Washington, D.C. 20549
FORM 10-K
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, 1999 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
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $1 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant: $1,143,540,818 as of March 8, 2000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock: 104,118,409 of Common Stock, $1 par value, outstanding
as of March 3, 2000.
Documents Incorporated by Reference
Definitive Proxy Statement for 2000 Annual Meeting: Part III
EXCEPT AS OTHERWISE SPECIFIED AND UNLESS THE CONTEXT OTHERWISE REQUIRES,
REFERENCES TO "L-P" REFER TO LOUISIANA-PACIFIC CORPORATION AND ITS SUBSIDIARIES.
ABOUT FORWARD-LOOKING STATEMENTS
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 provide a "safe harbor" for all forward-looking
statements to encourage companies to provide prospective information about their
businesses and other matters as long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the statements. This report contains, and
other reports and documents filed by L-P with the Securities and Exchange
Commission may contain, forward-looking statements. These statements are or will
be based upon the beliefs and assumptions of, and on information available to,
the management of L-P.
The following statements are or may constitute forward-looking
statements: (1) statements preceded by, followed by or that include the words
"may," "will," "could," "should," "believe," "expect," "anticipate," "intend,"
"plan," "estimate," "potential," "continue" or "future" or the negative or other
variations thereof and (2) other statements regarding matters that are not
historical facts, including without limitation, plans for product development,
forecasts of future costs and expenditures, possible outcomes of legal
proceedings and the adequacy of reserves for loss contingencies. These
forward-looking statements are subject to various risks and uncertainties,
including the following:
- Risks and uncertainties relating to the possible invalidity of the
underlying beliefs and assumptions;
- Possible changes or developments in social, economic, business,
industry, market, legal and regulatory circumstances and conditions;
and
- Actions taken or omitted to be taken by third parties, including
customers, suppliers, business partners, competitors and legislative,
regulatory, judicial and other governmental authorities and officials.
In addition to the foregoing and any risks and uncertainties
specifically identified in the text surrounding forward-looking statements, any
statements in the reports and other documents filed by L-P with the Commission
that warn of risks or uncertainties associated with future results, events or
circumstances identify important factors that could cause actual results, events
and circumstances to differ materially from those reflected in the
forward-looking statements.
PART I
ITEM 1. Business
GENERAL
L-P is a major building products firm, operating approximately 80
facilities in the United States, Canada and Ireland. For financial reporting
purposes, L-P divides its businesses into the following business segments: (1)
Structural Products, which includes structural panel products (oriented strand
board ("OSB") and plywood), lumber, engineered wood products ("EWP") and wood
fiber resources; (2) Exterior Products, which includes wood and vinyl siding and
accessories; (3) Industrial Panel Products, which includes particleboard, medium
density fiberboard ("MDF"), hardboard and decorative panels; (4) Other Products;
and (5) Pulp. With the exception of pulp, L-P's products are used primarily in
new home construction, repair, remodeling and manufactured housing. L-P
distributes its building products primarily through third-party distributors and
home centers.
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.
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The following description of L-P's business reflects the acquisition by
L-P of: (i) ABT Building Products Corporation ("ABT"), which was acquired on
February 25, 1999; (ii) Le Groupe Forex Inc. ("Forex"), which was acquired on
September 14, 1999; and (iii) certain assets of Evans Forest Products Ltd.
("Evans"), which were acquired on November 30, 1999. See "Recent Acquisitions
and Dispositions" below.
STRUCTURAL PRODUCTS
STRUCTURAL PANEL PRODUCTS. L-P is one of the largest North American
producers of OSB and is a major manufacturer of plywood. OSB is a
manufactured composite wood product that is generally used as a lower cost
substitute for plywood. These structural panel products are primarily used in
new residential construction and remodeling applications such as subfloors,
walls and roofs. According to the APA - The Engineered Wood Association, the
total North American market for structural panel products (OSB and plywood)
is approximately 37 billion square feet annually. The OSB share of these
products is approximately 50%, up from approximately 25% in 1990. In the past
decade, land use regulations and endangered species and environmental
concerns have resulted in reduced supplies and higher costs for domestic
timber, causing many plywood mills to close permanently. The volume lost from
those closed mills has been replaced primarily by OSB.
L-P has 14 OSB mills in North America with a combined annual production
capacity of approximately 5.8 billion square feet (three of which, having a
combined annual production capacity of approximately 1,640 square feet, were
added through the acquisition of Forex). L-P also owns 65% of a joint venture in
Ireland which has an OSB mill with an annual production capacity of
approximately 450 million square feet, the output of which is primarily
distributed in Ireland, the United Kingdom and Western Europe (this mill is
considered part of L-P's Other Products segment because it does not primarily
sell to North American customers).
L-P has five plywood mills in the southern United States with a
combined annual production capacity of approximately 1.2 billion square feet and
one plywood mill in the Province of British Columbia (acquired from Evans) with
an annual production capacity of approximately 150 million square feet. Certain
of these mills also produce veneers used in the manufacture of laminated veneer
lumber. See Engineered Wood Products below.
LUMBER. L-P produces lumber in a variety of standard and specialty
grades and sizes, and believes it is the largest North American producer of
stud lumber.
L-P has eight sawmills in the western United States with a combined
annual production capacity of approximately 735 million board feet, nine
sawmills in the southern United States with a combined annual production
capacity of approximately 285 million board feet, two sawmills in the Province
of Quebec (added through the acquisition of Forex) with a combined annual
production capacity of approximately 120 million board feet, and one sawmill in
the Province of British Columbia (acquired from Evans) with an annual production
capacity of approximately 50 million board feet.
ENGINEERED WOOD PRODUCTS. L-P is one of the largest North American
manufacturers of EWP, including I-joists and laminated veneer lumber ("LVL").
L-P believes that its engineered I-joists, which are used primarily in
residential and commercial flooring and roofing systems and other structural
applications, are stronger, lighter and straighter than conventional lumber
joists. L-P's LVL is a high-grade, value-added structural product used in
applications where extra strength is required, such as headers and beams. It is
also used, together with OSB and lumber, in the manufacture of engineered
I-joists.
WOOD FIBER RESOURCES. L-P obtains wood fiber for its mills from several
sources: fee-owned timberland, timber deeds, cutting contracts from other
private and public landowners in the United States, Canada and Ireland and
purchases from third parties. L-P owns approximately one million acres of
timberland primarily in the southern and southeastern United States, which
supplied approximately 11% of its overall timber needs in 1999. See Item 2
"Properties" for additional discussion of L-P's timber resources.
L-P's mills are generally located in areas that are in close proximity
to large and diverse supplies of wood fiber. In areas where L-P does not own a
significant amount of timberlands, its mills generally have the ability to
procure wood fiber at competitive prices from third-party sources.
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EXTERIOR PRODUCTS
L-P manufactures exterior siding and other cladding products for the
residential and commercial building markets. The acquisition of ABT
substantially enhanced L-P's position in siding products and expanded its range
of siding product offerings. The acquisition also added other complementary
product lines, such as trim and accessory products.
L-P 's siding product offerings fall into three categories: (1)
SmartSystem(R) products, (2) hardboard siding products, and (3) vinyl siding
products. These products are distributed through retail outlets and to builders
and siding contractors. L-P 's portfolio of products offers customers a variety
of siding choices at various performance levels and prices.
THE SMARTSYSTEM(R) PRODUCTs. L-P's SmartSystem(R) products consist of a
full line of OSB-based sidings, trim, soffit and facia. These products have
quality and performance characteristics similar to solid wood at relatively more
attractive prices due to lower raw material and production costs. L-P
manufactures its SmartSystem(R) products at three facilities which have a
combined annual production capacity of approximately 400 million square feet.
Beginning in 2000, a fourth facility will begin manufacturing these products.
HARDBOARD SIDING. L-P believes it is the largest producer of hardboard
siding products in North America. L-P's product offerings include a number of
lap and panel siding products in a variety of patterns and textures, as well as
trim products. L-P operates two hardboard siding products facilities, one in the
southern United States and one in Canada, with a combined annual production
capacity of over 500 million square feet.
VINYL SIDING. L-P also manufactures vinyl siding products and
accessories, which it markets under the brand names, among others, Fieldbrook,
Harbor Ridge and Waterford. These products are available in various styles and
colors. L-P manufactures these products at two facilities, one in the southern
United States and one in Canada, with a combined annual production capacity of
three million squares (i.e., units consisting of 100 square feet of material
with an average weight of 32 pounds).
Additionally, the Exterior Products segment includes certain products
that are in the developmental stage, such as OSB concrete form (panels used in
the process of forming concrete structures), treated OSB and composite decking.
Following satisfactory development, L-P intends to invest in appropriate
technological and sales and marketing support to commercialize these products.
INDUSTRIAL PANEL PRODUCTS
L-P manufactures industrial panel products--particleboard, medium
density fiberboard ("MDF") and hardboard -- at ten plants (three of which were
added through the acquisition of ABT). The combined annual production capacity
of these plants is approximately 360 million square feet of particleboard, 230
million square feet of MDF and 800 million square feet of hardboard and
decorative panels.
Part of L-P's strategy in its Industrial Panel Products segment is to
focus on L-P's value-added specialty products that are complementary to its
other product offerings. These value-added specialty product lines include
flooring, shelving, door skins, door parts, decorative panels, paneling and
other specialty applications.
OTHER PRODUCTS
The Other Products segment includes value-added products such as
Cocoon(TM) cellulose insulation, which is produced from recycled newspaper
and has higher insulation efficiency performance levels and superior
sound-deadening qualities compared to conventional fiberglass insulation of
comparable thickness. This segment also includes the molding products of ABT,
as well as L-P's distribution and wholesale business, wood chips and Ireland
operations. Historically, the segment included coatings and specialty
chemicals (sold in December 1999) and Alaska lumber and logging operations
(sold in November 1999).
-4-
PULP
L-P has two pulp mills located in Samoa, California, and Chetwynd,
British Columbia, Canada. L-P is seeking to sell the Chetwynd, British Columbia
pulp mill, which is presently managed by an unrelated party pursuant to a
management agreement having a term of 24 months that expires in April 2001. In
addition, L-P is exploring the possible sale of the Samoa, California pulp mill.
Pulp accounted for approximately 4% of L-P's net sales in 1999.
EMPLOYEES
L-P had approximately 13,000 employees at December 31, 1999. L-P
believes that its relations with its employees are good.
RAW MATERIALS
The principal raw materials used in L-P's business are logs, which are
generally available from numerous sources. See 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.
The Company also uses various resins in the manufacturing processes of
its structural and industrial panel products as well as certain of its vinyl
products. Resin product prices are influenced by changes in the raw materials
used to produce resin, primarily petroleum products, and other competitive
pressures.
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 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, availability and
delivery 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.
ENVIRONMENTAL COMPLIANCE
L-P's operations are subject to a variety of environmental laws and
regulations governing, among other things, the restoration and reforestation of
timber lands, discharges of pollutants and other emissions on or into land,
water and air, the disposal of hazardous substances or other contaminants and
the remediation of contamination. In addition, certain environmental laws and
regulations impose liability and responsibility on present and former owners,
operators or users of facilities and sites for contamination at such facilities
and sites without regard to causation or knowledge of contamination. Compliance
with environmental laws and regulations can significantly increase the costs of
L-P's operations and otherwise result in significant costs and expenses.
Violations of environmental laws and regulations can subject L-P to additional
significant costs and expenses, including defense costs and expenses and civil
and criminal penalties. There can be no assurance that the environmental laws
and regulations to which L-P is subject will not become more stringent, or be
more stringently implemented or enforced, in the future.
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
-5-
asset's useful life, improve efficiency, or improve the marketability of certain
properties. L-P believes that its estimated capital expenditures for
environmental control facilities in 2000 and 2001 are not material.
Additional information concerning environmental matters is set forth
under Item 3, Legal Proceedings, and in Note 8 of the Notes to financial
statements in Item 8.
EXECUTIVE OFFICERS OF LOUISIANA-PACIFIC CORPORATION
Information regarding each executive officer of L-P as of March 8, 2000
(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 57, 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 52, 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 45, 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 58, 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 48, 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.
M. WARD HUBBELL, age 39, 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 51, 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 47, 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 54, 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 53, 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.
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WALTER M. WIRFS, age 52, 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.
RECENT ACQUISITIONS AND DISPOSITIONS
In November 1999, L-P acquired certain assets of Evans for
approximately $98 million and the assumption of certain liabilities of Evans.
The acquired assets constitute substantially all of the assets formerly used by
Evans in manufacturing plywood, veneer, LVL and cedar lumber decking.
In September 1999, L-P acquired the outstanding shares of Forex
pursuant to a tender offer. The aggregate purchase price for all outstanding
Forex shares was approximately $516 million, based on the exchange rate in
effect on the date of completion of the tender offer. L-P also assumed certain
liabilities of Forex. Forex was one of the largest North American producers of
OSB.
In February 1999, L-P acquired all of the outstanding shares of ABT
for approximately $164 million and assumed certain liabilities of ABT. ABT is
one of the largest manufacturers of exterior hardboard siding in the United
States and is a leading manufacturer of plastic resin specialty building
products. ABT's other products include exterior vinyl siding and trim, interior
hardboard items such as paneling and tileboard and decorative prefinished
moldings.
In the fourth quarter of 1999, L-P sold most of the assets of its
Ketchikan Pulp Company ("KPC") operations in Alaska and sold its Associated
Chemists, Inc. subsidiary, which manufactured coatings and specialty chemicals.
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SEGMENT AND PRICE TREND DATA
The following table sets forth, for each of the last five years, (1)
L-P's consolidated net sales by business segment, (2) L-P's consolidated profit
(loss) by business segment, (3) production volumes, (4) the average wholesale
price of selected building products in the United States, and (5) logs used in
production by source. This information should be read in conjunction with the
consolidated financial statements (including the notes thereto) and the other
information contained in this report.
PRODUCT INFORMATION SUMMARY
FOR YEARS ENDED DECEMBER 31 (DOLLAR AMOUNTS IN MILLIONS)
1999 1998 1997 1996 1995
------------------- -------------------- -------------------- ------------------ -----------
SALES BY BUSINESS
SEGMENT(1)
- ------------------------
Structural products $ 1,621 56% $ 1,228 54% $ 1,149 48% $ 1,314 53%
Exterior products 254 9 107 5 103 4 99 4
Industrial panel products 268 9 171 7 178 8 194 8
Other products 619 22 716 31 843 35 702 28
-------- ------- ------- --- ------- --- ------- --- -------
Building products 2,762 96 2,222 97 2,273 95 2,309 93 $ 2,509 88%
Pulp 117 4 75 3 130 5 177 7 334 12
-------- ------- ------- --- ------- --- ------- --- ------- ---
Total sales $ 2,879 100% $ 2,297 100% $ 2,403 100% $ 2,486 100% $ 2,843 100%
========= ======= ======= === ======= === ======= === ======= ===
PROFIT (LOSS) BY BUSINESS
SEGMENT(1)
- ------------------------
Structural products $ 440 $ 198 $ 21 $ 135
Exterior products 53 22 9 17
Industrial panel products 13 6 13 31
Other products (11) (20) (24) (9)
--------- -------- -------- -------- -------
Building products 495 206 19 174 $ 345
Pulp (15) (38) (29) (91) 44
Unusual credits and
charges, net (8) (48) (32) (350) (367)
General corporate and
other expense, net (103) (94) (80) (52) (121)
Interest, net (12) (13) (29) 8 3
-------- -------- -------- ------- -------
Income (loss) before
taxes, minority
interest and accounting
changes $ 357 $ 13 $ (151) $ (327) $ (96)
======== ======= ======== ======== ========
PRODUCTION
VOLUMES
-----------------
OSB, 3/8" basis, million
square feet(1) 4,406 3,934 3,762 3,621 3,445
Softwood plywood, 3/8"
basis, million square
feet 943 983 1,221 1,613 1,466
Lumber, million board feet 1,029 1,110 1,240 1,201 1,359
Wood-based siding, 3/8"
basis, million square
feet(1) 678 383 238 387
Industrial panel products
(particleboard, medium
density fiberboard and
hardboard), 3/4" basis,
million square feet 621 575 589 580 582
Engineered I-Joists,
million lineal feet 87 86 73 55 44
Laminated veneer lumber,
thousand cubic feet 6,300 7,100 5,800 3,900 3,200
Pulp, thousand short tons 374 286 377 439 486
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1999 1998 1997 1996 1995
------------------- -------------------- -------------------- ------------------ -----------
INDUSTRY PRODUCT
PRICE TRENDS(2)
- ---------------------
OSB, MSF, 7/16" - 24/16
span rating (North
Central price) $ 260 $ 205 $ 142 $ 184 $ 245
Southern pine plywood,
MSF, 1/2" CDX (3 ply) 326 284 265 258 303
Framing lumber, composite
prices, MBF 401 349 417 398 337
Industrial particleboard,
3/4" basis, MSF 273 259 262 276 290
LOGS BY SOURCE(3)
- --------------
Fee owned lands 11% 12% 19% 16% 13%
Private cutting contracts 16 14 14 14 12
Government contracts 17 13 7 6 9
Purchased logs 56 61 60 64 66
Total log volume-
million board feet 2,324 1,997 2,398 2,432 2,818
- ------------
1. Segment information and siding production on a basis consistent with
1999, 1998, 1997 and 1996 is not readily available for 1995.
