<PAGE>
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 September 30, 2000
Commission File Number 1-7107
LOUISIANA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0609074
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111 S. W. Fifth Avenue, Portland, Oregon 97204-3699
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 221-0800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 104,180,191 shares of Common Stock, $1 par value, outstanding as
of October 31, 2000.
<PAGE>
ABOUT FORWARD-LOOKING STATEMENTS
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 provide a "safe harbor" for all forward-looking statements
to encourage companies to provide prospective information about their
businesses and other matters as long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the statements. This report contains, and
other reports and documents filed by Louisiana-Pacific Corporation ("LP") with
the Securities and Exchange Commission may contain, forward-looking statements.
These statements are or will be based upon the beliefs and assumptions of, and
on information available to, the management of LP.
The following statements are or may constitute forward-looking statements: (1)
statements preceded by, followed by or that include the words "may," "will,"
"could," "should," "believe," "expect," "anticipate," "intend," "plan,"
"estimate," "potential," "continue" or "future" or the negative or other
variations thereof and (2) other statements regarding matters that are not
historical facts, including without limitation, plans for product development,
forecasts of future costs and expenditures, possible outcomes of legal
proceedings and the adequacy of reserves for loss contingencies. These
forward-looking statements are subject to various risks and uncertainties,
including the following:
- Risks and uncertainties relating to the possible invalidity of
the underlying beliefs and assumptions;
- Possible changes or developments in social, economic,
business, industry, market, legal and regulatory circumstances
and conditions; and
- Actions taken or omitted to be taken by third parties,
including customers, suppliers, business partners, competitors
and legislative, regulatory, judicial and other governmental
authorities and officials.
In addition to the foregoing and any risks and uncertainties specifically
identified in the text surrounding forward-looking statements, any statements
in the reports and other documents filed by LP with the Commission that warn of
risks or uncertainties associated with future results, events or circumstances
identify important factors that could cause actual results, events and
circumstances to differ materially from those reflected in the forward-looking
statements.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS EXCEPT PER SHARE) (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 652.4 $ 797.4 $ 2,207.4 $ 2,166.0
Costs and expenses:
Cost of sales 544.5 551.1 1,668.6 1,543.9
Depreciation, amortization and depletion 63.5 52.4 184.1 140.9
Selling and administrative 57.1 56.5 177.2 162.9
Unusual credits and charges, net 1.0 18.7 37.4 13.5
Loss from unconsolidated affiliate 1.4 -- 1.4 --
Interest expense 22.6 9.6 58.2 29.7
Interest income (10.0) (6.9) (28.4) (26.1)
Foreign exchange losses (gains) 3.8 0.8 6.0 1.8
------------ ------------ ------------ ------------
Total costs and expenses 683.9 682.2 2,104.5 1,866.6
------------ ------------ ------------ ------------
Income (loss) before taxes and minority interest (31.5) 115.2 102.9 299.4
Provision for income taxes 9.7 45.5 64.4 118.1
Minority interest in net income (loss) of
consolidated subsidiaries (0.3) 0.4 0.7 (0.1)
------------ ------------ ------------ ------------
Net income (loss) $ (40.9) $ 69.3 $ 37.8 $ 181.4
============ ============ ============ ============
Net income (loss) per share - basic and diluted $ (0.39) $ 0.65 $ 0.36 $ 1.70
============ ============ ============ ============
Average shares outstanding
Basic 104.1 106.7 104.1 106.5
============ ============ ============ ============
Diluted 104.1 106.9 104.2 106.7
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
FINANCIAL STATEMENTS.
2
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
<TABLE>
<CAPTION>
Sept. 30, 2000 Dec. 30, 1999
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 101.6 $ 116.0
Accounts receivable, net 221.3 200.7
Inventories 298.1 293.4
Prepaid expenses 20.9 18.5
Income taxes receivable 63.1 --
Deferred income taxes 60.1 110.8
-------------- -------------
Total current assets 765.1 739.4
Timber and timberlands, net 593.7 611.1
Property, plant and equipment 2,567.4 2,537.4
Accumulated depreciation (1,262.3) (1,203.4)
-------------- -------------
Net property, plant and equipment 1,305.1 1,334.0
Goodwill, net of amortization 329.3 347.7
Notes receivable from asset sales 403.8 403.8
Other assets 101.7 52.2
-------------- -------------
Total assets $ 3,498.7 $ 3,488.2
============== =============
LIABILITIES AND EQUITY
Current portion of long-term debt $ 40.7 $ 44.9
Accounts payable and accrued liabilities 305.4 306.5
Income taxes payable -- 9.3
Current portion of contingency reserves 55.0 180.0
-------------- -------------
Total current liabilities 401.1 540.7
Long-term debt, excluding current portion:
Limited recourse notes payable 396.5 396.5
Other long term debt 775.2 618.3
-------------- -------------
Total long-term debt, excluding current portion 1,171.7 1,014.8
Contingency reserves, excluding current portion 118.7 128.8
Deferred income taxes and other 459.2 443.9
Commitments and contingencies
Stockholders' equity:
Common stock 117.0 117.0
Additional paid-in capital 444.5 445.4
Retained earnings 1,070.5 1,076.4
Treasury stock (238.5) (228.3)
Loans to Employee Stock Ownership Trust (3.5) (6.9)
Accumulated comprehensive loss (42.0) (43.6)
-------------- -------------
Total stockholders' equity 1,348.0 1,360.0
-------------- -------------
Total liabilities and equity $ 3,498.7 $ 3,488.2
============== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
FINANCIAL STATEMENTS.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 37.8 $ 181.4
Depreciation, amortization and depletion 184.1 140.9
Unusual credits and charges, net 54.3 13.5
Cash settlements of contingencies (141.1) (93.3)
Other adjustments 17.4 16.9
Decrease (increase) in certain working capital
components and deferred taxes (67.5) 89.4
------------ ------------
Net cash provided by operating activities 85.0 348.8
Cash flows from investing activities:
Capital spending (159.6) (86.7)
Proceeds from assets sales 21.5 21.4
Acquisitions, including replacement of debt (54.7) (612.1)
Other investing activities, net (6.7) (11.4)
------------ ------------
Net cash used in investing activities (199.5) (688.8)
Cash flows from financing activities:
New borrowings, including net increase in
revolving borrowings 622.9 535.3
Repayment of long-term debt (464.9) (104.1)
Cash dividends (43.7) (44.6)
Purchase of treasury stock (11.2) (9.0)
Other financing activities (3.0) 4.0
------------ ------------
Net cash provided by financing activities 100.1 381.6
------------ ------------
Net increase (decrease) in cash and cash equivalents (14.4) 41.6
Cash and cash equivalents at beginning of period 116.0 126.5
------------ ------------
Cash and cash equivalents at end of period $ 101.6 $ 168.1
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
FINANCIAL STATEMENTS.
