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, 1997
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: 109,271,011 shares of Common Stock, $1 par value,
outstanding as of April 30, 1997.
<PAGE>
FORWARD LOOKING STATEMENTS
Statements in this report, to the extent they are not based on historical
events, constitute forward-looking statements. Forward-looking statements
include, without limitation, statements regarding the outlook for future
operations, production capacities, forecasts of future costs and expenditures,
evaluation of market conditions, the outcome of legal proceedings, the adequacy
of reserves, or plans for product development. Investors are cautioned that
forward-looking statements are subject to an inherent risk that actual results
may vary materially from those described herein. Factors that may result in such
variance, in addition to those accompanying the forward looking statements,
include changes in interest rates, commodity prices, and other economic
conditions; actions by competitors; changing weather conditions and other
natural phenomena; actions by government authorities; uncertainties associated
with legal proceedings; technological developments; future decisions by
management in response to changing conditions; and misjudgments in the course of
preparing forward-looking statements.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED SUMMARY STATEMENTS OF INCOME
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 1996
Net sales $ 554.6 $ 584.1
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Costs and expenses:
Cost of sales 510.1 510.8
Depreciation, amortization and depletion 40.9 43.1
Selling and administrative 38.7 35.2
Settlement and other unusual items, net (121.9) ---
Interest expense 8.8 .9
Interest income (.3) (.9)
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Total costs and expenses 476.3 589.1
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Income (loss) before taxes and minority interest 78.3 (5.0)
Provision (benefit) for income taxes 37.6 (1.9)
Minority interest in net income (loss)
of consolidated subsidiaries (1.3) .5
------- -------
Net income (loss) $ 42.0 $ (3.6)
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Net income (loss) per share $ .39 $ (.03)
======= =======
Cash dividends per share $ .14 $ .14
======= =======
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CONSOLIDATED SUMMARY BALANCE SHEETS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
MAR. 31, 1997 DEC. 31, 1996
Cash and cash equivalents $ 7.1 $ 27.8
Accounts receivable, net 121.8 102.5
Receivable from U.S. Government 135.0 ---
Inventories 269.1 264.3
Prepaid expenses 14.1 12.0
Income tax refunds receivable 84.9 99.5
Deferred income taxes 73.1 73.1
-------- --------
Total current assets 705.1 579.2
-------- --------
Timber and timberlands 654.7 648.6
Property, plant and equipment 2,534.0 2,486.0
Less reserves for depreciation (1,244.1) (1,207.5)
-------- --------
Net property, plant and equipment 1,289.9 1,278.5
Other assets 102.7 82.4
-------- --------
Total assets $2,752.4 $2,588.7
======== ========
Current portion of long-term debt $ 19.5 $ 18.7
Short-term notes payable 30.5 35.4
Accounts payable and accrued liabilities 195.5 190.6
Current portion of contingency reserves 100.0 100.0
-------- --------
Total current liabilities 345.5 344.7
-------- --------
Long-term debt, excluding current portion 581.0 458.6
Deferred income taxes 183.2 163.2
Contingency reserves, excluding current portion 139.5 159.8
Other long-term liabilities and minority interest 32.6 34.8
Stockholders' equity:
Common Stock 117.0 117.0
Additional paid-in-capital 473.2 472.7
Retained earnings 1,166.8 1,140.0
Treasury stock (169.1) (183.3)
Loans to Employee Stock Ownership Trusts (55.6) (61.6)
Other (61.7) (57.2)
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Total stockholders' equity 1,470.6 1,427.6
-------- --------
Total liabilities and equity $2,752.4 $2,588.7
======== ========
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CONSOLIDATED SUMMARY STATEMENTS OF CASH FLOWS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 1996
Cash flows from operating activities:
Net income (loss) $ 42.0 $ (3.6)
Depreciation, amortization and depletion 40.9 43.1
Cash settlements of contingencies (20.3) (21.2)
Other adjustments 11.4 6.9
Decrease (increase) in certain working
capital components and deferred taxes (118.9) 27.5
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Net cash provided by (used in) operating activities (44.9) 52.7
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Cash flows from investing activities:
Capital spending, including acquisitions (81.4) (61.1)
Other investing activities, net 5.8 4.1
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Net cash used in investing activities (75.6) (57.0)
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Cash flows from financing activities:
New borrowing, including net increase in credit line 219.5 22.5
Repayment of long-term debt (100.5) (16.4)
Increase (decrease) in short-term notes payable (4.9) (19.7)
Cash dividends (15.2) (15.0)
