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Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Louisiana-Pacific Corporation
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

        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 ý    No o

        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. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        State the aggregate market value of the voting stock held by nonaffiliates of the registrant: $917,544,000 as of March 3, 2003.

        Indicate the number of shares outstanding of each of the registrant's classes of common stock: 104,585,937 of Common Stock, $1 par value, outstanding as of March 3, 2003.

Documents Incorporated by Reference
Definitive Proxy Statement for 2002 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:

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changes in general economic conditions;



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changes in the cost and availability of capital;



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changes in the level of home construction activity;



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changes in competitive conditions and prices for our products;



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changes in the relationship between supply of and demand for building products, including the effects of industry-wide increases in manufacturing capacity;



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changes in the relationship between supply of and demand for raw materials, including wood fiber and resins, used in manufacturing our products;



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changes in the cost of and availability of energy, primarily natural gas, electricity and diesel fuel;



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changes in other significant operating expenses;



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changes in exchange rates between the U.S. dollar and other currencies, particularly the Canadian dollar and the Chilean peso;



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changes in general and industry-specific environmental laws and regulations;



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changes in circumstances giving rise to environmental liabilities or expenditures;



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the resolution of product-related litigation and other legal proceedings; and



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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.

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PART I

ITEM 1.    Business

General

        Our company, headquartered in Portland, Oregon, is a leading manufacturer and distributor of building materials. As of December 31, 2002, we had approximately 7,900 employees and operated 44 facilities in the U.S. and Canada and one facility in Chile. We also own approximately 799,700 acres of timberland in the U.S. that we are in the process of selling, and have licenses for approximately 46 million acres of timberland in Canada. In 2002, our sales originating in the U.S. were $1.6 billion, representing approximately 85% of our total sales of $1.9 billion. 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

        Over the course of 2002, we announced a major divestiture and debt reduction plan. As part of this plan, we were required to modify our reported business segments, and accordingly, financial segment information has been restated for prior periods. We operate in five segments: Oriented Strand Board (OSB), Composite Wood Products, Plastic Building Products, Structural Framing and Pulp. The OSB and Structural Framing segments generally represent our "commodity" products, while the Composite Wood and Plastic Building products represent our "specialty" products.

        The following sections discuss each of our revised segments.

OSB

        Our OSB segment manufactures and distributes OSB structural panel products. We believe that in North America, we are the largest and one of the most efficient producers of OSB.

        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.

        Our strategy for our industry-leading OSB business is to: (1) increase investment in our existing facilities in order to reduce costs and improve throughput and recovery by continuing to focus on efficiency at each of our facilities; (2) improve net realizations relative to weighted-average OSB regional pricing; (3) leverage our expertise in OSB to capitalize on new opportunities for revenue growth through new product lines; and (4) expand capacity to meet growing OSB demand, but do so through internal growth at existing facilities, selected acquisitions that meet specific criteria and by building new, low-cost manufacturing facilities to serve particular markets.

Composite Wood Products

        Our Composite Wood Products segment is following a strategy that revolves around a technology platform that uses composite wood substrates and adds "value" through the application of other materials (overlays, etc).

        We believe that we are the leading wood composite cladding producer in North America. We manufacture exterior siding and other cladding products for the residential and commercial building

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markets. We are seeking to be the "one stop" supplier of choice for all segments of these markets: new home construction, repair and remodeling, and manufactured housing. Our strategy is to drive product innovation by combining our technological expertise in wood and wood composites with the needs of our customers. We intend to increase our product offerings and production capacity of these types of higher margin, value-added products through the addition of lower cost plants or the conversion of some OSB plants from commodity structural panel production to OSB-based composite products.

        Additionally, we are seeking to optimize our current capacity by extending the hardboard lifecycle through innovative new products and features.

        Our composite wood product offerings are classified into four categories: (1) SmartSide® siding products and related accessories; (2) hardboard siding and accessory products; (3) specialty OSB products and; (4) other hardboard products. Additionally, our OSB operation in Chile is included in this segment.

        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 Product    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.

        Specialty OSB Products    Our specialty OSB product offerings includes a number of development products that focus on the use of OSB substrates with a variety of overlay technologies.

        Other Hardboard Products    Our hardboard product offerings include raw hardboard products, such as doorskins, pegboard and industrial hardboard, and finished hardboard, such as decorative panels and tileboard.

Plastic Building Products

        Our Plastic Building Products segment is pursuing a strategy around a technology platform that uses various plastic raw materials, sometimes combined with wood fiber, to create attractive, affordable, low maintenance building 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.

        Composite Decking Products.    We manufacture wood composite decking and accessories. We offer products in several colors and patterns. These products are attractive, durable and require lower maintenance compared to solid wood.

        Mouldings.    We manufacture extruded plastic decorative mouldings products. We offer products in several of colors, shapes and styles. These products are sold in the retail markets.

Structural Framing Products

        Our structural framing product segment manufactures and distributes lumber and engineered wood products (EWP), including I-joists and laminated veneer lumber (LVL). We believe that in North America we are one of the largest producers of both stud lumber and EWP.

        Lumber.    We produce lumber in a variety of standard and specialty grades and sizes. Stud lumber includes primarily 2" × 4" and 2" × 6" dimension lumber. Our strategy for lumber is to focus on studs and narrow dimension lumber. We believe we can leverage our strong presence in the do-it-yourself (DIY) sector to drive growth and capture the premium prices paid by DIYs for premium grades of lumber. Additionally, we are committed to improving overall mill efficiency through selective,

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high return capital investments and the sale, closure, or curtailment of production at under performing mills.

        Engineered Wood Products.    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. 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.

Other Products

        Our Other Products category includes plywood and industrial panel mills closed prior to January 1, 2002, wood chips, our OSB operation in Ireland (which we sold in April 2002), timber and timberlands not associated with other segments or businesses to be divested and other minor products and services. In prior years, this category also included our cellulose insulation business (contributed to a joint venture in 2000).

Pulp Segment

        During 2002, we completed our exit of the pulp business through the sale of our remaining pulp mill located in Chetwynd, British Columbia, which had been indefinitely closed in 2001 (see Notes 1, 10 and 11 of the Notes to the financial statements in item 8 of this report). In 2001, we sold our controlling interest in a pulp mill located in Samoa, California (see Note 15 of the Notes to financial statements in item 8 of this report).

Sales, Marketing and Distribution

        Our sales and marketing efforts are primarily focused on traditional two-step distribution, professional 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 DIY and repair and remodeling markets as well as smaller and 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 2002, our top 10 customers accounted for approximately 40% of our revenues, with the largest customer accounting for no more than 9% of our revenues. Because a majority of our products, including OSB and lumber, are commodity products sold primarily on the basis of price and availability, we are not dependent on any one customer. Our principal customers include the following:

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Wholesale distribution companies, which supply building materials to retailers on a regional, state or local basis;



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Two-step distributors who provide building materials to smaller retailers, contractors and others.

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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;



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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;



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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; and



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Industrial manufacturers, who produce residential, ready-to-assemble, office and institutional furniture; cabinets, displays and fixtures; windows and doors; molding and millwork; laminated flooring; packaging; transportation equipment; and numerous specialty products.

