Securities Registered or to be registered pursuant to Section 12(b) of the Act.
N/A	N/A
_______________________	_______________________
Title of each class	Name of each exchange on
	which registered
Securities Registered or to be registered pursuant to Section 12(g) of the Act
N/A
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
8/⅛ % Debentures Due 2008
7/¼ %Debentures Due 2012
(Title of Class)

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

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

designation of Mr. Wells as an audit committee financial expert does not make Mr. Wells an "expert" for any purpose, impose any duties, obligations or liability on Mr. Wells that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member of the audit committee.

Audit Services

Norbord Inc. is an international producer of wood-based panels with assets of $1.4 billion. We employ approximately 2,900 people at 16 plant locations in the United States, Europe and Canada. We are one of the world's largest producers of oriented strand board (OSB).    In addition to OSB, we manufacture particleboard, medium density fibre-board (MDF), hardwood plywood, I-joists and related value-added products.    Norbord is a publicly traded company listed on the Toronto Stock Exchange under the symbol NBD.

1	Financial highlights	10	Board of Directors	18	Management's	61	Report on environment,
					discussion and analysis		health and safety
4	2004 highlights	12	Corporate governance
			practices	37	Consolidated financial	72	Glossary
5	Letter to shareholders				statements
		16	Financial performance			73	Officers of the company
			overview	60	Principal operating		and corporate information
					interests

NORBORD ANNUAL REPORT 2004

1

FINANCIAL HIGHLIGHTS

> Financial highlights

Norbord is one of the world's leading producers of wood-based panels, which are used principally in the construction and finishing of new homes.

Norbord is a low-cost producer with a strategic focus on well-timed growth, continuous margin improvements and superior customer service.

NORBORD ANNUAL REPORT 2004

4

NORBORD ANNUAL REPORT 2004

> 2004 highlights

NORBORD ANNUAL REPORT 2004

5

TO OUR SHAREHOLDERS

> To our shareholders
An interview with Barrie Shineton
President & Chief Executive Officer

	Barrie Shineton was appointed President and Chief Executive Officer of Norbord in 2004. Prior to that, he was the Company's Executive Vice President, Wood Products, and Managing Director of Norbord's European business. Barrie has more than 30 years of operations, sales and marketing experience in the forest products industry. In this report to shareholders, he answers questions related to Norbord's business strategy, performance and outlook.
Q. How would you      describe the overall      business climate for      Norbord in 2004?	A.  2004 was an unprecedented year for North American OSB producers, and Norbord's results surpassed most expectations. We were extremely well positioned to benefit from record market conditions as a result of the timely acquisitions and greenfield investments we made over the last four years.      US housing starts, the main driver of OSB demand, were more than 1.9 million. The repair and renovation market was strong as a result of existing home sales.      Supply and demand for North American OSB were in balance as little new industry capacity was introduced. Just as important is the work we've done to improve our European panel business performance. We made significant improvements in our operational efficiency, our customer base, our service and our organization structure. We benefited from a strong UK economy in which markets for our products enjoyed higher sales and price levels than in 2003.
Q. Which of Norbord's      achievements are you      proudest of?	A. Norbord has demonstrated an ability to pursue well-timed, opportunistic growth that has brought value to shareholders. The 2004 acquisitions we made in Minnesota and in Belgium are examples of that.      In broad terms, I believe we've been successful at anticipating and pursuing growth, such as in the Southern United States where 45% of the new home starts are. A few years ago, we had virtually no presence in the South. Today, we're the largest OSB producer in that key market.      We've worked hard to distinguish ourselves by achieving production efficiencies that we believe have positioned us as one of the industry's lowest cost producers. I'm especially pleased with how well we contained our manufacturing costs in 2004 because our input costs, particularly resin, increased significantly.      Lastly, we've forged relationships with customers whose business is growing. And as Norbord's business has grown with them, we've enhanced our services such as information and inventory management systems.

NORBORD ANNUAL REPORT 2004

6

NORBORD ANNUAL REPORT 2004

Norbord, as a purely focused panelboard company, is more attractive to investors than it was as a business segment within a more diversified Nexfor.

NORBORD ANNUAL REPORT 2004

7

TO OUR SHAREHOLDERS

Environmental expectations set by regulators are constantly being raised and our goal is always to be 100% compliant.

NORBORD ANNUAL REPORT 2004

8

NORBORD ANNUAL REPORT 2004

Our low manufacturing cost is a competitive strength. It allows us to generate excellent performance, not only at the peak, but also at the bottom of the business cycle.

NORBORD ANNUAL REPORT 2004

9

TO OUR SHAREHOLDERS

Our goal is to be the world's best panelboard company and to generate the highest returns to shareholders over the cycle. All of our priorities and actions are directed at meeting these goals.

NORBORD ANNUAL REPORT 2004

10

NORBORD ANNUAL REPORT 2004

> Board of Directors

1 Jack L. Cockwell, Director since 1987;	4 J. Bruce Flatt, Director since 2002;
Group Chairman of Brascan Group of Companies 4	President and CEO, Brascan Corporation 4
Mr. Cockwell is Group Chairman of Brascan Corporation.	Mr. Flatt is President and CEO of Brascan Corporation.
Brascan's wholly-owned operations include real estate,	Mr. Flatt was previously President and CEO of Brookfield
financial services and power generation. Mr. Cockwell	Properties Corporation. In addition to his role on the
was President and CEO of Brascan from 1991 until 2002.	Norbord Board, Mr. Flatt is a director of Brascan Corpor-
In addition to his role on the Norbord Board, Mr. Cockwell	ation, Brookfield Homes Limited, Brookfield Properties
is Chairman of the Board of the Royal Ontario Museum	Corporation, Fraser Papers Inc. and Noranda Inc.
and a director of Brookfield Properties Corporation,
Falconbridge Limited, Fraser Papers Inc., Noranda Inc.
and Astral Media Inc.	5 Gordon E. Forward, Director since 1995;
	Chairman Emeritus, United States Business Council for
	Sustainable Development 1, 3, 4
2 Dian Cohen, CM, Director since 1987;	Dr. Forward is former Vice Chairman of Texas Industries
President, DC Productions Ltd. 1, 2	Inc., a position he held from 1998 to 2000. Prior to that,
Ms. Cohen is an economist and a partner in her own	he was President and CEO of Chaparral Steel Company.
economic consultancy. She is an author of a number of	In 2002, Dr. Forward received the Environmental
books on government, personal money management and	Conservation Distinguished Service Award from the
social policy issues. Ms. Cohen is the recipient of many	American Institute of Mining, Metallurgical and
literary awards, as well as the Order of Canada in 1993.	Petroleum Engineers in recognition of his significant
In addition to her role on the Norbord Board, Ms. Cohen is	contribution to the field of waste minimization. In addition
a director of Dorel Industries Inc. and Fraser Papers Inc.,	to his role on the Norbord Board, Dr. Forward is a director
a trustee of Great Lakes Hydro Income Fund and Treasurer	of Texas Industries Inc.
of the University Women's Scholarship Foundation.
	6 Dominic Gammiero, Director since 1998;
3 Pierre Dupuis, Director since 1995;	President and CEO, Fraser Papers Inc. 3
Former Vice President and Chief Operating Officer,	Prior to becoming President and CEO of Fraser Papers
Dorel Industries Inc. 1, 3, 4	Inc. in 2004, Mr. Gammiero was President and Chief
Mr. Dupuis was Chief Operating Officer of Dorel	Executive Officer of Norbord Inc. since 1999.
Industries Inc., a global consumer product company,	Mr. Gammiero has more than 30 years' experience in the
from 1999 to 2005, when he retired from active manage-	forest products industry in North America and Europe.
ment responsibilities. He continues to work for Dorel as a	In addition to his role on the Norbord Board,
consultant. Prior to his appointment at Dorel, Mr. Dupuis	Mr. Gammiero is a director of Fraser Papers Inc.
was President and COO of Transcontinental Inc., a
Canadian printing and publishing company. In addition to
his role on the Norbord Board, Mr. Dupuis is a trustee of
Great Lakes Hydro Income Fund.

