Louisiana-Pacific Corporation 2004 Annual Report and 10K
BUILD WITH US.™
Bringing clarity to our brand
LP makes building products.
And our updated branding and logo make that
absolutely clear.
During 2004, as we established our new head-
quarters in Nashville, we took a fresh look at
our branding. We again researched customer
perceptions of the LP brand, and our findings
were gratifying. People across the building industry
told us that the LP name represents quality,
dependability and consistency, that LP is a
respected and solid company with good people.
We learned it would be in our best interest to
increase brand recognition of LP as a building
products brand-of-choice — especially among
people who do not yet know us. That is why
our new logo has the bolder “LP” and a straight-
forward description of what we make: “Building
Products.”
Unifying Product Brands
To further strengthen LP brand recognition and
gain more marketplace impact, we are aligning
our various products under the LP brand.
Several successful products that formerly car-
ried only their own brand now feature “LP”
prominently in their name. SmartSide becomes
LP SmartSide ®. WeatherBest becomes LP
WeatherBest ®. We want people to easily iden-
tify all of our products as LP products. By
associating a clear, strong and confident LP
brand with products across a number of cate-
gories, we will increase LP recognition, lever-
age and help drive our growth goals.
“Build With Us.”
Our new “tagline” expresses a simple yet enduring
idea. It tells our customers they can confidently
use LP building products and work with the
people at LP to achieve success.
™
1
A letter to our shareholders
Dear Shareholder:
We close the books on 2004 with pride and a sense of achievement.
Through the efforts of LP’s talented and dedicated people, we have
been able to channel an exceptionally strong year
in the building industry into record profits for the
company. We experienced significant volume
growth in each major segment of our business, ben-
efited from continued strength in OSB pricing, and
achieved more than one billion dollars in sales out-
side the OSB segment. It was a year in which we
sold nearly everything we could make. And we con-
tinue to take pride in protecting both our employ-
ees and our communities by achieving ever-
improving safety and environmental performance.
Balance Sheet
The company’s balance sheet is exceptionally strong.
LP now has more than $1.2 billion in cash and
investments, and is in excellent financial health.
We plan to keep it that way. We are being prudent,
maintaining an operating reserve of at least $300
million. We intend to spend about $240 million in
2005 in mill improvements and new construction.
We will retire about $180 million in debt during
2005. The remaining cash is earmarked as a poten-
tial “war chest” for acquisitions. What to acquire is
the single largest question we face. We have learned
from past experience, both good and bad, that any
strategic investment must give LP a high return in
future growth and profitability. For that to happen, we must make the
right acquisition, at the right time, and at the right price.
Shareholder Value
LP stock ended 2003 at $17.88 per share and ended 2004 at $26.74,
for an increase of greater than 33 percent. In 2004, we increased the
book value per share from $12.31 to $16.05, reinstated the dividend
and raised it twice. We were gratified to regain our investment-grade
status from Standard & Poor’s and Moody’s rating agencies.
Capital Investments
With completion of the restructuring process begun in 2002, we are
executing a significant reinvestment strategy. During 2004, we invest-
ed $180 million in capital to improve the efficiency and capacity of
existing mills, and to begin building new ones. To help meet the grow-
Rick Frost, CEO, and
E. Gary Cook, Chairman
BUILD WITH US.™
2
ing demand for OSB and to reinforce our leadership position in this,
our major business, operations are scheduled to begin this year at a
new OSB mill in British Columbia (a joint venture between Canfor and
Rick Frost, CEO,
officially opens
Nashville headquarters
with a ribbon-cutting
during Open House
ceremonies.
LP), and we have announced our intent to build a
new OSB mill in Alabama for start-up in 2007. We
are constructing a second engineered-wood I-joist
facility in Quebec, have begun conversion of an
OSB mill to produce our popular SmartSide® siding
in Wisconsin, and are expanding production capaci-
ty for decking—our single fastest-growing prod-
uct—at our Alabama plant.
Leadership Changes
With the retirement in 2004 of LP Chairman and
Chief Executive Officer Mark Suwyn, our board of
directors chose to separate the titles into two posi-
tions. The purpose of this change is to bring more
leadership strength to the highest echelons of the company and to
improve the focus the two of us can bring to our respective responsi-
bilities: Rick, as CEO, to the running of the company, and Gary, as
chairman, to overseeing the board’s many responsibilities.
In the months preceding his departure, Mark was helpful in his
counsel and generous with his insights. After having successfully
led the company through the difficult restructuring period, Mark’s
legacy is an LP that is financially strong and focused. We owe him a
debt of gratitude for leaving us better than he found us.
While LP executive leadership changed in 2004, LP’s strategic
direction did not. The senior management team that deliberated
on, defined and established the company’s current strategic plans,
corporate objectives and investment policies remains in place. Our
board is confident this leadership will serve LP well in the years to
come.
At the annual meeting this year, Lee Simpson will retire from the
board of directors after serving the company for many years as an
employee, officer and director. We will miss Lee’s in-depth under-
standing of our industry and his encyclopedic knowledge of LP since
its inception.
Nashville Headquarters
Being together in Nashville is making us a stronger, faster and more
responsive company. Having key decision-makers and implementers in
one place has enhanced our ability to make quick and informed
strategic and tactical decisions, as well as do a better job of resource
allocation. We are convinced that the
Nashville relocation was the right thing to
do, and that we did it at the right time.
Along with the new headquarters, we
began operations at our new Technology
Center in Franklin, Tennessee, where
ongoing research, product development
and product testing will enable us to con-
tinue satisfying our customers’ needs well
into the future.
The Year Ahead
These are exciting times at LP. We are invigorated and energized.
With our business clearly focused on our areas of strength, we will
continue to execute the company's business plan to achieve growth
and profitability goals. We will move forward with our capital
improvement projects and will leverage our new Technology Center
to strengthen our existing technology and develop new products to
support and build our businesses. We have high expectations for
South America, rapidly emerging as a very promising market for
building products. And we will very carefully weigh options for
accretive, profitable, and strategically sound acquisitions.
The two of us want to extend our gratitude to you—our customers,
our shareholders, and our fine employees—for the exceptional level
of support you have demonstrated. We are counting on all of you to
continue to “Build with Us.”
E. Gary Cook
Chairman
Richard W. Frost
Chief Executive Officer
3
LP welcomes the community
to our new headquarters in
Nashville.
“These are
exciting times
at LP. We are
invigorated and
energized.”
BUILD WITH US.™
4
• A new Canfor/LP
joint-venture mill
in Fort St. John, B.C.,
plans to begin
producing OSB in
2005.
• We have signed a
memorandum of
understanding to
locate a new LP
OSB mill in Clarke
County, Alabama,
to begin operation
in late 2007.
• A new Abitibi-LP
joint-venture mill
in Saint Prime,
Quebec, plans to
begin producing
I-joists in 2005.
Four lines of business. One LP.
It is simple to say LP has four lines of business. But it has taken
years of thought, strategizing, and difficult change to make that
statement real. Two years ago, our management team looked at the
array of operations in more than 85 different sites and determined
we had to streamline to improve profitability. We wanted to do busi-
ness in areas where we had scale or could achieve it, where LP was
world competitive or would become so, and where we could be
profitable. In 2004, we developed a clear message of who we are
and where we will pursue growth in volume and profitability.
Oriented Strand Board (OSB)
LP produces more OSB than any other manufacturer—5.6 billion
square feet in 2004—with a full
line of value-added products
such as our LP OSB Radiant
Barrier and LP’s family of Top
Notch® flooring products. We
will maintain our position as
the leading OSB producer
through increased capacity and
lowest-cost manufacturing. We
are striving for a 25 percent vol-
ume growth in this business
over the next five years, as OSB,
the world's most popular struc-
tural panel, continues to replace
plywood. To achieve our OSB
cost reduction goals, our $250 million brownfield reinvestment pro-
gram in existing mills is well under way.
Siding
LP’s extensive family of siding products includes such well-known
names as LP SmartSide,® ABTco,™ LP Norman Rockwell™ and
CANEXEL® products. In LP SmartSide products alone we are plan-
ning 100 percent growth over the next five years, complementing
market-share gains in our hard-
board siding. To help LP
SmartSide reach this goal, we are
converting our Hayward,
Wisconsin, mill from LP OSB to
LP SmartSide production, with
plans to complete the first phase
by mid-2005.
5
• Conversion of the
Hayward, Wisconsin,
mill from LP OSB
to LP SmartSide
products is planned
to be complete by mid-
2005.
• Production of
composite decking
products was
increased in 2004
with the expansion
of our Meridian,
Idaho, mill.
• Expansion of LP’s
Selma, Alabama, mill
in 2005 will further
increase production
of LP decking
products.
Engineered Wood Products
LP’s Engineered Wood Products include such industry leaders as
LP I-Joists, LP LVL (Laminated Veneer Lumber) and LP Rim
Board. We continue to
experience strong
demand for these prod-
ucts and are taking
steps to increase pro-
duction. Improving
profitability and grow-
ing with our customers
are the goals for
Engineered Wood
Products, which we are
achieving through
improved manufactur-
ing efficiencies. We will
complete the new Abitibi-LP joint-venture I-joist mill in Saint
Prime, Quebec, in 2005.
Other Products (Outdoor Living, Mouldings, Chile Operations)
LP WeatherBest® composite decking and our related outdoor prod-
ucts continue to be popular. We anticipate at least 100 percent
growth over five years, including expansion of our Selma, Alabama,
plant in 2005. This process will mirror the expansion that took
place in our Meridian, Idaho, mill in 2004. LP Mouldings continue
to produce consistent profits. And in Chile, LP is developing an
expansion plan for
South America, where
demand for quality build-
ing products is steadily
growing.
BUILD WITH US.™
6
Working together: The value of teamwork
A conversation with Rick Frost
Rick Frost became CEO on November 1, 2004, after sitting in some of
the toughest seats at LP. He has guided OSB and Engineered Wood
Products businesses to new levels of profitability, led the consolidation
of all purchasing and logistics operations, and overseen all corporate
engineering and wood procurement activities. He led the development
of LP’s presence in South America, and drove many of the restructur-
ing efforts that included divesting LP’s timberlands, market pulp, lum-
ber and industrial panels operations. A veteran of nearly 28 years in
the forest-products industry, Rick joined LP in 1996.
What is your vision for LP?
There are three parts to it. First, I see LP as a respected, profitable
and growing building products company. That’s what will make the
other two parts possible. Second, I envision LP as a supplier of choice
in our industry because of our quality products and our reliable serv-
ice. And third, I see us as an employer of choice because LP is a safe,
ethical, fun, challenging and rewarding place to work. The LP team
knows we need to direct all of our attention and our actions—always
working together as one company—to make this vision a reality.
You mentioned the LP team.
Anyone who knows me knows I’m a great believer in teams. Again
and again I’ve seen groups with a common purpose come up with
better solutions than individuals alone. Day in and day out, teams
are going to do a better job than individuals, which is why I like to
say, ‘None of us is as smart as all of us.’When you have a group of
people functioning together as a team, you create more ownership
and get a better result—and that has a very positive effect on the
quality of your implementation and execution.
What do you see as LP’s major operational challenges in 2005?
First, we must keep improving our safety performance. No one
should have to get hurt while working at LP. For the past eight
years we’ve improved our safety performance. We are considered
“good” at safety now. But that’s not good enough. Our goal is to be
an industry leader. We know how to work safely—each month, a
large proportion of our mills operate with zero safety incidents—so
now we must spread that know-how across the entire company.
Our other, less-controllable challenge is skyrocketing raw material
and energy costs. In the short term, we have little ability to influ-
ence market prices, so we must focus as a team on projects where
we can mitigate their impact through reduced consumption. Yield
7
“None of us
is as smart as
all of us.”
– Rick Frost, CEO
improvement, waste reduction, improved uptime and throughput,
increased efficiency and reduced discretionary spending are all
weapons to battle these cost increases.
You often speak of ethics and quality.
That’s because both are important to me as a person and as CEO.
Everyone at LP must realize that ethics and compliance are critical-
ly important to LP’s ongoing survival and reputation. Each day our
principles, values and ethics guide our actions and provide the peo-
ple of our company with a moral compass. I must say again that we
are committed to protecting the environment, to keeping our
employees safe, to making quality products and to following not
only the letter of the law, but its intent.
About quality. Like safety, product quality is an imperative, not an
option. Our customers simply must get what they are expecting
from our products, both in performance and in value. We must
make sure we have the processes and the testing in place to safe-
guard the quality of each product.
LP's senior management team. Front row:John Neilson, VPMarketing; Harold Stanton, EVPSpecialty Products and Sales; Andrea Vicino, Director Human
Resources Administrative Systems; Brad Southern, VP and GM Siding; Jeff Duncan, VP, CIO, CQO; and Mike Sims, VP Sales. Back row: Curt Stevens, EVP
Administration, and CFO; Dave Harvey, VP Environmental Affairs; Jeff Wagner, VP OSB; Brian Luoma, VP Procurement, Logistics and Supply
Management; Dave Crowe, VP Corporate Engineering and Technology; Mark Fuchs, General Counsel; and Rick Frost, CEO.
8
Executives, Board of Directors and Stockholder Information
DIVIDEND REINVESTMENT
Holders of common stock may automatically reinvest
dividends toward the purchase of additional shares of
the Company’s common stock. For a copy of a brochure
describing the plan and an application, contact:
Equiserve Trust Company, N.A.
Dividend Reinvestment Plans
Louisiana-Pacific Corporation
P.O. Box 43081
Providence, RI 02940-3081
800.756.8200
Ticker Symbol: LPX
Louisiana-Pacific Corporation’s common stock is
listed on the New York Stock Exchange. Newspaper
quotations symbol: LaPac
TRANSFER AGENT AND REGISTRAR
Equiserve Trust Company, N.A.
P.O. Box 43069
Providence, RI 02940-3081
800.756.8200
www.equiserve.com
INVESTOR RELATIONS CONTACTS
Mike Kinney, Becky A. Barckley
MEDIA CONTACT
Mary Cohn
STOCKHOLDER SERVICES
Ann B. Mahone
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Nashville, Tennessee
COUNSEL
Jones Day
Dallas, Texas
EXECUTIVES
Richard W. Frost
Chief Executive Officer, Director
Curtis M. Stevens
Executive Vice President,
Administration, and CFO
Harold N. Stanton
Executive Vice President, Specialty Products
and Sales
Jeffrey N. Wagner
Vice President, Oriented Strand Board
BOARD OF DIRECTORS
E. Gary Cook
Chairman of the Board
Archie W. Dunham
Chairman of the Board, ConocoPhillips (retired)
Daniel K. Frierson
Chairman and Chief Executive Officer,
The Dixie Group, Inc.
Paul W. Hansen
Executive Director, Izaak Walton League of America
Brenda J. Lauderback
Group President, Wholesale and Retail, Nine West
Group Inc. (retired)
Dustan E. McCoy
President, Brunswick Boats Group
Lee C. Simpson
President and Chief Operating Officer, LP (retired)
Colin D. Watson
President and Chief Executive Officer,
Vector Aerospace Corporation (retired)
STOCKHOLDER INFORMATION
Corporate Office
414 Union Street, Suite 2000
Nashville, TN 37219
tel 615.986.5600
fax 615.986.5666
www.lpcorp.com
ANNUAL MEETING
The annual meeting of stockholders will take place on
Monday, May 2, 2005 in Nashville, Tennessee.
Additional copies of LP’s Form 10-K Annual Report
to the Securities and Exchange Commission will be
available on request to the Corporate office.
™
Visit www.lpcorp.com
for additional information
on LP and our products,
recent news, accomplishments,
and investor materials.
LP, SmartSide, WeatherBest, CANEXEL, Maxim, and Northern Star are registered trademarks
and ABTco, Dakota, Hudson Bay, and Build With Us. are trademarks of Louisiana-Pacific
Corporation. Norman Rockwell Rights of Publicity are licensed to LP by Norman Rockwell
Licensing, Niles, Illinois. ©2005 Louisiana-Pacific Corporation.
All rights reserved. Printed in USA.
COR4054BR 3/05 50M
www.lpcorp.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended
December 31, 2004
Commission File
Number 1-7107
Louisiana-Pacific Corporation
(Exact name of registrant as specified in its charter)
DELAWARE
(State of Incorporation)
93-0609074
(I.R.S. Employer Identification No.)
414 Union Street, Suite 2000 Nashville, TN 37219
(Address of principal executive offices)
Registrant’s telephone number (including area code)
615-986-5600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $1 par value
Preferred Stock Purchase Rights
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
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 ⌧ No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (cid:134)
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes ⌧ No (cid:134)
State the aggregate market value of the voting stock held by nonaffiliates of the registrant:
$2,831,900,000 as of March 3, 2005.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock:
110,763,517 of Common Stock, $1 par value, outstanding as of March 3, 2005.
Documents Incorporated by Reference
Definitive Proxy Statement for 2004 Annual Meeting: Part III
Except as otherwise specified and unless the context otherwise requires, references to “LP”, the “Company”,
“we”, “us”, and “our” refer to Louisiana-Pacific Corporation and its subsidiaries.
ABOUT FORWARD-LOOKING STATEMENTS
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective
information about their businesses and other matters as long as those statements are identified as forward-
looking and are accompanied by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those discussed in the statements. This report contains, and
other reports and documents filed by us with the Securities and Exchange Commission may contain,
forward-looking statements. These statements are or will be based upon the beliefs and assumptions of,
and on information available to, our management.
The following statements are or may constitute forward-looking statements: (1) statements preceded
by, followed by or that include words like “may,” “will,” “could,” “should,” “believe,” “expect,”
“anticipate,” “intend,” “plan,” “estimate,” “potential,” “continue” or “future” or the negative or other
variations thereof and (2) other statements regarding matters that are not historical facts, including
without limitation, plans for product development, forecasts of future costs and expenditures, possible
outcomes of legal proceedings, completion of anticipated asset sales and the adequacy of reserves for loss
contingencies.
Factors that could cause actual results to differ materially from those expressed or implied by the
forward-looking statements include, but are not limited to the following:
• changes in general economic conditions;
• changes in the cost and availability of capital;
• changes in the level of home construction activity;
• changes in competitive conditions and prices for our products;
• changes in the relationship between supply of and demand for building products, including the
effects of industry-wide increases in manufacturing capacity;
• changes in the relationship between supply of and demand for raw materials, including wood fiber
and resins, used in manufacturing our products;
• changes in tax laws, and interpretations thereof;
• changes in the cost of and availability of energy, primarily natural gas, electricity and diesel fuel;
• changes in other significant operating expenses;
• changes in exchange rates between the U.S. dollar and other currencies, particularly the Canadian
dollar, EURO and the Chilean peso;
• changes in general and industry-specific environmental laws and regulations;
• changes in circumstances giving rise to environmental liabilities or expenditures;
• the resolution of product-related litigation and other legal proceedings; and
• acts of God or public authorities, war, civil unrest, fire, floods, earthquakes and other matters
beyond our control.
In addition to the foregoing and any risks and uncertainties specifically identified in the text
surrounding forward-looking statements, any statements in the reports and other documents filed by us
with the Commission that warn of risks or uncertainties associated with future results, events or
2
circumstances identify important factors that could cause actual results, events and circumstances to differ
materially from those reflected in the forward-looking statements.
ABOUT THIRD PARTY INFORMATION
In this report, we rely on and refer to information regarding industry data obtained from market
research, publicly available information, industry publications, U.S. government sources and other third
parties. Although we believe the information is reliable, we cannot guarantee the accuracy or completeness
of the information and have not independently verified it.
3
ITEM 1. Business
General
PART I
Our company, headquartered in Nashville, TN, is a leading manufacturer and distributor of building
products. As of December 31, 2004, we had approximately 6,500 employees and operated 34 facilities in
the U.S. and Canada and one facility in Chile. Our focus is on delivering innovative, high-quality
commodity and specialty building products to retail, wholesale, home building and industrial customers.
Our products are used primarily in new home construction, repair and remodeling, and manufactured
housing.
Business Segments
We operate in three segments: Oriented Strand Board (OSB); Siding; and Engineered Wood
Products (EWP). In general, our businesses are affected by the level of housing starts; the level of home
repairs; the availability and cost of financing; changes in industry capacity; changes in the prices we pay for
raw materials and energy; and other operating costs.
OSB
Our OSB segment manufactures and distributes OSB structural panel products.
OSB is an innovative, affordable and environmentally smart product made from wood strands
arranged in layers and bonded with resin. OSB serves many of the same uses as unsanded plywood,
including roof decking, sidewall sheathing and floor underlayment, but can be produced at a significantly
lower cost. In the past decade, land use regulations, endangered species and environmental concerns have
resulted in reduced supplies and higher costs for domestic timber, causing many plywood mills to close or
divert their production to other uses. OSB has replaced most of the volume lost from these mills. It is
estimated that OSB accounts for approximately 60% of the structural panel consumption with plywood
accounting for the remainder. We estimate that the overall North American structural panel market is 44
billion square feet with the OSB market comprising an estimated 26 billion square feet of this market.
Based upon our production capacity of 6.1 billion square feet, we account for 23% of the OSB market and
14% of the overall North American structural panel market. We believe we are the largest and one of the
most efficient producers of OSB in North America.
Siding
Our siding offerings fall into three categories: (1) SmartSide® siding products and related accessories;
(2) hardboard siding and accessory products; and (3) vinyl siding products and accessories.
The SmartSide® Products Our SmartSide® products consist of a full line of OSB-based sidings, trim,
soffit and fascia. These products have quality and performance characteristics similar to solid wood at
more attractive prices due to lower raw material and production costs.
Hardboard Siding Products Our hardboard siding product offerings include a number of lap and
panel products in a variety of patterns and textures, as well as trim products.
Vinyl Siding Products. We manufacture a variety of vinyl siding products and accessories. Our
product line covers a broad spectrum of styles, colors and price points to satisfy customers’ needs.
Additionally, as market demand warrants, minor amounts of commodity OSB are produced and sold
in this segment.
4
Engineered Wood Products
Our Engineered Wood Products (EWP) segment manufactures and distributes I-joists and laminated
veneer lumber (LVL) and other related products. We believe that in North America we are one of the top
four producers of I-joists and LVL. A plywood mill associated with our LVL operations in British
Columbia is also included in this segment.
We believe that our engineered I-joists, which are used primarily in residential and commercial
flooring and roofing systems and other structural applications, are stronger, lighter and straighter than
conventional lumber joists. Our LVL is a high-grade, value-added structural product used in applications
where extra strength is required, such as headers and beams. It is also used, together with OSB and
lumber, in the manufacture of engineered I-joists.
Other Products
Our other products category includes our composite decking, decorative moulding and Chilean OSB
operations. Additionally, our other products category includes timber and timberlands not associated with
other segments or businesses to be divested, an OSB operation in Ireland (which we sold in April 2002),
and other minor products and services and other operations closed prior to January 1, 2002.
Sales, Marketing and Distribution
Our sales and marketing efforts are primarily focused on traditional two-step distribution,
professional building products dealers, home centers, third-party wholesale buying groups and other
retailers. The wholesale distribution channel includes a variety of specialized and broad-line wholesale
distributors and dealers focused primarily on the supply of products for use by professional builders and
contractors. The retail distribution channel includes large retail chains catering to the do-it-yourself (DIY)
and repair and remodeling markets as well as smaller independent retailers.
Customers
We seek to maintain a broad customer base and a balanced approach to national distribution through
both wholesale and retail channels. In 2004, our top 10 customers accounted for approximately 37% of our
continuing sales, with the largest customer accounting for no more than 8% of our revenues. Because a
significant portion of our sales are from OSB that is a commodity product sold primarily on the basis of
price and availability, we are not dependent on any one customer. Our principal customers include the
following:
• Wholesale distribution companies, which supply building materials to retailers on a regional, state
or local basis;
• Two-step distributors who provide building materials to smaller retailers, contractors and others;
• Building materials professional dealers, that specialize in sales to professional builders, remodeling
firms and trade contractors that are involved in residential home construction and light commercial
building;
• Retail home centers, that provide access to consumer markets with a broad selection of home
improvement materials and increasingly serve professional builders, remodelers and trade
contractors;
• Manufactured housing producers, who design, construct and distribute prefabricated residential
and light commercial structures, including fully manufactured, modular and panelized structures,
for consumer and professional markets.
5
Seasonality
Our business is subject to seasonal variances, with demand for many of our products tending to be
greater during the building season in the second and third quarters. From time to time, we engage in
promotional activities designed to stimulate demand for our products, such as reducing our selling prices
and providing extended payment terms, particularly at times when demand is otherwise relatively soft. We
do this in an effort to better balance supply with demand, manage our inventory levels and allow our
production facilities to run efficiently.
Competitors
The building products industry is highly competitive. We compete internationally with several
thousand forest and building products firms, ranging from very large, fully integrated firms to smaller
enterprises that may manufacture only one or a few items. We also compete less directly with firms that
manufacture substitutes for wood building products. Some competitors have substantially greater financial
and other resources than we do that could, in some instances, give them a competitive advantage over us.
Raw Materials
Wood fiber is the primary raw material used in most of our operations, and the primary source of
wood fiber is timber. The primary end-markets for timber harvested in the U.S. are manufacturers who
supply: (1) the housing market where it is used in the construction of new housing and the repair and
remodeling of existing housing; (2) the pulp and paper market; and (3) export markets. The supply of
timber is limited by access to timber and by the availability of timberlands. The availability of timberlands,
in turn, is limited by several factors, including forest management policies, alternate uses of land, and loss
to urban or suburban real estate development.
During 2003, we sold our remaining fee timberland. This wood fiber largely supplied our plywood
business that we divested in September 2002. In Canada, we harvest enough timber annually under long-
term harvest rights with various Canadian governments and other third parties to support our Canadian
production facilities. The average remaining life of our Canadian timber rights is 20 years with provisions
for regular renewal.
We purchase approximately 69% of our wood fiber requirements on the open market, through either
private cutting contracts or purchased wood arrangements. Our remaining wood fiber requirements (31%)
are fulfilled through government contracts, principally in Canada. Because wood fiber is subject to
commodity pricing, the cost of various types of timber that we purchase in the market has at times
fluctuated greatly due to weather, governmental, economic or other industry conditions. However, our
mills are generally located in areas that are in close proximity to large and diverse supplies of timber. Our
mills generally have the ability to procure wood fiber at competitive prices from third-party sources.
In addition to wood fiber, we use a significant quantity of various resins in our manufacturing
processes. Resin product costs are influenced by changes in the prices of raw materials used to produce
resin, primarily petroleum products, as well as demand for resin products.
While the majority of our energy requirements are generated at our plants through the conversion of
wood waste, we also purchase substantial amounts of energy in our operations, primarily electricity and
natural gas. Energy prices have experienced significant volatility in recent years, particularly in deregulated
markets. We attempt to control our exposure to energy price changes through the use of long-term supply
contract agreements.
6
Environmental Compliance
Our operations are subject to many environmental laws and regulations governing, among other
things, discharges of pollutants and other emissions on or into land, water and air, the disposal of
hazardous substances or other contaminants, the remediation of contamination and the restoration and
reforestation of timberlands. In addition, certain environmental laws and regulations impose liability and
responsibility on present and former owners, operators or users of facilities and sites for contamination at
such facilities and sites without regard to causation or knowledge of contamination. Compliance with
environmental laws and regulations can significantly increase the costs of our operations and otherwise
result in significant costs and expenses. In some cases, plant closures can result in more onerous
compliance requirements becoming applicable to a facility or a site. Violations of environmental laws and
regulations can subject us to additional costs and expenses, including defense costs and expenses and civil
and criminal penalties. We cannot assure you that the environmental laws and regulations to which we are
subject will not become more stringent, or be more stringently implemented or enforced, in the future.
Our policy is to comply fully with all applicable environmental laws and regulations. In recent years,
we have devoted increasing management attention to achieving this goal. In addition, from time to time,
we undertake construction projects for environmental control facilities or incur other environmental costs
that extend an asset’s useful life, improve efficiency or improve the marketability of certain properties.
The U.S. government has enacted regulations related to Maximum Achievable Control Technology
(MACT). We anticipate, based upon our current facilities, that we will be required to spend between $7
million and $15 million over the next several years to comply with these regulations.
Additional information concerning environmental matters is set forth under Item 3, Legal
proceedings, and in Note 18 of the Notes to the financial statements included in item 8 of this report.
Employees
We employ approximately 6,500 people, approximately 1,800 of whom are members of unions. We
consider our relationship with our employees generally to be good. During 2002, work stoppages occurred
at two facilities. A work stoppage at our Dawson Creek, British Columbia OSB facility occurred from
March 2002 through April 2002 when it was settled. A work stoppage at our Chambord, Quebec OSB
facility began in May 2002 and continued through June 2003. There can be no assurance that additional
work stoppages will not occur. During 2005, union contracts relating to two manufacturing facilities in
Canada will expire.
Available Information
We will make available our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act free of charge through our internet website at http://www.lpcorp.com as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the Securities and
Exchange Commission.
7
Segment and Price Trend Data
The following table sets forth, for each of the last three years: (1) production volumes; (2) the average
wholesale price of selected building products in the United States; and (3) logs used in production by
source. In addition, information concerning our: (1) consolidated net sales by business segment; (2) our
consolidated profit (loss) by business segment; (3) identifiable assets by segment; (4) depreciation,
amortization and cost of timber harvested; (5) capital expenditures; and (6) geographic segment
information is included at Note 24 of the Notes to the financial statements included in item 8 of this report
and information concerning our sale by product line is included in item 7. Management Discussion and
Analysis.
Product Information Summary
For Years Ended December 31
PRODUCTION VOLUMES
OSB, 3⁄8” basis, million square feet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wood-based siding, 3⁄8” basis, million square feet . . . . . . . . . . . . . . . . . . . . . .
Engineered I-joists, million lineal feet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laminated veneer lumber, thousand cubic feet . . . . . . . . . . . . . . . . . . . . . . . .
Composite decking, thousand lineal feet . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vinyl siding, squares(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
2002
5,548
1,033
89
11,860
40,044
2,882
5,526
871
91
10,070
32,119
2,792
5,123
786
84
8,394
21,991
2,419
INDUSTRY PRODUCT PRICE TRENDS(2)
OSB, MSF, 7⁄16” - 24⁄16” span rating (North Central price). . . . . . . . . . . . . . . .
$
370
$
293
$
160
% LOGS BY SOURCES(3)
Fee owned lands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private cutting contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased logs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total volumes - million board feet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
11
31
58
2,367
5
18
22
55
2,490
11
12
20
57
2,683
(1) A square is defined as 100 square feet of material with an average weight of 42 pounds.
(2) Prices represent yearly averages stated in dollars per thousand square feet (MSF). Source: Random
Lengths.
(3) Stated as a percentage of total log volume.
8
ITEM 2. Properties
Information regarding our principal properties and facilities is set forth in the following tables.
Information regarding production capacities is based on normal operating rates and normal production
mixes under current market conditions, taking into account known constraints such as log supply. Market
conditions, fluctuations in log supply, and the nature of current orders may cause actual production rates
and mixes to vary significantly from the production rates and mixes shown.
