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, 1996
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: 108,741,236 shares of Common Stock,
$1 par value, outstanding as of September 30, 1996.
FORWARD LOOKING STATEMENTS
Statements in this report, to the extent they are not based on
historical events, constitute forward looking statements. Forward looking
statements include, without limitation, statements regarding the outlook for
future operations, forecasts of future costs and expenditures, evaluation of
market conditions, the outcome of legal proceedings, the adequacy of reserves,
or plans for product development. Investors are cautioned that forward
looking statements are subject to an inherent risk that actual results may
vary materially from those described herein. Factors that may result in such
variance, in addition to those accompanying the forward looking statements,
include changes in interest rates, commodity prices, and other economic
conditions; actions by competitors; changing weather conditions and other
natural phenomena; actions by government authorities; uncertainties associated
with legal proceedings; technological developments; future decisions by
management in response to changing conditions; and misjudgments in the course
of preparing forward looking statements.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Summary Statements of Income
Louisiana-Pacific Corporation and Subsidiaries
(Dollar amounts in millions except per share) (Unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
----------------- -------------------
1996 1995 1996 1995
------- ------- -------- --------
Net sales $ 676.3 $ 776.8 $1,918.7 $2,172.9
------- ------- -------- --------
Costs and expenses:
Cost of sales 565.3 590.8 1,617.0 1,709.6
Depreciation, amortization
and depletion 52.4 57.9 147.4 150.8
Selling and administrative 36.7 29.1 102.4 85.4
Settlement charges and
other unusual items, net 350.0 366.6 350.0 366.6
Interest expense 4.9 1.2 9.2 5.2
Interest income (1.0) (1.5) (4.8) (6.6)
------- ------- -------- --------
Total costs and expenses 1,008.3 1,044.1 2,221.2 2,311.0
------- ------- -------- --------
Income (loss) before taxes and
minority interest (332.0) (267.3) (302.5) (138.1)
Provision (benefit) for
income taxes (128.2) (108.6) (117.1) (61.6)
Minority interest in
net income (loss) of
consolidated subsidiaries (.4) .4 .6 2.0
------- ------- -------- --------
Net income (loss) $(203.4) $(159.1) $ (186.0) $ (78.5)
======= ======= ======== ========
Net income (loss) per share $ (1.89) $ (1.48) $ (1.73) $ (.73)
======= ======= ======== ========
Cash dividends per share $ .14 $ .14 $ .42 $ .405
======= ======= ======== ========
Consolidated Summary Balance Sheets
Louisiana-Pacific Corporation and Subsidiaries
(Dollar amounts in millions) (Unaudited)
Sept. 30, 1996 Dec. 31, 1995
-------------- -------------
Cash and cash equivalents $ 53.7 $ 75.4
Accounts receivable, net 143.8 128.7
Inventories 258.5 317.7
Prepaid expenses 11.2 14.3
Deferred income taxes 82.4 82.4
-------- --------
Total current assets 549.6 618.5
-------- --------
Timber and timberlands 657.4 689.6
Property, plant and equipment 2,499.9 2,592.5
Less reserves for depreciation (1,192.7) (1,140.2)
-------- --------
Net property, plant and equipment 1,307.2 1,452.3
Other assets 72.4 45.0
-------- --------
Total assets $2,586.6 $2,805.4
======== ========
Current portion of long-term debt $ 40.3 $ 38.6
Short-term notes payable 37.2 98.3
Accounts payable and accrued liabilities 240.7 161.6
Current portion of contingency reserves 115.0 150.0
Income taxes payable 29.3 ---
-------- --------
Total current liabilities 462.5 448.5
-------- --------
Long-term debt, excluding current portion 343.3 201.3
Deferred income taxes 70.3 207.5
Contingency reserves, excluding current portion 216.4 250.5
Other long-term liabilities and minority interest 45.9 41.6
Stockholders' equity:
Common Stock 117.0 117.0
Additional paid-in capital 473.0 472.4
Retained earnings 1,169.7 1,400.8
Treasury stock (183.9) (192.7)
Loans to Employee Stock Ownership Trusts (67.6) (85.5)
Other equity adjustments (60.0) (56.0)
-------- --------
Total stockholders' equity 1,448.2 1,656.0
-------- --------
Total liabilities and equity $2,586.6 $2,805.4
======== ========
Consolidated Summary Statements of Cash Flows
Louisiana-Pacific Corporation and Subsidiaries
(Dollar amounts in millions) (Unaudited)
Nine Months Ended September 30, 1996 1995
------- -------
Cash flows from operating activities:
Net income (loss) $(186.0) $ (78.5)
Depreciation, amortization and depletion 147.4 150.8
Payments of settlement liabilities (169.1) ---
Other adjustments, including settlement charges
and other unusual non-cash charges 356.9 387.1
Decrease (increase) in certain working
capital components 102.9 36.5
Increase (decrease) in deferred income taxes (137.2) (168.0)
------- -------
Net cash provided by operating activities 114.9 327.9
------- -------
Cash flows from investing activities:
Capital spending, including acquisitions (220.0) (288.1)
Other investing activities, net 47.2 2.5
------- -------
Net cash used in investing activities (172.8) (285.6)
------- -------
Cash flows from financing activities:
New borrowing, including net increase in credit line 114.5 ---
Repayment of long-term debt (26.1) (61.9)
Increase (decrease) in short-term notes payable (11.1) (.3)
Cash dividends (45.1) (43.4)
Purchase of treasury stock --- (120.2)
Other financing activities, net 4.0 (7.7)
------- -------
Net cash provided by (used in)
financing activities 36.2 (233.5)
------- -------
Net increase (decrease) in cash
and cash equivalents (21.7) (191.2)
Cash and cash equivalents at beginning of year 75.4 315.9
------- -------
Cash and cash equivalents at end of period $ 53.7 $ 124.7
======= =======
Consolidated Statements of Stockholders' Equity
Louisiana-Pacific Corporation and Subsidiaries
(Dollar amounts in millions except per share) (Unaudited)
Nine Months Ended
September 30, 1996
--------------------
Shares Amount
----------- -------
Common Stock 116,937,022 $ 117.0
=========== =======
Additional Paid-in-Capital:
Beginning balance $ 472.4
Net transactions .6
-------
Ending balance $ 473.0
=======
Retained Earnings:
Beginning balance $1,400.8
Net income (loss) (186.0)
