Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission File Number
December 31, 1998 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
Portland, Oregon 97204 Registrant's telephone number
(Address of principal (including area code)
executive offices) 503-221-0800
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: 1,947,161,485 as of March 12, 1999.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock: 107,308,727 of Common Stock, $1 par value, outstanding
as of March 12, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for 1999 Annual Meeting: Part III
-1-
Except as otherwise specified and unless the context otherwise
requires, references to "L-P" refer to Louisiana-Pacific Corporation
and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
- ----------------------------------------------------
Statements in this report, to the extent that they describe matters
that are not historical facts, may 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, plans for product development, and assessment of L-P's Year 2000
compliance efforts and risks. Investors are cautioned that forward looking
statements are subject to an inherent risk that actual results, events, or
circumstances may differ materially from those reflected in such forward looking
statements. Risks and uncertainties that may result in such variance, in
addition to those specifically identified in the text accompanying such forward
looking statements, 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; risks associated
with acquiring new businesses; future decisions by management in response to
changing conditions; and the possible invalidity of the beliefs and assumptions
underlying such forward looking statements.
PART I
ITEM 1. BUSINESS
GENERAL
- -------
L-P is a major building products firm, operating approximately 75
facilities in the United States, Canada, and Ireland. L-P's principal products
are oriented strand board ("OSB"), plywood, lumber, engineered wood products,
exterior siding, industrial panel products, specialty products and pulp. L-P's
products are used primarily in the construction, repair, remodeling and
manufacturing of traditional and manufactured housing. L-P distributes its
building products primarily through third-party distributors and home centers.
For certain reporting purposes, its business units have been divided into five
business segments based on the similarity of economic characteristics,
customers, distribution methods and manufacturing processes. These segments,
which are discussed in greater detail below, are structural products, exterior
products, industrial panel products, specialty and other products, and pulp.
L-P was organized as a Delaware corporation in 1972. L-P's executive
offices are located at 111 S.W. Fifth Avenue, Portland, Oregon 97204.
ACQUISITION OF ABT BUILDING PRODUCTS CORPORATION
On January 25, 1999, L-P commenced a tender offer to purchase all
outstanding shares of ABT Building Products Corporation ("ABT") for $15 per
share. On February 25, 1999, L-P and ABT merged following the successful
completion of the tender offer. L-P acquired approximately 10.7 million shares
of ABT for cash proceeds of approximately $160 million and also assumed certain
indebtedness and other liabilities of ABT. ABT is the largest manufacturer of
exterior hardboard siding in the United States and is a leading manufacturer of
plastic resin specialty building products. In addition to hardboard siding,
ABT's products include exterior vinyl
-2-
siding and trim, interior hardboard items such as paneling and tileboard, and
decorative prefinished mouldings and shutters. Except as otherwise noted, the
description of L-P's business which follows does not give effect to L-P's
acquisition of ABT.
1998 DIVESTITURES
- -----------------
During 1998, L-P continued its transition from a forest products focus
to a building products focus through the divestiture of certain nonstrategic
assets. The most significant of these divestitures was the sale of its
California redwood timberlands and associated sawmill and manufacturing and
distribution operations on June 30, 1998. The sale included more than 300,000
acres of timberland, three operating sawmills, two distribution centers, and
certain other operations.
Other sales completed during 1998 included L-P's Weather-Seal windows
and doors business and its Creative Point subsidiary. L-P also closed its cement
fiber roof shake plant in 1998 and announced its intention to sell certain
sawmill and treating plant properties, primarily in the South.
STRUCTURAL PRODUCTS
- -------------------
STRUCTURAL PANEL PRODUCTS. L-P's structural panel products, plywood and
OSB, are used in structural applications in new construction and remodeling such
as subfloors, walls, and roofs. Structural panel products accounted for
approximately 36% of L-P's net sales in 1998.
The total structural panel market in North America (plywood, OSB, and
other reconstituted panel products) is approximately 37 billion square feet
annually, of which plywood currently constitutes about 20 billion square feet.
In recent years, land use regulations and endangered species and other
environmental concerns have resulted in reduced supplies and higher costs for
domestic timber, causing many plywood mills to close permanently. The lost
volume from those closed mills has been replaced primarily by reconstituted
panel products.
L-P is the largest North American producer of OSB panel products
through 12 plants with a combined annual capacity of approximately 4.5 billion
square feet. In addition, L-P has five plywood plants in the Southern United
States with a combined annual capacity of approximately 1.2 billion square feet.
LUMBER. L-P produces lumber, including a variety of standard U.S.
dimension lumber as well as specialty grades and sizes. Lumber accounted for
approximately 14% of L-P's net sales in 1998.
L-P has 8 sawmills (whitewood and redwood) in the continental Western
United States with a combined annual production capacity of approximately 695
million board feet, and 9 sawmills (pine and hardwoods) in the Southern United
States with a combined annual production capacity of approximately 325 million
board feet. Two sawmills in Alaska are included in L-P's specialty and other
products segment. In September 1998, L-P announced plans to expand and upgrade
several of its sawmills with a goal of increasing lumber production at these
facilities by approximately 460 million board feet annually.
ENGINEERED WOOD PRODUCTS. L-P manufactures engineered wood products,
including I-joists and laminated veneer lumber ("LVL"). L-P's veneer operations
-3-
are also included in this segment. Engineered wood products accounted for
approximately 9% of L-P's net sales in 1998.
L-P's engineered I-joists, which are primarily used to support floors,
roofs, and other structures, are stronger, lighter and straighter than
conventional lumber joists and use OSB as a major component. L-P's LVL is a
high-grade structural product used where extra strength is required. It is also
used as a component in the manufacture of engineered I-joists.
In February 1999, L-P announced plans to relocate its Nevada I-joist
and LVL operations to its Oregon and North Carolina plants to reduce costs and
with the goal of substantially increasing the overall production capacity of
these plants over the next two years.
EXTERIOR PRODUCTS
- -----------------
L-P has three plants that manufacture exterior siding, facia, trim and
soffit using an OSB substrate. These plants have an annual capacity of
approximately 400 million square feet. The exterior products plants are also
capable of producing commodity OSB panels and do so from time to time, depending
on market conditions. Exterior product sales represented approximately 5% of
L-P's net sales in 1998.
INDUSTRIAL PANEL PRODUCTS
- -------------------------
L-P also produces industrial panel products, including particleboard,
medium density fiberboard and hard board, at seven plants. These products, which
are used primarily in the manufacture of furniture and cabinets, accounted for
approximately 8% of L-P's net sales in 1998.
SPECIALTY AND OTHER PRODUCTS
- ----------------------------
L-P manufactures a variety of value-added specialty building products
that complement its core building products. Specialty and other products
accounted for approximately 24% of L-P's net sales in 1998.
L-P's specialty and other products segment includes cellulose
insulation, coatings and chemicals, L-P's Alaska lumber and logging operations,
its OSB plant in Ireland, and its wholesale and distribution business. This
segment also included L-P's Weather-Seal windows and doors business and its
Creative Point subsidiary, which were sold during 1998.
PULP
- ----
L-P has two pulp mills located in Samoa, California, and Chetwynd,
British Columbia, Canada. L-P has announced its intention to sell both mills.
Pulp accounted for approximately 3% of L-P's net sales in 1998.
EMPLOYEES
- ---------
L-P had approximately 10,000 employees at December 31, 1998. L-P
believes that its relations with its employees are good.
-4-
COMPETITION
- -----------
The building products industry is highly competitive. L-P competes
internationally with several thousand forest and building products firms,
ranging from very large, fully integrated firms to smaller firms that may
manufacture only one or a few items. L-P estimates that approximately 25 firms
comprise its major competition. L-P also competes less directly with firms that
manufacture substitutes for wood building products. Some competitors have
substantially greater financial and other resources than L-P which, in some
instances, could give them competitive advantages over L-P.
Many of L-P's products, including structural panels and lumber, are
commodity products sold primarily on the basis of price in competition with
numerous other forest and building products companies. Consequently, the prices
that L-P can obtain for its commodity products may fluctuate unpredictably,
which may have a material effect on L-P's operating results.
In recent years, L-P has introduced a number of specialty
value-enhanced products in response to customer input.
RAW MATERIALS
- -------------
The principal raw materials used in L-P's business are logs, which are
generally available from numerous sources. See "Additional Statistical
Information" below and Item 2, Properties, for information regarding L-P's
sources of logs. Because various factors, including land use regulations and
environmental and endangered species concerns, have limited the amount of timber
offered for sale by certain United States government agencies, L-P must rely
more heavily on the acquisition of timber from other sources (including domestic
private timber owners) to supply its manufacturing facilities. The reduction in
domestic timber supplies has resulted in upward pressure on the prices that L-P
must pay for timber. In addition, logs are subject to commodity pricing which
fluctuates on the basis of market factors over which L-P has no control.
ENVIRONMENTAL COMPLIANCE
- ------------------------
L-P is subject to federal, state, and local environmental and pollution
control laws and regulations at all locations at which it has operating
facilities, and maintains an accounting reserve for environmental loss
contingencies. L-P's policy is to comply fully with all applicable environmental
laws and regulations. In recent years, L-P has devoted increasing financial and
management resources to achieving this goal. In addition, from time to time, L-P
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.
Additional information concerning environmental compliance is set forth
under Item 3, Legal Proceedings, and in Note 8 of the Notes to Financial
Statements in Item 8.
ADDITIONAL STATISTICAL INFORMATION
- ----------------------------------
Additional statistical information regarding L-P's business is
presented in the following tables. Additional financial information about
industry segments is presented in Note 10 of the Notes to Financial Statements
in Item 8.
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Louisiana-Pacific Corporation and Subsidiaries
Product Information Summary
- -------------------------------------------------------------------------------------------------------------------
dollar amounts in millions
- -------------------------------------------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
SEGMENTS (1)
Sales:
Structural products $1,374 60% $1,294 54% $1,408 57%
Exterior products 107 5 103 4 99 4
Industrial panel products 175 8 181 8 195 8
Specialty and other products 566 24 685 29 607 24
- -------------------------------------------------------------------------------------------------------------------
Building products 2,222 97 2,273 95 2,309 93
Pulp 75 3 130 5 177 7
- -------------------------------------------------------------------------------------------------------------------
Total sales $2,297 100% $2,403 100% $2,486 100%
===================================================================================================================
Export sales (included above) $ 128 6% $ 240 10% $ 268 11%
===================================================================================================================
Profit (loss):
Structural products $ 199 $ 22 $ 135
Exterior products 22 9 17
Industrial panel products 6 13 31
Specialty and other products (20) (24) (9)
- -------------------------------------------------------------------------------------------------------------------
Building products 207 20 174
Pulp (38) (29) (91)
Unusual credits and charges, net (48) (32) (350)
General corporate and other expense, net (94) (80) (52)
Interest, net (13) (29) (8)
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes,
minority interest and accounting changes $ 14 $ (150) $ (327)
===================================================================================================================
- -------------------------------
1995 1994
- -------------------------------
- -------------------------------
$2,509 88% $2,820 93%
334 12 220 7
- -------------------------------
$2,843 100% $3,040 100%
===============================
$ 457 16% $ 371 12%
===============================
- -------------------------------
$ 346 $ 636
44 (5)
(367) -
(121) (72)
3 1
- -------------------------------
$ (95) $ 560
===============================
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SUMMARY OF PRODUCTION VOLUMES
1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
OSB, million square feet 3/8" basis 4,317 4,000 4,008 3,445
Softwood plywood, million square feet 3/8" basis 983 1,221 1,613 1,466
Lumber, million board feet 1,110 1,240 1,201 1,359
Industrial panel products (particleboard,
medium density fiberboard and hardboard),
million square feet 3/4" basis 575 589 580 582
Engineered I-Joists, million lineal feet 86 73 55 44
Laminated veneer lumber, thousand cubic feet 7,100 5,800 3,900 3,200
Pulp, thousand short tons 286 377 439 486
INDUSTRY PRODUCT PRICE TRENDS (2)
OSB, MSF, 7/16" 24/16 span rating
(North Central price) $ 205 $ 142 $ 184 $ 245
Southern pine plywood, MSF, 1/2" CDX (3 ply) 284 265 258 303
Framing lumber, composite prices, MBF 349 417 398 337
Industrial particleboard, 3/4" basis, MSF 259 262 276 290
LOGS BY SOURCE (3)
Fee owned lands 12% 19% 16% 13%
Private cutting contracts 14 14 14 12
Government contracts 13 6 9 8
Purchased logs 61 60 64 66
Total log volume - million board feet 1,997 2,398 2,432 2,818
- -------------------------------------------------------------------------------------------------------------------------
1994
3,404
1,604
1,986
641
50
3,500
441
$ 265
302
405
295
11%
14
10
67
3,138
- ----------
1 Segment information on a basis consistent with 1998, 1997 and 1996 is not
readily available for 1995 and 1994.
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.
-7-
ITEM 2. PROPERTIES
Information regarding L-P's principal properties and facilities is set
forth in the following tables. The tables do not include facilities which L-P
expects to sell or close in early 1999. Information regarding production
capacities is based on normal operating rates and normal production mixes under
current market conditions, taking into account known constraints such as log
supply. Market conditions, fluctuations in log supply, and the nature of current
orders may cause actual production rates and mixes to vary significantly from
the production rates and mixes shown.
