Louisiana-Pacific Corp 10-Q for FY2023 Q1
Louisiana-Pacific Corp (LPX)
10-Q
2023-05-03
For: 2023-03-31
View Original
Added on
April 11, 2026
About this 10-Q
Louisiana-Pacific Corp filed this 10-Q on May 3, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $584M
- down 50.0% from $1.17B a year earlier
- Net income
- $21M
- down 95.7% from net income of $484M a year earlier
- Diluted EPS
- $0.29
- down 94.8% from $5.60 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the Quarterly Period Ended March 31, 2023
Commission File Number 1-7107
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (615) 986 - 5600
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| x | Accelerated filer | o | |||||||||
| Non-accelerated filer | o | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 72,043,353 shares of common stock, $1 par value, outstanding as of May 1, 2023.
Except as otherwise specified and unless the context otherwise requires, references to "LP," the “Company,” “we,” “us,” and “our” refer to Louisiana-Pacific Corporation and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their businesses and other matters as long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statements. This quarterly report on Form 10-Q contains, and other reports and documents we file with, or furnish to, the Securities and Exchange Commission (SEC) may contain, forward-looking statements. These statements are based upon the beliefs and assumptions of, and on information available to, our management.
The following statements are or may constitute forward-looking statements: (1) statements preceded by, followed by or that include words like “may,” “will,” “could,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” “potential,” “continue,” “likely,” or “future” or the negative or other variations thereof and (2) other statements regarding matters that are not historical facts, including without limitation, plans for product development, forecasts of future costs and expenditures, possible outcomes of legal proceedings, capacity expansion, and other growth initiatives, and the adequacy of reserves for loss contingencies.
Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following:
•changes in governmental fiscal and monetary policies, including tariffs and levels of employment;
•changes in general and global economic conditions, including impacts from global pandemics, rising inflation, supply chain disruptions and the military conflict between Russia and Ukraine;
•changes in the cost and availability of capital;
•changes in the level of home construction and repair and remodel activity;
•changes in competitive conditions and prices for our products;
•changes in the relationship between supply of and demand for building products;
•changes in the financial or business conditions of third-party wholesale distributors and dealers;
•changes in the relationship between the supply of and demand for raw materials, including wood fiber and resins, used in manufacturing our products;
•changes in the cost and availability of energy, primarily natural gas, electricity, and diesel fuel;
•changes in the cost and availability of transportation;
•impact of manufacturing our products internationally;
•difficulties in the launch or production ramp-up of newly introduced products;
•impacts from public health issues (including global pandemics) on the economy, demand for our products or our operations, including the actions and recommendations of governmental authorities to contain such public health issues;
•unplanned interruptions to our manufacturing operations, such as explosions, fires, inclement weather, natural disasters, accidents, equipment failures, labor shortages or disruptions, transportation interruptions, supply interruptions, public health issues (including pandemics and quarantines), riots, civil insurrection or social unrest, looting, protests, strikes, and street demonstrations;
•changes in other significant operating expenses;
•changes in currency values and exchange rates between the U.S. dollar and other currencies, particularly the Canadian dollar, Brazilian real, and Chilean peso;
•changes in, and compliance with, general and industry-specific laws and regulations, including environmental and health and safety laws and regulations, the U.S. Foreign Corrupt Practices Act and anti-bribery laws, laws related to our international business operations, and changes in building codes and standards;
•changes in tax laws and interpretations thereof;
•changes in circumstances giving rise to environmental liabilities or expenditures;
•warranty costs exceeding our warranty reserves;
2
•challenges to or exploitation of our intellectual property or other proprietary information by others in the industry;
•the resolution of existing and future product-related litigation, environmental proceedings and remediation efforts, and other legal or environmental proceedings or matters;
•the effect of covenants and events of default contained in our debt instruments;
•the amount and timing of any repurchases of our common stock and the payment of dividends on our common stock, which will depend on market and business conditions and other considerations;
•cybersecurity events affecting our information technology systems or those of our third-party providers and the related costs and impact of any disruption on our business; and
•acts of public authorities, war, political or civil unrest, natural disasters, fire, floods, earthquakes, inclement weather, and other matters beyond our control.
In addition to the foregoing and any risks and uncertainties specifically identified in the text surrounding forward-looking statements, any statements in the reports and other documents filed by us with the SEC that warn of risks or uncertainties associated with future results, events, or circumstances identify important factors that could cause actual results, events, and circumstances to differ materially from those reflected in the forward-looking statements.
The forward-looking statements that we make or that are made by others on our behalf are based on our knowledge of our business and our operating environment and assumptions that we believe to be or will believe to be reasonable when such forward-looking statements were or will be made. As a consequence of the factors described above, the other risks, uncertainties, and factors we disclose below and in the reports and other documents filed by us with the SEC, other risks not known to us at this time, changes in facts, assumptions not being realized or other circumstances, our actual results may differ materially from those discussed in or implied or contemplated by our forward-looking statements. Consequently, this cautionary statement qualifies all forward-looking statements we make or that are made on our behalf, including those made herein and incorporated by reference herein. We cannot assure you that the results or developments expected or anticipated by us will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for us or affect us, our business, our operations or our operating results in the manner or to the extent we expect. We caution readers not to place undue reliance on such forward-looking statements, which speak only as of their dates. We undertake no obligation to revise or update any of the forward-looking statements to reflect subsequent events or circumstances except to the extent required by applicable law.
ABOUT THIRD-PARTY INFORMATION
In this quarterly report on Form 10-Q, we rely on and refer to information regarding industry data obtained from market research, publicly available information, industry publications, U.S. government sources, and other third parties. Although we believe the information is reliable, we cannot guarantee the accuracy or completeness of the information and have not independently verified it.
