a shareholder wishes to appoint a nominee other than management, this proxy form must be completed and returned to AST Trust Company (Canada).

Proxy Notes

1.	This proxy must be signed by the shareholder or the shareholder’s attorney authorized in writing. If the shareholder is a corporation, its corporate seal must be affixed or it must be signed by an officer or attorney thereof duly authorized.

2.	This form of proxy must be dated and the signature hereon should be exactly the same as the name in which the shares are registered. If this proxy is not dated, it will be deemed to bear the date on which it is mailed by the Company.

3.	Persons signing as executors, administrators, trustees, etc., should so indicate and give their full title as such.

LOGO

Voting Options

A shareholder may expedite his/her vote by using a touch-tone telephone or the Internet.


By Telephone:		To vote by telephone, call us toll-free at 1-888-489-5760 . A shareholder will be prompted to provide the control number printed on this form. The telephone voting service is not available on the day of the meeting, and registered shareholders may not appoint a person as proxyholder other than the management nominees named in this form of proxy when voting by telephone.

By the Internet:		To vote by the Internet, go to www.astvotemyproxy.com and follow the on-screen instructions. Use the control number printed on this form.

By Mail or Fax:		Complete, date, sign and return this proxy form in the return envelope provided or in one addressed to AST Trust Company (Canada), Attention: Proxy Department, P.O. Box 721, Agincourt, Ontario M1S 0A1, or by facsimile to 416-368-2502 or toll-free 1-866-781-3111 .

By E-mail:		Complete, date and sign this proxy form and send a scanned copy by e-mail to proxyvote@astfinancial.com .

This proxy will not be valid, acted upon or voted on unless it is completed as outlined herein and submitted via one of the aforementioned options by 10:00 a.m. (Toronto time) on Wednesday, May 1, 2019, and in the case of any postponement or adjournment of the meeting, not less than 24 hours before commencement of the postponed meeting or recommencement of the adjourned meeting.

REQUEST FOR FINANCIAL STATEMENTS

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