**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

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

** **

**ForQuarterly Period Ended June 30, 2008Commission File Number 1-7107**

** **

**LOUISIANA-PACIFIC CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **DELAWARE**(State or other jurisdiction of  incorporation or organization) | ** ** | **93-0609074**(IRS Employer Identification No.) |
|-----------------------------------------------------------------------------|------------|-------------------------------------------------|

 

**414Union Street, Nashville, TN 37219**

(Address ofprincipal executive offices) (Zip Code)

 

Registrant’stelephone number, including area code:  **(615) 986-5600**

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.Yes x  No  ̈

 

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

 

| Large accelerated filer  x | Accelerated filer o | Non-accelerated filer o                         | Smaller reporting  company o |
|----------------------------|--------------------------|-------------------------------------------------|-----------------------------------|
|                       |                     | (Do not check if a  smaller  reporting company) |                              |

 

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

 

Yes   o    No  x

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date: 103,293,100 shares of Common Stock, $1 parvalue, outstanding as of August 1, 2008.

 

*Except asotherwise specified and unless the context otherwise requires, references to “LP”,the “Company”, “we”, “us”, and “our” refer to Louisiana-Pacific Corporation andits subsidiaries.*

 

 

 

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# ** ABOUTFORWARD-LOOKING STATEMENTS**

# ** **

Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934 provide a “safe harbor” for forward-looking statements to encouragecompanies to provide prospective information about their businesses and othermatters as long as those statements are identified as forward-looking and areaccompanied by meaningful cautionary statements identifying important factorsthat could cause actual results to differ materially from those discussed inthe statements. This report contains, and other reports and documents filed byus with the Securities and Exchange Commission may contain, forward-lookingstatements.  These statements are or willbe based upon the beliefs and assumptions of, and on information available to,our management.

 

The followingstatements are or may constitute forward-looking statements:  (1) statements preceded by, followed byor 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 statementsregarding 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 salesand the adequacy of reserves for loss contingencies.

 

Factors that couldcause actual results to differ materially from those expressed or implied bythe forward-looking statements include, but are not limited to the following:

 
| · | changes in  general economic conditions;                                                                                                                      |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                          |
| · | changes in the  cost and availability of capital;                                                                                                             |
|   |                                                                                                                                                          |
| · | changes in the  level of home construction activity;                                                                                                          |
|   |                                                                                                                                                          |
| · | changes in  competitive conditions and prices for our products;                                                                                               |
|   |                                                                                                                                                          |
| · | changes in the  relationship between supply of and demand for building products, including  the effects of industry-wide increases in manufacturing capacity; |
|   |                                                                                                                                                          |
| · | changes in the  relationship between supply of and demand for raw materials, including wood  fiber and resins, used in manufacturing our products;            |
|   |                                                                                                                                                          |
| · | changes in the  cost of and availability of energy, primarily natural gas, electricity and  diesel fuel;                                                      |
|   |                                                                                                                                                          |
| · | changes in other  significant operating expenses;                                                                                                             |
|   |                                                                                                                                                          |
| · | changes in  exchange rates between the U.S. dollar and other currencies, particularly the  Canadian dollar, EURO, Brazilian real and the Chilean peso;        |
|   |                                                                                                                                                          |
| · | prolonged  illiquidity in the market for auction-rate securities held by us for  investment;                                                                  |
|   |                                                                                                                                                          |
| · | changes in  general and industry-specific environmental laws and regulations;                                                                                 |
|   |                                                                                                                                                          |
| · | changes in tax  laws, and interpretations thereof;                                                                                                            |
|   |                                                                                                                                                          |
| · | changes in  circumstances giving rise to environmental liabilities or expenditures;                                                                           |
|   |                                                                                                                                                          |
| · | the resolution  of existing and future product-related litigation and other legal  proceedings; and                                                           |
|   |                                                                                                                                                          |
| · | acts of God or  public authorities, war, civil unrest, fire, floods, earthquakes and other  matters beyond our control.                                       |

 

In addition to theforegoing and any risks and uncertainties specifically identified in the textsurrounding forward-looking statements, any statements in the reports and otherdocuments filed by us with the Commission that warn of risks or uncertaintiesassociated with future results, events or circumstances identify importantfactors that could cause actual results, events and circumstances to differmaterially from those reflected in the forward-looking statements.

 

2

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ABOUT THIRD PARTY INFORMATION

 

In this report, we rely on and refer to informationregarding industry data obtained from market research, publicly availableinformation, industry publications, U.S. government sources and other thirdparties. Although we believe the information is reliable, we cannot guaranteethe accuracy or completeness of the information and have not independentlyverified it.

 

3

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Item 1.   Financial Statements.

 

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

 
| ** **                                                             | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                             | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Net sales                                                              |       | $                                         | 387.0      |                                              | $          | 461.2 |   | $ | 736.4 |   | $ | 855.8 |   |
| Operating costs and expenses:                                          |       |                                      |       |                                              |       |   |   |   |   |
| Cost of sales                                                          |       | 375.0                                     |       | 437.6                                             |       | 747.8 |   | 829.3 |   |
| Depreciation, amortization and cost of timber  harvested               |       | 26.8                                      |       | 27.4                                              |       | 53.4 |   | 55.9 |   |
| Selling and administrative                                             |       | 39.1                                      |       | 38.3                                              |       | 79.2 |   | 78.5 |   |
| (Gain) loss on sale or impairment of long-lived  assets                |       | 0.1                                       |       | (0.3                                              | )          | (0.3 | ) | 5.2 |   |
| Other operating credits and charges, net                               |       | 70.1                                      |       | (19.2                                             | )          | 66.1 |   | (19.2 | ) |
| Total operating costs and expenses                                     |       | 511.1                                     |       | 483.8                                             |       | 946.2 |   | 949.7 |   |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Loss from operations                                                   |       | (124.1                                    | )          | (22.6                                             | )          | (209.8 | ) | (93.9 | ) |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Non-operating income (expense):                                        |       |                                      |       |                                              |       |   |   |   |   |
| Foreign currency exchange gain (loss)                                  |       | (5.1                                      | )          | (12.7                                             | )          | 4.3 |   | (15.5 | ) |
| Other than temporary investment impairment                             |       | (1.7                                      | )          | —                                            |       | (2.5 | ) | — |   |
| Interest expense, net of capitalized interest                          |       | (12.7                                     | )          | (9.7                                              | )          | (23.9 | ) | (20.0 | ) |
| Investment income                                                      |       | 10.6                                      |       | 23.4                                              |       | 23.4 |   | 43.8 |   |
| Total non-operating income (expense)                                   |       | (8.9                                      | )          | 1.0                                               |       | 1.3 |   | 8.3 |   |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Loss before taxes and equity in earnings of unconsolidated  affiliates |       | (133.0                                    | )          | (21.6                                             | )          | (208.5 | ) | (85.6 | ) |
| Benefit for income taxes                                               |       | (56.8                                     | )          | (10.9                                             | )          | (92.7 | ) | (42.2 | ) |
| Equity in loss of unconsolidated affiliates                            |       | 3.2                                       |       | 4.9                                               |       | 9.5 |   | 8.2 |   |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Loss from continuing operations                                        |       | (79.4                                     | )          | (15.6                                             | )          | (125.3 | ) | (51.6 | ) |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Discontinued operations:                                               |       |                                      |       |                                              |       |   |   |   |   |
| Loss from discontinued operations before income  taxes                 |       | (2.3                                      | )          | (12.6                                             | )          | (3.1 | ) | (14.8 | ) |
| Income tax benefit                                                     |       | (0.9                                      | )          | (4.9                                              | )          | (1.2 | ) | (5.8 | ) |
| Loss from discontinued operations                                      |       | (1.4                                      | )          | (7.7                                              | )          | (1.9 | ) | (9.0 | ) |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Net loss                                                               |       | $                                         | (80.8      | )                                                 | $          | (23.3 | ) | $ | (127.2 | ) | $ | (60.6 | ) |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Net loss per share of common stock (basic):                            |       |                                      |       |                                              |       |   |   |   |   |
| Loss from continuing operations                                        |       | $                                         | (0.77      | )                                                 | $          | (0.15 | ) | $ | (1.22 | ) | $ | (0.50 | ) |
| Loss from discontinued operations                                      |       | (0.02                                     | )          | (0.07                                             | )          | (0.02 | ) | (0.08 | ) |
| Net loss per share - basic                                             |       | $                                         | (0.79      | )                                                 | $          | (0.22 | ) | $ | (1.24 | ) | $ | (0.58 | ) |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Net loss per share of common stock (diluted):                          |       |                                      |       |                                              |       |   |   |   |   |
| Loss from continuing operations                                        |       | $                                         | (0.77      | )                                                 | $          | (0.15 | ) | $ | (1.22 | ) | $ | (0.50 | ) |
| Loss from discontinued operations                                      |       | (0.02                                     | )          | (0.07                                             | )          | (0.02 | ) | (0.08 | ) |
| Net loss per share - diluted                                           |       | $                                         | (0.79      | )                                                 | $          | (0.22 | ) | $ | (1.24 | ) | $ | (0.58 | ) |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Cash dividends per share                                               |       | $                                         | 0.15       |                                              | $          | 0.15 |   | $ | 0.30 |   | $ | 0.30 |   |
|                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Average shares of stock outstanding - basic                            |       | 102.9                                     |       | 104.2                                             |       | 102.9 |   | 104.1 |   |
| Average shares of stock outstanding - diluted                          |       | 102.9                                     |       | 104.2                                             |       | 102.9 |   | 104.1 |   |

 

Theaccompanying notes are an integral part of these unaudited financialstatements.

 

4

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CONDENSED CONSOLIDATED BALANCE SHEETSLOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES(AMOUNTS IN MILLIONS) (UNAUDITED)

 
| ** **                                           | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ASSETS                                               |       |                        |       |                            |       |
| Cash and cash equivalents                            |       | $                           | 169.4      |                            | $          | 352.1 |   |
| Short-term investments                               |       | 163.4                       |       | 180.1                           |       |
| Receivables, net                                     |       | 264.2                       |       | 243.1                           |       |
| Inventories                                          |       | 206.8                       |       | 212.1                           |       |
| Prepaid expenses and other current assets            |       | 9.6                         |       | 7.6                             |       |
| Deferred income taxes                                |       | 17.8                        |       | 0.5                             |       |
| Current portion of notes receivable from asset sales |       | 20.0                        |       | 74.4                            |       |
| Current assets of discontinued operations            |       | 3.5                         |       | 6.0                             |       |
| Total current assets                                 |       | 854.7                       |       | 1,075.9                         |       |
|                                                 |       |                        |       |                            |       |
| Timber and timberlands                               |       | 59.2                        |       | 64.1                            |       |
| Property, plant and equipment                        |       | 2,368.3                     |       | 2,257.7                         |       |
| Accumulated depreciation                             |       | (1,228.0                    | )          | (1,180.9                        | )          |
| Net property, plant and equipment                    |       | 1,140.3                     |       | 1,076.8                         |       |
|                                                 |       |                        |       |                            |       |
| Goodwill, net of amortization                        |       | 277.8                       |       | 273.5                           |       |
| Notes receivable from asset sales                    |       | 258.6                       |       | 258.6                           |       |
| Restricted cash                                      |       | 73.2                        |       | 61.2                            |       |
| Long-term investments                                |       | 105.8                       |       | 152.9                           |       |
| Investments in and advances to affiliates            |       | 193.4                       |       | 198.2                           |       |
| Other assets                                         |       | 58.0                        |       | 63.1                            |       |
| Long-term assets of discontinued operations          |       | 5.0                         |       | 5.0                             |       |
| Total assets                                         |       | $                           | 3,026.0    |                            | $          | 3,229.3 |   |
|                                                 |       |                        |       |                            |       |
| LIABILITIES AND EQUITY                               |       |                        |       |                            |       |
| Current portion of long-term debt                    |       | $                           | 123.6      |                            | $          | 127.6 |   |
| Short-term notes payable                             |       | 33.4                        |       | 45.2                            |       |
| Accounts payable and accrued liabilities             |       | 195.8                       |       | 222.1                           |       |
| Current portion of limited recourse notes payable    |       | 20.0                        |       | 73.5                            |       |
| Current portion of deferred tax liabilities          |       | 4.4                         |       | 4.4                             |       |
| Current portion of contingency reserves              |       | 67.8                        |       | 15.8                            |       |
| Total current liabilities                            |       | 445.0                       |       | 488.6                           |       |
|                                                 |       |                        |       |                            |       |
| Long-term debt, excluding current portion:           |       |                        |       |                            |       |
| Limited recourse notes payable                       |       | 253.3                       |       | 253.3                           |       |
| Other long-term debt                                 |       | 244.5                       |       | 232.5                           |       |
| Total long-term debt, excluding current portion      |       | 497.8                       |       | 485.8                           |       |
|                                                 |       |                        |       |                            |       |
| Deferred income taxes                                |       | 308.2                       |       | 340.0                           |       |
| Other long-term liabilities                          |       | 84.2                        |       | 79.6                            |       |
| Contingency reserves, excluding current portion      |       | 21.9                        |       | 15.8                            |       |
| Minority interest                                    |       | 18.6                        |       | —                          |       |
| Commitments and contingencies                        |       |                        |       |                            |       |
| Stockholders’ equity:                           |       |                        |       |                            |       |
| Common stock                                         |       | 116.9                       |       | 116.9                           |       |
| Additional paid-in capital                           |       | 438.1                       |       | 439.0                           |       |
| Retained earnings                                    |       | 1,471.9                     |       | 1,630.1                         |       |
| Treasury stock                                       |       | (297.3                      | )          | (302.0                          | )          |
| Accumulated comprehensive loss                       |       | (79.3                       | )          | (64.5                           | )          |
| Total stockholders’ equity                      |       | 1,650.3                     |       | 1,819.5                         |       |
| Total liabilities and equity                         |       | $                           | 3,026.0    |                            | $          | 3,229.3 |   |

 

Theaccompanying notes are an integral part of these unaudited financialstatements.

 

5

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## CONSOLIDATED STATEMENTS OF CASHFLOWS

##  

LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES(AMOUNTS IN MILLIONS) 

(UNAUDITED)

 
| ** **                                                                                 | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
|                                                                                       |       |                                              |       |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                      |       |                                              |       |   |   |
| Net loss                                                                                   |       | $                                                 | (127.2     | ) | $ | (60.6 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used in) operating activities: |       |                                              |       |   |   |
| Depreciation, amortization and cost of timber  harvested                                   |       | 53.4                                              |       | 57.7 |   |
| Loss from unconsolidated affiliates                                                        |       | 9.5                                               |       | 8.2 |   |
| (Gain) loss on sale or impairment of long-lived  assets                                    |       | (0.3                                              | )          | 14.2 |   |
| Stock-based compensation expense related to stock  plans                                   |       | 4.9                                               |       | 3.3 |   |
| Other operating credits and charges, net                                                   |       | 72.2                                              |       | — |   |
| Exchange (gain) loss on remeasurement                                                      |       | (9.1                                              | )          | 19.1 |   |
| Cash settlement of contingencies                                                           |       | (9.6                                              | )          | (6.9 | ) |
| Pension (payments) expense, net                                                            |       | 6.2                                               |       | (2.1 | ) |
| Other than temporary impairment on investments                                             |       | 2.5                                               |       | — |   |
| Other adjustments, net                                                                     |       | 1.6                                               |       | (6.1 | ) |
| Increase in receivables                                                                    |       | (23.5                                             | )          | (20.2 | ) |
| (Increase) decrease in inventories                                                         |       | 11.0                                              |       | (0.7 | ) |
| Increase in prepaid expenses                                                               |       | (1.6                                              | )          | (1.9 | ) |
| Decrease in accounts payable and accrued liabilities                                       |       | (6.7                                              | )          | (14.4 | ) |
| (Decrease) increase in deferred income taxes                                               |       | (38.4                                             | )          | 0.5 |   |
| Net cash used in operating activities                                                      |       | (55.1                                             | )          | (9.9 | ) |
|                                                                                       |       |                                              |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                      |       |                                              |       |   |   |
| Property, plant, and equipment additions                                                   |       | (75.9                                             | )          | (132.3 | ) |
| Purchase of a business                                                                     |       | (44.6                                             | )          | — |   |
| Investments in and advances to joint ventures                                              |       | (4.2                                              | )          | (4.9 | ) |
| Receipt of proceeds from notes receivable                                                  |       | 54.4                                              |       | — |   |
| Cash paid for purchase of investments                                                      |       | (172.9                                            | )          | (1,538.1 | ) |
| Proceeds from sales of investments                                                         |       | 209.3                                             |       | 1,669.4 |   |
| Decrease in restricted cash under letters of credit  and credit facility requirements      |       | (12.0                                             | )          | (10.8 | ) |
| Other investing activities                                                                 |       | 1.1                                               |       | 2.0 |   |
| Net cash used in investing activities                                                      |       | (44.8                                             | )          | (14.7 | ) |
|                                                                                       |       |                                              |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                      |       |                                              |       |   |   |
| Borrowings of long-term debt                                                               |       | 12.0                                              |       | 13.0 |   |
| Repayment of debt                                                                          |       | (53.6                                             | )          | (0.2 | ) |
| Net borrowings (repayments) under revolving credit  agreements                             |       | (11.8                                             | )          | 29.6 |   |
| Sale of common stock under equity plans                                                    |       | —                                            |       | 2.7 |   |
| Payment of cash dividends                                                                  |       | (31.0                                             | )          | (31.4 | ) |
| Net cash provided by (used in) financing activities                                        |       | (84.4                                             | )          | 13.7 |   |
|                                                                                       |       |                                              |       |   |   |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                               |       | 1.6                                               |       | 0.9 |   |
|                                                                                       |       |                                              |       |   |   |
| Net decrease in cash and cash equivalents                                                  |       | (182.7                                            | )          | (10.0 | ) |
| Cash and cash equivalents at beginning of period                                           |       | 352.1                                             |       | 265.7 |   |
|                                                                                       |       |                                              |       |   |   |
| Cash and cash equivalents at end of period                                                 |       | $                                                 | 169.4      |   | $ | 255.7 |   |

 

The accompanying notes are an integral part ofthese unaudited financial statements.

