SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended June 30, 1995
Commission File Number 1-7107
LOUISIANA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0609074
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111 S. W. Fifth Avenue, Portland, Oregon 97204-3699
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 221-0800
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock: 107,832,495 shares of Common Stock, $1 par
value, outstanding as of June 30, 1995.
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 Six Months Ended
June 30, June 30,
----------------- -------------------
1995 1994 1995 1994
------- ------- -------- --------
Net sales $ 709.3 $ 774.7 $1,396.1 $1,472.7
------- ------- -------- --------
Costs and expenses:
Cost of sales 593.2 558.9 1,118.8 1,045.6
Depreciation, amortization
and depletion 47.9 51.0 92.9 95.6
Selling and administrative 26.6 31.7 56.3 58.2
Interest expense 1.7 2.6 4.0 5.2
Interest income (2.0) (2.0) (5.1)
(3.9)
------- ------- -------- --------
Total costs and expenses 667.4 642.2 1,266.9 1,200.7
------- ------- -------- --------
Income before taxes and
minority interest 41.9 132.5 129.2 272.0
Provision for income taxes (14.9) (49.7) (47.0)
(103.4)
Minority interest in net income
of consolidated subsidiaries (.7) (.9) (1.6)
(1.5)
------- ------- -------- --------
Net income $ 26.3 $ 81.9 $ 80.6 $ 167.1
======= ======= ======== ========
Net income per share $ .25 $ .75 $ .75 $ 1.52
======= ======= ======== ========
Cash dividends per share $ .14 $ .125 $ .265 $ .235
======= ======= ======== ========
Consolidated Summary Balance Sheets
Louisiana-Pacific Corporation and Subsidiaries
(Dollar amounts in millions) (Unaudited)
June 30, 1995 Dec. 31, 1994
------------- -------------
Cash and cash equivalents $ 89.2 $ 315.9
Accounts receivable, net 188.1 157.4
Inventories 221.2 213.8
Prepaid expenses 22.4 7.3
-------- --------
Total current assets 520.9 694.4
-------- --------
Timber and timberlands 706.3 693.5
Property, plant and equipment 2,510.5 2,358.2
Less reserves for depreciation (1,141.0) (1,085.0)
-------- --------
Net property, plant and equipment 1,369.5 1,273.2
Investments and other assets 51.6 55.1
-------- --------
Total assets $2,648.3 $2,716.2
======== ========
Current portion of long-term debt $ 45.7 $ 81.9
Short-term notes payable 50.2 50.5
Accounts payable and accrued liabilities 246.4 193.5
Income taxes payable 7.3 18.9
-------- --------
Total current liabilities 349.6 344.8
-------- --------
Long-term debt, excluding current portion 184.5 209.8
Deferred income taxes 269.7 269.8
Other long-term liabilities and minority interest 37.5 42.4
Stockholder' equity:
Common Stock 117.0 117.0
Additional paid-in capital 479.6 478.4
Retained earnings 1,562.8 1,510.7
Treasury stock (202.8) (86.3)
Loans to Employee Stock Ownership Trusts (99.8) (114.0)
Other equity adjustments (49.8) (56.4)
-------- --------
Total stockholders' equity 1,807.0 1,849.4
-------- --------
Total liabilities and equity $2,648.3 $2,716.2
======== ========
Consolidated Summary Statements of Cash Flows
Louisiana-Pacific Corporation and Subsidiaries
(Dollar amounts in millions) (Unaudited)
Six Months Ended June 30, 1995 1994
------- -------
Cash flows from operating activities:
Net income $ 80.6 $ 167.1
Depreciation, amortization and depletion 92.9 95.6
Other adjustments 17.2 13.1
Decrease (increase) in certain working
capital components (9.4) (33.8)
Increase (decrease) in deferred income taxes (.1) ---
------- -------
Net cash provided by operating activities 181.2 242.0
------- -------
Cash flows from investing activities:
Plant, equipment and logging
road additions, net (160.2) (132.0)
Timber and timberland additions (35.2) (50.3)