4
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED SUMMARY FINANCIAL STATEMENTS
1. These consolidated summary financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto included in LP's Annual Report on Form 10-K for the year ended
December 31, 1999.
These consolidated summary financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of the management of LP, necessary to present fairly, in all
material respects, the consolidated financial position, results of
operations and cash flows of LP and its subsidiaries. Certain 1999
amounts have been reclassified to conform to the 2000 presentation.
2. Results of operations for interim periods are not necessarily
indicative of results to be expected for an entire year.
3. Basic earnings per share are based on the weighted average number of
shares of common stock outstanding during the applicable period.
Diluted earnings per share include the effects of potentially dilutive
common stock equivalents.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
Sept 30, Sept 30,
----------------------------- ---------------------------
(Shares in millions) 2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Average shares outstanding used to determine
basic income per common share 104.1 106.7 104.1 106.5
Dilutive effects of stock options granted
and ESPP shares -- 0.2 .1 0.2
------------ ------------ ------------ ------------
Average shares outstanding used to determine
fully diluted income per common share 104.1 106.9 104.2 106.7
============ ============ ============ ============
</TABLE>
4. The preparation of interim financial statements requires the
estimation of LP's effective income tax rate based on estimated
annual amounts of taxable income and expenses. These estimates are
updated quarterly. Accounting standards require that LP's estimated
effective income tax rate (based upon estimated annual amounts of
taxable income and expense) for the year be applied to year-to-date
income or loss at the end of each quarter. Any resulting adjustment
related to prior periods must be applied against the current
quarter. Weaker markets for LP's products have caused LP's estimated
pre-tax income for 2000 to decrease significantly, which in turn has
dramatically increased the impact of non-deductible goodwill and
other items on the effective tax rate. Based on current estimates,
LP expects to record an offsetting income tax benefit at a rate of
approximately 63% on the projected loss in the fourth quarter.
5. The preparation of interim financial statements requires the estimation
of LP's year-end inventory quantities and costs for purposes of
determining last in, first out (LIFO) inventory adjustments. These
estimates are revised quarterly and the estimated incremental change in
the LIFO inventory reserve is expensed over the remainder of the year.
6. Components of comprehensive income for the periods include:
5
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
(Dollars in millions) 2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $ (40.9) $ 69.3 $ 37.8 $ 181.4
Currency translation adjustment (2.5) 0.9 (10.7) 1.7
Pension minimum liability adjustment -- -- 12.2 --
Other -- -- 0.1 0.2
------------ ------------ ------------ ------------
Total comprehensive income (loss) $ (43.4) $ 70.2 $ 39.4 $ 183.3
============ ============ ============ ============
</TABLE>
7. In June 1998, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). The new
statement will require recognition of all financial instruments as
either assets or liabilities on the balance sheet at fair value;
changes to fair value will impact earnings either as gains or losses.
SFAS 133, as amended by SFAS 137 and SFAS 138, will be effective for LP
beginning January 1, 2001. Based upon a preliminary review, LP does not
believe that the adoption of this standard will have a material impact
on its financial statements.
8. In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101 "Revenue Recognition in Financial
Statements." As a result of the new statement, LP will change its
recognition of revenue. SAB 101, as amended by SAB101A and SAB101B,
will be effective for LP beginning in the fourth quarter of 2000. In
addition, the Emerging Issues Task Force (EITF) issued #00-10
"Accounting for Shipping and Handling Fees and Costs". This consensus
will be applied in connection with SAB101. It addresses the income
statement classification for shipping and handling fees and costs.
Based upon a preliminary review, LP does not believe that the adoption
of either of these standards will have a material impact on its
financial statements.
9. The selected segment data set forth in Item 2 "Management's Discussion
and Analysis and Results of Operations" is incorporated herein by
reference.
10. The description of certain legal and environmental matters involving LP
set forth in Part II of this report under the caption "Legal
Proceedings" is incorporated herein by reference.
11. Investments in 50% owned joint ventures are accounted for under the
equity method.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS.
Net loss for the third quarter of 2000 was $40.9 million, or $0.39 per
diluted share, on sales of $652.4 million, compared to third quarter 1999 net
income of $69.3 million, or $0.65 per diluted share, on sales of $797.4
million. Excluding unusual items resulting in a net unusual charge of $1.0
million ($.6 million after tax, or less than $0.01 per diluted share), loss
for the third quarter of 2000 was $40.3 million, or $0.39 per diluted share,
compared to third quarter 1999 income excluding unusual items of $80.8
million, or $0.76 per diluted share. The third quarter 2000 results reflect a
$22 million ($.21 per diluted share) year-to-date adjustment of the provision
for income taxes. Excluding this tax adjustment, the third quarter results
would have been a loss of $19 million, or ($.18) per diluted share. Based on
current estimates, LP expects to record an offsetting income tax benefit at a
rate of approximately 63% on a projected loss in the fourth quarter.
Net income for the first nine months of 2000 was $37.8 million, or $0.36 per
diluted share, on sales of $2.2 billion, compared to net income for the first
nine months of 1999 of $181.4 million, or $1.70 per diluted share, on sales of
$2.2 billion. Excluding unusual items, income for the first nine months of 2000
was $60.2 million, or $0.58 per diluted share, compared to income for the first
nine months of 1999 of $189.7 million, or $1.78 per diluted share.