3
PART I - FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income
Dollar and share amounts in millions, except per share amounts
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net sales | $ | $ | |||||||||||||||||||||
| Cost of sales | ( | ( | |||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general, and administrative expenses | ( | ( | |||||||||||||||||||||
| Other operating credits and charges, net | ( | ( | |||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||
| Investment income | |||||||||||||||||||||||
| Other non-operating items | ( | ( | |||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes | ( | ( | |||||||||||||||||||||
| Equity in unconsolidated affiliate | |||||||||||||||||||||||
| Income from continuing operations | |||||||||||||||||||||||
| Income from discontinued operations, net of income taxes | |||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Net (income) loss attributed to noncontrolling interest | ( | ||||||||||||||||||||||
| Net income attributed to LP | $ | $ | |||||||||||||||||||||
| Net income attributed to LP per share of common stock: | |||||||||||||||||||||||
| Income per share continuing operations - basic | $ | $ | |||||||||||||||||||||
| Income per share discontinued operations - basic | |||||||||||||||||||||||
| Net income per share - basic | $ | $ | |||||||||||||||||||||
| Income per share continuing operations - diluted | $ | $ | |||||||||||||||||||||
| Income per share discontinued operations - diluted | |||||||||||||||||||||||
| Net income per share - diluted | $ | $ | |||||||||||||||||||||
| Average shares of common stock used to compute net income per share: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
4
Condensed Consolidated Statements of Comprehensive Income
Dollar amounts in millions
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||
| Changes in defined benefit pension plans | |||||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Comprehensive (income) loss associated with noncontrolling interest | ( | ||||||||||||||||||||||
| Comprehensive income attributed to LP | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
5
Condensed Consolidated Balance Sheets
Dollar amounts in millions
(Unaudited)
| March 31, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Receivables, net of allowance for doubtful accounts of $1 million as of March 31, 2023 and December 31, 2022 | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Timber and timberlands | |||||||||||
| Property, plant, and equipment, net | |||||||||||
| Operating lease assets, net | |||||||||||
| Goodwill and other intangible assets | |||||||||||
| Investments in and advances to affiliates | |||||||||||
| Restricted cash | |||||||||||
| Other assets | |||||||||||
| Deferred tax asset | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Accounts payable and accrued liabilities | $ | $ | |||||||||
| Income taxes payable | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred income taxes | |||||||||||
| Non-current operating lease liabilities | |||||||||||
| Contingency reserves, excluding current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | $ | $ | |||||||||
| Redeemable noncontrolling interest | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Treasury stock, | ( | ( | |||||||||
| Accumulated comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
6
Condensed Consolidated Statements of Cash Flows
Dollar amounts in millions
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Adjustments to net income: | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Gain on sale of assets | ( | ||||||||||||||||||||||
| Pension loss due to settlement | 6 | — | |||||||||||||||||||||
| Deferred taxes | ( | ||||||||||||||||||||||
| Other adjustments, net | |||||||||||||||||||||||
| Changes in assets and liabilities (net of acquisitions and divestitures): | |||||||||||||||||||||||
| Receivables | ( | ( | |||||||||||||||||||||
| Inventories | ( | ( | |||||||||||||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||||||||||||||
| Accounts payable and accrued liabilities | ( | ( | |||||||||||||||||||||
| Income taxes payable, net of receivables | ( | ||||||||||||||||||||||
| Net cash (used) provided by operating activities | ( | ||||||||||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||||||
| Property, plant, and equipment additions | ( | ( | |||||||||||||||||||||
| Proceeds from sales of assets | |||||||||||||||||||||||
| Other investing activities | |||||||||||||||||||||||
| Net cash used in investing activities | ( | ( | |||||||||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||||||
| Payment of cash dividends | ( | ( | |||||||||||||||||||||
| Purchase of stock | ( | ||||||||||||||||||||||
| Other financing activities | ( | ( | |||||||||||||||||||||
| Net cash used in financing activities | ( | ( | |||||||||||||||||||||
| EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | |||||||||||||||||||||||
| Net (decrease) increase in cash, cash equivalents, and restricted cash | ( | ||||||||||||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | |||||||||||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||||||||||||||
| Supplemental cash flow information: | |||||||||||||||||||||||
| Cash paid for income taxes, net | $ | $ | |||||||||||||||||||||
| Cash paid for interest, net | $ | $ | |||||||||||||||||||||
| Unpaid capital expenditures | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
7
Condensed Consolidated Statements of Stockholders’ Equity
Dollar and share amounts in millions, except per share amounts
(Unaudited)
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income attributed to LP | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Dividends paid ($ | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of shares under stock plans | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Taxes paid related to net settlement of stock-based awards | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Compensation expense associated with stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2023 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income attributed to LP | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Dividends paid ($ | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of shares under stock plans | — | — | (1) | ( | — | — | |||||||||||||||||||||||||||||||||||||||||
| Taxes paid related to net settlement of stock-based awards | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Purchase of stock | ( | ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Compensation expense associated with stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
8
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND BASIS FOR PRESENTATION
Nature of Operations
Louisiana-Pacific Corporation and our subsidiaries are a leading provider of high-performance building solutions that meet the demands of builders, remodelers, and homeowners worldwide. Serving the new home construction, repair and remodeling, and outdoor structures markets, we have leveraged our expertise to become an industry leader known for innovation, quality, reliability, and sustainability. The principal customers for our building solutions are retailers, wholesalers, and homebuilding and industrial businesses in North America and South America, with limited sales to Asia, Australia, and Europe. The Company operates 22 plants across the U.S., Canada, Chile, and Brazil through foreign subsidiaries, and operates additional facilities through a joint venture. References to "LP," the "Company," "we," "our," and "us" refer to Louisiana-Pacific Corporation and its consolidated subsidiaries as a whole.
During the year ended December 31, 2022, we sold our 50% equity interest in two joint ventures that produce I-joists to Resolute Forest Products Inc., and we sold the remaining assets related to the EWP segment to Pacific Woodtech Corporation, a Washington corporation, and Pacific Woodtech Canada Holdings Limited, a British Columbia limited company (collectively, the Purchaser). Accordingly, the results of our previously-owned EWP segment have been presented as discontinued operations in our Condensed Consolidated Statements of Income for all periods presented. See "Note 7 –Discontinued Operations" for additional information.
Basis for Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. These Condensed Consolidated Financial Statements and related Notes should be read in conjunction with our annual report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 21, 2023 (2022 Annual Report on Form 10-K). Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.
NOTE 2. REVENUE
The following table presents our reportable segment revenues, disaggregated by revenue source. We disaggregate revenue from contracts with customers into major product lines. We have determined that disaggregating revenue into these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
As noted in the segment reporting information in Note 16 below, our reportable segments are Siding, Oriented Strand Board (OSB), and South America (dollar amounts in millions).
9
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||
| By Product type and family: | Siding | OSB | South America | Other | Inter-segment | Total | |||||||||||||||||||||||||||||
| Value-add | |||||||||||||||||||||||||||||||||||
| Siding Solutions | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| OSB - Structural Solutions | |||||||||||||||||||||||||||||||||||
| Commodity | |||||||||||||||||||||||||||||||||||
| OSB - commodity | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Other products | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||||||
| By Product type and family: | Siding | OSB | South America | Other | Inter-segment | Total | |||||||||||||||||||||||||||||
| Value-add | |||||||||||||||||||||||||||||||||||
| Siding Solutions | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| OSB - Structural Solutions | ( | ||||||||||||||||||||||||||||||||||
| ( | |||||||||||||||||||||||||||||||||||
| Commodity | |||||||||||||||||||||||||||||||||||
| OSB - commodity | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Other products | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
Revenue is recognized when obligations under the terms of a contract (i.e., purchase orders) with our customers are satisfied; generally, this occurs with the transfer of control of our products at a point in time. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. The shipping cost incurred by us to deliver products to our customers is recorded in cost of sales. The expected costs associated with our warranties continue to be recognized as an expense when the products are sold.
Our businesses routinely incur customer program costs to obtain favorable product placement, promote sales of products, and maintain competitive pricing. Customer program costs and incentives, including rebates and promotion and volume allowances, are accounted for as deductions from Net sales at the time the program is initiated. These reductions from revenue are recorded at the time of sale or the implementation of the program based on management’s best estimates. Estimates are based on historical and projected experience for each type of program or customer. Volume allowances are accrued based on management’s estimation of customer volume achievement and other factors incorporated into customer agreements, such as new product purchases, store sell-through, and merchandising support. Management adjusts accruals when circumstances indicate (typically as a result of a change in volume expectations).
We ship some of our products to customers’ distribution centers on a consignment basis. We retain title to our products stored at the distribution centers. As our products are removed from the distribution centers by retailers and shipped to retailers’ stores, title passes from us to the retailers. At that time, we invoice the retailers and recognize revenue for these consignment transactions. We do not offer a right of return for products shipped to the retailers’ stores from the distribution centers.
10
NOTE 3. EARNINGS PER SHARE
Basic earnings per share is based on the weighted-average number of shares of common stock outstanding. Diluted earnings per share is based upon the weighted-average number of shares of common stock outstanding, plus all potentially dilutive securities that were assumed to be converted into common shares at the beginning of the period under the treasury stock method. This method requires that the effect of potentially dilutive common stock equivalents (stock options, stock-settled appreciation rights (SSARs), restricted stock units, and performance stock units) be excluded from the calculation of diluted earnings per share for the periods in which losses from continuing operations are reported because the effect is anti-dilutive.