2. Prices represent yearly averages stated in dollars per thousand board
feet (MBF) or thousand square feet (MSF). Source: RANDOM LENGTHS.
3. Stated as a percentage of total log volume.
For additional information regarding L-P's business segments and
information regarding L-P's geographic segments, see Note 10 of the Notes to
financial statements included in Item 8 of this report.
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 2000. 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.
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1. STRUCTURAL PRODUCTS
ORIENTED STRAND BOARD PANEL PLANTS - NORTH AMERICA
(3/8-INCH BASIS; 3 SHIFTS PER DAY; 7 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
in millions................................................................................... SQ. FT.
-------
Athens, GA 365
Carthage, TX 450
Chambord, Quebec, Canada 510
Dawson Creek, BC, Canada 375
Hanceville, AL 365
Hayward, WI 500
Houlton, ME 260
Jasper, TX 450
Maniwaki, Quebec, Canada 620
Montrose, CO 145
Roxboro, NC 400
Sagola, MI 375
St Michel, Quebec, Canada 510
Swan Valley, Manitoba, Canada 450
-----
Total OSB Capacity (14 plants) 5,775
=====
SOFTWOOD PLYWOOD PLANTS
(3/8-INCH BASIS; 2 SHIFTS PER DAY, 5 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
in millions..................................................................................... SQ. FT.
-------
Bon Wier, TX 260
Cleveland, TX 275
Golden, BC, Canada 150
Logansport, LA 225
New Waverly, TX 235
Urania, LA 200
------
Total Softwood Plywood Capacity (6 plants) 1,345
=======
LUMBER
(1 TO 3 SHIFTS PER DAY; 5 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
in millions..................................................................................... BOARD FT.
--------
Belgrade, MT 90
Bernice, LA 35
Bon Wier, TX 20
Chambord, Quebec, Canada 30
Chilco, ID 140
Cleveland, TX 35
Deer Lodge, MT 120
Deer Lodge, MT (fingerjoint) 135
Evergreen, AL 35
Henderson, NC 35
Jasper, TX 40
Malakwa, BC, Canada 50
Marianna, FL 35
Moyie Springs, ID 140
New Waverly, TX 15
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Sandpoint, ID (manufacturing) --
Saratoga, WY 50
St. Michel, Quebec, Canada 90
Tacoma, WA 60
West Bay, FL 35
-----
Total Lumber Capacity (20 plants) 1,190
=====
ENGINEERED WOOD PRODUCTS - I-JOIST PLANTS
(1 SHIFT PER DAY; 5 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
in millions..................................................................................... LINEAL FT.
----------
Hines, OR 42
Red Bluff, CA 42
Wilmington, NC 46
---
Total I-Joist Capacity (3 plants) 130
===
ENGINEERED WOOD PRODUCTS - LAMINATED VENEER LUMBER PLANTS
(2 SHIFTS PER DAY; 7 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
in thousands.................................................................................... CU. FT.
-------
Hines, OR 3,700
Golden, BC, Canada 3,000
Wilmington, NC 4,600
------
Total LVL Capacity (3 plants) 11,300
======
2. EXTERIOR PRODUCTS
ORIENTED STRAND BOARD SIDING & SPECIALTY PLANTS
(3/8-INCH BASIS; 3 SHIFTS PER DAY; 7 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
in millions..................................................................................... SQ. FT.
-------
Newberry, MI 125
Silsbee, TX 365
Tomahawk, WI 135
Two Harbors, MN 135
---
Total OSB Siding Capacity (4 plants) 760
===
HARDBOARD SIDING PLANT
(surface measure; 3 shifts per day; 7 days per week)
-------------------------------------------------------------------------------------------------
in millions..................................................................................... SQ. FT.
-------
Roaring River, NC 245
======
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VINYL SIDING PLANTS
-------------------------------------------------------------------------------------------------
in millions..................................................................................... SQUARES(1)
-------
Acton, Ontario, Canada 1.8
Holly Springs, MS 1.2
---
Total Vinyl Siding capacity (2 plants) 3.0
===
(1) A square is defined as 100 square feet of material unit with an average weight of 32 pounds.
3. INDUSTRIAL PANEL PRODUCTS
MEDIUM DENSITY FIBERBOARD PLANTS
(3/4-INCH BASIS; 3 SHIFTS PER DAY; 7 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
in millions..................................................................................... SQ. FT.
-------
Eufaula, AL 130
Oroville, CA 50
Urania, LA 50
---
Total MDF Capacity (3 plants) 230
===
PARTICLEBOARD PLANTS
(3/4-INCH BASIS; 3 SHIFTS PER DAY; 7 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
in millions..................................................................................... SQ. FT.
-------
Arcata, CA 125
Missoula, MT 155
Silsbee, TX 80
---
Total Particleboard Capacity (3 plants) 360
===
HARDBOARD PLANTS
(3 SHIFTS PER DAY; 7 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
In millions..................................................................................... SQ. FT.
-------
(1/8-inch basis)
Oroville, CA 210
(surface measure)
Alpena, MI 300
East River, Nova Scotia, Canada (1) 290
---
Total Hardboard Capacity (2 plants) 800
===
(1) The East River, Nova Scotia, plant produces hardboard panel products and hardboard siding
products.
4. OTHER FACILITIES
PULP MILLS
(3 SHIFTS PER DAY; 7 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
in thousands.................................................................................... SHORT TONS
----------
Samoa, CA 220
Chetwynd, BC, Canada 185
---
Total Pulp Capacity (2 plants) 405
===
-12-
ORIENTED STRAND BOARD PLANT - IRELAND
(3/8-INCH BASIS; 3 SHIFTS PER DAY; 7 DAYS PER WEEK)
-------------------------------------------------------------------------------------------------
in millions..................................................................................... SQ. FT.
-------
Waterford, Ireland 450
=======
CELLULOSE INSULATION AND RELATED PLANTS:
- Phoenix, AZ
- Atlanta, GA
- Norfolk, NE
- Portland, OR
CHIP MILL:
- Cleveland, TX
FINISHED TILEBOARD AND PANELING PLANT (INDUSTRIAL PANEL PRODUCTS SEGMENT):
- Toledo, OH
PLASTIC MOLDINGS PLANT:
- Middlebury, IN
VENEER PLANTS:
- Rogue River, OR (softwood)
- Mellen, WI (hardwood)
DISTRIBUTION CENTERS:
- Rocklin, CA
- Salina, KS
- Conroe, TX
COMPOSITE POLYMER PLANT
- Chesterfield, MI
5. TIMBERLAND HOLDINGS
LOCATION/TYPE
........................................................................................ ACRES
---- -----
Idaho: Fir, Pine 36,700
Louisiana: Pine, Hardwoods 188,900
Montana: Whitewoods 11,400
Texas: Pine, Hardwoods 695,900
Other: Whitewoods, Pine, Hardwoods 13,600
------
Total Timberland Fee Holdings..................................................... 946,500
=======
CANADIAN TIMBERLANDS LICENSE AGREEMENTS
in millions............................................................................. ACRES
---- -----
British Columbia 7.9
Manitoba 6.3
Quebec 33.6
----
Total timberlands under license agreements in Canada 47.8
====
-13-
In addition to its fee-owned timberlands, L-P has timber cutting rights
under long-term contracts (five years and over) on approximately 47,600 acres,
and under shorter term contracts on approximately 225,900 acres, on government
and privately owned timberlands in the United States in the vicinities of
certain of its manufacturing facilities.
L-P's Canadian subsidiaries have arrangements with four Canadian
provincial governments, which give L-P's subsidiaries the right to harvest a
volume of wood off public land from defined forest areas under supply and forest
management agreements, long-term pulpwood agreements, and various other timber
licenses. These subsidiaries also obtain wood from private parties in certain
cases where the provincial governments require L-P to obtain logs from private
parties prior to harvesting from the licenses and to meet additional raw
materials needs.
ITEM 3. LEGAL PROCEEDINGS
Certain environmental matters and legal proceedings involving L-P are
discussed below.
ENVIRONMENTAL MATTERS
In March 1995, 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 former 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. Although KPC sold the mill site and related facilities in
1999, it remains obligated under these agreements to undertake certain projects
relating to the investigation and remediation of Ward Cove, a body of water
adjacent to the mill site, estimated to cost approximately $6.7 million (of
which approximately $1.8 million had been spent at December 31, 1999).
On March 10, 1999, a complaint alleging misdemeanor violations of the
Fish and Game Code and the Water Code of California in connection with the
discharge of sawdust and other pollutants into a stream near L-P's Arcata,
California particleboard plant was filed in the Superior Court of Humboldt
County, California. On January 31, 2000, the Superior Court approved a civil
settlement agreement pursuant to which the misdemeanor charges were dismissed.
Pursuant to the settlement agreement, L-P agreed, among other things, to pay a
$100,000 civil penalty.
L-P is involved in a number of other environmental proceedings and
activities, and may be wholly or partially responsible for known or unknown
contamination existing at a number of other sites at which it has conducted
operations or disposed of wastes. Based on the information currently available,
management believes that any fines, penalties or other costs or losses resulting
from these matters will not have a material adverse effect on the 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 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. Pursuant to a guilty plea to certain criminal violations
entered in May 1998, (i) L-P paid penalties of $37 million (of which $12 million
was paid in 1998 and the balance was paid in the second quarter of 1999), and
was sentenced to five years of probation and (ii) all remaining charges against
L-P were dismissed. The terms of L-P's probation require, among other things,
that L-P not violate any federal, state or local law.
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
-14-
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
In 1994 and 1995, L-P was 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 purchased or used OSB siding manufactured by L-P. In
general, the plaintiffs in these actions 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.
In June, 1996, the U.S. District Court for the District of Oregon
approved a settlement between L-P and a nationwide class composed of all persons
who own, have owned, or 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%) 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.
The settlement requires L-P to contribute $275 million to the
settlement fund. Approximately $269 million of that obligation had been
satisfied at December 31, 1999 through cash payments of $259 million on a
discounted basis. L-P's remaining mandatory contributions to the settlement
fund are due in 2000 (approximately $2 million), 2001 (approximately $2
million), and 2002 (approximately $2 million). In addition to its mandatory
contributions, at December 31, 1999, L-P had paid, on a discounted basis,
approximately $96 million of its two $50 million funding options, at a cost
to L-P of approximately $65 million. L-P was entitled to pay its mandatory
and optional contributions to the settlement fund on a discounted basis as a
result of early payments pursuant to the early payment program. Refer to Item
7 of this report under the heading "Legal and Environmental Matters" for a
more detailed discussion of the status of the settlement, the early payment
program and the second settlement fund (described below).
At December 31, 1999, the estimated cumulative total of approved claims
under the settlement agreement exceeded the sum of L-P's historical mandatory
and optional contributions and remaining mandatory contributions to the
settlement fund by approximately $322 million. Claims accounting for
approximately $293 million of this excess are eligible for participation in the
second settlement fund described below. In addition, approximately 90% of the
approximately 11,000 claims that had been filed but not yet processed at
December 31, 1999 will, to the extent subsequently approved, be eligible for
participation in the second settlement fund.
Subject to the exceptions noted above, the second settlement fund
(discussed below) represents an alternative source of payment for all approved
and unpaid claims filed (or post-marked for filing) within the second settlement
fund period. In early 2000, eligible claimants electing to participate in the
second settlement fund will be offered a pro rata share of the $125 million
second settlement fund in complete satisfaction of their claims, which they may
accept or reject in favor of remaining under the original settlement. Eligible
claimants who accept their pro rata share may not file additional claims under
the settlement or arbitrate the amount of their payments. Eligible claimants who
elect not to participate in the second settlement fund will remain bound by the
terms of the original settlement. Because such claimants who elect not to
participate in the second settlement fund will not be eligible to receive
payment under the original settlement prior to August, 2004, and will be subject
to the risk of the original settlement terminating as
-15-
described below, L-P believes that eligible claimants will have a substantial
incentive to elect to participate in the second settlement fund. However, if L-P
is dissatisfied with the number of claimants who elect to participate in the
second settlement fund, L-P may, at its sole option, refuse to fund the second
settlement fund. 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. L-P presently expects to make its decision regarding the
funding of the second settlement fund in the second or third quarter of 2000.
Based upon the payments that L-P has committed to make, the original
settlement will continue in effect until at least August 2003. Within 60 days
after December 31, 2002, which is the last date for a class member to file a
claim under the settlement, the Claims Administrator shall notify L-P of the
dollar value of all remaining unfunded and approved claims. L-P shall then
have 60 days to notify the Claims Administrator whether L-P elects to fund
all such remaining claims. If L-P elects to fund those claims, then L-P will
pay by the end of the next 12-month period (2004) the greater of: (i) 50% of
the aggregate sum of those claims (with the remaining 50% to be paid by 12
months thereafter in 2005); or (ii) 100% of the aggregate sum of those
claims, up to a maximum of $50 million (with all remaining claims paid 12
months thereafter in 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 contributions to the original settlement fund required
under the settlement agreement, including all additional optional contributions
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.
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; and the Superior Court
of Dekalb County, Georgia on September 25, 1998. ABT and Abitibi have also been
named as defendants in a putative class action proceeding filed in the Circuit
Court of Jasper County Texas on October 5, 1999. These actions were brought on
behalf of various persons or purported classes of persons (including nationwide
classes) who own or have purchased or installed hardboard siding manufactured or
sold by the defendants. In general, the plaintiffs in these actions have claimed
unfair business practices, breach of warranty, fraud, misrepresentation,
-16-
negligence, and other theories related to alleged defects, deterioration, or
other failure of such hardboard siding, and seek unspecified compensatory,
punitive, and other damages (including consequential damage to the structures on
which the siding was installed), 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 L-P, the ABT Entities and
Abitibi have been named as defendants in a putative class action proceeding
filed in the District Court of Johnson County, Kansas on July 14, 1999. These
actions were brought on behalf of purported classes of persons in Missouri and
Kansas, respectively, who own or have purchased hardboard siding manufactured by
the defendants. In general, the plaintiffs in these proceedings have claimed
breaches of warranty, fraud, misrepresentation, negligence, strict liability and
other theories related to alleged defects, deterioration or other failure of
such hardboard siding, and seek unspecified compensatory, punitive and other
damages (including consequential damage to the structures on which the siding
was installed), attorneys' fees and other relief. L-P and the ABT Entities
intend 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 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
ABT hardboard siding matters will not have a material adverse effect on the
financial position, results of operations, cash flows or liquidity of L-P.
FIBREFORM WOOD PRODUCTS, INC. PROCEEDINGS
L-P has been named as a defendant in an action filed by FibreForm Wood
Products, Inc. ("FibreForm") in the Superior Court of Los Angeles County,
California on July 13, 1999. The action was subsequently removed by L-P and the
other named defendants to the United States District Court for the Central
District of California. FibreForm has alleged, in connection with failed
negotiations between FibreForm and L-P regarding a possible joint venture, that
L-P and the other defendants engaged in a fraudulent scheme to gain control over
FibreForm's proprietary manufacturing processes under the guise of such
negotiations. FibreForm has alleged fraudulent misrepresentation, negligent
misrepresentation, misappropriation of trade secrets, unfair competition, breach
of contract and breach of a confidentiality agreement by L-P and the other
defendants. FibreForm seeks general, special and consequential damages of at
least $250 million, punitive damages, restitution, injunctive and other relief
and attorneys' fees. L-P believes that FibreForm's allegations are without merit
and intends to defend this action vigorously. Based on the information currently
available, management believes that the resolution of this matter will not have
a material adverse effect on the financial position, results of operations, cash
flows or liquidity of L-P.
-17-
OTHER PROCEEDINGS
LP and its subsidiaries are parties to other legal proceedings. Based
on the information currently available, management believes that the resolution
of such proceedings will not have a material adverse effect on the financial
position, results of operations, cash flows or liquidity of L-P.
CONTINGENCY RESERVES
For information regarding L-P's financial statement reserves for the
estimated costs of the environmental and legal matters referred to above, 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 1999.
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 3, 2000, L-P had approximately 16,298 stockholders of record.
Information regarding cash dividends paid during 1999 and 1998 is
included in the tables in Item 6 headed "1999 Quarterly Data" and "1998
Quarterly Data." Holders of the common stock may participate in L-P's dividend
reinvestment program maintained by its transfer agent.
