SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
Amendment No. 1 to
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended March 31, 1999
Commission File Number 1-7107
LOUISIANA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0609074
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111 S. W. Fifth Avenue, Portland, Oregon 97204-3699
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 221-0800
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 the number of shares outstanding of each of the issuer's classes of
common stock: 107,398,225 shares of Common Stock, $1 par value, outstanding as
of April 30, 1999.
EXCEPT AS OTHERWISE SPECIFIED AND UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCES TO "L-P" REFER TO LOUISIANA-PACIFIC CORPORATION AND ITS
SUBSIDIARIES.
This amendment to Form 10-Q is filed in order to amend the following
items: Item 2 of Part I-- Management's Discussion and Analysis of Financial
Condition and Results of Operations; and Item 1 of Part II-- Legal Proceedings.
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND
RESULTS OF OPERATIONS.
Sales increased approximately 10% to $603.1 million in the first quarter
of 1999 from $548.3 million in the first quarter of 1998, and L-P had net income
in the first quarter of 1999 of $27.2 million ($.26 per share) compared to a net
loss in the first quarter of 1998 of $25.1 million ($.23 per share). Improved
market prices for oriented strand board (OSB) and plywood, the acquisition of
ABT, and improved pulp operations were the primary factors for these increases
in sales and earnings.
L-P operates in five segments: structural products; exterior products;
industrial panel products; specialty and other products; and pulp. Structural
products is the most significant segment, accounting for more than 50% of sales
during the first quarter of both 1999 and 1998. L-P's results of operations are
discussed separately for each segment below. Production volumes and industry
product price trends are presented below in the tables captioned "Summary of
Production Volumes" and "Industry Product Price Trends."
SELECTED SEGMENT DATA
INCREASE
QUARTER ENDED MARCH 31, (DECREASE)
----------------------- ----------
DOLLAR AMOUNTS IN MILLIONS 1999 1998 99-98
---------- -------- --------
Sales:
Structural products $ 345.0 $ 281.5 +23%
Exterior products 37.8 28.1 +35
Industrial panel products 53.8 43.2 +25
Specialty and other products 141.6 174.6 -19
Pulp 24.9 20.9 +19
------ -------
Total sales $ 603.1 $ 548.3 +10
====== =======
Profit (loss):
Structural products $ 73.7 $ 5.0 +1,374%
Exterior products 7.7 4.9 +57
Industrial panel products 1.1 .8 +38
Specialty and other products (7.6) (6.7) -13
2
Pulp (5.8) (11.6) +50
General corporate and other
expense, net (25.8) (23.6) -9
Interest income (expense), net .8 (7.6) +111
------ -------
Total profit (loss) $ 44.1 $ (38.8) +214
====== =======
STRUCTURAL PRODUCTS
The structural products segment consists of oriented strand board (OSB),
plywood, lumber and engineered wood products (EWP). The significant growth in
sales in the structural products segment in 1999 was primarily due to price
increases in OSB and plywood offset by lower lumber prices.
OSB market price trends continued upward in 1999. OSB average selling
prices increased 32% in the first quarter of 1999 compared to the first quarter
of 1998. Robust U.S. housing markets have created strong demand for OSB and
plywood. OSB sales volume increased approximately 14% in the first quarter of
1999 compared to the first quarter of 1998, due primarily to a net capacity
increase.
Total plywood sales increased approximately 12% in the first quarter of
1999 compared to the first quarter of 1998. Plywood average selling prices
increased approximately 21% reflecting the strong demand factors discussed
above. Plywood volumes decreased approximately 7% in the same period. This
decrease is primarily the result of a temporary shut-down at one of L-P's
plywood manufacturing facilities and the allocation of additional veneer to
laminated veneer lumber (LVL) production rather than to plywood production.
Lumber sales increased approximately 6% in the first quarter of 1999
compared to the first quarter of 1998. The increase in lumber sales resulted
from an increase in volume of approximately 13% offset by a 6% decrease in
average selling prices. The volume increase reflects a shift to a higher
percentage of outside sales in 1999 compared to 1998 and a lower percentage of
sales to the distribution business within L-P (part of the Specialty and other
products segment).