Other investing activities, net 1.5 ---
------- -------
Net cash used in investing activities (193.9) (182.3)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (61.7) (96.4)
Cash dividends (28.5) (25.9)
Increase (decrease) in short-term notes payable (.3) 3.7
Purchase of treasury stock (120.2) (24.3)
Other financing activities, net (3.3) 9.7
------- -------
Net cash used in financing activities (214.0) (133.2)
------- -------
Net decrease in cash and cash equivalents (226.7) (73.5)
Cash and cash equivalents at beginning of year 315.9 261.6
------- -------
Cash and cash equivalents at end of period $ 89.2 $ 188.1
======= =======
Consolidated Statements of Stockholders' Equity
Louisiana-Pacific Corporation and Subsidiaries
(Dollar amounts in millions except per share) (Unaudited)
Six Months Ended
June 30, 1995
--------------------
Shares Amount
----------- -------
Common Stock 116,937,022 $ 117.0
=========== =======
Additional Paid-in-Capital:
Beginning Balance $ 478.4
Net transactions 1.2
-------
Ending Balance $ 479.6
=======
Retained Earnings:
Beginning Balance $1,510.7
Net income 80.6
Cash dividends, $.265 (28.5)
-------
Ending Balance $1,562.8
=======
Treasury stock:
Beginning Balance 4,944,804 $ (86.3)
Purchases 4,333,397 (120.2)
Shares reissued under employee
stock plans and other purposes (173,674) 3.7
---------- -------
Ending Balance 9,104,527 $(202.8)
========== =======
Loans to ESOTs:
Beginning Balance $ (114.0)
Less accrued contribution 14.2
-------
Ending Balance $ (99.8)
=======
Other Equity Adjustments:
Beginning Balance $ (56.4)
Currency translation adjustment 6.6
-------
Ending Balance $ (49.8)
=======
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
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 1994
Annual Financial Report to Stockholders and its 1995 First Quarter Interim
Report to Stockholders. Interim financial statements are by necessity
somewhat tentative; judgments are used to estimate quarterly amount 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 (107,400,000 in 1995 and
110,140,000 in 1994). 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" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" to elsewhere
in this report for a description of certain contingencies which may have
a materially adverse effect on L-P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
General
Continued higher interest rates, slow demand for building products and
unseasonal weather patterns caused second quarter and six month building
products segment operating profits to fall from the same periods in 1994.
Strong earnings in the pulp segment helped to offset the building products
declines. Overall net income for the second quarter declined 68 percent to
$26.3 million ($.25 per share) in 1995 from $81.9 million ($.75 per share) in
1994. Six months net income fell 52 percent to $80.6 million ($.75 per share)
in 1995 from $167.1 million ($1.52 per share) in 1994. Net sales declined
8 percent in the second quarter of 1995 to $709.3 million from $774.7 million
in 1994. For the first six months of 1995, sales fell 5 percent to
$1,396.1 million from $1,472.7 million in 1994.
The registrant operates in two segments: building products and pulp.
Building products is the most significant segment, accounting for more than
86 percent of sales and more than 78 percent of operating profit in the first
six months of 1995 and 1994. The results of operations are discussed
separately for each segment below. Key segment information, production
volumes and industry product price trends are presented in the following
tables labeled "Sales and Operating Profit by Major Product Group", "Summary
of Production Volumes" and "Industry Product Price Trends."
