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Item 7. Management’s Discussion and Analysis

2022-02-22 compared with 2021-02-18 · 133 added, 155 removed, 222 unchanged (56% of the section changed)

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 Consolidated Financial Statements and related Notes and other financial information appearing elsewhere in this annual report on Form 10-K, and with Part II, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) of our Form 10-K for our fiscal year ended December 31, 2019, filed with the SEC on February 13, 2020, which provides a discussion of our financial condition and results of operations for fiscal year 2019 compared to fiscal year 2018.

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.

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Consolidated Financial Statements and related Notes and other financial information appearing elsewhere in this annual report on Form 10-K, and with Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our annual report on Form 10-K for our fiscal year ended December 31, 2020, filed with the SEC on February 18, 2021, which provides a discussion of our financial condition and results of operations for fiscal year 2020 compared to fiscal year 2019.

The following discussion includes 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.

We are a leading provider of high-performance building solutions that meet the demands of builders, remodelers, and homeowners worldwide.

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Executive Summary

Total net sales for 2020 increased by $478 million (or 21%) over the prior year to $2.8 billion.

SmartSide net sales increased by $118 million (or 15%), and OSB prices increased by $481 million, partially offset by five percent lower OSB sales volume.

LP South America net sales was $10 million higher than the prior year, net of $27 million of unfavorable currency movements.

EWP net sales was lower by $7 million, and our strategic exits from fiber and CanExel products reduced net sales by $65 million and $32 million, respectively.

Net income attributed to LP was $499 million ($4.46 per diluted share) for 2020 compared to a net loss of $5 million ($(0.04) per diluted share) in the prior year.

In addition to the growth in SmartSide net sales and increases to OSB prices, raw material costs (primarily wood fiber and resin) were favorable as compared to the prior year by $32 million.

Fiber discontinuance costs of $20 million were also recognized during 2020.

During 2019, we recognized pre-tax impairment charges of $92 million related to certain operating and non-operating assets.

Our Adjusted EBITDA increased $572 million over the prior year to $781 million, due to SmartSide growth, $481 million of OSB pricing, and the favorable raw material prices.

Total net sales for 2021 increased year-over-year by $1,765 million (or 63%) to $4,553 million, including Siding Solutions growth of $243 million (or 27%), $1,113 million from higher OSB prices, an EWP revenue increase of $249 million (or 64%) due to price increases in response to significantly higher raw material input costs, and an increase of $96 million (or 57%) in South America due to higher prices.

Net income attributed to LP increased year-over-year by $878 million (or 176%) to $1,377 million ($14.09 per diluted share) primarily due to the record OSB prices.

Adjusted EBITDA (defined below) increased by $1,191 million (or 153%) over the prior year to $1,972 million.

Adjusted EBITDA is a non-GAAP financial measure.

Please see “—Non-GAAP Financial Measures” below for more information about our use of non-GAAP financial measures in this annual report on Form 10-K and the reconciliation of Adjusted EBITDA to Net income.

Demand for Building Products

Demand for our products correlates to a significant degree to the level of new home construction activity in North America, which historically has been characterized by significant cyclicality.

While the COVID-19 pandemic did have an initial adverse impact on new home construction and repair and remodeling activity during the first and second quarters of 2020, the level of new home construction and remodel activity during 2020 increased overall as compared the prior year.

Demand for our products correlates positively with new home construction and repair and remodeling activity in North America, which historically have been characterized by significant cyclicality.

Census Bureau reported on January 19, 2022, that 2021 actual single-housing starts were 13% higher than those in 2020.

Actual multi-family housing starts in 2020 were about three percent lower than those in 2019.

Actual multi-family housing starts in 2021 were about 21% higher than those in 2020.

Repair and remodeling activity is difficult to reasonably measure, but many indications, including the substantial increase in LP’s retail sales, suggest that it grew significantly in 2021.

Although housing market demand has recently been very strong, future economic conditions in the United States and the demand for homes remain uncertain due to continuing COVID-19-related disruptions, government directives, actions and economic relief efforts related thereto, and the impact of these actions on the economy, employment levels, consumer confidence, and financial markets, among other things.

Additionally, as a result of increased demand in the housing market and a strengthening economy in the United States, we have experienced increases in material prices, supply disruptions, and labor shortages, which will be a challenge for LP as we continue

to 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.

The chart below, which is based on data published by U.S.