Other financing activities, net .9 4.7
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Net cash provided by (used in) financing activities 99.8 (23.9)
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Net increase (decrease) in cash and cash equivalents (20.7) (28.2)
Cash and cash equivalents at beginning of year 27.8 75.4
------- -------
Cash and cash equivalents at end of period $ 7.1 $ 47.2
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE) (UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 1997
SHARES AMOUNT
Common Stock 116,937,022 $ 117.0
=========== ========
Additional Paid-in-Capital:
Beginning balance $ 472.7
Net transactions .5
--------
Ending balance $ 473.2
========
Retained Earnings:
Beginning balance $1,140.0
Net income 42.0
Cash dividends, $.14 per share (15.2)
--------
Ending balance $1,166.8
========
Treasury stock:
Beginning balance 8,170,799 $ (183.3)
Net shares reissued for employee stock
plans and acquisition (631,975) 14.2
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Ending balance 7,538,824 $ (169.1)
========= ========
Loans to ESOTs:
Beginning balance $ (61.6)
Accrued contribution 6.0
--------
Ending balance $ (55.6)
========
Other Equity Adjustments:
Beginning balance $ (57.2)
Currency translation adjustment and
amortization of deferred compensation (4.5)
--------
Ending balance $ (61.7)
========
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NOTES TO FINANCIAL STATEMENTS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
1. The interim period information included herein reflects all adjustments
which are, in the opinion of the management of L-P, necessary for a fair
statement of the results of the respective interim periods. Such adjustments,
except as discussed elsewhere in this report, are of a normal recurring nature.
Results of operations for interim periods are not necessarily indicative of
results to be expected for an entire year. It is suggested that these summary
financial statements be read in conjunction with the financial statements and
the notes thereto included in L-P's 1996 Annual Financial Report to
Stockholders. Interim financial statements are by necessity somewhat tentative;
judgments are used to estimate quarterly amounts for items that are normally
determinable only on an annual basis.
2. Earnings per share is based on the weighted average number of shares of
common stock outstanding during the periods (108,190,000 in 1997 and 107,410,000
in 1996). The effect of common stock equivalents is not material.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." This standards requires the calculation and
disclosure of Basic Earnings per Share and Diluted Earnings per Share for
interim and annual periods ending after December 15, 1997. Basic Earnings per
Share are computed by dividing net income (loss) by the weighted average number
of shares of common stock outstanding during the period. Diluted Earnings per
Share are computed by dividing net income (loss) by the weighted average number
of shares of common stock and common stock equivalents outstanding during the
period, calculated by applying the treasury stock method as defined in SFAS 128.
The effect of L-P's common stock equivalents has historically been immaterial
(less than three percent dilution) and therefore L-P's historical reported
earnings per share will become Basic Earnings per Share under SFAS 128. L-P will
be required to additionally report Diluted Earnings per Share which will differ
from Basic Earnings per Share by less than three percent.
3. The effective income tax rate is based on estimates of annual amounts
of taxable income, foreign sales corporation income and other factors. These
estimates are updated quarterly.
4. Determination of interim LIFO inventories requires estimates of
year-end inventory quantities and costs. These estimates are revised quarterly
and the estimated annual change in the LIFO inventory reserve is expensed over
the remainder of the year.
5. Reference is made to "Legal Proceedings" for a description of certain
environmental litigation and other litigation and its potential impact on L-P
and for a description of settlements of certain class action proceedings.
6. Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for further discussion and disclosures
regarding items included in the financial statement caption "settlement and
other unusual items, net."
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
General
Continued oversupply in oriented strand board (OSB) markets which resulted
in depressed sales prices was the primary cause of lower sales and lower
earnings before unusual items in the first quarter of 1997 compared to 1996.
Overall net income before unusual items fell to a net loss of $32.0 million
($.29 per share) from a loss in 1996 of $3.6 million ($.03 per share). Sales
fell approximately 5 percent to $554.6 million in the first quarter of 1997 from
$584.1 million in the first quarter of 1996. The Company recorded a net gain of
$122 million ($74 million after taxes, or $.68 per share) in the first quarter
of 1997 relating to a $135 million settlement received in April from the U.S.
