Louisiana-Pacific(LPX) - 2022 Q3 - Quarterly Report

FORM 10-Q General Information Provides basic identification details of Louisiana-Pacific Corporation, including its state of incorporation, address, trading symbol, and filing status Registrant Information This section provides the basic identification details of Louisiana-Pacific Corporation, including its state of incorporation, address, trading symbol, and filing status as a large accelerated filer - Louisiana-Pacific Corporation (LPX) is incorporated in Delaware, with its principal executive offices in Nashville, TN. Its common stock is registered on the New York Stock Exchange[3][4] - The registrant is classified as a 'large accelerated filer' and is not a shell company[4][5] - As of October 31, 2022, there were 71,695,455 shares of common stock, $1 par value, outstanding[5] Cautionary Statement Regarding Forward-Looking Statements Provides a safe harbor statement for forward-looking information, outlining statement types and factors that could cause actual results to differ Forward-Looking Statements Disclosure This section provides a safe harbor statement for forward-looking information, outlining the types of statements considered forward-looking and listing numerous factors that could cause actual results to differ materially from expectations, including economic conditions, supply chain issues, and geopolitical events - The report contains forward-looking statements, identified by words such as 'may,' 'will,' 'expect,' 'anticipate,' and 'plan,' which are based on management's beliefs and assumptions[7][8] - Key factors that could cause actual results to differ include impacts from public health issues (e.g., COVID-19), changes in governmental fiscal/monetary policies, general economic conditions, cost/availability of capital, home construction/repair activity, competitive conditions, raw material/energy/transportation costs, and geopolitical conflicts (e.g., Ukraine/Russia)[9] - Readers are cautioned not to place undue reliance on forward-looking statements, and the company undertakes no obligation to revise or update them, except as required by law[11] About Third-Party Information Acknowledges reliance on external industry data from market research and government sources, noting that accuracy cannot be independently guaranteed Reliance on External Data The company acknowledges its reliance on industry data from market research, public information, and government sources, while also stating that it cannot guarantee the accuracy or completeness of such independently unverified information - The company relies on industry data from market research, publicly available information, industry publications, U.S. government sources, and other third parties[13] - While the information is believed to be reliable, its accuracy or completeness cannot be guaranteed as it has not been independently verified[13] PART I - FINANCIAL INFORMATION Presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including statements of income, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining the company's accounting policies, segment performance, and other financial disclosures Condensed Consolidated Statements of Income Presents the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2022 and 2021 Three Months Ended September 30 (Millions $): | Metric | 2022 | 2021 | Change (%) | | :--------------------------------- | :--- | :--- | :--------- | | Net sales | 852 | 1,018 | -16.3% | | Gross profit | 232 | 505 | -54.1% | | Income from operations | 172 | 448 | -61.6% | | Net income attributed to LP | 226 | 365 | -38.0% | | Net income per share - basic | 3.07 | 3.90 | -21.3% | | Net income per share - diluted | 3.05 | 3.87 | -21.2% | Nine Months Ended September 30 (Millions $): | Metric | 2022 | 2021 | Change (%) | | :--------------------------------- | :--- | :--- | :--------- | | Net sales | 3,149 | 3,080 | 2.2% | | Gross profit | 1,370 | 1,657 | -17.3% | | Income from operations | 1,191 | 1,507 | -21.0% | | Net income attributed to LP | 1,094 | 1,183 | -7.5% | | Net income per share - basic | 13.67 | 11.81 | 15.7% | | Net income per share - diluted | 13.59 | 11.73 | 15.9% | Condensed Consolidated Statements of Comprehensive Income Presents the unaudited condensed consolidated statements of comprehensive income, including net income and other comprehensive income (loss) components Comprehensive Income (Three Months Ended September 30, Millions $): | Metric | 2022 | 2021 | Change (%) | | :--------------------------------- | :--- | :--- | :--------- | | Net income | 226 | 365 | -38.0% | | Other comprehensive income (loss), net of tax | (9) | (19) | 52.6% | | Comprehensive income attributed to LP | 216 | 346 | -37.6% | Comprehensive Income (Nine Months Ended September 30, Millions $): | Metric | 2022 | 2021 | Change (%) | | :--------------------------------- | :--- | :--- | :--------- | | Net income | 1,093 | 1,182 | -7.5% | | Other comprehensive income (loss), net of tax | (16) | (18) | 11.1% | | Comprehensive income attributed to LP | 1,078 | 1,165 | -7.5% | Condensed Consolidated Balance Sheets Presents the unaudited condensed consolidated balance sheets as of September 30, 2022, and December 31, 2021, detailing assets, liabilities, and equity Balance Sheet Highlights (Millions $): | Metric | Sep 30, 2022 | Dec 31, 2021 | Change (%) | | :--------------------------------- | :----------- | :----------- | :--------- | | Total current assets | 1,001 | 890 | 12.5% | | Total assets | 2,383 | 2,194 | 8.6% | | Total current liabilities | 430 | 351 | 22.5% | | Total liabilities | 1,019 | 955 | 6.7% | | Total stockholders' equity | 1,361 | 1,235 | 10.2% | Condensed Consolidated Statements of Cash Flows Presents the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, detailing operating, investing, and financing activities Cash Flow Highlights (Nine Months Ended September 30, Millions $): | Metric | 2022 | 2021 | Change (%) | | :--------------------------------- | :--- | :--- | :--------- | | Net cash provided by operating activities | 1,103 | 1,283 | -13.9% | | Net cash used in investing activities | (14) | (131) | 89.3% | | Net cash used in financing activities | (968) | (1,058) | 8.5% | | Net increase in cash, cash equivalents, and restricted cash | 111 | 84 | 32.1% | | Cash, cash equivalents, and restricted cash at end of period | 482 | 620 | -22.3% | - Investing activities in 2022 included $265 million in proceeds from sales of assets, primarily from the EWP segment and joint ventures, significantly reducing net cash used in investing compared to 2021[24][119] - Financing activities included $900 million for stock repurchases in 2022, compared to $987 million in 2021, and dividend payments of $53 million in 2022[24][121] Condensed Consolidated Statements of Stockholders' Equity Presents the unaudited condensed consolidated statements of stockholders' equity, showing changes in equity components over the period - Stockholders' equity increased from $1,235 million at December 31, 2021, to $1,361 million at September 30, 2022, reflecting net income of $1,094 million, offset by $53 million in dividends paid and $900 million in stock repurchases[27] NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, segment data, and other financial items NOTE 1. NATURE OF OPERATIONS AND BASIS FOR PRESENTATION This note describes Louisiana-Pacific Corporation's core business as a global provider of high-performance building solutions and details the reclassification of its Engineered Wood Products (EWP) segment as discontinued operations following its sale in August 2022 - Louisiana-Pacific Corporation is a leading provider of high-performance building solutions, operating 22 plants across the U.S., Canada, Chile, and Brazil, serving new home construction, repair/remodeling, and outdoor structures markets[31] - In August 2022, the company sold its Engineered Wood Products (EWP) segment assets for $217 million in gross cash proceeds, reclassifying the segment's results and related assets/liabilities as discontinued operations[32] - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP for interim financial information and should be read in conjunction with the 2021 Annual Report on Form 10-K[33] NOTE 2. REVENUE This note disaggregates the company's revenue by reportable segment (Siding, OSB, South America) and product type (Value-add, Commodity, Other), detailing the revenue recognition policies Net Sales by Segment (Three Months Ended September 30, Millions $): | Segment | 2022 | 2021 | Change (%) | | :---------------- | :--- | :--- | :--------- | | Siding | 394 | 312 | 26.3% | | OSB | 388 | 600 | -35.3% | | South America | 53 | 76 | -30.2% | | Total Sales | 852 | 1,018 | -16.3% | Net Sales by Segment (Nine Months Ended September 30, Millions $): | Segment | 2022 | 2021 | Change (%) | | :---------------- | :--- | :--- | :--------- | | Siding | 1,083 | 889 | 21.8% | | OSB | 1,805 | 1,917 | -5.8% | | South America | 190 | 203 | -6.5% | | Total Sales | 3,149 | 3,080 | 2.2% | - Revenue is recognized when control of products is transferred to customers, typically at the point of sale. Customer program costs and incentives are recorded as deductions from net sales[38][39] NOTE 3. EARNINGS PER SHARE This note outlines the computation of basic and diluted earnings per share, considering the weighted-average number of common shares outstanding and the dilutive effect of employee stock plans Net Income Attributed to LP Per Share (Three Months Ended September 30): | Metric | 2022 | 2021 | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | | Basic EPS | $3.07 | $3.90 | -21.3% | | Diluted EPS | $3.05 | $3.87 | -21.2% | | Weighted average common shares outstanding - basic (Millions) | 74 | 94 | -21.3% | Net Income Attributed to LP Per Share (Nine Months Ended September 30): | Metric | 2022 | 2021 | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | | Basic EPS | $13.67 | $11.81 | 15.7% | | Diluted EPS | $13.59 | $11.73 | 15.9% | | Weighted average common shares outstanding - basic (Millions) | 80 | 100 | -20.0% | NOTE 4. FAIR VALUE MEASUREMENTS This note defines fair value and its hierarchy, specifying that trading securities and senior notes are measured using Level 1 inputs (active market quotations) - Fair value is defined as the exchange price received for an asset or paid to transfer a liability in an orderly transaction[43] - Trading securities (rabbi trust financial assets) and the 3.625% Senior Notes due 2029 are classified as Level 1 in the fair value hierarchy, based on active market quotations[44][45] - The fair value of the 2029 Senior Notes was estimated at $276 million as of September 30, 2022, down from $358 million at December 31, 2021[45] NOTE 5. RECEIVABLES This note details the composition of the company's receivables, primarily trade receivables from wholesale and retail customers, along with other miscellaneous receivables Receivables Composition (Millions $): | Type | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Trade receivables | 147 | 156 | | Other receivables | 24 | 13 | | Allowance for doubtful accounts | (1) | (1) | | Total | 171 | 169 | - Other receivables primarily consist of sales tax receivables, vendor rebates, and other miscellaneous receivables[47] NOTE 6. INVENTORIES This note provides a breakdown of inventory types, which are valued at the lower of cost or net realizable value, including logs, raw materials, semi-finished, and finished products - Inventories are valued at the lower of cost or net realizable value, with cost including materials, labor, and operating overhead[48] Inventory Composition (Millions $): | Type | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Logs | 45 | 50 | | Other raw materials | 95 | 57 | | Semi-finished inventory | 25 | 20 | | Finished products | 172 | 150 | | Total | 337 | 278 | NOTE 7. DISCONTINUED OPERATIONS This note provides detailed financial information regarding the Engineered Wood Products (EWP) segment, which was sold in August 2022 and reclassified as discontinued operations, including the gain on disposal and cash flow impacts - The EWP segment assets were sold on August 1, 2022, for $217 million in gross cash proceeds, resulting in a pre-tax gain of $118 million[49] - In March 2022, the company also sold its 50% equity interest in two EWP joint ventures for $59 million, recognizing a gain of $39 million[52] Financial Results of Discontinued EWP Segment (Millions $): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Net sales | 67 | 201 | 455 | 481 | | Income from discontinued operations, net of income taxes | 97 | 33 | 196 | 47 | Net Cash Flow from Discontinued Operations (Nine Months Ended September 30, Millions $): | Metric | 2022 | 2021 | | :--------------------------------- | :--- | :--- | | Net cash provided by discontinued operating activities | 18 | 30 | | Net cash provided by (used in) discontinued investing activities | 258 | (25) | NOTE 8. GOODWILL AND OTHER INTANGIBLES This note explains that goodwill and indefinite-lived intangible assets are not amortized but are subject to annual impairment testing, and provides a table showing changes in these assets - Goodwill and indefinite-lived intangible assets are not amortized but are assessed for impairment annually on October 1, or more frequently if circumstances indicate potential impairment[55] Goodwill and Other Intangible Assets (Millions $): | Type | Dec 31, 2021 | Sep 30, 2022 | | :-------------------- | :----------- | :----------- | | Timber licenses | 30 | 28 | | Goodwill | 19 | 19 | | Developed Technology | 17 | 16 | | Trademarks | 2 | 2 | NOTE 9. REDEEMABLE NONCONTROLLING INTEREST This note defines redeemable noncontrolling interest as mezzanine equity, measured at the greater of estimated redemption value or carrying value, and presents its components - Redeemable noncontrolling interest is classified as mezzanine equity and measured at the greater of estimated redemption value or carrying value[56] Redeemable Noncontrolling Interest (Millions $): | Metric | Amount | | :--------------------------------- | :----- | | Beginning balance December 31, 2021 | 4 | | Net loss attributed to noncontrolling interest | (1) | | Ending balance September 30, 2022 | 3 | NOTE 10. INCOME TAXES This note details the company's income tax expense recognition for interim periods, based on an estimated annual effective tax rate, and provides the effective tax rates for continuing operations - Income tax expense for interim periods is recognized by applying the estimated annual effective income tax rate to