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 firms 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 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 government forest management policies, alternate uses of land, and loss to urban or suburban real estate development.

        Our 799,700 acres of timberlands, primarily in the southern U.S., provided approximately 11% of our domestic wood fiber requirements in 2002 and an average of approximately 11% of our domestic wood fiber requirements over the past five years. This wood fiber was largely supplied to our plywood business that we divested in September 2002. We plan to divest our remaining fee-owned timberlands in 2003. In addition to our fee-owned timberlands, we have timber-cutting rights under long-term contracts (five years or longer) on approximately 118,000 acres, on government and privately owned timberlands in the U.S. In Canada, we harvest enough timber annually under long-term harvest rights with the Canadian government and other third parties to fully support our Canadian production facilities. The average remaining life of our Canadian timber rights is 20 years with provisions for renewal.

        We purchase approximately 57% of our wood fiber requirements on the open market. 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. Therefore, in areas where we do not own a significant amount of timberlands, our mills generally have the ability to procure wood fiber at competitive prices from third-party sources. We satisfy a portion of our wood fiber requirements by purchasing certain by-products, including wood chips, wood shavings and sawdust, from third parties. These by-products account for an insignificant portion of our wood fiber requirements.

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        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 contracts.

Environmental Compliance

        Our operations are subject to many environmental laws and regulations governing, among other things, the restoration and reforestation of timberlands, discharges of pollutants and other emissions on or into land, water and air, the disposal of hazardous substances or other contaminants and the remediation of contamination. 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. We believe that our capital expenditures for environmental control facilities in 2003 and 2004 will not be material.

        Additional information concerning environmental matters is set forth under Item 3, Legal proceedings, and in Note 12 of the Notes to financial statements in item 8 contained in this report.

Employees

        We employ approximately 7,900 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. The work stoppage at our Dawson Creek, British Columbia OSB facility occurred from March 1, 2002 through April 2, 2002. The work stoppage at our Chambord, Quebec OSB facility began in May 2002 and continued into 2003. It is unknown at this time when production will resume. There can be no assurance that additional work stoppages will not occur.

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.

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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 17 of the Notes to the financial statements included in item 8 of this report.

Product Information Summary
For Years Ended December 31

(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 board feet (MBF) or thousand square feet (MSF). Source: Random Lengths.

(3)

Stated as a percentage of total log volume.

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Executive Officers of LP

        Information regarding each of LP's executive officers as of March 14, 2003, including employment history for the past five years, is set forth below:

        Mark A. Suwyn has been Chairman and Chief Executive Officer since January 1996. Before joining LP, Mr. Suwyn was Executive Vice President of International Paper Company from 1992 through 1995. Mr. Suwyn is also a director of LP.

        Richard W. Frost has been Executive Vice President, Commodity Products, 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. Mr. Frost was Vice President and Operational Manager for S.D. Warren Company from 1992 to 1996.

        Joseph B. Kastelic has been Executive Vice President, Specialty Products and Sales since May of 2002. He previously served as Vice President, Sales and Specialty Products since January 2001and as Director, Specialty Building Products from January 1999 to December 2000. From March 1997 to December 1998, Mr. Kastelic was Business Director, Siding/Exterior Products, and from September 1996 to March 1997 served as Marketing Development Manager for new construction and siding. Before joining LP in September 1996, Mr. Kastelic was the Marketing Development Manager at PPG Industries in Pittsburgh, Pennsylvania.

        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 since September 1997 to April 2002. Before joining LP, Mr. Stevens spent 13 years as the senior financial executive of Planar Systems, Inc., a leading manufacturer and supplier of electroluminescent flat panel displays, where he was named Executive Vice President and General Manager in 1996. He also served on the Board of Directors for Planar Systems.

        F. Jeff Duncan, Jr, has been Chief Information Officer of LP since October 1998 and Vice President since March 2001 and additionally, Director of Technology since February 2002. Mr. Duncan had been Director of Information Technology of LP since September 1996. He was previously employed by E.I. du Pont de Nemours & Co. for 19 years in a variety of positions, most recently as Systems Manager—New Business Development.

        W. Lee Kuhre joined LP in September 2001 as Vice President, Environmental Affairs. Mr. Kuhre was an Assistant Vice President for Science Applications International from 1997 to 2001.

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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

Composite Wood Facilities

Plastic Building Products

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Structural Framing Products

(1)

The Roaring River, NC plant produces only hardboard siding products.

(2)

The East River, Nova Scotia plant produces both hardboard panel products and hardboard siding products.

(3)

Our finishing and tileboard plant in Toledo, OH takes production from the Alpena, MI plant to produce decorative panels and finished tileboard.

(4)

This facility is operated under a long-term operating lease.

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Fee Timber Holdings:

Canadian Timberland License Agreements

        Substantially all of our fee-owned timberlands are subject to mortgages securing borrowings under our $187 million revolving credit facility.

        In addition to fee-owned timberlands, we have timber cutting rights under long-term contracts (five years and longer) on approximately 118,000 acres on government and privately owned timberlands in the United States in the vicinities of certain of our manufacturing facilities.

        Our Canadian subsidiaries have arrangements with four Canadian provincial governments which give our subsidiaries 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. These subsidiaries also obtain 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

        In November 2000, our subsidiary Ketchikan Pulp Company ("KPC") finalized a consent decree with the federal government to complete remediation activities at KPC's former pulp mill site and Ward Cove, a body of water adjacent to the mill site.

        In connection with the clean up of KPC's former log transfer facilities, the United States Forest Service (the "USFS") has asserted that KPC is obligated to adhere to more stringent remediation standards than those imposed by the Alaska Department of Environmental Conservation. The USFS has also asserted that previously closed-out facilities may need to be re-evaluated. We dispute the authority of the USFS to require KPC to adhere to the more stringent standards, or to re-evaluate closed-out facilities. Adherence to the more stringent standards and/or re-evaluation of closed-out facilities, if ultimately required, could substantially increase the cost of the remediation.

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        We are also involved in a number of other 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.

COLORADO CRIMINAL PROCEEDINGS

        In June 1995, a federal grand jury returned an indictment in the U.S. District Court for the District of Colorado against us arising out of alleged activities our Montrose (Olathe), Colorado OSB plant. In May 1998, pursuant to a guilty plea to certain criminal violations, we paid penalties and received a five-year term of probation. On January 8, 2003, the Chief Judge of the United States District Court for the District of Colorado, ordered an early termination of LP's probation.

        In December 1995, we received a notice of suspension from the United States Environmental Protection Agency stating, that because of the criminal proceedings pending against us in Colorado, the Montrose facility would be prohibited from purchasing timber directly from the United States Forest Service. The suspension was lifted in April 1998 when we entered into a Settlement and Compliance Agreement with the EPA that was to last five years and obligated us to develop and implement certain corporate policies and programs, conduct our business in accordance with federal laws and regulations, report significant violations of law to the EPA, and conduct at least two audits of our compliance with the agreement. On June 13, 2002, the EPA, on its own accord, terminated the Agreement nearly one year before its expiration.