Government over claims related to the long-term timber supply contract in
Alaska, net of adjustments to Ketchikan Pulp Company pulp mill closure-related
accruals.
L-P operates in two segments: building products and pulp. Building
products is the most significant segment, accounting for more than 90 percent of
sales during the first quarter of 1997 and 1996. The results of operations are
discussed separately for each segment below. Key segment information, production
volumes and industry product price trends are presented in the following tables
labeled "Sales and Operating Profit by Major Product Group," and "Summary of
Production Volumes" and "Industry Product Price Trends."
Building Products Segment
Building products segment sales in the first quarter of 1997 were $512.1
million, a 4 percent decrease from first quarter 1996 sales of $533.6 million.
The decrease was primarily attributable to a 19% decline in structural panel
products (OSB and plywood) sales to $190.6 million from $234.0 million in 1996.
Overall, structural panel products per unit sales prices decreased approximately
19%, which was a mix of a 33% decline in OSB prices and a 4% increase in plywood
prices. Structural panel volumes decreased slightly with plywood volume lower
due to weather-related production decreases and OSB volume higher due to
increased production capacity. Total lumber sales increased about 12 percent to
$155.3 million in 1997 from $138.4 million in 1996. Lumber sales volume dropped
approximately 8 percent due to mill closures within the company. Lumber prices
increased an average of 22 percent due to strong markets. Industrial panel
products sales declined approximately 5 percent (to $44.1 million in 1997 from
46.6 million in 1996) due a decrease of 4 percent in volume sold and a slight
decrease in average selling price. The increase in sales in the other building
products category to $122.1 million from $114.6 million was primarily
attributable to the addition of Associated Chemists (coatings and chemicals),
GreenStone Industries (cellulose insulation) and the assets of Tecton Laminates
(engineered wood products) subsequent to the first quarter of 1996.
Building products segment operating profits fell to a loss of $2.1 million
in 1997 from a profit of $30.0 million in 1996. This decrease is primarily
attributable to the decrease in OSB sales prices discussed above and reduced
plywood volumes. Lumber performed much better in 1997 than 1996 which partially
offset the structural panel decreases. Overall, log costs did not change
significantly between the two years.
L-P's building products are primarily sold as commodities and therefore
sales prices fluctuate based on market factors over which L-P has no control.
L-P cannot predict whether the prices of its building products will remain at
current levels, or will increase or decrease in the future because supply and
demand are influenced by many factors, only one of which is the cost and
availability of raw materials. Therefore, L-P is not able to determine to what
extent, if any, it will be able to pass any future increases in the price of raw
materials on to customers through product price increases.
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<PAGE>
Pulp Segment
Pulp sales dropped nearly 16 percent in the first quarter of 1997 to $42.5
million from $50.5 million in the first quarter 1996. Prices decreased an
average of approximately 42 percent while volume increased approximately 45
percent. World-wide pulp inventories have been high over the past year and
remained high through the first quarter, creating very weak pulp markets. Pulp
sales decreases have also caused export sales to decrease significantly as L-P
sells the substantial majority of pulp to export customers.
Pulp segment losses moderated in 1997 despite sales price decreases due to
cost cutting measures, more efficient operating volumes and prior inventory
write-downs at the Ketchikan facility. The pulp segment loss was $11.6 million
in the first three months of 1997 compared to a loss of $21.9 million in the
first three months of 1996.
L-P's pulp products are primarily sold as commodities and therefore sales
prices fluctuate based on world-wide market factors over which L-P has no
control. L-P cannot predict whether the prices of its pulp products will remain
at current levels, or will increase or decrease in the future because supply and
demand are influenced by many factors, only one of which is the cost and
availability of raw materials. Therefore, L-P is not able to determine to what
extent, if any, it will be able to pass any future increases in the price of raw
materials on to customers through product price increases.
Settlement Payment and Other Unusual Items
In the first quarter of 1997, L-P's Ketchikan Pulp Company subsidiary
recorded a net gain of $122 million ($74 million after taxes, or $.68 per share)
to reflect the initial amount paid under a settlement agreement with the U.S.