NORBORD ANNUAL REPORT 2004

11

TO OUR SHAREHOLDERS

NORBORD ANNUAL REPORT 2004

12

NORBORD ANNUAL REPORT 2004

> Corporate governance practices

> Reviews and approves Norbord's overall business strategy and its annual business plan

> Reviews the risks and alternatives in Norbord's business to ensure 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 shareholders' objectives and expectations

> Appoints the Chief Executive Officer (CEO) and approves the appointment of senior management

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

> Reviews succession and development plans for senior management

> Maintains integrity within Norbord by reviewing and monitoring disclosure controls and procedures, internal controls and procedures for financial reporting and compliance with the Code of Business Conduct

> Approves Norbord's financial reports to shareholders

> Sets the Corporation's dividend policy and approves quarterly dividends

> Ensures the effective operation of the Board and its committees

> Assesses management's performance against approved business plans and key industry performance indicators

> Ensures policies and processes are in place to address key business issues of the Corporation including financial, environmental, health and safety, business conduct, pension management and communications

> Approves significant and material issues - in addition to those matters that must, by law, be approved by the Board, Norbord's Board also provides approval on:

 > any capital disposition or expenditure in excess of CAD $3 million and for any cost overrun on any of these projects in excess of 10% or CAD $2 million, whichever is less,

> any new loan agreement or guarantee for an amount in excess of CAD $10 million,

> changes in senior management at the Corporation and its principal operating subsidiaries, and

> any other material agreement or arrangement that is not in the ordinary course of business.

NORBORD ANNUAL REPORT 2004

13

TO OUR SHAREHOLDERS

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 Corporation's directors represent a diverse base of business skills and experiences to ensure effective oversight and reporting.

Of the 11 directors, 8 are unrelated directors within the meaning of the TSX Guidelines, comprising a majority of the Board. The three directors considered to be related within the meaning of the TSX Guidelines are: Dominic Gammiero, President and CEO of Fraser Papers Inc. since 2004 and former President and CEO of the Corporation from 1999-2004, K. Linn Macdonald, Chairman of the Board and former President and CEO of the Corporation from 1991-1999, and J. Barrie Shineton, President and CEO of the Corporation since 2004.

NORBORD ANNUAL REPORT 2004

14

NORBORD ANNUAL REPORT 2004

Corporate Governance Committee

NORBORD ANNUAL REPORT 2004

15

TO OUR SHAREHOLDERS

2. Present to the Board for approval a long-term vision for the Corporation together with strategies to achieve that vision, the risks and alternatives to these strategies and specific steps and performance indicators, which 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 Corporation's strategies together with key financial and other performance goals for the Corporation's activities and report regularly to the Board on the progress against these goals
4. Act as the primary spokesperson for the Corporation to all its stakeholders
5. Present to the Board for approval annually an assessment of the Corporation'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 Corporation other than the Chairman
7. Develop and implement the systems and processes to support the policies established by the Board

NORBORD ANNUAL REPORT 2004

16

NORBORD ANNUAL REPORT 2004

> Financial performance overview

NORBORD ANNUAL REPORT 2004

17

MANAGEMENT'S DISCUSSION AND ANALYSIS

18

NORBORD ANNUAL REPORT 2004

> Management's discussion and analysis
   January 27, 2005

NORBORD ANNUAL REPORT 2004

19

MANAGEMENT'S DISCUSSION AND ANALYSIS

	Norbord's financial goal is to achieve top quartile return on common equity (ROE) and cash return on capital employed (ROCE) among North American forest products companies. Norbord met this target in both 2003 and 2004. A net debt to capitalization ratio of 20-40% is also targeted. At the end of 2004, Norbord was at the mid-point of this range. The Company's goal of maintaining a strong balance sheet provides the flexibility to respond to strategic growth opportunities.         Norbord's financing strategy is to maintain investment grade debt ratings. This provides for long-term access to public and private capital markets on attractive terms. Ratings on Norbord debt have been consistently investment grade since 1992.         Norbord manages its business to provide for a sustainable dividend to be paid quarterly to common shareholders throughout the business cycle. At December 31, 2004, the Board of Directors had declared 57 consecutive quarterly common dividends of CAD $0.10 per share. In addition, Norbord paid a special dividend of CAD $1.00 per share to common shareholders during 2004. Business Profile         Based in Toronto, Canada, Norbord employed approximately 2,900 people at December 31, 2004 at 16 plant locations in the United States, Europe and Canada. The geographical breakdown of property, plant and equipment at year-end was 60% US, 33% Europe and 7% Canada. Manufacturing facilities include: > 11 OSB mills > 3 particleboard mills > 2 medium density fibreboard mills > 1 hardwood plywood mill > 1 I-joist mill > 2 lamination operations > 1 furniture/components plant The annual production capacity of these facilities at December 31, 2004, was: > 4.3 billion square feet (3/8-inch basis) of OSB > 965 million square feet of particleboard (3/8") > 570 million square feet of MDF (3/8") > 80 million square feet of hardwood plywood (3/8") > 60 million lineal feet of I-joists Norbord does not own any timberlands. It purchases its wood fibre from third parties that include private landowners and government owned and managed timberlands.
Distribution of Fraser Papers	On June 30, 2004, the Company completed the distribution of its paper and timberlands business (Fraser Papers) to its common shareholders. Concurrent with the distribution, the Nexfor name was changed to Norbord. Shares of Norbord and Fraser Papers began trading on July 5, 2004 for normal settlement.         Following the distribution, Norbord held an $83 million note payable from Fraser Papers. On September 30, 2004 the note was repaid.         Norbord continues to provide certain administrative services to Fraser Papers for a fee on an interim basis. To date, the fee for these administrative services is less than $1 million. In addition, Norbord continues to guarantee certain obligations of Fraser Papers under letters of credit, operating lease commitments, purchase commitments, landfill closure commitments, and commodity hedging contracts. The maximum amount of potential future payments that Norbord could be required to make under these obligations is estimated to be $84 million. This estimate excludes

MANAGEMENT'S DISCUSSION AND ANALYSIS

20

NORBORD ANNUAL REPORT 2004

	the potential amount of future payments related to guarantees of derivative contracts that cannot be quantified due to their nature. No amounts have been recorded in the consolidated balance sheet with respect to these guarantees.         Fraser Papers has committed to use its best efforts to remove Norbord from these guarantees and has agreed to provide letters of credit or other acceptable collateral to secure any guarantees that remain outstanding on December 27, 2005. As security for these ongoing financial commitments to Fraser Papers, Norbord, in addition to another Fraser Papers creditor, has the right at any time to require Fraser Papers to provide a fixed first charge security interest over Fraser Papers' timberlands and manufacturing facilities. The Company's share of the expected proceeds from liquidation of this security would be sufficient to cover the maximum potential amount of future payments under the guarantees.
Discontinued Operations	Results of Fraser Papers have been included in discontinued operations in the consolidated statements of earnings and cash flows up to June 30, 2004, the date on which this business was distributed to common shareholders. The December 31, 2003 consolidated balance sheet includes assets and liabilities relating to Fraser Papers. In addition, the results of two Quebec sawmills have been included in discontinued operations in the consolidated statements of earnings and cash flows until the fourth quarter of 2003 when they were sold.         Fraser Papers generated net sales of $478 million and an operating loss of $9 million (EBITDA $14 million) for the six-month period of ownership in 2004. For the full year 2003, these operations generated net sales of $875 million and an operating loss of $80 million (EBITDA loss of $32 million).         While seeing encouraging signs that markets were strengthening, Fraser Papers was negatively impacted by higher energy and fibre costs for the six-month period of ownership in 2004. The 2003 results include the impact of the productivity improvement plan at the East Paper operations. A charge of $26 million ($17 million after tax or $0.12 per share) was recorded in 2003 in respect of this plan, consisting of severance, early retirement, consulting and training costs of $20 million and non-cash pension and non-pension post-retirement benefits-related charges of $6 million. The productivity improvement plan targeted $21 million in cost savings annually.         Effective October 31, 2003, Norbord sold its two Quebec sawmills at La Sarre and Senneterre. Proceeds were $45 million, including $7 million for working capital. The sale was consistent with the Company's strategy and previously announced intention to divest non-strategic assets and reduce debt. A pre-tax gain of $18 million ($12 million after-tax or $0.08 per share) was recorded on the transaction.         The two sawmills generated net sales of $40 million and an operating loss of $2 million for the 10-month period of ownership in 2003. The results include the impact of duties paid on softwood lumber shipped to the US totalling $4 million in 2003. The Government of Canada has challenged the duties, launching appeals with various trade bodies. Norbord retained the right to any refund of duties paid by these two sawmills prior to the sale, totalling $7 million, should the appeal process or a negotiated settlement yield any refund.

NORBORD ANNUAL REPORT 2004

21

MANAGEMENT'S DISCUSSION AND ANALYSIS

Acquisitions

On March 26, 2004, Norbord acquired the remaining 50% interest in the Bemidji, Minnesota OSB mill, bringing its ownership interest to 100%. The cost of the acquisition was $34 million, including $6 million for working capital. The acquisition increased OSB production by 6% over 2003 and generated incremental EBITDA of $27 million.         On September 30, 2004, Norbord completed the acquisition of OSB and particleboard assets located at Genk, Belgium, at a cost of $64 million, expanding Norbord's presence in key markets in Belgium, Holland, Germany and Scandinavia. The acquisition was accretive to earnings in the first quarter of ownership, generating $2 million of EBITDA, despite the fact that the OSB line was down for 21 days for maintenance identified prior to the acquisition.         The two acquisitions increased Norbord's total OSB capacity by 13% from 3,800 MMsf-3/8" to 4,280 MMsf-3/8".

