DRAFT OF AUGUST 3, 1999
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 June 30, 1999
Commission File Number 1-7107
LOUISIANA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0609074
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111 S. W. Fifth Avenue, Portland, Oregon 97204-3699
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 221-0800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 107,406,329 shares of Common Stock, $1 par value, outstanding as
of August 1, 1999.
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. 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.
2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE) (UNAUDITED)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1999 1998 1999 1998
-------------- ------------- -------------- -------------
Net Sales ....................................... $ 768.5 $ 623.2 $1,368.6 $1,171.5
-------------- --------------- -------------- -------------
Costs and expenses:
Cost of sales..................................... 530.9 506.2 999.0 1,002.2
Depreciation, amortization and depletion.......... 45.7 49.5 88.5 89.0
Selling and administrative........................ 54.7 45.5 100.6 89.5
Unusual (credits) and charges, net (5.2) (328.3) (5.2) (328.3)
Interest expense.................................. 11.1 10.1 20.1 19.8
Interest income................................... (9.4) (1.5) (19.2) (3.6)
-------------- --------------- -------------- -------------
Total costs and expenses.......................... 627.8 281.5 1,183.8 868.6
-------------- --------------- -------------- -------------
Income before taxes and minority interest......... 140.7 341.7 184.8 302.9
Provision for income taxes........................ 55.8 138.8 73.2 126.3
Minority interest in net income (loss) of
consolidated subsidiaries..................... --- (1.0) (0.5) (2.2)
-------------- --------------- -------------- -------------
Net income....................................... $ 84.9 $ 203.9 $ 112.1 $ 178.8
-------------- --------------- -------------- -------------
-------------- --------------- -------------- -------------
Net income per share-basic and diluted............ $ .79 $ 1.87 $ 1.05 $ 1.64
-------------- --------------- -------------- -------------
-------------- --------------- -------------- -------------
Average shares outstanding (millions)
-- basic.................. 106.6 109.1 106.4 109.1
-------------- --------------- -------------- -------------
-------------- --------------- -------------- -------------
-- diluted................ 106.8 109.4 106.6 109.4
-------------- --------------- -------------- -------------
-------------- --------------- -------------- -------------
Cash dividends per share.......................... $ .14 $ .14 $ .28 $ .28
-------------- --------------- -------------- -------------
-------------- --------------- -------------- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED FINANCIAL
STATEMENTS.
3
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
JUNE 30, 1999 DECEMBER 31, 1998
ASSETS ---------------- -----------------
Cash and cash equivalents $ 152.9 $ 126.5
Accounts receivable, net 204.2 134.7
Inventories 239.7 205.7
Prepaid expenses 19.6 8.1
Income tax refunds receivable --- 43.9
Deferred income taxes 121.8 93.2
---------------- -----------------
Total current assets 738.2 612.1
---------------- -----------------
Timber and timberlands 498.4 499.0
Property, plant and equipment 2,213.8 2,086.5
Less accumulated depreciation (1,202.9) (1,173.2)
---------------- -----------------
Net property, plant and equipment 1,010.9 913.3
Notes receivable from asset sales 403.8 403.8
Goodwill, net of amortization 132.9 60.0
Other assets 30.0 30.9
---------------- -----------------
Total assets $ 2,814.2 $ 2,519.1
---------------- -----------------
---------------- -----------------
LIABILITIES AND EQUITY
Current portion of long-term debt $ 23.2 $ 34.1
Accounts payable and accrued liabilities 270.2 192.5
Current portion of contingency reserves 205.0 140.0
Income taxes payable 13.4 ---
---------------- -----------------
Total current liabilities 511.8 366.6
---------------- -----------------
Long-term debt, excluding current portion:
Limited recourse notes payable 396.5 396.5
Other long-term debt 181.6 63.3
---------------- -----------------
Total long-term debt, excluding current portion 578.1 459.8
---------------- -----------------
Contingency reserves, excluding current portion 102.9 228.0
Deferred income taxes and other 301.8 241.9
Commitments and contingencies
Stockholders' equity:
Common stock 117.0 117.0
Additional paid-in-capital 465.2 465.4
Retained earnings 1,001.2 918.8
Treasury stock (201.3) (204.0)
Loans to Employee Stock Ownership Trusts (17.9) (28.8)
Accumulated comprehensive income (loss) (44.6) (45.6)
---------------- -----------------
Total stockholders' equity 1,319.6 1,222.8
---------------- -----------------
Total liabilities and equity $ 2,814.2 $ 2,519.1
---------------- -----------------
---------------- -----------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED FINANCIAL
STATEMENTS.
4
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-----------------------------------
1999 1998
------------- -------------
Cash flows from operating activities:
Net income................................................... $ 112.1 $ 178.8
Depreciation, amortization and depletion..................... 88.5 89.0
Unusual (credits) and charges, net (5.2) (328.3)
Cash settlements of contingencies............................ (78.1) (38.9)
Other adjustments, net....................................... 13.8 10.4
Decrease (increase) in certain working capital components
and deferred taxes...................................... 80.2 219.0
------------- -------------
Net cash provided by (used in) operating activities..... 211.3 130.0
------------- -------------
Cash flows from investing activities:
Capital spending............................................. (57.0) (75.9)
Asset sales proceeds.......................................... 17.6 299.5
ABT purchase, including replacement of debt.................. (213.0) ---
Other investing activities, net.............................. (1.6) 4.1
------------- -------------
Net cash provided by (used in) investing activities..... (254.0) 227.7
------------- -------------
Cash flows from financing activities:
New borrowings, including net changes in revolving
borrowings.............................................. 139.3 328.0
Repayment of long-term debt.................................. (46.0) (265.0)
Increase (decrease) in short-term notes payable.............. --- 6.4
Cash dividends............................................... (29.7) (30.5)
Other financing activities, net.............................. 5.5 4.5
------------- -------------
Net cash provided by (used in) financing activities..... 69.1 43.4
------------- -------------
Net increase (decrease) in cash and cash equivalents............... 26.4 401.1
Cash and cash equivalents at beginning of period................... 126.5 31.9
------------- -------------
Cash and cash equivalents at end of period......................... $ 152.9 $ 433.0
------------- -------------
------------- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED FINANCIAL
STATEMENTS.