Building Products Segment
Quarter Ended Six Months Ended
June 30 June 30
--------------------- -------------------------
1995 1994 % Chg 1995 1994 % Chg
------ ------ ----- -------- ------- -----
(Dollar amounts in millions)
Sales:
Structural panels $264.2 $293.7 -10% $ 526.1 $ 576.3 -9%
Lumber 175.2 241.4 -27% 327.2 463.5 -29%
Other panel products 53.0 62.2 -15% 111.5 117.4 -5%
Other building products 121.4 129.2 -6% 240.1 234.2 +3%
------ ------ -------- --------
Total building products $613.8 $726.5 -16% $1,204.9 $1,391.4 -13%
====== ====== ======== ========
Operating profit $ 63.3 $154.8 -60% $ 153.7 $ 321.3 -52%
====== ====== ======== ========
Relatively high interest rates and poor weather in key areas of the
country created weak markets for building products, especially lumber and
structural panels. This caused prices of these products and sales volumes to
decline from the same period in 1994. Lumber markets were further weakened by
an oversupply of Canadian lumber, as Canadian producers needed by-product
chips to supply their pulp and paper plants. Sales of structural panel
products, which include oriented strand board (OSB) and plywood, decreased due
to an approximate 5 percent decline in volumes and 4 percent lower average
selling price for both the second quarter and six month periods. Plywood
prices were higher in 1995 than 1994, but production was significantly
curtailed as the mills ran short of logs due to wet weather. OSB volumes were
also lower as L-P shut down some of the smaller OSB plants due to the lower
prices. Prices for L-P's lumber products were lower on average by
approximately 4 percent for the second quarter of 1995 and 9 percent for the
first six months on decreased volume of approximately 28 percent in the second
quarter and first six months of 1995 compared to 1994. Because of the lower
prices, L-P shut down many of its sawmills temporarily.
Decreases in other panel products sales were primarily attributable to
lower volumes because of down time at several mills. The second quarter
decrease in other building products sales was due to lower wood chip revenue
associated with lower lumber production and lower log sales from the Company's
Western fee timber due to lower logging levels. These decreases were offset
by sales of products from new facilities. For the first six months, the
increased revenue from these new facilities exceeded the decreases in chips
and logs, causing a slight overall increase.
The decrease in building products operating profit was caused by the
lower sales prices discussed above, as well as higher raw material costs. Log
prices were higher in most areas of the country as were wood chips (used in
certain of L-P's panel products) because of increased demand from pulp and
paper mills.
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, although the prices for many of
L-P's products have increased since the end of the second quarter, 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.
Pulp Segment
Quarter Ended Six Months Ended
June 30 June 30
--------------------- ----------------------
1995 1994 % Chg 1995 1994 % Chg
------ ------ ----- ------ ------ -----
(Dollar amounts in millions)
Pulp sales $ 95.5 $ 48.2 +98% $191.2 $ 81.3 +135%
====== ====== ====== ======
Operating profit $ 23.2 $ (6.0) $ 42.0 $(16.0)
====== ====== ====== ======
Pulp segment sales jumped dramatically in both the second quarter and
first six months of 1995 compared to 1994. Prices increased 84 percent in the
second quarter and 78 percent for the first six months. Sales volumes
increased approximately 7 percent during the second quarter and 78 percent
during the first six months. World-wide pulp markets rebounded strongly late
in 1994 and continued through the first half of 1995, which has significantly
increased selling prices and allowed L-P to operate its three pulp mills at
higher rates. Production volume was between 88 percent and 90 percent of
capacity in 1995, compared 62 percent to 65 percent in the first half of 1994.
Second quarter 1995 production rates were negatively impacted by a maintenance
shutdown at the Ketchikan Pulp Company (a wholly-owned subsidiary of L-P)
mill. Pulp sales increases have also caused export sales to increase
significantly as L-P sells the substantial majority of its pulp to export
customers.
Pulp segment operating profits benefited from the increased sales,
showing a profit in 1995 compared to losses in 1994. Chips, the fiber raw
material for pulp, are currently in short supply as many supplying sawmills
have shut down, which has caused chip costs to increase. This may continue in
the coming months unless higher lumber prices in the third quarter cause
increased sawmill production.
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.
Unallocated Expense
Unallocated expense increased to $44.9 million in the second quarter of
1995 from $15.7 million in the second quarter of 1994, and for the first six
months of 1995 increased to $67.6 million from $32.0 million in the same
period in 1994. The primary factor in the increase is higher expenses
associated with litigation against the company, including legal fees and
increases in contingency reserves. Refer to the "Legal Proceedings" section
of the Form 10-Q for a discussion of this litigation. Higher general
administrative expenses and franchise taxes have also contributed to the
increase. Partially offsetting these increases, compensation charges related
to restricted stock option plans have decreased.
Interest Income (Expense)
L-P's debt level has continued to decrease, resulting in lower interest
expense partially offset by higher interest rates on L-P's remaining variable
rate debt. Interest rate increases have favorably impacted L-P's interest
income, but that increase has been partially offset by lower cash and cash
equivalents balances.