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. We continue to have payment and other obligations under the nationwide OSB and hardboard siding settlements, but have satisfied our obligations under the Florida OSB siding settlement. Additional information regarding these matters is set forth in Note 12 of the Notes to 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 referred to above permanently enjoined the Minnesota state 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 has appealed this injunction to the Ninth Circuit Court of Appeals. Subsequently, on January 27, 2003, the Minnesota state court entered judgment against LP in the amount of $20.1 million, representing the verdict amount plus costs and interest less the enjoined amount. We believe that the verdict is erroneous in significant respects and have filed a Notice of Appeal in the Minnesota State Court of Appeals. Based upon the information currently available, we believe that any exposure related to this case is adequately covered under our reserves and will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity.

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NATURE GUARD CEMENT SHAKES MATTERS

        We were named in four putative class actions filed in California and one putative class action filed in the state of Washington: Virginia L. Davis v. Louisiana-Pacific Corporation, filed in the Superior Court of California, County of Stanislaus, on January 9, 2001; Mahleon R. Oyster and George Sousa v. Louisiana-Pacific Corporation, filed in the Superior Court of California, County of San Francisco, on July 30, 2001; Angel H. Jasso and Angela Jasso v. Louisiana-Pacific Corporation, filed in the Superior Court of California, County of Stanislaus, on September 7, 2001; Keith Oguro v. Louisiana-Pacific Corporation, filed in the Superior Court of California, County of San Francisco, on March 12, 2002; and, Nick P. Marassi, M.D. and Debra Marassi v. Louisiana-Pacific Corporation, filed in the Superior Court for the State of Washington, Snohomish County, on June 13, 2001. The plaintiffs in the Davis, Oyster/Sousa and Jasso cases sought and were granted coordination in California State Court. The coordinated case was assigned to the Superior Court for Stanislaus County, California. On April 2, 2002, class counsel filed a Master Complaint captioned as Nature Guard Cement Roofing Shingle Cases. The plaintiffs in the Davis, Oyster/Sousa, Jasso and Marassi cases as well as a plaintiff from Oregon named Karl E. Von Tagen were named as putative class representatives in the Master Complaint. As a result, the separate actions filed by those individuals have been dismissed. On November 5, 2002, the court granted plaintiffs' Motion for Class Certification. The plaintiffs now represent the class of persons owning structures on which Nature Guard Fiber Cement Shakes were installed as roofing. The Master Complaint 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. We believe that we have substantial defenses to the foregoing actions and intend to vigorously defend the matter. At the present time, we cannot predict the potential financial impact of this matter.

RETIREMENT PLAN MATTERS

        We and certain of our directors and officers, were named as defendants in a putative class action filed in United States District Court for the District of Oregon, captioned Frederick J. Darlington, et al. v. Louisiana-Pacific Corporation, et al. The action was filed on behalf of a purported class of persons who are participants and beneficiaries of the Louisiana-Pacific Corporation 401(k) and Profit Sharing Plan (the "Plan"). Plaintiffs generally alleged breaches of fiduciary duty and violations of disclosure requirements and obligations under the Employee Retirement Income Security Act ("ERISA") in relation to investments in our common stock acquired or held through the Plan. Plaintiffs seek compensatory damages, equitable and injunctive relief and a declaration that the defendants violated duties, obligations and responsibilities imposed upon them as fiduciaries and co-fiduciaries and the disclosure requirements under ERISA. The plaintiffs subsequently amended their Complaint and dismissed the directors but named the LP employees who served on the Pension Administration Committee. Further, the plaintiffs seek to represent all participants and beneficiaries of the Hourly 401(k) and Profit Sharing Plan as well as the Salary 401(k) and Profit Sharing Plan. The allegations made, and damages sought, are generally the same as in the original Complaint. We believe that the allegations are without merit and we intend to defend it vigorously. Based upon the information currently available, we believe that the resolution of this matter will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity.

OTHER PROCEEDINGS

        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.

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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 12 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 2002.

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PART II

ITEM 5.    Market for Registrant's Common Equity and Related Stockholder Matters

        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:

        The following table sets forth additional information as of December 31, 2002, regarding shares of Common Stock that may be issued under LP's existing equity compensation plans and arrangements, divided between plans approved by LP's stockholders and plans or arrangements not submitted to the stockholders for approval. The information includes the number of shares covered by, and the weighted average exercise price of, outstanding options, warrants, and other rights and the number of shares remaining available for future grants, excluding the shares to be issued upon exercise of outstanding options, warrants, and other rights.

(1)

Equity compensation plans under which awards are currently outstanding and that were approved by stockholders include LP's 1991 Employee Stock Option Plan, 1997 Incentive Stock Award Plan (the "1997 Plan"), and 1992 Non-Employee Director Stock Option Plan. The number of shares shown in column (a) as shares subject to outstanding awards include 57,988 shares subject to performance-contingent stock awards granted under the 1997 Plan, which will vest and be issued if target performance goals are attained, and 409,950 shares subject to awards of incentive shares granted under the 1997 Plan, which will generally vest and be issued five years after the grant date if the recipient remains an employee of LP through the end of that period. These shares are not included in the calculation of weighted-average exercise price in column (b) because the price at the vesting date cannot be determined. The 1997 Plan also authorizes the grant of restricted stock awards with such terms and conditions as the Compensation Committee deems appropriate, including provisions that such awards will be forfeited upon termination of a participant's employment for specified reasons within a specified period of time or upon other conditions set forth in the award agreement.

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(2)

Equity compensation plans or arrangements approved by the Board of Directors but not previously submitted for stockholder approval include the Plan, under which 43,134 shares have been issued pursuant to outstanding unvested restricted stock awards and 153,805 shares are available for grant of future awards, and a restricted stock award for 60,000 shares of Common Stock granted to Mark A. Suwyn in 1996 in connection with his employment as LP's Chief Executive Officer.

        As of March 7, 2003, there were approximately 13,826 holders of our common stock. Our board of directors suspended the payment of dividends on our common stock in November 2001, and our revolving credit facility prohibits the payment of such dividends. For the first, second and third quarters of 2001, we paid cash dividends on our common stock in the per share amounts of $0.14, $0.05 and $0.05, respectively.

ITEM 6.    Selected Financial Data

(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.

ITEM 7.    Management's Discussion and Analysis

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

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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 most log and lumber inventories with the remaining inventories valued at FIFO (first-in, first-out) or average cost. Our inventories would have been approximately $35.1 million higher if the LIFO inventories were valued at average cost.

        Timber and timberlands.    We use an accounting method for fee timber that amortizes timber costs over the total fiber available during the estimated growth cycle as volume is harvested. Timber carrying costs, such as costs of reforestation and forest management, are expensed as incurred. Additionally, included in the balance of timber and timberlands, are values allocated to Canadian forest licenses in the purchase price allocations for both Le Groupe Forex (Forex) and the assets of Evans Forest Products (Evans). The allocations were based upon the present value of the difference between the cost of the timber under licenses and the timber purchased on the open market as of the date of acquisition.

        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 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 net loss would have been greater.

SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

        Throughout the preparation of the financial statements, we employ significant judgments in the selection and application of accounting principles and methods. These judgments are primarily related to the assumptions used to arrive at various estimates. For 2002, 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. With respect to OSB siding claims subject to our nationwide class action settlement, these judgments and assumptions relate to, among other things: the magnitude (in terms of both the number of claims and the square footage of damaged siding) of valid claims that were filed but had not been processed at December 31, 2002; the extent to which claims may be resolved through means other than those provided for in the settlement; and the costs associated with the administration of the settlement and the resolution of disputes and other legal matters. In making judgments and assumptions regarding legal contingencies for class action settlements, 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, the experience of third parties who have been subject to product-related claims judged to be comparable and our potential ability to resolve claims for less than their calculated value under the applicable settlement Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the

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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, the specific nature of which varies in light of the particular facts and circumstances surrounding each such contingency. 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 or allocated share of the cost of these activities, including third parties who purchased assets from us subject to environmental liabilities. In making these judgments and assumptions 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.

        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.A., 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 can be less than the estimated undiscounted future net cash flows associated with such assets prior to such determination, and thus require a write down of such assets. 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 may 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.

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        Goodwill.    As discussed in Note 1 of the Notes to the financial statements included in item 8 of this report, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002. Under this standard, goodwill and other intangible assets that are deemed to have an indefinite life will no longer be amortized. However, these indefinite life assets will be 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. We also consider our market capitalization (as adjusted for unallocated assets and liabilities, such as cash and cash equivalents and debt) in determining the fair value. 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.

        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.

        Deferred Taxes.    We record deferred tax assets, including net operating loss and other carryover amounts, and deferred tax liabilities. The amounts that we record for these assets, including any related valuation allowances, and liabilities are based upon various judgments, assumptions and estimates, including judgments regarding the tax rates that will be applicable to the deferred tax amounts, the likelihood that we will generate sufficient taxable income or gain to utilize deferred tax assets prior to their expiration, potential future tax liability relating to audits by taxing authorities and the indefinite reinvestment of foreign earnings. Due to the numerous variables associated with our judgments, assumptions and estimates relating to the valuation of our deferred tax assets and liabilities, and the effects of changes in circumstances affecting these valuations, both the precision and reliability of the resulting estimates 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.A., 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. The amount of the additional minimum pension liability, recorded in Accumulated Comprehensive Loss on our consolidated balance sheet, is based on an annual comparison of the accumulated benefit obligation to the market value of plan assets on our valuation date of October 31.

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RESULTS OF OPERATIONS

        We lost $62.0 million ($0.59 per diluted share) in 2002, which was comprised of a loss of $21.5 million from continuing operations ($0.21 per diluted share), a loss of $36.7 million from discontinued operations ($0.35 per diluted share) and a cumulative effect of a change in accounting principle of $3.8 million ($0.03 per diluted share). This compares to a loss of $171.6 million ($1.64 per diluted share) in 2001, that was comprised of a loss of $135.4 million from continuing operations ($1.30 per diluted share) and a loss of $36.2 million from discontinued operations ($0.34 per diluted share). We lost $13.8 million in 2000 that was comprised of income of $6.6 million from continuing operations ($0.06 per diluted share) and a loss of $20.4 million from discontinued operations ($0.19 per diluted share).

        Sales in 2002 were $1.94 billion, an increase of 4% from 2001 sales of $1.87 billion. Sales in 2001 were 24% lower than 2000 sales of $2.47 billion.

        We continued to focus on our core businesses and on May 8, 2002, we announced that our board of directors had approved a plan to sell selected businesses and assets (divesture plan) in order to improve operating results and reduce our debt. As revised in September 2002, the plan involves divesting LP's U.S. plywood, industrial panels, fee timber and timberlands, wholesale and distribution businesses and certain lumber mills. In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we are required to account for the businesses anticipated to be sold within one year as discontinued operations. Accordingly, we have classified our plywood mills, certain lumber mills, commodity industrial panel product mills and wholesale and distribution businesses as discontinued operations. Although we plan to divest our remaining fee timber assets not directly associated with these businesses, the operations associated with these assets are not reported as discontinued operations due to the nature of these assets. These assets are being shown as assets held for sale on our consolidated balance sheet. Additionally, as a result of the planned divestitures, we modified our segment reporting under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information."

        We operate in five segments: Oriented Strand Board (OSB), Composite Wood Products, Plastic Building Products, Structural Framing Products and Pulp. OSB is the most significant segment, accounting for more than 35% of sales during 2002, 2001 and 2000. Our results of operations are discussed below for each of these segments separately as well as for the "other" category which comprises other products that are not individually significant. See Note 17 of the Notes to the financial statements included in item 8 of this report.

        Many of our products are sold as commodities 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, or will increase or decrease in the future, because supply and demand are influenced by many factors, only two of which are the cost and availability of raw materials. We are not able to determine to what extent, if any, we will be able to pass any future increase in the price of raw materials on to customers through product price increases.

        Demand for the majority of our products is subject to seasonal and cyclical fluctuations over which we have no control. The level of residential construction and repair and remodel activities, which are subject to fluctuations due to changes in economic conditions, interest rates, population growth and other factors, heavily influences the demand for our building products. These cyclical fluctuations in demand are unpredictable and may have a substantial influence on our results of operations.

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OSB

        Our OSB segment manufactures and distributes OSB structural panels.

        For the last two years, OSB prices were lower than previous cycle average prices due to an imbalance between the supply and demand of OSB products. During 2001 and 2000, we and several of our competitors had announced plans to construct new OSB plants or expand existing facilities, which would have added significantly to industry capacity in the next few years. Several of these planned facilities, including two of our planned facilities, have been delayed or cancelled. The anticipation of this additional capacity, combined with a slow-down in the U.S. economy that was forecasted to slow the pace of future housing starts and, therefore, the demand for building products, drove down the average pricing for OSB in 2001. In 2002, pricing showed a slight decline due to the continued sluggish U.S. economy, however the supply and demand are becoming more in line and housing remained stronger than expected. OSB sales volume remained flat with 2001 and showed a decline in 2001 compared to 2000 due to our market related downtime taken in both 2002 and 2001.

        In 2002, the profitability of this segment improved significantly from 2001 primarily due to improvements in operating efficiencies, slight reductions in labor costs with raw materials costs consistent between years and the discontinuance of the amortization of goodwill ($18.3 million per year). In 2001, the profitability of this segment declined significantly from 2000 due to significant price declines, which resulted in a reduction in operating profits of over $200 million.

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Composite Wood Products

        Our composite wood products segment produces and markets wood siding and related accessories, interior hardboard products and specialty OSB.

        For both 2002 compared to 2001 and 2001 compared to 2000, the increase in sales volumes of our hardboard siding and our OSB-based exterior products was primarily due to capturing additional sales as a result of mill closures by a key competitor in March 2001. Sales prices remained flat with 2001after suffering a reduction in 2001. Additionally, in 2002, we saw significant increases in our penetration of the manufactured home sector as well as increases in the home center markets.

        For 2002 compared to 2001, our interior hardboard business increased sales volumes due to a significant new customer, however, due to increasing product substitutions our pricing declined. For 2001 compared to 2000, we saw a significant decline in sales volumes due to our East River, Nova Scotia facility producing a lower percentage of interior hardboard and a higher percentage of hardboard siding. This facility produces both interior and exterior hardboard products. This change in product mix resulted from higher demand for hardboard siding as well as increased product substitutions that reduced the demand for interior hardboard.