Government over claims related to the long-term timber supply contract in Alaska
of $135 million. The amount was paid to L-P in April of 1997 prior to the
release of first quarter financial information and therefore the gain was
recorded in the first quarter and reflected as a receivable in the March 31,
1997 balance sheet. Adjustments to pulp mill closure-related accruals were
netted against this gain.
General Corporate and Other Expense
The increase in unallocated expense is primarily due to asset sale gains
and other credits offsetting 1996 expenses by nearly $9 million. The remaining
increase is due to a small general increase in overhead expenses.
Interest Income (Expense)
Interest expense increased significantly in 1997 due to higher borrowing
levels and higher interest rates on variable rate debt. Higher borrowing levels
were attributable to losses sustained in late 1996 and the first quarter of 1997
as well as capital expenditures in the latter part of 1996. Interest cost
capitalized decreased in 1997 due to lower average balances of construction in
progress.
Legal and Environmental Matters
Refer to the "Legal Proceedings" section of this Form 10-Q for a
discussion of certain environmental litigation and other litigation and its
potential impact on L-P.
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<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations decreased significantly in 1997 over 1996
primarily due to the increased net loss (prior to unusual items) coupled with an
increase in receivables. Cash used in investing activities increased due to cash
used in acquisitions in the first quarter of 1997. L-P is budgeting
non-acquisition capital expenditures, including timber and logging road
additions, for all of 1997 of $150 million to $175 million. Financing activities
provided nearly $100 million of cash in the first quarter of 1997 compared to
using nearly $24 million in 1996. The Company borrowed significantly in the
first quarter of 1997 to fund acquisitions, capital expenditures and operating
cash uses.
L-P's cash levels have decreased and borrowings have increased as
discussed above. The ratio of long-term debt to total capital is 28.3%
(excluding contingency reserves) at March 31, 1997. In April 1997, L-P received
$135 million in settlement proceeds and an initial tax refund of $86 million,
significantly increasing the Company's liquidity. Despite the decreased cash and
increased borrowings, cash balances combined with borrowings available under L-
P's $300 million revolving credit facility are expected to be sufficient to meet
projected cash needs including the payments related to the siding litigation and
other litigation. L-P must pay $55 million in the second quarter of 1997 into
the national siding settlement fund. The company also believes that because of
its conservative financial structure and policies, it has substantial financial
flexibility to generate additional funds should the need arise.
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<PAGE>
SALES AND OPERATING PROFIT BY MAJOR PRODUCT GROUP
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 1996
Sales:
Structural panel products $ 190.6 $ 234.0
Lumber 155.3 138.4
Industrial panel products 44.1 46.6
Other building products 122.1 114.6
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Total building products 512.1 533.6
Pulp 42.5 50.5
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Total sales $ 554.6 $ 584.1
======= =======
Export sales $ 73.2 $ 79.5
======= =======
Profit (loss):
Building products $ (2.1) $ 30.0
Pulp (11.6) (21.9)
Settlement and other unusual items, net 121.9 ---
General corporate expense and other, net (21.4) (13.1)
Interest income (expense), net (8.5) ---
------- -------
Income (loss) before taxes and
minority interest $ 78.3 $ (5.0)
======= =======
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<PAGE>
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
SUMMARY OF PRODUCTION VOLUMES
QUARTER ENDED MARCH 31
----------------------
1997 1996
Oriented Strand Board (OSB),
million square feet 3/8" basis 931 828
Softwood plywood,
million square feet 3/8" basis 281 410
Lumber, million board feet 301 282
Medium Density Fiberboard (MDF),
million square feet 3/4" basis 50 47
Particleboard,
million square feet 3/4" basis 81 80
Hardboard,
million square feet 1/8" basis 54 54
Engineered I-Joists,
million lineal feet 17 11
Laminated Veneer Lumber (LVL),
thousand cubic feet 1,273 862
Pulp, thousand short tons* 116 87
Chips, thousand BDU's 369 422
*Includes production from the Ketchikan Pulp Company mill.