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 which
could have a materially adverse effect on L-P. L-P maintains reserves for
certain environmental and legal matters based upon management's estimates of
probable loss. As with all estimates, there is significant uncertainty
concerning the reliability and precision of such estimates and there can be no
assurance that such estimates will not change in the future as circumstances
change or additional facts become known. In some cases, management is able to
estimate only the minimum amount of a range of possible loss and in other
cases management is unable to reasonably estimate any amount or range of
possible loss.
OSB Siding Matters
L-P manufactures a complete line of Inner-Seal(R) oriented strand board
("OSB") products for the building and construction industry. Such products
include sheathing, roof decking, flooring, siding and engineered I-joists
using OSB as the web material.
In 1985, L-P began producing and selling OSB-based exterior siding
products in both a lap and panel style. The siding uses OSB as the substrate
and is overlaid with a resin-impregnated paper. The siding products are used
primarily in residential home construction, both single-family and
multifamily, and also to a lesser extent in commercial construction. L-P
offers a warranty on both the OSB substrate and the siding surface, if certain
standards are adhered to, such as proper installation and proper care and
maintenance of the product.
Since 1985, L-P has sold approximately 2.7 billion square feet of these
Inner-Seal(R) siding products throughout the United States. During this
period, warranty claims related to these siding products have been made
against L-P. Where such claims resulted from improper installation or
improper care and maintenance, L-P has sought to hold the installer or
homeowner responsible for a portion of the claim. Where claims were based on
a problem with the product, L-P has honored its warranty and settled the
claims in a timely manner.
L-P has paid approximately $44 million since 1985 to settle claims
relating to siding warranties at an average cost of about $2,500 per dwelling
unit. This includes claims paid of approximately $10 million in 1994,
$5 million in the second quarter of 1995 and $7 million in the first six
months of 1995.
L-P maintains a reserve reflecting management's estimate, based on
historical experience, of the minimum potential exposure from siding warranty
claims. As with all estimates, due to the many factors involved in estimating
claims and because of the rapidly changing nature and scope of siding claims,
significant uncertainty exists in the reliability and precision of such
estimates. There can be no assurance that management's estimates will not
change significantly in the future as additional factors and circumstances
become known, and claims are made.
Refer to the "Legal Proceedings" section of this Form 10-Q for a
discussion of siding-related matters which could have a materially adverse
effect on L-P.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations decreased approximately 25 percent in the
first six months of 1995 compared to 1994. This resulted primarily from the
lower net income discussed above, partially offset by changes in working
capital components.
Cash used in investing activities increased to $194 million in 1995 from
$182 million in 1994, primarily due to increased capital expenditures. The
largest portion of these capital expenditures are for new production
facilities. 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 1995 of $350 million to
$400 million.
Cash used in financing activities increased by approximately $81 million
to $214 million from $133 million. The principal factors in this increase
were $120 million in treasury stock purchases compared to $24 million in 1994,
offset by lower debt repayments of about $35 million as L-P made the last
payment on the Santa Fe debt in 1994. The stock purchases in 1995 relate to
L-P's repurchase authorization for 5 million shares which was announced in
July of 1995 and completed in April of 1995. L-P has previously announced a
new authorization to purchase up to 10 million additional shares on the open
market from time to time. The company has not announced any specific time
frame over which it plans to complete these purchases. L-P plans to finance
any treasury stock purchases with existing cash reserves and cash generated
from operations.
L-P continues to be in a strong financial condition with $89 million of
cash and cash equivalents and long-term debt as a percent of total
capitalization of 9.2 percent at June 30, 1995. Although cash and cash
equivalents decreased nearly $227 million in the first six months of the year
due to the reasons discussed above, existing cash and cash equivalents
combined with an unused $100 million revolving line of credit and cash
generated from operations are expected to be sufficient to meet projected cash
needs. 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.
