SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended March 31, 2000
Commission File Number 1-7107
LOUISIANA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0609074
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111 S. W. Fifth Avenue, Portland, Oregon 97204-3699
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 221-0800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 104,162,116 shares of Common Stock, $1 par value, outstanding as
of April 30, 2000.
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 Louisiana-Pacific Corporation ("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 or 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.
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS EXCEPT PER SHARE) (UNAUDITED)
Three Months Ended
MARCH 31
-----------------------
2000 1999
---- ----
Net sales...................................................................... $ 776.9 $ 600.1
--------- ---------
Costs and expenses:
Cost of sales.............................................................. 547.7 468.1
Depreciation, amortization and depletion................................... 61.3 42.8
Selling and administrative................................................. 64.4 46.2
Unusual credits and charges, net........................................... (1.6) --
Interest expenses.......................................................... 17.1 9.0
Interest income............................................................ (8.7) (9.8)
---------- ----------
Total costs and expenses............................................... 680.2 556.3
---------- ----------
Income before taxes and minority interest...................................... 96.7 43.8
Provision for income taxes..................................................... 38.5 17.1
Minority interest in net income (loss) of consolidated subsidiaries............ .5 (.5)
--------- ----------
Net income..................................................................... $ 57.7 $ 27.2
========= =========
Net income per share - basic and diluted....................................... $ .55 $ .26
========= ==========
Average shares outstanding
- Basic............................................................... 104.1 106.2
========= =========
- Diluted............................................................. 104.1 106.3
========= =========
Cash dividends per share....................................................... $ .14 $ .14
========= ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED FINANCIAL
STATEMENTS.
2
CONDENSED CONSOLIDATED BALANCE SHEETS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
Mar. 31, 2000 Dec. 31, 1999
--------------- ---------------
ASSETS
Cash and cash equivalents................................ $ 105.8 $ 116.0
Accounts receivable, net................................. 257.0 200.7
Inventories.............................................. 330.5 293.4
Prepaid expenses......................................... 13.5 18.5
Deferred income taxes.................................... 110.8 110.8
------------ ------------
Total current assets............................. 817.6 739.4
------------ ------------
Timber and timberlands................................... 605.3 611.1
Property, plant and equipment............................ 2,557.0 2,537.4
Accumulated depreciation................................. (1,238.4) (1,203.4)
------------ ------------
Net property, plant and equipment........................ 1,318.6 1,334.0
------------ ------------
Goodwill, net of amortization............................ 341.3 347.7
Notes receivable from asset sales........................ 403.8 403.8
Other assets............................................. 48.8 52.2
------------ ------------
Total assets..................................... $ 3,535.4 $ 3,488.2
============ ============
LIABILITIES AND EQUITY
Current portion of long-term debt........................ $ 48.0 $ 44.9
Accounts payable and accrued liabilities................. 295.3 306.5
Income taxes payable..................................... 36.1 9.3
Current portion of contingency reserves.................. 180.0 180.0
------------ ------------
Total current liabilities........................ 559.4 540.7
------------ ------------
Long-term debt, excluding current portion:
Limited recourse notes payable....................... 396.5 396.5
Other long-term debt................................. 614.2 618.3
------------ ------------
Total long-term debt, excluding current portion.. 1,010.7 1,014.8
------------ ------------
Contingency reserves, excluding current portion.......... 126.2 128.8
Deferred income taxes and other.......................... 451.4 443.9
Commitments and contingencies
Stockholders' equity:
Common stock......................................... 117.0 117.0
Additional paid-in capital........................... 443.9 445.4
Retained earnings.................................... 1,119.4 1,076.4
Treasury stock....................................... (238.7) (228.3)
