SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission File Number
December 31, 1994 1-7107
LOUISIANA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0609074
(State of Incorporation) (I.R.S. Employer
Identification No.)
111 S.W. Fifth Avenue Registrant's telephone number
Portland, Oregon 97204 (including area code)
(Address of principal 503-221-0800
executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $1 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant: $2,741,816,604 as of March 14, 1995.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock: 109,459,809 shares of Common Stock, $1 par value,
outstanding as of March 14, 1995.
Documents Incorporated by Reference
Definitive Proxy Statement for 1995 Annual Meeting: Part III
PART I
ITEM 1. Business
General
Louisiana-Pacific Corporation, a Delaware corporation, is a major forest
products firm headquartered in Portland, Oregon. It manufactures lumber,
pulp, structural and other panel products, hardwood veneers, windows and
doors, and cellulose insulation. It operates 131 facilities throughout the
United States, Mexico, Canada, and Ireland. It has approximately
13,000 employees. It distributes its products primarily through distributors
and home centers, and to a minor extent through its own distribution centers.
The business of Louisiana-Pacific Corporation and its wholly owned
subsidiaries (except when the context otherwise requires, hereinafter referred
to collectively as "the registrant" or "L-P") is generally divided into two
industry segments: building products and pulp. For 1994, building products
accounted for approximately 93 percent of the registrant's gross sales
revenues, compared to approximately 7 percent for pulp. With respect to
operating profit in 1994, building products contributed approximately
101 percent, offset by a 1 percent loss for pulp.
Building Products
Panel Products. The registrant manufactures plywood and a variety of
reconstituted panel products, including Inner-Seal(R) oriented strand board
("OSB") and such other panel products as industrial particleboard, medium
density fiberboard, and hardboard. In recent years, the registrant has
emphasized development and expansion of its reconstituted panel product lines.
While such products accounted for 6 percent of the registrant's sales in 1980,
they comprised 34 percent of its sales in 1994.
The largest consumption of panel products is for structural uses in
building and remodeling such as subfloors, walls, and roofs. The total
structural panel market in the United States (plywood, OSB and other
waferboards) is approximately 27 billion square feet annually, of which
plywood currently constitutes about 18 billion square feet. In recent years,
environmental pressure on timber harvesting, especially in the West, has
resulted in reduced supplies and higher costs, causing many plywood mills to
close permanently. The lost volume from those closed mills has been replaced
by reconstituted structural panel products.
The registrant is the largest North American producer of OSB through
17 Inner-Seal(R) OSB plants with an aggregate annual capacity of approximately
3.7 billion square feet. The registrant plans to open 2 domestic and 2
overseas OSB plants in 1995. Approximately 50 percent of the registrant's
1994 sales volume in this category came from higher margin specialty products
such as tongue and groove subflooring, siding, and soffit. The registrant
operates seven plywood plants in the South with a combined annual capacity of
1.6 billion square feet.
The registrant's other reconstituted panel products--industrial
particleboard, medium density fiberboard, and hardboard--produced at a total
of seven plants, are used primarily in the manufacture of furniture and
cabinets.
Lumber. The registrant is among the three largest producers of lumber in
the United States. The registrant has 19 Western (whitewood and redwood)
sawmills (plus one additional mill to open in 1995) with an annual production
capacity of 1.2 billion board feet ("BBF"), while its 27 Southern sawmills
have an annual production capacity of 1.1 BBF. Lumber represented 28 percent
of the registrant's sales revenue in 1994, down from 53 percent in 1980. The
registrant's sawmills produce a variety of standard U.S. dimension lumber as
well as specialty grades and sizes, primarily for the North American home
building market. A sawmill in Ketchikan, Alaska, produces lumber for export
in the traditional sizes used in the Japanese building industry, but has the
capability of switching to standard U.S. dimensions. The registrant also
operates three fingerjoint plants which produce dimension lumber from low
grade and short pieces of lumber.
Other Building Products. The registrant's fiber gypsum wallboard, known
as FiberBondTM, is made from gypsum and waste paper and has improved
capabilities over standard gypsum wallboard. Other FiberBondTM products
include fire retardant sheathing and underlayment. The registrant's two fiber
gypsum plants have a production capacity of 100 million square feet.
Six plants in Ohio and one in California manufacture windows and doors.
The registrant produces various hardwood veneers at a plant in Wisconsin
with both rotary and sliced manufacturing processes. These veneers are sold
to customers who overlay the veneers on other materials for use in paneling,
furniture and cabinets. The registrant also operates a softwood veneer plant
in Canada.
The registrant has three engineered I-joist plants located in California,
Nevada, and North Carolina. Inner-Seal(R) OSB is cut into sections and used
as the web for the I-joists.
The registrant also produces laminated veneer lumber ("LVL") in North
Carolina and Nevada. LVL is a high-grade structural product used where extra
strength is required. It is also used as the flange material in I-joists.
Three plants produce cellulose residential insulation from recycled
newspaper under the name Nature GuardTM. This insulation has a higher R-value
than comparable thicknesses of conventional fiberglass insulation.
Pulp
The registrant has three pulp mills located in Ketchikan, Alaska, Samoa,
California, and Chetwynd, British Columbia, Canada, with a total annual
capacity of approximately 600 million short tons. The Chetwynd mill utilizes
a state-of-the-art mechanical pulping process and a zero effluent discharge
system to produce 100 percent aspen pulp. The Samoa mill produces bleached
and unbleached kraft pulp by a chlorine-free process, thereby eliminating
dioxins.
Competition
The registrant competes internationally with several thousand forest
products firms, ranging from very large, fully integrated firms to smaller
firms that may manufacture only one or a few items. The registrant estimates
that approximately 25 forest products firms comprise its major competition.
The registrant also competes less directly with firms that manufacture
substitutes for wood building products. A majority of the products
manufactured by the registrant, including lumber, structural panels, and pulp,
are commodity products sold primarily on the basis of price in competition
with numerous other forest products companies.
In recent years, the registrant has introduced a number of new
value-enhanced products to complement its traditional lumber and panel
products, such as Inner-Seal(R) OSB panels, siding, soffit, and flooring.
These innovative products are made from abundant smaller-diameter and
affordably priced tree species, as well as treetops and mill shavings. Such
trees have generally not been the target of environmentalist pressure, which
has seriously restricted wood supplies for much of the industry, especially in
the West. Similarly, the registrant's new fiber gypsum and cellulose
insulation products utilize wood fiber from waste paper. The registrant
believes development of these new products gives it a competitive advantage
through lower and more predictable supply costs, resulting in higher profit
margins.
Environmental Compliance
The registrant is subject to federal, state and local pollution control
laws and regulations in all areas in which it has operating facilities. The
registrant maintains an accounting reserve for environmental fines and certain
other environmental costs. At December 31, 1994, $13.2 million remained in
the reserve. Additional amounts that may be required will depend largely on
legislation, regulatory developments, and enforcement activities by Congress,
the states, localities, and enforcement agencies. From time to time, the
registrant undertakes construction projects for environmental control
facilities or incurs other environmental costs that extend an asset's useful
life, improve efficiency, or improve the marketability of certain properties.
The registrant's policy is to comply fully with all applicable
environmental laws and regulations. In recent years, the registrant has
devoted increasing financial and management resources to achieving this goal.
As part of its efforts to ensure environmental compliance, the registrant
conducts regular internal environmental assessments. From time to time, the
registrant becomes aware of violations of applicable laws or regulations. In
those instances, the registrant's policy is to bring its operations promptly
into full compliance with applicable environmental laws and regulations. The
registrant is not aware of any instances in which its current operations are
not in compliance with applicable environmental laws and regulations that
would be expected to have a material adverse effect on the registrant.
Additional information concerning environmental compliance is set forth
under Item 3, Legal Proceedings, Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations--Environmental Update, and
Item 8, Notes to Financial Statements.
Additional Statistical Information
Additional information regarding the business of the registrant,
including segment information, production volumes, and industry product price
trends, is presented in the following tables labeled "Sales and Operating
Profit by Major Product Group," "Summary of Production Volumes," "Industry
Product Price Trends," and "Logs by Source." Additional financial information
about industry segments is presented in the table labeled "Industry Segment
Information" located within Part II, Item 8, Notes to Financial Statements.
Reference is made to Item 2 for additional information as to sources and
availability of raw materials and the locations of the registrant's
manufacturing facilities.
Louisiana-Pacific Corporation and Subsidiaries
PRODUCT INFORMATION SUMMARY
SEE ADDITIONAL INFORMATION REGARDING INDUSTRY SEGMENTS IN NOTES TO FINANCIAL STATEMENTS.
YEAR ENDED DECEMBER 31 (DOLLAR AMOUNTS IN MILLIONS)
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
SALES AND OPERATING PROFIT
BY MAJOR PRODUCT GROUP
Sales: Structural panel products $1,208 40% $1,005 40% $ 888 41% $ 600 35% $ 607 34%
Lumber 867 28% 816 33% 653 30% 526 31% 578 32%
Other panel products 240 8% 194 8% 150 7% 146 9% 139 8%
Other building products 505 17% 411 16% 309 14% 260 15% 264 15%
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Building products 2,820 93% 2,426 97% 2,000 92% 1,532 90% 1,588 89%
Pulp 220 7% 85 3% 185 8% 170 10% 205 11%
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Total sales $3,040 100% $2,511 100% $2,185 100% $1,702 100% $1,793 100%
===== ==== ===== ==== ===== ==== ===== ==== ===== ====
Export sales (included above) $ 371 12% $ 252 10% $ 339 16% $ 315 19% $ 381 21%
===== ==== ===== ==== ===== ==== ===== ==== ===== ====
Operating profit: Building products $ 636 101% $ 562 111% $ 364 106% $ 139 102% $ 139 82%
Pulp (5) (1%) (59) (11%) (20) (6%) (3) (2%) 31 18%
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Total operating profit 631 100% 503 100% 344 100% 136 100% 170 100%
==== ==== ==== ==== ====
Unallocated expense, net (72) (70) (47) (30) (25)
Interest, net 1 (5) (14) (19) (8)
----- ----- ---- ----- ----
Income before taxes(1), minority
interest and accounting changes $ 560 $ 428 $ 283 $ 87 $ 137
===== ===== ===== ===== =====
(1) Does not include cumulative effects of accounting changes in 1993.
SUMMARY OF PRODUCTION VOLUMES
VOLUME AMOUNTS STATED IN MILLIONS (EXCEPT PULP)
AND AS A PERCENT OF NORMAL CAPACITY
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
Inner-Seal/OSB, square
feet 3/8" basis $3,404 97% $3,100 100% $2,850 101% $2,418 81% $2,507 94%
Softwood plywood,
square feet 3/8" basis 1,604 106% 1,507 105% 1,405 80% 1,318 75% 1,541 88%
Lumber 1,986 86% 1,796 87% 1,850 71% 1,838 69% 2,189 79%
Particleboard, square feet 3/4" basis 371 106% 359 106% 335 93% 324 91% 269 100%
Medium density fiberboard,
square feet 3/4" basis 234 106% 206 93% 160 97% 164 99% 165 100%
Hardboard, square feet 1/8" basis 216 103% 191 91% 201 93 201 100% 194 97%
Hardwood veneer, square feet
surface measure 281 110% 260 108% 252 89% 229 80% 272 109%
Pulp, short tons (thousands) 441 72% 224 37% 459 72% 365 80% 400 95%
INDUSTRY PRODUCT PRICE TRENDS
PRICES REPRESENT YEARLY AVERAGES STATED IN DOLLARS PER THOUSAND BOARD FEET (MBF), THOUSAND SQUARE FEET (MSF),
OR SHORT TON.
