Washington, D.C. 20549

                                   FORM 10-K/A


       Amendment No. 1 to 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, 1997                         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. [ ]


State the aggregate  market value of the voting stock held by  nonaffiliates  of
the registrant: $2,513,964,661 as of March 12, 1998.


Indicate the number of shares outstanding of each of the registrant's classes of
common stock:  109,780,858 shares of Common Stock, $1 par value,  outstanding as
of March 12, 1998.


                       DOCUMENTS INCORPORATED BY REFERENCE


Definitive Proxy Statement for 1998 Annual Meeting: Part III






                                     PART I


ITEM 1.  Business

General
- -------

         Louisiana-Pacific  Corporation, a Delaware corporation since 1973, is a
major forest products firm  headquartered in Portland,  Oregon.  It manufactures
lumber,  pulp,  structural  and other  panel  products,  hardwood  veneers,  and
cellulose  insulation.  It operates  approximately 100 facilities throughout the
United States,  Canada, and Ireland. It has approximately  12,000 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 1997,  building  products
accounted  for  approximately  95 percent of the  registrant's  sales  revenues,
compared to approximately 5 percent for pulp.


Building Products
- -----------------

         Panel Products.  The registrant  manufactures  plywood and a variety of
reconstituted panel products,  including oriented strand board ("OSB") and other
panel  products  such as industrial  particleboard,  medium  density  fiberboard
("MDF"),  and hardboard.  Panel products accounted for 44 percent of L-P's sales
in 1997.

         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 North America (plywood, OSB and other waferboards) is
approximately  37 billion  square  feet  annually,  of which  plywood  currently
constitutes  about 20  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 16
OSB plants with an aggregate annual capacity of approximately 4.5 billion square
feet,  including its three plants which  manufacture  OSB exterior  siding.  The
registrant  also has an OSB  plant in  Ireland.  The  registrant  operates  five
plywood  plants in the South  with a combined  annual  capacity  of 1.3  billion
square feet.

         The  registrant's  other   reconstituted   panel   products--industrial
particleboard, MDF, and hardboard--produced at a total of seven plants, are used
primarily in the manufacture of furniture and cabinets.

         Lumber.  The registrant is a large  producer of lumber.  The registrant
has 14  Western  (whitewood  and  redwood)  sawmills  with an annual  production
capacity of 1.1 billion board feet ("BBF"),  while its 15 Southern sawmills have
an annual  production  capacity of .5 BBF. Lumber  represented 28 percent of the
registrant's sales revenue in 1997. 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 a fingerjoint  plant which  produces
dimension lumber from low grade and short pieces of lumber.  In

                                      - 2 -



October  1997,  the  registrant  announced  its  intention to sell its remaining
California  redwood  timberlands  and related  lumber and  certain  distribution
businesses.

         Other Building  Products.  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  has  four   engineered   I-joist  plants  located  in
California,  Nevada,  North Carolina,  and Oregon.  OSB is cut into sections and
used as the web for the I-joists.  The registrant also produces laminated veneer
lumber  ("LVL")  in Nevada,  North  Carolina  and  Oregon.  LVL is a  high-grade
structural product used where extra strength is required. It is also used as the
flange material in I-joists.  In March 1997, the registrant  acquired the assets
of  Tecton  Laminates  Corp.  ("Tecton"),   which  significantly  increased  the
registrant's LVL and I-joist capacity.

         Nine plants  produce  cellulose  residential  insulation  from recycled
newspaper.  This insulation has a higher R-value than comparable  thicknesses of
conventional fiberglass insulation.  Other facilities operated by the registrant
include  two  wood  chip  mills,  two  coatings  and  chemical   plants,   seven
wood-treating plants, and six building materials distribution centers.

         The registrant  currently  owns seven plants in Ohio which  manufacture
windows and doors and their component  parts. In February 1998, L-P announced it
had reached an agreement in principle to sell these facilities.  L-P expects the
transaction to close during the second quarter of 1998.

         In October 1997,  the registrant  also announced  plans to sell certain
other  facilities  that  it  considers  non-strategic  to its  core  businesses,
including  its Creative  Point,  Inc.,  subsidiary,  its cement fiber roof shake
plant and the fiber gypsum plant in Nova Scotia.  The Nova Scotia plant was sold
prior to year end.

Pulp
- ----

         The  registrant  has two pulp mills located in Samoa,  California,  and
Chetwynd,   British   Columbia,   Canada.   The   Chetwynd   mill   utilizes   a
state-of-the-art mechanical pulping process and a zero effluent discharge system
to produce 100 percent  aspen pulp and has an annual  capacity of  approximately
185 thousand short tons. The Samoa mill produces  bleached and unbleached  kraft
pulp by a chlorine-free  process,  thereby eliminating dioxins. In October 1997,
the registrant announced its intention to sell the Samoa pulp mill. A third mill
in  Ketchikan,   Alaska,  which  produced  a  high-grade  dissolving  pulp,  was
permanently  closed in March  1997.  (See Item 7,  Management's  Discussion  and
Analysis of Financial Condition and Results of Operations.)

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.

         The registrant has  introduced a number of  value-enhanced  products to
complement its traditional lumber and panel products, such as the OSB

                                      - 3 -


SmartStart(TM)  system of siding  and  exterior  products  and  flooring,  and a
radiant barrier product known as  TechShield(TM).  The  registrant's  Cocoon(TM)
cellulosic  insulation  products  utilize  wood fiber  from waste  paper and are
believed  to  have  better  insulating  and   sound-deadening   properties  than
fiberglass insulation.

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 loss contingencies.
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 and the Notes to Financial Statements in Item 8.

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 Note 10 of the Notes to Financial  Statements
in Item 8.

         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.

                                      - 4 -




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)



                                               1997             1996             1995              1994             1993
                                           ------------     ------------     -------------     ------------     ------------


SALES AND PROFIT BY MAJOR PRODUCT GROUP
- ---------------------------------------

                                                                                            
SALES:      Structural panel products     $     864  36%   $   1,006  40%   $   1,127  39%   $   1,208  40%    $    1,005  40%
=====       Lumber                              665  28          614  25          644  23          867  28            816  33
            Industrial panel products           181   8          195   8          215   8          240   8            194   8
            Other building products             563  23          494  20          523  18          505  17            411  16
                                           -------- ---      ------- ---     -------- ---    --------- ---      --------- ---
              Building products               2,273  95        2,309  93        2,509  88        2,820  93          2,426  97
            Pulp                                130   5          177   7          334  12          220   7             85   3
                                           -------- ---     -------- ---     -------- ---    --------- ---      --------- ---
              Total sales                 $   2,403 100%   $   2,486 100%   $   2,843 100%   $   3,040 100%    $    2,511 100%
                                           ======== ===     ======== ===     ======== ===    ========= ===      ========= ===

            Export sales (included
              above)                       $    240  10%   $     268  11%   $     457  16%    $    371  12%    $      252  10%
                                           ======== ===     ======== ===     ======== ===     ======== ===      =========  ==
PROFIT: Building products                  $     20        $     174        $     346         $    636         $      562
            Pulp                                (29)             (91)              44               (5)               (59)
            Settlements, charges and other
              unusual items, net                (32)            (350)            (367)             ---               ---
            General corporate and other
              expense, net                      (80)             (52)            (121)             (72)               (70)
            Interest, net                       (29)              (8)               3                1                 (5)
                                           --------         --------         --------          --------          --------

              Income (loss) before taxes,
                minority interest and
                accounting changes (1)    $    (150)      $     (327)       $     (95)        $    560         $      428
                                          =========        =========         ========         =========        ==========

SUMMARY OF PRODUCTION VOLUMES
- -----------------------------

OSB, million square feet 3/8" basis           4,000            4,008            3,445            3,404              3,100
Softwood plywood, million
  square feet 3/8" basis                      1,221            1,613            1,466            1,604              1,507
Lumber, million board feet                    1,240            1,201            1,359            1,986              1,796
Industrial panel products
  (particleboard, medium density
  fiberboard and hardboard),
  million square feet 3/4" basis                589              580              582              641                597
Engineered I-Joists,
  million lineal feet                            73               55
Laminated veneer lumber,
  thousand cubic feet                         5,800            3,900
Pulp, thousand short tons                       377              439              486              441                224

                                                          - 5 -



                                               1997             1996             1995              1994             1993
                                           ------------     ------------     -------------     ------------     ------------

INDUSTRY PRODUCT PRICE TRENDS (2)
- ---------------------------------

OSB, MSF, 7/16" -- 24/16 span
  rating (North Central price)            $    143         $    184         $    245          $     265        $     236
Southern pine plywood,
  MSF, 1/2" CDX (3 ply)                         26              258              303                302              282
Framing lumber, composite
  prices, MBF                                  417              398              337                405              394
Industrial particleboard,
  3/4" basis, MSF                              262              276              290                295              258

LOGS BY SOURCE (3)
- ------------------

Fee owned lands                                 19%              16%              13%                11%              12%
Private cutting contracts                       14               14               12                 14               15
Government contracts                             7                6                9                  8               10
Purchased logs                                  60               64               66                 67               63
Total log volume -
  million board feet                         2,398            2,432            2,818              3,138            2,940



- --------------------------

(1)   Does not include cumulative effects of accounting changes in 1993.

(2)   Prices represent yearly averages stated in dollars per thousand board feet
      (MBF), thousand square feet (MSF) or short ton. Source: Random Lengths.

(3)   Stated as a percent of total log volume.


SEE ADDITIONAL INFORMATION REGARDING INDUSTRY SEGMENTS IN THE NOTES TO FINANCIAL
STATEMENTS IN ITEM 8.

                                      - 6 -



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.


                            MANUFACTURING FACILITIES
                            ------------------------

SAWMILLS                                          METRIC 1)      NORMAL 2)
(BOARD FEET, 2 SHIFTS, 5 DAYS; *1 SHIFT, 5 DAYS)  CAPACITIES     CAPACITIES

WESTERN LUMBER (14 plants)
Annette, AK                                          110              70
Belgrade, MT                                         150              90
Big Lagoon, CA                                        35              20*
Chilco, ID                                           205             125
Deer Lodge, MT (3 shifts)                            155              95
Deer Lodge, MT (fingerjoint)                         130              80
Fort Bragg, CA                                       115              70
Ketchikan, AK                                        100              60
Moyie Springs, ID (3 shifts)                         220             135
Samoa, CA                                            165             100
Sandpoint, ID (remanufacturing)                      ---             ---
Saratoga, WY                                          80              50
Tacoma, WA                                           100              60
Ukiah, CA                                            165             100

SOUTHERN LUMBER (15 plants)
Bernice, LA                                           65              40*
Bon Wier, TX                                          40              25*
Cleveland, TX                                         65              40*
Eatonton, GA                                          60              35*
Evergreen, AL                                         70              45*
Hattiesburg, MS                                       65              40*
Henderson, NC                                         65              40*
Jasper, TX                                            90              55*
Kountze, TX                                           25              15*
Lockhart, AL                                          35              20*
Marianna, FL                                          50              30*
New Waverly, TX                                       25              15*
Philadelphia, MS                                      65              40*
Statesboro, GA                                        50              30*
West Bay, FL                                          60              35*
                                                   -----            ----

Total Lumber Capacity (29 plants)                  2,560           1,560
                                                   =====           =====

                                      - 7 -



                            MANUFACTURING FACILITIES

PANEL PRODUCTS PLANTS
SOFTWOOD PLYWOOD PLANTS                            METRIC 1)      METRIC 2)
(3/8-INCH BASIS, SQUARE FEET, 2 SHIFTS, 5 DAYS)   CAPACITIES     CAPACITIES

Bon Wier, TX                                         230                260
Cleveland, TX                                        250                280
Logansport, LA                                       195                220
New Waverly, TX                                      230                260
Urania, LA                                           220                250
                                                   -----              -----

Total Softwood Plywood Capacity (5 plants)         1,125              1,270
                                                   =====              =====

ORIENTED STRAND BOARD PANEL PLANTS
(3/8-INCH BASIS, SQUARE FEET, 3 SHIFTS,7 DAYS)

Athens, GA                                           295                335
Carthage, TX (under construction)                    355                400
Corrigan, TX                                         135                150
Dawson Creek, B.C. Canada                            335                375
Hanceville, AL                                       310                350
Hayward, WI (2 plants)                               445                500
Houlton, ME                                          230                260
Jasper, TX                                           355                400
Montrose, CO                                         130                145
Roxboro, NC                                          335                375
Sagola, MI                                           310                350
Silsbee, TX                                          310                350
Swan Valley, MB, Canada                              400                450
Waterford, Ireland                                   355                400
                                                   -----              -----

Total OSB Capacity (15 plants)                     4,300              4,840
                                                   =====              =====

ORIENTED STRAND BOARD SIDING PLANTS
(3/8-INCH BASIS, SQUARE FEET, 3 SHIFTS, 7 DAYS)

Newberry, MI                                         115                130
Tomahawk, WI                                         135                150
Two Harbors, MN                                      125                140
                                                   -----              -----

Total OSB Siding Capacity (3 plants)                 375                420
                                                   =====              =====

MEDIUM DENSITY FIBERBOARD PLANTS
(3/4-INCH BASIS, SQUARE FEET, 3 SHIFTS, 7 DAYS)

Eufaula, AL                                          230                130
Oroville, CA                                          90                 50
Urania, LA                                            90                 50
                                                   -----              -----

Total MDF Capacity (3 plants)                        410                230
                                                   =====              =====

PARTICLEBOARD PLANTS
(3/4-INCH BASIS, SQUARE FEET, 3 SHIFTS, 7 DAYS)

Arcata, CA                                           220                125
Missoula, MT                                         275                155
Silsbee, TX                                          140                 80
                                                   -----              -----

Total Particleboard Capacity (3 plants)              635                360
                                                   =====              =====

HARDBOARD PLANT
(1/8-INCH BASIS, SQUARE FEET, 3 SHIFTS, 7 DAYS)

Oroville, CA                                          62                210
                                                   =====              =====

                                      - 8 -



                            MANUFACTURING FACILITIES
                            ------------------------

OTHER BUILDING PRODUCTS
HARDWOOD VENEER PLANTS                                           NORMAL 2)
(SURFACE MEASURE, SQUARE FEET, 2 SHIFTS, 5 DAYS)                 CAPACITIES

Mellen, WI (2 plants)                                                250
                                                                  ======

I-JOIST PLANTS
(LINEAL FEET; 1 SHIFT, 5 DAYS)

Fernley, NV                                                           21
Hines, OR                                                             21
Red Bluff, CA                                                         25
Wilmington, NC                                                        20
                                                                   -----

Total I-Joist Capacity (4 plants)                                     87
                                                                   =====

LAMINATED VENEER LUMBER PLANTS
(THOUSAND CUBIC FEET; 2 SHIFTS, 7 DAYS)

Fernley, NV                                                        1,600
Hines, OR                                                          2,700
Wilmington, NC                                                     1,600
                                                                   -----

Total LVL Capacity (3 plants)                                      5,900
                                                                   =====

PULP MILLS                                    METRIC 1)         NORMAL 2)
(THOUSAND SHORT TONS, 3 SHIFTS, 7 DAYS)       CAPACITIES        CAPACITIES

Samoa, CA                                         195                220
Chetwynd, B.C. Canada                             170                185
                                                -----              -----

Total Pulp Capacity (2 plants)                    365                405
                                                =====              =====

                                      - 9 -



                            MANUFACTURING FACILITIES

OTHER MANUFACTURING FACILITIES (23 PLANTS)
Cellulose insulation plants:              Phoenix, AZ, Vancouver, B.C.;
                                          Sacramento, CA; Atlanta, GA; Fort
                                          Wayne, IN; Norfolk, NE; Bucyrus, OH;
                                          Portland, OR; Elkwood, VA
Cement fiber shake:                       Red Bluff, CA
Chip mills:                               Cleveland and Moscow, TX
Coatings and chemicals:                   Portland, OR; Orangeburg, SC
Consumer electronics storage:             Oswego, IL
Softwood veneer plant:                    Rogue River, OR
Wood treating plants:                     Evergreen and Lockhart, AL;
                                          Marianna, FL; Statesboro, GA; New
                                          Waverly and Silsbee, TX; Ukiah, CA

DISTRIBUTION CENTERS (6 LOCATIONS)
Calpella, CA                              Riverside, CA
Rocklin, CA                               Dodge City, KS
Salina, KS                                Conroe, TX

TOTAL FACILITIES: 99

Note:             The capacities  above are based on normal  operating rates and
                  normal production mixes.  Market conditions,  the availability
                  of logs,  and the  nature of current  orders can cause  actual
                  production rates to vary considerably from normal rates.