Census Bureau, provides a graphical summary of new housing starts for single and multi-family in the U.S.

showing actual and rolling five and ten-year averages for housing starts.

Census Bureau, provides a graphical summary of new housing starts for single and multi-family in the U.S., showing actual and rolling five- and ten-year averages for housing starts.

Supply and Demand for Siding

SmartSide 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 to the $900 million engineered wood siding and trim market.

The overall siding and trim market is estimated to be over $11 billion.

We have consistently grown our SmartSide above the underlying market growth rates.

SmartSide is generally less sensitive to new housing market cyclicality since roughly 50% of its demand comes from other markets, including:

sheds and repair and remodel.

Our growth in this market depends upon 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.

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.

The overall siding market is estimated to be an overall $12 billion industry.

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 roughly 50% of its 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.

Supply and Demand for OSB

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The ratio of overall OSB demand to capacity generally drives price.

While OSB prices increased significantly during 2020 as compared to 2019, we cannot predict whether the prices of our OSB products will remain at current levels or increase or decrease in the future.

We experienced increased demand for commodity OSB during 2021;

however, we cannot predict whether the prices of our OSB products will remain at current levels or increase or decrease in the future.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

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Our financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies.

In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.

In the event estimates or assumptions prove

to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.

Our significant accounting policies are disclosed in the Consolidated Financial Statements and Item 8 of this annual report on Form 10-K.

The following discussion addresses our most critical accounting policies, which are those that

are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.

The following discussion addresses our most critical accounting policies, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.

Long-lived Assets

Property, plant and equipment, and long-lived assets (including amortizable identifiable intangible assets) are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, including but not limited to facility curtailments and asset abandonments.

Property, plant and equipment, and long-lived assets (including amortizable identifiable intangible assets) are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable, including but not limited to facility curtailments and asset abandonments.

When such events occur, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows exist.

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We have a number of pension plans in the U.S.

and Canada, covering many of the Company’s employees.

and Canada, covering many of our employees.

Benefit accruals under our defined benefit pension plan in the U.S.

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However, differences in actual experience or changes in the assumptions may materially affect our financial condition or results of operations.

In November 2021, the Company initiated the termination of our frozen U.S.

and Canadian defined benefit pension plans (the Plan), which would result in the full settlement of the Company's net pension benefit obligations.

The distribution of Plan assets pursuant to the termination will not be made until the Plan termination satisfies all regulatory requirements, which is expected to be completed by the end of 2022.

Plan participants will receive their full accrued benefits from Plan assets by electing either lump-sum distributions or annuity contracts with a

qualifying third-party annuity provider.

The Plan termination is expected to result in pension settlement expense in 2022, which will be determined based on prevailing market conditions, the actual lump-sum distributions, and annuity purchase rates at the date of distribution.

As a result, we are currently unable to reasonably estimate timing nor the final amount of such settlement charges.

Upon settlement, we expect to recognize pre-tax pension settlement charges that will include a non-cash charge for the recognition of all pre-tax actuarial losses accumulated in Accumulated Other Comprehensive Loss ($101 million as of December 31, 2021) and (2) any cash contributions to settle the Plan’s obligations ($6 million net projected benefit obligation as of December 31, 2021).

The actual amount of the settlement charges and any potential cash contribution will depend on various factors, including interest rates, Plan asset returns, and the lump-sum election rate.

As of December 31, 2021, we used a discount rate and long-term rate of return assumption of 2.6% and 5.3%, respectively, for our U.S.

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We used a discount rate and a long-term rate of return assumption of 2.6% and 2.3%, respectively, for our Canadian plans as of December 31, 2021.

• A 50 basis point change in our discount rate assumption would lead to an increase or decrease in our pension liability of approximately $15 million.

• A 50 basis point change in the long-term rate of return on plan assets used in accounting for our pension plans would have a $1 million impact on pension expense, and a 50 basis point change in the discount rate

would have a nominal impact on pension expense.

• A 50-basis point change in our discount rate assumption would lead to an increase or decrease in our pension liability of approximately $13 million and would have a nominal impact on pension expenses.

• A 50-basis point change in the long-term rate of return on plan assets used in accounting for our pension plans would have a $1 million impact on pension expense.

It is not possible to forecast or predict whether there will be actuarial gains and losses in future periods, and if required, the magnitude of any such adjustment.