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
OSB, MSF, 7/16" -- 24/16 span rating
(North Central price) $ 265 $ 236 $ 217 $ 148 $ 131
Southern pine plywood, MSF, 1/2" CDX (3-ply) 302 282 248 191 182
Framing lumber, composite prices, MBF 405 394 287 236 230
Industrial particleboard, 3/4" basis, MSF 295 258 200 198 199
Bleached softwood sulfate pulp, short ton(1) 515 418 509 519 723
(1) Discounting sometimes occurs from the published price.
LOGS BY SOURCE
STATED AS A PERCENT OF TOTAL LOG VOLUME
Fee owned lands 11% 12% 14% 15% 20%
Private cutting contracts 14% 15% 15% 15% 15%
Government contracts 8% 10% 12% 17% 14%
Purchased logs 67% 63% 59% 53% 51%
Total log volume -- million board feet 3,138 2,940 2,856 2,641 2,987
ITEM 2. Properties
The following tables list the principal facilities of the registrant and
its subsidiaries. Information on production capacities reflects normal
operating rates and normal production mixes under current market conditions,
taking into account known constraints such as log supply. Unless otherwise
noted, capacities are in millions of units.
PLANT FACILITIES AT DECEMBER 31, 1994
-------------------------------------
SAWMILLS Normal
(Board feet, 2 shifts, 5 days; *1 shift, 5 days)
Capacities
REDWOOD/WHITEWOOD (3 plants)
Big Lagoon, CA (E) *20
Samoa, CA (E) 100
Ukiah, CA (E) (4th Qtr. 95 startup) 120
OTHER WESTERN LUMBER (9 plants)
Annette, AK (A) 70
Chilco, ID (B) 75
Ketchikan, AK (A) 60
Pilot Rock, OR (B) (3 shifts) 75
Post Falls, ID (B) 25
Priest River, ID (B) *40
Sandpoint, ID (remanufacturing) (B) --
Sundre, Alberta, Canada (B) 65
Walla Walla, WA (B) (3 shifts) 100
WESTERN STUD MILLS (8 plants)
Belgrade, MT (B) 90
Deer Lodge, MT (B) (3 shifts) 80
Fort Bragg, CA (also redwood) (E) 70
Libby, MT (B) *25
Moyie Springs, ID (B) 90
Saratoga, WY (B) 90
Tacoma, WA (B) 60
Willits, CA (also redwood) (E) 55
SOUTHERN LUMBER (27 plants)
Bernice, LA (C) *50
Bon Weir, TX (C) *25
Braggs, AL (C) *25
Carthage, TX (C) *60
Cleveland, TX (C) (2 plants) *90
Crestview, FL (C) *50
Eatonton, GA (C) *40
Evergreen, AL (C) *45
Grenada, MS (C) *50
Hattiesburg, MS (C) *50
Hazelhurst, GA (C) *25
Henderson, NC (C) *50
Jasper, TX (C) (2 plants) *95
Kountze, TX (C) *15
Lockhart, AL (C) *30
Marianna, FL (C) *35
Nashville, NC (C) *25
New Waverly, TX (C) *100
Philadelphia, MS (C) *50
Pittsboro, NC (C) *10
Statesboro, GA (C) *25
Trinity, TX (C) *20
Waynesboro, GA (C) *60
Westbay, FL (C) *50
Winnfield, LA (C) *50
-----
Total Lumber Capacity (47 plants) 2,435
=====
PLANT FACILITIES AT DECEMBER 31, 1994
-------------------------------------
PANEL PRODUCTS PLANTS Normal
Capacities
SOFTWOOD PLYWOOD PLANTS
(3/8-inch basis, square feet, 2 shifts, 5 days)
Bon Weir, TX (C) 275
Cleveland, TX (C) 275
Jasper, TX (C) 150
Logansport, LA (C) 225
Lufkin, TX (C) 175
New Waverly, TX (C) 280
Urania, LA (C) 250
-----
Total Softwood Plywood Capacity (7 plants) 1,630
=====
INNER-SEAL OSB PLANTS
(3/8-inch basis, square feet, 3 shifts, 7 days; *2 shifts, 7 days)
Chilco, ID (B) 150
Corrigan, TX (C) *135
Dawson Creek, B.C. Canada (B) 400
Dungannon, VA (B) 140
Hanceville, AL (C) 320
Hayward, WI (2 plants) (B) 500
Houlton, ME (B) 260
Jackson County, GA (C) 320
Jasper, TX (C) (4th Qtr. 95 startup) 350
Montrose, CO (B) 145
Newberry, MI (B) 125
New Waverly, TX (C) *45
Roxboro, NC (C) (4th Qtr. 95 startup) 350
Sagola, MI (B) 400
Silsbee, TX (C) 320
Swan River, Manitoba Canada (B) (4 Qtr. 95 startup) 500
Tomahawk, WI (B) 150
Two Harbors, MN (B) 135
Urania, LA (C) *115
Waterford, Ireland (B) (4th Qtr. 95 startup) 400
-----
Total OSB Capacity (21 plants) 5,260
=====
MEDIUM DENSITY FIBERBOARD PLANTS
(3/4-inch basis, square feet, 3 shifts, 7 days)
Eufaula, AL (C) 125
Oroville, CA (E) 50
Urania, LA (C) 50
-----
Total Medium Density Fiberboard Capacity (3 plants) 225
=====
PARTICLEBOARD PLANTS
(3/4-inch basis, square feet, 3 shifts, 7 days)
Arcata, CA (E) 125
Missoula, MT (B) 155
Silsbee, TX (C) 80
-----
Total Particleboard Capacity (3 plants) 360
=====
HARDBOARD PLANT
(1/8-inch basis, square feet, 3 shifts, 7 days)
Oroville, CA (E) 220
=====
Normal
Capacities
OTHER BUILDING PRODUCTS
HARDWOOD VENEER PLANT
(Surface measure, square feet, 2 shifts, 5 days)
Mellen, WI (2 plants) (B) 250
=========
SOFTWOOD VENEER PLANT
(Surface measure, square feet, 2 shifts, 5 days)
Strachan, Alberta, Canada (B) 90
=========
WINDOW AND DOOR PLANTS (7 plants)
Norton, OH (2 plants)
(aluminum extrusions in lbs.) (D) 7,200,000
Orrville, OH (windows) (D) 125,000
Ottawa, OH (windows and doors) (D) 350,000
Sacramento, CA (windows) (D) 25,000
Winesburg, OH (windows and doors) (D) 125,000
Youngstown, OH (aluminum extrusions in lbs.) (D) 6,000,000
I-JOIST PLANTS
(Linear feet; 1 shift, 5 days)
Fernley, NV (B) 15
Wilmington, NC (B) 20
Red Bluff, CA (E) 20
---------
Total I-Joist Capacity (3 plants) 55
=========
LAMINATED VENEER LUMBER PLANTS
(Thousand cubic feet; 2 shifts, 7 days)
Fernley, NV (B) 2,200
Wilmington, NC (B) 3,000
---------
Total LVL Capacity (2 plants) 5,200
=========
FIBER GYPSUM PLANT
(1/2-inch basis, million square feet; 1 shift, 5 days)
East Providence, RI (B) 20
Point Tupper, Nova Scotia, Canada (B) 80
---------
Total Fiber Gypsum Capacity (2 plants) 100
=========
ENGINEERED WOOD PRODUCTS - FINGERJOINT
(Board feet; 2 shifts, 5 days; *1 shift, 5 days)
Deer Lodge, MT (B) 50
El Sauzal, Mexico (E) 21
Priest River, ID (B) 30
---------
Total Fingerjoint Capacity (3 plants) 101
=========
PULP MILLS
(Thousand Short Tons, 3 shifts, 7 days)
Ketchikan, AK (A) 200
Samoa, CA (E) 230
Chetwynd, B.C. Canada (B) 167
---------
Total Pulp Capacity (3 plants) 597
=========
OTHER MANUFACTURING FACILITIES
(19 PLANTS)
Brick plant: El Sauzal, Mexico (E)
Cellulose insulation plants: Bucyrus, Ohio (E)
Baltimore, Maryland (E)
San Diego, California (E)
Cement fiber shake: Red Bluff, CA (E)
Chip mills: Cleveland and Moscow, TX (C)
Insulated glass plant: Orrville, OH (D)
Vinyl extrusion plant: Barberton, OH (D)
Wood treating plants: Evergreen and Lockhart, AL (C)
Marianna, FL (C)
Waynesboro and Statesboro, GA (C)
Grenada, MI (C)
New Waverly and Silbee, TX (C)
Ukiah, CA (E)
Sundre, Alberta, Canada (B)
DISTRIBUTION CENTERS (7 LOCATIONS)
Chino, CA (B) Rocklin, CA (B)
Conroe, TX (C) Salina, KS (C)
Dallas, TX (C) Tulsa, OK (C)
Dodge City, KS (C)
Total Facilities: 131
DIVISION LEGEND:
A. Ketchikan
B. Northern
C. Southern
D. Weather-Seal
E. Western
TIMBERLAND HOLDINGS (Acres)
California: Whitewoods, Fir, Pine, Redwood 485,700
Idaho: Fir, Pine 39,900
Louisiana: Pine, Hardwoods 210,000
Minnesota: Hardwoods 30,100
North Carolina: Pine, Hardwoods 1,700
Oregon: Pine, Fir, Whitewoods 137,100
Texas: Pine, Hardwoods 695,100
Washington: Fir, Pine 1,700
Wisconsin: Hardwoods 2,100
Wyoming: Whitewoods 4,300
---------
Total Fee Timberland 1,607,700
=========
In addition to its fee-owned timberlands, the registrant has timber
cutting rights, under long-term contracts (five years and over) on
approximately 110,000 acres and under contracts for shorter periods on
approximately 278,000 acres, on government and privately owned timberlands in
the vicinities of certain of its manufacturing facilities. Information
regarding the sources of the registrant's log requirements is located under
the table labeled "Logs by Source" in Item 1.
ITEM 3. Legal Proceedings
The following sets forth the current status of certain legal
proceedings:
The registrant has received a Notice of Violation issued by the
U.S. Environmental Protection Agency, alleging air emissions violations at the
registrant's Dungannon, Virginia, OSB plant. The registrant has also received
a Notice of Violation issued by the state of Michigan, alleging air emissions
violations at the registrant's Newberry, Michigan, OSB plant. The potential
costs to the registrant cannot be estimated this time because the registrant's
past experiences with notices of violation indicated wide variation in
possible outcomes, but are not expected to have a material adverse effect on
the registrant because past notices of violation have not had such an effect.
On September 9, 1992, the U.S. Department of Justice filed suit in the
U.S. District Court in Anchorage, Alaska, against the registrant's wholly
owned subsidiary Ketchikan Pulp Company ("KPC"), alleging that the pulp mill
in Ketchikan, Alaska, operated by KPC violated the Clean Air Act and the terms
of KPC's wastewater discharge permit. A federal grand jury investigation
concerning wastewater discharges at KPC's pulp mill was also convened. In
March 1995, KPC entered into agreements with the federal government to resolve
the issues related to the lawsuit and grand jury investigation. Under the
agreements, which are subject to court approval, KPC will plead guilty to one
felony and 13 misdemeanor violations of the Clean Water Act. KPC will pay
civil and criminal penalties totaling approximately $6 million, of which
$1.75 million will be suspended. KPC will agree to undertake certain remedial
and pollution control related measures with an estimated cost of up to
approximately $20 million. KPC has agreed to undertake a study of whether a
clean-up of Ward Cove, the body of water adjacent to the pulp mill, is needed.
If the study determines that such clean-up is needed, KPC may be required to
spend up to $6 million on the clean-up as part of the overall $20 million of
expenditure. KPC cannot estimate what portion, if any, of the cleanup amount
will be required to be spent.
On September 13, 1994, the U.S. Environmental Protection Agency filed an
administrative action, alleging that KPC and two other parties violated
provisions of the Clean Air Act related to asbestos. The action seeks to
recover a penalty of $122,800.