TIMBERLAND HOLDINGS
                                                HECTARES              ACRES
California: Whitewoods, Fir, Pine, Redwood       158,900                392,500
Idaho:  Fir, Pine                                 16,700                 41,200
Louisiana:  Pine, Hardwoods                       78,700                194,500
Minnesota:  Hardwoods                             11,400                 28,200
North Carolina:  Pine, Hardwoods                     900                  2,100
Texas:  Pine, Hardwoods                          283,800                701,100
Virginia:  Pine, Hardwoods                         2,300                  5,700
Wisconsin:  Hardwoods                                600                  1,500
Wyoming:  Whitewoods                                 600                  1,600
                                                 -------              ---------

  Total Fee                                      553,900              1,368,400
                                                 =======              =========

1)       Metric capacities in thousand cubic meters.

2)       Normal capacities in millions of units unless otherwise noted.

Note:    See Note 7 of the Notes to Financial  Statements in Item 8 for
         a  discussion  of an asset sale program  involving  certain of
         these timberland  holdings and manufacturing  facilities.  The
         list does not include window and door manufacturing facilities
         subject to sale under a letter of intent.

         In addition to its fee-owned  timberlands,  the  registrant  has timber
cutting rights in the United States,  under long-term  contracts (five years and
over) on  approximately  5,600 acres and under  contracts for shorter periods on
approximately  240,800 acres, on government and privately  owned  timberlands in
the  vicinities  of  certain of its  manufacturing  facilities.  L-P's  Canadian
subsidiary  is a party to  long-term  timber  license  arrangements  in  Canada.
Information  regarding  the  sources of the  registrant's  log  requirements  is
located under the table labeled "Logs by Source" in Item 1.

                                     - 10 -


ITEM 3.  Legal Proceedings

         For a discussion of legal and  environmental  matters involving L-P and
the  potential  effect  on  L-P,  refer  to  Note 8 of the  Notes  to  Financial
Statements  under the heading  "Contingencies"  in Item 8, which is incorporated
herein by reference.

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 1997.

Executive Officers of the Registrant
- ------------------------------------

         The  following  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 20,
1998:

              Mark A. Suwyn,  age 55, has served as Chairman and Chief Executive
Officer of L-P since January 1996.  Before  joining L-P, Mr. Suwyn was Executive
Vice  President  of   International   Paper  Company  from  1992  through  1995.
Previously, Mr. Suwyn was Senior Vice President of E.I. du Pont de Nemours & Co.
Mr. Suwyn is also a director of the registrant.

              Michael D.  Hanna,  age 45,  joined L-P in June 1996 as  Executive
Vice President after serving as President of Associated Chemists, Inc., for more
than five years previous.

              Warren C. Easley, age 56, joined L-P as Vice President, Technology
and  Quality in May 1996 after  serving as  Technical  Manager--Nylon  Division,
North  America  for E.I.  du Pont de  Nemours & Co.  for more  than  five  years
previous.

              Richard  W.  Frost,  age  46,  joined  L-P in  May  1996  as  Vice
President,  Timberlands and Fiber Procurement.  Mr. Frost worked for S.D. Warren
Company as Director of  Timberlands  prior to April 1992, as Vice  President and
Manager,  Westbrook  Mill,  from  April  1992  to  September  1995,  and as Vice
President and General Manager,  Somerset Operations for S.D. Warren Company from
September 1995 to 1996.

              H. Ward Hubbell, age 37, joined L-P as Director, Corporate Affairs
in September 1997.  Previously,  Mr. Hubbell was employed by International Paper
Company beginning in October 1992, first as Communications  Director and then as
Federal  Affairs  Manager.  Before that, he was vice  president of a Washington,
D.C., public relations firm.

              Karen  D.   Lundquist,   age  42,   was  named   Vice   President,
Manufacturing  in  January  1997.  Before  joining  L-P,  Ms.  Lundquist  was an
executive  officer and director of Rapid  Change  Technologies,  Inc.  (formerly
known as Creative  Breakthroughs,  Inc.), from the fall of 1993 to January 1997,
and served as its chief executive  officer from mid-1995 to 1997. From September
1991 to October  1993,  Ms.  Lundquist  was a plant manager with E.I. du Pont de
Nemours & Co.

              J. Keith Matheney, age 49, joined the registrant in March 1970 and
has served as Vice  President,  Sales and Marketing  since January 26, 1997. Mr.
Matheney was General  Manager--Western  Division  from  February 1996 to January
1997 after serving as General  Manager--Weather-Seal  Division of the registrant
from May 1994 to February  1996, and as Director of Sales and Marketing for more
than five years previous.

                                     - 11 -


          Elizabeth T. Smith, age 53, became Director,  Environmental Affairs of
the  registrant  in March 1993.  Ms.  Smith has been  employed by L-P in various
positions relating to environmental management since 1987.

          Curtis M.  Stevens,  age 45, was  appointed as Vice  President,  Chief
Financial Officer and Treasurer of L-P in September 1997. He previously spent 13
years as the senior  financial  executive  of Planar  Systems,  Inc.,  a leading
manufacturer and supplier of  electroluminescent  flat panel displays,  where he
was named Executive Vice President and General Manager in 1996.

          Michael J. Tull, age 52, became Vice President, Human Resources of the
registrant in May 1996. Mr. Tull was previously employed by Sharp HealthCare,  a
regional  system of hospitals and related  facilities in San Diego,  California,
for more than 10 years,  most recently as Corporate  Vice  President of Employee
Quality and Development beginning in 1991.

          Gary C.  Wilkerson,  age 51, joined L-P as Vice  President and General
Counsel in September  1997.  Beginning in early 1997,  Mr.  Wilkerson  served as
(acting) Senior Vice  President,  General Counsel and Secretary for the consumer
products division of IVAX Pharmaceuticals.  For the previous seven years, he was
Senior Vice  President,  General  Counsel and  Secretary  of  Maybelline  Co., a
cosmetics manufacturer.

          All executive officers serve at the pleasure of the board of directors
of L-P. Unless earlier removed by the board of directors, the officers' terms of
office run until the next annual meeting of the board of directors.

                                     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 table in Item 6 headed "High and Low Stock  Prices."  Holders of
the  registrant's  common  stock may  automatically  reinvest  dividends  toward
purchase of additional  shares of the  registrant's  common stock.  At March 12,
1998, L-P had approximately 21,000 stockholders of record. Information regarding
cash dividends paid during 1996 and 1997 is included in the table in Item 6 with
respect to quarterly data.

                                     - 12 -



ITEM 6.  Selected Financial Data

DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE        1996         1997
- -------------------------------------------        ----         ----

ANNUAL DATA
Net sales                                    $   2,486.0     $  2,402.5
Net income (loss)                                 (200.7)        (101.8)
Net income (loss) per share-basic and diluted       (1.87)          (.94)
Net cash provided by operating activities           22.8           88.2
Capital expenditures -- plants, logging
  roads and timber (includes cash portion
  of acquisitions)                                 266.0          204.5
Working capital                                    234.5          277.5
  Ratio of current assets to
    current liabilities                              1.68 to 1      1.87 to 1
Total assets                                     2,622.4        2,578.4
Long-term debt, excluding current portion          458.6          572.3
  Long-term debt as a percent of
    total capitalization                            24.3%          30.8%
Stockholders' equity                             1,427.6        1,286.2
  Per ending share of common stock                  13.13          11.73
Number of employees                             12,500         12,000
Number of stockholders of record                23,900         22,000

                             1ST QTR  2ND QTR   3RD QTR      4TH QTR    YEAR
1997 QUARTERLY DATA
Net sales                   $ 554.6  $  633.3  $ 619.5      $ 595.1  $ 2,402.5
Gross profit (loss) (1)       (35.1)     (8.2)   (13.8)       (31.4)     (88.5)
Income (loss) before taxes
  and minority interest        78.3(2)  (14.7)  (176.3)(2)    (37.3)    (150.0)
Net income (loss)              42.0(2)  (10.1)  (112.4)(2)    (21.3)    (101.8)
Net income (loss) per share-
  basic and diluted              .39(2)   (.10)   (1.03)(2)     (.20)      (.94)
Cash dividends per share         .14       .14      .14          .14        .56

1996 QUARTERLY DATA
Net sales                   $ 584.1  $  658.3  $ 676.3      $ 567.3   $2,486.0
Gross profit (loss) (1)        (5.0)     35.0     21.9        (20.9)      31.0
Income (loss) before taxes
  and minority interest        (5.0)     34.5   (332.0)(2)    (24.3)    (326.8)
Net income (loss)              (3.6)     21.0   (203.4)(2)    (14.7)    (200.7)
Net income (loss) per share-
  basic and diluted             (.03)      .19    (1.89)(2)     (.14)     (1.87)
Cash dividends per share         .14       .14      .14          .14        .56

HIGH AND LOW STOCK PRICES
1997 High                   $  22.00  $  21.56 $  25.56     $  25.88  $   25.88
     Low                       19.88     17.00    20.50        17.54      17.00

1996 High                   $  26.25  $  28.13 $  23.75     $  23.00  $   28.13
     Low                       23.00     22.13    19.63        20.63      19.63

- --------------------------

(1)      Gross profit is income  before  settlements,  charges and other unusual
         items, taxes, minority interest and interest.

(2)      Includes settlements, charges and other unusual items. See the Notes to
         Financial Statements in Item 8 for explanation of these amounts.

                                     - 13 -



FORWARD LOOKING STATEMENTS
- --------------------------

         Statements  herein  to the  extent  they are not  based  on  historical
events,  constitute  forward-looking   statements.   Forward-looking  statements
include,  without  limitation,  statements  regarding  the  outlook  for  future
operations,  forecasts of future costs and  expenditures,  evaluation  of market
conditions, the outcome of legal proceedings, the adequacy of reserves, or plans
for product development. Investors are cautioned that forward-looking statements
are subject to an inherent  risk that actual  results may vary  materially  from
those described herein. Factors that may result in such variance, in addition to
those set forth under the above  captions,  include  changes in interest  rates,
commodity  prices,  and  other  economic  conditions;  actions  by  competitors;
changing weather conditions and other natural  phenomena;  actions by government
authorities;  uncertainties  associated  with legal  proceedings;  technological
developments; future decisions by management in response to changing conditions;
and misjudgments in the course of preparing forward-looking statements.

                                     - 14 -



FIVE-YEAR SUMMARY

YEAR ENDED DECEMBER 31 (DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE)


SUMMARY INCOME STATEMENT DATA (2)               1997(4)        1996(4)      1995(4)          1994               1993
- ---------------------------------          ------------    ------------  --------------  -------------   ---------------

                                                                                            
Net sales                                  $   2,402.5     $  2,486.0    $   2,843.2     $   3,039.5       $    2,511.3
Gross profit (loss) (1)                          (88.5)          31.0          268.9           558.6              423.6
Interest, net                                    (29.0)          (7.8)           2.9             1.0                5.0
Provision (benefit) for income taxes             (43.6)        (125.6)         (45.8)          209.8              173.2
Income (loss) (3)                               (101.8)        (200.7)         (51.7)          346.9              254.4
Income (loss) per share (3) - basic                (.94)         (1.87)          (.48)           3.15               2.32
Income (loss) per share (3) - diluted              (.94)         (1.87)          (.48)           3.13               2.29
Cash dividends per share                            .56            .56            .545            .485               .43
Average shares of common stock
  outstanding (thousands)-
     Basic                                   108,450        107,410        107,040         110,140            109,670
     Diluted                                 108,450        107,410        107,040         110,800            110,880

SUMMARY BALANCE SHEETS
Current assets                             $     596.8     $    612.9    $     618.5     $     721.9       $      614.1
Timber and timberlands, at cost
  less cost of timber harvested                  634.2          648.6          689.6           693.5              673.5
Property, plant and equipment, net             1,191.8        1,278.5        1,452.3         1,273.2            1,145.9
Goodwill and other assets                        155.6           82.4           45.0            55.1               32.8
                                           ------------    -----------   -------------    ------------     -------------

Total assets                               $   2,578.4     $  2,622.4    $   2,805.4     $   2,743.7       $    2,466.3
                                           ============    ===========   =============   =============     =============

Current liabilities                              319.3     $    378.4    $     448.5     $     344.8       $      317.2
Long-term debt, excluding
  current portion                                572.3          458.6          201.3           209.8              288.6
Deferred income taxes and other                  400.6          357.8          499.6           339.7              289.1
Stockholders' equity                           1,286.2        1,427.6        1,656.0         1,849.4            1,571.4
                                           ------------    -----------   -------------   -------------       -----------

Total liabilities and
  stockholders' equity                     $   2,578.4     $  2,622.4    $   2,805.4     $   2,743.7       $    2,466.3
                                           ============    ===========   =============   =============     =============


                                      - 15 -





KEY FINANCIAL TRENDS                            1997(4)       1996(4)         1995            1994               1993
- --------------------                       --------------  -----------   --------------  -------------     -------------

Working capital                            $     277.5     $    234.5    $     170.0     $     377.1       $      296.9
                                           ==============  ===========   ==============  =============     =============

Plant and logging road additions (5)       $     154.8     $    244.0    $     362.9     $     286.0       $      208.4
Timber additions, net                             49.7           22.0           49.7            66.0               81.5
                                           --------------  -----------   --------------  -------------     -------------
Total capital additions                    $     204.5     $    266.0    $     412.6     $     352.0       $      289.9
                                           ==============  ===========   ==============  =============     =============

Long-term debt as a percent
  of total capitalization                         31%            24%            11%             10%                16%
Income as a percent of average
  equity (3)                                      -8%           -13%            -3%             20%                17%


- --------------------------

(1)      Gross profit is income before  settlements,  charges and unusual items,
         income taxes, minority interest, and interest.