Cash dividends, $.42 per share (45.1)
-------
Ending balance $1,169.7
=======
Treasury stock:
Beginning balance 8,588,427 $(192.7)
Shares reissued under employee
stock plans and for other purposes (392,641) 8.8
---------- -------
Ending balance 8,195,786 $(183.9)
========== =======
Loans to ESOTs:
Beginning balance $ (85.5)
Less accrued contribution 17.9
-------
Ending balance $ (67.6)
=======
Other Equity Adjustments:
Beginning balance $ (56.0)
Currency translation adjustment and
amortization of deferred compensation (4.0)
-------
Ending balance $ (60.0)
=======
Notes To Financial Statements
Louisiana-Pacific Corporation and Subsidiaries
1. The interim period information included herein reflects all
adjustments which are, in the opinion of the management of L-P,
necessary for a fair statement of the results of the respective
interim periods. Such adjustments, except as discussed elsewhere in
this report, are of a normal recurring nature. Results of operations
for interim periods are not necessarily indicative of results to be
expected for an entire year. It is suggested that these summary
financial statements be read in conjunction with the financial
statements and the notes thereto included in L-P's 1995 Annual
Financial Report to Stockholders. Interim financial statements are
by necessity somewhat tentative; judgments are used to estimate
quarterly amounts for items that are normally determinable only on an
annual basis.
2. Earnings per share is based on the weighted average number of shares
of common stock outstanding during the periods (107,320,000 in 1996
and 107,040,000 in 1995). The effect of common stock equivalents is
not material.
3. The effective income tax rate is based on estimates of annual amounts
of taxable income, foreign sales corporation income and other
factors. These estimates are updated quarterly.
4. Determination of interim LIFO inventories requires estimates of year-
end inventory quantities and costs. These estimates are revised
quarterly and the estimated annual change in the LIFO inventory
reserve is expensed over the remainder of the year.
5. Reference is made to "Legal Proceedings" for a description of certain
environmental litigation and other litigation and its potential
impact on L-P and for a description of settlements of certain class
action proceedings.
6. Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for further discussion
and disclosures regarding the write-down of certain property plant
and equipment and other unusual adjustments in the third quarter of
1996, included in the financial statement caption of "Settlement
charges and other unusual items, net."
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
General
The cause of the net loss for the third quarter and first nine months
of 1996 was $350.0 million of pre-tax charges ($214.6 million after tax, or
$2.00 per share) to reflect the shutdown of L-P's Ketchikan Pulp Company
subsidiary's pulp mill, the proposed settlement of all outstanding
shareholder securities class action claims, a reserve for other litigation
and a reserve for the planned fourth quarter shutdown and other costs
related to certain other non-strategic facilities. Prior to the charges,
L-P earned $11.2 million ($.11 per share) in the third quarter of 1996, and
$28.6 million ($.27 per share) for the first nine months of 1996. This
compares to third quarter 1995 earnings of $62.7 million ($.59 per share)
and $143.3 million ($1.34 per share) for the first nine months of 1995.
Both of the 1995 numbers are prior to a $366.6 million charge
($221.8 million after tax, or $2.07 per share) taken in the third quarter
of 1995 primarily reflecting settlements of class action proceedings
related to L-P's siding product as well as severance costs and asset write-
downs. Both the building products and pulp segments have showed declines
in sales in 1996 from 1995. An industry-wide oversupply of structural
panel products in North America in 1996 is one of the primary causes of the
building products declines. Pulp markets have also been weak this year due
to high world-wide inventories. The Ketchikan Pulp Company contract issue
(further discussed below) has also negatively impacted the pulp segment
results.
The registrant operates in two segments: building products and pulp.
Building products is the most significant segment, accounting for more than
85 percent of sales in first nine months of 1996 and 1995. The results of
operations are discussed separately for each segment below. Key segment
information, production volumes and industry product price trends are
presented in the following tables labeled "Sales and Profit by Major
Product Group," "Operating Volumes" and "Industry Product Price Trends."
Building Products Segment
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------- -------------------------
1996 1995 % Chg 1996 1995 % Chg
------ ------ ----- -------- ------- -----
(Dollar amounts in millions)
Sales:
Structural panels $277.6 $311.7 -11% $ 791.8 $ 837.8 -5%
Lumber 170.3 177.7 -4% 472.9 504.9 -6%
Industrial panel products 51.8 52.7 -2% 149.7 164.2 -9%
Other building products 139.3 144.2 -3% 375.6 384.3 -2%
------ ------ -------- --------
Total building products $639.0 $686.3 -7% $1,790.0 $1,891.2 -5%
====== ====== ======== ========
Building products profit $ 68.0 $111.3 -39% $ 170.3 $ 265.0 -36%
====== ====== ======== ========
The decrease in the sales of structural panel products (plywood and
oriented strand board (OSB)) was due to a 23% lower average selling price in
the third quarter of 1996 compared to 1995 (18% lower for the nine month
period) which resulted from an oversupply of structural panel products in
North America. L-P and its competitors have opened numerous new OSB plants in
1995 and 1996 and additional plants are scheduled to open through late 1997,
which has significantly increased the structural panel capacity in North
America. L-P structural panel sales volumes increased in the third quarter
and first nine months largely due to the start-up of new OSB production
facilities in the U.S., Canada and Ireland. In October 1996, L-P announced
that it will permanently close North American structural panel production
facilities with an annual capacity of approximately 175 million square feet.