year-to-date results, with quarterly adjustments[58] Total Effective Tax Rate for Continuing Operations: | Period | 2022 | 2021 | | :--------------------------------- | :--- | :--- | | Three Months Ended Sep 30 | 26% | 25% | | Nine Months Ended Sep 30 | 24% | 24% | - Net discrete tax benefits of $9 million and $7 million were recognized for the nine months ended September 30, 2022 and 2021, respectively, primarily from excess tax benefits from stock-based compensation[60] NOTE 11. COMMITMENTS AND CONTINGENCIES This note discusses the company's reserves for environmental loss contingencies and other legal proceedings, highlighting the inherent uncertainties in estimating these liabilities Contingency Reserves (Millions $): | Type | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Environmental reserves | 27 | 25 | | Total contingencies | 27 | 25 | | Long-term portion | 26 | 24 | - Estimates for environmental loss contingencies are based on various assumptions and judgments, which are subject to substantial uncertainties, and actual costs could materially exceed accrued amounts[61][62] - Management believes the resolution of other legal proceedings will not have a material effect on the company's financial position, results of operations, cash flows, or liquidity[63] NOTE 12. IMPAIRMENT OF LONG-LIVED ASSETS This note states that the company reviews long-lived assets for potential impairments and found no indications as of September 30, 2022, but acknowledges the possibility of future impairment charges under certain market or strategic conditions - The company reviews the carrying values of its long-lived assets for potential impairments and believes it has adequate support for these values as of September 30, 2022, with no indications of impairment[64] - Future impairment charges are possible if demand and pricing for products fall significantly, if capital is invested in alternative projects, or if changes occur related to wood supply[64] - Decisions to dispose of assets, if net sales proceeds are less than previous estimates, may also require recording impairment charges[65] NOTE 13. PRODUCT WARRANTIES This note details the company's accrual for estimated future product warranty claims, based on historical experience and management's estimates, showing stable warranty reserves - The company offers warranties on most products and accrues for estimated future claims based on historical experience and management's estimates[66] Warranty Reserves Activity (Millions $): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Beginning balance | 7 | 8 | 7 | 8 | | Accrued to expense | 1 | 0 | 3 | 1 | | Payments made | (1) | 0 | (2) | (1) | | Total warranty reserves | 8 | 8 | 8 | 8 | - As of September 30, 2022, management believes the warranty reserve balances are adequate to cover future warranty payments, though additional changes may be required in the future[66] NOTE 14. DEFINED BENEFIT PENSION PLANS This note discusses the termination of the company's frozen U.S. and Canadian defined benefit pension plans, including the recognition of a partial settlement loss and the expectation of a final settlement in Q4 2022 with potential significant charges - The company initiated the termination of its frozen U.S. and Canadian defined benefit pension plans in November 2021[68] - During the three months ended September 30, 2022, lump-sum distributions and annuity purchases triggered partial settlement accounting, resulting in a $4 million non-cash pre-tax loss[69] - The remaining plan termination is expected to be substantially complete in Q4 2022, potentially leading to non-cash pre-tax pension settlement charges (estimated $93 million unrecognized loss as of Sep 30, 2022) and possible cash contributions[70] NOTE 15. ACCUMULATED COMPREHENSIVE LOSS This note provides a detailed breakdown of the components contributing to accumulated comprehensive loss, including pension adjustments and foreign currency translation adjustments Accumulated Comprehensive Loss (Millions $): | Component | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Pension | (71) | (76) | | Translation Adjustments | (118) | (96) | | Other | (1) | (1) | | Total | (190) | (174) | - The accumulated comprehensive loss increased from $(174) million at December 31, 2021, to $(190) million at September 30, 2022, primarily due to foreign currency translation adjustments[72] NOTE 16. OTHER OPERATING AND NON-OPERATING ITEMS This note itemizes the various components of other operating credits and charges, net, and other non-operating items, such as insurance recoveries, reorganization charges, pension costs, and foreign currency impacts Other Operating Credits and Charges, Net (Millions $): | Component | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Insurance recoveries | 2 | 1 | 15 | 3 | | Reorganization charges | (4) | (1) | (5) | (1) | | Other