Engineered wood products (EWP) include engineered I-Joists, LVL and
hardwood veneer. Sales of EWP products increased significantly, primarily as a
result of a marketing agreement to sell the products of an independent producer.
Sales volumes also increased in this segment due to strong residential and
commercial construction markets. The average selling prices of EWP products did
not change significantly.
In the first quarter of 1999, profitability of the structural products
segment increased significantly, largely as a result of price improvements for
OSB and plywood and improvement in the efficiency of L-P's production
facilities. Lower log costs in the southern region of the country contributed to
the increase in plywood earnings. Log costs in the southern region of the
country decreased approximately 9% in the first quarter of 1999 compared to the
first quarter of 1998. Log costs in northern regions and Canada decreased
approximately 3% compared to the
3
prior-year period. Structural products profits also benefited in 1999 from the
sale of unprofitable California operations in mid-1998.
EXTERIOR PRODUCTS
The exterior product segment consists of siding and related products such
as soffit, facia and trim. In 1999, this segment includes new products from the
purchase of ABT, including hardboard siding, vinyl siding and other products.
Average sales prices of OSB-based exterior products increased slightly in the
first quarter of 1999 compared to the first quarter of 1998, while volumes
decreased about 8%. Total sales and profits increased in 1999 primarily due to
the acquisition of ABT.
INDUSTRIAL PANEL PRODUCTS
The industrial panels segment consists of particleboard, medium density
fiberboard (MDF) and hardboard and, in 1999, the laminated industrial panel
products of ABT. The addition of the ABT's industrial panel products in 1999 is
the primary reason for the increase in sales and profits in this segment.
SPECIALTY AND OTHER PRODUCTS
The specialty and other products segment includes distribution facilities,
wood chips, coatings and chemicals, cellulose insulation, Ireland operations,
Alaska operations, moldings and other products. In the first quarter of 1999,
sales for this segment decreased 19% compared to the first quarter of 1998,
primarily due to the sale of the assets of the Weather-Seal windows and doors
division, Creative Point Inc. and two California distribution facilities,
partially offset by sales of certain ABT products.
PULP
Pulp segment operations in the first quarter of 1999 continued to be
impacted by the worldwide over-capacity in the pulp industry and the Asian
market crisis, although pricing did improve late in the quarter as the Asian
economy improved slightly. Total losses in the first quarter of 1999 decreased
50% compared to the first quarter of 1998 due to partial recovery of inventory
market write-downs taken in previous periods and lower unit costs due to higher
production volumes. L-P's pulp facilities took significant downtime in the first
quarter of 1998. Sales increased primarily due to volume increases.
GENERAL CORPORATE EXPENSE, NET
General corporate expense increased primarily due to the addition of sales
and marketing personnel as L-P has increased its focus on customers and
additional costs for administrative infrastructure, including the conversion to
new accounting and human resource systems.
INTEREST, NET
Cash from asset sales was used to repay loans and lines of credit in late
1998, reducing debt levels and interest expense into early 1999. Interest
expense rose slightly late in the first quarter
4
of 1999 and will continue to be higher in the future as a result of borrowings
to finance the acquisition of ABT.
LEGAL AND ENVIRONMENTAL MATTERS
For a discussion of legal and environmental matters involving L-P and the
potential impact thereof on L-P's financial position, results of operations and
cash flows, see "Legal Proceedings" in Part II of this report.
OSB SIDING LITIGATION UPDATE
The following discussion updates, and should be read in conjunction with,
the discussion of L-P's OSB siding litigation set forth in Item 7 of L-P's
amended annual report on Form 10-K, Management's Discussion and Analysis of
Financial Condition and Results of Operations, under the subheading "Legal
Matters."
