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Louisiana-Pacific 10-Q 2007

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

 

For Quarterly Period Ended September 30, 2007
Commission File Number 1-7107

 

LOUISIANA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)

 

DELAWARE
(State or other jurisdiction of
incorporation or organization)

 

93-0609074
(IRS Employer Identification No.)

 

414 Union Street, Nashville, TN 37219
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (615) 986-5600

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   x

Accelerated filer   o

Non-accelerated filer   o 

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   o    No   x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 103,462,582 shares of Common Stock, $1 par value, outstanding as of November 2, 2007.

 

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 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 tax laws, and interpretations thereof;

                  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 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.

 

2



 

Item 1.   Financial Statements.

 

CONSOLIDATED STATEMENTS OF INCOME
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)

 

 

 

 

 

Quarter Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

472.5

 

$

527.0

 

$

1,328.3

 

$

1,819.2

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales

 

446.6

 

460.8

 

1,275.9

 

1,417.4

 

Depreciation, amortization and cost of timber harvested

 

27.2

 

30.8

 

83.1

 

94.8

 

Selling and administrative

 

36.7

 

38.3

 

115.2

 

118.0

 

(Gain) loss on sale or impairment of long-lived assets

 

48.4

 

0.9

 

53.6

 

0.9

 

Other operating credits and charges, net

 

(0.7

)

(2.9

)

(19.9

)

(2.8

)

Total operating costs and expenses

 

558.2

 

527.9

 

1,507.9

 

1,628.3

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

(85.7

)

(0.9

)

(179.6

)

190.9

 

 

 

 

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

Foreign currency exchange loss

 

(15.0

)

(0.2

)

(30.5

)

(8.7

)

Interest expense, net of capitalized interest

 

(7.7

)

(11.2

)

(27.7

)

(38.9

)

Investment income

 

20.4

 

24.9

 

64.2

 

72.2

 

Total non-operating income (expense)

 

(2.3

)

13.5

 

6.0

 

24.6

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes and equity in earnings of unconsolidated affiliates

 

(88.0

)

12.6

 

(173.6

)

215.5

 

Provision (benefit) for income taxes

 

(37.5

)

(3.6

)

(79.7

)

59.7

 

Equity in loss of unconsolidated affiliates

 

4.1

 

3.9

 

12.3

 

2.4

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

(54.6

)

12.3

 

(106.2

)

153.4

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

Loss from discontinued operations before income taxes

 

(21.4

)

(4.5

)

(36.2

)

(8.3

)

Income tax benefit

 

(8.2

)

(1.7

)

(14.0

)

(3.2

)

Loss from discontinued operations

 

(13.2

)

(2.8

)

(22.2

)

(5.1

)

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(67.8

)

$

9.5

 

$

(128.4

)

$

148.3

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share of common stock (basic):

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.52

)

$

0.12

 

$

(1.02

)

$

1.45

 

Loss from discontinued operations

 

(0.13

)

(0.03

)

(0.21

)

(0.04

)

Net income (loss) per share - basic

 

$

(0.65

)

$

0.09

 

$

(1.23

)

$

1.41

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share of common stock (diluted):

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.52

)

$

0.12

 

$

(1.02

)

$

1.45

 

Loss from discontinued operations

 

(0.13

)

(0.03

)

(0.21

)

(0.05

)

Net income (loss) per share - diluted

 

$

(0.65

)

$

0.09

 

$

(1.23

)

$

1.40

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per share

 

$

0.15

 

$

0.15

 

$

0.45

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

Average shares of stock outstanding — basic

 

103.6

 

104.9

 

104.0

 

105.5

 

Average shares of stock outstanding — diluted

 

103.6

 

105.2

 

104.0

 

106.0

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

3



 

CONDENSED CONSOLIDATED BALANCE SHEETS

LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES

(AMOUNTS IN MILLIONS) (UNAUDITED)

 

 

 

September 30, 2007

 

December 31, 2006

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

345.1

 

$

265.7

 