5
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,
1998 (as the same may be amended, the "1998 Form 10-K").
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 and results of operations of L-P and its
subsidiaries. Certain 1998 amounts have been reclassified to conform to the 1999
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.
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
expense over the remainder of the year.
5. Components of comprehensive income include net income, currency
translation adjustments and other income (loss). Comprehensive income was $87.5
million in the second quarter of 1999, $203.6 million for the second quarter of
1998, $113.1 million for the first six months of 1999 and $179.9 million for the
same period in 1998.
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 will be effective for L-P beginning January 1,
2001. L-P is assessing the impact this statement will have on its financial
statements and related disclosures.
7. In February 1999, L-P acquired all of the capital stock of ABT Building
Products Co. ("ABT") for approximately $164 million. 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 and increased its net revolving borrowings
under its existing credit facility by $65 million. 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 Condensed Consolidated Statements of
Income for the period ended June 30, 1999. The purchase price has been
preliminarily allocated to the assets and liabilities of ABT based on their
estimated fair values in L-P's Condensed Consolidated Balance Sheet at June 30,
1999. Based on current estimates, L-P has recorded purchase price in excess of
net assets acquired ("goodwill") of $77 million in its Condensed Consolidated
Balance Sheet at June 30, 1999, which is being amortized using the straight-line
method over 15 years. However, L-P is still 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 amount of purchase price allocated
to those assets and liabilities and the amount of goodwill recorded and
amortized in future periods.
The following unaudited pro forma financial information gives effect to the
acquisitions of ABT as if it has been consummated at the beginning of each
period presented.
6
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
1999 1998
--------------------- ---------------------
DOLLAR AMOUNTS IN MILLIONS
EXCEPT PER SHARE
Net Sales.................................................... $ 1,410.0 $ 1,339.3
Net Income................................................... 111.0 180.9
Net income per share-- basic 1.04 1.66
-- diluted 1.04 1.65
The principal pro forma adjustments reflected in the foregoing pro forma
information are adjustments to record interest expense on indebtedness incurred
in connection with the acquisition 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 acquisition been consummated at the beginning of the periods
presented or of future results.
8. The following table sets forth selected segment data for the periods
ended June 30, 1999 and 1998:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
Sales:
Structural products............................ $ 430.1 $ 357.9 $ 775.1 $ 639.4
Exterior products.............................. 79.1 23.6 116.9 51.7
Industrial panel products...................... 73.1 45.3 126.9 88.5
Specialty and other products................... 158.3 175.6 299.9 350.2
Pulp........................................... 27.9 20.8 49.8 41.7
------------- ------------- ------------- -------------
Total sales.................................... $ 768.5 $ 623.2 $ 1,368.6 $ 1,171.5
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Profit (loss):
Structural products............................ $ 148.6 $ 43.1 $ 222.3 $ 48.1
Exterior products.............................. 16.3 4.7 24.0 9.6
Industrial panel products...................... 4.7 1.9 5.8 2.7
Specialty and other products................... (2.1) (3.7) (9.7) (10.4)
Pulp........................................... (4.9) (3.9) (10.7) (15.5)
Unusual credits and charges, net............... 5.2 328.3 5.2 328.3
General corporate and other expense, net....... (25.4) (20.1) (51.2) (43.7)
Interest income (expense), net................. (1.7) (8.6) (.9) (16.2)
------------- ------------- ------------- -------------
Income before taxes and minority interest...... $ 140.7 $ 341.7 $ 184.8 $ 302.9
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
9. 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. The increase in the current portion of
contingency reserves reflects the expected payment of the $125 million second
fund relating to L-P's nationwide class action litigation settlement in the
first half of 2000.
10. The description of a potential acquisition set forth below under the
caption "Acquisition" in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" is incorporated herein by reference.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Net income for the second quarter of 1999 was $84.9 million, or $.79 per
diluted share, on sales of $768.5 million, compared to second quarter 1998 net
income of $203.9 million, or $1.87 per diluted share, on sales of $623.2
million. Excluding a $5.2 million pretax gain ($3.2 million after tax, or $.03
per diluted share) on the sale of timberland, net income for the second quarter
of 1999 was $81.7 million, or $.76 per diluted share compared to second quarter
1998 income excluding unusual items (primarily a gain on the sale of California
timberlands) of $8.7 million, or $.08 per diluted share.
Net income for the first six months of 1999 was $112.1 million, or $1.05
per diluted share, on sales of $1.37 billion, compared to net income for the
first six months of 1998 of $178.8 million, or $1.64 per diluted share, on sales
of $1.17 billion. Excluding unusual items, net income for the first six months
of 1999 was $108.9 million, or $1.02 per diluted share, compared to a loss for
the first six months of 1998 of $16.4 million, or $.15 per diluted share.
Sustained demand for building products and the continued strength in
housing markets factored positively into second quarter earnings. This demand
resulted in improved market prices for structural panels (oriented strand board
(OSB) and plywood) and lumber which was the primary factor for increased sales
and earnings.
L-P operates in five segments: structural products; exterior products;
industrial panel products; specialty and other products; and pulp. Structural
products is the most significant segment, accounting for more than 50% of sales
during the first six months of both 1999 and 1998. L-P's results of operations
are discussed separately for each segment below. Production volumes and industry
product price trends are presented below in the tables captioned "Summary of
Production Volumes" and "Industry Product Price Trends."