Through the first three months of 1999, claimants have continued to file
claims under the National Settlement at a steady pace while the rate of claims
filed under the Florida Settlement has decreased. L-P is making a concerted
effort to maximize the level of participation in the Second Fund, including
participation by claimants who filed eligible claims during the first three
months of 1999. However, L-P will not be able to assess the impact of the Second
Fund on its total siding liability until several steps are completed after the
December 31, 1999 deadline for the submission of claims eligible to participate
in the Second Fund has passed, including the verification and calculation of
individual claim amounts and the opportunity for each claimant to opt out of the
Second Fund after they have been informed of their pro rata settlement amount.
L-P's management does not expect to have all the information necessary to make
its decision until some time in the second or third quarter of 2000.
As of March 31, 1999, approximately 231,000 requests had been received
for claim forms for the National Settlement and the Florida Settlement
compared to 215,000 at December 31, 1998. Approximately 146,000 completed
claim forms have been received compared to 138,000 at December 31, 1998. The
average payment amount for settled claims as of March 31, 1999 and December
31, 1998 is approximately $5,100. The total number of completed claim forms
pending (not settled) as of March 31, 1999 was approximately 52,000
(approximately 56,000 at December 31, 1998) with approximately 71,000 claims
settled (approximately 61,000 at December 31, 1998) and approximately 23,000
claims dismissed (approximately 21,000 at December 31, 1998). Dismissal of
claims is typically the result of claims for product not produced by L-P or
claims that lack sufficient information or documentation after repeated
efforts to correct those deficiencies. The average payment amount for claims
settled after March 31, 1999 may be significantly impacted by the Second Fund.
The accruals for OSB siding claims relating to both the National
Settlement and the Florida Settlement, including related legal costs, settlement
administration costs, claims of persons who opted-out of the settlements and
residual warranty claims, have been analyzed and accounted for collectively. The
activity in the combined accruals for the first three months of 1999 is as
follows (does not include accruals for ABT hardboard siding matters):
5
IN MILLIONS
Balance at December 31, 1998 $ 323.9
Accruals made during the period --
Payments (66.0)
Insurance recoveries --
---------
Balance at March 31, 1999 $ 257.9
=========
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $11 million in the first quarter of
1999 compared to $43 million used in operations in the first quarter of 1998.
The increase in cash provided by operations resulted primarily from improved
operating results and tax refunds. Partially offsetting these increases, L-P
made $64 million in litigation-related payments during the first quarter of 1999
compared to $16 million in the first quarter of 1998.
Net cash used in investing activities was $232 million in the first
quarter of 1999 compared to net cash used in investing activities of $32 million
in the first quarter of 1998. L-P used $209 million of funds to acquire ABT in
February 1999. Capital expenditures in property, plant, equipment and timber
decreased in the first quarter of 1999 compared to the same period in 1998
primarily because L-P did not have any new mills under construction. L-P has
announced plans to build several wood-processing facilities in Canada, including
an OSB plant, and is building an OSB plant in Chile.
In the first quarter of 1999, L-P borrowed $165 million, primarily to
finance the acquisition of ABT. Borrowings in the first quarter of 1998 were
primarily used to fund operations.
L-P expects to be able to meet its cash requirements through cash from
operations, existing cash balances, existing credit facilities and access to the
capital markets. Cash and cash equivalents totalled $43 million at March 31,
1999 compared to $127 million at December 31, 1998. L-P has a $300 million
revolving credit facility available through January 2002, under which L-P had
$65 million of borrowings outstanding at March 31, 1999. L-P also had $100
million of borrowings under a new uncommitted bank credit facility outstanding
at March 31, 1999. L-P has filed a shelf registration statement for the sale of
up to $500 million of debt securities to be offered from time to time in one or
more series. 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 connection with the acquisition of ABT).
Changes in L-P's balance sheet from December 31, 1998 to March 31, 1999,
including increases of $77 million in accounts receivable, $60 million in
inventories, $111 million in net property, plant and equipment and $75 million
in goodwill, resulted primarily from the consolidation of ABT and L-P for
financial reporting purposes. The increase of $137 million in current
liabilities resulted primarily from the consolidation of ABT and an increase in
the current portion of contingency reserves to reflect the expected payment, in
the first quarter of 2000, of the second fund relating to L-P's nationwide class
action siding litigation settlement.