SAWMILLS
--------
CUBIC METERS BOARD FEET
FACILITIES (THOUSANDS) (MILLIONS)
- ---------- ----------- ----------
WESTERN LUMBER (10 plants; 2 shifts per day except
as noted; 5 days per week)
Annette, AK 110 70
Belgrade, MT 150 90
Chilco, ID 205 125
Deer Lodge, MT (3 shifts) 155 110
Deer Lodge, MT (fingerjoint) 130 125
Ketchikan, AK 100 60
Moyie Springs, ID (3 shifts) 220 135
Sandpoint, ID (remanufacturing) -- --
Saratoga, WY 80 50
Tacoma, WA 100 60
SOUTHERN LUMBER (9 plants; 1 shift per day;
5 days per week)
Bernice, LA 65 40
Bon Wier, TX 40 25
Cleveland, TX 65 40
Evergreen, AL 70 45
Henderson, NC 65 40
Jasper, TX 90 55
Marianna, FL 50 30
New Waverly, TX 25 15
West Bay, FL 60 35
---- ----
Total Lumber Capacity (19 plants) 1,780 1,150
===== =====
PANEL PRODUCTS PLANTS
CUBIC METERS SQUARE FEET
FACILITIES (THOUSANDS) (MILLIONS)
SOFTWOOD PLYWOOD PLANTS
(3/8-INCH BASIS; 2 SHIFTS PER DAY, 5 DAYS PER WEEK)
Bon Wier, TX 245 275
Cleveland, TX 245 275
Logansport, LA 200 225
New Waverly, TX 210 235
Urania, LA 195 200
---- ----
Total Softwood Plywood Capacity (5 plants) 1,095 1,210
===== =====
-8-
CUBIC METERS SQUARE FEET
FACILITIES (THOUSANDS) (MILLIONS)
ORIENTED STRAND BOARD PANEL PLANTS
(3/8-INCH BASIS; 3 SHIFTS PER DAY;
7 DAYS PER WEEK)
Athens, GA 325 365
Carthage, TX 400 450
Dawson Creek, B.C. Canada 335 375
Hanceville, AL 325 365
Hayward, WI 445 500
Houlton, ME 230 260
Jasper, TX 400 450
Montrose, CO 130 145
Roxboro, NC 355 400
Sagola, MI 335 375
Silsbee, TX 325 365
Swan Valley, MB, Canada 400 450
Waterford, Ireland 400 450
---- ----
Total OSB Capacity (13 plants) 4,405 4,950
===== =====
ORIENTED STRAND BOARD SIDING PLANTS
(3/8-INCH BASIS; 3 SHIFTS PER DAY; 7 DAYS PER WEEK)
Newberry, MI 111 125
Tomahawk, WI 120 135
Two Harbors, MN 120 135
---- ----
Total OSB Siding Capacity (3 plants) 351 395
===== =====
MEDIUM DENSITY FIBERBOARD PLANTS
(3/4-INCH BASIS; 3 SHIFTS PER DAY; 7 DAYS PER WEEK)
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; 3 SHIFTS PER DAY; 7 DAYS PER WEEK)
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; 3 SHIFTS PER DAY; 7 DAYS PER WEEK)
Oroville, CA 62 210
===== =====
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OTHER BUILDING PRODUCTS PLANTS
------------------------------
SQUARE FEET
FACILITIES (MILLIONS)
- ---------- ----------
HARDWOOD VENEER PLANTS
(SURFACE MEASURE; 2 SHIFTS PER DAY; 5 DAYS PER WEEK)
Mellen, WI (2 plants) 250
===
I-JOIST PLANTS LINEAL FEET
(1 SHIFT PER DAY; 5 DAYS PER WEEK) (MILLIONS)
-----------
Hines, OR 21
Red Bluff, CA 35
Wilmington, NC 25
-----
Total I-Joist Capacity (3 plants) 81
=====
LAMINATED VENEER LUMBER PLANTS THOUSAND
(2 SHIFTS PER DAY, 7 DAYS PER WEEK) CUBIC FEET
(MILLIONS)
----------
Hines, OR 3,700
Wilmington, NC 4,600
Total LVL Capacity (2 plants) 8,300
=====
PULP MILLS THOUSAND
(3 SHIFTS PER DAY; 7 DAYS PER WEEK) CUBIC METERS SHORT TONS
(THOUSANDS) (MILLIONS)
----------- ----------
Samoa, CA 195 220
Chetwynd, B.C. Canada 170 185
------ -----
Total Pulp Capacity (2 plants) 365 405
====== =====
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OTHER FACILITIES (19 FACILITIES)
--------------------------------
Cellulose insulation plants:
o Phoenix, AZ o Sacramento, CA
o Atlanta, GA o Fort Wayne, IN
o Norfolk, NE o Bucyrus, OH
o Portland, OR o Elkwood, VA
Chip mill:
o Cleveland, TX
Coatings and chemicals:
o Portland, OR
o Orangeburg, SC
Softwood veneer plant:
o Rogue River, OR
Wood treating plants:
o Evergreen, AL o Marianna, FL
o Statesboro, GA o New Waverly, TX
DISTRIBUTION CENTERS
o Rocklin, CA
o Salina, KS
o Conroe, TX
TIMBERLAND HOLDINGS
-------------------
LOCATION/TYPE HECTARES ACRES
- ------------- -------- -----
California: Whitewoods 1,300 3,300
Idaho: Fir, Pine 16,100 39,600
Louisiana: Pine, Hardwoods 78,900 194,900
Minnesota: Hardwoods 2,300 5,800
North Carolina: Pine, Hardwoods 900 2,100
Texas: Pine, Hardwoods 289,000 713,900
Virginia: Pine, Hardwoods 2,300 5,700
Wisconsin: Hardwoods 500 1,200
Wyoming: Whitewoods 500 1,400
------- -------
Total Timberland Fee Holdings 391,800 967,900
======= =======
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In addition to its fee-owned timberlands, L-P has timber cutting rights
under long-term contracts (five years and over) on approximately 9,800 acres and
under shorter-term contracts on approximately 189,800 acres, on government and
privately owned timberlands in the United States in the vicinities of certain of
its manufacturing facilities. L-P's Canadian subsidiary is a party to long-term
pulpwood agreements and a timber license with the Canadian government.
ITEM 3. LEGAL PROCEEDINGS
Certain legal and environmental matters involving L-P are discussed
below.
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
1980's and early 1990's. In addition to civil and criminal penalties that have
been paid, KPC also agreed to undertake up to $20 million in expenditures, which
are primarily capital in nature, including certain remedial and pollution
control related measures. While the Environmental Protection Agency (the "EPA")
and KPC have agreed that the closure of the pulp mill in May 1997 eliminated the
need for many of the pollution control related measures, court approval is
required for relief from these requirements.
As part of the agreements, KPC is in the process of studying Ward Cove,
the body of water adjacent to the former mill site, to determine whether cleanup
of cove sediments is necessary. KPC may be required to spend approximately $4 to
$6 million in addition to the approximately $2 million already spent on this
project, as part of the $20 million discussed above.
KPC also signed an agreement with the State of Alaska and the EPA to
investigate and, if necessary, clean up the property on which the pulp mill was
formerly located. KPC has completed the investigative portion of this project at
a cost of approximately $1.5 million. Some cleanup has already occurred, with
additional cleanup scheduled to be completed by mid-1999. Anticipated costs of
previous and scheduled cleanup may be up to $1 million. Other areas may need to
be cleaned up; no cost estimates of such additional cleanups have yet been made.
KPC has completed the closure of a landfill near Thorne Bay, Alaska,
pursuant to an agreement with the U.S. Forest Service (the "USFS"). Costs of the
project totaled approximately $6 million. KPC is also monitoring leachate from
the landfill in order to evaluate whether treatment of the leachate is
necessary.
The EPA and the Department of Justice have indicated their intent to
seek penalties for alleged civil violations of the Clean Water Act at the KPC
facility. KPC is also defending an appeal of an earlier court decision
dismissing a citizens' suit by plaintiff Alaska Clean Water Alliance alleging
Clean Water Act violations. KPC is actively pursuing resolution of both of these
actions.
L-P's Missoula, Montana, particleboard facility is the subject of an
investigation by the EPA for alleged improper management of sander dust at the
facility. L-P is also conducting its own investigation. L-P's potential
liability, if any, is unknown at this time, but is not anticipated to have a
material adverse effect on L-P's business, financial position, results of
operations or liquidity.
-12-
Certain L-P plant sites have, or are suspected of having, substances in
the ground or in the groundwater underlying the sites 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 as well as
insurance coverage under all applicable policies.
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. In some instances, 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. Based on the information
currently available, 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, cash flows or liquidity of
L-P.
Colorado Criminal Proceedings
In June 1995, a federal grand jury returned an indictment in the U.S.
District Court in Denver, Colorado, against L-P in connection with alleged
environmental violations, as well as alleged fraud in connection with the
submission of unrepresentative oriented strand board (OSB) product samples to an
industry product certification agency, by L-P's Montrose (Olathe), Colorado OSB
plant. In connection with entering a guilty plea as to certain criminal
violations in May 1998, L-P agreed to pay total penalties of $37 million
(including making $500,000 in charitable contributions), of which $12 million
has been paid, and was sentenced to five years of probation. The $25 million
balance of the fine is payable in three equal annual installments, together with
accrued interest, beginning July 1, 2000, and is secured by a statutory lien.
All remaining charges against L-P were dismissed.
In December 1995, L-P received a notice of suspension from the EPA
stating that, because of the criminal proceedings pending against L-P in
Colorado, the Montrose facility would be prohibited from purchasing timber
directly from the USFS. In April 1998, L-P signed a Settlement and Compliance
Agreement with the EPA. This agreement formally lifted the 1995 suspension
imposed on the Montrose facility. The agreement has a term of five years and
obligates L-P to develop and implement certain corporate policies and programs,
including such measures as a policy of cooperation with the EPA, an employee
disclosure program and a policy of nonretaliation against employees, to conduct
its business to the best of its ability in accordance with federal laws and
regulations and local and state environmental laws, to report significant
violations of law to the EPA, and to conduct at least two audits of its
compliance with the agreement. A number of the compliance requirements have been
completed.
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.
-13-
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, is
entitled to receive from the settlement fund established under the agreement a
payment equal to the replacement cost (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 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 payable under the settlement agreement and the
amount previously paid. The extent of damage to OSB siding at each claimant's
property is determined by an independent adjuster in accordance with a specified
protocol. Settlement payments are not subject to adjustment 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 may pursue a claim against the contractor/builder to
the extent the award was reduced.
The settlement requires L-P 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, 1998, L-P had funded the first three installments. L-P also had
funded a significant portion of the last four installments through the Early
Payment Program discussed below. If at any time after the fourth year of the
settlement period the amount of approved claims (paid and pending) were to equal
or exceed $275 million, then the settlement agreement would terminate as to all
claims in excess of $275 million unless L-P timely elects to provide additional
funding within 12 months thereafter 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.
-14-
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 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 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. 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, as of December 31, 1998, approximately $5.8
million remained of the $195 million paid into the fund to date.
The claims submitted to the claims administrator to date 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 exceeded $500 million at December 31, 1998, compared to
$475 million at September 30, 1998. Both figures include approximately $18
million of claims paid directly by L-P to claimants under the settlement
agreement prior to the establishment of 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, to the extent
that it still remains an issue following implementation of the Early Payment
Program and Second Settlement Fund discussed below, under which L-P effectively
has paid a substantial portion of the claims that otherwise potentially would
have been payable out of the first two $50 million optional payments. Under the
terms of the settlement, L-P must make a decision regarding the optional funding
by August 2000. As an alternative to making additional payments, 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.
On October 26, 1998, L-P announced an agreement to offer early payments
to eligible claimants who have submitted valid and approved claims under the
original settlement agreement (the "Early Payment Program") and to establish an
additional $125 million fund to pay all other approved claims that are filed
before December 31, 1999 (the "Second Settlement Fund").
The Early Payment Program applies to all claimants who are entitled to
be paid from the $80 million of mandatory payments that remain to be paid under
the settlement and to all claimants who otherwise would be paid from the
proceeds of the two optional $50 million payments that L-P may elect to make
under the settlement. The early payments from the $80 million are discounted at
a rate of 9% per annum calculated from their original payment dates (1999-2002)
to the date the early payment offer was made. The early payments from the two
$50 million optional contributions are discounted at a rate of 12% per annum
calculated from 2001 and 2002. Claimants may accept or reject the discounted
early payments in favor of remaining under the original settlement, but may not
arbitrate the amount of their early payments. As of March 5, 1999, approximately
$128.0 million in Early Payment Program checks had been mailed and $114.4
million had been cashed in settlement of claims; approximately $5.0 million in
checks remain to be mailed.
-15-
The $125 million Second Settlement Fund represents an alternative
source of payment for all approved claims not eligible for the Early Payment
Program and all new claims filed before December 31, 1999. In early 2000,
claimants electing to participate in the Second Settlement Fund will be offered
a pro rata share of the fund in complete satisfaction of their claims, which
they may accept or reject in favor of remaining under the original settlement.
Claimants who accept their pro rata share may not file additional claims under
the settlement or arbitrate the amount of their payments. Claimants who elect
not to participate in the Second Settlement Fund remain bound by the terms of
the original settlement. If L-P is dissatisfied with the number of claimants who
elect to be paid from the Second Settlement Fund, L-P may refuse to proceed with
funding at its sole option. In that event, the Second Settlement Fund will be
canceled and all the claimants who had elected to participate in it will be
governed by the original settlement.
A settlement of a related class action in Florida was approved by the
Circuit Court for Lake County, Florida, on October 4, 1995. 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 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 by up to
75 percent for damage resulting from improper design, construction,
installation, finishing, painting, or 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 until
October 4, 2000.
Other OSB Matters
Three separate purported class actions on behalf of owners and
purchasers of properties in which L-P's OSB panels were 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, product
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. A final order approving the settlement is expected pending resolution
of an appeal by a single claimant.
The settlement class, other than persons who opted out, is generally
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, but only if they have retained ownership
of the product. Under the settlement agreement, an eligible claimant who files a
claim prior to October 22, 2017, upon review of the claim 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
-16-
warranted and not occasioned by misuse, negligent or intentional misconduct of a
third party or an event over which L-P had no control. The settlement agreement
also provides for payment of a $1.5 million grant to the University of
California Forest Products Laboratory and reasonable attorney fees of class
counsel.
In accordance with the terms of the settlement, L-P exercised its right
to go forward with the claims process prior to the resolution of the appeal and
began sending claim form packages on August 19, 1998. As of December 31, 1998,
4,454 notice packages had been mailed, 2,282 claim form packages had been
mailed, 96 claim forms had been received, and 24 claims had been verified as
valid and forwarded for inspection. To date, five claims have been inspected by
third-party inspectors; all five have been denied and resulted in no cash
settlements.
ABT Hardboard Siding Matters
ABT, ABTco, Inc., a wholly owned subsidiary of ABT ("ABTco" and,
together with ABT, the "ABT Entities"), Abitibi-Price Corporation ("Abitibi"), a
predecessor of ABT, and certain affiliates of Abitibi (the "Abitibi Affiliates"
and, together with Abitibi, the "Abitibi Entities") have been named as
defendants in a conditionally certified class action filed in Alabama state
court and six other putative class action proceedings filed in various state
courts from 1995 to 1998 and brought on behalf of various persons or purported
classes of persons (including nationwide classes) who own or have purchased or
used hardboard siding manufactured or sold by the ABT Entities or the Abitibi
Entities. In general, the plaintiffs in these proceedings have alleged unfair
business practices, breach of warranty, fraud, misrepresentation, negligence,
and other theories related to alleged defects, deterioration, or other failure
of such hardboard siding, and seek unspecified compensatory, punitive, and other
damages, attorneys' fees and other relief. In addition, Abitibi has been named
in certain other actions, which may result in liability to ABT under the
allocation agreement between ABT and Abitibi described below. Except in the case
of certain of the putative class actions that have been stayed, the ABT Entities
have filed answers in these proceedings that deny all material allegations of
the plaintiffs and assert affirmative defenses. L-P intends to cause the ABT
Entities to defend these proceedings vigorously.
