Louisiana-Pacific Corporation — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing was signed February 27, 2014. LP manufactures wood-based building products for new construction, repair and remodeling, and manufactured housing. Its four segments are North America OSB, Siding, Engineered Wood Products (EWP), and South America.
Financial performance and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Net sales | $2,085.2 million | $1,691.2 million |
| Income from continuing operations | $177.4 million | $29.5 million |
| Net income | $177.1 million | $28.8 million |
| Diluted EPS | $1.23 | $0.20 |
| Operating income | $202.8 million | $104.2 million |
| Adjusted EBITDA from continuing operations | $330.2 million | $199.6 million |
| Cash from operations | $242.5 million | $111.8 million |
| Capital expenditures | $75.6 million | $31.2 million |
- Sales increased 23%; operating margin was approximately 9.7%, versus 6.2% in 2012. Net margin was approximately 8.5%, versus 1.7%.
- Cash and cash equivalents were $656.8 million at year-end, compared with $560.9 million. Total current assets were $1,034.2 million and current liabilities $166.2 million.
- Long-term debt, including current maturities, was $765.0 million; stockholders’ equity was $1,226.3 million. The $200 million revolving credit facility was undrawn at year-end. LP reported compliance with its financial covenants.
- Cash from operations less capital expenditures was approximately $166.9 million. The filing reports no dividends paid in 2013 or 2012.
- OSB generated $1,068.1 million in sales and $230.3 million in segment profit; Siding $573.8 million and $85.8 million; EWP $267.6 million and a $14.3 million loss; South America $171.5 million and $20.0 million.
Material changes versus the prior comparable period
- Annual results improved substantially, primarily as OSB prices and shipments rose. Average OSB net selling prices increased 20% and unit shipments 11% year over year. Management estimated higher OSB selling prices added approximately $170 million to 2013 operating results and adjusted EBITDA.
- U.S. single- and multifamily housing starts were approximately 18% higher than in 2012, but remained about 20% below the prior ten-year average.
- Fourth-quarter sales were $479.7 million, compared with $453.9 million in Q4 2012. Q4 2013 net loss was $20.4 million, versus net income of $46.1 million; diluted EPS was $(0.15), versus $0.32. Continuing-operations loss was $19.2 million. The filing’s quarterly data reports Q4 continuing-operations pretax loss of $30.3 million, including non-operating items.
- Cash from operations increased to $242.5 million from $111.8 million. Capital spending rose to $75.6 million from $31.2 million, including growth and maintenance projects, initial software upgrade costs, and South American expansion spending.
- In May, LP acquired the remaining 50% of the Peace Valley OSB joint venture and consolidated it. The transaction produced a $35.9 million remeasurement gain. LP also sold its moulding operations and its 50% interest in U.S. GreenFiber during 2013.
Outlook, commentary, risks and unusual items
- Outlook: LP expected 2014 capital expenditures of approximately $100 million, mainly for productivity and maintenance projects. It anticipated the first stage of a multiyear information-systems upgrade would be completed in early 2014; estimated implementation costs were approximately $30 million. No formal company revenue or earnings guidance is provided in the filing.
- Industry outlook and exposure: Management cited improving housing activity and favorable long-term household-formation fundamentals, while noting continued near-term constraints. Industry forecasts cited by LP projected North American OSB capacity increases of approximately 2.6 billion square feet from 2014–2018, creating potential supply and pricing pressure. OSB represented 51% of continuing sales in 2013 and remains a major source of commodity-price risk.
- Ainsworth transaction: LP had agreed to acquire Ainsworth for a fixed aggregate amount of approximately C$467 million in cash and 27.5 million LP shares, subject to closing conditions and regulatory reviews. As of the filing, completion was expected before the end of Q2 2014, but was not assured. LP expected to use cash on hand and revolver borrowings; the acquisition was expected to materially affect its financial position, results and cash flows.
- Unusual items: 2013 included the $35.9 million Peace Valley acquisition gain, a $20.5 million reduction in contingent consideration liability, and a $17.7 million increase in CanExel product warranty reserves. Other items included $7.6 million of Ainsworth acquisition expenses and $2.3 million of early debt-extinguishment loss. The $20.5 million liability reduction reflected lower near-term OSB price projections.
- Debt and liquidity considerations: LP issued $350 million of 7.5% senior notes due 2020 in 2012 and had $350 million outstanding at year-end. Its revolving facility requires minimum unrestricted cash of $350 million until the Ainsworth acquisition closes and $250 million thereafter, as well as a funded-debt-to-total-capitalization ratio no higher than 40%. Significant debt principal payments are scheduled for 2018, including $368.7 million of non-recourse notes and other maturities.
- Contingencies and other risks: Environmental reserves totaled $14.9 million and hardboard siding reserves $0.4 million; management cautioned actual payments may materially exceed recorded amounts. Warranty reserves were $29.3 million. The CanExel reserve increase and continuing product claims merit monitoring. LP also faces cyclical housing demand, volatile OSB and input prices, timber and resin availability, transportation, currency, pension, tax, environmental, litigation, and acquisition-integration risks.
- Pensions: The defined-benefit plans were underfunded by $51.8 million at year-end, improved from $92.7 million in 2012. LP expected to contribute $2 million to $5 million in 2014.
- Audit and controls: Deloitte issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The internal-control assessment excluded the recently acquired Peace Valley OSB operations.
Important facts for investors to verify
- Whether the Ainsworth transaction received all required approvals, closed on the anticipated terms, and how its financing affected debt, liquidity, share count and results.
- Whether higher OSB prices and housing demand persisted, and how projected industry capacity growth affected realized prices and utilization.
- The development of Q4 weakness, including quarterly OSB segment profit, non-operating items and subsequent operating trends.
- Actual 2014 capital spending, the cost and execution of the systems upgrade, and expected returns from productivity and expansion investments.
- Changes in CanExel and other warranty claims, environmental and litigation exposures, and the adequacy of reserves.
- Cash availability after acquisition-related uses, debt maturities and covenant headroom; also the collectability and liquidity implications of asset-sale notes receivable and auction-rate securities.