The following table sets forth the computation of basic and diluted earnings per share (dollar and share amounts in millions, except per share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Income from continuing operations | $ | $ | |||||||||||||||||||||
| Net (income) loss attributed to noncontrolling interest | ( | ||||||||||||||||||||||
| Income attributed to LP from continuing operations | |||||||||||||||||||||||
| Income for discontinued operations, net of income taxes | |||||||||||||||||||||||
| Net income attributed to LP | $ | $ | |||||||||||||||||||||
| Weighted average common shares outstanding - basic | |||||||||||||||||||||||
| Dilutive effect of employee stock plans | |||||||||||||||||||||||
| Shares used for diluted earnings per share | |||||||||||||||||||||||
| Net income attributed to LP per share - basic: | |||||||||||||||||||||||
| Continuing operations | $ | $ | |||||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| Net income attributed to LP per share - basic | $ | $ | |||||||||||||||||||||
| Net income attributed to LP per share – diluted: | |||||||||||||||||||||||
| Continuing operations | $ | $ | |||||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| Net income attributed to LP per share - diluted | $ | $ | |||||||||||||||||||||
NOTE 4. FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We are required to classify these financial assets and liabilities into two groups: (i) recurring—measured on a periodic basis, and (ii) non-recurring—measured on an as-needed basis.
The fair value of the 3.625 % Senior Notes due in 2029 (2029 Senior Notes) was estimated to be $302 million and $306 million as of March 31, 2023 and December 31, 2022, respectively, based on market quotations. The 2029 Senior Notes and other long-term debt are categorized as Level 1 in the U.S. GAAP fair value hierarchy. Fair values are based on trading activity among the Company’s lenders and the average bid and ask price is determined using published rates.
In November 2022, LP entered into a Second Amended and Restated Credit Agreement with American AgCredit, PCA, as administrative agent and sole lead arranger, and CoBank, ACB, as letter of credit issuer (the Credit Agreement), relating to its revolving credit facility (as amended, the Amended Credit Facility). The Credit Agreement provides for a revolving credit facility in the principal amount of up to $550 million, with a $60 million sub-limit for letters of credit. The Credit Agreement, and all loans thereunder, become due on November 29, 2028.
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NOTE 5. RECEIVABLES
Receivables consisted of the following (dollar amounts in millions):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Trade receivables | $ | 112 | $ | 106 | |||||||
| Other receivables | 23 | 19 | |||||||||
| Income tax receivable | 15 | 4 | |||||||||
| Allowance for doubtful accounts | (1) | (1) | |||||||||
| Total | $ | 148 | $ | 127 | |||||||
Trade receivables are primarily generated by sales of our products to our wholesale and retail customers. Other receivables as of March 31, 2023 and December 31, 2022, primarily consist of sales tax receivables, vendor rebates, and other miscellaneous receivables.
NOTE 6. INVENTORIES
Inventories are valued at the lower of cost or net realizable value. Inventory cost includes materials, labor, and operating overhead. The major types of inventories (work in process is not material and is included in Semi-finished inventory) are as follows (dollar amounts in millions):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Logs | $ | 102 | $ | 59 | |||||||
| Other raw materials | 75 | 72 | |||||||||
| Semi-finished inventories | 34 | 25 | |||||||||
| Finished products | 204 | 180 | |||||||||
| Total | $ | 415 | $ | 337 | |||||||
NOTE 7. DISCONTINUED OPERATIONS
Engineered Wood Products (EWP)
In March 2022, the Company sold its 50 % equity interest in two joint ventures that produce I-joists to Resolute Forest Products Inc. for $59 million, resulting in a pre-tax gain associated with the sale of $39 million recorded in the year ended December 31, 2022 within Income from discontinued operations, net of income taxes in the Condensed Consolidated Statements of Income.
On August 1, 2022, the Company completed the sale of the assets related to the EWP segment to the Purchaser. As a result of the sale, the Company received $217 million in gross cash proceeds after taking into account working capital adjustments. The Company paid $12 million in direct transaction costs, resulting in net proceeds of $205 million. During the year ended December 31, 2022, the Company recorded a pre-tax gain of approximately $118 million within Income from discontinued operations, net of income taxes in the Condensed Consolidated Statements of Income.
Upon closing, the Company entered into the transition services agreement (TSA) with the Purchaser, pursuant to which the Company agreed to support the various activities of the EWP segment for a period not to exceed eight months, which concluded during the three months ended March 31, 2023. During the three months ended March 31, 2023, the Company collected $11 million on the Purchaser's behalf pursuant to the TSA. As of March 31, 2023, the
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Company had no amounts due to or due from the Purchaser.
The Company has classified the results of its EWP segment as discontinued operations in its Condensed Consolidated Statements of Income for the prior period presented. The following table presents the financial results of the EWP segment for the three months ended March 31, 2022 (dollar amounts in millions):
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||
| Net sales | $ | ||||||||||||||||||||||
| Cost of sales | ( | ||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general, and administrative expenses | ( | ||||||||||||||||||||||
| Income from operations of discontinued operations | |||||||||||||||||||||||
| Other non-operating items | |||||||||||||||||||||||
| Gain on disposal before income taxes | |||||||||||||||||||||||
| Income from discontinued operations before income taxes | |||||||||||||||||||||||
| Provision for income taxes | ( | ||||||||||||||||||||||
| Income from discontinued operations, net of income taxes | $ | ||||||||||||||||||||||
The following summarizes the total cash provided by operations and total cash provided by investing activities related to the EWP segment and included in the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 (dollar amounts in millions):
| Net cash provided by discontinued operating activities | $ | ||||||||||
| Net cash provided by discontinued investing activities | $ | ||||||||||
Net cash provided by discontinued investing activities for the three months ended March 31, 2022, includes $59 million of proceeds from the sale of our 50 % equity interest in two joint ventures that produce I-joists.
NOTE 8. GOODWILL AND OTHER INTANGIBLES
Goodwill and indefinite-lived intangible assets are not amortized and are subject to assessment for impairment by applying a fair value-based test on an annual basis, or more frequently if circumstances indicate a potential impairment. The Company’s annual assessment date is October 1.
Changes in goodwill and other intangible assets for the three months ended March 31, 2023, are provided in the following table (dollar amounts in millions):
Timber Licenses1 | Goodwill | Developed Technology | Trademarks | ||||||||||||||||||||
Beginning balance December 31, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| Amortization | ( | — | |||||||||||||||||||||
Ending balance March 31, 2023 | $ | $ | $ | $ | |||||||||||||||||||
1Timber licenses are included in Timber and timberlands on the Condensed Consolidated Balance Sheets.
NOTE 9. INCOME TAXES
For interim periods, we recognize income tax expense by applying the estimated annual effective income tax rate to year-to-date results unless this method does not result in a reliable estimate of year-to-date income tax expense. Each period, the income tax accrual is adjusted to the latest estimate, and the difference from the previously accrued year-to-date balance is adjusted in the current quarter. Changes in profitability estimates in various jurisdictions will impact our quarterly effective income tax rates.
The tax provision for income taxes from continuing operations for the three months ended March 31, 2023 and 2022, reflected an estimated annual effective tax rate of 28 % and 24 %, respectively, excluding discrete items
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discussed below. The total effective tax rate for continuing operations for the three months ended March 31, 2023 was 5 %, compared to 23 % for the comparable period in 2022.
We recognized net discrete tax benefits of $5 million and $9 million in the three months ended March 31, 2023 and 2022, respectively. The discrete benefits primarily relate to excess tax benefits from stock-based compensation and inflationary adjustments.
On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was signed into law. The IRA levies a 1% excise tax on net stock repurchases after December 31, 2022 and imposes a 15% corporate alternative minimum tax ("CAMT") for tax years beginning after December 31, 2022. The Company did not repurchase any shares during the three months ended March 31, 2023. CAMT is not expected to have a material impact on our results of operations or financial position.