Reduced demand for building products and the slowing housing markets factored
negatively into third quarter and the nine-month period ended September 30,
2000. This softening demand resulted in reduced market prices for structural
panels (oriented strand board (OSB), plywood and lumber). These decreased
market conditions were partially offset by the inclusion of the operations of
Le Group Forex Inc. (Forex), which were acquired in September 1999 and certain
assets of Evans Forest Products Ltd. (Evans), which were acquired in November
1999.
LP operates in five segments: structural products; exterior products;
industrial panel products; other products; and pulp. Structural products is the
most significant segment, accounting for more than 60% of sales during the
first nine months of both 2000 and 1999. LP'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."
Most of LP's products are sold as commodities and therefore sales prices
fluctuate based on market factors over which LP has little or no control. LP
cannot predict whether the prices of its products will remain at current
levels, or will increase or decrease in the future because supply and demand
are influenced by many factors. LP is not able to determine to what extent,
if any, it will be able to pass any future increase in the price of raw
materials on to customers through product price increases.
Demand for the majority of LP's products is subject to cyclical fluctuations
over which LP has no control. The level of residential construction activity
heavily influences demand for LP's building products, which is subject to
fluctuations due to changes in economic conditions, interest rates, population
growth and other factors. These cyclical fluctuations in demand are
unpredictable and may have a substantial influence on LP's results of
operations.
SELECTED SEGMENT DATA
7
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
-------------------------------------------- ------------------------------------------
(Dollars in millions) 2000 1999 % change 2000 1999 % change
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales:
Structural products $ 396.6 $ 492.5 (19) $ 1,374.1 $ 1,342.4 2
Exterior products 89.7 78.6 14 245.9 195.5 26
Industrial panel products 62.5 70.2 (11) 203.4 197.1 3
Other products 74.1 125.4 (41) 276.4 350.5 (21)
Pulp 29.5 30.7 (4) 107.6 80.5 34
------------ ------------ ------------ ------------
Total sales $ 652.4 $ 797.4 (18) $ 2,207.4 $ 2,166.0 2
============ ============ ============ ============
Operating profit (loss):
Structural products $ 4.0 $ 151.0 (97) $ 206.4 $ 375.8 (45)
Exterior products 4.8 17.4 (72) 26.8 41.4 (35)
Industrial panel products 0.3 2.6 (88) 6.3 8.4 (25)
Other products (9.0) (3.5) (157) (9.1) (16.2) 44
Pulp 4.7 (3.9) 221 15.0 (14.7) 202
Unusual credits and charges, net (1.0) (18.7) 95 (37.4) (13.5) (177)
General corporate and other expenses, net (22.6) (27.0) 16 (75.3) (78.2) 4
Interest income (expense), net (12.7) (2.7) (370) (29.8) (3.6) (728)
------------ ------------ ------------ ------------
Income before taxes and minority interest $ (31.5) $ 115.2 (127) $ 102.9 $ 299.4 (66)
============ ============ ============ ============
</TABLE>
STRUCTURAL PRODUCTS
The structural products segment consists of OSB, plywood, lumber and engineered
wood products (EWP). The decline in sales for the third quarter of 2000
compared to the third quarter of 1999 was primarily due to lower OSB, plywood
and lumber prices, which were partially offset by higher sales volumes
resulting from the acquisitions of Forex in September 1999 and selected assets
of Evans in November 1999. For the nine-month period, sales were flat with
lower sales prices offset by additional volumes resulting from the acquisitions
of Forex and Evans.
The largest part of this segment is OSB. Average prices for the industry were
over 40% lower this quarter compared to the same quarter in 1999 and 17% lower
for the comparable nine month period. The Company's sales volume in the quarter
was up 35% compared to last year and 24% for the comparable nine-month period,
primarily due to the addition of the Forex operations. Based upon recently
posted industry pricing, OSB prices are currently about 5% lower than the
average price in the third quarter. LP has announced plans to take a two week
curtailment at all of its North American OSB mills in December, a reduction
of 15% of its capacity for the quarter.
Plywood was also affected by the slow down in building activity. While the
Company's volumes were flat, industry prices dropped 30% from the third quarter
of 1999 and 15% for the comparable nine-month period. Given the weakness in the
plywood markets and the continued penetration of OSB into traditional plywood
markets, the Company is investigating several options with respect to its
plywood mills, including reduced operating schedules, temporary curtailments
and permanent shutdowns.
Engineered wood showed a slight decline from third quarter 1999 driven by
weakened demand, however for the year sales results are flat to slightly ahead.
Pricing for both LVL and I-Joists remained relatively constant.
Lumber markets showed a significant decline in the third quarter of 2000
compared to the same quarter last year. Pricing was down approximately 30% from
the same quarter last year and about 17% lower for the comparable nine-month
period last year. In recent weeks, further price erosion has been seen. Current
prices are 7% below the average in third quarter 2000.
8
<PAGE>
Overall compared to both the third quarter of 1999 and comparable nine-month
results, profitability in this segment was significantly impacted by falling
commodity prices as well as cost increases in resin and electricity. Log cost
associated with these products declined by 6% for the quarter and 1% of the
nine-month period.
EXTERIOR PRODUCTS
The exterior product segment consists of siding, both wood composite and vinyl,
specialty OSB products and related products such as soffit, facia and trim.
Sales volumes of these products increased 42% in the third quarter of 2000
compared to the third quarter of 1999 and 54% for the nine-month period
primarily due to the conversion of a commodity OSB mill into a specialty OSB
mill during first quarter 2000. Sales prices declined by 24% for the quarter
and 15% for the nine-month period, primarily as a result of price decreases for
OSB specialty products. Additionally, this segment was negatively affected by a
significant increase in resin costs associated with both the wood-based siding
and vinyl operations.