These gains and losses are driven by differences in actual experience or changes in the assumptions that are beyond our control, such as changes in interest rates and the actual return on pension plan assets.

We establish deferred tax liabilities or assets for temporary differences between financial and tax reporting bases and subsequently adjust them to reflect changes in tax rates expected to be in effect when the temporary differences reverse.

We review our deferred tax assets for recoverability and establish valuation allowances based on historical taxable income, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences.

A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

As of December 31, 2020, the valuation allowances on our deferred tax assets were $10 million.

In addition, we evaluate uncertainties in the application of complex tax regulations in the calculation of tax liabilities.

We provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.

We make this assessment based only on the technical merits of the tax position.

The technical merits of a tax position derive from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position.

If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements, and a liability to unrecognize the tax benefits is established.

A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize in our Consolidated Financial Statements.

The tax benefit recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority.

The actual benefits (expense) ultimately realized may differ from our estimates.

In future periods, changes in facts, circumstances, and new information may require us to change the recognition and measurement estimates with regard to individual tax positions.

Changes in recognition and measurement estimates are recorded in the Consolidated Financial Statements in the period in which such changes occur.

As of December 31, 2020, we had liabilities for unrecognized tax benefits pertaining to uncertain tax positions totaling $11 million.

Customer Program Costs

Our businesses routinely incur customer program costs to obtain favorable product placement, to promote sales of products and to maintain competitive pricing.

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 a reduction in net sales at the time the program is initiated and/or the revenue is recognized.

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Thus, we do not believe that a material change in the amounts recorded as customer program costs payable is likely.

As of December 31, 2020, we had $44 million accrued as customer rebates.

We had $45 million and $44 million accrued as customer rebates as of December 31, 2021, and 2020, respectively.

NON-GAAP FINANCIAL MEASURES

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Non-GAAP financial measures do not have standardized definitions and are not defined by U.S.

In this annual report on Form 10-K, we disclose income attributed to LP before interest expense, provision for income taxes, depreciation and amortization, and exclude 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, and other non-operating items as Adjusted EBITDA (Adjusted EBITDA) which is a non-GAAP financial measure.

In this annual report on Form 10-K, we disclose income attributed to LP before interest expense, provision for income taxes, depreciation and amortization, and exclude 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 (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, 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 adjusts for a normalized tax rate as Adjusted Income (Adjusted Income).

We also disclose income attributed to LP, 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, pension settlement charges, and adjusting for a normalized tax rate as Adjusted Income (Adjusted Income).

We also disclose 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 this measure should allow interested persons to more readily compare the earnings for past and future periods.

Neither Adjusted EBITDA, Adjusted Income, nor Adjusted Diluted EPS is a substitute for the U.S.

GAAP measure of net income or for any other U.S.

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 and net income 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 operations of our business.

We have elected to change our definition of Adjusted EBITDA and Adjusted Income to exclude pension settlement costs incurred during the year ended December 31, 2021.

Pension settlement costs relate to any acceleration of the unrecognized actuarial loss related to our frozen U.S.

and Canadian defined benefit pension plans.

We consider pension settlement charges not to be reflective of our ongoing operations and believe that presenting Adjusted EBITDA and Adjusted Income excluding pension settlement charges provides increased transparency as to the operating costs of our current business performance.

We did not revise prior years’ Adjusted EBITDA or Adjusted Income amounts because there were no significant costs similar in nature to these items.

The following table presents significant items by operating segment and reconciles Net income to Adjusted EBITDA (dollar amounts in millions):

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Loss from noncontrolling interest 4 2 5

Loss from discontinued operations — — 4 1 1

Income from continuing operations attributed to LP 499 (5) 399 391 150

Net income attributed to LP 1,377 499 (5)

Provision for income taxes 426 125 (13)

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Product-line discontinuance charges — 8 —

Pension settlement charges 2 — —

Interest expense 14 19 19

Investment income (1) (4) (10)

Early debt extinguishment — — — — 17

Loss on early debt extinguishment 11 — —

Other non-operating items 4 — (6)

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OSB 1,531 519 10

EWP 23 26 26 23 —

South America 113 42 34

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Loss from noncontrolling interest 4 2 5

Loss from discontinued operations — — 4 1 1

Net income attributed to LP 1,377 499 (5)