operating credits and charges, net | 7 | 2 | 17 | 5 | Other Non-Operating Items (Millions $): | Component | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Net periodic pension cost, excluding service cost | (1) | 0 | (4) | 0 | | Pension settlement charges | (4) | 0 | (4) | 0 | | Foreign currency gain (loss) | 2 | (2) | (3) | (2) | | Other non-operating items | (3) | (2) | (11) | (13) | NOTE 17. SELECTED SEGMENT DATA This note provides financial data for the company's three continuing reportable segments: Siding, OSB, and South America, evaluating their performance based on net sales and Adjusted EBITDA - The company operates in three continuing segments: Siding, Oriented Strand Board (OSB), and South America. The EWP segment has been reclassified to discontinued operations[76] - Segment performance is evaluated based on net sales and Adjusted EBITDA, a non-GAAP financial measure[77] Net Sales by Segment (Millions $): | Segment | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Siding | 394 | 312 | 1,083 | 889 | | OSB | 388 | 600 | 1,805 | 1,917 | | South America | 53 | 76 | 190 | 203 | | Total Sales | 852 | 1,018 | 3,149 | 3,080 | Adjusted EBITDA by Segment (Millions $): | Segment | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Siding | 90 | 73 | 251 | 240 | | OSB | 113 | 381 | 1,021 | 1,300 | | South America | 14 | 37 | 65 | 91 | | Total Adjusted EBITDA | 200 | 480 | 1,289 | 1,600 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance, market conditions, critical accounting policies, non-GAAP measures, and liquidity, offering insights into the drivers behind the reported financial results General Provides an overview of Louisiana-Pacific Corporation's business segments and recent reclassification of its EWP segment as discontinued operations - Louisiana-Pacific Corporation is a leading provider of high-performance building solutions, operating in Siding, OSB, and South America segments[81] - The company completed the sale of its EWP segment assets in August 2022 and its 50% equity interest in two I-joist joint ventures in March 2022, reclassifying these as discontinued operations[82][83] Demand for our Building Products Discusses the correlation between product demand and North American housing activity, noting recent declines in single-family starts and future market uncertainties - Demand for the company's products correlates with new home construction and repair/remodeling activity in North America[84] - Single housing starts decreased by 18% for the three months and 6% for the nine months ended September 30, 2022, compared to 2021, while repair and remodeling activity continues to grow[84] - Future economic conditions and demand are uncertain due to inflationary impacts, interest rates, employment levels, consumer confidence, material prices, supply disruptions, and labor shortages[85] Supply and Demand for OSB Explains that OSB prices are commodity-driven, fluctuating based on overall demand relative to manufacturing capacity, with future price levels uncertain - OSB is a commodity product, and its prices are primarily driven by the ratio of overall OSB demand to manufacturing capacity[86] - The company cannot predict whether OSB prices will remain at current levels or increase/decrease in the future[86] Critical Accounting Policies and Significant Estimates Confirms no changes in the application of principles, methods, and assumptions for significant accounting estimates since the prior fiscal year-end - There have been no changes in the application of principles, methods, and assumptions used to determine significant accounting estimates since December 31, 2021[89] Non-GAAP Financial Measures and Other Key Performance Indicators Explains the use of non-GAAP financial measures like Adjusted EBITDA and Adjusted Income, along with key performance indicators such as housing starts and OEE - The company uses non-GAAP financial measures such as Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS to provide additional meaningful comparisons to prior reported results[90] Adjusted EBITDA Reconciliation (Millions $): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Net income | 226 | 365 | 1,093 | 1,182 | | Income attributed to LP from continuing operations | 129 | 332 | 898 | 1,135 | | Adjusted EBITDA | 200 | 480 | 1,289 | 1,600 | Adjusted Income and Diluted EPS Reconciliation (Millions $, except per share): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Net income | 226 | 365 | 1,093 | 1,182 | | Income attributed to LP from continuing operations | 129 | 332 | 898 | 1,135 | | Adjusted Income | 127 | 331 | 878 | 1,119 | | Adjusted Diluted EPS | $1.72 | $3.52 | $10.91 | $11.08 | - Key performance indicators monitored include U.S. housing starts, North American sales volume by product type, and Overall Equipment Effectiveness (OEE) for manufacturing