ITEM 6. SELECTED FINANCIAL DATA
DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE 1999 1998
- ------------------------------------------- ---- ----
ANNUAL DATA
Net sales $ 2,878.6 $ 2,297.1
Net income 216.8 2.0
Net income per share-basic and diluted 2.04 .02
Net cash provided by operating activities 472.6 123.0
Capital expenditures-- plants, logging
roads and timber (excludes acquisitions) 117.9 122.5
Working capital 198.7 245.5
Ratio of current assets to
current liabilities 1.37 to 1 1.67 to 1
Total assets 3,488.2 2,519.1
Long-term debt, excluding current portion 1,014.8 459.8
Long-term debt as a percent of
total capitalization 42.7% 27.3%
Stockholders' equity 1,360.0 1,222.8
Stockholders' equity per ending share of common stock 12.96 11.40
Number of employees 13,000 10,000
Number of stockholders of record 16,400 17,700
-18-
1ST QTR 2ND QTR 3RD QTR 4TH QTR YEAR
1999 QUARTERLY DATA
Net sales $600.1 $768.5 $797.4 $712.6 $2,878.6
Gross profit (1) 89.2 191.9 193.5 121.9 596.5
Income before taxes
and minority interest 43.8 140.4(2) 115.2(2) 57.6(2) 357.0(2)
Net income 27.2 84.9(2) 69.3(2) 35.4(2) 216.8(2)
Net income per share-
basic and diluted .26 .79(2) .65(2) .34(2) 2.04(2)
Cash dividends per share .14 .14 .14 .14 .56
1998 QUARTERLY DATA
Net sales $548.3 $623.2 $606.3 $519.3 $2,297.1
Gross profit (1) 12.8 67.5 127.9 49.7 257.9
Income (loss) before taxes
and minority interest (39.2) 341.3(2) (310.8)(2) 21.3(2) 12.6(2)
Net income (loss) (25.1) 203.9(2) (192.7)(2) 15.9(2) 2.0(2)
Net income (loss) per share-
basic and diluted (.23) 1.87(2) (1.77)(2) .15(2) .02(2)
Cash dividends per share .14 .14 .14 .14 .56
HIGH AND LOW STOCK PRICES
1999 High $ 20.75 $ 24.38 $ 24.88 $ 16.38 $ 24.88
Low 17.25 18.50 14.75 11.38 11.38
1998 High $ 24.06 $ 24.19 $ 22.69 $ 22.44 $ 24.19
Low 17.50 17.88 17.19 16.38 16.38
- --------------------------
(1) Gross profit is income before selling and administrative expense,
unusual credits and charges, taxes, minority interest and interest.
(2) In the second quarter of 1998, L-P recorded a net gain of $328
million ($195 million after taxes, or $1.79 per diluted share) primarily
resulting from gains on the sales of timberlands, 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 diluted 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 diluted share) on a recovery from an insurance
company for siding-related matters.
In the second quarter of 1999, L-P recorded a $5 million gain ($3
million after taxes, or $.03 per diluted share) on the sale of timberlands.
In the third quarter of 1999, L-P's Ketchikan Pulp Company subsidiary
recorded a net charge of $18.7 million ($11.5 million after taxes, or $.11 per
diluted share) primarily related to reducing the carrying value of the assets to
be sold to the expected sales value and to record an increase in estimated
environmental remediation liabilities.
In the fourth quarter of 1999, L-P recorded a gain on the sale of its
Associated Chemists, Inc. subsidiary of $14.5 million ($8.9 million after taxes,
or $.08 per diluted share) and a write-off of a note receivable of $9.2 million
($5.7 million after taxes, or $.05 per diluted share) received in a sale of
assets in a prior year.
-19-
Financial Summary
- -----------------------------------------------------------------------------------------------------------------------------------
dollar amounts in millions except per share
- -----------------------------------------------------------------------------------------------------------------------------------
year ended December 31 1999(1) 1998(1) 1997(1) 1996(1) 1995(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Summary Income Statement Data
Net sales $ 2,878.6 $ 2,297.1 $ 2,402.5 $ 2,486.0 $ 2,843.2
Gross profit(2) 596.5 257.9 91.9 170.7 390.3
Interest, net (11.9) (12.8) (29.0) (7.8) 2.9
Provision (benefit) for income taxes 139.5 14.4 (44.4) (126.1) (47.1)
Income (loss) 216.8 2.0 (101.8) (200.7) (51.7)
Income (loss) per share - basic 2.04 .02 (.94) (1.87) (.48)
Income (loss) per share - diluted 2.04 .02 (.94) (1.87) (.48)
Cash dividends per share .56 .56 .56 .56 .545
Average shares of common stock outstanding (millions)
Basic 106.2 108.4 108.5 107.4 107.0
Diluted 106.2 108.6 108.5 107.4 107.0
SUMMARY BALANCE SHEETS
Current assets $ 739.4 $ 612.1 $ 596.8 $ 612.9 $ 618.5
Timber and timberlands, at cost less cost of timber harvested 611.1 499.0 634.2 648.6 689.6
Property, plant and equipment, net 1,334.0 913.3 1,191.8 1,278.5 1,452.3
Notes receivable from asset sales 403.8 403.8 49.9 - -
Goodwill and other assets 399.9 90.9 105.7 82.4 45.0
========= ========= ========= ========= ==========
Total assets $ 3,488.2 $ 2,519.1 $ 2,578.4 $ 2,622.4 $ 2,805.4
========= ========= ========= ========= ==========
Current liabilities $ 540.7 $ 366.6 $ 319.3 $ 378.4 $ 448.5
Long-term debt, excluding current portion 1,014.8 459.8 572.3 458.6 201.3
Deferred income taxes and other 572.7 469.9 400.6 357.8 499.6
Stockholders' equity 1,360.0 1,222.8 1,286.2 1,427.6 1,656.0
--------- --------- --------- --------- ----------
Total liabilities and stockholders' equity $ 3,488.2 $ 2,519.1 $ 2,578.4 $ 2,622.4 $ 2,805.4
========= ========= ========= ========= ==========
KEY FINANCIAL TRENDS
Working capital $ 198.7 $ 245.5 $ 277.5 $ 234.5 $ 170.0
========= ========= ========= ========= ==========
Plant and logging road additions(3) $ 88.3 $ 77.8 $ 106.2 $ 208.9 $ 362.9
Timber additions, net 29.6 44.7 49.7 22.0 49.7
--------- --------- --------- --------- ----------
Total capital additions $ 117.9 $ 122.5 $ 155.9 $ 230.9 $ 412.6
========= ========= ========= ========= ==========
Long-term debt as a percent of total capitalization 43% 27% 31% 24% 11%
Income (loss) as a percent of average equity 17% -- (8%) (13%) (3)%
--------- --------- --------- --------- ----------
1 Includes unusual credits and charges. See the Notes to Financial
Statements.
2 Gross profit (loss) is income (loss) before selling and administrative
expense, unusual credits and charges, income taxes, minority interest,
and interest.
3 Excludes acquisitions.
-20-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Louisiana-Pacific Corporation (L-P) earned $216.8 million ($2.04 per
diluted share) in 1999, including pre-tax net unusual charges of $8.2 million
($5.1 million after taxes, or $.05 per diluted share). This compares to profits
of $2.0 million ($.02 per diluted share) in 1998 including pre-tax net unusual
charges of $47.8 million ($36.1 million after tax, or $.33 per diluted share).
The Company lost $101.8 million ($.94 per diluted share) in 1997, including
pre-tax net unusual charges of $32.5 million ($20.6 million after tax, or $.19
per diluted share). The unusual credits and charges are discussed in further
detail in Note 7 to the financial statements. Excluding the impacts of the
unusual credits and charges, L-P earned $221.9 million ($2.09 per diluted share)
in 1999 and $38.1 million ($.35 per diluted share) in 1998 and incurred a loss
of $81.2 million ($.75 per diluted share) in 1997.
Sales in 1999 were $2.88 billion, a 25% increase from 1998 sales of
$2.30 billion. Sales in 1998 were 4% lower than 1997 sales of $2.40 billion.
Demand for building products in North America was very strong in 1999,
resulting in increased sales and earnings from many of L-P's products,
particularly in the Structural Products segment. This demand was generated both
by strong housing starts and a strong repair and remodeling market.
In addition to the strong building products markets, L-P made three
major acquisitions in 1999, all of which contributed to sales and earnings.
First, L-P acquired ABT Building Products Corporation (ABT) in late February
which expanded product offerings in the Exterior Products segment with hardboard
and vinyl siding and added a line of moldings to L-P's product line. In
September, L-P acquired Le Groupe Forex Inc. (Forex). This acquisition added
oriented strand board (OSB) capacity on the East coast of North America, helping
to fill a geographic gap. OSB is part of the Structural Products segment. In
November, L-P acquired the assets of Evans Forest Products, Ltd. This
acquisition added to L-P's laminated veneer lumber (LVL), cedar decking and
plywood production capacities, all of which are part of the Structural Products
segment.
L-P's 1998 results showed improvement over 1997 largely as a result of
increased demand for OSB and plywood, which reduced the effects of industry-wide
over capacity which was prevalent in 1997. In late 1997 and early 1998, L-P also
divested or closed numerous unprofitable operations which reduced sales and
improved earnings.
L-P operates in five major business segments: Structural Products,
Exterior Products, Industrial Panel Products, Other Products, and Pulp.
Structural Products is the most significant segment, accounting for
approximately 50% or more of net sales in 1999, 1998 and 1997. 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 Item 1
under the heading "Segment and Price Trend Data."
Most of L-P's products are sold as commodities and therefore sales
prices fluctuate daily 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 and the
repair and remodeling markets, both of which are 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.
-21-
Selected Segment Data
- ---------------------------------------------------------------------------------------------------------------------------
dollar amounts in millions
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE)
- ---------------------------------------------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997 99-98 98-97
- ---------------------------------------------------------------------------------------------------------------------------
Sales:
Structural products $ 1,621 $ 1,228 $ 1,149 32% 7%
Exterior products 254 107 103 137% 4%
Industrial panel products 268 171 178 57% (4%)
Other products 619 716 843 (14%) (15%)
PULP 117 75 130 56% (42%)
- ----------------------------------------------------------------------------------------
Total sales $ 2,879 $ 2,297 $ 2,403 25% (4%)
========================================================================================
Operating Profit (Loss):
Structural products $ 440 $ 198 $ 21 122% 843%
Exterior products 53 22 9 141% 144%
Industrial panel products 13 6 13 117% (54%)
Other products (11) (20) (24) 45% 17%
PULP (15) (38) (29) 61% (31%)
- ----------------------------------------------------------------------------------------
Total operating profit (loss) $ 480 $ 168 $ (10) 186% 1,780%
========================================================================================
STRUCTURAL PRODUCTS
The Structural Products segment includes OSB, plywood, lumber and the
engineered wood products (EWP), primarily LVL and I-joists. The increase in
total sales for Structural Products segment in 1999 was primarily the result of
strong demand, which increased average selling prices, and the additional sales
generated from acquisitions. The increase in Structural Products segment sales
in 1998 was primarily the result of increased selling prices of OSB as demand
increased, which helped alleviate the industry wide over-capacity of prior
years. Divestitures and closures of less efficient and non-strategic
manufacturing facilities partially offset the OSB sales increase in 1998.
OSB average selling prices increased 27% in 1999 compared to 1998 and
increased 47% in 1998 compared to 1997. The OSB markets experienced strong
demand in 1999 and 1998 due primarily to increases in residential construction
and repair and remodeling markets resulting in higher selling prices. OSB sales
volume increased 23% in 1999 compared to 1998 primarily as a result of the Forex
acquisition. Volumes increased approximately 10% in 1998 compared to 1997 due to
a net capacity increase at L-P and increased operating efficiencies.
Plywood markets also improved in 1999 as a result of the same factors
discussed above for OSB. Plywood average selling prices increased 19% in 1999
compared to 1998. Plywood prices were up slightly in 1998 compared to 1997. L-P
has continued to shift production to higher-value products and away from
commodity sheathing products. Plywood sales volume increased 23% in 1999
compared to 1998, primarily the result of a shift to a higher percentage of
outside sales and a lower percentage of sales to the distribution business
within L-P. Sales from L-P's distribution business are shown in the Other
Products segment. Volume decreased by 34% in 1998 compared to 1997, largely due
to the closure of smaller, less efficient plywood plants.
Lumber sales in 1999 increased compared to 1998 due to strong demand
and a shift to a higher percentage of outside sales and a lower percentage of
sales to the distribution business within L-P. Sales from L-P's distribution
business are shown in the Other Products segment. Average selling prices
increased 5% and volume increased 10% in 1999. Lumber sales decreased in 1998
due to an 11% decline in prices and a 13% decline in volume. The volume decrease
primarily resulted from the sale or shutdown of non-strategic mills in 1998. The
price decrease reflects a sharp drop in demand for lumber in Asia which caused a
decrease in exports of lumber from North America and created an oversupply of
lumber in North American markets.
-22-
Engineered wood products (EWP) include engineered I-Joists, laminated
veneer lumber (LVL) and hardwood veneer. EWP sales grew in 1999 due to
increasing volumes while pricing was virtually unchanged. Average selling prices
decreased 11% for I-Joists and 1% for LVL in 1999 offset by volume increases of
3% for I-Joists and 12% for LVL. The volume increase was primarily due to
agreements to market the products of independent producers and, to a lesser
extent, the acquisition of the assets of Evans Forest Products late in 1999. 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.
In 1999, the profitability of the Structural Products segment increased
significantly, which was primarily the result of price improvements for OSB,
plywood and lumber offset by price decreases in EWP. Improvements in the
efficiency of L-P's facilities also contributed to the earnings improvement. 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 1999 or 1998. The increase in OSB costs had a detrimental
effect on EWP profits, as OSB is a raw material used in I-Joist production. LIFO
(last-in first-out) inventory income (expense) adjustments of $(6) million in
1999, $14 million in 1998 and $(4) million in 1997 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. In future years, this segment will also include
certain specialty OSB products such as treated OSB and concrete form. With the
ABT acquisition in 1999, this segment includes hardboard siding and vinyl
siding. Average selling prices of OSB-based exterior products decreased slightly
in 1999 compared to 1998, while volumes increased 13% over 1998. The volume
increase was primarily due to an increase in the number of distributors in the
southeastern distribution network. Total profits increased in 1999 primarily due
to the increased sales volume and the addition of the ABT products. Average
selling prices were relatively flat in 1998 over 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 1999
and 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 and, in 1999, the hardboard and laminated
industrial panel products of ABT. Increased demand for particleboard and MDF
contributed to modestly higher average sales prices, while volumes decreased
modestly. The addition of ABT products in 1999 is the primary reason for the
increase in sales and profits of this segment in 1999 compared to 1998. Market
over-capacity in industrial panels contributed to reductions in both sales and
profits in 1998 compared to 1997. Average selling prices decreased by 3% in 1998
due to downward market pressure. Sales volumes did not change significantly.
OTHER PRODUCTS
The Other Products segment includes distribution facilities, vinyl
moldings, wood chips, coatings and specialty chemicals (sold in December 1999),
cellulose insulation, Ireland operations, Alaska lumber and logging operations
(sold in November 1999) and other products. The primary cause of the decrease in
sales in the Other Products segment for both 1999 and 1998 was the sale in
mid-1998 of two California distribution centers, the Weather-Seal windows and
doors operations and Creative Point Inc. (which sold consumer electronic media
storage devices). The sales from these operations are included in the segment
for a full year in 1997, approximately 6 months in 1998 and not at all in 1999.
Lower wood chip sales also contributed to the decrease, as the market for export
wood chips has declined. Increases in sales from the Ireland OSB plant and sales
from the newly acquired ABT molding and shutter operations in 1999 partially
offset the overall sales decrease in 1999.
-23-
The decreased losses in this segment in 1999 are primarily the result
of the addition of the ABT operations, a reduction of losses in the cellulose
insulation business due to cost cutting efforts and strategic changes and an
increase in the profitability of the Ireland OSB operations due to the improved
sales markets. Losses in 1998 were less than 1997 due primarily to the KPC
lumber and logging operations, which lost $3 million in 1998 compared to $17
million in 1997. Offsetting this improvement were the lost profits from the
distribution operations sold in mid-1998 and increased losses in the cellulose
insulation business, largely due to market development efforts.
PULP
Pulp segment operations improved significantly in 1999. Sales volumes
increased 38% while average selling prices rose 13%. The pulp markets improved
in 1999 as the Asian economy improved. Pulp markets in 1998 and 1997 were
negatively 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 pulp prices, to decline late in 1997
which continued into 1998. Average sales prices decreased 21% in 1998 which
contributed to the increased losses. Pulp sales volume decreased 27% as L-P's
pulp mills took intermittent downtime during 1998 because of the weak markets.