Lumber sales have decreased in 1996 from 1995 for both the second
quarter and first nine-month periods because of significantly lower sales
volumes (approximately 18% lower for the third quarter and 12% lower for the
first nine months) primarily resulting from the permanent closure of
approximately 15 unprofitable sawmills (not all of these mills were producing
immediately prior to their closure). L-P announced at the end of the third
quarter that it would shut additional sawmills (see further discussion below).
The lower volumes have been offset by higher average selling prices in 1996
(17% higher for the third quarter and 7% higher for the first nine months).
Lumber markets have generally been stronger in 1996 due to a strong economy,
lower U.S. production volumes and lower volumes of lumber imported from
Canada.
Industrial panel products (particleboard, medium-density fiberboard
(MDF) and hardboard) sales decreased in the third quarter and first nine
months of 1996 compared to 1995 due to lower average selling prices of
approximately 8% for the quarter and 12% for the nine months. Higher volumes
of 8% for the quarter and 4% for the nine months, primarily due to increased
production, helped to offset the lower selling prices.
The decrease in sales in the other building products category was caused
by a large decrease in the volume and average selling price of wood chips.
L-P is producing less wood chips due to lower sawmill production. Wood chip
prices weakened significantly, especially on the West Coast. Increases in
sales of engineered wood products, logs and other products partially offset
the decreased chip revenue.
The decrease in building products operating profit in the third quarter
and first nine months of 1996 compared to 1995 is primarily due to the lower
profit margins on structural panel products caused by the lower average
selling prices discussed above. Raw material costs for structural panel
products have generally been lower in 1996 than 1995, but not enough to offset
the sales average decline. Higher profit margins for L-P's lumber products
partially offset the structural panel decline.
L-P's building products are primarily sold as commodities and therefore
sales prices fluctuate based on market factors over which L-P has no control.
L-P cannot predict whether the prices of its building products will remain at
current levels, or will increase or decrease in the future because supply and
demand are influenced by many factors, only one of which is the cost and
availability of raw materials. Therefore, L-P is not able to determine to
what extent, if any, it will be able to pass any future increases in the price
of raw materials on to customers through product price increases.
Subsequent to the end of the third quarter, prices for structural panel
products, especially OSB, have decreased further (see the following table
labeled "Industry Product Price Trends"). L-P expects that prices for
structural panel products will either remain depressed or experience
significant volatility in the foreseeable future due to the excess production
capacity discussed above.
Pulp Segment
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1996 1995 % Chg 1996 1995 % Chg
------ ------ ----- ------ ------ -----
(Dollar amounts in millions)
Pulp sales $ 37.3 $ 90.5 -59% $128.7 $281.7 -54%
====== ====== ====== ======
Pulp profit (loss) $(26.5) $ 17.9 n.m. $(78.9) $ 59.9 n.m.
====== ====== ====== ======
Pulp segment sales fell dramatically in both the third quarter and first
nine months of 1996 compared to 1995. Average selling prices decreased 54% in
the third quarter and 43% for the first nine months from the comparable
periods a year ago. Sales volumes decreased approximately 9 percent during
the third quarter and 19% during the first nine months of 1996 compared to
1995. Large world-wide pulp inventories at the end of 1995 carried into 1996,
creating very weak pulp markets. Decreased volumes were the result of lower
production due to due to the weakness in the market and unscheduled
maintenance shut-downs.
Pulp segment operating profits were severely impacted by the decreased
sales prices, resulting in operating losses in 1996 compared to operating
profits in 1995. Inventory market write-downs have also contributed to the
operating losses in 1996. Raw material costs in 1996 (purchased chips and/or
raw logs for chipping) for the Samoa, California and Chetwynd, British
Columbia mills have been lower than in 1995, particularly at Samoa. However,
the mill operated by L-P's Ketchikan Pulp Company subsidiary has experienced
very high raw material costs in 1996. The US Forest Service has not released
adequate volume from KPC's long-term timber supply contract which has forced
KPC to obtain logs from higher-priced outside sources. Approximately two-
thirds of the third quarter pulp operating loss was attributable to KPC. The
company has announced that it will shut down the KPC pulp mill by the end of
March 1997. See "Ketchikan Pulp Company Update" below.
L-P's pulp products are primarily sold as commodities and therefore
sales prices fluctuate based on market factors over which L-P has no control.
L-P cannot predict whether the prices of its pulp products will remain at
current levels, or will increase or decrease in the future because supply and
demand are influenced by many factors, only one of which is the cost and
availability of raw materials. Therefore, L-P is not able to determine to
what extent, if any, it will be able to pass any future increases in the price
of raw materials on to customers through product price increases.
Since the end of the third quarter, market pulp prices have decreased.
Indicators of future prices are mixed.
Unallocated Expense
Unallocated expense decreased in the third quarter of 1996 to
$19.6 million from $30.2 million in 1995 and for the nine month periods to
$39.5 million from $97.8 million. In 1995, this category included charges for
siding-related claims and litigation costs prior to the reserve taken at the
end of the third quarter. Also, in the second quarter of 1996, a $10 million
credit was taken against this expense related to the sale of a sawmill and
timberlands. Additionally, stock compensation expenses and advertising
expenditures have been lower in 1996.