SELECTED SEGMENT DATA
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------ -----------------------------------------
1999 1998 % CHG 1999 1998 % CHG
------------- ------------- -------- ------------- --------------- -----------
Sales:
Structural products.............. $ 430.1 $ 357.9 +20% $ 775.1 $ 639.4 +21%
Exterior products................ 79.1 23.6 +235% 116.9 51.7 +126%
Industrial panel products........ 73.1 45.3 +61% 126.9 88.5 +43%
Specialty and other products..... 158.3 175.6 -10% 299.9 350.2 -14%
Pulp............................. 27.9 20.8 +34% 49.8 41.7 +19%
------------- ------------- -------- ------------- --------------- -----------
Total sales...................... $ 768.5 $ 623.2 +23% $ 1,368.6 $ 1,171.5 +17%
------------- ------------- ------------- ---------------
------------- ------------- ------------- ---------------
Profit (loss):
Structural products.............. $ 148.6 $ 43.1 +245% $ 222.3 $ 48.1 +362%
Exterior products................ 16.3 4.7 +247% 24.0 9.6 +150%
Industrial panel products........ 4.7 1.9 +147% 5.8 2.7 +115%
Specialty and other products..... (2.1) (3.7) +43% (9.7) (10.4) +7%
Pulp............................. (4.9) (3.9) -26% (10.7) (15.5) +31%
Unusual credits and charges, net. 5.2 328.3 -98% 5.2 328.3 -98%
General corporate and other
expense, net..................... (25.4) (20.1) -26% (51.2) (43.7) -17%
Interest income (expense), net... (1.7) (8.6) +80% (.9) (16.2) +94%
------------- ------------- -------- ------------- --------------- -----------
Income before taxes and minority
interest......................... $ 140.7 $ 341.7 -59% $ 184.8 $ 302.9 -39%
------------- ------------- ------------- ---------------
------------- ------------- ------------- ---------------
8
STRUCTURAL PRODUCTS
The structural products segment consists of oriented strand board (OSB),
plywood, lumber and engineered wood products (EWP). The significant growth in
sales in the structural products segment in 1999 was primarily due to increases
in OSB, plywood and non-redwood lumber prices. OSB, lumber and EWP volume
increases were partially offset by a volume decline in plywood.
OSB market prices and sales trends continued upward through the first six
months of 1999. OSB average selling prices increased 51% in the second quarter
of 1999 compared to the second quarter of 1998 and 42% for the first six months
of 1999 compared to the first six months of 1998. Robust U.S. housing markets
have created strong demand for OSB and other building products. OSB sales volume
increased approximately 2% in the second quarter of 1999 compared to the second
quarter of 1998, and 7% for the first six months of 1999 compared to the first
six months of 1998 due primarily to the addition of a new mill in April of 1998
that provided a net capacity increase.
Plywood average selling prices increased 30% in the second quarter of 1999
over the second quarter of 1998, offset by an approximate 37% decline in volume.
For the first six months of 1999 average selling prices increased 26% over the
same period in 1998, offset by an approximate 26% decline in volume. The price
increases reflect the strong demand factors discussed above. The volume
decreases are primarily the result of a temporary shut-down of plywood
manufacturing facilities and the allocation of additional veneer to laminated
veneer lumber (LVL) production rather than to plywood production.
Lumber sales increased in the second quarter of 1999 compared to 1998 due
to a shift to a higher percentage of outside sales and a lower percentage of
sales to the distribution business within L-P (part of the Specialty and Other
Products segment). Excluding the effect of redwood lumber operations sold in
1998, average selling prices increased approximately 6% in the second quarter of
1999 compared to the second quarter of 1998, offset by a slight decline in
volume. The selling average for redwood lumber is generally significantly higher
than for other species of lumber. For the first six months of 1999, excluding
the sold redwood lumber operations, average selling prices and volumes did not
change significantly.
Engineered wood products (EWP) include engineered I-Joists, LVL and
hardwood veneer. Sales of EWP products increased significantly, primarily as a
result of a marketing agreement to sell the products of an independent producer.
Sales volumes also increased in this segment due to strong residential and
commercial construction markets. The average selling prices of EWP products did
not change significantly. The price for the basic raw materials (OSB used in the
web stock for I-Joists, veneer used in LVL and lumber used for flange material
in I-Joists) increased significantly in 1999 due to the market price increases,
which led to lower profitability.
In the second quarter of 1999 and in the first six months of 1999,
profitability of the structural products segment increased significantly,
largely as a result of price improvements for OSB, plywood and non-redwood
lumber and improvements in the efficiency of L-P's production facilities. Lower
log costs in the southern region of the country contributed to the increase in
plywood earnings. Log costs in the southern region of the country decreased
approximately 7% in the first six months of 1999 over the same period in 1998,
while log costs in northern regions and Canada decreased approximately 5%.
Structural products profits also benefited in 1999 from the sale of unprofitable
California operations in mid-1998.
EXTERIOR PRODUCTS
The exterior products segment consists of siding and related products such
as soffit, facia and trim. In 1999, this segment includes products added from
the purchase of ABT, including hardboard siding, vinyl siding and other
products. Average sales prices of OSB-based exterior products decreased slightly
in the second quarter of 1999 compared to the same period in 1998, while volumes
increased about 38%. Average sales prices of OSB-based exterior products
decreased slightly for the six months ended June 30, 1999 compared to the six
months ended June 30, 1998, while volumes increased about 13%. Increased volumes
were 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, the acquisition of ABT and more efficient use of
production capacity.
9
INDUSTRIAL PANEL PRODUCTS
The industrial panels segment consists of particleboard, medium density
fiberboard (MDF) and hardboard and, in 1999, the laminated industrial panels
products of ABT. Increased demand for particleboard and MDF contributed to
modestly higher pricing. Higher prices and the addition of the ABT products in
1999 are the primary reasons for the increase in sales and profits in 1999 in
this segment over the second quarter of 1998 and over the first six months of
1998.
SPECIALTY AND OTHER PRODUCTS
The specialty and other products segment includes distribution facilities,
wood chips, coatings and chemicals, cellulose insulation, Ireland operations,
Alaska operations, moldings and other products. In the second quarter of 1999,
sales for this segment decreased compared to the second quarter of 1998,
primarily due to the sale of the assets of the Weather-Seal windows and doors
division, Creative Point Inc. and two California distribution facilities,
partially offset by sales of ABT products. The same factors also contributed to
the decline in sales in the first six months of 1999 compared to the first six
months of 1998.
PULP
Pulp segment operations in 1999 continued to be impacted by the worldwide
over-capacity in the pulp industry and the Asian market crisis, although pricing
has improved over 1998 as the Asian economy improves. Pulp segment losses
increased for the second quarter of 1999 compared to the second quarter of 1998
due primarily to higher maintenance charges related to repairs and higher raw
material costs at the Samoa, California mill. Losses decreased for the first
six months of 1999 compared to the first six months of 1998, due primarily to
partial recovery of inventory market write-downs taken in previous periods and
lower unit costs due to higher production volumes. L-P's pulp facilities took
significant downtime in the first half of 1998.