(2)      All per share  amounts  and  number of shares  have been  retroactively
         adjusted  for a  two-for-one  stock  split in 1993 and a  three-for-two
         stock split in 1992.

(3)      Does not include cumulative effects of accounting changes in 1993.

(4)      Includes  settlements,  charges and other unusual  items,  net. See the
         Notes  to  Financial  Statements  in Item 8 for  explanation  of  these
         amounts.

(5)      Includes cash paid in acquisitions.


                                     - 16 -


ITEM 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operation

GENERAL

      L-P incurred a net loss in 1997 of $101.8 million ($.94 per share),  which
included a pre-tax net charge of $32.5 million  ($20.6  million after taxes,  or
$.19 per  share).  L-P's net  losses in 1996 and 1995  primarily  resulted  from
charges taken in the third  quarter of each year.  The charge in 1996 was $350.0
million  pre-tax  ($215.0  million  after tax,  or $2.00 per share) and the 1995
charge  was $366.6  million  pre-tax  ($221.8  million  after tax,  or $2.07 per
share).  These  charges  are  discussed  in further  detail in Note Seven to the
financial statements. Prior to the settlements, charges and other unusual items,
L-P had an after-tax  loss of $81.2 million ($.75 per share) in 1997,  after-tax
income of $14.3 million in 1996 ($.13 per share) and after-tax  income of $170.1
million in 1995 ($1.59 per share).

      Sales in 1997 were $2.40  billion,  a 3% decline  from 1996 sales of $2.49
billion. Sales in 1996 were 13% lower than 1995 sales of $2.84 billion.

      L-P operates in two major business  segments:  building products and pulp.
Building products is the most significant  segment,  accounting for more than 88
percent of net sales in each of the past 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
"Selected  Financial  Data" in Item 6 and the "Product  Information  Summary" in
Item 1.

      In 1997,  the  building  products  segment  had a  decline  in  sales  and
profitability,  largely the result of an industry-wide  oversupply of structural
panel  products in North  America.  In 1997,  the pulp segment  lost money,  but
improved from the large losses suffered in 1996. However, the economic crisis in
Asia  negatively  impacted  pulp  segment  results  late in the  year.  Both the
building  products and pulp segments declined in sales and profitability in 1996
compared to 1995.  The weakness in building  products was  primarily  due to the
structural  panel  oversupply,  while pulp markets remained very weak throughout
1996 due to high  world-wide  inventories.  The Ketchikan Pulp Company  contract
issue (discussed further below) also negatively impacted pulp segment results in
1996.

BUILDING PRODUCTS

                                                                     INCREASE
                                        YEAR ENDED DEC. 31,         (DECREASE)
                                   ---------------------------------------------
                                     1997      1996      1995      97-96 96-95
- --------------------------------------------------------------------------------
                                            (DOLLAR AMOUNTS IN MILLIONS)
Sales:
    Structural panel products      $  864    $1,006    $1,127      -14%   -11%
    Lumber                            665       614       644       +8%    -5%
    Industrial panel products         181       195       215       -7%    -9%
    Other building products           563       494       523      +14%    -6%
                                   ------    ------    ------
    Total building products        $2,273    $2,309    $2,509       -2%    -8%
                                   ======    ======    ======
Profit                             $   20    $  174    $  346      -89%   -50%
                                   ======    ======    ======

      Sales of  structural  panel  products  (plywood and oriented  strand board
(OSB))  suffered in both 1997 and 1996 from  industry  wide  over-capacity.  The
over-capacity  is the result of new OSB plants built by the industry  throughout
North  America at a rate  greater  than the growth in  demand.  Average  selling
prices in 1997 fell  approximately  13%  compared  to 1996,  while 1996  average
prices were  approximately  20% lower than 1995. During the latter part of 1997,
L-P's net sales realization was also negatively  impacted by increased  shipping
costs caused by interrupted rail service. Structural panel sales volumes in 1997
decreased  3% from  1996  levels  as a result of the  permanent  closure  of two

                                   - 17 -


plywood plants and four OSB plants in 1997 and late 1996.  Sales volumes in 1996
increased approximately 14% compared to 1995 due to new OSB plants started-up in
that year,  despite  temporary  market-related  shut-downs  at some of L-P's OSB
plants.

      Lumber  sales  increased  in 1997 due to a 6%  increase  in average  sales
prices and a slight increase in volume sold. Lumber markets  experienced  strong
demand through the first three quarters of 1997,  benefiting  from a robust U.S.
economy,  relatively low interest rates and strong housing  starts.  Late in the
year, weakening currencies in Asia limited shipments from North America to those
markets which put supply pressure on domestic markets,  causing lumber prices to
decline.  This trend will likely continue into 1998.  Lumber sales were lower in
1996 than 1995 as a result of sales volume,  which decreased  approximately 12%.
L-P permanently  closed a number of unprofitable  sawmills around the country in
1995 and 1996. Average selling prices rose about 9% in 1996 due to a strong U.S.
economy,  lower  production  volumes  industry  wide and lower volumes of lumber
imported from Canada.

      Industrial  panels consist of  particleboard,  medium  density  fiberboard
(MDF) and  hardboard.  These sales  decreased in 1997 compared to 1996 primarily
because of lower sales  prices of  approximately  6%. The price  decline was due
primarily to increased industry production relative to demand.  Industrial panel
sales  volumes  in 1997  decreased  slightly  after a  slight  increase  in 1996
compared to 1995. Prices fell  approximately 11% in 1996. This price decline was
also due to excess industry production.

      The increase in other building products sales in 1997 was primarily due to
the  acquisition  of  Associated  Chemists,  Inc.  (coatings  and  chemicals) in
mid-1996,  GreenStone Industries,  Inc. (cellulose insulation) in early 1997 and
the assets of Tecton  Laminates  (engineered  I-Joists  and LVL) in early  1997.
Other building  products  sales  decreased in 1996 due to lower wood chip sales.
L-P was producing fewer wood chips due to lower sawmill and plywood  production,
and wood chip prices weakened significantly, particularly on the West Coast.

      The primary  factor in the decrease in building  products  profits in 1997
was further erosion of OSB sales prices.  Also, higher log costs in the southern
region of the  country  caused  plywood  earnings to be  significantly  reduced.
Industrial  panel  profits  also  declined  in 1997 as a result  of lower  sales
prices.  Lumber  profits  increased in 1997 due to higher  average sales prices,
which helped  offset the  profitability  declines in structural  and  industrial
panels.  Building  products profits decreased in 1996 from 1995 due to the lower
prices  discussed  above for  structural  panel  products and  industrial  panel
products.  Raw material costs were generally lower in 1996 than in 1995, but did
not fully offset the lower sales prices.

      L-P's building  products are primarily  sold as commodities  and therefore
sales prices  fluctuate  based on market  factors over which L-P has no control.
L-P cannot  predict  whether the prices of its building  products will remain at
current  levels,  or will increase or decrease in the future  because supply and
demand  are  influenced  by many  factors,  only two of  which  are the cost and
availability of raw materials.  L-P is not able to determine to what extent,  if
any, it will be able to pass any future  increases in the price of raw materials
on to customers through product price increases.

                                   - 18 -


PULP
                                                                  INCREASE
                              YEAR ENDED DEC. 31,                (DECREASE)
                         -------------------------------------------------------
                         1997        1996         1995       97-96       96-95
- --------------------------------------------------------------------------------
                                       (DOLLAR AMOUNTS IN MILLIONS)

Pulp sales               $130        $177         $334        -27%        -47%
                         ====        ====         ====

Profit (loss)            $(29)       $(91)        $ 44        +68%       -207%
                         ====        ====         ====

      The  single  largest  factor in the  decline in pulp sales in 1997 was the
closure  in March 1997 of the pulp mill owned by L-P's  Ketchikan  Pulp  Company
(KPC) subsidiary.  Pulp sales volumes decreased approximately 10%, while average
prices dropped  approximately 19%. However,  KPC pulp had a higher sales average
than L-P's two  remaining  pulp  mills.  Excluding  KPC,  L-P's  remaining  pulp
business  showed an  increase  of 11% in sales  volume and a price  decrease  of
approximately  6%. The Asian economic  crisis caused pulp prices to decline late
in 1997,  which will likely  continue into 1998. Pulp sales plummeted in 1996 as
sales prices fell an average of 44% while volumes decreased about 5%. Large pulp
inventories around the world created very weak pulp markets throughout 1996. L-P
took  intermittent  downtime at the pulp mills during the year, which caused the
volume decrease.

      Pulp segment profits  improved  significantly in 1997 due in large part to
the  shut-down  of the KPC mill  which had been  suffering  losses due to market
conditions  and  changes in the timber  supply  contract.  At the two  remaining
mills,  L-P  successfully  cut its operating  costs through a concentrated  cost
reduction effort,  both from more efficient  operations and a central purchasing
program.  After  making a profit in 1995,  the pulp mills  returned to losses in
1996 due to the  downturn in the markets and problems  experienced  with the KPC
contract. Raw material costs decreased in 1996 after experiencing an increase in
1995.

      L-P's pulp products are primarily sold as commodities  and therefore sales
prices  fluctuate  based on market  factors  over which L-P has no control.  L-P
cannot  predict  whether the prices of its pulp  products will remain at current
levels, or will increase or decrease in the future because supply and demand are
influenced by many factors,  only two of which are the cost and  availability of
raw materials.  L-P is not able to determine to what extent,  if any, it will be
able to pass any future  increases in the price of raw materials on to customers
through product price increases.  The economic crisis in Asia has continued into
1998, which has negatively impacted pulp markets. A significant portion of L-P's
pulp is sold to countries in that region.

      L-P pulp products are sold primarily to export customers and represent the
majority of L-P's  export  sales.  Therefore,  the decline in pulp sales was the
primary reason for L-P's decreased export sales in 1997 and 1996, both in amount
and as a percent of total sales. Information regarding L-P's geographic segments
and export  sales are provided in the notes to  financial  statements  under the
caption "Segment Information."

GENERAL CORPORATE EXPENSE, NET

      Net general  corporate  expense  was $80 million in 1997,  compared to $52
million in 1996,  and an unusually  high amount of $121 million in 1995. In 1997
and 1996, the recurring level of general corporate expense has increased largely
due to corporate-wide training programs undertaken by current management and the
addition of key personnel to drive future growth and improvement initiatives. In
1996, $17 million of credits,  resulting from a gain on the sale of assets, were
netted into this  expense.  The most  significant  factor in the 1995 amount was
higher expenses  associated with litigation against the company of approximately
$48 million,  including

                                     - 19 -


legal fees and increases in contingency  reserves (it did not, however,  include
amounts recorded in the line item "Settlements, Charges and Other Unusual Items,
Net" which is discussed in Note Seven to the financial statements).

SETTLEMENTS, CHARGES AND OTHER UNUSUAL ITEMS, NET
- -------------------------------------------------

      For a discussion of  settlements,  charges and other unusual  items,  net,
refer to Note Seven to the financial statements.

INTEREST, NET
- -------------

      Net interest  expense rose  significantly in 1997 and 1996 as L-P borrowed
funds  to cover  its  settlement  obligations  and  fund  capital  expenditures.
Additionally,   interest   capitalized   has  decreased  in  1997  and  1996  as
construction  projects have been completed.  Also,  interest income was lower in
each of the past two years due to lower levels of cash available for investing.

LEGAL AND ENVIRONMENTAL MATTERS
- -------------------------------

      For a discussion of legal and environmental  matters involving L-P and the
potential  effect  on  the  company,  refer  to  Note  Eight  to  the  financial
statements.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------------------------

      Net cash provided by operations  increased to $88 million in 1997 from $23
million in 1996, down from $335 million in 1995.  These  fluctuations  primarily
correlate  to  changes  in the  company's  net loss.  In 1997,  L-P  received  a
settlement  from the U.S.  Government of $135 million for claims  related to the
KPC  long-term  timber  supply  contract.  In 1997 and  1996,  L-P paid out $205
million and $263 million for obligations related to litigation settlements.

      Net cash used in investing  activities decreased to $140 million from $213
million in 1996 and $387 million in 1995.  Capital  expenditures  peaked in 1995
with the  addition  of several  new OSB plants and other  projects.  In 1997 and
1996,  L-P received $64 million and $62 million of cash for assets sold. L-P has
also spent  significant  amounts on  environmental  projects  (such as pollution
control equipment),  upgrades of existing production  facilities,  and timber to
supply its operations and logging roads.

      L-P increased its net  borrowings by $114 million in 1997 and $196 million
in 1996.  The  borrowings  financed the payments of settlement  obligations  and
capital  expenditures.  L-P purchased only $3 million of treasury shares in 1997
and no treasury  shares in 1996 after  purchasing $120 million of treasury stock
in 1995.

      L-P has a  revolving  credit  facility  of $300  million,  which was fully
borrowed at year-end.  Subsequent  to year-end,  L-P entered into an  additional
credit facility with a group of banks for an additional  $100 million,  which is
available to fund cash needs.  This  additional  credit  facility must be repaid
upon the sale of assets described below.

         In October  1997,  L-P  announced  that it intends to sell  assets that
management  considers  non-strategic  to L-P's  core  businesses.  These  assets
include,  among others, the remaining  California redwood  timberlands,  related
lumber and certain distribution businesses,  the Samoa,  California,  pulp mill,
the Weather-Seal  window and door  manufacturing  business,  the Creative Point,
Inc., subsidiary,  the Red Bluff, California,  cement fiber roof shake plant and
the  fiber  gypsum  plant  in Nova  Scotia.  As of  year-end,  L-P was  actively
marketing all of these assets and had sold the fiber gypsum plant. L-P presently
estimates the proceeds from these sales at $800 million to 

                                     - 20 -


$1 billion.  However,  there can be no assurance  that net  proceeds  within the
foregoing range will be realized.  The proceeds  realized will initially be used
to fund  operations  and reduce or  eliminate  outstanding  borrowings  on L-P's
revolving credit facility.  Management is currently studying alternative uses of
the proceeds to maximize the long-term value to L-P and its stockholders.

      L-P has budgeted capital  expenditures,  including timber and logging road
additions,  for 1998 of  approximately  $150  million.  These  expenditures  are
primarily  to  complete  an OSB plant  currently  under  construction,  continue
environmental improvements to existing plants, upgrade production facilities and
provide timber to operations.

      Contingency reserves, which represent an estimate of future cash needs for
various contingencies (principally, payments for siding litigation settlements),
total $224 million,  of which $40 million is estimated to be payable  within one
year. As with all accounting estimates, there is inherent uncertainty concerning
the reliability  and precision of such  estimates.  As described in the notes to
the  financial  statements  under  the  heading   "Contingencies,"  the  amounts
ultimately paid in settling all of the outstanding  litigation  could exceed the
current reserves by a material amount.