Financial Summary
(US $ millions, except per share information)		2004		2003		2002		2001		2000
Net sales	$	1,486	$	1,064	$	679	$	497	$	494
EBITDA		631		365		89		50		101
Earnings from continuing operations		332		166		7		2		58
Earnings		326		126		13		12		94
Total assets		1,391		2,063		2,029		1,829		1,756
Long-term debt		450		657		658		686		575
Net debt		236		482		745		573		475
Earnings per share from continuing operations		2.21		1.12		0.04		-		0.30
Earnings per share		2.16		0.85		0.08		0.07		0.61
Common dividends per share		1.10		0.29		0.26		0.26		0.26

2004 was the most profitable year in Norbord's history. Record OSB prices in North America were primarily responsible for Norbord's earnings of $326 million, or $2.16 per common share, over 2.5 times the earnings of $126 million or $0.85 per share in 2003. Excluding the paper and timberlands business, which was included in the results for the first six months, Norbord's 2004 earnings were $332 million or $2.21 per share.    The following are significant highlights during 2004: > Generated cash from operating activities of $562 million ($3.75 per share) > Achieved 47% return on common equity (ROE) > Achieved 73% pre-tax cash return on capital employed (ROCE) > Made capital investments of $67 million, or 82% of depreciation > Reduced net debt by $246 million > Reduced debt to capitalization ratio to 30% at year-end vs. 35% at end of 2003 > Maintained investment grade credit ratings > Achieved $37 million in margin improvements over 2003 > Acquired remaining 50% ownership of Bemidji, Minnesota OSB mill for $34 million > Acquired OSB/particleboard mill at Genk, Belgium for $64 million > Increased total OSB production by 12% > Paid special dividend of CAD $1.00 per share to common shareholders > Repurchased 1.9 million common shares

MANAGEMENT'S DISCUSSION AND ANALYSIS

22

NORBORD ANNUAL REPORT 2004

The margin improvement program (MIP), eight years after formal implementation, remains the cornerstone of Norbord's efforts to "control the controllables". Measured at constant prices and exchange rates, MIP realized a $37 million improvement over 2003. Approximately $30 million of 2004 MIP is attributed to improving volume from existing assets and $20 million to improvements in gross margins related to product mix. The gains from these initiatives were partially offset by input cost increases.         ROE averaged 47% in 2004, sharply higher than the 15% reported in 2003. Norbord's ROCE rose to 73% in 2004 from 43% in 2003. ROCE is a key measurement of financial performance, focusing on cash and the efficient use of capital. While capital employed was up 12% over 2003 to $918 million, principally due to panelboard asset acquisitions, the higher ROCE was driven by EBITDA growth.         Cash provided by operating activities totalled $562 million or $3.75 per share compared to $280 million in 2003. The substantial improvement was driven by record OSB prices.         Cash and cash equivalents totalled $215 million at December 31, 2004, compared to $177 million at year-end 2003. On January 5, 2004, Norbord sold for par value a short-term investment represented by a $60 million debenture issued by Canfor Corporation. The debenture was issued to Norbord in November 1999 pursuant to Norbord's sale of its 50% interest in Northwood Inc.         The $200 million 67/8% debentures issued in 1995 were repurchased in 2004. The premium paid on repurchase, net of the recognition of gains on interest rate swaps, was $9 million. The repurchase was funded by cash from operations. At the end of 2004, committed bank lines were $208 million, of which $6 million was utilized for letters of credit.          Norbord's net debt stood at $236 million at December 31, 2004, representing 30% of capitalization. Strong cash flow from operations has allowed the net debt to capitalization of Norbord to be reduced from 35% at December 31, 2003, while paying a special dividend of CAD $1.00 per share, acquiring an additional $94 million in panelboard assets, and completing the $500 million distribution of Fraser Papers.          Book value at December 31, 2004 was $3.42 per share (CAD $4.11). Norbord's shares traded on the Toronto Stock Exchange (TSX) in a range of CAD $10.18-$16.43 in 2004, closing the year at CAD $12.40, up 14% from year-end 2003. The rise in share price is notable in light of the $500 million distribution of Fraser Papers to common shareholders during the year. The S&P/TSX Composite Index rose 14% while the TSX Materials Index was up 7% in 2004. The total return on Norbord shares during 2004 was 67%, assuming the reinvestment of dividends and the sale of Fraser Papers common shares and subsequent reinvestment of proceeds in Norbord shares on the distribution date. The daily average volume traded during 2004 was 518,000, up sharply from 215,000 in 2003, as the public share float increased substantially during the year following a sale of shares by Brascan Corporation.

Quarterly		Q4	Q3	Q4
Results	(US $ millions)	2004	2004	2003
	Net sales	335	364	346
	EBITDA	89	156	156
	Depreciation	22	21	20
	Capital investments	40	12	15

In the fourth quarter of 2004, EBITDA was $89 million, compared to $156 in the same quarter of the previous year. North American OSB pricing in the quarter was lower than in the fourth quarter of 2003, offsetting the impact of increased OSB production volume and higher European panel prices. EBITDA margins were 27% in the fourth quarter compared to 43% for the third quarter of 2004 and 45% for the fourth quarter of 2003.

NORBORD ANNUAL REPORT 2004

23

MANAGEMENT'S DISCUSSION AND ANALYSIS

North American OSB markets strengthened considerably during the last six weeks of the fourth quarter due to the resumption of home construction activities following hurricanes in the US South in September. The market was also impacted by announced scheduled maintenance downtime and wet weather in the US South that curtailed the supply of logs to several panel producers. North Central benchmark OSB pricing remained above historical levels in the fourth quarter, averaging $264 per Msf (7/16-inch basis) as compared to the prior quarter average of $353 and the fourth quarter of 2003 average of $403.         Net sales in the quarter were $335 million, compared to $346 million in the fourth quarter of 2003. Increased production volume, contributing an additional $42 million in sales, has been offset by the impact of lower North American OSB prices. Sales from the Genk, Belgium mill, acquired on September 30, 2004, represent $17 million of the total net sales increase.         Cash provided by operating activities for the fourth quarter was $107 million compared to $184 million in the same quarter of 2003, with the variance driven by lower earnings and higher cash taxes.         Cash dividends of $133 million in the fourth quarter of 2004 include the $118 million special dividend paid on September 30, 2004.         Capital investments were $40 million in the quarter. Capital investments were concentrated in the fourth quarter as over 70% of the planned maintenance downtime was scheduled in this period. Significant capital projects, including the tie-in of the first phase of the new energy system at Jefferson, Texas, were completed in conjunction with the regularly scheduled maintenance downtime.

												Earnings		Earnings
										Earnings		from		from
					Earnings per		Earnings per			from	Continuing		Continuing
						Common		Common	Continuing		Operations		Operations
		Net Sales		Earnings		Share		Share	Operations		per Common		per Common
		(US$ millions)		(US$ millions)		(basic)		(diluted)		(US$ millions)	Share (basic)		Share (diluted)
2004
4th Quarter	$	335	$	41	$	0.26	$	0.26	$	41	$	0.26	$	0.26
3rd Quarter		364		77		0.51		0.50		77		0.51		0.50
2nd Quarter		439		127		0.85		0.84		127		0.85		0.84
1st Quarter		348		81		0.54		0.54		87		0.59		0.59
2003
4th Quarter	$	346	$	71	$	0.48	$	0.48	$	77	$	0.52	$	0.52
3rd Quarter		303		54		0.37		0.37		63		0.42		0.42
2nd Quarter		224		-		-		-		20		0.14		0.14
1st Quarter		191		1		-		-		6		0.04		0.04

Quarterly earnings surged in the last two quarters of 2003 and through 2004, reflecting the rising price of OSB. Fluctuations in earnings during that time mirror fluctuations in the price of OSB.      In addition to the operating results of Fraser Papers and the Quebec sawmills, results of discontinued operations include restructuring charges at the East Paper operations of $14 million, $2 million and $1 million in the second, third and fourth quarters of 2003, respectively, and a gain of $12 million on the sale of the Quebec sawmills in the fourth quarter of 2003.

MANAGEMENT'S DISCUSSION AND ANALYSIS

24

NORBORD ANNUAL REPORT 2004

Financial Results	Following the distribution of Fraser Papers, the Company has a single reportable segment.
	(US $ millions)		2004		2003		2002		2001		2000
	Net sales	$	1,486	$	1,064	$	679	$	497	$	494
	EBITDA		631		365		89		50		101
	Depreciation		82		76		71		43		43
	Capital investments		67		31		15		64		136
	Continuing operations comprise 11 OSB mills, 3 particleboard plants, 2 MDF plants, 1 hardwood plywood mill, 1 I-joist mill, 2 laminating operations, and a furniture plant. The operations are located in the United States, Europe and Canada.