UNUSUAL CREDITS AND CHARGES NET
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Gain on sale of assets............................. $ 5.2 $ 359.1 $ 5.2 $ 359.1
Adjustment for litigation reserves and other....... --- (30.8) --- (30.8)
------------ ------------ ------------ ------------
$ 5.2 $ 328.3 $ 5.2 $ 328.3
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
In the second quarter of 1999, L-P recorded a net gain of $5.2 million
($3.2 million after taxes, or $.03 per diluted share) from the sale of timber
and timberlands in Texas.
In the second quarter of 1998, L-P recorded a net gain of $328.3 million
($195.2 million after taxes, or $1.79 per diluted share) primarily resulting
from gains on the sales of timberland, sawmill and distribution assets in
California and the Weather-Seal window and door business. Charges relating to
the settlement of legal issues in Montrose, Colorado of $14.0 million after
taxes (or $.13 per diluted share) and other charges were netted against the
asset sales gains.
GENERAL CORPORATE AND OTHER EXPENSE
General corporate expense increased primarily due to the addition of sales
and marketing personnel as L-P has increased its focus on customers and
additional costs for administrative infrastructure, including the conversion to
new accounting and human resource systems.
10
INTEREST INCOME (EXPENSE)
Cash from asset sales was used to repay loans and lines of credit in late
1998, reducing debt levels and net interest expense in 1999 compared to 1998.
LEGAL AND ENVIRONMENTAL MATTERS
Refer to the "Legal Proceedings" section of this Form 10-Q for a discussion
of certain legal and environmental matters and the potential impact of these
matters on L-P.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $211 million in the first six months of
1999 compared to $130 million in the first six months of 1998. The increase in
cash provided by operations resulted primarily from improved operating results
(excluding unusual items). Partially offsetting this increase, L-P made $78
million in litigation-related payments, largely due to the early payment program
relating to L-P's nationwide class action litigation settlement, during the
first six months of 1999 compared to $39 million in the first six months of
1998.
Cash used in investing activities was $254 million in the first six months
of 1999 compared to cash provided by investing activities of $228 million in the
first six months of 1998. L-P paid $213 million to acquire ABT in February 1999.
L-P received approximately $300 million from asset sales proceeds in 1998.
Capital expenditures in property, plant, equipment and timber decreased in 1999
compared to 1998, primarily because L-P did not have any new mills under
construction. L-P has announced plans to build several wood-processing
facilities in Canada, including an OSB plant, and is building an OSB plant in
Chile.
In the first six months of 1999, L-P borrowed $165 million to finance the
acquisition of ABT. In the first six months of 1998, L-P repaid $265 million on
its revolving credit line with the proceeds from $349 million in new borrowings
related to the monetization of notes receivable from asset sales.
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 $153 million at June 30, 1999
compared to $127 million at December 31, 1998. L-P has a $300 million revolving
credit facility available through January 2002, under which L-P had $40 million
of borrowings outstanding at June 30, 1999. L-P also had $100 million of
borrowings under a new uncommitted bank credit facility outstanding at June 30,
1999. L-P has filed a shelf registration statement for the sale of up to $500
million of debt securities to be offered from time to time in one or more
series. The proceeds from the sale of such securities are anticipated to be used
by L-P for general corporate purposes, which may include repayment of debt
(including debt incurred in connection with the acquisition of ABT), and,
potentially, for the acquisition of Forex discussed below.
Changes in L-P's balance sheet from December 31, 1998 to June 30, 1999
include increases of $69 million in accounts receivable, $34 million in
inventories, $98 million in net property, plant and equipment, and $73 million
in goodwill resulting primarily from the consolidation of ABT and L-P for
financial reporting purposes. The increase of $145 million in current
liabilities resulted primarily from the consolidation of ABT and L-P for
financial reporting purposes and an increase in the current portion of
contingency reserves to reflect the expected payment, in the first quarter of
2000, of the second fund relating to L-P's nationwide class action siding
litigation settlement.
Contingency reserves, which represent an estimate of future cash needs for
various contingencies (primarily payments for siding litigation settlements),
totaled $308 million at June 30, 1999, of which $205 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. Contingency reserves decreased in 1999
due to the continued implementation of the early payment program relating to
L-P's nationwide class action siding litigation settlement. Litigation related
payments totaled $78 million for the first six months of 1999.
11
ACQUISITION
On June 28, 1999, L-P agreed to make a tender offer for the outstanding
shares of Le Groupe Forex Inc., a Canadian OSB producer, for $26 (Canadian) per
share payable in cash, installment notes or a combination thereof. On August 3,
1999, in response to a competing proposal made by a third party, L-P agreed to
increase its offer to $31 (Canadian) per share. At $31 (Canadian) per share, the
total purchase price for Forex would be approximately $550 million (US),
including the assumption of debt. L-P intends to finance the acquisition by
issuing debt under bank or bridge loans or a planned public debt offering
(discussed above). Forex is required to notify L-P prior to approving or
accepting any competing acquisition proposal that Forex determines is more
favorable to its stockholders, whereupon L-P would have five business days to
modify, if it so chooses, its offer. If Forex determines that a modification
proposed by L-P would result in the competing acquisition proposal not being
more favorable to its stockholders, Forex would be required to accept L-P's
proposed modification. In certain circumstances, including certain circumstances
involving the termination of the agreement between L-P and Forex, Forex would be
required to pay L-P a fee in the amount of $28 million (Canadian). The proposed
acquisition of Forex is subject to customary conditions, including a condition
that at least two-thirds of each class of Forex's capital stock will have been
tendered to L-P and a condition relating to the receipt of regulatory approvals.
ASSETS HELD FOR SALE
L-P is in the process of seeking to sell its Chetwynd, British Columbia
pulp mill. L-P is also currently in discussions relating to the possible sale
of most of the assets of its Ketchikan Pulp Company subsidiary. 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.