ORIENTED STRAND BOARD
Oriented Strand Board Panel Plants
14 plants—6,065 million square feet
annual capacity, 3⁄8” basis
3 shifts per day, 7 days per week
Athens, GA . . . . . . . . . . . . . . . . . . . . . . .
Carthage, TX . . . . . . . . . . . . . . . . . . . . . .
Chambord, Quebec, Canada . . . . . . . . .
Dawson Creek, BC, Canada . . . . . . . . .
Hanceville, AL. . . . . . . . . . . . . . . . . . . . .
Hayward, WI . . . . . . . . . . . . . . . . . . . . . .
Houlton, ME . . . . . . . . . . . . . . . . . . . . . .
Jasper, TX . . . . . . . . . . . . . . . . . . . . . . . .
Maniwaki, Quebec, Canada . . . . . . . . .
Roxboro, NC . . . . . . . . . . . . . . . . . . . . . .
Sagola, MI . . . . . . . . . . . . . . . . . . . . . . . .
St. Michel, Quebec, Canada . . . . . . . . .
Swan Valley, Manitoba, Canada. . . . . .
Woodland, ME . . . . . . . . . . . . . . . . . . . .
SIDING
Oriented Strand Board Siding and Specialty
Plants
4 plants—715 million square feet annual
capacity, 3⁄8” basis
3 shifts per day, 7 days per week
Newberry, MI. . . . . . . . . . . . . . . . . . . . . .
Silsbee, TX . . . . . . . . . . . . . . . . . . . . . . . .
Tomahawk, WI . . . . . . . . . . . . . . . . . . . .
Two Harbors, MN. . . . . . . . . . . . . . . . . .
Hardboard plants
2 plants—545 million squares feet capacity,
surface measure
3 shifts per day, 7 days per week
Roaring River, NC . . . . . . . . . . . . . . . . .
East River, Nova Scotia . . . . . . . . . . . . .
Vinyl Siding
Plants 2 plants—3.5 million squares annual
capacity
2 shifts per day, 7 days per week
Acton, Ontario, Canada. . . . . . . . . . . . .
Holly Springs, MS . . . . . . . . . . . . . . . . . .
Square feet
in millions
390
450
470
390
390
520
280
450
600
450
390
500
525
260
Square feet
in millions
135
300
135
145
Square feet
in millions
245
300
Squares
in millions
2.0
1.5
(1) The Silsbee TX OSB siding facility produces both
commodity OSB as well as OSB siding.
(2) The Roaring River, NC plant produces only hardboard
siding products.
(3) The East River, Nova Scotia plant produces both
hardboard panel products and hardboard siding
products.
ENGINEERED WOOD PRODUCTS
I-joist Plants
2 plants—100 million lineal feet
annual capacity
1 to 3 shifts per day, 5 days per week
Red Bluff, CA . . . . . . . . . . . . . . . . . . . . .
Wilmington, NC . . . . . . . . . . . . . . . . . . .
Lineal feet
in millions
80
20
LVL Plants
3 plants—12,100 thousand cubic feet
annual capacity
1 to 3 shifts per day, 5 days per week
Hines, OR . . . . . . . . . . . . . . . . . . . . . .
Golden, BC, Canada . . . . . . . . . . . . .
Wilmington, NC . . . . . . . . . . . . . . . . .
Cubic feet
in thousands
4,000
3,500
4,600
OTHER
Plastic Mouldings Plant
1 plant—290 million lineal feet annual capacity
3 shifts per day, 7 days per week
Middlebury, IN . . . . . . . . . . . . . . . . . . .
Lineal feet
in millions
290
Wood Composite Decking
2 plants—61 million lineal feet capacity
1 shift per day, 7 days per week
Meridian, ID . . . . . . . . . . . . . . . . . . . . .
Selma, AL . . . . . . . . . . . . . . . . . . . . . . .
Lineal feet
in millions
37
24
Panguipulli, Chile
OSB. . . . . . . . . . . . .
Golden, BC, Canada
Plywood . . . . . . . . .
Lumber . . . . . . . . . . St. Michel, Quebec, Canada
MILLS HELD FOR SALE
Lumber
1 to 3 shifts per day, 5 days per week
Gwinn, MI . . . . . . . . . . . . . . . . . . . . . . .
Malakwa, BC (cedar)
Board feet
in millions
170
(4) We sell an additional 60 million lineal feet of I-Joist
which is produced by our joint venture with Abitibi-
Consolidated.
9
CANADIAN TIMBERLAND LICENSE AGREEMENTS
Location
British Columbia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manitoba . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nova Scotia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quebec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total timberlands under license agreements in Canada . . . . . . . . . . . . . . . .
Acres
7,900,000
6,300,000
900,000
28,900,000
44,000,000
We also have timber-cutting rights under long-term contracts (five years or longer) on approximately
11,000 acres and approximately 118,000 acres on short-term contracts (less than one year), on government
and privately owned timberlands in the U.S.
Our Canadian subsidiary has arrangements with four Canadian provincial governments which give our
subsidiary the right to harvest a volume of wood off public land from defined forest areas under supply and
forest management agreements, long-term pulpwood agreements, and various other timber licenses. The
acreage noted above is the gross amount of the licenses and is not reflective of the amount of timber
acreage that we currently manage. This subsidiary also obtains wood from private parties in certain cases
where the provincial governments require us to obtain logs from private parties prior to harvesting from
the licenses to meet our raw materials needs.
ITEM 3. Legal Proceedings
Certain environmental matters and legal proceedings are discussed below.
ENVIRONMENTAL MATTERS
We are involved in a number of environmental proceedings and activities, and may be wholly or
partially responsible for known or unknown contamination existing at a number of other sites at which we
have conducted operations or disposed of wastes. Based on the information currently available,
management believes that any fines, penalties or other costs or losses resulting from these matters will not
have a material adverse effect on our financial position, results of operations, cash flows or liquidity.
SIDING MATTERS
Settlement agreements relating to a nationwide class action suit involving OSB Siding manufactured
by us and installed prior to January 1, 1996, a related class action in Florida and a nationwide class action
suit involving hardboard siding manufactured or sold by corporations acquired by us in 1999 and installed
prior to May 15, 2000, were approved by the applicable courts in 1996, 1995 and 2000, respectively. We
continue to have payment and other obligations related to the hardboard siding settlement, but have
satisfied all of our obligations under the under the nationwide and Florida OSB siding settlements.
Additional information regarding these matters is set forth in Note 18 of the Notes to the financial
statements included in item 8 of this report.
On October 15, 2002, a jury returned a verdict of $29.6 million against us in a Minnesota State Court
action entitled Lester Building Systems, a division of Butler Manufacturing Company, and Lester’s of
Minnesota, Inc., v. Louisiana-Pacific Corporation and Canton Lumber Company. On December 13, 2002,
the District of Oregon, which maintains jurisdiction over the nationwide OSB class action permanently
enjoined the Minnesota state trial court from entering judgment against us with respect to $11.2 million of
the verdict that related to siding that was subject to the nationwide OSB siding settlement. Lester’s had
appealed this injunction to the Ninth Circuit Court of Appeals. Subsequently, on January 27, 2003, the
Minnesota state trial court entered judgment against us in the amount of $20.1 million, representing the
verdict amount plus costs and interest less the enjoined amount. That judgment became final and we
satisfied that judgment during the second quarter of 2004. The enjoined amount was not paid as part of
that satisfaction of judgment because the injunction remains in place pending the appeal by Lester’s. Based
10
upon the information currently available, we believe that any further liability related to this case is remote
and will not have a material adverse effect on our financial position, results of operations, cash flows or
liquidity.
NATURE GUARD CEMENT SHAKES MATTERS
We are a defendant in a class action lawsuit, captioned as Nature Guard Cement Roofing Shingle Cases,
that is pending in the Superior Court for Stanislaus County, California. The plaintiffs in this action are a
class of persons owning structures on which Nature Guard Fiber Cement Shakes were installed as roofing.
The complaint in this action asserts claims for breach of express and implied warranties, unfair business
practices, and violation of the Consumer Legal Remedies Act and seeks general, compensatory, special
and punitive damages, disgorgement of profits and the establishment of a fund to provide restitution to the
purported class members.
We no longer manufacture or sell fiber cement shakes. The dollar amount of the referenced claims
cannot presently be determined. The complaint in this action does not quantify the relief sought by the
plaintiffs individually or on behalf of the class, discovery in this action has not been completed, no
determination of liability has been made and no process for the submission of individual claims in
connection with this action has been established. We believe that we have substantial defenses to this
action and are unable to predict the potential financial impact of this action.
OTHER PROCEEDINGS
During the third quarter of 2004, we received a letter from a law firm purporting to represent more
than 1,400 potential plaintiffs who allegedly experienced various personal injuries and property damages
as a result of the alleged release of chemical substances from our wood treatment facility in Lockhart,
Alabama during the period from 1953 to 1998. The letter is characterized as a “pre-litigation settlement
demand” to us and Pactiv Corporation, from whom we acquired the facility in 1983. We intend to defend
vigorously any legal proceedings that may be commenced against us by the potential plaintiffs. As of the
date of this report, we and the potential plaintiffs have agreed to refrain from commencing any legal
proceedings in respect of the potential plaintiffs’ allegations and to the tolling of applicable statutes of
limitations. These agreements are terminable by either party upon 30 days notice. We are not currently
able to quantify its financial exposure, if any, relating to the matters alleged in the letter, and the potential
plaintiffs have not specified the amount of compensation sought.
We are parties to other legal proceedings. Based on the information currently available, we believe
that the resolution of such proceedings will not have a material adverse effect on our financial position,
results of operations, cash flows or liquidity.
CONTINGENCY RESERVES
We maintain reserves for the estimated cost of the legal and environmental matters referred to above.
However, as with any estimate, there is uncertainty of predicting the outcomes of claims and litigation and
environmental investigations and remediation efforts that could cause actual costs to vary materially from
current estimates. Due to various uncertainties, we cannot predict to what degree actual payments will
exceed the recorded liabilities related to these matters. However, it is possible that, in either the near term
or the longer term, revised estimates or actual payments will significantly exceed the recorded liabilities.
For information regarding our financial statement reserves for the estimated costs of the
environmental and legal matters referred to above, see Note 18 of the Notes to financial statements
included in item 8 in this report.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of LP’s security holders during the fourth quarter of 2004.
11
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of
Equity Securities
The common stock of LP is listed on the New York Stock Exchange with the ticker symbol “LPX.”
The Dow-Jones newspaper quotations symbol for the common stock is “LaPac.” Information regarding the
high and low sales prices for the common stock for each quarter of the last two years is as follows:
HIGH AND LOW STOCK PRICES
2004 High. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 High. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1ST QTR 2ND QTR 3RD QTR
$ 26.71
$ 26.93
21.05
21.25
$ 15.35
$ 11.43
10.80
7.88
$ 25.92
17.96
$ 9.11
7.10
4TH QTR
$ 28.31
23.34
$ 19.25
13.70
As of March 7, 2005, there were approximately 11,661 holders of our common stock. We did not pay
any dividends on our common stock in 2003. In February 2004, LP’s Board of Director’s reinstated a
quarterly dividend. For the year ended December 31, 2004, LP paid cash dividends of $0.30 per share.
The following table provides information regarding the Company’s purchases of Common Stock
during the fourth quarter of 2004:
Total Number
of Shares
Purchased
(thousands)
Average
Price per
Share ($)
Number of
Shares
Purchased
Under Program
(thousands)
Open
Authorization
Remaining Shares (1)
(millions)
October 1, 2004 -
October 31, 2004. . . .
November 1, 2004 -
November 30, 2004. .
December 1, 2004 -
December 31, 2004. .
Total:
—
63
—
63
$ 24.01
$ 24.01
—
63
—
19,853
—
(1) On November 1, 2003, LP’s Board of Directors authorized LP’s management to purchase
from time to time up to 20,000,000 shares of its outstanding stock in the open market or in
privately negotiated transactions.
12
ITEM 6. Selected Financial Data
Dollar amounts in millions, except per share
Year ended December 31
SUMMARY INCOME STATEMENT DATA
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before
cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before
cumulative effect of change in accounting
principle per share—basic . . . . . . . . . . . . . . . . . .
Net income (loss) per share—basic . . . . . . . . . . . .
Income (loss) from continuing operations before
cumulative effect of change in accounting
principle per share—diluted . . . . . . . . . . . . . . . .
Net income (loss) per share—diluted . . . . . . . . . .
Average shares of common stock outstanding
(millions)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY BALANCE SHEET
INFORMATION
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, excluding current portion . . . . .
Contingency reserves, excluding current
2004
2003(2)
2002(1)
2001
2000
$ 2,849.4
$ 2,280.7
$ 1,576.2
$ 1,591.6
$ 2,197.4
423.5
(2.8)
420.7
284.9
(12.5)
272.5
(3.8 )
(54.4 )
(62.0 )
(128.8 )
(42.8 )
(171.6 )
12.9
(26.7)
(13.8)
$
$
$
$
3.91
3.88
3.87
3.84
$
$
$
$
2.70
2.58
0.12
$ (0.03 ) $ (1.23 ) $
$ (0.59 ) $ (1.64 ) $ (0.13)
2.68
2.56
0.12
$ (0.03 ) $ (1.23 ) $
$ (0.59 ) $ (1.64 ) $ (0.13)
108.3
109.6
105.5
106.5
104.6
104.6
104.4
104.4
104.1
104.1
$ 3,450.6
$ 622.5
$ 3,204.4
$ 1,020.7
$ 2,780.0
$ 1,077.0
$ 3,014.0
$ 1,152.0
$ 3,374.7
$ 1,183.8
portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
$
42.1
$ 1,767.8
$
55.6
$ 1,310.9
$ 106.1
$ 1,006.2
$ 135.1
$ 1,080.9
$ 126.6
$ 1,295.2
1 As of January 1, 2002, LP adopted the Statement of Financial Accounting Standards (SFAS) No. 142,
“Goodwill and Other Intangible Assets”. See Note 1 of the Notes to the financial statements included
in item 8 of this report for further information.
2 As of January 1, 2003, LP adopted SFAS No. 143, “Asset Retirement Obligations”. See Note 1 of the
Notes to the financial statements included in item 8 of this report for further information.
13
ITEM 7. Management’s Discussion and Analysis
OVERVIEW
General
Our products are used primarily in new home construction, repair and remodeling, and manufactured
housing. We also market and sell our products in light industrial and commercial construction, have a
modest export business for some of our specialty building products, and operate a facility in Chile.
To serve these markets, we operate in three segments: Oriented Strand Board (OSB); Siding; and
Engineered Wood Products (EWP). OSB is the most significant segment, accounting for 61% of
continuing sales in 2004, 59% in 2003 and 47% in 2002.
In 2002 and 2003, we adopted and implemented a plan to sell selected businesses and assets in order
to improve our operating results, reduce our debt and increase our financial flexibility. The plan involved
divesting LP’s U.S. plywood, industrial panel and lumber businesses, fee timber and timberlands, wholesale
operations and distribution businesses. We believe that these divestitures, which had been substantially
completed at December 31, 2003, enable us to focus our attention exclusively on our retained businesses,
and to develop strategies to make them stronger through cost reductions, increased efficiencies and
appropriate capacity expansions. Our retained businesses have several common characteristics that include
significant scale in the categories in which they compete, strong growth potential in the future and
competitive cost structures.
During 2004, we saw significant improvement in our operating results primarily driven by the
continued strength of OSB pricing, as well as continued penetration in EWP and other market areas.
Additionally, we continue to focus on improving efficiency and reducing our product costs.
Our most significant product, OSB, is sold as a commodity for which sales prices fluctuate daily based
on market factors over which we have little or no control. We cannot predict whether the prices of our
products will remain at current levels, increase or decrease in the future. During 2004, OSB prices reached
record levels driven by product demand outstripping the industry’s ability to supply the product during the
peak building season. This imbalance was caused by increased housing starts, which created more demand,
coupled with limited new capacity coming on line.
Factors Affecting Our Results
Revenues and Operating Costs.
We derive our revenues from sales of our products. The unit volumes of products sold and the prices
at which sales are made determine the amount of our revenues. These volumes and prices are affected by
the overall level of demand for, and supply of, products of the type we sell and comparable or substitute
products, and by competitive conditions in our industry.
Our operating results reflect the relationship between the amount of our revenues and our costs of
production and other operating costs and expenses. Our costs of production are affected by, among other
factors, costs of raw materials (primarily wood fiber and various petroleum-based resins) and energy costs,
which in turn are affected by the overall market supply of and demand for these manufacturing inputs. The
Canadian dollar strengthened significantly against the U.S. dollar in 2004, causing our costs, as reported in
U.S. dollars, to rise.
Demand for Building Products.
Demand for our products correlates to a significant degree to the level of residential construction
activity in North America, which historically has been characterized by significant cyclicality. This activity
14
can be further delineated into three areas: (1) new home construction; (2) repair and remodeling; and
(3) manufactured housing.
New Home Construction. During the last three years, there has been significant housing activity
driven by a combination of increased demand due to the demographics of the U.S. population and a very
low interest rate environment. The chart below provides a graphical summary of new housing starts in the
U.S. since 1960. Several conclusions can be drawn from this data. First, it is clear that the level of volatility
in housing starts has moderated in recent years. We believe that this is largely due to the continued
consolidation among the big homebuilders, shortage of construction laborers and more lengthy processes
to obtain appropriate zoning. Second, the line of the chart that depicts a rolling five-year average housing
starts clearly shows an upward trend in the number of homes being built.
10 year
Average
Rolling 5 year
Average
s
t
r
a
t
S
g
n
i
s
u
o
H
w
e
N
)
s
n
o
i
l
l
i
m
n
i
(
3.0
2.5
2.0
1.5
1.0
0.5
0.0
0
6
9
1
5
6
9
1
0
7
9
1
5
7
9
1
0
8
9
1
5
8
9
1
0
9
9
1
5
9
9
1
0
0
0
2
5
0
0
2
Source: Resource International Systems, Inc. (RISI)
Repair and Remodeling. Demand for building materials to support home improvement projects is
largely tied to the size and age of the existing housing stock in North America. As can be seen from the
chart above, the 1970s and 1980s had some of the highest levels of building activity. This puts these homes
at an age of 25-35 years, which has been shown to be consistent with the highest per home expenditure rate
on repair and remodeling. With the rise in the number and scale of home improvement stores in North
America, individuals now have ready and convenient access to obtain the building materials needed for
repair and remodeling, as well as increased access to installation services. We believe that the growth rate
over the last three years has been in the 4-6% range, and has been driven by increased store-to-store sales
and the addition of new stores.
Manufactured Housing. While new home construction activity has been robust in the last three years,
manufactured housing has suffered. There are several factors that have led to the decline in the number of
manufactured housing units produced, including a lack of available financing, increased ability of potential
customers to switch to site-built starter homes and financial difficulties at some of the larger manufactured
housing producers.
Supply of Building Products.
OSB is a commodity product, and all of our products are subject to competition from manufacturers
worldwide. Product supply is influenced primarily by fluctuations in available manufacturing capacity.
According to Resource International Systems Inc. (RISI), an economic consulting firm, total North
15
American OSB annual production is projected to increase by approximately 7.5 billion square feet in the
period from 2004 to 2007.
-
t
e
e
F
e
r
a
u
q
S
n
o
i
l
l
i
B
s
i
s
a
b
"
8
/
3
40
35
30
25
20
15
10
5
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Product Pricing.
Historical prices for our products have been volatile, and we, like other participants in the building
products industry, have limited influence over the timing and extent of price changes for our products.
According to Random Lengths, an industry publication, the average North Central wholesale price for OSB
(per thousand square feet 7⁄16 ” basis) for the last ten years is presented below. Additionally, according to
RISI (as of February 2005), the forecast for average North Central wholesale price for OSB (per thousand
square feet 7⁄16 ” basis) through 2009 is also included.
$400
$350
$300
$250
$200
$150
$100
$50
$0
1993
1995
1997
1999
2001
2003
2005
2007
2009
16
CRITICAL ACCOUNTING POLICIES
Presented in Note 1 of the Notes to financial statements in item 8 of this report is a discussion of our
significant accounting policies. The discussion of each of the policies outlines the specific accounting
treatment related to each of these accounting areas. While all of these are important to understand when
reading our financial statements, there are several policies that we have adopted and implemented from
among acceptable alternatives that could lead to different financial results had another policy been chosen:
Inventory valuation. We use the LIFO (last-in, first-out) method for some of our log inventories with
the remaining inventories valued at FIFO (first-in, first-out) or average cost. Our inventories would have
been approximately $2.7 million higher if the LIFO inventories were valued at average cost as of
December 31, 2004.
Property, plant and equipment. We principally use the units of production method of depreciation for
machinery and equipment that amortizes the cost of machinery and equipment over the estimated units
that will be produced during its estimated useful life.
Stock options. We have chosen to report our stock based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees” under which no compensation cost for stock options is recognized for stock options granted at
or above fair market value. As permitted, we apply only the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation” which establishes a
fair value approach to measuring compensation expense related to employee stock compensation plans.
Had compensation expense for our stock-based compensation plans been determined based upon the fair
value at the grant dates under those plans consistent with SFAS No. 123, our net income would have been
lower or our net loss would have been greater. For 2004, had we recorded this compensation expense, our
net income would have been lower by $1.6 million. During 2004, the FASB issued SFAS No. 123R, which
will require us to use the fair value method beginning in mid-2005.
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS
Throughout the preparation of the financial statements, we employ significant judgments in the
application of accounting principles and methods. These judgments are primarily related to the
assumptions used to arrive at various estimates. For 2004, these significant accounting estimates and
judgments include:
Legal Contingencies. Our estimates of our loss contingencies for legal proceedings are based on
various judgments and assumptions regarding the potential resolution or disposition of the underlying
claims and associated costs. In making judgments and assumptions regarding legal contingencies for
ongoing class action settlement we consider, among other things, discernible trends in the rate of claims
asserted and related damage estimates, information obtained through consultation with statisticians and
economists, including statistical analyses of potential outcomes based on experience to date and the
experience of third parties who have been subject to product-related claims judged to be comparable. Due
to the numerous variables associated with these judgments and assumptions, both the precision and
reliability of the resulting estimates of the related loss contingencies are subject to substantial
uncertainties. We regularly monitor our estimated exposure to these contingencies and, as additional
information becomes known, may change our estimates significantly.
Environmental Contingencies. Our estimates of our loss contingencies for environmental matters are
also based on various judgments and assumptions. These estimates typically reflect judgments and
assumptions relating to the probable nature, magnitude and timing of required investigation, remediation
and/or monitoring activities and the probable cost of these activities, and in some cases reflect judgments
and assumptions relating to the obligation or willingness and ability of third parties to bear a proportionate
17
or allocated share of the cost of these activities, including third parties who purchased assets from us
subject to environmental liabilities. We consider the ability of third parties to pay their apportioned cost
when developing our estimates. In making these judgments and assumptions related to the development of
our loss contingencies, we consider, among other things, the activity to date at particular sites, information
obtained through consultation with applicable regulatory authorities and third-party consultants and
contractors and our historical experience at other sites that are judged to be comparable. Due to the
numerous variables associated with these judgments and assumptions, and the effects of changes in
governmental regulation and environmental technologies, both the precision and reliability of the resulting
estimates of the related contingencies are subject to substantial uncertainties. We regularly monitor our
estimated exposure to environmental loss contingencies and, as additional information becomes known,
may change our estimates significantly. At December 31, 2004, we excluded from our estimates
approximately $6 million of potential environmental liabilities that we estimate will be allocated to third
parties pursuant to existing and anticipated future cost sharing arrangements.
Impairment of Long-Lived Assets. We review the long-lived assets held and used by us (primarily
property, plant and equipment and timber and timberlands) for impairment when events or changes in
circumstances indicate that the carrying amount of assets may not be recoverable. Identifying these events
and changes in circumstances, and assessing their impact on the appropriate valuation of the affected
assets under accounting principles generally accepted in the U.S., requires us to make judgments,
assumptions and estimates. In general, on assets held and used, impairments are recognized when the book
values exceed our estimate of the undiscounted future net cash flows associated with the affected assets.
The key assumptions in estimating these cash flows include future production volumes and pricing of
commodity products and future estimates of expenses to be incurred. Our assumptions regarding pricing
are based upon the average pricing over the commodity cycle (generally five years) due to the inherent
volatility of commodity product pricing. These prices are estimated from information gathered from
industry research firms, research reports published by investment analysts and other published forecasts.
Our estimates of expenses are based upon our long-range internal planning models and our expectation
that we will continue to reduce product costs that will offset inflationary impacts.
When impairment is indicated, the book values of the assets to be held and used are written down to
their estimated fair value that is generally based upon discounted future cash flows. Assets to be disposed
of are written down to their estimated fair value, less estimated sales costs. Consequently, a determination
to dispose of particular assets can require us to estimate the net sales proceeds expected to be realized
upon such disposition, which may be less than the estimated undiscounted future net cash flows associated
with such assets prior to such determination, and thus require an impairment charge. In situations where
we have experience in selling assets of a similar nature, we may estimate net sales proceeds on the basis of
that experience. In other situations, we hire independent appraisers to estimate net sales proceeds. Due to
the numerous variables associated with our judgments and assumptions relating to the valuation of assets
in these circumstances, and the effects of changes in circumstances affecting these valuations, both the
precision and reliability of the resulting estimates of the related impairment charges are subject to
substantial uncertainties and, as additional information becomes known, we may change our estimates
significantly.
Income Taxes. The determination of the provision for income taxes, and the resulting current and
deferred tax assets and liabilities, involves significant management judgment, and is based upon
information available to management at the time of such determination. The final income tax liability to
any taxing jurisdiction with respect to any calendar year will ultimately be determined long after our
financial statements have been published for that year. We maintain reserves for known estimated tax
exposures in federal, state and international jurisdictions; however, actual results may differ materially
from our estimates.
18
Judgment is also applied in determining whether deferred tax assets will be realized in full or in part.
When we consider it to be more likely than not that all or some portion of a deferred tax asset will not be
realized, a valuation allowance is established for the amount of the deferred tax asset that is estimated not
to be realizable. As of December 31, 2004, we had established valuation allowances against certain
deferred tax assets, primarily related to state net operating loss and credit carryovers and foreign capital
loss carryovers. We have not established valuation allowances against other deferred tax assets based upon
expected future taxable income and/or tax strategies planned to mitigate the risk of impairment of these
assets. Accordingly, changes in facts or circumstances affecting the likelihood of realizing a deferred tax
asset could result in the need to record additional valuation allowances.
Goodwill. Goodwill and other intangible assets that are deemed to have an indefinite life are no
longer amortized. However, these indefinite life assets are tested for impairment on an annual basis, and
otherwise when indicators of impairment are determined to exist, by applying a fair value based test. The
process of evaluating the potential impairment of goodwill is highly subjective and requires significant
judgments at many points during the analysis. In testing for potential impairment, the estimated fair value
of the reporting unit, as determined based upon cash flow forecasts, is compared to the book value of the
reporting unit. The key assumptions in estimating these cash flows include future production volumes and
pricing of commodity products and future estimates of expenses to be incurred. Our assumptions regarding
pricing are based upon the average pricing over the commodity cycle (generally five years) due to the
inherent volatility of commodity product pricing. These prices are estimated from information gathered
from industry research firms, research reports published by investment analysts and other published
forecasts. Our estimates of expenses are based upon our long-range internal planning models and our
expectation that we will reduce product costs that will offset inflationary impacts.
Due to the numerous variables associated with our judgments and assumptions relating to the
valuation of assets in these circumstances, and the effects of changes in circumstances affecting these
valuations, both the precision and reliability of the resulting estimates of the related impairment charges, if
any, are subject to substantial uncertainties and, as additional information becomes known, we may change
our estimates significantly.
Pension Plans. Most of our U.S. employees and many of our Canadian employees participate in
defined benefit pension plans sponsored by LP. We account for the consequences of our sponsorship of
these plans in accordance with accounting principles generally accepted in the U.S., which require us to
make actuarial assumptions that are used to calculate the related assets, liabilities and expenses recorded
in our financial statements. While we believe we have a reasonable basis for these assumptions, which
include assumptions regarding long-term rates of return on plan assets, life expectancies, rates of increase
in salary levels, rates at which future values should be discounted to determine present values and other
matters, the amounts of our pension related assets, liabilities and expenses recorded in our financial
statements would differ if we used other assumptions. See further discussion related to pension plans
below under the heading “Defined Benefit Plans” and in Note 13 of the Notes to the financial statements
included in item 8 of this report.
RESULTS OF OPERATIONS
We earned net income of $420.7 million ($3.84 per diluted share) in 2004, which was comprised of
income from continuing operations of $423.5 million ($3.87 per diluted share) and a loss from
discontinued operations of $2.8 million ($0.03 per diluted share). This compares to a net income of $272.5
million ($2.56 per diluted share) in 2003, which was comprised of income from continuing operations of
$284.9 million ($2.68 per diluted share), a loss from discontinued operations of $12.5 million ($0.12 per
diluted share) and a cumulative effect of a change in accounting principle of $0.1 million. We lost $62.0
million ($0.59 per diluted share) in 2002 that was comprised of a loss from continuing operations of $3.8
19
million ($0.03 per diluted share), a loss from discontinued operations of $54.4 million ($0.53 per diluted
share) and a cumulative effect of a change in accounting principle of $3.8 million ($0.03 per diluted share).
Sales in 2004 were $2.8 billion, an increase of 25% from 2003 sales of $2.3 billion. Sales in 2003 as
compared to 2002 were higher by 45%.
Our results of operations for each of our segments are discussed below as our results of operations
for the “other” category which is comprised of other product lines that are not individually significant. See
Note 24 of the Notes to the financial statements included in item 8 of this report for further information
regarding our segments.
OSB
Our OSB segment manufactures and distributes OSB structural panels.
Our strategy to continue to enhance our industry leading position in the OSB business involves:
(1) increasing investment in our existing facilities in order to reduce costs and improve throughput and
recovery by continuing to focus on efficiency; (2) improving net realizations relative to weighted-average
OSB regional pricing; (3) leveraging our expertise in OSB to capitalize on new opportunities for revenue
growth through new product lines; and (4) expanding capacity to meet growing OSB demand through
internal growth at existing facilities, selected acquisitions that meet specific criteria and by building new,
low-cost manufacturing facilities to serve particular markets.
OSB is manufactured through the use of wood strands arranged in layers and bonded with resins and
wax. Significant cost inputs to produce OSB and approximate breakdown percentages include wood (36%),
resin and wax (15%), labor and burden (15%), utilities (7%) and manufacturing and other (27%).