			Net Sales			Shipments			Average Mill Nets
			(US	$ millions)		(volume)			(US $ per M unit)
			2004		2003	2004	2003		2004		2003
	OSB (MMsf-3/8")	$	1,084	$	737	3,731	3,372	$	291	$	218
	Particleboard (MMsf-3/8")		98		82	647	618		152		132
	MDF (MMsf-3/8")		112		94	593	567		189		165
	Plywood (MMsf-3/8")		45		41	79	77		572		537
	I-joist (MM lineal ft.)		46		30	57	41		811		729
	Other (1)		101		80	-	-		-		-
	Total	$	1,486	$	1,064
	(1) Other sales are net of internal transfers and include laminated products, furniture components and ready-to-assemble furniture units.

	Markets The US remained the principal market destination for Norbord's products, with 68% of total sales in 2004, up from 65% in 2003. European sales represented 25% in 2004, and Canadian sales 7%.

					2004	2003
	Shipments by Market Destination	United States	Europe	Canada	Total	Total
	OSB (MMsf-3/8")	3,071	352	308	3,731	3,372
	Particleboard (MMsf-3/8")	-	647	-	647	618
	MDF (MMsf-3/8")	136	430	27	593	567
	Plywood (MMsf-3/8")	64	-	15	79	77
	I-joist (MM lineal ft.)	57	-	-	57	41

The US housing market continued to exceed expectations. US housing starts grew by 6% over 2003 levels to 1.95 million units and exceeded industry forecasts by approximately 11%. Interest rates and inflation remained low while GDP and consumer confidence remained high, supporting strong housing demand. Thirty-year mortgage rates averaged 5.8%, the same as 2003. Consensus is emerging that the underlying demographics, driven by immigration, will continue to support a higher level of housing demand throughout the coming decade. The UK housing market has remained strong as interest rates remained low and unemployment reached a 20-year low. Canadian housing starts increased 7% over 2003 to 233,000 units, surpassing the 15-year record set in 2003.         The North American structural panel industry again set a record, producing 42.7 billion square feet (3/8-inch basis) for the year driven by OSB output of 25.4 billion square feet. OSB continues to displace plywood market share as OSB production was up more than 7% over 2003, while plywood production was up marginally due to the strong markets. OSB production for 2004 represents approximately 59% of the total North American structural panel production.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

For the second consecutive year the benchmark North Central price for OSB set a record. The price peaked at $520 per Msf (7/16-inch basis) in late April 2004. The previous record of $465 was set in the fall of 2003. The North Central price hit a low of $215 in October 2004 following hurricanes in the US South during the previous month that delayed building site activity. Prices rose steadily through November and December, ending the year at $315. The North Central OSB price averaged $369 in 2004 compared with $294 for 2003.         North American MDF and hardwood plywood both experienced price improvement over 2003. The improvement was due to a combination of increased demand, reduced capacity and the Company's focus on specialty products. I-joist prices improved more than 10% due to strong housing starts and improved lumber markets.         European OSB markets strengthened significantly during 2004. Demand continues to increase with no new capacity coming on stream in the near term, resulting in a more balanced market.         European particleboard and MDF markets also strengthened in 2004 as demand from Eastern Europe improved and consolidation occurred within these sectors, particularly in Germany.

	Operations
	Production	2004	2003	2002	2001	2000
	OSB (MMsf-3/8")	3,821	3,402	2,986	1,800	1,520
	MDF (MMsf-3/8")	598	572	524	521	510
	Particleboard (MMsf-3/8")	616	586	560	565	706
	Plywood (MMsf-3/8")	79	76	79	80	82
	I-joist (MM lineal ft.)	56	41	31	26	7

OSB accounted for 96% of EBITDA, generating $606 million, up from $343 million in 2003. North American operations contributed 92% and Europe 8% of the 2004 total EBITDA.         Net sales increased 40% or $422 million in 2004, with higher OSB prices accounting for the majority of the increase. Record North American OSB production accounted for $92 million of the increase, and acquisitions contributed $65 million. OSB accounted for 73% of total net sales in 2004 compared to 69% in 2003.         OSB mill nets, net sales divided by shipments, increased 66%, benefiting from record benchmark prices in North America and significant price increases in Europe. Shipments rose 10%. Of the 359 million square feet (3/8-inch basis) increase in shipments, production improvements delivered as a result of implementing best practices at the three OSB mills acquired in 2002 and through the maturation of greenfield investments, accounted for roughly one-half of this increase. The balance is attributable to the acquisition of the Genk, Belgium mill and the additional 50% of the Bemidji, Minnesotamill not previously owned.          Record EBITDA of $631 million was generated in 2004, more than 1.7 times the $365 million for the previous year. Increased production volume accounted for approximately $70 million of the improvement with the balance driven by OSB price. EBITDA margin for 2004 was 42% compared to 34% for the prior year.         Nine of the 11 OSB mills established annual production records with OSB production increasing 419 million square feet (3/8-inch basis) or 12% in 2004. In addition, annual production records were set at both MDF facilities, the particleboard mill in Scotland and the I-joist plant in New Brunswick. This follows record production in 2003 when 13 of 16 facilities set annual production records.         To date, Norbord has been able to largely mitigate the impact of rising energy prices through hedging and an increase in the use of alternative fuels. The increase in natural gas price has, however, begun to negatively impact the price of resin. North American production costs for OSB, net of employee profit share, have risen almost 5% over the prior year principally as a result of the increase in resin pricing. Fibre pricing increases, particularly in Minnesota and Quebec, and

MANAGEMENT'S DISCUSSION AND ANALYSIS

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NORBORD ANNUAL REPORT 2004

foreign exchange have also had a negative impact on manufacturing cost. Significant gains from Norbord's Margin Improvement Program have limited the impact of these cost increases.         EBITDA margins from the North American industrial panel operations averaged 13% in 2004 compared to 8% in 2003. Market-related shutdowns were taken at both North American MDF and plywood facilities during 2004 due to weaker demand. MDF production at Cowie, Scotland, rose 6% in the year due to continuous improvement on both lines. MDF costs at Cowie declined 2%, a significant achievement in light of higher energy prices. Particleboard production increased 5% over 2003 due to the addition of the particleboard line at Genk, Belgium in the fourth quarter.         Depreciation expense increased $6 million in 2004 to $82 million, with $2 million due to acquisitions. Interest          Interest expense of $31 million in 2004 was down from $37 million in 2003. Total long-term debt, including the current portion, decreased to $451 million at year-end 2004, down 32% from $659 million at December 31, 2003. The decrease in total long-term debt and interest expense is due to the redemption, at mid-year, of the $200 million 67/8% debentures due 2005. On redemption, the Company recorded a pre-tax charge of $9 million ($6 million after tax or $0.04 per share) for call premiums net of associated interest rate swap gains. The redemption was funded with cash generated from operations.          The effective interest rate on Norbord's debt-related obligations, including the impact of interest rate swaps, was 5.3% at December 31, 2004, compared to 4.7% at year-end 2003. From time to time the Company recoupons its portfolio of interest rate swaps to more efficiently manage cash flow and credit exposure. In 2003 Norbord realized a gain of $23 million in respect of $375 million of interest rate swaps. Any gains realized are deferred and amortized over the remaining term of the debt against which the swaps were designated as hedges. At December 31, 2004, $43 million of gains were deferred and included in accounts payable and accrued liabilities and other liabilities in the consolidated balance sheet. The amortization amounted to $10 million in 2004 and $11 million in 2003. Interest income in 2004 amounted to $6 million compared to $5 million in 2003. Interest income in 2004 includes $1 million from the Fraser Papers note, which was outstanding during the third quarter, with the balance from interest earned on cash and cash equivalents. 2003 includes income of $3 million from the Canfor 61/4% convertible debentures, sold in January 2004. Income Taxes          A tax expense of $183 million was recorded in 2004 on pre-tax earnings from continuing operations of $515 million. The effective tax rate of 35% equates to the combined statutory rate.