NOTE 10. COMMITMENTS AND CONTINGENCIES
We maintain reserves for various contingent liabilities as follows (dollar amounts in millions):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Environmental reserves | $ | $ | |||||||||
| Other reserves | |||||||||||
| Total contingencies | |||||||||||
| Current portion (included in Accounts payable and accrued liabilities) | ( | ( | |||||||||
| Long-term portion | $ | $ | |||||||||
Estimates of our loss contingencies are based on various assumptions and judgments. Due to the numerous uncertainties and variables associated with these assumptions and judgments, both the precision and reliability of the resulting estimates of the related contingencies are subject to substantial uncertainties. We regularly monitor our estimated exposure to contingencies and, as additional information becomes known, may change our estimates significantly. While no estimate of the range of any such change can be made at this time, the amount that we may ultimately pay in connection with these matters could materially exceed, in either the near term or the longer term, the amounts accrued to date. Our estimates of our loss contingencies do not reflect potential future recoveries from insurance carriers except to the extent that recovery may, from time to time, be deemed probable as a result of an insurer’s agreement to payment terms.
Environmental Matters
We maintain a reserve for undiscounted estimated environmental loss contingencies. This reserve is primarily for estimated future costs of remediation of hazardous or toxic substances at numerous sites currently or previously owned by the Company. Our estimates of our environmental loss contingencies are based on various assumptions and judgments, the specific nature of which varies considering the particular facts and circumstances surrounding each environmental loss contingency. These estimates typically reflect assumptions and judgments as to the probable nature, magnitude, and timing of the required investigation, remediation, and/or monitoring activities and the probable cost of these activities, and in some cases, reflect assumptions and judgments as to the obligation or willingness and ability of third parties to bear a proportionate or allocated share of the cost of these activities. Due to the numerous uncertainties and variables associated with these assumptions and judgments, and the effects of changes in governmental regulation and environmental technologies, both the precision and reliability of the resulting estimates of the related contingencies are subject to substantial uncertainties. We regularly monitor our estimated exposure to environmental loss contingencies and, as additional information becomes known, may change our estimates significantly.
Other Proceedings
From time to time, we and our subsidiaries are parties to certain legal proceedings. Based on the information currently available, management believes the resolution of such proceedings will not have a material effect on our financial position, results of operations, cash flows, or liquidity.
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NOTE 11. IMPAIRMENT OF LONG-LIVED ASSETS
NOTE 12. PRODUCT WARRANTIES
We offer warranties on the sale of most of our products and record an accrual for estimated future claims. Such accruals are based upon historical experience and management’s estimate of the level of future claims. The activity in warranty reserves for the three months ended March 31, 2023 and 2022, is summarized in the following table (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Beginning balance | $ | $ | |||||||||||||||||||||
| Accrued to expense | |||||||||||||||||||||||
| Payments made | |||||||||||||||||||||||
| Total warranty reserves | |||||||||||||||||||||||
| Current portion of warranty reserves (included in Accounts payable and accrued liabilities) | ( | ( | |||||||||||||||||||||
| Long-term portion of warranty reserves (included in Other long-term liabilities) | $ | $ | |||||||||||||||||||||
NOTE 13. DEFINED BENEFIT PENSION PLANS
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Service cost | $ | $ | |||||||||||||||||||||
Other components of net periodic pension cost1: | |||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ||||||||||||||||||||||
| Amortization of prior service cost | |||||||||||||||||||||||
| Amortization of net loss | |||||||||||||||||||||||
| Net periodic pension costs before loss due to settlement | |||||||||||||||||||||||
| Loss due to settlement | |||||||||||||||||||||||
| Total net periodic pension cost | $ | $ | |||||||||||||||||||||
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In November 2021, the Company initiated the termination of our frozen U.S. and Canadian defined benefit pension plans (collectively, the Plan), which would result in the full settlement of the Company's Plan obligations. During the year ended December 31, 2022, the Company liquidated substantially all of the Plan assets to fund lump-sum distributions to participants and purchase non-participating group annuity contracts. As a result, a substantial portion of the Plan was settled during the year ended December 31, 2022. During the three months ended March 31, 2023, the Company completed the termination of the Plan resulting in recognition of non-cash, pre-tax charges of $6 million from Accumulated comprehensive loss to Other non-operating items in our Condensed Consolidated Statements of Income. Liquidation of remaining Plan assets in surplus of the defined benefit pension obligation will be made once the Plan satisfies all regulatory requirements, which is expected to be completed during 2023.
The changes recognized in Other comprehensive loss were as follows (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net actuarial gain (loss) and prior service (cost) arising during the period, net of tax | $ | $ | |||||||||||||||||||||
| Amortization of actuarial loss, prior service cost and settlements, net of tax | |||||||||||||||||||||||
| Total amounts recognized in Other comprehensive income | $ | $ | |||||||||||||||||||||
NOTE 14. ACCUMULATED COMPREHENSIVE LOSS
Accumulated comprehensive loss is provided in the following table for the three months ended March 31, 2023 and 2022 (dollar amounts in millions):
| Pension | Translation Adjustments | Other | Total | ||||||||||||||||||||
Balance at December 31, 2022 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
Reclassified to income statement, net of taxes1 | |||||||||||||||||||||||
| Translation adjustments | |||||||||||||||||||||||
Balance at March 31, 2023 | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Pension | Translation Adjustments | Other | Total | ||||||||||||||||||||
Balance at December 31, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Reclassified to income statement, net of taxes1 | |||||||||||||||||||||||
| Translation adjustments | |||||||||||||||||||||||
Balance at March 31, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
1 Amounts of actuarial loss and prior service cost are components of net periodic benefit cost. See Note 14 above for additional details.
NOTE 15. OTHER OPERATING AND NON-OPERATING ITEMS
Other operating credits and charges, net
Other operating credits and charges, net, is comprised of the following components (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Insurance recoveries | $ | $ | |||||||||||||||||||||
| Reorganization charges | ( | ( | |||||||||||||||||||||
| Environmental costs | |||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||
| Other operating credits and charges, net | $ | ( | $ | ( | |||||||||||||||||||
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Other non-operating items
Other non-operating items is comprised of the following components (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net periodic pension cost, excluding service cost | $ | $ | ( | ||||||||||||||||||||
| Pension settlement charges | ( | ||||||||||||||||||||||
| Foreign currency loss | ( | ( | |||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Other non-operating items | $ | ( | $ | ( | |||||||||||||||||||
NOTE 16. SELECTED SEGMENT DATA
We operate in three segments: Siding, OSB, and South America. Our business units have been aggregated into these three segments based upon the similarity of economic characteristics, customers, and distribution methods. Our results of operations are summarized below for each of these segments separately, as well as for the “Other” category, which comprises other products that are not individually significant.
We evaluate the performance of our business segments based on Net sales and segment Adjusted EBITDA. Accordingly, our chief operating decision maker evaluates performance and allocates resources based primarily on Net sales and segment Adjusted EBITDA for our business segments. Segment Adjusted EBITDA is defined as Income attributed to LP before interest expense, provision for income taxes, depreciation and amortization, and excludes stock-based compensation expense, loss on impairment attributed to LP, product-line discontinuance charges, other operating credits and charges, net, loss on early debt extinguishment, investment income, pension settlement charges, and other non-operating items.