      L-P continues to be in a strong financial  condition with a relatively low
ratio  of  long-term  debt as a  percent  of  total  capitalization.  Management
believes  that  existing  cash and cash  equivalents  combined  with  additional
borrowing  available  on lines of  credit,  expected  income  tax  refunds,  the
significant cash inflow expected from the asset sale program described above and
cash to be generated from  operations  will be sufficient to meet projected cash
needs  including  the  payments  related  to the  siding  litigation  settlement
referred to above.  The company also believes  that because of its  conservative
financial structure and policies,  it has substantial  financial  flexibility to
generate additional funds should the need arise.

YEAR 2000 COMPLIANCE

      As the year 2000 approaches, an issue impacting most companies has emerged
regarding the ability of computer applications and systems to properly interpret
the year. This is a pervasive and complex issue.

      L-P is in the process of identifying  significant  applications  that will
require  modification  to ensure Year 2000  compliance.  Internal  and  external
resources are being used to make this assessment, the required modifications and
test Year  2000  compliance.  L-P  plans on  completing  the  assessment  of all
significant  applications  and  developing  a plan  for  appropriate  action  by
September 30, 1998.

      In addition,  L-P will begin  communicating  with others with whom it does
significant  business to determine their Year 2000 compliance  readiness and the
extent to which L-P is vulnerable to any third party Year 2000 issues.  However,
there can be no  guarantee  that the systems of other  companies  on which L-P's
systems rely will be timely  converted,  or that a failure to convert by another
company, or a conversion that is incompatible with L-P's systems, would not have
a material adverse effect on L-P.

      The total cost to L-P of these  Year 2000  compliance  activities  has not
been and is not anticipated to be material to its financial  position or results
of operations in any given year.  These costs and the date on which L-P plans to
complete  the Year  2000  assessment  process  are  based on  management's  best
estimates,  which were derived utilizing  numerous  assumptions of future events
including  the  continued   availability  of  certain   resources,   third-party
modification  plans and other factors.  However,  there can be no guarantee that
these  estimates  will be achieved  and actual  results  could differ from those
plans.

                                   - 21 -




ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk

      No disclosure is required under this item.

ITEM 8.     Financial Statements and Supplementary Data

      The consolidated  financial statements and accompanying notes to financial
statements  together  with the reports 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 6.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31 (DOLLAR AMOUNTS IN MILLIONS)                  1997        1996
- ----------------------------------------               ---------   ---------

ASSETS
Current Assets:
Cash and cash equivalents                              $    31.9   $    27.8
Accounts receivable, less reserves of $2.0 and $1.4        146.2       136.2
Inventories                                                258.8       264.3
Prepaid expenses                                             8.9        12.0
Income tax refunds receivable                               78.0        99.5
Deferred income taxes                                       73.0        73.1
                                                       ---------   ---------

    Total current assets                                   596.8       612.9

Timber and Timberlands, at cost
    less cost of timber harvested                          634.2       648.6
Property, Plant and Equipment, at cost:
Land, land improvements and logging roads,
    net of road amortization                               185.6       182.5
Buildings                                                  262.5       269.5
Machinery and equipment                                  1,876.3     1,953.9
Construction in progress                                   109.5        80.1
                                                       ---------   ---------

                                                         2,433.9     2,486.0
Less accumulated depreciation                           (1,242.1)   (1,207.5)
                                                       ---------   ---------

    Net property, plant and equipment                    1,191.8     1,278.5
Goodwill, net of amortization                               70.7        45.9
Other Assets                                                84.9        36.5
                                                       ---------   ---------

    TOTAL ASSETS                                       $ 2,578.4   $ 2,622.4
                                                       =========   =========


See notes to financial statements.

                                     - 22 -




CONSOLIDATED BALANCE SHEETS

DECEMBER 31 (DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE)

                                                         1997          1996
                                                         ----          ----

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt                     $    22.9     $    18.7
Short-term notes payable                                   22.0          35.4
Accounts payable and accrued liabilities                  234.4         224.3
Current portion of contingency reserves                    40.0         100.0
                                                      ---------     ---------

     Total current liabilities                            319.3         378.4

Long-term Debt, excluding current portion                 572.3         458.6
Deferred Income Taxes                                     178.6         163.2
Contingency Reserves, excluding current portion           184.0         159.8
Other Long-term Liabilities and Minority Interest          38.0          34.8
Commitments and Contingencies
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                                472.2         472.7
Retained earnings                                         977.5       1,140.0
Treasury stock, 7,309,360 shares
  and 8,170,799 shares, at cost                          (163.4)       (183.3)
Loans to Employee Stock Ownership Trusts                  (37.7)        (61.6)
Other                                                     (79.4)        (57.2)
                                                      ---------     ---------

     Total stockholders' equity                         1,286.2       1,427.6
                                                      ---------     ---------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $ 2,578.4     $ 2,622.4
                                                      =========     =========


See notes to financial statements.

                                     - 23 -




CONSOLIDATED STATEMENTS OF INCOME

YEAR ENDED DECEMBER 31 (DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE)

                                             1997         1996       1995
                                             ----         ----       ----

NET SALES                                 $ 2,402.5   $ 2,486.0   $ 2,843.2
                                          ---------   ---------   ---------

COSTS AND EXPENSES:
Cost of sales                               2,138.7     2,123.5     2,250.3
Depreciation and amortization                 142.8       150.6       152.0
Cost of timber harvested                       41.1        41.2        50.6
Selling and administrative                    168.4       139.7       121.4
Settlements, charges and other
  unusual items, net                           32.5       350.0       366.6
Interest expense, net of
  capitalized interest                         30.9        14.2         5.3
Interest income                                (1.9)       (6.4)       (8.2)
                                          ---------   ---------   ---------

     Total costs and expenses               2,552.5     2,812.8     2,938.0
Income (loss) before taxes and
  minority interest                          (150.0)     (326.8)      (94.8)
Provision (benefit) for income taxes          (43.6)     (125.6)      (45.8)
Minority interest in net income (loss)
  of consolidated subsidiaries                 (4.6)        (.5)        2.7
                                          ---------   ---------   ---------

NET INCOME (LOSS)                         $  (101.8)  $  (200.7)  $   (51.7)
                                          =========   =========   ========= 


NET INCOME (LOSS) PER SHARE - BASIC       $     (.94) $    (1.87) $     (.48)
                                          ==========  ==========  ========== 
  AND DILUTED
CASH DIVIDENDS PER SHARE OF COMMON STOCK  $      .56  $      .56  $      .545
                                          ==========  ==========  ===========

AVERAGE SHARES OF COMMON
  STOCK (thousands)                       108,450      107,410    107,040
                                          ==========   =========  ===========


See notes to financial statements.

                                   - 24 -





CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31
(DOLLAR AMOUNTS IN MILLIONS)                      1997       1996       1995
- ----------------------------                    -------    -------    ------- 

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                               $(101.8)   $(200.7)   $ (51.7)
Adjustments to reconcile net income (loss)
  to net cash provided by operating activities:
  Depreciation, amortization and
    cost of timber harvested                      183.9      191.8      202.6
  Settlements, charges
    and other unusual items, net                  216.6      350.0      366.6
  Cash settlements of contingencies              (204.8)    (263.4)     (13.6)
  Other adjustments                               (54.5)       3.8       26.9
  Decrease (increase) in receivables               (4.0)      31.9       28.7
  Decrease (increase) in inventories               12.8       31.1     (103.9)
  Decrease (increase) in income tax
    refunds receivable                             21.8      (99.5)     ---
  Decrease (increase) in prepaid expenses           4.7        1.4       (7.0)
  Increase (decrease) in accounts payable
    and accrued liabilities                        (1.8)      (1.6)      38.2
  Increase (decrease) in income taxes payable     ---        ---         (7.5)
  Increase (decrease) in deferred income taxes     15.3      (22.0)    (144.7)
                                                -------    -------    ------- 

Net cash provided by operating activities          88.2       22.8      334.6

CASH FLOWS FROM INVESTING ACTIVITIES
Plant, equipment and logging road additions,
  including cash used in acquisitions            (154.8)    (244.0)    (362.9)
Timber and timberland additions                   (49.7)     (22.0)     (49.7)
Assets sold                                        63.6       62.4       23.5
Other investing activities, net                     1.0       (9.1)       1.8
                                                -------    -------    ------- 


Net cash used in investing activities            (139.9)    (212.7)    (387.3)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term
  notes payable                                   (13.4)     (12.9)      47.8
Long-term borrowings                              228.4      262.7       30.0
Repayment of long-term debt                      (101.0)     (53.4)     (82.0)
Cash dividends                                    (60.7)     (60.1)     (58.2)
Purchase of treasury stock                         (2.9)       ---     (120.2)
Other financing activities, net                     5.4        6.0       (5.2)
                                                -------    -------    ------- 

Net cash provided by (used in)
  financing activities                             55.8      142.3     (187.8)
                                                -------    -------    ------- 

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                  4.1      (47.6)    (240.5)
  CASH AND CASH EQUIVALENTS AT BEGINNING
    OF YEAR                                        27.8       75.4      315.9
                                                -------    -------    ------- 

  CASH AND CASH EQUIVALENTS AT END OF YEAR      $  31.9    $  27.8    $  75.4
                                                =======    =======    =======


See notes to financial statements.


                                     - 25 -




CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                                                                                          
                                                                                                               ADD'L      
DOLLAR AMOUNTS IN MILLIONS                    COMMON STOCK                TREASURY STOCK           PAID-IN     RETAINED   
EXCEPT PER SHARE                          SHARES        AMOUNT          SHARES         AMOUNT      CAPITAL     EARNINGS   
                                         ----------------------      -------------------------     -------     --------   

BALANCE
                                                                                                     
AS OF DECEMBER 31, 1994                  116,937,022   $  117.0       4,944,804     $    (86.3)    $  478.4    $ 1,510.7  
Net income (loss)                                ---        ---             ---            ---          ---        (51.7) 
Cash dividends, $.545 per share                  ---        ---             ---            ---          ---        (58.2) 
Issuance of shares for employee
  stock plans and for
  other purposes                                 ---        ---        (689,744)          13.8         (6.0)         ---  
Purchase of treasury stock                       ---        ---       4,333,397         (120.2)         ---          ---  
Employee stock ownership
  trust contribution                             ---        ---             ---            ---          ---          ---  
Currency translation adjustment
  and pension
  liability adjustment, net                      ---        ---             ---            ---          ---          ---  
                                                 ---        ---             ---            ---          ---          ---  

BALANCE
AS OF DECEMBER 31, 1995                  116,937,022   $  117.0       8,588,427     $   (192.7)    $  472.4    $ 1,400.8  
Net income (loss)                                ---        ---             ---            ---          ---       (200.7) 
Cash dividends, $.56 per share                   ---        ---             ---            ---          ---        (60.1) 
Issuance of shares for employee
  stock plans and for
  other purposes                                 ---        ---        (417,628)           9.4           .3          ---  
Employee stock ownership
  trust contribution                             ---        ---             ---            ---          ---          ---  
Currency translation adjustment,
  pension liability adjustment and
  deferred compensation, net                     ---        ---             ---            ---          ---          ---  
                                                 ---        ---             ---            ---          ---          ---  

BALANCE
AS OF DECEMBER 31, 1996                  116,937,022   $  117.0       8,170,799     $   (183.3)    $  472.7    $ 1,140.0  
Net income (loss)                                ---        ---             ---            ---          ---       (101.8) 
Cash dividends, $.56 per share                   ---        ---             ---            ---          ---        (60.7) 
Issuance of shares for employee
  stock plans and for
  other purposes                                 ---        ---      (1,016,534)          22.8          (.5)         ---  
Purchase of treasury stock                       ---        ---         155,095           (2.9)         ---          ---  
Employee stock ownership
  trust contribution                             ---        ---             ---            ---          ---          ---  
Currency translation adjustment,
  pension liability adjustment and
  deferred compensation, net                     ---        ---             ---            ---          ---          ---  
                                                 ---        ---             ---            ---          ---          ---  

BALANCE
AS OF DECEMBER 31, 1997                  116,937,022   $  117.0       7,309,360     $   (163.4)    $  472.2    $   977.5  
                                         -----------   --------       ---------     - --------     --------    ---------  


[Table continued on next page of EDGARized text.]




                                                      OTHER         TOTAL
                                          LOANS       EQUITY        STOCK-
DOLLAR AMOUNTS IN MILLIONS                TO          ADJUST-       HOLDERS'
EXCEPT PER SHARE                          ESOTs       MENTS         EQUITY
                                          --------    ----------    ---------

BALANCE
AS OF DECEMBER 31, 1994                   $ (114.0)   $    (56.4)   $ 1,849.4
Net income (loss)                              ---           ---        (51.7)
Cash dividends, $.545 per share                ---           ---        (58.2)
Issuance of shares for employee
  stock plans and for
  other purposes                               ---           ---          7.8
Purchase of treasury stock                     ---           ---       (120.2)
Employee stock ownership
  trust contribution                          28.5           ---         28.5
Currency translation adjustment
  and pension
  liability adjustment, net                    ---            .4           .4
                                          --------    ----------    ---------

BALANCE
AS OF DECEMBER 31, 1995                   $  (85.5)   $    (56.0)   $ 1,656.0
Net income (loss)                              ---           ---       (200.7)
Cash dividends, $.56 per share                 ---           ---        (60.1)
Issuance of shares for employee
  stock plans and for
  other purposes                               ---           ---          9.7
Employee stock ownership
  trust contribution                          23.9           ---         23.9
Currency translation adjustment,
  pension liability adjustment and
  deferred compensation, net                   ---          (1.2)        (1.2)
                                          --------    ----------    ---------

BALANCE
AS OF DECEMBER 31, 1996                   $  (61.6)   $    (57.2)   $ 1,427.6
Net income (loss)                              ---           ---       (101.8)
Cash dividends, $.56 per share                 ---           ---        (60.7)
Issuance of shares for employee
  stock plans and for
  other purposes                               ---           ---         22.3
Purchase of treasury stock                     ---           ---         (2.9)
Employee stock ownership
  trust contribution                          23.9           ---         23.9
Currency translation adjustment,
  pension liability adjustment and
  deferred compensation, net                   ---         (22.2)       (22.2)
                                          --------    ----------    ---------

BALANCE
AS OF DECEMBER 31, 1997                   $  (37.7)   $    (79.4)   $ 1,286.2
                                          --------    ----------    ---------



See notes to financial statements.

                                     - 26 -




NOTES TO FINANCIAL STATEMENTS


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
- --------------------

      Louisiana-Pacific  Corporation is a U.S.-based company principally engaged
in the manufacture of building  products,  and to a lesser extent,  market pulp.
Through  its foreign  subsidiaries,  the Company  also  maintains  manufacturing
facilities  in Canada and Ireland.  The  principal  customers  for the Company's
building  products  are retail  home  centers,  builders,  manufactured  housing
producers,  distributors  and wholesalers in North America,  with minor sales to
Asia and Europe.  The  principal  customers for its pulp products are brokers in
Asia and Europe, with minor sales in North America.

      A  significant  portion of L-P's sales are derived from  structural  panel
products  and  lumber.  Structural  panel sales were 36% of total 1997 sales and
lumber sales were 28% of the total.

Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual  results  could  differ  from  those  estimates.  See
discussion  of  specific   estimates  in  footnotes   entitled  "Income  Taxes,"
"Retirement Plans," "Stock Options and Plans,"  "Settlements,  Charges and Other
Unusual Items, Net" and "Contingencies."