Changes in Accounting Policy

The Canadian Institute of Chartered Accountants (CICA) Handbook Section 3110 - Asset Retirement Obligations, is effective for fiscal years beginning on or after January 1, 2004, and was adopted by the Company effective January 1, 2004. Section 3110 requires the recognition of all legal obligations associated with the retirement of a tangible long-lived asset. This change in accounting policy has been effected retroactively with prior periods restated to reflect the impact of the change. All asset retirement obligations recorded were in respect of landfill closure and remediation costs at Fraser Papers. Accordingly, these obligations have been classified as liabilities of discontinued operations. The cumulative effect of the change was a decrease of 2003 opening retained earnings of $3 million. The change in policy did not have a material impact on earnings in 2004 and 2003.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

Significant Accounting Policies and Estimates

Revenue Recognition Net sales are recognized when the risks of ownership pass to the purchaser. This is generally when goods are shipped. Sales are recorded net of freight and discounts.         Sales are governed by contract or by standard industry terms. Revenue is not recognized prior to the completion of those terms. The majority of product is shipped via third-party transport on a freight-on-board shipping basis. In all cases, product is subject to quality testing to ensure it meets applicable standards prior to shipment. Property, Plant and Equipment Property, plant and equipment are recorded at cost, including capitalized interest. Government capital grants and investment tax credits received reduce the cost of related assets. Property, plant and equipment acquired in a business acquisition are recorded at fair value. Property, plant and equipment are depreciated on a straight-line basis. The rates of depreciation are intended to fully depreciate manufacturing and non-manufacturing assets over the following periods, which approximate their useful lives:

	Buildings	20 to 40 years
	Production equipment	10 to 15 years

These periods are assessed from time to time to ensure that they continue to approximate the useful lives of the related assets. Future Income Taxes Future income tax assets and liabilities are determined based on temporary differences between the carrying amount and tax bases of assets and liabilities as well as certain carryforward items. Future income tax assets are recognized only to the extent that, in the Company's opinion, it is more likely than not that the future income tax assets will be realized. This opinion is based on certain estimates and assumptions. If these estimates or assumptions change in the future, the Company could be required to reduce or increase the value of the future income tax assets resulting in income tax expense or recovery. The Company evaluates its future income tax assets periodically.

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 on page 32 in the Price Sensitivities and Foreign Exchange sections. 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 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.

MANAGEMENT'S DISCUSSION AND ANALYSIS

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NORBORD ANNUAL REPORT 2004

Liquidity and Capital Resources

Increased earnings drove cash provided by operating activities to $562 million or $3.75 per share in 2004, up sharply from $280 million in 2003.         Operating working capital, consisting of accounts receivable and inventory less accounts payable and accrued liabilities, at December 31, 2004 was $2 million compared to negative $6million at December 31, 2003. The Company aims to minimize the amount of capital held as operating working capital. Total working capital at December 31, 2004 was $217 including $215 in cash and cash equivalents.         Norbord's net debt stood at $236 million at December 31, 2004, representing 30% of capitalization. Strong cash flow from operations has allowed the net debt to capitalization of Norbord to be reduced from 35% at December 31, 2003, while paying a special dividend of CAD $1.00 per share, acquiring an additional $98 million in panelboard assets, and completing the $500 million distribution of Fraser Papers. Net debt includes debt of $451 million less cash and cash equivalents of $215 million.         During the year, the Company redeemed its $200 million 67/8% debentures due 2005 and unwound $50 million of interest rate swaps, and recorded a pre-tax charge of $9 million for call premiums net of associated interest rate swap gains. The redemption was funded with cash generated from operations. The Company's next term debt maturity is its $200 million 81/8% debentures due March 20, 2008. The $451 million term debt outstanding at year-end 2004 has an average term of 5.6 years.          At December 31, 2004, the Company had $375 million (2003 - $425 million) of interest rate swaps outstanding, and 73% (2003 - 57%) of Norbord's net debt was at floating interest rates.          During 2004 the Company's committed unsecured revolving bank lines were renewed with each of its commercial banks for a three-year term at a reduced total commitment to reflect the requirements of the Company following the distribution of Fraser Papers. At December 31, 2004, $6 million of the $208 million of committed bank lines were utilized for letters of credit, with the balance available to support short-term liquidity requirements. These committed bank lines mature through 2007, bear interest at money market rates plus a margin that varies with the Company's credit rating, and contain certain financial covenants that the Company must comply with on a quarterly basis.          At December 31, 2004, the Company had tax operating loss carryforwards of approximately £37 million from UK operations. These losses can be carried forward indefinitely. The Company has capital losses in Canada of CAD $54 million that can be carried forward indefinitely. The Company also has approximately CAD $29 million of Investment Tax Credits (ITCs) available to reduce future Canadian tax liabilities. The ITCs expire between 2007 and 2012. The tax benefit of the ITCs on qualified fixed assets has been reflected in the financial statements as a reduction in the book value of the assets to which they relate. The loss carryforwards and the credits will be utilized over the next several years to eliminate cash taxes otherwise payable, and will enhance future cash flows. The future tax benefits of these temporary differences have been included in future income taxes in the consolidated financial statements.

NORBORD ANNUAL REPORT 2004

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MANAGEMENT'S DISCUSSION AND ANALYSIS

Contractual	The following table summarizes Norbord's contractual obligations at December 31, 2004:
Obligations
						Payments Due by Period
				Less than		One-Three		Four-Five		After Five
	Contractual Obligations (US $ millions)		Total	One Year			Years		Years		Years
	Long-term debt	$	451	$	1	$	-	$	200	$	250
	Purchase obligations		36		27		8		1		-
	Operating leases		6		1		2		1		2
	Total	$	493	$	29	$	10	$	202	$	252
	Note: The above table does not include pension and post-retirement benefits plan obligations, which are discussed on page 30.

Capital Investments

Capital investments in 2004 totalled $67 million, more than double the $31 million spent in 2003. Capital investments represented 82% of depreciation in 2004. Approximately 60% of the $67 million was invested in projects to enhance profitability. The 2004 total includes $17 million invested to date at Jefferson, Texasfor an energy system. The investment will reduce fuel operating costs and maintenance. An additional $9 million will be invested by mid-2005. In 2004, the Company invested $9 million of a $10 million project to install pollution control equipment that will allow the Nacogdoches, Texasmill to increase its permitted operating capacity by approximately 20%. The project will be completed in the second quarter of 2005.         The Cowie, Scotland facility invested $4 million during 2004 to expand recycling and production capacity. Prior to the acquisition of the Genk, Belgium operation, $10 million of capital investments were identified to improve profitability at the mill. Of this total, $2 million was invested in 2004.         At year-end 2004 commitments to projects in progress totalled $15 million. The Company expects to invest approximately $80 million in capital during 2005. This represents close to 90% of annual depreciation expense. Approximately one-half of the capital investments in 2005 will be for productivity improvements and strategic initiatives. The remaining 50% of the spending will be for sustaining capital, maintenance and environmental. The 2005 capital will be funded with cash generated from operations. Other funding sources available include existing cash reserves.

	(US $ millions)		2004		2003		2002		2001		2000
	Increased productivity	$	39	$	12	$	7	$	19	$	10
	Greenfield		-		-		-		34		114
	Environmental		11		6		1		9		1
	Maintenance of business		17		13		7		2		11
	Total	$	67	$	31	$	15	$	64	$	136

	Spending is higher for 2004 and is expected to be higher in 2005 than the previous two years as the Company has taken advantage of strong earnings to accelerate higher return capital projects and to meet MACT (Maximum Achievable Control Technology) requirements (see discussion on page 33).

MANAGEMENT'S DISCUSSION AND ANALYSIS

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NORBORD ANNUAL REPORT 2004

Credit Ratings

Debt ratings within investment grade categories are a key objective of Norbord's financing strategy and provide for long-term access to public and private capital markets on attractive terms. During 2004, all three rating agencies reviewed the Company's credit ratings in connection with the distribution of Fraser Papers. Dominion Bond Rating Service reaffirmed with a stable outlook, Standard & Poor's reaffirmed with a negative outlook, and Moody's downgraded the Company one notch. Current ratings are:

				Moody's
		Dominion Bond	Standard	Investors
		Rating Service	& Poor's	Service
	Debentures	BBB	BBB	Baa3
	Preferred shares	Pfd-3	P-3 (high)/BB+