Settlement Charges and Other Unusual Items, Net
In 1996, L-P recorded pre-tax charges of $350.0 million ($214.6 million
after tax, or $2.00 per share) to reflect the shutdown of L-P Ketchikan Pulp
Company subsidiary's pulp mill, the proposed settlement of all outstanding
shareholder securities class action claims, a reserve for other litigation and
a reserve for the planned fourth quarter shutdown and other costs related to
certain other non-strategic facilities. Each of the components of the charge
is discussed separately below.
The charge for the shut-down of the Ketchikan Pulp mill includes the
company's best estimates of all costs related to the closing of all operations
including the write-down of property, plant and equipment to estimated salvage
value, severance costs, inventory write-downs, environmental and general
property clean-up and certain other costs.
L-P reached an agreement in principle in October to settle, on behalf of
all defendants, all outstanding shareholder securities class action claims
brought in 1995 against the company and four former and current officers. The
settlement calls for a payment of approximately $65 million, of which
approximately $20 million will be covered by insurance. L-P also reserved
additional amounts related to other outstanding litigation, including
plaintiffs who have opted-out of the siding class action settlements.
As part of L-P's ongoing evaluation of all its facilities, management
has developed plans for the closure or sale of certain manufacturing
facilities including some sawmills, structural panel products plants and other
plants. The facilities have been written down to their estimated salvage or
sales value. Where appropriate, reserves were also taken for severance costs
and environmental and other closure costs.
Breaking the charge down by segment, of the total $350 million,
$170.5 million related to the pulp segment, $134.5 million related to the
building products segment (including litigation costs related to building
products) and $45.0 million was not allocable to any segment. Broken down by
type of expense, of the total charge, $187.8 million related to property and
equipment write-downs, $19.2 million related to inventory write-downs, and
$143.0 million related to reserves taken for severance and other shut-down
costs and litigation costs. The facilities covered by the shut-down charge
incurred operating losses of approximately $55 million through the first nine
months of 1996, of which approximately $40 million related to pulp segment
assets and $15 million related to building products related assets.
The charge taken in the third quarter of 1995 of $366.6 million included
$345 million reserved for class action settlements related to the company's
siding product, as well as asset write-downs for the closure or sale of
certain facilities (primarily sawmills) and certain severance charges. A gain
on the sale of a non-strategic asset was netted against this charge.
Interest Income (Expense)
L-P's interest expense (net of interest income and capitalized interest)
has increased in 1996 primarily as a result of increased borrowings and lower
levels of cash equivalents on which L-P earns interest income.
Legal and Environmental Matters
Refer to the "Legal Proceedings" section of this Form 10-Q for a
discussion of certain environmental litigation and other litigation and its
potential impact on L-P.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations decreased approximately 65 percent in the
first nine months of 1996 compared to 1995 to $114.9 million from
$327.9 million. This resulted primarily from cash payments of settlement
liabilities and lower net income. These cash uses were partially offset by a
reduction in inventories and an increase in accounts payable and accrued
liabilities.
Cash used in investing activities decreased to $172.8 million in 1996
from $285.6 million in 1995, primarily due to decreased capital expenditures.
Cash provided by the sale of a sawmill and related timberland also reduced
1996 net cash used for investing activities. The largest portion of the 1996
capital expenditures are for new production facilities and the acquisition of
Associated Chemists, Inc. Significant amounts have also been spent on
environmental projects (such as pollution control equipment) and upgrades of
existing production facilities. L-P is budgeting capital expenditures,
including timber and logging road additions, for all of 1996 of $250 million
to $300 million.
Cash provided by financing activities for the first nine months of 1996
was $36.2 million compared to cash used in financing activities in the same
period in 1995 of $233.5 million. In 1996, L-P had net new borrowings of
$77.3 million compared with net repayments of $62.2 million in 1995
L-P continues to be in a strong financial condition with $53.7 million
of cash and cash equivalents and a relatively low ratio of long-term debt as a
percent of total capitalization. Although cash and cash equivalents decreased
in the first nine months of the year, existing cash and cash equivalents
combined with borrowings available under L-P's $300 million revolving credit
facility and cash generated from operations are expected to be sufficient to
meet projected cash needs including the payments related to siding and other
litigation. The company also believes that because of its conservative
financial structure and policies, it has substantial financial flexibility to
generate additional funds should the need arise.
KETCHIKAN PULP COMPANY UPDATE
Ketchikan Pulp Company (KPC) is a wholly-owned subsidiary of the
registrant. KPC operates a dissolving pulp mill and two sawmills in Southeast
Alaska and has a long-term timber cutting contract with the U.S. Forest
Service (USFS) on the Tongass National Forest which is intended to supply
approximately 75 percent of the wood fiber requirements of the manufacturing
facilities. The contract is a 50-year contract expiring in 2004.
In November 1990, Congress passed the Tongass Timber Reform Act (TTRA)
which required a number of unilateral modifications to the long-term contract
and which required the USFS to incorporate those modifications in a revised
contract document (the Unilateral Terms). TTRA and the Unilateral Terms have
caused KPC to incur substantial additional costs and have disrupted the
continuity of operations by, among other things, leading to a failure on the
part of the USFS to provide the timber volumes specified in the contract.
These issues are currently the subject of three claims filed against the USFS
in the United States Court of Federal Claims which seek in excess of
$200 million. In addition, KPC has been prosecuting two additional claims
against the USFS in the same court which deal with contract issues predating
TTRA and the Unilateral Terms. One of these two claims was concluded earlier
this year with KPC receiving a total payment of $6.1 million. The other claim
seeks in excess of $30 million. None of the claims currently in litigation
have been recorded for financial reporting purposes.