Loans to Employee Stock Ownership Trusts............. (5.2) (6.9)
Accumulated comprehensive loss....................... (48.7) (43.6)
------------ ------------
Total stockholders' equity....................... 1,387.7 1,360.0
------------ ------------
Total liabilities and equity..................... $ 3,535.4 $ 3,488.2
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED FINANCIAL
STATEMENTS.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
Three Months Ended
March 31
--------------------------------
2000 1999
--------------- ---------------
Cash flows from operating activities:
Net income............................................................ $ 57.7 $ 27.2
Depreciation, amortization and depletion.............................. 61.3 42.8
Cash settlements of contingencies..................................... (4.0) (63.5)
Unusual credits and charges, net...................................... 3.5 --
Other adjustments..................................................... 7.1 5.1
Increase in certain working capital components and
deferred taxes.................................................... (72.1) (.8)
--------- ----------
Net cash provided by operating activities................................. 53.5 10.8
--------- ---------
Cash flows from investing activities:
Capital spending...................................................... (41.7) (28.3)
ABT purchase, including replacement of debt........................... -- (208.6)
Other investing activities, net....................................... 6.3 4.6
--------- ---------
Net cash used in investing activities............................. (35.4) (232.3)
--------- ---------
Cash flows from financing activities:
New borrowings, including net increase in revolving borrowings........ -- 165.0
Repayment of long-term debt........................................... (3.6) (14.9)
Cash dividends........................................................ (14.7) (15.0)
Purchase of treasury stock............................................ (11.2) (0.2)
Other financing activities............................................ 1.2 2.6
--------- ---------
Net cash provided by (used in) financing activities............... (28.3) 137.5
--------- ---------
Net decrease in cash and cash equivalents................................. (10.2) (84.0)
Cash and cash equivalents at beginning of period.......................... 116.0 126.5
--------- ---------
Cash and cash equivalents at end of period................................ $ 105.8 $ 42.5
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED FINANCIAL
STATEMENTS.
4
NOTES TO UNAUDITED CONSOLIDATED SUMMARY FINANCIAL STATEMENTS
1. These consolidated summary financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto included in L-P's Annual Report on Form 10-K for the year ended
December 31, 1999.
These consolidated summary financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of the management of L-P, necessary to present fairly, in all
material respects, the consolidated financial position, results of
operations and cash flows of L-P and its subsidiaries. Certain 1999
amounts have been reclassified to conform to the 2000 presentation.
Results of operations for interim periods are not necessarily
indicative of results to be expected for an entire year.
2. Basic earnings per share are based on the weighted average number of
shares of common stock outstanding during the applicable period.
Diluted earnings per share include the effects of potentially dilutive
common stock equivalents.
Three Months Ended March 31
-----------------------------
(Shares in millions) 2000 1999
-------------- -----------
Average shares outstanding used to determine
basic income per common share ................... 104.1 106.2
Dilutive effects of stock options granted and ESPP
plan shares ..................................... - .1
----- ------
Average shares outstanding used to determine
fully diluted income per common share ........... 104.1 106.3
===== ======
3. The preparation of interim financial statements requires the estimation
of L-P's effective income tax rate based on estimated annual amounts of
taxable income and expenses. These estimates are updated quarterly.
4. The preparation of interim financial statements requires the estimation
of L-P's year-end inventory quantities and costs for purposes of
determining last in, first out (LIFO) inventory adjustments. These
estimates are revised quarterly and the estimated incremental change in
the LIFO inventory reserve is expensed over the remainder of the year.
5. Components of comprehensive income for the periods include:
Three Months Ended March 31
-----------------------------
(Dollars in millions) 2000 1999
------------- -------------
Net income ..................................... $ 57.7 $ 27.2
Currency translation adjustment ................ (4.9) (1.9)
Other .......................................... (.2) .3
--------- -------
Total comprehensive income ............. $ 52.6 $ 25.6
======== =======
6. 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.