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
- ------------------

      Basic and  diluted  earnings  per share  have been  computed  based on the
weighted  average  number  of  shares of common  stock  outstanding  during  the
periods.  The effect of  potentially  dilutive  common stock  equivalents is not
included  in the  calculation  of  dilutive  earnings  per share  because  it is
currently  anti-dilutive  as a result of L-P's net losses.  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  (763,786
shares at December 31, 1997).

Cash and Cash Equivalents
- -------------------------

      L-P considers all highly liquid  securities  with an original  maturity of
three months or less to be cash  equivalents.  Cash paid during  1997,  1996 and
1995 for interest (net of capitalized interest) was $29.2 million, $13.4 million
and $4.6 million. Net cash paid (received) during 1997, 1996 and 1995 for income
taxes was $(80.7) million, $(4.1) million and $109.0 million.

      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.

                                     - 27 -



NOTES TO FINANCIAL STATEMENTS


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 with remaining  inventories valued at FIFO or average
cost. 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)        1997        1996
   -------------------------        ----        ----

   Logs                            $ 112.4     $ 106.4
   Lumber                             37.6        47.4
   Panel products                     56.6        54.4
   Other building products            82.1        70.0
   Pulp                               15.3        25.4
   Other raw materials                25.1        26.3
   Supplies                           21.3        23.0
   LIFO reserve                      (91.6)      (88.6)
                                   -------     -------

       Total                       $ 258.8     $ 264.3
                                   =======     =======

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 generally
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
1997, 1996 and 1995 was $4.8 million, $7.1 million and $10.9 million.

      L-P  defers  start-up  costs on major  construction  projects  during  the
start-up phase. No start-up costs were deferred in 1997. Start-up costs deferred
during 1996 and 1995 were $3.8 million and $3.1 million.

Asset Impairments
- -----------------

      Long-lived  assets to be held and used by the  Company  are  reviewed  for
impairment when events and circumstances  indicate costs may not be recoverable.
Losses are recognized when the book values exceed expected  undiscounted  future
cash flows. If impairment exists, the asset's book value

                                     - 28 -




NOTES TO FINANCIAL STATEMENTS


is written down to its estimated  fair value.  Assets to be disposed are written
down to their  estimated  fair  value,  less sales  costs.  See Note Seven for a
discussion of charges in 1997,  1996 and 1995 related to impairment of property,
plant and equipment.

Derivative Financial Instruments
- --------------------------------

      L-P has only limited involvement with derivative financial instruments. At
December  31,  1997,  L-P  had no  material  exposure  to  derivative  financial
instruments.

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  in
stockholders' equity.

Goodwill
- --------

      Goodwill  has  resulted  from the  purchase of  subsidiaries  and is being
amortized on a straight-line  basis over 10 to 25 years. The amortization period
and recoverability of this goodwill are periodically reviewed by the Company.

Notes Receivable
- ----------------

      Included  in other  assets  are notes  receivable  related to a timber and
timberland sale that occurred during 1997. The Company received $47.9 million in
notes from a third party. The notes are due in principal payments of $20 million
in 2008,  $20  million  in 2009,  and $7.9  million in 2012.  Interest  is to be
received in  semi-annual  installments  with rates  varying  from 5.62% to 7.5%.
These notes provide collateral for L-P's senior secured notes.

Acquisitions
- ------------

      Acquisitions  are accounted for under the purchase  method of  accounting,
whereby the results of acquired  companies  are  included in L-P's  consolidated
results from the date of their acquisition.

Reclassifications
- -----------------

      Certain  prior  year  amounts  have been  reclassified  to  conform to the
current year presentation.

2.    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

      DECEMBER 31 (IN MILLIONS)            1997        1996
      -------------------------            ----        ----

      Accounts payable                     $ 153.0     $ 124.0
      Salaries and wages payable              27.4        36.6
      Taxes other than income taxes            8.7        12.2
      Workers' compensation                   13.5        12.0
      Other accrued liabilities               31.8        39.5
                                           -------     -------
                                           $ 234.4     $ 224.3
                                           =======     =======

                                     - 29 -




NOTES TO FINANCIAL STATEMENTS


3.    INCOME TAXES

      Income  (loss)  before  taxes and  minority  interest  for the years ended
December 31, was taxed under the following jurisdictions:

      YEAR ENDED DECEMBER 31 (IN MILLIONS)       1997      1996      1995
      ------------------------------------       ----      ----      ----

      Domestic                                  $(87.0)   $(255.1)  $(123.0)
      Foreign                                    (63.0)     (71.7)     28.2
                                               -------    -------   -------

                                               $(150.0)   $(326.8)  $ (94.8)
                                               =======    =======   ======= 

      Provision (benefit) for income taxes includes the following:

      YEAR ENDED DECEMBER 31 (IN MILLIONS)        1997      1996      1995
      ------------------------------------        ----      ----      ----

      Current tax provision (benefit):
        U.S. federal                            $(65.0)    $(87.4)  $  74.4
        State and local                           (4.3)     (10.0)     14.7
        Foreign                                    3.6       12.2       6.1
                                                ------     ------   -------
      Total current tax provision
        (benefit)                               $(65.7)    $(85.2)  $  95.2
                                                ======     ======   ======= 

      Deferred tax provision (benefit):
        U.S. federal                              32.2   $    2.6   $(129.2)
        State and local                            3.4         .3     (16.4)
        Foreign                                  (13.5)     (43.3)      4.6
                                                ------     ------   -------

      Total deferred tax provision
        (benefit)                               $ 22.1     $(40.4)  $(141.0)
                                                ======     ======   ======= 


      The tax effects of significant temporary differences creating deferred tax
(assets) and liabilities at December 31 were as follows:

      DECEMBER 31 (IN MILLIONS)                   1997      1996
      -------------------------                   ----      ----

      Property, plant and equipment            $ 134.0  $   95.3
      Timber and timberlands                     156.9     143.0
      Inventories                                 (4.2)     (1.2)
      Accrued liabilities                        (84.1)    (33.7)
      Contingency reserves                       (86.7)   (100.5)
      Benefit of foreign capital loss
        and NOL carryover                        (27.8)    (13.6)
      Benefit of foreign ITC carryover           (62.3)    (68.4)
      Other                                       41.6      26.0
      Valuation allowance                         38.2      43.2
                                              --------  --------

      Net deferred tax liability                 105.6      90.1
      Less net current deferred
        tax assets                               (73.0)    (73.1)
                                              --------  --------

      Net noncurrent deferred
        tax liabilities                       $  178.6  $  163.2
                                              ========  ========

The reduction in the valuation  allowance reflects the expiration of tax credits
and a change in the foreign currency exchange rate between balance sheet dates.

      L-P's  Canadian  subsidiary,  Louisiana-Pacific  Canada  Ltd.  (LPC),  has
unrealized  foreign  investment tax credits (ITC) of approximately  C$89 million
(Canadian dollars). These credits can be carried forward to offset future tax

                                     - 30 -




NOTES TO FINANCIAL STATEMENTS

of LPC and reduce LPC's basis in the related property,  plant and equipment. The
credits expire C$18 million in 1999, C$6 million in 2000,  C$47 million in 2001,
C$4 million in 2003,  C$13 million in 2004 and C$1 million in 2005. In addition,
LPC has a capital loss  carryover of C$29  million  available to offset  capital
gains in future years which does not expire.

      The following table summarizes the differences between the statutory
U.S. federal and effective income tax rates:

      YEAR ENDED DECEMBER 31                      1997      1996      1995
      ----------------------                      ----      ----      ----

      Federal tax rate                            (35)%     (35)%     (35)%
      Tax-exempt investment income                ---       ---         2
      State and local income taxes                 (4)       (4)       (4)
      Exempt foreign sales corporation income     ---       ---        (3)
      Foreign losses not benefited                  6
      Other, net                                    4         1        (4)
                                                  ---       ---       ---
                                                  (29)%     (38)%     (48)%
                                                  ===       ===       ===

4.    LONG-TERM DEBT

                                            INTEREST RATE     DECEMBER 31,
(IN MILLIONS)                                AT 12/31/97     1997      1996
- -------------                               -------------    ----      ----

Project Bank Financings --
    Chetwynd, B.C. pulp mill, repaid in 1997,      ---%    $  ---    $ 51.0
    Nova Scotia fiber gypsum plant,
      repaid in 1997,                              ---        ---      34.7
    Waterford, Ireland, OSB plant, payable
      1998-2003, interest rate variable             8.3      32.9      41.4
Project Revenue Bond Financings, payable
  1998-2009, interest rates variable            4.4-7.3      26.0      26.1
Employee Stock Ownership Trust (ESOT) Loans --
    Hourly ESOT, payable annually through
      1999, interest rate variable                  8.3      17.0      25.5
    Salaried ESOT, payable annually through
      1999, interest rate variable                  4.9      12.0      18.0
Senior Secured Notes, payable 2008-2112,
  interest rates fixed                          7.1-7.5      47.9       ---
Bank Credit Facility --
    Revolving credit facility, payable in
      2002, interest rate variable                  6.3     300.0     275.0
    Term loan facility, payable in 2002,
      interest rate variable                        6.3     125.0       ---
Other, including capital lease obligations,
  payable in varying amounts through 2010,
  interest rates vary                           4.0-8.5      34.4       5.6
                                                          -------   -------

                                                            595.2     477.3
Less current portion                                        (22.9)    (18.7)
                                                          -------   -------
                                                          $ 572.3   $ 458.6
                                                          =======   =======

The carrying  amounts of L-P's  long-term  debt  approximates  fair market value
since the debt is primarily  variable  rate debt.  Project bank  financings  are
typically  secured by the underlying  assets of the related project.  The senior
secured  notes are  collateralized  by notes  receivable  related  to timber and
timberland  sales.  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 at December 31, 1997.

                                     - 31 -


NOTES TO FINANCIAL STATEMENTS


         At December 31, 1997, L-P had a $425 million bank credit  facility with
a group of banks which is due in 2002.  This  facility  includes a $300  million
revolving  credit  facility and a $125 million term loan  facility.  Interest on
borrowings under the facility 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.  Borrowings in 1997 are  classified  as long-term  debt as amounts are not
expected or required to be repaid during 1998.  Additionally,  L-P's subsidiary,
L-P Canada Ltd. has a $30 million (Canadian)  revolving credit facility which is
classified as short-term notes payable. Subsequent to year-end, L-P entered into
an  additional  credit  facility  with a group of banks for an  additional  $100
million, which must be repaid upon the sale of assets described in Note Seven.

         The weighted  average  interest  rate for all debt at December 31, 1997
and 1996 was 6.4 percent and 6.2 percent.  Required  repayment of principal  for
long-term debt is as follows:

         YEAR ENDED DECEMBER 31 (IN MILLIONS)

         1998                               $    22.9
         1999                                    34.5
         2000                                     6.6
         2001                                     6.4
         2002                                   456.2
         2003 and after                          68.6
                                            ---------

                                            $   595.2
                                            =========

5.       RETIREMENT PLANS

         L-P maintains  tax-qualified  Employee Stock Ownership  Trusts (ESOTs),
for eligible salaried and hourly employees in the U.S. under which 10 percent of
the  eligible   employees'   annual  earnings  are  contributed  to  the  plans.
Approximately 9,800 L-P employees participate in the ESOTs.

         The  annual   allocation   of  shares  to   participant   accounts  and
compensation  expense  are  generally  based on the ESOTs'  cost of the  shares.
However, as required, compensation expense for the 1,843,621 shares purchased by
the  ESOTs in 1994 is based on the  market  value of the  shares  at the time of
allocation.  L-P's  ESOTs  held a total of  approximately  11,868,000  shares at
December  31,  1997  of  which   approximately   9,734,000   were  allocated  to
participants'  accounts. ESOT expense is included in the retirement plan expense
table below.

         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 or mandatory  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,  most of which were  frozen in 1994.  Contributions  to these
plans are based on actuarial  calculations  of amounts to cover current  pension
and  amortization  of prior  service  costs over  periods  ranging from 10 to 20
years.  Contributions  to  multiemployer  defined benefit plans are specified in
applicable collective bargaining agreements.

                                     - 32 -


NOTES TO FINANCIAL STATEMENTS


         In 1997, L-P adopted the L-P  Supplemental  Executive  Retirement  Plan
(SERP),  a non-qualified  defined benefit plan intended to provide  supplemental
retirement  benefits  to  key  executives.   Benefits  are  generally  based  on
compensation in the years prior to retirement.  The projected benefit obligation
was $1.4 million at December 31, 1997.  Expense for this plan is included in the
retirement  plan  expense  table  below.  L-P  established  a  grantor  trust to
informally provide funding for the benefits payable under the SERP. During 1997,
L-P  contributed  $4.2  million  to  the  trust.  The  funds  were  invested  in
corporate-owned life insurance policies.  At December 31, 1997, the trust assets
were valued at $3.9 million and  included in other assets in L-P's  consolidated
balance sheet.

         The status of L-P administered  qualified defined benefit pension plans
is as follows:

                                            1997                                1996
                                            ----                                ----

                                   Plan with       Plan with       Plans with        Plans with
                                   Assets in       Accumulated     Assets in         Accumulated
                                   Excess of       Benefits        Excess of         Benefits
                                   Accumulated     In Excess       Accumulated       In Excess
                                   Benefits        of Assets       Benefits          of Assets

DECEMBER 31 (IN MILLIONS)

Accumulated benefit obligation
                                                                              
  Vested portion                   $    11.2       $   101.1       $   19.9         $    89.8
  Non-vested portion                      --             2.1             .2               2.9
                                   ---------       ---------       --------         ---------
  Total                                 11.2           103.2           20.1              92.7
Effect of future compensation             --              --             --                --
                                   ---------       ---------       --------         ---------
Projected benefit obligation            11.2           103.2           20.1              92.7
Plan assets                             13.2            89.1           39.6              87.3
                                   ---------       ---------       --------         ---------
  Net funded (unfunded)
    status                               2.0           (14.1)          19.5              (5.4)
Unrecognized asset at
  transition                             (.3)           (6.5)          (5.1)             (8.0)
Unrecognized net loss
  and other                              3.9            29.3             .2              20.9
Adjustment to recognize
  minimum liability                       --           (22.9)            --              (9.7)
                                   ---------       ---------       --------         ---------
Net prepaid (accrued)
  pension expense                  $     5.6       $   (14.2)      $   14.6         $    (2.2)
                                   =========       =========       ========         =========



         The actuarial  assumptions  used to determine  pension  expense and the
funded  status of the plans for 1997 and 1996 were:  a discount  rate on benefit
obligations  of 7.25  percent and 7.75  percent,  and an 8.75  percent  expected
long-term rate of return on plan assets.

         The assets of the plans at December 31, 1997 and 1996 consist mostly of
government obligations, and minor amounts in equity securities and cash and cash
equivalents.

