<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1 to
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended 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.
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EXCEPT AS OTHERWISE SPECIFIED AND UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCES TO "L-P" REFER TO LOUISIANA-PACIFIC CORPORATION
AND ITS SUBSIDIARIES.
This amendment to Form 10-Q is filed in order to amend the
following items: Item 2 of Part I -- Management's Discussion and Analysis of
Financial condition and Results of Operations; and Item 1 of Part II -- Legal
Proceedings.
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 % CHG 1999 1998 % CHG
------------- ------------- -------- ------------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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%
========= ========= ========= =========
</TABLE>
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.
3
<PAGE>
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.
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
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
--------------- -------------- --------------- -----------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
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.
4
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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.
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.
OSB SIDING LITIGATION UPDATE
The following discussion updates, and should be read in conjunction
with, the discussion of L-P's OSB siding litigation set forth in Item 7 of L-P's
amended annual report on Form 10-K, Management's Discussion and Analysis of
Financial Condition and Results of Operations, under the subheading "Legal
Matters."
Through the first six months of 1999, claimants have continued to file
claims under the National Settlement at a steady pace while the rate of claims
filed under the Florida Settlement has decreased. L-P is making a concerted
effort to maximize the level of participation in the Second Fund, including
participation by claimants who filed eligible claims during the first six months
of 1999. However, L-P will not be able to assess the impact of the Second Fund
on its total siding liability until several steps are completed after the
December 31, 1999 deadline for the submission of claims eligible to participate
in the Second Fund has passed, including the verification and calculation of
individual claim amounts and the opportunity for each claimant to opt out of the
Second Fund after they have been informed of their pro rata settlement amount.
L-P's management does not expect to have all the information necessary to make
its decision until some time in the second or third quarter of 2000.
As of June 30, 1999, approximately 251,000 requests had been
received for claim forms for the National Settlement and the Florida
Settlement compared to 215,000 at December 31, 1998. Approximately 155,000
completed claim forms have been received compared to 138,000 at December 31,
1998. The average payment amount for settled claims as of June 30, 1999 and
December 31, 1998 is approximately $5,100. The total number of completed
claim forms pending (not settled) as of June 30, 1999 was approximately
57,000 (approximately 56,000 at December 31, 1998) with approximately 74,000
claims settled (approximately 61,000 at December 31, 1998) and approximately
24,000 claims dismissed (approximately 21,000 at December 31, 1998).
Dismissal of claims is typically the result of claims for product not
produced by L-P or claims that lack sufficient information or documentation
after repeated efforts to correct those deficiencies. The average payment
amount for claims settled after June 30, 1999 may be significantly impacted
by the Second Fund.
The accruals for OSB siding claims relating to both the National
Settlement and the Florida Settlement, including related legal costs, settlement
administration costs, claims of persons who opted-out of the settlements and
residual warranty claims, have been analyzed and accounted for collectively. The
activity in the combined accruals for the first six months of 1999 is as follows
(does not include accruals for ABT hardboard siding matters):
<TABLE>
<CAPTION>
In Millions
-----------
<S> <C>
Balance at December 31, 1998 $ 323.9
Accruals made during the period --
Payments (78.3)
Insurance recoveries --
---------
Balance at June 30, 1999 $ 245.6
---------
---------
</TABLE>
5
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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.
<PAGE>
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
6
<PAGE>
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 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
7
<PAGE>
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 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.
8
<PAGE>
LOUISIANA-PACIFIC CORPORATION
SUMMARY OF PRODUCTION VOLUMES
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Oriented strand board panels, million square 1,068 986 2,122 1,906
ft 3/8" basis..................................
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 94 100 192 195
million square ft 3/8" basis...................
Hardboard siding surface measure million square 85 --- 114 ---
ft basis.......................................
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 175 148 335 293
density fiberboard and hardboard), million
square ft 3/4" basis...........................
Pulp, thousand short tons.......................... 90 91 185 141
<CAPTION>
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
----------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
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
</TABLE>
Source: Random Lengths. The amounts set forth are dollars per 1,000 square feet
or, in the case of lumber, 1,000 board feet.
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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 annual
installments, together with accrued interest, beginning July 1, 2000. However,
in April 1999, the court
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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 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
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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 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 Fund represents an alternative source of
payment for all approved claims not eligible for the Early Payment Program and
all new claims filed before December 31, 1999. In early 2000, claimants electing
to participate in the Second Fund will be offered a pro rata share of the fund
in complete satisfaction of their claims, which they may accept or reject in
favor of remaining under the original settlement. Claimants who accept their pro
rata share may not file additional claims under the settlement or arbitrate the
amount of their payments. Claimants who elect not to participate in the Second
Fund remain bound by the terms of the original settlement. If L-P is
dissatisfied with the number of claimants who elect to be paid from the Second
Fund, L-P may refuse to proceed with funding at its sole option. In that event,
the Second Fund will be canceled and all the claimants who had elected to
participate in it will be governed by the original settlement.
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
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<PAGE>
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 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.
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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.
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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: February 15, 2000 By: /s/ Gary C. Wilkerson
------------------------------------
Gary C. Wilkerson
Vice President and General Counsel
Date: February 15, 2000 By: /s/ Curtis M. Stevens
------------------------------------
Curtis M. Stevens
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
15