ABT and Abitibi have agreed to an allocation of liability with respect
to claims relating to (1) siding sold by the ABT Entities after October 22, 1992
("ABT Board"), and (2) siding sold by the Abitibi Entities on or before, or held
as finished goods inventory by the Abitibi Entities on, October 22, 1992
("Abitibi Board"). In general, ABT and Abitibi have agreed that all amounts paid
in settlement or judgment (other than any punitive damages assessed individually
against either the ABT Entities or the Abitibi Entities) following the
completion of any claims process resolving any class action claim (including
consolidated cases involving more than 125 homes owned by named plaintiffs)
shall be paid (a) 100% by ABT insofar as they relate to ABT Board, (b) 65% by
Abitibi and 35% by ABT insofar as they relate to Abitibi Board, and (c) 50% by
ABT and 50% by Abitibi insofar as they cannot be allocated to ABT Board or
Abitibi Board. In general, amounts paid in connection with class action claims
for joint local counsel and other joint expenses, and for plaintiffs' attorneys'
fees and
-17-
expenses, are to be allocated in a similar manner, except that joint costs of
defending and disposing of class action claims incurred prior to the final
determination of what portion of claims relate to ABT Board and what portion
relate to Abitibi Board are to be paid 50% by ABT and 50% by Abitibi (subject to
adjustment in certain circumstances). ABT and Abitibi have also agreed to
certain allocations (generally on a 50/50 basis) of amounts paid for
settlements, judgments and associated fees and expenses in respect of non-class
action claims relating to Abitibi Board. ABT is solely responsible for such
amounts in respect of claims relating to ABT Board.
Other Proceedings
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, cash flows,
or liquidity of L-P.
For a discussion of financial statement reserves related to
environmental and legal proceedings at December 31, 1998, see Note 8 of the
Notes to Financial Statements included in Item 8 of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of L-P's security holders during the
fourth quarter of 1998.
EXECUTIVE OFFICERS OF LOUISIANA-PACIFIC CORPORATION
Information regarding each executive officer of L-P as of March 12,
1999 (including certain executives whose duties may cause them to be classified
as executive officers under applicable SEC rules), including employment history
for the past five years, is set forth below.
Mark A. Suwyn, age 56, has been Chairman and Chief Executive Officer
since January 1996. Before joining L-P, Mr. Suwyn was Executive Vice President
of International Paper Company from 1992 through 1995. Mr. Suwyn is also a
director of L-P.
J. Ray Barbee, age 51, has been Vice President, Sales and Marketing,
since June 1998. Prior to joining L-P as Director of Pulp in 1997, Mr. Barbee
was Vice President and General Sales Manager of Boise Cascade Corporation from
1989 to 1997.
F. Jeff Duncan, Jr., age 44, has been Chief Information Officer of L-P
since October 1998. Mr. Duncan had been Director of Information Technology of
L-P since September 1996. He was previously employed by E.I. du Pont de Nemours
& Co. for 19 years in a variety of positions, most recently as Systems
Manager-New Business Development.
Warren C. Easley, age 57, has been Vice President, Technology and
Quality since May 1996. He was Technical Manager--Nylon Division, North America
for E.I. du Pont de Nemours & Co. from 1969 to 1996.
Richard W. Frost, age 47, joined L-P in May 1996 as Vice President,
Timberlands and Fiber Procurement. Mr. Frost was Vice President and Operational
Manager for S.D. Warren Company from 1992 to 1996.
-18-
M. Ward Hubbell, age 38, has been Director, Corporate Affairs since
September 1997. Before joining L-P, Mr. Hubbell was employed by International
Paper Company beginning in October 1992, first as Communications Director and
then as Federal Affairs Manager.
J. Keith Matheney, age 50, has been Vice President, Core Businesses
since June 1998. He previously was Vice President, Sales and Marketing from
January 1997 to June 1998, General Manager--Western Division from February 1996
to January 1997, General Manager--Weather-Seal Division from May 1994 to
February 1996, and Director of Sales and Marketing prior to May 1994.
Elizabeth T. Smith, age 54, has been Director, Environmental Affairs
since 1993.
Curtis M. Stevens, age 46, has been Vice President, Treasurer and Chief
Financial Officer since September 1997. Before joining L-P, Mr. Stevens 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 53, has been Vice President, Human Resources since
May 1996. Before joining L-P, Mr. Tull was 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 52, has been Vice President and General Counsel
since September 1997. Before joining L-P, Mr. Wilkerson served as (acting)
Senior Vice President, General Counsel and Secretary for the consumer products
division of IVAX Pharmaceuticals beginning in early 1997. For the previous seven
years, he was Senior Vice President, General Counsel and Secretary of Maybelline
Co., a cosmetics manufacturer.
Walter M. Wirfs, age 51, has been Vice President, Manufacturing since
March 1999. Mr. Wirfs was employed by Willamette Industries, Inc., a forest
products company headquartered in Portland, Oregon, for 23 years until December
1997, most recently as Vice President of its Southern and Atlantic Regions. For
the past year, he had served as President of the Western Wood Products
Association in Portland, Oregon.
Executive officers are elected from time to time by the Board of
Directors. Each officer's term of office runs until the meeting of the Board of
Directors following the next annual meeting of the stockholders and until his or
her successor is elected and qualified, or until his or her earlier resignation
or removal.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of L-P is listed on the New York Stock Exchange with
the ticker symbol "LPX". The Dow-Jones newspaper quotations symbol for the
common stock is "LaPac." Information regarding market prices for the common
stock is included in the table in Item 6 headed "High and Low Stock Prices." At
March 12, 1999, L-P had approximately 17,700 stockholders of record.
-19-
Information regarding cash dividends paid during 1998 and 1997 is
included in the tables in Item 6 headed "1998 Quarterly Data" and "1997
Quarterly Data." Holders of the common stock may participate in L-P's dividend
reinvestment program maintained by its transfer agent.
-20-
ITEM 6. SELECTED FINANCIAL DATA
DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE 1998 1997
- ------------------------------------------- ---- ----
ANNUAL DATA
Net sales $ 2,297.1 $ 2,402.5
Net income (loss) 2.0 (101.8)
Net income (loss) per share-basic and diluted (.02) (.94)
Net cash provided by operating activities 123.0 88.2
Capital expenditures-- plants, logging
roads and timber (includes cash portion
of acquisitions) 122.5 204.5
Working capital 245.5 277.5
Ratio of current assets to
current liabilities 1.67 to 1 1.87 to 1
Total assets 2,519.1 2,578.4
Long-term debt, excluding current portion 459.8 572.3
Long-term debt as a percent of
total capitalization 27.3% 30.8%
Stockholders' equity 1,222.8 1,286.2
Per ending share of common stock 11.40 11.73
Number of employees 10,000 12,000
Number of stockholders of record 17,700 22,000
1ST QTR 2ND QTR 3RD QTR 4TH QTR YEAR
------- ------- ------- ------- ----
1998 QUARTERLY DATA
- -------------------
Net sales $ 548.3 $ 623.2 $ 606.3 $ 519.3 $ 2,297.1
Gross profit (loss) (1) (31.2) 22.0 80.6 3.2 74.6
Income (loss) before taxes
and minority interest (38.8) 341.7(2) (310.5)(2) 21.6(2) 14.0
Net income (loss) (25.1) 203.9(2) (192.7)(2) 15.9(2) 2.0
Net income (loss) per share-
basic and diluted (.23) 1.87(2) (1.77)(2) .15(2) .02
Cash dividends per share .14 .14 .14 .14 .56
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
HIGH AND LOW STOCK PRICES
1998 High $ 24.06 $ 24.19 $ 22.69 $ 22.44 $24.19
Low 17.50 17.88 17.19 16.38 16.38
1997 High $ 22.00 $ 21.56 $ 25.56 $ 25.88 $ 25.88
Low 19.88 17.00 20.50 17.54 17.00
- --------------------------
(1) Gross profit (loss) is income (loss) before unusual credits and
charges, taxes, minority interest and interest.
(2) In the first quarter of 1997, L-P's Ketchikan Pulp Company subsidiary
recorded a net gain of $122 million ($74 million after income taxes, or $.68 per
share) to reflect
-21-
the initial amount paid under a settlement agreement with the U.S. Government
over claims related to the long-term timber supply contract in Alaska, net of
adjustments to closure-related accruals.
In the third quarter of 1997, L-P recorded a $210 million charge ($128
million after taxes, or $1.18 per share) to reflect the write-down of certain
properties for sale, to adjust for litigation settlements and other cost
accruals. Gains from the sale of 79,000 acres of timber and timberland in
California during the third quarter amounting to $56 million ($34 million after
taxes, or $.31 per share) were netted against the charges.
In the second quarter of 1998, L-P recorded a net gain of $328 million ($195
million after taxes, or $1.79 per share) primarily resulting from gains on the
sales of timberland, sawmill and distribution assets in California and the
Weather-Seal window and door business. Charges relating to the settlement of
legal issues in Montrose, Colorado of $14 million after taxes (or $.13 per
share) and other charges were netted against the asset sale gains.
In the third quarter of 1998, L-P recorded a net loss of $392 million ($241
million after taxes, or $2.21 per share) resulting from a charge to adjust
siding-related reserves to reflect revisions to the national class-action
settlement, the write-down of an operating facility, and other items. Gains on
insurance recoveries and the sale of surplus properties were netted against this
charge.
In the fourth quarter of 1998, L-P recorded a $16 million gain ($10 million
after taxes, or $.09 per share) on a recovery from an insurance company for
siding-related matters.
-22-
Financial Summary
- -------------------------------------------------------------------------------------------------------------------
dollar amounts in millions except per share
- -------------------------------------------------------------------------------------------------------------------
year ended December 31 1998 (1) 1997 (1) 1996 (1)
- -------------------------------------------------------------------------------------------------------------------
SUMMARY INCOME STATEMENT DATA
Net sales $2,297.1 $2,402.5 $2,486.0
Gross profit (loss) (2) 74.6 (88.5) 31.0
Interest, net (12.8) (29.0) (7.8)
Provision (benefit) for income taxes 15.8 (43.6) (125.6)
Income (loss) 2.0 (101.8) (200.7)
Income (loss) per share - basic .02 (.94) (1.87)
Income (loss) per share4 - diluted .02 (.94) (1.87)
Cash dividends per share .56 .56 .56
Average shares of common stock outstanding (millions)
Basic 108.4 108.5 107.4
Diluted 108.6 108.5 107.4
SUMMARY BALANCE SHEETS
Current assets $ 612.1 $ 596.8 $ 612.9
Timber and timberlands, at cost less cost of timber harvested 499.0 634.2 648.6
Property, plant and equipment, net 913.3 1,191.8 1,278.5
Notes receivable from asset sales 403.8 49.9 -
Goodwill and other assets 90.9 105.7 82.4
---------------- ----------------- ----------------
Total assets $2,519.1 $2,578.4 $2,622.4
================ ================= ================
Current liabilities $ 366.6 $319.3 $ 378.4
Long-term debt, excluding current portion 459.8 572.3 458.6
Deferred income taxes and other 469.9 400.6 357.8
Stockholders' equity 1,222.8 1,286.2 1,427.6
---------------- ----------------- ----------------
Total liabilities and stockholders' equity $2,519.1 $2,578.4 $2,622.4
================ ================= ================
KEY FINANCIAL TRENDS
Working capital $ 245.5 $ 277.5 $ 234.5
================ ================= ================
Plant and logging road additions (3) $ 77.8 $ 154.8 $ 244.0
Timber additions, net 44.7 49.7 22.0
================ ================= ================
Total capital additions $ 122.5 $ 204.5 $ 266.0
================ ================= ================
Long-term debt as a percent of total capitalization 27% 31% 24%
Income (loss) as a percent of average equity - (8%) (13%)
- -------------------------------------------------------------------------------- ----------------- ----------------
-23-
1995 (1) 1994
- ---------------- ----------------
$2,843.2 $3,039.5
268.9 558.6
2.9 1.0
(45.8) 209.8
(51.7) 346.9
(.48) 3.15
(.48) 3.13
.545 .485
107.0 110.1
107.0 110.8
$ 618.5 $ 721.9
689.6 693.5
1,452.3 1,273.2
- -
45.0 55.1
- ---------------- ----------------
$2,805.4 $2,743.7
================ ================
$ 448.5 $ 344.8
201.3 209.8
499.6 339.7
1,656.0 1,849.4
- ---------------- ----------------
$2,805.4 $2,743.7
================ ================
$ 170.0 $ 377.1
================ ================
$ 362.9 $ 286.0
49.7 66.0
================ ================
$ 412.6 $ 352.0
================ ================
11% 10%
(3%) 20%
- ---------------- ----------------
1 Includes unusual credits and charges. See the Notes to Financial Statements.
2 Gross profit (loss) is income (loss) before unusual credits and charges,
income taxes, minority interest, and interest.
3 Includes cash paid in acquisitions.
-24-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
L-P earned $2.0 million ($.02 per share), in 1998, which included pre-tax net
unusual charges of $47.8 million ($36.1 million after taxes, or $.33 per share).
L-P's net loss in 1996 primarily resulted from net unusual charges and to a
lesser extent, 1997 results were also impacted by unusual charges. The net
charges in 1997 were $32.5 million pre-tax ($20.6 million after tax, or $.19 per
share) and the 1996 charges were $350.0 million pre-tax ($215.0 million after
tax, or $2.00 per share). These net charges are discussed in further detail in
Note 7 to the financial statements. Prior to the charges, L-P had after-tax
income of $38.1 million ($.35 per share) in 1998, an after-tax loss of $81.2
million in 1997 ($.75 per share) and after-tax income of $14.3 million in 1996
($.13 per share).
Sales in 1998 were $2.30 billion, a 4% decline from 1997 sales of $2.40
billion. Sales in 1997 were 3% lower than 1996 sales of $2.49 billion.
L-P operates in five major business segments: structural products, exterior
products, industrial panel products, specialty and other products, and pulp.
Structural products is the most significant segment, accounting for
approximately 60% of net sales. 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 "Product Information Summary" on
pages 38 and 39.
Most of L-P's products are sold as commodities and therefore sales prices
fluctuate based on market factors over which L-P has little or no control. L-P
cannot predict whether the prices of its 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.
Demand for the majority of L-P's products is subject to cyclical fluctuations
over which L-P has no control. Demand for L-P's building products is heavily
influenced by the level of residential construction activity, which is subject
to fluctuations due to changes in economic conditions, interest rates,
population growth and other factors. These cyclical fluctuations in demand are
unpredictable and may have a substantial influence on L-P's results of
operations.