 

6

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CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY

 

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

 
| ** **                                                                             | ** ** | ** **            | ** ** | ** **              | ** ** | ** **  | ** ** | ** **   | ** ** | **Additional**    | ** ** | ** **             | ** ** | **Accumulated** | ** ** | **Total**  | ** ** |
|----------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|-------------|------------|--------------|------------|-------------------|------------|------------------------|------------|-----------------|------------|------------|------------|
| ** **                                                                             | ** ** | **Common Stock** | ** ** | **Treasury Stock** | ** ** | **Paid-in** | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | **Stockholders’** | ** ** |
| ** **                                                                             | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Shares**  | ** ** | **Amount**   | ** ** | **Capital**       | ** ** | **Earnings**           | ** ** | **Loss**        | ** ** | **Equity** | ** ** |
|                                                                                   |       |                  |       |                    |       |        |       |         |       |              |       |                   |       |            |       |       |       |
| Balance, December 31, 2007                                                        |       | 116.9                 |       | $                       | 116.9      |        | 13.8       |         | $          | (302.0            | )          | $                      | 439.0      |            | $          | 1,630.1    |       | $ | (64.5 | ) | $ | 1,819.5 |   |
| Net loss                                                                               |       | —                |       | —                  |       | —      |       | —       |       | —            |       | (127.2                 | )          | —          |       | (127.2     | )          |
| Issuance of shares for employee stock plans and other  purposes and other transactions |       | —                |       | —                  |       | (0.2        | )          | 4.7          |       | (2.0              | )          | —                 |       | —          |       | 2.7        |       |
| Amortization of restricted stock grants                                                |       | —                |       | —                  |       | —      |       | —       |       | 1.1               |       | —                 |       | —          |       | 1.1        |       |
| Purchase of shares for treasury                                                        |       | —                |       | —                  |       | —      |       | —       |       | —            |       | —                 |       | —          |       | —     |       |
| Cash dividends                                                                         |       | —                |       | —                  |       | —      |       | —       |       | —            |       | (31.0                  | )          | —          |       | (31.0      | )          |
| Other comprehensive loss                                                               |       | —                |       | —                  |       | —      |       | —       |       | —            |       | —                 |       | (14.8           | )          | (14.8      | )          |
| Balance, June 30, 2008                                                            |       | 116.9                 |       | $                       | 116.9      |        | 13.6       |         | $          | (297.3            | )          | $                      | 438.1      |            | $          | 1,471.9    |       | $ | (79.3 | ) | $ | 1,650.3 |   |

# ** **

Theaccompanying notes are an integral part of these unaudited financialstatements.

 

7

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## CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME

##  

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

##  

| ** **                                       | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                             |       |                                      |       |                                              |       |   |   |   |   |
| Net loss                                         |       | $                                         | (80.8      | )                                                 | $          | (23.3 | ) | $ | (127.2 | ) | $ | (60.6 | ) |
|                                             |       |                                      |       |                                              |       |   |   |   |   |
| Other comprehensive income (loss), net of tax    |       |                                      |       |                                              |       |   |   |   |   |
| Foreign currency translation adjustments         |       | (8.0                                      | )          | (1.6                                              | )          | (0.8 | ) | (2.0 | ) |
| Unrealized gain (loss) on derivative instruments |       | 0.3                                       |       | —                                            |       | 0.4 |   | (0.1 | ) |
| Unrealized loss on marketable securities         |       | (7.6                                      | )          | —                                            |       | (15.7 | ) | — |   |
| Defined benefit pension plans:                   |       |                                      |       |                                              |       |   |   |   |   |
| Amortization of prior service cost               |       | 0.2                                       |       | 0.2                                               |       | 0.4 |   | 0.4 |   |
| Amortization of net loss                         |       | 0.4                                       |       | 0.9                                               |       | 0.9 |   | 1.8 |   |
| Other comprehensive income (loss), net of tax    |       | (14.7                                     | )          | (0.5                                              | )          | (14.8 | ) | 0.1 |   |
|                                             |       |                                      |       |                                              |       |   |   |   |   |
| Comprehensive loss, net of tax                   |       | $                                         | (95.5      | )                                                 | $          | (23.8 | ) | $ | (142.0 | ) | $ | (60.5 | ) |

##  

## Theaccompanying notes are an integral part of these unaudited financialstatements.

 

8

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## NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS

##  

NOTE 1 – BASIS FORPRESENTATION

 

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith the instructions to Form 10-Q and, in the opinion of management,include all adjustments (consisting of normal recurring adjustments, except forother operating credits and charges, net referred to in Note 11) necessary topresent fairly, in all material respects, the consolidated financial position,results of operations and cash flows of LP and its subsidiaries for the interimperiods presented. Results of operations for interim periods are notnecessarily indicative of results to be expected for an entire year.  For those consolidated subsidiaries in whichLP’s ownership interest is less than 100%, the outside shareholders’ interestsare shown as minority interest. These condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and the notes thereto included in LP’s Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

NOTE 2 –STOCK-BASED COMPENSATION

 

For the quartersended June 30, 2008 and 2007, the total compensation expense related to LP’sstock-based compensation plans was $2.7 million and $1.7 million. For the sixmonth periods ended June 30, 2008 and 2007, the total compensation expenserelated to all of LP’s stock-based compensation plans was $4.9 million and $3.3million. At June 30, 2008, 2,633,029 shares were available under the currentstock award plans for stock-based awards. For the six month period ended June 30,2008, the fair value of the options granted was estimated using theBlack-Scholes option-pricing model with the following weighted-averageassumptions: a risk free interest rate of 2.97%; an expected volatility factorfor the market price of the Company’s common stock of 30.2% (based uponhistorical volatility over the expected life of the options); a dividend yieldof 3.9%; and an expected life of 5 years (based upon historical experienceof the options). For the six month period ended June 30, 2007, the fairvalue of the options granted was estimated using the Black-Scholesoption-pricing model with the following weighted-average assumptions: a riskfree interest rate of 4.82%; an expected volatility factor for the market priceof the Company’s common stock of 29.7% (based upon historical volatility overthe expected life of the options); a dividend yield of 2.6%; and an expectedlife of 4 years (based upon historical experience of the options).  The weighted-average fair value of options andstock settled stock appreciation rights (SSARs) granted during the six monthperiods ended June 30, 2008 and June 30, 2007 was $2.85 and $5.54.

 

NOTE 3 -INVESTMENTS

 

Short-term and long-terminvestments held by LP are debt securities designated as available for sale andare reported at fair market value using the specific identificationmethod.  The following table summarizesunrealized gains and losses related to these investments as of June 30,2008 and December 31, 2007:

 

9

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| ** **                                     | ** ** | ** **    | ** ** | **Gross**      | ** ** | **Gross**      | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|---------------|------------|----------------|------------|----------------|------------|------------|------------|
| ** **                                     | ** ** | **Amortized** | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair**   | ** ** |
| **Dollar amounts in millions**  | ** ** | **Cost**      | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Value**  | ** ** |
| June 30, 2008                             |       |          |       |           |       |           |       |       |       |
|                                           |       |          |       |           |       |           |       |       |       |
| U.S. treasury and government agency securities |       | $             | 55.1       |           | $          | —         |       | $          | —     |   | $ | 55.1 |   |
| Commercial paper                               |       | 48.0          |       | —         |       | —         |       | 48.0       |       |
| Corporate obligations                          |       | 95.0          |       | 0.1            |       | 0.5            |       | 94.6       |       |
| Auction rate securities                        |       | 128.4         |       | —         |       | 56.9           |       | 71.5       |       |
| Total marketable securities                    |       | $             | 326.5      |           | $          | 0.1            |       | $          | 57.4       |   | $ | 269.2 |   |
|                                           |       |          |       |           |       |           |       |       |       |
| December 31, 2007                         |       |          |       |           |       |           |       |       |       |
|                                           |       |          |       |           |       |           |       |       |       |
| U.S. treasury and government agency securities |       | $             | 25.0       |           | $          | —         |       | $          | —     |   | $ | 25.0 |   |
| Commercial paper                               |       | 66.1          |       | 0.1            |       | —         |       | 66.2       |       |
| Corporate obligations                          |       | 142.7         |       | —         |       | 0.4            |       | 142.3      |       |
| Auction rate securities                        |       | 130.9         |       | —         |       | 31.4           |       | 99.5       |       |
| Total marketable securities                    |       | $             | 364.7      |           | $          | 0.1            |       | $          | 31.8       |   | $ | 333.0 |   |

 

As of June 30,2008, LP had $71.5 million ($151.8 million, par value) of principle invested inauction rate securities (ARS). The ARS held by LP are securities with long-termnominal maturities for which the interest rates are reset through a dutchauction each month. These auctions historically have provided a liquid marketfor these securities. LP’s investments in ARS represent interests incollateralized debt obligations supported by pools of residential andcommercial mortgages, credit linked notes and bank trust preferred notes.

 

Consistent withthe company’s investment policy guidelines, the ARS investments held by thecompany all had AAA or equivalent credit ratings (except for one corporate ARSrated AA) at the time of purchase. With the liquidity issues experienced inglobal credit and capital markets, the ARS held by LP at June 30, 2008have experienced multiple failed auctions as the amount of securities submittedfor sale has exceeded the amount of purchase orders. As of June 30, 2008and July 29, 2008, all securities still maintained the original creditratings from Moodys Investment Services and Standard and Poors from date ofpurchase and continue to pay interest according to their stated terms.  On July 24, 2008, Fitch Ratings diddowngrade three of our securities from AAA to A. Based upon published reports,this downgrade was based upon Fitch’s updating its rating criteria as well astheir opinion of the deterioration in the average portfolio quality.

 

The estimatedmarket value of the company’s ARS holdings at June 30, 2008 was $71.5million, which reflects a $80.3 million adjustment to the par value of $151.8 million.Based upon LP’s evaluation of the structure of LP’s ARS holdings and currentmarket estimates of fair value from issuing banks, LP has recorded anunrealized pre-tax loss of $56.9 million ($34.9 million after-tax) as atemporary decline in value that has been recorded in other comprehensive incomeas a reduction in shareholders’ equity. Of this amount, LP recognized $12.8million ($7.8 million after-tax) in the second quarter of 2008 and $25.5million ($15.6 million after-tax) in the first six months of 2008. LP alsorecorded an other-than-temporary impairment of $1.7 million ($1.0 millionafter-tax) in the second quarter of 2008 and $2.5 million ($1.5 millionafter-tax) in the first six months of 2008 that was recorded as non-operatingincome (expense).

 

LP reviews itsmarketable securities routinely for other-than-temporary impairment. Theprimary factors LP used to determine if an impairment charge must be recordedbecause a decline in value of the security is other than temporary includewhether (i) the fair value of the investment is significantly below itscost basis, (ii) the financial condition of the issuer of the security(including its credit rating), (iii) the length of time that the cost ofthe security has exceeded its fair value and (iv) LP’s intent and abilityto retain the investment for a period of time sufficient to allow for anyanticipated recovery in market value. At June 30, 2008, LP has the abilityand intent to hold these investments until a recovery of fair value, which maybe maturity, and does not consider these investments to beother-than-temporarily impaired.

 

10

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NOTE 4 – FAIRVALUE MEASUREMENTS

 

Effective January 1, 2008, LP adoptedStatement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157)*,* for financial assets andliabilities and any other assets and liabilities carried at fair value. Thispronouncement defines fair value (FV), providesguidance on how to measure FV under generally accepted accounting principles,and expands FV measurement disclosures.   LP’s adoption of SFAS 157 did not have amaterial impact on its consolidated financial position and results ofoperations.

 

SFAS 157defines FV as the exchange price that would be received for an asset or paid totransfer a liability (an exit price) in the principal or most advantageousmarket for the asset or liability in an orderly transaction between marketparticipants on the measurement date. SFAS 157 also establishes a FV hierarchy, which requires an entityto maximize the use of observable inputs and minimize the use of unobservableinputs when measuring fair value.  Underthis standard, LP is required to classify these financial assets and liabilitiesinto two groups: recurring – measured on a periodic basis and non-recurring –measured on an as needed basis.

 

 SFAS 157 describes three levels of inputsthat may be used to measure fair value:

 
| Level 1 | Unadjusted  quoted prices in active markets that are accessible at the measurement date  for identical, unrestricted assets or liabilities.                                                                                                                                          |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Level 2 | Quoted prices  for similar assets or liabilities in active markets; quoted prices for  identical or similar assets or liabilities in inactive markets; or valuations  based on models where the significant inputs are observable or can be  corroborated by observable market data. |
| Level 3 | Valuations based  on models where significant inputs are not observable. Unobservable inputs  are used when little or no market data is available and reflect the Company’s  own assumptions about the assumptions market participants would use.                               |

 

Assets measured atfair value on a recurring basis are summarized in the following table.

 
| **Dollar amounts in millions** | ** ** | **June 30, 2008** | ** ** | **Quoted Prices in  Active Markets  for Identical  Assets  (Level 1)** | ** ** | **Significant  Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-------------------------------------------------------|------------|
|                                          |       |                        |       |                                                                                            |       |                                                       |       |                                                  |       |
| Available for sale securities                 |       | $                           | 460.3      |                                                                                            | $          | 58.8                                                       |       | $                                                     | 330.0      |   | $ | 71.5 |   |
|                                          |       |                        |       |                                                                                            |       |                                                       |       |                                                  |       |
| Trading securities                            |       | 17.9                        |       | 2.1                                                                                             |       | —                                                     |       | 15.8                                                  |       |
|                                          |       |                        |       |                                                                                            |       |                                                       |       |                                                  |       |
| Derivatives                                   |       | 1.2                         |       | —                                                                                          |       | 1.2                                                        |       | —                                                |       |
|                                          |       |                        |       |                                                                                            |       |                                                       |       |                                                  |       |
| Total                                         |       | $                           | 479.4      |                                                                                            | $          | 60.9                                                       |       | $                                                     | 331.2      |   | $ | 87.3 |   |

 

Available for salesecurities measured at fair value are recorded in cash and cash equivalents,short-term investments, long-term investments and restricted cash on LP’scondensed consolidated balance sheets. Included in available for sale securities are money market funds, U.S.government agency securities, commercial paper, corporate debt obligations andauction rate securities.

 

Money market fundsare valued at quoted market price from broker or dealer quotations ortransparent pricing sources at the reporting date, which represent Level 1inputs.  Government agency securities,commercial paper and corporate obligations are determined by evaluations basedon observable market information from broker or dealer quotations, whichrepresent Level 2 inputs.

 

Due to the lack ofobservable market quotes on LP’s auction rate securities (ARS) portfolio, LPevaluates the structure of its ARS holdings and current market estimates offair value, including fair value estimates from issuing banks that relyexclusively on Level 3 inputs. These inputs include those that are based onexpected cash flow streams and collateral values, including assessments ofcounterparty credit quality, default risk underlying the 

 

11

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security, discountrates and overall capital market liquidity. The valuation of LP’s ARSinvestment portfolio is subject to uncertainties that are difficult to predict.Factors that may impact LP’s valuation include changes to credit ratings of thesecurities as well as to the underlying assets supporting those securities,rates of default of the underlying assets, underlying collateral value,discount rates, counterparty risk and ongoing strength and quality of marketcredit and liquidity.

 

Trading securities consist of rabbi trust andgrantor trust financial assets which are recorded in other assets in LP’scondensed consolidated balance sheets. The rabbi trust holds the assets of the Louisiana-Pacific Corporation2004 Executive Deferred Compensation Plan (EDC), a non-qualified deferredcompensation plan which allows certain management employees to defer receipt ofa portion of their compensation and contribute such amounts to one or moreinvestment funds.  The assets of therabbi trust are invested in mutual funds and are reported at fair value basedon active market quotes, which represent Level 1 inputs.

 

The grantor trust provides funds for benefits payableunder LP’s Supplemental Executive Retirement Plan (SERP), an unfunded,non-qualified defined benefit plan that provides supplemental retirementbenefits to key executives.  The assetsof the grantor trust, which are the cash surrender value of corporate-ownedlife insurance, are invested in index funds which are reported at fair valuebased on the underlying share prices provided by the third party insurancecarrier, which represents Level 3 inputs.

 

Derivatives are valued using quoted forwardforeign exchange prices or quoted commodity index prices, depending upon thederivative, at the reported date, which represents Level 2 inputs.