Segment profits and related depreciation, amortization and cost of timber harvested for this segment
are as follows:
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profits. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and cost of timber
2004
Year ended December 31,
2003
(in millions)
$ 1,335.6
$ 503.4
$ 1,749.0
$ 829.7
$ 740.4
61.6
2002
Increase (decrease)
2004-2003
2003-2002
31 %
65 %
80%
717%
harvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
94.0
$
78.4
$ 75.7
Percent changes in average sales prices and unit shipments for the year ended 2004 compared to 2003
and 2003 compared to 2002 are as follows:
OSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 versus 2003
2003 versus 2002
Average
Net Selling
Price
27%
Unit
Shipments
3%
Average
Net Selling
Price
70 %
Unit
Shipments
7%
20
2004 compared to 2003
OSB prices increased during 2004 compared to 2003 due to strong market demand. Higher average
selling prices accounted for substantial increases in net sales and operating profits of approximately $350
million for the year ended December 31, 2004 compared to 2003. Increased demand coupled with limited
additional industry capacity that has been put into service over the last year were largely responsible for
this price increase.
Compared to prior year, the primary factor for increased operating profits was the higher average
selling prices and volumes, which were partially offset by an increase in operating costs for the year. The
increase in operating costs at the mills was primarily due to higher wood, resin and energy costs.
Additionally, because of the strengthening Canadian dollar, operating costs at our Canadian OSB mills
were negatively affected when Canadian dollar denominated costs were translated into US dollars.
2003 compared to 2002
OSB prices increased significantly during 2003 compared to 2002 due to strong market demand and a
shortage of available product in the second half of the year. An important factor in 2003 was the weather.
In the spring, unusually poor weather conditions in much of the U.S. delayed the start of the building
season. Additionally, these conditions limited logging activities in many regions with the result that several
producers had to curtail operations of their structural panel facilities due to log outages. The result of
these factors was increased demand within a shorted time span when inventories were low and industry
capacity was limited. During 2003, all of our OSB mills were operating including our Woodland, Maine
mill that was acquired through an exchange in September 2002.
While the profitability of our OSB segment did increase significantly due to higher sales prices in
2003, both the industry and us generally experienced increases in cost of sales. As mentioned above,
weather conditions limited logging activity that had the effect of increasing the cost of available logs. Other
cost increases were related to petroleum-based raw materials (resins) and energy. Finally, because of the
strengthening of the Canadian dollar against the U.S. dollar, the operating results of our Canadian OSB
mills were negatively affected because the input costs were in Canadian dollars and the majority of the
sales were in U.S. dollars.
Siding
Our siding segment produces and markets siding (both wood and vinyl based) and related accessories,
interior hardboard products and specialty OSB products.
Our siding segment is following a strategy based upon multiple product offerings to be the “one stop”
supplier of choice for most segments of these markets: new home construction, repair and remodeling, and
manufactured housing markets. We believe that we are the leading wood composite exterior cladding
producer in North America. We manufacture exterior siding and other cladding products for the
residential and commercial building markets. Additionally, we are seeking to optimize our current capacity
by extending the hardboard lifecycle through innovative new products and features.
Our strategy is to drive product innovation by utilizing our technological expertise in wood, wood
composites and plastics to better address the needs of our customers. We intend to increase our product
offerings and production capacity of higher margin, value-added products through the addition of lower
cost plants or the conversion of OSB plants from commodity structural panel production to OSB-based
exterior siding products.
21
Segment profits and related depreciation, amortization and cost of timber harvested for this segment
are as follows:
Year ended December 31,
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and cost of timber
2004
$ 554.1
$ 54.2
2003
(in millions)
$ 523.9
$ 61.0
Increase (decrease)
2002
2004-2003
2003-2002
$ 430.9
$ 44.5
6 %
-11 %
22%
37%
harvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 18.9
$ 18.7
$ 18.6
Sales in this segment are broken down as follows:
Year ended December 31,
OSB-based exterior products (includes commodity OSB) . . . . . . . . . . . . . . . . . .
Vinyl siding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hardboard siding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
$ 260.5
123.4
170.2
$ 554.1
2003
(in millions)
$ 261.7
116.4
145.8
$ 523.9
2002
$ 191.9
96.6
142.4
$ 430.9
Percent changes in average sales prices and unit shipments for the year ended 2004 compared to 2003
and 2003 compared to 2002 are as follows:
Average Net Selling Price Unit Shipments Average Net Selling Price
Unit Shipments
2004 versus 2003
2003 versus 2002
OSB-based exterior
products . . . . . . . . . . .
Commodity OSB . . . . . .
Vinyl siding. . . . . . . . . . .
Hardboard siding. . . . . .
2004 compared to 2003
5%
27%
6%
8%
21%
-80%
-%
7%
1%
70%
6%
8%
11%
22%
13%
-3%
Sales volume continued to increase over the prior year in our OSB-based exterior products due to
continued market penetration and brand awareness. Volumes also increased in our hardboard siding and
doorskin business due to the addition of several new customers as one of our competitors exited the
business. Sales volumes in our vinyl business remained flat. Sales prices in the OSB-based exterior
products, hardboard and vinyl siding businesses showed increases in price due to both changes in product
mix as well as general price increases implemented to help offset higher raw material costs in all of these
lines of business.
During the three-year period ended December 31, 2004, one of our specialty OSB facilities (Silsbee,
Texas) also produced commodity OSB. The commodity OSB volume declined significantly in 2004 as
market demand for OSB-based exterior products increased. See the discussion of our OSB segment above
for a discussion of changes in commodity OSB pricing.
Overall, the decline in 2004 operating results for our siding segment compared to 2003 was primarily
due to the reduction in commodity OSB sales and profits, which were sold at a higher margin than our
OSB-based exterior products during this period and increases in operating costs, (including higher wood
fiber, resin and energy costs) not offset by price increases.
22
2003 compared to 2002
Sales volume in 2003 increased over 2002 in our OSB-based exterior products and vinyl siding due to
increased market penetration and brand awareness. Sales prices in the OSB-based exterior products
remained relatively flat with the comparable period. Volumes in our hardboard siding and doorskin
business declined due to reduced demand in one of our key markets and slackening demand elsewhere.
Sales prices in our hardboard business increased over 2002 due to a higher mix of hardboard siding versus
doorskins. In our vinyl siding business, sales prices increased in 2003 over 2002 due partially to an increase
in sales volumes for our premium siding product (56% increase for the year) that “richened” the mix.
Additionally, we implemented a general price increase to offset a portion of the increased cost of the
primary raw material.
Overall, the improvement in 2003 operating results for our siding segment compared to 2002 was
primarily due to the significant increase in commodity OSB pricing, which was slightly offset by increases in
operating costs, including higher wood fiber, resin and energy costs. During 2003 as compared to 2002,
volumes of commodity OSB increased due to productivity improvements.
Engineered Wood Products
Our engineered wood products (EWP) segment manufactures and distributes laminated veneer
lumber (LVL), I-joists and other related products.
Our strategy is to strengthen our brand name recognition in the EWP industry by enhancing our
product mix and quality, providing superior technical support for our customers and leveraging our sales
and marketing relationships to cross-sell our EWP products. Additionally, we are seeking to drive costs
down by rationalizing production capacity across geographic areas and improving operating efficiencies in
our manufacturing facilities.
Segment profits (losses) and related depreciation, amortization and cost of timber harvested for this
segment are as follows:
Year ended December 31,
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and cost of timber
2004
$ 394.7
7.2
2002
2003
(in millions)
$ 290.6
$ 225.7
$ (1.5) $ 7.3
Increase (decrease)
2004-2003
2003-2002
36 %
580 %
29%
-121%
harvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15.1
$ 13.5
$ 12.6
Sales in this segment are broken down as follows:
Year ended December 31,
LVL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I-joist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plywood. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
$ 164.7
174.7
28.7
26.6
$ 394.7
2003
(in millions)
$ 115.2
134.2
18.1
23.1
$ 290.6
2002
$ 82.4
109.9
13.7
19.7
$ 225.7
23
Percent changes in average sales prices and unit shipments for the year ended 2004 compared to 2003
and 2003 compared to 2002 are as follows:
Average Net Selling Price Unit Shipments Average Net Selling Price
Unit Shipments
2004 versus 2003
2003 versus 2002
LVL . . . . . . . . . . . . . . . . .
I-joist . . . . . . . . . . . . . . . .
12%
13%
27%
15%
-1%
1%
43%
21%
2004 compared to 2003
During 2004, we continued to grow our engineered wood products segment. We saw significant
growth in both LVL and I-joist with the addition of several new distributors and expanded our presence
with large production builders. During the later half of 2004, we implemented several significant price
increases to offset the increased raw material costs. Our focus continues to be on reductions in conversion
costs, better geographic manufacturing and distribution, and maintaining customer relationships. Included
in this segment is a plywood mill, which primarily produces plywood as a by-product from the LVL
production process. Given the significant price increase in plywood (which typically follows OSB) we
operated this facility at higher levels during 2004.
The results of operations of our EWP segment improved primarily due to significant price increases
which were necessary to mitigate increases in raw material costs (primarily veneer, OSB and lumber).
2003 compared to 2002
During 2003, we continued to grow our engineered wood products segment. We saw significant
growth in both LVL and I-joist with the addition of several new distributors and expanded presence with
large production builders. Sales prices were relatively flat with 2002 with a small decline in LVL prices and
a small increase in I-joist prices.
The results of operations of our EWP segment declined primarily due to increases in raw material
costs (primarily veneer, OSB and lumber) and operating costs, as well as the impact of the strengthening
Canadian dollar on the Canadian dollar denominated operating costs of our EWP facilities in British
Columbia.
Other Products
Our other products category includes our moulding, composite decking business and Chilean
operations which are not individually material. Additionally, this category includes our former OSB
operation in Ireland (which we sold in April 2002), timber and timberlands not associated with other
segments or businesses to be divested, pulp and other minor products and services and other operations
closed prior to January 1, 2002. Mills that were closed prior to January 1, 2002 that are included in the
businesses that we are divesting are included in the “Other Products” category.
Profits (losses) for this category and related depreciation, amortization and cost of timber harvested
for this category are as follows:
Year ended December 31,
2004
2003
2002
2004-2003
2003-2002
Increase (decrease)
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profits (losses) . . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and cost of timber
$ 161.6
$ 14.7
(in millions)
$ 164.1
$ 9.7
$ 198.1
$ 13.8
-2 %
52 %
-17%
-30%
harvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7.4
$ 10.7
$ 18.4
24
Sales in this category are broken down as follows:
Year ended December 31,
Mouldings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chilean operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
$ 42.2
26.5
67.1
25.8
$ 161.6
2003
(in millions)
$ 38.6
15.7
41.4
68.4
$ 164.1
2002
$ 37.8
11.5
17.6
131.2
$ 198.1
For decking and moulding, percent changes in average sales prices and unit shipments for the year
ended 2004 compared to 2003 and 2003 compared to 2002 are as follows:
Average Net Selling Price
Unit Shipments Average Net Selling Price
Unit Shipments
2004 versus 2003
2003 versus 2002
Moulding . . . . . . . . . . . . .
Decking. . . . . . . . . . . . . . .
6%
6%
4%
58%
-1%
32%
2%
58%
2004 compared to 2003
During 2004, we continued to grow our moulding, decking and Chilean businesses while our other
businesses in this category all showed a decline. In our mouldings product line, we continued to see
increases in both unit shipments and sales prices due to continued strength in retail activity in home
centers. In our composite decking business, we saw increased volumes as a result of continued marketing
efforts to gain new customers as well as increased production due to capital expansion at one of our
facilities. In our Chilean operation, we continued to see increased sales due to both increases in commodity
OSB pricing as well as increased volumes through increased acceptance of OSB in the local markets. The
declines in our other businesses are primarily due to the reduction in sales primarily attributable to the
divesture of most of our lumber facilities thus reducing the sales through VMI and reload locations.
Additionally, sales of logs sold to third parties from our timberlands or related timber contracts declined
significantly with the sale of our remaining fee timberlands in October of 2003. Overall, the results of this
category improved due to the improved profitability of our moulding and decking businesses.
2003 compared to 2002
During 2003, our mouldings product line, we saw a slight increase in unit shipments due to increased
retail activity in the home centers; however sales prices declined slightly due to competitive pricing
pressure. In our composite decking business sales prices increased significantly as a result of a general
price increase instituted as of January 1, 2003 for all our decking products. Additionally, our sales and
production volumes increased significantly as a result of continued marketing efforts to gain new
customers that allowed us to run both of our decking facilities in 2003, while our Meridian plant was shut
down for a portion of 2002. In our Chilean operation, we saw increased sales volume due to improved
productivity and increases in commodity OSB pricing (see OSB pricing discussion in the OSB segment).
Offsetting this, was a reduction in sales attributable to the divestiture, contribution or closure of mills as
well as lower lumber sales through VMI and reloads due to these divestures. Overall, the results of this
category declined from 2002 due to the significantly lower lumber sales as well as reduced log sales as we
completed the divesture of our fee timberlands.
GENERAL CORPORATE AND OTHER EXPENSE, NET
Net general corporate expense was $104 million in 2004 as compared to $102 million in 2003 and
$81 million in 2002. General corporate and other expenses primarily consist of corporate overhead such as
25
wages and benefits for corporate personnel, professional fees, insurance, non-product specific marketing
and other expenses. The increase in 2004 as compared to 2003 was primary related to higher stock
compensation expenses due to meeting vesting acceleration targets for some awards, higher management
bonuses due to improved operating results, and costs associated with compliance, notably Sarbanes-Oxley
implementation. The increase in 2003 as compared to 2002 was primarily attributed to increased expense
associated with triggering vesting accelerators and meeting performance targets on several stock
compensation programs (see discussion at Note 14 of the notes to the financial statements included in item
8 of this report), management compensation bonuses tied to significantly improved financial performance
as well as increases in legal, professional fees and insurance.
OTHER OPERATING CREDITS AND CHARGES, NET
For a discussion of other operating credits and charges, net, refer to Notes 1 and 16 of the Notes to
the financial statements included in item 8 of this report.
GAIN (LOSS) ON SALES OF AND IMPAIRMENTS OF LONG-LIVED ASSETS
For a discussion of gain (loss) on sales of and impairments of long-lived assets, refer to Notes 1 and 17
of the Notes to the financial statements included in item 8 of this report
INTEREST, NET
In 2004, 2003 and 2002, net interest expense was $19.7 million, $54.6 million and $63.0 million. The
decline in net interest expense in 2004 as compared to 2003 and 2003 compared to 2002 was due to
significantly higher cash balances as well as lower outstanding debt.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
Over the last three years, we have entered into several joint venture arrangements. These include:
(1) a joint venture with Casella Waste Management Systems, Inc. to produce cellulose insulation; (2) a
joint venture with Canfor Corporation to construct and operate an OSB mill in British Columbia; and (3) a
joint venture with Abitibi-Consolidated to construct and operate an I-joist facilities in Quebec. The joint
venture with Canfor had not commenced operations as of December 31, 2004.
In August 2000, together with Casella Waste Management Systems, Inc., we each contributed most of
the assets of our respective cellulose insulation operations to a joint venture, U.S. GreenFiber, LLC
(GreenFiber). Pursuant to the Limited Liability Company Agreement, each company owns 50% of
GreenFiber. GreenFiber elected to be treated as a partnership for income tax purposes and therefore the
entity is not taxed directly. GreenFiber’s operations improved significantly in 2004 and 2003 due to lower
raw material costs and increased market penetration.
In November 2002, we sold some of our I-joist manufacturing equipment to our joint venture with
Abitibi-Consolidated to construct and operate an I-joist facility in Eastern Canada. Pursuant to the joint
venture agreement, each company owns 50% of the venture. During 2003, this venture commenced
operations. The operating results of this venture improved in 2004. In 2004, we initiated the construction
of a second I-joist facility with Abitibi-Consolidated that at December 31, 2004 had not commenced
operations.
DISCONTINUED OPERATIONS
Included in discontinued operations for 2004, 2003 and 2002 are the results of the operations of mills
that have been or are anticipated to be divested under our divesture plan. These operations include our
26
U.S. plywood, lumber and industrial panels mills, wholesale operations and distribution centers. The
results of operations for these locations are as follows:
Year ended December 31,
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profits (losses) . . . . . . . . . . . . . . . . . . . . . .
2004 compared to 2003
2002
2004
2003
(in millions)
$ 691.9
$ 351.9
$ 144.9
$ (4.6) $ (20.6) $ (88.7)
Increase (decrease)
2004 - 2003
2003 - 2002
(59 )%
78 %
(49)%
77%
Overall, sales for these operations declined significantly in 2004 as compared to 2003. This decline is
primarily related to timing on the sale, transfer or permanent closure of locations. During 2004, we sold
two lumber mills, and two related interior industrial panel facilities.
Included in the operating losses of discontinued operations for 2004, we recorded impairment charges
of $9.9 million to reduce the carrying values of these assets to their estimated fair value less estimated cost
to sell; a loss of $2.3 million associated with the settlement of an existing liability related to an operating
lease on one of our facilities and a gain of $1.2 million on long-term timber contracts associated with our
divested facilities. Additionally, we recorded a loss of $3.8 million on the sale of these assets including two
related industrial panel facilities and an interior industrial panel facility. We recognized a $3.7 million gain
associated with the liquidation of certain LIFO inventories due to reduced log and lumber inventories at
sites sold or closed.
2003 compared to 2002
Overall, sales for these operations declined significantly in 2003 as compared to 2002. This decline is
primarily related to timing on the sale, transfer or permanent closure of locations as well as lower sales
prices for these commodity products, primarily lumber. During 2003, we sold six lumber mills, a veneer
facility and an industrial panel facility.
Included in the operating losses of discontinued operations for 2003, we recorded impairment charges
of $27.9 million to reduce the carrying values of these assets to their estimated fair value less estimated
cost to sell; a loss of $2.5 million related to severance costs associated with these facilities; a loss of $2.5
million associated with a curtailment of a defined benefit pension plan as a result of expected divestures; a
loss of $15.0 million associated with an operating lease on one of our facilities and a loss of $0.9 million on
long-term timber contracts associated with two of our divested facilities. Additionally, we recorded a gain
of $8.4 million on the sale of these assets including an industrial panel facility, a veneer facility and six
lumber mills. We recognized a $30 million gain associated with the liquidation of certain LIFO inventories
due to reduced log and lumber inventories at sites sold or closed.
INCOME TAXES
In total, we recorded a tax provision of $277.9 million in 2004, $225.8 million in 2003 and a tax benefit
of $21.5 million in 2002. Our effective tax rate was 40 percent for 2004; 45 percent for 2003 and (26)
percent for 2002. These rates are affected primarily by state income taxes, the effects of foreign exchange
gains, and revisions to estimates recorded in prior years. We have paid approximately $184 million in cash
taxes for 2004 and expect a refund of $29 million for 2004.
DEFINED BENEFIT PENSION PLANS
We maintain several qualified and non-qualified defined benefit pension plans in the U.S. and Canada
that cover a substantial portion of our employees. We account for all of these plans and provide aggregated
disclosures about these plans in the Notes to our financial statements as required by SFAS No. 87
27
“Employers’ Accounting for Pensions”, SFAS No. 88 “Employers’ Accounting and Settlement and
Curtailments of Defined Benefit Plans and for Termination Benefits” and SFAS No. 132 “Employers’
Disclosures about Pensions and Other Post Retirement Benefits (revised 2003)”. See Note 13 of the Notes
to the financial statements included in item 8 of this report. We estimate that our defined benefit pension
expense for 2005 will be approximately $14 million. That estimate assumes that we have no curtailment or
settlement expenses in 2005. If a curtailment or settlement does occur in 2005, this estimate may change
significantly. We estimate that we will contribute approximately $15 million to $20 million to these plans in
2005. At December 31, 2004, we have an unrecognized loss of $93 million associated with our defined
benefit pension plans. The amortization of this unrecognized loss will account for approximately 48% of
our 2005 pension expense.
The calculation of defined benefit pension plan expense is based on numerous actuarial assumptions.
Our pension expense is most sensitive to changes in our assumptions regarding the long-term rate of return
on assets and the discount rate.
For our U.S. plans, which account for more than 85% of the total assets of our defined benefit plans,
we used a long-term rate of return assumption of 8.0% to calculate the 2004 pension expense. This
assumption is based on information supplied by our investment advisors for our U.S. plans based on the
expected returns on the portfolio of assets in those plans. We will continue to monitor the expected long-
term rate of return of our pension plan investments and adjust our assumed rate of return as necessary. We
recently added real return and absolute return investments to the portfolio and expect to add real estate
investments in the near future. Additionally, to reduce the impact of market value fluctuations on the
pension expense, we use an asset smoothing method that recognizes annual investment gains and losses
over four years. A change of 0.5% in the long-term rate of return assumption would change our 2005
estimated pension expense by approximately $1.0 million.
For our U.S. plans, we used a discount rate assumption of 5.5% at October 31, 2004, which is our
measurement date. This rate is intended to reflect the rates at which the obligations could be effectively
settled at that date. We use corporate bond yields published by a recognized financial institution as an
indicator of potential settlement rates. More than 85% of our total benefit obligations are related to our
U.S. pension plans. The rate from the October 31, 2003 measurement date of 6.0% was used in the
determination of the 2004 pension expense. A change of 0.5% in the discount rate assumption would
change our 2005 estimated pension expense by approximately $1.3 million.
LEGAL AND ENVIRONMENTAL MATTERS
For a discussion of legal and environmental matters involving us and the potential impact thereof on
our financial position, results of operations and cash flows, see Item 3 in this report as well as Note 18 in
the Notes to the financial statements included in item 8 of this report.
Hardboard Siding Litigation Update
The following discussion updates should be read in conjunction with the discussion of our hardboard
siding litigation set forth in Note 18 in the Notes to the financial statements included in item 8 of this
report.
28
Cumulative statistics as of December 31, 2004, 2003 and 2002 under hardboard settlements are as
follows:
Requests for claims. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Completed claims received . . . . . . . . . . . . . . . . . . . . .
Completed claims pending . . . . . . . . . . . . . . . . . . . . .
Claims dismissed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Claims settled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,300
24,400
2,600
6,600
15,200
31,700
18,800
2,700
5,300
10,800
December 31, 2004 December 31, 2003
December 31, 2002
25,600
13,200
2,000
3,900
7,300
The average payment amount for settled claims as of December 31, 2004, 2003 and 2002 was
approximately $1,300, $1,400 and $1,500. Dismissal of claims is typically the result of claims for product not
produced by LP or claims that lack sufficient information or documentation after repeated efforts to
correct those deficiencies.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of liquidity are existing cash and investment balances (including cash and cash
equivalents, short- term and long term-investments), cash generated by our operations and our ability to
borrow under credit facilities. During 2003, we sold significant assets pursuant to a divestiture plan that
had been substantially completed at December 31, 2003. We may also from time to time issue and sell
equity or debt securities or engage in other capital market transactions.
Our principal uses of liquidity are paying the costs and expenses associated with our operations,
servicing outstanding indebtedness, making capital expenditures and paying dividends to our stockholders.
We may also from time to time prepay or repurchase outstanding indebtedness, repurchase shares of our
common stock and acquire assets or businesses that are complementary to our operations.
During 2004, we increased our cash position through operations. We expect to be able to meet the
future cash requirements of our existing businesses through existing cash balances (including short-term
and long-term investments and restricted cash) of approximately $1.2 billion, existing credit facilities that
could provide additional liquidity of up to $250 million and cash expected to be generated from operations.
The following discussion provides further details of our liquidity and capital resources.
Operating Activities
During 2004, we generated $602 million from operating activities compared to $509 million in 2003.
The increase in cash provided by operations in 2004 was primarily a result of continued improved
operating results in our OSB business.
During 2003, we generated $509 million from operating activities compared to $89 million in 2002.
The increase in cash provided by operations in 2003 was primarily a result of improved operating results in
our OSB business.
We paid out $50 million in 2004 and $52 million in each of 2003 and 2002 related to litigation
settlements.
Investing Activities
During 2004, we used $774 million in cash in investing activities as compared to cash provided by
investing activities of $443 million in 2003. The use of cash in 2004 consisted of the purchase of short-term
and long-term marketable security investments of $638 million, net of sales. Additionally, we invested $148
million in capital expenditures for property, plant and equipment, which were primarily used for capital
29
projects to reduce production costs in certain OSB facilities and expand our composite decking capacities.
We also invested $32 million to fund capital for our joint venture in British Columbia to build an OSB mill.
Additionally, we received $40 million from the sale of various assets including the sales of three lumber
mills and two related industrial hardboard facilities.
During 2003, we generated $443 million in cash from investing activities which primarily consisted of
the sale of our timber and timberlands. The cash associated with asset sales in 2003 was $129 million which
is comprised of $85 million on the sale of timber and timberlands and $44 million on the sale of various
other assets and six lumber mills, a veneer and an industry panel facility. Additionally, we received $366
million as a return of capital from an unconsolidated subsidiary (see Note 12 of the notes to the financial
statements included in item 8 of this report and “Off Balance Sheet and Other Financing Arrangements”
below) in connection with the timber sales transactions. Capital expenditures for property, plant and
equipment increased for 2003 to $87 million and were primarily used for capital projects to reduce
production costs in certain OSB facilities and to fund capital for our joint venture in Eastern Canada.
Additionally, as explained below in 2003, we converted our secured line of credit facility to a cash
collateralized letter of credit facility. As a result of this conversion, we no longer were required to deposit
the net proceeds of our asset sales into a restricted cash account and therefore reclassified this cash as
unrestricted cash.
During 2002, we generated $72 million from investing activities. The cash associated with asset sales in
2002 was $149 million, which is comprised of $103 million on the sale of timber and timberlands and $46
million on the sale of various other assets and facilities (sale of an OSB mill located in Ireland, several
distribution centers, two industrial panels facilities and several non-operating facilities and other
equipment). Capital expenditures for property, plant and equipment were $42 million in 2002 and were
primarily for the purchase and installation of capital equipment at existing mills.
Capital expenditures in 2005 are expected to be about $170 million on projects to reduce our energy,
raw materials and resin costs in our current OSB mills as well as expansion projects in our decking and
siding operations. Additionally, we expect to invest $60 million in our JV project with Canfor Corporation
to complete construction of an OSB mill in British Columbia, Canada.
Financing Activities
In 2004, net cash used in financing activities was $216 million as compared to $165 million in 2003. In
2004, we repaid $6 million under our revolving credit facility associated with our Chilean operations and
$260 million of our long-term debt. These long-term debt payments included a premium on the early
extinguishment of senior and subordinated notes of approximately $42 million. Additionally, we generated
$41 million in proceeds from the sale of common stock under our various equity compensation plans and
paid cash dividends of $33 million. Additionally, we reduced our restricted cash associated with secured
letters of credit by $45 million.
In 2003, we reduced our borrowing under our secured revolving credit facility by $32 million and
repaid $53 million in other long-term debt. Additionally, we generated $19 million in proceeds from the
sale of common stock under our various equity compensation plans. During 2003, we converted our
secured revolving credit facility into a secured letter of credit facility. Benefits from the conversion
included the elimination of $187 million of unneeded committed borrowing capacity (and the obligation to
pay related fees), a $37 million reduction in cash collateral and a more favorable rate for letters of credit
(which are cash collateralized under the facility).
In 2002, net cash used in financing activities was $85 million. In 2002, we reduced our borrowings
under our revolving line of credit by $40 million and repaid $33 million in long-term debt.
30
Financing Obligations
During 2004, we entered into a new five-year revolving credit facility and terminated our former
secured letter of credit facility. The new facility, which will expire in September 2009, provides for
committed borrowing capacity of $150 million. Subject to the willingness of existing or new lenders under
the credit facility to advance additional funds, we may increase our borrowing capacity under the facility by
up to an additional $100 million. The facility allows us to cash collateralize the facility, at our option, in
order to lower the cost of such borrowings. At December 31, 2004, we had no borrowings outstanding
under the facility. Letters of credit issued and outstanding totaled approximately $59 million as
December 31, 2004 and were cash collaterialized with $62 million.
We also have a $10 million (Canadian) revolving credit facility under which $3 million of letters of
credit were outstanding at December 31, 2004. This facility matures in September 2005, and letters of
credit can extend up to September 2006. This facility requires LP to pledge, as security for its
reimbursement obligations under the facility, cash collateral in an amount equal to 105% of the face
amount of the letters of credit outstanding under the facility at any time.
Additionally, we have an accounts receivable securitization facility which, as extended in
October 2004, will expire in November 2007. The facility provides for maximum borrowings of up to of
$100 million. The maximum available to be borrowed under this facility changes based upon the amount of
eligible receivables, as defined, concentration of eligible receivables and other factors. Additionally, the
facility contains a provision under which specified downgrades of our long-term unsecured senior debt
rating could cause an amortization event under this facility. At December 31, 2004, we had no borrowings
outstanding under this facility.
The indenture under which our senior subordinated notes were issued restricts our ability and our
restricted subsidiaries (as defined in the indenture) to, among other things: (1) incur debt; (2) incur liens;
(3) make acquisitions; (4) make investments, including loans and advances; (5) engage in mergers,
consolidations or sales of assets; (6) enter into sale and leaseback transactions; (7) engage in transactions
with affiliates; and (8) pay dividends or engage in stock redemptions. In particular, this indenture restricts
our ability to incur debt unless we have a pro forma fixed charge coverage ratio (calculated as provided in
the indenture) of at least 2.00 to 1.00 (although we are permitted to incur specific types and amounts of
debt without satisfying this fixed charge coverage ratio). The indenture also restricts or limits our ability to
make investments, including investing our cash balances, and other restricted payments (although we are
permitted to make specific types and amounts of investments and other payments without restriction). In
connection with our repurchase of a majority of these notes, substantially all of the restrictive covenants
contained in the indenture are suspended so long we maintain a credit rating of BB- or above with S&P
and Ba3 or above with Moody’s, which suspension will become permanent if such credit ratings are
maintained for twelve consecutive months from March 25, 2004. See the table below for current debt
ratings.
The following details our current debt ratings as of March 1, 2005:
Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Baa3
BBB-
Moody’s Investor Service Standard & Poor’s
As of December 31, 2004, we were in compliance with all of the covenants contained in the
indentures.
Contingency reserves, which represent an estimate of future cash needs for various contingencies
(principally, payments for siding litigation settlements), totaled $54 million at December 31, 2004, of which
$12 million is estimated to be payable within one year. As with all accounting estimates, there is inherent
uncertainty concerning the reliability and precision of such estimates. As described above and in Note 18
31
of the Notes to the financial statements included in item 8 of this report, the amounts ultimately paid in
resolving these contingencies could exceed the current reserves by a material amount.
The table below summarizes our contractual obligations as of December 31, 2004 over the next several
years. See discussion above concerning provisions that could accelerate the due dates on our long-term
debt.
Contractual obligations
Long-term debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term obligations(3). . . . . . . . . . . . . . . . . . . . . . . . . .
Total contractual cash obligations . . . . . . . . . . . . . . . . . . . . . . .
2005
$ 233.4
6.9
23.7
83.9
$ 347.9
Payments due by period
2008
2007
2006
Dollars amounts in millions
$ 42.1
$ 114.5
5.6
6.4
5.8
6.3
16.6
15.3
$ 70.1
$ 142.5
$ 113.1
5.2
5.9
17.7
$ 141.9
2009
$ 63.7
5.2
5.4
18.7
$ 93.0
(1) Includes expected interest payments as well as debt maturities.