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<PAGE>
INDUSTRY PRODUCT PRICE TRENDS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
OSB PLYWOOD LUMBER PARTICLEBOARD
----------- -------- --------- -------------
N. CENTRAL SOUTHERN
7/16" BASIS PINE 1/2" FRAMING
24/16 BASIS LUMBER INLAND
SPAN CDX COMPOSITE INDUSTRIAL
RATING 3 PLY PRICES 3/4" BASIS
----------- -------- --------- -------------
Annual Average
1992 217 248 287 200
1993 236 282 394 258
1994 265 302 405 295
1995 245 303 337 290
1996 184 258 398 276
1996 First Quarter Average
191 254 341 277
1996 Fourth Quarter Average
143 269 433 272
1997 First Quarter Average
134 266 438 265
Weekly Average
April 4 122 253 441 265
April 11 120 258 455 265
April 18 125 258 465 265
April 25 123 258 463 265
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<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The following sets forth the current status of certain legal proceedings:
Environmental Proceedings
In March 1995, L-P's subsidiary Ketchikan Pulp Company (KPC) entered into
agreements with the federal government to resolve the issues related to water
and air compliance problems experienced at KPC's pulp mill during the late 1980s
and early 1990s. In addition to civil and criminal penalties that have been
paid, KPC also agreed to undertake further expenditures, which are primarily
capital in nature, including certain remedial and pollution control related
measures, with an estimated cost of up to approximately $20 million. With the
recent closure of the pulp mill, KPC is currently seeking the EPA's and court's
guidance regarding the necessity of these expenditures. KPC has also agreed to
undertake a study of whether a clean-up of Ward Cove, the body of water adjacent
to the pulp mill, is needed. If the study determines that such clean-up is
needed, KPC may be required to spend up to $6 million on the clean-up, including
the cost of the study, as part of the overall $20 million of expenditures. At
this time, the company cannot estimate what portion, if any, of the clean-up
expenditures will be required. KPC is also negotiating with the state and EPA to
conduct investigative and clean-up activities at the pulp mill following
shut-down. The USFS has named KPC as a potentially responsible party for costs
related to the capping of a landfill near Thorne Bay, Alaska, and KPC has agreed
to a consent order obligating it to cap the landfill, the total costs of which
may range up to $8 million. Total anticipated costs for these activities are
unknown at this time, but KPC has recorded its initial estimated amount.
The State of Texas has issued a notice of violation to L-P seeking a
penalty of up to $135,000 relating to alleged failure to timely conduct required
air emissions testing at L-P's Silsbee, Texas, plant.
Certain of L-P's plant sites have or are suspected of having substances in
the ground or in the groundwater that are considered pollutants. Appropriate
corrective action or plans for corrective action are underway. Where the
pollutants were caused by previous owners of the property, L-P is vigorously
pursuing those parties through legal channels and is vigorously pursuing
insurance coverage under all applicable policies.
Although L-P's policy is to comply with all applicable environmental laws
and regulations, the company has in the past been required to pay fines for
non-compliance and sometimes 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. Management believes that
any fines, penalties or other losses resulting from the matters discussed above
in excess of the reserve for environmental loss contingencies will not have a
material adverse effect on the business, financial position or results of
operations of L-P. See "Colorado Criminal Proceedings" for further discussion of
an environmental action against the company.
Colorado Criminal Proceedings
L-P began an internal investigation at L-P's Montrose (Olathe), Colorado,
oriented strand board (OSB) plant of various matters, including certain
environmental matters, in the summer of 1992 and reported its initial finding of
irregularities to governmental authorities in September 1992. Shortly
thereafter, a federal grand jury commenced an investigation of L-P concerning
alleged environmental violations at that plant, which was subsequently expanded
to include the taking of evidence and testimony relating to alleged fraud in
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<PAGE>
connection with the submission of unrepresentative OSB Inner-Seal(R) product
samples to the APA-The Engineered Wood Association (APA), an industry product
certification agency, by L-P's Montrose plant and certain of its other OSB
plants. L-P then commenced an independent investigation, which was concluded in
1995, under the direction of former federal judge Charles B. Renfrew concerning
irregularities in sampling and quality assurance in its OSB operations. In June
1995, the grand jury returned an indictment in the U.S. District Court in
Denver, Colorado, against L-P, a former manager of the Montrose mill, and a
former superintendent at the mill. L-P is now facing 23 felony counts related to
environmental matters at the Montrose mill, including alleged conspiracy,
tampering with opacity monitoring equipment, and making false statements under
the Clean Air Act. The indictment also charges L-P with 25 felony counts of
fraud relating to alleged use of the APA trademark on OSB Inner-Seal structural
panel products produced by the Montrose mill as a result of L-P's allegedly
improper sampling practices in connection with the APA quality assurance
program.