Despite a concerted effort by KPC, citizens of Southeast Alaska, the
Governor, and legislators of Alaska, Congress and the Clinton Administration
failed to agree on legislation which would have extended the contract term 15
years beyond the current expiration date and would have revised the contract
language to provide relief from a number of the problems and hardships caused
by TTRA and the Unilateral Terms. Therefore, in early October, L-P and KPC
announced that the pulp mill would be permanently shut down by the end of
March 1997 and recorded a charge against earnings, as discussed above, to
cover the estimated costs of the shut down. L-P will likely increase its
claims against the USFS as a result of this shut down. KPC has entered into
negotiations with the Department of Agriculture to determine the feasibility
of continuing to run its two sawmills for two more years, but cannot assess
the probability of success in reaching an agreement.
Sales and Profit by Major Product Group
Louisiana-Pacific Corporation and Subsidiaries
(Dollar amounts in millions) (Unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- -------- -------
Sales:
Structural panel products $ 277.6 $ 311.7 $ 791.8 $ 837.8
Lumber 170.3 177.7 472.9 504.9
Industrial panel products 51.8 52.7 149.7 164.2
Other building products 139.3 144.2 375.6 384.3
------- ------- -------- --------
Total building products 639.0 686.3 1,790.0 1,891.2
Pulp 37.3 90.5 128.7 281.7
------- ------- -------- --------
Total sales $ 676.3 $ 776.8 $1,918.7 $2,172.9
======= ======= ======== ========
Export sales $ 59.0 $ 118.6 $ 196.8 $ 375.0
======= ======= ======== ========
Profit:
Building products $ 68.0 $ 111.3 $ 170.3 $ 265.0
Pulp (26.5) 17.9 (78.9) 59.9
Settlement charges and
other unusual items, net* (350.0) (366.6) (350.0)
(366.6)
Unallocated expense, net (19.6) (30.2) (39.5)
(97.8)
Interest income (expense), net (3.9) .3 (4.4) 1.4
------- ------- -------- --------
Income (loss) before taxes and
minority interest $(332.0) $(267.3) $ (302.5) $
(138.1)
======= ======= ======== ========
* In 1996, of the total $350.0 million charge, $170.5 million relates to
the pulp segment and $134.5 million relates to the building products
segment.
In 1995, the substantial majority of the $366.6 million charge related
to class action settlements concerning the company's siding product and
therefore would be primarily allocated to building products.
Operating Volumes
Louisiana-Pacific Corporation and Subsidiaries
(Volume amounts stated in millions, unless otherwise noted,
and as a percent of normal capacity)
Quarter Ended Nine Months Ended
September 30 September 30
------------------- -----------------------
1996 1995 1996 1995
-------- -------- ---------- ----------
Oriented strand board,
sq ft 3/8" basis 1,131 93% 886 97% 2,993 87% 2,576 94%
Softwood plywood,
sq ft 3/8" basis 420 109 418 103 1,252 109 1,076 88
Lumber, board feet 287 70 370 61 894 72 1,063 59
Medium density
fiberboard,
sq ft 3/4" basis 56 100 48 86 158 94 156 92
Particleboard,
sq ft 3/4" basis 89 99 81 90 259 96 255 94
Hardboard,
sq ft 1/8" basis 56 102 54 97 167 102 160 97
Hardwood veneer,
sq ft surface
measure 55 89 49 78 161 86 182 97
Pulp, thousand
short tons 111 77 124 83 319 73 390 87
Chips, thousand BDU's 392 492 1,216 1,421
Industry Product Price Trends
Louisiana-Pacific Corporation and Subsidiaries
OSB Plywood Lumber Particleboard
----------- -------- --------- -------------
N. Central Southern
7/16" basis Pine 1/2" Framing
24/16 basis lumber Inland
span CDX composite Industrial
rating 3 ply prices 3/4" basis
----------- -------- --------- -------------
Annual Average
1991 148 191 236 198
1992 217 248 287 200
1993 236 282 394 258
1994 265 302 405 295
1995 245 303 337 290
1995 Third Quarter Average
276 320 333 276
1996 Second Quarter Average
203 246 393 277
1996 Third Quarter Average
198 261 426 277
Weekly Average
October 4 168 272 408 277
October 11 155 270 409 277
October 18 154 270 422 277
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The following sets forth the current status of certain legal
proceedings:
Environmental Proceedings
In March 1995, L-P's subsidiary Ketchikan Pulp Company (KPC) entered
into agreements with the federal government to resolve the issues related to
water and air compliance problems experienced at KPC's pulp mill during the
late 1980s and early 1990s. Under the agreements, KPC entered into a civil
consent decree and pled guilty to one felony and thirteen misdemeanor
violations of the Clean Water Act. The settlement required KPC to pay civil
and criminal penalties of $6.0 million, of which $1.75 million was suspended
in consideration of KPC's expenditures and ongoing efforts to improve its
operations. The penalties were substantially reserved for at December 31,
1994. KPC also agreed to undertake further expenditures, which are primarily
capital in nature, including certain remedial and pollution control related
measures, with an estimated cost of up to approximately $20 million. With the
impending closure of the pulp mill, KPC is currently seeking the EPA's and
court's guidance regarding the necessity of these expenditures. KPC has also
agreed to undertake a study of whether a clean-up of Ward Cove, the body of
water adjacent to the pulp mill, is needed. If the study determines that such
clean-up is needed, KPC may be required to spend up to $6 million on the
clean-up, including the cost of the study, as part of the overall $20 million
of expenditures. At this time, the company cannot estimate what portion, if
any, of the clean-up expenditures will be required. KPC is also negotiating
with the state and EPA to conduct investigative and clean-up activities at the
pulp mill following shut-down. Anticipated costs for these activities are
unknown at this time.