L-P pulp products represent the majority of L-P's export sales.
Therefore, the increase in pulp sales was the primary reason for the increase in
export sales in 1999. The decline in pulp sales was the primary reason for
decreased export sales in 1998 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 $103 million in 1999, compared to $94
million in 1998 and $80 million in 1997. Credits resulting from gains on the
sales of miscellaneous assets of approximately $6 million in 1997 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 1999, net interest expense of $12 million was down 8% from the 1998
expense of $13 million. Interest expense decreased slightly in 1999 but will
increase in the future due to the indebtedness incurred in connection with the
Forex and Evans acquisitions. Cash from asset sales was used to reduce debt
levels and thus, net interest expense in 1998.
LEGAL AND ENVIRONMENTAL MATTERS
Refer to Notes 7 and 8 to the financial statements for a discussion of
the background of certain legal matters involving L-P as well as the past and
potential future impact on L-P. In addition, a more detailed discussion of the
significant past charges recorded by L-P related to OSB siding litigation and
the current status of the settlements and related enhancements follows.
BACKGROUND OF OSB SIDING LITIGATION. Prior to 1995, L-P primarily dealt
with claims regarding the quality and performance of its oriented strand board
house siding (OSB siding) through the product warranty process. In 1994 and
early 1995, L-P was served with numerous lawsuits alleging monetary damages as a
result of OSB siding manufactured by L-P. In 1995, L-P discontinued payment of
warranty claims (except under certain circumstances such as emergency claims)
due to the pending litigation. In 1995 and 1996, L-P settled the majority of
these lawsuits through one of the following three mechanisms:
-24-
- A class action settlement in Florida for owners of homes or other
structures with L-P siding in that state only (the "Florida
Settlement"),
- A class action settlement for owners of homes or other structures in
the remaining states in the U.S. (the "National Settlement"), and,
- Individual settlements with claimants who opted not to participate in
either of the above two settlements.
These settlements significantly increased the cost of an average claim
compared to the historical payments under L-P's limited warranties. This is
primarily because, under the limited warranty, L-P only reimbursed the homeowner
for the cost of replacement siding whereas under the settlements L-P also pays
for the labor costs to remove old siding and to install and paint the new siding
and pays for certain other consequential costs incurred in the replacement of
the siding.
The settlements afforded a remedy to homeowners that is typically
available for consumer type claims --repair and/or replacement of the damaged
product. Under the settlements, L-P conditionally waived defenses it could have
asserted such as improper installation by the builder, improper maintenance by
the homeowner, and numerous technical legal defenses (these defenses can be
reinstated under certain conditions). In exchange, the settlements provided a
more aggressive deduction based on the age of the product than was available
under the limited warranty. The settlements also brought an end to highly
contentious litigation that consumed inordinate amounts of Company time and
resources and that potentially could have degenerated into tens of thousands of
individual claims litigated in different courts throughout the country. The
costs of defending such litigation would likely have substantially exceeded the
amounts paid as damage awards.
Finally, prompt settlement on economic terms allowed management to
devote all of its energies to reorganizing and reviving L-P's business, to
rebuilding its damaged relations with the builders and consumers who purchase
its products and to preserving the market for its improved siding product that
was introduced in 1996.
The National Settlement also afforded L-P the opportunity to control
both the amount and timing of payments in order to better manage liquidity and
capital resources. (See more complete discussion of the settlements in Notes 7
and 8 to the financial statements). It also gave L-P a degree of control over
the total liability for siding through the mechanism of optional funding
payments for claims in excess of the mandatory base payments of $275 million.
These optional payments provide L-P the ability to prevent future legal claims
by class members as long as L-P continues to exercise the additional funding
options provided for under the National Settlement. L-P also has the ability to
allow the settlement to expire if management determines that the settlement is
no longer in the best interest of L-P and its shareholders.
CLAIMS PROCESS. L-P has entered into a contract with a court-approved
independent administrator through which all National Settlement claims are
processed (L-P processes all Florida Settlement claims). Potential claimants who
have not opted out of the National and Florida Settlements are eligible to
participate and claims are processed as follows:
- A request for a claim form is received and the potential claimant is
entered into the system.
- A claim form and related instructions and information are mailed to the
potential claimant.
- Upon receipt of a completed claim, it is reviewed for completeness.
Incomplete claims packages are referred back to the claimant for
additional information.
- Each complete claim package is forwarded to a court-approved third
party inspection firm that is responsible for inspecting the structure
and determining the footage of damaged siding, as defined under the
appropriate settlement and, in the case of the Florida Settlement,
determining whether any contributing factors exist such as improper
installation or maintenance.
- The independent administrator calculates the monetary damages based on
the footage of damaged siding, the age of the siding, the average cost
of siding replacement in the appropriate geographic region and, in the
case of the Florida Settlement, contributing factors such as improper
installation or maintenance.
-25-
- The claim processing is completed and the claim is either paid
(immediately in the case of the Florida class action settlement and
when money is available in the National Settlement fund) or placed in
the payment queue for the National Settlement.
As of December 31, 1999, approximately 273,000 requests had been
received for claim forms for the National Settlement and the Florida Settlement.
Approximately 172,000 completed claim forms had been received. The average
amount for settled claims has been approximately $5,100. The total number of
completed claim forms pending (not settled) as of December 31, 1999 was
approximately 67,000, with approximately 76,000 claims settled and approximately
29,000 claims dismissed through December 31, 1999. 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 amount of claims settled after December 31, 1999
may be significantly impacted by the Second Fund discussed further below.
AMOUNT AND TIMING OF ACCRUALS. The amount and timing of the accruals
related to the siding matters are discussed below.
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 is as follows:
- ----------------------------------------------------------------------------------------------------
Dollar amounts in millions
- ----------------------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Beginning balance $323.9 $164.7 $184.9
Accruals made during the year --- 247.5 161.9
Payments made (97.4) (100.8) (182.1)
Insurance recovery --- 12.5 ---
------ -------- -------
Ending balance $226.5 $323.9 $164.7
- ----------------------------------------------------------------------------------------------------
During the third quarter of 1995, the final settlement was reached in
the Florida Settlement (approved by the court in October 1995), and L-P reached
an agreement in principle with class counsel in the National Settlement with a
specified base funding schedule of $275 million. Management believed that these
two events made the liabilities probable and estimable at that point in time.
Based on a statistical analysis of historical claims data and information
collected by its litigation counsel, management believed that the National
Settlement liability, inclusive of notice, administration, and inspection costs,
would not exceed $275 million. Because claims of persons who opted out of the
settlement would theoretically reduce the amount required to be paid under the
settlement, L-P believed that no separate accrual for opt outs was required. In
later years, as noted below, management recorded additional accruals for opt-out
claims due to evidence indicating that claims paid under the settlement would
likely amount to at least $275 million and therefore opt-out claims would be
incremental to the National Settlement. The Florida Settlement liability was
estimated at $50 million by attorneys working on the settlement. Estimated
legal, professional and other costs were also accrued at that time.
Because the court approval process related to the National Settlement
was not finalized until June of 1996, and the Florida Settlement process was
just getting started, management believed the existing accrual remained adequate
for the two class action settlements. However, the amounts paid to resolve opt
out claims subsequent to the approval of the National Settlement combined with
evidence that claims under the National Settlement would likely amount to at
least $275 million caused L-P to believe that the previous accruals would be not
be sufficient to cover these amounts. Accordingly, in the third quarter of 1996,
L-P accrued an additional $36 million based on known claims that L-P's
management and litigation counsel believed were probable and estimable. Opt-out
claims in the amount of approximately $32 million were settled and paid in 1996.
An additional $2.1 million was added to the reserve in the fourth quarter of
1996 for increased legal costs.
-26-
During the first half of 1997, the independent administrators and
third-party claims inspectors for the National Settlement began to reduce a
backlog of unprocessed claims that had arisen during the months after final
court approval of the National Settlement. At that time, management continued to
believe the estimate of the total liability was adequate. L-P engaged an outside
statistician who developed a model to assist management in estimating the
liabilities by projecting the monetary amount of claims in the system at any
point in time based upon the total number of claims forms requested to date.
This projection method is based on factors and ratios that must be estimated
from actual claims experience and trends in claim form requests. Additionally,
trends in claim form requests themselves (which drive the projections over the
longer term) have remained very erratic and difficult to forecast. Factors such
as weather, publicity about siding matters, revisions in the National
Settlement, and other factors have affected the pattern of claim form requests
which has made it difficult for the statistician to extract any meaningful
underlying trend. The statistician's model is affected by the above and is
therefore designed to be used as only a part of management's estimation of the
future liability.
By the end of the third quarter of 1997, management concluded that an
additional accrual of $50 million was required for the National Settlement
claims. Also, $111.9 million was accrued to cover additional estimates for the
Florida Settlement claims, National Settlement administration costs, additional
opt out settlements and additional legal fees. These updated estimates were
based partially on the application of the model and updated estimates provided
by attorneys and others familiar with the settlement, all of which experienced
unanticipated increases compared to L-P's earlier estimates. The principal
factors that led to a higher estimated accrual in the third quarter of 1997 were
as follows:
- An increase in the average cost per settled claim (under the National
Settlement only) from approximately $5,400 at the end of 1996 to
approximately $6,100 by the end of the third quarter of 1997.
- A steady to increasing rate of claims forms requested and returned
where L-P originally estimated those figures to decrease over time. For
example, completed claims forms received by the National Settlement
claims administrator increased from approximately 33,000 at the end of
1996 to approximately 61,000 at the end of the third quarter of 1997.
The principal factors leading to an increase in the accrual for the
Florida Settlement are similar to those above for the National Settlement.
In subsequent quarters of 1997 and 1998, L-P continued to monitor the
claims figures in order to evaluate the need for adjustments to the liability.
During the third quarter of 1998 management evaluated available options under
the National Settlement because of continuing changes occurring with the
underlying data. The National Settlement claims administrator had received
approximately 10,000 claims forms per quarter from the fourth quarter of 1997
through the third quarter of 1998, bringing the total to approximately 101,000
claims forms received through September 1998. This represents an increase of
approximately 65% in one year. The average cost per settled claim did not change
significantly during this period. The options under consideration included (i)
allowing the settlement to terminate under the National Settlement terms and
conditions; (ii) continuing the settlement without modification by electing to
fund the optional payments as they became due; or (iii) attempting to resolve
remaining claims through an alternative method.
In July 1998, L-P formally proposed to class counsel enhancements to
the National Settlement: (i) the concept of prepaying the balance of the
mandatory and two discretionary $50 million contributions to the National
Settlement fund on a discounted basis (the "Early Payment Program"); and (ii)
the concept of creating a second, supplemental settlement fund (the "Second
Fund"). After numerous negotiating sessions, L-P and class counsel were able to
finalize an agreement on the terms of these programs, which were agreed to by
the parties in the third quarter of 1998 and subsequently approved by the court
in October 1998. Consistent with this agreement, L-P accrued the estimated costs
of these programs. The incremental costs of these programs was estimated to be
approximately $22.3 million (netting the effect of prior accruals and the effect
of discounts of payments allowed under this program) for the Early Payment
Program and $125.0 million for the Second Fund. These amounts were accrued
during the third quarter of 1998 as were additional amounts totaling $112.7
million for the legal and administrative costs of these programs, claims of
claimants who may opt out of the Second Fund, additional Florida Settlement
claims based on statistical estimates, warranty claims subsequent to the
expiration of the National and Florida Settlements and other costs.
-27-
Throughout the period the National and Florida Settlements have been in
effect, L-P has recorded accruals which represent management's best estimates of
amounts to be paid based on available information. The unusual nature of the
National and Florida Settlements and the various remedies available to L-P makes
the process of estimating these accruals difficult. The liability recorded at
December 31, 1999 represents management's best estimate of the future liability
related to siding claims based on the most current information available. There
can be no assurance that the ultimate liability will not significantly exceed
the recorded liability. Numerous factors affect the total amount of the future
liability. These factors are discussed below.
EARLY PAYMENT PROGRAM AND SECOND FUND. L-P entered into these programs
in 1998 after careful consideration of the potential monetary and non-monetary
impacts of all of its alternatives and based on management's belief that they
will help to keep the average cost per claim from increasing. Despite the
increased costs of entering into these programs, L-P's management deemed them to
be in the best interests of L-P and its stockholders. This decision was based on
several very important considerations and assumptions.
First, as a result of executing these programs, L-P is protected from
any further legal action by class members until at least June of 2003. Second,
L-P's management believed that the Early Payment Program would be attractive to
claimants who wished to repair or replace their exterior siding in a timely
manner, as the discounts proposed were relatively modest. In addition,
management believed that the Second Fund would encourage claimants to timely
submit new claims during 1999 and accept a discounted payment in 2000, thereby
removing these claimants from any future action. With these two programs,
management believed the likelihood of any residual claimants initiating
successful legal action after 2003 would be significantly diminished. Third,
management believed the effects of negative publicity regarding L-P's siding
products would be reduced under these programs. Negative publicity could
severely limit the growth of L-P's new siding products. Finally, management
believed these programs would be a lower risk approach to extinguishing
remaining claims at an acceptable cost. Payment of claims under the Second Fund
is at the discretion of L-P. Now that the deadline of December 31, 1999 for
submission of all claims has passed, several steps must take place 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. After those steps are completed, L-P has the
final decision whether or not to proceed with the funding. L-P's management will
not be able to make this decision until all claims eligible for this program
have been received and inspected and it is known how many claimants have decided
to remain in the Second Fund (along with the dollar value of their claims).
Management believes this will not occur until some time in the second or third
quarter of 2000. Based on this, management will decide whether to proceed with
the Second Fund or to pursue alternative resolutions. To the extent the programs
do not result in the desired consequences, estimates of costs of additional
claims could change in the future.
FUTURE COSTS. Other factors potentially influencing future costs include:
- The costs of administering the settlements or any alternative approach
of resolving claims including the actual claims costs, notice costs,
inspection costs, third party administrator costs and attorney's fees.
- The possibility of claimants bringing a second class action lawsuit
(L-P believes plaintiffs would be legally barred from this action
provided that all payments under the settlement have been made).
- Unforeseen changes in the level of claims in the Florida Settlement.
- Litigation related to other impacts of using L-P's siding, not
specifically related to product performance.
Changes in the above factors have caused the estimated accrual amounts
to change in the past. However, L-P does not currently anticipate that these
factors will cause a significant change in the remaining accruals for the
reasons stated herein.
INSURANCE RECOVERIES. In 1998, L-P recorded approximately $28.4
million in insurance recoveries. At December 31, 1999, L-P was in the process
of pursuing additional claims against certain insurance carriers. It is not
presently determinable what additional amounts, if any, will be recovered,
although L-P presently expects to receive one or more additional settlements
aggregating at least $5 million in the first quarter of 2000. The resolution
of these matters could ultimately affect the net amounts paid by L-P.
-28-
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations increased to $473 million in 1999 from
$123 million in 1998, and $88 million in 1997. In 1999 and 1998, the increase in
cash provided by operations resulted primarily from improved operating profits
and lower cash outflows for contingency settlements. L-P paid out $104 million
in 1999, $113 million in 1998 and $205 million in 1997 related to litigation
settlements.
Net cash used by investing activities was $783 million in 1999 and was
primarily used for the ABT, Forex and Evans acquisitions as well as other
capital expenditures. L-P received proceeds of $74 million in 1999, from the
sale of the Alaskan operations and from the sale of the coatings and chemicals
operations (Associated Chemists, Inc. subsidiary). Net cash provided by
investing activities was $246 million in 1998 compared to net cash used in
investing activities of $140 million in 1997. In 1998, L-P received $368 million
from the sale of assets, primarily timber, sawmill and distribution assets in
California, the Weather-Seal window and door operations and Creative Point, Inc.
In 1997, L-P received $64 million of cash for assets sold. In 1997, L-P made
significant investments in new OSB facilities. Capital expenditures decreased in
1999 and 1998 compared to 1997 as L-P was not in the heavy construction phase of
any new mills and instead concentrated on upgrades of existing facilities,
timber to supply its operations and environmental projects, such as pollution
control equipment and waste disposal facilities.
In 1999, net cash provided by financing activities was $300 million,
compared to cash used in financing activities of $275 million in 1998 and $56
million provided in 1997. In 1999, L-P borrowed $629 million, primarily to
finance acquisitions and repaid $225 million of existing debt. In 1998, a total
of $496 million was used to repay term and revolving loans. 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 to finance settlement obligations and capital
expenditures payments. Treasury stock purchases were $48 million in 1999, $67
million in 1998 and $3 million in 1997.
L-Ps liquidity remained strong in 1999, principally from improved cash
flows from operations and the availability of credit facilities. L-P has a
revolving credit facility of $300 million with no outstanding borrowings at
year-end 1999. This facility is available until 2002. L-P also has a $50 million
(Canadian) revolving credit facility with no outstanding borrowings at December
31, 1999. This facility matures in March 2000 and L-P is in the renewal process.