-25-
SELECTED SEGMENT DATA
- ---------------------------------------------------------------------------------------------------------------------------
dollar amounts in millions
- ---------------------------------------------------------------------------------------------------------------------------
increase (decrease)
- ---------------------------------------------------------------------------------------------------------------------------
year ended December 31 1998 1997 1996 98-97 97-96
- ---------------------------------------------------------------------------------------------------------------------------
Sales:
Structural products $1,374 $1,294 $1,408 6% (8%)
Exterior products 107 103 99 4% 4%
Industrial panel products 175 181 195 (3%) (7%)
Specialty and
other products 566 695 607 (19%) 14%
Pulp 75 130 177 (42%) (27%)
- ----------------------------------------------------------------------------------------
Total sales $2,297 $2,403 $2,486 (4%) (3%)
========================================================================================
Profit (loss):
Structural products $ 199 $ 22 $ 135 805% (84%)
Exterior products 22 9 17 144% (47%)
Industrial panel products 6 13 31 (54%) (58%)
Specialty and
other products (20) (24) (9) 17% (167%)
Pulp (38) (29) (91) (31%) 68%
- ----------------------------------------------------------------------------------------
Total profit (loss) $ 169 $ (9) $ 83 1,978% (111%)
========================================================================================
STRUCTURAL PRODUCTS
Structural products consist of oriented strand board (OSB), plywood, lumber
and engineered wood products (EWP). The slight decline in sales in the
structural products segment in 1998 was primarily the result of sales and
closures of less efficient and non-strategic manufacturing facilities, partially
offset by increased sales of OSB and plywood. In 1997, OSB and plywood sales
suffered from industry wide over-capacity which negatively impacted average
selling prices. Increased lumber and EWP sales partially offset the OSB and
plywood declines in 1997.
OSB average selling prices increased 47% in 1998 compared to 1997, while
prices decreased 24% from 1996 to 1997. The OSB market recovery in 1998, due to
strong demand, was sharply contrasted to the industry-wide over-capacity of
prior years that led to significant price declines in those years. OSB sales
volume increased 11% in 1998 compared to 1997 due primarily to a net capacity
increase as well as increased operating efficiencies. Sales volume remained
level in 1997 compared to 1996.
Plywood average selling prices increased modestly in each of the last two
years as L-P has shifted to higher-value products and demand has remained
strong. Plywood sales volume decreased 25% in 1998 and 19% in 1997, largely due
to the closure of two plywood plants during the last two years.
Lumber sales decreased in 1998 due to an 11% decline in prices and a volume
decline of 13%. The volume decline primarily resulted from the sale or shutdown
of non-strategic mills in 1998. A sharp drop in demand for lumber in Asia has
caused a decrease in exports of lumber from North America. This in turn has
created an oversupply of lumber in North American markets which negatively
impacted prices throughout 1998 and the latter part of 1997. Lumber sales
increased in 1997 due to a 7% increase in average sales prices offset by a 5%
decrease 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.
-26-
Engineered wood products (EWP) include engineered I-Joists, laminated veneer
lumber (LVL) and veneer. Product prices did not change significantly in 1998 or
1997. The increase in sales in 1998 was primarily due to a fast-growing market
for these products and due to a marketing agreement to sell the products of an
independent producer. The sales increase in 1997 was largely due to the
acquisition of the assets of Tecton Laminates, Inc. as well as general market
growth.
In 1998, the profitability of the structural products segment increased
significantly, largely the result of price improvements for OSB and improvement
in the efficiency of production facilities. Decreases in lumber pricing
partially offset the improved OSB performance. Overall, log costs did not change
significantly in 1998. The primary factor in the decrease in profitability in
the structural products segment in 1997 was the erosion of OSB selling prices,
although increased selling prices for lumber helped to moderate this effect.
Higher log costs in the southern region of the country caused a significant
reduction in plywood earnings in 1997. LIFO (last-in first-out) inventory income
(expense) adjustments of $14 million in 1998, $(4) million in 1997 and $5
million in 1996 are included in the structural products segment.
EXTERIOR PRODUCTS
The exterior products segment consists of siding and related products such as
soffit, facia and trim. These products are currently made primarily using an OSB
substrate. In future years, this segment will include products from the 1999
purchase of ABT Building Products Corporation (ABT), including hardboard siding,
vinyl siding and other exterior products. Average selling prices were relatively
flat in 1998 and 1997. Sales volume increased in 1998 and 1997 as market
acceptance of the product increased. The manufacturing facilities took
significant downtime in 1997 to reduce inventory levels, which contributed to
higher per unit cost of sales and thus, lower earnings. In 1998, the
manufacturing facilities produced and sold a moderate volume of commodity OSB
product, which made a positive contribution to earnings.
INDUSTRIAL PANEL PRODUCTS
The industrial panel products segment consists of particleboard, medium
density fiberboard (MDF) and hardboard. Market over-capacity in industrial
panels has contributed to reductions in both sales and profits during the
reported years. Average selling prices decreased by 3% in 1998 and 7% in 1997
due to downward market pressure. Sales volumes did not change significantly. In
future years, this segment will also include hardboard products from the
purchase of ABT.
SPECIALTY AND OTHER PRODUCTS
The specialty and other products segment includes coatings and chemicals,
cellulose insulation, Ireland operations, Alaska lumber and logging operations
and other products. In 1998, sales for this segment decreased principally due to
the sale of the Weather-Seal windows and doors division and Creative Point Inc.
(which sold consumer electronic media storage devices) and two California
distribution centers. The increase in other building products sales in 1997 was
primarily due to the acquisitions of Associated Chemists, Inc. (coatings and
chemicals) in mid-1996 and GreenStone Industries, Inc. (cellulose insulation) in
early 1997 as well as increased sales from distribution facilities.
-27-
Losses in the specialty and other products segment were primarily influenced
by the KPC lumber and logging operations, which lost approximately $3 million in
1997 and 1998, $17 million in 1997 and $10 million in 1996. Additional losses
were incurred in 1997 and 1998 as a result of market development efforts in the
cellulose insulation business. Several non-strategic product lines in this
segment were divested during 1998.
PULP
Pulp segment operations in 1998 continued to be impacted by the world-wide
over-capacity in the pulp industry and the Asian economic crisis. Asian markets
historically comprised a significant market for pulp and the crisis caused
demand, and thus pulp prices, to decline late in 1997, which continued into
1998. Average sales prices decreased 21% which contributed to the increased
losses in 1998. Pulp sales volume decreased 27% as L-P's pulp mills took
intermittent downtime during 1998 because of the weak markets. 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. In
1997, pulp sales volumes decreased approximately 10%, and average selling prices
dropped approximately 19%. Excluding KPC, L-P's remaining pulp business showed
an increase of 11% in sales volume and a price decrease of approximately 6%.
Pulp segment losses improved significantly in 1997 compared to 1996 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.
L-P pulp products 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 1998 and 1997, both in amount and as a percent of total sales.
Information regarding L-P's geographic segments and export sales are provided in
Note 10 to the financial statements.
GENERAL CORPORATE EXPENSE, NET
Net general corporate expense was $94 million in 1998, compared to $80
million in 1997 and $52 million in 1996. Credits resulting from gains on the
sales of miscellaneous assets of approximately $6 million in 1997 and $17
million in 1996 were netted into this expense. The remaining increase in each
year is primarily attributable to increased sales and marketing personnel as the
Company has focused on its customers, the addition of key personnel to implement
management's strategies and a revision of allocation methods of certain
administrative costs to product lines due to changes in the organization of the
Company.
UNUSUAL CREDITS AND CHARGES, NET
For a discussion of unusual credits and charges, net, refer to Note 7 to the
financial statements.
INTEREST, NET
In 1998, net interest expense of $13 million was down 55% from the 1997
expense of $29 million. Cash from asset sales was used to reduce debt levels and
thus, net interest expense in 1998. Net interest expense rose significantly in
1997 as L-P borrowed funds to cover its settlement obligations and fund capital
expenditures. Additionally, interest capitalized has decreased in 1998 and 1997
as construction projects have been completed.
-28-
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 8 to the financial statements.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations increased to $123 million in 1998 from $88
million in 1997, and $23 million in 1996. In 1998, the increase in cash provided
by operations resulted primarily from improved operating results. The 1997
increase was primarily due to a settlement from the U.S. Government of $135
million for claims related to the KPC long-term timber supply contract. L-P paid
out $113 million in 1998, $205 million in 1997 and $263 million in 1996 related
to litigation settlements.
Net cash provided by investing activities was $246 million in 1998 compared
to net cash used in investing activities of $140 million in 1997 and $213
million in 1996. In 1998, L-P received proceeds of $368 million from the sale of
assets, primarily timber and sawmill assets in California, the Weather-Seal
division and Creative Point, Inc. In 1997 and 1996, L-P received $64 million and
$62 million of cash for assets sold. In 1997 and 1996, L-P made significant
investments in new OSB facilities. L-P has also spent significant amounts on
environmental projects (such as pollution control equipment), upgrades of
existing production facilities, timber to supply its operations and logging
roads. Capital expenditures decreased in 1998 compared to the prior two years as
L-P did not begin construction of any new mills.
In 1998, L-P used a net $275 million of cash in financing activities. A total
of $496 million was used to repay term and revolving loans and $67 million was
used for treasury stock purchases. L-P borrowed $348 million in 1998, by issuing
senior secured notes backed by notes receivable received in a separate asset
sale transaction. 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's liquidity improved in 1998 primarily as a result of the proceeds of the
asset sales. Cash and cash equivalents totaled $127 million at the end of 1998
compared to $32 million at the end of 1997. L-P has a revolving credit facility
of $300 million with no borrowings outstanding at year-end 1998 which is
available until 2002. In early 1999, L-P used a portion of this credit facility
and an additional $100 million bridge loan to fund the purchase of ABT.
Subsequent to year-end, L-P filed a shelf registration statement for the
placement of up to $500 million of debt securities.
Inventories in L-P's balance sheet decreased $53 million, net property, plant
and equipment decreased by $279 million and timber and timberlands decreased by
$135 million. These changes were primarily related to the sale of assets
discussed previously. L-P also wrote down the book value of its Chetwynd, B.C.
pulp mill as further discussed in Note 7 to the financial statements.
Contingency reserves, which represent an estimate of future cash needs for
various contingencies (principally, payments for siding litigation settlements),
totaled $368 million at December 31, 1998, of which $140 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 Note 8 to the financial statements, the amounts ultimately paid in
resolving these contingencies could exceed the current reserves by a material
amount. Contingency reserves increased in 1998 as L-P revised its estimate of
its liability for legal and environmental matters.
-29-
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, with respect to its current operations, that year-end cash and cash
equivalents balances combined with the available lines of credit, borrowings in
the capital markets, 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.
Pursuant to its business strategy, L-P selectively targets acquisitions that
complement its core competencies and have strong growth prospects. Accordingly,
L-P intends from time to time to consider possible acquisitions of other
companies, businesses and assets. Acquisition transactions, if any, are expected
to be financed through a combination of cash on hand and from operations and the
possible issuance from time to time of long-term debt or other securities.
Depending upon conditions in the capital markets and other factors, L-P will
from time to time consider the issuance of debt or other securities, or other
possible capital markets transactions, the proceeds of which could be used to
refinance current indebtedness or for other corporate purposes.
STOCK REPURCHASE PROGRAM
On July 27, 1998, L-P announced a program to repurchase up to 20 million
common shares from time to time in the open market. As of December 31, 1998, L-P
had reacquired approximately 3.5 million shares for $66.5 million. L-P had
approximately 107 million shares outstanding at year-end.
YEAR 2000 COMPLIANCE
The Year 2000 problem refers to a worldwide issue relating to a flaw in many
computer programs and computer applications embedded in equipment and other
devices. In many existing software and hardware applications, two digits were
used to represent the year, such as "99" for "1999." If not corrected, these
applications may interpret "00" to be the year 1900 rather than 2000, producing
erroneous data or, at worst, failing altogether.
L-P recognizes the Year 2000 problem as a serious issue. As such, all
in-house application development and purchases of third-party software
contemplate the potential impact of the Year 2000. In the fall of 1997, L-P
began a formal evaluation process related to Year 2000 exposure and readiness.
Elements of this process include creation of a corporate-wide project team,
oversight by a management steering committee, and regular reports on progress to
senior management and the Board of Directors.
As of year-end, all of L-P's business groups, facility locations, operations
and corporate functions are covered by the Year 2000 project. The project team
is staffed by full-time employees, contractors, and consultants as appropriate.
Management is monitoring the progress of the project to ensure that proper
methodology is being followed, that adequate controls are in place, and that
appropriate steps are being taken to limit risk.
The project is divided into three primary areas: (1) information systems; (2)
manufacturing systems/building infrastructure; and (3) the evaluation of outside
business partners (including major suppliers and customers). The general project
tasks for each of the first two areas of emphasis include inventorying items
that are exposed to Year 2000 issues, assessing the Year 2000 compliance of such
items, remediation (through conversion, upgrades, replacement, or risk managed
acceptance of non-compliant items), testing, and developing and implementing
contingency plans for each business group and facility location. With respect to
outside business partners, project phases include ascertaining L-P's major
business partners, assessing their Year 2000 readiness, monitoring their
progress, and developing contingency plans.
-30-
L-P's information systems include such common business applications as
payroll, human resources, sales order entry, inventory management, finance, and
accounting. These applications will be addressed by either remediating current
systems or replacement with industry standard, off-the-shelf software certified
by the vendor to be Year 2000 compliant. L-P decided to replace its basic
payroll, human resources and most accounting applications with an off-the-shelf
package. The initial implementation of these modules was completed as of January
1, 1999. The project team has identified additional business critical
applications and has completed the Year 2000 assessment of each of them.
Currently, 29% of these applications require further remediation through system
upgrades and/or replacements. All remediation of information systems is
currently slated for completion by July 1999.
With respect to L-P's manufacturing operations, the project is focused on
surveying and, if necessary, remediating all computer-controlled and/or embedded
devices used in the manufacturing process in nearly 75 plant facilities.
Building infrastructure includes items such as heating and air conditioning
systems, security access and alarm systems, telephones, and office equipment
used in L-P's offices and plants. The inventory phase of the project with
respect to manufacturing operations and infrastructure is 100 percent complete.
More than 78 percent of the inventoried systems have been assessed for Year 2000
readiness, with completion of this phase scheduled for May 1999. Less than 1
percent of L-P's manufacturing systems and infrastructure assessed to date have
been determined to require remediation. These remediation efforts are underway
and are scheduled to be completed by July 1999. The costs associated with this
component are expected to be immaterial to L-P's business and results of
operations and will be included in normal ongoing maintenance.
L-P also faces the risk of business disruption from outside business partners
which may have information, manufacturing systems or infrastructure that are not
Year 2000 compliant. As part of the Year 2000 project, L-P is evaluating
critical business partners as to their Year 2000 readiness. The project team is
monitoring the progress of these business partners in achieving Year 2000
compliance. Where risk is perceived to be present, L-P will seek to identify
alternate business partners and to develop contingency plans to deal with any
significant disruptions prior to December 1999.
Despite the extensive efforts of L-P's project team, it is likely that
unexpected problems associated with the Year 2000 issue will arise. The project
team is working to identify areas of the greatest risk to L-P, that is, those
areas which are critical to business operations and have limited backup
alternatives. This process will include identifying, analyzing and developing
plans for dealing with the most reasonably likely worst case scenario facing
L-P. Contingency plans are being developed to minimize the disruptive effect of
potential failures and to take corrective action as soon as possible. L-P's
contingency planning process is scheduled to be completed by mid-1999.