The registrant understands that a federal grand jury is investigating
possible violations in connection with the disposal by a contractor of a
transformer containing polychlorinated biphenyls ("PCBs") previously located
at the registrant's former sawmill at Pendleton, Oregon. The registrant does
not know whether it or any of its employees are targets of the investigation.
In March 1995, the registrant was informed that the U.S. Environmental
Protection Agency has referred a matter involving KPC to the U.S. Department
of Justice for possible civil enforcement. The matter involves allegations
that KPC's Annette Island, Alaska, cant mill violated provisions of the Clean
Air Act relating to the prevention of significant deterioration of air
quality.
Management of the registrant believes that the outcome of the above
matters will not have a materially adverse effect on the consolidated
business, financial condition, liquidity, or results of operations of the
registrant.
In October 1994, an action was filed against the registrant and other
defendants in the Circuit Court for Lake County, Florida, on behalf of a
purported class of all homeowners in that state whose homes were constructed
using the registrant's OSB siding. The complaint alleges that the siding is
deteriorating prematurely due to latent defects in the material and seeks
damages for alleged breaches of express or implied warranties and for alleged
failure to disclose material defects. The complaint also seeks an injunction
barring the registrant from selling the registrant's OSB siding as an exterior
siding material in the state of Florida. The attorney for the plaintiffs
claims the class may number in excess of 30,000 homeowners and that the claim
for damages may exceed $5,000 per home, resulting in aggregated claimed
damages in excess of $150 million. The registrant believes it has factual and
legal defenses to the complaint.
The registrant believes that it is probable that additional OSB siding
products claims will be made against it. Some of these claims will likely be
made in the form of warranty claims, while others will likely be made as
litigation claims. The registrant maintains a reserve for siding claims. As
with all accounting estimates, due to many factors involved in estimating
future claims, significant uncertainty exists in the reliability and precision
of such estimates. There can be no assurance that management's estimates will
not significantly increase or decrease in the future as additional factors and
circumstances become known, and actual claims are made. The registrant
monitors its estimated exposure to future siding claims and adjusts its
accrual accordingly. Management believes that the ultimate outcome of all the
siding related matters will not have a material adverse effect on the
business, financial position, or results of operations of the registrant.
The registrant has been informed that it and one or more employees at
its Montrose (Olathe), Colorado, OSB plant are the targets of a federal grand
jury investigation concerning alleged tampering with emissions monitoring
equipment, alteration of plant records, and submission of unrepresentative
samples to a certification agency. The registrant does not know when the
investigation will be completed, but has been informed that indictment of the
registrant is likely. The registrant began an internal investigation in the
summer of 1992 and reported its initial findings of irregularities to
governmental authorities in September, 1992. In March 1995, additional
subpoenas were issued requiring the production of evidence and testimony
relating to alleged fraud in connection with the submission of
unrepresentative OSB product samples to the American Plywood Association, an
independent industry product certification agency, by the registrant's
Montrose plant and other OSB plants. The registrant has commenced an
independent investigation concerning the allegations.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the registrant's security holders
during the fourth quarter of 1994.
Executive Officers of the Registrant
The following table sets forth the name of each executive officer of the
registrant (including certain executives whose duties may cause them to be
classified as executive officers under applicable SEC rules), the age of the
officer, and all positions and offices held with the registrant as of
March 14, 1995:
Positions and Offices
Name Age Held With the Registrant
--------------------- --- -----------------------------------
Harry A. Merlo 70 Chairman and President
James Eisses 58 Executive Vice President and General
Manager, Northern Division
Ronald L. Paul 51 Vice President, Operations, and General
Manager, Southern Division
J. Keith Matheney 46 General Manager, Weather-Seal Division
Ralph D. Lewis 53 President and General Manager, Ketchikan
Pulp Company
Robert M. Simpson 36 General Manager, Western Division
William L. Hebert 44 Treasurer and Chief Financial Officer
James F. Ellisor 46 Controller, Operations
Messrs. Merlo, Eisses, and Paul are also directors of the registrant.
All executive officers serve at the pleasure of the board of directors.
The terms of office for which they are elected run until the next annual
meeting of the board of directors, unless earlier removed.
Except as set forth below, all the executive officers have served in
their present capacities for more than five years. In January 1994,
Mr. Eisses became executive vice president; from June 1992 to January 1994, he
was vice president, operations; previously he was general manager of L-P's
Northern Division, a position he still holds. Mr. Paul became vice president,
operations, in January 1994; previously he was general manager of L-P's
Southern Division, a position he continues to hold. Prior to assuming his
present position in March 1992, Mr. Simpson was president of Tricon Forest
Products, Inc., a forest products broker. Mr. Hebert became treasurer and
chief financial officer in January 1994; previously he was L-P's controller,
finance. Mr. Matheney became general manager of the Weather-Seal Division in
June, 1994; previously he was Sales and Marketing Manager of the registrant's
Northern Division. Mr. Lewis became president and general manager of
Ketchikan Pulp Company in June, 1994; previously he was Controller of
Ketchikan Pulp Company. Before assuming his present position in January 1994,
Mr. Ellisor was Controller of the registrant's Northern Division.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The common stock is listed on the New York Stock Exchange, the Dow-Jones
newspaper quotations symbol is "LaPac," and the ticker symbol is "LPX."
Information regarding market prices for the registrant's common stock is
included in the following table labeled "High and Low Stock Prices." Holders
of the registrant's common stock may automatically reinvest dividends toward
purchase of additional shares of the company's common stock. At March 14,
1995, L-P had approximately 25,578 stockholders of record.
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES HIGH AND LOW STOCK PRICES
1st Quarter 2nd Quarter 3rd Quarter 4th
Quarter
1994 High $48.00 $36.13 $35.88 $33.63
Low 35.38 30.00 29.25 25.75
1993 High $39.38 $38.07 $36.38 $42.13
Low 29.63 28.75 29.75 30.88
Information regarding dividends on its common stock declared by the registrant
during the past two years is located in the following table.
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES QUARTERLY DATA
(Dollar amounts in millions except per share)
1st Quarter 2nd Quarter 3rd Quarter 4th
Quarter
1994
----
Net sales $698.0 $774.7 $818.4
$748.4
Gross profit(1) 140.5 132.8 155.1
130.2
Income before taxes and
minority interest 139.8 132.2 155.4
132.2
Net income 85.2 81.9 95.1
84.7
Net income per share .77 .75 .86
.77
Cash dividends per share .11 .125 .125
.125
1st Quarter 2nd Quarter 3rd Quarter 4th
Quarter
1993(2)
----
Net sales $649.2 $596.6 $629.4
$636.1
Gross profit(1) 142.2 105.8 85.4
99.2
Income before taxes 140.3 104.7 84.3
98.3
Income 87.7 65.7 41.5
59.5
Income per share .80 .60 .38
.54
Cash dividends per share .10 .11 .11
.11
(1) Gross profit is income before taxes, minority interest, and interest.
(2) Does not include cumulative effects of accounting changes in 1993.
ITEM 6. Selected Financial Data
YEAR ENDED DECEMBER 31 (DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE)
SUMMARY INCOME STATEMENT DATA 1994 1993 1992 1991 1990
Net sales $ 3,039.5 $ 2,511.3 $ 2,184.7 $ 1,702.1 $ 1,793.3
Gross profit(1) 558.6 423.6 297.5 106.3 144.6
Interest, net (1.0) 5.0 14.4 18.9 7.6
Provision for income taxes 209.8 173.2 106.2 31.5 45.9
Income(2) 346.9 254.4 176.9 55.9 91.1
Income per share(2) 3.15 2.32 1.63 .52 .82
Cash dividends per share .485 .43 .39 .36 .35
Stock dividend - - - - -
Average shares of common stock
outstanding (thousands) 110,140 109,670 108,500 107,980 111,060
SUMMARY BALANCE SHEETS
Current assets $ 694.4 $ 614.1 $ 539.1 $ 461.4 $ 509.1
Timber and timberlands, at cost less
cost of timber harvested 693.5 673.5 531.2 532.7 518.3
Receivable from U.S. Government - - - - -
Property, plant and equipment, net 1,273.2 1,145.9 1,070.3 1,066.1 1,036.8
Investments and other assets 55.1 32.8 65.4 46.9 39.9
Net assets of discontinued operations - - - - -
------------ ----------- ----------- ----------- -----------
Total assets $ 2,716.2 $ 2,466.3 $ 2,206.0 $ 2,107.1 $ 2,104.1
============ =========== =========== =========== ===========
Current liabilities $ 344.8 $ 317.2 $ 295.5 $ 259.5 $ 195.5
Long-term debt, excluding
current portion 209.8 288.6 386.3 492.7 588.7
Deferred income taxes and other 312.2 289.1 163.2 151.3 153.2
Stockholders' equity 1,849.4 1,571.4 1,361.0 1,203.6 1,166.7
------------ ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity $ 2,716.2 $ 2,466.3 $ 2,206.0 $ 2,107.1 $ 2,104.1
============ =========== =========== =========== ===========
KEY FINANCIAL TRENDS 1994 1993 1992 1991 1990
Working capital $ 349.6 $ 296.9 $ 243.6 $ 201.9 $ 313.6
============ =========== =========== =========== ===========
Plant and logging road additions $ 286.0 $ 208.4 $ 161.4 $ 152.3 $ 330.4
Timber additions, net 66.0 81.5 40.1 49.6 44.4
------------ ----------- ----------- ----------- -----------
Total capital additions $ 352.0 $ 289.9 $ 201.5 $ 201.9 $ 374.8
============ =========== =========== =========== ===========
Long-term debt as a percent of
total capitalization 10% 16% 22% 29% 34%
Income as a percent of average equity(2) 20% 17% 14% 5% 8%
(1) Gross profit is income before income taxes, minority interest, and interest.
(2) Does not include cumulative effects of accounting changes in 1993.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Strong demand for L-P's building products, largely due to strong housing
starts of 1.45 million, affordable interest rates, and recovering export
markets for L-P's building products and pulp products pushed sales and
earnings to record levels in 1994. The previous records for sales and
earnings were set in 1993 on strong results for building products, with demand
fueled by low interest rates and an improved economy. These results were
partially offset by an extremely weak pulp market in 1993 that continued into
early 1994.
Sales in 1994 were $3.04 billion, a 21 percent increase over 1993 sales
of $2.51 billion. The 1993 sales figure was a 15 percent increase over 1992
sales of $2.19 billion. Net income for 1994 was $346.9 million, a 36 percent
increase over 1993 income before accounting changes of $254.4 million. The
1993 income figure was a 44 percent increase over 1992 net income of
$176.9 million.
L-P operates in two segments: building products and pulp. Building
products is the most significant segment, accounting for more than 90 percent
of net sales and more than 100 percent of operating profit in each of the last
three years. The results of operations are discussed below for each of these
segments separately. Additional information about the factors affecting L-P's
segments is presented in the "Notes to Financial Statements" and the "Product
Information Summary" in Item 1.
Building Products
L-P's building products segment posted a record year for both sales and
profits in 1994. The previous record year for sales and profits was 1993.
Building products sales in 1994 were $2.8 billion, a 16 percent increase over
1993 sales of $2.4 billion. The 1993 sales figure was a 21 percent increase
over 1992 sales of $2.0 billion. Sales increases in both years resulted from
both higher volumes and higher prices.
Building products operating profits have increased significantly in each
of the last two years. Operating profit was $636 million in 1994, a
13 percent increase over 1993 operating profit of $562 million, which was a
54 percent increase over 1992 operating profit of $364 million. These
increases reflected the higher sales volumes and prices discussed below.