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Information about our business segments is as follows (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Siding | $ | $ | |||||||||||||||||||||
| OSB | |||||||||||||||||||||||
| South America | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Intersegment sales | ( | ||||||||||||||||||||||
| Total sales | $ | $ | |||||||||||||||||||||
| NET INCOME TO ADJUSTED EBITDA RECONCILIATION | |||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Add (deduct): | |||||||||||||||||||||||
| Net loss (income) attributed to noncontrolling interest | ( | ||||||||||||||||||||||
| Income from discontinued operations, net of income taxes | ( | ||||||||||||||||||||||
| Income attributed to LP from continuing operations | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||
| Other operating credits and charges, net | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Investment income | ( | ( | |||||||||||||||||||||
| Pension settlement charges | |||||||||||||||||||||||
| Other non-operating items | |||||||||||||||||||||||
| Adjusted EBITDA | $ | $ | |||||||||||||||||||||
| SEGMENT ADJUSTED EBITDA | |||||||||||||||||||||||
| Siding | $ | $ | |||||||||||||||||||||
| OSB | |||||||||||||||||||||||
| South America | |||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| Corporate | ( | ( | |||||||||||||||||||||
| Total Adjusted EBITDA | $ | $ | |||||||||||||||||||||
NOTE 17. SUBSEQUENT EVENTS
In April 2023, the Company announced the shutdown of Entekra Holdings, LLC (Entekra), an off-site framing operation previously reported within our "other" operating segment, which is expected to result in a pre-tax, non-cash charges of between $25 million and $30 million in the second quarter of 2023.
In May 2023, the Company acquired substantially all of the assets of Wawa OSB Inc., an Ontario, Canada corporation, for $80 million . The acquisition was funded together with cash on hand and borrowings under the Amended Credit Facility.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q. The following discussion includes statements that are forward-looking statements that are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. See "Cautionary Statement Regarding Forward-Looking Statements."
General
We are a leading provider of high-performance building solutions that meet the demands of builders, remodelers, and homeowners worldwide. We have leveraged our expertise serving the new home construction, repair and remodeling, and outdoor structures markets to become an industry leader known for innovation, quality, reliability, and sustainability. Our manufacturing facilities are located in the U.S., Canada, Chile, and Brazil.
To serve these markets, we primarily operate in three segments: Siding, OSB, and South America.
In March 2022, we sold our 50% equity interest in two joint ventures that produce I-joists to Resolute for $59 million. The joint ventures were comprised of Resolute-LP Engineered Wood Larouche Inc. in Larouche, Quebec, and Resolute-LP Engineered Wood St-Prime Limited Partnership in Saint-Prime, Quebec. In August 2022, LP completed the sale of the EWP segment assets to the Purchaser in exchange for the Purchaser’s payment to the Company of $217 million in gross cash proceeds. The historical results of the EWP segment are reflected in the Company’s Condensed Consolidated Financial Statements as discontinued operations. See "Note 7 – Discontinued Operations" of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q for additional information.
Demand for Building Products
Demand for our products correlates positively with new home construction and repair and remodeling activity in North America, which historically has been characterized by significant cyclicality. The U.S. Census Bureau reported on April 18, 2023, that actual single-family housing starts were 29% lower for the three months ended March 31, 2023, as compared to the same period in 2022. Actual multi-family housing starts for the three months ended March 31, 2023 were about 5% higher as compared to the same period in 2022. Repair and remodeling activity is difficult to reasonably measure, but many indications suggest that repair and remodeling activity is continuing to show resiliency.
Future economic conditions in the United States and the demand for homes are uncertain due to inflationary impacts on the economy, including interest rates, employment levels, consumer confidence, and financial markets, among other things. Additionally, we have experienced increases in material prices, supply disruptions, and labor challenges, which we continue to address as we work to meet the demands of builders, remodelers, and homeowners worldwide. The potential effect of these factors on our future operational and financial performance is uncertain. As a result, our past performance may not be indicative of future results.
Supply and Demand for Siding
Siding Solutions is a specialty building material and is subject to competition from various siding technologies, including vinyl, stucco, wood, fiber cement, brick, and others. We believe we are the largest manufacturer in the engineered wood siding market. We have consistently grown our Siding Solutions above the underlying market growth rates. Siding Solutions is generally less sensitive to new housing market cyclicality since demand comes from other markets, including sheds and repair and remodel. Our growth in this market depends upon the continued displacement of vinyl, wood, fiber cement, stucco, bricks, and other alternatives, our product innovation and our technological expertise in wood and wood composites to address the needs of our customers.
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Supply and Demand for OSB
OSB is a commodity product, and it is subject to competition from manufacturers worldwide. Product supply is influenced primarily by fluctuations in available manufacturing capacity and imports. The ratio of overall OSB demand to capacity generally drives price. During the three months ended March 31, 2023, OSB commodity prices have fallen with the decline in market demand for OSB commodity product. We cannot predict whether the prices of our OSB products will remain at current levels or increase or decrease in the future.
For additional factors affecting our results, refer to the “Overview” within our “Management's Discussion and Analysis of Financial Condition and Results of Operations” section and our “Risk Factors” section contained in our 2022 Annual Report on Form 10-K, and to the “Cautionary Statement Regarding Forward-Looking Statements” section in this quarterly report on Form 10-Q.
Critical Accounting Policies and Significant Estimates
Note 1 of the Notes to the Condensed Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K is a discussion of our significant accounting policies and significant accounting estimates and judgments. Throughout the preparation of the financial statements, we employ significant judgments in the application of accounting principles and methods. These judgments are primarily related to the assumptions used to arrive at various estimates.
There have been no changes in the application of principles, methods, and assumptions used to determine our significant estimates since December 31, 2022.
Non-GAAP Financial Measures and Other Key Performance Indicators
In evaluating our business, we utilize non-GAAP financial measures that fall within the meaning of SEC Regulation G and Regulation S-K Item 10(e), which we believe provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP financial measures do not have standardized definitions and are not defined by U.S. GAAP. In this quarterly report on Form 10-Q, we disclose Income attributed to LP from continuing operations before interest expense, provision for income taxes, depreciation and amortization, and excluding stock-based compensation expense, loss on impairment attributed to LP, product-line discontinuance charges, other operating credits and charges, net, loss on early debt extinguishment, investment income, pension settlement charges, and other non-operating items as Adjusted EBITDA from continuing operations (Adjusted EBITDA), which is a non-GAAP financial measure. We have included Adjusted EBITDA in this report because we view it as an important supplemental measure of our performance and believe that it is frequently used by interested persons in the evaluation of companies that have different financing and capital structures and/or tax rates. We also disclose Income attributed to LP from continuing operations, excluding loss on impairment attributed to LP, product-line discontinuance charges, interest expense outside of normal operations, other operating credits and charges, net, loss on early debt extinguishment, gain (loss) on acquisition, and pension settlement charges, and adjusting for a normalized tax rate, as Adjusted Income from continuing operations (Adjusted Income). We also disclose Adjusted Diluted EPS from continuing operations (Adjusted Diluted EPS), calculated as Adjusted Income divided by diluted shares outstanding. We believe that Adjusted Diluted EPS and Adjusted Income are useful measures for evaluating our ability to generate earnings and that providing these measures should allow interested persons to more readily compare the earnings for past and future periods.
Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS are not substitutes for the U.S. GAAP measures of Net income, Income attributed to LP from continuing operations, and Net income attributed to LP from continuing operations per diluted share or for any other U.S. GAAP measures of operating performance. It should be noted that other companies may present similarly titled measures differently, and therefore, as presented by us, these measures may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS have material limitations as performance measures because they exclude items that are actually incurred or experienced in connection with the operation of our business.