         Retirement plan expense included the following components:

                                     - 33 -


NOTES TO FINANCIAL STATEMENTS



         YEAR ENDED DECEMBER 31 (IN MILLIONS)               1997           1996           1995
         ------------------------------------               ----           ----           ----

                                                                                    
         Benefits earned by employees                   $       .2     $       .5     $       .4
         Interest cost on projected
           benefit obligation                                  7.9            8.3            7.9
         Return on plan assets                                (9.0)         (10.9)         (10.2)
         Net amortization and deferral                        (1.0)          (1.7)          (2.4)
                                                        ----------     ----------     ----------
         Net periodic pension expense (income)                (1.9)          (3.8)         (4 .3)
         Expense related to ESOTs multiemployer,
           defined contribution and
           non-qualified plans                                28.8           29.1           30.1
         Loss from settlement of pension plan                  7.3            ---            ---
                                                        ----------     ----------     ----------

         Net retirement plan expense                    $     34.2     $     25.3     $     25.8
                                                        ==========     ==========     ==========


         L-P has several plans which  provide  minimal  postretirement  benefits
other than pensions. Net expense related to these plans was not significant. L-P
does not generally provide post-employment benefits.

6.       STOCK OPTIONS AND PLANS

         The Financial  Accounting  Standards Board issued SFAS 123, "Accounting
for  Stock-Based  Compensation"  which  establishes  a fair  value  approach  to
measuring  compensation expense related to employee stock plans for grants on or
after January 1, 1995. As allowed by SFAS 123, L-P has elected to adopt only the
disclosure  provisions  of the standard and therefore  recorded no  compensation
expense  for  certain  stock  option  plans and all stock  purchase  plans.  Had
compensation  expense for L-P's stock-based  compensation  plans been determined
based  on the fair  value at the  grant  dates  for  awards  under  those  plans
consistent  with the method of SFAS  Statement  123, L-P's net income (loss) and
net income  (loss) per share  would have been  reduced to the pro forma  amounts
indicated below:


         YEAR ENDED DECEMBER 31
         (IN MILLIONS, EXCEPT PER SHARE)                       1997           1996           1995
         -------------------------------                       ----           ----           ----
                                                                                      
         Net income (loss)

           As reported                                    $  (101.8)      $ (200.7)       $ (51.7)
           Pro forma                                         (108.6)        (206.0)         (53.6)
         Net income (loss) per share
           As reported                                    $     (.94)      $  (1.87)       $  (.48)
           Pro forma                                           (1.00)         (1.92)          (.50)


         The fair value of each option  grant is  estimated on the date of grant
using the Black-Scholes  option pricing model using the actual option terms with
the  assumptions  of a 2.5  percent  to 3.2  percent  dividend  yield,  expected
volatility  of 29 percent  in 1997 and 27  percent in 1996 and 1995,  and a risk
free interest rate of 6.6 percent in 1997 and 6.7 percent in 1996 and 1995.

Stock Option Plans
- ------------------

         L-P grants options to key employees to purchase L-P common stock.  Past
options were  granted at 85 to 100 percent of market  price.  The current  stock
award plan requires that options be granted at 100 percent of market price.  The
options become  exercisable over 3 or 5 years beginning one year after the grant
date and  expire 5 or 10 years  after  the date of grant.  Compensation  expense
recognized  for stock  options was $.7 million in 1997,  $.7 million in 1996 and
$1.0 million in 1995. At December 31, 1997,  4.5 million  shares were  available
under the  current  stock  award  plan for  future  option  grants and all other
stock-based awards.

                                     - 34 -


NOTES TO FINANCIAL STATEMENTS
         Changes in options outstanding and exercisable were as follows:

                                                                    NUMBER OF SHARES
         YEAR ENDED DECEMBER 31                          1997            1996             1995
         ----------------------                          ----            ----             ----

                                                                                      
         Options outstanding at January 1             1,647,530        1,370,410         2,611,123
         Options granted                                789,505          605,000           114,000
         Options exercised                             (154,880)        (196,530)       (1,046,412)
         Options canceled                               (78,300)        (131,350)         (308,301)
                                                  -------------     ------------    --------------

         Options outstanding at December 31           2,203,855        1,647,530         1,370,410
                                                  =============     ============    ==============

         Options exercisable at December 31             912,144          762,850           668,900
                                                  =============     ============    ==============

                                                          WEIGHTED AVERAGE PRICE PER SHARE
         YEAR ENDED DECEMBER 31                       1997               1996               1995
         ----------------------                       ----               ----               ----

         EXERCISE PRICE
           Options granted                          $  19.97           $  22.18           $  21.57
                                                    ========           ========           ========
           Options exercised                        $  13.91           $  12.13           $  11.55
                                                    ========           ========           ========
           Options canceled                         $  24.21           $  21.39           $  12.73
                                                    ========           ========           ========
           Options outstanding                      $  21.09           $  21.14           $  19.40
                                                    ========           ========           ========
           Options exercisable                      $  21.09           $  19.05           $  17.05
                                                    ========           ========           ========
         FAIR VALUE AT DATE OF GRANT
           Options granted                          $   6.05           $   8.38           $   8.98
                                                    ========           ========           ========


Performance-Contingent Stock Awards
- -----------------------------------

         L-P  has  granted   performance-contingent   stock   awards  to  senior
executives as allowed under the current stock award plan. The awards entitle the
participant  to receive a number of shares of L-P  common  stock  determined  by
comparing  L-P's  cumulative  total   stockholder   return  to  the  mean  total
stockholder  return of five other forest  products  companies  for the four-year
period  beginning  in the year of the  grant.  During  1997,  a target of 54,569
performance-contingent  awards were granted.  Depending on L-P's four-year total
stockholder  return,  the  actual  number  of  shares  issued  at the end of the
four-year period could range from zero to 200 percent of this target.

Restricted Stock Plans
- ----------------------

         L-P has also granted 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 expense is recorded
in the year to  which  the  performance  criteria  relate.  L-P did not meet the
performance  criteria  in  1997,  1996  or  1995  and  therefore  recognized  no
compensation expense for restricted stock awards.

         Changes in the Restricted Stock Awards outstanding were as follows:


                                                                           NUMBER OF SHARES
         YEAR ENDED DECEMBER 31                                   1997              1996              1995
         --------------------                                   --------------------------------------------
                                                                                                
         Restricted awards outstanding

           at January 1                                           109,458           251,208          664,500
         Restricted awards granted                                 73,000               ---          145,000

         Restricted awards exercised                                 ---               ---           (42,875)
         Restricted awards canceled                              (110,334)         (141,750)        (515,417)
                                                              -----------      ------------     ------------

         Restricted awards outstanding
           at December 31                                          72,124           109,458          251,208
                                                              ===========      ============     ============

         Fair value at date of grant                          $     21.13      $        N/A     $      27.00
                                                              ===========      ============     ============

                                     - 35 -

NOTES TO FINANCIAL STATEMENTS


         L-P has also granted restricted stock in which the shares are issued at
the date of  grant.  The  shares  are  non-transferable  until  the time  period
specified  lapses.  There are no other  performance  criteria.  150,000  of such
shares were granted and issued in 1996. In 1997, 30,000 shares vested and became
transferable.  The remaining shares vest 30,000 shares in 1998, 30,000 shares in
1999 and 60,000 shares in 2006. Deferred  compensation was recorded in the other
equity  line in the  balance  sheet in the amount of $3.8  million  based on the
market  value of the stock at the date of issuance.  The  deferred  compensation
balance is amortized  to expense  over the years  during which the  certificates
vest.  The  amount  of  expense  recorded  in 1997  and  1996  related  to these
restricted shares was $.8 million.

Stock Purchase Plans
- --------------------

         L-P offers employee stock purchase plans to most 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, 1997, 671,196 shares and 498,185
shares  were  subscribed  at $18.89 and $18.59 per share under the 1997 and 1996
Employee  Stock  Purchase  Plans.  During  1997,  L-P issued  259,141  shares to
employees at an average price of $22.36 under all Employee Stock Purchase Plans,
including the completion of the purchase period for the 1995 Plan.

7.       SETTLEMENTS, CHARGES AND OTHER UNUSUAL ITEMS, NET

         The major components of "Settlements,  Charges and Other Unusual Items,
Net" in the  statements  of income  for the years  ended  December  31,  were as
follows:


                                                   1997               1996               1995
                                                   ----               ----               ----

                                                                                     
         KPC settlement                         $     135.0        $       ---       $        ---

         Charges for litigation, property
           impairments and other                     (223.1)            (350.0)            (374.6)

         Gains on asset sales                          55.6                ---                8.0
                                                -----------        -----------       ------------

                                                $     (32.5)       $    (350.0)      $     (366.6)
                                                ===========        ===========       ============


1997
- ----

         In the first quarter of 1997,  L-P's Ketchikan Pulp Company  subsidiary
recorded a net gain of $121.9 million  ($73.7  million after taxes,  or $.68 per
share)  to  reflect  the  initial  proceeds  of $135  million  received  under a
settlement  agreement with the U.S.  Government over KPC's claims related to the
long-term  timber supply  contract in Alaska.  Adjustments to pulp mill closure-
related  accruals were netted against this gain. The agreement also provides KPC
with sufficient timber volumes to run its two sawmills through the end of 1999.

         In the third  quarter of 1997,  L-P  recorded a $210.0  million  charge
($128.3  million after taxes,  or $1.18 per share) to reflect the  write-down of
certain  properties which L-P intends to sell, to adjust reserves for litigation
settlements and to accrue for certain other costs. Gains from the sale of 79,000
acres of timber and timberland in California during the third quarter of 1997 in
the amount of $55.6 million ($34.0 million after taxes,  or $.31 per share) were
netted against the charges.

                                     - 36 -


NOTES TO FINANCIAL STATEMENTS


         In October  1997,  L-P  announced  that it intends to sell  assets that
management  considers  non-strategic  to L-P's  business.  These assets include,
among others, the remaining California redwood  timberlands,  related lumber and
certain  distribution  businesses,   the  Samoa,  California,   pulp  mill,  the
Weather-Seal window and door manufacturing  business,  the Creative Point, Inc.,
subsidiary,  the Red Bluff,  California,  cement  fiber roof shake plant and the
fiber gypsum plant in Nova Scotia.  As of year-end,  L-P was actively  marketing
all of these assets and had sold the fiber gypsum plant. The total third quarter
charge related to property and equipment  write-downs,  was $35.0  million.  The
facilities covered by this charge incurred operating losses of approximately $17
million in 1997,  all of which was  related  to the  building  products  related
assets.

1996
- ----

         In the third quarter of 1996,  L-P recorded  pre-tax  charges of $350.0
million ($215.0 million after tax, or $2.00 per share) to reflect expected costs
to be incurred  in the  shut-down  of the pulp mill owned and  operated by L-P's
Ketchikan  Pulp  Company  (KPC)  subsidiary  as  well as the  settlement  of all
outstanding  shareholder  securities  class action  claims,  a reserve for other
litigation  and a reserve for the planned  shut-down  and other costs related to
certain other non-strategic facilities.

         The charge for the  shut-down of the  Ketchikan  pulp mill included the
Company's  best  estimates  of all costs  related to the  closing of  operations
including the write-down of property,  plant and equipment to estimated  salvage
value,  severance  costs,  inventory  write-downs,   environmental  and  general
property clean-up and other costs.

         In 1996, as part of the implementation of management's  strategic plan,
L-P evaluated the viability of all its current operations and made plans for the
closure or sale of certain  other  manufacturing  facilities  including  several
sawmills,  structural panel products plants and other operations. The facilities
were written down to their  estimated  salvage or sales value.  The total charge
related to property and equipment write-downs, including the KPC facilities, was
$191.1 million.  The facilities covered by this charge incurred operating losses
of approximately $64 million in 1996, of which approximately $40 million related
to pulp  segment  assets and $24 million  related to building  products  related
assets.

         L-P  reached an  agreement  on behalf of all  defendants  to settle all
outstanding  shareholder  securities class action claims brought in 1995 against
the  Company and four former and current  officers.  The  settlement  required a
payment of approximately  $65 million,  of which  approximately  $20 million was
covered by insurance.  L-P also  reserved  additional  amounts  related to other
outstanding  litigation,  including plaintiffs who opted out of the siding class
action settlements.

         Detail  regarding  the industry  segments to which this $350.0  million
charge relates is presented in Note Ten entitled "Segment  Information."  Broken
down by type of  expense,  $191.1  million  related to  property  and  equipment
write-downs,  $19.3 million related to inventory  write-downs and $139.6 million
related to reserves taken for severance and other  shut-down  charges as well as
litigation costs.

1995
- ----

         In the third quarter of 1995,  L-P recorded a pre-tax  charge of $366.6
million  ($221.8  million after tax, or $2.07 per share).  This charge  included
$345.0 million for class action settlements related to the Company's siding

                                     - 37 -


NOTES TO FINANCIAL STATEMENTS


product,  as well as  write-downs  on planned  disposals  by mid-1996 of certain
facilities,  principally  sawmills.  The historical  results of these operations
were not  significant.  A gain on the sale of a  non-strategic  asset was netted
against this charge.

8.       CONTINGENCIES

Environmental Proceedings
- -------------------------

         In March 1995,  L-P's  subsidiary  Ketchikan Pulp Company (KPC) entered
into  agreements  with the federal  government to resolve the issues  related to
water and air compliance problems experienced at KPC's pulp mill during the late
1980s and early  1990s.  In addition to civil and criminal  penalties  that have
been  paid,  KPC also  agreed  to  undertake  further  expenditures,  which  are
primarily  capital in nature,  including  certain remedial and pollution control
related  measures,  with an estimated cost of up to  approximately  $20 million.
With the  closure  of the pulp  mill,  KPC is  currently  seeking  the EPA's and
court's  guidance  regarding the necessity of these  expenditures.  KPC has also
agreed to  undertake  a study of  whether a clean-up  of Ward Cove,  the body of
water adjacent to the pulp mill, is needed.  It is anticipated  that KPC will be
required to spend up to $6 million on the  clean-up,  including  the cost of the
study,  as part of the overall $20 million of  expenditures.  KPC  negotiated an
administrative  order  with  the  state  and EPA to  conduct  investigative  and
clean-up  activities  at the pulp mill.  Total  costs for these  activities  are
unknown at this time, but KPC has recorded its initial estimated amount.

         The United States Forest  Service (USFS) has named KPC as a potentially
responsible  party for costs  related to the  capping of a landfill  near Thorne
Bay, Alaska. Total costs may range up to $8 million.

         EPA and the Department of Justice have  indicated  their intent to seek
penalties  for alleged  civil  violations  of the Clean  Water Act.  The maximum
penalty associated with such an action could total up to $625,000.

         Certain of L-P's plant sites have or 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  and is  vigorously  pursuing
insurance coverage under all applicable policies.

         L-P maintains a reserve for estimated environmental loss contingencies.
The balance of the reserve was $29.3  million and $49.9  million at December 31,
1997 and 1996. The decrease during 1997 was primarily the result of expenditures
related  to the  closure  of  operations  at the KPC  pulp  mill.  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.  L-P  continually  monitors  its  estimated
exposure for environmental  liabilities and adjusts its accrual accordingly.  As
additional  information  about the  environmental  contingencies  becomes known,
L-P's estimate of its liability for environmental  loss contingencies may change
significantly,  although no estimate of the range of any potential adjustment of
the liability can be made at this time. L-P cannot  estimate the time frame over
which  these  accrued  amounts  are  likely to be paid out.  A portion  of L-P's
environmental reserve is related to liabilities for clean-up 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  result  in  additional  material  liability  to  L-P  due to
non-performance by the other

                                     - 38 -



NOTES TO FINANCIAL STATEMENTS


party.  L-P  has  not  reduced  its  liability  for  any  anticipated  insurance
recoveries.