However, the higher sales were partially offset by higher cost of sales as the
cost of raw materials increased significantly in each year. The volume of
products sold also caused increases in cost of sales. There can be no
assurance that L-P will be able to pass any future material increases in the
price of raw materials on to customers through product price increases.
Structural panel products (Inner-Seal(R) OSB products and plywood) sales
have shown the largest increases in both of the past two years. Sales of
structural panel products were $1.2 billion in 1994, $1.0 billion in 1993, and
$0.9 billion in 1992. That represents a 20 percent increase in 1994 and a
13 percent increase in 1993. Sales volumes rose approximately 10 percent in
1994 and 5 percent in 1993 while average sales prices rose approximately
10 percent in 1994 and 11 percent in 1993. Sales volume increases were due to
stronger demand in each year as well as additional sales from new L-P plants.
Price increases are attributable to strong demand coupled with shrinking
supplies as numerous plywood mills in the Northwest region of the country shut
down due to log shortages and high costs. Operating profits were impacted by
higher plywood log costs, which increased 5-7 percent, and higher OSB wood
costs, which increased about 10 percent.
Lumber sales have also increased in each of the past two years, growing
to $867 million in 1994 from $816 million in 1993 and $653 million in 1992.
The 6 percent sales increase in 1994 was due to a 4 percent volume increase
and a 2 percent increase in average selling prices. The 25 percent sales
increase in 1993 was solely due to price increases of approximately 27 percent
while volume actually declined by 2 percent. Lumber prices have also
benefited over the last two years from shrinking supply as mills in the
Northwest shut down due to log shortages and high costs. The volume increase
in 1994 was primarily due to L-P's adding shifts at its sawmills and taking
less downtime. The volume decrease in 1993 was due to shutting mills down in
California. Log costs, where L-P buys on the open market, increased
20-25 percent during 1994.
Other panel products sales (primarily industrial panel products such as
particleboard, hardboard, and medium density fiberboard) have increased
significantly in each of the last two years. The 24 percent increase in 1994
was due primarily to higher prices on slightly higher volume. The 29 percent
increase in 1993 was due to an 18 percent increase in average selling prices
and a 10 percent increase in volume as L-P added capacity through new mills.
Operating profits in 1994 were impacted somewhat by higher resin costs.
Other building products sales increased in 1994 and 1993 due primarily
to additional production of engineered wood products (I-beams and laminated
veneer lumber) at new plants, increased sales of logs from L-P's California
timberlands, and increased chip sales due to increasing prices and higher
volumes, including the purchase of a chip export facility in Northern
California.
Pulp
The pulp segment sustained an operating loss of $5 million in 1994
compared to losses of $59 million in 1993 and $20 million in 1992. The
reduced losses in 1994 over 1993 and increased losses in 1993 over 1992 were
primarily attributable to varying sales levels discussed below. Cost of sales
per ton of pulp sold was significantly higher in 1993 than 1994 or 1992 as
market-related downtime caused fixed costs to be spread over a lower volume
base. There can be no assurance that L-P will be able to pass any future
material increases in the price of raw materials on to customers through
product price increases.
Pulp sales increased 159 percent in 1994 to $220 million from
$85 million in 1993 as worldwide pulp markets recovered during the second half
of 1994. Volume increased 112 percent as increased demand allowed the Company
to take less downtime and average prices during the year at L-P's three pulp
mills increased 21 percent. Problems with the water treatment system at L-P's
pulp mill in Chetwynd, B.C., also contributed to that mill's producing far
below its capacity in 1993. Overall, pulp sales for L-P in 1993 were
54 percent below 1992 sales of $185 million. Average sales prices in 1993
were about 10 percent lower than in 1992 and volume was 50 percent lower due
to poor worldwide pulp markets and the water treatment problem discussed
above.
L-P pulp products are sold primarily to export customers. Because pulp
prices and volumes were at very low levels in 1993, the percentage of pulp
sales to total net sales was only 3 percent in 1993 compared to 7 percent in
1994 and 8 percent in 1992. This was also the primary factor in 1993 export
sales as a percent of total net sales being only 10 percent compared to
12 percent in 1994 and 16 percent in 1992. Information regarding L-P's
geographic segments and export sales are provided in the notes to financial
statements under the caption "Segment Information."
Legal and Environmental Matters
One of L-P's greatest challenges continues to be the ever-changing rules
and regulations concerning the environment. L-P has dedicated substantial
human and financial resources to ensure that it not only complies with current
environmental laws and regulations, but is also an environmental leader in the
forest products industry. L-P is pioneering technology in reducing and
eliminating pulp mill wastewater, including dioxin, and in reducing air
pollutants emitted from its wood panel plants. L-P has also voluntarily
eliminated the practice of clearcutting on its own timberlands. However, L-P
continues to face challenges from preservationist groups trying to lock up the
nation's timber supply and from increasingly stringent and complex standards
for air emissions, water effluent, and handling of hazardous wastes. L-P must
continually balance the costs of environmental projects with the benefits to
the company, its employees, and the communities surrounding its facilities.
Although L-P's policy is to comply with all applicable environmental
laws and regulations, the company has in the past been required to pay fines
for noncompliance and sometimes litigation has resulted from contested
environmental actions. Where environmental infractions have been caused by
other parties, L-P vigorously pursues recovery through legal channels. A
description of certain environmental actions currently pending against L-P or
recently resolved are listed below.
Subsequent to December 31, 1994, KPC reached a plea agreement and
consent decree with the U.S. government regarding water and air compliance
problems experienced at KPC's pulp mill during the late 1980s and early 1990s.
Under the agreements, which are subject to court approval, KPC will enter into
a civil consent decree and will plead guilty to one felony and thirteen
misdemeanor violations of the Clean Water Act. The settlement also calls for
KPC to pay civil and criminal monetary penalties of approximately $6 million,
of which $1.75 million will be suspended in consideration of KPC's
expenditures and ongoing efforts to improve its operations. The penalties
were substantially reserved for at December 31, 1994. Future expenditures
required by the agreements, which are primarily capital in nature, are
estimated to be up to approximately $20 million. KPC has agreed to undertake
a study of whether a clean-up of Ward Cove, the body of water adjacent to the
pulp mill, is needed. If the study determines that such clean-up is needed,
KPC may be required to spend up to $6 million on the clean-up as part of the
overall $20 million of expenditure. KPC cannot estimate what portion, if any,
of the cleanup amount will be required to be spent.
L-P has been informed that it and one or more of its employees at its
Montrose, Colorado, plant are the subjects of a federal grand jury
investigation concerning alleged tampering with air emissions monitoring
equipment, alteration of plant records, and submission of unrepresentative
product samples to a certification agency. The investigation has not been
completed and no charges against the company or any of its employees have been
made.
Certain of L-P's plant sites are suspected of having substances in the
ground or in the groundwater that are considered pollutants. Appropriate
corrective action or plans for corrective action are underway. Where the
pollutants were caused by previous owners of the property, L-P is vigorously
pursuing those parties through legal channels.
In 1992, as part of an overall industry inquiry, L-P received notices of
violation from the U.S. Environmental Protection Agency ("EPA") against 15 of
its manufacturing facilities. During 1993, L-P reached a precedent-setting
environmental settlement with the EPA, which called for L-P to pioneer new
pollution control technology. The agreement also required L-P to pay an
$11.1 million civil penalty to the federal government. The payment was made
in November 1993, but had been substantially accrued for in 1992.
L-P maintains a reserve for estimated environmental contingent
liabilities. As of December 31, 1994 and 1993, the balance of the reserve was
$13 million and $8 million. The reserve increased during 1994 due to
increases in estimates of potential exposure to liabilities. As with all
accounting estimates, significant uncertainty exists in the reliability and
precision of the estimates because the facts and circumstances surrounding
each contingency vary from case to case. Certain facts and circumstances
surrounding each contingency become known as the process evolves that may
significantly increase or decrease the original estimate. L-P cannot estimate
the time frame over which these accrued amounts are likely to be paid out.
The company monitors its estimated exposure for environmental liabilities and
adjusts its accrual accordingly. A portion of L-P's environmental reserve is
related to liabilities for cleanup of properties that are currently owned or
have been owned in the past. Certain of these sites are subject to cost-
sharing arrangements with other parties who were also involved with the site.
L-P does not believe that any of these cost-sharing arrangements will likely
result in an additional material liability to L-P due to non-performance by
the other party.
Management believes the costs of complying with the above actions will
not have a material adverse effect on the business, financial condition, or
results of operations of the company.
See Item 3, Legal Proceedings.
Inner-Seal(R) Siding Products Update
L-P manufactures a complete line of Inner-Seal(R) OSB products for the
building and construction industry. Such products include sheathing, roof
decking, flooring, siding, soffit, and engineered I-joists using OSB as the
web material.
In 1985, L-P began producing and selling OSB-based exterior siding
products in both a lap and panel style. The siding uses OSB as the substrate
and is overlaid with a resin-impregnated paper. The siding products are used
primarily in residential home construction, both single-family and
multifamily, and also to a lesser extent in commercial construction. L-P
offers a warranty on both the OSB substrate and the siding surface, if certain
standards are adhered to, such as proper installation and proper care and
maintenance of the product.
Since 1985, the registrant has sold approximately 2.5 billion square
feet of these Inner-Seal(R) siding products throughout the United States.
During this period, warranty claims related to these siding products have been
made against L-P. Where such claims resulted from improper installation or
improper care and maintenance, L-P has sought to hold the installer or
homeowner responsible for a portion of the claim. Where claims were based on
a problem with the product, L-P has honored its warranty and settled the
claims in a timely manner.
Since 1985, L-P has paid approximately $37 million to settle claims
relating to siding warranties on approximately 15,000 dwelling units at an
average cost of about $2,500 per unit. This amount includes claims paid of
approximately $10 million in 1994, $5 million in 1993, and $5 million in 1992.
In October 1994, an action was filed against L-P and other defendants in
the state of Florida on behalf of a purported class of all homeowners in that
state whose homes were constructed using Inner-Seal(R) siding. The complaint
alleges that the siding is deteriorating prematurely due to latent defects in
the material and seeks damages for alleged breaches of express or implied
warranties and for alleged failure to disclose material defects. The
complaint also seeks an injunction barring L-P from selling Inner-Seal(R)
siding as an exterior siding material in the state of Florida. The attorney
for the plaintiffs claims that the class may number in excess of 30,000
homeowners and that the claim for damages may exceed $5,000 per home,
resulting in aggregated claimed damages in excess of $150 million. L-P
believes it has factual and legal defenses to the complaint.
L-P believes that it is probable that additional Inner-Seal(R) siding
products claims will be made against the company. Some of these claims will
probably be made in the form of warranty claims, while others will probably be
made as litigation claims. L-P maintains a reserve for siding claims. As
with all accounting estimates, due to many factors involved in estimating
future claims, significant uncertainty exists in the reliability and precision
of such estimates. There can be no assurance that management's estimates will
not significantly increase or decrease in the future as additional facts and
circumstances become known and actual claims are made. L-P monitors its
estimated exposure to future siding claims and adjusts its accrual
accordingly. Management believes that the ultimate outcome of all the siding-
related matters will not have a material adverse effect on the business,
financial position, or results of operations of L-P.
See Item 3, legal Proceedings.
Financial Position and Liquidity
L-P's financial position and liquidity continue to be among the
strongest in the industry. Long-term debt as a percent of total
capitalization was only 10.1 percent at December 31, 1994, down from
15.5 percent at December 31, 1993. Total debt as a percent of total
capitalization was 15.5 percent versus 21.6 percent in the prior year. The
company's ratio of current assets to current liabilities was 2.01 at December
31, 1994 versus 1.94 at December 31, 1993. Cash and cash equivalents totaled
$315.9 million at the end of 1994, up from $261.6 million at the end of 1993.