INDUSTRIAL PANEL PRODUCTS
The industrial panels segment consists of particleboard, medium density
fiberboard (MDF), hardboard and interior hardboard products. Sales prices
increased 3% for the third quarter 2000 as compared to 1999 while sales volumes
increased 11%. For the nine-month period, sales prices were constant with an
increase in sales volume of 9%. These increases were from the interior
hardboard products as both particleboard and MDF showed significant declines in
volumes with pricing remaining constant. The decline in MDF sales volumes
resulted from the permanent shutdown of one of the MDF plants due to weaker
customer demand. The decline in particleboard sales volumes is due to
increasing customer consolidation that negatively impacts product demand.
Additionally, this segment was negatively impacted by significant increases in
energy costs due to high summer demand. Wood costs associated with these
businesses decreased by 2% for the quarter and 1% for the nine-month period.
OTHER PRODUCTS
The other products segment includes wood chips, cellulose insulation, Ireland
operations, Alaska operations, moldings and other products. In the third
quarter of 2000, sales for this segment declined significantly compared to the
third quarter of 1999, primarily due to the sale of the assets of Associated
Chemists Inc. in December 1999 and certain assets associated with the Alaskan
operations in October 1999, which were partially offset by the increased sales
of ABT molding products. Additional declines in sales and operating profits in
this segment were primarily related to weaker commodity pricing in the
distribution business due to weaker commodity pricing. The same factors
contributed to the decline in sales and operating results in the first nine
months of 2000 compared to the same period in 1999.
PULP
Pulp segment operations for the third quarter of 2000 improved significantly
from the third quarter of 1999, with a 59% increase in sales prices
offsetting a 39% decrease in sales volumes. Although the increase in sales
prices were partially offset by increases in raw material, production costs
and weaker demand, significant improvement in operating profit was realized.
For the nine-month period ended September 30, 2000, sales volumes decreased
17% and sales prices increased 60% over the comparable period in 1999. See
"Assets Held for Sale" below for additional information related to the pulp
segment.
UNUSUAL CREDITS AND CHARGES, NET
Information regarding unusual credits and charges recorded in the quarter and
nine months ended September 30, 2000 is set forth in the following table.
9
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
(Dollars in millions) 2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Additions to contingency reserves $ (6.6) $ (20.0) $ (6.6) $ (20.0)
Long-lived asset impairment charges (6.3) (7.6) (53.9) (7.6)
Gain on asset sales 6.1 6.1 5.2
Mark to market adjustment on interest rate hedge (4.8) (11.3)
Gain on insurance recovery 10.6 28.3
Gain on contract settlements 7.0 7.0
Severence and other 1.9 1.9
------------ ------------ ------------ ------------
Total unusual credits and charges, net $ (1.0) $ (18.7) $ (37.4) $ (13.5)
============ ============ ============ ============
</TABLE>
In the third quarter of 2000, the Company recorded a gain on an insurance
recovery of $10.6 million related to the 1999 fire at the Athens, Georgia OSB
facility. LP also recorded gains on the sale of the Mellen, Wisconsin veneer
facilities and a former plant site in California that totaled $6.1 million. In
addition, LP recorded charges relating to the settlement of an interest rate
hedge, additional environmental reserves for sites in Quebec that were acquired
in 1999, additional reserves for non-product litigation and impairment charges
relating to several facilities which will be permanently closed totaling $17.7
million.
In the third quarter of 1999, LP Ketchikan Pulp Company subsidiary recorded a
net charge of $18.7 million primarily related to reducing the carrying value of
the assets to be sold to the expected sales value, a settlement with the US
Forest Service and an increase in estimated environmental remediation and
monitoring liabilities.
For the nine months ended September 30, 2000, in addition to the items recorded
above, the Company recorded a $17.7 million gain on an insurance recovery for
siding related matters, impairment charges of $47.6 million to reduce the
carrying value of several manufacturing facilities to their estimated net
realizable value including the Samoa pulp and Oroville MDF mills and a $6.5
mark to market charge on an interest rate hedge.
For the nine month period ended September 30, 1999, in addition to the items
noted above, the Company recorded a gain on sale of timberland of $5.2 million.
GENERAL CORPORATE AND OTHER EXPENSE
For the quarter, general corporate and other expenses declined to 16% from the
same period in 1999 and declined 4% for the nine-month period. During this
quarter, due to lower than expected annual operating results, the Company
reversed the bulk of the accruals related to management incentive bonuses for
2000 and certain other benefit programs contingent on operating results.
INTEREST INCOME (EXPENSE)
Interest expense increased significantly in the third quarter of 2000 and the
nine month period ended September 30, 2000 as compared to the same periods in
the prior year as a result of borrowings to finance the acquisitions of ABT,
Forex and Evans.
LEGAL AND ENVIRONMENTAL MATTERS
For a discussion of legal and environmental matters involving LP and the
potential impact thereof on LP financial position, results of operations and
cash flows, see Item 1, Legal Proceedings, in Part II of this report.
10
<PAGE>
OSB SIDING LITIGATION UPDATE
The following discussion updates, and should be read in conjunction with, the
discussion of LP's OSB siding litigation set forth in Item 7 of LP's annual
report on Form 10-K for the year ended December 31, 1999, Management's
Discussion and Analysis of Financial Condition and Results of Operations, under
the subheading "Legal Matters."
Through the first nine months of 2000, claimants continued to file claims under
both the National Settlement and the Florida Settlement; however, the rate of
claim filings has decreased. The claim filing period associated with the
Florida settlement ended October 4, 2000. In the third quarter of 2000, LP paid
approximately $0.2 million from the second settlement fund to approximately 100
claimants in satisfaction of approximately $0.7 million in claims. These
payments were made to claimants who had timely elected to participate in the
Second Settlement Fund, but whose claims had not yet been fully processed by
the end of the second quarter. See "OSB Siding Matters" in Item 1, Legal
Proceedings, in Part II of this report.
