Louisiana-Pacific(LPX) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The company reported a significant decline in net sales and net income for the nine months ended September 30, 2023, compared to the prior year Condensed Consolidated Statements of Income (Unaudited) | (In millions) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $728 | $852 | $1,923 | $3,149 | | Gross profit | $214 | $232 | $434 | $1,370 | | Income from operations | $161 | $172 | $198 | $1,191 | | Income from continuing operations | $118 | $129 | $119 | $898 | | Net income attributed to LP | $118 | $226 | $119 | $1,094 | | Net income per share - diluted | $1.63 | $3.05 | $1.65 | $13.59 | Condensed Consolidated Balance Sheets (Unaudited) | (In millions) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $745 | $854 | | Total assets | $2,380 | $2,350 | | Total current liabilities | $266 | $336 | | Total liabilities | $878 | $916 | | Total stockholders' equity | $1,502 | $1,433 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (In millions) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $157 | $1,103 | | Net cash used in investing activities | ($312) | ($14) | | Net cash used in financing activities | ($61) | ($968) | | Net (decrease) increase in cash | ($223) | $111 | Note 2. Revenue Total revenue decreased significantly in Q3 and year-to-date 2023, primarily driven by a sharp decline in the OSB segment Revenue by Segment (in millions) | Segment | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Siding | $345 | $394 | $996 | $1,083 | | OSB | $335 | $388 | $754 | $1,805 | | South America | $45 | $53 | $153 | $190 | | Other | $4 | $17 | $21 | $72 | | Total | $728 | $852 | $1,923 | $3,149 | Note 7. Discontinued Operations The company recognized significant income from discontinued operations in 2022 from asset sales, with no such income in 2023 - On August 1, 2022, the company completed the sale of assets related to the EWP segment for $217 million in gross cash proceeds, resulting in a pre-tax gain of approximately $118 million[51] - In March 2022, the company sold its 50% equity interest in two I-joist joint ventures for $59 million, resulting in a pre-tax gain of $39 million[50] Note 8. Business Exit Charges The company incurred $35 million in business exit charges during the nine months ended September 30, 2023, primarily from ceasing Entekra Holdings operations Business Exit Charges for Nine Months Ended Sep 30, 2023 (in millions) | Charge Type | Amount | | :--- | :--- | | Impairment of assets | $24 | | Inventory write-down | $6 | | Other expenses (severance, etc.) | $4 | | Total | $35 | Note 17. Selected Segment Data Adjusted EBITDA significantly declined for the nine months ended September 30, 2023, primarily due to a sharp drop in the OSB segment's performance Segment Adjusted EBITDA (in millions) | Segment | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Siding | $71 | $90 | $198 | $251 | | OSB | $120 | $113 | $161 | $1,021 | | South America | $6 | $14 | $31 | $65 | | Total Adjusted EBITDA | $190 | $200 | $349 | $1,289 | - The definition of Adjusted EBITDA was updated in 2023 to exclude business exit charges, which are considered outside the performance of ongoing core business operations[76] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management attributes performance changes to cyclical market conditions, with varied segment results and a decline in cash from operations despite strong liquidity - Demand for building products is correlated with new home construction. For the nine months ended Sep 30, 2023, single-family housing starts were 13% lower and multi-family starts were 11% lower compared to the same period in 2022[83] - In May 2023, the company acquired a manufacturing facility in Wawa, Ontario, for $80 million, which is expected to be converted into an LP SmartSide Trim & Siding mill[31][82] Key Performance Indicator: Overall Equipment Effectiveness (OEE) | Segment | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | | Siding | 77% | 75% | | OSB | 75% | 72% | | South America | 74% | 72% | Results of Operations Overall performance was mixed, with Siding sales down due to lower volumes, while OSB and South America segments experienced significant declines in sales and EBITDA Siding Segment Performance (YTD 2023 vs YTD 2022) | Metric | Change | | :--- | :--- | | Net Sales | -8% | | Adjusted EBITDA | -21% | | Average Net Selling Price | +6% | | Unit Shipments | -14% | OSB Segment Performance (YTD 2023 vs YTD 2022) | Metric | Change | | :--- | :--- | | Net Sales | -58% | | Adjusted EBITDA | -84% | | Structural Solutions Avg. Price | -46% | | Commodity Avg. Price | -47% | South America Segment Performance (YTD 2023 vs YTD 2022) | Metric | Change | | :--- | :--- | | Net Sales | -20% | | Adjusted EBITDA | -53% | | OSB Avg. Selling Price | -13% | | OSB Unit Shipments | -12% | Liquidity and Capital Resources Liquidity decreased due to lower cash from operations and significant investing activities, though the company maintains an undrawn $550 million credit facility - Cash provided by operations decreased to $157 million in YTD 2023 from $1,103 million in YTD 2022, primarily due to lower income from operations and increases in working capital[119] - Capital expenditures were $236 million for the nine months ended September 30, 2023, compared to $282 million in the prior year period[121] - As of September 30, 2023, the company had no outstanding borrowings under its $550 million Amended Credit Facility and was in compliance with all financial covenants[124][125] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company faces market risks from foreign currency, commodity price volatility, and interest rate changes, with no material profile changes since 2022 - The company has exposure to foreign currency risk from its international operations, primarily related to the Canadian dollar, Brazilian real, and Chilean peso[133] - OSB is a significant commodity product, and its sales prices fluctuate based on market factors beyond the company's control[134] - The company is exposed to interest rate risk on variable-rate debt, but had no outstanding borrowings under its credit facility as of September 30, 2023[135] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of September 30, 2023, LP's disclosure controls and procedures were effective[137] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[138] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Legal and environmental matters are incorporated by reference from Note 11 of the Condensed Consolidated Financial Statements - The description of legal and environmental matters is incorporated by reference from 'Note 11 - Commitments and Contingencies' in the financial statements[140] ITEM 1A. RISK FACTORS No material changes to previously disclosed risk factors have occurred since the 2022 Annual Report on Form 10-K and Q1 2023 Form 10-Q - There have been no material changes to the risk factors previously disclosed in the 2022 Annual Report on Form 10-K and the Q1 2023 10-Q[141] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company has a $600 million share repurchase program, with $400 million repurchased to date, but no activity in Q3 2023 - A $600 million share repurchase program was authorized on May 3, 2022. As of September 30, 2023, $400 million of stock has been repurchased under this program[144] - No share repurchases were made under the 2022 Share Repurchase Program during the third quarter ended September 30, 2023[144] ITEM 5. OTHER INFORMATION Director Lizanne Gottung entered a Rule 10b5-1 trading plan for 14,404 shares, with no other such plans adopted or terminated by directors or officers - Director Lizanne Gottung entered into a Rule 10b5-1 trading plan for the sale of up to 14,404 shares of common stock[145] ITEM 6. EXHIBITS This section lists exhibits filed with the quarterly report, including CEO/CFO certifications and XBRL data files - The report includes exhibits such as CEO/CFO certifications (31.1, 31.2, 32) and XBRL interactive data files (101 series)[150]