Record profits in 1994 resulted in record cash from operating activities
of $596 million, which eclipsed the previous record of $439 million set in
1993. Liquidation of inventories and increases in payables and accruals also
contributed to the increase in operating cash flow. The company's cash used
in investing activities increased to $350 million in 1994 from $254 million in
1993 and $207 million in 1992, as L-P invested significantly in new plants for
added production capacity, environmental-related projects, and timber to
supply its plants. Cash used for financing activities also increased in 1994
to $191 million from $150 million in 1993 and $117 million in 1992. In each
of the three years, the primary expenditures in this area were to repay debt
and pay cash dividends. In 1994, L-P also increased its purchases of treasury
stock to $54 million in 1994 from $14 million in 1993 and none in 1992.
During 1994, L-P loaned an additional $56 million to the Employee Stock
Ownership Trusts which used the funds to purchase 1.85 million shares of L-P's
treasury stock. These shares will be used to cover contributions for 1995 and
beyond, which will be higher, primarily due to an increase in L-P
contributions for most hourly employees from 5 percent to 10 percent of
eligible wages. Defined benefit pension plans were frozen for those employees
receiving increased ESOT contributions.
L-P's $100 million credit line expired late in 1994 and was renewed in
January 1995. The new agreement is a five-year credit line available for
general corporate purposes. L-P's short-term credit ratings are A-1 with
Standard & Poors and D-1 Plus with Duff & Phelps.
L-P's board of directors authorized a program in mid-1994 to repurchase
up to 5 million shares at management's discretion. The company purchased
667,600 shares under this program during 1994 (out of total share repurchases
in 1994 of 1,730,000), leaving 4,332,400 shares available to be repurchased at
December 31, 1994.
The company plans capital expenditures in 1995 of $350 million to
$400 million. These expenditures will be for new plants,
environmental-related capital projects, upgrading of existing facilities, and
purchases of timber to supply operations. L-P expects to finance these
capital expenditures from operating cash flows and existing cash and cash
equivalents. Mandatory debt repayments for 1995 are $82 million.
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements and accompanying notes to
financial statements together with the report of independent public
accountants are located on the following pages. Quarterly data for the
registrant's latest two fiscal years is located in the table labeled
"Quarterly Data" in Item 5.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31 (DOLLAR AMOUNTS IN MILLIONS) 1994 1993
ASSETS
Current Assets:
Cash and cash equivalents $ 315.9 $ 261.6
Accounts receivable, less reserves of $1.4 and $1.0 157.4 110.9
Inventories 213.8 234.7
Prepaid expenses 7.3 6.9
------- -------
Total current assets 694.4 614.1
Timber and Timberlands, at cost less cost
of timber harvested 693.5 673.5
Property, Plant and Equipment, at cost:
Land, land improvements and logging roads,
net of road amortization 162.9 143.8
Buildings 221.3 211.1
Machinery and equipment 1,777.3 1,631.6
Construction in progress 196.7 126.3
------- -------
2,358.2 2,112.8
Less reserves for depreciation (1,085.0)
(966.9)
------- -------
Net property, plant and equipment 1,273.2 1,145.9
Investments and Other Assets 55.1 32.8
------- -------
Total Assets $2,716.2 $2,466.3
======= =======
See notes to financial statements.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE) 1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 81.9 $ 105.5
Short-term notes payable 50.5 41.7
Accounts payable and accrued liabilities 193.5 149.2
Income taxes payable 18.9 20.8
------- ------
Total current liabilities 344.8 317.2
Long-term Debt, excluding current portion 209.8 288.6
Deferred Income Taxes 269.8 264.8
Other Long-term Liabilities and Minority Interest 42.4 24.3
Stockholders' Equity:
Common stock, $1 par value, 200,000,000 shares
authorized, 116,937,022 shares issued 117.0 117.0
Preferred stock, $1 par value, 15,000,000 shares
authorized, no shares issued - -
Additional paid-in capital 478.4 431.5
Retained earnings 1,510.7 1,217.2
Less treasury stock, 4,944,804 shares, at cost (86.3)
(85.6)
Loans to Employee Stock Ownership Trusts (114.0)
(72.5)
Other equity adjustments (56.4)
(36.2)
------- -------
Total stockholders' equity 1,849.4 1,571.4
------- -------
Total Liabilities and Stockholders' Equity $2,716.2 $2,466.3
======= =======
See notes to financial statements.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31 (DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE)
1994 1993 1992
Net Sales $3,039.5 $2,511.3 $2,184.7
------- ------- -------
COSTS AND EXPENSES:
Cost of sales 2,158.4 1,779.9 1,620.5
Depreciation and amortization 143.8 133.0 121.4
Cost of timber harvested 53.5 50.2 41.6
Selling and administrative 125.2 115.6 103.7
Interest income (10.0) (7.8) (7.3)
Interest expense, net of capitalized
interest of $5.5, $3.5 and $4.9 9.0 12.8 21.7
------- ------- -------
Total costs and expenses 2,479.9 2,083.7 1,901.6
------- ------- -------
Income before taxes, minority interest
and cumulative effects of
accounting changes 559.6 427.6 283.1
Provision for income taxes (209.8) (173.2) (106.2)
Minority interest in net income of
consolidated subsidiaries (2.9) - -
------- ------- -------
Income before cumulative effects of
accounting changes 346.9 254.4 176.9
Cumulative effects of accounting
changes, net of income taxes of $1.9 - (10.4) -
------- ------- -------
Net Income $ 346.9 $ 244.0 $ 176.9
======= ======= =======
EARNINGS PER SHARE:
Income before cumulative effects of
accounting changes $ 3.15 $ 2.32 $ 1.63
Cumulative effects of accounting changes - (.09) -
------- ------- -------
Net Income $ 3.15 $ 2.23 $ 1.63
======= ======= =======
Cash Dividends Per Share of Common Stock $ .485 $ .43 $ .39
======= ======= =======
Average Shares of Common Stock
(thousands) 110,140 109,670 108,500
See notes to financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 (DOLLAR AMOUNTS IN MILLIONS)
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 346.9 $ 244.0 $ 176.9
Adjustments to reconcile income to net
cash provided by operating activities:
Cumulative effects of accounting changes - 10.4 -
Depreciation, amortization and cost of
timber harvested 197.3 183.2 163.0
Other non-cash charges 23.6 29.1 29.6
Decrease (increase) in receivables (41.6) 3.6 (33.3)
Decrease (increase) in inventories 25.1 (39.7) (8.0)
Decrease (increase) in prepaid expenses (.2) (1.1) .9
Increase (decrease) in accounts payable
and accrued liabilities 39.4 1.5 22.5
Increase (decrease) in income taxes payable .4 9.1 (4.8)
Increase (decrease) in deferred income taxes 5.0 (1.6) 13.5
------- ------- -------
Net cash provided by operating activities 595.9 438.5 360.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant, equipment and logging road additions (286.0) (208.4) (161.4)
Timber and timberland additions, net (66.0) (81.5) (40.1)
Net book value of plant and equipment sold 4.2 4.1 11.4
Other investing activities, net (2.5) 32.1 (16.4)
------- ------- -------
Net cash used in investing activities (350.3) (253.7) (206.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term notes payable 5.8 .6 9.6
Repayment of long-term debt (106.6) (105.3) (97.7)
Cash dividends (53.4) (47.3) (42.5)
Purchase of treasury stock (54.3) (13.8) -
Loans to ESOTs (56.0) - -
Treasury stock sold to ESOTs 56.0 - -
Cash received from minority investors 6.5 - -
Other financing activities, net 10.7 14.5 14.1
------- ------- -------
Net cash used for financing activities (191.3) (151.3) (116.5)
------- ------- -------
Net increase in cash and cash equivalents 54.3 33.5 37.3
Cash and cash equivalents at beginning of year 261.6 228.1 190.8
------- ------- -------
Cash and cash equivalents at end of year $ 315.9 $ 261.6 $ 228.1
======= ======== =======
See notes to financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
OTHER TOTAL
ADD'L LOANS EQUITY STOCK-
DOLLAR AMOUNTS IN MILLIONS COMMON STOCK TREASURY STOCK PAID-IN RETAINED TO ADJUST- HOLDERS'
EXCEPT PER SHARE SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ESOTs MENTS EQUITY
BALANCE, DECEMBER 31, 1991 38,959,366 $ 39.0 2,967,831 $(102.3) $404.5 $ 964.4 $(101.5) $ (0.5) $1,203.6
Net income - - - - - 176.9 - - 176.9
Cash dividends, $.39 per share - - - - - (42.5) - - (42.5)
Issuance of shares for employee
stock plans & for other purposes 20,010 - (560,947) 13.8 18.0 - - - 31.8
Employee stock ownership trust
contribution - - - - - - 14.5 - 14.5
Currency translation adjustment &
marketable securities adjustment - - - - - - - (23.3) (23.3)
Shares issued under
3-for-2 stock split 19,478,373 19.5 1,441,916 - - (19.5) - - -
---------- ----- --------- ------ ----- ------- ------ ------ -------
BALANCE, DECEMBER 31, 1992 58,457,749 58.5 3,848,800 (88.5) 422.5 1,079.3 (87.0) (23.8) 1,361.0
Net income - - - - - 244.0 - - 244.0
Cash dividends, $.43 per share - - - - - (47.3) - - (47.3)
Issuance of shares for employee
stock plans & for other purposes 10,762 - (916,937) 16.7 9.0 - - - 25.7
Purchase of treasury stock - - 200,000 (13.8) - - - - (13.8)
Employee stock ownership trust
contribution - - - - - - 14.5 - 14.5
Currency translation adjustment &
marketable securities adjustment - - - - - - - (12.4) (12.4)
Shares issued under
2-for-1 stock split 58,468,511 58.5 3,624,075 - - (58.8) - - (0.3)
---------- ----- --------- ------ ----- ------- ------ ------ -------
BALANCE, DECEMBER 31, 1993 116,937,022 117.0 6,755,938 (85.6) 431.5 1,217.2 (72.5) (36.2) 1,571.4
Net income - - - - - 346.9 - - 346.9
Cash dividends, $.485 per share - - - - - (53.4) - - (53.4)
Issuance of shares for employee
stock plans & for other purposes - - (1,697,713) 26.5 18.0 - - - 44.5
Additional loans to ESOTs & sale of
treasury stock to ESOTs - - (1,843,621) 27.1 28.9 - (56.0) - -
Purchase of treasury stock - - 1,730,200 (54.3) - - - - (54.3)
Employee stock ownership trust
contribution - - - - - - 14.5 - 14.5
Currency translation adjustment &
marketable securities adjustment - - - - - - - (20.2) (20.2)
---------- ----- --------- ------ ----- ------- ------ ------ -------
BALANCE, DECEMBER 31, 1994 116,937,022 $117.0 4,944,804 $ (86.3) $478.4 $1,510.7 $(114.0) $(56.4) $1,849.4
========== ===== ========= ====== ===== ======= ====== ====== =======
See Notes to Financial Statements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Presentation
The consolidated financial statements include the accounts of
Louisiana-Pacific Corporation and all of its subsidiaries ("L-P"), after
elimination of intercompany balances and transactions.
Earnings Per Share
Earnings per share have been computed based on the weighted average
number of shares of common stock outstanding during the periods. The effect of
common stock equivalents is not material.
American Institute of Certified Public Accountants Statement of Position
No. 93-6, "Employers' Accounting for Employee Stock Ownership Plans" (SOP
93-6) requires that shares held by L-P's Employee Stock Ownership Trusts
("ESOTs") which were acquired by the ESOTs on or after January 1, 1994 and are
not allocated to participants' accounts, are not considered outstanding for
purposes of computing earnings per share. Unallocated shares held by the
ESOTs which were acquired by the ESOTs prior to January 1, 1994, and all
allocated ESOT shares continue to be considered outstanding for purposes of
computing earnings per share.