5
7. The following table sets forth selected segment data for the quarters
ended March 31, 2000 and 1999:
Three Months Ended March 31
---------------------------
(Dollar amounts in millions) 2000 1999
------------ -----------
Sales:
Structural products.......................................... $ 494.3 $ 376.1
Exterior products............................................ 64.8 37.8
Industrial panel products.................................... 72.7 53.8
Other products............................................... 104.9 110.5
Pulp......................................................... 40.2 21.9
--------- ---------
Total sales.............................................. $ 776.9 $ 600.1
========= =========
Operating profit (loss):
Structural products.......................................... $ 114.0 $ 74.5
Exterior products............................................ 8.1 7.7
Industrial panel products.................................... 2.6 1.1
Other products............................................... .8 (8.6)
Pulp......................................................... 4.4 (5.9)
Unusual credits and charges, net 1.6 --
General corporate and other expense, net......................... (26.4) (25.8)
Interest income (expense), net................................... (8.4) .8
---------- ---------
Total operating profit................................... $ 96.7 $ 43.8
========= =========
8. The description of certain legal and environmental matters involving
L-P set forth in Part II of this report under the caption "Legal
Proceedings" is incorporated herein by reference.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS.
Sales increased approximately 29% to $776.9 million in the first
quarter of 2000 from $600.1 million in the first quarter of 1999, and L-P had
net income in the first quarter of 2000 of $57.7 million ($.55 per diluted
share) compared to $27.2 million ($.26 per diluted share) in the first quarter
of 1999. Improved market prices for oriented strand board (OSB) and improved
pulp operations were the primary factors for these increases in sales and
earnings. Additionally, increases in sales and profits were due to the
operations of ABT Building Products, Inc. (ABT), which was acquired in February
1999, Le Groupe Forex Inc. (Forex), which was acquired in September 1999, and
certain assets of Evans Forest Products Ltd. (Evans), which were acquired in
November 1999.
L-P operates in five segments: structural products; exterior products;
industrial panel products; other products; and pulp. Structural products is the
most significant segment, accounting for more than 60% of sales during the first
quarter of both 2000 and 1999. L-P's results of operations are discussed
separately for each segment below. Production volumes and industry product price
trends are presented below in the tables captioned "Summary of Production
Volumes" and "Industry Product Price Trends."
SELECTED SEGMENT DATA
Three Months Ended March 31 Percentage Change
-------------------------------- ---------------------
Dollar Amounts in Millions 2000 1999 00-99
-------------- -------------- ---------------------
Sales:
Structural products ................. $ 494.3 $ 376.1 +31%
Exterior products ................... 64.8 37.8 +71
Industrial panel products ........... 72.7 53.8 +35
Other products ...................... 104.9 110.5 -5
Pulp ................................ 40.2 21.9 +84
----------- -----------
Total Sales ..................... $ 776.9 $ 600.1 +29
=========== ===========
Operating Profit (Loss):
Structural products ................. $ 114.0 $ 74.5 +53%
Exterior products ................... 8.1 7.7 +5
Industrial panel products ........... 2.6 1.1 +136
Other products ...................... .8 (8.6) +109
Pulp ................................ 4.4 (5.9) +175
Unusual credits and charges, net..... 1.6 -- n/a
General corporate and other
expenses, net ..................... (26.4) (25.8) -2
Interest income (expense), net ...... (8.4) .8 -1,150
----------- -----------
Total Operating Profit .......... $ 96.7 $ 43.8 +121
=========== ===========
STRUCTURAL PRODUCTS
The structural products segment consists of OSB, plywood, lumber and
engineered wood products (EWP). The significant growth in sales in the
structural products segment in 2000 was primarily due to price and volume
increases in OSB, which were partially offset by lower plywood prices. Lumber
and EWP prices remained constant. Increases in sales volumes were principally
related to the additional capacities acquired through the Forex and Evans
acquisitions.
In the first quarter of 2000, sales volumes increased by 19% over first
quarter 1999 while sales prices increased by 12%. OSB largely drove these
increases through increased market prices and capacity additions through the
acquisition of Forex. These additional sales lead to profitability increases,
which offset higher raw material costs in lumber and EWP and higher production
costs in plywood, EWP and lumber. Log costs increased approximately 2% in the
first quarter 2000 as compared to the first quarter 1999. Additionally, during
the first quarter of 2000, new equipment was installed at several mills, which
resulted in increased down time that negatively impacted operating performance.