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The following table reconciles Net income to Adjusted EBITDA (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net income | $ | 22 | $ | 483 | |||||||||||||||||||
| Add (deduct): | |||||||||||||||||||||||
| Net (income) loss attributed to noncontrolling interest | (1) | 1 | |||||||||||||||||||||
| Income from discontinued operations, net of income taxes | — | (62) | |||||||||||||||||||||
| Income attributed to LP from continuing operations | 21 | 422 | |||||||||||||||||||||
| Provision for income taxes | 1 | 124 | |||||||||||||||||||||
| Depreciation and amortization | 28 | 32 | |||||||||||||||||||||
| Stock-based compensation expense | 4 | 6 | |||||||||||||||||||||
| Other operating credits and charges, net | 5 | 1 | |||||||||||||||||||||
| Interest expense | 3 | 3 | |||||||||||||||||||||
| Investment income | (5) | (1) | |||||||||||||||||||||
| Pension settlement charges | 6 | — | |||||||||||||||||||||
| Other non-operating items | 3 | 10 | |||||||||||||||||||||
| Adjusted EBITDA | $ | 66 | $ | 598 | |||||||||||||||||||
| SEGMENT ADJUSTED EBITDA | |||||||||||||||||||||||
| Siding | $ | 67 | $ | 83 | |||||||||||||||||||
| OSB | 5 | 505 | |||||||||||||||||||||
| South America | 12 | 25 | |||||||||||||||||||||
| Other | (9) | (6) | |||||||||||||||||||||
| Corporate | (9) | (9) | |||||||||||||||||||||
| Total Adjusted EBITDA | $ | 66 | $ | 598 | |||||||||||||||||||
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The following table provides the reconciliation of Net income to Adjusted Income (dollar amounts in millions, except per share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net income attributed to LP from continuing operations per share - diluted | $ | 0.29 | $ | 4.89 | |||||||||||||||||||
| Net income | $ | 22 | $ | 483 | |||||||||||||||||||
| Add (deduct): | |||||||||||||||||||||||
| Net (income) loss attributed to noncontrolling interest | (1) | 1 | |||||||||||||||||||||
| Income from discontinued operations, net of income taxes | — | (62) | |||||||||||||||||||||
| Income attributed to LP from continuing operations | 21 | 422 | |||||||||||||||||||||
| Other operating credits and charges, net | 5 | 1 | |||||||||||||||||||||
| Pension settlement charges | 6 | — | |||||||||||||||||||||
| Reported tax provision | 1 | 124 | |||||||||||||||||||||
| Adjusted income before tax | 33 | 547 | |||||||||||||||||||||
| Normalized tax provision at 25% | (8) | (137) | |||||||||||||||||||||
| Adjusted Income | $ | 25 | $ | 411 | |||||||||||||||||||
| Diluted shares outstanding | 72 | 86 | |||||||||||||||||||||
| Adjusted Diluted EPS | $ | 0.34 | $ | 4.75 | |||||||||||||||||||
Key Performance Indicators
In addition, management monitors certain key performance indicators to evaluate our business performance, which include our Overall Equipment Effectiveness (OEE) and our sales volume relative to housing starts, as provided by reports from the U.S. Census Bureau.
The following tables set forth: (1) housing starts, (2) our North American sales volume, and (3) OEE. We consider the following items to be key performance indicators because LP’s management uses these metrics to evaluate our business and trends, measure our performance, and make strategic decisions, and believes that the key performance indicators presented provide additional perspective and insights when analyzing the core operating performance of LP. These key performance indicators should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the U.S. GAAP financial measures presented herein. These measures may not be comparable to similarly-titled performance indicators used by other companies.
We monitor housing starts, which is a leading external indicator of residential construction in the United States that correlates with the demand for many of our products. We believe that this is a useful measure for evaluating our results and that providing this measure should allow interested persons to more readily compare our sales volume for past and future periods to an external indicator of product demand. Other companies may present housing start data differently, and therefore, housing starts data presented by us may not be comparable to similarly-titled indicators reported by other companies.
| (thousands of units) | Three Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
Housing starts1: | |||||||||||||||||||||||
| Single-Family | 191 | 267 | |||||||||||||||||||||
| Multi-Family | 129 | 123 | |||||||||||||||||||||
| 320 | 390 | ||||||||||||||||||||||
1 Actual U.S. housing starts data reported by the U.S. Census Bureau as published through April 18, 2023. | ||
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We monitor sales volumes for our products in our Siding, OSB and South America segments, which we define as the number of units of our products sold within the applicable period. Evaluating sales volume by product type helps us identify and address changes in product demand, broad market factors that may affect our performance, and opportunities for future growth. It should be noted that other companies may present sales volumes differently and, therefore, as presented by us, sales volumes may not be comparable to similarly-titled measures reported by other companies. We believe that sales volumes can be a useful measure for evaluating and understanding our business.
The following table sets forth sales volumes for the three months ended March 31, 2023 and 2022:
| Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||
| Sales Volume | Siding | OSB | South America | Total | Siding | OSB | South America | Total | |||||||||||||||||||||
| Siding Solutions (MMSF) | 383 | — | 11 | 394 | 421 | — | 8 | 429 | |||||||||||||||||||||
| OSB - commodity (MMSF) | — | 382 | — | 382 | — | 437 | — | 437 | |||||||||||||||||||||
| OSB - Structural Solutions (MMSF) | — | 327 | 127 | 454 | — | 525 | 150 | 675 | |||||||||||||||||||||
We measure OEE of each of our mills to track improvements in the utilization and productivity of our manufacturing assets. OEE is a composite metric that considers asset uptime (adjusted for capital project downtime and similar events), production rates, and finished product quality. We believe that when used in conjunction with other metrics, OEE can be a useful measure for evaluating our ability to generate profits, and that providing this measure should allow interested persons to monitor operational improvements. It should be noted that other companies may present OEE differently, and therefore, as presented by us, OEE may not be comparable to similarly titled measures reported by other companies. OEE for the three months ended March 31, 2023 and 2022, for each of our segments is listed below:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Siding | 76 | % | 76 | % | |||||||||||||||||||
| OSB | 76 | % | 73 | % | |||||||||||||||||||
| South America | 76 | % | 74 | % | |||||||||||||||||||
Results of Operations
Our results of operations for each of our segments are discussed below, as are the results of operations for the “other” category, which comprises other products that are not individually significant. See Note 16 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q for further information regarding our segments.
Siding
The Siding segment serves diverse end markets with a broad product offering of engineered wood siding, trim, and fascia, including LP® SmartSide® Trim & Siding, LP® SmartSide® ExpertFinish® Trim & Siding, LP BuilderSeries® Lap Siding, and LP® Outdoor Building SolutionsTM (collectively referred to as Siding Solutions).
Segment Net sales and Adjusted EBITDA for this segment were as follows (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | |||||||||||||||||||||||||||||||||
| Net sales | $ | 331 | $ | 332 | — | % | |||||||||||||||||||||||||||||
| Adjusted EBITDA | 67 | 83 | (18) | % | |||||||||||||||||||||||||||||||
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Net sales in this segment by product line were as follows (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | |||||||||||||||||||||||||||||||||
| Siding Solutions | $ | 329 | $ | 330 | — | % | |||||||||||||||||||||||||||||
| Other | 2 | 2 | 7 | % | |||||||||||||||||||||||||||||||
| Total | $ | 331 | $ | 332 | — | % | |||||||||||||||||||||||||||||
Percent changes in average net sales price and unit shipments were as follows:
| Three Months Ended March 31, 2023 versus 2022 | |||||||||||||||||||||||
| Average Net Selling Price | Unit Shipments | ||||||||||||||||||||||
| Siding Solutions | 10 | % | (9) | % | |||||||||||||||||||
The combined effects of list price increases and customer mix shifts drove year-over-year increases in the average net selling price for the three months ended March 31, 2023. The volume decrease for the three months ended March 31, 2023 was driven by a challenging new home construction market and elevated levels of channel inventory compared to the prior period.
Adjusted EBITDA decreased year-over-year by $15 million in the first quarter of 2023 due to lower volume and $17 million of raw material, freight and labor inflation, partially offset by an increase in the average net sales price.
OSB
The OSB segment manufactures and distributes OSB structural panel products, including our value-added OSB portfolio known as LP Structural Solutions (which includes LP® TechShield® Radiant Barrier, LP WeatherLogic® Air & Water Barrier, LP Legacy® Premium Sub-Flooring, LP NovaCore™ Thermal Insulated Sheathing, LP® FlameBlock® Fire-Rated Sheathing and LP® TopNotch® Sub-Flooring). OSB is manufactured using wood strands arranged in layers and bonded with resins.