Cash and Cash Equivalents
L-P considers all highly liquid securities with a maturity of three
months or less to be cash equivalents. Cash paid during 1994, 1993 and 1992
for interest (net of capitalized interest) was $9.0 million, $13.2 million and
$21.9 million. Cash paid during 1994, 1993 and 1992 for income taxes (net of
refunds received) was $204.0 million, $161.1 million and $93.5 million.
At December 31, 1994, Louisiana-Pacific Canada Ltd., a wholly owned
subsidiary of L-P, had restricted cash balances of USD $20.8 million related
to loan agreements which require such balances based on changes in the
Canadian dollar relative to the U.S. dollar. These balances are
interest-bearing to Louisiana-Pacific Canada Ltd. at short-term interest
rates.
L-P invests its excess cash with high quality financial institutions
and, by policy, limits the amount of credit exposure at any one financial
institution. In addition, L-P holds its cash investments until maturity and
is therefore not subject to significant market risk.
Inventory Valuation
Inventories are valued at the lower of cost or market. Inventory costs
include material, labor and operating overhead. The LIFO method is used for
most log and lumber inventories. Inventory quantities are determined on the
basis of physical inventories, adjusted where necessary for intervening
transactions from the date of the physical inventory to the end of the year.
The major types of inventories are as follows:
DECEMBER 31 (IN MILLIONS) 1994 1993
Logs $ 96.9 $124.7
Lumber 93.1 67.1
Panel Products 24.7 31.3
Other Building Products 42.6 30.3
Pulp 15.8 26.1
Other Raw Materials 23.3 27.9
Supplies 21.2 16.8
LIFO Reserve (103.8) (89.5)
----- -----
Total $213.8 $234.7
====== ======
Timber
L-P follows an overall policy on fee timber that amortizes timber costs
over the total fiber available during the estimated growth cycle. Timber
carrying costs, such as reforestation and forest management, are expensed as
incurred. Cost of timber harvested includes not only the cost of fee timber
but also the amortization of the cost of long-term timber deeds.
Property, Plant and Equipment
L-P uses the units of production method of depreciation for most
machinery and equipment which amortizes the cost of equipment over the
estimated units that will be produced during its useful life.
Provisions for depreciation of buildings and the remaining machinery and
equipment have been computed using straight-line rates based on the estimated
service lives. The effective straight-line rates for the principal classes of
property range from approximately 5 percent to 20 percent.
Logging road construction costs are capitalized and included in land and
land improvements. These costs are amortized as the timber volume adjacent to
the road system is harvested.
L-P capitalizes interest on borrowed funds during construction periods.
Capitalized interest is charged to machinery and equipment accounts and
amortized over the lives of the related assets. Interest capitalized during
1994, 1993 and 1992 was $5.5 million, $3.5 million and $4.9 million.
L-P defers start-up costs on major construction projects during the
start-up phase and amortizes the deferral over seven years. Start-up costs
deferred during 1992 were $23.8 million. No start-up costs were deferred
during 1994 or 1993.
Income Tax Policies
During the first quarter of 1993, L-P adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109), which utilizes the liability method whereby deferred
income taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax basis of assets and
liabilities using the tax rates applicable at the balance sheet date.
Adoption of this standard resulted in a one-time, after tax charge of
$7.2 million or six cents per share. In addition L-P was required to adjust
certain assets of its Kirby Forest Industries ("Kirby") subsidiary. This
adjustment was required since the acquisition of Kirby was originally recorded
in 1986 "net of tax." The result was an increase in timber of $97.7 million,
an increase in property, plant and equipment of $5.9 million, a decrease in
inventories of $.7 million, an increase in current taxes payable of
$5.9 million and an increase in deferred taxes payable of $104.1 million. The
effect of adopting this standard did not have a material impact on pretax
income or income tax expense.
Income before taxes and cumulative effects of accounting changes for the
years ended December 31, was taxed under the following jurisdictions:
YEAR ENDED DECEMBER 31 (IN MILLIONS) 1994 1993 1992
Domestic $524.1 $416.2 $270.6
Foreign 35.5 11.4 12.5
----- ----- -----
$559.6 $427.6 $283.1
====== ====== ======
Provision (benefit) for income taxes includes the following:
YEAR ENDED DECEMBER 31 (IN MILLIONS) 1994 1993 1992
Current tax provision:
U.S. federal $171.8 $149.5 $81.9
State and local 24.9 22.6 9.0
Foreign 8.1 2.7 1.8
----- ----- -----
Total current tax provision $204.8 $174.8 $92.7
====== ====== ======
Deferred tax provision (benefit):
U.S. federal $ 3.3 $ (.2) $12.2
State and local .4 .1 1.3
Foreign 1.3 (1.5) -
----- ----- -----
Total deferred tax provision (benefit) $ 5.0 $ (1.6) $13.5
====== ====== ======
L-P increased its U.S. deferred tax liability in 1993 as a result of
legislation enacted during 1993 increasing the corporate tax rate from
34 percent to 35 percent effective January 1, 1993. Included in the deferred
tax provision is the effect of the 1 percent increase and other tax law
changes related to L-P's deferred income tax liability which resulted in a net
charge of $4.4 million, or $.04 per share.
The tax effects of significant temporary differences creating deferred
tax (assets) and liabilities at December 31, 1994 and 1993 were as follows:
YEAR ENDED DECEMBER 31 (IN MILLIONS) 1994 1993
Property, plant and equipment $155.8 $155.8
Timber and timberlands 146.7 148.6
Inventories (1.9) (4.0)
Accrued liabilities (9.2) (16.1)
Benefit of foreign capital loss
and NOL carryover (8.4) (10.3)
Benefit of foreign ITC carryover (64.3) (65.7)
Other (1.5) 1.1
Valuation allowance 52.6 55.4
----- -----
Total deferred taxes $269.8 $264.8
====== ======
L-P's subsidiary, Louisiana-Pacific Canada Ltd. ("LPC"), has unrealized
foreign investment tax credits ("ITC") of approximately C$90 million. These
credits can be carried forward to offset future tax of LPC. However, these
credits expire C$4 million in 1996, C$5 million in 1997, C$20 million in 1999,
C$6 million in 2000, C$46 million in 2001, C$4 million in 2003 and C$5 million
in 2004. In addition, LPC has capital loss carryovers of C$31 million
available to offset capital gains in future years. These capital loss
carryovers will not expire.
The following table summarizes the differences between the statutory
federal and effective tax rate:
YEAR ENDED DECEMBER 31 1994 1993 1992
Federal tax rate 35% 35% 34%
Tax-exempt investment income - (1) (1)
State and local income taxes 4 4 4
Fines - 1 1
Other (1) 1 -
--- --- ---
38% 40% 38%
=== === ===
Marketable Securities and Securities Transactions
The balance sheet caption "Investments and Other Assets" includes, among
other items, investments in certain marketable equity securities. Realized
gains or losses are computed based on actual transaction prices of the
securities sold and are reflected in income in the period in which the
transaction occurred. At December 31, 1994 and 1993, the carrying value of
these securities approximates the market value and therefore Financial
Accounting Standards Board Statement No. 115 "Accounting for Certain
Investments in Debt and Equity Securities," which requires unrealized gains
and losses on these securities to be recognized as an adjustment to
stockholders' equity, did not have a material impact on L-P's consolidated
financial statements.
L-P has only limited involvement with derivative financial instruments
and at December 31, 1994 had no material derivative financial instruments
outstanding.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated
to U.S. dollars at the exchange rate on the balance sheet date. Revenues,
costs, and expenses are translated at average rates of exchange prevailing
during the year. Translation adjustments resulting from this process are
shown separately in stockholders' equity.
OTHER NOTES TO FINANCIAL STATEMENTS
Accounts Payable and Accrued Liabilities
DECEMBER 31 (IN MILLIONS) 1994 1993
Accounts payable $105.5 $ 78.6
Salaries and wages payable 20.4 19.4
Taxes other than income taxes 13.3 13.3
Workers' compensation 11.4 11.5
Other accrued liabilities 42.9 26.4
----- -----
$193.5 $149.2
====== ======
LONG-TERM DEBT
INTEREST RATE AT DECEMBER 31,
(IN MILLIONS) 12/31/94 1994 1993
Project Bank financings -
Chetwynd, B.C. pulpmill, balance due in
1996, interest rate variable 6.3% $ 80.0 $ 98.0
Nova Scotia fiber gypsum plant, payable
in 1997 and 1998, interest rate variable 2.7 34.7 34.7
Sunpine Forest Products, payable 1995-2002,
Sundre, Alberta, interest rate variable 6.6 5.7 7.8
Project Revenue Bond Financings -
Ketchikan, AK, payable in 1995, interest
rate variable - - 10.7
Newberry, MI, payable in 2009, interest
rate variable 4.0 7.6 7.6
Two Harbors, MN, payable in 2004,
interest rate variable 4.4 8.0 8.0
Wilmington, NC, payable in 1999, interest
rate variable 4.9 10.0 10.0
Other, payable in varying amounts 1995-2000,
interest rates fixed 7.0 .7 .7
Employee Stock Ownership Trust (ESOT) Loans -
Hourly ESOT, payable annually 1995-1999,
interest rate fixed 8.3 34.0 42.5
Salaried ESOT, payable annually 1995-1999,
interest rate variable 4.8 24.0 30.0
Santa Fe Industries, Inc. - - 36.3
Other installment notes and contracts, payable
in varying amounts 1995-2000, interest
rates vary 0.0-9.0 5.1 2.3
----- -----
$209.8 $288.6
====== ======
The carrying amounts of L-P's long-term debt approximates fair market
value since the debt is primarily variable rate debt.
Debt is generally unsecured except for the Sunpine Forest Products debt
which is secured by the assets of Sunpine and also guaranteed by L-P. The
debt represents 100 percent of Sunpine's obligations, however, L-P Canada Ltd.
is a 50 percent joint venture partner. Other installment notes and contracts
were incurred primarily through acquisitions of plants and timber.
Many of L-P's loan agreements contain lender's standard covenants and
restrictions. L-P was in compliance with all of the covenants and
restrictions of these agreements during 1994 and 1993.
L-P has a $100 million revolving credit facility with a group of banks
which expires in 2000. Interest on borrowings under the credit line is
computed on one of numerous variable interest rate formulas at L-P's option.
L-P pays a commitment fee on the unused credit line. There were no borrowings
in 1994 or 1993.
The weighted average interest rate for all debt at December 31, 1994 and
1993 was 5.7 percent and 4.3 percent. Required repayment of principal for
long-term debt is as follows:
YEAR ENDED DECEMBER 31 (IN MILLIONS)
1995 $ 81.9
1996 97.4
1997 23.2
1998 45.3
1999 25.8
2000 and after 18.1
-----
$291.7
======
Retirement Plans
L-P maintains tax-qualified Employee Stock Ownership Trusts ("ESOTs"),
for salaried and certain hourly employees under which 10 percent and
5 percent, respectively, of the eligible employees' annual earnings is
contributed to the plans. Beginning in 1995, L-P will contribute 10 percent
of the eligible employees' annual earnings for certain hourly employees and
freeze the benefits in their defined benefit plans. Approximately 11,000 L-P
employees participate in the ESOTs. Fully funded defined benefit plans also
supplement the hourly employees' retirement package.
Compensation expense for ESOT shares allocated to employees each year is
generally based on the ESOTs' cost of the shares. However, as required by SOP
93-6, compensation expense for the 1,843,621 shares sold to the ESOTs in 1994
(of which 368,724 shares per year will be allocated to participants' accounts
in 1995 through 1999) will be based on the market value of the shares at the
time of allocation. L-P's ESOTs held a total of 14,571,288 shares at December
31, 1994 of which 7,246,051 were allocated to participants' accounts.