The total expense associated with achieving Year 2000 compliance and
developing contingency plans is presently estimated to be approximately $5.5
million, of which approximately $1 million had been incurred by December 31,
1998. These expenses will be funded from operations. This does not include
expenses and capital costs associated with replacing systems which L-P would
have replaced regardless of Year 2000 issues, including a new human resources
information system and a new core financial system. The costs and completion
dates for the Year 2000 project discussed herein are based on management's best
estimates, which were derived using numerous assumptions regarding future
events, including continued availability of certain resources, remediation plans
of business partners, and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ from
expectations.
L-P presently does not anticipate the occurrence of major interruptions in
its business as a result of Year 2000 issues. However, due to L-P's dependence
on systems outside its control, such as telecommunications, financial services,
transportation, and water and energy suppliers, there can be no assurance that
L-P will not experience disruptions that may have a negative effect on its
operations, business, and financial condition.
-31-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
- ------------------------------------------------------------------------------------------------
dollar amounts in millions
- ------------------------------------------------------------------------------------------------
December 31 1998 1997
- ------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 126.5 $ 31.9
Accounts receivable,
less reserves of $1.5 and $2.0 134.7 146.2
Inventories 205.7 258.8
Prepaid expenses 8.1 8.9
Income tax refunds receivable 43.9 78.0
Deferred income taxes 93.2 73.0
- ------------------------------------------------------------------------------------------------
Total current assets 612.1 596.8
Timber and timberlands,
at cost less cost of timber harvested 499.0 634.2
Property, plant and equipment, at cost:
Land, land improvements and logging roads,
net of road amortization 150.4 185.6
Buildings 246.6 262.5
Machinery and equipment 1,663.2 1,876.3
Construction in progress 26.3 109.5
- ------------------------------------------------------------------------------------------------
2,086.5 2,433.9
Less accumulated depreciation (1,173.2) (1,242.1)
- ------------------------------------------------------------------------------------------------
Net property, plant and equipment 913.3 1,191.8
Goodwill, net of amortization 60.0 77.6
Notes receivable from asset sales 403.8 49.9
Other assets 30.9 28.1
- ------------------------------------------------------------------------------------------------
Total assets $ 2,519.1 $ 2,578.4
================================================================================================
See Notes to Financial Statements.
-32-
dollar amounts in millions, except per share
- ------------------------------------------------------------------------------------------------
December 31 1998 1997
- ------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 34.1 $ 22.9
Short-term notes payable - 22.0
Accounts payable and accrued liabilities 192.5 234.4
Current portion of contingency reserves 140.0 40.0
- ------------------------------------------------------------------------------------------------
Total current liabilities 366.6 319.3
Long-term debt, excluding current portion:
Limited recourse notes payable 396.5 47.9
Other debt 63.3 524.4
- ------------------------------------------------------------------------------------------------
Total long-term debt 459.8 572.3
Deferred income taxes 203.6 178.6
Contingency reserves, excluding current portion 228.0 184.0
Other long-term liabilities and minority interest 38.3 38.0
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 465.4 472.2
Retained earnings 918.8 977.5
Treasury stock, 9,663,976 shares and 7,309,360
shares, at cost (204.0) (163.4)
Loans to Employee Stock Ownership Trusts (28.8) (37.7)
Accumulated comprehensive income (loss) (45.6) (79.4)
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 1,222.8 1,286.2
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,519.1 $2,578.4
================================================================================================
See Notes to Financial Statements.
-33-
Consolidated Statements of Income
- -------------------------------------------------------------------------------------------------
dollar amounts in millions, except per share
- -------------------------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------
Net sales $2,297.1 $2,402.5 $2,486.0
- -------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 1,853.8 2,126.7 2,123.5
Depreciation and amortization 143.8 142.8 150.6
Cost of timber harvested 41.6 41.1 41.2
Selling and administrative 183.3 180.4 139.7
Unusual credits and charges, net 47.8 32.5 350.0
Interest expense,
net of capitalized interest 37.5 30.9 14.2
Interest income (24.7) (1.9) (6.4)
- --------------------------------------------------------------------------------------------------
Total costs and expenses 2,283.1 2,552.5 2,812.8
Income (loss) before taxes
and minority interest 14.0 (150.0) (326.8)
Provision (benefit) for income taxes 15.8 (43.6) (125.6)
Minority interest in net income
(loss) of consolidated subsidiaries (3.8) (4.6) (.5)
- --------------------------------------------------------------------------------------------------
Net income (loss) $ 2.0 $ (101.8) $ (200.7)
==================================================================================================
Net income (loss) per share - basic
and diluted $ .02 $ (.94) $ (1.87)
==================================================================================================
Cash dividends per share of common stock $ .56 $ .56 $ .56
==================================================================================================
Average shares of common stock
(millions) Basic 108.4 108.5 107.4
==================================================================================================
Diluted 108.6 108.5 107.4
==================================================================================================
See Notes to Financial Statements.
-34-
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------------------------
dollar amounts in millions
- -------------------------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2.0 $ (101.8) $ (200.7)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, amortization and
cost of timber harvested 185.4 183.9 191.8
Unusual credits and charges, net 61.2 216.6 350.0
Cash settlements of contingencies (113.2) (204.8) (263.4)
Other adjustments 11.2 (54.5) 3.8
Decrease (increase) in receivables (3.8) (4.0) 31.9
Decrease (increase) in inventories 7.1 12.8 31.1
Decrease (increase) in income
tax refunds receivable 33.7 21.8 (99.5)
Decrease (increase) in prepaid
expenses (4.0) 4.7 1.4
Increase (decrease) in accounts payable
and accrued liabilities (64.2) (1.8) (1.6)
Increase (decrease) in deferred
income taxes 7.6 15.3 (22.0)
- -------------------------------------------------------------------------------------------------
Net cash provided by operating
activities 123.0 88.2 22.8
CASH FLOWS FROM INVESTING ACTIVITIES
Plant, equipment and logging road additions,
including cash used in acquisitions (77.8) (154.8) (244.0)
Timber and timberland additions (44.7) (49.7) (22.0)
Assets sale proceeds 367.6 63.6 62.4
Other investing activities, net 1.3 1.0 (9.1)
- -------------------------------------------------------------------------------------------------
Net cash provided by
(used in) investing activities 246.4 (139.9) (212.7)
CASH FLOWS FROM FINANCING ACTIVITIEs
Net decrease in short-term notes
payable (22.0) (13.4) (12.9)
Long-term borrowings 348.6 228.4 262.7
Repayment of long-term debt (473.9) (101.0) (53.4)
Cash dividends (60.7) (60.7) (60.1)
Purchase of treasury stock (66.5) (2.9) -
Loans to ESOTs (15.0) - -
Treasury stock sold to ESOTs 15.0 - -
Other financing activities, net (.3) 5.4 6.0
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (274.8) 55.8 142.3
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 94.6 4.1 (47.6)
Cash and cash equivalents at beginning
of year 31.9 27.8 75.4
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 126.5 $ 31.9 $ 27.8
=================================================================================================
See Notes to Financial Statements.
-35-
Consolidated Statements of Stockholders' Equity
dollar and share amounts in millions
- ------------------------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Treasury Stock Paid-In
Shares Amount Shares Amount Capital
--------------------------------------------------------------------------------
Balance as of December 31, 1995 116.9 $117.0 8.6 $(192.7) $472.4
Net income (loss) - - - - -
Cash dividends, $.56 per share - - - - -
Issuance of shares for employee
stock plans and for other purposes - - (.4) 9.4 .3
Employee Stock Ownership
Trust contribution - - - - -
Currency translation adjustment - - - - -
Other - - - - - -
Other comprehensive income (loss) - - - - -
Total comprehensive income (loss) - - - - -
--------------------------------------------------------------------------------
Balance as of December 31, 1996 116.9 $117.0 8.2 $(183.3) $472.7
Net income (loss) - - - - -
Cash dividends, $.56 per share - - - - -
Issuance of shares for employee
stock plans and for other purposes - - (1.0) 22.8 (.5)
Purchase of treasury stock - - .1 (2.9) -
Employee Stock Ownership
Trust contribution - - - - -
Currency translation adjustment - - - - -
Pension liability adjustment - - - - -
Other - - - - - -
Other comprehensive income (loss) - - - - -
Total comprehensive income (loss) - - - - -
--------------------------------------------------------------------------------
Balance as of December 31, 1997 116.9 $117.0 7.3 $(163.4) $472.2
Net income (loss) - - - - -
Cash dividends, $.56 per share - - - - -
Issuance of shares for employee
stock plans and for other purposes - - (1.1) 25.9 (6.8)
Purchase of treasury stock - - 3.5 (66.5) -
Employee Stock Ownership
Trust contribution - - - - -
Currency translation adjustment - - - - -
Pension liability adjustment - - - - -
Other - - - - - -
Other comprehensive income - - - - -
Total comprehensive income - - - - -
--------------------------------------------------------------------------------
Balance as of December 31, 1998 116.9 $117.0 9.7 $(204.0) $465.4
================================================================================
- --------------------------------------------------------------------------------
Accumulated Total
Retained Loans to Comprehensive Stockholders' Comprehensive
Earnings ESOTs Income (Loss) Equity Income (Loss)
- --------------------------------------------------------------------------------
$1,400.8 $ (85.5) $ (56.0) $1,656.0
(200.7) - - (200.7) $(200.7)
(60.1) - - (60.1) -
- - - 9.7 -
- 23.9 - 23.9 -
- - - - 1.7
- - - - (2.9)
-------
- - (1.2) (1.2) (1.2)
-------
- - - - $(201.9)
================================================================================
$1,140.0 $ (61.6) $ (57.2) $1,427.6
(101.8) - - (101.8) $(101.8)
(60.7) - - (60.7) -
- - - 22.3 -
- - - (2.9) -
- 23.9 - 23.9 -
- - - - (15.0)
- - - - (8.2)
- - - - 1.0
-------
- - (22.2) (22.2) (22.2)
-------
- - - - $(124.0)
- --------------------------------------------------------------------------------
$977.5 $ (37.7) $ (79.4) $1,286.2
2.0 - - 2.0 2.0
(60.7) - - (60.7) -
- (15.0) - 4.1 -
- - - (66.5) -
- 23.9 - 23.9 -
- - - - 37.1
- - - - (4.2)
- - - .9
-------
- - 33.8 33.8 33.8
-------
- - - - $35.8
- -------------------------------------------------------------------------------
$918.8 $ (28.8) $ (45.6) $1,222.8
================================================================================
See Notes to Financial Statements.
-36-
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 wood-based structural
products, including oriented strand board, plywood, lumber, engineered I-joists
and laminated veneer lumber. See Note 10 to the financial statements for further
information.
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," "Unusual Credits and Charges, 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 are based on the weighted average number
of shares of common stock outstanding during the periods. The effect of
potentially dilutive common stock equivalents (employee stock options and
purchase plans) is not included in the calculation of diluted earnings per share
for years in which losses are reported because the effect is anti-dilutive.
Shares held by L-P's Employee Stock Ownership Trusts (ESOTs) which were acquired
by the ESOTs on or after January 1, 1994 and have not been allocated to
participants' accounts, are not considered outstanding for purposes of computing
earnings per share (1,206,671 shares at December 31, 1998, 763,786 shares at
December 31, 1997 and 1,073,251 shares at December 31, 1996).
CASH AND CASH EQUIVALENTS
L-P considers all highly liquid securities with maturities of three months or
less at the time of purchase to be cash equivalents. Cash paid during 1998, 1997
and 1996 for interest (net of capitalized interest) was $40.5 million, $29.2
million and $13.4 million. Net cash received during 1998, 1997 and 1996 for
income taxes was $25.5 million, $80.7 million and $4.1 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 generally holds its cash investments until maturity and is
therefore not subject to significant market risk.
-37-
INVENTORY VALUATION
Inventories are valued at the lower of cost or market. Inventory costs
include material, labor and operating overhead. The LIFO (last-in, first-out)
method is used for most log and lumber inventories with remaining inventories
valued at FIFO (first-in, first-out) 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:
- -------------------------------------------------------------------------------
dollar amounts in millions
- -------------------------------------------------------------------------------
December 31 1998 1997
- -------------------------------------------------------------------------------
Logs $ 89.8 $112.4
Lumber 16.0 37.6
Panel products 49.4 56.6
Other building products 47.3 82.1
Pulp 14.9 15.3
Other raw materials 23.5 25.1
Supplies 17.4 21.3
LIFO reserve (52.6) (91.6)
- -------------------------------------------------------------------------------
Total $205.7 $258.8
===============================================================================
A reduction in LIFO inventories in 1998 resulted in a reduction of cost of
sales of $15.8 million.
TIMBER
L-P follows an overall policy on fee timber that amortizes timber costs over
the total fiber available during the estimated growth cycle as volume is
harvested. Timber carrying costs, such as reforestation and forest management,
are expensed as incurred. Cost of timber harvested includes not only the cost of
fee timber, but also the amortization of the cost of long-term timber deeds.
PROPERTY, PLANT, AND EQUIPMENT
L-P principally uses the units of production method of depreciation for
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
1998, 1997 and 1996 was $1.6 million, $4.8 million and $7.1 million.
L-P adopted American Institute of Certified Public Accountants Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-up Activities," in 1998.
SOP 98-5 requires the cost of start-up activities and organization costs to be
expensed as incurred. Start-up costs written off in 1998 were $3.5 million. No
start-up costs were deferred in 1997 and $3.8 million were deferred during 1996.
-38-
STOCK-BASED COMPENSATION
Stock options and other stock-based compensation awards are accounted for
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.
ASSET IMPAIRMENTS
Long-lived assets to be held and used by the Company and goodwill 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 is
written down to its estimated realizable value. Assets to be disposed of are
written down to their estimated fair value, less sales costs. See Note 7 to the
financial statements for a discussion of charges in 1998, 1997 and 1996 related
to impairments of property, plant and equipment.
DERIVATIVE FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). The new statement will require recognition
of all financial instruments as either assets or liabilities on the balance
sheet at fair value; changes to fair value will impact earnings either as gains
or losses. SFAS 133 will be effective for L-P beginning January 1, 2000. L-P is
currently determining the impact this statement will have on the Company's
financial statements and related disclosures.
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 under "Accumulated Comprehensive Income (Loss)."
GOODWILL
Goodwill has resulted from acquisitions and is being amortized on a
straight-line basis over 10 to 25 years. The amortization period of goodwill is
periodically reviewed by the Company. Accumulated amortization was $8.6 million
and $11.7 million at December 31, 1998 and 1997.
NOTES RECEIVABLE
Notes receivable from asset sales are related to transactions which occurred
during 1997 and 1998. These notes provide collateral for L-P's limited recourse
notes payable (see Note 4 to the financial statements).
In 1997, the Company received $49.9 million in notes from a third party. The
notes are due in principal payments of $20 million in 2008, $20 million in 2009,
and $9.9 million in 2012. Interest is to be received in semi-annual installments
with rates varying from 5.62% to 7.5%.
In 1998, L-P received $353.9 million in notes from a third party. The notes
are due in principal payments of $70.8 million in 2006, $54.3 million in 2008,
$115.1 million in 2010, $91.4 million in 2013 and $22.3 million in 2018. The
weighted average interest rate of the notes is 7%.