In December 1995, L-P received a notice of suspension from the EPA stating
that, because of criminal proceedings pending against L-P in Colorado, agencies
of the federal government would be prohibited from purchasing from L-P's
Northern Division. L-P is negotiating to have the EPA suspension lifted or
modified based on positive environmental programs actively underway. While
negotiations are continuing, the EPA has approved a preliminary agreement
limiting the prohibition to L-P's Montrose, Colorado, facility for an interim
period in recognition of L-P's environmental compliance efforts. Under recently
revised regulations of the United States Department of Agriculture, the EPA
suspension will also have the effect of prohibiting L-P's Montrose facility from
purchasing timber directly, but not indirectly, from the United States Forest
Service.
L-P maintains a reserve for its estimate of the cost of the Montrose
criminal proceedings, although as with any estimate, there is uncertainty
concerning the actual costs to be incurred. At the present time, L-P cannot
predict whether or to what extent the circumstances described above will result
in further civil litigation or investigation by government authorities, or the
potential financial impact of any such current or future proceedings, in which
case the resolution of the above matters could have a materially adverse impact
on L-P.
OSB Inner-Seal(R) Siding Matters
L-P has been named as a defendant in numerous class action and non-class
action proceedings, brought on behalf of various persons or purported classes of
persons (including nationwide classes in the United States and Canada) who own
or have purchased or used OSB siding manufactured by L-P, because of alleged
unfair business practices, breach of warranty, misrepresentation, conspiracy to
defraud, and other theories related to alleged defects, deterioration, or
failure of OSB Inner-Seal siding products.
The United States District Court for the District of Oregon has given
final approval to a settlement between L-P and a nationwide class composed of
all persons who own, who have owned, or who 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 will be entitled to receive from the settlement fund established
under the agreement a payment equal to the replacement cost (to be determined by
a third-party construction cost estimator and currently estimated to be in the
range $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 have 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 which would be
payable under the settlement agreement and the amount previously paid.
Independent adjusters will
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<PAGE>
determine the extent of damage to OSB siding at each claimant's property in
accordance with a specified protocol. There will be no adjustment to settlement
payments 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 will be entitled to pursue a claim against the
contractor/builder to the extent the award was reduced.
L-P is required to pay $275 million into the settlement fund in seven
annual installments beginning in mid-1996: $100 million (paid in June 1996), $55
million, $40 million, $30 million, $20 million, $15 million, and $15 million. If
at any time after the fourth year of the settlement period the amount of
approved claims (paid and pending) equals or exceeds $275 million, then the
settlement agreement will terminate as to all claims in excess of $275 million
unless L-P timely elects to provide additional funding within 12 months equal to
the lesser of (i) the excess of unfunded claims over $275 million or (ii) $50
million and, if necessary to satisfy unfunded claims, a second payment within 24
months equal to the lesser of (i) the remaining unfunded amount or (ii) $50
million. If the total payments to the settlement fund are insufficient to
satisfy in full all approved claims filed prior to January 1, 2003, then L-P may
elect to satisfy the unfunded claims by making additional payments into the
settlement fund at the end of each of the next two 12-month periods or until all
claims are paid in full, with each additional payment being in an amount equal
to the greater of (i) 50 percent of the aggregate sum of all remaining unfunded
approved claims or (ii) 100 percent of the aggregate amount of unfunded approved
claims, up to a maximum of $50 million. If L-P fails to make any such additional
payment, all class members whose claims remain unsatisfied from the settlement
fund may pursue any available legal remedies against L-P without regard to the
release of claims provided in the settlement agreement.
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 siding or damage to utility
grade OSB siding (sold without any express warranty), either of which could
create additional claims. In the event all claims filed prior to January 1,
2003, that are approved have been paid without exhausting the settlement fund,
any amounts remaining in the settlement fund revert to L-P. In addition to
payments to the settlement fund, L-P will be 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. As of May 9, 1997, approximately $22 million of the first year's $100
million installment remained, 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. By that date, approximately 97,000 claims forms had been requested
and mailed and approximately 44,300 claims had been submitted; approximately
9,000 class settlement checks had been mailed totaling approximately $53
million.