YEAR 2000 COMPLIANCE
The Year 2000 problem refers to a worldwide issue relating to a flaw in
many computer programs and computer applications embedded in equipment and other
devices. In many existing software and hardware applications, two digits were
used to represent the year, such as "99" for "1999." If not corrected, these
applications may interpret "00" to be the year 1900 rather than 2000, producing
erroneous data or, at worst, failing altogether. L-P recognizes the Year 2000
problem as a serious issue. Accordingly, L-P now considers the potential impact
of the Year 2000 in connection with all in-house application development and
purchases of third-party software. In the fall of 1997, L-P undertook a formal
project to address its Year 2000 exposure and readiness.
All of L-P's business groups, operations and corporate functions are
covered by the Year 2000 project. The project team is staffed by full-time
employees, contractors and consultants as appropriate. The project is
continuously monitored by a management steering committee and L-P's internal
auditors to ensure that proper methodology is being followed, that adequate
controls are in place and that appropriate steps are being taken to limit risk.
In addition, periodic reports are made to senior management, the finance and
audit committee and the board of directors.
The project is divided into three primary areas: (1) information systems;
(2) manufacturing systems/building infrastructure; and (3) business partners
(including suppliers and customers).
INFORMATION SYSTEMS. L-P's information systems include such common business
applications as payroll, human resources, sales order entry, inventory
management, finance and accounting. L-P's Year 2000 project
12
phases for information systems include: inventorying and prioritizing all
information systems; assessing the Year 2000 readiness of such systems;
remediating such systems (through conversion, upgrades, replacement or
risk-managed acceptance of non-compliant items); testing; and developing and
implementing contingency plans, to the extent determined to be appropriate, for
each system. The inventory and assessment phases for L-P's information systems
have been completed. L-P has replaced its basic payroll, human resources and
most accounting applications with off-the-shelf packages and has completed the
remediation of a number of other information systems. As of July 31, 1999,
approximately 11% of L-P's other information systems required further
remediation through system upgrades and/or replacements. The remediation of
these systems is scheduled for completion by September 30, 1999. Testing of
information systems and contingency planning are underway and are scheduled to
be completed by November 30, 1999.
MANUFACTURING SYSTEMS/BUILDING INFRASTRUCTURE. With respect to L-P's
manufacturing systems and building infrastructure, the Year 2000 project is
focused on surveying and, where necessary, remediating all computer-controlled
and/or embedded devices used in L-P's manufacturing processes or in building
infrastructure (such as the heating and air conditioning systems, security
access and alarm systems, telephones, and office equipment used in L-P's offices
and plants). The Year 2000 project phases for manufacturing systems and building
infrastructure include: inventorying items that are exposed to Year 2000 issues;
assessing the Year 2000 readiness of such items; remediating such items (through
conversion, upgrades, replacement, or risk-managed acceptance of non-compliant
items), testing; and developing and implementing contingency plans, to the
extent determined to be appropriate, for each business group and facility
location. The inventory and assessment phases for L-P's manufacturing systems
and building infrastructure has been completed. As of July 31, 1999,
approximately 1% of L-P's manufacturing systems and building infrastructure
required further remediation. This remediation is scheduled to be completed by
September 30, 1999. Testing of manufacturing systems and building infrastructure
and contingency planning are underway and are scheduled to be completed by
November 30, 1999.
BUSINESS PARTNERS. L-P also faces the risk of business disruption from
outside business partners, which may have information systems, manufacturing
systems or infrastructure that are not Year 2000 compliant. In this regard,
L-P's Year 2000 project includes identifying and prioritizing L-P's major
business partners (primarily suppliers of raw materials and essential services
such as utilities and transportation and significant customers), assessing
their Year 2000 readiness and developing contingency plans where appropriate.
The identification and prioritization phases have been completed and L-P has
requested that all of its major business partners respond to a survey eliciting
information as to their Year 2000 readiness. Of the approximately 50% of the
business partners that have responded to the survey, none have disclosed
significant readiness issues. However, in light of the substantial number of
parties who failed to respond to the survey, L-P recently decided to pursue
responses from these parties more aggressively through business-unit
operating personnel rather than through corporate management personnel. In
addition, as part of its contingency planning process, L-P intends to focus
on obtaining appropriate assurances from all critical business partners that
have not responded to the survey by September 30, 1999 and to monitor the Year
2000 readiness of its most critical business partners throughout the remainder
of 1999.
If L-P's efforts in this regard cause it to believe that significant risk
is present, L-P will seek to identify alternate business partners and to develop
contingency plans to address potential business disruptions prior to December
1999.
COSTS. The total expense associated with L-P's Year 2000 project is
presently estimated to be approximately $7.2 million, of which approximately
$4.7 million (including certain costs incurred by ABT prior to its acquisition
by L-P) had been incurred by June 30, 1999. These costs are being expensed as
incurred and are not expected to have a material effect on L-P's financial
position or results of operations. These costs do not include expenses and
capital costs associated with replacing systems which L-P would have replaced
regardless of Year 2000 issues, including a new human resources information
system and a new core financial system.
MOST REASONABLY LIKELY WORST-CASE SCENARIO. The occurrence of unscheduled
downtime at L-P's facilities resulting from internal or third-party system
failures could have an adverse effect on L-P's business, results of operations
and cash flows. In this regard, L-P believes that its dependence on third
parties for critical services such as telecommunications, energy, water and
other utilities, financial services and transportation poses the greatest risk.
L-P is seeking to assess the Year 2000 readiness of all mission critical systems
and business partners and to
13
develop appropriate contingency plans. These plans may include identifying
alternative systems and suppliers and assisting major customers who may be
affected by Year 2000 issues. However, there can be no assurance that L-P will
not experience unscheduled downtime, business disruptions or other adverse
consequences of the Year 2000 problem.
ADDITIONAL CONSIDERATIONS. Despite the extensive efforts of L-P's project
team, it is likely that some unexpected problems associated with the Year 2000
issue will arise. In addition, the costs and completion dates for L-P's Year
2000 project discussed herein are based on management's estimates, which were
derived using numerous assumptions regarding future events, including continued
availability of certain resources, remediation plans of business partners and
other factors. There can be no assurance that these estimates will be achieved
and actual results could differ significantly from L-P's current expectations.