	Ratings on the Company's debentures have been investment grade since 1992.
Defined Benefit Pension Plans	Norbord's obligations under its defined benefit pension plans are determined periodically through actuarial valuations, which are the basis for calculating pension expense. At December 31, 2004, defined benefit pension plan assets were $39 million (2003 - $35 million) while the accrued benefit obligations were $51 million (2003 - $44 million), yielding an unfunded liability of $12 million (2003 -$9 million).         Defined benefit pension expense for the year was $2 million (2003 - $2 million) and defined benefit employer contributions were $1 million (2003 - $1 million). Norbord's defined benefit pension plans are funded in accordance with all applicable regulatory requirements. Norbord anticipates 2005 net pension expense and employer contributions will be in line with 2004 levels.         The weighted average assumed return on assets is 7.8% and is based on management's best estimate of the long-term expected rate of return on plan assets, including consideration of asset mix, equity risk premium and active investment management premium. The weighted average discount rate used to value year-end 2004 accrued benefit obligations is 5.7% and is based on the market yield of high-quality corporate bonds of similar duration to the pension plan liabilities.         Significant changes in assumptions, driven by changes in financial markets, asset performance different from the assumed rate of return, significant new plan enhancements, acquisitions, divestitures, changes in the regulatory environment, and the measurement uncertainty incorporated into the actuarial valuation process could materially affect Norbord's future plan assets, accrued benefit obligations, pension expense and pension contributions.
Common Shares	Under the Dividend Reinvestment Plan, 172,058 common shares were issued in 2004 compared to 2,261,000 in 2003. For eight consecutive quarters ending in the fourth quarter of 2003, Norbord's major shareholder, Brascan Corporation, elected to take dividends in shares in lieu of cash. The reduction in shares issued under the Dividend Reinvestment Plan in 2004 reflects this fact. At December 31, 2004, Brascan owned approximately 36% of Norbord's outstanding common shares compared to approximately 43% at year-end 2003.         The Board of Directors approved a share repurchase program in October 2004 whereby the Company may purchase on the open market up to 7.5 million common shares, representing 5% of the total shares outstanding. Purchases may be made between November 2, 2004 and November 1, 2005. During 2004, 1.9 million shares were purchased and cancelled at a cost of $17 million. Since 1997, 17.5 million shares have been purchased and cancelled at a cost of $95 million.

NORBORD ANNUAL REPORT 2004

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MANAGEMENT'S DISCUSSION AND ANALYSIS

Common Share Information		2004		2003		2002		2001		2000
Shares outstanding at year-end (000s)	149,284			148,198		144,450		141,561		140,307
Dividends (US $ millions)	$	168	$	43	$	36	$	36	$	36
Book value (US $)	$	3.42	$	5.79	$	5.30	$	5.50	$	5.65
Market price at year-end (CAD $)	$	12.40	$	10.85	$	8.25	$	7.50	$	7.10
Dividend yield		3.2% (1)		3.7%		4.8%		5.3%		5.6%
(1) Excludes special dividend of CAD $1.00 per share paid September 30, 2004.

At January 27, 2005, the number of common shares outstanding amounted to 149.3 million, in line with year-end. No common shares were repurchased between December 31, 2004 and January 27, 2005.

Dividends

Dividends to common shareholders totalled $168 million in 2004 including the payment of a CAD $1.00 per share special dividend on September 30, 2004. In 2003 common dividends totalled $43 million. The annual dividend was CAD $1.40 in 2004 and CAD $0.40 in 2003.         Preferred share dividends totalled $2 million in 2004, unchanged from 2003. The Canadian prime interest rate is used to determine the dividend rate. The prime rate averaged 4.0% in 2004, down 70 basis points from 2003. Preferred share capital outstanding at year-end 2004 totalled 2.4 million shares or $38 million.

Stock-Based Compensation

The Company accounts for stock options using the fair value method. Under this method, compensation expense for options is measured at the grant date using an option pricing model and recognized on a straight-line basis over the vesting period. In both 2003 and 2004 the Company recognized $1 million in compensation expense related to stock options.         Shares issued under the Company's stock option plan totalled 2.8 million in 2004, generating proceeds of $17 million. Options on 1.5 million shares were exercised during 2003. Options on 2.1 million shares were outstanding at year-end 2004, with 41% vested. During the year, the exercise price on all outstanding options was decreased by CAD $5.41 to reflect the distribution of Fraser Papers (CAD $4.41) and the payment of the special dividend (CAD $1.00). The exercise price for these options is between CAD $0.72 and CAD $10.73, with expiry at various dates to 2014.

Transactions with Related Parties

In 2004 the Company provided certain administrative services to Fraser Papers (see page 19), a company related by virtue of being under common significant influence. The services are charged on a cost recovery basis.         In 2003 the Company paid $1 million in miscellaneous fees to a party related by virtue of being under common significant influence.

Labour Relations

Negotiations were completed in June 2004 for a new five-year agreement with the Communications, Energy and Paperworkers Union of Canada representing members at the La Sarre, Quebec, OSB mill. The agreement expires June 30, 2009 and provides for wage and benefit increases of $4 million over the term of the contract. The cost of the package should be partially offset by productivity gains.         The collective agreement with the Teamsters Union representing approximately 130 members at the Val d'Or, Quebec mill expired December 31, 2004. Negotiations have commenced and a settlement is expected in the second quarter of 2005. The terms of the agreement are expected to be similar to the agreement ratified at the La Sarre mill.         There are no labour union contracts expiring in 2005. Approximately 40% of Norbord's employees are unionized.

MANAGEMENT'S DISCUSSION AND ANALYSIS

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NORBORD ANNUAL REPORT 2004

Risks and Uncertainties

Norbord is exposed to a number of risks in the normal course of its business that have the potential to affect the operating performance of the Company. Major risks are discussed below. Price Sensitivities Norbord's earnings are sensitive to changes in world economic conditions, primarily in North America and Europe. Forest products markets are competitive and cyclical in nature and prices for many products are sensitive to variations in supply and demand.         Based on operating at capacity, the following table shows the approximate annualized impact of changes in product prices on after-tax earnings.

				Average
		Sensitivity	Impact on	Mill Nets
		Factor	Earnings	4th Quarter
		(US $)	(US $ millions)	2004
	OSB	$10 per Msf-7/16"	$ 23	$ 260
	Other panels	$10 per Msf-7/16"	9	222

Norbord is exposed to commodity price risk on both inputs (e.g., fibre, resin and energy) and outputs (e.g., OSB and MDF), and 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 and outputs 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 and falling commodity output prices. Should Norbord decide to hedge any of this exposure, it will hedge physically with suppliers and customers and, if unfeasible, purchase financial hedges where liquid markets exist.         At December 31, 2004, Norbord hedged approximately 50% of its expected natural gas consumption through March 2005, and 25% from April 2005 to June 2005, by locking in the price directly with its suppliers. Norbord also hedged most of its deregulated electricity consumption through September 2005 with the remainder at regulated prices. The majority of Norbord's energy inputs by volume are biomass, making Norbord's mills more than 60% energy self-sufficient. This ratio will increase once the Jefferson energy system project is completed in the second quarter of 2005, resulting in a 35% reduction in Norbord's North American natural gas consumption. Competition The forest products industry is a highly competitive business environment in which companies compete, to a large degree, on the basis of price. Norbord's principal market is the US where it competes with North American and, in some instances, foreign producers. Norbord's European operations compete primarily with other European producers. Certain competitors may have lower-cost facilities than Norbord. Norbord's ability to compete in these and other markets is dependent on a variety of factors such as manufacturing costs, continued free access to markets, customer service, product quality and currency exchange rates. Foreign Exchange Norbord competes within North American and European markets where product prices are significantly influenced by US dollar and Euro exchange rates. Norbord's foreign exchange exposure arises from the following sources: > Net investments in self-sustaining foreign operations, limited to Norbord's investment in its European operations, > Net Canadian dollar-denominated monetary assets and liabilities, and > Committed or anticipated foreign currency transactions, primarily Canadian dollar costs in Norbord's Canadian operations and Euro revenues in Norbord's UK operations.