Approximately 1,400 opt out notices were timely submitted, including about
1,200 individual property owners (a number of whose claims have subsequently
been resolved) and about 200 developers/owners of commercial properties; this
has resulted in additional claims being filed by those who opted out,
predominantly by owners/developers of commercial properties, most of which have
been settled.
- 14 -
<PAGE>
A settlement of the Florida class action has been approved by the Circuit
Court for Lake County, Florida. 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 will be $3.40 per square foot for lap siding and
$2.82 per square foot for panel siding, subject to reduction of 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 for up to five
years after October 4, 1995. As of May 9, 1997, approximately 24,900 claims
forms had been requested and mailed; approximately 14,300 completed claims forms
had been returned, and approximately 13,700 inspections had been completed; this
resulted in approximately 12,650 allowed claims, at an aggregate cost of
approximately $36 million (including adjustments to deductions to conform to the
national settlement).
Other OSB Matters
Three separate purported class actions on behalf of owners and purchasers
of properties in which L-P's OSB panels are used for flooring, sheathing, or
underlayment have been consolidated in the United States District Court for the
Northern District of California under the caption Agius v. Louisiana-Pacific
Corporation. The actions seek damages and equitable relief for alleged fraud,
misrepresentation, breach of warranty, negligence, and improper trade practices
related to alleged improprieties in testing, APA certification, and marketing of
OSB structural panels, and alleged premature deterioration of such panels. A
separate state court action entitled Carney v. Louisiana-Pacific Corporation is
pending in the Superior Court of the State of California for the City and County
of San Francisco, seeking relief under California consumer protection statutes
based on similar allegations.
At the present time, L-P cannot predict the potential financial impact of
the above actions. However, the resolution of the above matters could have a
materially adverse impact on L-P.
Executive Employment Matter
In January 1996, an action entitled International Paper Company v. Mark A.
Suwyn and Louisiana-Pacific Corporation was instituted in the United States
District Court for the Southern District of New York claiming that Mr. Suwyn's
employment as chief executive officer of L-P violated the terms of a previous
employment agreement with the plaintiff. The complaint seeks an injunction
prohibiting Mr. Suwyn from continuing his employment with L-P for 18 months and
other relief. L-P believes there are meritorious defenses related to this case
and does not believe that there is any material liability related to this case.
Trial has been completed and the parties are awaiting the decision of the court.
Other
L-P and its subsidiaries are parties to other legal proceedings.
Management believes that the outcome of such proceedings will not have a
material adverse effect on the business, financial position or results of
operations of L-P.
- 15 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits filed as part of this report or
incorporated by reference herein are listed in the
accompanying exhibit index.
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended March 31, 1997.
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOUISIANA-PACIFIC CORPORATION
By /s/ WILLIAM L. HEBERT
William L. Hebert
Vice President - Treasurer
and Controller
(Principal Financial Officer)
DATED: May 15, 1997
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
27 Financial Data Schedule.
- 18 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from Consolidated Summary
Financial Statements and Notes included in this
Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<S> <C>
<CASH> 7,100
<SECURITIES> 0
<RECEIVABLES> 121,800
<ALLOWANCES> (1,700)
<INVENTORY> 269,100
<CURRENT-ASSETS> 705,100
<PP&E> 2,534,000
<DEPRECIATION> (1,244,100)
<TOTAL-ASSETS> 2,752,400
<CURRENT-LIABILITIES> 345,500
<BONDS> 581,000
0
0
<COMMON> 117,000
<OTHER-SE> 1,353,600
<TOTAL-LIABILITY-AND-EQUITY> 2,752,400
<SALES> 554,600
<TOTAL-REVENUES> 554,600
<CGS> 510,100
<TOTAL-COSTS> 467,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,800
<INCOME-PRETAX> 78,300
<INCOME-TAX> 37,600
<INCOME-CONTINUING> 42,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,000
<EPS-PRIMARY> .39
<EPS-DILUTED> 0
</TABLE>