Contingency reserves, which represent an estimate of future cash needs for
various contingencies (primarily payments for siding litigation settlements),
totalled $323 million at March 31, 1999, of which $205 million is estimated to
be payable within one year. As with
6
many accounting estimates, there is inherent uncertainty concerning the
reliability and precision of these estimates. The amounts ultimately paid in
resolving these contingencies could exceed the current reserves by a material
amount. Contingency reserves decreased in 1999 due to the continued
implementation of the early payment program relating to L-P's nationwide class
action siding litigation settlement. Litigation-related payments totalled $64
million for the first quarter of 1999.
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. Accordingly, L-P now considers the potential impact
of the Year 2000 in connection with all in-house application development and
purchases of third-party software. In the fall of 1997, L-P undertook a formal
project to address its Year 2000 exposure and readiness. As discussed separately
under the caption "ABT" below, ABT undertook a similar project prior to being
acquired by L-P.
All of L-P's business groups, 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. The project is
continuously monitored by a management steering committee and L-P's internal
auditors to ensure that proper methodology is being followed, that adequate
controls are in place and that appropriate steps are being taken to limit risk.
In addition, periodic reports are made to senior management, the finance and
audit committee and the board of directors.
The project is divided into three primary areas: (1) information systems;
(2) manufacturing systems/building infrastructure; and (3) business partners
(including suppliers and customers).
INFORMATION SYSTEMS. L-P's information systems include such common business
applications as payroll, human resources, sales order entry, inventory
management, finance and accounting. L-P's Year 2000 project phases for
information systems include: inventorying and prioritizing all information
systems; assessing the Year 2000 readiness of such systems; remediating such
systems (through conversion, upgrades, replacement or risk-managed acceptance of
non-compliant items); testing; and developing and implementing contingency
plans, to the extent determined to be appropriate, for each mission critical
system. The inventory and assessment phases for L-P's information systems have
been completed. L-P has replaced its basic payroll, human resources and most
accounting applications with off-the-shelf packages, the initial implementation
of which was completed as of January, 1999. Approximately 23% of L-P's other
business critical information systems require further remediation through system
upgrades and/or replacements. The remediation of most of these systems is
expected to be completed by June 30, 1999, and the remediation of all of these
systems is scheduled for completion by September 30, 1999. Testing and
contingency planning are underway and are scheduled to be completed by November
30, 1999.
7
MANUFACTURING SYSTEMS/BUILDING INFRASTRUCTURE. With respect to L-P's
manufacturing systems and BUILDING infrastructure, the Year 2000 project is
focused on surveying and, where necessary, remediating all computer-controlled
and/or embedded devices used in L-P's manufacturing processes or in building
infrastructure (such as the heating and air conditioning systems, security
access and alarm systems, telephones, and office equipment used in L-P's offices
and plants). The Year 2000 project phases for manufacturing systems and building
infrastructure include: inventorying items that are exposed to Year 2000 issues;
assessing the Year 2000 readiness of such items; remediating such items (through
conversion, upgrades, replacement, or risk-managed acceptance of non-compliant
items), testing; and developing and implementing contingency plans, to the
extent determined to be appropriate, for each business group and facility
location. The inventory phase for L-P's manufacturing systems and building
infrastructure has been completed. More than 96% of the inventoried systems have
been assessed for Year 2000 readiness, with completion of this phase scheduled
for May 1999. Approximately 5% of L-P's manufacturing systems and building
infrastructure assessed to date have been determined to require remediation.
Most of the required remediation is expected to be completed by June 30, 1999
and all required remediation is scheduled to be completed by September 30, 1999.
Testing and contingency planning are underway and are scheduled to be completed
by November 30, 1999.