NORBORD ANNUAL REPORT 2004

33

MANAGEMENT'S DISCUSSION AND ANALYSIS

Norbord's policy is to hedge all significant balance sheet foreign exchange exposures. The Company may hedge a portion of foreign currency cash flows for periods 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 British pound.         In 2004 Norbord was negatively impacted by the strengthening Canadian dollar, realizing an average exchange rate, relative to the US dollar, of US $0.768 (2003 - US $0.700) on its Canadian dollar costs. There were no Canadian dollar cost hedges maturing in 2004 (2003 - CAD $28 million at US $0.637 average rate).         The Euro strengthened versus the British pound from an average rate of £0.692 in 2003 to £0.678 during 2004, ending the year at £0.706. This level is considered cost competitive for British manufacturers, improving export opportunities and reducing pressure from Continental European imports.         There were no Canadian dollar cost hedges or Euro revenue hedges outstanding at December31, 2004. Each US one-cent change in the value of the Canadian dollar will impact annualized after-tax earnings by approximately $1 million in 2005. Each British pound one-pence change in the value of the Euro will impact after-tax earnings by approximately £1 million in 2005. Environmental Issues Norbord's operations are subject to a range of general and industry-specific environmental laws and regulations relating to air emissions, wastewater discharges, solid and hazardous waste management, and site remediation.         Maximum Achievable Control Technology (MACT) regulations, designed to reduce hazardous air emissions, took effect in the US in 2004. The new standards apply to more than 200 mills manufacturing plywood, OSB, MDF, particleboard and other wood composite panels.         Norbord's eight US operations will be fully compliant with the MACT requirement by the end of 2006, in advance of the October 1, 2007 compliance deadline. Overall compliance with MACT regulations will cost Norbord approximately $40 million, of which $28 million has already been approved for the installation of emission control equipment at the Nacogdoches, Texas, Minnesota, and New York mills.         A separate MACT regulation has been approved to control the emissions of hazardous air pollutants from industrial boilers. Four Norbord operations may be affected by these regulations. However, capital requirements for compliance are not expected to be material. For more detailed information on Norbord's emission control projects, consult the Report on Environment, Health and Safety included in this annual report. Fibre Resource While Norbord does not own any timberland, it does adhere to the principles of sustainable management and to third-party certification to verify that its wood fibre is sourced from sustainable, managed forests.         Norbord's wood fibre supply comes from several different sources. In the US, roundwood logs are primarily sourced from private and industry owned woodlands. The MDF mill also purchases woodchips and sawdust from local sawmills. In Europe, wood fibre is purchased from government-owned and private landowners. Fibre for OSB comes from roundwood logs, while the MDF and particleboard mills source fibre in the form of roundwood logs, woodchips, sawdust and recycled wood. Norbord's Quebec and Ontario mills purchase roundwood largely from third parties holding forestry licences on Crown land. Norbord holds forestry licences to source 841,800 cubic metres of poplar and birch from Crown timberland in Ontario and Quebec.         The Crown licences require the payment of stumpage fees for the timber harvested and compliance with specified rehabilitation and silvicultural management practices. The licences cover periods ranging from 20 to 25 years and are renewed or extended every 5 years. They can be revoked or cancelled for non-performance. The licences also contain terms and conditions that

MANAGEMENT'S DISCUSSION AND ANALYSIS

34

NORBORD ANNUAL REPORT 2004

could, under limited circumstances, result in a reduction of annual allowable timber that may be harvested by Norbord without any compensation.         The I-joist mill purchases lumber and OSB from manufacturers. Aboriginal Land Claims In July 1998, the Cree Nation in Northern Quebec launched a lawsuit against the federal and provincial governments and forest products companies operating in the region, including Norbord. The lawsuit claimed that forestry on aboriginal lands threatened the traditional Cree way of life protected under the James Bay and Northern Quebec Agreement signed in 1974.         The case was resolved February 7, 2002 outside of court, with an agreement between the Cree Nation and the Quebec government. The Agreement encompassed the management of all natural resources. Most of the changes to the Forestry Code resulting from this Agreement are now known. However, their impact cannot be fully measured until the Ministry of Natural Resources, Parks, and Wildlife approves or modifies the five-year forest management plans submitted in December 2003 by Norbord and the other harvest licence holders. The amended cutting rights will be made public after April 1, 2005. A provincial government panel has recommended a 20% reduction in the annual harvest of softwood only. While Norbord uses principally hardwood species, the Agreement is expected to affect the timber allocations and harvesting costs for Norbord's operations in Quebec.

Outlook for 2005

Following a year in which US housing starts averaged a record 1.95 million, it is expected that homebuilding will be modestly lower in 2005, though well above historical averages. Housing starts have averaged 1.74 million over the past five years. The US economy is expected to remain supportive of interest rates that favour new home construction and continued strong sales of existing housing stock. The single-family segment, the single largest end-use of OSB, is forecast to account for approximately 80% of all new homes in 2005.         Structural panel consumption in North America is expected to remain strong in 2005 at about 43 billion square feet - comparable to 2004. OSB constitutes approximately 60% of all structural panel usage. Additional OSB production capacity from new and existing mills will be introduced to the North American market in 2005 - estimated at 1.1 billion square feet (3/8-inch basis). Norbord's OSB production is expected to increase approximately 3% in 2005, largely as a result of capital improvement projects at its two mills in Texas and at the newly acquired mill in Belgium. All other Norbord OSB mills are expected to operate at the same or greater production levels as 2004. Value-added products are expected to account for approximately 25% of Norbord's OSB output.         European demand for OSB is expected to continue growing by 10-15% in 2005. Prices strengthened significantly during 2004 and are expected to remain strong as no new production capacity is expected to be introduced in Europe until 2006. MDF markets in North America and Europe will remain competitive in 2005, largely as a result of pressures on the furniture manufacturing sector. Norbord's success in MDF will continue to be driven by its product mix, customer service levels, and its low cost manufacturing position in the United Kingdom.         European particleboard demand is expected to continue at 2004 levels. Norbord's value-added kitchen component business is expected to continue growing in 2005 following a 20% growth in sales in 2004.

NORBORD ANNUAL REPORT 2004

35

MANAGEMENT'S DISCUSSION AND ANALYSIS

	Summary While OSB prices likely reached a peak in 2004, market conditions are expected to remain favourable. OSB prices are forecast to remain above historical or trend levels. European panel markets are also expected to remain healthy in 2005.         The Company expects to be minimally impacted by a stronger Canadian dollar. Margin improvements in 2005, planned at $33 million at constant prices and exchange rates compared with 2004, are expected to largely offset increased manufacturing costs.         Cash flow from operating activities in 2005 is expected to be sufficient to fund capital investments as well as interest and dividend requirements. Undrawn committed term bank lines amounted to $202 million at December 31, 2004, and cash balances totalled $215 million, which supports short-term liquidity requirements. Public and private debt markets remain open to the Company as it continues to retain investment grade credit ratings.          The Company's overall strategy is to continue building shareholder value through timely investments and operational efficiency.
	The foregoing contains a review of developments that impacted on Norbord's performance during 2004. Forward-looking statements and estimates are also discussed. Such comments will be affected by, and involve, known and unknown risks and uncertainties, which may cause the actual results of the Company to be materially different from those expressed or implied.
Definitions	The following non-GAAP measures have been used in this MD&A. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. There are no directly comparable GAAP measures to any of these measures. The following is a quantitative reconciliation of each non-GAAP measure to the nearest comparable GAAP measure. EBITDA is earnings from continuing operations before interest, income taxes, depreciation and amortization. EBITDA is presented as a useful indicator of a company's ability to incur and service debt and meet capital expenditure requirements. Norbord interprets EBITDA trends as an indicator of relative operating performance. EBITDA margin (%) is EBITDA as a percentage of net sales. Operating working capital is accounts receivable plus inventory less accounts payable. Total working capital is operating working capital plus cash and cash equivalents. Capital employed is the sum of property, plant and equipment, operating working capital and other assets. ROCE (return on capital employed) is EBITDA divided by capital employed. ROCE is a key measurement of financial performance, focusing on cash and the efficient use of capital. ROE (return on common equity) is earnings available to common shareholders (earnings less preferred share dividends) divided by common shareholders' equity. ROE is a measure of returns provided to common shareholders. Total shareholder return assumes the reinvestment of all dividends in shares of Norbord. The shares of Fraser Papers received in the distribution are assumed to be disposed on the first day of trading with the reinvestment of the proceeds in Norbord shares.

MANAGEMENT'S DISCUSSION AND ANALYSIS

36

NORBORD ANNUAL REPORT 2004

Net debt is long-term debt including the current portion and bank advances less cash and cash equivalents. Net debt is a useful indicator of a company's debt position. Net debt to capitalization is net debt divided by the sum of net debt and shareholders' equity. Net debt to capitalization is a key 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. Book value per share is common shareholders' equity divided by common shares outstanding.

EBITDA
(US $ millions)		2004		2003		2002		2001		2000
Earnings	$	326	$	126	$	13	$	12	$	94
Less: Earnings from discontinued operations		6		40		(6)		(10)		(36)
Add: Premium on early extinguishment of debt, net		9		-		-		-		-
Add: Interest expense		31		37		37		33		25
Less: Interest and other income		(6)		(5)		(6)		(6)		(27)
Add: Income tax		183		91		(20)		(22)		2
Add: Depreciation		82		76		71		43		43
EBITDA	$	631	$	365	$	89	$	50	$	101
Capital Employed
(US $ millions)		2004		2003		2002		2001		2000
Property, plant and equipment	$	927	$	833	$	857	$	657	$	606
Accounts receivable		150		115		84		63		65
Inventory		90		66		61		62		65
Accounts payable and accrued liabilities		(238)		(187)		(145)		(118)		(100)
Other assets		5		6		66		31		32
Unrealized balance sheet hedge losses (1)		(16)		(16)		(1)		-		-
Capital employed	$	918	$	817	$	922	$	695	$	668
(1) Included in other liabilities.
Net Debt
(US $ millions)		2004		2003		2002		2001		2000
Long-term debt	$	450	$	657	$	658	$	686	$	575
Current portion of long-term debt		1		2		153		3		7
Bank advances		-		-		1		-		1
Cash and cash equivalents		(215)		(177)		(67)		(116)		(107)
Net debt	$	236	$	482	$	745	$	573	$	475

NORBORD ANNUAL REPORT 2004

37

MANAGEMENT'S DISCUSSION AND ANALYSIS

> Management's responsibility for financial statements

The accompanying consolidated financial statements and all information in this annual report are the responsibility of management and have been approved by the Board of Directors.