7
EXTERIOR PRODUCTS
The exterior product segment consists of siding and related products
such as soffit, fascia and trim. Sales of OSB-based, hard board and vinyl
exterior products increased in the first quarter of 2000 compared to the
first quarter of 1999, which include only approximately one month of ABT's
operations. The increase in sales of OSB-based exterior products, which are
not included in ABT's operations, was due in part to a demand-driven
conversion of a standard OSB mill into a specialty OSB and siding mill during
the latter part of 1999, and resulted in improved operating performance as
production capacity was more effectively utilized. The increase in profits of
OSB-based exterior products offset losses generated by vinyl exterior
products, while profits generated by hard board exterior products were
essentially flat. The results of vinyl exterior
products were negatively affected by higher raw materials costs.
INDUSTRIAL PANEL PRODUCTS
The industrial panels segment consists of particleboard, medium density
fiberboard (MDF), hardboard and laminated industrial panels. The addition of the
ABT products is the primary reason for the increase in sales and profits in
this segment.
OTHER PRODUCTS
The other products segment includes wood chips, cellulose insulation,
Ireland operations, Alaska operations, moldings and other products. In the first
quarter of 2000, sales for this segment decreased 5% compared to the first
quarter of 1999, primarily due to the sale of the assets of Associated Chemists
Inc. and certain assets from the Alaskan operations, as partially offset by the
increased sales and profits of ABT products. During first quarter 1999, L-P
recognized the write-down of accounts receivable and inventory associated with
Creative Point, Inc. and two California distribution facilities which were
subsequently sold.
PULP
Pulp segment operations improved significantly for the first quarter of
2000 compared to the first quarter of 1999. This improvement was primarily
attributable to sales volumes increasing 8% and sales prices increasing 73%,
which were partially offset by increases in raw material and production costs.
UNUSUAL CREDITS AND CHARGES, NET
In the first quarter of 2000, the Company recorded a $5.0 million ($3.1
million after taxes) gain on insurance recovery for siding related matters and
an impairment charge of $3.4 million ($2.1 million after taxes) to reduce the
carrying value of a polymer plant to its estimated net realizable value. The
remaining net book value and operating results of this plant are not material to
L-P's financial results. L-P anticipates an additional insurance recovery for
siding related matters of approximately $14 million in the second quarter of
2000.
GENERAL CORPORATE EXPENSE, NET
General corporate expense for the first quarter of 2000 compared to the
first quarter of 1999 increased primarily due to increased business development
expenses. Other general corporate expenses remained consistent with the first
quarter of 1999.
INTEREST, NET
Interest expense increased significantly in the first quarter of 2000
as a result of borrowings to finance the ABT, Forex and Evans acquisitions.
LEGAL AND ENVIRONMENTAL MATTERS
For a discussion of legal and environmental matters involving L-P and
the potential impact thereof on L-P's financial position, results of operations
and cash flows, see Item 1, Legal Proceedings, in Part II of this report.
8
OSB SIDING LITIGATION UPDATE
The following discussion updates, and should be read in conjunction
with, the discussion of L-P's OSB siding litigation set forth in Item 7 of L-P's
annual report on Form 10-K for the year ended December 31, 1999, Management's
Discussion and Analysis of Financial Condition and Results of Operations, under
the subheading "Legal Matters."
Through the first three months of 2000, claimants have continued to
file claims under both the National Settlement and the Florida Settlement;
however, the rate of claim filings has decreased. Subject to completion of the
verification and calculation of individual claim amounts, L-P estimates that
approximately $350 million of claims are eligible for participation in the $125
million second settlement fund. Although L-P has elected to fund the second
settlement fund and expects that payments under the second settlement fund will
commence in May 2000, L-P has not yet been able to assess the impact of the
Second Fund on its total siding liability. See "OSB Siding Matters" in Item 1,
Legal Proceedings, in Part II of this report.