BUSINESS PARTNERS. L-P also faces the risk of business disruption from outside
business partners, which may have information systems, manufacturing systems or
infrastructure that are not Year 2000 compliant. In this regard, L-P's Year 2000
project includes identifying and prioritizing L-P's major business partners
(primarily suppliers of raw materials and essential services such as utilities
and transportation and significant customers), assessing their Year 2000
readiness and developing contingency plans where appropriate. The identification
and prioritization phases have been completed and L-P has requested that all of
its major business partners respond to a survey eliciting information as to
their Year 2000 readiness. Of the approximately 40% of the business partners
that have responded to the survey, none have disclosed significant readiness
issues. L-P plans to reiterate its request for information from all critical
business partners that have not responded to the survey by July 31, 1999 and to
monitor the Year 2000 readiness of its most critical business partners
throughout 1999. If L-P's efforts in this regard cause it to believe that
significant risk is present, L-P will seek to identify alternate business
partners and to develop contingency plans to address potential business
disruptions prior to December 1999.
COSTS. The total expense associated with L-P's Year 2000 project is presently
estimated to be approximately $5.5 million, of which approximately $1.3 million
had been incurred by March 31, 1999. These costs are being expensed as incurred
and are not expected to have a material effect on L-P's financial position or
results of operations. These costs do 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.
MOST REASONABLY LIKELY WORST-CASE SCENARIO. The occurrence of unscheduled
downtime at L-P's facilities resulting from internal or third-party system
failures could have an adverse effect on L-P's business, results of operations
and cash flows. In this regard, L-P believes that its dependence on third
parties for critical services such as telecommunications, energy, water and
other utilities, financial services and transportation poses the greatest risk.
L-P is seeking to
8
assess the Year 2000 readiness of all mission critical systems and business
partners and to develop appropriate contingency plans. These plans may include
identifying alternative systems and suppliers and assisting major customers who
may be affected by Year 2000 issues. However, there can be no assurance that L-P
will not experience unscheduled downtime, business disruptions or other adverse
consequences of the Year 2000 problem.
ABT. ABT implemented a project to address its Year 2000 exposure and readiness
prior to its acquisition by L-P. ABT's Year 2000 project is generally similar in
scope and structure to L-P's Year 2000 project. Most of the required remediation
of ABT's systems and building infrastructure is expected to be completed by June
30, 1999 and all required remediation is scheduled to be completed by September
30, 1999. L-P has substantially completed the process of integrating ABT's Year
2000 project into L-P's Year 2000 project. However, the discussion of L-P's Year
2000 project contained in this report does not address ABT's information
systems, manufacturing systems, building infrastructure, business partners or
Year 2000 project.
ADDITIONAL CONSIDERATIONS. Despite the extensive efforts of L-P's project team,
it is likely that some unexpected problems associated with the Year 2000 issue
will arise. In addition, the costs and completion dates for L-P's Year 2000
project discussed herein are based on management's estimates, which were derived
using numerous assumptions regarding future events, including continued
availability of certain resources, remediation plans of business partners and
other factors. There can be no assurance that these estimates will be achieved
and actual results could differ significantly from L-P's current expectations.
9
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
SUMMARY OF PRODUCTION VOLUMES
QUARTER ENDED MARCH 31,
-----------------------
1999 1998
---- ----
Oriented strand board
panels and siding,
million square feet 3/8" basis 1,152 1,015
Softwood plywood,
Million square feet 3/8" basis 223 231
Lumber, million board feet 260 286
Industrial panel products*
(particleboard, medium density
fiberboard and hardboard),
million square feet 3/4" basis 142 144
Engineered I-Joists,
Million lineal feet 24 22
Laminated Veneer Lumber (LVL),
Thousand cubic feet 1,749 1,631
Pulp, thousand short tons 95 50
- --------
* Excludes ABT products.