         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
non-compliance   and   sometimes   litigation   has  resulted   from   contested
environmental  actions. Also, L-P is involved in other environmental actions and
proceedings which could result in fines or penalties.  Management  believes that
any fines,  penalties or other losses resulting from the matters discussed above
in excess of the reserve for environmental  loss  contingencies  will not have a
material  adverse  effect  on  the  business,  financial  position,  results  of
operations or liquidity of L-P. See "Colorado Criminal  Proceedings" for further
discussion of an environmental action against the company.

Colorado Criminal Proceedings
- -----------------------------

         L-P  began  an  internal  investigation  at  L-P's  Montrose  (Olathe),
Colorado,  oriented  strand  board  (OSB)  plant of various  matters,  including
certain  environmental  matters,  in the summer of 1992 and reported its initial
finding of irregularities to governmental authorities in September 1992. Shortly
thereafter,  a federal grand jury commenced an  investigation  of L-P concerning
alleged environmental  violations at that plant, which was subsequently expanded
to include the taking of evidence  and  testimony  relating to alleged  fraud in
connection  with the submission of  unrepresentative  OSB product samples to the
APA - The Engineered Wood Association  (APA), an industry product  certification
agency,  by L-P's Montrose  plant and certain of its other OSB plants.  L-P then
commenced an independent  investigation,  which was concluded in 1995, under the
direction of former federal judge Charles B. Renfrew  concerning  irregularities
in sampling and quality assurance in its OSB operations. In June 1995, the grand
jury  returned an  indictment in the U.S.  District  Court in Denver,  Colorado,
against L-P, a former manager of the Montrose mill, and a former  superintendent
at the mill. L-P is now facing 23 felony counts related to environmental matters
at the Montrose  mill,  including  alleged  conspiracy,  tampering  with opacity
monitoring  equipment,  and making false statements under the Clean Air Act. The
indictment  also charges L-P with 25 felony counts of fraud  relating to alleged
use of the APA  trademark  on OSB  structural  panel  products  produced  by the
Montrose  mill as a result of L-P's  allegedly  improper  sampling  practices in
connection with the APA quality assurance program.

         In November 1995,  the Court  bifurcated  the  environmental  and fraud
felony counts. A trial date of April 13, 1998, had been set in the environmental
case. However, a Notice of Disposition and Joint Motion to Vacate Trial Date was
filed with the Court.

         After pleading guilty to one environmental count, on February 18, 1998,
the  former  superintendent  of the mill was  sentenced  to six  months  of home
detention,  five years probation and a fine of $10,000. The former plant manager
pled guilty to one environmental count and is scheduled to be sentenced in April
1998.

         In December  1995,  L-P  received a notice of  suspension  from the EPA
stating that, because of criminal  proceedings  pending against L-P in Colorado,
agencies of the federal  government  would be prohibited  from  purchasing  from
L-P's Northern Division. L-P is negotiating to have the EPA suspension lifted or
modified  based on positive  environmental  programs  actively  underway.  While
negotiations  are  continuing,  the EPA has  approved  a  preliminary  agreement
limiting the  prohibition to L-P's Montrose,  Colorado,  facility for an interim
period in recognition of L-P's environmental  compliance efforts. Under recently
revised regulations of the United States Department of Agriculture,

                                     - 39 -



NOTES TO FINANCIAL STATEMENTS


the EPA  suspension  will also have the  effect of  prohibiting  L-P's  Montrose
facility from purchasing timber directly, but not indirectly, from the USFS.

         L-P  maintains a reserve for its  estimate of the cost of the  Montrose
criminal  proceedings,  although  as with any  estimate,  there  is  uncertainty
concerning  the actual costs to be  incurred.  At the present  time,  L-P cannot
predict whether or to what extent the circumstances  described above will result
in further civil litigation or investigation by government  authorities,  or the
potential financial impact of any such current or future  proceedings,  in which
case the resolution of the above matters could have a materially  adverse impact
on L-P.

OSB Siding Matters
- ------------------

         L-P has  been  named  as a  defendant  in  numerous  class  action  and
non-class action proceedings,  brought on behalf of various persons or purported
classes  of persons  (including  nationwide  classes  in the  United  States and
Canada)  who own or have  purchased  or used  OSB  siding  manufactured  by L-P,
because   of   alleged   unfair   business   practices,   breach  of   warranty,
misrepresentation,  conspiracy to defraud, and other theories related to alleged
defects, deterioration, or failure of OSB siding products.

         The United States  District  Court for the District of Oregon has given
final  approval to a settlement  between L-P and a nationwide  class composed of
all persons who own, have owned,  or subsequently  acquire  property on which L-
P's OSB siding was  installed  prior to January 1, 1996,  excluding  persons who
timely opted out of the settlement and persons who are members of the settlement
class in the Florida litigation described below. Under the settlement agreement,
an eligible  claimant  whose claim is filed prior to January 1, 2003 (or earlier
in certain cases), and is approved by an independent  claims  administrator will
be entitled to receive from the settlement fund established  under the agreement
a payment  equal to the  replacement  cost (to be  determined  by a  third-party
construction cost estimator and currently  estimated to be in the range of $2.20
to $6.40  per  square  foot  depending  on the type of  product  and  geographic
location)  of damaged  siding,  reduced by a  specific  adjustment  (of up to 65
percent)  based on the age of the  siding.  Class  members  who have  previously
submitted or resolved  claims under any other  warranty or claims program of L-P
may be  entitled  to receive the  difference  between the amount  which would be
payable  under  the  settlement   agreement  and  the  amount  previously  paid.
Independent  adjusters will determine the extent of damage to OSB siding at each
claimant's  property in accordance with a specified  protocol.  There will be no
adjustment to settlement payments for improper maintenance or installation.

         A  claimant  who is  dissatisfied  with the amount to be paid under the
settlement  may  elect to pursue  claims  against  L-P in a binding  arbitration
seeking  compensatory damages without regard to the amount of payment calculated
under the  settlement  protocol.  A claimant who elects to pursue an arbitration
claim must prove his  entitlement  to damages under any available  legal theory,
and L-P may assert any available defense,  including defenses that otherwise had
been waived under the settlement agreement. If the arbitrator reduces the damage
award  otherwise  payable  to the  claimant  because  of a finding  of  improper
installation,  the  claimant  will be  entitled  to pursue a claim  against  the
contractor/builder to the extent the award was reduced.

         L-P is required to pay $275 million into the  settlement  fund in seven
annual  installments  beginning  in mid-1996:  $100  million,  $55 million,  $40
million,  $30 million, $20 million, $15 million, and $15 million. As of December
31, 1997, L-P had funded the first three installments.  If at any time after the
fourth year of the settlement period the amount of approved

                                     - 40 -


NOTES TO FINANCIAL STATEMENTS


claims (paid and pending)  equals or exceeds $275 million,  then the  settlement
agreement  will  terminate as to all claims in excess of $275 million unless L-P
timely elects to provide additional funding within 12 months equal to the lesser
of (i) the excess of unfunded  claims over $275 million or (ii) $50 million and,
if necessary to satisfy unfunded claims, a second payment within 24 months equal
to the lesser of (i) the remaining  unfunded amount or (ii) $50 million.  If the
total payments to the settlement  fund are  insufficient  to satisfy in full all
approved  claims  filed prior to January 1, 2003,  then L-P may elect to satisfy
the unfunded  claims by making  additional  payments into the settlement fund at
the end of each of the next two 12-month periods or until all claims are paid in
full,  with each  additional  payment being in an amount equal to the greater of
(i) 50 percent of the aggregate sum of all remaining unfunded approved claims or
(ii) 100 percent of the aggregate amount of unfunded  approved  claims,  up to a
maximum of $50 million.  If L-P fails to make any such additional  payment,  all
class members  whose claims  remain  unsatisfied  from the  settlement  fund may
pursue any available legal remedies against L-P without regard to the release of
claims provided in the settlement agreement.

         If L-P makes all  payments  required  under the  settlement  agreement,
including  all  additional  payments as specified  above,  class members will be
deemed to have released L-P from all claims for damaged OSB  Inner-Seal  siding,
except for claims arising under their existing  25-year  limited  warranty after
termination of the settlement agreement. The settlement agreement does not cover
consequential  damages  resulting from damage to OSB Inner-Seal siding or damage
to utility grade OSB siding (sold without any express warranty), either of which
could create  additional  claims. In the event all claims filed prior to January
1, 2003,  that are approved  have been paid without  exhausting  the  settlement
fund, any amounts remaining in the settlement fund revert to L-P. In addition to
payments to the  settlement  fund, L-P was required to pay fees of class counsel
in the  amount of $26.25  million,  as well as  expenses  of  administering  the
settlement fund and inspecting properties for damage and certain other costs. As
of December 31,  1997,  approximately  $40 million  remained of the $195 million
paid into the fund to date,  after accruing  interest on  undisbursed  funds and
deducting  class  notification  costs,  prior claims costs  (including  payments
advanced to homeowners in urgent  circumstances) and payment of claims under the
settlement.

         The claims submitted to the claims  administrator  substantially exceed
the $275 million of payments  that L-P is required to make under the  settlement
agreement. As calculated under the terms of the settlement, claims submitted and
inspected exceed $325 million. There are insufficient data to project the future
volume of claims or the total dollar value of additional claims that may be made
against the  settlement  fund.  L-P has not decided  whether it will provide the
optional  funding  discussed  above in excess of the required $275 million after
the fourth  year of the  settlement.  Alternatively,  L-P could  elect to pursue
other options, including allowing the settlement agreement to terminate, thereby
entitling  claimants with unsatisfied  claims to pursue available legal remedies
against L-P.

         A  settlement  of a Florida  class  action was  approved by the Circuit
Court for Lake County,  Florida.  Under the  settlement,  L-P has  established a
claims  procedure  pursuant to which members of the settlement  class may report
problems with L-P's OSB Inner-Seal siding and have their properties inspected by
an  independent  adjuster,  who will  measure  the  amount  of  damage  and also
determine  the  extent to which  improper  design,  construction,  installation,
finishing,  painting,  and maintenance may have  contributed to any damage.  The
maximum  payment for damaged  siding is $3.40 per square foot for lap siding and
$2.82 per square foot for panel siding, subject to reduction of up to 75 percent
for  damage   resulting  from  improper  design,   construction,   installation,

                                     - 41 -


NOTES TO FINANCIAL STATEMENTS


finishing,  painting, or lack of maintenance,  and also subject to reduction for
age of siding more than three years old. L-P has agreed that the deduction  from
the  payment  to a member of the  Florida  class  will be not  greater  than the
deduction  computed  for  a  similar  claimant  under  the  national  settlement
agreement  described above. Class members will be entitled to make claims for up
to five years after October 4, 1995.

         L-P  maintains  reserves  for  the  estimated  costs  of  these  siding
settlements, although, as with any estimate, there is uncertainty concerning the
actual costs to be incurred. The discussion herein notes some of the factors, in
addition to the inherent  uncertainty  of  predicting  the outcome of claims and
litigation,  that could  cause  actual  costs to vary  materially  from  current
estimates.  Due to the various uncertainties,  L-P cannot predict to what degree
actual  payments  under the  settlement  agreements  will  exceed  the  recorded
liability  related to these  matters,  although it is possible  that in the near
term, total estimated payments will exceed the recorded liabilities.

Other OSB Matters
- -----------------

         Three  separate  purported  class  actions  on  behalf  of  owners  and
purchasers  of  properties  in which  L-P's OSB  panels  are used for  flooring,
sheathing,  or underlayment have been consolidated in the United States District
Court  for the  Northern  District  of  California  under the  caption  Agius v.
Louisiana-Pacific Corporation. The actions seek damages and equitable relief for
alleged fraud,  misrepresentation,  breach of warranty, negligence, and improper
trade practices related to alleged  improprieties in testing, APA certification,
and marketing of OSB structural panels,  and alleged premature  deterioration of
such panels. A separate state court action entitled Carney v.  Louisiana-Pacific
Corporation  is pending in the Superior Court of the State of California for the
City and County of San  Francisco,  seeking  relief  under  California  consumer
protection statutes based on similar allegations.

         On February 27, 1998, the United States District Court for the Northern
District  of  California  entered an order  approving  a  settlement  that would
resolve the above actions.  The settlement  class is composed of all persons who
purchased  L-P OSB  sheathing or acquired  real  property or  structures  in the
United States  containing L-P OSB sheathing between January 1, 1984, and October
22, 1997. However,  persons who purchased L-P sheathing during the class period,
but who do not retain  ownership of the product,  are not included in the class.
Under the settlement agreement,  an eligible claimant whose claim is filed prior
to  October  22,  2017,  and is  reviewed  by the claims  administrator  will be
entitled to recover the reasonable  cost of repair or replacement of any L-P OSB
sheathing  determined  to have  failed to  perform  its  essential  function  as
warranted and not occasioned by misuse, negligent or intentional misconduct of a
third party or an event over which L-P had no control.

         Independent  adjusters  will  determine the extent of damage to the OSB
sheathing  at each  claimant's  property.  There  will be an  adjustment  to the
settlement payments for improper installation and maintenance. If a class member
is  dissatisfied  with the result,  he or she may reject the award and request a
second   inspection,   or  elect  arbitration  or  initiate  a  civil  suit  for
compensatory  damages  (but not for  multiple or punitive  damages).  If a class
member rejects the award, elects arbitration and recovers a greater sum than was
found  to  be  owing  by  the  independent  adjuster,   L-P  will  pay  for  the
administrative cost of the arbitration.

         An   independent,    professional   ombudsperson   will   oversee   the
implementation of the settlement and receive and consider  complaints from class
members with respect to L-P's performance of the settlement.

                                     - 42 -


NOTES TO FINANCIAL STATEMENTS


         Additionally,  the  settlement  agreement  provides that L-P will pay a
$1.5 million grant to the University of California  Forest Products  Laboratory,
will pay reasonable  attorneys'  fees of class  counsel,  and will consent to an
injunction  prohibiting it from failing to comply with product testing protocols
or  falsely   representing   that  its  products  comply  with  certain  testing
requirements.

         As with most class action settlements, a number of opt out notices were
received.  Those who opted out retain all rights  which were  available  to them
prior to the settlement.

         L-P maintains a reserve for its estimate of the cost of these other OSB
matters,  including  the  sheathing  settlement,  although as with any estimate,
there is  uncertainty  concerning  the actual costs to be  incurred.  Based on a
review of its claims  records to date, L-P believes that known reports of damage
to installed L-P OSB sheathing have been immaterial in number and amount.