        During 2002, 2001 and 2000, one of our specialty OSB facilities also produced commodity OSB. This commodity OSB volume has declined over the last three years primarily due to increasing utilization of this facility to produce OSB-based specialty products. See the discussion in OSB above for a discussion of changes in commodity OSB pricing.

        Overall, the results of operations for our composite wood products segment for 2002 compared to 2001 improved primarily due to increased volumes in OSB-based and hardboard siding. Significant cost savings were realized in raw materials as market prices for logs dropped from prior year levels and, additionally, cost efficiencies were realized due to increased production volumes and reductions in utility costs. For 2001 as compared to 2000, profitability in this segment was negatively impacted due to lower pricing on commodity OSB products and increased energy costs.

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Plastic Building Products

        Our plastic building products segment produces and markets vinyl siding and related accessories, plastic mouldings and composite decking.

        For both 2002 and 2001, our vinyl siding operations showed growth in sales volumes due to several new products that were launched during the latter half of 2001. The sales prices for both 2002 and 2001, remained relatively stable for individual products; however, in total sales increased in 2002 and decreased in 2001 due to changes in the product mix sold.

        In 2002 as compared to 2001, our mouldings product line experienced growth in unit shipments due to increased penetration in home centers as well as increased overall market share. Sales prices remained relatively flat between periods. For 2001as compared to 2000, sales price and shipments remained flat.

        We continue to develop our composite decking business. We saw a significant increase in sales volumes in both 2002 compared to 2001 and 2001 compared to 2000. For 2002 as compared to 2001, prices increased due to the introduction of several new product lines, including railings. For 2001 as compared to 2000, we reduced selling prices to capture market share.

        For 2002 as compared to 2001, the results of operations of this segment improved due to cost efficiencies from increased production volumes in the vinyl siding and mouldings products. These improvements offset the continued losses in our composite decking business. For 2001 compared to 2000, the results of operations of this segment remained relatively flat with vinyl operations realizing significant improvements due to lower resin pricing, which was offset by the losses in the composite decking business.

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Structural Framing Products

        Our structural framing products segment manufactures and distributes structural lumber and engineered wood products (EWP), including laminated veneer lumber (LVL) and I-Joists.

        For both 2002 and 2001, we increased sales volumes of LVL and I-Joists due to increasing market share through the addition of several new customers. However, in both 2002 and 2001, pricing declined due to increased industry capacity for LVL and due to pricing pressure resulting from lower prices of competing lumber products that can substitute for I-Joists.

        Our lumber volumes increased during 2002 as compared to 2001 because we operated several of our mills in 2001 on curtailed schedules due to weak market conditions. Lumber prices increased slightly in 2002 from 2001 after declining in 2001 as compared to 2000 due to increased imports, primarily from Canada.

        For both 2002 and 2001, the results of operations of our structural framing products segment improved primarily due to a reduction in raw material costs (veneer, OSB and lumber costs for EWP) and increased manufacturing efficiencies. These reductions offset the impact of reduced pricing on LVL and I-Joists.

Pulp

        During 2002, we completed our exit of the pulp market. In October of 2002, we sold our remaining pulp mill. This mill had been indefinitely closed during 2001. During 2002, the results of this segment were primarily for the our ongoing fixed costs for security, property tax and similar expenditures at the Chetwynd mill as well as transportation costs to move logs located at this mill to another facility. During 2001, we transferred a controlling interest in our pulp facility in Samoa, California to a third party (see discussion in Potential Impairments below), thereby reducing our pulp volumes in 2001 compared to 2000. Pulp pricing declined 25% between 2001 and 2000 due to the reduced demand for pulp in the worldwide market.

        Our pulp products represented the majority of our export sales. Therefore, the changes in pulp sales were the primary reason for the decreases in 2002 and 2001 of our export sales. Information regarding our geographic segments and export sales are provided in Note 17 of the Notes to the financial statements included in Item 8 of this report.

Other Products

        Our other products category includes plywood and industrial panel mills closed prior to January 1, 2002, wood chips, our OSB operation in Ireland (which we sold in April 2002), timber and timberlands

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not associated with other segments or businesses to be divested, our cellulose insulation operations (contributed to a joint venture in August 2000) and other minor products and services. Sales were significantly lower, with improved operating results in each of the last two years. For both 2002 and 2001, the reduction in sales and improvement in operating results was primarily attributable to the divestiture, contribution or closure of mills that were operating at losses and the sale of the Ireland operation that was unprofitable in 2001. Under SFAS No. 144, 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.

GENERAL CORPORATE AND OTHER EXPENSE, NET

        Net general corporate expense was $81 million in 2002 as compared to $86 million in 2001 and $99 million in 2000. General corporate and other expenses primarily consist of corporate overhead such as wages and benefits for corporate personnel, professional fees, insurance and other expenses. The declines in both 2002 and 2001 are primarily related to a continuing focus on cost reduction, including the elimination of numerous mid- to upper-level management positions and reductions in outside professional fees, travel, marketing expenses and other discretionary expenses.

OTHER OPERATING CREDITS AND CHARGES, NET

        For a discussion of other operating credits and charges, net, refer to Notes 1 and 10 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 11 of the Notes to the financial statements included in item 8 of this report

INTEREST, NET

        In 2002, 2001 and 2000, net interest expense was $63.0 million, $59.8 million and $43.1 million. The increase in interest expense in 2002 over 2001 was due to the higher rate of interest associated with the 10.875% senior subordinated notes outstanding for all of 2002 but only five months of 2001. This increase was partially offset by lower interest rates on our variable rate debt and a lower average amount of outstanding debt. The increase in interest expense in 2001 over 2000 was due to a higher average level of debt outstanding throughout 2001 compared to 2000 to fund operations as well as increased interest rates due to the addition of our senior subordinated notes.

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 Slocan Forest Products Ltd. to build an OSB mill in British Columbia; and (3) a joint venture with Abitibi-Consolidated to build an I-joist facility in Quebec. Neither the venture with Slocan nor Abitibi has commenced operations as of December 31, 2002.

        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. Subsequent to the formation of GreenFiber, it recorded a restructuring charge related to the closure of duplicate facilities and other activities associated with streamlining the combined business. Our share of this restructuring charge in 2000 was $5.3 million ($3.3 million after taxes, or $.03 per diluted share). GreenFiber elected to be treated as a partnership for income tax purposes and therefore the entity is not taxed directly. The amortization of goodwill resulting from our 1997 purchase

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of the contributed assets is reflected in this line item in 2001 and 2000. Additionally, under SFAS No. 142, this goodwill ceased to be amortized as of January 2002. GreenFiber's operations improved significantly in 2002 and 2001 due to lower raw material costs. The elimination of goodwill amortization also impacted this line item in 2002.

DISCONTINUED OPERATIONS

        Included in discontinued operations for 2002, 2001 and 2000 are the results of the operations of mills that have been or are to be divested under our divesture plan. These operations include our U.S. plywood and industrial panels mills, selected lumber mills, wholesale operations and distribution centers. The results of operations for these locations are as follows:

        Overall, sales for these operations declined significantly in 2002 as compared to 2001. This decline is primarily related to timing on the sale, transfer or permanent closure of locations as well as lower sales prices of these commodity products. During 2002, we completed the exchange of our Texas and Louisiana plywood mills and a medium density fiberboard mill to Georgia-Pacific Corporation. We also completed the sale of a particleboard facility in California and the permanent closure of another particleboard facility in Texas.