14
LOUISIANA-PACIFIC CORPORATION
SUMMARY OF PRODUCTION VOLUMES
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Oriented strand board panels, million
square ft 3/8" basis........................... 1,068 986 2,122 1,906
Softwood plywood million square ft 3/8" basis...... 211 270 447 501
Lumber, million board feet......................... 269 288 529 574
Oriented strand board siding and specialty products
million square ft 3/8" basis................... 94 100 192 195
Hardboard siding surface measure million square
ft basis....................................... 85 --- 114 ---
Engineered I-Joists, million lineal feet........... 21 24 45 46
Laminated Veneer Lumber, thousand cubic ft......... 1,800 2,000 3,500 3,600
Industrial panel products (particle board, medium
density fiberboard and hardboard), million
square ft 3/4" basis........................... 175 148 335 293
Pulp, thousand short tons.......................... 90 91 185 141
15
INDUSTRY PRODUCT PRICE TRENDS
OSB PLYWOOD LUMBER PARTICLEBOARD
----------- ---------- ---------- -------------
N. CENTRAL
7/16" BASIS SOUTHERN FRAMING
24/16 PINE 1/2" LUMBER INLAND
SPAN BASIS COMPOSITE INDUSTRIAL
RATING CDX 3 PLY PRICES 3/4" BASIS
----------- ---------- ---------- -------------
Annual Average
1993 $ 236 $ 282 $ 394 $ 258
1994 265 302 405 295
1995 245 303 337 290
1996 184 258 398 276
1997 142 265 417 262
1998 205 284 349 259
1998 Second Quarter Average 195 262 346 262
1999 First Quarter Average 218 318 384 247
1999 Second Quarter Average 289 343 423 270
Source: Random Lengths. The amounts set forth are dollars per 1,000 square
feet or, in the case of lumber, 1,000 board feet.
16
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Certain legal and environmental matters involving L-P are discussed below.
ENVIRONMENTAL PROCEEDINGS
In March 1995, L-P's subsidiary, Ketchikan Pulp Company ("KPC"), entered
into agreements with the federal government to resolve violations of the Clean
Water Act and the Clean Air Act that occurred at KPC's pulp mill during the late
1980's and early 1990's. These agreements were subsequently approved by the U.S.
District Court for the District of Alaska. In addition to civil and criminal
penalties that were paid in 1995, KPC agreed to undertake certain remedial and
pollution-control projects. These projects included (i) capital projects for
spill containment and water treatment plant upgrades estimated to cost
approximately $13.4 million (of which approximately $7.5 million had been spent
at June 30, 1999) and (ii) non-capital projects relating to the investigation
and remediation of Ward Cove, a body of water adjacent to the mill site,
estimated to cost approximately $6.3 million (of which approximately $1.8
million had been spent at June 30, 1999). As a result of the closure of the mill
in May 1997, KPC's obligations with respect to the capital projects have been
suspended through January 2000, and KPC is in the process of seeking permanent
relief from those obligations. KPC's obligations with respect to the Ward Cove
investigation and remediation have not been affected by the closure of the mill.
In June 1997, KPC entered into an agreement with the State of Alaska and
the U.S. Environmental Protection Agency (the "EPA") to investigate and, if
necessary, clean up the former mill site. KPC has completed the investigative
portion of this project and commenced work on the clean-up portion of this
project, which is expected to be completed in late 1999. Total costs associated
with this project are estimated to be between $2.7-$3.0 million, of which
approximately $2.7 million had been spent at June 30, 1999.
KPC has completed the closure of a landfill near Thorne Bay, Alaska,
pursuant to an agreement with the U.S. Forest Service (the "USFS"). Costs of the
project totaled approximately $6.5 million. KPC will monitor leachate from the
landfill in order to evaluate whether treatment of the leachate is necessary.
Certain L-P plant sites have, or are suspected of having, substances in the
ground or in the groundwater underlying the sites that are considered
pollutants. Where the pollutants were caused by previous owners of the property,
L-P is vigorously pursuing those parties through legal channels as well as
insurance coverage under all applicable policies.
Although L-P's policy is to comply with all applicable environmental laws
and regulations, the company has, in the past, been required to pay fines for
noncompliance. In some instances, litigation has resulted from contested
environmental actions. Also, L-P is involved in other environmental actions and
proceedings which could result in fines or penalties. Based on the information
currently available, management believes that any fines, penalties or other
losses resulting from the matters discussed above will not have a material
adverse effect on the consolidated financial position or results of operations
of L-P.
COLORADO CRIMINAL PROCEEDINGS
In June 1995, a federal grand jury returned an indictment in the U.S.
District Court for the District of Colorado against L-P in connection with
alleged environmental violations, as well as alleged fraud in connection with
the submission of unrepresentative oriented strand board (OSB) product samples
to an industry product certification agency, by L-P's Montrose (Olathe),
Colorado OSB plant. In connection with entering a guilty plea as to certain
criminal violations in May 1998, (i) L-P agreed to pay total penalties of $37
million (including making $500,000 in charitable contributions), of which $12
million was paid in 1998, and was sentenced to five years of probation and (ii)
all remaining charges against L-P were dismissed. Under the terms of the
original agreement, the $25 million balance of the fine assessed against L-P,
which is secured by a statutory lien, was payable in three equal
17
annual installments, together with accrued interest, beginning July 1, 2000.
However, in April 1999, the court approved a modification to the agreement,
pursuant to which L-P paid this balance, without interest, during the second
quarter of 1999.
In December 1995, L-P received a notice of suspension from the EPA stating
that, because of the criminal proceedings pending against L-P in Colorado, the
Montrose facility would be prohibited from purchasing timber directly from the
USFS. In April 1998, L-P signed a Settlement and Compliance Agreement with the
EPA. This agreement formally lifted the 1995 suspension imposed on the Montrose
facility. The agreement has a term of five years and obligates L-P to (i)
develop and implement certain corporate policies and programs, including a
policy of cooperation with the EPA, an employee disclosure program and a policy
of nonretaliation against employees, (ii) conduct its business to the best of
its ability in accordance with federal laws and regulations and local and state
environmental laws, (iii) report significant violations of law to the EPA, and
(iv) conduct at least two audits of its compliance with the agreement.