(2) The majority of our purchase obligations are take-or-pay contracts made in the ordinary course of
business related to raw materials and utility contracts. Other significant items included in the above
table reflect purchase obligations related to legally binding commitments for capital projects and our
investment in our joint venture with Canfor. Purchase orders made in the ordinary course of business
are excluded from the above table and are cancelable without significant penalty.
(3) Represents other long-term liability amounts reflected in our consolidated balance sheet that have
known payment streams including items such as pension contributions.
Off-balance sheet and other financing arrangements
In connection with the sale of southern timber and timberlands, we received $26 million in cash and
$410 million in notes receivable from the purchasers of such timber and timberlands. In order to borrow
funds in a cost-effective manner: (i) the notes receivable were contributed by us to a Qualified Special
Purpose Entity (QSPE) as defined under SFAS No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities,” (ii) the QSPE issued to unrelated third parties bonds
supported by a bank letter of credit and the QSPE’s reimbursement obligations which are secured by the
notes receivable, and (iii) the QSPE distributed to LP, as a return of capital, substantially all of the
proceeds realized by the QSPE from the issuance of its bonds. The QSPE has no sources of liquidity other
than the notes receivable. Generally the cash flow generated by the notes receivable will be dedicated to
the payment of the bonds issued by the QSPE, and the QSPE’s creditors generally will have no recourse to
us for the QSPE’s obligations (subject to the limited exception described below).
Pursuant to the arrangement described above, during 2003, we contributed the $410.0 million of the
notes receivable to the QSPE, the QSPE issued $368.7 million of its bonds to unrelated third parties and
distributed $365.8 million to LP as a return of capital.
The principal amount of the QSPE’s borrowings is approximately 90% of the principal amount of the
notes receivable contributed by LP to the QSPE. Our retained interest in the excess of the notes receivable
contributed to the unconsolidated subsidiary over the amount of capital distributed by the unconsolidated
subsidiary, in the form of an investment in the QSPE, represented $44.5 million of the “Investments in and
advances to affiliates” reflected on our consolidated balance sheet as of December 31, 2004.
In accordance with SFAS No. 140, the QSPE is not included in our consolidated financial statements
and the assets and liabilities of the QSPE are not reflected on our consolidated balance sheet. The QSPE’s
assets have been removed from our control and are not available to satisfy claims of our creditors (except
to the extent of our retained interest, if any, remaining after the claims of QSPE’s creditors are satisfied).
32
In general, the creditors of the QSPE have no recourse to our assets, other than our retained interest.
However, under certain circumstances, we may be liable for certain liabilities of the QSPE (including
liabilities associated with the marketing or remarketing of its bonds and reimbursement obligations
associated with the letter of credit supporting the bonds) in an amount not to exceed 10% of the aggregate
principal amount of the notes receivable pledged by the QSPE. Our maximum exposure in this regard was
approximately $41 million as of December 31, 2004.
As discussed previously, we have an accounts receivable secured borrowing program. L-P Receivables
Corporation (LPRC) is our wholly owed subsidiary and is the special purpose entity into which the
receivables of participating domestic subsidiaries are sold. LPRC, in turn, sells an interest in the
receivables to various banks and entities. This program is accounted for as a secured borrowing. The
receivables outstanding under these programs and the corresponding debt, if any, are included as both
Receivables and Long-term debt in our financial statements included in item 8 of this report. Accordingly,
there were no amounts associated with this program that were off balance sheet during the three years
ended December 31, 2004. As collections reduce previously pledged interest, new receivables may be
pledged.
In connection with the sales of timberlands in California in 1997 and 1998, we received notes from the
purchasers totaling $403.8 million. The notes receivable were monetized through the issuance of note
payable in a private placement secured by the notes. Proceeds from the notes receivable from the
purchasers will be used to fund payments required for the notes payable. The notes receivable are
classified as “Notes receivable from asset sales” and the notes payable are classified as “Limited recourse
notes payable” on the financial statements included in item 8 of this report.
DIVIDEND
On November 5, 2001, we announced that our Board of Directors had suspended the quarterly cash
dividend. LP resumed paying quarterly dividends in 2004, with dividends of $0.05, $0.075, $0.075 and $0.10
per share being declared in February, May, August and November, respectively, and dividends for the year
totaling $32.6 million.
POTENTIAL IMPAIRMENTS
We continue to review certain operations for potential impairments. Management currently believes
we have adequate support for the carrying value of each of these assets based upon the anticipated cash
flows that result from our estimates of future demand, pricing and production costs assuming certain levels
of planned capital expenditures. However, should the markets for our products deteriorate to levels
significantly below cycle average pricing or should we decide to invest capital in alternative projects, it is
possible that we will be required to record further impairment charges.
We also review from time to time possible dispositions of various assets in light of current and
anticipated economic and industry conditions, our strategic plan and other relevant circumstances.
Because a determination to dispose of particular assets can require management to make assumptions
regarding the transaction structure of the disposition and to estimate the net sales proceeds, which may be
less than previous estimates of undiscounted future net cash flows, we may be required to record
impairment charges in connection with decisions to dispose of assets.
As part of the sale of our Samoa, California pulp mill to Samoa Pacific Cellulose LLC, there are
several contingent liabilities, primarily concerning environmental remediation, associated with these
operations that, under certain circumstances, could become our liabilities. We have not fully recorded an
accrual for these liabilities, as we do not believe payment is likely to occur. Subsequent to year-end, we
entered into multi-party agreements whereby we were released from remaining liabilities associated with
the pulp mill with the exception of a tidelands lease.
33
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
See Note 1 for discussion of prospective accounting pronouncement in the Notes to the financial
statements included in item 8 of this report.
OUTLOOK: ISSUES AND UNCERTAINTIES
While management is optimistic about our long-term prospects, the following issues and uncertainties
should be considered in evaluating our Company.
Cyclical industry conditions and commodity pricing have and may continue to adversely affect our
financial conditions and results of operations. Our operating results reflect the general cyclical pattern of
the building products industry. Our primary product, OSB, and a significant portion of our raw materials
are globally traded commodity products. In addition, our products are subject to competition from
manufacturers worldwide. Historical prices for our products have been volatile, and we, like other
participants in the building products industry, have limited influence over the timing and extent of price
changes for our products. Product pricing is significantly affected by the relationship between supply and
demand in the building products industry. Product supply is influenced primarily by fluctuations in
available manufacturing capacity. Demand is affected by the state of the economy in general and a variety
of other factors. The level of new residential construction activity and home repair and remodeling activity
primarily affects the demand for our building products. Demand is also subject to fluctuations due to
changes in economic conditions, interest rates, population growth, weather conditions and other factors.
We are not able to predict with certainty market conditions and selling prices for our products. We cannot
assure you that prices for our products will not decline from current levels. A prolonged and severe
weakness in the markets for one or more of our principle products, particularly OSB, could seriously harm
our financial condition and results of operations and our ability to satisfy our cash requirements, including
the payment of interest and principal on our debt.
We have a high degree of product concentration. OSB accounted for about 61% of our sales in 2004,
59% in 2003 and 47% in 2002, and we expect OSB sales to continue to account for a substantial portion of
our revenues and profits in the future. Additionally, OSB commodity prices reached record highs during
the second quarter of 2004, but fluctuated significantly thereafter. Concentration of our business in the
OSB market further increases our sensitivity to commodity pricing and price volatility. We cannot assure
you that pricing for OSB or our other products will not decline from current levels.
Increased industry production capacity for OSB could constrain our operating margins for the foreseeable
future. According to Resource Information Systems, Inc. (RISI), an industry market research
organization, total North American OSB annual production capacity increased by about 4 billion square
feet from 1998 to 2002 on a 3⁄8-inch equivalent basis and is projected to increase by approximately 9 billion
square feet in the 2004 to 2009 period. RISI has projected that total North American demand for OSB will
increase by about 6.3 billion square feet during the same 2004 to 2009 period. If increases in OSB
production capacity exceed increases in OSB demand, OSB could have constrained operating margins in
the foreseeable future.
Intense competition in the building products industry could prevent us from increasing or sustaining our net
sales and from sustaining profitability. The markets for our products are highly competitive. Our
competitors range from very large, fully integrated forest and building products firms to smaller firms that
may manufacture only one or a few types of products. We also compete less directly with firms that
manufacture substitutes for wood building products. Many of our competitors have greater financial and
other resources than we do, and certain of the mills operated by our competitors may be lower-cost
producers than the mills operated by us.
34
Our results of operations may be harmed by increases in raw material costs. The most significant raw
material used in our operations is wood fiber. We currently obtain about 70% of our wood fiber
requirements in the open market. Wood fiber is subject to commodity pricing, which fluctuates on the basis
of market factors over which we have no control. In addition, the cost of various types of wood fiber that
we purchase in the market has at times fluctuated greatly because of governmental, economic or industry
conditions. In addition to wood fiber, we also use a significant quantity of various resins in our
manufacturing processes. Resin product costs are influenced by changes in the prices of raw materials used
to produce resins, primarily petroleum products, as well as demand for resin products. Selling prices of our
products have not always increased in response to raw material cost increases. We are unable to determine
to what extent, if any, we will be able to pass any future raw material cost increases through to our
customers through product price increases. Our inability to pass increased costs through to our customers
could have a material adverse effect on our financial condition, results of operations and cash flow.
Our operations require substantial capital and our capital resources may not be adequate to provide for all
of our cash requirements. Our operations require substantial capital. Capital expenditures for expansion
or replacement of existing facilities or equipment or to comply with future changes in environmental laws
and regulations may be substantial. Although we maintain our production equipment with regular periodic
and scheduled maintenance, we cannot assure you that key pieces of equipment in our various production
processes will not need to be repaired or replaced or that we will not incur significant additional costs
associated with environmental compliance. The costs of repairing or replacing such equipment and the
associated downtime of the affected production line could have a material adverse effect on our financial
condition, results of operations and cash flow. Based on our current operations, we believe our cash flow
from operations and other capital resources will be adequate to meet our operating needs, capital
expenditures and other cash requirements for the foreseeable future. If for any reason we are unable to
provide for our operating needs, capital expenditures and other cash requirements on economic terms, we
could experience a material adverse effect on our business, financial condition, results of operations and
cash flow.
We are subject to significant environmental regulation and environmental compliance expenditures and
liabilities. Our businesses are subject to many environmental laws and regulations, particularly with
respect to discharges of pollutants and other emissions on or into land, water and air, and the disposal,
remediation of hazardous substances or other contaminants and, in the past, the restoration and
reforestation of timberlands. Compliance with these laws and regulations is a significant factor in our
business. We have incurred and expect to continue to incur significant expenditures to comply with
applicable environmental laws and regulations. Moreover, some or all of the environmental laws and
regulations to which we are subject could become more stringent in the future. Our failure to comply with
applicable environmental laws and regulations and permit requirements could result in civil or criminal
fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing
operations or requiring corrective measures, installation of pollution control equipment or remedial
actions.
Some environmental laws and regulations impose liability and responsibility on present and former
owners, operators or users of facilities and sites for contamination at such facilities and sites without regard
to causation or knowledge of contamination. In addition, we occasionally evaluate various alternatives with
respect to our facilities, including possible dispositions or closures. Investigations undertaken in connection
with these activities may lead to discoveries of contamination that must be remediated, and closures of
facilities may trigger compliance requirements that are not applicable to operating facilities. Consequently,
we cannot assure you that existing or future circumstances or developments with respect to contamination
will not require significant expenditures by us.
We are involved in various environmental matters and legal proceedings. The outcome of these matters
and proceedings and the magnitude of related costs and liabilities are subject to uncertainties. The conduct
35
of our business involves the use of hazardous substances and the generation of contaminants and
pollutants. In addition, the end-users of many of our products are members of the general public. We
currently are and from time to time in the future will be involved in a number of environmental matters
and legal proceedings, including legal proceedings involving warranty or non-warranty product liability
claims. These matters and proceedings, including class action settlements relating to certain of our
products, have in the past caused and in the future may cause us to incur substantial costs. We have
established contingency reserves in our consolidated financial statements with respect to the estimated
costs of existing environmental matters and legal proceedings to the extent that our management has
determined that such costs are both probable and reasonably estimable as to amount. However, such
reserves are based upon various estimates and assumptions relating to future events and circumstances, all
of which are subjec of inherent uncertainties. We regularly monitor our estimated exposure to
environmental and litigation loss contingencies and, as additional information becomes known, may
change our estimates significantly. However, no estimate of the range of any such change can be made at
this time. We may incur costs in respect of existing and future environmental matters and legal proceedings
as to which no contingency reserves have been established. We cannot assure you that we will have
sufficient resources available to satisfy the related costs and expenses associated with these matters and
proceedings.
Settlements of tax exposures may exceed the amounts we have reserved for known estimated tax exposures.
We maintain reserves for known estimated tax exposures in federal, state and international jurisdictions.
Significant income tax exposures may include potential challenges to intercompany pricing, the treatment
of financing, acquisition and disposition transactions, the use of hybrid entities, and the use of the
installment sale method of accounting for tax purposes and other matters. These exposures are settled
primarily through the closure of audits with the taxing jurisdictions and, on occasion, through the judicial
process, either of which may produce a result inconsistent with past estimates. We believe that we have
appropriate liabilities established for known estimated exposures, however, if actual results differ
materially from our estimates we could experience a material adverse affect on our financial condition,
results of operation and cash flow.
Fluctuations in foreign currency exchange rates could result in currency exchange losses . A significant
portion of the Company’s operations are conducted through foreign subsidiaries. The functional currency
for the Company’s Canadian subsidiary is the U.S. dollar. The financial statements of this foreign
subsidiary is remeasured into U.S. dollars using the historical exchange rate for property, plant and
equipment, timber and timberlands, goodwill, equity and certain other non-monetary assets and liabilities
and related depreciation and amortization on these assets and liabilities. These transaction gains or losses
are recorded in foreign exchange gains (losses) in the income statement. The functional currency of LP’s
Chilean subsidiary is the Chilean Peso. Translation adjustments, which are based upon the exchange rate
at the balance sheet date for assets and liabilities and the weighted average rate for the income statement,
are recorded in the Accumulated Comprehensive Income (Loss) section of Stockholders’ Equity.
Therefore, a strengthening of the Canadian dollar or the Chilean Peso relative to the U.S. dollar may have
a material adverse affect the Company’s financial condition and results of operations.
Changes in foreign currency exchange rates could result in a greater than expected tax expense. We have
intercompany debt between our U.S. and Canadian subsidiary which is denominated in Canadian dollars.
Because this debt is denominated in Canadian dollars, it is subject to translation gains and losses in terms
of U.S. dollars. While the gains and loss due to translation are eliminated in consolidation for financial
reporting purposes, the tax effect is not because the translation of the Canadian balance into U.S. dollars
occurs outside of the tax reporting entities and therefore creates a tax difference. If exchange rates
increase in the future, it could result in our tax expense being higher than expected, and the converse
would be true.
36
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
A portion of our outstanding debt bears interest at variable rates and accordingly is sensitive to
changes in interest rates. Interest rate changes would result in gains or losses in the market value of our
debt portfolio due to differences in market interest rates and the rates at the inception of the debt
agreements. Based upon our indebtedness at December 31, 2004, a 100 basis point interest change would
impact pre-tax net income and cash flows by $0.2 million annually. Based upon our indebtedness at
December 31, 2004, the fixed and variable portions of our debt and the expected maturity dates are as
follows:
2005
2006
2007
2008
Expected maturity date
2009
in millions
Thereafter
Total
Fair Value
Long-term debt:
Fixed rate debt. . . . . . . . . . . . .
Average interest rate . . . . .
Variable rate debt . . . . . . . . . .
Average interest rate . . . . .
$ 178.0
$ 70.6
$ 0.7
$ 74.3
$ 20.8
$ 433.3
$ 777.7
$ 800.0
8.6% 7.0% 5.6% 7.1% 7.3%
—
—
— —
— —
—
—
$ 7.6
2.0%
7.9 %
7.9 %
$ 15.2
$ 22.8
$ 22.8
2.5 %
2.3 %
Additionally, we have long-term notes receivable that contain fixed interest rates. Based upon these
notes at December 31, 2004, the fixed portion of our receivables and the expected maturity dates are as
follows:
2005
2006
2007 2008 2009 Thereafter
Total
Fair Value
Expected maturity date
in millions
Long-term receivables:
Fixed rate receivables . . . . . . . . . . . .
Average interest rate . . . . . . . . . .
—
—
$ 70.8 —
6.8% —
74.4
20.0
$ 238.6
$ 403.8
$ 433.0
7.0% 7.0%
7.1 %
7.0 %
Our international operations create exposure to foreign currency rate risks, primarily due to
fluctuations in the Canadian dollar. We historically have not entered into material currency rate hedges
with respect to our exposure from operations, although we may do so in the future.
As of December 31, 2004, we had $988 (Canadian) million in intercompany debt between our U.S.
and Canadian subsidiaries. This debt is denominated in Canadian dollars and therefore is subject to
translation gains and losses in terms of U.S. dollars. While the gains and losses due to translation are
eliminated in consolidation for financial reporting purposes, the tax effect is not because the translation of
the Canadian balance into U.S. dollars occurs outside of the tax reporting entities and therefore creates a
tax difference. For each $.01 increase in the exchange rate, our annual tax expense increases by $3.9
million and the converse would be true.
Some of our products are sold as commodities and therefore sales prices fluctuate daily based on
market factors over which we have little or no control. The most significant commodity product we sell is
OSB. Based upon an assumed annual production capacity of 6.1 billion square feet (3⁄8” basis) or 5.2 billion
square feet (7⁄16” basis), a $1 change in the annual average price on 7⁄16” basis would change annual pre-tax
profits by approximately $5.2 million.
We historically have not entered into material commodity futures and swaps, although we may do so
in the future.
37
ITEM 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Louisiana-Pacific Corporation
We have audited the accompanying consolidated balance sheets of Louisiana-Pacific Corporation and
subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements
of income, stockholders’ equity, comprehensive income, and cash flows for each of the three years in the
period ended December 31, 2004. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Louisiana-Pacific Corporation and subsidiaries at December 31, 2004 and 2003, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2004,
in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, the Company adopted Statements of Financial
Accounting Standards No. 142 Goodwill and Other Intangible Assets, and No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets, on January 1, 2002 and No. 143, Accounting for Asset
Retirement Obligations, on January 1, 2003.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9,
2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s
internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
March 9, 2005
38
Consolidated Balance Sheets
Dollar amounts in millions
December 31
2004
2003
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 544.7
608.2
185.5
215.7
15.9
26.7
7.4
1,604.1
$ 925.9
—
136.1
177.5
11.1
51.7
22.8
1,325.1
Timber and timberlands. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91.8
94.8
Property, plant and equipment, at cost:
Land, land improvements and logging roads, net of road amortization . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101.4
229.3
1,430.6
42.1
1,803.4
(1,027.8 )
775.6
102.1
230.5
1,390.2
55.5
1,778.3
(988.2)
790.1
Goodwill, net of amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net of amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable from asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in and advances to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term assets of discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
276.7
6.9
403.8
132.7
30.2
65.5
30.7
32.6
$ 3,450.6
276.7
10.0
403.8
98.8
—
110.7
39.1
55.3
$ 3,204.4
See Notes to Financial Statements
39
Consolidated Balance Sheets (Continued)
Dollar amounts in millions, except per share
December 31
2004
2003
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of contingency reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 178.0
250.0
12.0
440.0
$
8.3
251.3
43.0
302.6
Long-term debt, excluding current portion:
Limited recourse notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingency reserves, excluding current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
396.5
226.0
622.5
517.5
42.1
60.7
396.5
624.2
1,020.7
407.7
55.6
106.9
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $1 par value, 15,000,000 shares authorized, no shares issued. . . . . .
Common stock, $1 par value, 200,000,000 shares authorized, 116,937,022 shares
issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, 6,795,867 shares and 10,474,514 shares, at cost . . . . . . . . . . . . . . . . . .
Accumulated comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
116.9
440.0
1,406.2
(127.4 )
(67.9 )
1,767.8
$ 3,450.6
116.9
442.3
1,018.1
(195.2)
(71.2)
1,310.9
$ 3,204.4
See Notes to Financial Statements
40
Consolidated Statements of Income
Amounts in millions, except per share
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and cost of timber harvested . . . . . . . . . . .
Selling and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating credits and charges, net . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of and impairment of long-lived assets, net . . . . . .
Total operating costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income (expense):
Interest expense, net of capitalized interest . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-operating income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before taxes, minority interest and
equity in earnings of unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest in net loss of consolidated subsidiaries. . . . . . . . . . . . . .
Equity in (earnings) of unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before cumulative effect of
change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations before taxes . . . . . . . . . . . . . . . . . . . . .
Income tax benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of change in accounting principle, net of tax . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income (loss) per share:
Income (loss) per share from continuing operations . . . . . . . . . . . . . . .
Income (loss) per share from discontinued operations . . . . . . . . . . . . .
Cumulative effect of change in accounting principle per share . . . . . .
Net income (loss) per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income (loss) per share:
Income (loss) per share from continuing operations . . . . . . . . . . . . . . .
Income (loss) per share from discontinued operations . . . . . . . . . . . . .
Cumulative effect of change in accounting principle per share . . . . . .
Net income (loss) per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends per share of common stock . . . . . . . . . . . . . . . . . . . . . . . . .
Average shares of common stock used to compute net income (loss)
per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See Notes to Financial Statements.
41
Year ended December 31
2003
$ 2,280.7
2002
$ 1,576.2
2004
$ 2,849.4
1,741.7
143.6
166.2
28.7
18.3
2,098.5
750.9
1,512.2
132.3
167.2
15.2
(118.2 )
1,708.7
572.0
1,264.0
136.0
134.1
29.5
(61.3)
1,502.3
73.9
(65.3 )
45.6
(41.5 )
9.7
(51.5 )
699.4
279.7
—
(3.8 )
423.5
(4.6 )
(1.8 )
(2.8 )
(88.5 )
33.8
(1.5 )
1.0
(55.2 )
516.8
233.8
—
(1.9 )
284.9
(20.6 )
(8.1 )
(12.5 )
(95.8)
32.8
—
(3.2)
(66.2)
7.7
15.2
(0.9)
(2.8)
(3.8)
(88.7)
(34.3)
(54.4)
420.7
—
$ 420.7
272.4
0.1
$ 272.5
(58.2)
(3.8)
$ (62.0)
$
$
$
$
$
3.91
(0.03 )
—
3.88
3.87
(0.03 )
—
3.84
$
$
$
$
2.70
(0.12 )
—
2.58
$ (0.03)
(0.53)
(0.03)
$ (0.59)
2.68
(0.12 )
—
2.56
$ (0.03)
(0.53)
(0.03)
$ (0.59)
0.30
$ —
$ —
108.3
109.6
105.5
106.5
104.6
104.6
Consolidated Statements of Cash Flows
Dollar amounts in millions
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, amortization and cost of timber harvested . . . . . . . . . . . . . . . . . . . .
Minority interest in net loss of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . .
Earnings of unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating credits and charges, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of and impairment of long-lived assets . . . . . . . . . . . . . . . . . . .
Exchange (gain) loss on remeasurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . .
Cash settlements of contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in contingency reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accounts payable and accrued liabilities . . . . . . . . . . . . . . .
Increase (decrease) in deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant, and equipment and timber additions . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from timber and timberlands sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from asset sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return of capital from unconsolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in restricted cash from asset sales. . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for purchase of investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in and advances to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments under revolving credit lines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of common stock under equity plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in restricted cash under letters of credit . . . . . . . . . . . . . . . . . . .
Other financing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31
2004
2003
2002
$ 420.7
$ 272.5
$ (62.0)
145.1
—
(4.3 )
15.2
12.3
(13.9 )
41.5
13.7
—
(50.4 )
5.6
(46.2 )
(47.0 )
(26.0 )
(5.0 )
(0.3 )
140.5
601.5
(147.7 )
—
40.4
—
—
(2,598.1 )
1,960.4
—
(32.0 )
3.4
(773.6 )
141.3
—
(1.9 )
6.6
(98.7 )
6.9
1.5
2.7
(0.1 )
(52.4 )
30.0
(17.9 )
4.5
0.4
0.5
33.7
179.8
509.4
(86.6 )
84.5
44.0
365.8
37.1
—
—
—
(1.6 )
(0.2 )
443.0
(6.0 )
—
(260.0 )
(32.6 )
41.2
45.2
(3.6 )
(215.8 )
(32.0 )
0.4
(53.0 )
—
19.2
(102.9 )
2.9
(165.4 )
157.6
(0.9)
(2.8)
3.6
(10.7)
1.0
—
—
6.3
(52.3)
27.2
(1.1)
50.0
2.1
7.6
(20.4)
(16.7)
88.5
(41.8)
103.3
45.8
—
(37.1)
—
—
(3.3)
—
4.8
71.7
(40.0)
—
(32.6)
—
—
—
(11.9)
(84.5)
EFFECT OF EXCHANGE RATE ON CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.7
1.6
—
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(381.2 )
925.9
$ 544.7
788.6
137.3
$ 925.9
75.7
61.6
$ 137.3
See Notes to Financial Statements.
42
Consolidated Statements of Stockholders’ Equity
Dollar and share amounts in millions, except per share amounts
Additional
Accumulated
Total
Common Stock
Treasury Stock
Shares Amount Shares Amount
Paid-In Retained Comprehensive Stockholders’
Capital Earnings
Equity
Loss
BALANCE AS OF
DECEMBER 31, 2001. . . . . . . 116.9 $ 116.9
—
Net loss . . . . . . . . . . . . . . . . . . . . . —
Issuance of shares for employee
12.4 $ (230.6)
—
—
440.9 $ 807.6
(62.0)
—
$ (53.9 )
—
$ 1,080.9
(62.0)
stock plans and for other
purposes. . . . . . . . . . . . . . . . . . . —
Other comprehensive loss . . . . . . —
BALANCE AS OF
DECEMBER 31, 2002. . . . . . . 116.9
Net income . . . . . . . . . . . . . . . . . . —
Issuance of shares for employee
stock plans and for other
purposes, and other
transactions . . . . . . . . . . . . . . . . —
Other comprehensive income . . . —
BALANCE AS OF
DECEMBER 31, 2003. . . . . . . 116.9
Net income . . . . . . . . . . . . . . . . . . —
Issuance of shares for employee
stock plans and for other
purposes, and other
transactions . . . . . . . . . . . . . . . . —
Cash dividends, $0.30 per share . —
Purchase of shares for treasury . . —
Tax benefit of employee stock
plan transactions. . . . . . . . . . . . —
Other comprehensive income . . . —
BALANCE AS OF
—
—
—
—
0.4
—
6.1
—
—
—
—
(19.2 )
6.5
(19.2)
116.9
—
12.4
—
(230.2)
—
447.0
—
745.6
272.5
(73.1 )
—
1,006.2
272.5
— (1.9)
—
—
35.0
—
(4.7)
—
—
—
—
1.9
30.3
1.9
116.9
—
10.5
—
(195.2)
—
442.3
—
1,018.1
420.7
(71.2 )
—
1,310.9
420.7
— (3.8)
—
—
— 0.1
—
—
—
—
71.3
—
(3.5)
—
—
(16.0)
—
—
13.7
—
—
(32.6)
—
—
—
—
—
—
—
3.3
55.3
(32.6)
(3.5)
13.7
3.3
DECEMBER 31, 2004. . . . . . . 116.9 $ 116.9
6.8 $ (127.4) $ 440.0 $ 1,406.2
$ (67.9 )
$ 1,767.8
See Notes to Financial Statements.
43
Consolidated Statements of Comprehensive Income
Dollar amounts in millions
Year ended December 31
2003
$ 272.5
2004
$ 420.7
2002
$ (62.0)
2.2
0.6
0.7
(0.2 )
3.3
$ 424.0
4.4
(2.7 )
0.1
0.1
1.9
$ 274.4
(5.2)
(15.2)
1.0
0.2
(19.2)
$ (81.2)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax (see Note 23)
Foreign currency translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum pension liability and intangible asset adjustments . . . . . . . . . . . .
Unrealized gain on derivative financial instruments. . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See Notes to Financial Statements.
44
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature Of Operations
Louisiana-Pacific Corporation and its subsidiaries (collectively LP or the Company) are principally
engaged in the manufacture of building products. In addition to our U.S. operations, the Company also
maintains manufacturing facilities in Canada and Chile through foreign subsidiaries and joint ventures.
The principal customers for the Company’s building products are retail home centers, builders,
manufactured housing producers, distributors and wholesalers in North America, with minor sales to Asia,
Europe and South America.
On May 8, 2002, LP announced that its board of directors had approved a plan to sell selected
businesses and assets (the divesture plan) in order to focus operations in selected business segments and to
significantly reduce LP’s debt. In July 2003, LP announced further divestures. See Note 22 for further
discussion on divestitures.
See Note 24 below for further information regarding LP’s products and segments.
Use Of Estimates In The Preparation Of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in
the U.S. requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. See discussion of specific estimates in the Notes entitled “Income
Taxes,” “Retirement Plans and Postretirement Benefits,” “Stockholders’ Equity,” “Other Operating
Credits and Charges, Net,” “Gain (Loss) on Sale of and Impairment of Long-Lived Assets, Net” and
“Contingencies.”
Consolidation
The consolidated financial statements include the accounts of LP and its majority-owned subsidiaries.
Intercompany transactions are eliminated and net earnings are reduced by the portion of the net earnings
of subsidiaries applicable to minority interest. The equity method of accounting is used for joint ventures
and investments in associated companies over which LP has significant influence but does not have
effective control. Significant influence is deemed to exist generally when the Company has an ownership
interest in the voting stock of an investee of between 20% and 50%. The cost method of accounting is used
for investments when LP has less than 20% ownership interest or the Company does not have the ability to
exercise significant influence, and for investments in Qualified Special Purpose Entities. Those investments
are carried at cost and are adjusted only for other-than temporary declines in their fair value. The carrying
value of these investments is on LP’s Consolidated Balance Sheet under the heading “Investments in and
advances to affiliates”. LP’s equity in the income and losses of these investments is shown in the income
statement under the heading “Equity in (earnings) loss of unconsolidated affiliates.” See Note 8 for further
discussion of these investments and advances. LP does not consolidate Qualified Special Purpose Entities,
as defined in SFAS 140 (see Note 12 for further discussion).
Earnings Per Share
Basic earnings per share are based on the weighted average number of shares of common stock
outstanding. Diluted earnings per share are based upon the weighted average number of shares of
common stock outstanding plus all potentially dilutive securities that were assumed to be converted into
common shares at the beginning of the period under the treasury stock method. This method requires that
45
the effect of potentially dilutive common stock equivalents (stock compensation plans) be excluded from
the calculation of diluted earnings per share for the periods in which losses from continuing operations are
reported because the effect is anti-dilutive. The following table sets forth the computation of basic and
diluted earnings per share:
Year ended December 31
2002
2003
2004
Dollar and share amounts
in millions, except
per share amounts
Numerator:
Income attributed to common shares:
Income from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Denominator:
Basic—weighted average common shares outstanding . . . . . . . . . . . . . . . . .