L-P believes the carrying value of these notes approximates fair value at
December 31, 1997 and believes the fair value at December 31, 1998 is
approximately $410 million.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
-39-
2. Accounts Payable and Accrued Liabilities
- -------------------------------------------------------------------------
dollar amounts in millions
- -------------------------------------------------------------------------
December 31 1998 1997
- -------------------------------------------------------------------------
Accounts payable $127.3 $153.0
Salaries and wages payable 23.0 27.4
Taxes other than income taxes 5.0 8.7
Workers' compensation 13.1 13.5
Other accrued liabilities 24.1 31.8
- -------------------------------------------------------------------------
$192.5 $234.4
=========================================================================
3. Income Taxes
Income (loss) before taxes and minority interest was taxed under the following
jurisdictions:
- --------------------------------------------------------------------------------
dollar amounts in millions
- --------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
Domestic $ .1 $ (87.0) $(255.1)
Foreign 13.9 (63.0) (71.7)
----- ------- -------
$14.0 $(150.0) $(326.8)
===== ======= =======
Provision (benefit) for income taxes includes the following:
- --------------------------------------------------------------------------------
dollar amounts in millions
- --------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
- --------------------------------------------------------------------------------
Current tax provision (benefit):
U.S. federal $ 3.1 $ (65.0) $(87.4)
State and local .3 (4.3) (10.0)
Foreign (1.3) 3.6 12.2
Total current tax provision ------- -------- ------
(benefit) $ 2.1 $ (65.7) $(85.2)
======= ======== ======
Deferred tax provision (benefit):
U.S. federal $ 59.6 $ 32.2 $2.6
State and local 6.3 3.4 .3
Foreign (52.2) (13.5) (43.3)
------- -------- ------
Total deferred tax provision
(benefit) $ 13.7 $ 22.1 $(40.4)
======= ======== ======
-40-
The tax effects of significant temporary differences creating deferred tax
(assets) and liabilities at December 31 were as follows:
- --------------------------------------------------------------------------------
dollar amounts in millions
- --------------------------------------------------------------------------------
December 31 1998 1997
Property, plant and equipment $ 116.6 $ 134.0
Timber and timberlands 148.0 166.2
Inventories (1.3) (4.2)
Accrued liabilities (101.4) (84.1)
Contingency reserves (142.4) (86.7)
Benefit of capital loss and NOL carryovers (28.0) (27.8)
Benefit of foreign ITC carryover (61.0) (62.3)
Benefit of U.S. alternative minimum tax
credit (20.0) -
Installment sale gain deferral 147.1 18.5
Other 14.8 13.8
Valuation allowance 38.0 38.2
- --------------------------------------------------------------------------------
Net deferred tax liability 110.4 105.6
Less net current deferred tax assets (93.2) (73.0)
- --------------------------------------------------------------------------------
Net noncurrent deferred tax liabilities $ 203.6 $ 178.6
================================================================================
L-P's Canadian subsidiary, Louisiana-Pacific Canada Ltd. (LPC), has
unrealized foreign investment tax credits (ITC) of approximately C$93 million
(Canadian dollars). These credits can be carried forward to offset future tax of
LPC and reduce LPC's basis in the related property, plant and equipment. The
credits expire C$16 million in 1999, C$6 million in 2001, C$50 million in 2002,
C$3 million in 2003, C$4 million in 2004, C$13 million in 2005 and C$1 million
in 2006. The $28 million of capital loss and net operating loss (NOL) carryovers
included in the above table consists of $22 million of state NOL carryovers
which will expire in various years through 2013, and $6 million of Canadian
capital loss carryovers which will not expire.
U.S. taxes have not been provided on foreign subsidiaries' earnings of
approximately $31.7 million which are deemed indefinitely reinvested.
Quantification of the deferred tax liability, if any, associated with
indefinitely reinvested earnings is not practical.
The following table summarizes the differences between the statutory U.S.
federal and effective income tax rates:
- --------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
- --------------------------------------------------------------------------------
Federal tax rate 35% (35)% (35)%
State and local income taxes 4 (4) (4)
Nondeductible fines 51 - -
Foreign tax credits used (35) - -
Other foreign tax effects 19 6 -
Nondeductible goodwill 41 (1) -
Other, net (2) 5 1
- --------------------------------------------------------------------------------
113% (29)% (38)%
================================================================================
-41-
4. Long-term Debt
- ------------------------------------------------------------------------------------------------------------------------
dollar amounts in millions
- ------------------------------------------------------------------------------------------------------------------------
Interest Rate
at Dec. 31, December 31,
1998 1998 1997
Limited recourse notes payable -
Senior secured notes, payable 2008-2012,
interest rates fixed 7.1-7.5% $ 47.9 $ 47.9
Senior secured notes, payable 2006-2018,
interest rates fixed 6.8-7.3 348.6 -
Project bank financing -
Waterford, Ireland, OSB plant,
payable in Irish pounds through 2003,
interest rate variable 7.3 28.1 32.9
Project revenue bond financings,
payable through 2009, interest rates
variable 4.4-7.3 25.6 26.0
Employee Stock Ownership Trust (ESOT) Loans
Hourly ESOT, payable annually through 1999,
interest rate fixed 8.3 8.5 17.0
Salaried ESOT, payable annually through 1999,
interest rate variable 4.5 6.0 12.0
Bank credit facility
Revolving credit facility, expires
in 2002, interest rate variable - - 300.0
Term loan facility, repaid in 1998 - - 125.0
Montrose penalty liability,
payable 2000-2002, interest
rate fixed 5.4 25.0 -
Other, including capital lease obligations,
payable in varying amounts through 2010,
interest rates vary 4.3-7.0 4.2 34.4
- ------------------------------------------------------------------------------------------------------------------------
Total 493.9 595.2
Less current portion (34.1) (22.9)
- ------------------------------------------------------------------------------------------------------------------------
Net long-term debt $459.8 $572.3
========================================================================================================================
L-P believes the carrying amounts of long-term debt approximate fair market
value with the exception of limited recourse notes payable which L-P believes
have a fair value of approximately $402 million at December 31, 1998. Project
bank financings are typically secured by the underlying assets of the related
project. The limited recourse notes payable are collateralized by notes
receivable from asset 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, 1998. The
exchange rate for the Irish pound was 1.48 U.S. dollars per pound at December
31, 1998.
L-P issued $348.6 million of senior debt in June 1998 in a private placement
to institutional investors. The notes mature in principal amounts of $69.7
million in 2006, $53.5 million in 2008, $113.4 million in 2010, $90.0 million in
2013 and $22.0 million in 2018. The notes are secured by $353.9 million of notes
receivable from Simpson Timber Company. In the event of a default by Simpson,
L-P would only be liable to pay 10% of the notes payable.
At December 31, 1998, L-P had a $300 million unsecured facility with a group
of banks which expires in 2002. L-P pays a commitment fee on the unused portion
and there were no outstanding borrowings at year-end. Additionally, L-P's
subsidiary L-P Canada Ltd. has a $30 million (Canadian) revolving credit
facility. L-P Canada Ltd. pays a commitment fee on the unused portion but had no
borrowings outstanding against the line at year-end.
-42-
The weighted average interest rate for all debt at December 31, 1998 and 1997
was 6.8 percent and 6.4 percent. Required repayment of principal for long-term
debt is as follows:
- ------------------------------------------------------------------------
dollar amounts in millions
- ------------------------------------------------------------------------
year ended December 31
1999 $ 34.1
2000 14.5
2001 14.5
2002 14.3
2003 4.4
2004 and after 412.1
- ------------------------------------------------------------------------
Total $493.9
========================================================================
See Note 11 to the financial statements for a discussion of a proposed debt
offering subsequent to year-end.
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 trusts. Approximately
7,800 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 shares purchased by the ESOTs after 1993 is
based on the market value of the shares at the time of allocation. L-P's ESOTs
held a total of approximately 10.8 million shares at December 31, 1998 of which
approximately 9.6 million 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 are frozen. 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.
L-P also has a 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 $2.3 million at December 31,
1998. 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 and a deferred compensation plan. During 1998,
L-P contributed $4.4 million to the trust. The funds were invested in
corporate-owned life insurance policies. At December 31, 1998, the trust assets
were valued at $8.6 million and are included in other assets in L-P's
consolidated balance sheet.
-43-
The status of L-P administered qualified defined benefit pension plans is as
follows:
- -----------------------------------------------------------------------------------------------------------------------
dollar amounts in millions
- -----------------------------------------------------------------------------------------------------------------------
December 31 1998 1997
------------------------------------------------------------------------------
Plan with Plan with Plan with Plan 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
Projected and accumulated
benefit obligation $11.8 $110.6 $11.2 $103.2
Plan assets 13.9 93.0 13.2 89.1
- -----------------------------------------------------------------------------------------------------------------------
Net funded (unfunded)
status 2.1 (17.6) 2.0 (14.1)
Unrecognized asset at
transition - (4.9) (.3) (6.5)
Unrecognized net loss
and other 3.7 34.8 3.9 29.3
Adjustment to recognize
minimum liability - (29.9) - (22.9)
- -----------------------------------------------------------------------------------------------------------------------
Net prepaid (accrued)
pension expense $5.8 $(17.6) $5.6 $(14.2)
=======================================================================================================================
Retirement plans changes and components are as follows:
- --------------------------------------------------------------------------------
dollar amounts in millions
- --------------------------------------------------------------------------------
December 31 1998 1997
- --------------------------------------------------------------------------------
Change in Benefit Obligation
Benefit obligation - January 1 $114 $104
Service cost 1 -
Interest cost 8 8
Actual (gain)/loss 5 6
Benefits paid (6) (4)
- --------------------------------------------------------------------------------
Benefit obligation - December 31 $122 $114
================================================================================
Change in Assets
Fair value of assets - January 1 $102 $100
Actual return on plan assets 8 6
Employer contribution 3 -
Participation contribution - -
Benefits paid (6) (4)
- --------------------------------------------------------------------------------
Fair value of assets - December 31 $107 $102
================================================================================
Reconciliation of Funded Status
Funded status $(15) $(12)
Unrecognized actuarial (gain)/loss 37 31
Unrecognized prior service cost 1 2
Unrecognized obligation (asset) (5) (7)
- --------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 18 $ 14
================================================================================
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost $ 6 $ 5
Accrued benefit liability (18) (14)
Deferred tax asset 12 9
Accumulated other comprehensive income 18 14
- --------------------------------------------------------------------------------
Net amount recognized $ 18 $ 14
================================================================================
The actuarial assumptions used to determine pension expense and the funded
status of the plans were: a discount rate on benefit obligations of 6.75% in
1998, 7.25% in 1997 and 7.75% in 1996; and an 8.75% expected long-term rate of
return on plan assets for all three years.
-44-
Retirement plan expense included the following components:
- ------------------------------------------------------------------------------------------------
dollar amounts in millions
- ------------------------------------------------------------------------------------------------
Year ended December 31 1998 1997 1996
- ------------------------------------------------------------------------------------------------
Benefits earned by employees $ 1.1 $ .2 $ .5
Interest cost on projected benefit
obligation 7.9 7.9 8.3
Return on plan assets (9.2) (9.0) (10.9)
Net amortization and deferral (.5) (1.0) (1.7)
- ------------------------------------------------------------------------------------------------
Net periodic pension expense (income) (.7) (1.9) (3.8)
Expense related to ESOTs, multiemployer,
defined contribution and non-qualified
plans 26.0 28.8 29.1
Loss from settlement of pension plan - 7.3 -
- ------------------------------------------------------------------------------------------------
Net retirement plan expense $25.3 $34.2 $25.3
================================================================================================
The assets of the plans at December 31, 1998 and 1997 consist of government
obligations, equity securities and cash and cash equivalents.
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 permitted by SFAS 123, L-P has elected to adopt only the
disclosure provisions of the standard and has 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 fair value methodology of SFAS 123, L-P's net income (loss)
and net income (loss) per share would have been reduced to the pro forma amounts
indicated below:
- --------------------------------------------------------------------------------------------------
dollar amounts in millions
- --------------------------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
- --------------------------------------------------------------------------------------------------
Net income (loss)
As reported $ 2.0 $(101.8) $(200.7)
Pro forma (4.0) (108.6) (206.0)
Net income (loss) per share
As reported $ .02 $ (.94) $ (1.87)
Pro forma (.04) (1.00) (1.92)
- --------------------------------------------------------------------------------------------------
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
following assumptions: a 2.5 percent to 3.2 percent dividend yield; expected
volatility of 39 percent in 1998, 27 percent in 1997 and 27 percent in 1996; and
a risk free interest rate of 5.3 percent in 1998, 6.6 percent in 1997 and 6.7
percent in 1996.
-45-
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 at the date of grant.
The current stock award plan requires that options be granted at 100 percent of
market price at the date of grant. 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. At December 31, 1998, 4.9 million shares were available under the
current stock award plan for future option grants and all other stock-based
awards.
Changes in options outstanding and exercisable were as follows:
- -------------------------------------------------------------------------------------------------
share amounts in thousands Number of Shares
- -------------------------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------
Options outstanding at January 1 2,373 1,678 1,370
Options granted 905 928 635
Options exercised (113) (155) (196)
Options canceled (342) (78) (131)
- -------------------------------------------------------------------------------------------------
Options outstanding at December 31 2,823 2,373 1,678
=================================================================================================
Options exercisable at December 31 1,170 912 763
=================================================================================================
Weighted Average Price Per Share
- -------------------------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------
EXERCISE PRICE
Options granted $ 19.09 $ 19.97 $22.18
=================================================================================================
Options exercised $ 14.85 $ 13.91 $12.13
=================================================================================================
Options canceled $ 21.08 $ 24.21 $21.39
=================================================================================================
Options outstanding $ 18.11 $ 21.09 $21.14
=================================================================================================
Options exercisable $ 21.41 $ 21.09 $19.05
=================================================================================================
FAIR VALUE AT DATE OF GRANT
Options granted $ 5.73 $ 6.05 $ 8.38
=================================================================================================
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 award. Awards are granted at a target share level. 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.
Changes in performance-contingent stock awards were as follows:
- -------------------------------------------------------------------------
Number of Shares
- -------------------------------------------------------------------------
year ended December 31 1998 1997
- -------------------------------------------------------------------------
Target shares - awards outstanding at
January 1 54,569 -
Target shares - awards granted 64,064 54,569
Target shares - awards cancelled (21,263) -
- -------------------------------------------------------------------------
Target shares - awards outstanding at
December 31 97,370 54,569
=========================================================================
-46-
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, 1998, 336,769 shares and 276,761
shares were subscribed at $17.72 and $18.89 per share under the 1998 and 1997
Employee Stock Purchase Plans. During 1998, L-P issued 150,601 shares to
employees at an average price of $18.59 under all Employee Stock Purchase Plans.