Sales and Operating Profit by Major Product Group
Louisiana-Pacific Corporation and Subsidiaries
(Dollar amounts in millions) (Unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
------- ------- -------- -------
Sales:
Structural panel products $ 264.2 $ 293.7 $ 526.1 $ 576.3
Lumber 175.2 241.4 327.2 463.5
Other panel products 53.0 62.2 111.5 117.4
Other building products 121.4 129.2 240.1 234.2
------- ------- -------- --------
Total building products 613.8 726.5 1,204.9 1,391.4
Pulp 95.5 48.2 191.2 81.3
------- ------- -------- --------
Total sales $ 709.3 $ 774.7 $1,396.1 $1,472.7
======= ======= ======== ========
Export sales $ 129.1 $ 85.6 $ 256.4 $ 159.0
======= ======= ======== ========
Operating profit:
Building products $ 63.3 $ 154.8 $ 153.7 $ 321.3
Pulp 23.2 (6.0) 42.0 (16.0)
------- ------- -------- --------
Total operating profit 86.5 148.8 195.7 305.3
Unallocated expense, net (44.9) (15.7) (67.6) (32.0)
Interest income (expense), net .3 (.6) 1.1 (1.3)
------- ------- -------- --------
Income before taxes and
minority interest $ 41.9 $ 132.5 $ 129.2 $ 272.0
======= ======= ======== ========
Operating Volume
Louisiana-Pacific Corporation and Subsidiaries
(Volume amounts stated in millions except pulp and as a percent of normal capacity)
Quarter Ended Six Months Ended
June 30 June 30
------------------- ----------------------
1995 1994 1995 1994
-------- -------- ---------- ----------
Inner-Seal/OSB,
sq ft 3/8" basis 875 96% 924 105% 1,690 92% 1,732 98%
Softwood plywood,
sq ft 3/8" basis 334 82 411 109 658 81 813 107
Lumber, board feet 352 58 522 90 693 57 1,062 92
Medium Density
Fiberboard,
sq ft 3/4" basis 55 97 62 112 108 96 117 106
Particleboard,
sq ft 3/4" basis 84 93 94 107 174 97 186 106
Hardboard,
sq ft 1/8" basis 56 101 56 107 106 96 110 105
Hardwood veneer,
sq ft surface
measure 61 98 67 105 134 107 135 106
Pulp, thousand
short tons 132 88 100 65 267 89 195 64
Chips, thousand BDU's 458 588 930 1,170
Industry Product Price Trends
Louisiana-Pacific Corporation and Subsidiaries
OSB Plywood Lumber Particleboard Pulp
----------- -------- --------- ------------- ----------
N. Central Southern
7/16" basis Pine 1/2" Framing Bleached
24/16 basis lumber Inland softwood
span CDX composite Industrial sulfate
rating 3 ply prices 3/4" basis short ton*
----------- -------- --------- ------------- ----------
Annual Average
1990 131 182 230 199 723
1991 148 191 236 198 519
1992 217 248 287 200 509
1993 236 282 394 258 418
1994 265 302 405 295 515
1994 Second Quarter Average
242 266 395 300 472
1995 First Quarter Average
239 305 374 335 703
1995 Second Quarter Average
210 303 317 320 774
Weekly Average
July 7 248 308 327 280 839
July 14 248 320 339 275 839
July 21 252 320 337 275 839
*Discounting sometimes occurs from the published price.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The following sets forth the current status of certain legal proceedings:
Certain Environmental Proceedings
The registrant received a Notice of Violation issued by the
U.S. Environmental Protection Agency in June 1993, alleging air emissions
violations at the registrant's Dungannon, Virginia, OSB plant. The registrant
has also received a Notice of Violation issued by the state of Michigan in
October 1993, alleging air emissions violations at the registrant's Newberry,
Michigan, OSB plant. The potential costs to the registrant cannot be
estimated at this time because the registrant's past experiences with notices
of violation indicated wide variation in possible outcomes. The registrant
anticipates resolving the Dungannon matter later this year in connection with
other issues in a modification of the consent decree in a separate proceeding
filed with the U.S. District Court for the Western District of Louisiana. The
registrant is not aware of any activity concerning the Newberry matter since
December 1993.