As of March 31, 2000, (i) approximately 280,000 requests had been
received for claim forms for the National Settlement and the Florida Settlement,
compared to 273,000 at December 31, 1999, and (ii) approximately 179,000
completed claim forms for the National Settlement and the Florida Settlement had
been received, compared to 172,000 at December 31, 1999. The average payment
amount for settled claims as of March 31, 2000 and December 31, 1999 was
approximately $5,100. The total number of completed claim forms pending (not
settled) as of March 31, 2000 was approximately 72,000 (approximately 67,000 at
December 31, 1999) with approximately 76,000 claims settled (approximately
76,000 at December 31, 1999) and approximately 31,000 claims dismissed
(approximately 29,000 at 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 payment amount for claims settled after March 31, 2000
may be significantly impacted by the Second Fund.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $54 million in the first quarter of
2000 compared to $11 million used in operations in the first quarter of 1999.
The increase in cash provided by operations resulted primarily from improved
operating results and reduced payments related to contingencies.
Net cash used in investing activities was $35 million in the first
quarter of 2000 compared to net cash used in investing activities of $232
million in the first quarter of 1999. L-P used $209 million of funds to acquire
ABT in February 1999. Capital expenditures for property, plant, equipment and
timber increased in the first quarter of 2000 compared to the same period in
1999, primarily due to acquisitions of equipment to modernize, and thereby
improve the utilization of, current mills. L-P estimates that in 2000 it will
make capital expenditures of approximately $230 million to, among other things,
begin construction on an OSB mill, a veneer mill and two composite decking
plants.
In the first quarter of 1999, L-P borrowed $165 million, primarily to
finance the acquisition of ABT.
L-P expects to be able to meet its cash requirements through cash from
operations, existing cash balances, existing credit facilities and access to the
capital markets. Cash and cash equivalents totaled $106 million at March 31,
2000 compared to $116 million at December 31, 1999. L-P has a $300 million
revolving credit facility under which no borrowings were outstanding at March
31, 2000. This facility is available until 2002. L-P also has a $50 million
(Canadian) revolving credit facility under which no borrowings were outstanding
at March 31, 2000. This facility is available until March 2001. L-P has an
additional approximately $34 million available under a $250 million credit
facility established in connection with acquisitions made in 1999. Borrowings in
an amount equal to approximately $240 million currently mature in June 2000. L-P
has registered under the Securities Act the offer and sale of up to $750 million
of debt securities, which may be offered from time to time in one or more
series. The amount, price, 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.
Changes in L-P's balance sheet from December 31, 1999 to March 31,
2000, include increases of $56 million in accounts receivable and $37 million in
inventories. These increases are a result of seasonal fluctuations in operating
performance.
9
Contingency reserves, which represent an estimate of future cash needs
for various contingencies (primarily payments for siding litigation
settlements), totaled $306 million at March 31, 2000, 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 these
estimates. The amounts ultimately paid in resolving these contingencies could
exceed the current reserves by a material amount.
Litigation-related payments totaled $4 million for the first quarter of 2000.
STOCK REPURCHASE PLAN
As of March 31, 2000, L-P had reacquired approximately 7.9 million
shares for $125 million under an authorization to reacquire up to 20 million
shares from time to time in the open market. L-P reacquired 850,000 shares for
$11.2 million in the first quarter of 2000. L-P had approximately 104 million
shares outstanding at quarter end.
ASSETS HELD FOR SALE
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. L-P currently
believes it has adequate support for the carrying value of the affected assets
based upon the assumption that L-P will continue to operate the facility.
However, should L-P decide to proceed with a sale of the assets, it is possible
that L-P will be required to record an impairment charge.
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.