L-P has an additional $29 million available under a $250 million credit facility
which was used for acquisitions in 1999. Subsequent to year-end, L-P anticipates
filing a registration statement for $750 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 to refinance a portion
of its existing indebtedness and for general corporate purposes. 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.
The major variations in L-P's balance sheet between December 31, 1999
and 1998, including inventories, timber and timberland, fixed assets, goodwill,
accounts payable and accrued liabilities and deferred taxes are primarily
attributable to balances of companies acquired during the year. The increase in
long-term debt is due to borrowings for the acquisitions. The decrease in total
contingency reserves, including the current portion, is due to payments made
during the year.
Contingency reserves, which represent an estimate of future cash needs
for various contingencies (principally, payments for siding litigation
settlements), totaled $309 million at December 31, 1999, of which $180 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 above and in Note 8 to the financial statements, the
amounts ultimately paid in resolving these contingencies could exceed the
current reserves by a material amount.
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
-29-
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,
1999, L-P had reacquired approximately 7 million shares for approximately $114
million. L-P had approximately 105 million shares outstanding at year-end.
CARRYING VALUE OF CERTAIN ASSETS
L-P is seeking to sell its Chetwynd, British Columbia pulp mill, which
is presently managed by an unrelated party pursuant to a management agreement
having a term of 24 months that expires in April 2001. In addition, L-P is
exploring the possible sale of the Samoa, California pulp mill. While L-P
currently believes it has adequate support for the carrying value of the
affected assets, there can be no assurance that the proceeds ultimately received
in any sale transaction would not fall short of the applicable carrying value,
resulting in a loss on such sale.
In 1996, L-P purchased all the outstanding shares of GreenStone
Industries, Inc., a maker of cellulose insulation. Since that time, GreenStone
has incurred losses. Management is aggressively taking actions to return the
operations to profitability, including implementation of cost-cutting measures,
development of new installers and a reorganization of the sales force. A
significant factor in returning the operations to sustained profitability is the
future cost and availability of waste paper, which is the primary raw material
used in the manufacture of cellulose insulation. Management is exploring options
to secure more stable and cost-efficient waste paper supplies. L-P currently
believes it has adequate support for the carrying value of the GreenStone
assets, including goodwill, and therefore no impairment charge is currently
required. However, it is possible that future analyses will indicate that an
impairment charge is necessary.
Refer to Note 1 to the financial statements for a discussion of L-P's
accounting policy regarding asset impairments.
YEAR 2000 COMPLIANCE
L-P did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, L-P does not expect any significant impact to
its on-going business as a result of the "Year 2000 issue." However, it is
possible that the full impact of the date change, which was of concern due to
computer programs that use two digits instead of four digits to define years,
has not been fully recognized. For example, it is possible that Year 2000 or
similar issues such as leap year related problems may occur with billing,
payroll, or financial closings at month, quarterly or year end. L-P believes
that any such problems are likely to be minor and correctable. In addition, the
Company could still be negatively impacted if its customers or suppliers are
adversely affected by the Year 2000 or similar issues. L-P currently is not
aware of any significant Year 2000 or similar problems that have arisen for its
customers and suppliers.
L-P expended approximately $7 million on Year 2000 readiness efforts
from 1997 to 1999. These efforts included replacing some outdated, non-compliant
hardware and non-compliant software as well as identifying and remediating Year
2000 problems. However, the total expended excludes 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.
-30-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
- ---------------------------------------------------------------------------------------------------
dollar amounts in millions
- ---------------------------------------------------------------------------------------------------
December 31 1999 1998
- --------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 116.0 $ 126.5
Accounts receivable,
less reserves of $3.2 and $1.5 200.7 134.7
Inventories 293.4 205.7
Prepaid expenses 18.5 8.1
Income tax refunds receivable -- 43.9
Deferred income taxes 110.8 93.2
--------- ---------
Total current assets 739.4 612.1
Timber and timberlands,
at cost less cost of timber harvested 611.1 499.0
Property, plant and equipment, at cost:
Land, land improvements and logging roads,
net of road amortization 201.1 150.4
Buildings 307.5 246.6
Machinery and equipment 1,972.0 1,663.2
Construction in progress 56.8 26.3
--------- ---------
2,537.4 2,086.5
Accumulated depreciation (1,203.4) (1,173.2)
--------- ---------
Net property, plant and equipment 1,334.0 913.3
Goodwill, net of amortization 347.7 60.0
Notes receivable from asset sales 403.8 403.8
Other assets 52.2 30.9
--------- ---------
Total assets $ 3,488.2 $ 2,519.1
========= =========
See Notes to Financial Statements.
-31-
dollar amounts in millions, except per share
- ------------------------------------------------------------------------------------------------------
December 31 1999 1998
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 44.9 $ 34.1
Accounts payable and accrued liabilities 306.5 192.5
Income taxes payable 9.3 --
Current portion of contingency reserves 180.0 140.0
--------- ---------
Total current liabilities 540.7 366.6
Long-term debt, excluding current portion:
Limited recourse notes payable 396.5 396.5
Other debt 618.3 63.3
--------- ---------
Total long-term debt 1,014.8 459.8
Deferred income taxes 396.3 203.6
Contingency reserves, excluding current portion 128.8 228.0
Other long-term liabilities and minority interest 47.6 38.3
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 445.4 465.4
Retained earnings 1,076.4 918.8
Treasury stock, 11,968,577 shares and 9,663,976
shares, at cost (228.3) (204.0)
Loans to Employee Stock Ownership Trusts (6.9) (28.8)
Accumulated comprehensive income (loss) (43.6) (45.6)
--------- ---------
Total stockholders' equity 1,360.0 1,222.8
========= =========
Total liabilities and stockholders' equity $ 3,488.2 $ 2,519.1
========= =========
See Notes to Financial Statements.
-32-
Consolidated Statements of Income
dollar amounts in millions, except per share
- ---------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------
Net Sales $ 2,878.6 $ 2,297.1 $ 2,402.5
----------- ----------- -----------
Costs and expenses:
Cost of sales 2,080.1 1,853.8 2,126.7
Depreciation and amortization 156.3 143.8 142.8
Cost of timber harvested 45.7 41.6 41.1
Selling and administrative 219.4 184.7 181.2
Unusual credits and charges, net 8.2 47.8 32.5
Interest expense,
net of capitalized interest 47.9 37.5 30.9
Interest income (36.0) (24.7) (1.9)
----------- ----------- -----------
Total costs and expenses 2,521.6 2,284.5 2,553.3
----------- ----------- -----------
Income (loss) before taxes
and minority interest 357.0 12.6 (150.8)
Provision (benefit) for income taxes 139.5 14.4 (44.4)
Minority interest in net income
(loss) of consolidated subsidiaries .7 (3.8) (4.6)
----------- ----------- -----------
Net income (loss) $ 216.8 $ 2.0 $ (101.8)
=========== =========== ===========
Net income (loss) per share - basic
and diluted $ 2.04 $ .02 $ (.94)
=========== =========== ===========
Cash dividends per share of common
stock $ .56 $ .56 $ .56
=========== =========== ===========
Average shares of common stock
(millions)
Basic 106.2 108.4 108.5
=========== =========== ===========
Diluted 106.2 108.6 108.5
=========== =========== ===========
See Notes to Financial Statements.
-33-
Consolidated Statements of Cash Flows
dollar amounts in millions
- ----------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 216.8 $ 2.0 $ (101.8)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, amortization and
cost of timber harvested 202.0 185.4 183.9
Unusual credits and charges, net 8.2 61.2 216.6
Cash settlements of contingencies (104.0) (113.2) (204.8)
Other adjustments 20.4 11.2 (54.5)
Decrease (increase) in receivables 7.0 (3.8) (4.0)
Decrease (increase) in inventories 13.5 7.1 12.8
Decrease (increase) in income
tax refunds receivable 46.0 33.7 21.8
Decrease (increase) in prepaid
expenses (5.9) (4.0) 4.7
Increase (decrease) in accounts
payable and accrued liabilities 12.7 (64.2) (1.8)
Increase (decrease) in income taxes payable 2.6 -- --
Increase (decrease) in deferred
income taxes 53.3 7.6 15.3
-------- -------- --------
Net cash provided by operating activities 472.6 123.0 88.2
CASH FLOWS FROM INVESTING ACTIVITIES
Plant, equipment and logging road
additions (88.3) (77.8) (106.2)
Timber and timberland additions (29.6) (44.7) (49.7)
Assets sale proceeds 74.2 367.6 63.6
Acquisitions, including replacement of debt (726.1) -- (48.6)
Other investing activities, net (13.6) 1.3 1.0
-------- -------- --------
Net cash provided by
(used in) investing activities (783.4) 246.4 (139.9)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in short-term notes
payable -- (22.0) (13.4)
Long-term borrowings 629.3 348.6 228.4
Repayment of long-term debt (224.6) (473.9) (101.0)
Cash dividends (59.2) (60.7) (60.7)
Purchase of treasury stock (47.9) (66.5) (2.9)
Loans to ESOTs -- (15.0) --
Treasury stock sold to ESOTs -- 15.0 --
Other financing activities, net 2.7 (.3) 5.4
-------- -------- --------
Net cash provided by (used in)
financing activities 300.3 (274.8) 55.8
-------- -------- --------
Net increase (decrease) in
cash and cash equivalents (10.5) 94.6 4.1
Cash and cash equivalents at beginning
of year 126.5 31.9 27.8
-------- -------- --------
Cash and cash equivalents at end of year $ 116.0 $ 126.5 $ 31.9
======== ======== ========
See Notes to Financial Statements.
-34-
Consolidated Statements of Stockholders' Equity
dollar and share amounts in millions
Common Stock Treasury Stock Additional
Paid-In Retained
Shares Amount Shares Amount Capital Earnings
- ------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1996 116.9 $ 117.0 8.2 $ (183.3) $ 472.7 $ 1,140.0
Net loss -- -- -- -- -- (101.8)
Cash dividends, $.56 per share -- -- -- -- -- (60.7)
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 $ 977.5
Net income -- -- -- -- -- 2.0
Cash dividends, $.56 per share -- -- -- -- -- (60.7)
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 $ 918.8
Net income -- -- -- -- -- 216.8
Cash dividends, $.56 per share -- -- -- -- -- (59.2)
Issuance of shares for employee stock
plans and for other purposes -- -- (1.2) 23.6 (20.0) --
Purchase of treasury stock -- -- 3.5 (47.9) -- --
Employee Stock Ownership Trust
contribution -- -- -- -- -- --
Currency translation adjustment -- -- -- -- -- --
Other -- -- -- -- -- --
Other comprehensive income -- -- -- -- -- --
Total comprehensive income -- -- -- -- -- --
----- -------- ----- -------- -------- ----------
BALANCE AS OF DECEMBER 31, 1999 116.9 $ 117.0 12.0 $ (228.3) $ 445.4 $ 1,076.4
===== ======== ===== ======== ======== ==========
Accumulated Total Comprehensive
Loans to Comprehensive Stockholders' Income
ESOTs Income (Loss) Equity (Loss)
BALANCE AS OF DECEMBER 31, 1996 $ (61.6) $ (57.2) $ 1,427.6
Net loss -- -- (101.8) $ (101.8)
---------
Cash dividends, $.56 per share -- -- (60.7) --
Issuance of shares for employee stock
plans and for other purposes -- -- 22.3 --
Purchase of treasury stock -- -- (2.9) --
Employee Stock Ownership Trust
contribution 23.9 -- 23.9 --
Currency translation adjustment -- -- -- (15.0)
Pension liability adjustment -- -- -- (8.2)
Other -- -- -- 1.0
---------
Other comprehensive income (loss) -- (22.2) (22.2) (22.2)
---------
Total comprehensive income (loss) -- -- -- $ (124.0)
----- ----- -------- =========
BALANCE AS OF DECEMBER 31, 1997 $ (37.7) $ (79.4) $ 1,286.2
Net income -- -- 2.0 $ 2.0
Cash dividends, $.56 per share -- -- (60.7) ---------
Issuance of shares for employee stock
plans and for other purposes (15.0) -- 4.1 --
Purchase of treasury stock -- -- (66.5) --
Employee Stock Ownership Trust
contribution 23.9 -- 23.9 --
Currency translation adjustment -- -- -- 37.1
Pension liability adjustment -- -- -- (4.2)
Other -- -- -- .9
---------
Other comprehensive income -- 33.8 33.8 33.8
---------
Total comprehensive income -- -- -- $ 35.8
----- ----- -------- =========
BALANCE AS OF DECEMBER 31, 1998 $ (28.8) $ (45.6) $ 1,222.8
Net income -- -- 216.8 $ 216.8
---------
Cash dividends, $.56 per share -- -- (59.2) --
Issuance of shares for employee stock
plans and for other purposes -- -- 3.6 --
Purchase of treasury stock -- -- (47.9) --
Employee Stock Ownership Trust
contribution 21.9 -- 21.9 --
Currency translation adjustment -- -- -- 1.7
Other -- -- -- .3
---------
Other comprehensive income -- 2.0 2.0 2.0
---------
Total comprehensive income -- -- -- $ 218.8
===== ===== ======== =========
BALANCE AS OF DECEMBER 31, 1999 $ (6.9) $ (43.6) $ 1,360.0
===== ===== ========
See notes to financial statements
-35-
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
Louisiana-Pacific Corporation and its subsidiaries (collectively L-P or
the Company) are 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, 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 (227,161 shares at December 31, 1999, 1,206,671 shares at
December 31, 1998 and 763,786 shares at December 31, 1997).
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
1999, 1998 and 1997 for interest (net of capitalized interest) was $46.2
million, $40.5 million and $29.2 million. Net cash paid (received) during 1999,
1998 and 1997 for income taxes was $39.3 million, $(25.5) million and $(80.7)
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.
-36-
Inventory Valuation
Inventories are valued at the lower of cost or market. Inventory costs
include materials, 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 (work in process is not
material):
- -------------------------------------------------------------------------------------------------------------------
dollar amounts in millions
- -------------------------------------------------------------------------------------------------------------------
December 31 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Logs $ 104.1 $ 89.8
Other raw materials 47.9 23.5
Finished products 159.4 127.6
Supplies 28.4 17.4
LIFO reserve (46.4) (52.6)
--------- --------
Total $ 293.4 $ 205.7
===================================================================================================================
A reduction in LIFO inventories in 1999 and 1998 resulted in a
reduction of cost of sales of $8.8 million and $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
1999, 1998 and 1997 was $.3 million, $1.6 million and $4.8 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.
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.
-37-
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 1999, 1998 and 1997 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, as amended by SFAS 137, will be effective for L-P
beginning January 1, 2001. L-P is currently determining the impact this
statement will have on the Company's financial statements and related
disclosures.
FOREIGN CURRENCY TRANSLATION
The functional currency for the majority of the Company's foreign
subsidiaries is the U.S. dollar. The financial statements of foreign
subsidiaries are remeasured into U.S. dollars using the historical exchange rate
for property, plant and equipment, timber and timberlands, goodwill, equity and
certain other non-monetary assets and liabilities and using the exchange rate at
the balance sheet date for the remaining assets and liabilities. A weighted
average exchange rate is used for each period for revenues and expenses.
Transaction gains of losses are recorded in income. In cases where the local
currency is the functional currency, translation adjustments are recorded in the
Accumulated Comprehensive Income section of Stockholder's Equity.
GOODWILL
Goodwill has resulted from acquisitions and is being amortized on a
straight-line basis primarily over 15 years. The amortization period of goodwill
is periodically reviewed by the Company. Accumulated amortization was $12.9
million and $8.6 million at December 31, 1999 and 1998.
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, L-P received $49.9 million in notes from a third party. The
notes are due in principal payments of $20.0 million in 2008, $20.0 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 fair value of these notes at December 31, 1999 and
1998 was approximately $361 million and $410 million.