assets[95][96][97][99] U.S. Housing Starts (Thousands): | Period | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Single-Family | 242 | 296 | 812 | 861 | | Multi-Family | 146 | 123 | 416 | 352 | | Total | 388 | 419 | 1,228 | 1,213 | Overall Equipment Effectiveness (OEE) by Segment: | Segment | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Siding | 76 % | 74 % | 75 % | 73 % | | OSB | 70 % | 74 % | 72 % | 75 % | | South America | 64 % | 80 % | 72 % | 77 % | Results of Operations Analyzes the financial performance of the company's continuing segments, including Siding, OSB, South America, and Other Products, detailing revenue and profitability drivers Siding Segment The Siding segment demonstrated strong performance with increased net sales and Adjusted EBITDA, driven by higher average selling prices and increased unit shipments, despite inflationary pressures Siding Segment Financial Performance (Millions $): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :-------------------- | :---------------------------- | :---------------------------- | :--------- | :---------------------------- | :---------------------------- | :--------- | | Net sales | 394 | 312 | 26 % | 1,083 | 889 | 22 % | | Adjusted EBITDA | 90 | 73 | 24 % | 251 | 240 | 4 % | | Adjusted EBITDA margin | 23 % | 23 % | - | 23 % | 27 % | - | - Average net selling prices for Siding Solutions increased by 16% (3 months) and 14% (9 months), while unit shipments rose by 9% (3 months) and 8% (9 months), driven by list price increases and improved product mix[102] - Adjusted EBITDA growth was partially offset by $32 million (3 months) and $89 million (9 months) in raw material, freight, and labor inflation, along with facility maintenance costs[103] OSB Segment The OSB segment experienced a significant decline in net sales and Adjusted EBITDA, primarily due to a sharp decrease in average net selling prices, despite an increase in overall sales volume OSB Segment Financial Performance (Millions $): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :-------------------- | :---------------------------- | :---------------------------- | :--------- | :---------------------------- | :---------------------------- | :--------- | | Net sales | 388 | 600 | (35)% | 1,805 | 1,917 | (6)% | | Adjusted EBITDA | 113 | 381 | (70)% | 1,021 | 1,300 | (21)% | | Adjusted EBITDA margin | 29 % | 63 % | - | 57 % | 68 % | - | - OSB average net selling prices decreased by 39% (3 months) and 14% (9 months) year-over-year, while overall OSB sales volume increased by 5% (3 months) and 9% (9 months)[105] - The Adjusted EBITDA decrease was primarily driven by lower prices ($252 million for 3 months, $325 million for 9 months) and increased raw material/wage inflation, partially offset by higher sales volume[106] South America Segment The South America segment experienced a decline in net sales and Adjusted EBITDA, primarily due to lower sales volumes for OSB and Siding products, coupled with unfavorable currency movements and higher raw material costs South America Segment Financial Performance (Millions $): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :-------------------- | :---------------------------- | :---------------------------- | :--------- | :---------------------------- | :---------------------------- | :--------- | | Net sales | 53 | 76 | (30)% | 190 | 203 | (6)% | | Adjusted EBITDA | 14 | 37 | (62)% | 65 | 91 | (28)% | | Adjusted EBITDA margin | 26 % | 49 % | - | 34 % | 45 % | - | - Net sales decreased due to lower OSB sales volumes and $10 million of unfavorable currency movements for the three months, and lower Siding sales volumes and prices for the nine months[108] - The decrease in Adjusted EBITDA was attributed to lower sales volumes, higher raw material costs, and unfavorable currency movements[109] Other Products The 'Other products' segment, which includes Entekra and timberlands, reported decreased net sales for the three-month period due to lower Entekra revenue, and an increased Adjusted EBITDA loss for both periods Other Products Net Sales (Millions $): | Period | 2022 | 2021 | | :-------------------- | :--- | :--- | | 3 Months Ended Sep 30 | 17 | 30 | | 9 Months Ended Sep 30 | 72 | 73 | Other Products Adjusted EBITDA (Millions $): | Period | 2022 | 2021 | | :-------------------- | :--- | :--- | | 3 Months Ended Sep 30 | (7) | (3) | | 9 Months Ended Sep 30 | (19) | (11) | - The decrease in net sales for the three months ended September 30, 2022, was primarily due to lower Entekra revenue[110] Selling, General, and Administrative Expenses Selling, general, and administrative (SG&A) expenses increased for both the three and nine months ended September 30, 2022, driven by higher labor, travel, sales and marketing, corporate overhead, and stock compensation costs SG&A Expenses (Millions $): | Period | 2022 | 2021 | Change (%) | | :-------------------- | :--- | :--- | :--------- | | 3 Months Ended Sep 30 | 67 | 58 | 15.5% | | 9 Months Ended Sep 30 | 196 | 155 | 26.5% | - The increase in SG&A expenses is primarily due to increased labor, travel, sales and marketing, and corporate overhead costs, largely driven by the reduction of COVID-19 pandemic restrictions and costs associated with stock compensation and performance incentives[112] Income Taxes The estimated tax provision from continuing operations decreased for both the three and nine months ended September 30, 2022, while the total effective tax rate remained relatively stable Estimated Tax Provision from Continuing Operations (Millions $): | Period | 2022 | 2021 | Change (%) | | :-------------------- | :--- | :--- | :--------- | | 3 Months Ended Sep 30 | 44 | 111 | -60.4% | | 9 Months Ended Sep 30 | 284 | 350 | -18.9% | - The total effective tax rate for continuing operations was 26% for the three months and 24% for the nine months ended September 30, 2022, consistent with 2021 rates[113] - The primary difference between the U.S. statutory rate of 21% and the effective rate relates to state income tax[113] Liquidity and Capital Resources Discusses the company's sources and uses of liquidity, including cash, operating cash flow, credit facilities, capital expenditures, and share repurchases Overview This overview outlines the company's primary sources of liquidity, including cash, operating cash flow, and credit facilities, and its principal uses of liquidity, such as operational expenses, debt servicing, dividends, and capital expenditures - Principal liquidity sources are existing cash, cash generated by operations, and available borrowing under credit facilities[115] - Principal uses of liquidity include paying operational costs, servicing debt, paying dividends, making capital expenditures, and potentially repurchasing shares or acquiring assets[116] - Capital expenditures are expected to be funded through cash on hand, cash from operations, and the Amended Credit Facility[117] Operating Activities Cash provided by operating activities decreased for the nine months ended September 30, 2022, primarily due to lower income from operations, partially offset by improvements in working capital Cash Provided by Operating Activities (Millions $): | Period | 2022 | 2021 | Change (%) | | :-------------------- | :--- | :--- | :--------- | | 9 Months Ended Sep 30 | 1,103 | 1,283 | -13.9% | - The decrease in cash provided by operations was primarily related to lower income from operations, offset by improvements in working capital[118] Investing Activities Cash used in investing activities significantly decreased for the nine months ended September 30, 2022, primarily due to substantial proceeds from asset sales, despite increased capital expenditures Cash Used in Investing Activities (Millions $): | Period | 2022 | 2021 | Change (%) | | :-------------------- | :--- | :--- | :--------- | | 9 Months Ended Sep 30 | (14) | (131) | 89.3% | - The company received $265 million in proceeds from sales of assets during the nine months ended September 30, 2022, primarily from the sale of the EWP segment and two joint ventures[119] - Capital expenditures increased to $282 million in 2022 from $133 million in 2021, mainly for siding conversion and growth/maintenance capital[120] Financing Activities Cash used in financing activities decreased for the nine months ended September 30, 2022, primarily due to lower stock repurchases compared to the prior year, alongside ongoing dividend payments Cash Used in Financing Activities (Millions $): | Period | 2022 | 2021 | Change (%) | | :-------------------- | :--- | :--- | :--------- | | 9 Months Ended Sep 30 | (968) | (1,058) | 8.5% | - The company used $900 million to repurchase common stock in 2022 (from two programs) and paid $53 million in cash dividends[121] - In 2021, the company used $987 million for stock repurchases, issued $350 million in 2029 Senior Notes, and redeemed $359 million of 2024 Senior Notes[122][123] Credit Facility and Letter of Credit Facility The company maintains an Amended Credit Facility of up to $550 million and a Letter of Credit Facility of up to $20 million, with no outstanding amounts under the credit facility and full compliance with all financial covenants as of September 30, 2022 - The Amended Credit Facility provides for a revolving credit facility of up to $550 million, due June 8, 2027, with no outstanding amounts as of September 30, 2022[124] - A Letter of Credit Facility provides for up to $20 million in letters of credit[126] - As of September 30, 2022, the company was in compliance with all financial covenants under both the Amended Credit Facility and the Letter of Credit Facility, including a capitalization ratio limit of 57.5%[125][126] Other Liquidity Matters This section addresses other liquidity-related