On September 9, 1992, the U.S. Department of Justice filed suit in the
U.S. District Court in Anchorage, Alaska, against the registrant's wholly
owned subsidiary Ketchikan Pulp Company ("KPC"), alleging that the pulp mill
in Ketchikan, Alaska, operated by KPC violated the Clean Air Act and the terms
of KPC's wastewater discharge permit. A federal grand jury investigation
concerning wastewater discharges at KPC's pulp mill was also convened. In
March 1995, KPC entered into agreements with the federal government to resolve
the issues related to the lawsuit and grand jury investigation. Under the
agreements, which are subject to court approval, KPC has entered guilty pleas
to one felony and 13 misdemeanor violations of the Clean Water Act; KPC will
pay civil and criminal penalties totaling approximately $6 million, of which
$1.75 million will be suspended; and KPC has 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. KPC has 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 as part of the overall $20
million of expenditure. KPC cannot estimate what portion, if any, of the
clean-up amount will be required to be spent.
On September 13, 1994, the U.S. Environmental Protection Agency filed an
administrative action, alleging that KPC and two other parties violated
provisions of the Clean Air Act related to asbestos. The action seeks to
recover a penalty of $122,800.
The registrant has been informed that the U.S. Environmental Protection
Agency has referred a matter involving KPC to the U.S. Department of Justice
for possible civil enforcement. The matter involves allegations that KPC's
Annette Island, Alaska, cant mill violated provisions of the Clean Air Act
relating to the prevention of significant deterioration of air quality.
A federal grand jury has been investigating possible violations in
connection with the disposal by a contractor of a transformer containing
polychlorinated biphenyls ("PCBs") previously located at the registrant's
former sawmill at Pendleton, Oregon. The registrant has not been informed
whether it or any of its employees are targets of the investigation. The
registrant has had no communication with the government on this matter since
1994 and does not know if the investigation is continuing.
Management of the registrant believes that the outcome of the above
matters will not have a materially adverse effect on the consolidated
business, financial condition, liquidity, or results of operations of the
registrant.
Colorado Criminal Proceeding
The registrant began an internal investigation at the registrant's
Montrose (Olathe), Colorado, 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 the registrant
concerning alleged environmental violations at the registrant's Montrose
(Olathe), Colorado, OSB 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 the registrant's Montrose plant and certain of its
other OSB plants. The registrant then commenced an independent investigation
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 the registrant, a former manager of the Montrose
mill, and a former superintendent at the mill. The indictment charges the
registrant with 31 felony counts related to environmental matters at the
Montrose mill, including alleged conspiracy, tampering with opacity monitoring
equipment, and making false statements under the Clear Air Act. The
indictment also charges the registrant 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 the registrant's allegedly improper
sampling practices in connection with the APA quality assurance program.
The registrant is continuing to investigate the nature and extent of any
such activities and is preparing its defense against the charges of the
indictment. At the present time, the registrant cannot predict whether or to
what extent these circumstances will result in further civil litigation or
investigation by government authorities, or the potential financial impact of
any such proceedings. However, the resolution of the above matters could have
a materially adverse impact on the registrant.
OSB Siding Matters
In October 1994, an action was filed against the registrant and other
defendants in the Circuit Court for Lake County, Florida, on behalf of a
purported class of all owners of property in that state whose properties were
constructed using the registrant's oriented strand board ("OSB") siding. The
complaint alleges that the siding is deteriorating prematurely due to defects
in the material and seeks damages for alleged breaches of express or implied
warranties and for alleged failure to disclose material defects. The
complaint also seeks an injunction barring the registrant from selling the
registrant's OSB siding as an exterior siding material in the state of
Florida. The registrant has reached a settlement agreement, conditionally
approved by the court, but subject to final court approval after an August
1995 fairness hearing, with attorneys representing the plaintiff class. Under
the proposed settlement, the registrant will establish a claims procedure
pursuant to which members of the settlement class may report problems with the
registrant'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. While the registrant cannot
predict the amount of siding for which payment will be made, 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. Class members will be
entitled to make claims for up to five years after the settlement date.
Because of uncertainty concerning present and future amounts of actual damage
and the extent to which payments may be subject to reduction, the registrant
is unable to estimate the aggregate cost of the settlement.