As of September 30, 2000, (i) approximately 296,000 requests had been received
for claim forms for the National Settlement and the Florida Settlement,
compared to 273,000 at December 31, 1999 and 288,000 as of June 30, 2000, and
(ii) approximately 188,000 completed claim forms for the National Settlement
and the Florida Settlement had been received, compared to 172,000 at December
31, 1999 and 184,000 at June 30, 2000. The average payment amount for settled
claims as of December 31, 1999, June 30, 2000 and September 30, 2000 was
approximately $5,100, 5,100 and $3,700, respectively. Excluding claims
satisfied pursuant to the second settlement fund, the average payment amount
for settled claims as of September 30, 2000 was $5,000. The total number of
completed claim forms pending (not settled) as of September 30, 2000 was
approximately 19,000 (approximately 67,000 at December 31, 1999 and 17,000 at
June 30, 2000) with approximately 136,000 claims settled (approximately 76,000
at December 31, 1999 and 135,000 at June 30, 2000) and approximately 33,000
claims dismissed (approximately 29,000 at December 31, 1999 and 32,000 at June
30, 2000). Dismissal of claims is typically the result of claims for product
not produced by LP or claims that lack sufficient information or documentation
after repeated efforts to correct those deficiencies.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $85.0 million in the first nine months of
2000 compared to $348.8 million in the same period in 1999. The decrease in
cash provided by operations resulted primarily from lower net income and
increased payments related to contingencies.
Net cash used in investing activities was $199.5 million in the first nine
months of 2000 compared to $688.8 million in the comparable period of 1999. LP
used $54.7 million of funds to acquire the assets of Sawyer Lumber Company and
the assets of Hoff Companies Inc. in second quarter of 2000 and $612.1 million
of funds to acquire ABT in February 1999 and Forex in September 1999. Capital
expenditures for property, plant, equipment and timber increased in the first
nine months of 2000 compared to the same period in 1999, primarily due to
acquisitions of equipment to improve the efficiency of existing mills. LP
estimates that for the full year ended December 31,2000, it will make capital
expenditures of approximately $150 million to, among other things, begin
construction on an OSB mill, continue construction of a veneer mill and
complete construction of a composite decking plant.
In the nine month period ended September 30, 2000, LP borrowed $622.9 million
and repaid $464.9 million, primarily associated with the public debt offering
which was used to pay off bridge loans associated with 1999 acquisitions. The
public debt offering consisted of $200,000,000 million of 8.875% senior notes
due 2010 and $190,000,000 million of 8.50% senior notes due 2005. This debt was
issued on August 18, 2000. Additional debt was incurred to finance the
acquisitions of the assets of the Sawyer Lumber Company and Hoff Companies,
Inc. and payments from the second settlement fund described above. In the same
period of 1999, LP borrowed $535.3 million, primarily to finance the
acquisitions of ABT and Forex.
LP 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 $101.6 million at
September 30, 2000 compared to $116 million at December 31, 1999. LP has a $300
million revolving credit facility under which
11
<PAGE>
$227 million was outstanding at September 30, 2000. This facility is available
until 2002. LP also has a $50 million (Canadian) revolving credit facility
under which no borrowings were outstanding at September 30, 2000. This facility
is available until March 2001. LP plans to issue under a syndicated bank loan
$200 million in additional debt. This debt will be used to pay off current
outstanding debt associated with the remaining bridge loans.
Changes in LP's balance sheet from December 31, 1999 to September 30, 2000,
include increases of $20.6 million in accounts receivable and $4.7 million in
inventories. These increases are primarily due to seasonal fluctuations in
operations. Additionally, other assets increased by $49.5 million primarily due
to a contribution of the majority of the previously consolidated assets and
liabilities of LP's Greenstone subsidiary into a 50% owned, non-consolidated
joint venture with Casella Waste Systems.
Contingency reserves, which represent an estimate of future cash needs for
various contingencies (primarily payments for siding litigation settlements),
totaled $173.7 million at September 30, 2000, of which $55 million is estimated
to be payable within one year. As with all accounting estimates, there is
inherent uncertainty concerning the reliability and precision of these
estimates. The amounts ultimately paid in resolving these contingencies could
exceed the current reserves by a material amount. Litigation-related payments
totaled $141.1 million for the first nine months of 2000.
STOCK REPURCHASE PLAN
As of September 30, 2000, LP had reacquired approximately 7.9 million shares
for $125 million under an authorization to reacquire up to 20 million shares
from time to time in the open market. LP reacquired 850,000 shares for $11.2
million in the first nine months of 2000. LP had approximately 104 million
shares outstanding at quarter end.
ASSETS HELD FOR SALE
LP is seeking to sell its Chetwynd, British Columbia pulp mill, which is
presently managed by an unrelated party pursuant to a management agreement
having a term of 24 months that expires in April 2001. LP currently believes it
has adequate support for the carrying value of the affected assets. However
upon the sale, it is possible that LP will be required to record an additional
impairment charge based upon actual sales price.
During the second quarter of 2000, L-P recorded a $40 million charge to unusual
items for a reduction in the carrying value of its Samoa, California pulp mill
in anticipation of the sale of this mill. L-P currently believes it has
adequate support for the remaining carrying value of the affected assets if L-P
continued to operate the facility, however management has determined that the
intent is to sell the mill, and therefore the carrying values were reduced to
reflect the estimated net fair value.
Due to the current market slowdown, LP is currently reviewing several mills for
additional possible impairments. LP currently believes it has adequate support
for the carrying value of each of these mills based upon the current demand and
pricing assumptions. However, should the markets for the company's products
continue to deteriorate, it is possible that LP will be required to record
further impairment charges.
12
<PAGE>
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
SUMMARY OF PRODUCTION VOLUMES
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Oriented strand board, million square
feet 3/8" basis 1,305 1,069 3,933 3,164
Softwood plywood, million square feet
3/8" basis 287 255 802 702
Lumber, million board feet 240 264 755 793
Wood-based siding, million square feet
3/8" basis 230 184 746 498
Industrial panel products (particleboard,
medium density fiberboard and hardboard),
million square feet 3/4" basis 144 157 465 649
Engineered I-Joist, million lineal feet 13 19 56 64
Laminated veneer lumber (LVL), thousand
cubic feet 1,400 1,500 5,700 5,000
Pulp, thousand short tons 93 94 282 279
</TABLE>
INDUSTRY PRODUCT TRENDS
The amounts shown below are dollars per 1,000 square feet or, in the case of
lumber, 1,000 board feet.