7. Unusual Credits and Charges, Net
The major components of "Unusual Credits and Charges, Net" in the statements
of income for the years ended December 31, were as follows:
- -----------------------------------------------------------------------------
dollar amounts in millions
- -----------------------------------------------------------------------------
year ended December 31 1998 1997 1996
- -----------------------------------------------------------------------------
Additions to contingency reserves $(284.5) $(169.0) $(100.0)
Long-lived asset impairment charges (162.9) (35.0) (187.7)
Gain on asset sales 381.3 55.6 -
Gain on insurance recoveries 28.4 - -
Gain on contract settlement - 135.0 -
Severance and other (10.1) (19.1) (62.3)
- -----------------------------------------------------------------------------
$(47.8) $(32.5) $(350.0)
=============================================================================
1998
- ----
In 1998, L-P increased its reserves for litigation and environmental
liabilities by $284.5 million. Of this total, $257.7 million related to
adjustments to current estimates of liabilities for product-related litigation
and legal costs, including enhancements to the national siding class-action
settlement. Current estimates are based on management's regular monitoring of
changes in the facts and circumstances surrounding the various legal and
environmental matters and related accruals. Additional charges were taken for
the settlement of the Montrose criminal matter and adjustments to current
estimates of environmental liabilities and other litigation. See Note 8 to the
financial statements for a further discussion of significant litigation and
environmental matters.
L-P recorded long-lived asset impairment charges totaling $162.9 million on
its pulp mill in Chetwynd, British Columbia, a roof shake plant in California,
logging roads in Alaska and the assets of the Creative Point, Inc. subsidiary.
As part of the process of disposing of or liquidating the Chetwynd pulp mill,
L-P determined that the net realizable value of the assets was less than the
carrying cost. Although management is aggressively pursuing disposal or
liquidation, due to market conditions the timing of such disposal or liquidation
is not presently determinable. The total asset write-down related to Chetwynd
was $136.1 million, including the cumulative translation adjustment of $50.2
million previously recorded within stockholders' equity. The operating loss of
this facility in 1998 was approximately $23 million. The roof shake plant was
part of the portfolio of California assets announced for sale in October 1997.
After various attempts to dispose of the assets, L-P decided to permanently shut
down the operation which resulted in an additional write-down of $14.8 million.
The operating loss of this facility was approximately $5 million in 1998. The
logging roads in Alaska are assets which will be held and used, primarily in
1999. Based on the planned operating budget of the Alaska operations, it was
determined that a write-down of $10.0 million was necessary to reduce the
carrying amount of the assets to the recoverable value. The operating results
for these specific assets are not identifiable. The write-down of the Creative
Point, Inc. subsidiary assets was $2 million which was determined at the time
L-P entered into an agreement to sell the assets. The asset sale occurred in
1998. The operating loss of this subsidiary was approximately $4 million in
1998. The net carrying amount of the above assets to be disposed of was
approximately $87 million after the write-downs were recorded.
-47-
In 1998, L-P recorded gains on the sale of assets in the amount of $381.3
million. Total proceeds from the sale of assets were $729.0 million, consisting
of $367.6 million of cash and $361.4 million of notes receivable. Assets sold
during the year were primarily those identified for sale in 1997, including
timber and timberlands, sawmills and distribution centers in California, and the
Weather-Seal window and door operations.
L-P recovered $28.4 million, net of certain professional fees, from several
of its insurance carriers for costs incurred in defending and settling the
product class-action lawsuits.
Charges for severance and other costs, primarily at the roof shake plant,
totaled $10.1 million in 1998. The severance charges were $.5 million for
approximately 110 employees of the roof shake facility (as of December 31, 1998
$.3 million had been paid and charged against the liability). Included in the
total are inventory write-downs and other shut-down related costs at the roof
shake plant totaling $6.1 million. Additionally, L-P wrote off $3.5 million of
deferred start-up costs upon adoption of a new accounting standard.
1997
- ----
In 1997, L-P increased its reserves for litigation and environmental
liabilities by $169.0 million. Of this total, $165.0 million related to
adjustments to then current estimates of liabilities for product-related
litigation and legal costs (these estimates were subsequently revised in 1998).
Additional charges of $4 million were taken for adjustment of environmental
liabilities in Alaska. See Note 8 to the financial statements for a further
discussion of significant litigation and environmental matters.
L-P recorded long-lived asset impairment charges totaling $35.0 million on
the assets of its subsidiary in Ireland and the roof shake plant in California
(this estimate was subsequently revised in 1998). L-P began reviewing options
for disposing of the assets in Ireland and determined that an impairment charge
was appropriate. Although management is aggressively pursuing disposal options,
the timing of such disposal is not presently determinable. The total asset
write-down for this facility was $15.0 million. L-P's share of this subsidiary's
loss in 1997 was approximately $5 million. The roof shake plant was part of the
portfolio of California assets announced for sale in October 1997. As discussed
above, this asset was not sold due to market conditions and was permanently
shut-down in 1998. Based on then current estimates, the asset was written-down
$20 million. The operating loss of this facility was approximately $4 million in
1997. The net carrying amount of the above assets to be disposed of was
approximately $64 million after the write-downs were recorded.
In 1997, L-P recorded gains on the sale of assets in the amount of $55.6
million. The gains resulted from the sale of tracts of timber and timberland in
California.
L-P's Ketchikan Pulp Company subsidiary (KPC) recorded a gain of $135.0
million to reflect the initial proceeds received under a settlement agreement
with the U.S. Government over KPC's claims of damages related to its long-term
timber supply contract in Alaska.
Charges for severance and other costs totaled $19.1 million in 1997.
Adjustments to charges for the closure of KPC operations, originally announced
in 1996, amounted to $10.3 million, including a credit adjustment to estimated
severance amounts of $3.5 million. The remaining amount of $8.8 million related
to accruals for other costs incurred.
1996
- ----
In 1996, L-P increased its reserves for litigation and environmental
liabilities by $100.0 million. Of this total, $45.0 million related to the net
settlement cost of shareholder class-action litigation. Liabilities for
product-related litigation and legal costs were adjusted to then current
estimates which resulted in charges of $40.0 million (these estimates were
subsequently revised in 1997 and 1998). A charge for environmental costs of
$15.0 million related to the shut-down of KPC operations was also taken in 1996.
-48-
L-P recorded long-lived asset impairment charges totaling $187.7 million
related to the KPC operations, nine sawmills in various states, two OSB plants,
two fiber gypsum plants, two plants in Mexico and certain other equipment
throughout L-P's operations. L-P's management determined that these facilities
were non-strategic and therefore would be either sold or liquidated. The
write-downs by class of asset were $125.0 million related to KPC assets, $5.7
million related to sawmills, $15.8 million related to OSB plants, $17.5 million
related to Canadian pulp operations, $15.0 million related to fiber gypsum
plants and $8.7 million related to other plants and equipment. The identifiable
losses related to these impaired assets totaled approximately $64 million in
1996. The net carrying amount of the above assets to be disposed of was
approximately $82 million after the write-downs were recorded.
Charges for severance and other costs totaled $62.3 million in 1996. Of this
total, $33.2 million related to the announced shut-down of KPC operations,
including $15 million for severance of approximately 830 employees. Of this
charge, $2.0 million, $7.7 million and $.1 million was paid and charged against
the liability in 1998, 1997 and 1996 and $1.7 million remains in the liability
at the end of 1998. As noted above, the liability for severance was revised in
1997. Inventory write-downs totaled $16.7 million, which were also primarily
related to the announced closure of KPC operations. The remaining amount of
$12.4 million related to accruals for other costs incurred.
8. Contingencies
ENVIRONMENTAL PROCEEDINGS
In March 1995, 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 1980's and early 1990's. In addition to civil
and criminal penalties that have been paid, KPC also agreed to undertake up to
$20 million in expenditures, which are primarily capital in nature, including
certain remedial and pollution control related measures. While the Environmental
Protection Agency (the "EPA") and KPC have agreed that the closure of the pulp
mill in May 1997 eliminated the need for many of the pollution control related
measures, court approval is required for relief from these requirements.
As part of the agreements, KPC is in the process of studying Ward Cove, the
body of water adjacent to the former mill site, to determine whether cleanup of
cove sediments is necessary. KPC may be required to spend approximately $4 to $6
million in addition to the approximately $2 million already spent on this
project, as part of the $20 million discussed above.
KPC also signed an agreement with the State of Alaska and the EPA to
investigate and, if necessary, clean up the property on which the pulp mill was
formerly located. KPC has completed the investigative portion of this project at
a cost of approximately $1.5 million. Some cleanup has already occurred, with
additional cleanup scheduled to be completed by mid-1999. Anticipated costs of
previous and scheduled cleanup may be up to $1 million. Other areas may need to
be cleaned up; no cost estimates of such additional cleanups have yet been made.
KPC has completed the closure of a landfill near Thorne Bay, Alaska, pursuant
to an agreement with the U.S. Forest Service (the "USFS"). Costs of the project
totaled approximately $6 million. KPC is also monitoring leachate from the
landfill in order to evaluate whether treatment of the leachate is necessary.
Certain L-P plant sites have, or are suspected of having, substances in the
ground or in the groundwater underlying the sites 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 as well as
insurance coverage under all applicable policies.
-49-
L-P maintains a reserve for estimated environmental loss contingencies. The
balance of the reserve was $27.9 million and $29.3 million at December 31, 1998
and 1997, respectively. Due to the nature of these liabilities, uncertainty
exists in the reliability and precision of the estimates because the facts and
circumstances surrounding each contingency vary significantly 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 cleanup of properties which are currently owned or have been
owned in the past by L-P. Certain of these sites are subject to cost sharing
arrangements with other parties who were also involved in 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 party.
Although L-P's policy is to comply with all applicable environmental laws and
regulations, the Company has, in the past, been required to pay fines for
non-compliance. In some instances, 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. Based on the information
currently available, 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, cash flows or liquidity of
L-P.
COLORADO CRIMINAL PROCEEDINGS
In June 1995, a federal grand jury returned an indictment in the U.S.
District Court in Denver, Colorado, against L-P in connection with alleged
environmental violations, as well as alleged fraud in connection with the
submission of unrepresentative oriented strand board (OSB) product samples to an
industry product certification agency, by L-P's Montrose (Olathe), Colorado OSB
plant. In connection with entering a guilty plea as to certain criminal
violations in May 1998, L-P agreed to pay total penalties of $37 million
(including making $500,000 in charitable contributions), of which $12 million
has been paid, and was sentenced to five years of probation. The $25 million
balance of the fine is payable in three equal installments, together with
accrued interest, beginning July 1, 2000 and is secured by a statutory lien. All
remaining charges against L-P were dismissed.
In December 1995, L-P received a notice of suspension from the EPA stating
that, because of the criminal proceedings pending against L-P in Colorado, the
Montrose facility would be prohibited from purchasing timber directly from the
USFS. In April 1998, L-P signed a Settlement and Compliance Agreement with the
EPA. This agreement formally lifted the 1995 suspension imposed on the Montrose
facility. The agreement has a term of five years and obligates L-P to develop
and implement certain corporate policies and programs, including such measures
as a policy of cooperation with the EPA, an employee disclosure program and a
policy of nonretaliation against employees, to conduct its business to the best
of its ability in accordance with federal laws and regulations and local and
state environmental laws, to report significant violations of law to the EPA,
and to conduct at least two audits of its compliance with the agreement. A
number of the compliance requirements have been completed.
-50-
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 gave 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, is
entitled to receive from the settlement fund established under the agreement a
payment equal to the replacement cost (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 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 payable under the settlement agreement and the
amount previously paid. The extent of damage to OSB siding at each claimant's
property is determined by an independent adjuster in accordance with a specified
protocol. Settlement payments are not subject to adjustment 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 may pursue a claim against the contractor/builder to
the extent the award was reduced.
The settlement requires L-P 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, 1998, L-P had funded the first three installments. L-P also had funded a
significant portion of the last four installments through the Early Payment
Program discussed below. If at any time after the fourth year of the settlement
period the amount of approved claims (paid and pending) were to equal or exceed
$275 million, then the settlement agreement would terminate as to all claims in
excess of $275 million unless L-P timely elects to provide additional funding
within 12 months thereafter 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.
-51-
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 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 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. 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, as of December 31, 1998, approximately $5.8 million remained of the
$195 million paid into the fund to date.
The claims submitted to the claims administrator to date 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 exceeded $500 million at December 31, 1998 compared to $475 million at
September 30, 1998. Both figures include approximately $18 million of claims
paid directly by L-P to claimants under the settlement agreement prior to the
establishment of 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, to the extent that it still
remains an issue following implementation of the Early Payment Program and
Second Settlement Fund discussed below, under which L-P effectively has paid a
substantial portion of the claims that otherwise potentially would have been
payable out of the first two $50 million optional payments. Under the terms of
the settlement, L-P must make a decision regarding the optional funding by
August 2000. As an alternative to making additional payments, 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.
On October 26, 1998, L-P announced an agreement to offer early payments to
eligible claimants who have submitted valid and approved claims under the
original settlement agreement (the "Early Payment Program") and to establish an
additional $125 million fund to pay all other approved claims that are filed
before December 31, 1999 (the "Second Settlement Fund").
The Early Payment Program applies to all claimants who are entitled to be
paid from the $80 million of mandatory payments that remain to be paid under the
settlement and to all claimants who otherwise would be paid from the proceeds of
the two optional $50 million payments that L-P may elect to make under the
settlement. The early payments from the $80 million are discounted at a rate of
9% per annum calculated from their original payment dates (1999-2002) to the
date the early payment offer was made. The early payments from the two $50
million optional contributions are discounted at a rate of 12% per annum
calculated from 2001 and 2002. Claimants may accept or reject the discounted
early payments in favor of remaining under the original settlement, but may not
arbitrate the amount of their early payments. As of December 31, 1998, $106.7
million in Early Payment Program checks had been mailed and $60.8 million had
been cashed in settlement of claims.
The $125 million Second Settlement Fund represents an alternative source of
payment for all approved claims not eligible for the Early Payment Program and
all new claims filed before December 31, 1999. In early 2000, claimants electing
to participate in the Second Settlement Fund will be offered a pro rata share of
the fund in complete satisfaction of their claims, which they may accept or
reject in favor of remaining under the original settlement. Claimants who accept
their pro rata share may not file additional claims under the settlement or
arbitrate the amount of their payments. Claimants who elect not to participate
in the Second Settlement Fund remain bound by the terms of the original
settlement. If L-P is dissatisfied with the number of claimants who elect to be
paid from the Second Settlement Fund, L-P may refuse to proceed with funding at
its sole option. In that event, the Second Settlement Fund will be canceled and
all the claimants who had elected to participate in it will be governed by the
original settlement.
-52-
A settlement of a related class action in Florida was approved by the Circuit
Court for Lake County, Florida, on October 4, 1995. 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 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 by up to 75 percent
for damage resulting from improper design, construction, installation,
finishing, painting, or 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 until October 4,
2000.