ESOT contributions were as follows:
YEAR ENDED DECEMBER 31 (IN MILLIONS) 1994 1993 1992
Compensation expense $18.1 $18.0 $16.8
Interest incurred on ESOT debt 4.8 5.6 7.2
Less dividends paid on
unallocated ESOT shares (3.1) (3.5)
(3.7)
----- ----- -----
Total contribution $19.8 $20.1 $20.3
====== ====== ======
L-P also maintains other defined contribution pension plans covering
various groups of hourly and salaried employees in the U.S. and other
countries. Contributions to the plans are generally computed by one of three
methods: 1) L-P contribution required based upon a defined formula with no
employee contributions allowed; 2) L-P contribution required based upon a
defined formula with elective employee contributions; and 3) elective employee
contributions only with no L-P contribution allowed.
L-P also has a number of defined benefit pension plans covering its
hourly employees. Contributions to these plans are based on actuarial
calculations of amounts to cover current pension and amortization of prior
service cost over periods ranging from 10 to 20 years. Contributions to
multi-employer defined benefit plans are specified in applicable collective
bargaining agreements.
The status of L-P administered defined benefit pension plans is as
follows:
DECEMBER 31 (IN MILLIONS) 1994 1993
Accumulated benefit obligation
Vested portion $ 91.7 $ 96.4
Nonvested portion 3.4 3.7
----- -----
Total 95.1 100.1
Effect of future compensation - 10.4
----- -----
Projected benefit obligation 95.1 110.5
Plan assets 114.3 121.7
----- -----
Net funded status 19.2 11.2
Unrecognized asset at transition (16.3) (19.2)
Unrecognized prior service - .5
Unrecognized net loss 10.1 16.3
----- -----
Net prepaid pension expense $ 13.0 $ 8.8
====== ======
The actuarial assumptions used to determine pension expense and the
funded status of the plans for 1994 and 1993 were: a discount rate on benefit
obligations of 8.5 percent in 1994 and 7.5 percent in 1993, and an
8.75 percent expected long-term rate of return on plan assets in 1994 and
1993.
The assets of the plans at December 31, 1994 and 1993 consist mostly of
government obligations, and minor amounts in equity securities and cash and
cash equivalents.
Pension expense included the following components:
YEAR ENDED DECEMBER 31 (IN MILLIONS) 1994 1993 1992
Benefits earned by employees $ 4.8 $ 3.9 $ 3.5
Interest cost on projected
benefit obligation 8.2 7.4 6.7
Return on plan assets (10.1) (9.4)
(9.6)
Net amortization and deferral (1.3) (2.4)
(2.4)
----- ----- -----
Net periodic pension expense (income) 1.6 (.5)
(1.8)
Contributions to multi-employer and
defined contribution pension plans 1.8 1.5 1.6
Gain from curtailment of pension plan (5.2) - -
----- ----- -----
Net pension expense (income) $(1.8) $ 1.0 $
(.2)
====== =====
======
During the first quarter of 1993, the Company adopted the Financial
Accounting Standards Board ("FASB") Statement No. 106, "Employers' Accounting
for Post-retirement Benefits Other Than Pensions." The standard requires
employers to record the cost of non-pension retirement benefits during the
working years of the employee. Adoption of this standard resulted in a
one-time charge of $3.2 million or three cents per share, net of $1.9 million
in income taxes, to first quarter 1993 earnings. Net expense in 1994 and 1993
was $.8 million. L-P does not generally provide post-employment benefits (as
defined in FASB Statement No. 112), and therefore adoption of this statement
did not have a material effect on the financial statements.
Stock Options and Plans
L-P grants options to key employees to purchase L-P common stock.
Options are granted at 85 to 100 percent of market price. The options become
exercisable 20 percent or 33 percent per year beginning one year after the
grant date and expire 5 or 10 years after the date of grant. Compensation
expense (income) recognized for stock options was $(.3) million in 1994,
$3.0 million in 1993 and $3.4 million in 1992. Shares available for grant at
December 31, 1994 were 573,100.
Changes in options outstanding and exercisable were as follows:
NUMBER OF SHARES
1994 1993 1992
Options outstanding at January 1 2,800,662 1,345,671 1,039,614
Adjustment for stock splits - 1,539,881 519,807
Options granted 193,350 254,200 154,125
Options exercised (209,809) (289,760) (297,670)
Options canceled (173,080) (49,330) (70,205)
--------- --------- ---------
Options outstanding at December 31 2,611,123 2,800,662 1,345,671
========= ========= =========
Options exercisable at December 31 1,137,453 727,082 188,766
========= ========= =========
PRICE RANGE PER SHARE
1994 1993 1992
Options granted $28 $30 $20
Options exercised $7-$30 $9-$19 $13-$23
Options outstanding $7-$30 $7-$30 $13-$20
L-P also grants awards under the Louisiana-Pacific Corporation Key
Employee Restricted Stock Plan. Shares are issued, at no cost to the
employee, only after certain annual performance criteria are met. The shares
may be issued either in the year concurrent with or subsequent to the
performance criteria being met, depending on several factors. However, the
expense is recorded in the year to which the performance criteria relates
regardless of the year in which the shares are actually issued. The
performance criteria were met in 1994, 1993 and 1992. Total compensation
expense recognized for restricted stock awards was $10.6 million in 1994,
$20.3 million in 1993 and $14.7 million in 1992. Shares available for grant
at December 31, 1994 were 2,374,500.
Changes in the Restricted Stock Awards outstanding were as follows:
NUMBER OF SHARES
1994 1993 1992
Restricted awards
outstanding at January
1 960,000 724,500
262,500
Adjustments for stock splits - 500,250 131,250
Restricted awards granted 256,000 360,000 630,000
Restricted awards exercised (412,500) (564,750) (58,500)
Restricted awards canceled (139,000) (60,000) (240,750)
------- ------- -------
Restricted awards outstanding at December 31 664,500 960,000 724,500
======= ======= =======
L-P offers employee stock purchase plans to all employees. Under each
plan, employees may subscribe to purchase shares of L-P stock over 24 months
at 85 percent of the market price. At December 31, 1994, 683,855 shares and
406,569 shares were subscribed at $30.02 and $29.91 per share under the 1994
and 1993 Employee Stock Purchase Plans. During 1994, L-P issued 506, 043
shares to employees at an average price of $19.46 under all Employee Stock
Purchase Plans, including the completion of the purchase period for the 1992
Plan.
Contingencies
Subsequent to December 31, 1994, L-P's Ketchikan Pulp Company ("KPC")
subsidiary reached a plea agreement and consent decree with the
U.S. government regarding water and air compliance problems experienced at
KPC's pulp mill during the late 1980's and early 1990's. Under the
agreements, which are subject to court approval, KPC will enter into a civil
consent decree and will plead guilty to one felony and thirteen misdemeanor
violations of the Clean Water Act. The settlement also calls for KPC to pay
civil and criminal monetary penalties of $6.0 million, of which $1.75 million
will be suspended in consideration of KPC's expenditures and ongoing efforts
to improve its operations. The penalties were substantially reserved for at
December 31, 1994. Future expenditures, which are primarily capital in
nature, to comply with the agreements are estimated to be approximately
$20 million.
L-P has been informed that it and one or more of its employees at its
Montrose, Colorado plant are the subject of a federal grand jury investigation
concerning alleged tampering with air emissions monitoring equipment,
alteration of plant records and submission of unrepresentative product samples
to a certification agency. The investigation has not been completed and no
charges against the company or any of its employees have been made.
Certain of L-P's plant sites are suspected of having substances in the
ground or in the groundwater that are considered pollutants. Appropriate
corrective action or plans for corrective action are underway. Where the
pollutants were caused by previous owners of the property, L-P is vigorously
pursuing those parties through legal channels.
In 1992, as part of an overall industry inquiry, L-P received notices of
violation from the U.S. Environmental Protection Agency ("EPA") against
fifteen of its manufacturing facilities. During 1993, L-P reached a
precedent-setting environmental settlement with the EPA, which called for L-P
to pioneer new pollution control technology. The agreement also required L-P
to pay an $11.1 million civil penalty to the Federal government. The payment
was made in November 1993, but had been substantially accrued for in 1992.
L-P maintains a reserve for estimated environmental contingent
liabilities. The balance of the reserve was $13.2 million at December 31,
1994 and $8.2 million at December 31, 1993. The reserve increased during 1994
due to increases in estimates of potential exposure to liabilities. As with
all accounting estimates, significant uncertainty exists in the reliability
and precision of the estimates because the facts and circumstances surrounding
each contingency vary from case to case. Certain facts and circumstances
surrounding each contingency become known as the process evolves which may
significantly increase or decrease the original estimate. L-P cannot estimate
the time frame over which these accrued amounts are likely to be paid out.
L-P monitors its estimated exposure for environmental liabilities and adjusts
its accrual accordingly. A portion of L-P's environmental reserve is related
to liabilities for cleanup of properties which are currently owned or have
been owned in the past by L-P. Certain of these sites are subject to cost-
sharing arrangements with other parties who were also involved with the site.
L-P does not believe that any of these cost-sharing arrangements will likely
result in an additional material liability to L-P due to non-performance by
the other party.
Although L-P's policy is to comply with all applicable environmental
laws and regulations, the company has in the past been required to pay fines
for noncompliance and sometimes litigation has resulted from contested
environmental actions. Also, the items discussed above could result in fines
or penalties against the company. Management believes that any fines,
penalties or other costs resulting from the matters discussed above in excess
of the reserve for environmental contingencies will not have a material
adverse effect on the business, financial position or results of operations of
L-P.
Since 1985, the registrant has sold approximately 2.5 billion square
feet of these Inner-Seal(R) oriented strand board siding products throughout
the United States. During this period, warranty claims related to these
siding products have been made against L-P. Where such claims resulted from
improper installation or improper care and maintenance, L-P has sought to hold
the installer or homeowner responsible for a portion of the claim. Where
claims were based on a problem with the product, L-P has honored its warranty
and settled the claims in a timely manner.
Since 1985, L-P has paid approximately $37 million to settle siding
warranty related claims on approximately 15,000 dwelling units at an average
cost of about $2,500 per unit. This amount includes claims paid of
approximately $10 million in 1994, $5 million in 1993 and $5 million in 1992.
In October 1994, an action was filed against L-P and other defendants in
the state of Florida on behalf of a purported class of all homeowners in that
state whose homes were constructed using Inner-Seal(R) siding. The complaint
alleges that the siding is deteriorating prematurely due to latent defects in
the material and seeks damages for alleged breaches of express or implied
warranties and for alleged failure to disclose material defects. The
complaint also seeks an injunction barring L-P from selling Inner-Seal(R)
siding as an exterior siding material in the state of Florida. The attorney
for the plaintiffs claims the class may number in excess of 30,000 homeowners
and that the claim for damages may exceed $5,000 per home, resulting in
aggregated claimed damages in excess of $150 million. L-P believes it has
factual and legal defenses to the complaint.
L-P believes that it is probable that additional Inner-Seal(R) siding products
claims will be made against the company. Some of these claims will likely be
made in the form of warranty claims, while others will likely be made as
litigation claims. L-P maintains a reserve for siding claims. As with all
accounting estimates, due to many factors involved in estimating future
claims, significant uncertainty exists in the reliability and precision of
such estimates. There can be no assurance that management's estimates will
not significantly increase or decrease in the future as additional facts and
circumstances become known, and actual claims are made. L-P monitors its
estimated exposure to future siding claims and adjusts its accrual
accordingly. Management believes that the ultimate outcome of all the siding
related matters will not have a material adverse effect on the business,
financial position or results of operations of L-P.
L-P and its subsidiaries are parties to other legal proceedings.
Management believes that the outcome of such proceedings will not have a
material adverse effect on the business, financial position or results of
operations of L-P.