Loss on impairment attributed to LP 5 15 92

Gain on acquisition — (14) — — —

Other operating credits and charges, net (1) (4) 1

Product-line discontinuance charges — 8 —

Interest expense outside of normal operations — — — — 3

Early debt extinguishment — — — — 17

Loss on early debt extinguishment 11 — —

Pension settlement charges 2 — —

Gain on acquisition — — (14)

Reported tax provision 426 125 (13)

Normalized tax provision at 25% for 2020, 2019 and 2018 and 35% for 2017 and 2016 (161) (16) (132) (183) (70)

Normalized tax provision at 25% for 2021, 2020, and 2019 (455) (161) (16)

Adjusted Income $ 1,365 $ 482 $ 45

Adjusted weighted average shares - diluted 98 112 123

Diluted net income per share attributed to LP $ 14.09 $ 4.46 $ (0.04)

Adjusted Diluted EPS $ 13.97 $ 4.31 $ 0.37

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See Note 19 of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K for further information regarding our segments.

The Siding segment serves diverse end markets with a broad product offering including LP ® SmartSide ® Trim & Siding, LP ® SmartSide ® ExpertFinish ® prefinished siding, and LP Outdoor Building Solutions ® products for premium outdoor buildings.

Our SmartSide products consist of a full line of engineered wood siding, trim, soffit, and fascia.

Our LP CanExel ® prefinished siding was reclassified from Siding to our Other segment during the year ended December 31, 2020.

All prior periods presented have been adjusted for comparability.

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 Solutions ® (collectively referred to as Siding Solutions).

Segment Net sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows:

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Year Ended December 31, 2021 2020 2021 - 2020

SmartSide $ 915 $ 797 15 %

Fiber siding 36 101 (65) %

Siding Solutions $ 1,158 $ 915 27 %

Other 12 44 (74) %

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Selling Price Unit

SmartSide 2 % 13 %

Siding Solutions 9 % 16 %

Year Ended December 31, 2021, Compared to Year Ended December 31, 2020

Siding net sales increased by $42 million (or five percent) compared to 2019, primarily due to SmartSide revenue growth of $118 million, or 15% (13% volume of unit shipments, two percent average net sales price).

The strategic exit of fiber decreased revenue by $65 million compared to 2019.

SmartSide siding revenue comprised 94% of the total siding shipments in 2020 as compared to 83% in 2019.

Adjusted EBITDA increased by $77 million (or 46%) from 2019, primarily due to SmartSide net sales growth, lower sales and marketing costs of $9 million, and lower raw material costs of $12 million, partially offset by the strategic exit of fiber.

The OSB segment manufactures and distributes OSB structural panel products including our value-added OSB portfolio known as LP Structural Solutions (LP ® TechShield ® Radiant Barrier, LP WeatherLogic ® Air & Water Barrier, LP Legacy ® Premium Sub-Flooring, and LP ® FlameBlock ® Fire-Rated Sheathing) and LP ® TopNotch ® Sub-Flooring.

OSB is manufactured using wood strands arranged in layers and bonded with resins and wax.

For the full year, Siding net sales increased year-over-year by $211 million (or 22%), primarily due to a 27% increase in Siding Solutions revenue partially offset by the discontinuation of fiber (included in the Other product line) in 2020.

The increase in Adjusted EBITDA of $43 million reflects revenue growth offset by $66 million of raw material & freight cost inflation and $36 million of discretionary investments in support of future growth, including capacity expansions, equipment maintenance, and sales & marketing.

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, and LP ® FlameBlock ® Fire-Rated Sheathing) and LP ® TopNotch ® Sub-Flooring.

OSB is manufactured using wood strands arranged in layers and bonded with resins.

Significant cost inputs to produce OSB (including approximate breakdown percentages for 2021) were as follows:

wood fiber (30%), resin and wax (16%), labor and burden (16%), utilities (six percent), and manufacturing and other (32%).

wood fiber (26%), resin and wax (20%), labor and burden (16%), utilities (six percent), and other manufacturing costs (32%).

Segment Net sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows:

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Year Ended December 31, 2021 2020 2021 - 2020

OSB - commodity $ 632 $ 387 63 %

OSB - Structural Solutions $ 1,152 $ 580 99 %

OSB - Commodity 1,221 632 93 %

Other 14 9 67 %

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Selling Price Unit

OSB - commodity 79 % (8) %

OSB - Structural Solutions 87 % 6 %

OSB - Commodity 90 % 2 %

Year Ended December 31, 2021, Compared to Year Ended December 31, 2020

OSB net sales increased by $443 million (or 57%) from 2019, primarily due to $481 million attributable to increased prices, partially offset by a five percent reductions in shipments.