OSB SIDING MATTERS
L-P has been named as a defendant in numerous class action and nonclass
action proceedings, brought on behalf of various persons or purported classes of
persons (including nationwide classes in the United States and Canada) who own
or have purchased or used OSB siding manufactured by L-P, because of alleged
unfair business practices, breach of warranty, misrepresentation, conspiracy to
defraud, and other theories related to alleged defects, deterioration, or
failure of OSB siding products.
The U.S. District Court for the District of Oregon has given final approval
to a settlement between L-P and a nationwide class composed of all persons who
own, have owned, or subsequently acquire property on which L-P's OSB siding was
installed prior to January 1, 1996, excluding persons who timely opted out of
the settlement and persons who are members of the settlement class in the
Florida litigation described below. Under the settlement agreement, an eligible
claimant whose claim is filed prior to January 1, 2003 (or earlier in certain
cases) and is approved by an independent claims administrator, is entitled to
receive from the settlement fund established under the agreement a payment equal
to the replacement cost (determined by a third-party construction cost estimator
and currently estimated to be in the range of $2.20 to $6.40 per square foot
depending on the type of product and geographic location) of damaged siding,
reduced by a specific adjustment (of up to 65 percent) based on the age of the
siding. Class members who previously submitted or resolved claims under any
other warranty or claims program of L-P may be entitled to receive the
difference between the amount payable under the settlement agreement and the
amount previously paid. The extent of damage to OSB siding at each claimant's
property is determined by an independent adjuster in accordance with a specified
protocol. Settlement payments are not subject to adjustment for improper
maintenance or installation.
A claimant who is dissatisfied with the amount to be paid under the
settlement may elect to pursue claims against L-P in a binding arbitration
seeking compensatory damages without regard to the amount of payment calculated
under the settlement protocol. A claimant who elects to pursue an arbitration
claim must prove his entitlement to damages under any available legal theory,
and L-P may assert any available defense, including defenses that otherwise had
been waived under the settlement agreement. If the arbitrator reduces the damage
award otherwise payable to the claimant because of a finding of improper
installation, the claimant may pursue a claim against the contractor/builder to
the extent the award was reduced.
The settlement requires L-P to contribute $275 million to the settlement
fund in seven annual installments payable during the period from 1996 through
2002 in the following amounts: $100 million; $55 million; $40 million; $30
million; $20 million; $15 million; and $15 million. As of June 30, 1999, L-P had
funded the first four installments. L-P also had funded a significant portion of
the last three installments through the Early Payment Program discussed below.
The estimated cumulative total of approved claims under the settlement, as
calculated under the terms of the settlement (without giving effect, in the case
of unpaid claims, to discounted settlements under the Early Payment Program),
exceeded $575 million at June 30, 1999. In these circumstances, unless L-P makes
an additional contribution of $50 million to the settlement fund by August 2001,
the settlement will terminate as to all claims in excess of $275 million that
remain unpaid. In addition, unless L-P makes a second additional contribution of
$50 million to the settlement fund by August 2002, the settlement will terminate
as to all claims in
18
excess of $325 million that remain unpaid. If L-P makes both of these additional
contributions, the settlement would continue in effect until at least August
2003, at which time L-P would be required to make an election with respect to
all unpaid claims that were filed prior to December 31, 2002. If, in August
2003, L-P elects to pay pursuant to the settlement all approved claims that
remain unpaid at that time, 50% of the unpaid claims must be paid by August 2004
and the remaining 50% must be paid by August 2005. If L-P elects not to pay the
unpaid claims pursuant to the settlement, the settlement will terminate with
respect to such unpaid claims and all unpaid claimants will be free to pursue
their individual remedies from and after August 2003.
If L-P makes all payments required under the settlement agreement,
including all additional payments as specified above, class members will be
deemed to have released L-P from all claims for damaged OSB siding, except for
claims arising under their existing 25-year limited warranty after termination
of the settlement agreement. The settlement agreement does not cover
consequential damages resulting from damage to OSB Inner-Seal siding or damage
to utility grade OSB siding (sold without any express warranty), either of which
could create additional claims. In addition to payments to the settlement fund,
L-P was required to pay fees of class counsel in the amount of $26.25 million,
as well as expenses of administering the settlement fund and inspecting
properties for damage and certain other costs. After accruing interest on
undisbursed funds and deducting class notification costs, prior claims costs
(including payments advanced to homeowners in urgent circumstances) and payment
of claims under the settlement, as of June 30, 1999, approximately $5.3 million
remained of the $225 million paid into the fund to date (all of which is
presently dedicated to the payment of expenses or held in reserve).
On October 26, 1998, L-P announced an agreement to offer early payments to
eligible claimants who have submitted valid and approved claims under the
original settlement agreement (the "Early Payment Program") and to establish an
additional $125 million fund to pay all other approved claims that are filed
before December 31, 1999 (the "Second Settlement Fund").
The Early Payment Program applies to all claimants who are entitled to
be paid from the $80 million of mandatory contributions to the settlement
fund that remain to be made under the settlement agreement, and to all
claimants who otherwise would be paid from the proceeds of the two optional
$50 million contributions to the settlement fund that L-P may elect to make
under the settlement agreement. The early payments from the $80 million of
mandatory contributions are discounted at a rate of 9% per annum calculated
from their original payment dates (1999-2002) to the date the early payment
offer was made. The early payments from the two $50 million optional
contributions are discounted at a rate of 12% per annum calculated from 2001
and 2002, respectively, to the date the early payment offer was made.
Claimants may accept or reject the discounted early payments in favor of
remaining under the original settlement, but may not arbitrate the amount of
their early payments. For purposes of determining whether L-P has made any
mandatory or optional contribution to the settlement fund as of the
respective due date therefor, L-P will receive credit for the undiscounted
amount of such contribution to which the discounted amount thereof paid
pursuant to the Early Payment Program is attributable. At June 30, 1999,
approximately $130.3 million in Early Payment Program checks had been mailed
and $120.7 million had been cashed in settlement claims, while approximately
$3.0 million in such checks remained to be mailed. Giving effect only to
Early Payment Program checks that had actually been cashed, L-P had
effectively satisfied an estimated cumulative total of approximately $352.8
million of its mandatory and optional contributions to the settlement fund at
June 30, 1999.