-38-
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. Accounts Payable and Accrued Liabilities
- ----------------------------------------------------------------------------------------
dollar amounts in millions
- ----------------------------------------------------------------------------------------
December 31 1999 1998
- ----------------------------------------------------------------------------------------
Accounts payable $ 195.0 $ 127.3
Salaries and wages payable 40.6 23.0
Taxes other than income taxes 9.3 5.0
Workers' compensation 15.5 13.1
Other accrued liabilities 46.1 24.1
- ----------------------------------------------------------------------------------------
$ 306.5 $ 192.5
========================================================================================
3. Income Taxes
Income (loss) before taxes and minority interest was taxed under the following
jurisdictions:
- ----------------------------------------------------------------------------------------
dollar amounts in millions
- ----------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------
Domestic $ 260.5 $ .1 $ (87.0)
Foreign 96.5 12.5 (63.8)
- ----------------------------------------------------------------------------------------
$ 357.0 $ 12.6 $ (150.8)
========================================================================================
Provision (benefit) for income taxes includes the following:
- ----------------------------------------------------------------------------------------
dollar amounts in millions
- ----------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------
Current tax provision (benefit):
U.S. federal $ 45.8 $ 3.1 $ (65.0)
State and local 12.9 .3 (4.3)
Foreign 23.6 (2.7) 2.8
- ----------------------------------------------------------------------------------------
Net current tax provision
(benefit) $ 82.3 $ .7 $ (66.5)
========================================================================================
Deferred tax provision (benefit):
U.S. federal $ 65.7 $ 59.6 $ 32.2
State and local 6.9 6.3 3.4
Foreign (15.4) (52.2) (13.5)
- ----------------------------------------------------------------------------------------
Net deferred tax provision
(benefit) $ 57.2 $ 13.7 $ 22.1
========================================================================================
-39-
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 1999 1998
- ----------------------------------------------------------------------------------------
Property, plant and equipment $ 203.2 $ 116.6
Timber and timberlands 113.9 148.0
Inventories (4.2) (1.3)
Accrued liabilities (19.8) (101.4)
Contingency reserves (119.5) (142.4)
Benefit of capital loss and NOL carryovers (24.8) (28.0)
Benefit of foreign ITC carryover (36.5) (61.0)
Benefit of U.S. alternative minimum tax
credit -- (20.0)
Installment sale gain deferral 147.3 147.1
Other 16.4 14.8
Valuation allowance 9.5 38.0
- ----------------------------------------------------------------------------------------
Net deferred tax liability 285.5 110.4
Net current deferred tax assets (110.8) (93.2)
- ----------------------------------------------------------------------------------------
Net non-current deferred tax liabilities $ 396.3 $ 203.6
========================================================================================
L-P's Canadian subsidiary, Louisiana-Pacific Canada Ltd. (LPC), has
unrealized foreign investment tax credits (ITC) of approximately C$66 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$2 million in 2000, C$45 million in 2001, C$4 million in 2003,
C$13 million in 2004, C$1 million in 2005 and C$1 million in 2006. The $25
million of capital loss and net operating loss (NOL) carryover amount included
in the above table consists of $15 million of state NOL carryovers which will
expire in various years through 2013, and $10 million of Canadian capital loss
carryovers which may be carried forward indefinitely. L-P has recorded a
valuation allowance against the entire Canadian capital loss carryover amount.
The change in the valuation allowance from 1998 to 1999 primarily represents a
reclassification to deferred taxes related to property, plant and equipment as a
result of a tax basis reduction upon the expected utilization of Canadian
investment tax credits.
U.S. taxes have not been provided on foreign subsidiaries' earnings of
approximately $98.2 million which are deemed indefinitely reinvested.
Quantification of the deferred tax liability, if any, associated with
indefinitely reinvested earnings is not practical.
-40-
The following table summarizes the differences between the statutory
U.S. federal and effective income tax rates:
- -----------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------
Federal tax rate 35% 35% (35)%
State and local income taxes 3 4 (4)
Nondeductible fines -- 51 --
Foreign tax credits used -- (35) --
Other foreign tax effects -- 20 6
Nondeductible goodwill 1 41 (1)
Other, net -- (2) 5
_____ _____ _____
39% 114% (29)%
========================================================================================
4. Long-term Debt
- ------------------------------------------------------------------------------------------------------------
dollar amounts in millions
- ------------------------------------------------------------------------------------------------------------
Interest Rate
at Dec. 31, December 31,
1999 1999 1998
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 6.8-7.3 348.6 348.6
Project bank financing -
Waterford, Ireland, OSB plant,
payable in Irish pounds through 2002,
interest rate variable 6.0 12.8 28.1
Project revenue bond financings,
payable through 2022, interest rates
variable 4.6-7.4 39.3 25.6
Employee Stock Ownership Trust (ESOT) Loans
Hourly ESOT, repaid in 1999 -- -- 8.5
Salaried ESOT, repaid in 1999 -- -- 6.0
Forex bridge loan - unsecured, payable
March 2000, interest rate variable 6.7 240.0 --
Forex bridge loan - unsecured, payable
September 2004, interest rate variable 6.9 126.6 --
Evans bridge loan - unsecured, payable
September 2004, interest rate variable 7.0 94.0 --
Notes payable to former Forex shareholders,
unsecured, payable annually through 2003,
interest rate variable 5.4 139.9 --
Montrose penalty liability, repaid in 1999 -- -- 25.0
Other, interest rates vary 7.1-8.3 10.6 4.2
- -------------------------------------------------------------------------------------------------------------------
Total 1,059.7 493.9
Current portion (44.9) (34.1)
- -------------------------------------------------------------------------------------------------------------------
Net long-term debt $ 1,014.8 $ 459.8
===================================================================================================================
-41-
L-P believes the carrying amounts of long-term debt approximate fair
market value because the interest rates are variable, with the exception of
limited recourse notes payable which L-P believes have a fair value of
approximately $359 million and $402 million at December 31, 1999 and 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, 1999.
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.
In 1997, L-P issued $47.9 million of senior debt in a private placement
to institutional investors. The notes mature in principal amounts of $20 million
in 2008, $20 million in 2009, and $7.9 million in 2012. They are secured by
$49.9 million in notes receivable from Sierra Pacific Industries.
L-P utilized two bridge loan facilities to finance the acquisition of
Forex. L-P borrowed $300 million under a Bank of America bridge facility which
was subsequently paid down to $240 million. This facility expires in March 2000
and bears interest based on LIBOR rates plus a spread of .58%. L-P intends to
refinance this facility with the $300 million revolving line discussed below or
with issuance of long term notes (see below). L-P also had outstanding $126.6
million of $250 million capacity under a Centric Capital bridge facility. This
loan bears interest based on LIBOR rates plus a spread of .75%. Additionally,
the tender offer allowed Forex shareholders to take cash or notes. Notes were
issued to Forex shareholders in a total amount of C$201.9 million (approximately
US $139.9 million). These notes bear interest at Canadian LIBOR rates plus a
spread of .75%. The notes will be repaid over a period of four years.
L-P borrowed an additional $94 million under the Centric Capital bridge
facility to finance the acquisition of the assets of Evans.
At December 31, 1999, L-P had a $300 million unsecured revolving
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, LPC has a $50 million (Canadian) revolving credit facility which
expires in March 2000. LPC pays a commitment fee on the unused portion but had
no borrowings outstanding against the line at year-end.
The weighted average interest rate for all debt at December 31, 1999
and 1998 was 6.7 percent and 6.8 percent. Required repayment of principal for
long-term debt, based on assumed refinancings, is as follows:
- ----------------------------------------------------------------------------------------
dollar amounts in millions
- ----------------------------------------------------------------------------------------
year ended December 31
2000 $ 44.9
2001 42.3
2002 278.4
2003 35.8
2004 237.6
2005 AND AFTER 420.7
- ----------------------------------------------------------------------------------------
Total $ 1,059.7
========================================================================================
L-P anticipates filing a registration statement for $750 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
-42-
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 to refinance a portion of its existing indebtedness and for general
corporate purposes.
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
7,100 L-P employees participate in the ESOTs. For years beginning after December
31, 1999, the flat 10 percent contribution will be discontinued and
contributions will be made as described below.
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 in the financial statements 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 9.9
million shares at December 31, 1999 of which approximately 9.7 million were
allocated to participants' accounts. ESOT expense is included in the retirement
plan expense table below.
Effective January 1, 2000, L-P will be amending and reactivating the
L-P Retirement Plan, a defined benefit plan which was initially frozen in 1994.
Contributions to the plan of 5% of eligible participants' earnings, as defined
in the plan, will be made by L-P with interest credited to participants'
accounts. Prior vested benefits will be converted to a lump-sum balance.
Effective October 1, 1999, the ESOTs were amended to allow for 401(k) deferrals.
Effective January 1, 2000, 401(k) deferrals will be matched by L-P as follows:
100% match on the first 3% deferral and 25% match on the next 2% deferral for a
maximum of a 3.5% matching contribution. Additionally, under new profit sharing
plans which become effective January 1, 2000, discretionary profit sharing
contributions of up to 3% of eligible employees' earnings, as defined in the
plans, may be made by L-P for eligible participants employed at the end of each
year. The Hourly and Salaried ESOTs will be merged with the respective new
profit sharing plans effective December 31, 1999 for the salaried plans and
December 31, 2000 for the hourly plans.
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 service costs 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 $3.3 million at
December 31, 1999. 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 1999, L-P contributed $4.4 million to the trust. The funds were
invested in corporate-owned life insurance policies. At December 31, 1999 and
1998, the trust assets were valued at $13.5 million and $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 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Plan with Plans 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 benefit obligation $ 12.3 $179.0 $ 11.8 $110.6
Plan assets 13.3 146.9 13.9 93.0
- ---------------------------------------------------------------------------------------------------------------------------
Net funded (unfunded)
status 1.0 (32.1) 2.1 (17.6)
Unrecognized asset at
transition -- (3.3) -- (4.9)
Unrecognized net loss
and other 4.4 41.8 3.7 34.8
Adjustment to recognize
Minimum liability -- (29.9) -- (29.9)
- ---------------------------------------------------------------------------------------------------------------------------
Net prepaid (accrued)
pension expense $ 5.4 $(23.5) $ 5.8 $(17.6)
===========================================================================================================================
Retirement plans changes and components are as follows:
- ------------------------------------------------------------------------------------------
dollar amounts in millions
- ------------------------------------------------------------------------------------------
December 31 1999 1998
- ------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation - January 1 $122.4 $ 114.3
Service cost 2.8 1.1
Interest cost 10.9 7.9
Amendments 17.3 --
Actuarial (gain)/loss (14.7) 4.8
Acquisitions 61.0 --
Benefits paid (8.4) (5.7)
- ------------------------------------------------------------------------------------------
Benefit obligation - December 31 $191.3 $ 122.4
==========================================================================================
CHANGE IN ASSETS
Fair value of assets - January 1 $106.9 $ 102.2
Actual return on plan assets 5.0 7.4
Employer contribution 1.6 3.0
Acquisitions 55.1 --
Benefits paid (8.4) (5.7)
- ------------------------------------------------------------------------------------------
Fair value of assets - December 31 $160.2 $ 106.9
==========================================================================================
-44-
Reconciliation of Funded Status
Funded status $ (31.1) $ (15.5)
Unrecognized actuarial loss 27.8 37.1
Unrecognized prior service cost 18.4 1.4
Unrecognized asset at transition (3.3) (4.9)
- --------------------------------------------------------------------------------------------
Prepaid benefit cost $ 11.8 $ 18.1
============================================================================================
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost $5.4 $ 5.8
Accrued benefit liability (23.5) (17.6)
Deferred tax asset 11.6 11.6
Accumulated other comprehensive income 18.3 18.3
- --------------------------------------------------------------------------------------------
Net amount recognized $11.8 $18.1
============================================================================================
The actuarial assumptions used to determine pension expense and the
funded status of the plans were: a discount rate on benefit obligations of 7.50%
in 1999, 6.75% in 1998 and 7.25% in 1997; an 8.75% expected long-term rate of
return on plan assets for all three years; and a 4.5% increase in future
compensation levels for non-frozen plans.
Retirement plan expense included the following components:
- ----------------------------------------------------------------------------------------
dollar amounts in millions
- ----------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------
Benefits earned by employees $ 2.8 $ 1.1 $ .2
Interest cost on projected benefit
obligation 10.9 7.9 7.9
Return on plan assets (12.6) (9.2) (9.0)
Net amortization and deferral .8 (.5) (1.0)
- -----------------------------------------------------------------------------------------
Net periodic pension
expense (income) 1.9 (.7) (1.9)
Expense related to ESOTs,
multiemployer, defined contribution
and non-qualified plans 26.6 26.0 28.8
Loss from settlement of pension
Plan -- -- 7.3
--------------------------------------------------------------------------------------
Net retirement plan expense $ 28.5 $ 25.3 $ 34.2
========================================================================================
The assets of the plans at December 31, 1999 and 1998 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.
-45-
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 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, except per share
- ---------------------------------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Net income (loss)
As reported $ 216.8 $ 2.0 $ (101.8)
Pro forma 209.4 (4.0) (108.6)
Net income (loss) per share - basic and diluted
As reported $ 2.04 $ .02 $ (.94)
Pro forma 1.97 (.04) (1.00)
===============================================================================================================
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 2.3 percent to 4.6 percent dividend yield;
volatility of 40 percent in 1999, 39 percent in 1998 and 27 percent in 1997; and
an average risk free interest rate of 5.0 percent in 1999, 5.3 percent in 1998
and 6.6 percent in 1997.
STOCK OPTION PLANS
L-P grants options to key employees and directors to purchase L-P
common stock. The options are granted at 100 percent of market price at the date
of grant. The options become exercisable over 3 years beginning one year after
the grant date and expire 10 years after the date of grant. At December 31,
1999, 2.9 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 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Options outstanding at January 1 2,823 2,373 1,678
Options granted 1,235 905 928
Options exercised (183) (113) (155)
Options cancelled (654) (342) (78)
- ---------------------------------------------------------------------------------------------------------------
Options outstanding at December 31 3,221 2,823 2,373
===============================================================================================================
Options exercisable at December 31 1,246 1,170 912
===============================================================================================================
-46-
WEIGHTED AVERAGE PRICE PER SHARE
- --------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
EXERCISE PRICE
Options granted $19.13 $19.09 $19.97
================================================================================
Options exercised $16.92 $14.85 $13.91
================================================================================
Options cancelled $21.68 $21.08 $24.21
================================================================================
Options outstanding $19.79 $18.11 $21.09
================================================================================
Options exercisable $20.46 $21.41 $21.09
================================================================================
FAIR VALUE AT DATE OF GRANT
Options granted $ 7.55 $ 5.73 $ 6.05
================================================================================
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. L-P did not record any compensation expense related to
these awards in 1999, 1998, or 1997 based on the cumulative stockholders return
for the applicable periods.
Changes in performance-contingent stock awards were as follows:
- -------------------------------------------------------------------------------------------------
Number Of Shares
- -------------------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Target shares - awards outstanding at
January 1 97,370 54,569 ---
Target shares - awards granted 57,271 64,064 54,569
Target shares - awards cancelled ---- (21,263) ---
- -------------------------------------------------------------------------------------------------
Target shares - awards outstanding at
December 31 154,641 97,370 54,569
=================================================================================================
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, 1999, 441,866 and 129,893 shares
were subscribed at $13.04 and $17.72 per share under the 1999 and 1998 Employee
Stock Purchase Plans. During 1999, L-P issued 65,237 shares to employees at an
average price of $15.39 under all Employee Stock Purchase Plans.
EXECUTIVE LOAN PROGRAM
In November 1999, a subcommittee of the Compensation Committee of the
Board of Directors approved an Executive Loan Program under which up to
1,700,000 shares of common stock were offered by
-47-
L-P for purchase, prior to January 23, 2000, by L-P's executive officers and
other executives designated by its chief executive officer. Participants were
permitted to borrow from L-P up to 100 percent of the price of the shares to be
purchased, which was equal to the closing price of L-P's stock on the date of
delivery of an election to participate to L-P. The maximum amount an individual
was permitted to borrow was three times his or her annual base pay.
The loans bear interest at the annual rate of 6.02 percent. Interest
and principal are due and payable at the earlier of January 23, 2005, or 30 days
following the executive's resignation or involuntary termination of employment.
The loans are unsecured. If an executive with a loan outstanding remains
employed by L-P on January 23, 2005, or dies or becomes disabled while employed
prior to the date, one-half of the loan principal and accrued interest will be
forgiven if the executive still owns all the shares purchased under the program
and the common stock has traded on the NYSE at a price of at least $23 per share
(subject to adjustments for stock dividends or other recapitalizations) for at
least five consecutive trading days during the preceding 12 months.
A total of 925,177 shares of common stock were purchased by 18
executives during the period from November 29, 1999 to December 3, 1999 for a
total price of $11.1 million. The transactions were recorded as a decrease in
Treasury Stock and a decrease in Additional Paid-In Capital. The compensation
expense in 1999 related to this program was not material.
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 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Additions to contingency reserves $ (20.0) $ (284.5) $ (169.0)
Long-lived asset impairment charges (7.6) (162.9) (35.0)
Gain on asset sales 19.7 381.3 55.6
Gain on insurance recoveries -- 28.4 --
Gain on contract settlement 7.0 -- 135.0
Severance and other (7.3) (10.1) (19.1)
- -------------------------------------------------------------------------------------------------
$ (8.2) $ (47.8) $ (32.5)
==================================================================================================
1999
In the third quarter, L-P's Ketchikan Pulp Company (KPC) subsidiary
increased its reserves for environmental liabilities by $20.0 million as a
result of changes in facts and circumstances at KPC sites and as a result of
additional facts discovered, largely during activities to prepare for the sale
of the majority of KPC assets. This is an estimate primarily for future costs of
remediation of hazardous or toxic substances on various sites owned or used by
KPC and for closing and monitoring activities.