OSB net sales increased year-over-year by $1,167 million (or 96%), largely due to $1,113 million in increased OSB prices.

Structural Solutions sales volume, as a percentage of total OSB segment sales volume, was 45% in 2021 compared to 44% in 2020.

Adjusted EBITDA increased by $509 million to $519 million from 2019, primarily due to the increase in OSB prices and lower raw material costs of $18 million.

Adjusted EBITDA increased by $1,012 million, with price increases partially offset by $41 million of increased raw material costs and $38 million of maintenance and Peace Valley restart costs.

The EWP segment is comprised of LP ® SolidStart ® I-Joist (I-Joist), Laminated Veneer Lumber (LVL), and Laminated Strand Lumber (LSL) and other related products.

This segment also includes the sales of I-Joist and LVL products produced by our joint venture and sales of plywood produced as a by-product of the LVL production process.

This segment also includes the sales of I-Joist and LVL products produced by our joint venture and sales of plywood produced as an ancillary product of the LVL production process.

During 2021, we ceased LSL production at our Houlton, Maine facility to begin the conversion of that facility to Siding Solutions production.

Segment Net sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows:

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I-Joist 83 % 14 %

LVL — % (1) %

LSL 41 % (26) %

Year Ended December 31, 2021, Compared to Year Ended December 31, 2020

EWP net sales decreased by $7 million (or two percent) from 2019, primarily due a reduction in sales volume.

Adjusted EBITDA declined by $3 million primarily due to higher input costs, partially offset by operating efficiencies.

EWP net sales increased year-over-year by $249 million (or 64%) from 2020, predominantly due to price increases in response to significantly higher raw material costs.

Resulting increases in Adjusted EBITDA reflect the net effect of these price and cost increases.

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, Columbia, and Argentina.

This segment has manufacturing operations in two countries, Chile and Brazil, and operates sales offices in Chile, Brazil, Peru, Columbia, Argentina, and Paraguay.

Segment Net sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows:

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Year Ended December 31, 2021, Compared to Year Ended December 31, 2020

South America net sales increased by $10 million (or six percent) compared to 2019 due to higher OSB and Siding pricing and volume (local and export), net of $27 million of unfavorable currency movements.

Adjusted EBITDA increased by $8 million (or 24%) from 2019 due to both higher OSB and Siding prices and volumes, partially offset by higher imported raw material costs.

Our other products segment includes our off-site framing operation Entekra Holdings, LLC (Entekra), remaining timber and timberlands, and other minor products, services, and closed operations, which are not classified as discontinued operations.

During 2020, our LP CanExel ® prefinished siding was reclassified from Siding to our Other segment, reflecting changes in the organizational structure of the business.

Net sales were $52 million for 2020 as compared to $66 million in 2019.

South America net sales increased year-over-year by $96 million (or 57%) compared to 2020, predominantly due to higher OSB and siding prices.

Increased Adjusted EBITDA reflects the effect of these price increases, partially offset by higher costs of imported raw material.

Net sales increased year-over-year by $43 million (or 83%) to $95 million primarily due to the Entekra growth.

Adjusted EBITDA was $(20) million for 2021 as compared to $(19) million in 2020.

GENERAL CORPORATE AND OTHER EXPENSE, NET

General corporate and other expenses primarily comprise corporate overhead unrelated to business activities such as:

wages and benefits, professional fees, insurance, and other expenses for corporate functions, including certain executive officers, public company activities, tax, internal audits, and other corporate functions.

General corporate and other expenses primarily comprise corporate overhead unrelated to business activities such as wages and benefits, professional fees, insurance, and other expenses for corporate functions, including certain executive officers, public company activities, tax, internal audits, and other corporate functions.

General corporate and other expense, net, was $46 million in 2021 as compared to $37 million in 2020.

The increase in 2020 as compared to 2019 was primarily due to increased costs associated with the achievement of performance targets.

IMPAIRMENTS OF LONG-LIVED ASSETS

During 2020, we recorded $11 million of pre-tax impairment charges on our operating long-lived assets.