10
INDUSTRY PRODUCT PRICE TRENDS
OSB PLYWOOD LUMBER PARTICLEBOARD
------------------ ---------------- ------------------ ---------------------------
N. CENTRAL SOUTHERN
7/16" BASIS PINE 1/2" FRAMING
24/16 BASIS LUMBER INLAND
SPAN CDX COMPOSITE INDUSTRIAL
RATING 3 PLY PRICES 3/4" BASIS
------------------ ---------------- ------------------ ---------------------------
Annual Average
1993 $ 236 $ 282 $ 394 $ 258
1994 265 302 405 295
1995 245 303 337 290
1996 184 258 398 276
1997 142 265 417 262
1998 205 284 349 259
1998 First Quarter 158 266 368 253
Average
1998 Fourth Quarter 176 301 340 255
Average
1998 First Quarter 259 329 394 254
Average
Source: Random Lengths
11
PART II - OTHER INFORMATION
ITEM 1. 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 violations of the Clean
Water Act and the Clean Air Act that occurred at KPC's pulp mill during the late
1980's and early 1990's. These agreements were subsequently approved by the U.S.
District Court for the District of Alaska. In addition to civil and criminal
penalties that were paid in 1995, KPC agreed to undertake certain remedial and
pollution-control projects. These projects included (i) capital projects for
spill containment and water treatment plant upgrades estimated to cost
approximately $13.4 million (of which approximately $7.5 million had been spent
at March 31, 1999) and (ii) non-capital projects relating to the investigation
and remediation of Ward Cove, a body of water adjacent to the mill site,
estimated to cost approximately $6.3 million (of which approximately $1.8
million had been spent at March 31, 1999). As a result of the closure of the
mill in May 1997, KPC's obligations with respect to the capital projects have
been suspended through January 2000, and KPC is in the process of seeking
permanent relief from those obligations. KPC's obligations with respect to the
Ward Cove investigation and remediation have not been affected by the closure of
the mill.
In June 1997, KPC entered into an agreement with the State of Alaska and
the U.S. Environmental Protection Agency (the "EPA") to investigate and, if
necessary, clean up the former mill site. KPC has completed the investigative
portion of this project and commenced work on the clean-up portion of this
project, which is expected to be completed in mid-1999. Total costs associated
with this project are estimated to be approximately $2.7 million, of which
approximately $2.6 million had been spent at March 31, 1999.
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 $6.5 million. KPC is also continuing to monitor
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. 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
noncompliance. 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
12
resulting from the matters discussed above will not have a material adverse
effect on the consolidated financial position or results of operations of L-P.
Colorado Criminal Proceedings
In June 1995, a federal grand jury returned an indictment in the U.S.
District Court for the District of 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, (i) L-P agreed to pay total penalties of $37
million (including making $500,000 in charitable contributions), of which $12
million was paid in 1998, and was sentenced to five years of probation and (ii)
all remaining charges against L-P were dismissed. Under the terms of the
original agreement, the $25 million balance of the fine assessed against L-P,
which is secured by a statutory lien, was payable in three equal annual
installments, together with accrued interest, beginning July 1, 2000. However,
in April 1999, the court approved a modification to the agreement, which now
provides for the payment of this balance, without interest, on June 1, 1999.
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 (i)
develop and implement certain corporate policies and programs, including a
policy of cooperation with the EPA, an employee disclosure program and a policy
of nonretaliation against employees, (ii) conduct its business to the best of
its ability in accordance with federal laws and regulations and local and state
environmental laws, (iii) report significant violations of law to the EPA, and
(iv) conduct at least two audits of its compliance with the agreement.
OSB Siding Matters
L-P has been named as a defendant in numerous class action and nonclass
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 U.S. 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
13
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 contribute $275 million to the settlement
fund in seven annual installments payable during the period from 1996 through
2002 in the following amounts: $100 million; $55 million; $40 million; $30
million; $20 million; $15 million; and $15 million. As of March 31, 1999, 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. The estimated cumulative total of approved claims under the
settlement, as calculated under the terms of the settlement (without giving
effect, in the case of unpaid claims, to discounted settlements under the Early
Payment Program), exceeded $550 million at March 31, 1999. In these
circumstances, unless L-P makes an additional contribution of $50 million to the
settlement fund by August 2001, the settlement will terminate as to all claims
in excess of $275 million that remain unpaid. In addition, unless L-P makes a
second additional contribution of $50 million to the settlement fund by August
2002, the settlement will terminate as to all claims in excess of $325 million
that remain unpaid. If L-P makes both of these additional contributions, the
settlement would continue in effect until at least August 2003, at which time
L-P would be required to make an election with respect to all unpaid claims that
were filed prior to December 31, 2002. If, in August 2003, L-P elects to pay
pursuant to the settlement all approved claims that remain unpaid at that time,
50% of the unpaid claims must be paid by August 2004 and the remaining 50% must
be paid by August 2005. If L-P elects not to pay the unpaid claims pursuant to
the settlement, the settlement will terminate with respect to such unpaid claims
and all unpaid claimants will be free to pursue their individual remedies from
and after August 2003.