<TABLE>
<CAPTION>
OSB Plywood Lumber Particleboard
----------------- ------------- ---------------- -------------
N. Central Southern Pine Inland
7/16" Basis 1/2" Basis Framing Lumber Industrial
24/16 Span Rating Cdx 3-Ply Composite Prices 3/4" Basis
----------------- ------------- ---------------- -------------
<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
1999 260 326 401 273
1999 3rd Qtr. Avg. 301 362 421 288
2000 2nd Qtr. Avg. 237 274 337 299
2000 3rd Qtr. Avg. 171 256 294 280
</TABLE>
-----------------------
Source: RANDOM LENGTHS
13
<PAGE>
PART II -OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Certain environmental matters and legal proceedings involving LP are discussed
below.
ENVIRONMENTAL MATTERS
In March 1995, LP's subsidiary Ketchikan Pulp Company ("KPC") entered into
agreements with the federal government to resolve violations of the Clean Water
Act and the Clean Air Act that occurred at KPC's former pulp mill during the
late 1980s and early 1990s. These agreements were subsequently approved by the
U.S. District Court for the District of Alaska. Although KPC sold the mill site
and related facilities in 1999, it remains obligated under these agreements to
undertake certain projects relating to the investigation and remediation of
Ward Cove, a body of water adjacent to the mill site. KPC has finalized a
consent decree with the federal government to complete cleanup activities at
the mill site and Ward Cove. This consent decree supersedes the earlier
agreements. Total costs for the investigation and cleanup of Ward Cove are
estimated to cost approximately $6.7 million (of which approximately $2.2
million had been spent at September 30, 2000).
In connection with the clean-up of KPC's former log transfer facilities, the
United States Forest Service (the "USFS") has asserted that KPC is obligated to
adhere to more stringent clean-up standards than those imposed by the Alaska
Department of Environmental Conservation. The USFS has also asserted that
previously closed-out facilities may need to be re-evaluated. LP disputes the
authority of the USFS to require KPC to adhere to the more stringent standards,
or to re-evaluate closed-out facilities. Adherence to the more stringent
standards and/or re-evaluation of closed-out facilities, if ultimately
required, could substantially increase the cost of the clean-up.
LP is involved in a number of other environmental proceedings and activities,
and may be wholly or partially responsible for known or unknown contamination
existing at a number of other sites at which it has conducted operations or
disposed of wastes. Based on the information currently available, management
believes that any fines, penalties or other costs or losses in excess of
amounts currently accrued resulting from these matters will not have a material
adverse effect on the financial position, results of operations, cash flows or
liquidity of LP.
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 LP in connection with alleged
environmental violations, as well as alleged fraud in connection with the
submission of unrepresentative OSB product samples to an industry product
certification agency, by LP's Montrose (Olathe), Colorado OSB plant. Pursuant
to a guilty plea to certain criminal violations entered in May 1998, (i) LP
paid penalties of $37 million (of which $12 million was paid in 1998 and the
balance was paid in the second quarter of 1999), and was sentenced to five
years of probation ending in May 2003 and (ii) all remaining charges against LP
were dismissed. The terms of LP's probation require, among other things, that
LP not violate any federal, state or local law.
In December 1995, LP received a notice of suspension from the EPA stating that,
because of the criminal proceedings pending against LP in Colorado, the
Montrose facility would be prohibited from purchasing timber directly from the
USFS. In April 1998, LP 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 ending in April 2003 and
obligates LP 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.
14
<PAGE>
OSB SIDING MATTERS
In 1994 and 1995, LP was named as a defendant in numerous class action and
nonclass action proceedings brought on behalf of various persons or purported
classes of persons (including nationwide classes in the United States and
Canada) who own or purchased or used OSB siding manufactured by LP. In general,
the plaintiffs in these actions alleged unfair business practices, breach of
warranty, misrepresentation, conspiracy to defraud and other theories related
to alleged defects, deterioration or failure of OSB siding products.
In June 1996, the U.S. District Court for the District of Oregon approved a
settlement between LP and a nationwide class composed of all persons who own,
have owned, or acquire property on which LP's OSB siding was installed prior to
January 1, 1996, excluding persons who timely opted out of the settlement and
persons who are members of the settlement class in the Florida litigation
described below. Under the settlement agreement, an eligible claimant whose
claim is filed prior to January 1, 2003 (or earlier in certain cases) and is
approved by an independent claims administrator is entitled to receive from the
settlement fund established under the agreement a payment equal to the
replacement cost (determined by a third-party construction cost estimator and
currently estimated to be in the range of $2.20 to $6.40 per square foot
depending on the type of product and geographic location) of damaged siding,
reduced by a specific adjustment (of up to 65%) based on the age of the siding.
Class members who previously submitted or resolved claims under any other
warranty or claims program of LP 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 LP 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 LP
may assert any available defense, including defenses that otherwise had been
waived under the settlement agreement.
The settlement requires LP to contribute $275 million to the settlement fund.
Approximately $271 million of that obligation had been satisfied at September
30, 2000 through cash payments of approximately $261 million on a discounted
basis. LP's remaining mandatory contributions to the settlement fund are due in
June 2001 (approximately $2 million) and June 2002 (approximately $2 million).
In addition to its mandatory contributions, at September 30, 2000, LP had paid,
on a discounted basis, approximately $97 million of its two $50 million funding
options, at a cost to LP of approximately $66 million. LP was entitled to pay
its mandatory and optional contributions to the settlement fund on a discounted
basis as a result of early payments pursuant to a court-approved early payment
program.
In the second quarter of 2000, LP paid approximately $112 million from a
court-approved second settlement fund in satisfaction of approximately $313
million in claims. In the third quarter of 2000, LP paid approximately
$200,000 from the second settlement fund in satisfaction of approximately
$700,000 in claims. Payments from the second settlement fund have now been
substantially completed. Claimants who accepted payment from the second
settlement fund may not file additional claims under the settlement.