Included within these impairment charges were $9 million charge related to our fiber producing assets.

The increase in 2021 as compared to 2020 was primarily due to increased costs associated with stock compensation and performance incentives.

LOSS ON IMPAIRMENTS

During 2021, we recognized $6 million of pre-tax impairment charges primarily due to a non-cash impairment charge of $5 million related to goodwill associated with our off-site construction operation Entekra.

During 2020, we recognized $16 million of pre-tax impairment charges.

Included within these impairment charges was a $9 million charge related to our fiber-producing assets.

These impairment charges reflect the accelerated conversion from fiber production to pre-finishing.

Additionally, we recorded $2 million in pre-tax impairment charges related to our divestiture of the East River facility.

During 2019, we recorded $92 million of pre-tax impairment charges of our non-operating and operating long-lived assets.

Included within these impairment charges are $47 million related to non-operating assets located at Val-d’Or and St Michel, Quebec, Canada;

Cook, Minnesota;

and Silsbee, Texas;

and $39 million related to an EWP facility producing LSL and OSB and $5 million related to the East River facility that we sold in 2020.

These impairment charges reflected changes to anticipated usage of these facilities driven by market changes and improved operating efficiencies across our remaining facilities.

Additionally, we recognized $2 million in non-cash impairment charges related to our divestiture of the East River facility and $5 million related to goodwill associated with Entekra.

OTHER OPERATING CREDITS AND CHARGES, NET

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For a discussion of non-operating income (expense), see Note 13 of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K.

We recorded a tax provision of $125 million in 2020 compared to $13 million in 2019.

We recognized a tax provision of $426 million in 2021 compared to $125 million in 2020.

For 2021, the primary differences between the U.S.

statutory rate of 21% and the effective rate relate to state income tax, foreign tax rates, tax credits, uncertain tax positions, and changes in the valuation allowance.

statutory rate of 21% and the effective rate relate to state income tax.

We paid $421 million and $70 million of income taxes net of refunds in 2021 and 2020, respectively.

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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.

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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.

Any such repurchases may be commenced, suspended, discontinued, or resumed, and the method or methods of affecting any such repurchases may be changed at any time, or from time to time, without prior notice.

Operating Activities

During 2021, we generated $1,484 million of cash from operations as compared to $659 million in 2020.

The improvement in cash provided by operations was primarily related to growth in SmartSide and increases in OSB pricing.

The improvement in cash provided by operations was primarily related to increases in OSB pricing and growth in Siding Solutions revenue.

At December 31, 2021, and 2020, we had working capital of $181 million and $172 million, respectively.

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Capital expenditures for 2021 and 2020 were $254 million and $77 million, respectively.

This reduction in capital expenditures was due, in part, to our decision at the onset of the COVID-19 pandemic to reduce capital expenditure plans by 50% for the year 2020.

During 2020, we received $15 million in cash related to the divestiture of our East River facility and assets and brand rights of CanExel ® .

This increase in capital expenditures was primarily related to Siding conversion expenditures and growth and maintenance capital.

During 2020, we received $15 million in cash related to the divestiture of our East River facility assets and brand rights of CanExel ® .

Additionally, we received $10 million related to the cash surrender value of the company-owned life insurance policy and $3 million related to the sale of our auction rate securities (ARS).

During 2019, we acquired $40 million of cash in connection with our acquisition of a controlling interest in Entekra and the resulting consolidation of Entekra's financial results with those of the Company and paid $13 million in acquisitions and investments during 2019.

Capital expenditures in 2021 are expected to be in the range of $220 million to $230 million, including $80 million to $85 million for the Houlton conversion, $30 million to $35 million for other strategic growth projects, $10 million for Peace Valley, and $100 million for sustaining maintenance.

We expect to fund our capital expenditures through cash on hand, cash generated from operations, and available borrowing under our credit facility, as necessary.

Capital expenditures in 2022 are expected to be in the range of $400 million to $430 million.

We expect to fund our

short-term and long-term capital expenditures through cash on hand, cash generated from operations, and available borrowing under our Amended Credit Facility, as necessary.

Financing Activities

During 2021, net cash used in financing activities was $1,388 million as compared to $272 million in 2020.

We used $200 million to repurchase LP common stock pursuant to an authorization by our Board of Directors in February 2020 which was expanded by our Board of Directors in November 2020 by an additional $300 million.