Dilutive effect of employee stock plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of change in accounting principle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share:
$ 423.5
(2.8 )
—
$ 420.7
$ 284.9
(12.5 )
0.1
$ 272.5
$ (3.8)
(54.4)
(3.8)
$ (62.0)
108.3
1.3
109.6
105.5
1.0
106.5
104.6
—
104.6
$ 3.91
(0.03 )
—
$ 3.88
$ 2.70
(0.12 )
—
$ 2.58
$ (0.03)
(0.53)
(0.03)
$ (0.59)
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of change in accounting principle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.87
(0.03 )
—
$ 3.84
$ 2.68
(0.12 )
—
$ 2.56
$ (0.03)
(0.53)
(0.03)
$ (0.59)
As of December 31, 2004, 2003 and 2002, LP had 208,000, 2,720,000 and 6,840,000 shares and stock
options outstanding that were considered anti-dilutive or not in-the-money for the purpose of LP’s
earnings per share calculation.
Cash And Cash Equivalents
LP considers all highly liquid securities with maturities of three months or less at the time of purchase
to be cash equivalents.
Investments
LP’s short-term and long-term investments are classified as available-for-sale as defined by SFAS
No. 115 “Accounting for Certain Investments in Debt and Equity Securities” and are stated at estimated
fair value. Unrealized gains and losses, net of tax, on these investments are reported as a separate
component of accumulated comprehensive income (loss) in stockholders’ equity until realized. Realized
gains and losses are recorded within the consolidated statements of income under the caption non-
operating income or expense. For purposes of computing realized gains and losses, cost is identified on a
specific identification basis. See Note 2 for further discussion.
46
Fair Value of Financial Instruments
LP has, where appropriate, estimated the fair value of financial instruments. These fair value amounts
may be significantly affected by the assumptions used, including the discount rate and estimates of cash
flow. Accordingly, the estimates presented are not necessarily indicative of the amounts that could be
realized in a current market exchange. When these estimates approximate carrying value, no separate
disclosure is shown.
Inventory
Inventories are valued at the lower of cost or market. Inventory costs include materials, labor and
operating overhead. The LIFO (last-in, first-out) method is used for most log and lumber inventories with
the remaining inventories valued at FIFO (first-in, first-out) or average cost.
Timber And Timberlands
Timber and timberlands is comprised of timber deeds and allocations of purchase price to Canadian
timber harveting licenses. Timber deeds are transactions in which LP purchases timber, but not the
underlying land. The cost of timber deeds are capitalized in timber and timberlands and charged to cost of
timber harvested as the volume is removed. The values associated with timber licenses were allocated in
the purchase price allocations for both Le Groupe Forex (Forex) and the assets of Evans Forest Products
($131 million at the dates of acquisition). These licenses have a life of twenty to twenty-five years and are
renewable every five years. These licenses are amortized on a straight-line basis over the original life of the
license. Cost of timber harvested also includes the amortization of the timber licenses.
Property, Plant And Equipment
Property, plant and equipment, including capitalized interest, are recorded at cost. Depreciation for
financial statement purposes is provided principally using the units of production method for machinery
and equipment which amortizes the cost of equipment over the estimated units that will be produced
during its useful life. Provisions for depreciation of buildings, land improvements and the remaining
machinery and equipment have been computed using straight-line rates based on the estimated service
lives. The effective straight-line lives for the principal classes of property range from three to twenty years.
Logging road construction costs are capitalized and included in land and land improvements. These
costs are amortized as the timber volume adjacent to the road system is harvested.
LP capitalizes interest on borrowed funds during construction periods. Capitalized interest is charged
to machinery and equipment accounts and amortized over the lives of the related assets. Interest
capitalized during 2004, 2003, and 2002 was $4.2 million, $0.4 million and $0.1 million.
Asset Impairments
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets,” which LP adopted in January 2002, long-lived assets to
be held and used by LP (primarily property, plant and equipment and timber and timberlands) are
reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. Losses are recognized when the book values exceed expected undiscounted
future net cash flows from the use and eventual disposition of the asset. These undiscounted cash flows are
based upon management’s estimate of future cash inflows and outflows. The key assumptions in estimating
these cash flows include future pricing of commodity products and future estimates of expenses to be
incurred. When impairment is indicated, the book values of the assets are written down to their estimated
fair value. See Note 17 for a discussion of charges in 2004, 2003, and 2002 related to impairments of
47
property, plant and equipment. Long-lived assets that are held for sale are written down to the estimated
sales proceeds less cost to sell unless the estimated net proceeds exceed the carrying value.
Deferred Income Taxes
Deferred income taxes, reflecting the impact of temporary differences between the carrying values of
assets and liabilities for financial reporting and tax purposes, are based upon tax laws enacted. Deferred
tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the
deferred tax assets will not be realized. See Note 10 for further discussion of deferred taxes.
Stock-Based Compensation
Stock options and other stock-based compensation awards are accounted for using the intrinsic value
method prescribed by Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued
to Employees,” and related interpretations. See Note 14 for further discussion of LP’s stock plans. The
following table illustrates the effect on net income (loss) and net income (loss) per share that would have
resulted if LP had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-
Based Compensation,” to stock-based employee compensation. See additional discussion below under the
heading “Recent and Prospective Accounting Pronouncements.”
Net income (loss), as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Stock-based employee compensation included in reported net income
(loss), net of related income tax effects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects . . .
Pro forma net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share—basic, as reported . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share—diluted, as reported . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share—basic, pro forma . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share—diluted, pro forma . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2004
2002
2003
Dollar amounts in millions,
except per share amounts
$ 272.5
$ 420.7
$ (62.0)
9.5
5.2
2.2
(11.1 )
$ 419.1
$ 3.88
$ 3.84
$ 3.87
$ 3.82
(8.4 )
$ 269.3
$ 2.58
$ 2.56
$ 2.55
$ 2.53
(4.2)
$ (64.0)
$ (0.59)
$ (0.59)
$ (0.61)
$ (0.61)
Treasury Stock
LP records treasury stock purchased at cost. In August and November 2004, LP repurchased 83,824
shares and 63,000 shares of common stock at $23.62 and $24.01 per share for its treasury at an aggregate
cost of $3.5 million.
Derivative Financial Instruments
To reduce foreign currency exchange and interest rate risks, LP occasionally utilizes derivative
financial instruments. LP has established policies and procedures for risk assessment and approving,
reporting and monitoring of derivative financial instrument activities. Gains and losses on forward
exchange contracts used to hedge the currency fluctuations on transactions denominated in foreign
currencies and the offsetting losses and gains on the hedged transactions are recorded in the income
statement. In general, LP does not utilize financial instruments for trading or speculative purposes.
For all periods presented, LP utilized forward purchase contracts in the normal course of its
operations as a means of managing price risks on the purchase of energy. These contracts generally meet
the definition of “normal purchases” under SFAS No. 133, “Accounting for Derivative Instruments and
48
Hedging Activities,” as amended, and are therefore not required to be recorded at fair value. In the event
that a contract does not meet the definition of a “normal purchase” as a result of LP’s inability to use all of
the energy under the contract, LP records such contracts at the estimated fair value with the corresponding
gain or loss recorded in cost of sales (which resulted in a loss of $2.6 million for the year ended
December 31, 2003). In the event that a contract does not meet the definition of a “normal purchase” as a
result of unforeseen circumstances outside of LP’s control, LP records such contracts at their fair value
with the corresponding gain or loss recorded in other operating credits and charges, net. One such contract
was subsequently cancelled in 2002 and LP recorded a gain of $7.4 million for the year ended
December 31, 2002.
U.S. GreenFiber, LLC (GreenFiber), a fifty percent owned joint venture between LP and Casella
Waste Management, Inc. (accounted for under the equity method of accounting), entered into a swap
contract for the purchase of raw material inventory. As of December 31, 2004, GreenFiber recognized $5.5
million in other comprehensive income to adjust these contracts to fair market value and, accordingly, LP
has recorded its share ($2.75 million) in LP’s other comprehensive income. Additionally to date, LP has
provided deferred taxes of $0.9 million associated with this hedge.
Foreign Currency Translation
The functional currency for the Company’s Canadian subsidiaries is the U.S. dollar. The financial
statements of these foreign subsidiaries are remeasured into U.S. dollars using the historical exchange rate
for property, plant and equipment, timber and timberlands, goodwill, equity and certain other non-
monetary assets and liabilities and related depreciation and amortization on these assets and liabilities. LP
uses the exchange rate at the balance sheet date for the remaining assets and liabilities, including deferred
taxes. A weighted-average exchange rate is used for each period for revenues and expenses. These
transaction gains or losses are recorded in foreign exchange gains (losses) in the income statement. The
functional currency of LP’s Chilean subsidiary is the Chilean Peso. Translation adjustments, which are
based upon the exchange rate at the balance sheet date for assets and liabilities and the weighted average
rate for the income statement, are recorded in the Accumulated Comprehensive Income (Loss) section of
Stockholders’ Equity.
Goodwill
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, “Goodwill
and Other Intangible Assets.” This statement addresses financial accounting and reporting for goodwill
and other intangible assets. Under this standard, goodwill and other intangible assets that are deemed to
have an indefinite life are no longer being amortized. However, these indefinite life assets are tested for
impairment on an annual basis, and when indicators of impairment are determined to exist, by applying a
fair value based test. Also, under this statement, goodwill associated with an equity method investee is no
longer amortized; however impairment of the investment (including goodwill) should be evaluated based
upon Accounting Principles Board (APB) No. 18, “The Equity Method of Accounting for Investments in
Common Stock” which requires an impairment test when factors indicate an impairment may exist. SFAS
No. 142 was effective for LP beginning January 1, 2002. See Note 6 for discussion of the impact of LP’s
adoption of this statement. LP performs the annual goodwill impairment test as of October 1 each year. LP
completed its testing on all reporting units as of October 1, 2004 and determined that no impairment
charges were required with respect to reported goodwill as of that date.
Restricted Cash
In accordance with LP’s credit facilities, discussed at Note 11, LP established restricted cash accounts.
As of December 31, 2004, a majority of the restricted cash secures letter of credit under LP’s revolving
49
credit facility. Under this facility, LP may use cash in an amount equal to 105% of the outstanding letters
of credit as collateral for such letters of credit in exchange for lower fees.
Revenue Recognition
Revenue is recognized when customers receive products and title has passed. The following criteria
establish these facts: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services
have been rendered; (3) the price to the buyer is fixed or determinable; and (4) the collection is reasonably
assured.
Asset Retirement Obligations
As of January 1, 2003, LP adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.”
This statement requires that LP record future asset retirement obligations, which consist primarily of
monitoring costs on closed landfills and timber reforestation obligations associated with LP’s timber
licenses in Canada, in the period in which the obligation is incurred. These costs are recorded at fair value.
When the related liability is initially recorded, LP capitalizes the cost by increasing the carrying amount of
the related long-lived asset. Over time, the liability is accreted to its settlement value and the capitalized
cost is depreciated over the useful life of the related asset. Upon settlement of the liability, LP recognizes a
gain or loss for any difference between the settlement amount and the liability recorded. See Note 15 for
further discussion.
Non-Cash Transactions
During 2003, in connection with the sale of various timberlands, LP received $410.0 million in notes
receivable from the purchasers of such timber and timberlands. In a subsequent transaction, these notes
were contributed to a Qualified Special Purpose Entity (QSPE) in an off-balance sheet transaction. See
Note 12 for further discussion of this off-balance sheet transaction.
Other Operating Credits And Charges, Net
LP classifies significant amounts that management considers unrelated to core operating activities as
Other operating credits and charges, net in the income statement. Such items include, but are not limited
to, amounts related to restructuring charges (including severance charges), charges to establish litigation or
environmental reserves, gains from insurance recoveries and gains or losses from settlements with
governmental or other organizations. Due to the nature of these items, amounts in the income statement
can fluctuate from year to year. The determination of which items are considered significant and unrelated
to core operations is based upon management’s judgment. See Note 16 for a discussion of specific amounts
in 2004, 2003, and 2002.
Comprehensive Income
SFAS No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and
presentation of comprehensive income and its components in financial statements. SFAS No. 130 states
that all items required to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement with the same prominence as other financial statements.
Comprehensive income consists of net earnings, the net unrealized gains or losses on available-for-sale
marketable securities, foreign currency translation adjustments, minimum pension liability and related
intangible adjustments, and unrealized gains and losses on financial instruments qualifying for hedge
accounting, and is presented in the accompanying Consolidated Statement of Comprehensive Income in
accordance with SFAS No. 130. See Note 23 for further discussion.
50
Recent and Prospective Accounting Pronouncements
The FASB issued Interpretation No. 46 (FIN46), “Consolidation of Variable Interest Entities”
effective December 31, 2003. This interpretation requires that an enterprise’s consolidated financial
statements include subsidiaries in which the enterprise has a controlling financial interest. In
December 2003, the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions of
the interpretation and defer the effective date of implementation for certain entities. Under the guidance
of FIN 46R, entities that do not have interests in structures that are commonly referred to as special
purpose entities were required to apply the provisions of the interpretation in financial statements for
periods ending after March 14, 2004. LP does not have interests in any variable interest entities that are
covered by FIN 46.
In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 03-1, “The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF 03-1
provides guidance on other-than-temporary impairment models for marketable debt and equity securities
accounted for under SFAS 115 and non-marketable equity securities accounted for under the cost method.
The EITF developed a basic three-step model to evaluate whether an investment is other-than-temporarily
impaired. In September 2004, the FASB approved the issuance of FASB Staff Position EITF 03-1-1, which
delays the effective date until additional guidance is issued for the application of the recognition and
measurement provisions of EITF 03-1 to investments in securities that are impaired. The adoption of this
accounting principle is not expected to have a significant impact on LP’s financial position or results of
operations.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—an Amendment of ARB
No. 43, Chapter 4.” This statement clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs and spoilage, requiring these items be recognized as current-period charges. In
addition, this statement requires that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. The provisions of this statement are effective for
inventory costs incurred during fiscal years beginning after June 15, 2005 and will become effective for LP
beginning in 2006. The adoption of this accounting principle is not expected to have a significant impact on
our financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment (Revised 2004).” This
statement addresses the accounting for share-based payment transactions in which a company receives
employee services in exchange for the company’s equity instruments or liabilities that are based on the fair
value of the company’s equity securities or may be settled by the issuance of these securities. SFAS
No. 123R eliminates the ability to account for share-based compensation using APB 25 and generally
requires that such transactions be accounted for using a fair value method. The provisions of this statement
are effective for financial statements issued for fiscal periods beginning after June 15, 2005 and will
become effective for LP beginning with the third quarter of 2005. LP has yet to determine a transition
method to adopt SFAS 123R or which valuation method to use. The full impact that the adoption of this
statement will have on our financial position and results of operations will be determined by share-based
payments granted in future periods, the transition method and valuation model used.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. As a
result of change in management organization structure in November of 2004, LP modified its segment
reporting under SFAS No. 131, “Disclosures about Segments of Enterprise and Related Information.”
51
2. INVESTMENTS
Short-term and long-term investments held by LP are debt securities classified as available-for-sale.
LP invests in publicly traded, highly liquid securities including U.S. treasuries, bank obligations, corporate
obligations, auction rate securities and commercial paper. Under LP’s investment criteria, bank and
corporate obligations carry a rating of at least A-1 and commercial paper must have the highest rating
obtainable from one or more rating agencies. As of December 31, 2003, LP had no short-term or long-term
cash investments in marketable securities. The following is a summary of the available for sale securities as
of December 31, 2004:
At December 31, 2004
U.S. treasury and government agency securities . . . . . . . . . . .
Commercial paper. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction rate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized Unrealized
Cost
Gains
Unrealized
Losses
Fair
Value
Dollar amounts in millions
$ 126.7
131.6
99.1
281.4
$ 638.8
$ —
—
—
—
$ —
$ 0.1
—
0.3
—
$ 0.4
$ 126.6
131.6
98.8
281.4
$ 638.4
All of these securities are available for immediate sale. The amortized cost and fair value of
investments at December 31, 2004, by contractual maturity are shown below:
Fair
Value
Amortized
Cost
Dollar amounts
in millions
At December 31, 2004
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due in one to five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 608.4
30.4
$ 638.8
$ 608.2
30.2
$ 638.4
Proceeds from sales and maturities of short-term investments totaled $2.0 billion for 2004 with $1.7
billion resulting from auction rate securities which effectively mature on a 28 or 35 day cycle. The gross
realized gains and losses related to the sales of short-term investments were not material for the year
ended December 31, 2004. Net unrealized gains and losses are reported as a separate component of
accumulated other comprehensive income.
The following table provides a summary of the securities in a gross unrealized loss position,
aggregated by investment category and length of time the individual securities have been in an unrealized
loss position at December 31, 2004:
Less than 12 months
Fair
Value
Unrealized Fair
Value
Dollar amounts in millions
Unrealized
Losses
Losses
Fair
Value
More than
12 months
Total
Unrealized
Losses
At December 31, 2004
U.S. treasury and government agency
securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109.6
Commercial paper. . . . . . . . . . . . . . . . . . . . . . . 108.4
91.5
Corporate obligations. . . . . . . . . . . . . . . . . . . .
Total marketable securities . . . . . . . . . . . . . . . $ 309.5
$ 0.1
—
0.3
$ 0.4
$ —
—
—
$ —
$ —
—
—
$ —
$ 109.6
108.4
91.5
$ 309.5
$ 0.1
—
0.3
$ 0.4
52
LP believes that the unrealized losses above are minor, resulting from differences in market value and
amortized cost of the securities. These unrealized losses are considered temporary, as LP expects to
recover substantially all of its costs related to these investments prior to sale or maturity.
3. RECEIVABLES
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2004
2003
Dollar amounts
in millions
$ 118.5
29.0
4.4
35.8
(2.2 )
$ 185.5
$ 89.5
—
3.9
45.0
(2.3 )
$ 136.1
As described in Note 11, the majority of LP’s trade receivables secure borrowings under a revolving
credit facility. Other receivables at December 31, 2004 and 2003, primarily consist of insurance settlements,
short term notes receivable, Canadian sales tax receivables and other items.
4. INVENTORIES
Inventories consisted of the following (work-in-process is not material):
Logs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIFO reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory included in current assets of discontinued operations
Logs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIFO reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2004
2003
Dollar amounts
in millions
$ 56.7
40.2
113.7
7.8
(2.7 )
$ 215.7
$ 39.5
23.5
105.7
12.9
(4.1 )
$ 177.5
$ 3.4
—
3.8
0.2
—
$ 7.4
$ 9.6
11.3
4.0
1.6
(3.7 )
$ 22.8
A reduction in LIFO inventories in 2004 resulted in a reduction in cost of sales of $1.1 million.
Additionally, a reduction in LIFO inventories included in current assets of discontinued operations
resulted in a reduction to cost of sales included in income (loss) from discontinued operations of $3.7
million for the year ended December 31, 2004 and $30 million for year ended December 31, 2003.
53
5. NOTES RECEIVABLE FROM ASSET SALES
Notes receivable from asset sales are related to transactions that occurred during 1997 and 1998.
These notes receivable provide collateral for LP’s limited recourse notes payable (see Note 11). LP
monitors the collectibility of these notes on a regular basis.
Interest
Rate
2004
2004
Dollar amounts in millions
December 31,
2003
Notes Receivable (unsecured), maturing 2008 - 2012, interest rates fixed . .
Notes Receivable (secured), maturing 2006 - 2018, interest rates fixed . . . .
5.6 - 7.5 % $ 49.9
6.8 - 7.3 % 353.9
$ 403.8
$ 49.9
353.9
$ 403.8
The weighted average interest rate for all notes receivable from asset sales at December 31, 2004 and
2003 was approximately 7.0 percent. The notes mature as follows:
Dollar amounts
in millions
Year ended December 31
2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 and after . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
70.8
—
74.4
20.0
238.6
$ 403.8
LP estimates that the fair value of these notes at December 31, 2004 and 2003 was approximately
$433 million and $442 million, respectively.
6. GOODWILL
Goodwill by operating segment is as follows:
OSB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Siding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2004
2003
Dollar amounts
in millions
$ 232.5
35.6
8.6
$ 276.7
$ 232.5
35.6
8.6
$ 276.7
As part of the initial impairment test required under SFAS No. 142, LP determined that $6.3 million
of goodwill recorded in the Engineered Wood Products segment was impaired as of January 1, 2002 based
upon the net present value of estimated future cash flows. The resulting charge of $3.8 million was
recorded as a “cumulative effect of change in accounting principle, net of taxes” as of January 1, 2002.
54
7. OTHER INTANGIBLE ASSETS
LP has recorded intangible assets (other than goodwill) in its Consolidated Balance Sheets, as follows:
December 31,
2004
2003
Dollar amounts
in millions
Goodwill associated with equity investment in GreenFiber (recorded
in Investments in and advances to affiliates) . . . . . . . . . . . . . . . . . . . . .
$ 16.6
$ 16.6
SFAS No. 87 pension intangible asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.7
2.2
6.9
7.4
2.6
10.0
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23.5
$ 26.6
See Note 13 for discussion of the SFAS No. 87, “Employers Accounting for Pension” intangible asset.
8. INVESTMENTS IN AND ADVANCES TO AFFLIATES
LP has investments in affiliates that are accounted for under both the equity method and the cost
method based upon the specific terms of the agreement as well as advances to affiliates. The significant
components of these investments and advances are as follows:
December 31,
2003
2004
Dollar amounts
in millions
Investments accounted for under the equity method . . . . . . . . . . . . . . .
Investments accounted for under the cost method (see Note 12) . . . .
Advances to equity method investees . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 59.1
44.5
29.1
$ 52.9
44.5
1.4
$ 132.7
$ 98.8
At December 31, 2004, LP’s significant equity method investees, its approximate ownership interest
and principle business activity in each investee were as follows:
U.S. GreenFiber
Abitibi—LP
Ownership%
50%
50%
Canfor—LP
50%
Established to manufacture and sell cellulose insulation products
Established to construct and operate jointly owned I-Joist
facilities in Eastern Canada.
Established to construct and jointly operate an OSB facility in
British Columbia, Canada.
These investments do not meet the Regulation S-X significance test requiring the inclusion of the
separate investee financial statements or summarized financial information.
LP sells products and raw materials to these entities as well as purchases products for resale. LP
eliminates profits on these sales and purchases, to the extent the inventory has not been sold through to
third parties, on the basis of its 50% interest. For the year ended December 31, 2004, LP sold $22.1 million
of OSB to Abitibi-LP and purchased $62.5 million of I-joist from Abitibi-LP.
55
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and wages payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes other than income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2004
2003
Dollar amounts
in millions
$ 139.5
44.1
9.0
12.8
13.2
27.2
4.2
$ 118.9
46.9
11.7
11.7
16.2
26.9
19.0
$ 250.0
$ 251.3
Other accrued liabilities at December 31, 2004 and 2003 primarily consist of accrued rent, timber liabilities,
current portion of warranty liabilities and other items.
10. INCOME TAXES
Income (loss) before taxes was taxed in domestic and foreign jurisdictions, as follows:
Domestic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2004
2002
2003
Dollar amounts in millions
$ 481.7
16.6
$ 482.0
216.6
$ 7.0
(90.5)
Income (loss) before taxes is reflected in the Consolidated Statements of Income as follows:
$ 698.6
$ 498.3
$ (83.5)
Income from continuing operations before taxes, minority interest and
equity in earnings of unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest in net income (loss) of consolidated subsidiary. . . . . . . . . . .
Equity in earnings of unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2002
2003
2004
Dollar amounts in millions
$ 699.4
—
(3.8 )
703.2
(4.6 )
—
$ 698.6
$ 516.8
—
(1.9 )
518.7
(20.6 )
0.2
$ 498.3
$ 7.7
(0.9)
(2.8)
11.4
(88.7)
(6.2)
$ (83.5)
56
Provision (benefit) for income taxes includes the following:
Current tax provision (benefit):
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2004
2002
2003
Dollar amounts in millions
$ 46.8
5.1
92.3
$ 40.4
2.4
9.2
$ (4.2)
0.7
11.2
Net current tax provision (benefit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
144.2
52.0
7.7
Deferred tax provision (benefit):
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123.5
13.0
(2.8 )
130.6
13.8
29.4
(5.1)
(0.5)
(23.6)
Net deferred tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
133.7
173.8
(29.2)
Total income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 277.9
$ 225.8
$ (21.5)
The income tax provision (benefit) has been allocated in accordance with SFAS No. 109, “Accounting
for Income Taxes,” and has been recorded in the financial statements as follows:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2002
2003
2004
Dollar amounts in millions
$ 233.8
(8.1 )
0.1
$ 279.7
(1.8 )
—
$ 15.2
(34.3)
(2.4)
Total income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 277.9
$ 225.8
$ (21.5)
Income tax paid (received) during 2004, 2003, and 2002 was $183.5 million, $29.9 million and $(41.6)
million, respectively. Additionally, included in LP’s Consolidated Balance Sheet at December 31, 2004 is
an income tax receivable of $29 million.
The income tax effects of LP’s share of the income or loss of GreenFiber and Canfor-LP OSB Limited
Partnership in 2004, 2003 and 2002 are recorded in the line item “Provision (benefit) for income taxes” in
LP’s consolidated income statement, while LP’s share of the pre-tax income (loss) is recorded in the line
item “Equity in (earnings) loss of unconsolidated affiliate.”
57
The tax effects of significant temporary differences creating deferred tax (assets) and liabilities at
December 31 were as follows:
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Timber and timberlands. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingency reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit of capital loss and NOL carryovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit of foreign ITC carryover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit of state tax credit carryover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit of U.S. alternative minimum tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment sale gain deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax on undistributed foreign income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2004
2003
Dollar amounts
in millions
$ 123.8
41.7
(7.5 )
(64.2 )
(.8 )
(18.0 )
—
(1.9 )
(25.6 )
268.1
144.3
16.6
1.0
13.3
$ 121.3
41.2
(7.0)
(86.5)
(1.0)
(61.2)
(1.4)
(1.7)
(41.5)
268.1
95.1
17.8
4.5
8.3
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
490.8
(26.7 )
356.0
(51.7)
Net non-current deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 517.5
$ 407.7
The $18 million of capital loss and net operating loss (NOL) carryovers included in the above table
consists of $7 million of state NOL carryovers, net of federal tax, which will expire in various years through
2022 and $11 million of Canadian capital loss carryovers which may be carried forward indefinitely. LP has
recorded a valuation allowance against the entire Canadian capital loss carryover; $1 million of the state
NOL carryover; and $1 million of the state tax credit carryover.
U.S. taxes have not been provided on approximately $396.0 million of undistributed earnings of LP’s
foreign subsidiaries, which under existing law, are not subject to U.S. tax until distributed as dividends.
These earnings have been, and are intended to be, indefinitely reinvested in its foreign operations.
Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings is not
practical. Furthermore, any taxes paid to the foreign governments on these earnings may be used, in whole
or in part, as credits against the U.S. tax on any dividends distributed from such earnings.
Management is currently evaluating recent tax law changes under the American Jobs Creation Act of
2004, which created a temporary incentive for U.S. corporations to repatriate accumulated income earned
abroad by providing an 85 percent dividends-received deduction for certain dividends from controlled
foreign corporations. The deduction is subject to a number of limitations as well as uncertainty as to how
to interpret numerous provisions in the Act. As of this time, LP has not concluded its analysis to determine
whether, and to what extent, it might repatriate these unremitted foreign earnings. Based on LP’s analysis
to date, it is possible that it may repatriate funds of $0 to $400 million, with a respective tax liability ranging
from $0 to $50 million. LP has recognized a deferred tax liability for some of its prior and current years’
unremitted foreign earnings that it has determined are not to be indefinitely reinvested in its foreign
operations, and shall continue doing so during the period in which it evaluates the effect of the Act. Until
its analysis is complete, LP is not able to determine what impact, if any, repatriation of unremitted foreign
earnings would have on its deferred tax liability. It is possible that a repatriation of foreign earnings would
58
result in a net decrease to LP’s recorded deferred tax liabilities. LP expects to be able to finalize its
assessment by the quarter ending September 30, 2005.
LP’s reserve for tax contingencies related to issues in the United States and foreign locations was $6.0
million at December 31, 2004 and $7.6 million at December 31, 2003. This balance is the Company’s best
estimate of the potential liability for known tax contingencies. The decline in the tax contingency reserve
was primarily due to the closure of audits in the United States, partially offset by current year requirements
for asserted and unasserted items. Inherent uncertainties exist in the process of estimating tax
contingencies for various reasons, including, but not limited to, the complexity of tax laws and regulations
and changing interpretations of such laws and regulations through administrative processes and the tax
court systems of the various taxing jurisdictions. Based upon information currently available, management
believes that resolution of tax contingencies will not have a material adverse effect on the financial
position, results of operations, cash flows or liquidity of LP.
The following table summarizes the differences between the statutory U.S. federal and effective
income tax rates:
Year ended December 31
2002
2003
2004
35 %
35%
4
3
—
—
3
6
(1) —
40%
45 %
(35 )%
(1 )
5
3
2
(26 )%
Federal tax rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .
Revisions to estimates recorded in prior years . . . . . . . . . . .
Effect of foreign exchange gain (loss). . . . . . . . . . . . . . . . . . .
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
11. LONG-TERM DEBT
Debentures:
Senior notes, maturing 2005, interest rates fixed. . . . . . . . . . . . . . . . . . . .
Senior notes, maturing 2010, interest rates fixed. . . . . . . . . . . . . . . . . . . .
Senior subordinated notes, maturing 2008, interest rates fixed
Interest
Rate
2004
December 31,
2004
2003
Dollar amounts
in millions
8.5 % $ 170.4
199.5
8.875
$ 174.1
199.4
(callable November 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.875
6.4
200.0
Bank credit facilities:
Chilean term credit facility, repaid in 2004, interest rate variable . . . . .
Accounts receivable securitization, expiring in 2007, interest rate
variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. revolving credit facility, expiring in 2009, interest rates variable . .
Canadian revolving credit facility, expiring in 2006, interest rates
variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Limited recourse notes payable:
Senior notes, payable 2008-2012, interest rates fixed . . . . . . . . . . . . . . . .
Senior notes, payable 2006-2018, interest rates fixed . . . . . . . . . . . . . . . .
Project revenue financing:
Project revenue bond financings, payable through 2022, interest rates
—
—
—
—
—
—
—
—
6.0
—
—
—
7.1 - 7.5
6.8 - 7.3
47.9
348.6
47.9
348.6
variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.23 - 1.25
22.8
30.8
Other financings:
Other, interest rates vary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.9
800.5
(178.0 )
$ 622.5
22.2
1,029.0
(8.3)
$ 1,020.7
LP believes the carrying amounts of its variable rate long-term debt approximates fair market value.
LP estimates the limited recourse notes payable have a fair value of approximately $431 million and
$436 million at December 31, 2004 and 2003. LP estimates the Senior notes maturing in 2005 and 2010
have a fair market value of $175 million and $238 million at December 31, 2004 and $187 million and $235
million at December 31, 2003 based upon market indications. LP estimates the senior subordinated notes
have a fair market value of $7 million and $237 million at December 31, 2004 and December 31, 2003
based upon market quotes.
The underlying assets of the related manufacturing facility typically secure project revenue financings.
In 1997, LP issued $47.9 million of senior notes in a private placement to institutional investors. The
notes mature in principal amounts of $20 million in 2008, $20 million in 2009, and $7.9 million in 2012.
They are secured by $50 million in notes receivable from Sierra Pacific Industries. In the event of a default
by Sierra Pacific Industries, LP is fully liable for the notes payable.
LP issued $348.6 million of senior debt in June 1998 in a private placement to institutional investors.
The notes mature in principal amounts of $69.7 million in 2006, $53.5 million in 2008, $113.4 million in
2010, $90.0 million in 2013 and $22.0 million in 2018. The notes are secured by $353.9 million of notes
receivable from Simpson Timber Company. Pursuant to the terms of the notes payable, in the event of a
default by Simpson, LP would be liable to pay only 10% of the indebtedness represented by the notes
payable.
60
LP’s borrowing arrangements and, in particular, the indenture associated with the $200 million ($6.4
million outstanding at December 31, 2004) of 10.875% senior subordinated notes due 2008, contain a
number of covenants, which restrict LP’s activities. In addition, most of LP’s debt agreements contain
cross-default or cross-acceleration clauses to LP’s other significant debt agreements.
In connection with LP’s issuance of senior subordinated notes, LP entered into an indenture that
restricts LP’s ability and the ability of its restricted subsidiaries (as defined in the indenture) to, among
other things: (1) incur debt; (2) incur liens; (3) make acquisitions; (4) make investments, including loans
and advances; (5) engage in mergers, consolidations or sales of assets; (6) enter into sale and leaseback
transactions; (7) engage in transactions with affiliates; and (8) pay dividends or engage in stock
redemptions. In connection with the repurchase of a majority of these notes, substantially all of the
restrictive covenants contained in the indenture are suspended so long as LP maintains a credit rating of
BB- or above with S&P and Ba3 or above with Moody’s, which suspension will become permanent if such
credit ratings are maintained for twelve consecutive months from March 25, 2004. As of December 31,
2004, LP’s credit rating were
Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Baa3
BBB -
Moody’s Investor Service Standard & Poor’s
In September 2004, LP entered into a new five-year revolving credit facility and terminated its former
secured letter of credit facility. The new facility, which will expire in September 2009, provides for
committed borrowing capacity of $150 million. Subject to the willingness of existing or new lenders under
the credit facility to advance additional funds, LP may increase its borrowing capacity under the facility by
up to an additional $100 million. The facility allows LP to cash collateralize the borrowings and letters of
credit outstanding under the facility, at its option, in order to lower the cost of such borrowings and letters
of credit. At December 31, 2004, LP had no borrowings outstanding under the facility. Letters of credit
issued and outstanding totaled approximately $58.9 million as December 31, 2004 and were cash
collateralized with approximately $62.1 million.
In November 2004, LP renewed an accounts receivable secured revolving credit facility providing for
up to $100 million (at December 31, 2004) of borrowing capacity. At December 31, 2004, there were no
outstanding borrowings under this facility. The structure of this facility required LP to maintain a wholly
owned non-qualifying special purpose entity, which is consolidated in accordance with SFASNo. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” This
entity purchases accounts receivable from LP and borrows from a third party using the receivables as
collateral. The transaction is treated as a secured borrowing because the Company has the right to
terminate early any borrowings outstanding, allowing LP to retain effective control over the receivables.
The pledged receivables outstanding and the corresponding debt are included as Receivables and Long-
term Debt on LP’s Consolidated Balance Sheet. At December 31, 2004, borrowings under this facility bore
interest at approximately commercial paper rates plus 0.5%. The maximum amount available for
borrowing under this facility changes based upon the amount of eligible receivables, concentration of
eligible receivables and other factors. The facility contains a provision under which specified downgrades
of LP’s long-term unsecured senior debt rating could cause an amortization event under this facility.
Louisiana Pacific Canada Ltd (LP Canada) has a $10 million (Canadian) unsecured revolving credit
facility. LP’s ability to obtain letters of credit under this facility ends in January 2006, and the facility
expires in January 2007. The facility allows LP Canada to cash collateralize the borrowings and letters of
credit outstanding under the facility, at its option, in order to lower the cost of such borrowings and letters
of credit. At December 31, 2004, LP Canada had no borrowings outstanding under the facility. Letters of
credit issued and outstanding totaled approximately $3.2 million as December 31, 2004 and were cash
collateralized with $3.3 million.
61
In December 2000, Louisiana Pacific Chile SA entered into a five-year term credit facility with a
Chilean bank. The facility is for an amount up to $10 million. At December 31, 2004, no borrowings were
outstanding. The facility bears interest at LIBOR plus .9%. The proceeds from the facility were used to
fund working capital of an OSB plant in Chile. The facility required us to maintain a funded debt to
capitalization ratio, each as defined, of not more than .55 to 1.0. Borrowings under the facility were
secured.
The weighted average interest rate for all long-term debt at December 31, 2004 and 2003 was
approximately 7.7 percent and 8.1 percent. Required repayment of principal for long-term debt is as
follows:
Year ended December 31
2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 and after . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar amounts
in millions
$ 178.0
70.6
0.7
74.3
28.4
448.5
$ 800.5
Cash paid during 2004 and 2003 for interest (net of capitalized interest) was $68.3 million and
$89.8 million.
During the years ended December 31, 2004 and 2003, LP repurchased $197.4 million of its publicly
traded debt obligations ($193.6 million of the 10.875% Subordinated Notes and $3.8 million of the 8.5%
Senior Notes) and $15.7 million ($15.7 million of the 8.5% Senior Notes). In connection with these
repurchases, LP recorded charges of $41.5 million and $1.5 million to reflect the premiums paid and
certain transaction costs for the years ended December 31, 2004 and 2003.
12. OFF-BALANCE SHEET ARRANGEMENT
In connection with the sale of LP’s southern timber and timberlands in 2003, LP received cash of
$26.4 million and notes receivable of $410.0 million from the purchasers of such timber and timberlands. In
order to borrow funds in a cost-effective manner: (i) LP contributed the notes receivable to a Qualified
Special Purpose Entity (QSPE) as defined under SFAS No. 140, (ii) the QSPE issued to unrelated third
parties bonds and supported by a bank letter of credit which are secured by the notes receivable, and
(iii) the QSPE distributed to LP, as a return of capital, substantially all of the proceeds realized by the
QSPE from the issuance of its bonds. The QSPE has no sources of liquidity other than the notes
receivable, the cash flow generated by the notes receivable generally will be dedicated to the payment of
the bonds issued by the QSPE, and the QSPE’s creditors generally will have no recourse to LP for the
QSPE’s obligations (subject to the limited exception described below).
Pursuant to the arrangement described above, during 2003, LP contributed the $410.0 million of notes
receivable to the QSPE, the QSPE issued $368.7 million of its bonds to unrelated third parties and
distributed $365.8 million to LP as a return of capital.
62
The principal amount of the QSPE’s borrowings is approximately 90% of the principal amount of the
notes receivable contributed by LP to the QSPE. LP’s retained interest in the excess of the notes receivable
contributed to the unconsolidated subsidiary over the amount of capital distributed by the unconsolidated
subsidiary, in the form of an investment in the QSPE, represented $44.5 million of the “Investments in and
Advances to Affiliates” reflected on LP’s Consolidated Balance Sheet as of December 31, 2004.
Management believes the book value of this investment approximates market value, as the interest rates on
the notes receivable are variable.
In accordance with SFAS No. 140, the QSPE is not included in LP’s consolidated financial statements
and the assets and liabilities of the QSPE are not reflected on LP’s consolidated balance sheet. The
QSPE’s assets have been removed from LP’s control and are not available to satisfy claims of LP’s
creditors except to the extent of LP’s retained interest, if any, remaining after the claims of QSPE’s
creditors are satisfied. In general, the creditors of the QSPE have no recourse to LP’s assets, other than
LP’s retained interest. However, under certain circumstances, LP may be liable for certain liabilities of the
QSPE (including liabilities associated with the marketing or remarketing of its bonds and reimbursement
obligations associated with the letter of credit supporting the bonds) in an amount not to exceed 10% of
the aggregate principal amount of the notes receivable pledged by the QSPE. LP’s maximum exposure in
this regard was approximately $41 million as of December 31, 2004. The estimated fair value of this
guarantee is not material.
13. RETIREMENT PLANS AND POSTRETIREMENT BENEFITS
LP sponsors various defined benefit and defined contribution retirement plans that provide
retirement benefits to substantially all of its employees. Vesting generally occurs after 3 to 5 years of
service. Most regularly scheduled employees are eligible to participate in these plans except those covered
by a collective bargaining agreement, unless the collective bargaining agreement specifically allows for
participation in LP’s plans. LP contributes to multiple employer and multiemployer plans for certain
employees covered by collective bargaining agreements.
Defined Benefit Plans
Contributions to the qualified defined benefit pension plans are based on actuarial calculations of
amounts to cover current service costs and amortization of prior service costs over periods ranging up to
20 years. Benefit accruals under the two most significant plans, which account for more than 85% of the
assets and benefit obligations in the tables below, are credited at a rate of 5% of eligible compensation
with an interest credit based on the 30-year U.S. Treasury rate. The remaining defined benefit pension
plans use a variety of benefit formulas.
LP also maintains a Supplemental Executive Retirement Plan (SERP), an unfunded, non-qualified
defined benefit plan intended to provide supplemental retirement benefits to key executives. Benefits are
generally based on compensation in the years immediately preceding normal retirement. LP has
established a grantor trust that provides funds for the benefits payable under the SERP. The assets of the
grantor trust are invested in corporate-owned life insurance policies. At December 31, 2004 and 2003, the
trust assets were valued at $14.4 million and $13.5 million and are included in other assets in LP’s
Consolidated Balance Sheet. LP did not contribute to this trust in 2004 and contributed $1.6 million in
2003.
63
The following table sets forth the change in the benefit obligation, the change in plan assets, the
funded status and the amounts recognized in the consolidated balance sheet for LP sponsored plans:
Change in benefit obligation:
Benefit obligation—beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailments/settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation—end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in assets:
Fair value of assets—beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of assets—end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciliation of funded status:
Funded status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized actuarial loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized asset at transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued benefit liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (pre-tax). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in minimum liability included in other comprehensive income
(net of income taxes):
December 31,
2004
2003
Dollar amounts
in millions
$ 251.2
10.0
14.6
8.3
.5
2.4
(28.7 )
$ 258.3
$ 231.6
10.6
15.0
19.1
(1.3)
4.3
(28.1)
$ 251.2
$ 179.0
16.0
48.6
2.0
(28.7 )
$ 216.9
$ 145.4
25.1
33.1
3.5
(28.1)
$ 179.0
$ (41.4 ) $ (72.2)
92.0
5.7
0.2
$ 25.7
92.7
5.4
0.2
$ 56.9
$ 3.1
(28.4 )
4.7
77.5
$ 56.9
$ 1.6
(60.3)
5.6
78.8
$ 25.7
$ (2.1 ) $ (2.7)
Weighted-average assumptions for obligations as of October 31(measurement date):
Discount rate for obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.59 % 6.05%
4.06 % 4.08%
The accumulated benefit obligation for all defined benefit plans was $243.4 million at October 31,
2004. There were no significant plans with plan assets in excess of benefit obligations at December 31,
2004.
64
Net periodic pension cost included the following components:
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost and net transition asset . . . . . . . . . . . . . . . .
Recognized net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss due to curtailment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average assumptions for periodic pension cost:
Discount rate for pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2002
2003
2004
Dollar amounts in millions
$ 10.0
14.6
(15.5 )
0.9
5.6
$ 15.6
$ 2.4
$ 10.6
15.0
(14.9 )
1.1
5.3
$ 17.1
$ 2.5
$ 11.3
15.2
(15.5)
1.3
2.2
$ 14.5
$ 4.4
6.06 %
7.86 %
6.25 % 6.96%
8.32 % 8.62%
The expected long-term rate of return on plan assets reflects the weighted-average expected long-term
rates of return for the broad categories of investments currently held in the plans (adjusted for expected
changes), based on historical rates of return for each broad category, as well as factors that may constrain
or enhance returns in the broad categories in the future. The expected long-term rate of return on plan
assets is adjusted when there are fundamental changes in expected returns in one or more broad asset
categories and when the weighted-average mix of assets in the plans changes significantly.
Plan Assets
The following table presents the weighted-average asset allocations as of the measurement dates of
LP’s plans:
Asset category
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, including cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
Dollar amounts
in millions
65.4 % 59.3%
25.5
9.1
39.4
1.3
100.0 % 100.0%
LP’s investment policies for the defined benefit pension plans provide target asset allocations by broad
categories of investment and ranges of acceptable allocations. These policies are set by an administrative
committee with the goal of maximizing long-term investment returns within acceptable levels of volatility
and risk. LP’s U.S. plans have recently added hedge funds and real return investment strategies to increase
returns and reduce volatility and plan to invest in real estate in the future for the same reasons. LP’s plans
do not currently invest in derivative securities, although such investments may be considered in the future
to increase returns and/or reduce volatility.
Cash Flows
LP expects to contribute $15 million to $20 million to its defined benefit plans in 2005.
65
The following table reflects the expected benefit payments from the plans:
Pension Benefits
Dollar amounts
in millions
Year
2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 - 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13.7
15.3
16.6
17.7
18.7
106.4
Defined Contribution Plans
LP also sponsors defined contribution plans in the U.S. and Canada. In the U.S., these plans are
primarily 401(k) plans for hourly and salaried employees that allow for pre-tax employee deferrals and a
company match of up to 3.5% of an employee’s eligible wages (subject to certain limits). Under the profit
sharing feature of these plans, LP may elect to contribute a discretionary amount as a percentage of
eligible wages. Included in the assets of the 401(k) and profit sharing plans are 2.9 million shares of LP
common stock that represented approximately 34% of the total market value of plan assets at
December 31, 2004.
In Canada, these plans are both defined contribution plans and Registered Retirement Savings Plans
for hourly and salaried employees that allow for pre-tax employee deferrals. LP provides a base
contribution of 2.5% of eligible earnings for most employees and matches 50% of an employee’s deferrals
up to a maximum of 3% of each employee’s eligible earnings (subject to certain limits).
Expenses related to defined contribution plans and multi-employer plans in 2004, 2003 and 2002 were
$11.9 million, $10.9 million and $6.8 million.
Postretirement Benefits
LP has several plans that provide minimal postretirement benefits other than pensions, primarily for
salaried employees in the US and certain groups of Canadian employees. The accrued postretirement
benefit cost at December 31, 2004 was $8.7 million. Net expense related to these plans was not significant.
14. STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue up to 15,000,000 shares of preferred stock at $1.00 par value. At
December 31, 2004, no shares of preferred stock have been issued; however, 2,000,000 shares of Series A
Junior Participating Preferred Stock have been reserved for issuance in connection with the Company’s
Shareholder Rights Plan. Additional series of preferred stock may be designated and the related rights and
preferences fixed by action of the Board of Directors.
Shareholder Rights Plan
In May 1998, the Board of Directors approved a shareholder rights plan and declared a dividend of
one preferred share purchase right for each outstanding common share. Each right represents the right to
purchase one hundredth of a share of Preferred Stock, at an exercise price of $100.00, subject to
adjustment. The rights are only exercisable ten days after a person or group acquires, or commences a
66
tender or exchange offer to acquire, beneficial ownership of 15% or more of the Company’s outstanding
common stock.
Subject to the terms of the shareholder rights plan and the discretion of the Board of Directors, each
right would entitle the holder to purchase a number of additional shares of common stock of LP having a
total market value of twice the exercise price of each right. The rights expire in June 2008, but may be
redeemed by action of the Board of Directors prior to that time at $.01 per right.
Stock Compensation Plans
LP grants options to key employees and directors to purchase LP common stock. The options are
granted at 100 percent of market price at the date of grant. The options become exercisable over 3 years
beginning one year after the grant date and expire 10 years after the date of grant. At December 31, 2004,
8,935,641 shares were available under the current stock award plan for future option grants and all other
stock-based awards.
Changes in options outstanding and exercisable and weighted average exercise price were as follows:
Outstanding options
Options outstanding at January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercisable at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise price
Options granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercisable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value at date of grant
Options granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Shares
For the Year Ended December 31,
2002
2003
2004
Share amounts in thousands
5,860
529
(3,326 )
(309 )
2,754
1,511
6,372
1,771
(1,856 )
(427 )
5,860
2,897
4,929
1,888
—
(445)
6,372
3,702
$ 21.36
$ 12.39
$ 13.32
$ 14.35
$ 16.94
$ 7.52
$ 10.25
$ 16.12
$ 12.52
$ 16.99
$ 8.11
—
$ 15.66
$ 13.51
$ 16.39
$ 9.46
$ 2.67
$ 3.08
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option
pricing model using the actual option terms with the following assumptions: 1.1 percent to 3.5 percent
dividend yield; volatility of 46 percent in 2004, 45 percent in 2003 and 45 percent in 2002; and an average
risk free interest rate of 3.9 percent in 2004, 3.9 percent in 2003 and 5.4 percent in 2002.
67
Summary information about the Company’s stock options outstanding at December 31, 2004, is as
follows:
Range of exercise prices
$6.75 - $7.50 . . . . . .
$7.51 - $8.10 . . . . . .
$8.11 - $12.00 . . . . .
$12.01 - $14.00 . . . .
$14.01 - $22.00 . . . .
$22.01 - $28.00 . . . .
$6.75 - $28.00 . . . . .
Outstanding
December 31, 2004
(in thousands)
678
463
121
216
997
279
2,754
OUTSTANDING
Weighted Average
Contractual
Weighted Average
Exercise Price
Periods in Years
8.08
7.09
7.02
5.17
6.13
2.51
6.37
$ 7.29
8.10
10.61
12.40
20.05
24.65
$ 14.35
EXERCISABLE
Exercisable at
December 31, 2004
(in thousands)
Weighted Average
Exercise Price
29
218
98
211
712
243
1,511
$ 7.16
8.09
10.80
12.37
19.58
24.74
$ 16.94
Performance-Contingent Stock Awards
LP has granted performance-contingent stock awards to senior executives as allowed under the
current stock award plan. The awards entitle the participant to receive a number of shares of LP common
stock determined by comparing LP’s cumulative total stockholder return to the mean total stockholder
return of five other forest products companies for the four-year period beginning in the year of the award.
Awards were initially granted at a target share level. No awards have been granted since 2000. Depending
on LP’s four-year total stockholder return, the actual number of shares issued at the end of the four-year
period could range from zero to 200 percent of this target. LP did not record any compensation expense
related to these awards in 2002 or before based on the cumulative stockholders return for the applicable
periods, however due to the disability of one of the participants, LP was required to issue 23,102 shares in
2002 and recorded $0.2 million in expense. During 2003, due to LP’s stockholder return compared to the
mean total stockholder return of four other forest products, LP recorded compensation expense of $1.6
million and $0.7 million in 2004. In 2004, the Compensation Committee of the Board of Directors
approved the stock award at the 200% level. LP issued fifty percent of these shares (54,458 shares) on an
unrestricted basis in early 2004 with the remaining award (54,458 shares) being issued as restricted stock
with a vesting period of two years. Under the terms of the retirement of LP’s former Chief Executive
Officer, 39,146 of these shares were further accelerated and restrictions on these shares were eliminated.
Incentive Share Awards
Beginning in 2001, LP has granted incentive share stock awards to selected senior executives as
allowed under the current stock award plan. The awards entitle the participant to receive a specified
number of shares of LP common stock at no cost to the participant. These awards vest over a five-year
period, subject to vesting acceleration upon the achievement of various stock price targets. The stock price
targets were reached for all grants except for fifty percent of the 2004 grants. Of these shares, 643,628 were
issued in 2004 and 131,560 shares will vest and be issued on the anniversary of the original grant in
January 2005. For the remaining awards related to 2004, if LP’s stock trades at or above $29.78 per share
for five consecutive days prior to the end of the five-year period, the remaining awards will automatically
vest. LP recorded compensation expense related to these awards in 2004, 2003 and 2002 of $2.9 million,
$2.0 million and $0.5 million.
68
Changes in incentive stock awards were as follows:
Incentive stock awards outstanding at January 1 . . . . . . . . . . . . . . . . . . . . .
Incentive stock awards granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incentive stock award shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incentive stock awards cancelled or forfeited . . . . . . . . . . . . . . . . . . . . . . .
Incentive stock awards outstanding at December 31 . . . . . . . . . . . . . . . . .
Executive Loan Program
Number of Shares
Year Ended December 31,
2003
409,950
316,259
—
(50,900 )
675,309
2004
675,309
196,829
(643,628 )
(41,246 )
187,264
2002
193,550
305,850
(7,550)
(81,900)
409,950
In November 1999, the subcommittee of the Compensation Committee approved an Executive Loan
Program under which LP offered up to 1,700,000 shares of LP’s common stock for purchase prior to
January 23, 2000, by LP’s executive officers, and other executives designated by its chief executive officer.
In November 2000, this subcommittee of the Compensation Committee authorized additional loans under
the Executive Loan Program during the 60-day period which ended January 23, 2001. Subsequent to this
time, there have been no additional loans made. New loans are not permitted to be made to executive
officers under provisions of the Sarbanes-Oxley Act of 2002.
Each loan was initially recorded as an offset to paid-in capital. In anticipation of loan forgiveness in
2004 through 2006 as described below, LP amortizes each loan and its accrued interest to expense over the
period between its inception and the anticipated forgiveness dates. Under the terms of the agreement, if
the executive remains continuously employed by LP through the following dates, the loan balance at that
date will be forgiven in the following percentages: January 23, 2004, 50% of the original principal;
January 23, 2005, an additional 25% of the principal plus 50% of the accrued interest; and January 23,
2006, all remaining principal and accrued interest. In addition, if LP’s common stock has traded on the
NYSE for at least five consecutive trading days at specified price levels or above during the 12-month
period immediately preceding January 23, 2004 or 2005 and the executive remains employed by LP, the
following additional percentages of the loan balance will be forgiven: January 23, 2004, 25% of the
principal and 50% of the accrued interest at a price level of $16.00 per share or 50% of the principal and
100% of the accrued interest at a price level of $20.00 per share; and January 23, 2005, all remaining
principal and accrued interest at a price level of $18.00 per share. In January 2004, LP’s stock traded above
$20.00 for five consecutive days and therefore as of January 23, 2004, the outstanding balance of the loans
were completely forgiven. As a result, LP recorded compensation expense of $2.6 million in the 2004.
15. ASSET RETIREMENT OBLIGATIONS
In June of 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.”
This statement addresses financial accounting and reporting obligations associated with the retirement of
tangible long-lived assets and the associated retirement costs. SFAS No. 143 was effective for LP beginning
January 1, 2003. As part of this implementation, LP recognized a gain of $0.2 million (before taxes). This
change was primarily associated with the treatment of the monitoring costs on closed landfills and timber
reforestation obligations associated with LP’s timber licenses in Canada.
69
The activity in LP’s asset retirement obligation liability for 2004 and 2003 is summarized in the
following table.
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reversal of liability due to asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended
December 31,
2004
2003
Dollar amounts
in millions
$ 2.6
0.1
—
(0.5 )
—
$ 4.3
0.2
(1.0 )
(1.0 )
0.1
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.2
$ 2.6
16. OTHER OPERATING CREDITS AND CHARGES, NET
The major components of “Other operating credits and charges, net” in the Consolidated Statements
of Income for the years ended December 31 are reflected in the table below and described in the
paragraphs following the table:
Year ended December 31,
2003
2002
Dollar amounts in millions
2004
Additions to litigation reserves . . . . . . . . . . . . . . . . . . . . . . . .
Additions to product related contingency reserves. . . . . . . .
Revisions to environmental contingency reserves. . . . . . . . .
Gain on insurance recoveries . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on substantial liquidation of LP’s investment in LP’s
Chetwynd, British Columbia pulp mill . . . . . . . . . . . . . . . .
Loss on contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges associated with corporate relocation . . . . . . . . . . . .
Charges associated CEO retirement . . . . . . . . . . . . . . . . . . . .
Loss related to assets and liabilities transferred under
contractual obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (6.0) $ (13.0 ) $ (2.0 )
(27.2 )
(1.6 )
1.9
(6.7 )
(2.7 )
29.3
—
2.8
—
—
—
(12.5)
(13.1)
—
(4.4 )
(1.7 )
—
3.1
—
—
—
—
—
0.1
—
(2.1 )
(1.6 )
$ (28.7) $ (15.2 ) $ (29.5 )
(16.0 )
—
—
2004
During 2004, LP recorded $28.7 million in Other operating credits and charges, net. The components
of the net charges include:
• an increase to litigation reserves of $6.0 million;
• a gain of $2.8 million associated with the reversal of previously recorded environmental reserves;
• a loss of $13.1 million associated with certain compensation arrangements impacted by the
retirement of LP’s Chief Executive Officer; and
• a loss of $12.5 million associated with the relocation and consolidation of LP’s corporate offices to
Nashville, Tennessee.
70
2003
During 2003, LP recorded $15.2 million in Other operating credits and charges, net. The components
of the net charges include:
• an increase to litigation reserves of $13.0 million;
• a loss of $16.0 million related to assets and liabilities transferred under contractual arrangement
due to the increase in a valuation allowance associated with notes receivable from Samoa Pacific
Cellulose (SPC) (see Note 18 for further discussion);
• a loss of $6.7 million from increases in product related contingency reserves associated with the
National OSB class action settlement (see Note 18 for further discussion);
• a loss of $2.7 million associated with environmental reserves at LP’s Ketchikan Pulp Company
(KPC) operations;
• a loss of $4.4 million related to an energy contract associated with SPC
• a gain of $29.3 million related to insurance recoveries for environmental costs incurred in prior
years; and
• a loss of $1.7 million associated with the relocation and consolidation of LP’s corporate offices to
Nashville, Tennessee.
2002
During 2002, LP recorded $29.5 million in Other operating credits and charges, net. The components
of the net charges include:
• an increase to litigation reserves of $2 million;
• an increase to product related contingency reserves of $27.2 million associated with the hardboard
siding class action settlement (see in Note 18 for further discussion);
• an increase in environmental contingency reserves of $1.6 million associated with KPC’s former log
transfer facilities;
• a gain of $1.9 million from business interruption insurance recoveries related to incidents at
facilities that occurred in past years;
• a gain of $3.1 million on the substantial liquidation of a LP’s investment in LP’s Chetwynd, British
Columbia pulp mill;
• a loss of $2.1 million due to severance incurred associated with the corporate restructuring that
accompanied the divesture plan; and
• a loss of $1.6 million associated with a sublease on LP’s corporate headquarters.
71
Severance
Over the course of the last three years, LP has entered into several restructuring plans in an effort to
reduce overall expenses. The detail of the severance accrual and related expense and payments for the last
three years is as follows:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charged to expense, continuing operations . . . . . . . . . . . . . . . .
Charged to expense, discontinued operations . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2004
2002
2003
Dollar amounts in millions
$ 6.4
$ 4.7
2.1
3.3
7.6
2.5
(11.4 )
(7.4 )
$ 4.7
$ 3.1
$ 3.1
3.1
0.3
(4.7)
$ 1.8
The balance of the accrued severance is included in the caption Accounts payable and accrued
liabilities on the Consolidated Balance Sheets. The balance as of December 31, 2004 is payable under
contract through 2005. The majority of the severance expense is non-segment related.
17. GAIN (LOSS) ON SALE OF AND IMPAIRMENT OF LONG-LIVED ASSETS, NET
The major components of “Gain (loss) on sale of and impairment of long-lived assets, net” in the
Consolidated Statements of Income are reflected in the table below and are described in the paragraphs
following the table.
Impairment charges on long-lived assets . . . . . . . . . . . . . . .
Gain on sale of timber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on sale of other long-lived assets. . . . . . . . . . . .
Year ended December 31,
2004
2002
2003
Dollar amounts in millions
$ (17.7) $ (1.6 ) $ (19.6 )
73.8
117.9
7.1
1.9
$ 61.3
$ (18.3) $ 118.2
—
(0.6)
2004
During 2004, LP recorded a net loss on sale of and impairment of long-lived assets of $18.3 million.
This net loss includes the following items:
• an impairment charge of $13.0 million on manufacturing equipment that is held for sale to reduce
the carrying value of this equipment to its estimated sales price, net of related selling expenses, and
$4.7 million on the write off of capitalized interest associated with facilities which were closed or
sold in prior years; and
• a net loss of $0.6 million on the sale of various other assets.
2003
During 2003, LP recorded a net gain on sale of and impairment of long-lived assets of $118.2 million.
This net gain includes the following items:
• a gain of $117.9 million on the sale of LP’s timberlands as part of LP’s divesture plan;
• an impairment charge of $1.6 million on manufacturing equipment that is held for sale to reduce
the carrying value of this equipment to its estimated sales price; and
• a gain of $1.9 million on the sale of various other assets.
72
2002
During 2002, LP recorded a net gain on sale of and impairment of long-lived assets of $61.3 million.
This net gain includes the following items:
• a gain of $73.8 million on the sale of LP’s timberlands as part of LP’s divesture plan;
• a gain of $4.1 million on the sale of certain corporate assets;
• a gain of $3.0 million on the sale of various other assets;
• an impairment charge of $16.8 million on a timber license and other costs associated with a
cancelled OSB project in Quebec. This impairment charge is equal to the amount that was
originally allocated to this project as part of the purchase price allocation in connection with the
purchase of LeGroupe Forex in 1999;
• an impairment charge of $1.3 million based upon the then anticipated sale of LP’s Chetwynd British
Columbia pulp mill. This impairment charge was based upon the difference between the carrying
value of the assets minus the liabilities assumed by the buyer and the estimated sales price based
upon a non-binding letter of intent; and
• an impairment charge of $1.5 million on a closed plywood location to reduce the carrying value to
its estimated sales price less selling costs.
18. CONTINGENCIES
LP maintains reserves for various contingent liabilities as follows:
Environmental reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OSB siding reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hardboard siding reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2004
2003
Dollar amounts
in millions
$ 11.4
0.6
37.2
4.9
54.1
(12.0 )
$ 42.1
$ 17.9
16.7
43.7
20.3
98.6
(43.0 )
$ 55.6
Environmental Proceedings
LP is involved in a number of environmental proceedings and activities, and may be wholly or partially
responsible for known or unknown contamination existing at a number of other sites at which it has
conducted operations or disposed of wastes. Based on the information currently available, management
believes that any fines, penalties or other costs or losses resulting from these matters will not have a
material adverse effect on the financial position, results of operations, cash flows or liquidity of LP.