The USFS has named KPC as a potentially responsible party for clean-up
costs related to a landfill near Thorne Bay, Alaska. The USFS has indicated
clean-up costs may range up to $5 million.
In March 1996, an information was filed in the United States District
Court for the Eastern District of Washington charging L-P with two misdemeanor
counts related to alleged record-keeping violations in connection with the
disposal by an independent contractor of transformers from a mill owned by L-P
in 1991. The parties have reached an agreement in principle to settle this
matter with a civil fine of $200,000.
Although L-P's policy is to comply with all applicable environmental
laws and regulations, the company has in the past been required to pay fines
for non-compliance and sometimes litigation has resulted from contested
environmental actions. Also, L-P is involved in other environmental actions
and proceedings which could result in fines or penalties. Management believes
that any fines, penalties or other losses resulting from the matters discussed
above in excess of the reserve for environmental loss contingencies will not
have a material adverse effect on the business, financial position or results
of operations of L-P. See "Colorado Criminal Proceedings" for further
discussion of an environmental action against the company.
Colorado Criminal Proceedings
L-P began an internal investigation at L-P's Montrose (Olathe),
Colorado, oriented strand board (OSB) plant of various matters, including
certain environmental matters, in the summer of 1992 and reported its initial
finding of irregularities to governmental authorities in September 1992.
Shortly thereafter, a federal grand jury commenced an investigation of L-P
concerning alleged environmental violations at that plant. In 1995,
additional subpoenas were issued requiring the production of evidence and
testimony relating to alleged fraud in connection with the submission of
unrepresentative OSB product samples to the APA-The Engineered Wood
Association (APA), an industry product certification agency, by L-P's Montrose
plant and certain of its other OSB plants. L-P then commenced an independent
investigation, which was concluded in 1995, under the direction of former
federal judge Charles B. Renfrew concerning irregularities in sampling and
quality assurance in its OSB operations. In June 1995, the grand jury
returned an indictment in the U.S. District Court in Denver, Colorado, against
L-P, a former manager of the Montrose mill, and a former superintendent at the
mill. L-P is now facing 23 felony counts related to environmental matters at
the Montrose mill, including alleged conspiracy, tampering with opacity
monitoring equipment, and making false statements under the Clean Air Act.
The indictment also charges L-P with 25 felony counts of fraud relating to
alleged use of the APA trademark on OSB structural panel products produced by
the Montrose mill as a result of L-P's allegedly improper sampling practices
in connection with the APA quality assurance program. No trial date has been
set.
In December 1995, L-P received a notice of suspension from the United
States Environmental Protection Agency ("EPA") stating that, because of
criminal proceedings pending against L-P in Colorado, agencies of the federal
government would be prohibited from purchasing from L-P's Northern Division.
L-P is negotiating to have the EPA suspension lifted or modified based on
positive environmental programs actively underway. While negotiations are
continuing, the EPA has approved a preliminary agreement limiting the
prohibition to L-P's Montrose, Colorado, facility for an interim period in
recognition of L-P's environmental compliance efforts. Under recently revised
regulations of the United States Department of Agriculture, the EPA suspension
will also have the effect of prohibiting L-P's Montrose facility from
purchasing timber directly, but not indirectly, from the United States Forest
Service.
L-P maintains a reserve for its estimate of the minimum cost of the
Montrose criminal proceedings, although as with any estimate, there is
uncertainty concerning the actual costs to be incurred. At the present time,
L-P cannot predict whether or to what extent the circumstances described above
will result in further civil litigation or investigation by government
authorities, or the potential financial impact of any such current or future
proceedings. However, the resolution of the above matters could have a
materially adverse impact on L-P.
OSB Siding Matters
L-P has been named as a defendant in at least 12 purported class actions
filed in various jurisdictions, as well as numerous non-class action
proceedings, brought on behalf of various persons or purported classes of
persons (including nationwide classes in the United States and Canada) who own
or have purchased or used OSB siding manufactured by L-P, because of alleged
unfair business practices, breach of warranty, misrepresentation, conspiracy
to defraud, and other theories related to alleged defects, deterioration, or
failure of OSB siding products.
A settlement of one of the OSB siding class actions has been approved by
the Circuit Court for Lake County, Florida. Under the settlement, L-P has
established a claims procedure pursuant to which members of the settlement
class may report problems with L-P's OSB siding and have their properties
inspected by an independent adjuster, who will measure the amount of damage
and also determine the extent to which improper design, construction,
installation, finishing, painting, and maintenance may have contributed to any
damage. The maximum payment for damaged siding will be $3.40 per square foot
for lap siding and $2.82 per square foot for panel siding, subject to
reduction of up to 75 percent for damage resulting from improper design,
construction, installation, finishing, painting, or maintenance, and also
subject to reduction for age of siding more than three years old. L-P has
agreed with attorneys representing the class 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 below. Class members will be entitled to make claims for
up to five years after October 4, 1995. As of October 31, 1996, approximately
20,000 claims forms had been requested and mailed; approximately
10,700 completed claims forms had been returned, and approximately 9,400
inspections had been completed; this resulted in approximately 7,500 allowed
claims, approximately 6,800 of which had been paid at an aggregate cost of
approximately $23 million (including adjustments to deductions to conform to
the national settlement).