items, including off-balance sheet arrangements and the potential for future impairment charges on long-lived assets under adverse market conditions - As of September 30, 2022, the company had $13 million in standby letters of credit outstanding related to environmental impact, a forestry license, and insurance collateral[127] - No indications of impairment for long-lived assets were found as of September 30, 2022, but future impairment charges are possible if demand and pricing fall significantly or due to strategic asset disposition decisions[128][129][130] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the company's exposure to market risks, including foreign currency rate risk, commodity price risk (primarily OSB), and interest rate risk on variable-rate debt - The company's international operations are exposed to foreign currency rate risks, primarily from fluctuations in the Canadian dollar, Brazilian real, and Chilean peso[131] - Sales prices for commodity products like OSB fluctuate daily based on market factors, over which the company has little control[132] - The company is exposed to interest rate risk on its variable-rate long-term debt, but had no outstanding amounts borrowed under its Amended Credit Facility as of September 30, 2022[133] ITEM 4. CONTROLS AND PROCEDURES This section reports on the effectiveness of the company's disclosure controls and procedures and confirms no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures as assessed by management as of September 30, 2022 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[135] Changes in Internal Control Over Financial Reporting States that no material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022 - There were no changes in internal control over financial reporting during the quarter ended September 30, 2022, that materially affected or are reasonably likely to materially affect the company's internal control over financial reporting[136] PART II-OTHER INFORMATION Contains additional information not included in the financial statements, such as legal proceedings, risk factors, equity sales, and exhibits ITEM 1. LEGAL PROCEEDINGS This section refers to Note 11 of the financial statements for a discussion of legal and environmental matters involving the company - A description of legal and environmental matters involving LP is incorporated by reference from Note 11 of the Notes to the Condensed Consolidated Financial Statements[138] ITEM 1A. RISK FACTORS This section directs readers to the company's 2021 Annual Report on Form 10-K and prior 10-Q reports for a comprehensive discussion of risk factors, noting that no material changes have occurred - Investors should consider risk factors discussed in the 2021 Annual Report on Form 10-K and previous quarterly reports on Form 10-Q[139] - There have been no material changes to the risk factors previously disclosed[139] - Additional risks and uncertainties not currently known or deemed immaterial could also materially adversely affect the business[140] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the company's share repurchase activities under the 2022 Share Repurchase Program, including the number of shares purchased and the remaining authorized amount - LP's Board of Directors authorized the 2022 Share Repurchase Program in May 2022, allowing for repurchases of up to $600 million of common stock[142] Common Stock Repurchases (Third Quarter 2022): | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value Remaining (Millions $) | | :--------------------------------- | :------------------------------- | :--------------------------- | :-------------------------------------------- | | July 1, 2022 - July 31, 2022 | 2,702,207 | $57.18 | 371 | | August 1, 2022 - August 31, 2022 | 2,730,497 | $60.00 | 207 | | September 1, 2022 - September 30, 2022 | 126,763 | $54.96 | 200 | | Total for Third Quarter 2022 | 5,559,467 | - | - | - As of September 30, 2022, $400 million had been used under the 2022 Share Repurchase Program[143] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including certifications, XBRL documents, and the Asset Purchase Agreement - The exhibits include certifications from the CEO and CFO (31.1, 31.2, 32), XBRL instance and taxonomy documents (101.INS, 101.SCH, etc.), and the Asset Purchase Agreement related to the EWP segment sale (2.1)[146] SIGNATURES Confirms the official signing of the quarterly report on Form 10-Q by the authorized officers of Louisiana-Pacific Corporation Report Signatories This section confirms the official signing of the quarterly report on Form 10-Q by the authorized officers of Louisiana-Pacific Corporation - The quarterly report on Form 10-Q was duly signed on November 3, 2022, by W. Bradley Southern, Chief Executive Officer, and Alan J.M. Haughie, Executive Vice President and Chief Financial Officer[148][150]