LP maintains a reserve for undiscounted estimated environmental loss contingencies. This reserve is
primarily for estimated future costs of remediation of hazardous or toxic substances at numerous sites
currently or previously owned by the Company. LP’s estimates of its environmental loss contingencies are
based on various assumptions and judgments, the specific nature of which varies in light of the particular
facts and circumstances surrounding each environmental loss contingency. These estimates typically reflect
assumptions and judgments as to the probable nature, magnitude and timing of required investigation,
remediation and/or monitoring activities and the probable cost of these activities, and in some cases reflect
assumptions and judgments as to the obligation or willingness and ability of third parties to bear a
73
proportionate or allocated share of the cost of these activities. Due to the numerous uncertainties and
variables associated with these assumptions and judgments, and the effects of changes in governmental
regulation and environmental technologies, both the precision and reliability of the resulting estimates of
the related contingencies are subject to substantial uncertainties. LP regularly monitors its estimated
exposure to environmental loss contingencies and, as additional information becomes known, may change
its estimates significantly. However, no estimate of the range of any such change can be made at this time.
In those instances in which LP’s estimated exposure reflects actual or anticipated cost-sharing
arrangements with third parties, LP does not believe that it will be exposed to additional material liability
as a result of non-performance by such third parties. There are three forms of cost-sharing arrangements
under which costs are apportioned to others and are therefore not reflected in LP’s environmental
reserves. The amounts involved, the number of sites and a description of each are as follows:
• Approximately $2 million of costs, relating to three sites, pursuant to formal cost-sharing
arrangements between LP and one or more third parties.
• Approximately $4 million of costs, related to four transactions each covering multiple sites,
pursuant to agreements contained in purchase and sale documents where LP has sold an asset to a
third party and that third party has assumed responsibility for all or a portion of any remediation
costs required for the sold asset.
• Approximately $0.2 million of costs, related to one site undergoing cleanup pursuant to federal or
state environmental laws, where multiple parties are involved.
LP considers the financial condition of third parties subject to the cost sharing arrangements discussed
above in determining the amounts to be reflected in LP’s environmental reserves. In addition, LP is a party
to clean-up activities at two additional sites for which LP does not believe that the failure of a third party to
discharge its allocated responsibility would significantly increase LP’s financial responsibility based on the
manner in which financial responsibility has been, or is expected to be, allocated.
LP’s estimates of its environmental loss contingencies do not reflect potential future recoveries from
insurance carriers except to the extent that recovery may from time to time be deemed probable as a result
of a carrier’s agreement to payment terms.
The activity in LP’s reserve for estimated environmental loss contingency reserves for the last three
years is summarized in the following table.
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted to expense (income) during the year . . . . . . . . . . . .
Reversal of liability due to sales of operations . . . . . . . . . . . .
Reclassification of reserves related to asset retirement
obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2002
2003
2004
Dollar amounts in millions
$ 40.5
$ 25.7
1.5
1.2
(11.2 )
—
$ 17.9
(3.1)
—
—
(3.4)
$ 11.4
(2.4 )
(6.6 )
$ 17.9
—
(5.1 )
$ 25.7
During 2004 and 2003, LP adjusted its reserves at a number of sites to reflect current estimates of
remediation costs.
74
During 2002, LP adjusted its reserves at a number of sites to reflect current estimates of remediation
costs. During the year, LP sold several of the sites that were previously reserved for and therefore the
reserves were no longer required. Included in this amount was $9.2 million in reversals associated with
LP’s sale of the Chetwynd, British Columbia pulp mill.
OSB Siding Matters
In June 1996, the U.S. District Court for the District of Oregon approved a settlement between LP
and a nationwide class generally composed of persons who owned property on which LP’s OSB siding was
installed prior to January 1, 1996. Under the settlement agreement, an eligible claimant whose claim was
timely filed approved by an independent claims administrator was entitled to receive a payment equal to
the replacement cost (determined by a third-party construction cost estimator) of damaged siding, reduced
by a specific adjustment (of up to 65%) based on the age of the siding. Subsequent to the original
settlement, LP undertook several initiatives which allowed it to satisfy claims on a discounted basis.
During 2004, LP made the final payment on the OSB siding nationwide class action suit as provided
under the settlement agreement. From the inception of the settlement through December 31, 2004, LP
paid a total of $525 million in satisfaction of $838 million in claims. The breakdown of the payments is as
follows (in millions):
Original settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Optional contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second fund program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative payment program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Claimant offer program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid
Satisfaction
of Claim
Amount
Dollar amounts
in millions
$ 280
71
115
32
27
$ 525
$ 290
100
319
91
38
$ 838
Throughout the period the above described settlements have been in effect, LP recorded accruals
which represented management’s best estimates of amounts to be paid based on available information.
The activity in the portion of LP’s loss contingency reserves relating to OSB siding contingencies for
the last three years is summarized in the following table.
Year ended December 31.
2003
2002
Dollar amounts in millions
2004
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued to expense in the current year . . . . . . . . . . . . . . . . .
Payments made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16.7
—
(16.3)
$ 0.4
$ 39.0
6.7
(29.0 )
$ 16.7
$ 78.2
—
(39.2 )
$ 39.0
ABT Hardboard Siding Matters
Between 1995 and 1999, ABT Building Products Corporation (“ABT”), ABTco, Inc., a wholly owned
subsidiary of ABT (“ABTco” and, together with ABT, the “ABT Entities”), Abitibi- Price Corporation
(“Abitibi”), a predecessor of ABT, and certain affiliates of Abitibi (the “Abitibi Affiliates” and, together
with Abitibi, the “Abitibi Entities”) were named as defendants in numerous class action and non-class
action proceedings brought on behalf of various persons or purported classes of persons (including
nationwide classes in the United States and Canada) who own or have purchased or installed hardboard
75
siding manufactured or sold by the defendants. In general, the plaintiffs in these actions have claimed
unfair business practices, breach of warranty, fraud, misrepresentation, negligence, and other theories
related to alleged defects, deterioration, or other failure of such hardboard siding, and seek unspecified
compensatory, punitive, and other damages (including consequential damage to the structures on which
the siding was installed), attorneys’ fees and other relief.
LP acquired ABT in February 1999 and ABT was merged into LP in January of 2001. On
September 21, 2000, the Circuit Court of Choctaw County, Alabama, under the caption Foster, et al. v.
ABTco, Inc., ABT Building Products Corporation, Abitibi-Price, Inc. and Abitibi-Price Corporation
(No. CV95-151-M), approved a settlement agreement among the defendants and attorneys representing a
nationwide class composed of all persons who own or formerly owned homes or, subject to limited
exceptions, other buildings or structures on which hardboard siding manufactured by the defendants was
installed between May 15, 1975 and May 15, 2000. Except for approximately 30 persons who timely opted
out, the settlement includes and binds all members of the settlement class and resolves all claims asserted
in the various proceedings described above. Under the settlement agreement, class members will have
twenty-five years after their siding was installed to file a claim.
Under the settlement agreement, the defendants will be entitled to elect to make an offer of
settlement to an eligible claimant based on the information set forth in the claim submitted by such
claimant, and such claimant will be entitled to accept or reject the offer. If an eligible claimant declines the
offer, or if no offer is made, such claimant will be entitled to a payment based on an independent
inspection. Such payments will be based on a specified dollar amount (calculated on the basis of statewide
averages and ranging from $2.65 to $6.21, depending upon the state) per square foot of covered siding that
has experienced specified types of damage, subject to reduction based on the age of the damaged siding
and any failure to paint the damaged siding within stated intervals (except in the case of damaged siding
installed on mobile homes, as to which a uniform 50% reduction will apply in all circumstances). If
applicable, payments under the settlement will also be subject to reduction to reflect any warranty
payments or certain other payments previously recovered by a claimant on account of the damaged siding.
Under the settlement agreement, LP (as a successor to ABT) will be required to pay the expenses of
administering the settlement and certain other costs.
ABT and Abitibi were parties to an agreement of an allocation of liability with respect to claims
related to siding sold prior to October 22, 1992. On June 13, 2001, in exchange for a cash payment from
Abitibi of approximately $19 million which was received in July 2001, LPC, a wholly owned subsidiary of
LP, agreed to accept a transfer of all of Abitibi’s rights and obligations under the settlement agreement
and the allocation agreement; and LP and LPC agreed to indemnify and hold harmless Abitibi from any
cost or liability arising from its sale of hardboard siding in the United States. From the date of the
agreement, Abitibi has no further rights, obligations or liabilities under either the class action settlement
agreement or the allocation agreement. All such rights, obligations and liabilities having been assigned to
and accepted and assumed by LPC.
During the fourth quarter of 2002, LP increased its reserves in connection with this class action
settlement. The additional reserve reflects revised estimates of undiscounted future claim payments and
related administrative costs, which prior to the fourth quarter of 2002, could not be calculated due to the
fact that the limited claims history would not provide statistically valid results. The additional reserves
taken in the fourth quarter, based upon revised estimates, are primarily due to a lower estimated rate of
decline in settlement payments during the 25-year period. While payments through December 31, 2002
were lower than originally expected, the revised estimate of the undiscounted future payment claims in the
later years of the claim period are higher than originally estimated. LP believes that the reserve balance at
December 31, 2004 will be adequate to cover future payments to claimants and related administrative
costs. However, it is possible that additional charges may be required in the future.
76
The activity in the portion of LP’s loss contingency reserves relating to hardboard siding contingencies
for the last three years is summarized in the following table.
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued to expense for claims . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued to expense for administrative costs . . . . . . . . . . . . . . .
Cash payments received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made for claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made for administrative costs. . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
Year ended December 31.
2002
2003
Dollar amounts in millions
$ 11.2
$ 49.6
15.5
—
11.7
—
18.8
—
(6.0 )
(4.5 )
(1.6 )
(1.4 )
$ 49.6
$ 43.7
$ 43.7
—
—
—
(5.0)
(1.5)
$ 37.2
Additional Siding Matters
On October 15, 2002, a jury returned a verdict of $29.6 million against LP in a Minnesota State Court
action entitled Lester Building Systems, a division of Butler Manufacturing Company, and Lester’s of
Minnesota, Inc., v. Louisiana-Pacific Corporation and Canton Lumber Company. On December 13, 2002,
the District of Oregon, which maintains jurisdiction over the nationwide OSB class action permanently
enjoined the Minnesota state trial court from entering judgment against LP with respect to $11.2 million of
the verdict that related to siding that was subject to the nationwide OSB siding settlement. Lester’s had
appealed this injunction to the Ninth Circuit Court of Appeals. Subsequently, on January 27, 2003, the
Minnesota state trial court entered judgment against LP in the amount of $20.1 million, representing the
verdict amount plus costs and interest less the enjoined amount. That judgment became final and LP
satisfied that judgment during the second quarter of 2004. The enjoined amount was not paid as part of
that satisfaction of judgment because the injunction remains in place pending the appeal by Lester’s. Based
upon the information currently available, LP believes that any further liability related to this case is remote
and will not have a material adverse effect on our financial position, results of operations, cash flows or
liquidity.
Nature Guard Cement Shakes Matters
LP is a defendant in a class action lawsuit, captioned as Nature Guard Cement Roofing Shingle Cases,
that is pending in the Superior Court for Stanislaus County, California. The plaintiffs in this action are a
class of persons owning structures on which Nature Guard Fiber Cement Shakes were installed as roofing.
The complaint in this action asserts claims for breach of express and implied warranties, unfair business
practices, and violation of the Consumer Legal Remedies Act and seeks general, compensatory, special
and punitive damages, disgorgement of profits and the establishment of a fund to provide restitution to the
purported class members.
LP no longer manufactures or sells fiber cement shakes. The dollar amount of the referenced claims
cannot presently be determined. The complaint in this action does not quantify the relief sought by the
plaintiffs individually or on behalf of the class, discovery in this action has not been completed, no
determination of liability has been made and no process for the submission of individual claims in
connection with this action has been established. LP believes that it has substantial defenses to this action
and is unable to predict the potential financial impact of this action.
Other Proceedings
During the third quarter of 2004, LP received a letter from a law firm purporting to represent more
than 1,400 potential plaintiffs who allegedly experienced various personal injuries and property damages as
a result of the alleged release of chemical substances from LP’s wood treatment facility in Lockhart,
77
Alabama during the period from 1953 to 1998. The letter is characterized as a “pre-litigation settlement
demand” to LP and Pactiv Corporation, from whom we acquired the facility in 1983. As of the date of this
report, LP and the potential plaintiffs had agreed to refrain from commencing any legal proceedings in
respect of the potential plaintiffs’ allegations and to the tolling of applicable statutes of limitations. These
agreements are terminable by either party upon 30 days notice. LP is not presently able to quantify its
financial exposure, if any, relating to the matters alleged in the letter, and the potential plaintiffs have not
specified the amount of compensation sought. LP intends to defend vigorously any legal proceedings that
may be commenced against it by the potential plaintiffs.
LP and its subsidiaries are parties to other legal proceedings. Based on the information currently
available, management believes that the resolution of such proceedings will not have a material adverse
effect on the financial position, results of operations, cash flows or liquidity of LP.
Contingency Reserves
LP’s estimates of its loss contingencies are based on various assumptions and judgments. Due to the
numerous uncertainties and variables associated with these assumptions and judgments, both the precision
and reliability of the resulting estimates of the related contingencies are subject to substantial
uncertainties. LP regularly monitors its estimated exposure to contingencies and, as additional information
becomes known, may change its estimates significantly. While no estimate of the range of any such change
can be made at this time, the amount that LP may ultimately pay in connection with these matters could
materially exceed, in either the near term or the longer term, the amounts accrued to date. LP’s estimates
of its loss contingencies do not reflect potential future recoveries from insurance carriers except to the
extent that recovery may from time to time be deemed probable as a result of an insurer’s agreement to
payment terms.
19. COMMITMENTS AND CONTINGENT LIABILTIES
LP is obligated to purchase timber under certain cutting contracts that extend to 2009. LP’s best
estimate of its commitment at current contract rates under these contracts at December 31, 2004 is
approximately $24.6 million for approximately 291,700 million board feet of timber.
LP is primarily self-insured for worker compensation and employee health care liability costs. Self
insurance liabilities are determined actuarially based upon claims filed and estimates claims incurred but
not yet reported. These claims are not discounted.
The Company and its subsidiaries lease certain manufacturing, warehousing and other facilities and
equipment. The leases generally provide for the lessee to pay taxes, maintenance, insurance and certain
other operating costs of the leased properties.
At December 31, 2004, future minimum annual rent commitments are as follows:
Year ended December 31
2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 and after . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar
amounts
in millions
$ 6.9
6.4
5.6
5.2
5.2
17.2
$ 46.5
78
As of December 31, 2004, LP entered into several non-cancelable subleases for a portion of its
previous corporate headquarters in Portland, Oregon. Minimum annual rent commitments have not been
reduced by minimum sublease rentals of $8.8 million (in total for all years) due in the future. Rental
expense for operating leases amounted to $26.8 million, $30.6 million and $34.7 million in 2004, 2003 and
2002, respectively.
20. GUARANTEES AND INDEMNIFICATIONS
LP is a party to contracts in which LP agrees to indemnify third parties for certain liabilities that arise
out of or relate to the subject matter of the contract. In some cases, this indemnity extends to related
liabilities arising out of the negligence of the indemnified parties, but usually excludes any liabilities caused
by gross negligence or willful misconduct of the indemnified parties. LP cannot estimate the potential
amount of future payments under these agreements until events arise that would trigger the liability.
Additionally, in connection with certain sales of assets and divestures of businesses, LP has agreed to
indemnify the buyer and related parties for certain losses or liabilities incurred by the buyer or such related
parties with respect to (1) the representations and warranties made to the buyer by LP in connection with
the sales and (2) liabilities related to the pre-closing operations of the assets sold. Indemnities related to
pre-closing operations generally include environmental liabilities, tax liabilities and other liabilities not
assumed by the buyer.
Indemnities related to the pre-closing operations of sold assets normally do not represent added
liabilities for LP, but simply serve to protect the buyer from potential liability associated with the
obligations that existed (known and unknown) at the time of the sale. LP records accruals for those pre-
closing obligations that are considered probable and reasonably estimable. Under FASB Interpretation
No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtness of Others,” LP is required to record a liability for the fair value of the
guarantees that are entered into subsequent to December 31, 2002. LP has not accrued any additional
amounts as a result of the indemnity agreements summarized below as LP believes the fair value of the
guarantees entered into after December 31, 2002 is not material.
• In connection with various sales of LP’s timberlands, LP has agreed to indemnify the various buyers
with respect to losses resulting from breaches of limited representations and warranties contained in
these agreements. These indemnities generally are capped at a maximum potential liability and
have an unspecified duration.
• In connection with the exchange of LP’s Texas and Louisiana plywood mills and a medium density
fiberboard (MDF) mill to Georgia-Pacific Corporation in exchange for Georgia-Pacific’s OSB mill
in Woodland, Maine in 2002, LP agreed to indemnify Georgia-Pacific Corporation for certain losses
resulting from breaches of LP’s representations and warranties contained in the exchange
agreement. LP is not required to pay under this indemnification obligation until claims against LP,
on a cumulative basis, exceed $500,000. Upon exceeding this $500,000 threshold, LP is generally
required to provide indemnification for any losses in excess of $500,000, up to a limit of $15 million.
This indemnification expires in September of 2007.
• In connection with the sale of LP’s particleboard mill at Missoula, Montana to Roseburg Forest
Products Co. in early 2003, LP provided a 5-year indemnity for unknown environmental claims,
capped at the purchase price of $17.7 million with a $1 million deductible. This indemnification
expires in February of 2008.
• In connection with the sale of LP’s particleboard mill in Arcata, California to Hambro Forest
Products in 2002, LP provided an uncapped 7-year indemnity for any claims arising out of the excess
equipment. This indemnity will expire in July of 2009.
79
• In connection with the sale of LP’s two related interior hardboard facilities to Decorative Panels
International Inc. in 2004, LP provided a 10-year indemnity for unknown environmental claims,
capped at $4 million with a $0.3 million deductible. This indemnity will expire in May of 2014.
• In connection with the sale by LP Canada Pulp Ltd (“LPCP”) of its pulp mill in Chetwynd, BC,
Canada to Tembec, Ltd in October 2002, LP provided an indemnity of unspecified duration
provided by LPCP for liabilities arising out of pre-closing operations. These indemnities, which do
not extend to environmental liabilities, are capped at C$15 million in the aggregate.
• LP also has various other indemnities that are individually and in the aggregate immaterial.
LP will record a liability related to specific indemnification when future payment is probable and the
amount is reasonably estimable.
Additionally, LP offers warranties on the sale of most of its products and records an accrual for
estimated future claims. Such accruals are based upon historical experience and management’s estimate of
the level of future claims. The activity in warranty reserves for the last two years is summarized in the
following table.
Year ended
December 31,
2004
2003
Dollar amounts
in millions
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued to expense during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 21.0
7.4
(6.2 )
$ 15.7
10.9
(5.6 )
Total warranty reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.2
(7.0 )
$ 15.2
21.0
(7.0 )
$ 14.0
The current portion of the warranty reserve is included in the caption accounts payable and accrued
liabilities on LP’s balance sheet and the long-term portion is included in the caption other long-term
liabilities.
21. SIGNIFICANT DISPOSITIONS
In April 2002, LP sold its controlling interest in an OSB facility located in Ireland. LP recorded a gain
of $2.0 million on the sale of this facility and reduced its debt by $6.5 million.
In February 2001, LP sold a controlling interest in Samoa Pacific Cellulose LLC (SPC), a company
that owns a pulp mill and related assets in Samoa, California, for approximately book value. In this
transaction, LP received approximately $22 million in cash, and promissory notes of SPC valued at a fair
value of $29 million and retained preferred stock of SPC valued at a fair value of approximately $9
million. Management believed the fair value of the consideration received approximated the carrying value
of the assets at that time. The preferred stock was pledged as collateral against SPC’s senior borrowing.
The term of the promissory notes was longer than five years. Additionally, LP had agreed to provide SPC
with a $14.5 million (at December 31, 2002) credit facility secured by working capital.
Due to its continuing financial interest in SPC, LP did not initially record the transaction as a sale, for
accounting purposes. In compliance with SEC Staff Accounting Bulletin No. 30—Accounting For
Divestiture Of A Subsidiary Or Other Business Operation, LP recorded the assets and the liabilities of
SPC on LP’s balance sheet under the captions “Assets transferred under contractual arrangement” and
“Liabilities transferred under contractual arrangement.” During 2003, due to significant changes in
circumstance, LP recorded the sale and de-recognized these assets and liabilities under contractual
80
obligation. Additionally, during 2003, SPC was forced into foreclosure by a significant creditor and
subsequently was sold to another company. Due to this foreclosure, LP deemed the line of credit
uncollectable and recorded a reserve for the then outstanding line of credit above the estimated value of
the collateral. See Note 16 for further discussion. LP has been released from liabilities associated with the
pulp mill other than potential liabilities for restoration of certain California tidelands, should this be
required by various state agencies.
During 2003 and 2002, LP sold all its fee timberlands in various transactions. During 2003 and 2002,
LP recognized $118 million and $74 million in gains on these sales. See Note 17 for discussion of these
gains and Note 12 for a discussion of the associated off balance sheet transaction.
Other significant dispositions, which LP recorded as discontinued operations, are discussed in Note 22
below.
22. DISCONTINUED OPERATIONS
During 2002, LP announced that its board of directors had approved a plan to sell selected businesses
and assets, including its plywood, commodity industrial panels, timber and timberlands, certain lumber
mills, wholesale and distribution businesses, and included such businesses as discontinued operations. The
operations associated with these timber and timberlands are not reported as discontinued operations due
to the nature of these assets, as these assets did not met the criteria to be classified as a separate business.
In 2003, LP announced further divestures of most of its remaining lumber mills as well as an interior
hardboard panel operation. At December 31, 2004, LP has two lumber operations classified as
discontinued. LP is attempting to sell both of these facilities, however one of these facilities in Canada
currently does not have any interested parties. Should LP decide to close rather than sell this facility, LP
would be required to record approximately $4.4 million in the first quarter of 2005 in severance associated
with the closure as well as potentially other post closing liabilities.
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets,” LP is required to account for the businesses sold or anticipated to be sold within one year as
discontinued operations. In 2004, LP completed the sale of two lumber facilities and two related interior
hardboard facilities. In 2003, LP completed the sale of six lumber facilities, an industrial panel facility and
a veneer facility.
In 2002, LP completed the transfer of its Texas and Louisiana plywood mills and a medium density
fiberboard (MDF) mill to Georgia-Pacific Corporation in exchange for Georgia-Pacific’s oriented strand
board (OSB) mill in Woodland, Maine. No gain or loss was recognized on the transaction as the book
value equaled the fair value. In addition, LP received a cash payment for working capital components. LP
also recorded a gain of $2.0 million associated with the reduction in certain LIFO inventories associated
with this sale. This gain is included in income (loss) from discontinued operations.
Revenues associated with the discontinued operations were $144.9 million, $351.9 million and $691.9
million for the years ended December 31, 2004, 2003 and 2002. Included in the loss on discontinued
operations for the years ended December 31, 2004, 2003 and 2002 were impairment charges of $9.9
million, $27.9 million and $57.0 million based on the estimated fair value of the assets less estimated costs
to sell. Additionally, during 2004, LP recorded a loss of $3.8 million on the sale of a lumber mill and two
related interior panel facilities, a loss of $2.3 million associated with the settlement of a operating lease
associated with a mill held for sale and a gain of $1.2 million related to long term timber contracts. During
2003, LP recorded a gain of $ 8.4 million on sale of a portion of these assets including an industrial panel
facility, veneer facility as well as five lumber mills. LP also recorded a $2.5 million charge related to the
curtailment expense on a defined benefit pension plan, a $2.5 million charge related to severance, a $0.9
million loss related to long term timber contracts and a $15.0 million loss related to an operating lease
associated with a mill that is held for sale. During 2002, LP recorded a gain of $5.5 million on sale of a
81
portion of these assets. LP also recorded a $4.4 million charge related to the curtailment expense on a
defined benefit pension plan, a $7.6 million charge related to severance, a $4.5 million charge related to
the loss on a long term timber contract, a $3.5 million loss associated with the impairment of timber rights
associated with a mill that was held for sale and a $7.4 million gain associated with mark-to-market
adjustments and the subsequent cancellation of an energy contract associated with a mill that was sold in
2003.
Summarized balance sheet information for discontinued operations is as follows:
As of December 31,
2003
2004
Dollar amounts
in millions
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7.4
$ 22.8
Timber and timberlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.6
12.6
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39.7
(13.7 )
26.0
87.3
(44.6 )
42.7
Long-term assets of discontinued operations . . . . . . . . . . . . . . . . . . . .
32.6
55.3
Total assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40.0
$ 78.1
23. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated comprehensive loss consists of cumulative translation adjustments; gain (loss) on certain
derivative instruments and additional minimum pension liability adjustments. The table below breaks down
these balances, net of tax:
Foreign
currency
translation
adjustments
Minimum
pension
liability
adjustment
Unrealized
gain on
derivative
instruments
Other
Total
Balance, December 31, 2001 . . . . . . . . . . . . . . . . . .
Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2002 . . . . . . . . . . . . . . . .
Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2003 . . . . . . . . . . . . . . . .
Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2004 . . . . . . . . . . . . . . . .
$ (23.5)
(5.2)
(28.7)
4.4
(24.3)
2.2
$ (22.1)
(Dollar amounts in millions)
$ (30.0)
(15.2)
(45.2)
(2.7)
(47.9)
0.6
$ (47.3)
$ —
1.0
1.0
0.1
1.1
0.7
$ 1.8
$ (0.4 ) $ (53.9)
(19.2)
(73.1)
1.9
(71.2)
3.3
$ (0.3 ) $ (67.9)
0.2
(0.2 )
0.1
(0.1 )
(0.2 )
Foreign currency translation adjustments exclude income tax expense (benefit) given that these
adjustments arise out of the translation of the assets into the functional currency that is separate from the
taxable income and is deemed to be reinvested for an indefinite period of time. The income tax benefit
associated with the minimum pension liability adjustment was $0.4 million in 2004, $1.8 million in 2003 and
$9.7 million in 2002. The income tax benefit associated with the unrealized gain on derivatives was $0.2
million in 2004.
24. SEGMENT INFORMATION
LP operates in three segments: Oriented Strand Board (OSB); Siding; and Engineered Wood
Products (EWP). LP’s business units have been aggregated into these three segments based upon the
similarity of economic characteristics, customers and distribution methods. LP’s results of operations are
82
summarized below for each of these segments separately as well as for the “other” category which
comprises other products that are not individually significant. Segment information was prepared in
accordance with the same accounting principles as those described in Note 1. LP evaluates the
performance of its business segments based upon operating profits excluding other operating credits and
charges, net and gain (loss) on sales of and impairments of long-lived assets, general corporate and other
expenses, translation gains and losses, interest and income taxes.
The OSB segment includes commodity OSB products produced in North America. The siding
segment includes (1) OSB—based siding products; (2) hardboard siding products; (3) vinyl siding; and
(4) other hardboard products. The engineered wood products segment includes (1) laminated veneer
lumber; (2) I-joists; (3) plywood and (4) other related products.
Information about LP’s product segments is as follows:
2004
Year ended December 31,
2003
Dollar amounts in millions
2002
SALES BY BUSINESS SEGMENT
OSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Siding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Wood Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Intersegment sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROFIT (LOSS) BY BUSINESS SEGMENT
OSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Siding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Wood Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating credits and charges, net . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on sales of and impairments of long-lived assets. . . . . . . . .
General corporate and other expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on early extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . .
Translation gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before taxes . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before cumulative effect of
change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEPRECIATION, AMORTIZATION AND COST OF TIMBER
HARVESTED
$ 1,749.0
554.1
394.7
161.6
(10.0)
$ 2,849.4
$ 1,335.6
523.9
290.6
164.1
(33.5 )
$ 2,280.7
$ 740.4
430.9
225.7
198.1
(18.9)
$ 1,576.2
$
$ 829.7
54.2
7.2
14.7
(28.7)
(18.3)
(104.1)
(41.5)
9.7
(19.7)
$ 503.4
61.0
(1.5 )
9.7
(15.2 )
118.2
(101.8 )
(1.5 )
1.0
(54.6 )
703.2
279.7
518.7
233.8
61.6
44.5
7.3
13.8
(29.5)
61.3
(81.4)
—
(3.2)
(63.0)
11.4
15.2
$ 423.5
$ 284.9
$
(3.8)
OSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Siding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Wood Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-segment related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total depreciation, amortization and cost of timber harvested . . . .
$
94.0
18.9
15.1
7.4
8.2
$ 143.6
$
78.4
18.7
13.5
10.7
11.0
$ 132.3
$
75.7
18.6
12.6
18.4
10.7
$ 136.0
83
CAPITAL EXPENDITURES
OSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Siding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Wood Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-segment related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information concerning identifiable assets by segment is
Year ended December 31,
2004
2002
2003
Dollar amounts in millions
$ 83.5
22.2
3.8
17.5
20.6
0.1
$ 147.7
$ 54.9
10.7
1.1
12.2
1.5
6.2
$ 86.6
$ 20.3
5.8
6.3
8.1
0.3
1.0
$ 41.8
IDENTIFIABLE ASSETS
OSB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Siding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Wood Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-segment related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2003
2004
Dollar amounts
in millions
$ 953.7
285.6
143.2
205.8
40.0
1,822.3
$ 3,450.6
$ 878.4
263.3
148.3
207.2
78.1
1,629.1
$ 3,204.4
Non-segment related assets include long-term notes receivable, cash and cash equivalents, short-term
and long-term investments, corporate assets and other items.
84
Export sales are primarily to customers in Asia and Europe. Information concerning LP’s geographic
segments is as follows:
GEOGRAPHIC SEGMENTS:
Total Sales—Point of origin
US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment sales to US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Export sales (included in above). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit (loss)
US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating credits and charges, net and gain (loss) on sales of and
impairments of long lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General corporate expense, loss on extinguishment of debt, translation gains
(losses) and interest, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before cumulative change in
Year ended December 31,
2004
2002
2003
Dollar amounts in millions
$ 2,361
1,032
(544 )
$ 2,849
$ 1,907
774
(400 )
$ 2,281
$ 1,272
584
(280)
$ 1,576
$
25
$
13
$
10
$ 546
357
$ 383
191
$
(47 )
103
96
25
32
(152 )
704
280
(158 )
519
234
(142)
11
15
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 424
$ 285
$
(4)
Identifiable tangible long-lived assets
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 434
467
$ 901
$ 435
508
$ 943
$ 907
525
$ 1,432
The amounts included in the tables above for Canada and other are primarily related to Canada.