Segment Net sales and Adjusted EBITDA for this segment were as follows (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | |||||||||||||||||||||||||||||||||
| Net sales | $ | 189 | $ | 744 | (75) | % | |||||||||||||||||||||||||||||
| Adjusted EBITDA | 5 | 505 | (99) | % | |||||||||||||||||||||||||||||||
Net sales in this segment by product line were as follows (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | |||||||||||||||||||||||||||||||||
| OSB - Structural Solutions | $ | 112 | $ | 406 | (72) | % | |||||||||||||||||||||||||||||
| OSB - commodity | 75 | 334 | (78) | % | |||||||||||||||||||||||||||||||
| Other | 2 | 4 | (35) | % | |||||||||||||||||||||||||||||||
| Total | $ | 189 | $ | 744 | (75) | % | |||||||||||||||||||||||||||||
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Percent changes in average net sales price and unit shipments were as follows:
Three Months Ended March 31, 2023 versus 2022 | |||||||||||||||||||||||
| Average Net Selling Price | Unit Shipments | ||||||||||||||||||||||
| OSB - Structural Solutions | (56) | % | (38) | % | |||||||||||||||||||
| OSB - commodity | (74) | % | (13) | % | |||||||||||||||||||
The year-over-year net sales decrease of $555 million for the three months ended March 31, 2023 reflects a $470 million decrease in OSB prices, a $51 million decrease in sales volume from production curtailments, and a $27 million decrease related in production volume from the conversion of the Sagola mill to Siding production.
The year-over-year decrease in Adjusted EBITDA of $500 million for the three months ended March 31, 2023 reflects lower OSB prices and sales volume (as described above) and increased raw material and wage inflation of $7 million.
South America
Our South America segment manufactures and distributes OSB structural panel and siding products in South America and certain export markets. This segment has manufacturing operations in two countries, Chile and Brazil, and operates sales offices in Chile, Brazil, Peru, Colombia, Argentina, and Paraguay.
Segment Net sales and Adjusted EBITDA for this segment were as follows (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | |||||||||||||||||||||||||||||||||
| Net sales | $ | 55 | $ | 67 | (17) | % | |||||||||||||||||||||||||||||
| Adjusted EBITDA | 12 | 25 | (53) | % | |||||||||||||||||||||||||||||||
Net sales in this segment by product were as follows (dollar amounts in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | |||||||||||||||||||||||||||||||||
| OSB - Structural Solutions | $ | 46 | $ | 58 | (20) | % | |||||||||||||||||||||||||||||
| Siding | 8 | 6 | 36 | % | |||||||||||||||||||||||||||||||
| Other | 1 | 2 | (64) | % | |||||||||||||||||||||||||||||||
| Total | $ | 55 | $ | 67 | (17) | % | |||||||||||||||||||||||||||||
Percent changes in average Net sales price and unit shipments were as follows:
| Three Months Ended March 31, 2023 versus 2022 | |||||||||||||||||||||||
| Average Net Selling Price | Unit Shipments | ||||||||||||||||||||||
| OSB - Structural Solutions | (6) | % | (15) | % | |||||||||||||||||||
| Siding | (4) | % | 42 | % | |||||||||||||||||||
South America net sales decreased year-over-year by $13 million, or 17%, for the three months ended March 31, 2023, predominantly driven by lower OSB sales volumes and pricing.
The year-over-year decrease in Adjusted EBITDA of $13 million for the three months ended March 31, 2023 reflects lower sales volumes and pricing as well as higher raw material costs.
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Other
Our other products segment includes off-site framing operation Entekra Holdings LLC (Entekra), remaining timber and timberlands, and other minor products, services, and closed operations, which do not qualify as discontinued operations. Other net sales were $8 million for the three months ended March 31, 2023, as compared to $26 million for the corresponding period in 2022. The decrease in Other net sales for the three months ended March 31, 2023 was primarily due to lower Entekra sales volumes.
Adjusted EBITDA was $(9) million for the three months ended March 31, 2023, as compared to $(6) million for the corresponding period in 2022.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $66 million for the three months ended March 31, 2023, compared to $62 million for the corresponding period in 2022. The increase in 2023 was due to increased labor, travel, and sales and marketing, partially offset by costs associated with stock compensation.
Income Taxes
We recognized an estimated tax provision from continuing operations of $1 million and $124 million in the three months ended March 31, 2023, and 2022, respectively. The total effective tax rate for continuing operations for the three months ended March 31, 2023 and 2022 was 5% and 23%, respectively. Each quarter the income tax accrual is adjusted to the latest estimate, and the difference from the previously accrued year-to-date balance is recorded in the current quarter. For 2023 the primary differences between the U.S. statutory rate of 21% and the effective rate relates to benefits from stock-based compensation and inflationary adjustments, partially offset by expenses from state taxes and executive compensation deduction limitations. For 2022, the primary difference between the U.S. statutory rate of 21% and the effective rate relates to state income tax.
Legal and Environmental Matters
For a discussion of legal and environmental matters involving us and the potential impact thereof on our financial position, results of operations, and cash flows, see Items 3, 7, and 8 in our 2022 Annual Report on Form 10-K and Note 10 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity are existing cash and investment balances, cash generated by our operations, and our ability to borrow under such credit facilities as we may have in effect from time to time. We assess our liquidity in terms of our ability to generate cash to fund our short- and long-term cash requirements. As such, we project our anticipated cash requirements as well as cash flows generated from operating activities to meet those needs. We anticipate long-term cash uses may also include strategic acquisitions. On a long-term basis, we will continue to rely on our credit facility for any long-term funding not provided by operating cash flows. We may also, from time to time, issue and sell equity, debt, or hybrid securities or engage in other capital market transactions.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, paying dividends, and making capital expenditures. We may also, from time to time, prepay or repurchase outstanding indebtedness or shares or acquire assets 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 any such repurchases may be changed, at any time, or from time to time, without prior notice.
We expect to fund our capital expenditures over at least the next 12 months through cash on hand, cash generated from operations, and available borrowing under our Amended Credit Facility, as necessary.
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Operating Activities
During the three months ended March 31, 2023 and 2022, cash provided by operations was $(119) million and $425 million, respectively. The decrease in cash provided by operations was primarily related a lower income from operations and timing of cash paid for income taxes.
Investing Activities
During the three months ended March 31, 2023 and 2022, cash used in investing activities was $113 million and $33 million, respectively. During the three months ended March 31, 2022, we received $59 million in proceeds from the sale of our 50% equity interest in two joint ventures.
Capital expenditures for the three months ended March 31, 2023 and 2022, were $114 million and $92 million, respectively, primarily related to siding conversion expenditures and growth and maintenance capital.
Financing Activities
During the three months ended March 31, 2023, cash used in financing activities was $27 million. We paid cash dividends of $17 million and used $10 million to repurchase stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans.
During the three months ended March 31, 2022, cash used in financing activities was $137 million. During the three months ended March 31, 2022, we used $104 million to repurchase shares of LP common stock under the share repurchase program authorized by LP's Board of Directors in November 2021 for the repurchase of up to $500 million shares of LP common stock and we paid cash dividends of $19 million. Additionally, we used $15 million to repurchase stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans.
Credit Facility and Letter of Credit Facility
In November 2022, LP entered into the Credit Agreement with American AgCredit, PCA, as administrative agent and sole lead arranger, and CoBank, ACB, as letter of credit issuer, relating to the Amended Credit Facility. The Credit Agreement provides for a revolving credit facility in the principal amount of up to $550 million, with a $60 million sub-limit for letters of credit. The Credit Agreement, and all loans thereunder, become due on November 29, 2028. As of March 31, 2023, we had no amounts outstanding under the Amended Credit Facility. As of May 3, 2023, the outstanding amount under the Amended Credit Facility was $45 million.