Short-term investments

 

444.4

 

797.0

 

Receivables, net of allowance for doubtful accounts of $1.2 million at September 30, 2007 and $1.4 million at December 31, 2006

 

219.2

 

157.4

 

Inventories

 

222.5

 

221.6

 

Prepaid expenses and other current assets

 

11.4

 

9.3

 

Deferred income taxes

 

8.8

 

28.5

 

Current portion of notes receivable from asset sales

 

54.4

 

 

Current assets of discontinued operations

 

10.1

 

24.5

 

Total current assets

 

1,315.9

 

1,504.0

 

 

 

 

 

 

 

Timber and timberlands

 

63.8

 

98.7

 

 

 

 

 

 

 

Property, plant and equipment

 

2,152.1

 

1,986.1

 

Accumulated depreciation

 

(1,182.1

)

(1,135.7

)

Net property, plant and equipment

 

970.0

 

850.4

 

 

 

 

 

 

 

Goodwill, net of amortization

 

273.5

 

273.5

 

Notes receivable from asset sales

 

278.6

 

333.0

 

Long-term investments

 

70.8

 

40.4

 

Restricted cash

 

56.5

 

51.8

 

Investments in and advances to affiliates

 

205.5

 

212.9

 

Other assets

 

31.2

 

27.1

 

Long-term assets of discontinued operations

 

25.0

 

44.6

 

Total assets

 

$

3,290.8

 

$

3,436.4

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current portion of long-term debt

 

$

0.2

 

$

0.4

 

Current portion of limited recourse notes payable

 

53.5

 

 

Short-term notes payable

 

40.2

 

3.0

 

Accounts payable and accrued liabilities

 

233.8

 

237.9

 

Current portion of deferred tax liabilities

 

14.6

 

14.6

 

Current portion of contingency reserves

 

9.0

 

9.0

 

Total current liabilities

 

351.3

 

264.9

 

 

 

 

 

 

 

Long-term debt, excluding current portion:

 

 

 

 

 

Limited recourse notes payable

 

273.3

 

326.8

 

Other long-term debt

 

353.2

 

317.8

 

Total long-term debt, excluding current portion

 

626.5

 

644.6

 

 

 

 

 

 

 

Contingency reserves, excluding current portion

 

18.1

 

25.6

 

Other long-term liabilities

 

83.3

 

70.0

 

Deferred income taxes

 

326.4

 

363.9

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock

 

116.9

 

116.9

 

Additional paid-in capital

 

437.5

 

435.8

 

Retained earnings

 

1,697.0

 

1,870.2

 

Treasury stock

 

(296.7

)

(284.0

)

Accumulated comprehensive loss

 

(69.5

)

(71.5

)

Total stockholders’ equity

 

1,885.2

 

2,067.4

 

Total liabilities and equity

 

$

3,290.8

 

$

3,436.4

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

4



 

CONSOLIDATED STATEMENTS OF CASH FLOWS

LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS) (UNAUDITED)

 

 

 

Nine Months Ended September 30,

 

 

 

2007

 

2006

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

(128.4

)

$

148.3

 

Adjustments to reconcile net income (loss) to net cash provided by

 

 

 

 

 

(used in) operating activities:

 

 

 

 

 

Depreciation, amortization and cost of timber harvested

 

84.9

 

99.7

 

Loss from unconsolidated affiliates

 

12.3

 

2.4

 

(Gain) loss on sale or impairment of long-lived assets

 

72.5

 

0.4

 

Other operating charges and credits, net

 

(2.0

)

(2.6

)

Net accretion on available for sale securities

 

(8.1

)

(10.4

)

Stock-based compensation expense related to stock plans

 

5.2

 

4.8

 

Excess tax benefits from stock-based compensation

 

 

(3.3

)

Exchange loss on remeasurement

 

37.2

 

17.0

 

Cash settlement of contingencies

 

(10.0

)

(10.8

)

Other adjustments

 

(0.1

)

(0.8

)

(Increase) decrease in receivables

 

(76.6

)

24.0

 

Decrease in inventories

 

21.6

 

8.0

 

Increase in prepaid expenses

 

(2.0

)

(1.6

)

Decrease in accounts payable and accrued liabilities

 

(12.2

)

(35.0

)

Increase (decrease) in deferred income taxes

 

1.0

 

(46.8

)

Net cash provided by (used in) operating activities

 

(4.7

)

193.3

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Property, plant, and equipment additions

 

(221.3

)

(122.5

)

Proceeds from asset sales

 

2.7

 

2.6

 

Investments in and advances to joint ventures

 

(4.7

)

(6.6

)

Receipt of proceeds from notes receivable

 

 

70.8

 

Cash paid for purchase of investments

 

(2,187.1

)

(4,627.1

)

Proceeds from sales of investments

 

2,517.0

 

4,436.8

 

(Increase) decrease in restricted cash under letter of credit requirements

 

(14.5

)

16.2

 

Net cash provided by (used in) investing activities

 

92.1

 

(229.8

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Borrowings of long-term debt

 

17.0

 

 

Repayment of debt

 

(0.3

)

(190.7

)

Net borrowings under revolving credit agreements

 

37.2

 

 

Sale of common stock under equity plans

 

2.8

 

5.5

 

Purchase of treasury stock

 

(18.2

)

(41.1

)

Payment of cash dividends

 

(46.9

)

(47.5

)

Excess tax benefits from stock-based compensation

 

 

3.3

 

Net cash used in financing activities

 

(8.4

)

(270.5

)

 

 

 

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

0.4

 

(4.9

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

79.4

 

(311.9

)

Cash and cash equivalents at beginning of period

 

265.7

 

607.6

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

345.1

 

$

295.7

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

5



 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS) (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Accumulated

 

Total

 

 

 

Common Stock

 

Treasury Stock

 

Paid-in

 

Retained

 

Comprehensive

 

Stockholders’

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Loss

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2006

 

116.9

 

$

116.9

 

12.7

 

$

(284.0

)

$

435.8

 

$

1,870.2

 

$

(71.5

)

$

2,067.4

 

Cumulative effect of adoption of accounting principle on prior years (see Notes 1 and 7)

 

 

 

 

 

 

2.1

 

 

2.1

 

Balance, December 31, 2006 (as adjusted)

 

116.9

 

116.9

 

12.7

 

(284.0

)

435.8

 

1,872.3

 

(71.5

)

2,069.5

 

Net income (loss)

 

 

 

 

 

 

(128.4

)

 

(128.4

)

Issuance of shares for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

employee stock plans and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other purposes and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

transactions

 

 

 

(0.2

)

5.5

 

(2.5

)

 

 

3.0

 

Purchase of shares for treasury

 

 

 

1.0

 

(18.2

)

 

 

 

(18.2

)

Amortization of restricted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock and other grants

 

 

 

 

 

4.2

 

 

 

4.2

 

Cash dividends

 

 

 

 

 

 

(46.9

)

 

(46.9

)

Other comprehensive income

 

 

 

 

 

 

 

2.0

 

2.0

 

Balance, September 30, 2007

 

116.9

 

$

116.9

 

13.5

 

$

(296.7

)

$

437.5

 

$

1,697.0

 

$

(69.5

)

$

1,885.2

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

6



 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS) (UNAUDITED)

 

 

 

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(67.8

)

$

9.5

 

$

(128.4

)

$

148.3

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

0.8

 

3.3

 

(1.2

)

(3.7

)

Unrealized gain on derivative instruments

 

0.1

 

 

 

0.5

 

Unrealized gain (loss) on marketable securities

 

(0.1

)

0.3

 

(0.1

)

0.1

 

Defined benefit pension plans:

 

 

 

 

 

 

 

 

 

Amortization of prior service cost

 

0.2

 

 

0.6

 

 

Amortization of net loss

 

0.9

 

 

2.7

 

 

Other comprehensive income (loss), net of tax

 

1.9

 

3.6

 

2.0

 

(3.1

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss), net of tax

 

$

(65.9

)

$

13.1

 

$

(126.4

)

$

145.2

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

7



 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS FOR PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position, results of operations and cash flows of LP and its subsidiaries for the interim periods presented. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in LP’s Annual Report on Form 10-K for the year ended December 31, 2006.

Adoption of New Accounting Standards

LP adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN 48) on January 1, 2007. FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. This interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. See Note 7 below for additional information, including the effects of adoption on LP’s Condensed Consolidated Balance Sheets and Consolidated Statement of Stockholders’ Equity.

LP adopted FASB Staff Position AUG AIR-1, “Accounting for Planned Major Maintenance Activities” (FSP AUG AIR-1) on January 1, 2007.  FSP AUG AIR-1 prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim reporting periods.  Permitted methods include direct expensing, built-in overhaul and deferral. LP will follow the deferral method in future periods. As a result of this adoption, LP recorded an increase to the beginning balance of retained earnings of $5.2 million or $3.3 million after tax. The impact of the adoption of this standard was immaterial to prior years.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (SFAS 158). This statement requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans. Under SFAS 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in Accumulated Comprehensive Loss, net of tax effects, until they are amortized as a component of net periodic benefit cost. In addition, the measurement date (the date at which plan assets and the benefit obligation are measured) is required to be the Company’s fiscal year end. Presently, LP uses an October 31 measurement date for a majority of its pension and postretirement benefit plans. LP adopted the recognition and disclosure provisions of SFAS 158 effective December 31, 2006, except for the measurement date provisions, which are not required until fiscal years ending after December 15, 2008.

Reclassifications

LP has announced its intent to divest its decking operations. In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” LP is required to account for the businesses anticipated to be sold within one year as discontinued operations. Accordingly, commencing with the quarter ended June 30, 2007, LP is classifying its decking operations as discontinued operations and has reclassified all periods presented in the same manner.

NOTE 2 — STOCK-BASED COMPENSATION

For the quarters ended September 30, 2007 and 2006, the total compensation expense related to LP’s stock-based compensation plans was $1.9 and $1.6 million. For the nine month periods ended September 30, 2007 and 2006, the total compensation expense related to all of LP’s stock-based compensation plans was $5.2 and $4.8 million. At September 30, 2007, 5,450,257 shares were available under the current stock award plans for stock-based awards. For the nine month period ended September 30, 2007, the fair value of the options granted was estimated using the

 

8



 

Black-Scholes option-pricing model with the following weighted-average assumptions: a risk free interest rate of 4.8%; an expected volatility factor for the market price of the Company’s common stock of 29.8% (based upon historical volatility over the expected life); a dividend yield of 2.6%; and an expected life of 4 years (based upon historical experience). For the nine month period ended September 30, 2006, the fair value of the options granted was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions: a risk free interest rate of 4.5%; an expected volatility factor for the market price of the Company’s common stock of 45.2% (based upon historical volatility over the expected life); a dividend yield of 1.9%; and an expected life of 4 years (based upon historical experience). The weighted-average fair value of each option or stock settled stock appreciation right (SSARs) granted during the nine month period ended September 30, 2007 and September 30, 2006 was $5.55 and $10.25.

NOTE 3 — CASH EQUIVALENTS AND INVESTMENTS

LP’s short-term and long-term investments are classified as available-for-sale as defined by Statement of Financial Accounting Standards (SFAS) No. 115 “Accounting for Certain Investments in Debt and Equity Securities” and are reported at estimated fair value using the specific identification method. LP’s investments include U.S. treasury notes, bank obligations, corporate obligations, auction rate securities and commercial paper. Under LP’s current investment policy, all investments must maintain an A-1 (short term) or A (long term) or equivalent credit rating from one or more rating agencies. The following table summarizes components and unrealized gains and losses related to these investments as of September 30, 2007 and December 31, 2006:

Dollar amounts in millions

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and government agency securities

 

$

37.7

 

$

 

$

 

$

37.7

 

Commercial paper

 

115.4

 

0.1

 

 

115.5

 

Corporate obligations

 

210.7

 

 

0.3

 

210.4

 

Auction rate securities

 

151.8

 

 

0.2

 

151.6

 

Total marketable securities

 

$

515.6

 

$

0.1

 

$

0.5

 

$

515.2

 

 

 

 

 

 

 

 

 

 

 

December 31, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and government agency securities

 

$

54.7

 

$

 

$

 

$

54.7

 

Commercial paper

 

375.5

 

0.1

 

 

375.6

 

Corporate obligations

 

220.8

 

 

0.1

 

220.7

 

Auction rate securities

 

186.4

 

 

 

186.4

 

Total marketable securities

 

$

837.4

 

$

0.1

 

$

0.1

 

$

837.4

 

 

NOTE 4 — EARNINGS PER SHARE

Basic net income per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares primarily consist of employee stock options, SSARs, restricted stock units and restricted common stock.

Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings per Share,” requires that employee equity share options, non-vested shares and similar equity instruments granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money options, which is calculated based on the average share price for each fiscal period using the

 

9



 

treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.

 

Dollar and share amounts in millions, except per

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

share amounts

 

2007

 

2006

 

2007

 

2006

 

Numerator:

 

 

 

 

 

 

 

 

 

Income (loss) attributed to common shares:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(54.6

)

$

12.3

 

$

(106.2

)

$

153.4

 

Loss from discontinued operations

 

(13.2

)

(2.8

)

(22.2

)

(5.1

)

Net income (loss)

 

$

(67.8

)

$

9.5

 

$

(128.4

)

$

148.3

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic — weighted average common shares outstanding

 

103.6

 

104.9

 

104.0

 

105.5

 

Dilutive effect of stock plans

 

 

0.3

 

 

0.5

 

Diluted shares outstanding

 

103.6

 

105.2

 

104.0

 

106.0

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.52

)

$

0.12

 

$

(1.02

)

$

1.45

 

Loss from discontinued operations

 

(0.13

)

(0.03

)

(0.21

)

(0.04

)

Net income (loss) per share

 

$

(0.65

)

$

0.09

 

$

(1.23

)

$

1.41

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.52

)

$

0.12

 

$

(1.02

)

$

1.45

 

Loss from discontinued operations

 

(0.13

)

(0.03

)

(0.21

)

(0.05

)

Net income (loss) per share

 

$

(0.65

)

$

0.09

 

$

(1.23

)

$

1.40

 

Stock options and SSARs to purchase approximately 2.8 million shares for the quarter and 2.4 million shares for the nine month period ended September 30, 2007 were not included in the computation of diluted earnings (loss) per share due to LP’s net loss position in continuing operations.  Stock options and SSARs to purchase approximately 1.3 million shares for the quarter and nine month period ended September 30, 2006 were considered anti-dilutive for purposes of LP’s earnings per share calculation due to the exercise price being greater than the average fair market price.

NOTE 5 — INVENTORIES

Inventories are valued at the lower of cost or market. Inventory cost includes materials, labor and operating overhead. The LIFO (last-in, first-out) method is used for certain log inventories with remaining inventories valued at FIFO (first-in, first-out) or average cost. The major types of inventories are as follows (work in process is not material):

 

10


 


 

Dollar amounts in millions

 

 

 

 

 

 

 

September 30, 2007

 

December 31, 2006

 

 

 

 

 

 

 

Logs

 

$

38.6

 

$

54.9

 

Other raw materials

 

27.4

 

28.9

 

Finished products

 

151.2

 

133.6

 

Supplies

 

7.6

 

7.0

 

LIFO reserve

 

(2.3

)

(2.8

)

Total

 

$

222.5

 

$

221.6

 

 

 

 

 

 

 

Inventory included in current assets of discontinued operations

 

 

 

 

 

Logs

 

$

 

$

 

Other raw materials

 

1.5

 

4.3

 

Finished products

 

8.3

 

19.7

 

Supplies

 

0.3

 

0.5

 

Total

 

$

10.1

 

$

24.5

 

 

NOTE 6 — BUSINESSES HELD FOR SALE AND DIVESTITURES

At September 30, 2007 and 2006 and for the first nine months of 2007 and 2006, LP’s discontinued operations included its decking operations and residual charges from previously discontinued operations.

Sales and losses for these businesses are as follows:

Dollar amounts in millions

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

4.8

 

$

7.5

 

$

28.0

 

$

46.0

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

$

(13.2

)

$

(2.8

)

$

(22.2

)

$

(5.1

)

 

In the second quarter of 2007, LP recorded a loss of $9.5 million associated with impairment charges on assets held for sale to reduce the carrying value of these assets to their estimated sales price, which approximates the estimated fair market value of such assets, net of related selling expenses.

In the third quarter of 2007, LP recorded an additional loss of $7.5 million associated with impairment charges on assets held for sale to reduce the carrying value of these assets to their estimated sales price, which approximates the estimated fair market value of such assets, net of related selling expenses. Also, LP recorded a $3.5 million loss on an executed take or pay contract associated with this business. LP recorded a $1 million charge associated with the anticipated settlement of an environmental issue on a previously closed site.

The assets of the discontinued operations included in the accompanying condensed consolidated balance sheets as of September 30, 2007 and December 31, 2006 are as follows:

 

11



 

Dollar amounts in millions

 

September 30, 2007

 

December 31, 2006

 

 

 

 

 

 

 

Inventories

 

$

10.1

 

$

24.5

 

 

 

 

 

 

 

Property, plant and equipment

 

44.6

 

59.4

 

Accumulated depreciation

 

(19.6

)

(18.1

)

Net, property, plant and equipment

 

25.0

 

41.3

 

 

 

 

 

 

 

Other long-term assets

 

 

3.3

 

 

 

 

 

 

 

Total long-term assets of discontinued operations

 

25.0

 

44.6

 

 

 

 

 

 

 

Total assets of discontinued operations

 

$

35.1

 

$

69.1

 

 

NOTE 7 — INCOME TAXES

Accounting standards require that income tax expense be determined by applying the estimated annual effective tax rate (based upon estimated annual amounts of taxable income and expense) by income component for the year to year-to-date income or loss at the end of each quarter, further adjusted by any changes in reserve requirements or the impact of statutory tax rate changes, if any.  Each quarter the income tax accrual is adjusted to the latest estimate and the difference from the previously accrued year-to-date balance is adjusted in the current quarter. 

 

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Continuing operations

 

$

(92.1

)

$

8.7

 

$

(185.9

)

$

213.1

 

Discontinued operations

 

(21.4

)

(4.5

)

(36.2

)

(8.3

)

 

 

(113.5

)

4.2

 

(222.1

)

204.8

 

Total tax provision (benefit)

 

(45.7

)

(5.3

)

(93.7

)

56.5

 

Net income (loss)

 

$

(67.8

)

$

9.5

 

$

(128.4

)

$

148.3

 

For the nine months ended September 30, 2007, the primary differences between the U.S. statutory rate of 35% and the effective rate on continuing operations relates to the Company’s foreign debt structure, state income taxes and the favorable resolution of an outstanding state tax contingency. For the nine months ended September 30, 2006, the primary differences between the U.S. statutory rate of 35% and the effective rate on continuing operations relates to the Company’s foreign debt structure, state income taxes, and a second quarter reduction in LP’s Canadian deferred tax liabilities due to an enacted decrease in the statutory income tax rate.