The registrant has been named as a defendant in at least ten other
purported class actions filed in various jurisdictions (most of which were
filed in 1995), as well as numerous non-class action proceedings, brought on
behalf of various persons or purported classes of persons (including
nationwide classes) who own or have purchased or used OSB siding manufactured
by the registrant because of alleged unfair business practices, breach of
warranty, misrepresentation, conspiracy to defraud, and other theories related
to alleged defects, deterioration, or failure of OSB siding products. The
various actions seek damages and other relief for claimed defects,
deterioration, or failures of OSB siding products; in general, the actions
seek to avoid provisions of the registrant's express warranty limiting a
customer's warranty recovery to twice the cost of the product and allege that
actual damages may be significantly higher. Some of the actions also seek
injunctive relief and some seek to recover treble damages or punitive damages,
among other remedies.
In July 1995, the Attorney General of the State of Florida issued a
subpoena to the registrant seeking the production of certain evidence relating
to production, testing, APA certification, marketing, and performance of the
registrant's OSB siding. The registrant is cooperating in furnishing the
requested information.
In April 1995, the Office of the Attorney General of the State of
Washington commenced a formal civil investigation relating to alleged unfair
or deceptive acts or practices related to manufacture and sale of the
registrant's OSB lap siding, misrepresentation of the quality or suitability
of the siding, and the existence of a pattern of failure to perform under
warranty. The registrant is cooperating with the investigation.
The registrant is continuing to review the nature and extent of any OSB
siding-related liabilities. The registrant believes it is probable that
additional OSB siding products claims will be made against it. At the present
time, the registrant cannot predict to what extent these circumstances will
result in further civil litigation or investigation by government authorities,
nor can it estimate the potential financial impact of siding related
proceedings; however, the resolution of these matters could have a materially
adverse impact on the registrant.
Other
In July, 1995, an action entitled MacDonald v. Louisiana-Pacific
Corporation was filed in Superior Court for the State of California for the
County of San Diego, purporting to be a consumer action brought on behalf of
the general public in California. The action alleges that the registrant
violated the California Unfair Business Practices Act through allegedly
fraudulent APA certification, quality sampling, advertising, and marketing of
OSB products. The complaint seeks, among other relief, restitution to members
of the public who purchased the registrant's OSB products, return of moneys
obtained by the registrant from allegedly fraudulent sales, imposition of an
asset freeze and constructive trust, and various injunctive relief. The
registrant is reviewing the allegations of the complaint and is unable to make
any estimate of the possible outcome of the action or whether it may have a
material impact upon the registrant.
Stockholder Actions
The registrant, certain of its executive officers and former executive
officers, and certain other executives have been named as defendants in
numerous actions brought on behalf of various purported classes of purchasers
of the registrant's common stock. The actions, which have been consolidated
in the United States District Court for the District of Oregon, seek 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
registrant is reviewing matters related to the allegations of the complaints
and is unable to make any estimate of the possible outcome of the securities
class actions.
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 of the registrant and the
registrant have moved to dismiss the Delaware action and moved to dismiss the
Oregon action. They are scheduled to respond to the complaint in the Colorado
action by August 2, 1995.
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 June 30, 1995.
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
Treasurer
(Principal Financial Officer)
DATED: August ___, 1995
EXHIBIT INDEX
Exhibit Number Description of Exhibit
11 Calculation of Net Income Per Share for the Six
Months Ended June 30, 1995.
27 Financial Data Schedule.
EXHIBIT 11
Louisiana-Pacific Corporation and Subsidiaries
Calculation of Net Income Per Share
For the Six Months Ended June 30, 1995
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) (1,843,621) (1,843,621)
Weighted average number of
shares of treasury stock held
during the period (7,692,132) (7,692,132)
Common stock equivalents:
Application of the "treasury
stock" method to stock option
and purchase plans 717,821 ---
------------ ------------
Weighted average number of shares
of common stock and common stock
equivalents 108,119,090 107,401,269
============ ============
Rounded to 108,120,000 107,400,000
============ ============
Net income $ 80,600,000 $ 80,600,000
============ ============
Net income per share $ .75 $ .75
============ ============
(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 107,400,000
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