Claimants who elected not to participate in the second settlement fund remain
bound by the terms of the original settlement.
At September 30, 2000, the estimated amount of approved but unpaid claims under
the settlement agreement exceeded the sum of the then-current balance of the
settlement fund and LP's remaining mandatory contributions to the settlement
fund by approximately $84 million. Approximately 3,600 new claims were filed
during the third quarter of 2000.
Based upon the payments that LP has made and committed to make, the settlement
will continue in effect until at least August 2003. Within 60 days after June
7, 2003, the Claims Administrator shall notify LP of the dollar value of all
remaining unfunded and approved claims. LP shall then have 60 days to notify
the Claims Administrator whether LP elects to fund all such remaining claims.
If LP elects to fund those claims, then LP will pay by the end of the next
12-month period (2004) the greater of: (i) 50% of the aggregate sum of those
claims (with the remaining 50% to be paid by 12 months thereafter in 2005); or
(ii) 100% of the aggregate sum of those claims, up to a maximum of $50 million
(with all remaining claims paid 12 months thereafter in 2005). If LP elects not
to pay the unpaid claims pursuant to the settlement, the settlement will
terminate with respect to such unpaid claims and all unpaid claimants will be
free to pursue their individual remedies from and after the date of LP's
election.
15
<PAGE>
If LP makes all contributions to the original settlement fund required under
the settlement agreement, including all additional optional contributions as
specified above, class members will be deemed to have released LP 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, LP was required to pay fees of
class counsel in the amount of $26.25 million, as well as expenses of
administering the settlement fund and inspecting properties for damage and
certain other costs.
A settlement of a related class action in Florida was approved by the Circuit
Court for Lake County, Florida, on October 4, 1995. Under the settlement, LP
has established a claims procedure pursuant to which members of the settlement
class may report problems with LP's OSB siding and have their properties
inspected by an independent adjuster, who will measure the amount of damage and
also determine the extent to which improper design, construction, installation,
finishing, painting, and maintenance may have contributed to any damage. The
maximum payment for damaged siding is $3.40 per square foot for lap siding and
$2.82 per square foot for panel siding, subject to reduction by up to 75
percent for damage resulting from improper design, construction, installation,
finishing, painting, or maintenance, and also subject to reduction for age of
siding more than three years old. LP 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. The period during which class members were entitled to make
claims ended 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 nine other putative class action
proceedings filed in the following courts on the following dates: the Court of
Common Pleas of Allegheny County, Pennsylvania on August 8, 1995; the Superior
Court of Forsyth County, North Carolina on December 27, 1996; the Superior
Court of Onslow County, North Carolina on January 21, 1997; the Court of Common
Pleas of Berkeley County, South Carolina on September 25, 1997; the Circuit
Court of Bay County, Florida on March 11, 1998; and the Superior Court of
Dekalb County, Georgia on September 25, 1998. ABT and Abitibi have also been
named as defendants in a putative class action proceeding filed in the Circuit
Court of Jasper County, Texas on October 5, 1999. These actions were brought on
behalf of various persons or purported classes of persons (including nationwide
classes) who own or have purchased or installed hardboard siding manufactured
or sold by the defendants. In general, the plaintiffs in these actions have
claimed unfair business practices, breach of warranty, fraud,
misrepresentation, negligence, and other theories related to alleged defects,
deterioration, or other failure of such hardboard siding, and seek unspecified
compensatory, punitive, and other damages (including consequential damage to
the structures on which the siding was installed), attorneys' fees and other
relief. In addition, Abitibi has been named in certain other actions, which may
result in liability to ABT under the allocation agreement between ABT and
Abitibi described below.
LP, the ABT Entities and the Abitibi Entities have also been named as
defendants in a putative class action proceeding filed in the Circuit Court of
Jackson County, Missouri on April 22, 1999, and LP, the ABT Entities and
Abitibi have been named as defendants in a putative class action proceeding
filed in the District Court of Johnson County, Kansas on July 14, 1999. These
actions were brought on behalf of purported classes of persons in Missouri and
Kansas, respectively, who own or have purchased hardboard siding manufactured
by the defendants. In general, the plaintiffs in these proceedings have claimed
breaches of warranty, fraud, misrepresentation, negligence, strict liability
and other theories related to alleged defects, deterioration or other failure
of such hardboard siding, and seek unspecified compensatory, punitive and other
damages (including consequential damage to the structures on which the siding
was installed), attorneys' fees and other relief.
On May 8, 2000, the Circuit Court of Choctaw County, Alabama, under the caption
FOSTER, ET AL. V. ABTCO, INC., ABT BUILDING PRODUCTS CORPORATION,
ABITIBI-PRICE, INC. AND ABITIBI-PRICE CORPORATION (No. CV95-151-M),
preliminarily approved a settlement agreement among the defendants and
attorneys representing a nationwide class
16
<PAGE>
composed of all persons who own or formerly owned homes or, subject to
limited exceptions, other buildings or structures on which hardboard siding
manufactured by the defendants was installed between May 15, 1975 and May 15,
2000, excluding persons who timely opt out of the settlement and certain
other persons. On September 27, 2000, following a fairness hearing held on
September 21, 2000, the Court entered its order and judgment granting
approval to the settlement. Except for claims of persons who timely opted
out, the settlement provides for the resolution of all claims that have been
asserted by class members in the various proceedings described above. Under
the settlement agreement, class members who have previously made a warranty
claim or have already repaired or replaced their siding will have until May
15, 2001 to file a claim; class members whose siding was installed between
May 15, 1975 and May 15, 1976 will have at least nine months following the
date on which the settlement becomes final and nonappealable to file their
claims; and all other class members will have twenty-five years after their
siding was installed to file a claim.