In April 1996, the United States District Court for the District of
Oregon approved an amended settlement agreement between L-P and attorneys
representing a nationwide class composed of all persons who own, who have
owned, or who subsequently acquire property on which L-P's OSB siding was
installed prior to January 1, 1996, excluding persons who timely opt out of
the settlement and persons who are members of the settlement class in the
Florida litigation. Under the settlement agreement, an eligible claimant
whose claim is filed prior to January 1, 2003 (or earlier in certain cases),
and is approved by an independent claims administrator will be entitled to
receive from the settlement fund established under the agreement a payment
equal to the replacement cost (to be determined by a third-party construction
cost estimator and currently estimated to be in the range $2.20 to $6.40 per
square foot depending on the type of product and geographic location) of
damaged siding, reduced by a specific adjustment (of up to 65 percent) based
on the age of the siding. Class members who have previously submitted or
resolved claims under any other warranty or claims program of L-P may be
entitled to receive the difference between the amount which would be payable
under the settlement agreement and the amount previously paid. Independent
adjusters will determine the extent of damage to OSB siding at each claimant's
property in accordance with a specified protocol. There will be no adjustment
to settlement payments for improper maintenance or installation.
A claimant who is dissatisfied with the amount to be paid under the
settlement may elect to pursue claims against L-P in a binding arbitration
seeking compensatory damages without regard to the amount of payment
calculated under the settlement protocol. A claimant who elects to pursue an
arbitration claim must prove his entitlement to damages under any available
legal theory, and L-P may assert any available defense, including defenses
that otherwise had been waived under the settlement agreement. If the
arbitrator reduces the damage award otherwise payable to the claimant because
of a finding of improper installation, the claimant will be entitled to pursue
a claim against the contractor/builder to the extent the award was reduced.
L-P is required to pay $275 million into the settlement fund in seven
annual installments beginning in mid-1996: $100 million (paid in June 1996),
$55 million, $40 million, $30 million, $20 million, $15 million, and
$15 million. If at any time after the fourth year of the settlement period
the amount of approved claims (paid and pending) equals or exceeds
$275 million, then the settlement agreement will terminate as to all claims in
excess of $275 million unless L-P timely elects to provide additional funding
within 12 months equal to the lesser of (i) the excess of unfunded claims over
$275 million or (ii) $50 million and, if necessary to satisfy unfunded claims,
a second payment within 24 months equal to the lesser of (i) the remaining
unfunded amount or (ii) $50 million. If the total payments to the settlement
fund are insufficient to satisfy in full all approved claims filed prior to
January 1, 2003, then L-P may elect to satisfy the unfunded claims by making
additional payments into the settlement fund at the end of each of the next
two 12-month periods or until all claims are paid in full, with each
additional payment being in an amount equal to the greater of (i) 50 percent
of the aggregate sum of all remaining unfunded approved claims or (ii) 100
percent of the aggregate amount of unfunded approved claims, up to a maximum
of $50 million. If L-P fails to make any such additional payment, all class
members whose claims remain unsatisfied from the settlement fund may pursue
any available legal remedies against L-P without regard to the release of
claims provided in the settlement agreement.
If L-P makes all payments required under the settlement agreement,
including all additional payments as specified above, class members will be
deemed to have released L-P from all claims for damaged OSB siding, except for
claims arising under their existing 25-year limited warranty after termination
of the settlement agreement. The settlement agreement does not cover
consequential damages resulting from damage to OSB siding or damage to utility
grade OSB siding (sold without any express warranty), both of which are the
subject of additional claims. In the event all claims filed prior to January
1, 2003, that are approved have been paid without exhausting the settlement
fund, any amounts remaining in the settlement fund revert to L-P. In addition
to payments to the settlement fund, L-P will be required to pay fees of class
counsel in the amount of $26.25 million, as well as expenses of administering
the settlement fund and inspecting properties for damage, any amounts of
arbitration awards in excess of the amounts calculated under the settlement
protocol, and certain other costs. As of October 31, 1996, approximately
$76 million of the first year's $100 million installment remained, after
accruing interest on undisbursed funds and deducting class notification costs,
prior claims costs (including payments advanced to homeowners in urgent
circumstances) and a small number of claims under the settlement. By that
date, approximately 71,000 claims forms had been requested and mailed and
approximately 28,000 claims had been submitted; inspections and claims
payments were at a very early stage.
Potential members of the settlement class were entitled to opt out of
the settlement class until May 27, 1996. Approximately 1,400 opt out notices
were timely submitted, including about 1,200 individual property owners (most
of whose claims have subsequently been resolved) and about 200
developers/owners of commercial properties; this has resulted in numerous
additional claims being filed by those who opted out, predominantly by
owners/developers of commercial properties. An appeal from the court's order
approving the settlement has been resolved and the settlement is now final.
L-P maintains reserves for the estimated costs of these siding
settlements, although, as with any estimate, there is uncertainty concerning
the actual costs to be incurred. The discussion above notes some of the
factors, in addition to the inherent uncertainty of predicting the outcome of
claims and litigation, that could cause actual costs to vary materially from
current estimates.
Other OSB Matters
Three separate purported class actions on behalf of owners and
purchasers of properties in which L-P's OSB panels are used for flooring,
sheathing, or underlayment have been consolidated in the United States
District Court for the Northern District of California under the caption Agius
v. Louisiana-Pacific Corporation. The actions seek damages and equitable
relief for alleged fraud, misrepresentation, breach of warranty, negligence,
and improper trade practices related to alleged improprieties in testing, APA
certification, and marketing of OSB structural panels, and alleged premature
deterioration of such panels. A separate state court action entitled Carney
v. Louisiana-Pacific Corporation is pending in the Superior Court of the State
of California for the City and County of San Francisco, seeking relief under
California consumer protection statutes based on similar allegations.