        Included in the operating losses of discontinued operations for 2002, we recorded impairments charges of $31.9 million to reduce the carrying values of these assets to their estimated fair value less estimated cost to sell; a loss of $7.6 million related to severance costs associated with these facilities; a loss of $4.4 million associated with a curtailment of a defined benefit pension plan as a result of expected divestures; and a loss of $4.5 million on a long-term contract associated with one of our divested plywood facilities. Additionally, we recorded a gain of $5.3 million on the sale of our distribution centers; a gain of $4.0 million associated with insurance recoveries for incidents that occurred in prior years at several of the locations being sold; and a gain of $7.4 million resulting from the mark-to-market adjustment and the subsequent cancellation of energy contracts associated with a mill that is held for sale.

        Included in the operating losses of discontinued operations for 2001, we recorded impairment charges of $5.2 million to reduce the carrying values of these assets to their estimated fair value and $0.6 million of severance costs associated with these facilities. Additionally, we were required to record a mark-to-market adjustment on several energy contracts of $6.1 million, as future physical delivery of the energy was no longer deemed probable.

        Included in the operating losses of discontinued operations for 2000, we recorded impairment charges of $1.6 million to reduce the carrying value of these assets to their estimated fair value.

INCOME TAXES

        In total, we recorded a tax benefit of $21.5 million in 2002, $112.4 million in 2001 and $8.1million in 2000. In 2002, our effective tax rate differed from the statutory rate primarily due to revisions to estimates recorded in prior years for state income taxes and the effects of non-deductible foreign exchange gains and losses. For 2001, our effective rate approximated the statutory rate. For 2000, the effective tax rate differed from the statutory rate primarily due to the effects of non-deductible goodwill, reductions in prior year provisions due to closure of prior year tax audits and an increase in

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the valuation allowance related to foreign tax credits due to expectation of lower future tax liabilities to absorb the credits before they expire.

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 "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". Our total defined benefit pension expense for 2002 was approximately $18.9 million, including a $4.4 million curtailment expense due to divestiture activity, compared to pension expense in 2001 of $14.6 million. We estimate that our defined benefit pension expense for 2003 will be approximately $15 million. That estimate assumes that we have no curtailment or settlement expenses in 2003. If a curtailment or settlement does occur in 2003, this estimate may change significantly. We contributed $27.1 million to our defined benefit pension plans in 2002 compared to $19.0 million in 2001. We estimate that we will contribute approximately $36 million to these plans in 2003. A significant actuarial loss exists at the 2002 year-end. The amortization of this unrecognized loss will make up approximately 30% of our 2003 pension expense.

        The calculation of this pension plan expense is based on several actuarial assumptions, although the two most significant assumptions are the long-term rate of return assumption and the discount rate assumption.

        We used a long-term rate of return assumption of 8.75% to calculate the 2002 pension expense and we will use an 8.5% rate for 2003. This assumption is based on information supplied by the outside investment manager of our U.S. plans regarding the expected rate of return of the portfolio of assets currently in the U.S. pension plans that make up approximately 89% of the total assets in all of our defined benefit 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. 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 2003 estimated pension expense by approximately $1 million.

        We used a discount rate assumption of 6.75% at October 31, 2002, which is the 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 rating agency as an indicator of potential settlement rates. Approximately 92% of our total benefit obligations are from U.S. pension plans. The rate from the October 31, 2001 measurement of 7.0% was used in the determination of pension expense for 2002, as required under U.S. accounting standards. A change of 0.5% in the discount rate assumption would change our 2003 estimated pension expense by approximately $1 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 Items 3 in this report as well as Note 12 in the Notes to the financial statements included in item 8 of this report.

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OSB Siding Litigation Update

        The following discussion should be read in conjunction with the discussion of our OSB siding litigation set forth in Note 12 of Item 8 of this report.

        Cumulative statistics as of the dates stated below under the National and Florida Settlements are as follows:

        The average payment amount for settled claims as of December 31, 2002 and December 31, 2001 was approximately $3,500 and $3,800. Excluding claims satisfied on a discounted basis pursuant to the Second Settlement Fund and Alternative Payment Program, the average payment amount for settled claims as of December 31, 2002 and December 31, 2001 was $5,100. 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.

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 12 of Item 8 of this report.

        Cumulative statistics as of December 31, 2002 under hardboard settlements are as follows (information for prior years is not available):

The average payment amount for settled claims as of December 31, 2002 was approximately $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.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

        Net cash provided by operations was $89 million in 2002, $149 million in 2001 and $83 million in 2000. In 2002, the decline in cash provided from operations was due to the increase in cash outflows for litigation contingencies, including settlements under the alternative payment program (see Note 11 in the Notes to the financial statements included in item 8 of this report). In 2001, the increase in cash provided from operations resulted primarily from declines in inventories, a reduction in the cash outflows for litigation contingencies and income tax refunds received. We paid out $52 million in 2002, $36 million in 2001 and $162 million in 2000 related to litigation settlements.

        Net cash provided by our investing activities was $72 million in 2002, including $149 million associated with asset sales and $44 million used for the purchase of capital equipment at existing mills. The cash received from asset sales included $103 million related to the sale of various timber and

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timberlands and $46 million associated with the sale of an OSB mill located in Ireland, several distribution centers, two industrial panels facilities and several non-operating facilities and other equipment. In 2001, net cash used by our investing activities was $50 million, including $69 million used for the purchase of capital equipment at existing mills. Our capital expenditures were partially offset by $48 million received from the sale or transfer of assets including several sawmills, several non-operating facilities, a pulp mill and other equipment. Additionally, we acquired the assets and assumed an operating lease on a sawmill in Northern Idaho. Also, during 2001, we loaned Samoa Pacific Cellulose LLC (SPC) $15.1 million under a secured line of credit (see discussion at Note 14 included in the Notes to the financial statements included in item 8 of this report). Net cash used by investing activities was $261 million in 2000 and was primarily used for acquisitions of capital equipment to improve the efficiencies of existing mills. Additionally, we used $55 million to acquire selected assets of Sawyer Lumber Company and assets of Hoff Companies, Inc. We received proceeds of $21 million in 2000 from the sale of several sawmills, a veneer plant and various land sites. Capital expenditures for 2003 are estimated to be approximately $80 million focused on projects to reduce our energy, raw materials and resin costs.

        In 2002, net cash used in financing activities was $85 million compared to $76 million in 2001, and net cash provided by financing activities of $101 million in 2000. In 2002, we reduced our borrowings under our revolving line of credit by $40 million and repaid $33 million in long-term debt. In 2001, we reduced our borrowings under our revolving line of credit by $101 million; we borrowed $275 million in long-term debt and repaid $208 million primarily associated with a public debt offering and the repayment of a term loan with a group of banks. The public debt offering consisted of $200 million of 10.875% senior subordinated notes due in 2008 and was completed on August 13, 2001. In 2000, we borrowed $560 million in long-term debt and $107 million on our revolving line of credit and repaid $502 million primarily associated with a public debt offering and the repayment of bridge loans associated with 1999 acquisitions. The public debt offering consisted of $200 million of 8.875% senior notes due 2010 and $190 million of 8.50% senior notes due 2005 and was completed on August 18, 2000. Additional borrowings financed the acquisitions of selected assets of Sawyer Lumber Company and Hoff Companies, Inc. and payments under the Second Settlement Fund.

        We expect to be able to meet the future cash requirements of our existing businesses through cash from operations, existing cash balances, existing credit facilities and other capital resources. Cash and cash equivalents totaled $137 million at December 31, 2002, $62 million at December 31, 2001 and $38 million at December 31, 2000. Additionally, at December 31, 2002 and 2001, we had $48 million and $15 million in restricted cash, respectively. A portion of the restricted cash is required in connection with our lines of credit as discussed below.

        We have a $187 million secured revolving credit facility with a syndicate of banks. This facility expires in January 2004. At December 31, 2002, no borrowings and $84 million of outstanding letters of credit were outstanding under this facility (available credit at December 31, 2002 was $103 million). Borrowings under this agreement bear interest at LIBOR plus 3% or specified alternative rates selected by us. Fees associated with this revolving credit facility include a facility fee of .75% per annum on the amount by which the aggregate commitments of the lenders exceed the outstanding borrowings, plus upfront fees and expenses totaling $3.9 million, which are being amortized over the term of the agreement. These rates and fees may be adjusted according to a rate grid based upon our long-term debt ratings. Our ability to borrow under this facility is conditional upon the total amount of borrowings and letters of credit outstanding thereunder, after giving effect to any requested additional borrowings, not exceeding a specified borrowing base value of the collateral securing the obligations under the facility. This revolving credit facility contains three specific financial covenants (at December 31, 2002), as follows:

•

Minimum required Shareholder's Equity, as defined, of approximately $1 billion;

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•

Maximum debt to capitalization ratio, as defined, of 50.0% and;



•

Minimum earnings before interest, taxes, depreciation, depletion and amortization (EBITDDA), as defined, in total for the prior four consecutive quarters of $120 million;

        The maximum debt to capitalization ratio will decrease and the minimum EBITDDA amounts will increase in future reporting periods. We are also prohibited from certain transactions, including paying cash dividends on or purchasing shares of our common stock.

        In August 2002, we amended the secured revolving credit facility to facilitate our divestiture and debt reduction plan. Among other things, this amendment replaces the former collateral coverage requirements with requirements relating to the maintenance of a "borrowing base" comprised of various potential classes of collateral and requires us to establish a restricted cash account. In general, all net after tax proceeds from the sales of assets are to be deposited to this account. Subject to specified limitations, funds in this account can be used to reduce debt (including contingency reserves), make capital expenditures and fund acquisitions. Prior to using these funds for capital expenditures, at least $150 million of debt must be repaid. After $150 million of debt is repaid, up to 50% of the funds can be used to make capital expenditures and after $200 million of debt is repaid, funds may also be used for acquisitions. In any case, uses of these funds are limited if we are not in compliance with the terms of the loan agreement.

        In February 2003, we amended the secured revolving credit facility to better reflect current operating results. This amendment extended the maturity date to July 2004, amended the minimum EBITDDA financial covenant for future reporting periods and amended other items.

        We entered into an accounts receivable secured revolving credit facility providing for up to $100 million of borrowing capacity as of December 31, 2002. At December 31, 2002, approximately $30 million was outstanding under this facility. The structure of this facility required us to create a wholly-owned, non-qualifying special purpose entity, which is consolidated in accordance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This entity then borrows from a third party using receivables as collateral. The transaction is treated as a secured borrowing because the Company has the right to terminate early any borrowings outstanding, allowing us to retain effective control over the receivables. The pledged receivables outstanding and the corresponding debt are included as Accounts Receivable and Long-term Debt on the accompanying balance sheet. At December 31, 2002, borrowings under this facility bore interest at commercial paper rates plus .55%. 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 our long-term unsecured senior debt rating could cause an amortization event under this facility.

        Additionally, we have a $25 million (Canadian) secured credit facility. As most recently extended, this facility expires February 27, 2004. This facility is secured by Canadian receivables and inventory. At December 31, 2002, no borrowings and $3.2 million (Canadian) in letters of credit were outstanding (available credit at December 31, 2002 was $21.8 million (Canadian)). Borrowings under this facility bear interest at LIBOR plus 3% or specified alternative rates selected by LPC. This interest rate may be adjusted according to a rate grid based upon our long-term debt ratings. Fees associated with this facility include a facility fee of .5% per annum on the amount by which the aggregate commitment of the lender exceeds the outstanding borrowings. The facility contains certain restrictive financial covenants, including a requirement that LPC maintain a minimum current ratio, as defined, of 1.15 to 1.0. Additionally, LP, as guarantor, must comply with covenants substantially similar to those contained in the $187 million credit facility discussed above.

        As of December 31, 2002, we were in compliance with all of our debt covenants. For a discussion of various risks associated with our indebtedness, see the information in Outlook: Issues and

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Uncertainties, under the captions "Our substantial debt could have important consequences" and "The instruments governing our debt contain restrictive covenants, events of default and consequences of downgrades in our credit ratings".

        Contingency reserves, which represent an estimate of future cash needs for various contingencies (principally, payments for siding litigation settlements), totaled $126 million at December 31, 2002, of which $20 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 11 to 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, 2002 over the next several years. See discussion above concerning provisions that could accelerate the due dates on our long-term debt.

DIVIDEND

        On November 5, 2001, we announced that our Board of Directors has suspended the quarterly cash dividend. Our revolving credit facility prohibits the payment of dividends until the agreement expires or its earlier termination.

POTENTIAL IMPAIRMENTS

        We have a continuing financial interest in SPC (see discussion at Note 15 of the Notes to the financial statements included in item 8 of this report) in the form of various classes of preferred equity interests and secured and unsecured receivables and retained inventory. Due to weak pulp markets, SPC has incurred substantial losses from operations and the loss of a major customer. During 2001, we wrote off our remaining investment in SPC except for balances that were partially or wholly secured by underlying collateral. Since we have a continuing interest in SPC, the receivable is shown on our balance sheet as the difference between the Assets transferred under contractual arrangement ($29.1 million) and the Liabilities transferred under contractual arrangement ($15.3 million). While we currently believe that the receivable from SPC is recoverable, management continues to closely monitor SPC's operating results and financial condition and it is possible that we may be required to record further impairment charges related to SPC in the future. At December 31, 2002, the $13.8 million balance of the receivable exceeded the book value of the underlying collateral by $9 million. The collectibility of the receivable is dependent on a recovery in the market for commodity pulp products. Although we believe that recovery in pulp pricing will ultimately occur, there can be no assurance that the timing or extent of a recovery would be sufficient to assure collection of these amounts. In addition, there are several contingent liabilities (primarily environmental in nature) associated with these operations that, under certain circumstances, could become our liabilities. We have not recorded an accrual for these liabilities, as we do not believe it is probable that these liabilities will be incurred. However it is possible that we may be required to record such an accrual in the future.

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        We continue to monitor several mills and projects for potential impairments. We currently believe we have adequate support for the carrying value of each of these mills and projects 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, if the markets for our products deteriorate from December 31, 2002 levels or 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 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, we may be required to record impairment charges in connection with decisions to dispose of assets.

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

        Management does not provide public forecasts of future financial performance. However, we do believe that based upon information available from industry sources that we should see improved business conditions over the next several years. Factors that support this view include a favorable interest rate environment, trend of increasing home ownership rates, steady growth of repair and remodeling and the demographics that support more housing and increased sizes. 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. Many of our products, including OSB and lumber, 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 demand for our building products is primarily affected by the level of new residential construction activity and home repair and remodeling activity. 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 could seriously harm our financial condition and results of operations and our ability to satisfy our cash requirements, including the payment of interest and our principal on our debt.

        We have a high degree of product concentration.    OSB accounted for over 35% of our revenues during fiscal 2002, and we expect OSB sales to continue to account for a substantial portion of our revenues and profits in the future. 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.

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        Increased industry production capacity for OSB could constrain our operating margins for the foreseeable future.    According to the Resource Information Systems, Inc (RISI), an industry trade association, total North American OSB annual production capacity increased by about 1 billion square feet in 2002 on a ³/8-inch equivalent basis and is projected to increase by approximately 5.8 billion square feet in the 2003 to 2007 period. RISI has projected that total North American demand for OSB will increase by about 6.5 billion square feet during the same 2003 to 2007 period. If increases in OSB production capacity exceed increases in OSB demand, OSB could have constrained operating margins for the foreseeable future.

        Intense competition in the building products industry could prevent us from increasing or sustaining our net sales and from regaining or 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.

        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 more than 60% 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. Although we have invested significantly in the past, and believe that capital expenditures related to our facilities will be less in the foreseeable future, 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. However, we cannot assure you that our capital resources will be adequate for these purposes. If our capital resources are inadequate 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 the restoration and reforestation of timberlands, discharges of pollutants and other emissions

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on or into land, water and air, and the disposal and remediation of hazardous substances or other contaminants. 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.    We currently are and from time to time in the future will be involved in a number of environmental matters and legal proceedings. 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 subject 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. At December 31, 2002, the estimated approved but unpaid claims under the settlement agreement relating to the class action settlement of our national OSB siding litigation, exceeded the sum of the then-current balance of the related settlement fund and our remaining mandatory contributions to the related settlement fund by approximately $60 million. Consequently, the actual costs we ultimately incur may vary significantly from the estimated costs reflected in our contingency reserves depending on our ability to settle these liabilities at discounted amounts. Moreover, 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.

        We do not maintain insurance for our losses to our standing timber from natural resources or other causes.    The volume and value of timber that can be harvested from our lands or that we may purchase from other sources may be limited by natural disasters such as fire, insect infestation, disease, ice storms, flooding and other weather conditions and other causes. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations. As is typical in the industry, we do not maintain insurance for any loss to our standing timber from natural disasters or other causes.

        Our substantial debt could have important consequences.    As of December 31, 2002, we had consolidated debt of approximately $1.1 billion of which $354 million is secured by notes receivable.

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This level of indebtedness which could increase in the future, could (1) require us to dedicate a substantial portion of our cash flow from operations and other capital resources to debt service, thereby reducing our ability to fund working capital, capital expenditures and other cash requirements; (2) limit our flexibility in planning for, or reacting to, changes and opportunities in, the building products industry, which may place us at a competitive disadvantage compared to our competitors; (3) limit our ability to incur additional debt on commercially reasonable terms, if at all; and (4) increase our vulnerability to adverse economic and industry conditions.

        The instruments governing our debt contain restrictive covenants, events of default and consequences of downgrades in our credit ratings.    Among other things, the covenants require us to comply with or maintain certain financial tests and ratios and restrict our ability to: (1) incur debt; (2) incur liens (3) redeem and/or prepay debt; (4) make acquisitions; (5) make investments, including loans and advances; (6) make capital expenditures; (7) engage in mergers, consolidations or sales of assets; (8) engage in transactions with affiliates; and (9) pay dividends or engage in stock redemptions. Our ability to comply with these covenants is subject to various risks and uncertainties, and events beyond our control that could affect our ability to comply with and maintain the financial tests and ratios. Any failure by us to comply with and maintain all applicable financial tests and ratios and to comply with all applicable covenants could result in an event of default with respect to, and the acceleration of the maturity of, a substantial portion of our debt. Even if we are able to comply with the applicable covenants, the restrictions on our ability to operate our business in our sole discretion could harm our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities. In addition, specified downgrades in our credit ratings could increase our costs of borrowing and, in the case of our accounts receivable securitization facility, a one-level downgrade by a particular rating agency could (after the passage of six months time or upon downgrade by another rating agency) result in an amortization event and trigger cross-defaults which could result in the acceleration of the maturity of a substantial portion of our debt.

        Our ability to successfully implement our divestiture plan is subject to circumstances beyond our control. If our estimates relating to the timing and effects of our divestiture plan prove to be inaccurate, we may be required to record additional losses or charges on our financial statements.    Whether, when and terms upon which we will be able to consummate the sales of businesses and assets contemplated by our divestiture plan will be affected by numerous circumstances beyond our control. These circumstances include the demand for businesses and assets of the type we are seeking to sell and the concurrent supply of comparable or substitute businesses and assets, all of which may be significantly affected by current and prospective economic and industry conditions and conditions in the capital markets. These matters may also be affected by the future operating results and perceptions regarding the prospects of the businesses and assets that we are seeking to sell, and any casualty losses or other developments adversely affecting the same. If we are unable to implement our divestiture plans as presently expected, or if our estimates relating to the economic consequences of implementing our divestiture plan prove to be inaccurate, we may be compelled to change our divestiture plan or to revise our estimates relating thereto.

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, 2002, a 100 basis point interest change would impact pre-tax net income and cash flows by $1.2 million annually. Based upon our indebtedness

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at December 31, 2002, the fixed and variable portions of our debt and the expected maturity dates are as follows:

        Additionally, we have long-term notes receivable that contain fixed interest rates. Based upon these notes at December 31, 2002, the fixed portion of our receivables and the expected maturity dates are as follows:

        Our international operations create exposure to foreign currency rate risks, primarily due to fluctuations in the Canadian dollar. Although we have entered into foreign exchange contracts to manage a portion of the foreign currency rate risk associated with certain of our indebtedness, 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). At December 31, 2002, we had outstanding foreign exchange contracts with notional amounts of $25 million (Canadian) to hedge firm and anticipated purchase commitments, debt payments and firm sales commitments denominated in foreign currencies.

        Most 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. Significant commodity products we sell include OSB and lumber. For OSB, with an annual capacity volume of 5.8 billion square feet (³/8" basis) or 5.0 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 $5.0 million. For lumber, with an annual volume of 1.2 billion board feet, a $1 change in the annual average price would change annual pre-tax profits by $1.2 million.

        We historically have not entered into material commodity futures and swaps, although we may do so in the future.

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ITEM 8.    Financial Statements and Supplementary Data

Consolidated Balance Sheets

See Notes to Financial Statements.

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Consolidated Statements of Income