In the third quarter, L-P recorded a $7.6 million asset impairment
charge primarily in relation to the sale of the KPC facilities to reduce the
carrying value of the fixed assets sold to fair value at the date of sale. The
sale of KPC assets for approximately $11.5 million in cash and promissory notes
was completed in November 1999.
In 1999, L-P recorded total gains on the sale of assets of $19.7
million. In the second quarter, L-P sold timber and approximately 5,500 acres of
timberlands in Texas recording a $5.2 million gain on the sale. In December
1999, L-P sold the assets of its Associated Chemists, Inc. (ACI) subsidiary,
recording a gain of $14.5 million. ACI is a manufacturer of coatings and
chemicals.
-48-
In the third quarter, KPC recorded a $5.0 million gain under the 1997
agreement with the U.S. government (see below under the heading "1997" for
further discussion of this agreement) based on satisfaction of requirements
under the agreement. KPC also received $2.0 million from a local government
agency upon satisfaction of certain obligations with that agency.
Other losses of $7.3 million are primarily to due to the write off of a
note receivable received in a sale of assets in the prior year.
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 then current estimates of liabilities for product-related
litigation and legal costs, including enhancements to the national siding
class-action settlement. Those 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 then
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.
In the third quarter of 1998, L-P decided to sell or liquidate the
Chetwynd pulp mill facility. In connection with this decision, management
estimated the fair value of the facility, taking into account relevant factors
such as the continuing Asian economic crisis and the numerous pulp mills being
offered for sale by others. This valuation resulted in a $136.1 million
write-down of the facility, 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. Although management
is currently pursuing disposal or liquidation of the facility, due to market
conditions the timing of such disposal or liquidation is not presently
determinable.
The roof shake plant was part of the portfolio of non-strategic assets
announced for sale in October 1997. As prospective buyers performed their due
diligence reviews, their preliminary non-binding offers were either withdrawn or
reduced to unacceptable levels, resulting in a decision on the part of L-P to
permanently shut down the facility. This decision 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 will cease to be used by L-P following the
expiration of a timber harvesting agreement with the U.S. Forest Service. The
agreement was scheduled to expire in 1999, subject to extension under certain
circumstances. As part of its budgeting process for 1999, L-P determined that
the logging roads were impaired based on the expected operating results of KPC
through the scheduled expiration date of the agreement. Accordingly, L-P
recorded a $10 million write-down on these logging roads in the third quarter of
1998.
The write-down of the Creative Point, Inc. subsidiary assets recorded
in the third quarter of 1998 was $2 million. The asset sale occurred in the
fourth quarter of 1998. During the time period between the buyer's initial offer
and the closing date of the sale, Creative Point's operating results fell short
of expectations, and the buyer reduced its offering price. Consequently, the
transaction, which L-P originally believed would result in a minor gain,
resulted in a loss. 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.
-49-
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, 1999
$.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 currently 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 $11 million. The roof shake plant
was part of the portfolio of non-strategic 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.
8. Contingencies
ENVIRONMENTAL PROCEEDINGS
In March 1995, 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 former 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
-50-
Alaska. Although KPC sold the mill site and related facilities in 1999, it
remains obligated under these agreements to undertake certain projects relating
to the investigation and remediation of Ward Cove, a body of water adjacent to
the mill site, estimated to cost approximately $6.7 million (of which
approximately $1.8 million had been spent at December 31, 1999).
L-P is involved in a number of other environmental proceedings and
activities, and may be wholly or partially responsible for known or unknown
contamination existing at a number of other sites at which it has conducted
operations or disposed of wastes. Based on the information currently available,
management believes that any fines, penalties or other costs or losses resulting
from these matters will not have a material adverse effect on the financial
position, results of operations, cash flows or liquidity of L-P.
L-P maintains a reserve for estimated environmental loss contingencies.
The balance of the reserve was $48.2 million and $27.9 million at December 31,
1999 and 1998, respectively, of which $18.2 million and $9.1 million related to
matters associated with the operations formerly conducted by KPC. The remainder
of these balances were primarily for estimated future costs of remediation of
hazardous or toxic substances at numerous sites currently or previously owned by
the Company and closing and monitoring landfills. L-P's estimates of its
environmental loss contingencies are based on various assumptions and judgments,
the specific nature of which varies in light of the particular facts and
circumstances surrounding each environmental loss contingency. These estimates
typically reflect assumptions and judgments as to the probable nature, magnitude
and timing of required investigation, remediation and/or monitoring activities
and the probable cost of these activities, and in some cases reflect assumptions
and judgments as to the obligation or willingness and ability of third parties
to bear a proportionate or allocated share of the cost of these activities. Due
to the numerous uncertainties and variables associated with these assumptions
and judgments, and the effects of changes in governmental regulation and
environmental technologies, both the precision and reliability of the resulting
estimates of the related contingencies are subject to substantial uncertainties.
L-P regularly monitors its estimated exposure to environmental loss
contingencies and, as additional information becomes known, may change its
estimates significantly. However, no estimate of the range of any such change
can be made at this time. L-P's estimates of its environmental loss
contingencies do not reflect potential future recoveries from insurance carriers
except to the extent that recovery may from time to time be deemed probable as a
result of a carrier's agreement to payment terms. In those instances in which
L-P's estimated exposure reflects actual or anticipated cost-sharing
arrangements with third parties, L-P does not believe that it will be exposed to
additional material liability as a result of non-performance by such third
parties.
The activity in L-P's reserve for estimated environmental loss
contingency reserves for the last three years is summarized in the following
table.
- ---------------------------------------------------- --------------- --------------- --------------
dollar amounts in millions
- ---------------------------------------------------- --------------- --------------- --------------
year ended December 31 1999 1998 1997
- ---------------------------------------------------- --------------- --------------- --------------
Beginning balance $ 27.9 $ 29.3 $ 49.9
Accrued to expense during the year 24.7 24.2 3.4
Liabilities of acquired companies 7.5 -- --
Payments made (18.3) (20.1) (30.7)
Other 6.4 (5.5) 6.7
- ---------------------------------------------------- --------------- --------------- --------------
Ending balance $ 48.2 $ 27.9 $ 29.3
==================================================== =============== =============== ==============
In the first quarter of 1997, operations at the KPC pulp mill ceased.
Based upon the information then available to it, L-P refined its original
estimates of the liabilities for the Ward Cove investigation and remediation,
mill site and landfill investigation and remediation, asbestos abatement and
demolition and asset removal and accrued an additional $3.3 million.
In the second quarter of 1998, two environmental accruals were made. In
connection with the sale of certain properties in California, L-P estimated that
retained environmental liabilities were approximately $6.9 million. In addition,
$6.0 million was added to the environmental accrual related to the "Colorado
Criminal
-51-
Proceedings" discussed below. In the third quarter of 1998, $1.8 million was
accrued in connection with newly identified sites and revised estimates at other
sites. Also during the quarter, the accruals for KPC environmental matters were
increased by an additional $7.5 million as a result of (i) revised cost
estimates provided by the contractors performing asset removal and demolition
activities, (ii) additional assets, which had initially been expected to be
sold, becoming unsalable due to deteriorating conditions in the pulp market and,
consequently, being slated for demolition and removal, (iii) the completion of
the EPA's review of the remediation investigation report relating to upland
properties, and (iv) experience indicating that hog fuel removal costs would be
greater than originally estimated. In the fourth quarter, $2.0 million was
accrued in connection with revised estimates at other sites.
In 1999, KPC increased its reserves for environmental liabilities by
$23.7 million (including $20.0 million charged to Unusual Credits and Charges,
Net) as a result of changes in facts and circumstances at KPC sites and as a
result of additional facts discovered, largely during activities to prepare for
the sale of the majority of KPC assets. This is an estimate primarily for future
costs of remediation of hazardous or toxic substances on various sites owned or
used by KPC and for closing and monitoring activities. The remaining 1999
accruals related to revised estimates at other sites.
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. Pursuant to a guilty plea to certain criminal violations
entered in May 1998, (i) L-P paid penalties of $37 million (of which $12 million
was paid in 1998 and the balance was paid in the second quarter of 1999), and
was sentenced to five years of probation and (ii) all remaining charges against
L-P were dismissed. The terms of L-P's probation require, among other things,
that L-P not violate any federal, state or local law.
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
In 1994 and 1995, L-P was 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 purchased or used OSB siding manufactured by L-P. In
general, the plaintiffs in these actions 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.
In June, 1996, the U.S. District Court for the District of Oregon
approved a settlement between L-P and a nationwide class composed of all persons
who own, have owned, or 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
-52-
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%)
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.
The settlement requires L-P to contribute $275 million to the
settlement fund. Approximately $269 million of that obligation had been
satisfied at December 31, 1999 through cash payments of $259 million on a
discounted basis. L-P's remaining mandatory contributions to the settlement fund
are due in 2000 (approximately $2 million), 2001 (approximately $2 million), and
2002 (approximately $2 million). In addition to its mandatory contributions, at
December 31, 1999, L-P had paid, on a discounted basis, approximately $96
million of its two $50 million funding options, at a cost to L-P of
approximately $65 million.
At December 31, 1999, the estimated cumulative total of approved claims
under the settlement agreement exceeded the sum of L-P's historical mandatory
and optional contributions and remaining mandatory contributions to the
settlement fund by approximately $322 million. Claims accounting for
approximately $293 million of this excess are eligible for participation in the
second settlement fund described below. In addition, approximately 90% of the
approximately 11,000 claims that had been filed but not yet processed at
December 31, 1999 will, to the extent subsequently approved, be eligible for
participation in the second settlement fund.
Subject to the exceptions noted above, the second settlement fund
represents an alternative source of payment for all approved and unpaid claims
filed (or post-marked for filing) within the second settlement fund period. In
early 2000, eligible claimants electing to participate in the second settlement
fund will be offered a pro rata share of the $125 million second settlement fund
in complete satisfaction of their claims, which they may accept or reject in
favor of remaining under the original settlement. Eligible claimants who accept
their pro rata share may not file additional claims under the settlement or
arbitrate the amount of their payments. Eligible claimants who elect not to
participate in the second settlement fund will remain bound by the terms of the
original settlement. Because such claimants who elect not to participate in the
second settlement fund will not be eligible to receive payment under the
original settlement prior to August, 2004, and will be subject to the risk of
the original settlement terminating as described below, L-P believes that
eligible claimants will have a substantial incentive to elect to participate in
the second settlement fund. However, if L-P is dissatisfied with the number of
claimants who elect to participate in the second settlement fund, L-P may, at
its sole option, refuse to fund the second settlement fund. 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. L-P presently
expects to make its decision regarding the funding of the second settlement fund
in the second or third quarter of 2000.
Based upon the payments that L-P has committed to make, the settlement
will continue in effect until at least August 2003. Within 60 days after
December 31, 2002, which is the last date for a class member to file a claim
under the settlement, the Claims Administrator shall notify L-P of the dollar
value of all remaining unfunded and approved claims. L-P shall then have 60 days
to notify the Claims Administrator whether L-P elects to fund all such remaining
claims. If L-P elects to fund those claims, then L-P will pay by the end of the
next 12-month period (2004) the greater of : (i) 50% of the aggregate sum of
those claims (with the remaining
-53-
50% to be paid by 12 months thereafter in 2005); or (ii) 100% of the aggregate
sum of those claims, up to a maximum of $50 million (with all remaining claims
paid 12 months thereafter in 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 contributions to the original settlement fund required
under the settlement agreement, including all additional optional contributions
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.
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; and the Superior Court
of Dekalb County, Georgia on September 25, 1998. ABT and Abitibi have also been
named as defendants in a putative class action proceeding filed in the Circuit
Court of Jasper County, Texas on October 5, 1999. These actions were brought on
behalf of various persons or purported classes of persons (including nationwide
classes) who own or have purchased or installed hardboard siding manufactured or
sold by the defendants. In general, the plaintiffs in these actions have claimed
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 (including consequential damage to the structures on
which the siding was installed), 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 L-P, the ABT Entities and
Abitibi have been named as defendants in a putative class action proceeding
filed in the District Court of Johnson County, Kansas on July 14, 1999. These
actions were brought on behalf of purported classes
of persons in Missouri and Kansas, respectively, who own or have purchased
hardboard siding manufactured by the defendants. In general, the plaintiffs in
these proceedings have claimed breaches of warranty, fraud, misrepresentation,
negligence, strict liability and other theories related to alleged defects,
deterioration or other failure of such hardboard siding, and seek unspecified
compensatory, punitive and other damages (including consequential damage to the
structures on which the siding was installed), attorneys' fees and other relief.
L-P and the ABT Entities intend 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 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
ABT hardboard siding matters will not have a material adverse effect on the
financial position, results of operations, cash flows or liquidity of L-P.
FIBREFORM WOOD PRODUCTS, INC. PROCEEDINGS
L-P has been named as a defendant in an action filed by FibreForm Wood
Products, Inc. ("FibreForm") in the Superior Court of Los Angeles County,
California on July 13, 1999. The action was subsequently removed by L-P and the
other named defendants to the United States District Court for the Central
District of California. FibreForm has alleged, in connection with failed
negotiations between FibreForm and L-P regarding a possible joint venture, that
L-P and the other defendants engaged in a fraudulent scheme to gain control over
FibreForm's proprietary manufacturing processes under the guise of such
negotiations. FibreForm has alleged fraudulent misrepresentation, negligent
misrepresentation, misappropriation of trade secrets, unfair competition, breach
of contract and breach of a confidentiality agreement by L-P and the other
defendants. FibreForm seeks general, special and consequential damages of at
least $250 million, punitive damages, restitution, injunctive and other relief
and attorneys' fees. L-P believes that FibreForm's allegations are without merit
and intends to defend this action vigorously. Based on the information currently
available, management believes that the resolution of this matter will not have
a material adverse effect on the financial position, results of operations, cash
flows or liquidity of L-P.
OTHER PROCEEDINGS
LP and its subsidiaries are parties to other legal proceedings. Based
on the information currently available, management believes that the resolution
of such proceedings will not have a material adverse effect on the financial
position, results of operations, cash flows or liquidity of L-P.
CONTINGENCY RESERVES
L-P maintains loss contingency reserves in addition to the
environmental reserves discussed above. The balance of these reserves, exclusive
of the environmental reserves discussed above, was $260.6 million and $340.1
million at December 31, 1999 and 1998, respectively (of which $226.5 million and
$323.9 million,
-55-
respectively, related to OSB siding contingencies). L-P's estimates of its
non-environmental loss contingencies are based on various assumptions and
judgments. In the case of the OSB siding contingency reserves, these assumptions
and judgments relate to, among other things: the timing and magnitude (in terms
of both the number of claims and the square footage of damaged siding) of
additional claims; the replacement cost (as determined in accordance with the
applicable settlement) of the damaged siding; the extent to which claimants will
elect to participate in the second settlement fund; the extent to which claims
may be resolved through means other than those provided for in the applicable
settlement; and the costs associated with the administration of the settlement
and the resolution of disputes and other legal matters. Due to the numerous
uncertainties and variables associated with these assumptions and judgments,
both the precision and reliability of the resulting estimates of the related
contingencies are subject to substantial uncertainties. L-P regularly monitors
its estimated exposure to non-environmental loss contingencies and, as
additional information becomes known, may change its estimates significantly.
While no estimate of the range of any such change can be made at this time, the
amount that L-P may ultimately pay in connection with these matters could
materially exceed, in the near term, the amounts accrued to date. L-P's
estimates of its loss contingencies do not reflect potential future recoveries
from insurance carriers except to the extent that recovery may from time to time
be deemed probable as a result of a carrier's agreement to payment terms.
The activity in the portion of L-P's loss contingency reserves relating
to OSB siding contingencies for the last three years is summarized in the
following table.
- ---------------------------------------------------------------------------------------
dollar amounts in millions
- ---------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------
Beginning balance $ 323.9 $ 164.7 $ 184.9
Accruals made during the year -- 247.5 161.9
Payments made (97.4) (100.8) (182.1)
Insurance recovery -- 12.5 --
------- ------- -------
Ending balance $ 226.5 $ 323.9 $ 164.7
=======================================================================================
In the third quarter of 1997, management learned that accrued and
future claims under the nationwide settlement would likely exceed the $275
million originally estimated. Accordingly, L-P accrued an additional $50 million
for the nationwide settlement based on the minimum amount management believed
was probable and estimable at the time. Additionally, management determined that
an additional accrual of $111.9 million was necessary based on updated estimates
of total costs to be incurred for Florida class action claims, administration
costs of the nationwide settlement, additional opt-out settlements and legal
fees.