At the present time, L-P cannot predict the potential financial impact
of the above actions. However, the resolution of the above matters could have
a materially adverse impact on L-P.
Stockholder Actions
In October 1996, L-P announced that it had reached an agreement in
principle with plaintiffs' attorneys to settle on behalf of all defendants
pending securities class actions in which L-P and certain of its present and
former executive officers were named as defendants. The actions were brought
on behalf of various purported classes of purchasers of L-P's common stock and
were consolidated in the United States District Court for the District of
Oregon under the caption In Re Louisiana Pacific Corp. Securities Litigation,
Civil Action No. 95-707-JO. Plaintiffs were seeking to recover damages under
the securities laws for alleged failures to disclose or improper disclosures
generally relating to the various legal proceedings described above and the
matters that are the subject of such proceedings. The proposed settlement,
which was entered into without any admission of liability by any defendant,
provides for payment by L-P of approximately $65 million, of which
approximately $20 million will be covered by insurance. The settlement is
subject, among other conditions, to execution of a definitive settlement
agreement, confirmatory discovery, and approval by the court.
Five individual directors (Messrs. du Pont, Kayser, and Yeager, Ms. Hill
and Mrs. Neff) and three former directors of the registrant have been named as
defendants in ten stockholder derivative actions, which also name the
registrant as a nominal defendant. Eight of these actions were brought in the
Court of Chancery of the State of Delaware in and for New Castle County and
have been consolidated under the caption In re Louisiana-Pacific Corporation
Derivative Litigation, Civil Action No. 14322 (the "Delaware action"). One
action, captioned Silverman, et al. v. Merlo, et al., No. 9505-03630, was
brought in the Circuit Court of the State of Oregon for the County of
Multnomah (the "Oregon action"). The remaining action, captioned Rand v.
Merlo, et al., No. 95-Z-1511, was brought in the United States District Court
for the District of Colorado (the "Colorado action"). The actions seek to
recover damages from the directors on behalf of the corporation because of
alleged mismanagement and breaches of fiduciary duty generally related to the
various legal proceedings described above and the matters that are the subject
of such legal proceedings. The individual directors, former directors, the
registrant, and attorneys representing plaintiffs have entered into a
memorandum of understanding concerning a proposed settlement of the derivative
actions without payment by the directors or former directors or any admission
of liability. The settlement recognizes the recent management changes
effected by the registrant and certain other actions taken and to be taken by
the registrant with respect to quality control. The proposed settlement is
subject to confirmatory discovery by attorneys for plaintiffs, execution of a
definitive settlement agreement, and approval by the courts.
Executive Employment Matter
In January 1996, an action entitled International Paper Company v. Mark
A. Suwyn and Louisiana-Pacific Corporation was instituted in the United States
District Court for the Southern District of New York claiming that Mr. Suwyn's
employment as chief executive officer of L-P violated the terms of a previous
employment agreement with the plaintiff. The complaint seeks an injunction
prohibiting Mr. Suwyn from continuing his employment with L-P for 18 months
and other relief. L-P believes there are meritorious defenses related to this
case and does not believe that there is any material liability related to this
case.
Other
L-P and its subsidiaries are parties to other legal proceedings.
Management believes that the outcome of such proceedings will not have a
material adverse effect on the business, financial position or results of
operations of L-P.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits filed as part of this report or incorporated by
reference herein are listed in the accompanying exhibit index.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOUISIANA-PACIFIC CORPORATION
By /s/ WILLIAM L. HEBERT
William L. Hebert
Vice President - Treasurer
and Controller
(Principal Financial Officer)
DATED: November 14, 1996
EXHIBIT INDEX
Exhibit Number Description of Exhibit
11 Calculation of Net Income Per Share for the Nine
Months Ended September 30, 1996
27 Financial Data Schedule
EXHIBIT 11
Louisiana-Pacific Corporation and Subsidiaries
Calculation of Net Income Per Share
For the Nine Months Ended September 30, 1996
Number of shares
Including Excluding
Common Stock Common Stock
Equivalents Equivalents (1)
------------ ------------
Weighted average number of shares
of common stock outstanding 116,937,022 116,937,022
Weighted average number
of shares sold to ESOTs subsequent
to January 1, 1994, not allocated
to participants' accounts(2) (1,266,666) (1,266,666)
Weighted average number of
shares of treasury stock held
during the period (8,345,970) (8,345,970)
Common stock equivalents:
Application of the "treasury
stock" method to stock option
and purchase plans 61,303 ---
------------ ------------
Weighted average number of shares
of common stock and common stock
equivalents 107,385,688 107,324,385
============ ============
Rounded to 107,390,000 107,320,000
============ ============
Net income (loss) $(186,000,000) $(186,000,000)
============= =============
Net income (loss) per share $ (1.73) $ (1.73)
============ ============
(1) Accounting Principles Board Opinion No. 15, "Earnings Per
Share", allows companies to disregard dilution of less than
three percent in the computation of earnings per share.
Therefore, shares used in computing earnings per share for
financial reporting purposes is 107,320,000 shares.
(2) American Institute of Certified Public Accountants Statement
of Position No. 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" requires that shares held by the
registrant's ESOTs which were acquired by the ESOTs on or
after January 1, 1994, which are not allocated to
participants' accounts, are not considered outstanding for
purposes of computing earnings per share. Shares held by
the ESOTs which were acquired by the ESOTs prior to January
1, 1994, continue to be considered outstanding (whether or
not allocated to participants' accounts) for purposes of
computing earnings per share.
5