The $125 million Second Settlement Fund represents an alternative source of
payment for all approved claims not eligible for the Early Payment Program and
all new claims filed before December 31, 1999. In early 2000, claimants electing
to participate in the Second Settlement Fund will be offered a pro rata share of
the fund in complete satisfaction of their claims, which they may accept or
reject in favor of remaining under the original settlement. Claimants who accept
their pro rata share may not file additional claims under the settlement or
arbitrate the amount of their payments. Claimants who elect not to participate
in the Second Settlement Fund remain bound by the terms of the original
settlement. If L-P is dissatisfied with the number of claimants who elect to be
paid from the Second Settlement Fund, L-P may refuse to proceed with funding at
its sole option. In that event, the Second Settlement Fund will be canceled and
all the claimants who had elected to participate in it will be governed by the
original settlement.
19
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. These actions were brought on
behalf of various persons or purported classes of persons (including nationwide
classes) who own or have purchased or used hardboard siding manufactured or sold
by the ABT Entities or the Abitibi Entities. In general, the plaintiffs in these
actions have alleged unfair business practices, breach of warranty, fraud,
misrepresentation, negligence, and other theories related to alleged defects,
deterioration, or other failure of such hardboard siding, and seek unspecified
compensatory, punitive, and other damages, attorneys' fees and other relief. In
addition, Abitibi has been named in certain other actions, which may result in
liability to ABT under the allocation agreement between ABT and Abitibi
described below. Except in the case of certain of the putative class actions
that have been stayed, the ABT Entities have filed answers in these proceedings
that deny all material allegations of the plaintiffs and assert affirmative
defenses. L-P intends to cause the ABT Entities to defend these proceedings
vigorously.
L-P, the ABT Entities and the Abitibi Entities have also been named as
defendants in putative class action proceedings filed in the Circuit Court of
Jackson County, Missouri on April 22, 1999 and the District Court of Johnson
County, Kansas on July 14, 1999 and 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 alleged 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 restitution,
punitive damages, attorneys' fees and other relief. L-P and the ABT Entities
intend to defend this proceeding vigorously.
ABT and Abitibi have agreed to an allocation of liability with respect to
claims relating to (1) siding sold by the ABT Entities after October 22, 1992
("ABT Board"), and (2) siding sold by the Abitibi Entities on or before, or held
as finished goods inventory by the Abitibi Entities on, October 22, 1992
("Abitibi Board"). In general, ABT and Abitibi have agreed that all amounts paid
in settlement or judgment (other than any punitive damages assessed individually
against either the ABT Entities or the Abitibi Entities) following the
completion of any claims process resolving any class action claim (including
consolidated cases involving more than 125 homes owned by named plaintiffs)
shall be paid (a) 100% by ABT insofar as they relate to ABT Board, (b) 65% by
Abitibi and 35% by ABT insofar as they relate to Abitibi Board, and (c) 50% by
ABT and 50% by Abitibi insofar as they cannot be allocated to ABT Board or
Abitibi Board. In general, amounts paid in connection with class action claims
for joint local counsel and other joint expenses, and for plaintiffs' attorneys'
fees and expenses, are to be allocated in a similar manner, except that joint
costs of defending and disposing of class action claims incurred prior to the
final determination of what portion of claims relate to ABT Board and what
portion relate to Abitibi Board are to be paid
20
50% by ABT and 50% by Abitibi (subject to adjustment in certain circumstances).
ABT and Abitibi have also agreed to certain allocations (generally on a 50/50
basis) of amounts paid for settlements, judgments and associated fees and
expenses in respect of non-class action claims relating to Abitibi Board. ABT is
solely responsible for such amounts in respect of claims relating to ABT Board.
Based on the information currently available, management believes that the
resolution of the foregoing matters will not have a material adverse effect on
the financial position or results of operations of L-P.
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 the
foregoing matters will not have a material adverse effect on the financial
position or results of operations of L.P.
OTHER PROCEEDINGS
L-P and its subsidiaries are parties to other legal proceedings. Management
believes that the outcome of such proceedings will not have a material adverse
effect on the consolidated financial position or results of operations of L-P.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
L-P held its Annual Meeting of Stockholders on May 10, 1999, at which the
stockholders of L-P voted on and approved the following:
1. The election of two Class II directors of L-P for terms expiring at
the Annual Meeting of Stockholders in 2002.
2. An amendment to L-P's 1992 Non-Employee Director Stock Option Plan
(the "Plan") to increase the number of shares of L-P's common stock
available for option grants under the Plan by 600,000 shares to a
total of 1,200,000 shares.
3. Approval of a stockholder proposal relating to stockholder action by
written consent.
The voting with respect to each of these matters was as follows:
1. ELECTION OF DIRECTORS
NAME FOR WITHHELD
Paul W. Hansen 84,145,439 2,348,449
Donald R. Kayser 84,967,999 1,525,889
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2. AMENDMENT TO 1992 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
FOR AGAINST ABSTENTIONS
77,518,436 8,072,422 903,030
3. STOCKHOLDER PROPOSAL RELATING TO STOCKHOLDER ACTION BY WRITTEN CONSENT
FOR AGAINST ABSTENTIONS NON-VOTES
49,957,593 23,847,381 1,572,253 11,116,661
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
10.1 Amended and Restated Support Agreement, dated August 2,
1999, between L-P and Forex
10.2 Amended and Restated Lock-Up Agreement, dated August 2,
1999, among L-P and each of the parties identified in
Schedule B thereof
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by L-P during the quarter ended
June 30, 1999
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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: August 3, 1999 By: /s/ Gary C. Wilkerson
------------------------------------
Gary C. Wilkerson
Vice President and General Counsel
Date: August 3, 1999 By: /s/ Curtis M. Stevens
------------------------------------
Curtis M. Stevens
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
24