The components and associated estimated effective income tax rates applied to the nine month periods ended September 30, 2007 and 2006 are as follows:

 

 

 

Nine Months Ended September 30,

 

 

 

2007

 

2006

 

 

 

Tax Benefit

 

Tax Rate

 

Tax Provision (Benefit)

 

Tax Rate

 

Continuing operations

 

$

(79.7

)

43

%

$

59.7

 

28

%

Discontinued operations

 

(14.0

)

39

%

(3.2

)

39

%

 

 

$

(93.7

)

42

%

$

56.5

 

28

%

 

LP adopted FIN 48 on January 1, 2007. As a result of the implementation, LP recorded $12.9 million as a FIN 48 liability for unrecognized tax positions of which $0.3 million (net of federal benefit on state issues) would impact

 

12



 

LP’s effective tax rate if recognized.  This FIN 48 liability is recorded in “Other long-term liabilities” in the Condensed Consolidated Balance Sheets as of September 30, 2007. The implementation also resulted in a $1.2 million decrease to LP’s January 1, 2007 balance of retained earnings. LP does not expect to recognize any decrease in unrecognized tax benefits in the ensuing twelve months.

LP and its domestic subsidiaries are subject to U.S. federal income tax as well as income taxes of multiple state jurisdictions.  Its foreign subsidiaries are subject to income tax in Canada and Chile. U.S. federal income tax examinations for the years through 2004 have been effectively settled. LP has been advised that a U.S. federal audit for 2005 and 2006 will begin in the fourth quarter of 2007. LP is subject to state and local income tax examinations for the tax years 2000 through 2006. Canadian returns have been audited through 1999 and Revenue Canada began an examination of the years 2002 through 2004 during the second quarter of 2007.

LP’s policy is to record interest paid or received with respect to income taxes as interest expense or interest income, respectively, in the Consolidated Statements of Income. Penalties related to unrecognized tax benefits or assessments are charged to income tax expense. Upon the adoption of FIN 48, LP recorded $0.9 million of interest expense (net of tax benefit) as a reduction to retained earnings and no penalties.  During the first nine months of 2007, an additional $0.9 million was accrued as interest expense.

NOTE 8 — OTHER OPERATING CREDITS AND CHARGES, NET

The major components of  “Other operating credits and charges, net” in the Consolidated Statements of Income for the quarter and nine month periods ended September 30, 2007 and 2006 are reflected in the table below and are described in the paragraphs following the table:

 

 

 

 

 

 

 

 

 

 

Dollar amounts in millions

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Timber recovery

 

$

 

$

 

$

1.5

 

$

 

Insurance settlement / recovery

 

0.6

 

2.8

 

18.3

 

2.8

 

Other

 

0.1

 

0.1

 

0.1

 

 

 

 

$

0.7

 

$

2.9

 

$

19.9

 

$

2.8

 

In the second quarter of 2007, LP recorded a gain of $17.7 million associated with a favorable verdict on a legal suit associated with our insurance on hardboard siding and a gain of $1.5 million associated with a settlement with the Canadian government on the reduction of certain of LP’s timber licenses in British Columbia.

In the third quarter of 2007, LP recorded a further gain of $0.6 million associated with a favorable verdict on a legal suit associated with our insurance on hardboard siding.

In the third quarter of 2006, LP recorded a gain of $2.8 million from an insurance recovery related to the hurricanes which occurred in the third and fourth quarter of 2005. LP received an additional $1.9 million in insurance recoveries related to these hurricanes in the fourth quarter of 2006.

NOTE 9 — GAIN (LOSS) ON SALE OR IMPAIRMENT OF LONG-LIVED ASSETS

The major components on “Gain (loss) on sale or impairment of long-lived assets” in the Consolidated Statements of Income for the quarter and nine month periods ended September 30, 2007 and 2006 are reflected in the following table:

 

13



 

Dollar amounts in millions

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on sale of long-lived assets

 

$

0.5

 

$

 

$

0.3

 

$

 

Impairment charges on long-term assets

 

(48.9

)

(0.9

)

(53.9

)

(0.9

)

 

 

$

(48.4

)

$

(0.9

)

$

(53.6

)

$

(0.9

)

In the first quarter of 2007, LP recorded an impairment charge of $5.0 million on a sawmill located in Quebec that is held for sale to reduce its carrying value to its estimated sales price, which approximates the estimated fair market value, net of related selling expenses.