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
SUMMARY OF PRODUCTION VOLUMES
Three Months Ended March 31
-------------------------------
2000 1999
------------ ---------------
Oriented strand board panels, million square feet 3/8"
basis ............................................................. 1,357 1,041
Softwood plywood, million square feet 3/8" basis ....................... 268 223
Lumber, million board feet ............................................. 264 260
Wood-based siding, million square feet 3/8" basis ...................... 179 130
Industrial panel products (particleboard, medium density fiberboard
and hardboard), million square feet 3/4" basis .................... 164 142
Engineered I-Joists, million lineal feet ............................... 24 24
Laminated Veneer Lumber (LVL), thousand cubic feet ..................... 2,150 1,749
Pulp, thousand short-tons .............................................. 99 95
10
Industry Product Trends
OSB Plywood Lumber Particleboard
--------------------- ----------------- ------------------ ------------------
N. Central Southern Pine Inland
7/16" Basis 1/2" Basis Framing Lumber Industrial
24/16 Span Rating Cdx 3-Ply Composite Prices 3/4" Basis
--------------------- ----------------- ------------------ ------------------
Annual Average
1993 ................... $ 236 $ 282 $ 394 $ 258
1994 ................... 265 302 405 295
1995 ................... 245 303 337 290
1996 ................... 184 258 398 276
1997 ................... 142 265 417 262
1998 ................... 205 284 349 259
1999 ................... 260 326 401 273
1999 1st Qtr. Avg. ..... 218 318 384 247
1999 4th Qtr. Avg. ..... 234 282 376 286
2000 1st Qtr. Avg. ..... 261 247 384 291
- -----------------------------
Source: RANDOM LENGTHS
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Certain environmental matters and legal proceedings involving L-P are
discussed below.
ENVIRONMENTAL MATTERS
In March 1995, L-P's subsidiary Ketchikan Pulp Company ("KPC") entered
into agreements with the federal government to resolve violations of the Clean
Water Act and the Clean Air Act that occurred at KPC's former pulp mill during
the late 1980s and early 1990s. 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 $2.0 million had been spent
at March 31, 2000).
In connection with the clean-up of KPC's former log transfer
facilities, the United States Forest Service (the "USFS") has asserted that KPC
is obligated to adhere to more stringent clean-up standards than those imposed
by the Alaska Department of Environmental Conservation. L-P disputes the
authority of the USFS to require KPC to adhere to the more stringent standards.
Adherence to the more stringent standards, if ultimately required, could
substantially increase the cost of the clean-up.
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 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.
12
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 March 31, 2000 through cash payments of $259 million on a
discounted basis. L-P's remaining mandatory contributions to the settlement
fund are due in June 2000 (approximately $2 million), June 2001
(approximately $2 million), and June 2002 (approximately $2 million). In
addition to its mandatory contributions, at March 31, 2000, 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 $66 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.
At March 31, 2000, 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 $375 million. Claims accounting for
approximately $348 million of this excess are eligible for participation in the
$125 million second settlement fund, which represents an alternative source of
payment for such claims. In addition, there were approximately 400 claims that
had been filed that were potentially eligible for participation in the second
settlement fund but that had not yet been processed at April 30, 2000. In
general, only claims filed (or postmarked for filing) on or prior to December
31, 1999 are eligible for participation in the second settlement fund. Between
January 1 and March 31, 2000, approximately 3,000 new claims were filed.
L-P has elected to fund the second settlement fund and expects that
payments under the second settlement fund will commence in May 2000. Holders of
claims who are eligible to participate in the second settlement fund will be
offered a pro rata portion (based upon the amount of their eligible claims in
relation to the total amount of all eligible claims) of $125 million 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 of the second settlement fund may not file additional claims under
the settlement or arbitrate the amount of their payments. Holders of claims who
are eligible to participate in the second settlement fund but who elect not to
participate in the second settlement fund will remain bound by the terms of the
original settlement. Because eligible 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, L-P believes that eligible claimants will have
a substantial incentive to elect to participate in the second settlement fund.
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 June 7, 2003, 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
13
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 the date of L-P's election.
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.
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.