Executive Employment Matter
- ---------------------------

         On June 19, 1997,  the United  States  District  Court for the Southern
District  of New York  entered a judgment  in favor of Mark Suwyn and L-P in the
action  entitled  International  Paper  Company v. Mark A. Suwyn and  Louisiana-
Pacific  Corporation.  The complaint had alleged that Mr. Suwyn's  employment as
chief  executive  officer of L-P  violated  the terms of a  previous  employment
agreement with the plaintiff and sought an injunction prohibiting Mr. Suwyn from
continuing his employment with L-P for 18 months and other relief.

Other
- -----

         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,  results  of
operations or liquidity of L-P.

Contingency Reserves
- --------------------

         The balance of  contingency  reserves,  exclusive of the  environmental
reserves  discussed above, was $194.7 million and $209.9 million at December 31,
1997 and 1996. As L-P receives  additional  information  regarding  actual claim
rates and average claim  amounts,  L-P will monitor its  estimated  exposure and
adjust  its  accrual   accordingly.   The  amounts  ultimately  paid  for  these
contingencies  could  differ  materially  from the  amount  currently  recorded,
although no estimate of the timing or range of any potential  adjustment  can be
made at this time.

9.       COMMITMENTS

         L-P is obligated to purchase  timber under  certain  cutting  contracts
which extend to 2002.  L-P's best estimate of its commitment at current contract
rates under these contracts is approximately $20.2 million for approximately 113
million board feet of timber.

         Payments under all operating leases that were charged to expense during
1997, 1996, and 1995 were $17.5 million, $17.0 million and $10.7 million. Future
minimum  rental  payments  under   non-cancelable   operating   leases  are  not
significant.

                                     - 43 -


NOTES TO FINANCIAL STATEMENTS


10.      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 are primarily to customers in Asia and Europe. Information
about L-P's geographic segments is as follows:


                                                                                     
         YEAR ENDED DECEMBER 31 (IN MILLIONS)            1997             1996             1995
         ------------------------------------            ----             ----             ----

         Total sales -- point of origin

           U.S.                                       $   2,330        $   2,389        $   2,703
           Canada and other                                 128              162              191
           Intersegment sales to U.S.                       (55)             (65)             (51)
                                                      ---------        ---------        ---------

             Total sales                              $   2,403        $   2,486        $   2,843
                                                      =========        =========        =========

         Export sales (included above)                $     240        $     268        $     457
                                                      =========        =========        =========

         Profit (loss)
           U.S.                                       $      39        $     107        $     353
           Canada and other                                 (48)             (24)              37
           Settlements, charges and other
             unusual items, net                             (32)            (350)            (367)
           General corporate expense and
             interest, net                                 (109)             (60)            (118)
                                                      ---------        ---------        ---------

             Income (loss) before taxes and
               minority interest                      $    (150)       $    (327)       $     (95)
                                                      =========        =========        =========

         Identifiable assets
           U.S.                                       $   2,220        $   2,195        $   2,305
           Canada                                           285              308              434
           All other                                         73               86               66
                                                      ---------        ---------        ---------

             Total assets                             $   2,578        $   2,589        $   2,805
                                                      =========        =========        =========


                                     - 44 -


NOTES TO FINANCIAL STATEMENTS



         Information about L-P's industry segments is as follows:

         YEAR ENDED DECEMBER 31 (IN MILLIONS)          1997             1996             1995
         ------------------------------------          ----             ----             ----
                                                                                   
         Total sales

           Building products                        $   2,280        $   2,328        $   2,535
           Pulp                                           130              177              334
           Intersegment sales to pulp                      (7)             (19)             (26)
                                                    ---------        ---------        ---------

             Total sales                            $   2,403        $   2,486        $   2,843
                                                    =========        =========        =========

         Profit (loss)
           Building products                        $      20        $     174        $     346
           Pulp                                           (29)             (91)              44
           Settlements, charges and
             other unusual items, net (1)                 (32)            (350)            (367)
           General corporate expense, net                 (80)             (52)            (121)
           Interest, net                                  (29)              (8)               3
                                                    ---------        ---------        ---------

             Income (loss) before taxes and
               minority interest                    $    (150)       $    (327)       $     (95)
                                                    =========        =========        =========

         Identifiable assets
           Building products                        $   1,420        $   1,346        $   1,389
           Pulp                                           294              341              457
           Timber, timberlands, logging
             equipment and roads                          671              682              727
           General corporate assets                       193              220              232
                                                    ---------        ---------        ---------

             Total assets                           $   2,578        $   2,589        $   2,805
                                                    =========        =========        =========

         Depreciation, amortization and
             cost of timber harvested
           Building products                        $     164        $     164        $     158
           Pulp                                            17               25               36
         Capital expenditures
           Building products                              145              203              286
           Pulp                                             4               36               47
           Timber, timberlands, logging
             equipment and roads                           63               38               69


- --------------------------
(1)      In 1997, of the net $32 million charge,  a $122 million gain relates to
         a gain  from a  settlement  received  by a  subsidiary  from  the  U.S.
         Government  and is not  allocable  to a  segment,  a $56  million  gain
         relates to timber and timberland sold and a $210 million charge relates
         to building products.

         In 1996, of the total $350 million charge,  $171 million related to the
         pulp segment,  $134 million  related to the building  products  segment
         (including  litigation  costs  related to  building  products)  and $45
         million was not allocable to either industry segment.

         In 1995, the substantial majority of the $367 million charge related to
         class action  settlements  concerning the Company's  siding product and
         therefore would be primarily allocated to building products.

                                     - 45 -


            REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS AND MANAGEMENT


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------

The Board of Directors and Stockholders of Louisiana-Pacific Corporation:

         We  have  audited  the  accompanying   consolidated  balance  sheet  of
Louisiana-Pacific  Corporation and subsidiaries as of December 31, 1997, and the
related consolidated  statements of income,  stockholders' equity and cash flows
for the year then ended.  These financial  statements are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial   statements  based  on  our  audit.

         We conducted our audit 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 audit provides a reasonable basis for our opinion.

         In our  opinion,  such  financial  statements  present  fairly,  in all
material respects,  the financial position of Louisiana-Pacific  Corporation and
subsidiaries  as of December 31, 1997,  and the results of their  operations and
their cash flows for the year then ended, in conformity with generally  accepted
accounting principles.



/s/ DELOITTE & TOUCHE LLP

Portland, Oregon
February 6, 1998

                                     - 46 -


                    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,  1996,  and  the  related   consolidated   statements  of  income,
stockholders'  equity  and cash  flows for each of the two  years in the  period
ended December 31, 1996. 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, 1996, and the results of their
operations  and their cash  flows for each of the two years in the period  ended
December 31, 1996 in conformity with generally accepted accounting principles.

                                            /s/ ARTHUR ANDERSEN LLP
Portland, Oregon
January 31, 1997

                                     - 47 -


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.

MARK A. SUWYN                            CURTIS M. STEVENS
Chairman and Chief Executive Officer     Vice President, Treasurer and
                                         Chief Financial Officer

February 6, 1998

                                     - 48 -


ITEM 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure
         --------------------

         A change in auditors was reported in the registrant's current report on
Form 8-K dated October 26, 1997.

                                    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  1998  annual  meeting  of  stockholders  (the  "1998  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."   Information  regarding  compliance  with  Section  16(a)  of  the
Securities  Exchange  Act of 1934 is  incorporated  herein by  reference  to the
material  included  under  the  caption  "Section  16(a)  Beneficial   Ownership
Reporting Compliance" in the 1998 Proxy Statement.

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,"  "Compensation of Executive Officers,"  "Retirement
Benefits,"  "Directors'  Compensation," and "Agreements with Executive Officers"
in the 1998 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 1998 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 1998 Proxy
Statement.

                                     - 49 -


                                     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, 1997, and 1996.

Consolidated  Statements of  Income--years  ended  December 31, 1997,  1996, and
1995.

Consolidated  Statements of Cash Flows--years ended December 31, 1997, 1996, and
1995.

Consolidated Statements of Stockholders'  Equity--years ended December 31, 1997,
1996, and 1995.


Notes to Financial Statements.


Reports of Independent Public Accountants.

No  financial  statement  schedules are required to be filed.

B.       REPORTS ON FORM 8-K

         The  registrant  filed a Form 8-K dated  October 26, 1997,  reporting a
change in auditors.

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.

                                     - 50 -



                                   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 27, 1998 

                                       LOUISIANA-PACIFIC CORPORATION
                                       (Registrant)



                                       By /s/ CURTIS M. STEVENS
                                       Curtis M. Stevens
                                       Vice President, Treasurer and
                                         Chief Financial Officer

                    ----------------------------------------


         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 27, 1998                         /s/ MARK A. SUWYN
                                       Mark A. Suwyn
                                       Chief Executive Officer, Chairman
                                         of the Board
                                       (Principal Executive Officer)



March 27, 1998                         /s/ CURTIS M. STEVENS
                                       Curtis M. Stevens
                                       Vice President,  Treasurer and
                                         Chief Financial Officer
                                       (Principal Financial & Accounting
                                         Officer)


                                     - 51 -


Date                                   Signature and Title
- ----                                   -------------------



March 27, 1998                         /s/ WILLIAM C. BROOKS
                                       William C. Brooks
                                       Director



March 27, 1998                         /s/ ARCHIE W. DUNHAM
                                       Archie W. Dunham
                                       Director



March 27, 1998                         /s/ PIERRE S. DU PONT
                                       Pierre S. du Pont
                                       Director



March 27, 1998                         /s/ WILLIAM E. FLAHERTY
                                       William E. Flaherty
                                       Director



March 27, 1998                         /s/ BONNIE G. HILL
                                       Bonnie G. Hill
                                       Director



March 27, 1998                         /s/ DONALD R. KAYSER
                                       Donald R. Kayser
                                       Director



March 27, 1998                         /s/ LEE C. SIMPSON
                                       Lee C. Simpson
                                       Director



March 27, 1998                         /s/ CHARLES E. YEAGER
                                       Charles E. Yeager
                                       Director

                                     - 52 -

                                   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 amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.

Date:  April 1, 1998                   LOUISIANA-PACIFIC CORPORATION
                                       (Registrant)



                                       /s/ Curtis M. Stevens
                                       Curtis M. Stevens
                                       Vice President, Chief Financial
                                         Officer and Treasurer


                                     - 52a -



                                  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: Ward Hubbell, Director
of Corporate  Affairs,  Louisiana-Pacific  Corporation,  111 S.W.  Fifth Avenue,
Portland, Oregon 97204.

         Items  identified  with an asterisk  (*) are  management  contracts  or
compensatory plans or arrangements.

Exhibit              Description of Exhibit
- -------              ----------------------

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  July  29,  1997.
                     Incorporated by reference to Exhibit 3 to the  registrant's
                     Form 10-Q report for the quarter ended June 30, 1997.

4.A.1                Rights  Agreement  as  Restated  as of  February  3,  1991,
                     between the  registrant  and First Chicago Trust Company of
                     New York as Rights  Agent,  as amended by  Amendment  No. 1
                     dated as of July 28, 1995,  and Amendment No. 2 dated as of
                     October 30,  1995.  Incorporated  by  reference  to Exhibit
                     4.A.1 to the registrant's Form 10-K report for 1996.

                     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, 1997.
                     The  registrant  agrees  to  furnish  a copy  of  any  such
                     instrument to the Securities and Exchange  Commission  upon
                     request.

4.A.2                Credit  Agreement  dated as of January 31, 1997,  among the
                     registrant,  Louisiana-Pacific Canada Ltd., Bank of America
                     National  Trust  and  Savings  Association  and  the  other
                     financial  institutions  party  thereto.   Incorporated  by
                     reference to Exhibit  4.A.2 to the  registrant's  Form 10-K
                     report for 1996.

10.A                 1984 Employee Stock Option Plan as amended. Incorporated by
                     reference  to Exhibit  10.A to the  registrant's  Form 10-K
                     report for 1996.*

10.B                 1991 Employee Stock Option Plan.  Incorporated by reference
                     to Exhibit  10.B to the  registrant's  Form 10-K report for
                     1996.*

10.C                 1992  Non-Employee  Director  Stock Option Plan and Related
                     Form of Option Agreement as amended February 1, 1997.*

10.D                 Non-Employee    Directors'   Deferred   Compensation   Plan
                     effective July 1, 1997.*

10.E(1)              The  registrant's  Key  Employee  Restricted  Stock Plan as
                     amended.  Incorporated  by reference to Exhibit  10.E(1) to
                     the registrant's Form 10-K report for 1996.*

                                     - 53 -


Exhibit              Description of Exhibit
- -------              ----------------------



10.E(2)              Form of  Restricted  Stock Award  Agreement  under  Exhibit
                     10.E(1).  Incorporated  by reference to Exhibit  10.H(2) to
                     the registrant's Form 10-K report for 1992.*

10.F(1)              1997 Incentive Stock Award Plan.  Incorporated by reference
                     to Exhibit 10 to the registrant's  Form 10-Q report for the
                     quarter ended June 30, 1997.*

10.F(2)              Form of Award  Agreements for  Non-Qualified  Stock Options
                     and  Performance  Shares under the  Louisiana-Pacific  1997
                     Incentive  Stock Award Plan.  Incorporated  by reference to
                     Exhibit  10.F(2) to the  registrant's  Form 10-K report for
                     1996.*

10.G                  Annual Cash Incentive  Award Plan effective March 1, 1997.
                      Incorporated  by  reference  to  Exhibit  10.F(3)  to  the
                      registrant's Form 10-K report for 1996.*

10.H                 The  registrant's  Supplemental  Executive  Retirement Plan
                     effective July 1, 1997.*

10.I                 Employment  Agreement  between the  registrant  and Mark A.
                     Suwyn dated January 2, 1996.  Incorporated  by reference to
                     Exhibit  10.L to the  registrant's  Form  10-K  report  for
                     1995.*

10.J                 Restricted Stock Award Agreement between the registrant and
                     Mark A. Suwyn dated January 31, 1996.*

10.K                 1997 Cash  Incentive  Award for Mark A. Suwyn adopted March
                     11, 1997.  Incorporated by reference to Exhibit 10.K to the
                     registrant's Form 10-K report for 1996.*

10.L                 Letter  agreement  dated April 19,  1996,  with  Michael D.
                     Hanna, with respect to attached employment  agreement dated
                     January  15,  1995,   between  Mr.  Hanna  and   Associated
                     Chemists, Inc. Incorporated by reference to Exhibit 10.L to
                     the registrant's Form 10-K report for 1996.*

10.M                 Executive  Employment  Agreement effective as of January 1,
                     1997, by and between the registrant and Karen D. Lundquist.
                     Incorporated   by   reference   to  Exhibit   10.M  to  the
                     registrant's Form 10-K report for 1996.*

10.N                 Letter  agreement  dated August 14,  1997,  relating to the
                     employment of Gary C. Wilkerson with the registrant.*

10.0                 Letter  agreement  dated  July 16,  1997,  relating  to the
                     employment of Curtis M. Stevens with the registrant.*

10.P                 Executive  Deferred  Compensation  Plan  effective  May  1,
                     1997.*

21                   List of subsidiaries of the registrant.

23.A                 Consent of Arthur Andersen LLP.

23.B                 Consent of Deloitte & Touche LLP.

27                   Financial data schedule.

                                     - 54 -