Acquisition
During 1994, L-P acquired Creative Point, Inc. ("CPI"), a
California-based producer of consumer electronics storage products, by
exchanging shares of L-P treasury stock for all of the outstanding stock of
CPI. The transaction resulted in approximately $20.8 million of goodwill
which has been recorded in the balance sheet caption "Investments and other
assets." The goodwill is being amortized on a straight-line basis over 10
years. The transaction has been excluded from the statement of cash flows as
it was a non-cash purchase. The operations of CPI are not material to L-P.
Commitments
Timber Cutting Contracts
L-P is obligated to purchase timber under cutting contracts, primarily
with the U.S. Forest Service, which extend to 2004. L-P's best estimate of
its commitment at current contract rates under these contracts is
approximately $217.8 million for 2.2 billion board feet of timber, the
majority of which expire in 2004.
Leases
Payments under all operating leases that were charged to rental expense
during 1994, 1993, and 1992 were $7.6 million, $7.1 million and $8.7 million.
L-P's future minimum rental payments under non-cancelable operating leases
total approximately $12.0 million.
Other
During 1995, L-P plans expenditures of $350-$400 million for plant
additions and improvements, timber and logging roads.
Segment Information
L-P operates in two major industry segments. The major products
included in each segment are detailed further in the Product Information
Summary in Item 1. Intersegment sales are chips transferred from
company-owned building products plants to company-owned pulp mills. All
transfers are made at prevailing market prices. Timber and related assets and
capital expenditures for such assets have not been allocated to the industry
segments as these are a prime source of raw materials for both segments. The
cost of logs delivered to the plants and residual fibers are included in the
operating results of the segments.
Export sales were primarily to customers in the Far East, Europe and
Canada.
Information about L-P's geographic segments is as follows:
YEAR ENDED DECEMBER 31 (IN MILLIONS) 1994 1993 1992
Total sales -- point of origin
U.S. $2,937 $2,482 $2,153
Canada and other 158 83 71
Intersegment sales to U.S. (55) (54)
(39)
----- ----- -----
Total sales $3,040 $2,511 $2,185
====== ====== ======
Export sales (included above) $ 371 $ 252 $ 339
====== ====== ======
Operating profit (loss)
U.S. $ 585 $ 479 $ 324
Canada and other 46 24 20
----- ----- -----
Total operating profit $ 631 $ 503 $ 344
====== ====== ======
Identifiable assets
U.S. $2,325 $2,116 $1,911
Canada 363 341 295
All other 28 9 -
----- ----- -----
Total assets $2,716 $2,466 $2,206
====== ====== ======
Information about L-P's industry segments is as follows:
YEAR ENDED DECEMBER 31 (IN MILLIONS) 1994 1993
1992
Total sales
Building products $2,831 $2,434 $2,013
Pulp 220 85 185
Intersegment sales to pulp (11) (8)
(13)
----- ----- -----
Total sales $3,040 $2,511 $2,185
====== ====== ======
Operating profit (loss)
Building products $ 636 $ 562 $ 364
Pulp (5) (59)
(20)
----- ----- -----
Total operating profit 631 503 344
Unallocated expense, net (72) (70)
(47)
Interest, net 1 (5)
(14)
----- ----- -----
Income before taxes, minority interest,
and accounting changes $ 560 $ 428 $ 283
====== ====== ======
Identifiable assets
Building products $1,146 $1,040 $ 934
Pulp 440 423 403
Timber, timberlands, logging
equipment, and roads 733 710 568
Unallocated assets 397 293 301
----- ----- -----
Total assets $2,716 $2,466 $2,206
====== ====== ======
Depreciation, amortization, and cost
of timber harvested
Building products $ 162 $ 157 $ 137
Pulp 29 21 22
Capital expenditures
Building products 228 144 90
Pulp 30 46 33
Timber, timberlands, logging
equipment, and roads 92 118 62
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS AND MANAGEMENT
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Louisiana-Pacific
Corporation:
We have audited the accompanying consolidated balance sheets of
Louisiana-Pacific Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about 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. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Louisiana-Pacific
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements,
effective January 1, 1993, the Company changed its methods of accounting for
income taxes and post-retirement benefits other than pensions.
Arthur Andersen LLP
Portland, Oregon,
March 1, 1995
Report of Management
The management of Louisiana-Pacific Corporation has prepared the
consolidated financial statements and related financial data contained in this
Annual Financial Report. The financial statements were prepared in accordance
with generally accepted accounting principles appropriate in the circumstances
and by necessity include some amounts determined using management's best
judgments and estimates with appropriate consideration to materiality.
Management is responsible for the integrity and objectivity of the financial
statements and other financial data included in the report. To meet this
responsibility management maintains a system of internal accounting controls
to provide reasonable assurance that assets are safeguarded and that
accounting records are reliable. Management supports a program of internal
audits and internal accounting control reviews to provide assurance that the
system is operating effectively.
The Board of Directors pursues its responsibility for reported financial
information through its Audit Committee, composed of five outside directors.
The Audit Committee meets periodically with management, the internal auditors
and the independent public accountants to review the activities of each.
Harry A. Merlo William L. Hebert
Chairman and President Treasurer and Chief Financial Officer
March 1, 1995
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information regarding the directors of the registrant is incorporated
herein by reference to the material included under the caption "Item 1--
Election of Directors" and "General" in the definitive proxy statement filed
by the registrant for its 1995 annual meeting of stockholders (the "1995 Proxy
Statement"). Information regarding the executive officers of the registrant
is located in Part I of this report under the caption "Executive Officers of
the Registrant."
ITEM 11. Executive Compensation
Information regarding executive compensation is incorporated herein by
reference to the material under the captions "Compensation Committee--
Interlocks and Insider Participation," "Summary Compensation Table,"
"Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Options/SAR Values," and "Director's Compensation," in the 1995 Proxy
Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
and management is incorporated herein by reference to the material under the
caption "Holders of Common Stock" in the 1995 Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions
Information regarding management transactions is incorporated herein by
reference to the material under the captions "Compensation Committee--
Interlocks and Insider Participation" and "Management Transactions" in the
1995 Proxy Statement.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
A. Financial Statements and Financial Statement Schedules
The following financial statements are included in this report:
Consolidated Balance Sheets--December 31, 1994, and 1993.
Consolidated Statements of Income--years ended
December 31, 1994, 1993, and 1992.
Consolidated Statements of Cash Flows--years ended
December 31, 1994, 1993, and 1992.
Consolidated Statements of Stockholders' Equity--years
ended December 31, 1994, 1993, and 1992.
Notes to Financial Statements.
Report of Independent Public Accountants.
No financial statement schedules are required to be filed.
B. Reports on Form 8-K
During the quarter ended December 31, 1994, the registrant filed a
report on Form 8-K dated October 17, 1994, for the purpose of reporting its
earnings for the third quarter of 1994; the press release announcing the third
quarter earnings was filed as an exhibit to the Form 8-K.
C. Exhibits
The exhibits filed as part of this report or incorporated by reference
herein are listed in the accompanying exhibit index. Each management contract
or compensatory plan or arrangement is identified in the index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Louisiana-Pacific Corporation, a Delaware corporation
(the "registrant"), has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: March 30, 1995 LOUISIANA-PACIFIC CORPORATION
(Registrant)
/s/ WILLIAM L. HEBERT
William L. Hebert
Treasurer
________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date Signature and Title
March 30, 1995 /s/ HARRY A. MERLO
Harry A. Merlo
Chairman, President and Director
(Principal Executive Officer)
March 30, 1995 /s/ WILLIAM L. HEBERT
William L. Hebert
Treasurer
(Principal Financial Officer)
March 30, 1995 /s/ JAMES F. ELLISOR
James F. Ellisor
Controller, Operations
(Principal Accounting Officer)
Date Signature and Title
March 30, 1995 /s/ PIERRE S. DU PONT IV
Pierre S. du Pont IV
Director
March 30, 1995 /s/ JAMES EISSES
James Eisses
Director
March 30, 1995 /s/ BONNIE GUITON HILL
Bonnie Guiton Hill
Director
March 30, 1995 /s/ DONALD R. KAYSER
Donald R. Kayser
Director
March 30, 1995 /s/ FRANCINE I. NEFF
Francine I. Neff
Director
March 30, 1995 /s/ RONALD L. PAUL
Ronald L. Paul
Director
March 30, 1995 /s/ CHARLES E. YEAGER
Charles E. Yeager
Director
EXHIBIT INDEX
On written request, the registrant will furnish to any record holder or
beneficial holder of the registrant's common stock any exhibit to this report
upon the payment of a fee equal to the registrant's costs of copying such
exhibit plus postage. Any such request should be sent to: Pamela A. Selis,
Director of Corporate Communications, Louisiana-Pacific Corporation,
111 S.W. Fifth Avenue, Portland, Oregon 97204.
Items identified with an asterisk (*) are management contracts or compensatory
plans or arrangements.
Sequential
Exhibit Description of Exhibit Page Number
3.A Restated Certificate of Incorporation of the
registrant as amended to date. Incorporated by
reference to Exhibit 3(a) to the registrant's
Form 10-Q report for the quarter ended
June 30, 1993.
3.B Bylaws of the registrant as amended to date.
4.A Rights Agreement as Restated as of February 3,
1991, between the registrant and First Chicago
Trust Company of New York as Rights Agent.
Incorporated by reference to Exhibit 4 to the
registrant's Form 8-K report dated as of
March 18, 1991.
Pursuant to Item 601 (b)(4)(iii) of
Regulation S-K, the registrant is not filing
certain instruments with respect to its long-
term debt because the amount authorized under
any such instrument does not exceed 10 percent
of the total consolidated assets of the
registrant at December 31, 1993. The
registrant agrees to furnish a copy of any
such instrument to the Securities and Exchange
Commission upon request.
10.A The registrant's 1984 Employee Stock Option
Plan as amended to date. Incorporated by
reference to Exhibit 10.B to the registrant's
Form 10-K report for 1989.*
10.B The registrant's 1991 Employee Stock Option
Plan. Incorporated by reference to
Exhibit 10.B to the registrant's Form 10-K
report for 1990.*
10.C 1992 Non-Employee Director Stock Option Plan
and Related Form of Option Agreement.
Incorporated by reference to Exhibit 10.C
to the registrant's Form 10-K report for 1992.*
10.D Deferred cash bonus agreement dated May 5,
1986, between the registrant and Harry A.
Merlo; and deferred cash bonus agreement
dated February 2, 1987, between the
registrant and Harry A. Merlo. Incorporated
by reference to Exhibit 10.D to the
registrant's Form 10-K report for 1986
(File No. 1-7107).*
10.E Louisiana-Pacific Corporation Directors'
Deferred Compensation Plan. Incorporated
by reference to Exhibit 10.F to the regis-
trant's Form 10-K report for 1986 (File
No. 1-7107).*
10.H(1) The registrant's Key Employee Restricted
Stock Plan as amended. Incorporated by
reference to Exhibit 10.H(1) to the
registrant's Form 10-K report for 1990.*
10.H(2) Form of Restricted Stock Award Agreement
under Exhibit 10.H(1). Incorporated by
reference to Exhibit 10.H(2) to the
registrant's Form 10-K report for 1992.*
10.I Lease and Option to Purchase between the
registrant as Lessor and Harry A. Merlo
as Lessee, as amended. Incorporated by
reference to Exhibit 10.I to the regis-
trant's Form 10-K report for 1988.
10.K The registrant's Supplemental Benefits
Plan. Incorporated by reference to
Exhibit 10.K to the registrant's Form 10-K
report for 1989.*
11 Louisiana-Pacific Corporation and Subsid-
iaries: Calculation of Net Income Per
Share for the Year Ended December 31, 1994.
21 List of subsidiaries of the registrant.
23 Consent of Independent Public Accountants.
27 Financial data schedule.