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On May 8, 2000, the Circuit Court of Choctaw County, Alabama, under the
caption FOSTER, ET AL. V. ABTCO, INC., ABT BUILDING PRODUCTS CORPORATION,
ABITIBI-PRICE, INC. AND ABITIBI-PRICE CORPORATION (NO. CV95-151-M),
preliminarily approved a settlement agreement among the defendants and attorneys
representing a nationwide class composed of all persons who own or formerly
owned homes or, subject to limited exceptions, other buildings or structures on
which hardboard siding manufactured by the defendants was installed between
May 15, 1975 and May 15, 2000, excluding persons who timely opt out of the
settlement and certain other persons. Subject to final court approval, the
settlement will, if fully implemented, result in resolution of all claims
that have been asserted by class members in the various proceedings described
above. Under the settlement agreement, class members who have previously made
a warranty claim or have already repaired or replaced their siding will have
until May 15, 2001 to file a claim; class members whose siding was installed
between May 15, 1975 and May 15, 1976 will have at least nine months
following the date on which the settlement becomes final and nonappealable to
file their claims; and all other class members will have twenty-five years
after their siding was installed to file a claim.
Under the settlement agreement, the defendants will be entitled to
elect to make an offer of settlement to an eligible claimant based on the
information set forth in the claim submitted by such claimant, and such
claimant will be entitled to accept or reject the offer. If an eligible
claimant declines the offer, or if no offer is made, such claimant will be
entitled to a payment based on an independent inspection. Such payments will
be based on a specified amount (ranging from $2.65 to $6.21, depending upon
location) per square foot of covered siding that has experienced specified
types of damage, subject to reduction based on the age of the damaged siding
and any failure to paint the damaged siding within stated intervals (except
in the case of damaged siding installed on mobile homes, as to which a
uniform 50% reduction will apply in all circumstances). If applicable,
payments under the settlement will also be subject to reduction to reflect
any warranty payments or certain other payments previously recovered by a
claimant on account of the damaged siding. Under the settlement agreement,
L-P will be required to pay fees of class counsel in the amount of $7
million, as well as expenses of administering the settlement and certain
other costs.
The settlement agreement is subject to final approval by the court
following a fairness hearing presently expected to be held in September of
2000. Potential members of the settlement class may elect to opt out of the
settlement class by making a written request no later than July 31, 2000. The
defendants have the right to withdraw from the settlement if there are
excessive elections to opt out.
The foregoing description of the settlement agreement does not purport
to be complete, and is qualified in its entirety by reference to the full text
thereof, which is filed as Exhibit 10.1 to this report and incorporated herein
by reference.
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.
15
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
L-P 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, Financial
Statements and Supplementary Data, in L-P's annual report on Form 10-K for the
year ended December 31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
L-P held its Annual Meeting of Stockholders on May 1, 2000, at which
the stockholders of L-P voted on and approved the following:
1. The election of two Class III directors of L-P for terms expiring at the
Annual Meeting of Stockholders in 2002.
2. The approval of the 2000 Employee Stock Purchase Plan.
The voting with respect to each of these matters was as follows:
1. ELECTION OF DIRECTORS
NAME FOR WITHHELD
---- --- --------
Archie W. Dunham 78,730,510 13,956,777
Mark A. Suwyn 78,717,899 13,969,388
2. APPROVAL OF THE 2000 EMPLOYEE STOCK PURCHASE PLAN
FOR AGAINST ABSTENTIONS
--- ------- -----------
90,916,319 1,162,815 608,153
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
3.1 Bylaws of L-P as amended September 1, 1999.
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10.1 Amendment to Credit Facility, dated as of March 10,
2000, between Louisiana-Pacific Canada Ltd., as
successor to Louisiana-Pacific Acquisition Inc. and
Bank of America, N.A.
10.2 Settlement Agreement, dated May 3, 2000, among ABT
Building Products Corporation, ABTco, Inc.,
Abitibi-Price Corporation, attorneys representing
plaintiffs in hardboard siding class action
litigation and the other parties named therein.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
L-P did not file any Current Reports on Form 8-K
during the quarter for which this report is filed.
17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LOUISIANA-PACIFIC CORPORATION
Date: May 10, 2000 By: /s/ GARY C. WILKERSON
------------------------------------
Gary C. Wilkerson
Vice President and General Counsel
Date: May 10, 2000 By: /s/ CURTIS M. STEVENS
------------------------------------
Curtis M. Stevens
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)