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, or any alternative strategies adopted by L-P,
will materially exceed the recorded liability related to these matters, although
it is possible that, in the near term, total estimated payments will
significantly exceed the recorded liabilities.
OTHER PROCEEDINGS
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, cash flows,
or liquidity of L-P.
CONTINGENCY RESERVES
L-P maintains contingency reserves in addition to the environmental reserves
discussed above. The balance of contingency reserves, exclusive of the
environmental reserves discussed above, was $340.1 million and $194.7 million at
December 31, 1998 and 1997, respectively. L-P regularly monitors its estimated
exposure to contingencies and adjusts its accrual accordingly. The amounts
ultimately paid could differ materially from the amounts currently recorded,
although no estimate of the timing or range of any potential adjustment can be
made at this time.
-53-
9. Commitments
L-P is obligated to purchase timber under certain cutting contracts which
extend to 2004. L-P's best estimate of its commitment at current contract rates
under these contracts is approximately $14.7 million for approximately 144
million board feet of timber.
Payments under all operating leases that were charged to expense during 1998,
1997, and 1996 were $17.7 million, $17.5 million and $17.0 million. Future
minimum rental payments under non-cancelable operating leases are not
significant.
10. Segment Information
L-P, a major supplier of building products, operates through several business
units with their own management teams. The business units have been aggregated
into five reportable segments based on the similarity of economic
characteristics, customers, distribution methods and manufacturing processes.
Export sales are primarily to customers in Asia and Europe. Information about
L-P's geographic segments is as follows:
- --------------------------------------------------------------------------------
dollar amounts in millions
- --------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
- --------------------------------------------------------------------------------
Total sales - point of origin
U.S. $2,212 $2,330 $2,389
Canada and other 166 128 162
Intersegment sales to U.S. (81) (55) (65)
- --------------------------------------------------------------------------------
Total sales $2,297 $2,403 $2,486
================================================================================
Export sales (included above) $ 128 $ 240 $ 268
================================================================================
Profit (loss)
U.S. $ 273 $39 $ 107
Canada and other (104) (48) (24)
Unusual credits and charges, net1 (48) (32) (350)
General corporate expense and
interest, net (107) (109) (60)
- --------------------------------------------------------------------------------
Income (loss) before taxes
and minority interest $ 14 $(150) $(327)
================================================================================
Identifiable assets
U.S. $2,279 $2,220 $2,228
Canada and other 240 358 394
- --------------------------------------------------------------------------------
Total assets $2,519 $2,578 $2,622
================================================================================
-54-
Information about L-P's product segments is as follows:
- --------------------------------------------------------------------------------
dollar amounts in millions
- --------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
Total Sales
Structural products $1,374 $1,294 $1,408
Exterior products 107 103 99
Industrial panel products 175 181 195
Specialty and other products 566 695 607
Pulp 75 130 177
- --------------------------------------------------------------------------------
Total sales $2,297 $2,403 $2,486
================================================================================
Profit (Loss)
Structural products $ 199 $ 22 $ 135
Exterior products 22 9 17
Industrial panel products 6 13 31
Specialty and other products (20) (24) (9)
Pulp (38) (29) (91)
Unusual credits and charges, net1 (48) (32) (350)
General corporate and other
expense, net (94) (80) (52)
Interest, net (13) (29) (8)
- --------------------------------------------------------------------------------
Income (loss) before taxes and
minority interest $ 14 $ (150) $ (327)
================================================================================
1 See Note 7 to the financial statements for an explanation of unusual credits
and charges, net.
-55-
- --------------------------------------------------------------------------------
dollar amounts in millions
- --------------------------------------------------------------------------------
year ended December 31 1998 1997 1996
Identifiable Assets
Structural products $ 927 $1,105 $1,079
Exterior products 46 45 41
Industrial panel products 124 175 179
Specialty and other products 255 302 314
Pulp 178 266 166
Non-segment related 989 685 843
- --------------------------------------------------------------------------------
Total assets $2,519 $2,578 $2,622
================================================================================
Depreciation, amortization and
cost of timber harvested
Structural products $ 105 $ 114 $ 107
Exterior products 7 4 6
Industrial panel products 5 6 6
Specialty and other products 27 26 25
Pulp 12 14 10
Non-segment related 29 20 38
- --------------------------------------------------------------------------------
Total depreciation, amortization
and cost of timber harvested $ 185 $ 184 $ 192
================================================================================
Capital expenditures
Structural products $ 87 $ 116 $ 115
Exterior products 1 5 8
Industrial panel products 2 6 9
Specialty and other products 18 52 48
Pulp 7 4 36
Non-segment related 8 22 50
- --------------------------------------------------------------------------------
Total capital expenditures $ 123 $ 205 $ 266
================================================================================
11. Subsequent Events
On January 25, 1999, L-P commenced a tender offer to purchase all
outstanding shares of ABT Building Products Corporation (ABT) for $15 per share.
On February 25, 1999, L-P and ABT merged following the successful completion of
the tender offer. L-P acquired approximately 10.7 million shares of ABT for cash
proceeds of approximately $160 million.
In March 1999, L-P filed a shelf registration statement for $500 million of
debt securities to be offered from time to time in one or more series. The
amount, price and other terms of any such offering will be determined on the
basis of market conditions and other factors existing at the time of such
offering. The proceeds from the sale of such securities are anticipated to be
used by L-P for general corporate purposes, which may include repayment of debt,
including debt incurred in the acquisition of ABT.
-56-
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Louisiana-Pacific Corporation:
We have audited the accompanying consolidated balance sheets of
Louisiana-Pacific Corporation and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Louisiana-Pacific Corporation and
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Portland, Oregon
January 29, 1999
(February 25, 1999 as to the first paragraph of Note 11)
-57-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Louisiana-Pacific Corporation:
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Louisiana-Pacific Corporation (a Delaware
corporation) for the year 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 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 statement of income is 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, the statements of income, stockholders' equity and cash flows
referred to above present fairly, in all material respects, the results of
operations of Louisiana-Pacific Corporation for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Portland, Oregon,
January 31, 1997
-58-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding L-P's directors is incorporated herein by
reference to the material included under the caption "Item 1--Election of
Directors" in the definitive proxy statement filed by L-P for its 1999 annual
meeting of stockholders (the "1999 Proxy Statement"). Information regarding
L-P's executive officers is located in Part I of this report under the caption
"Executive Officers of Louisiana-Pacific Corporation." 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 1999 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 1999 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 1999 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 1999 Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of L-P are included in this report:
Consolidated Balance Sheets--December 31, 1998, and 1997.
Consolidated Statements of Income--years ended December 31, 1998, 1997, and
1996.
Consolidated Statements of Cash Flows--years ended December 31, 1998, 1997, and
1996.
-59-
Consolidated Statements of Stockholders' Equity--years ended December 31, 1998,
1997, and 1996.
Notes to Financial Statements.
Reports of Independent Public Accountants.
No financial statement schedules are required to be filed.
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed by L-P during the quarter ended
December 31, 1998.
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.
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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 18, 1999 LOUISIANA-PACIFIC CORPORATION
(Registrant)
/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 18, 1999 /s/ MARK A. SUWYN
-------------------------------
Mark A. Suwyn
Chief Executive Officer, Chairman of the Board,
Director
(Principal Executive Officer)
March 18, 1999 /s/ CURTIS M. STEVENS
--------------------------------
Curtis M. Stevens
Vice President, Treasurer and Chief Financial
Officer
(Principal Financial & Accounting Officer)
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Date Signature and Title
March 18, 1999 /s/ JOHN W. BARTER
-------------------------------
John W. Barter
Director
March 18, 1999 /s/ WILLIAM C. BROOKS
-------------------------------
William C. Brooks
Director
March 18, 1999 /s/ ARCHIE W. DUNHAM
-------------------------------
Archie W. Dunham
Director
March 18, 1999 /s/ PAUL W. HANSEN
--------------------------------
Paul W. Hansen
Director
March 18, 1999 /s/ BONNIE G. HILL
---------------------------------
Bonnie G. Hill
Director
March 18, 1999 /s/ DONALD R. KAYSER
--------------------------------
Donald R. Kayser
Director
March 18, 1999 /s/ PATRICK F. MCCARTAN
--------------------------------
Patrick F. McCartan
Director
March 18, 1999 /s/ LEE C. SIMPSON
--------------------------------
Lee C. Simpson
Director
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EXHIBIT INDEX
On written request, Louisiana-Pacific Corporation ("L-P") will furnish
to any record holder or beneficial holder of its common stock any exhibit to
this report upon the payment of a fee equal to L-P'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
- ------- ----------------------
2.1 Purchase Agreement by and between L-P, LPS Corporation, L-P
Redwood, LLC, Louisiana-Pacific Samoa, Inc., and Simpson
Timber Company and Simpson Investment Company dated as of
May 1, 1998. Incorporated by reference to Exhibit 2.1 to
L-P's Form 10-Q report for the quarter ended March 31,
1998.
2.2 Purchase Agreement by and between LPS Corporation, L-P
Redwood, LLC, and Sansome Forest Partners, L.P., dated as
of May 1, 1998. Incorporated by reference to Exhibit 2.2 to
L-P's Form 10-Q report for the quarter ended March 31,
1998.
2.3 Agreement and Plan of Merger dated as of January 19, 1999,
by and among ABT Building Products Corporation, L-P and
Striper Acquisition, Inc. Incorporated by reference to
Exhibit (c)(1) to L-P's Schedule 14D-1 filed January 25,
1999.
3.1 Restated Certificate of Incorporation of Louisiana-Pacific
Corporation as amended to date. Incorporated by reference
to Exhibit 3(a) to L-P's Form 10-Q report for the quarter
ended June 30, 1993.
3.2 Bylaws of Louisiana-Pacific Corporation as amended July 25,
1998. Incorporated by reference to Exhibit 3 to L-P's Form
10-Q report for the quarter ended June 30, 1998.
4.1 Rights Agreement, dated as of May 26, 1998, between L-P and
First Chicago Trust Company of New York as Rights Agent,
including the form of Right Certificate as Exhibit A and
the Summary of Rights to Purchase Preferred Shares as
Exhibit B. Incorporated by reference to Exhibit 1 to L-P's
Registration Statement on Form 8-A filed May 26, 1998.
Pursuant to Item 601 (b)(4)(iii) of Regulation S-K, L-P 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 L-P's total
consolidated assets at December 31, 1998. L-P agrees to
furnish a copy of any such instrument to the Securities and
Exchange Commission upon request.
4.2 Credit Agreement dated as of January 31, 1997, among L-P,
Louisiana-Pacific Canada Ltd., Bank of America National
Trust and Savings Association ("Bank of America") and the
other financial institutions that are parties thereto.
Incorporated by reference to Exhibit 4.A.2 to L-P's Form
10-K report for 1996.
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Exhibit Description of Exhibit
- ------- ----------------------
4.3 Consent and First Amendment to Credit Agreement dated as of
December 31, 1997, among L-P, Louisiana-Pacific Canada
Ltd., Louisiana-Pacific Canada Pulp Co., Bank of America
and the other financial institutions that are parties
thereto.
4.4 Note Purchase Agreement among L-P, L-P SPV2, LLC, and the
Purchasers listed therein dated June 30, 1998. Incorporated
by reference to Exhibit 4 to L-P's Form 10-Q report for the
quarter ended June 30, 1998.
10.1 1984 Employee Stock Option Plan as amended. Incorporated by
reference to Exhibit 10.A to L-P's Form 10-K report for
1996.*
10.2 1991 Employee Stock Option Plan. Incorporated by reference
to Exhibit 10.B to L-P's Form 10-K report for 1996.*
10.3 1992 Non-Employee Director Stock Option Plan (restated as
of May 3, 1998) and Related Form of Option Agreement.
Incorporated by reference to Exhibit 10.1 to L-P's Form
10-Q report for the quarter ended March 31, 1998.*
10.4 Non-Employee Directors' Deferred Compensation Plan
effective July 1, 1997. Incorporated by reference to
Exhibit 10.D to L-P's Form 10-K report for 1997.*
10.5 Executive Deferred Compensation Plan effective May 1, 1997.
Incorporated by reference to Exhibit 10.P to L-P's Form
10-K report for 1997.*
10.6 1997 Incentive Stock Award Plan as restated as of May 3,
1998.*
10.7 Forms of Award Agreements for Non-Qualified Stock Options
and Performance Shares under the 1997 Incentive Stock Award
Plan. Incorporated by reference to Exhibit 10.F(2) to L-P's
Form 10-K report for 1996.*
10.8 Annual Cash Incentive Award Plan effective March 1, 1997.
Incorporated by reference to Exhibit 10.F(3) to L-P's Form
10-K report for 1996.*
10.9 L-P's Supplemental Executive Retirement Plan effective July
1, 1997. Incorporated by reference to Exhibit 10.H to L-P's
Form 10-K report for 1997.*
10.10 Employment Agreement between L-P and Mark A. Suwyn dated
January 2, 1996. Incorporated by reference to Exhibit 10.L
to L-P's Form 10-K report for 1995.*
10.11 Restricted Stock Award Agreement between L-P and Mark A.
Suwyn dated January 31, 1996. Incorporated by reference to
Exhibit 10.J to L-P's Form 10-K report for 1997.*
10.12 1997 Cash Incentive Award for Mark A. Suwyn adopted March
11, 1997. Incorporated by reference to Exhibit 10.K to
L-P's Form 10-K report for 1996.*
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Exhibit Description of Exhibit
- ------- ----------------------
10.13 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
L-P's Form 10-K report for 1996.*
10.14 Executive Employment Agreement effective as of January 1,
1997, by and between L-P and Karen D. Lundquist.
Incorporated by reference to Exhibit 10.M to L-P's Form
10-K report for 1996.*
10.15 Letter agreement dated August 14, 1997, relating to the
employment of Gary C. Wilkerson. Incorporated by reference
to Exhibit 10.N to L-P's Form 10-K report for 1997.*
10.16 Letter agreement dated July 16, 1997, relating to the
employment of Curtis M. Stevens. Incorporated by reference
to Exhibit 10.O to L-P's Form 10-K report for 1997.*
10.17 Form of Change of Control Employment Agreement between L-P
and each of J. Ray Barbee, Warren Easley, Richard W. Frost,
Keith Matheney, Curt Stevens, Mark A. Suwyn, Michael J.
Tull, and Gary C. Wilkerson. Incorporated by reference to
Exhibit 10.2 to L-P's Form 10-Q report for the quarter
ended March 31, 1998.*
10.18 Separation Agreement between Michael D. Hanna and L-P dated
October 29, 1998.*
10.19 Separation Agreement between L-P and Karen Lundquist
Malkewitz dated October 28, 1998.*
10.20 Supplemental Funding Agreement dated October 26, 1998,
between L-P and counsel for plaintiffs in siding class
action litigation. Incorporated by reference to Exhibit
10.1 to L-P's Form 10-Q report for the quarter ended
September 30, 1998.
21 List of L-P's subsidiaries.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
27 Financial data schedule.
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