In the third quarter of 1998, following court approval of the Early
Payment Program and the Second Fund, L-P accrued an additional $247.5 million
based on the estimated costs of the Early Payment Program and the Second Fund
and revised estimates of the future costs of the Florida class action, warranty
costs after the termination of settlements, legal and administration costs, and
estimated payments to claimants whose claims are not discharged pursuant to the
settlements.
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 at December 31, 1999 is approximately $19.4 million
for approximately 133 million board feet of timber.
Payments under all operating leases that were charged to expense during
1999, 1998, and 1997 were $28.2 million, $17.7 million and $17.5 million. Future
minimum rental payments under non-cancelable operating leases are not
significant.
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10. Segment Information
L-P operates in five major business segments: Structural Products,
Exterior Products, Industrial Panel Products, Other Products, and Pulp. L-P's
business units have been aggregated into these five reportable segments based on
the similarity of economic characteristics, customers, distributions methods and
manufacturing processes. Segment information was prepared in accordance with the
same accounting principles as those described in Note 1 to the financial
statements. L-P evaluates the performance of its business segments based on
operating profits excluding unusual credits and charges, general corporate and
other expenses, interest and provision for income taxes.
The Structural Products segment includes OSB, plywood, lumber and the
engineered wood products (EWP), primarily LVL and I-joists. The Exterior
Products segment includes siding and related products such as soffit, facia and
trim. With the ABT acquisition in 1999, this segment includes hardboard siding
and vinyl siding. The Industrial Panel Products segment includes particleboard,
medium density fiberboard (MDF) and hardboard, and the hardboard and the
laminated industrial panels products of ABT. The Other Products segment includes
distribution facilities, wood chips, coatings and specialty chemicals (sold in
December of 1999), cellulose insulation, Ireland operations, Alaska lumber and
logging operations (sold in November of 1999) and other products. The Pulp
segment includes the wood pulp products of L-P's two pulp mills.
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 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
TOTAL SALES - POINT OF ORIGIN
U.S. $ 2,550 $ 2,212 $ 2,330
Canada and other 455 166 128
Intersegment sales to U.S. (126) (81) (55)
- ---------------------------------------------------------------------------------------------------
Total sales $ 2,879 $ 2,297 $ 2,403
===================================================================================================
Export sales (included above) $ 193 $ 128 $ 240
===================================================================================================
OPERATING PROFIT (LOSS)
U.S. $ 391 $ 273 $ 39
Canada and other 89 (105) (49)
Unusual credits and charges, net(1) (8) (48) (32)
General corporate expense and
Interest, net (115) (107) (109)
- ---------------------------------------------------------------------------------------------------
Income (loss) before taxes
and minority interest $ 357 $ 13 $ (151)
===================================================================================================
IDENTIFIABLE ASSETS
U.S. $ 2,335 $ 2,279 $ 2,220
CANADA AND OTHER 1,153 240 358
- ---------------------------------------------------------------------------------------------------
Total assets $ 3,488 $ 2,519 $ 2,578
===================================================================================================
- -------------
(1) See Note 7 to the financial statements for an explanation of unusual
credits and charges, net.
-57-
Information about L-P's product segments is as follows:
- ---------------------------------------------------------------------------------------------------
dollar amounts in millions
- ---------------------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
TOTAL SALES
Structural products $ 1,621 $ 1,228 $ 1,149
Exterior products 254 107 103
Industrial panel products 268 171 178
Other products 619 716 843
Pulp 117 75 130
- ---------------------------------------------------------------------------------------------------
Total sales $ 2,879 $ 2,297 $ 2,403
===================================================================================================
OPERATING PROFIT (LOSS)
Structural products $ 440 $ 198 $ 21
Exterior products 53 22 9
Industrial panel products 13 6 13
Other products (11) (20) (24)
Pulp (15) (38) (29)
Unusual credits and charges, net(1) (8) (48) (32)
General corporate and other
expense, net (103) (94) (80)
Interest, net (12) (13) (29)
- ---------------------------------------------------------------------------------------------------
Income (loss) before taxes and
minority interest $ 357 $ 13 $ (151)
===================================================================================================
- ---------------------------------------------------------------------------------------------------
dollar amounts in millions
- ---------------------------------------------------------------------------------------------------
year ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Structural products $ 1,645 $ 927 $ 1,105
Exterior products 199 46 45
Industrial panel products 160 124 175
Other products 267 255 302
Pulp 176 178 266
Non-segment related 1,041 989 685
- ---------------------------------------------------------------------------------------------------
Total assets $ 3,488 $ 2,519 $ 2,578
===================================================================================================
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DEPRECIATION, AMORTIZATION AND
COST OF TIMBER HARVESTED
Structural products $123 $ 105 $ 114
Exterior products 14 7 4
Industrial panel products 14 5 6
Other products 17 27 26
Pulp 11 12 14
Non-segment related 23 29 20
- -------------------------------------------------------------------------------------------------
Total depreciation,
amortization and cost of
timber harvested $202 $ 185 $ 184
=================================================================================================
CAPITAL EXPENDITURES
Structural products $94 $ 87 $ 116
Exterior products 3 1 5
Industrial panel products 6 2 6
Other products 8 18 3
Pulp 4 7 4
Non-segment related 3 8 22
- -------------------------------------------------------------------------------------------------
Total capital expenditures $118 $ 123 $ 156
=================================================================================================
11. Acquisitions
On February 25, 1999, L-P acquired the capital stock of ABT Building
Products Co. (ABT) for approximately $164 million in cash. Concurrent with the
acquisition, L-P also paid off approximately $49 million of ABT debt. In
connection with the acquisition of ABT, L-P borrowed $100 million under a new
uncommitted bank credit facility ($50 million of which was repaid in September
1999 and $50 million of which was repaid in October 1999) and increased its net
revolving borrowings under its existing credit facility by $65 million (which
was fully repaid in September 1999). The acquisition was accounted for as a
purchase and ABT's results of operations for the period subsequent to the
acquisition have been included in L-P's Consolidated Statements of Income for
the year ended December 31, 1999. The purchase price has been allocated to the
assets and liabilities of ABT based on their estimated fair values. Based on
these estimates, L-P has recorded $53 million of goodwill in its Consolidated
Balance Sheet at December 31, 1999, which is being amortized using the
straight-line method over 15 years.
On September 14, 1999, L-P acquired the capital stock of Le Groupe
Forex Inc. (Forex) for a total purchase price of approximately $516.5 million.
Approximately $376.6 million of this amount had been paid in cash and
approximately $139.9 million of this amount had been paid through the issuance
of promissory notes to Forex shareholders. Concurrent with the acquisition, L-P
also paid off approximately $101.5 million of Forex debt. In connection with the
acquisition of Forex, L-P borrowed $426.6 million under new uncommitted bank
credit facilities. The acquisition was accounted for as a purchase and Forex's
results of operations for the period subsequent to the acquisition have been
included in L-P's Consolidated Statements of Income for the year ended December
31, 1999. The purchase price has been allocated to the assets and liabilities of
Forex based on their estimated fair values. Based on these estimates, L-P
recorded $271.0 million of goodwill in its Consolidated Balance Sheet at
December 31, 1999, which is being amortized using the straight-line method over
15 years.
The following unaudited pro forma financial information gives effect to
the acquisitions of ABT and Forex as if they had been consummated at the
beginning of each period presented.
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Year Ended Dec. 31,
-------------------------
1999 1998
----------- ----------
(DOLLAR AMOUNTS IN MILLIONS
EXCEPT PER SHARE)
Net sales $ 3,110.5 $ 2,736.7
Net income (loss) 235.2 (43.9)
Net income (loss) per share-- basic and diluted 2.21 (.40)
The principal pro forma adjustments reflected above are adjustments to
record interest expense on indebtedness incurred in connection with the
acquisitions, increased depreciation expense resulting from the allocation of
purchase price to acquired fixed assets at their estimated fair value, increased
depletion expense resulting from the allocation of purchase price to acquired
timber contracts at their estimated fair value and the amortization of goodwill.
The foregoing pro forma information is provided for illustrative purposes only
and does not purport to be indicative of results that actually would have been
achieved had the acquisitions been consummated at the beginning of the periods
presented or of future results.
On November 30, 1999, L-P acquired the assets of Evans Forest Products
for approximately $98 million in cash. In connection with Evans' acquisition,
L-P borrowed $94 million under a bank credit facility. The acquisition was
accounted for as a purchase and the results of operations of the acquired assets
for December 1999 were included in L-Ps Consolidated Statements of Income for
the year ended December 31, 1999. No goodwill was recorded related to this
acquisition. However, L-P is in the process of obtaining information to be used
in the determination of the fair value of certain assets and liabilities which
could affect both the amounts of purchase price allocated to those assets and
liabilities and the amount of goodwill recorded and amortized in future periods.
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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, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Portland, Oregon
January 28, 2000
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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 2000 annual meeting of
stockholders (the "2000 Proxy Statement"). Information regarding L-P's executive
officers is located in Item 1 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 2000 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 2000 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 2000 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 Loans and Other Transactions" in the
2000 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, 1999, and 1998.
Consolidated Statements of Income--years ended December 31, 1999, 1998, and
1997.
Consolidated Statements of Cash Flows--years ended December 31, 1999, 1998, and
1997.
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Consolidated Statements of Stockholders' Equity--years ended December 31, 1999,
1998, and 1997.
Notes to Financial Statements.
Independent Auditors' Report.
No financial statement schedules are required to be filed.
B. REPORTS ON FORM 8-K
On November 29, 1999, L-P filed Amendment No. 1 to its Current Report on Form
8-K dated September 14, 1999, amending Item 7 of, and the exhibits to, such
report to include the following financial statements required to be filed by
Item 7 thereof: (i) unaudited financial statements of Forex as at June 30, 1999
and for the six months ended June 30, 1999 and 1998; (ii) audited financial
statements of Forex as at December 31, 1998 and 1997 and for the years ended
December 31, 1998, 1997 and 1996 with auditors' report; (iii) unaudited pro
forma condensed consolidated balance sheet of L-P as of June 30, 1999; and (iv)
unaudited pro forma condensed consolidated statements of income of L-P for the
six months ended June 30, 1999 and for the years 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 15, 2000 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 15, 2000 /S/ MARK A. SUWYN
-----------------
Mark A. Suwyn
Chief Executive Officer,
Chairman of the Board,
Director
(Principal Executive Officer)
March 15, 2000 /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 15, 2000 /S/ JOHN W. BARTER
------------------
John W. Barter
Director
March 15, 2000 /S/ WILLIAM C. BROOKS
---------------------
William C. Brooks
Director
March 15, 2000 /S/ ARCHIE W. DUNHAM
---------------------
Archie W. Dunham
Director
March 15, 2000 /S/ PAUL W. HANSEN
---------------------
Paul W. Hansen
Director
March 15, 2000 /S/ DONALD R. KAYSER
--------------------
Donald R. Kayser
Director
March 15, 2000 /S/ BRENDA LAUDERBACK
---------------------
Brenda Lauderback
Director
March 15, 2000 /S/ PATRICK F. MCCARTAN
-----------------------
Patrick F. McCartan
Director
March 15, 2000 /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
2.1 Amended and Restated Support Agreement, dated August 12, 1999, between
L-P and Le Groupe Forex Inc. (incorporated herein by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed by L-P on August
18, 1999).
2.2 Amended and Restated Lock-Up Agreement, dated August 12, 1999, among
L-P and each of the parties identified in Schedule B thereof
(incorporated herein by reference to Exhibit 2.2 to the Current Report
on Form 8-K filed by L-P on August 18, 1999).
2.3 Asset Purchase Agreement, dated August 23, 1999, among Evans Forest
Products Limited, Louisiana-Pacific Canada Engineered Wood Products,
Ltd., Louisiana-Pacific Dawson Creek Ltd. and Louisiana-Pacific Canada
Ltd. Incorporated herein by reference to Exhibit 2.2 to L.P.'s
Amendment No. 1 on Form 10-Q/A for the quarter ended September 30,
1999.
3.1 Restated Certificate of Incorporation of Louisiana-Pacific Corporation
as amended to date. Incorporated herein by reference to Exhibit 3(a) to
L-P's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993.
3.2 Bylaws of Louisiana-Pacific Corporation as amended April 23, 1999.
Incorporated herein by reference to Exhibit 3.1 to L-P's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.
4.1 Rights Agreement, dated as of May 26, 1998, between L-P and First
Chicago Trust Company of New York as Rights Agent. Incorporated herein
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, 1999. L-P agrees to
furnish a copy of any such instrument to the Securities and Exchange
Commission upon request.
4.2 Note Purchase Agreement, dated June 30, 1998, among L-P, L-P SPV2, LLC,
and the Purchasers listed therein. Incorporated herein by reference to
Exhibit 4 to L-P's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
4.3 Indenture, dated as of September 14, 1999, among Louisiana-Pacific
Acquisition Inc., L-P and Laurentian Trust of Canada Inc.
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10.1 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 herein by reference
to Exhibit 4.A.2 to L-P's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
10.2 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 other financial institutions that
are parties thereto. Incorporated herein by reference to Exhibit 4.3 to
L-P's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
10.3 Loan Agreement, dated February 3, 1999, between L-P and Centric Capital
Corporation and related Promissory Note. Incorporated herein by
reference to Exhibit 4.1 to L-P's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
10.4 Letter Agreement, dated September 8, 1999, between Louisiana-Pacific
Acquisition Inc. and Bank of America, N.A., together with related
Guaranty Agreement by L-P in favor of Bank of America, N.A.
(incorporated herein by reference to Exhibit 99.2 to the Current Report
on Form 8-K filed by L-P on September 29, 1999).
10.5 Loan Agreement, dated September 10, 1999, between Louisiana-Pacific
Acquisition Inc. and Centric Capital Corporation, together with related
Guaranty of L-P in favor of Centric Capital Corporation (incorporated
herein by reference to Exhibit 99.3 to the Current Report on Form 8-K
filed by L-P on September 29, 1999).
10.6 1984 Employee Stock Option Plan as amended. Incorporated herein by
reference to Exhibit 10.A to L-P's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.*
10.7 1991 Employee Stock Option Plan. Incorporated herein by reference to
Exhibit 10.B to L-P's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.*
10.8 1992 Non-Employee Director Stock Option Plan (restated on May 3, 1998)
and Related Form of Option Agreement. Incorporated herein by reference
to Exhibit 10.1 to L-P's Form Quarterly Report on 10-Q for the quarter
ended March 31, 1998.*
10.9 Non-Employee Directors' Deferred Compensation Plan effective July 1,
1997.* Incorporated herein by reference to Exhibit 10.D to L-P's Annual
Report on Form 10K for the fiscal year ended December 31, 1997.
10.10 Executive Deferred Compensation Plan, as amended and restated as of
October 1, 1999, together with Amendment No. 1 thereto, dated January
12, 2000, and Amendment No. 2 thereto, dated February 18, 2000.*
10.11 1997 Incentive Stock Award Plan as restated as of May 3, 1998.
Incorporated herein by reference to Exhibit 10.6 to L-P's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998.*
10.12 Forms of Award Agreements for Non-Qualified Stock Options and
Performance Shares under the 1997 Incentive Stock Award Plan.
Incorporated herein by reference to Exhibit 10.F(2) to L-P's Form 10-K
report for 1996.*
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10.13 Annual Cash Incentive Award Plan effective March 1, 1997. Incorporated
herein by reference to Exhibit 10.F(3) to L-P's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.*
10.14 L-P's Supplemental Executive Retirement Plan, as amended and restated
as of January 1, 2000.*
10.15 Executive Loan Program effective November 24, 1999.*
10.16 Employment Agreement between L-P and Mark A. Suwyn dated January 2,
1996. Incorporated herein by reference to Exhibit 10.L to L-P's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.*
10.17 Restricted Stock Award Agreement between L-P and Mark A. Suwyn dated
January 31, 1996. Incorporated herein by reference to Exhibit 10.J to
L-P's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.*
10.18 1997 Cash Incentive Award for Mark A. Suwyn adopted March 11, 1997.
Incorporated herein by reference to Exhibit 10.K to L-P's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996.*
10.19 Letter agreement dated July 16, 1997, relating to the employment of
Gary C. Wilkerson. Incorporated herein by reference to Exhibit 10.N to
L-P's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.*
10.20 Letter agreement dated July 16, 1997, relating to the employment of
Curtis M. Stevens. Incorporated herein by reference to Exhibit 10.0 to
L-P's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.*
10.21 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 herein by reference to Exhibit 10.2 to L-P's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998.*
10.25 Supplemental Funding Agreement dated October 26, 1998, between L-P and
counsel for plaintiffs in siding class action litigation. Incorporated
herein by reference to Exhibit 10.1 to L-P's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998.*
21 List of L-P's subsidiaries.
23 Consent of Deloitte & Touche LLP.
27 Financial data schedule.
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