NOTE 25—HEADQUARTERS RELOCATION
On September 30, 2003, LP announced that it would relocate its corporate headquarters to Nashville,
Tennessee. The transition associated with this relocation is expected to occur through mid-2005, and
involve the consolidation of most of LP’s management and leadership positions from several offices to its
new headquarters. The move has resulted in LP’s corporate headquarters being closer to the company’s
production facilities, customers and shareholders. During 2004, LP incurred $12.5 million in severance,
relocation, moving expenses and recruitment. LP expects to spend an additional $2 to $4 million in 2005.
Additionally, LP spent $10.9 million in 2004 and expects to spend an additional $4 to $5 million in capital
expenditures related to the relocation of the headquarters and related facilities. The expense estimates do
not reflect expected incentives provided by various agencies to partially offset the expenses of the
relocation nor the potential gains on the sale of current facilities.
85
Interim Financial Results (unaudited)
1ST QTR
2ND QTR
3RD QTR
4TH QTR
2004
2003
2004
2003
2004
2003
2004
2003
(Dollar amounts in millions, except per share)
QUARTERLY DATA
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before taxes,
minority interest, equity in earnings of unconsolidated
affiliate and cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before
cumulative effect of change in accounting principle. .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before
cumulative effect of change in accounting principle
per share—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before
cumulative effect of change in accounting principle
per share—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share—basic . . . . . . . . . . . . . . . .
Net income (loss) per share—diluted. . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . . . . . . . . .
SALES BY SEGMENT:
OSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Siding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered wood products . . . . . . . . . . . . . . . . . . . . . . .
Other products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less intersegment sales. . . . . . . . . . . . . . . . . . . . . . . .
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROFIT (LOSS) BY BUSINESS SEGMENT
OSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Siding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered wood products . . . . . . . . . . . . . . . . . . . . . . .
Other products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating credits and charges, net . . . . . . . . . . . .
Gain (loss) on sale of and impairment of long-lived
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General corporate and other expense, net . . . . . . . . . . .
Gain (loss) on early debt extinguishment . . . . . . . . . . . .
Translation gains (losses) . . . . . . . . . . . . . . . . . . . . . . . .
Interest, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before
$ 695.3 $ 406.7
44.2
285.4
825.3 $ 473.0 $ 740.5 $ 670.7 $ 588.3 $ 730.3
284.2
345.9
238.3
238.0
69.8
94.5
176.2
3.1
294.7
19.6
179.0
197.8
49.5
296.3
112.3
$ 106.5 $
2.0
1.5
189.3
106.3
9.1
192.4 $ (17.2) $ 108.1
110.4
124.5
15.6
163.4
13.7 $ 163.7
$ 1.04 $ 0.02 $ 1.74 $ 0.09 $ 0.97 $ 1.05 $ 0.16 $ 1.54
$ 1.03 $ 0.02 $ 1.72 $ 0.09 $ 0.96 $ 1.04 $ 0.16 $ 1.53
$ 0.99 $ 0.01 $ 1.77 $ (0.16) $ 0.99 $ 1.18 $ 0.13 $ 1.55
$ 0.98 $ 0.01 $ 1.75 $ (0.16) $ 0.98 $ 1.17 $ 0.13 $ 1.54
$ 0.05 $ — $ 0.075 $ — $ 0.075 $ — $ 0.10 $ —
$ 456.6 $ 198.5 $ 535.9 $ 233.5 $ 436.3 $ 407.4 $ 320.2 $ 496.2
133.4
80.5
29.9
(9.7)
$ 695.3 $ 406.7 $ 825.3 $ 473.0 $ 740.5 $ 670.7 $ 588.3 $ 730.3
154.4
112.4
41.4
(4.0 )
132.2
69.6
45.2
(7.5)
104.4
60.1
47.6
(3.9)
129.6
101.4
38.6
(1.5)
120.6
77.9
44.0
(3.8)
153.9
80.4
41.4
(12.4 )
149.5
103.0
37.6
(0.7)
$ 253.6 $ 16.1 $ 309.1 $ 34.0 $ 199.1 $ 194.5 $ 67.9 $ 258.8
10.8
0.2
(1.3)
15.9
18.3
3.6
3.4
(15.5 )
15.2
0.2
1.9
(25.4)
12.8
(0.9)
3.5
(6.7)
26.1
(0.5 )
2.2
(5.7 )
18.3
0.7
3.1
(2.4)
4.8
3.8
4.7
(4.1)
8.9
(1.0)
6.9
—
(9.6)
(26.0)
(40.0)
(0.3)
(9.7)
176.7
64.4
12.5
(23.3)
—
1.9
(15.1)
3.1
1.1
(0.2)
(26.8)
(1.3)
1.4
(6.4)
295.5
106.2
29.2
(21.8)
—
0.2
(14.3)
19.2
10.1
(2.7 )
(25.2 )
(0.2 )
1.8
(3.1 )
179.5
73.2
22.5
(26.2 )
(1.5 )
0.9
(13.8 )
198.5
88.1
(5.8)
(26.1)
—
6.8
(0.5)
51.5
35.9
54.0
(30.5)
—
1.8
(11.4)
297.9
134.5
cumulative change in accounting principle . . . . . . . . .
$ 112.3 $
2.0 $ 189.3 $
9.1 $ 106.3 $ 110.4 $ 15.6 $ 163.4
(1) Gross profit is income before selling and administrative expenses, other operating credits and charges, net, gain (loss) on sale of
or impairment of long-lived assets, net, taxes, minority interest, interest and equity in earnings of unconsolidated affiliate.
Included in Other operating credits and charges, net for continuing operations are the following:
In the second quarter of 2003, LP recorded a loss of $16.0 million related to assets and liabilities
transferred under contractual arrangement due to the increase in a valuation allowance associated with
notes receivable from Samoa Pacific, a loss of $6.7 million from increases in product related contingency
reserves associated with the National OSB class action settlement and a loss of $2.7 million associated with
environmental reserves in relation to our former Alaska operations.
In the third quarter of 2003, LP recorded a loss of $5.0 million related to an energy contract associated
with Samoa Pacific and a loss of $0.7 million on severance recorded as part of the divesture plan.
86
In the fourth quarter of 2003, LP recorded a gain of $29.3 million related to insurance recoveries for
environmental costs incurred in prior years; a gain of $0.7 million related to an energy contract associated
with Samoa Pacific; a loss of $13.0 million associated with an increase in litigation reserves and a loss of
$1.1 million on severance recorded as part of the divesture and corporate relocation plans.
In the first quarter of 2004, LP recorded a gain of $1.7 million associated with a reduction in
environmental reserves in relation to our former Alaska operations, a charge of $6.0 million for an
increase in litigation reserves due to an adverse court ruling and a charge of $2.0 million associated with
the relocation and consolidation of LP’s corporate offices to Nashville, Tennessee.
In the second quarter of 2004, LP recorded a charge of $2.4 million associated with the relocation and
consolidation of LP’s corporate offices to Nashville, Tennessee.
In the third quarter of 2004, LP recorded a charge of $4.5 million associated with the relocation and
consolidation of LP’s corporate offices to Nashville, Tennessee, a charge of $10.7 million associated with
certain compensation arrangements impacted by Mr. Suwyn’s retirement and a gain of $0.3 million
associated with a reduction in previously recorded environmental reserves.
In the fourth quarter of 2004, LP recorded a charge of $2.4 million associated with the relocation and
consolidation of LP’s corporate offices to Nashville, Tennessee, a charge of $2.4 million associated with
certain compensation arrangements impacted by Mr. Suwyn’s retirement and a gain of $0.6 million
associated with a reduction in environmental reserves in relation to our former Alaska operations.
See Note 16 for further discussion on the credits and charges mentioned above.
Included in gain (loss) on sale of and impairment of long-lived assets for continuing operations are the
following:
In the first quarter of 2003, LP recorded a gain of $12.5 million associated with the sale of a portion of
LP’s timberlands as part of LP’s divestiture plan.
In the second quarter of 2003, LP recorded a gain of $29.3 million associated with the sale of a portion
of LP’s timberlands as part of LP’s divestiture plan.
In the third quarter of 2003, LP recorded a gain of $22.1 million associated with the sale of a portion
of LP’s timberlands as part of LP’s divestiture plan and a gain of $0.4 million associated with the sale of
certain other assets.
In the fourth quarter of 2003, LP recorded a gain of $54.7 million associated with the sale of a portion
of LP’s timberlands as part of LP’s divestiture plan and a gain of $0.9 million associated with the sale of
certain other assets. Additionally, LP recorded an impairment loss of $1.6 million.
In the first quarter of 2004, LP recorded a loss of $9.7 million on the cancellation of a capital project
to build a veneer mill in British Columbia.
In the third quarter of 2004, LP recorded a loss of $2.8 million on a non-operating OSB mill and $0.5
million additional expense associated with the cancellation of a capital project to build a veneer mill in
British Columbia to reduce the values to the net realizable sale price for these assets and a gain of $0.6
million associated with the sale of certain other assets.
In the fourth quarter of 2004, LP recorded a loss of $4.7 million on write off of capitalized interest
associated with facilities which were sold or closed in prior years and a loss of $1.1 million associated with
the sale of certain other assets.
See Note 17 for further discussion on the gains and losses on sale or and impairment of long-lived assets
mentioned above.
87
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
ITEM 9A. Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2004, our Chief Executive Officer and Chief Financial Officer carried out, with
the participation of the Company’s Disclosure Committee and the Company’s management, an evaluation
of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15 (e) under the
Securities Exchange Act (Act). Based upon this evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to
provide reasonable assurance that material information required to be disclosed by us in reports we file
under the Act is recorded, processed, summarized and reported by management of the Company on a
timely basis in order to comply with the company’s disclosure obligations under the Act and the SEC
rules thereunder.
Changes in Internal Control Over Financial Reporting
There were no changes in LP’s internal control over financial reporting that occurred during LP’s
most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control
over financial reporting, as defined in the Exchange Act Rule 13a-15(f). The Company’s management
conducted an assessment of the Company’s internal control over financial reporting based on the
framework established by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control—Integrated Framework. Based on this assessment, the Company’s management has
concluded that, as of December 31, 2004, the Company’s internal control over financial reporting is
effective. The Company’s independent auditors, Deloitte & Touche LLP, have audited the Company’s
consolidated financial statements and have issued an attestation report on management’s assessment of the
Company’s internal control over financial reporting, as stated in their report included herein.
CEO and CFO Certifications
The certifications of the Company’s Chief Executive Officer and Chief Financial Officer required
under Section 302 of the Sarbanes-Oxley Act have been filed as Exhibits 31.1 and 31.2 to this report.
Additionally, in 2004 the Company’s Chief Executive Officer certified to the New York Stock Exchange
(“NYSE”) that he was not aware of any violation by the Company of the NYSE corporate governance
listing standards.
88
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Louisiana-Pacific Corporation
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting, that Louisiana-Pacific Corporation and subsidiaries (the
“Company”) maintained effective internal control over financial reporting as of December 31, 2004, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on management’s assessment
and an opinion on the effectiveness of the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of,
the company’s principal executive and principal financial officers, or persons performing similar functions,
and effected by the company’s board of directors, management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may
not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of
the internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over
financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of and for the year ended December 31,
2004 of the Company and our report dated March 9, 2005 expressed an unqualified opinion on those
financial statements.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
March 9, 2005
89
ITEM 10. Directors and Executive Officers of the Registrant
PART III
Information regarding LP’s directors is incorporated herein by reference to the material included
under the caption “Item 1—Election of Directors” in the definitive proxy statement filed by LP for its 2004
annual meeting of stockholders (the “2004 Proxy Statement”). Information regarding compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference to the material
included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2004 Proxy
Statement.
Information regarding each of LP’s executive officers as of March 14, 2005, including employment
history for the past five years, is set forth below:
Name
Richard W. Frost . . . .
Curtis M. Stevens . . . .
Age
Title
53 Chief Executive Officer
52
Executive Vice President, Administration and Chief
Financial Officer
Harold N. Stanton . . .
Jeffrey N. Wagner . . .
54 Executive Vice President, Specialty Products and Sales
50 Vice President, OSB
Richard W. Frost has been Chief Executive Officer since November 2004. He was Executive Vice
President, Commodity Products, Engineered Wood, Procurement and Engineering since March 2003 and
Executive Vice President, OSB, Procurement and Engineering from May 2002 through February 2003. He
previously was Vice President, Timberlands and Procurement from 1996 to April 2002.
Curtis M. Stevens has been Executive Vice President, Administration and Chief Financial Officer since
May 2002. He previously served as Vice President, Treasurer and Chief Financial Officer from
September 1997 to April 2002.
Harold N. Stanton has been Executive Vice President, Specialty Products and Sales since
November 2004. He served as Vice President of OSB from 2002 to 2004 and previously served as general
manager of LP’s industrial panels business.
Jeffrey N. Wagner has been Vice President of OSB since November 2004. He served as Vice President,
Forest Resources, Supply Management and Logistics from 2003 to 2004. Previously, Mr. Wagner served as
Director of Supply Management.
In January 2004, the Board adopted a Code of Ethics applicable to LP’s principal executive officer,
principal financial officer and principal accounting officer. The Code of Ethics is disclosed at LP’s website
at www.lpcorp.com.
In January 2004, the Board adopted revised charters for the Nominating Committee and the
Compensation Committee and also adopted a Code of Business Conduct and Ethics and Corporate
Governance Guidelines, each of which is disclosed at LP’s website at www.lpcorp.com.
ITEM 11. Executive Compensation
Information regarding executive compensation is incorporated herein by reference to the material
under the captions “Compensation Committee—Interlocks and Insider Participation,” “Compensation of
Executive Officers,” “Retirement Benefits,” “Directors’ Compensation,” and “Agreements with Executive
Officers” in the 2004 Proxy Statement.
90
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management and LP’s
existing equity compensation plans and arrangements is incorporated herein by reference to the material
under the captions “Holders of Common Stock” and “Equity Compensation Plan Information” in the 2004
Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions
Information regarding management transactions is incorporated herein by reference to the material
under the captions “Compensation Committee—Interlocks and Insider Participation” and “Management
Loans and Other Transactions” in the 2004 Proxy Statement.
ITEM 14. Principal Accountant Fees and Services
Information regarding fees and services provided by LP’s principal accountant and the LP Audit
Committee’s pre-approval policies and procedures relating thereto is incorporated herein by reference to
the material under the caption “Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors” in the 2004 Proxy Statement. In January 2005, the Board adopted a revised charter
for the Audit Committee which is disclosed at LP’s website at www.lpcorp.com.
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
A. Financial Statements and Financial Statement Schedules
The following financial statements of LP are included in this report:
Consolidated Balance Sheets—December 31, 2004, and 2003.
Consolidated Statements of Income—years ended December 31, 2004, 2003, and 2002.
Consolidated Statements of Cash Flows—years ended December 31, 2004, 2003, 2002.
Consolidated Statements of Stockholders’ Equity—years ended December 31, 2004, 2003 and
2002.
Consolidated Statements of Comprehensive Income—years ended December 31, 2004, 2003 and
2002.
Notes to Financial Statements.
Report of Independent Registered Public Accounting Firm
Interim Financial Results (unaudited).
No other financial statement schedules are required to be filed.
B. Exhibits
The exhibits filed as part of this report or incorporated by reference herein are listed in the
accompanying exhibit index. Each management contract or compensatory plan or arrangement is
identified by an asterisk (*).
91
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
Louisiana-Pacific Corporation, a Delaware corporation (the “registrant”), has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 10, 2005
LOUISIANA-PACIFIC CORPORATION
(Registrant)
/s/ CURTIS M. STEVENS
Curtis M. Stevens
Executive Vice President, Administration
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date
Signature and Title
March 10, 2005
March 10, 2005
March 10, 2005
March 10, 2005
March 10, 2005
/s/ RICHARD W. FROST
Richard W. Frost
Chief Executive Officer, Director
(Principal Executive Officer)
/s/ CURTIS M. STEVENS
Curtis M. Stevens
Executive Vice President, Administration
and Chief Financial Officer
(Principle Financial Officer)
/s/ RUSSELL S. PATTEE
Russell S. Pattee
Corporate Controller and Assistant Treasurer
(Principle Accounting Officer)
/s/ E. GARY COOK
E. Gary Cook
Chairman of the Board
/s/ COLIN D.WATSON
Colin D.Watson
Director
92
March 10, 2005
March 10, 2005
March 10, 2005
March 10, 2005
March 10, 2005
March 10, 2005
Date
Signature and Title
/s/ ARCHIE W. DUNHAM
Archie W. Dunham
Director
/s/ PAUL W. HANSEN
Paul W. Hansen
Director
/s/ BRENDA LAUDERBACK
Brenda Lauderback
Director
/s/ DUSTAN E. MCCOY
Dustan E. McCoy
Director
/s/ DANIEL K. FRIERSON
Daniel K. Frierson
Director
/s/ LEE C. SIMPSON
Lee C. Simpson
Director
93
EXHIBIT INDEX
On written request, Louisiana-Pacific Corporation (LP) will furnish to any record holder or beneficial
holder of its common stock any exhibit to this report upon the payment of a fee equal to LP’s costs of
copying such exhibit plus postage. Any such request should be sent to: Louisiana-Pacific Corporation, 414
Union Street, Suite 2000, Nashville, TN 37219.
Items identified with an asterisk (*) are management contracts or compensatory plans or
arrangements.
3.1
3.2
4.1
4.1(a)
4.2
4.2(a)
4.3
4.3(a)
4.3(b)
4.3(c)
4.3(d)
Restated Certificate of Incorporation of LP. Incorporated herein by reference to Exhibit 3(a) to
LP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993.
Bylaws of LP, as amended and restated effective August 16, 2004. Incorporated herein by
reference to Exhibit 3.3 to LP’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004.
Rights Agreement, dated as of May 26, 1998, between LP and First Chicago Trust Company of
New York as Rights Agent. Incorporated herein by reference to Exhibit 1 to LP’s Registration
Statement on Form 8-A filed May 26, 1998.
Amendment to Rights Agreement, dated as of October 17, 2001, between LP and First Chicago
Trust Company of New York as Rights Agent. Incorporated herein by reference to Exhibit 4.2
to LP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
Indenture, dated as of September 14, 1999, among Louisiana-Pacific Acquisition Inc., LP and
Laurentian Trust of Canada Inc. Incorporated herein by reference to Exhibit 4.3 to LP’s Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
First Supplemental Indenture, dated as of July 22, 2002, by and between Louisiana-Pacific
Canada Ltd. and Laurentian Trust of Canada Inc. Incorporated herein by reference to
Exhibit 4.2 to LP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
Indenture, dated as of April 2, 1999, between LP and First National Bank of Chicago, N.A., as
trustee (predecessor to Bank One Trust Company, N.A.). Incorporated herein by reference to
Exhibit 4.2 to LP’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
First Supplemental Indenture, dated August 18, 2000, between LP and Bank One Trust
Company, N.A., as trustee. Incorporated herein by reference to Exhibit 4.1 to LP’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000.
Second Supplemental Indenture, dated August 18, 2000, between LP and Bank One Trust
Company, N.A., as trustee. Incorporated herein by reference to Exhibit 4.2 to LP’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000.
Third Supplemental Indenture, dated August 13, 2001, between LP and Bank One Trust
Company, N.A., as trustee. Incorporated herein by reference to Exhibit 4.1 to LP’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001.
Fourth Supplemental Indenture, dated March 25, 2004, between LP and J.P. Morgan Trust
Company N.A. (formerly Bank One Trust Company, N.A.), as trustee. Incorporated herein by
reference to Exhibit 4.1 to LP’s Quarterly Report on Form 10-Q for the quarter ended
March 30, 2004.
94
10.1
10.2
10.2(a)
10.2(b)
Credit Agreement, dated September 1, 2004, among LP, as borrower, Wachovia Bank National
Association, Bank of America, N.A., and the other financial institutions that are parties thereto.
Incorporated herein by reference to Exhibit 10.1 to LP’s Current Report on Form 8-K dated
September 2, 2004.
2001 LP Canada Credit Agreement, dated for reference November 30, 2001, among LP,
Louisiana-Pacific Canada Ltd. and Royal Bank of Canada. Incorporated herein by reference to
Exhibit 10.2 to LP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
Waiver and First Amendment, dated as of July 23, 2002, among LP, Louisiana-Pacific Canada
Ltd. and Royal Bank of Canada. Incorporated herein by reference to Exhibit 10.7 to LP’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
Second Amendment to 2001 LP Canada Credit Agreement, dated for reference November 27,
2002, among Louisiana-Pacific Canada Ltd., LP and Royal Bank of Canada. Incorporated
herein by reference to Exhibit 10.2(b) to LP’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.
10.2(c)
Letter Agreement amending 2001 LP Canada Credit Agreement, dated November 27, 2002,
among Louisiana-Pacific Canada Ltd., LP and Royal Bank of Canada.
10.2(d)
Letter Agreement amending 2001 LP Canada Credit Agreement, dated January 27, 2003,
among Louisiana-Pacific Canada Ltd., LP and Royal Bank of Canada.
10.2(e)
Letter Agreement amending 2001 LP Canada Credit Agreement, dated February 24, 2003,
among Louisiana-Pacific Canada Ltd., LP and Royal Bank of Canada.
10.2(f)
10.2(g)
10.2(h)
Third Amendment to 2001 LP Canada Credit Agreement, dated for reference March 14, 2003,
among Louisiana-Pacific Canada Ltd., LP and Royal Bank of Canada. Incorporated by
reference to Exhibit 10.2(c) to LP’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
Fourth Amendment to 2001 LP Canada Credit Agreement, dated June 27, 2003, among
Louisiana-Pacific Canada Ltd., LP and Royal Bank of Canada. Incorporated herein by
reference to Exhibit 10.2 (d) to LP’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003.
Amended and Restated Credit Agreement, dated for reference September 15, 2003, among
Louisiana-Pacific Canada Ltd., LP and Royal Bank of Canada. Incorporated herein by
reference to Exhibit 10.2 (e) to LP’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003.
10.2 (i)
Third amended and restated Credit Agreement, dated for reference December 30, 2004, among
Louisiana-Pacific Canada Ltd., LP and Royal Bank of Canada.
10.3
10.3(a)
Receivables Sale Agreement, dated as of November 15, 2001, among LP, LP Wood
Polymers, Inc. and LP Receivables Corporation. Incorporated herein by reference to
Exhibit 10.3 to LP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
First Amendment to Receivables Sale Agreement, dated as of December 27, 2001, among LP,
LP Wood Polymers, Inc. and LP Receivables Corporation. Incorporated herein by reference to
Exhibit 10.3(a) to LP’s Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
95
10.3(b)
10.3(c)
10.4
10.4(a)
10.4(b)
10.4(c)
10.4(d)
10.5(e)
10.6
10.8
Waiver of Credit and Security Agreement and Limited Waiver and Second Amendment to
Receivables Sales Agreement, dated as of July 23, 2002, among LP Receivables Corporation,
Wachovia Bank, National Association and Blue Ridge Asset Funding Corporation.
Incorporated herein by reference to Exhibit 10.5 to LP’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2002.
Third Amendment to the Receivables Sale Agreement, dated as of April 25, 2003, among LP
and LP Receivables Corporation. Incorporated herein by reference to Exhibit 10.3 (c) to LP’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
Credit and Security Agreement, dated as of November 15, 2001, among LP, LP Receivables
Corporation, Blue Ridge Asset Funding Corporation, Wachovia Bank, N.A., and the other
financial institutions that are parties thereto. Incorporated herein by reference to Exhibit 10.4 to
LP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
Fourth Amendment to Limited Waiver and Amendment to Credit Agreement, dated as of
November 13, 2002, among LP Receivables Corporation, LP, Wachovia Bank, N.A. and Blue
Ridge Asset Funding Corporation. Incorporated herein by reference to Exhibit 10.3(c) to LP’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
Second Amendment to the Credit and Security Agreement, dated April 25, 2003, among LP, LP
Receivables Corporation, Blue Ridge Asset Funding Corporation, Wachovia Bank, N.A., and
the other financial institutions that are parties thereto. Incorporated herein by reference to
Exhibit 10.4 (a) to LP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
Third Amendment to the Credit and Security Agreement, dated November 12, 2003, among LP,
LP Receivables Corporation, Blue Ridge Asset Funding Corporation, Wachovia Bank, N.A.,
and the other financial institutions that are parties thereto.
Fourth Amendment to the Credit and Security Agreement, dated November 14, 2003, among
LP, LP Receivables Corporation, Blue Ridge Asset Funding Corporation, Wachovia Bank,
N.A., and the other financial institutions that are parties thereto.
Fifth Amendment to the Credit and Security Agreement, dated October 25, 2004, among LP,
LP Receivables Corporation, Blue Ridge Asset Funding Corporation, Wachovia Bank, N.A.,
and the other financial institutions that are parties thereto. Incorporate herein by reference to
Exhibit 10.1 to LP’s Current Report on Form 8-K dated November 1, 2004.
Note Purchase Agreement, dated June 30, 1998, among LP, LP SPV2, LLC and the Purchasers
named therein. Incorporated herein by reference to Exhibit 4 to LP’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998.
Settlement Agreement, dated May 3, 2000, among ABT Building Products Corporation,
ABTco, Inc., Abitibi-Price Corporation, attorneys representing plaintiffs in hard board siding
class action litigation and the other parties named therein. Incorporated herein by reference to
Exhibit 10.2 to LP’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2000.
10.8(a)
Assignment, Assumption, Release and Indemnification Agreement, dated June 25, 2001, among
LP, Louisiana-Pacific Canada Ltd., Abitibi-Price Corporation and Abitibi-Consolidated Inc.
Incorporated herein by reference to Exhibit 10.12 to LP’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.
10.9
1991 Employee Stock Option Plan. Incorporated herein by reference to Exhibit 10.B to LP’s
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.*
96
10.10
1992 Non-Employee Director Stock Option Plan (restated as of May 3, 2004) and Related
Forms of Option Agreements. Incorporated herein by reference to LP’s Proxy Statement dated
March 23, 2004.*
10.11
1997 Incentive Stock Award Plan, as restated as of May 4, 2004. Incorporated herein by
reference to LP’s Proxy Statement dated March 23, 2004.*
10.11(a)
Form of Award Agreement for Non-Qualified Stock Options. Incorporated herein by reference
to Exhibit 10.1 to LP Current Report on 8-K dated February 4, 2005.*
10.11(b)
Form of Award Agreement under the 1997 Incentive Stock Award Plan for Incentive Shares.
Incorporated herein by reference to Exhibit 10.2 to LP Current Report on 8-K dated
February 4, 2005.*
10.11(c)
Form of Award Agreement under the 1997 Incentive Stock Award Plan for Restricted Stock.
Incorporated herein by reference to Exhibit 10.2 to LP Current Report on 8-K dated
February 4, 2005.*
10.12
10.13
10.15
10.16
Annual Cash Incentive Award Plan, as amended and restated as of May 3, 2004. Incorporated
herein by reference to LP’s Proxy Statement dated March 23, 2004.*
Supplemental Executive Retirement Plan, as amended and restated as of September 1, 2004.
Incorporated herein by reference to Exhibit 10.4 to LP’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004.*
2000 Non-Employee Director Restricted Stock Plan, as amended and restated May 3, 2004.
Incorporated herein by reference to LP’s Proxy Statement dated March 23, 2004.*
Employment Agreement, dated January 2, 1996, between LP and Mark A. Suwyn. Incorporated
herein by reference to Exhibit 10.L to LP’s Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.*
10.16 (a)
Amendment to Employment Agreement dated February 1, 2003, between LP and Mark A.
Suwyn. Incorporated herein by reference to Exhibit 10.17 (a) to LP’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003.*
10.18
10.19
10.20
10.21
Letter Agreement, dated July 16, 1997, relating to the employment of Curtis M. Stevens.
Incorporated herein by reference to Exhibit 10.O to LP’s Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.*
Form of Change of Control Employment Agreement between LP and each of Curtis M.
Stevens, Richard W. Frost, Joseph B. Kastelic, J. Keith Matheney, Michael J. Tull, Walter M.
Wirfs, Jeff Duncan, Jr., W. Lee Kuhre and M. Ward Hubbell. Incorporated herein by reference
to Exhibit 10.2 to LP’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.*
Change of Control Employment Agreement, dated as of February 2, 2005, between LP and
Jeffery Wagner. Incorporated by reference to Exhibit 10.2 to LP’s Current report on Form 8-K
dated August 30, 2004.*
2004 Executive Deferred Compensation Plan, amended and restated effective January 1, 2005.
Incorporated herein by reference to Exhibit 10.1 to LP’s Current Report on Form 8-K dated
August 30, 2004.*
97
10.22
10.22
21
23
31.1
31.2
32.1
Purchase and Sale Agreement between LP and ETT Acquisition Company, LLC, dated July 2,
2003. (Schedules and Exhibits to this agreement, which are identified in the Table of Contents
thereof, have been omitted. LP hereby agrees to furnish the same supplementally to the SEC
upon request by the SEC.) Incorporated herein by reference to Exhibit 10.21 to LP’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003.
Undertaking Letter between Phemus Corporation and LP, dated July 2, 2003. Incorporated
herein by reference to Exhibit 10.22 to LP’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003.
List of LP’s subsidiaries.
Consent of Deloitte & Touche LLP.
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).
Certifications pursuant to § 906 of the Sarbanes-Oxley Act of 2002
LP hereby agrees to furnish supplementally to the SEC upon its request any schedules and similar
documents omitted pursuant to Item 601(b)(2) of Regulation S-K and any instruments omitted pursuant to
Item 601 (b)(4)(iii) of Regulation S-K.
98
CERTIFICATIONS
Exhibit 31.1
I, Richard W. Frost, Chief Executive Officer of Louisiana-Pacific Corporation, certify that:
1.
I have reviewed this annual report on Form 10-K of Louisiana-Pacific Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included
in this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting.
Date: March 10, 2005
/s/ RICHARD W. FROST
Richard W. Frost
CERTIFICATIONS
Exhibit 31.2
I, Curtis M. Stevens, Chief Financial Officer of Louisiana-Pacific Corporation, certify that:
1.
I have reviewed this annual report on Form 10-K of Louisiana-Pacific Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included
in this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent
evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to could adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting.
Date: March 10, 2005
/s/ CURTIS M. STEVENS
Curtis M. Stevens
Exhibit 32.1
LOUISIANA-PACIFIC CORPORATION
805 SW Broadway, Suite 1200
Portland, Oregon 97205-3303
(503) 821-5100
March 10, 2005
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
Ladies and Gentlemen:
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, in
connection with the filing of the Form 10-K of Louisiana-Pacific Corporation (the “Company”) for the
annual ended December 31, 2004, as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), each of the undersigned officers of the Company certifies, that, to such officer’s
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company as of the dates and for the periods expressed
in the Report.
/s/ RICHARD W. FROST
Name: Richard W. Frost
Title: Chief Executive Officer
/s/ CURTIS M. STEVENS
Name: Curtis M. Stevens
Title: Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Louisiana-
Pacific Corporation and will be retained by Louisiana-Pacific Corporation and furnished to the Securities
and Exchange Commission or its staff upon request.