        The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. Financial statements are not precise since they include certain amounts based upon estimates and judgements. When alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances in order to ensure that the consolidated financial statements are presented fairly, in all material respects, in accordance with Canadian generally accepted accounting principles. The financial information presented elsewhere in this annual report is consistent with that in the consolidated financial statements.

        The Company maintains systems of internal controls, which are designed to provide reasonable assurance that accounting records are reliable and to safeguard the Company's assets.

        The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee.

        The Audit Committee is appointed by the Board and reviews the consolidated financial statements and management's discussion and analysis; considers the report of the external auditors; assesses the adequacy of the internal controls of the Company; examines the fees and expenses for audit services; and recommends to the Board the independent auditors for appointment by the shareholders. The Committee reports its findings to the Board of Directors for consideration when approving the consolidated financial statements for issuance to the shareholders.

January 26, 2005

J. Barrie Shineton	John Tremayne
President & Chief Executive Officer	Executive Vice President &
	Chief Financial Officer

AUDITORS' REPORT

38

NORBORD ANNUAL REPORT 2004

> Auditors' report

To the Shareholders of Norbord Inc. (formerly Nexfor Inc.)

We have audited the consolidated balance sheets of Norbord Inc. (formerly Nexfor Inc.) as at December 31, 2004 and 2003 and the consolidated statements of earnings and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

        In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Toronto, Canada
January 26, 2005	Chartered Accountants

NORBORD ANNUAL REPORT 2004

39

CONSOLIDATED BALANCE SHEETS

> Consolidated balance sheets

K. Linn Macdonald	J. Barrie Shineton
Chairman	President & Chief Executive Officer

CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS

40

NORBORD ANNUAL REPORT 2004

> Consolidated statements of earnings and retained earnings

NORBORD ANNUAL REPORT 2004

41

CONSOLIDATED STATEMENTS OF CASH FLOWS

> Consolidated statements of cash flows

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

42

NORBORD ANNUAL REPORT 2004

> Notes to the consolidated financial statements

        (in millions of US dollars, except per share information)

NORBORD ANNUAL REPORT 2004

43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 the final five years' average salary, and the plans do not provide for indexation of benefit payments. Norbord also provides non-pension post-retirement benefits to certain eligible retirees, consisting of medical and dental benefits, which are funded on a pay-as-you-go basis.          The measurement date for all defined benefit plans is December 31. The obligations associated with Norbord's defined benefit plans are actuarially valued using the projected unit credit method pro rated on services, management's best estimate assumptions for expected investment performance, salary escalation, health care cost trend rates, and a current market discount rate. For the purpose of calculating the expected return on plan assets, those assets are measured at fair value. Prior service costs related to plan amendments and transitional assets are amortized on a straight-line basis over the estimated average remaining service lives (EARSL) of the employee groups. The net actuarial gains or losses in excess of 10% of the greater of the accrued benefit obligation and the fair value of plan assets are amortized on a straight-line basis over EARSL. Revenue Recognition Net sales are recognized when the risks of ownership pass to the purchaser. This is generally when goods are shipped. Sales are recorded net of freight and discounts. Stock Options The Company accounts for stock options using the fair value method. Under the fair value method, compensation expense for options is measured at the grant date using an option pricing model and recognized in earnings on a straight-line basis over the vesting period. Income Taxes The Company uses the liability method of accounting for income taxes. Accordingly, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In addition, the effect on future tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment or substantive enactment date. Translation of Foreign Currencies The accounts of subsidiaries having a functional currency other than the US dollar are translated using the current rate method. Gains or losses on translation are deferred and shown as a separate item in shareholders' equity. Gains or losses on foreign currency-denominated balances and transactions that are designated as hedges of investments in these subsidiaries are reported in the same manner as translation adjustments.         Monetary assets and liabilities denominated in currencies other than an entity's functional currency are translated at the rate of exchange prevailing at year-end. Gains or losses on translation of these items are included in the consolidated statement of earnings. Gains or losses on transactions that hedge these items are also included in the consolidated statement of earnings.         Gains or losses on transactions that serve to hedge future foreign currency-denominated cash flows are recognized at their settlement dates and are included in cost of sales.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

44

NORBORD ANNUAL REPORT 2004

	Financial Instruments The Company utilizes derivative financial instruments solely to manage its foreign currency, interest rate, and commodity price exposures in the ordinary course of business. Derivatives are not used for trading or speculative purposes. All hedging relationships, risk management objectives, and hedging strategies are formally documented and periodically assessed to ensure the changes in the value of these derivatives are highly effective in offsetting changes in the fair values 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 other liabilities if there is an unrealized loss on the derivative.         The carrying value of 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. The fair value of derivative financial instruments reflects the estimated amount that the Company would have paid or received if forced to settle all outstanding contracts at year-end. This fair value represents a point-in-time estimate that may not be relevant in predicting the Company's future earnings or cash flows.         The Company is exposed to credit risk in the event of non-performance by its derivatives 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, and therefore the Company does not anticipate any non-performance.
Note 2. Change in Accounting Policy	Effective January 1, 2004, the Company adopted the new accounting recommendations of the Canadian Institute of Chartered Accountants for the recognition and disclosure of obligations associated with the retirement of tangible long-lived assets. This change in accounting policy has been effected retroactively with prior periods restated to reflect the impact of the change. All asset retirement obligations recorded were in respect of landfill closure and remediation costs at Fraser Papers. Accordingly, these obligations have been classified as liabilities of discontinued operations. The cumulative effect of the change was a decrease of 2003 opening retained earnings of $3. The change in policy did not materially impact earnings in 2004 and 2003.
Note 3. Short-Term Investment	During the first quarter of 2004, a convertible subordinated debenture of Canfor Corporation, with a face value of CAD $78, was sold for proceeds of $60 (CAD $78), net of expenses.

Note 4.			2004		2003
Inventory	Raw materials	$	28	$	22
	Finished goods		27		21
	Operating and maintenance supplies		35		23
		$	90	$	66

NORBORD ANNUAL REPORT 2004

45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 5.				Accumulated			Net Book Value
Property, Plant			Cost	Depreciation			2004		2003
and Equipment	Buildings	$	242	$	78	$	164	$	168
	Production equipment		1,339		576		763		665
		$	1,581	$	654	$	927	$	833
	Included in property, plant and equipment is construction in progress of $36 (2003 - $7) and net capitalized interest of $10 (2003 - $12).
Note 6.							2004		2003
Long-Term Debt	67/8% debentures due 2005					$	-	$	200
	81/8% debentures due 2008						200		200
	71/4% debentures due 2012						250		250
	Other debt						1		9
							451		659
	Current portion of long-term debt						(1)		(2)
						$	450	$	657

Maturities of long-term debt at December 31, 2004, are: 2005 - $1; 2006 - nil; 2007 - nil; 2008 - $200; 2009 - nil; and subsequent - $250.         During the year, the Company redeemed its outstanding 67/8% debentures due 2005 and unwound $50 of interest rate swaps. The premium paid on repurchase, net of the recognition of gains on interest rate swaps, was $9. At December 31, 2004, the Company had $375 (2003 - $425) of interest rate swaps outstanding. The terms of these swaps correspond to the terms of the underlying debentures.         In 2003, the Company entered into interest rate swap agreements of $50 that effectively convert the interest expense on a portion of designated debentures to floating rates. In addition, interest rate swap agreements of $150 matured during 2003.         In 2003, the Company realized a gain of $23 in respect of $375 of interest rate swaps. These gains are being deferred and amortized over the remaining term of the debt against which these swaps were designated as hedges. These swaps were replaced with new swaps of $375 that effectively convert a portion of the Company's interest expense from fixed rates to floating rates. Norbord has committed unsecured revolving bank lines of $208. These bank lines mature in 2007, bear interest at money market rates plus a margin that varies with the Company's credit rating, and contain certain financial covenants that the Company must comply with on a quarterly basis. At December 31, 2004, $6 of these lines were utilized for letters of credit, with the balance available to support short-term liquidity requirements. The effective interest rate on Norbord's debt-related obligations including the impact of the interest rate swaps is 5.3% at December 31, 2004 (2003 - 4.7%). The aggregate fair value of Norbord's debt is $472, consisting of debt of $502 and gains on interest rate swaps of $30.         Interest expense on long-term debt for the year, including the impact of interest rate swaps, was $31 (2003 - $37). Total interest paid during the year was $49 (2003 - $50) including $12 of call premiums paid on the redemption of the 67/8% debentures.