We used $300 million to repurchase shares of LP common stock under the 2020 Share Repurchase Program, which was exhausted in May 2021.

We used $1,000 million to repurchase shares of LP common stock under the First 2021 Share Repurchase Program, which was exhausted in December 2021.

Additionally, we used $66 million to pay quarterly cash dividends.

On November 2, 2021, LP’s Board of Directors authorized the Second 2021 Share Repurchase Program, under which the Company may repurchase shares of its common stock totaling up to $500 million.

In March 2021, we issued $350 million aggregate principal amount of the 2029 Senior Notes.

In March 2021, LP used the proceeds from the issuance of the 2029 Senior Notes and cash on hand to redeem all of the 2024 Senior Notes at a redemption price of 102.438% of the principal amount thereof plus accrued and unpaid interest to, but not including, the redemption date.

In connection with financing activities, we paid $2 million in debt issuance costs related to the third amendment to our Amended Credit Facility and $13 million in redemption premiums and debt issuance costs related to the 2024 Senior Notes.

The remaining financing activities relate to the repurchase of stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans.

During 2020, net cash used in financing activities was $272 million as compared to $717 million in 2019.

We used $200 million to repurchase LP common stock under the 2020 Share Repurchase Program.

Additionally, we used $65 million to pay quarterly cash dividends.

In the first quarter of 2020, we borrowed $350 million under our Amended Credit Facility as a precautionary measure due to the COVID-19 pandemic, and we repaid the outstanding balance in the second quarter of 2020.

Cash used in financing activities for the year ended December 31, 2019, consisted of $638 million to repurchase LP common stock, $65 million to pay cash dividends, and $5 million to repay outstanding debt.

CREDIT AGREEMENT

Our revolving credit facility, dated June 27, 2019, with American AgCredit, PCA, as administrative agent, and CoBank, ACB, as a letter of credit issuer (the Credit Facility), which was amended by an amendment on May 1, 2020 to provide for a total capacity of $550 million and a second amendment on May 27, 2020 to modify certain representations and warranties included in the Credit Facility related to the impacts of the ongoing COVID-19 pandemic on the Company’s business, operations or financial conditions as described in more detail below and more particularly set forth in such amendment (as amended, the Amended Credit Facility), provides for revolving credit facilities in the aggregate principal amount of up to $550 million, with a $60 million sub-limit for letters of credit.

The initial $350 million revolving facility provided pursuant to the Credit Facility (Revolving A Loan) terminates, and all loans thereunder become due, on June 27, 2024.

The incremental $200 million revolving facility provided pursuant to the Amended Credit Facility (the Revolving B Loan) terminates, and all loans made thereunder become due, on May 1, 2023.

CREDIT FACILITIES

The Amended Credit Facility 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 Amended Credit Facility, and all loans thereunder, become due on June 8, 2027.

As of December 31, 2021, we had no amounts outstanding under the Amended Credit Facility.

The Amended Credit Facility contains various restrictive covenants and customary events of default, the occurrence of which could result in the acceleration of our obligation to repay the indebtedness outstanding thereunder.

The Amended Credit Facility also contains financial covenants that requires us and our consolidated subsidiaries to have, as of the end of each quarter, (i) a capitalization ratio (i.e., funded debt less unrestricted cash to total capitalization) of no more than 57.5% and (ii) a minimum consolidated net worth of at least $475 million plus 70% of consolidated net income after December 31, 2019, without deduction for net losses.

The Amended Credit Facility 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 December 31, 2021, we were in compliance with all financial covenants under the Amended Credit Facility.

In March 2020, LP entered into the Letter of Credit Facility with Bank of America, N.A.

(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 includes a letter of credit 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 Amended Credit Facility, including capitalization ratio and minimum net worth covenants.

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 includes 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 Amended Credit Facility, including the capitalization ratio covenant.

As of December 31, 2021, we were in compliance with all covenants under the Letter of Credit Facility.

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2029 Senior Notes

In September 2016, we issued the 2024 Senior Notes in the aggregate principal amount of $350 million, which mature on September 15, 2024.

In March 2021, we issued the 2029 Senior Notes in the aggregate principal amount of $350 million, which mature

on March 15, 2029.

As of December 31, 2021, future interest payments associated with the 2029 Senior Notes totaled $95 million, with $13 million payable within 12 months of such date.