In the third quarter of 2007, LP recorded a charge of $1.5 million to reduce the carrying value of a LVL mill located in Hines, Oregon to the estimated sales prices less selling costs and a charge of $47.3 million to reduce the carrying value of an Eastern Canadian OSB mill and associated timber assets to their net realizable value.

In the third quarter of 2006, LP recorded an impairment charge of $0.9 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.

NOTE 10 — INVESTMENTS IN AND ADVANCES TO AFFILIATES

LP has investments in affiliates that are either accounted for under the equity method or 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:

Dollar amounts in millions

 

 

 

 

 

 

 

September 30, 2007

 

December 31, 2006

 

 

 

 

 

 

 

Investments accounted for under the equity method

 

$

161.0

 

$

168.4

 

Investments accounted for under the cost method

 

44.5

 

44.5

 

Total

 

$

205.5

 

$

212.9

 

 

At September 30, 2007, LP’s significant equity method investees and its ownership interest and principal business activity in each investee, were as follows:

 

 

Ownership %

 

U.S. GreenFiber

50%

Established to manufacture and sell cellulose insulation products

Abitibi — LP

50%

Established to construct and operate I-Joist facilities in Quebec, Canada

Canfor — LP

50%

Established to construct and 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 the Abitibi-LP entity and purchases products for resale from the Abitibi-LP and Canfor-LP entities. 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 quarters ended September 30, 2007 and 2006, LP sold $3.7 million and $3.4 million of products to Abitibi-LP and purchased $18.0 million and $16.0 million of I-joist from Abitibi-LP.  LP also purchased $23.7 million and $19.7 million of OSB from Canfor-LP during the quarters ended September 30, 2007 and 2006.   For the nine months ended September 30, 2007 and 2006, LP sold

 

14



 

$11.0 million and $21.0 million of products to Abitibi-LP and purchased $54.9 million and $69.7 million of I-joist from Abitibi-LP.  LP also purchased $60.5 million and $64.5 million of OSB from Canfor-LP during the nine months ended September 30, 2007 and 2006.

NOTE 11 — SELECTED SEGMENT DATA

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 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 of the Notes to the financial statements included in LP’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

Dollar amounts in millions

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2007

 

2006

 

% change

 

2007

 

2006

 

% change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

OSB

 

$

228.0

 

$

275.7

 

(17

)

$

640.1

 

$

1,028.0

 

(38

)

Siding

 

122.2

 

137.1

 

(11

)

357.2

 

406.6

 

(12

)

Engineered Wood Products

 

92.5

 

92.7

 

 

258.4

 

315.0

 

(18

)

Other

 

32.2

 

21.5

 

50

 

80.0

 

69.6

 

15

 

Less: Intersegment sales

 

(2.4

)

 

 

 

(7.4

)

 

 

 

 

 

$

472.5

 

$

527.0

 

(10

)

$

1,328.3

 

$

1,819.2

 

(27

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

OSB

 

$

(31.7

)

$

(9.3

)

(241

)

$

(140.8

)

$

164.0

 

(186

)

Siding

 

11.3

 

19.0

 

(41

)

37.9

 

60.7

 

(38

)

Engineered Wood Products

 

3.3

 

8.3

 

(60

)

13.6

 

28.6

 

(52

)

Other

 

(3.5

)

(1.1

)

(218

)

(4.3

)

8.5

 

(151

)

Other operating credits and charges, net

 

0.7

 

2.9

 

(76

)

19.9

 

2.8

 

611

 

Gain (loss) on sales of and impairment of long-lived assets

 

(48.4

)

(0.9

)

(5278

)

(53.6

)

(0.9

)

(5856

)

General corporate and other expenses, net

 

(21.5

)

(23.7

)

9

 

(6