The Credit Agreement contains various restrictive covenants and customary events of default. The breach of restrictive covenants or the occurrence of any other event of default under the Credit Agreement could result in the acceleration of our obligation to repay the indebtedness outstanding thereunder. The Credit Agreement also contains financial covenants that require us and our consolidated subsidiaries to have, as of the end of each quarter, a capitalization ratio (i.e., funded debt less unrestricted cash to total capitalization) of no more than 57.5%. As of March 31, 2023, we were in compliance with all financial covenants under the Credit Agreement.
In March 2020, LP entered into the Letter of Credit Facility, which provides for the funding of letters of credit up to an aggregate outstanding amount of $20 million, which may be secured by certain cash collateral of LP. The Letter of Credit Facility provides for an unused commitment fee, due quarterly, ranging from 0.50% to 1.875% of the daily available amount to be drawn on each letter of credit issued under the Letter of Credit Facility. The Letter of Credit Facility is subject to similar affirmative, negative, and financial covenants as those set forth in the Credit Agreement, including the capitalization ratio covenant. As of March 31, 2023, we were in compliance with all covenants under the Letter of Credit Facility.
Other Liquidity Matters
Off-Balance Sheet Arrangements
As of March 31, 2023, we had standby letters of credit of $13 million outstanding related to collateral for environmental impact on owned properties, a deposit for a forestry license, and insurance collateral, including workers' compensation.
27
Potential Impairments
We review the carrying values of our long-lived assets for potential impairments and believe we have adequate support for the carrying values of our long-lived assets as of March 31, 2023. In April 2023, we announced the shutdown of Entekra. We expect this to result in a pre-tax, non-cash impairment charge of between $25 million and $30 million in the second quarter of 2023.
If demand and pricing for our products fall to levels significantly below cycle average demand and pricing, should we decide to invest capital in alternative projects, or should changes occur related to our wood supply for our mills, it is possible that future impairment charges will be required. As of March 31, 2023, there were no indications of impairment.
We also review from time to time potential dispositions of various assets, considering current and anticipated economic and industry conditions, our strategic plan, and other relevant factors. Because a determination to dispose of particular assets can require management to make assumptions regarding the transaction structure of the disposition and to estimate the Net sales proceeds, which may be less than previous estimates of undiscounted future net cash flows, we may be required to record impairment charges in connection with decisions to dispose of assets.
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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our international operations have exposure to foreign currency rate risks, primarily due to fluctuations in the Canadian dollar, the Brazilian real, and the Chilean peso. Although we have in the past entered into foreign exchange contracts associated with certain of our indebtedness and may continue to enter into foreign exchange contracts associated with major equipment purchases to manage a portion of the foreign currency rate risk, we historically have not entered into material currency rate hedges with respect to our exposure from operations, although we may do so in the future.
Some of our products are sold as commodities, and therefore sales prices fluctuate daily based on market factors over which we have little or no control. The most significant commodity product we sell is OSB. There have been no material changes to the assumed production capacity and annual average price sensitivity previously disclosed under the caption “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our 2022 Annual Report on Form 10-K.
We are exposed to market risk associated with changes in interest rates on our variable rate long-term debt. As of March 31, 2023, we had no outstanding amounts borrowed under our Amended Credit Facility. We do not currently have any derivative or hedging arrangements, or other known exposures, to changes in interest rates.
We historically have not entered into material commodity futures and swaps, although we may do so in the future.
29
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of March 31, 2023, our Chief Executive Officer and Chief Financial Officer carried out, with the participation of the Company's management, a review and evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2023, LP’s disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter, ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
30
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The description of certain legal and environmental matters involving LP set forth in Item 1 of this quarterly report on Form 10-Q under Note 10 of the Notes to the Condensed Consolidated Financial Statements contained herein is incorporated herein by reference.
ITEM 1A.RISK FACTORS
In addition to the other information set forth in this quarterly report on Form 10-Q, an investor should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” of the Company’s 2022 Annual Report on Form 10-K. Except as set forth below, there were no material changes to the risk factors previously disclosed under the caption "Item 1A. Risk Factors" in Part I of our 2022 Annual Report on Form 10-K.
Our cash, cash equivalents and investments could be adversely affected if the financial institutions in which we hold our cash, cash equivalents and investments fail.
We regularly maintain cash balances at third-party financial institutions in excess of the Federal Deposit Insurance Corporation (the “FDIC”) insurance limit. The FDIC took control and was appointed receiver of Silicon Valley Bank and New York Signature Bank on March 10, 2023 and March 12, 2023, respectively. The Company does not have any direct exposure to Silicon Valley Bank or New York Signature Bank. However, if other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition.
The risks described in our 2022 Annual Report on Form 10-K, as supplemented above, are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition, operating results, or cash flows.
31
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 3, 2022, LP's Board of Directors authorized a share repurchase program under which LP was authorized to repurchase shares of its common stock totaling up to $600 million (the 2022 Share Repurchase Program). No purchases were made under the 2022 Share Repurchase Program during the first quarter of 2023. As of March 31, 2023, LP had repurchased common stock totaling $400 million under the 2022 Share Repurchase Program. LP may initiate, discontinue, or resume purchases of its common stock under the 2022 Share Repurchase Program in the open market, in block, and in privately negotiated transactions, including under Rule 10b5-1 plans, at times and in such amounts as management deems appropriate without prior notice, subject to market and business conditions, regulatory requirements, and other factors.
32
ITEM 6.EXHIBITS
| 101.INS | XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.* | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document.* | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.* | ||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document.* | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.* | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.* | ||||
| 104 | Cover Page Interactive Data File (embedded with Inline XBRL document and contained in Exhibit 101)* | ||||
*Filed herewith.
** Furnished herewith.
*** Disclosure schedules and certain exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Asset Purchase Agreement as filed identifies such schedules and exhibits, including the general nature of their contents. Louisiana-Pacific Corporation will furnish a copy of any omitted attachment to the Securities and Exchange Commission on a confidential basis upon request.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
| LOUISIANA-PACIFIC CORPORATION | |||||||||||
| Date: | May 3, 2023 | BY: | /S/ W. BRADLEY SOUTHERN | ||||||||
| W. Bradley Southern | |||||||||||
| Chief Executive Officer | |||||||||||
| Date: | May 3, 2023 | BY: | /S/ ALAN J.M. HAUGHIE | ||||||||
| Alan J.M. Haughie | |||||||||||
| Executive Vice President and | |||||||||||
| Chief Financial Officer | |||||||||||
Exhibit 31.1
CERTIFICATIONS
I, W. Bradley Southern, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Louisiana-Pacific Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 3, 2023 | /S/ W. BRADLEY SOUTHERN | ||||||
| W. BRADLEY SOUTHERN | ||||||||
| Chief Executive Officer | ||||||||
Exhibit 31.2
CERTIFICATIONS
I, Alan Haughie, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Louisiana-Pacific Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 3, 2023 | /s/ ALAN J.M. HAUGHIE | ||||||
| ALAN J.M. HAUGHIE | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
Exhibit 32
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the quarterly report on Form 10-Q of Louisiana-Pacific Corporation (the “Company”) for quarter ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, that, to such officer’s knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
Date: May 3, 2023
| /S/ W. BRADLEY SOUTHERN | ||
| Name: W. BRADLEY SOUTHERN Title: Chief Executive Officer | ||
| /S/ ALAN J.M. HAUGHIE | ||
| Name: Alan J.M. Haughie Title: Executive Vice President and Chief Financial Officer | ||
A signed original of this written statement required by Section 906 has been provided to Louisiana-Pacific Corporation and will be retained by Louisiana-Pacific Corporation and furnished to the Securities and Exchange Commission or its staff upon request.