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
14
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 March 31, 1999, approximately $5.9 million remained of the
$195 million paid into the fund to date (all of which is presently dedicated to
the payment of expenses or held in reserve).
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 Fund").
The Early Payment Program applies to all claimants who are entitled to be
paid from the $80 million of mandatory contributions to the settlement fund that
remain to be made under the settlement agreement, and to all claimants who
otherwise would be paid from the proceeds of the two optional $50 million
contributions to the settlement fund that L-P may elect to make under the
settlement agreement. The early payments from the $80 million of mandatory
contributions 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,
respectively, to the date the early payment offer was made. 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. For
purposes of determining whether L-P has made any mandatory or optional
contribution to the settlement fund as of the respective due date therefor, L-P
will receive credit for the undiscounted amount of such contribution to which
the discounted amount thereof paid pursuant to the Early Payment Program is
attributable. At March 31, 1999, approximately $130.3 million in Early Payment
Program checks had been mailed and $117.3 million had been cashed in settlement
claims, while approximately $3.0 million in such checks remained to be mailed.
Giving effect only to Early Payment Program checks that had actually been
cashed, L-P had effectively satisfied a cumulative total of approximately $350.5
million of its mandatory and optional contributions to the settlement fund at
March 31, 1999.
The $125 million Second 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 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
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
Fund, L-P may refuse to proceed with funding at its sole option. In that event,
the Second Fund will be canceled and all the claimants who had elected to
participate in it will be governed by the original settlement.
15
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.
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 the Circuit Court
of Choctaw County, Alabama, on December 21, 1995 and in six other putative class
action proceedings filed in the following courts on the following dates: the
Court of Common Pleas of Allegheny County, Pennsylvania on August 8, 1995; the
Superior Court of Forsyth County, North Carolina on December 27, 1996; the
Superior Court of Onslow County, North Carolina on January 21, 1997; the Court
of Common Pleas of Berkeley County, South Carolina on September 25, 1997; the
Circuit Court of Bay County, Florida on March 11, 1998 (subsequently removed to
the U.S. District Court for the Northern District of Florida); and the Superior
Court of Dekalb County, Georgia on September 25, 1998. These actions were
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 actions 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.
L-P, the ABT Entities and the Abitibi Entities have also been named as
defendants in a putative class action proceeding filed in the Circuit Court of
Jackson County, Missouri on April 22, 1999 and brought on behalf of a purported
class of persons in Missouri who own or have purchased hardboard siding
manufactured by the defendants. In general, the plaintiffs in this proceeding
have alleged breaches of warranty, fraud, misrepresentation, negligence, strict
liability and other theories related to alleged defects, deterioration or other
failure of such
16
hardboard siding, and seek restitution, punitive damages, attorneys' fees and
other relief. L-P and the ABT Entities intend to defend this proceeding
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 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. Based on the information
currently available, management believes that the resolution of the foregoing
matters will not have a material adverse effect on the financial position or
results of operations of L-P.
Other Proceedings
LP 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 consolidated financial position or results of operations of L-P.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOUISIANA-PACIFIC CORPORATION
Date: February 15, 2000 By /s/ Gary C. Wilkerson
-------------------------------------
Gary C. Wilkerson
Vice President and General Counsel
Date: February 15, 2000 By /s/ Curtis M. Stevens
-------------------------------------
Curtis M. Stevens
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
18