Under the settlement agreement, the defendants will be entitled to elect to
make an offer of settlement to an eligible claimant based on the information
set forth in the claim submitted by such claimant, and such claimant will be
entitled to accept or reject the offer. If an eligible claimant declines the
offer, or if no offer is made, such claimant will be entitled to a payment
based on an independent inspection. Such payments will be based on a specified
dollar amount (calculated on the basis of statewide averages and ranging from
$2.65 to $6.21, depending upon state) per square foot of covered siding that
has experienced specified types of damage, subject to reduction based on the
age of the damaged siding and any failure to paint the damaged siding within
stated intervals (except in the case of damaged siding installed on mobile
homes, as to which a uniform 50% reduction will apply in all circumstances). If
applicable, payments under the settlement will also be subject to reduction to
reflect any warranty payments or certain other payments previously recovered by
a claimant on account of the damaged siding. Under the settlement agreement, LP
will be required to pay fees of class counsel in the amount of $7 million, as
well as expenses of administering the settlement and certain other costs.
The foregoing description of the settlement agreement does not purport to be
complete, and is qualified in its entirety by reference to the full text
thereof, which is filed as Exhibit 10.1 to LP's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000 and incorporated herein by reference.
ABT and Abitibi have agreed to an allocation of liability with respect to
claims relating to (1) siding sold by the ABT Entities after October 22, 1992
("ABT Board") and (2) siding sold by the Abitibi Entities on or before, or held
as finished goods inventory by the Abitibi Entities on, October 22, 1992
("Abitibi Board"). In general, ABT and Abitibi have agreed that all amounts
paid in settlement or judgment (other than any punitive damages assessed
individually against either the ABT Entities or the Abitibi Entities) following
the completion of any claims process resolving any class action claim
(including consolidated cases involving more than 125 homes owned by named
plaintiffs) shall be paid (a) 100% by ABT insofar as they relate to ABT Board,
(b) 65% by Abitibi and 35% by ABT insofar as they relate to Abitibi Board, and
(c) 50% by ABT and 50% by Abitibi insofar as they cannot be allocated to ABT
Board or Abitibi Board. In general, amounts paid in connection with class
action claims for joint local counsel and other joint expenses, and for
plaintiffs' attorneys' fees and expenses, are to be allocated in a similar
manner, except that joint costs of defending and disposing of class action
claims incurred prior to the final determination of what portion of claims
relate to ABT Board and what portion relate to Abitibi Board are to be paid 50%
by ABT and 50% by Abitibi (subject to adjustment in certain circumstances). ABT
and Abitibi have also agreed to certain allocations (generally on a 50/50
basis) of amounts paid for settlements, judgments and associated fees and
expenses in respect of non-class action claims relating to Abitibi Board. ABT
is solely responsible for such amounts in respect of claims relating to ABT
Board.
Based on the information currently available, management believes that the
resolution of the foregoing ABT hardboard siding matters will not have a
material adverse effect on the financial position, results of operations, cash
flows or liquidity of LP.
17
<PAGE>
FIBREFORM WOOD PRODUCTS, INC. PROCEEDINGS
LP 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 LP 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 LP regarding a possible joint venture, that LP 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 causes of action based on fraudulent
misrepresentation, negligent misrepresentation, misappropriation of trade
secrets, unfair competition, breach of contract and breach of a confidentiality
agreement by LP 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. LP filed a counterclaim
against FibreForm for failing to pay amounts due under a $500,000 promissory
note, as well as for attorneys' fees related to LP's effort to collect amounts
due under that note.
In a series of orders commencing with one issued on June 7, 2000, the United
States District Court for the Central District of California: (1) dismissed
FibreForm's alleged causes of action based on fraudulent misrepresentation,
negligent misrepresentation and breach of contract; and (2) ordered FibreForm
to pay LP approximately $800,000, which represents the total of the amount due
under the promissory note, interest on that amount, and the attorneys' fees and
costs that LP incurred while attempting to collect under the promissory note.
FibreForm has appealed the Court's actions with respect to these matters. The
parties have stipulated to the dismissal with prejudice of FibreForm's other
alleged causes of action in order to expedite FibreForm's appeal.
LP believes that FibreForm's allegations are without merit and intends to
continue to defend this action vigorously. Based upon the information currently
available, management believes that the resolution of this matter will not have
a material adverse effect on the financial position, results of operations,
cash flows or liquidity of LP.
OTHER PROCEEDINGS
LP and its subsidiaries are parties to other legal proceedings. Based on the
information currently available, management believes that the resolution of
such proceedings will not have a material adverse effect on the financial
position, results of operations, cash flows or liquidity of LP.
CONTINGENCY RESERVES
LP maintains reserves for the estimated cost of the legal and environmental
matters referred to above. However, as with any estimate, there is uncertainty
of predicting the outcomes of claims and litigation and environmental
investigations and remediation efforts, that could cause actual costs to vary
materially from current estimates. Due to various uncertainties, LP cannot
predict to what degree actual payments (including payments under the OSB siding
litigation settlements or any alternative strategies adopted by LP with respect
to OSB siding claims) will materially exceed the recorded liabilities related
to these matters. However, it is possible that, in either the near term or the
longer term, revised estimates or actual payments will significantly exceed the
recorded liabilities.
For information regarding LP's financial statement reserves for the estimated
costs of the environmental and legal matters referred to above, see Note 8 of
the Notes to financial statements included in Item 8, Financial Statements and
Supplementary Data, in LP's annual report on Form 10-K for the year ended
December 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--------
4.1 First Supplemental Indenture dated August 18, 2000
between LP and Bank One Trust Company, NA, as
Trustee.
4.2 Second Supplemental Indenture dated August 18, 2000
between LP and Bank One Trust Company, NA, as
Trustee.
18
<PAGE>
10.1 Directors' Deferred Compensation Plan, amended and
restated as of August 1, 2000
10.2 Executive Deferred Compensation Plan, amended and
restated as of September 1, 2000
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
On August 8, 2000, LP filed a Current Report on Form
8-K reporting matters under Item 5 thereof.
On August 17, 2000, LP filed a Current Report on Form
8-K reporting matters under Item 5 thereof.
19
<PAGE>
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: November 7, 2000 By: /s/ Gary C. Wilkerson
----------------------------------------
Gary C. Wilkerson
Vice President and General Counsel
Date: November 7, 2000 By: /s/ Curtis M. Stevens
----------------------------------------
Curtis M. Stevens
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
20