For additional information regarding the 2029 Senior Notes, please see Note 11 of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K.

Contingency Reserves

Contingency reserves, which represent an estimate of future cash needs for various contingencies (principally, environmental reserves), totaled $14 million at December 31, 2020, of which $1 million is estimated to be payable within one year.

Contingency reserves, which represent an estimate of future cash needs for various contingencies (principally, environmental reserves), totaled $25 million at December 31, 2021, of which $1 million is estimated to be payable within one year of such date.

There is inherent uncertainty concerning the reliability and precision of such estimates, and as such, the amounts ultimately paid in resolving these contingencies could exceed the current reserves by a material amount.

We have lease arrangements for real estate, mobile equipment at our manufacturing facilities, rail cars to transport our products, and a fleet of vehicles.

As of December 31, 2021, we had fixed lease payment obligations of $66 million, with $5 million payable within 12 months of such date.

Other Purchase Obligations

Our other purchase obligations primarily consist of obligations related to information technology infrastructure.

As of December 31, 2021, we had other purchase obligations of $34 million, with $18 million payable within 12 months of such date.

Off-Balance Sheet Arrangements

As of December 31, 2021, we had standby letters of credit of $12 million outstanding related to collateral for environmental impact on owned properties, deposit for forestry license, and insurance collateral, including workers' compensation.

Contractual Obligations

The table below summarizes our contractual obligations as of December 31, 2020, over the next several years.

See the discussion above concerning provisions that could accelerate the due dates on our long-term debt.

Dollars amounts in millions Payments due by period

Contractual obligations Total Less than 1 year 1-3 years 3-5 years More than 5 years

Long-term debt 1

$ 351 $ — $ — $ 350 $ —

Interest payments on long-term debt 2

68 17 34 17 —

Operating leases 52 9 11 5 27

Other long-term obligations 3

Total contractual cash obligations 4,5

$ 500 $ 41 $ 55 $ 376 $ 27

_______________

1 As described in Note 12 of the Notes to Consolidated Financial Statements, our 2024 Senior Notes are subject to certain acceleration provisions.

2 The estimate of interest payments assumes interest is paid through the date of maturity or expiration of the related debt based upon stated rates in the respective debt instruments.

3 Other long-term obligations primarily consist of obligations related to information technology infrastructure.

4 Unrecognized uncertain tax positions have been excluded from the above table as it is not reasonably possible to estimate when these unrecognized uncertain tax positions may need to be paid.

As of December 31, 2020, the amount of uncertain tax positions excluded from the above table is $11 million.

5 As of December 31, 2020, LP had warranty reserves of $8 million.

These have been excluded from the above table as it is not reasonably possible to determine when these may need to be paid.

Impact of Inflation

The Company does not believe inflation has had a material impact on sales or operating results during periods covered in this document.

Potential Impairments

We continue to review several mills and investments for potential impairments.

Management currently believes we have adequate support for the carrying value of each of these assets based upon the anticipated cash flows that result from our estimates of future demand, pricing and production costs, assuming certain levels of planned capital

expenditures.

If demand and pricing for the relevant products continue at levels significantly below cycle average demand and pricing, or should we decide to invest capital in alternative projects, or should changes occur related to our wood supply for these locations, it is possible that further impairment charges will be required.

As of December 31, 2020, we concluded that the remaining curtailed facility in our OSB segment is temporarily idled rather than abandoned, and it remains within its historical asset group, for which no impairment is required.

Management currently believes we have adequate support for the carrying value of each of these assets based upon the anticipated cash flows that result from our estimates of future demand, pricing, and production costs, assuming certain levels of planned capital expenditures.

As of December 31, 2021, the fair values of LP's facilities were in excess of their carrying value, which supported the conclusion that no impairment is necessary for those facilities.

However, if demand and pricing for our products fall to levels significantly below cycle average demand and pricing, or should we decide to invest capital in alternative projects, or should changes occur related to our wood supply for these locations, it is possible that future impairment charges will be required.

We also review from time to time possible dispositions of various assets in light of current and anticipated economic and industry conditions, our strategic plan, and other relevant factors.

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PROSPECTIVE ACCOUNTING PRONOUNCEMENTS

See Note 2 for discussion of prospective accounting pronouncements of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K.

For a discussion of prospective accounting pronouncements, see Note 2 of the Notes to the Consolidated Financial Statements included in Item 8 of this annual report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis