Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q. The following discussion includes statements that are forward-looking statements that are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. See "Cautionary Statement Regarding Forward-Looking Statements."
General
We are a leading provider of high-performance building solutions that meet the demands of builders, remodelers, and homeowners worldwide. We have leveraged our expertise serving the new home construction, repair and remodeling, and outdoor structures markets to become an industry leader known for innovation, quality, and reliability. Our manufacturing facilities are located in the U.S., Canada, Chile, and Brazil.
To serve these markets, we operate in three segments: Siding, OSB, and South America.
In March 2022, we sold our 50% equity interest in two joint ventures that produce I-joists to Resolute for $59 million. The joint ventures were comprised of Resolute-LP Engineered Wood Larouche Inc. in Larouche, Quebec, and Resolute-LP Engineered Wood St-Prime Limited Partnership in Saint-Prime, Quebec. The total net carrying value of our equity method investment at the date of sale was $19 million. We recognized a gain on the sale of $39 million during the nine months ended September 30, 2022, within Income from discontinued operations in the Condensed Consolidated Statements of Income.
In August 2022, LP completed the sale of the EWP segment assets to the Purchaser in exchange for the Purchaser’s payment to the Company of $217 million in gross cash proceeds after taking into account working capital adjustments (including $3 million received subsequent to September 30, 2022). Upon closing, the Company entered into the TSA with the Purchaser, pursuant to which the Company agreed to support the various activities of the EWP segment for a period not to exceed eight months. We have classified the related assets and liabilities associated with the EWP segment as discontinued operations in our Condensed Consolidated Balance Sheets. The results of our EWP segment have been presented as discontinued operations in our Condensed Consolidated Statements of Income for all periods presented. See "Note 7 – Discontinued Operations" of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q for additional information.
Demand for our Building Products
Demand for our products correlates positively with new home construction and repair and remodeling activity in North America, which historically has been characterized by significant cyclicality. The U.S. Department of Census reported on October 19, 2022, that actual single housing starts were 18% lower for the three months ended September 30, 2022, and 6% lower for the nine months ended September 30, 2022, as compared to the same periods in 2021. Repair and remodeling activity is difficult to reasonably measure, but many indications, including the increase in LP’s retail sales, suggest that repair and remodeling activity is continuing to grow.
Future economic conditions in the United States and the demand for homes are uncertain due to inflationary impacts on the economy, including interest rates, employment levels, consumer confidence, and financial markets, among other things. Additionally, we have experienced increases in material prices, supply disruptions, and labor shortages, which will be a challenge 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.
Supply and Demand for OSB
OSB is a commodity product, and it is subject to competition from manufacturers worldwide. Product supply is influenced primarily by fluctuations in available manufacturing capacity and imports. The ratio of overall OSB demand to capacity generally drives price. We cannot predict whether the prices of our OSB products will remain at current levels or increase or decrease in the future.
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For additional factors affecting our results, refer to the “Overview” within our “Management's Discussion and Analysis of Financial Condition and Results of Operations” section and our “Risk Factors” section contained in our 2021 Annual Report on Form 10-K, and to the “Cautionary Statement Regarding Forward-Looking Statements” section in this quarterly report on Form 10-Q.
Critical Accounting Policies and Significant Estimates
Note 1 of the Notes to the Condensed Consolidated Financial Statements included in our 2021 Annual Report on Form 10-K is a discussion of our significant accounting policies and significant accounting estimates and judgments. Throughout the preparation of the financial statements, we employ significant judgments in the application of accounting principles and methods. These judgments are primarily related to the assumptions used to arrive at various estimates.
There have been no changes in the application of principles, methods, and assumptions used to determine our significant estimates since December 31, 2021.
Non-GAAP Financial Measures and Other Key Performance Indicators
In evaluating our business, we utilize non-GAAP financial measures that fall within the meaning of SEC Regulation G and Regulation S-K Item 10(e), which we believe provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP financial measures do not have standardized definitions and are not defined by U.S. GAAP. In this quarterly report on Form 10-Q, we disclose income attributed to LP from continuing operations before interest expense, provision for income taxes, depreciation and amortization, and 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 from continuing operations (Adjusted EBITDA), which is a non-GAAP financial measure. We have included Adjusted EBITDA in this report because we view it as an important supplemental measure of our performance and believe that it is frequently used by interested persons in the evaluation of companies that have different financing and capital structures and/or tax rates. We also disclose income attributed to LP from continuing operations, excluding loss on impairment attributed to LP, product-line discontinuance charges, interest expense outside of normal operations, other operating credits and charges, net, loss on early debt extinguishment, gain (loss) on acquisition, pension settlement charges, and adjusting for a normalized tax rate as Adjusted Income from continuing operations (Adjusted Income). We also disclose Adjusted Diluted EPS from continuing operations (Adjusted Diluted EPS), calculated as Adjusted Income divided by diluted shares outstanding. We believe that Adjusted Diluted EPS and Adjusted Income are useful measures for evaluating our ability to generate earnings and that providing these measures should allow interested persons to more readily compare the earnings for past and future periods.
Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS are not substitutes for the U.S. GAAP measures of net income and net income attributed to LP from continuing operations per diluted share or for any other U.S. GAAP measures of operating performance. It should be noted that other companies may present similarly titled measures differently, and therefore, as presented by us, these measures may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS have material limitations as performance measures because they exclude items that are actually incurred or experienced in connection with the operation of our business.
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The following table reconciles Net income to Adjusted EBITDA (dollar amounts in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net income $ 226 $ 365 $ 1,093 $ 1,182
Add (deduct):
Net loss attributed to noncontrolling interest — — 1 1
Income from discontinued operations, net of income taxes (97) (33) (196) (47)
Income attributed to LP from continuing operations 129 332 898 1,135
Provision for income taxes 44 111 284 350
Depreciation and amortization 32 28 96 85
Stock-based compensation expense 2 5 15 10
Other operating credits and charges, net (7) (2) (17) (5)
Loss on early debt extinguishment — — — 11
Interest expense 3 4 9 12
Investment income (5) — (8) (1)
Other non-operating items (1) 2 7 2
Pension settlement charges 4 — 4 —
Adjusted EBITDA $ 200 $ 480 $ 1,289 $ 1,600
Siding $ 90 $ 73 $ 251 $ 240
OSB 113 381 1,021 1,300
South America 14 37 65 91
Other (7) (3) (19) (11)
Corporate (11) (8) (29) (22)
Adjusted EBITDA $ 200 $ 480 $ 1,289 $ 1,600
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The following table provides the reconciliation of Net income to Adjusted Income (dollar amounts in millions, except per share amounts):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net income $ 226 $ 365 $ 1,093 $ 1,182
Add (deduct):
Net loss attributed to noncontrolling interest — — 1 1
Loss from discontinued operations (97) (33) (196) (47)
Income attributed to LP from continuing operations 129 332 898 1,135
Other operating credits and charges, net (7) (2) (17) (5)
Loss on early debt extinguishment — — — 11
Pension settlement charges 4 — 4 —
Reported tax provision 44 111 284 350
Adjusted income before tax 170 442 1,171 1,492
Normalized tax provision at 25% (42) (111) (293) (373)
Adjusted Income $ 127 $ 331 $ 878 $ 1,119
Diluted shares outstanding 74 94 80 101
Diluted net income attributed to LP from continuing operations per share $ 1.74 $ 3.52 $ 11.16 $ 11.26
Adjusted Diluted EPS $ 1.72 $ 3.52 $ 10.91 $ 11.08
Key Performance Indicators
In addition, management monitors certain key performance indicators to evaluate our business performance, which include our Overall Equipment Effectiveness (OEE) and our sales volume relative to housing starts, as provided by reports from the U.S. Department of Census.
The following tables set forth: (1) housing starts, (2) our North American sales volume, and (3) OEE. We consider the following items to be key performance indicators because LP’s management uses these metrics to evaluate our business and trends, measure our performance, and make strategic decisions, and believes that the key performance indicators presented provide additional perspective and insights when analyzing the core operating performance of LP. These key performance indicators should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the U.S. GAAP financial measures presented herein. These measures may not be comparable to similarly-titled performance indicators used by other companies.
We monitor housing starts, which is a leading external indicator of residential construction in the United States that correlates with the demand for many of our products. We believe that this is a useful measure for evaluating our results and that providing this measure should allow interested persons to more readily compare our sales volume for past and future periods to an external indicator of product demand. Other companies may present housing start data differently, and therefore, housing starts data presented by us may not be comparable to similarly-titled indicators reported by other companies.
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Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Housing starts 1 :
Single-Family 242 296 812 861
Multi-Family 146 123 416 352
388 419 1,228 1,213
1 Actual U.S. Housing starts data reported by U.S. Census Bureau as published through October 19, 2022.
We monitor sales volumes for our products in our Siding and OSB segments, which we define as the number of units of our products sold within the applicable period. Evaluating sales volume by product type helps us identify and address changes in product demand, broad market factors that may affect our performance, and opportunities for future growth. It should be noted that other companies may present sales volumes differently and, therefore, as presented by us, sales volumes may not be comparable to similarly-titled measures reported by other companies. We believe that sales volumes can be a useful measure for evaluating and understanding our business.
The following table sets forth sales volumes for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30, 2022 Three Months Ended September 30, 2021
Sales Volume Siding OSB South America Total Siding OSB South America Total
Siding Solutions (MMSF) 471 — 9 480 432 — 11 443
OSB - commodity (MMSF) — 544 — 544 — 533 — 533
OSB - Structural Solutions (MMSF) — 460 127 587 — 419 149 567
Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Sales Volume Siding OSB South America Total Siding OSB South America Total
Siding Solutions (MMSF) 1,340 — 25 1,365 1,241 — 79 1,320
OSB - commodity (MMSF) — 1,441 — 1,441 — 1,470 — 1,470
OSB - Structural Solutions (MMSF) — 1,499 420 1,919 — 1,222 418 1,640
We measure the OEE of each of our mills to track improvements in the utilization and productivity of our manufacturing assets. OEE is a composite metric that considers asset uptime (adjusted for capital project downtime and similar events), production rates, and finished product quality. It should be noted that other companies may present OEE differently and, therefore, as presented by us, OEE may not be comparable to similarly-titled measures reported by other companies. We believe that when used in conjunction with other metrics, OEE can be a useful measure for evaluating our ability to generate profits, and providing this measure should allow interested persons to more readily monitor operational improvements. OEE for the three and nine months ended September 30, 2022 and 2021, for each of our segments is listed below:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Siding 76 % 74 % 75 % 73 %
OSB 70 % 74 % 72 % 75 %
South America 64 % 80 % 72 % 77 %
Results of Operations
Our results of operations are separately discussed below for each of our segments, as well as for the “Other” category, which comprises other products that are not individually significant. See Note 17 of the Notes to the
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Condensed Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q for further information regarding our segments.
Siding
The Siding segment serves diverse end markets with a broad product offering of engineered wood siding, trim, and fascia, including LP ® SmartSide ® Trim & Siding, LP ® SmartSide ® ExpertFinish ® Trim & Siding, LP BuilderSeries ® Lap Siding, and LP ® Outdoor Building Solutions ® (collectively referred to as Siding Solutions).
Segment sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows (dollar amounts in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 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 %
Sales in this segment by product line were as follows (dollar amounts in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
Siding Solutions $ 393 $ 310 27 % $ 1,079 $ 879 23 %
Other 1 3 (37) % 4 9 (55) %
Total $ 394 $ 312 26 % $ 1,083 $ 889 22 %
Percent changes in average sales prices and unit shipments for the three and nine months ended September 30, 2022, compared to the corresponding periods in 2021, were as follows:
Three Months Ended
September 30, 2022 versus 2021 Nine Months Ended
September 30, 2022 versus 2021
Average Net
Selling Price Unit
Shipments Average Net
Selling Price Unit
Shipments
Siding Solutions 16 % 9 % 14 % 8 %
The combined effects of list price increases and improving mix of innovative products drove year-over-year increases in the average net selling price for the three and nine months ended September 30, 2022. The volume increases for the three and nine months ended September 30, 2022 are attributable to steady customer demand and production increases made possible by the ongoing ramp-up of the Houlton facility as well as increasing operational efficiency at other Siding facilities.
Adjusted EBITDA year-over-year increase of $17 million for the three months ended September 30, 2022 reflects price and volume growth largely offset by $32 million of raw material, freight and labor inflation and $4 million of facility maintenance costs. The year-over-year increase in Adjusted EBITDA of $11 million for the nine months ended September 30, 2022 reflects price and volume growth, offset primarily by $89 million of raw material, freight, and labor inflation, $8 million of facility maintenance costs, and $19 million of discretionary investments in support of future growth, including siding mill conversions and sales and marketing costs.
OSB
The OSB segment manufactures and distributes OSB structural panel products, including our value-added OSB portfolio known as LP Structural Solutions (which includes LP ® TechShield ® Radiant Barrier, LP WeatherLogic ® Air & Water Barrier, LP Legacy ® Premium Sub-Flooring, and LP ® FlameBlock ® Fire-Rated Sheathing) and LP ® TopNotch ® Sub-Flooring. OSB is manufactured using wood strands arranged in layers and bonded with resins.
Segment sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows (dollar amounts in millions):
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Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 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 %
Sales in this segment by product line were as follows (dollar amounts in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
OSB - Structural Solutions $ 205 $ 307 (33) % $ 995 $ 912 9 %
OSB - commodity 180 290 (38) % 801 997 (20) %
Other 3 4 (11) % 9 9 1 %
Total $ 388 $ 600 (35) % $ 1,805 $ 1,917 (6) %
Percent changes in average net sales prices and unit shipments for the three and nine months ended September 30, 2022, compared to the corresponding periods in 2021, were as follows:
Three Months Ended
September 30, 2022 versus 2021
Nine Months Ended
September 30, 2022 versus 2021
Average Net
Selling Price Unit
Shipments Average Net
Selling Price Unit
Shipments
OSB - Structural Solutions (39) % 10 % (11) % 23 %
OSB - commodity (39) % 2 % (18) % (2) %
OSB average net selling prices decreased year-over-year by 39% on 5% higher OSB sales volume for the three months ended September 30, 2022, resulting in a 35% decrease in net sales. OSB average net selling prices decreased year-over-year by 14% on 9% higher OSB sales volume for the nine months ended September 30, 2022, resulting in a 6% decrease in net sales.
The year-over-year decrease in Adjusted EBITDA of $268 million for the three months ended September 30, 2022 reflects $252 million from lower prices, $25 million of increased raw material and wage inflation, and $10 million facility maintenance costs, partially offset by $29 million from higher sales volume and the positive incremental margin generated by Structural Solutions products compared to commodity OSB products. The year-over-year decrease in Adjusted EBITDA of $279 million for the nine months ended September 30, 2022 reflects $325 million from lower prices, $68 million of increased raw material and wage inflation, and $12 million facility maintenance costs, offset partially by $140 million from higher sales volume.
South America
Our South America segment manufactures and distributes OSB structural panel and siding products in South America and certain export markets. This segment has manufacturing operations in two countries, Chile and Brazil, and operates sales offices in Chile, Brazil, Peru, Colombia, Argentina, and Paraguay.
Segment sales, Adjusted EBITDA, and Adjusted EBITDA margin for this segment were as follows (dollar amounts in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 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 %
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Sales in this segment by product line were as follows (dollar amounts in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
OSB - Structural Solutions $ 47 $ 65 (28) % $ 172 $ 171 1 %
Siding 6 9 (32) % 18 29 (38) %
Other — 2 (67) % — 3 (97) %
Total $ 53 $ 76 (30) % $ 190 $ 203 (6) %
Percent changes in average sales prices and unit shipments for the three and nine months ended September 30, 2022, compared to the corresponding periods in 2021, were as follows:
Three Months Ended
September 30, 2022 versus 2021 Nine Months Ended
September 30, 2022 versus 2021
Average Net
Selling Price Unit
Shipments Average Net
Selling Price Unit
Shipments
OSB - Structural Solutions (19) % (14) % — % — %
Siding (18) % (21) % (13) % (68) %
Net sales in South America decreased year-over-year by 30% for the three months ended September 30, 2022, predominantly driven by lower OSB sales volumes and $10 million of unfavorable currency movements. Net sales decreased year-over-year by 6% for the nine months ended September 30, 2022, due in large part to lower Siding sales volumes and prices.
The year-over-year decrease in Adjusted EBITDA of $23 million and $26 million for the three and nine months ended September 30, 2022, respectively, reflects lower sales volumes, higher raw material costs, and unfavorable currency movements.
Other Products
Our Other products segment includes off-site framing operation Entekra Holdings LLC (Entekra), remaining timber and timberlands, and other minor products, services, and closed operations, which do not qualify as discontinued operations. Other net sales were $17 million and $72 million for the three and nine months ended September 30, 2022, respectively, as compared to $30 million and $73 million for the corresponding periods in 2021. The decrease in net sales for the three months ended September 30, 2022 is primarily due to lower Entekra revenue.
Adjusted EBITDA was $(7) million and $(19) million for the three and nine months ended September 30, 2022, respectively, as compared to $(3) million and $(11) million for the corresponding periods in 2021.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $67 million and $196 million for the three and nine months ended September 30, 2022, respectively, compared to $58 million and $155 million for the corresponding periods in 2021. The increase in 2022 is due to increased labor, travel, sales and marketing, and corporate overhead costs primarily driven by the reduction of restrictions related to the COVID-19 pandemic and costs associated with stock compensation and performance incentives.
Income Taxes
We recognized an estimated tax provision from continuing operations of $44 million and $284 million for the three and nine months ended September 30, 2022, respectively, compared to $111 million and $350 million for the corresponding periods of 2021. The total effective tax rate for continuing operations for the three and nine months ended September 30, 2022, was 26% and 24% compared to 25% and 24% for the comparable periods in 2021, respectively. Each quarter the income tax accrual is adjusted to the latest estimate, and the difference from the previously accrued year-to-date balance is recorded in the current quarter. For 2022 and 2021, the primary difference between the U.S. statutory rate of 21% and the effective rate relates to state income tax.
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Legal and Environmental Matters
For a discussion of legal and environmental matters involving us and the potential impact thereof on our financial position, results of operations, and cash flows, see Items 3, 7, and 8 in our 2021 Annual Report on Form 10-K and Note 11 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity are existing cash and investment balances, cash generated by our operations, and our ability to borrow under such credit facilities as we may have in effect from time to time. We may also, from time to time, issue and sell equity, debt, or hybrid securities or engage in other capital market transactions.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, paying dividends, and making capital expenditures. We may also, from time to time, prepay or repurchase outstanding indebtedness or shares or acquire assets or businesses that are complementary to our operations. Any such repurchases may be commenced, suspended, discontinued, or resumed, and the method or methods of effecting any such repurchases may be changed, at any time, or from time to time, without prior notice.
We expect to fund our capital expenditures through cash on hand, cash generated from operations, and available borrowing under our Amended Credit Facility (as defined below), as necessary.
Operating Activities
During the nine months ended September 30, 2022 and 2021, cash provided by operations was $1,103 million and $1,283 million, respectively. The decrease in cash provided by operations was primarily related a lower income from operations offset by improvements in working capital.