 

The followingtable summarizes assets measured at fair value on a recurring basis usingsignificant unobservable inputs (Level 3) during the period.

 
| **Dollar amounts in millions**                                                                                                         | ** ** | **Available for sale  securities** | ** ** | **Trading  securities** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------|------------|-----------|------------|
|                                                                                                                                                  |       |                                         |       |                    |       |      |       |
| Balance at January 1, 2008                                                                                                                       |       | $                                            | 99.5       |                    | $          | 17.1      |       | $ | 116.6 |   |
| Total realized/unrealized losses                                                                                                                      |       |                                         |       |                    |       |      |       |
| Included in other-than-temporary investment  impairment                                                                                               |       | (2.5                                         | )          | —                  |       | (2.5      | )          |
| Included in investment income                                                                                                                         |       | —                                       |       | (1.3                    | )          | (1.3      | )          |
| Included in other comprehensive loss                                                                                                                  |       | (25.5                                        | )          | —                  |       | (25.5     | )          |
| Balance at June 30, 2008                                                                                                                         |       | $                                            | 71.5       |                    | $          | 15.8      |       | $ | 87.3 |   |
|                                                                                                                                                  |       |                                         |       |                    |       |      |       |
| The amount of total losses for the period included  in net loss attributable to the fair value of changes in assets still held at  the reporting date |       | $                                            | (2.5       | )                       | $          | (1.3      | )          | $ | (3.8 | ) |

 

NOTE 5 – EARNINGSPER SHARE

 

Basic net income per share is computed using theweighted-average number of common shares outstanding during the period. Dilutednet income per share is computed using the weighted-average number of commonshares and dilutive potential common shares outstanding during the period.Dilutive potential common shares primarily consist of employee stock options,stock settled stock appreciation rights (SSARs), restricted stock units andrestricted common stock.

 

SFAS No. 128, “Earnings per Share,”requires that employee equity share options, non-vested shares and similarequity instruments granted by the Company be treated as potential common sharesoutstanding in computing diluted earnings per share. Diluted shares outstandinginclude the dilutive effect of in-the-money options, which is calculated basedon the average share price for each fiscal period using the treasury stockmethod. Under the treasury stock method, the amount the employee must pay forexercising stock options, the amount of compensation cost for future servicethat the Company has not yet recognized, and the amount of tax benefits thatwould be recorded in additional paid-in capital when the award becomesdeductible are assumed to be used to repurchase shares.

 

12

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| **Dollar and share amounts in millions, except per** | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **share amounts**                                                                  | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Numerator:                                                                              |       |                                      |       |                                              |       |   |   |   |   |
| Income attributed to common shares:                                                     |       |                                      |       |                                              |       |   |   |   |   |
| Loss from continuing operations                                                         |       | $                                         | (79.4      | )                                                 | $          | (15.6 | ) | $ | (125.3 | ) | $ | (51.6 | ) |
| Loss from discontinued operations                                                       |       | (1.4                                      | )          | (7.7                                              | )          | (1.9 | ) | (9.0 | ) |
| Net loss                                                                                |       | $                                         | (80.8      | )                                                 | $          | (23.3 | ) | $ | (127.2 | ) | $ | (60.6 | ) |
|                                                                                    |       |                                      |       |                                              |       |   |   |   |   |
| Denominator:                                                                            |       |                                      |       |                                              |       |   |   |   |   |
| Basic - weighted average common shares outstanding                                      |       | 102.9                                     |       | 104.2                                             |       | 102.9 |   | 104.1 |   |
| Dilutive effect of stock plans                                                          |       | —                                    |       | —                                            |       | — |   | — |   |
| Diluted shares outstanding                                                              |       | 102.9                                     |       | 104.2                                             |       | 102.9 |   | 104.1 |   |
|                                                                                    |       |                                      |       |                                              |       |   |   |   |   |
| Basic earnings per share:                                                               |       |                                      |       |                                              |       |   |   |   |   |
| Loss from continuing operations                                                         |       | $                                         | (0.77      | )                                                 | $          | (0.15 | ) | $ | (1.22 | ) | $ | (0.50 | ) |
| Loss from discontinued operations                                                       |       | (0.02                                     | )          | (0.07                                             | )          | (0.02 | ) | (0.08 | ) |
| Net loss per share                                                                      |       | $                                         | (0.79      | )                                                 | $          | (0.22 | ) | $ | (1.24 | ) | $ | (0.58 | ) |
|                                                                                    |       |                                      |       |                                              |       |   |   |   |   |
| Diluted earnings per share:                                                             |       |                                      |       |                                              |       |   |   |   |   |
| Loss from continuing operations                                                         |       | $                                         | (0.77      | )                                                 | $          | (0.15 | ) | $ | (1.22 | ) | $ | (0.50 | ) |
| Loss from discontinued operations                                                       |       | (0.02                                     | )          | (0.07                                             | )          | (0.02 | ) | (0.08 | ) |
| Net loss per share                                                                      |       | $                                         | (0.79      | )                                                 | $          | (0.22 | ) | $ | (1.24 | ) | $ | (0.58 | ) |

 

Stock options andSSARs to purchase approximately 4.8 million shares and 3.2 million shares forthe quarter and six months ended June 30, 2008 and June 30, 2007 wereconsidered anti-dilutive for purposes of LP’s earnings per share calculationdue to LP’s net loss position in continuing operations.

 

NOTE 6 –RECEIVABLES

 

Receivablesconsist of the following:

 
| **Dollar amounts in millions** | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                          |       |                        |       |                            |       |
| Trade receivables                             |       | $                           | 76.6       |                            | $          | 56.5 |   |
| Income tax receivables                        |       | 169.4                       |       | 157.2                           |       |
| Interest receivables                          |       | 3.5                         |       | 5.2                             |       |
| Other recievables                             |       | 15.8                        |       | 25.2                            |       |
| Allowance for doubtful accounts               |       | (1.1                        | )          | (1.0                            | )          |
| Total                                         |       | $                           | 264.2      |                            | $          | 243.1 |   |

 

Other receivablesat June 30, 2008 and December 31, 2007 consists primarily consist ofshort-term notes receivable, settlements, Canadian sales tax receivables andother items.

 

13

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NOTE 7 –INVENTORIES

 

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

 
| **Dollar amounts in millions**                    | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                                             |       |                        |       |                            |       |
| Logs                                                             |       | $                           | 35.6       |                            | $          | 47.4 |   |
| Other raw materials                                              |       | 31.4                        |       | 27.5                            |       |
| Finished products                                                |       | 135.5                       |       | 132.3                           |       |
| Supplies                                                         |       | 7.5                         |       | 8.1                             |       |
| LIFO reserve                                                     |       | (3.2                        | )          | (3.2                            | )          |
| Total                                                            |       | $                           | 206.8      |                            | $          | 212.1 |   |
|                                                             |       |                        |       |                            |       |
| Inventory included in current assets of discontinued  operations |       |                        |       |                            |       |
| Logs                                                             |       | $                           | —     |                            | $          | — |   |
| Other raw materials                                              |       | 0.2                         |       | 0.2                             |       |
| Finished products                                                |       | 3.2                         |       | 5.7                             |       |
| Supplies                                                         |       | 0.1                         |       | 0.1                             |       |
| Total                                                            |       | $                           | 3.5        |                            | $          | 6.0 |   |

 

NOTE 8 –BUSINESSES HELD FOR SALE AND DIVESTITURES

 

At June 30, 2008 and 2007, LP’s discontinued operations includedits decking operations and residual charges from previously discontinuedoperations.

 

Sales and losses for these businesses are as follows:

 
| ** **                                    | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **Dollar amounts in millions** | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                          |       |                                      |       |                                              |       |   |   |   |   |
| Sales                                         |       | $                                         | (0.8       | )                                                 | $          | 11.7 |   | $ | 0.2 |   | $ | 23.2 |   |
|                                          |       |                                      |       |                                              |       |   |   |   |   |
| Loss from discontinued operations, net of tax |       | $                                         | (1.4       | )                                                 | $          | (7.7 | ) | $ | (1.9 | ) | $ | (9.0 | ) |

 

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

 

In the secondquarter of 2008, LP recorded an increase of $2 million in its reserves forcertain warranty obligations associated with LP’s decking products based upon asignificant increase in warranty claims in the current period.  This increase in reserves is charged againstsales.

 

14

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The assets of thediscontinued operations included in the accompanying condensed consolidatedbalance sheets as of June 30, 2008 and December 31, 2007 are asfollows:

 
| **Dollar amounts in millions** | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                          |       |                        |       |                            |       |
| Inventories                                   |       | $                           | 3.5        |                            | $          | 6.0 |   |
|                                          |       |                        |       |                            |       |
| Property, plant and equipment                 |       | 11.9                        |       | 11.9                            |       |
| Accumulated depreciation                      |       | (6.9                        | )          | (6.9                            | )          |
| Net, property, plant and equipment            |       | 5.0                         |       | 5.0                             |       |
|                                          |       |                        |       |                            |       |
| Total assets of discontinued operations       |       | $                           | 8.5        |                            | $          | 11.0 |   |

 

NOTE 9 – BUSINESSACQUIRED

 

In May 2008, LP completedthe initial phase of its purchase of a 75% ownership interest in Masisa OSBIndustria e Comercio S.A., which operates OSB assets located in Ponta Grossa,Brazil. The purchase is being made through LP Brasil Participacoes Ltda., alimited liability company, and a wholly-owned subsidiary of Louisiana-PacificSouth America S.A., a wholly-owned subsidiary of LP.The minority ownership is subject to a put and call option that are exercisablethree years after the date of initial closing of the acquisition and is beingaccounted for as mandatory redeemable minority interest and will be accretedover the life of the put and call to the estimated price which is the greaterof $18.5 million plus interest or a multiple of earnings before interest andtaxes (subject to certain adjustments). The purchase price was approximately$55.5 million, of which $44.6 million was paid in cash at the time of initialclosing and the remaining $11 million (subject to closing date adjustments)will be paid at the final close. As of June 30, 2008, the purchase pricewas allocated to tangible assets acquired based on their book value as of theacquisition date with the remaining value allocated to goodwill. LP isobtaining an appraisal of the tangible and intangible assets and expects thisallocation to be revised in the third quarter of 2008. Final close is anticipated in thethird quarter of 2008.

 

The followingtable summarizes the estimated fair values of the assets and liabilitiesacquired as of the acquisition date.

 

Dollars inmillions

 

| Assets acquired:              |   |   |   |
|-------------------------------|--------|--------|--------|
| Property, plant and equipment |   | $      | 70.0   |   |
| Minority interest             |   | (18.5  | )      |
|                          |   | 51.5   |   |
| Goodwill                      |   | 4.0    |   |
| Purchase price                |   | $      | 55.5   |   |

 

15

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NOTE 10 – INCOMETAXES

 

Accountingstandards require that income tax expense for interim periods be determined byapplying the estimated annual effective income tax rate,  by income component, to year-to-date incomeor loss at the end of each quarter, then adding or subtracting the impact ofany changes in reserve requirements or statutory tax rate changes, if any.  Each quarter the income tax accrual isadjusted to the latest estimate and the difference from the previously accruedyear-to-date balance is adjusted to the current quarter.

 
| ** **                        | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **Dollars in millions** | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Continuing operations             |       | $                                         | (136.2     | )                                                 | $          | (26.5 | ) | $ | (218.0 | ) | $ | (93.8 | ) |
| Discontinued operations           |       | (2.3                                      | )          | (12.6                                             | )          | (3.1 | ) | (14.8 | ) |
|                              |       | (138.5                                    | )          | (39.1                                             | )          | (221.1 | ) | (108.6 | ) |
| Total tax benefit                 |       | (57.7                                     | )          | (15.8                                             | )          | (93.9 | ) | (48.0 | ) |
| Net loss                          |       | $                                         | (80.8      | )                                                 | $          | (23.3 | ) | $ | (127.2 | ) | $ | (60.6 | ) |

 

For the six months ended June 30, 2008, theprimary differences between the U.S. statutory rate of 35% and the effectiverate applicable to LP’s continuing operations relate to the Company’s foreigndebt structure and state income taxes. For the six months ended June 30, 2007, the primary differencesbetween the U.S. statutory rate of 35% and the effective rate applicable to LP’scontinuing operations relate to the Company’s foreign debt structure, stateincome taxes and the favorable resolution of an outstanding state taxcontingency.

 

The components and associated estimated effectiveincome tax rates applied to the quarter and six month periods ended June 30,2008 and 2007 are as follows:

 
| ** **                        | ** ** | **Quarter Ended June 30,** | ** ** |
|-----------------------------------|------------|-------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                  | ** ** | **2007** | ** ** |
| **Dollars in millions** | ** ** | **Tax Benefit**                      | ** ** | **Tax Rate** | ** ** | **Tax Benefit** | ** ** | **Tax Rate** | ** ** |
| Continuing operations             |       | $                                         | (56.8      | ) | 42 | % | $ | (10.9 | ) | 41 | % |
| Discontinued operations           |       | (0.9                                      | )          | 39 | % | (4.9 | ) | 39 | % |
|                              |       | $                                         | (57.7      | ) | 42 | % | $ | (15.8 | ) | 40 | % |

 
| ** **              | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------|------------|---------------------------------------------------|------------|
| ** **              | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| ** **              | ** ** | **Tax Benefit**                              | ** ** | **Tax Rate** | ** ** | **Tax Benefit** | ** ** | **Tax Rate** | ** ** |
| Continuing operations   |       | $                                                 | (92.7      | ) | 43 | % | $ | (42.2 | ) | 45 | % |
| Discontinued operations |       | (1.2                                              | )          | 39 | % | (5.8 | ) | 39 | % |
|                    |       | $                                                 | (93.9      | ) | 42 | % | $ | (48.0 | ) | 44 | % |

 

LP and itsdomestic subsidiaries are subject to U.S. federal income tax as well as incometaxes of multiple state jurisdictions. LP’s foreign subsidiaries are subject to income tax in Canada, Braziland Chile. Federal income tax examinations for the years through 2004 have beeneffectively settled and audits for 2005 and 2006 began in the fourth quarter of2007. LP is subject to state and local income tax examinations for the taxyears 2000 through 2006. Canadian returns have been audited through 1999 andRevenue Canada commenced an examination of the years 2002 through 2004 in thesecond quarter of 2007.

 

16

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NOTE 11 – OTHER OPERATINGCREDITS AND CHARGES, NET

 

The majorcomponents of  “Other operating creditsand charges, net” in the Consolidated Statements of Income for the quarter andsix months periods ended June 30, 2008 and 2007 are reflected in the tablebelow and are described in the paragraphs following the table:

 
| ** **                                        | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **Dollar amounts in millions**     | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                              |       |                                      |       |                                              |       |   |   |   |   |
| Timber recovery                                   |       | $                                         | —     |                                              | $          | 1.5 |   | $ | — |   | $ | 1.5 |   |
| Anti-trust  litigation settlement                 |       | (48.0                                     | )          | —                                            |       | (48.0 | ) | — |   |
| Gain on  insurance recovery                       |       | —                                    |       | —                                            |       | 5.8 |   | — |   |
| Insurance  settlement                             |       | 8.7                                       |       | 17.7                                              |       | 9.4 |   | 17.7 |   |
| Loss on facility  explosion                       |       | (5.3                                      | )          | —                                            |       | (5.3 | ) | — |   |
| Additions to  product related contigency reserves |       | (24.3                                     | )          | —                                            |       | (26.8 | ) | — |   |
| Construction  related legal reserves              |       | (1.2                                      | )          | —                                            |       | (1.2 | ) | — |   |
|                                              |       | $                                         | (70.1      | )                                                 | $          | 19.2 |   | $ | (66.1 | ) | $ | 19.2 |   |

 

In the first quarter of2008, LP recorded a net gain of $4.0 million associated with product relatedwarranty reserves and insurance settlements associated with LP’s hardboardclass action suit and other associated hardboard siding liabilities.

 

In the second quarter of 2008, LP recorded a loss of$24.3 million associated with product related contingency reserves inconnection with LP’s settlement of a hardboard class action suit and aresultant gain of  $8.7 millionassociated with expected reimbursed insurance settlements associated with thesereserves; a loss of $48 million associated with LP’s settlement of a productrelated anti-trust litigation matter; a loss of $5.3 million associated with afacility explosion and a loss of $1.2 million associated with a contractordefault on a construction project.

 

In the second quarter of2007, LP recorded a gain of $17.7 million associated with a gain from a favorableverdict on a legal suit associated with our insurance on hardboard siding and again of $1.5 million associated with a settlement with the Canadian governmenton the reduction of certain of LP’s timber licenses in British Columbia.

 

NOTE 12 – GAINS (LOSSES)ON SALE OR IMPAIRMENT OF LONG-LIVED ASSETS

 

The major components on “Gain(loss) on sale or impairment of long-lived assets” in the ConsolidatedStatements of Income for the quarter and six month period ended June 30,2008 and 2007 are reflected in the following table:

 
| ** **                                    | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **Dollar amounts in millions** | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                          |       |                                      |       |                                              |       |   |   |   |   |
| Gain (loss) on  sale of long-lived assets     |       | $                                         | (0.1       | )                                                 | $          | 0.3 |   | $ | 0.3 |   | $ | (0.2 | ) |
| Impairment  charges on long-term assets       |       | —                                    |       | —                                            |       | — |   | (5.0 | ) |
|                                          |       | $                                         | (0.1       | )                                                 | $          | 0.3 |   | $ | 0.3 |   | $ | (5.2 | ) |

 

In the first quarter of2007, LP recorded an impairment charge of $5.0 million on a sawmill located inQuebec that is held for sale to reduce the carrying value of this equipment toits estimated sales price, net of related selling expenses.

 

17

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NOTE13 - INVESTMENTS IN AND ADVANCES TO AFFILIATES

 

LP has investments inaffiliates that are either accounted for under the equity method or the costmethod based upon the specific terms of the agreement as well as advances toaffiliates. The significant components of these investments and advances are asfollows:

 
| **Dollar amounts in millions**      | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                               |       |                        |       |                            |       |
| Investments accounted  for under the equity method |       | $                           | 148.9      |                            | $          | 153.7 |   |
| Investments  accounted for under the cost method   |       | 44.5                        |       | 44.5                            |       |
| Total                                              |       | $                           | 193.4      |                            | $          | 198.2 |   |

 

At June 30, 2008, LP’ssignificant equity method investees and its ownership interest and principalbusiness activity in each investee, were as follows:

 
| ** **               | ** ** | **Ownership %** | ** ** | ** **                                                                        |
|--------------------------|------------|-----------------|------------|-----------------------------------------------------------------------------------|
|                     |       |            |       |                                                                              |
| U.S. GreenFiber          |       | 50              | %          | Established to  manufacture and sell cellulose insulation products                |
|                     |       |            |       |                                                                              |
| AbitibiBowater – LP |       | 50              | %          | Established to  construct and operate I-Joist facilities in Eastern Canada        |
|                     |       |            |       |                                                                              |
| Canfor – LP         |       | 50              | %          | Established to  construct and operate an OSB facility in British Columbia, Canada |

 

These investments do notmeet the Regulation S-X significance test requiring the inclusion of theseparate investee financial statements or summarized financial information.

 

LP sells products and rawmaterials to the AbitibiBowater-LP entity and purchases products for resalefrom the AbitibiBowater-LP and Canfor-LP entities. LP eliminates profits onthese sales and purchases, to the extent the inventory has not been soldthrough to third parties, on the basis of its 50% interest.  For the quarters ended June 30, 2008 and2007, LP sold $2.3 million and $4.1 million of products to AbitibiBowater-LPand purchased $12.0 million and $22.0 million of I-joist fromAbitibiBowater-LP.  LP also purchased$28.7 million and $19.0 million of OSB from Canfor-LP during the quarters endedJune 30, 2008 and 2007.  For the sixmonths ended June 30, 2008 and 2007, LP sold $3.9 million and $7.3 millionof products to AbitibiBowater-LP and purchased $20.5 million and $36.9 millionof I-joist from AbitibiBowater-LP.  LPalso purchased $42.1 million and $36.8 million of OSB from Canfor-LP during thesix months ended June 30, 2008 and 2007.

 

NOTE 14 – LEGAL AND ENVIRONMENTALMATTERS

 

Certain environmentalmatters and legal proceedings are discussed below.

 

Environmental Matters

 

LP is involved in anumber of environmental proceedings and activities, and it may be wholly orpartially responsible for known or unknown contamination existing at a numberof other sites at which we have conducted operations or disposed of wastes.Based on the information currently available, LP believes that any fines,penalties or other costs or losses resulting from these matters will not have amaterial adverse effect on our financial position, results of operations, cashflows or liquidity.

 

Siding Matters

 

On October 15, 2002, a jury returned averdict of $29.6 million against LP in a Minnesota State Court actionentitled *Lester Building Systems, a divisionof Butler Manufacturing Company, and Lester’s of Minnesota, Inc., v.Louisiana-*

 

18

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*Pacific Corporation and CantonLumber Company*. On December 13,2002, the United States District Court for the District of Oregon, whichmaintains jurisdiction over a previously settled nationwide class action suitinvolving OSB siding manufactured by LP and installed prior to January 1,1996, permanently enjoined the Minnesota state trial court from enteringjudgment against LP with respect to $11.2 million of the verdict thatrelated to siding that was subject to the nationwide OSB siding settlement. LPsatisfied this verdict, less the enjoined amount, during the second quarter of2004. Lester’s appealed the District Court’s injunction to the Ninth CircuitCourt of Appeals and, on October 24, 2005, the Court of Appeals vacatedthe District Court’s injunction. As a result of this decision, the injunctionwas lifted and the state court judgment of $11.2 million was entered on December 22,2006. We timely filed our notice of appeal to the Minnesota State Court ofAppeals. On February 5, 2008, the Minnesota State Court of Appealsreversed the $11.2 million judgment entered against LP on December 22,2006. Lester’s timely appealed the Minnesota State Court of Appeals’ decision,and the Minnesota State Supreme Court has granted review.  Based upon the information currentlyavailable, LP believes that any further liability related to this case isremote and, accordingly, has not recorded any accrual with respect to itspotential exposure.

 

Lockhart Wood TreatmentFacility

 

In 2004, LP received apre-litigation settlement demand letter from a law firm purporting to representmore than 1,400 potential plaintiffs who allegedly experienced various personalinjuries and property damages as a result of the alleged release of chemicalsubstances from LP’s wood treatment facility in Lockhart, Alabama during theperiod from 1953 to 1998.  The letter wasalso addressed to Pactiv Corporation (“Pactiv”), from whom LP acquired thefacility in 1983. LP, Pactiv, and the potential plaintiffs agreed to exchangeinformation and enter into non-binding mediation, which failed in December 2005. In the first quarter of 2006, plaintiffs’ attorneys filed 19 separatelawsuits on behalf of 1,429 plaintiffs. Each of these cases was filed in,or removed to, the United States District Court for the Middle District ofAlabama, which court has designated a lead case under the caption *Melanie Chambers v. Pactiv Corp et al,* CV2:06-CV-00083-LES-CSC.  After extensive motion practice and the beginningof discovery, Pactiv and plaintiffs have agreed to a tentative settlement.  In addition, LP has agreed to a tentativesettlement pursuant to which LP would make a payment of $7.75 million toresolve this matter subject to reaching agreement on the terms of a full andfinal release of all claims by all plaintiffs. LP accrued the amount of this tentative settlement in the fourth quarterof 2007.

 

Anti-trust Litigation

 

LP was named as one of anumber of defendants in multiple class action complaints filed on or after February 26,2006 in the United States District Court for the Eastern District ofPennsylvania.  These complaints weredismissed or consolidated into two complaints under one caption: * In Re OSB Anti-Trust Litigation,*Master File No. 06-CV-00826 (PD). The first complaint is a consolidatedamended class action complaint filed on March 31, 2006 on behalf ofplaintiffs who directly purchased OSB from the defendants from May 1, 2002through the date the complaint was filed (the direct purchaser complaint).  The second complaint is a consolidatedamended class action complaint, filed on June 15, 2006, on behalf ofplaintiffs who indirectly purchased OSB from the defendants from May 1,2002 through the date the complaint was filed (the indirect purchasercomplaint).

 

The plaintiffs in bothamended and consolidated complaints described above moved for and receivedclass certification and sought treble damages totaling approximately $4.8billion alleged to have resulted from a conspiracy among the defendants to fix,raise, maintain and stabilize the prices at which OSB is sold in the UnitedStates, in violation of Section 1 of the Sherman Act, 15 U.S.C. §1.  The plaintiffs in the indirect purchasercomplaint also seek similar remedies under individual state anti-trust andcompetition laws as well as consumer protection laws.  LP believes that the claims asserted werewithout merit, but after being ordered to settlement conference by the judge inthe cases, LP decided that in order to limit the risks and costs associatedwith a prolonged trial schedule; it would settle the direct and indirectlawsuits.  The settlement agreements aresubject to court approval which is expected to occur in the fourth quarter of2008. LP accrued the settlement in the second quarter of 2008.

 

Other Proceedings

 

LP is party to otherlegal proceedings. Based on the information currently available, LP believesthat the resolution of such proceedings will not have a material adverse effecton its financial position, results of operations, cash flows or liquidity.

 

19

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NOTE15 – GOODWILLGoodwill by operating segment is as follows:

 
| **Dollar amounts in millions** | ** ** | **OSB** | ** ** | **Siding** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-----------------------------------------------|------------|---------|------------|------------|------------|-----------|------------|-----------|------------|
|                                          |       |    |       |       |       |      |       |      |       |
| Balance at  January 1, 2008              |       | $       | 232.5      |       | $          | 32.4      |       | $         | 8.6        |   | $ | 273.5 |   |
| Purchase of a  business                       |       | —  |       | —     |       | 4.0       |       | 4.0       |       |
| Other                                         |       |    |       |       |       | 0.3       |       | 0.3       |       |
| Balance at  June 30, 2008                |       | $       | 232.5      |       | $          | 32.4      |       | $         | 12.6       |   | $ | 277.5 |   |

 

In connection with theacquisition described at note 9, LP recorded $4.0 million of goodwill.

 

NOTE 16 – SELECTEDSEGMENT DATA

 

LPoperates in three segments: Oriented Strand Board (OSB); Siding; and EngineeredWood Products (EWP). LP’s business units have been aggregated into these threesegments based upon the similarity of economic characteristics, customers anddistribution methods. LP’s results of operations are summarized below for eachof these segments separately as well as for the “other” category whichcomprises other products that are not individually significant.  Segment information was prepared inaccordance with the same accounting principles as those described in Note 1 ofthe Notes to the financial statements included in LP’s Annual Report on Form 10-Kfor the year ended December 31, 2007.

 
| ** **                                              | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **Dollar amounts in millions**           | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **% change** | ** ** | **2008** | ** ** | **2007** | ** ** | **% change** | ** ** |
|                                                    |       |                                      |       |                                              |       |   |   |   |   |   |   |   |   |
| Net sales:                                              |       |                                      |       |                                              |       |   |   |   |   |   |   |   |   |
| OSB                                                     |       | $                                         | 163.5      |                                              | $          | 223.3 |   | (27 | ) | $ | 318.4 |   | $ | 412.2 |   | (23 | ) |
| Siding                                                  |       | 123.6                                     |       | 131.0                                             |       | (6 | ) | 230.7 |   | 235.1 |   | (2 | ) |
| Engineered Wood  Products                               |       | 65.3                                      |       | 85.7                                              |       | (24 | ) | 125.8 |   | 165.9 |   | (24 | ) |
| Other                                                   |       | 36.0                                      |       | 23.9                                              |       | 51 |   | 64.7 |   | 47.6 |   | 36 |   |
| Less:  Intersegment sales                               |       | (1.4                                      | )          | (2.7                                              | )          |   |   | (3.2 | ) | (5.0 | ) |   |   |
|                                                    |       | $                                         | 387.0      |                                              | $          | 461.2 |   | (16 | ) | $ | 736.4 |   | $ | 855.8 |   | (14 | ) |
|                                                    |       |                                      |       |                                              |       |   |   |   |   |   |   |   |   |
| Operating profit  (loss):                               |       |                                      |       |                                              |       |   |   |   |   |   |   |   |   |
| OSB                                                     |       | $                                         | (34.5      | )                                                 | $          | (44.6 | ) | 23 |   | $ | (96.6 | ) | $ | (109.1 | ) | 11 |   |
| Siding                                                  |       | 8.9                                       |       | 17.2                                              |       | (48 | ) | 9.2 |   | 26.6 |   | (65 | ) |
| Engineered Wood  Products                               |       | (9.2                                      | )          | 3.9                                               |       | (336 | ) | (17.3 | ) | 10.3 |   | (268 | ) |
| Other                                                   |       | (0.2                                      | )          | (2.7                                              | )          | 93 |   | (2.6 | ) | (0.6 | ) | (333 | ) |
| Other operating  credits and charges, net               |       | (70.1                                     | )          | 19.2                                              |       | (465 | ) | (66.1 | ) | 19.2 |   | (444 | ) |
| Gain (loss) on  sale or impairment of long-lived assets |       | (0.1                                      | )          | 0.3                                               |       | (133 | ) | 0.3 |   | (5.2 | ) | 106 |   |
| General  corporate and other expenses, net              |       | (22.1                                     | )          | (20.8                                             | )          | (6 | ) | (46.2 | ) | (43.3 | ) | (7 | ) |
| Foreign currency  gains (losses)                        |       | (5.1                                      | )          | (12.7                                             | )          | 60 |   | 4.3 |   | (15.5 | ) | 128 |   |
| Other than  temporary impairment of investments         |       | (1.7                                      | )          | —                                            |       |   |   | (2.5 | ) | — |   |   |   |
| Investment  income                                      |       | 10.6                                      |       | 23.4                                              |       | (55 | ) | 23.4 |   | 43.8 |   | (47 | ) |
| Interest  expense, net of capitalized interest          |       | (12.7                                     | )          | (9.7                                              | )          | (31 | ) | (23.9 | ) | (20.0 | ) | (20 | ) |
| Loss from  operations before taxes                      |       | (136.2                                    | )          | (26.5                                             | )          | (414 | ) | (218.0 | ) | (93.8 | ) | (132 | ) |
| Benefit for  income taxes                               |       | (56.8                                     | )          | (10.9                                             | )          |   |   | (92.7 | ) | (42.2 | ) |   |   |
| Loss from  continuing operations                        |       | $                                         | (79.4      | )                                                 | $          | (15.6 | ) | (409 | ) | $ | (125.3 | ) | $ | (51.6 | ) | (143 | ) |

 

NOTE 17 – POTENTIAL IMPAIRMENTS

 

LP continues to review certain operations and investments for potentialimpairments. LP’s management currently believes it has adequate support for thecarrying value of each of these operations and investments based upon theanticipated cash flows that result from estimates of future demand, pricing andproduction costs assuming certain levels of planned capital expenditures.However, should the markets for the relevant products continue to remain at 

 

20

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levels significantlybelow cycle average pricing or should LP decide to invest capital inalternative projects, it is possible that impairment charges will be required.

 

LP also reviews from time to time possibledispositions of various assets in light of current and anticipated economic andindustry conditions, its strategic plan and other relevant circumstances.Because a determination to dispose of particular assets can require managementto make assumptions regarding the transaction structure of the disposition andto estimate the net sales proceeds, which may be less than previous estimatesof undiscounted future net cash flows, LP may be required to record impairmentcharges in connection with decisions to dispose of assets.

 

As of June 30, 2008, LP was engaged in discussions relating to thepossible sale of a non-operating manufacturing complex in Quebec, Canada.  Should these discussions result in the saleof this permanently curtailed complex, LP may be required to record animpairment charge with respect to the affected assets.

 

NOTE 18 – CONTINGENCY RESERVES

 

LP isinvolved in various legal proceedings incidental to LP’s business and issubject to a variety of environmental and pollution control laws andregulations in all jurisdictions in which it operates. LP maintains reservesfor these various contingencies as follows:

 
| **Dollar amounts in millions** | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                          |       |                        |       |                            |       |
| Environmental  reserves                       |       | $                           | 8.4        |                            | $          | 9.4 |   |
| Hardboard siding  reserves                    |       | 24.4                        |       | 12.8                            |       |
| Other reserves                                |       | 56.9                        |       | 9.4                             |       |
| Total  contingency reserves                   |       | 89.7                        |       | 31.6                            |       |
| Current portion  of contingency reserves      |       | (67.8                       | )          | (15.8                           | )          |
| Long-term  portion of contingency reserves    |       | $                           | 21.9       |                            | $          | 15.8 |   |

 

*Hardboard Siding Reserves*

 

LP has established reserves relating to certainliabilities associated with a settlement agreement relating to a nationwideclass action lawsuit involving hardboard siding manufactured or sold bycorporations acquired by LP in 1999 and installed prior to May 15, 2000which was approved by the applicable courts in 2000. This settlement isdiscussed in greater detail in the Notes to the financial statements includedin LP’s Annual Report on Form 10-K for the year ended December 31,2007. During the second quarter of 2008, LP increased its reserves inconnection with this class action settlement as a result of increased claimsactivity. The additional reserves reflect revised estimates of undiscountedfuture claim payments and related administrative costs.  LP believes that the reserve balance at June 30,2008 will be adequate to cover future payments to claimants and relatedadministrative costs. However, LP is investigating the circumstances that gaverise to the increase in claims activity in order to better assess its potentialfuture liability associated with such settlement agreement and may be requiredto further adjust its related reserves in the fourth quarter.

 

The activity in the portion of LP’s loss contingencyreserves relating to hardboard siding contingencies for the first six months of2008 and 2007 are summarized in the following table.

 

| **Dollar amounts in millions** | ** ** | **June 30, 2008** | ** ** | **June 30, 2007** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
|                                          |       |                        |       |                        |       |
| Beginning  balance, December 31,         |       | $                           | 12.8       |                        | $          | 25.3 |   |
| Accrued to  expense                           |       | 18.2                        |       | —                      |       |
| Payments made  for claims                     |       | (5.9                        | )          | (5.2                        | )          |
| Payments made  for administrative costs       |       | (0.7                        | )          | (1.3                        | )          |
| Ending balance                                |       | $                           | 24.4       |                        | $          | 18.8 |   |

 

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NOTE19 – DEFINED BENEFIT PENSION PLANS

 

Thefollowing table sets forth the netperiodic pension cost for LP’s defined benefit pension plans during the quarterand six month period ended June 30, 2008 and 2007. The net periodic pensioncost included the following components:

 
| ** **                                    | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **Dollar amounts in millions** | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                          |       |                                      |       |                                              |       |   |   |   |   |
| Service cost                                  |       | $                                         | 2.4        |                                              | $          | 2.4 |   | $ | 4.9 |   | $ | 4.9 |   |
| Interest cost                                 |       | 4.4                                       |       | 3.9                                               |       | 8.9 |   | 7.9 |   |
| Expected return  on plan assets               |       | (5.1                                      | )          | (4.8                                              | )          | (10.5 | ) | (9.5 | ) |
| Amortization of  prior service cost           |       | 0.3                                       |       | 0.3                                               |       | 0.6 |   | 0.6 |   |
| Amortization of  net loss                     |       | 0.6                                       |       | 1.5                                               |       | 1.3 |   | 3.0 |   |
| Net periodic  pension cost                    |       | $                                         | 2.6        |                                              | $          | 3.3 |   | $ | 5.2 |   | $ | 6.9 |   |

 

ThroughJune 30, 2008, LP recognized $5.2 million of pension expense for all of LP’sdefined benefit plans. LP presently anticipates recognizing an additional $5.2million of pension expense in the remainder of 2008 for a total of $10.4million.

 

ThroughJune 30, 2008, LP made $0.7 million of pension contributions for all of LP’sdefined benefit plans. LP presently anticipates making approximately $0.6million of additional pension contributions for the plans during the remainderof 2008 for a total of $1.3 million.

 

NOTE20 – GUARANTEES AND INDEMNIFICATIONS

 

LP is a party tocontracts in which LP agrees to indemnify third parties for certain liabilitiesthat arise out of or relate to the subject matter of the contract. In somecases, this indemnity extends to liabilities arising out of the negligence ofthe indemnified parties, but usually excludes any liabilities caused by grossnegligence or willful misconduct of the indemnified parties. LP cannot estimatethe potential amount of future payments under these agreements until eventsarise that would trigger the liability. See Note 20 of the Notes to thefinancial statements included in LP’s Annual Report on Form 10-K for theyear ended December 31, 2007 for further discussion of LP’s guarantees andindemnifications.

 

Additionally, LP provideswarranties on the sale of most of its products and records an accrual forestimated future claims.  Such accrualsare based upon historical experience and management’s estimate of the level offuture claims.  The activity in warrantyreserves for the first six months of 2008 and 2007 are summarized in thefollowing table:

 
| **Dollar amounts in millions** | ** ** | **June 30, 2008** | ** ** | **June 30, 2007** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
|                                          |       |                        |       |                        |       |
| Beginning  balance, December 31,         |       | $                           | 26.2       |                        | $          | 28.8 |   |
| Accrued to  expense                           |       | 2.8                         |       | 1.8                         |       |
| Payments made                                 |       | (2.4                        | )          | (1.8                        | )          |
| Total warranty  reserves                      |       | 26.6                        |       | 28.8                        |       |
| Current portion  of warranty reserves         |       | (7.0                        | )          | (7.0                        | )          |
| Long-term  portion of warranty reserves       |       | $                           | 19.6       |                        | $          | 21.8 |   |

 

The current portion of thewarranty reserve is included in the caption “Accounts payable and accruedliabilities” and the long-term portion is included in the caption “Otherlong-term liabilities” on LP’s Condensed Consolidated Balance Sheets.

 

During the second quarter of 2008, LP increased thewarranty reserves relating to its discontinued composite decking products by $2million. The additional reserves reflect revised estimates of future claimpayments based 

 

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upon a significant increase in decking warranty claimsrelated to a specific operation and specific time period.  LP is currently investigating the causes ofthis increase as well as reviewing other appropriate actions. LP believes thatthe warranty reserve balance at June 30, 2008 will be adequate to coverfuture warranty payments. However, it is possible that additional charges maybe required in the future.

 

NOTE 21 - RECENT AND PROSPECTIVE ACCOUNTINGPRONOUNCEMENTS

 

In September 2006, the Financial AccountingStandard Board (FASB) finalized SFAS No. 157, “Fair Value Measurements”(SFAS 157).  This Statement defines fairvalue, establishes a framework for measuring fair value and expands disclosuresabout fair value measurements; however, it does not require any new fair valuemeasurements. The provisions of SFAS 157 were applied prospectively to LP’sfair value measurements and disclosures as of January 1, 2008 with respectto recurring financial assets and liabilities and did not have a materialeffect on the company’s Consolidated Financial Statements. The provisions ofSFAS 157 related to LP’s nonrecurring nonfinancial assets and liabilities willbe applied prospectively to fair value measurements and disclosures in thefirst quarter of 2009 and is not expected to have a material effect on thecompany’s consolidated financial statements.

 

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities,Including an Amendment of FASB Statement No. 115, (SFAS 159).” SFAS 159permits entities to measure eligible financial assets, financial liabilitiesand firm commitments at fair value, on an instrument-by-instrument basis, thatare otherwise not permitted to be accounted for at fair value under othergenerally accepted accounting principles. The fair value measurement electionis irrevocable and subsequent changes in fair value must be recorded inearnings.  The company adopted this Statement as of January 1, 2008and it did not have a material effect on the company’s consolidated financialstatements.

 

In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements — an Amendmentof Accounting Research Bulletin No. 51” (SFAS 160).  SFAS 160 establishes accounting and reportingstandards for the noncontrolling interest in a subsidiary and for thedeconsolidation of a subsidiary.  SFAS 160 requires thatnoncontrolling interests in subsidiaries be reported in the equity section ofthe controlling company’s balance sheet. It also changes the manner in which the net income of the subsidiary isreported and disclosed in the controlling company’s income statement.  SFAS 160 is effective on a prospective basisfor annual periods beginning after December 15, 2008, except for thepresentation and disclosure requirements which are to be applied retrospectivelyfor all periods presented.  LP iscurrently evaluating the impact of adopting SFAS 160 on its consolidatedfinancial statements.

 

In December 2007, the FASB issued SFAS No. 141(revised 2007), “Business Combinations” (SFAS 141(R)).  SFAS 141(R) addresses the recognitionand accounting for identifiable assets acquired, liabilities assumed, andnoncontrolling interests in business combinations.  SFAS 141(R) also establishes expandeddisclosure requirements for business combinations. SFAS 141(R) iseffective for annual periods beginning after December 15, 2008 and shouldbe applied prospectively for all business combinations entered into after thedate of adoption.

 

In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities, an Amendmentof FASB Statement No. 133” (SFAS 161). SFAS 161 amends and expands the disclosure requirements of Statement 133to provide a better understanding of how and why an entity uses derivativeinstruments, how derivative instruments and related hedged items are accountedfor, and their effect on an entity’s financial position, financial performance,and cash flows.  SFAS 161 is effective for fiscal years beginningafter November 15, 2008. LP is currently evaluating the impact ofadopting SFAS 161 on its consolidated financial statements.

 

NOTE 22 - SUBSEQUENT EVENT

 

OnAugust 1, 2008, LP announced that its Board of Directors has suspended the$0.15 per share quarterly dividend pending improvement of the overall market.The suspension is among several initiatives in place to conserve LP’s cashreserves. 

 

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Item2.                                     Management’sDiscussion and Analysis of Financial Condition and Results of Operations

 

GENERAL

 

Our products areused primarily in new home construction, repair and remodeling, andmanufactured housing.  We also market andsell our products in light industrial and commercial construction and we have amodest export business for some of our specialty building products. Ourmanufacturing facilities are primarily located in the U.S. and Canada, but wealso operate two facilities in Chile and recently acquired an interest in aBrazilian facility.

 

To serve thesemarkets, we operate in three segments: Oriented Strand Board (OSB), Siding, and Engineered Wood Products (EWP).OSB is the most significant segment, accounting for about 43% of sales duringthe six months ended June 30, 2008 and about 48% of sales in the sixmonths ended June 30, 2007.

 

Demand for ourproducts correlates to a significant degree to the level of residentialconstruction activity in North America, which historically has been characterizedby significant cyclicality.  In the firstsix months of 2008, the U.S. Department of Census reported that actual singleand multi-family housing starts were about 33% lower than the first six monthsof 2007. We believe that the reduced level of building is due to the increasein the inventory of homes for sale coupled with a much more restrictivemortgage market. Additionally, the reduction in home values and the largeamount of variable rate mortgages that are resetting has increased the number offoreclosures, which add to the stock of homes for sale. Building activity isunlikely to improve until the number of homes available for sale is reduced andthe rate of purchases increases.

 

Our mostsignificant product, OSB, is sold as a commodity for which sales pricesfluctuate daily based on market factors over which we have little or nocontrol.  We cannot predict whether theprices of our products will remain at current levels or increase or decrease inthe future.  However, industry analystshave predicted that the expectation of new capacity coupled with significantlylower new housing activity will likely lead to continued lower pricing for thenext twelve to eighteen months.

 

For additionalfactors affecting our results, refer to the Management Discussion and Analysisoverview contained in our Annual Report on Form 10-K for the year ended December 31,2007.

 

# **CRITICAL ACCOUNTING POLICIES ANDSIGNIFICANT ESTIMATES**

 

Presentedin Note 1 of the Notes to the financial statements included in LP’s Annual Reporton Form 10-K for the year ended December 31, 2007 is a discussion ofour significant accounting policies and significant accounting estimates andjudgments.  The discussion of each of thepolicies and estimates outlines the specific accounting treatment related toeach of these accounting areas.

 

**AccountingPolicies**

 

Thereare several policies that we have adopted and implemented from among acceptablealternatives that could lead to different financial results had another policybeen chosen:

 

*Inventoryvaluation. *We use theLIFO (last-in, first-out) method for some of our log inventories with theremaining inventories valued at FIFO (first-in, first-out) or average cost. Ourinventories would have been approximately $3.2 million higher if the LIFO inventorieswere valued at average cost as of June 30, 2008.

 

*Property,plant and equipment. *Weprincipally use the units of production method of depreciation for machineryand equipment. This method amortizes the cost of machinery and equipment overthe estimated units that will be produced during its estimated useful life.

 

# **Significant Accounting EstimatesAnd Judgments**

 

Throughoutthe preparation of the financial statements, we employ significant judgments inthe application of accounting principles and methods.  These judgments are primarily related to theassumptions used to arrive at various estimates.  For 2008, these significant accountingestimates and judgments include:

 

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*Auction Rate Securities:*  Auction-ratesecurities represent interests in collateralized debt obligations, a portion ofwhich are collateralized by pools of residential and commercial mortgages,interest-bearing corporate debt obligations, a dividend-yielding preferredstock or other similar instruments. Liquidity for these auction-rate securitiesis typically provided by an auction process that resets the applicable interestrate at pre-determined intervals, usually every 7, 28, 35 or 90 days.Because of the short interest rate reset period, we have historically recordedauction-rate securities in current available-for-sale securities. As of June 30,2008, auction-rate securities that we hold had experienced multiple failedauctions as the amount of securities for sale exceeded the amount of purchaseorders. Consequently, we have classified $71.5 million ($151.8 million,par value) of auction-rate securities as long-term available-for-salesecurities that were classified previously as short-term available-for-salesecurities.

 

Our estimates of the valuation of our current holdings of auction ratesecurities are based upon our evaluation of the structure of our auction ratesecurities and current market estimates of fair value, including fair valueestimates from issuing banks. During the six months ended June 30, 2008,we recorded a temporary unrealized holding loss on these securities of $25.5million that is recorded, net of tax, as a separate component of accumulatedother comprehensive income and we recorded an other-than-temporary impairmentof $2.5 million that is recorded as non-operating income (expense). Inaccordance with EITF 03-1 and FSP FAS 115-1 and 124-1,*”The Meaning of Other-Than-Temporary Impairment andIts Application to Certain Investments,”*we review several factors todetermine whether a loss is other-than-temporary. These factors include but arenot limited to: (i) the length of time a security is in an unrealized lossposition, (ii) the extent to which fair value is less than cost, (iii) thefinancial condition and near term prospects of the issuer, and (iv) ourintent and ability to hold the security for a period of time sufficient toallow for any anticipated recovery in fair value. Due to the numerous variablesassociated with these judgments, both the precision and reliability of theresulting estimates of the related valuation allowance are subject tosubstantial uncertainties. We regularly monitor our estimated exposure to theseinvestments and, as additional information becomes known, may change ourestimates significantly.

 

*LegalContingencies.*  Ourestimates of loss contingencies for legal proceedings are based on variousjudgments and assumptions regarding the potential resolution or disposition ofthe underlying claims and associated costs. In making judgments and assumptionsregarding legal contingencies for ongoing class action settlements, weconsider, among other things, discernible trends in the rate of claims assertedand related damage estimates and information obtained through consultation withstatisticians and economists, including statistical analyses of potentialoutcomes based on experience to date and the experience of third parties whohave been subject to product-related claims judged to be comparable. Due to thenumerous variables associated with these judgments and assumptions, both theprecision and reliability of the resulting estimates of the related losscontingencies are subject to substantial uncertainties. We regularly monitorour estimated exposure to these contingencies and, as additional informationbecomes known, may change our estimates significantly.

 

*EnvironmentalContingencies*.  Ourestimates of loss contingencies for environmental matters are based on variousjudgments and assumptions. These estimates typically reflect judgments andassumptions relating to the probable nature, magnitude and timing of requiredinvestigation, remediation and/or monitoring activities and the probable costof these activities, and in some cases reflect judgments and assumptionsrelating to the obligation or willingness and ability of third parties to beara proportionate or allocated share of the cost of these activities, includingthird parties who purchased assets from us subject to environmentalliabilities. We consider the ability of third parties to pay their apportionedcost when developing our estimates. In making these judgments and assumptionsrelated to the development of our loss contingencies, we consider, among otherthings, the activity to date at particular sites, information obtained throughconsultation with applicable regulatory authorities and third-party consultantsand contractors and our historical experience at other sites that are judged tobe comparable.  Due to the numerousvariables associated with these judgments and assumptions, and the effects ofchanges in governmental regulation and environmental technologies, both theprecision and reliability of the resulting estimates of the relatedcontingencies are subject to substantial uncertainties. We regularly monitorour estimated exposure to environmental loss contingencies and, as additionalinformation becomes known, may change our estimates significantly. At June 30,2008, we excluded from our estimates approximately $0.6 million of potentialenvironmental liabilities that we estimate will be allocated to third partiespursuant to existing and anticipated future cost sharing arrangements.

 

*Impairmentof 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 orchanges in circumstances indicate that 

 

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the carryingamount of assets may not be recoverable. Identifying these events and changesin circumstances, and assessing their impact on the appropriate valuation ofthe affected assets under accounting principles generally accepted in the U.S.,requires us to make judgments, assumptions and estimates.  In general, on assets held and used,impairments are recognized when the book values exceed our estimate of theundiscounted future net cash flows associated with the affected assets. The keyassumptions in estimating these cash flows include future production volumesand pricing of commodity or specialty products and future estimates of expensesto be incurred. Our assumptions regarding pricing are based upon the averagepricing over the commodity cycle (generally five years) due to the inherentvolatility of commodity product pricing. These prices are estimated from informationgathered from industry research firms, research reports published by investmentanalysts and other published forecasts. Our estimates of expenses are basedupon our long-range internal planning models and our expectation that we willcontinue to reduce product costs that will offset inflationary impacts.

 

When impairment isindicated, the book values of the assets to be held and used are written downto their estimated fair value, which is generally based upon discounted futurecash flows. Assets to be disposed of are written down to their estimated fairvalue, less estimated selling costs. Consequently, a determination to disposeof particular assets can require us to estimate the net sales proceeds expectedto be realized upon such disposition, which may be less than the estimatedundiscounted future net cash flows associated with such assets prior to suchdetermination, and thus require an impairment charge. In situations where wehave experience in selling assets of a similar nature, we may estimate netsales proceeds on the basis of that experience. In other situations, we hire independent appraisers to estimate netsales proceeds. Due to the numerous variables associated with our judgments andassumptions relating to the valuation of assets in these circumstances, and theeffects of changes in circumstances affecting these valuations, both theprecision and reliability of the resulting estimates of the related impairmentcharges are subject to substantial uncertainties and, as additional informationbecomes known, we may change our estimates significantly.

 

*IncomeTaxes.*The determination of the provision for income taxes,and the resulting current and deferred tax assets and liabilities, involvessignificant management judgment, and is based upon information and estimatesavailable to management at the time of such determination. The final income taxliability to any taxing jurisdiction with respect to any calendar year willultimately be determined long after our financial statements have been publishedfor that year. We maintain reserves for known estimated tax exposures infederal, state and international jurisdictions; however, actual results maydiffer materially from our estimates.

 

Judgment is alsoapplied in determining whether deferred tax assets will be realized in full orin part. When we consider it to be more likely than not that all or someportion of a deferred tax asset will not be realized, a valuation allowance isestablished for the amount of the deferred tax asset that is estimated not tobe realizable. As of June 30, 2008, we had established valuationallowances against certain deferred tax assets, primarily related to foreigntax credit carryovers, state net operating loss and credit carryovers andforeign capital loss carryovers. We have not established valuation allowancesagainst other deferred tax assets based upon expected future taxable incomeand/or tax strategies planned to mitigate the risk of impairment of theseassets. Accordingly, changes in facts or circumstances affecting the likelihoodof realizing a deferred tax asset could result in the need to record additionalvaluation allowances.

 

*Goodwill.*Goodwill and other intangible assets that are deemed to have an indefinite lifeare no longer amortized. However, these indefinite life assets are tested forimpairment on an annual basis, and otherwise when indicators of impairment aredetermined to exist, by applying a fair value based test.  The process of evaluating the potentialimpairment of goodwill is highly subjective and requires significant judgmentsat many points during the analysis.  Intesting for potential impairment, the estimated fair value of the reportingunit, as determined based upon cash flow forecasts, is compared to the bookvalue of the reporting unit. The key assumptions in estimating these cash flowsinclude future production volumes and pricing of commodity products and futureestimates of expenses to be incurred. Our assumptions regarding pricing arebased upon the average pricing over the commodity cycle (generally five years)due to the inherent volatility of commodity product pricing. These prices areestimated from information gathered from industry research firms, researchreports published by investment analysts and other published forecasts. Ourestimates of expenses are based upon our long-range internal planning modelsand our expectation that we will reduce product costs that will offsetinflationary impacts.

 

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Due to thenumerous variables associated with our judgments and assumptions relating tothe valuation of assets in these circumstances, and the effects of changes incircumstances affecting these valuations, both the precision and reliability ofthe resulting estimates of the related impairment charges, if any, are subjectto substantial uncertainties. Consequently, as additional information becomesknown, we may change our estimates significantly.

 

**Pension Plans.**  Most ofour U.S. employees and some of our Canadian employees participate indefined benefit pension plans sponsored by LP.  We account for theconsequences of our sponsorship of these plans in accordance withaccounting principles generally accepted in the U.S., which require us to makeactuarial assumptions that are used to calculate the related assets,liabilities and expenses recorded in our financial statements.  While webelieve we have a reasonable basis for these assumptions, which includeassumptions regarding long-term rates of return on plan assets, life expectancies,rates of increase in salary levels, rates at which future values should bediscounted to determine present values and other matters, the amounts of ourpension related assets, liabilities and expenses recorded in our financialstatements would differ if we used other assumptions. See furtherdiscussion related to pension plans below under the heading “Defined BenefitPension Plans” and in Note 13 of the Notes to the financial statements includedin Item 8 of our Annual Report on Form 10-K for the year ended December 31,2007.

 

*Workers’ Compensation.*We are self-insured forworkers’ compensation in most U.S. states.  We account for these plans inaccordance with accounting principles generally accepted in the U.S, whichrequire us to make actuarial assumptions that are used to calculate the relatedassets, liabilities and expenses recorded in our financial statements.  While we believe we have a reasonable basisfor these assumptions, which include assumptions regarding rates at whichfuture values should be discounted to determine present values, expected futurehealth care costs and other matters.  Theamounts of our liabilities and related expenses recorded in our financialstatements would differ if we used other assumptions.

 

**RESULTS OF OPERATIONS**

(Dollar amounts in tables in millions)

 

Our net loss for the second quarter of 2008 was $81 million, or $0.79per diluted share, on sales of $387 million, compared to net loss for thesecond quarter of 2007 of $23 million, or $0.22 per diluted share, on sales of$461 million. For the second quarter of 2008, loss from continuing operationswas $79 million, or $0.77 per diluted share, compared to loss from continuingoperations of $16 million, or $0.15 per diluted share, for the second quarterof 2007.

 

Our net loss forthe six months ended June 30, 2008 was $127 million, or $1.24 per dilutedshare, on sales of $736 million, compared to net loss for the six months ended June 30,2007 of $61 million, or $0.58 per diluted share, on sales of $856 million. Forthe six months ended June 30, 2008, loss from continuing operations was$125 million, or $1.22 per diluted share, compared to loss from continuingoperations of $52 million, or $0.50 per diluted share, for the six months endedJune 30, 2007.

 

Our results of operationsfor each of our segments are discussed below as well as for the “other”category, which comprises products that are not individually significant.

 

###### OSB

######  

Our OSB segmentmanufactures and distributes commodity and value-added OSB structural panels.

 

Segment sales,profits and depreciation, amortization and cost of timber harvested for thissegment are as follows:

 
| ** **                                                 | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                 | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Net sales                                                  |       | $                                         | 164        |                                              | $          | 223 |   | (27 | )% | $ | 318 |   | $ | 412 |   | (23 | )% |
| Operating losses                                           |       | $                                         | (35        | )                                                 | $          | (45 | ) | 23 | % | $ | (97 | ) | $ | (109 | ) | 11 | % |
| Depreciation , amortization and cost o f timber  harvested |       | $                                         | 13         |                                              | $          | 17 |   |   |   | $ | 27 |   | $ | 33 |   |   |   |

 

Percent changes inaverage sales prices and unit shipments for the quarter and six months ended June 30,2008 compared to the quarter and six months ended June 30, 2007 are asfollows:

 

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| ** **    | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **    | ** ** | **2008 versus 2007**            | ** ** | **2008 versus 2007**                    | ** ** |
| ** **    | ** ** | **Average Net**                      | ** ** | **Unit**                                          | ** ** | **Average Net** | ** ** | **Unit** | ** ** |
| ** **    | ** ** | **Selling Price**                    | ** ** | **Shipments**                                     | ** ** | **Selling Price** | ** ** | **Shipments** | ** ** |
|          |       |                                      |       |                                              |       |   |   |   |   |
| Commodity OSB |       | 6                                         | %          | (30                                               | )%         | 2 | % | (24 | )% |

 

OSBprices increased slightly for the second quarter and first six months of 2008as compared to the corresponding periods of 2007. The weakened price ascompared to cycle average pricing is due to dramatically lower housing demandcoupled with increased industry capacity in OSB. The increase in selling pricefavorably impacted net sales and operating losses by approximately $8 millionfor the quarter and $4 million for the first six months as compared to thecorresponding periods of 2007.  Ascompared to the corresponding periods of 2007, the decline in sales volume wasprimarily due to the curtailment of our Silsbee, TX operation in the fourthquarter of 2007 (which likely will not run in 2008) as well as other productioncurtailments to balance supply and demand.

 

Compared to thesecond quarter of 2007 and the first six months of 2007, the primary factors,along with the increased sales prices, for decreased operating losses wasreduced sales volumes. While costs are increasing due to increase petroleumbased products used in manufacturing, higher Canadian dollar denominatedmanufacturing costs and less absorption of fixed costs due to curtailedoperations, we improved the overall financial results by curtailing certainoperations.

 

###### SIDING

 

Our siding segmentproduces and markets wood-based siding and related accessories and interiorhardboard products, together with commodity OSB products from one mill.

 

Segment sales,profits and depreciation, amortization and cost of timber harvested for thissegment are as follows:

 
| ** **                                               | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                               | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Net sales                                                |       | $                                         | 124        |                                              | $          | 131 |   | (6 | )% | $ | 231 |   | $ | 235 |   | (2 | )% |
| Operating profits                                        |       | $                                         | 9          |                                              | $          | 17 |   | (48 | )% | $ | 9 |   | $ | 27 |   | (65 | )% |
| Depreciation, amortization and cost of timber  harvested |       | $                                         | 6          |                                              | $          | 5 |   |   |   | $ | 11 |   | $ | 10 |   |   |   |

 

Sales in thissegment by product line are as follows:

 
| ** **                                          | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                          | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| SmartSide Siding                                    |       | $                                         | 98         |                                              | $          | 102 |   | (4 | )% | $ | 169 |   | $ | 180 |   | (6 | )% |
| Commodity OSB                                       |       | 8                                         |       | 9                                                 |       | (10 | )% | 17 |   | 14 |   | 21 | % |
| Canexel siding and other hardboard related products |       | 18                                        |       | 20                                                |       | (10 | )% | 45 |   | 41 |   | 10 | % |
| Total                                               |       | $                                         | 124        |                                              | $          | 131 |   | (6 | )% | $ | 231 |   | $ | 235 |   | (2 | )% |

 

Percent changes inaverage sales prices and unit shipments for the quarter and six month periodended June 30, 2008 compared to the quarter and six month period ended June 30,2007 are as follows:

 

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| ** **                                          | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                          | ** ** | **2008 versus 2007**            | ** ** | **2008 versus 2007**                    | ** ** |
| ** **                                          | ** ** | **Average Net**                      | ** ** | **Unit**                                          | ** ** | **Average Net** | ** ** | **Unit** | ** ** |
| ** **                                          | ** ** | **Selling Price**                    | ** ** | **Shipments**                                     | ** ** | **Selling Price** | ** ** | **Shipments** | ** ** |
|                                                |       |                                      |       |                                              |       |   |   |   |   |
| SmartSide Siding                                    |       | 1                                         | %          | (6                                                | )%         | 1 | % | (7 | )% |
| Commodity OSB                                       |       | 8                                         | %          | (22                                               | )%         | 1 | % | 15 | % |
| Canexel siding and other hardboard related products |       | 4                                         | %          | (18                                               | )%         | 11 | % | (2 | )% |

 

For both thesecond quarter of 2008 and the six month period ended June 30, 2008compared to the corresponding periods in 2007, sales volumes declined due todramatically lower housing starts, which was mitigated by increased marketpenetration. Sales prices in our SmartSide siding product line for the quarterand six month period ended June 30, 2008 as compared to the correspondingperiods of 2007 remained relatively flat. In our Canexel product line, salesvolumes for the second quarter of 2008 as compared to the second quarter of2007 declined due to higher than prior year volumes sold under our winter buyprogram which occurred in the first quarter of 2008 that reduced the normalseasonal increases in the second quarter. For the six month period ended June 30,2008 as compared to the corresponding period of 2007, Canexel sales volumesdeclined slightly based upon the weakening Canadian housing market.Additionally, for Canexel, sales prices increased as compared to the sameperiods of last year due to the impact of the strengthening Canadian dollar asa majority of these sales are made in Canada.

 

Overall, thedecline in operating results for our siding segment for the second quarter of2008 compared to the same period of 2007 was primarily due to reduced sales inour SmartSide product line, losses on OSB sales and increased manufacturingcosts at one of our siding mills resulting from technological changes in ourmanufacturing processes.

 

###### ENGINEERED WOODPRODUCTS

 

Our engineeredwood products (EWP) segment manufactures and distributes laminated veneerlumber (LVL), I-Joists, laminated strand lumber (LSL) (which began productionin first quarter of 2008) and other related products.  This segment also includes the sale ofI-Joist and LVL products produced by the AbitibiBowater JV or under anexclusive sales arrangement with Murphy Plywood.

 

Segment sales,profits and depreciation, amortization and cost of timber harvested for thissegment are as follows:

 
| ** **                                               | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                               | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Net sales                                                |       | $                                         | 65         |                                              | $          | 86 |   | (24 | )% | $ | 126 |   | $ | 166 |   | (24 | )% |
| Operating profits                                        |       | $                                         | (9         | )                                                 | $          | 4 |   | (336 | )% | $ | (17 | ) | $ | 10 |   | (268 | )% |
| Depreciation, amortization and cost of timber  harvested |       | $                                         | 4          |                                              | $          | 3 |   |   |   | $ | 8 |   | $ | 7 |   |   |   |

 

Sales in thissegment by product line are as follows:

 
| ** **       | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **       | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| LVL              |       | $                                         | 28         |                                              | $          | 37 |   | (24 | )% | $ | 52 |   | $ | 72 |   | (28 | )% |
| I-Joist          |       | 28                                        |       | 38                                                |       | (26 | )% | 48 |   | 70 |   | (31 | )% |
| LSL              |       | 1                                         |       | —                                            |       |   |   | 1 |   | — |   |   |   |
| Related products |       | 8                                         |       | 11                                                |       | (27 | )% | 25 |   | 24 |   | 4 | % |
| Total            |       | $                                         | 65         |                                              | $          | 86 |   | (24 | )% | $ | 126 |   | $ | 166 |   | (24 | )% |

 

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Percent changes inaverage sales prices and unit shipments for the quarter and six months ended June 30,2008 compared to the quarter and six months ended June 30, 2007 are asfollows:

 
| ** ** | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** ** | ** ** | **2008 versus 2007**            | ** ** | **2008 versus 2007**                    | ** ** |
| ** ** | ** ** | **Average Net**                      | ** ** | **Unit**                                          | ** ** | **Average Net** | ** ** | **Unit** | ** ** |
| ** ** | ** ** | **Selling Price**                    | ** ** | **Shipments**                                     | ** ** | **Selling Price** | ** ** | **Shipments** | ** ** |
|       |       |                                      |       |                                              |       |   |   |   |   |
| LVL        |       | (5                                        | )%         | (20                                               | )%         | (5 | )% | (23 | )% |
| I-Joist    |       | (4                                        | )%         | (24                                               | )%         | (4 | )% | (28 | )% |

 

During the second quarterand first six months of 2008 compared to the corresponding periods of 2007, wesaw reductions in sales volumes in both LVL and I-Joist. These declines areattributed to a slowdown in the housing market. Net average selling prices declined as we continued to see pricepressure caused by lower demand.  Ourfocus in the EWP segment continues to be on reductions in conversion costs,better geographic manufacturing and distribution, and maintaining key customerrelationships. Included in this segment is a plywood mill, which primarilyproduces plywood as a by-product from the LVL production process. During thesecond quarter and first six months of 2008, this segment absorbed the start-uplosses attributable to the Houlton, Maine LSL mill as we incurred all of theexpenses associated with the start-up but produced minimal saleable product.

 

For the second quarterand first six months of 2008 compared to the corresponding periods of 2007, theresults of operations for EWP were lower primarily due to lower sales volumewhich increased our conversion costs and reductions in sales prices and startup costs associated with our Houlton LSL mill. Additionally, we saw increasesin raw materials costs for veneer while OSB and lumber cost remained relativelyconsistent with the prior year.

 

###### OTHER PRODUCTS

######  

Our other productscategory includes our moulding business, Chilean operations, export sales andour joint venture that produces and sells cellulose insulation.  This category also includes our remainingtimber and timberlands and other minor products, services and operations closedprior to January 1, 2002 and our recently acquired interest in a BrazilianOSB facility.

 

Segment sales,profits and depreciation, amortization and cost of timber harvested for thiscategory are as follows:

 
| ** **                                                | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Net sales                                                 |       | $                                         | 36         |                                              | $          | 24 |   | 51 | % | $ | 65 |   | $ | 48 |   | 36 | % |
| Operating profits                                         |       | $                                         | —     |                                              | $          | (3 | ) | 93 | % | $ | (3 | ) | $ | (1 | ) | 333 | % |
| Depreciation , amortization and cost of timber  harvested |       | $                                         | 4          |                                              | $          | 1 |   |   |   | $ | 6 |   | $ | 2 |   |   |   |

 

Sales in thissegment by product line are as follows:

 
| ** **         | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **         | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Moulding           |       | $                                         | 9          |                                              | $          | 9 |   | (5 | )% | $ | 18 |   | $ | 18 |   | (4 | )% |
| Chilean operations |       | 16                                        |       | 10                                                |       | 56 | % | 28 |   | 21 |   | 35 | % |
| Other              |       | 11                                        |       | 5                                                 |       | 122 | % | 19 |   | 9 |   | 124 | % |
| Total              |       | $                                         | 36         |                                              | $          | 24 |   | 51 | % | $ | 65 |   | $ | 48 |   | 36 | % |

 

For the secondquarter and first six months of 2008 compared to the corresponding periods of2007, our sales in our moulding operations were flat while our sales in Chileincreased as we continued to penetrate local South American 

 

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markets and beganproducing at our second mill in Chile. Additionally, we saw a significantincrease in our export sales during the quarter as compared to the same quarterin the prior year as the weakened U.S. dollar has made U.S. products morecompetitive.

 

Overall, operatingresults associated with these activities were negatively impacted by theadministrative costs associated with the new mill start-up in Chile, lowersales prices due to competition from imported OSB and in the effects on ourU.S. Greenfiber joint venture of weakness in its contractor business andincreased raw material costs.

 

GENERAL CORPORATEAND OTHER EXPENSE, NET

 

For the secondquarter and first six months of 2008 compared to the corresponding periods of2007, general corporate expenses increased. General corporate and otherexpenses primarily consist of corporate overhead such as wages and benefits forcorporate and sales personnel, professional fees, insurance and other expenses.The increase in the second quarter and first six months of 2008 as compared tothe corresponding periods of 2007 resulted from higher sales and marketingcosts as we have added additional personnel in our efforts to continue increasemarket share and increased accruals for management incentive programs.

 

###### INTEREST EXPENSEAND INVESTMENT INCOME

######  

Investment income in the second quarter and the first six months of 2008was significantly lower than in the corresponding periods of 2007 due to lowercash balances as well as lower interest rates. Capitalized interest is lowerdue to the completion of our Clarke County OSB mill in the fourth quarter of2007 and our LSL facility in the first quarter of 2008. Components ofinvestment income, net of interest expense, are as follows:

 
| ** **           | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **           | ** ** | **2008**                                  | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Investment income    |       | $                                         | 10.6       |                                              | $          | 23.4 |   | $ | 23.4 |   | $ | 43.8 |   |
| Interest expense     |       | (13.6                                     | )          | (13.8                                             | )          | (27.4 | ) | (27.0 | ) |
| Capitalized interest |       | 0.9                                       |       | 4.1                                               |       | 3.5 |   | 7.0 |   |
| Total                |       | $                                         | (2.1       | )                                                 | $          | 13.7 |   | $ | (0.5 | ) | $ | 23.8 |   |

 

###### DISCONTINUEDOPERATIONS

######  

Included in discontinued operations for the second quarter and first sixmonths of 2008 and 2007 are the results of the operations of mills that havebeen or are to be divested. At June 30, 2008, we had one remainingdecking facility classified as discontinued. For the second quarter and first six months of 2008 and 2007, the losson discontinued operations relates to our decking operations as well asresidual losses from previously discontinued operations. Included in theoperating losses of discontinued operations for the second quarter of 2008 isan increase in our decking warranty reserves of $2 million based uponsignificant increases in recent warranty claim actitity.  Included in the operating losses ofdiscontinued operations for the second quarter of 2007 is a $9.5 millionimpairment charge on assets held for sale to reduce the carrying value to theestimated sales price less selling costs.

 

###### INCOME TAXES

######  

Accountingstandards require that income tax expense or benefit for interim periods bedetermined by applying the estimated annual effective income tax rate,  by income component, to year-to-date incomeor loss at the end of each quarter, then adding or subtracting the impact ofany changes in reserve requirements or statutory tax rate changes, if any.  Each quarter the income tax accrual isadjusted to the latest estimate and the difference from the previously accruedyear-to-date balance is adjusted to the current quarter.

 

For the six monthsended June 30, 2008, the primary differences between the U.S. statutoryrate of 35% and the effective rate applicable to our continuing operationsrelate to our foreign debt structure and state income taxes.  For the six months ended June 30, 2007,the primary differences between the U.S. statutory rate of 35% and the effective

 

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rate applicable toour continuing operations relate to our foreign debt structure, state incometaxes and the favorable resolution of an outstanding state tax contingency.

 

The components and associated estimated effectiveincome tax rates applied to the quarter and six month periods ended June 30,2008 and 2007 are as follows:

 
| ** **              | ** ** | **Quarter Ended June 30,** | ** ** |
|-------------------------|------------|-------------------------------------------|------------|
| ** **              | ** ** | **2008**                                  | ** ** | **2007** | ** ** |
| ** **              | ** ** | **Tax Benefit**                      | ** ** | **Tax Rate** | ** ** | **Tax Benefit** | ** ** | **Tax Rate** | ** ** |
| Continuing operations   |       | $                                         | (56.8      | ) | 42 | % | $ | (10.9 | ) | 41 | % |
| Discontinued operations |       | (0.9                                      | )          | 39 | % | (4.9 | ) | 39 | % |
|                    |       | $                                         | (57.7      | ) | 42 | % | $ | (15.8 | ) | 40 | % |

 
| ** **              | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------|------------|---------------------------------------------------|------------|
| ** **              | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| ** **              | ** ** | **Tax Benefit**                              | ** ** | **Tax Rate** | ** ** | **Tax Benefit** | ** ** | **Tax Rate** | ** ** |
| Continuing operations   |       | $                                                 | (92.7      | ) | 43 | % | $ | (42.2 | ) | 45 | % |
| Discontinued operations |       | (1.2                                              | )          | 39 | % | (5.8 | ) | 39 | % |
|                    |       | $                                                 | (93.9      | ) | 42 | % | $ | (48.0 | ) | 44 | % |

 

We and ourdomestic subsidiaries are subject to U.S. federal income tax as well as incometaxes of multiple state jurisdictions. Our foreign subsidiaries are subject to income tax in Canada, Chile andBrazil. Federal income tax examinations for the years through 2004 have beeneffectively settled and audits for 2005 and 2006 began in the fourth quarter of2007. We are subject to state and local income tax examinations for the taxyears 2000 through 2006. Canadian returns have been audited through 1999 andRevenue Canada commenced an examination of the years 2002 through 2004 in thesecond quarter of 2007.

 

DEFINED BENEFIT PENSION PLANS

 

We maintainseveral 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 provideaggregated disclosures about these plans in the Notes to our financialstatements as required by SFAS No. 158 “Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans — an amendment of FASBStatements No. 87, 88, 106, and 132(R)” (SFAS 158), the recognition anddisclosure requirements of which were adopted as of December 31, 2006.  See Note 13 of the Notes to financialstatements included in our Annual Report on Form 10-K for the year ended December 31,2007.  We estimate that our net periodicpension cost for 2008 will be approximately $10.4 million.  This estimate assumes that we will have nocurtailment or settlement expenses in 2008. If a curtailment or settlement does occur in 2008, this estimate maychange significantly.  We estimate thatwe will contribute approximately $1.3 million to our defined benefit pensionplans in 2008.  As of June 30, 2008,we had contributed approximately $0.7 million to these plans. At December 31,2007, we had $36.0 million of net actuarial loss and $5.2 million of priorservice cost included in accumulated other comprehensive loss.  Of these amounts, we expect to recognize anet actuarial loss of $2.8 million and prior service cost of $1.2 million ascomponents of net periodic pension cost in 2008, which will account forapproximately 38% of our estimated 2008 net periodic pension cost.

 

**LEGAL AND ENVIRONMENTAL MATTERS**

 

For a discussionof legal and environmental matters involving us and the potential impactthereof on our financial position, results of operations and cash flows, seeItems 3, 7 and 8 in our Annual Report on Form 10-K for the year ended December 31,2007, Note 18 to the Notes to the financial statements contained therein andItem 1, Legal Proceedings, in Part II of this report.

 

HARDBOARD SIDING LITIGATION UPDATE

 

The followingdiscussion updates should be read in conjunction with the discussion of ourhardboard siding litigation set forth in Note 18 of the Notes to financialstatements included in our Annual Report on Form 10-K for 

 

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the year ended December 31,2007 and notes 11 and 18 of the Notes to the financial statements containedwithin this report.

 

Cumulativestatistics under hardboard settlements are as follows:

 
| ** **                | ** ** | **June 30, 2008** | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------|------------|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Completed claims received |       | 57,700                      |       | 53,200                       |       | 50,200                          |       |
| Completed claims pending  |       | 2,600                       |       | 1,300                        |       | 1,000                           |       |
| Claims dismissed          |       | 10,800                      |       | 10,500                       |       | 10,200                          |       |
| Claims settled            |       | 44,300                      |       | 41,400                       |       | 39,000                          |       |

 

The averagepayment amount for settled claims as of June 30, 2008, March 31, 2008and December 31, 2007 was $1,100. Dismissal of claims is typically theresult of claims for product not produced by LP or predecessor companies orclaims that lack sufficient information or documentation after repeated effortsto correct those deficiencies.

 

ENVIRONMENTALCOMPLIANCE

 

The U.S.government has recently modified its position with respect to the enactedregulations related to Maximum Achievable Control Technology (MACT). MACTregulations govern the manner in which we measure and control the emissionsfrom our manufacturing facilities into the air. Based upon the currentinterpretation of these regulations, we may be required to spend between $3million and $4 million by October 2008 to comply with these regulations.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

OVERVIEW

 

Our principalsources of liquidity are existing cash and investment balances, cash generatedby our operations and our ability to borrow under credit facilities. We mayalso from time to time issue and sell equity or debt securities or engage inother capital market transactions.

 

Our principal usesof liquidity are paying the costs and expenses associated with our operations,servicing outstanding indebtedness, making capital expenditures and payingdividends to our stockholders. We may also from time to time prepay or repurchaseoutstanding indebtedness, repurchase shares of our common stock and acquireassets or businesses that are complementary to our operations.  Any such repurchases may be commenced,suspended, discontinued or resumed, and the method or methods of effecting anysuch repurchases may be changed, at any time or from time to time without priornotice.

 

We expect to beable to meet the future cash requirements of our existing businesses throughcash expected to be generated from operations, existing cash and investmentbalances, existing or new credit facilities and other capital resources. As ofthe date of this report, we are actively considering possible measures toenhance our overall liquidity, including possible financing and refinancingtransactions. The following discussion provides further details of ourliquidity and capital resources.

 

OPERATINGACTIVITIES

 

During the firstsix months of 2008, we used $55 million of cash in operating activitiescompared to $10 million in the first six months of 2007. The increase in cashused in operating activities in the first six months of 2008 was primarily aresult of increased operating losses.

 

INVESTINGACTIVITIES

 

During the firstsix months of 2008, we used approximately $45 million in investing activities.Capital expenditures in the first six months were $76 million and relatedprimarily to the costs associated with our LSL facility in Houlton, Maine and$45 million to purchase an interest in an OSB mill in Brazil. Additionally, wecontributed $4 

 

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million to ourjoint venture with Canfor Corporation for working capital requirements. We alsoused approximately $173 million to purchase investments with maturities inexcess of 90 days and received $209 million on the sale of these types ofinvestments.We received $54 million in principalpayments on our notes receivable from asset sales. Additionally, included inaccounts payable is $10 million related to capital expenditures that had notyet been paid as of June 30, 2008.

 

During the firstsix months of 2007, we used approximately $15 million in investing activities.Capital expenditures for the first six months of 2007 were $132 million andrelated primarily to the costs associated with our OSB mill in Alabama and LSLfacility in Houlton, Maine that were under construction. Additionally, wecontributed $5 million to our joint ventures with Canfor Corporation andAbitibiBowater for working capital requirements. We also used approximately$1.5 billion to purchase investments with maturities in excess of 90 days andreceived $1.7 billion on the sale of these types of investments. Additionally, included in accounts payable is$19 million related to capital expenditures that had not yet been paid as of June 30,2007.

 

Capitalexpenditures for existing facilities and investments in existing joint venturesfor 2008 are expected to total about $100 to $120 million. Planned expendituresfor 2008 include the completion of the Houlton LSL and Clarke County OSB millsand various projects to improve operations or expand product capabilities.Additionally, during the second quarter of 2008, we informed our expectedpartner of our intent to exercise a call option to create a joint venture tomanufacturer LVL in which we would obtain a 50% ownership interest. Wecurrently are the sole purchaser of this facility’s production through anexclusive sales arrangement. We anticipate that we will contributeapproximately $35 million to this venture in either the third or fourth quarterof 2008.

 

FINANCINGACTIVITIES

 

In the first sixmonths of 2008, net cash used in financing activities was $84 million. Duringthe first six months of 2008, we borrowed $40 million and repaid $52 millionunder a credit facility to support general operating requirements in ourCanadian locations. Additionally, we borrowed $12 million under a long termcredit facility to fund our Chilean expansion. We also repaid $54 million ofour limited recourse notes payable.  Additionally,in the first six months of 2008, we paid cash dividends of $31 million.

 

In the first sixmonths of 2007, net cash provided by financing activities was $14 million. Inthe first six months of 2007, we borrowed $30 million under a revolving creditfacility to support general operating requirements in our Canadian locationsand borrowed $13 million under a secured long term credit facility to fund ourChilean expansion. Additionally, in the first six months of 2007, we paid cashdividends of $31 million.

 

CREDIT FACILITIES

 

We have a revolvingline of credit, expiring in September 2009, which provides for a committedborrowing capacity of $150 million. Subject to the willingness of existing or new lenders under the creditfacility to advance additional funds, we may increase our borrowing capacityunder the facility by up to an additional $100 million.  Based upon recent financial performance, thefacility requires us to cash collateralize outstanding borrowings and lettersof credit. This facility requires LP to pledge, as security for itsreimbursement obligations under the facility, cash collateral in an amountequal to 105% of the face amount of the borrowings or letters of creditoutstanding under the facility at any time. At June 30, 2008, we had noborrowings outstanding under the facility. Letters of credit issued andoutstanding, which reduce our borrowing capacity, totaled approximately $33.3million as of June 30, 2008 and were cash collateralized with $34.9million.

 

We also have a $10million (Canadian) line of revolving credit facility in Canada. Our ability toobtain letters of credit under this facility ends in December 2008. Basedupon recent financial performance, the facility requires us to cashcollateralize outstanding borrowings and letters of credit. This facility requiresLP to pledge, as security for its reimbursement obligations under the facility,cash collateral in an amount equal to 105% of the face amount of the borrowingsor letters of credit outstanding under the facility at any time. Letters ofcredit issued and outstanding totaled approximately $0.8 million as of June 30,2008 and were cash collateralized with $0.9 million.

 

We have a $100million (Canadian or US) credit facility in Canada. The facility allows us tofinance general operating requirements. At June 30, 2008, we had $33.4million outstanding under this facility. Amounts 

 

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outstanding underthe facility are due upon demand and are included in LP’s CondensedConsolidated Balance Sheet under the caption “short-term notes payable”.

 

Louisiana PacificChile SA (LP Chile) has a committed term credit facility with a Chilean bankfor up to $40 million.  LP Chile’sability to draw from this facility ends in December 2008, with the finalmaturity in March 2015.  Theproceeds from the facility are being used to fund construction of an additionalOSB plant in Chile.  At June 30,2008, there was $37 million outstanding under this facility.  Borrowings under the facility were secured.

 

OTHER LIQUIDITYMATTERS

 

As of June 30,2008, we had $71.5 million ($151.8 million, par value) of principal invested inauction rate securities (ARS). The ARS held by us are securities with long-termnominal maturities for which the interest rates are reset through a dutchauction each month. These auctions historically have provided a liquid marketfor these securities. Our investments in ARS represent interests incollateralized debt obligations supported by pools of residential andcommercial mortgages, credit linked notes and bank trust preferred notes.

 

Consistent withour investment policy guidelines, the ARS investments held by us all had AAA orequivalent credit ratings (except for one corporate ARS rated AA) at the timeof purchase. With the liquidity issues experienced in global credit and capitalmarkets, the ARS held by us at June 30, 2008 have experienced multiplefailed auctions as the amount of securities submitted for sale has exceeded theamount of purchase orders. As of June 30, 2008 and July 29, 2008, allsecurities still maintained the original credit ratings (from Moodys InvestorService and Standard and Poors) from date of purchase and continue to payinterest according to their stated terms. On July 24, 2008, Fitch Ratings did downgrade three of oursecurities from AAA to A. Based upon published reports, this downgrade wasbased upon Fitch’s updating its rating criteria as well as their opinion of thedeterioration in the average portfolio quality. The below table providesadditional detail as to the composition of our auction rate securities as wellas the year of issue.

 
| **As of June 30, 2008** | ** ** | **Amortized cost** | ** ** | **Year of Issue** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Bank Trust Preferred notes                  |       | $                       | 30.0       |                        | 2003       |   |
| Collaterized Debt Obligation                |       | 25.6                    |       | 2003 - 2004                 |       |
| Credit Linked Notes                         |       | 90.3                    |       | 2007                        |       |
| Corporate                                   |       | 5.9                     |       | 2006                        |       |
| Total                                       |       | $                       | 151.8      |                        |       |   |

 

The estimatedmarket value of our ARS holdings at June 30, 2008 was $71.5 million, whichreflects a $80.3 million adjustment to the principal value of $151.8 million.Based upon our evaluation of the structure of our ARS holdings and currentmarket estimates of fair value, including fair value estimates from issuingbanks, we recorded an unrealized pre-tax loss of $56.9 million ($34.9 millionafter-tax) as a temporary decline in value that has been recorded in other comprehensiveincome as a reduction in shareholders’ equity. Of this amount, we haverecognized $12.8 million ($7.8 million after-tax) in the second quarter and$25.5 million ($15.6 million after-tax) in the first six months of 2008. Wealso have recorded an other-than-temporary impairment of $1.7 million ($1.0million after-tax) in the second quarter and $2.5 million ($1.5 millionafter-tax) in the first six months of 2008 that was recorded as non-operatingincome (expense).

 

Historically,given the liquidity created by the auctions, ARS were presented as currentassets under marketable securities on our balance sheet. Given the failedauctions, our ARS are illiquid until there is a successful auction for them.Accordingly, the entire amount of such remaining ARS has been reclassified fromcurrent to non-current assets on our balance sheet.

 

If uncertaintiesin the credit and capital markets continue, these markets deteriorate furtheror we experience any ratings downgrades on any investments in our portfolio (includingon ARS), we may incur additional impairments to our investment portfolio, whichcould negatively affect our financial condition, results of operations and cashflow. We believe that based on the company’s current cash, cash equivalents andmarketable securities balances at June 30, 2008 and other availableliquidity, the current lack of liquidity in the credit and capital markets willnot have a material impact on our liquidity, cash flow, financial flexibilityor our ability to fund our operations.

 

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The followingdetails our debt ratings as of July 29, 2008:

 
| ** **   | ** ** | **Moody’s  Investor Service** | ** ** | **Standard &  Poor’s** |
|--------------|------------|------------------------------------|------------|--------------------------------------|
| Senior Notes |       | Ba2                                |       | BB+-                                 |

 

 

**POTENTIAL IMPAIRMENTS**

 

We continue to review several mills and investmentsfor potential impairments. Management currently believes we have adequatesupport for the carrying value of each of these assets based upon theanticipated cash flows that result from our estimates of future demand, pricingand production costs assuming certain levels of planned capital expenditures.However, should the markets for our products continue to remain at levelssignificantly below cycle average pricing or should we decide to invest capitalin alternative projects, it is possible that we will be required to recordfurther impairment charges.

 

We also reviewfrom time to time possible dispositions of various assets in light of currentand anticipated economic and industry conditions, our strategic plan and otherrelevant factors. Because a determination to dispose of particular assets canrequire management to make assumptions regarding the transaction structure ofthe disposition and to estimate the net sales proceeds, which may be less thanprevious estimates of undiscounted future net cash flows, we may be required torecord impairment charges in connection with decisions to dispose of assets.

 

As of June 30,2008, we were engaged in discussions relating to a possible sale of  a non operating manufacturing complex inQuebec, Canada.  Should these discussionsresult in the sale of this permanently curtailed complex, we may be required torecord an impairment charge with respect to the affected assets.

 

**Item 3. Quantitativeand Qualitative Disclosures about Market Risk**

 

A portion of our outstanding debt bears interest atvariable rates and accordingly is sensitive to changes in interest rates.Interest rate changes would result in gains or losses in the market value ofour debt portfolio due to differences in market interest rates and the rates atthe inception of the debt agreements. Based upon our indebtedness at June 30,2008, a 100 basis point interest rate change would impact the pre-tax netincome and cash flow by $0.8 million annually.

 

Our international operations have exposure to foreigncurrency rate risks, primarily due to fluctuations in the Canadian dollar.Although we have in the past entered into foreign exchange contracts associatedwith certain of our indebtedness and continue to enter into foreign exchangecontracts associated with major equipment purchases to manage a portion of theforeign currency rate risk, we historically have not entered into materialcurrency rate hedges with respect to our exposure from operations, although wemay do so in the future.

 

Some of our products are sold as commodities andtherefore sales prices fluctuate daily based on market factors over which wehave little or no control. The most significant commodity product we sell isOSB. Based upon an assumed annual production capacity of 6.1 billion squarefeet (3/8” basis) or 5.2 billion square feet (7/16” basis), a $1 change in theannual average price on 7/16” basis would change annual pre-tax profits byapproximately $5.2 million.

 

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

 

**Item 4.  Controls and Procedures**

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer and Chief FinancialOfficer have carried out, as of June 30, 2008, with the participation ofLP’s management, an evaluation of the effectiveness of our disclosure controlsand procedures, as defined in Rule 13a-15(e) under the SecuritiesExchange Act (the “Act”). Based upon this evaluation, the Chief ExecutiveOfficer and Chief Financial Officer have concluded that LP’s disclosurecontrols and procedures are effective to provide

 

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reasonable assurance that material informationrequired to be disclosed by us in reports we file under the Act is recorded,processed, summarized and reported within the time periods specified in the SECrules and forms and that information required to be disclosed by us in thereports we file or submit under the Act is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate to allow timely decisions regarding required disclosure.

 

There were no changes in our internal control overfinancial reporting that occurred during our most recently completed fiscalquarter that materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIESSUMMARY OF PRODUCTION VOLUMES (1)

 

The following table setsforth production volumes for the quarter and six month periods ended June 30,2008 and 2007.

 
| ** **                                                                                        | ** ** | **Quarter Ended June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                        | ** ** | **2008**                                 | ** ** | **2007**                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                              |       |                                     |       |                                             |       |   |   |   |   |
| Oriented strand board, million square feet 3/8”  basis (1)                                   |       | 1,029                                    |       | 1,458                                            |       | 2,096 |   | 2,808 |   |
|                                                                                              |       |                                     |       |                                             |       |   |   |   |   |
| Oriented strand board, million square feet 3/8”  basis (produced by wood-based siding mills) |       | 54                                       |       | 72                                               |       | 167 |   | 114 |   |
|                                                                                              |       |                                     |       |                                             |       |   |   |   |   |
| Wood-based siding, million square feet 3/8” basis                                            |       | 223                                      |       | 247                                              |       | 435 |   | 489 |   |
|                                                                                              |       |                                     |       |                                             |       |   |   |   |   |
| Engineered I-Joist, million lineal feet (1)                                                       |       | 22                                       |       | 36                                               |       | 41 |   | 71 |   |
|                                                                                              |       |                                     |       |                                             |       |   |   |   |   |
| Laminated veneer lumber (LVL), thousand cubic feet                                                |       | 1,628                                    |       | 2,165                                            |       | 3,144 |   | 4,331 |   |

 

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(1) Includes volumesproduced by joint venture operations and sold to LP or through exclusive salesarrangements.

 

 

INDUSTRY PRODUCT TRENDS

 

The following table sets forth the average wholesaleprice of OSB in the United States for the periods specified in dollars per1,000 square feet.

 
| ** **         | ** ** | **OSB**                                        | ** ** |
|--------------------|------------|------------------------------------------------|------------|
| ** **         | ** ** | **N. Central 7/16” Basis** | ** ** |
| Annual Average     |       |                                           |       |
| 1998               |       | 205                                            |       |
| 1999               |       | 260                                            |       |
| 2000               |       | 206                                            |       |
| 2001               |       | 159                                            |       |
| 2002               |       | 160                                            |       |
| 2003               |       | 293                                            |       |
| 2004               |       | 370                                            |       |
| 2005               |       | 320                                            |       |
| 2006               |       | 210                                            |       |
| 2007 1st Qtr. Avg. |       | 146                                            |       |
| 2007 2nd Qtr. Avg. |       | 151                                            |       |
| 2008 1st Qtr. Avg. |       | 138                                            |       |
| 2008 2nd Qtr. Avg. |       | 174                                            |       |

 

Source:  *Random Lengths*

 

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**PART II -OTHER INFORMATION**

 

**Item 1.****Legal Proceedings.**

 

The description of certain legal and environmentalmatters involving LP set forth in Part I of this report under “Note 18 –Contingency Reserves” is incorporated herein by reference.

 

**Item 1A. Risk Factors.**

 

You should be aware that the occurrence of any of theevents described in this Risk Factors section and elsewhere in this report orin any other of our filings with the SEC could have a material adverse effect onour business, financial position, results of operations and cash flows.  In evaluating us, you should considercarefully, among other things, the risks described below and the mattersdescribed in “About Forward-Looking Statements.”

 

*Cyclical industry conditions andcommodity pricing have and may continue to adversely affect our financialcondition and results of operations.*Our operating results reflect the general cyclicalpattern of the building products industry. Demand for our products correlatesto a significant degree to the level of residential construction activity inNorth America, which historically has been characterized by significantcyclicality.  This cyclicality isinfluenced by a number of factors, including longer-term interest rates, whichin recent years have been at relatively low levels, and the availability ofmortgage financing, which has recently declined.  A significant increase in longer-terminterest rates, or the occurrence of other events that reduce levels ofresidential construction activity, could have a material adverse effect on ourfinancial condition, results of operations and cash flows. Our primary product,OSB, and a significant portion of our raw materials are globally tradedcommodity products.  In addition, ourproducts are subject to competition from manufacturers worldwide.  Historical prices for our products have beenvolatile, and we, like other participants in the building products industry,have limited influence over the timing and extent of price changes for ourproducts.  Product pricing issignificantly affected by the relationship between supply and demand in thebuilding products industry.  Productsupply is influenced primarily by fluctuations in available manufacturingcapacity.  Demand is affected by thestate of the economy in general and a variety of other factors.  The level of new residential constructionactivity and home repair and remodeling activity primarily affects the demandfor our building products.  Demand isalso subject to fluctuations due to changes in economic conditions, interestrates, the availability of mortgage financing, population growth, weatherconditions and other factors.  We are notable to predict with certainty market conditions and selling prices for ourproducts.  We cannot assure you thatprices for our products will not decline from current levels.  A prolonged and severe weakness in themarkets for one or more of our principal products, particularly OSB, couldseriously harm our financial condition and results of operations and ourability to satisfy our cash requirements, including the payment of interest andprincipal on our debt.

 

*We have a high degree of productconcentration.*OSBaccounted for about 49% of our sales in 2007 and 55% of our sales in 2006 andwe expect OSB sales to continue to account for a substantial portion of ourrevenues and results of operations in the future. Concentration of our businessin the OSB market further increases our sensitivity to commodity pricing andprice volatility. We cannot assure you that pricing for OSB or our otherproducts will not decline from current levels.

 

*Increased industry productioncapacity for OSB could constrain our operating margins for the foreseeablefuture.*Accordingto Resource Information Systems, Inc. (RISI), an industry market researchorganization, total North American OSB annual production capacity is projectedto increase by approximately 12.3 billion square feet in the 2006 to 2012period.  RISI has projected that totalNorth American demand for OSB will increase by about 13.2 billion square feetduring the same period.  If increases inOSB production capacity exceed increases in OSB demand, OSB could haveconstrained operating margins for the foreseeable future.

 

*Intense competition in the buildingproducts industry could prevent us from increasing or sustaining our net salesand profitability. *The markets for our products are highlycompetitive.  Our competitors range fromvery large, fully integrated forest and building products firms to smallerfirms that may manufacture only one or a few types of products.  We also compete less directly with firms thatmanufacture substitutes for wood building products.  Many of our competitors have greaterfinancial and other resources than we do, and certain of the mills operated byour competitors may be lower-cost producers than the mills operated by us.

 

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*Our results of operations may beharmed by potential shortages of raw materials and increases in raw material costs.*The mostsignificant raw material used in our operations is wood fiber.  We currently obtain about 63% of our woodfiber requirements in the open market. Wood fiber is subject to commodity pricing, which fluctuates on thebasis of market factors over which we have no control.  In addition, the cost of various types ofwood fiber that we purchase in the market has at times fluctuated greatlybecause of governmental, economic or industry conditions.  In addition to wood fiber, we also use asignificant quantity of various resins in our manufacturing processes.  Resin product costs are influenced by changesin the prices or availability of raw materials used to produce resins,primarily petroleum products, as well as demand for and availability of resinproducts. Selling prices of our products have not always increased in responseto raw material cost increases.  We areunable to determine to what extent, if any, we will be able to pass any futureraw material cost increases through to our customers through product priceincreases.  Our inability to passincreased costs through to our customers could have a material adverse effecton our financial condition, results of operations and cash flows.

 

Many of the Canadian forestlands also are subject tothe constitutionally protected treaty or common-law rights of the aboriginalpeoples of Canada. Most of British Columbia is not covered by treaties and, asa result, the claims of British Columbia’s aboriginal peoples relating toforest resources are largely unresolved, although many aboriginal groups areactively engaged in treaty discussions with the governments of British Columbiaand Canada. Final or interim resolution of claims brought by aboriginal groupsare expected to result in additional restrictions on the sale or harvest oftimber and may increase operating costs and affect timber supply and prices inCanada. It is possible that, over the long term, such claims could have anadverse effect on our business, financial condition and results of operations.

 

*Our operations require substantialcapital*.  Capital expenditures for expansion orreplacement of existing facilities or equipment or to comply with futurechanges in environmental laws and regulations may be substantial. Although wemaintain our production equipment with regular periodic and scheduledmaintenance, we cannot assure you that key pieces of equipment in our variousproduction processes will not need to be repaired or replaced or that we willnot incur significant additional costs associated with environmentalcompliance.  The costs of repairing orreplacing such equipment and the associated downtime of the affected productionline could have a material adverse effect on our financial condition, results ofoperations and cash flow.  Based on ourcurrent operations, we believe our cash flow from operations and other capitalresources will be adequate to meet our operating needs, capital expendituresand other cash requirements for the foreseeable future. If for any reason weare unable to provide for our operating needs, capital expenditures and othercash requirements on economic terms, we could experience a material adverseeffect on our business, financial condition, results of operations and cashflows.

 

*We are subject to significantenvironmental regulation and environmental compliance expenditures andliabilities. *Our businesses are subject to manyenvironmental laws and regulations, particularly with respect to discharges ofpollutants and other emissions on or into land, water and air, and the disposaland remediation of hazardous substances or other contaminants and, in the past,the restoration and reforestation of timberlands.  Compliance with these laws and regulations isa significant factor in our business.  Wehave incurred and expect to continue to incur significant expenditures tocomply with applicable environmental laws and regulations.  Moreover, some or all of the environmentallaws and regulations to which we are subject could become more stringent in thefuture.  Our failure to comply withapplicable environmental laws and regulations and permit requirements couldresult in civil or criminal fines or penalties or enforcement actions,including regulatory or judicial orders enjoining or curtailing operations orrequiring corrective measures, installation of pollution control equipment orremedial actions.

 

Some environmental laws and regulations imposeliability and responsibility on present and former owners, operators or usersof facilities and sites for contamination at such facilities and sites withoutregard to causation or knowledge of contamination.  In addition, we occasionally evaluate variousalternatives with respect to our facilities, including possible dispositions orclosures.  Investigations undertaken inconnection with these activities may lead to discoveries of contamination thatmust be remediated, and closures of facilities may trigger compliancerequirements that are not applicable to operating facilities.  Consequently, we cannot assure you thatexisting or future circumstances or developments with respect to contaminationwill not require significant expenditures by us.

 

*We are involved in variousenvironmental matters and product liability and other legal proceedings andsubject to various product warranty claims. The outcome of these matters and proceedings and the magnitude ofrelated costs and liabilities are subject to uncertainties.*The conduct of our business involves theuse of hazardous substances, the generation of contaminants and pollutants, thesale of products and the making of product warranties.  In addition,

 

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the end-users of many of our products are members ofthe general public. We currently are and from time to time in the future willbe involved in a number of environmental matters and legal proceedings,including legal proceedings involving anti-trust, warranty or non-warrantyproduct liability claims and other claims, including claims for wrongful death,personal injury and property damage alleged to have arisen out of the use byothers of our  or our predecessorsproducts or the use or release by us or our predecessors of hazardoussubstances. Environmental matters and legal matters and proceedings, includingclass action settlements relating to certain of our products, have in the pastcaused and in the future may cause us to incur substantial costs.  We have established contingency reserves inour consolidated financial statements with respect to the estimated costs ofexisting environmental matters and legal proceedings to the extent that ourmanagement has determined that such costs are both probable and reasonablyestimable as to amount.  However, suchreserves are based upon various estimates and assumptions relating to futureevents and circumstances, all of which are subject to inherentuncertainties.  We regularly monitor ourestimated exposure to environmental and litigation loss contingencies and, asadditional information becomes known, may change our estimatessignificantly.  However, no estimate ofthe range of any such change can be made at this time.  We may incur costs in respect of existing andfuture environmental matters and legal proceedings as to which no contingencyreserves have been established.  Wecannot assure you that we will have sufficient resources available to satisfythe related costs and expenses associated with these matters and proceedings.

 

*The valuation of our investment inauction-rate securities (ARS) is subject to uncertainties that are difficult topredict.*  With the liquidity issues experienced inglobal credit and capital markets, the ARS held by us have experienced multiplefailed auctions as the amount of securities submitted for sale has exceeded theamount of purchase orders.  Given thefailed auctions, the values of our ARS have been adversely affected.  Factors that may further impact the valuationof our ARS include changes to credit ratings of the securities as well as tothe underlying assets supporting those securities, rates of default of theunderlying assets, underlying collateral value, discount rates, counterpartyrisk and ongoing strength and quality of market credit and liquidity.  If uncertainties in the credit and capitalmarkets continue, these markets deteriorate further or we experience anyratings downgrades on any investments in our portfolio (including our ARS), wemay incur additional impairments to our investment portfolio, which couldnegatively affect our financial condition, results of operations and cashflows.

 

*Settlements of tax exposures may exceed the amountswe have established for known estimated tax exposures.*We maintain reserves for known estimatedtax exposures in federal, state and international jurisdictions and uncertaintax positions. Significant income tax exposures may include potentialchallenges to intercompany pricing, the treatment of financing, acquisition anddisposition transactions, the use of hybrid entities and other matters. Theseexposures are settled primarily through the closure of audits with the taxingjurisdictions and, on occasion, through the judicial process, either of whichmay produce a result inconsistent with past estimates. We believe that we haveestablished appropriate reserves for known estimated exposures; however, ifactual results differ materially from our estimates we could experience amaterial adverse affect on our financial condition, results of operations andcash flows.

 

*Fluctuations in foreign currency exchange ratescould result in currency exchange losses.*A significant portion of our operations are conductedthrough foreign subsidiaries. The functional currency for our Canadiansubsidiary is the U.S. dollar. The financial statements of this foreignsubsidiary are remeasured into U.S. dollars using the historical exchange ratefor property, plant and equipment, timber and timberlands, goodwill, equity andcertain other non-monetary assets and liabilities and related depreciation andamortization on these assets and liabilities. These transaction gains or lossesare recorded in foreign exchange gains (losses) in the income statement. Thefunctional currency of our Chilean subsidiary is the Chilean Peso and thefunctional currency in our Brazilian subsidiary is the Brazilian Real.  Translation adjustments, which are based uponthe exchange rate at the balance sheet date for assets and liabilities and theweighted average rate for the income statement, are recorded in the AccumulatedComprehensive Income (Loss) section of Stockholders’ Equity.  Therefore, a strengthening or furtherstrengthening of the Canadian dollar, the Chilean Peso or the Brazilian Realrelative to the U.S. dollar may have a material adverse effect on our financialcondition and results of operations.

 

**Item 2. Unregistered Sales of Equity Securitiesand Use of Proceeds.**

 

None.

 

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**Item 3. Defaults Upon Senior Securities**

 

None.

 

**Item 4. Submission of Matters to a Vote ofSecurity Holders**

 

None.

 

**Item 5. Other Information**

 

None.

 

**Item 6. Exhibits**

 

31.1                   Certification of Chief Executive OfficerPursuant to Rule 13a-14(a).

 

31.2                   Certification of Chief Financial OfficerPursuant to Rule 13a-14(a).

 

32.1                   Certifications pursuant to § 906 of theSarbanes-Oxley Act of 2002.

 

99.1                   Description of Common Stock

 

LP hereby agrees to furnish supplementally to the SECupon its request any schedules and similar documents omitted pursuant to Item601(b)(2) of Regulation S-K and any instruments omitted pursuant to Item601 (b)(4)(iii) of Regulation S-K.

 

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SIGNATURES

 

Pursuant to therequirements of the Securities and Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                            | LOUISIANA-PACIFIC CORPORATION                               |
|---------------------------------|-------------------------------------------------------------|
|                            |                                                        |
|                            |                                                        |
| Date:  August 4 2008  | BY:  RICHARD W. FROST                                  |
|                            |                                                        |
|                            | Richard W. Frost                                            |
|                            | Chief Executive Officer                                     |
|                            |                                                        |
|                            |                                                        |
| Date:  August 4, 2008 | BY:     CURTIS M. STEVENS               |
|                            |                                                        |
|                            | Curtis M. Stevens                                           |
|                            | Executive Vice President Administration and Chief Financial |
|                            | Officer                                                     |
|                            | (Principal Financial Officer)                               |

** **

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