Louisiana Pacific Corporation Business Information, Profile, and History

Company Perspectives:

We are creating a new Louisiana-Pacific: customer-driven, with a strong technology base, staffed by skilled and well-trained people whose capabilities and efforts are aimed at building the best, most cost-efficient manufacturer and marketer of building products in North America.

History of Louisiana Pacific Corporation

A leading manufacturer and marketer of building and lumber products, Louisiana-Pacific Corporation (L-P) revolutionized the industry by inventing alternatives to plywood and solid wood building products. Instead of relying on larger, more expensive old-growth timber, L-P found ways to make structural building products from small-diameter, fast-growing trees. L-P pioneered the use of oriented strand board (OSB)--a reconstituted plywood substitute made by pressing wood wafers together. OSB is the basis for many of L-P's structural building products, including the company's line of Visual Precision roof and wall sheathing, its SmartSystem wood siding and exterior panels, and its Top Notch T & G flooring. L-P also manufacturers industrial wood products, such as hardboard and medium density fiberboard, which are used by furniture and cabinet makers. Furthermore, along with wood products such as LPI joists and laminated veneer lumber, the company also produces Cocoon cellulose insulation. Plywood and pulp manufacturing round out L-P's operations. The company controls over 950,000 acres of timberland, and owns plants in 29 states, as well as in Canada and Ireland.

Forming a New Company

Louisiana-Pacific was formed in July 1972 when the Georgia-Pacific Corporation spun off the wholly owned subsidiary. Afer Georgia-Pacific had acquired 16 small firms in the southern United States, the Federal Trade Commission (FTC) accused the company of becoming a monopolist in the softwood plywood industry. As part of its settlement with the FTC, Georgia-Pacific agreed to divest 20 percent of its assets. William H. Hunt, a vice-chairman at Georgia-Pacific, was selected as Louisiana-Pacific's first chairman. In 1974 Harry A. Merlo, who had been chief executive officer of L-P since its foundation, succeeded Hunt as chairman while remaining CEO.

Prior to the official spinoff of L-P, Georgia-Pacific had transferred several of its operations to L-P ownership, including its Samoa, Ukiah, Intermountain, Weather-Seal, and Southern divisions, as well as its 50 percent investments in Alaska's Ketchikan Pulp Company; Ketchikan Spruce Mills, Inc.; and Ketchikan International Sales Company. However, Georgia-Pacific had kept most of its low-cost timber reserves and the bulk of its tree farms for itself. Thus the newly independent L-P had to 'scramble for raw materials,' particularly timber, as the July 29, 1990 Portland Oregonian explained.

This proved to be an especially difficult task as timber shortages wracked the entire industry. Overcutting, Japanese demand for logs, and pressure on the U.S. Forest Service to tighten harvesting restrictions on large trees caused prices to soar. To make matters worse, L-P lost 26,000 acres of prime old-growth timberland when the U.S. government appropriated the property to expand the Redwood National Park in northern California.

Merlo strove to shepherd the company through its early difficulties. L-P acquired several lumber companies in California, Oregon, Montana, Washington, Missouri, and Alabama, and in 1976 it purchased the Fibreboard Corporation, a manufacturer of products used in making furniture and cabinets. In 1979, the company bought fifteen building-material centers in southern California from Lone Star Industries, which provided L-P with much needed distribution centers.

A Breakthrough Product

To ensure its long-term success, however, L-P would need to compensate for its comparative dearth of southern pine and Douglas fir timber, as well as lumber production. To address this shortfall, L-P turned its attention to the development of wood products derived from less-expensive and faster-growing trees, such as cottonwood and aspen. As Merlo told the Portland Oregonian in 1990, 'we recognized that the days of making wood products from big trees were numbered for both economic and environmental reasons.' In the late 1970s, the company began manufacturing OSB by slicing logs into wafers, mixing the wafers with resin, and then pressing them into sheets. First introduced under the trade name Waferwood (later re-christened Inner-Seal), this new product line revolutionized the construction industry by offering a less expensive, stronger alternative to plywood sheathing and sub-flooring. After opening its first Inner-Seal mill in 1980, L-P advertised the product as 'the smart man's plywood.'

Expansion During the 1980s

L-P's OSB products protected the company from the vicissitudes of the timber market. Buoyed by this success, the company soon expanded its line of products made from reconstituted wood to include I-beams for floor joists and rafters. These structural beams used half as much lumber as their solid wood counterparts, yet were stronger and lighter. L-P also introduced a concrete form of Inner-Seal, and in 1985 began to market Inner-Seal siding for the exterior of homes. Driven by these breakthroughs, a housing boom, and a thriving remodeling and repair business that increased demand for its specialty building products, L-P's sales grew 50 percent between 1980 and 1988, according to the Portland Oregonian. During the same period, its profits increased 400 percent. Moreover, OSB products accounted for an escalating portion of the company's total sales. Only six percent of sales in 1980, the Inner-Seal line by 1990 amounted to almost 30 percent of total sales volume. L-P's sales of lumber--once the mainstay of the building industry--decreased from 53 to 30 percent over the same period.

L-P made a number of acquisitions to strengthen its position. In 1986, the company purchased Kirby Forest Industries and the California properties of Timber Realization Company. From these transactions, L-P gained almost 830,000 acres of timberland, which helped balance the land taken in 1978 for Redwood National Park. (L-P received a final payment of $440 million from the government for this land in 1988.) In 1990, L-P bought Weather Guard Inc., a manufacturer of housing insulation made from recycled newsprint, as well as MiTek Wood Products, a North Carolina-based producer of laminated veneer lumber and engineered wood I-beams.

The company also continued to invent new alternatives to existing building materials. In 1990, L-P completed its first factory to make FiberBond, a wallboard. Furthermore, FiberBond held nails better than other wallboard and could be used as sheathing. Merlo was ecstatic about his company's breakthrough. FiberBond 'is the most exciting product line that we have embarked upon in our short history,' he crowed to the Portland Oregonian in July 1990.

The Early 1990s

During 1990, however, sales and profits in the company's softwood lumber, plywood, and building products areas slumped due to weakening demand. This situation was attributed to an economic downturn, increasing concerns over the U.S. federal budget deficit, and fears about the unsettled global geopolitical environment. The construction industry suffered because of bankers' reluctance to finance new projects and consumers' decisions to delay home purchases. Housing starts for 1990 fell to 1.19 million, the lowest level since 1982 and down 13.3 percent from 1989. L-P responded to these developments by curtailing production at many of its plants and increasing exports of its specialty building products.

The pulp market also experienced slowing growth in 1990. After a four-year period of rapidly rising prices, pulp manufacturers then faced eroding profit margins due to worldwide economic problems and larger than normal inventories. Although L-P saw its own pulp sales and profits peak in mid-1989 and expected only a minor recovery in 1991, the company continued to operate three pulp manufacturing mills. One mill supplied paper pulp to non-integrated paper producers. A second mill produced dissolving pulp for manufacturers of rayon and cellophane products. The third and newest pulp mill, using a bleached chemi-thermo mechanical pump process, revolutionized pulp production by eliminating the use of chlorine and operated in a completely closed system without discharge into neighboring water supplies. This mill marketed its output to manufacturers of printing and writing papers.

L-P was able to rebound smartly from the downturn of 1990. While its competitors struggled in the face of dwindling timber supplies, L-P enjoyed record sales in 1992, 1993, and 1994. According to the Spokane Journal of Business, 'L-P [was] flourishing because it had vigorously developed alternatives to dimensional lumber and plywood.' Indeed, Merlo told the Wall Street Journal that 'technology'--not old-growth timber resources--'had proven to be [the company's] lifeblood.' Profits for 1992 were up 216 percent from the previous year, and in 1994, the company achieved an all-time high of $3.04 billion in sales. By that year, only one-third of L-P's sales came from dimensional lumber--the studs and solid wood joists that frame houses--while over half its revenue came from OSB products, and another 20 percent from engineered wood products and pulp.

Lawsuits, Threatening Louisiana-Pacific's Future

Despite its many achievements, L-P encountered a number of serious obstacles in the 1990s. Foremost among these were lawsuits pertaining to its simulated cedar Inner-Seal exterior siding. Many homeowners alleged that Inner-Seal siding, which carried a 25-year warranty, began to rot prematurely--discoloring, disintegrating, and even growing fungi. Class-action suits brought by various collections of homeowners as well as the attorney general of Minnesota, were filed. Although L-P admitted to no wrongdoing, the company moved quickly to settle the cases. At the close of 1991, L-P had paid over $22 million to settle OSB claims, and between 1993 and 1994, the company paid out an additional $14 million. In 1996, L-P committed at least $275 million to a settlement with 800,000 homeowners who had used the Inner-Seal siding.

L-P's woes did not end there, however. In 1996, L-P paid $65 million to settle a class-action lawsuit filed the previous year by L-P shareholders who alleged that the company had 'violated securities laws by failing to disclose that the company's oriented-strand boards were defective,' as the Portland Oregonian reported on December 5, 1996. It was the largest securities settlement in Oregon history. Also that year, the company settled a 1993 sexual harassment suit against Merlo. Moreover, the state of Colorado brought a 56-count indictment against L-P in 1995, charging fraud and environmental violations at its plant in Montrose, Colorado. The same year, L-P's eight-person board 'lost confidence in the ability of Merlo and his top two lieutenants to steer the Fortune 500 company,' declared the August 4, 1995, edition of the Portland Oregonian. Merlo resigned and was replaced as chairman and CEO by Mark Suwyn, a former executive at International Paper.

Rebuilding in the Late 1990s

Under this new leadership, L-P began the difficult task of regrouping. The year 1995 had been particularly difficult, one in which the company endured a net loss of $51.7 million. The market for building products had sunk as an influx of Canadian lumber had flooded the United States. High interest rates and poor weather (which affected home building) only exacerbated L-P's problems. Even more dangerous to L-P, however, was the inauguration of several rival OSB mills. As OSB increasingly replaced plywood as a basic construction material, Inner-Seal became less a specialty item exclusively made by L-P and more of a building commodity.

Faced with these new threats, Suwyn implemented a multidimensional plan for recovery. First, the company strove to eliminate unprofitable operations. In 1996, L-P closed the Ketchikan Paper Company, as well as 22 plants and mills. More closings followed in 1997 and 1998, and the company sold off a number of additional operations, including the Weather-Seal door and window division in 1998. All told, L-P sold over $875 million of assets during the three-year period. 'The assets sales will do two things for us,' Suwyn told Business Wire. 'They will provide us with additional financial flexibility to grow the company and allow us to focus all our management attention on becoming the premier supplier of building materials.'

Suwyn also concentrated on developing L-P's specialty products lines. As its past innovations had become industry standards (and were imitated by numerous competitors), it was essential for L-P to launch new products that would give the company an edge over its rivals. To further this goal, L-P engaged in a series of targeted acquisitions. In 1996, L-P purchased Associated Chemists, a key supplier of specialty coatings to the wood products industry, as well as GreenStone Industries, a manufacturer of cellulose insulation, and Tecton Laminates Corp., a producer of laminated veneer lumber and wood I-joists used in the construction industry. Two years later, L-P acquired ABT Building Products Corporation, a transaction it heralded as a way 'to expand its specialty products lines and complement its low-cost commodity building products,' according to the Wall Street Journal. In 1999, L-P purchased Evans Forest Products Ltd., a Canadian manufacturer of engineered wood and lumber products.

L-P did more than simply buy other companies, however. In 1997 L-P unveiled its state-of-the-art Advanced Technology Center, which provided the company with the facilities to conceive, test, and improve new offerings. L-P soon introduced a bevy of new product systems, including Smart Start siding, TechShield energy efficient structural panels, TopNotch flooring, and Cocoon insulation. L-P's 1998 introduction of its Visual Precision Sheathing was lauded by the construction industry. Voted the year's top product by Prodealer, the sheathing also was named the best new product by Today's Homeowner magazine.

A final prong of L-P's rebuilding efforts involved improving operations. In 1996, the company instituted an intensive employee training course--Rapid Change Technologies--designed to enhance workers' communication skills and to empower them to accept new ideas with ease. To increase productivity, L-P utilized Business Process Improvement technology to make its OSB mills more efficient. L-P also sought to bolster the company's relationship with large and national home center chains, such as Home Depot and Lowes. These 'superstores' represented the fastest-growing segment of the building industry.

The outcome of L-P's vigorous reorganization was not immediately evident. Sales for 1996 were 13 percent lower than in 1995, and resulted in a net yearly loss of $200.7 million. Although the company again operated at a net loss of $101.8 million in 1997, executives remained optimistic.

In 1998, L-P returned once more to profitability, achieving $12.8 million of net profit from $2.29 billion in sales. Reinforced by a strong housing market, a booming economy, operational improvements, and greater numbers of specialty products, Louisiana-Pacific's future looked bright.

Principal Subsidiaries: ABT Building Products Corporation; ABT Canada Limited; Associated Chemists, Inc.; CP Investment Corp.; GreenStone Industries, Inc.; Louisiana-Pacific Canada, Ltd.; Louisiana-Pacific Chile SA; Louisiana-Pacific Coillte Ireland Limited; Louisiana-Pacific de Mexico, SA de CV; Louisiana-Pacific de Venezuela, CA; Louisiana-Pacific Polymers, Inc.; Louisiana-Pacific Timber Company, L-P Redwood, LLC; New Waverly Transportation, Inc.

Principal Competitors: Georgia-Pacific Group; Boise-Cascade Corporation; International Paper Company; Weyerhaeuser Company; MacMillan Bloedel Limited; Champion International Corporation; Potlatch Corporation; Rayonier Inc.

Chronology

• Key Dates:

• 1972: Louisiana-Pacific is spun off from Georgia-Pacific.
• 1974: Harry Merlo is named Louisiana-Pacific's first chairman.
• 1978: Louisiana-Pacific acquires Fibreboard Corporation; U.S. government acquires a portion of Louisiana-Pacific's timberlands to form Redwood National Park in California.
• 1985: Louisiana-Pacific begins marketing its Oriented Strand Board (OSB) as an exterior siding.
• 1990: Lawsuits relating to defective OSB exterior siding begin.
• 1996: Mark Suwyn replaces Merlo as chairman and CEO.
• 1998: Louisiana-Pacific acquires ABT Building Products as part of its effort to focus on the building products market.