Investing Activities
During the nine months ended September 30, 2022 and 2021, cash used in investing activities was $14 million and $131 million, respectively. During the nine months ended September 30, 2022, we received $265 million in proceeds from sales of assets, primarily associated with the sale of the EWP segment assets and the sale of our 50% equity interest in two joint ventures.
Capital expenditures for the nine months ended September 30, 2022 and 2021, were $282 million and $133 million, respectively, primarily related to siding conversion expenditures and growth and maintenance capital.
Financing Activities
During the nine months ended September 30, 2022, cash used in financing activities was $968 million. On November 2, 2021, LP's Board of Directors authorized a share repurchase plan under which LP may repurchase shares of its common stock totaling up to $500 million (the Second 2021 Share Repurchase Program). In May 2022, LP's Board of Directors authorized a share repurchase plan under which LP was authorized to repurchase shares of LP's common stock totaling up to $600 million (the 2022 Share Repurchase Program). During the nine months ended September 30, 2022, we used $900 million to repurchase shares of LP common stock ($500 million from the Second 2021 Share Repurchase Program and $400 million from the 2022 Share Repurchase Program). Additionally, we paid cash dividends of $53 million and used $15 million to repurchase stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans.
During the nine months ended September 30, 2021, cash used in financing activities was $1,058 million. During the nine months ended September 30, 2021, we used $300 million to repurchase shares of LP common stock under the share repurchase program authorized by LP's Board of Directors in 2020 and $687 million to repurchase shares of LP common stock under the repurchase program authorized by LP's Board of Directors in May 2021. Additionally, we paid cash dividends of $50 million and used $6 million to repurchase stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans. In March 2021, we issued $350 million in aggregate principal amount of the 2029 Senior Notes, and in February 2021, LP
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delivered to holders of the 2024 Senior Notes a conditional notice of redemption to redeem on March 27, 2021, all of the 2024 Senior Notes outstanding at a redemption price of 102.438% of the principal amount thereof plus accrued and unpaid interest up to, but not including, the redemption date. The redemption notice became irrevocable on March 11, 2021, and the 2024 Senior Notes were fully redeemed on March 27, 2021. In connection with these aforementioned financing activities, we paid $13 million in redemption premiums and debt issuance costs.
Credit Facility and Letter of Credit Facility
In June 2021 and August 2021, we entered into the third and fourth amendments to our revolving credit facility, dated as of June 27, 2019 (Credit Facility), with American AgCredit, PCA, as administrative agent, and CoBank, ACB, as letter of credit issuer (as amended, the Amended Credit Facility). 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 September 30, 2022, 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 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 September 30, 2022, we were in compliance with all financial covenants under the Amended Credit Facility.
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 September 30, 2022, we were in compliance with all financial covenants under the Letter of Credit Facility.
Other Liquidity Matters
Off-Balance Sheet Arrangements
As of September 30, 2022, we had standby letters of credit of $13 million outstanding related to collateral for environmental impact on owned properties, a deposit for a forestry license, and insurance collateral, including workers' compensation.
Potential Impairments
We review the carrying values of our long-lived assets for potential impairments and believe we have adequate support for the carrying values of our long-lived assets as of September 30, 2022.
If demand and pricing for our products fall to levels significantly below cycle average demand and pricing, should we decide to invest capital in alternative projects, or should changes occur related to our wood supply for our mills, it is possible that future impairment charges will be required. As of September 30, 2022, there were no indications of impairment.
We also review from time to time potential dispositions of various assets, considering current and anticipated economic and industry conditions, our strategic plan, and other relevant factors. Because a determination to dispose of particular assets can require management to make assumptions regarding the transaction structure of the disposition and to estimate the net sales proceeds, which may be less than previous estimates of undiscounted future net cash flows, we may be required to record impairment charges in connection with decisions to dispose of assets.
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