LOUISIANA-PACIFIC CORP 10-Q

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. We encourage you to review the risks and uncertainties described in the sections titled "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements" included in our 2022 Annual Report on Form 10-K and in this quarterly report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period. 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 in serving the new home construction, repair and remodeling, and outdoor structures markets to become an industry leader known for innovation, quality, reliability, and sustainability. Our manufacturing facilities are located in the U.S., Canada, Chile, and Brazil. To serve these markets, we primarily operate in three segments: Siding, OSB, and South America. During the year ended December 31, 2022, we sold our 50% equity interest in t wo joint ventures that produce I-joists, and we sold the remaining assets related to the EWP segment. Accordingly, the results of our previously owned EWP segment have been presented as discontinued operations in our Condensed Consolidated Statements of Income for all periods presented. See "Note 7 –Discontinued Operations" for additional information. In May 2023, we acquired a manufacturing facility in Wawa, Ontario, Canada from Wawa OSB, Inc. a subsidiary of Forex Inc., for $80 million, financed by a combination of cash on hand and availability under the Amended Credit Facility . The manufacturing facility is expected to be converted into an LP ® SmartSide ® Trim & Siding mill. We are evaluating project schedules and market demand to determine when construction will begin. The facility will remain shut down until such construction is completed. Demand for Building Products Demand for our products correlates positively with new home construction and repair and remodeling activity in North America, which historically has been characterized by significant cyclicality. The U.S. Census Bureau reported on October 18, 2023, that actual single-family housing starts were 7% higher for the three months ended September 30, 2023, and 13% lower for the nine months ended September 30, 2023, as compared to the same periods in 2022. Actual multi-family housing starts for the three and nine months ended September 30, 2023 were about 28% lower and 11% lower, respectively, as compared to the same period in 2022. Repair and remodeling activity is difficult to reasonably measure, but many indications, suggest that repair and remodeling activity is moderating and may begin to exhibit year-over-year declines. Future economic conditions in the United States and the demand for homes are uncertain due to inflationary impacts on the economy, including interest rates, employment levels, consumer confidence, and financial markets, among other things. Additionally, we have experienced increases in material prices, supply disruptions, and labor challenges, which we continue to address as we work to meet the demands of builders, remodelers, and homeowners worldwide. The potential effect of these factors on our future operational and financial performance is uncertain. Supply and Demand for Siding Siding is a specialty building material and is subject to competition from various siding technologies, including vinyl, stucco, wood, fiber cement, brick, and others. We believe we are the largest manufacturer in the engineered wood siding market. We have consistently grown our Siding above the underlying market growth rates. Siding is generally less sensitive to new housing market cyclicality since demand also comes from other markets, including sheds and repair and remodel. Our growth in this market depends upon the continued displacement of vinyl, wood, 22 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 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. Critical Accounting Policies and Significant Estimates Note 1 of the Notes to the Condensed Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K is a discussion of our significant accounting policies and significant accounting estimates and judgments. Throughout the preparation of the financial statements, we employ significant judgments in the application of accounting principles and methods. These judgments are primarily related to the assumptions used to arrive at various estimates. There have been no changes in the application of principles, methods, and assumptions used to determine our significant estimates since December 31, 2022. Non-GAAP Financial Measures and Other Key Performance Indicators In evaluating our business, we utilize non-GAAP financial measures that fall within the meaning of SEC Regulation G and Regulation S-K Item 10(e), which we believe provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP financial measures do not have standardized definitions and are not defined by U.S. GAAP. In this quarterly report on Form 10-Q, we disclose Income attributed to LP from continuing operations before interest expense, provision for income taxes, depreciation and amortization, and excluding stock-based compensation expense, loss on impairment attributed to LP, business exit charges, 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, business exit charges, product-line discontinuance charges, interest expense outside of normal operations, other operating credits and charges, net, loss on early debt extinguishment, gain (loss) on acquisition, and pension settlement charges, and adjusting for a normalized tax rate as Adjusted Income (Adjusted Income). We also disclose Adjusted Diluted EPS, which is 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. Reconciliations of Adjusted EBITDA, Adjusted Income and Adjusted Diluted EPS to their most directly comparable U.S. GAAP financial measure, Net income, are presented below. Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS are not substitutes for the U.S. GAAP measures of Net income, Income attributed to LP from continuing operations, and 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. During the nine months ended September 30, 2023, we updated our definitions of Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS to exclude other business exit charges not classified as discontinued operations. Business exit charges consist of inventory and other asset impairment and exit charges related to the exit of other businesses not individually significant. We consider business exit charges to be outside the performance of our 23 ongoing core business operations and believe that presenting Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS excluding business exit charges provides increased transparency as to the operating costs of our current business performance. We did not revise prior years’ Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS amounts because there were no significant costs similar in nature to these items. The following table reconciles Net income to Adjusted EBITDA (dollar amounts in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 118 $ 226 $ 119 $ 1,093 Add (deduct): Net loss attributed to non-controlling interest — — — 1 Income from discontinued operations, net of income taxes — (97) — (196) Income attributed to LP from continuing operations 118 129 119 898 Provision for income taxes 44 44 66 284 Depreciation and amortization 30 32 87 96 Stock-based compensation expense 2 2 9 15 Loss on impairment attributed to LP 1 — 1 — Other operating credits and charges, net (7) (7) 16 (17) Business exit charges 1 — 35 — Interest expense 4 3 9 9 Investment income (4) (5) (10) (8) Other non-operating items — (1) 11 7 Pension settlement charges — 4 6 4 Adjusted EBITDA $ 190 $ 200 $ 349 $ 1,289 SEGMENT ADJUSTED EBITDA Siding $ 71 $ 90 $ 198 $ 251 OSB 120 113 161 1,021 South America 6 14 31 65 Other — (7) (15) (19) Corporate (7) (11) (26) (29) Total Adjusted EBITDA $ 190 $ 200 $ 349 $ 1,289 24 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, 2023 2022 2023 2022 Net income attributed to LP from continuing operations per share - diluted $ 1.63 $ 1.74 $ 1.65 $ 11.16 Net income $ 118 $ 226 $ 119 $ 1,093 Add (deduct): Net loss attributed to non-controlling interest — — — 1 Income from discontinued operations, net of income taxes — (97) — (196) Income attributed to LP from continuing operations 118 129 119 898 Loss on impairment attributed to LP 1 — 1 — Other operating credits and charges, net (7) (7) 16 (17) Business exit charges 1 — 35 — Pension settlement charges — 4 6 4 Reported tax provision 44 44 66 284 Adjusted income before tax 157 170 242 1,171 Normalized tax provision at 25% (39) (42) (61) (293) Adjusted Income $ 117 $ 127 $ 182 $ 878 Diluted shares outstanding 72 74 72 80 Adjusted Diluted EPS $ 1.62 $ 1.72 $ 2.51 $ 10.91 Key Performance Indicators In addition, management monitors certain key performance indicators to evaluate our business performance, which include our Overall Equipment Effectiveness (OEE) and our sales volume relative to housing starts, as provided by reports from the U.S. Census Bureau. The following tables set forth: (1) housing starts, (2) our North American sales volume, and (3) OEE. We consider the following items to be key performance indicators because LP’s management uses these metrics to evaluate our business and trends, measure our performance, and make strategic decisions, and believes that the key performance indicators presented provide additional perspective and insights when analyzing the core operating performance of LP. These key performance indicators should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the U.S. GAAP financial measures presented herein. These measures may not be comparable to similarly-titled performance indicators used by other companies. We monitor housing starts, which is a leading external indicator of residential construction in the United States that correlates with the demand for many of our products. We believe that this is a useful measure for evaluating our results and that providing this measure should allow interested persons to more readily compare our sales volume for past and future periods to an external indicator of product demand. Other companies may present housing start data differently, and therefore, housing starts data presented by us may not be comparable to similarly-titled indicators reported by other companies. 25 (thousands of units) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Housing starts 1 : Single-Family 258 242 708 812 Multi-Family 104 144 369 414 362 386 1,077 1,225 1 Actual U.S. housing starts data reported by U.S. Census Bureau as published through October 18, 2023. We monitor sales volumes for our products in our Siding, OSB, and South America segments, which we define as the number of units of our products sold within the applicable period. Evaluating sales volume by product type helps us identify and address changes in product demand, broad market factors that may affect our performance, and opportunities for future growth. It should be noted that other companies may present sales volumes differently and, therefore, as presented by us, sales volumes may not be comparable to similarly-titled measures reported by other companies. We believe that sales volumes can be a useful measure for evaluating and understanding our business. The following table sets forth sales volumes for the three and nine months ended September 30, 2023 and 2022: Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Sales Volume Siding OSB South America Total Siding OSB South America Total Siding Solutions (MMSF) 398 — 6 405 471 — 9 480 OSB - Structural Solutions (MMSF) — 412 115 528 — 460 127 587 OSB - commodity (MMSF) — 401 — 401 — 544 — 544 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Sales Volume Siding OSB South America Total Siding OSB South America Total Siding Solutions (MMSF) 1,158 — 25 1,183 1,340 — 25 1,365 OSB - Structural Solutions (MMSF) — 1,151 370 1,521 — 1,499 420 1,919 OSB - commodity (MMSF) — 1,137 — 1,137 — 1,441 — 1,441 We measure OEE of each of our mills to track improvements in the utilization and productivity of our manufacturing assets. OEE is a composite metric that considers asset uptime (adjusted for capital project downtime and similar events), production rates, and finished product quality. We believe that when used in conjunction with other metrics, OEE can be a useful measure for evaluating our ability to generate profits, and that providing this measure should allow interested persons to more readily monitor operational improvements. OEE for the three and nine months ended September 30, 2023 and 2022, for each of our segments is listed below: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Siding 77 % 76 % 77 % 75 % OSB 74 % 70 % 75 % 72 % South America 74 % 64 % 74 % 72 % Results of Operations Our results of operations for each of our segments are discussed below, as are the results of operations for the “other” category, which comprises other products that are not individually significant. See "Note 17 - Selected Segment Data" of the Notes to the Condensed Consolidated Financial Statements included in "Item 1 - Financial Statements" of this quarterly report on Form 10-Q for further information regarding our segments. 26 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 TM (collectively referred to as Siding Solutions). Segment Net sales and Adjusted EBITDA for this segment were as follows (dollar amounts in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 % Change 2023 2022 % Change Net sales $ 345 $ 394 (13) % $ 996 $ 1,083 (8) % Adjusted EBITDA 71 90 (21) % 198 251 (21) % Net sales in this segment by product line were as follows (dollar amounts in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 % Change 2023 2022 % Change Siding Solutions $ 342 $ 393 (13) % $ 989 $ 1,079 (8) % Other 2 1 58 % 7 4 48 % Total $ 345 $ 394 (13) % $ 996 $ 1,083 (8) % Percent changes in average Net sales prices and unit shipments for the three and nine months ended September 30, 2023, compared to the corresponding periods in 2022, were as follows: Three Months Ended September 30, 2023 versus 2022 Nine Months Ended September 30, 2023 versus 2022 Average Net Selling Price Unit Shipments Average Net Selling Price Unit Shipments Siding Solutions 3 % (16) % 6 % (14) % The effects of list price increases drove year-over-year increases in the average net selling price for the three and nine months ended September 30, 2023. The volume decreases for the three and nine months ended September 30, 2023 were driven by record results in the comparable periods and challenging new and existing home selling markets in the current periods. Adjusted EBITDA decreased year-over-year by $19 million in the third quarter of 2023, reflecting the net impact of lower volumes and $5 million of press rebuild costs, partially offset by higher average selling prices and $9 million in lower inflationary costs including freight, raw materials, and labor. Adjusted EBITDA decreased year-over-year by $53 million for the nine months ended September 30, 2023, which reflects the net impact of lower volumes, $8 million in discretionary investments to support future growth (including siding mill conversions and sales and marketing costs), and $5 million in press rebuild costs, partially offset by higher average selling prices and $13 million in lower inflationary costs (including freight, raw materials, and labor). OSB The OSB segment manufactures and distributes OSB structural panel products, including our value-added OSB portfolio known as LP ® Structural Solutions (which includes LP ® TechShield ® Radiant Barrier, LP WeatherLogic ® Air & Water Barrier, LP Legacy ® Premium Sub-Flooring, LP NovaCore ® Thermal Insulated Sheathing, LP ® FlameBlock ® Fire-Rated Sheathing, and LP ® TopNotch ® 350 Durable Sub-Flooring). OSB is manufactured using wood strands arranged in layers and bonded with resins. 27 Segment Net sales and Adjusted EBITDA for this segment were as follows (dollar amounts in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 % Change 2023 2022 % Change Net sales $ 335 $ 388 (14) % $ 754 $ 1,805 (58) % Adjusted EBITDA 120 113 6 % 161 1,021 (84) % Net sales in this segment by product line were as follows (dollar amounts in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 % Change 2023 2022 % Change OSB - Structural Solutions $ 174 $ 205 (15) % $ 412 $ 995 (59) % OSB - commodity 157 180 (13) % 332 801 (59) % Other 5 3 35 % 9 9 — % Total $ 335 $ 388 (14) % $ 754 $ 1,805 (58) % Percent changes in average Net sales prices and unit shipments for the three and nine months ended September 30, 2023, compared to the corresponding periods in 2022, were as follows: Three Months Ended September 30, 2023 versus 2022 Nine Months Ended September 30, 2023 versus 2022 Average Net Selling Price Unit Shipments Average Net Selling Price Unit Shipments OSB - Structural Solutions (5) % (10) % (46) % (23) % OSB - commodity 18 % (26) % (47) % (21) % The year-over-year Net sales decrease of $53 million for the three months ended September 30, 2023 reflects a $28 million increase in OSB prices, a $33 million decrease in sales volumes primarily from market curtailments, and $43 million less production volume due to the conversion of our Sagola, Michigan mill to siding production. The year-over-year Net sales decrease of $1,051 million for the nine months ended September 30, 2023 reflects an $813 million decrease in OSB prices, a $115 million decrease in sales volumes primarily from market curtailments, and a $98 million decrease related to production volumes from the conversion of the Sagola mill to siding production. Adjusted EBITDA increased year-over-year by $7 million in the third quarter of 2023, reflecting the net impact of higher OSB commodity prices and lower mill-related costs, partially offset by lower sales volumes. Adjusted EBITDA decreased year-over-year by $860 million for the nine months ended September 30, 2023, which reflects the net impact of lower OSB commodity prices and sales volumes, partially offset by lower mill-related costs. 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 Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, and Peru. Segment Net sales and Adjusted EBITDA for this segment were as follows (dollar amounts in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 % Change 2023 2022 % Change Net sales $ 45 $ 53 (16) % $ 153 $ 190 (20) % Adjusted EBITDA 6 14 (54) % 31 65 (53) % 28 Net sales in this segment by product were as follows (dollar amounts in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 % Change 2023 2022 % Change OSB - Structural Solutions $ 40 $ 47 (16) % $ 132 $ 172 (23) % Siding 5 6 (20) % 19 18 6 % Other — — (11) % 2 — 404 % Total $ 45 $ 53 (16) % $ 153 $ 190 (20) % Percent changes in average Net sales price and unit shipments for the three and nine months ended September 30, 2023, compared to the corresponding periods in 2022, were as follows: Three Months Ended September 30, 2023 versus 2022 Nine Months Ended September 30, 2023 versus 2022 Average Net Selling Price Unit Shipments Average Net Selling Price Unit Shipments OSB - Structural Solutions (7) % (9) % (13) % (12) % Siding 18 % (32) % 5 % — % South America Net sales decreased year-over-year by $8 million and $38 million for the three and nine months ended September 30, 2023, respectively, predominantly driven by lower OSB sales volumes and average selling prices. The year-over-year decreases in Adjusted EBITDA of $7 million and $34 million for the three and nine months ended September 30, 2023, respectively, reflect the lower sales volumes and average selling prices (described above) and equipment relocation cost of $3 million. Other Our other products segment includes the 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. During the second quarter of 2023, we announced the shutdown of Entekra and recognized business exit charges of $1 million and $35 million for the three and nine months ended September 30, 2023, respectively. These charges consisted of severance costs, inventory obsolescence, impairment of property, plant, and equipment, impairment of right-of-use lease assets, and impairment definite-lived intangible assets. Other Net sales were $4 million and $21 million for the three and nine months ended September 30, 2023, respectively, as compared to $17 million and $72 million for the corresponding periods in 2022. The year-over-year decrease in other Net sales for the three and nine months ended September 30, 2023 is primarily due to lower Entekra sales volumes as a result of the aforementioned shutdown. Adjusted EBITDA was $0 million and $(15) million for the three and nine months ended September 30, 2023, respectively, as compared to $(7) million and $(19) million for the corresponding periods in 2022, respectively. Selling, General, and Administrative Expenses Selling, general, and administrative expenses were $58 million and $191 million for the three and nine months ended September 30, 2023, respectively, compared to $67 million and $196 million for the corresponding periods in 2022. The year-over-year decrease in Selling, general, and administrative expenses is driven by lower incentive based compensation. Income Taxes We recognized an estimated tax provision from continuing operations of $44 million and $66 million for the three and nine months ended September 30, 2023, respectively, compared to $44 million and $284 million for the corresponding periods of 2022. The total effective tax rate for continuing operations for the three and nine months ended September 30, 2023, was 27% and 36%, respectively, compared to 26% and 24%, respectively, for the comparable periods in 2022. Each quarter the income tax accrual is adjusted to the latest estimate and the difference 29 from the previously accrued year to date balance is recorded in the current quarter. For 2023 the primary differences between the U.S. statutory rate of 21% and the effective rate relates to the $22 million tax expense impact from a change in indefinite reinvestment assertion on Chile and Brazil earnings, which is discussed below. For 2022, the primary difference between the U.S. statutory rate of 21% and the effective rate relates to state income tax. In the second quarter of 2023, management changed its intent and will no longer assert indefinite reinvestment related to undistributed earnings in Chile and Brazil. As a result, we established a net $22 million deferred tax liability for the expected tax consequences of repatriating all beginning-of-year cumulative Chile and Brazil earnings, which was recorded as an expense in the second quarter of 2023. Additionally, the incremental tax expense pertaining to the repatriation of current-year earnings in Chile and Brazil is accounted for within the estimated annual effective income tax rate. Legal and Environmental Matters For a discussion of legal and environmental matters involving us and the potential impact thereof on our financial position, results of operations, and cash flows, see Items 3, 7, and 8 in our 2022 Annual Report on Form 10-K and "Note 11 - Commitments and Contingencies" of the Notes to the Condensed Consolidated Financial Statements included in "Item 1 - Financial Statements" of this quarterly report on Form 10-Q. Liquidity and Capital Resources Overview Our principal sources of liquidity are existing cash and investment balances, cash generated by our operations, and our ability to borrow under such credit facilities as we may have in effect from time to time. We assess our liquidity in terms of our ability to generate cash to fund our short- and long-term cash requirements. As such, we project our anticipated cash requirements as well as cash flows generated from operating activities to meet those needs. We anticipate long-term cash uses may also include strategic acquisitions. On a long-term basis, we will continue to rely on our credit facility for any long-term funding not provided by operating cash flows. We may also, from time to time, issue and sell equity, debt, or hybrid securities or engage in other capital market transactions. Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, paying dividends, and making capital expenditures. We may also, from time to time, prepay or repurchase outstanding indebtedness or shares or acquire assets or businesses that are complementary to our operations. Any such repurchases may be commenced, suspended, discontinued, or resumed, and the method or methods of effecting any such repurchases may be changed, at any time, or from time to time, without prior notice. We expect to fund our capital expenditures over at least the next 12 months through cash on hand, cash generated from operations, and available borrowing under our Amended Credit Facility, as necessary. Operating Activities During the nine months ended September 30, 2023 and 2022, cash provided by operations was $157 million and $1,103 million, respectively. The decrease in cash provided by operations was primarily related to lower income from operations, increases in working capital, and timing of cash paid for income taxes. Investing Activities During the nine months ended September 30, 2023 and 2022, cash used in investing activities was $312 million and $14 million, respectively. During the nine months ended September 30, 2023, we paid $80 million to acquire the assets owned by Wawa OSB, Inc. 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, 2023 and 2022, were $236 million and $282 million, respectively, primarily related to siding conversion expenditures and growth and maintenance capital. 30 Financing Activities During the nine months ended September 30, 2023, cash used in financing activities was $61 million. We paid cash dividends of $52 million and used $10 million to repurchase stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans. During the nine months ended September 30, 2023, we borrowed and subsequently repaid $80 million from our Amended Credit Facility. During the nine months ended September 30, 2022, cash used in financing activities was $968 million. During the nine months ended September 30, 2022, we used $900 million to repurchase shares of LP common stock ($500 million from the share repurchase program approved by the Board of Directors on November 2, 2021 and $400 million from the 2022 Share Repurchase Program (defined below)). 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. Credit Facility and Letter of Credit Facility In November 2022, LP entered into the Credit Agreement, with American AgCredit, PCA, as administrative agent and sole lead arranger, and CoBank, ACB, as letter of credit issuer, relating to the Amended Credit Facility. The Credit Agreement provides for a revolving credit facility in the principal amount of up to $550 million, with a $60 million sub-limit for letters of credit. All loans under the Credit Agreement become due on November 29, 2028. As of September 30, 2023, we had no outstanding borrowings under our Amended Credit Facility. The Credit Agreement contains various restrictive covenants and customary events of default. The breach of restrictive covenants or the occurrence of any other event of default under the Credit Agreement could result in the acceleration of our obligation to repay the indebtedness outstanding thereunder. The Credit Agreement also contains financial covenants that require us and our consolidated subsidiaries to have, as of the end of each quarter, a capitalization ratio ( i.e. , funded debt less unrestricted cash to total capitalization) of no more than 57.5%. As of September 30, 2023, we were in compliance with all financial covenants under the Credit Agreement. In March 2020, LP entered into the Letter of Credit Facility, which provides for the funding of letters of credit up to an aggregate outstanding amount of $20 million, which may be secured by certain cash collateral of LP. The Letter of Credit Facility provides for an unused commitment fee, due quarterly, ranging from 0.50% to 1.875% of the daily available amount to be drawn on each letter of credit issued under the Letter of Credit Facility. The Letter of Credit Facility is subject to similar affirmative, negative, and financial covenants as those set forth in the Credit Agreement, including the capitalization ratio covenant. As of September 30, 2023, we were in compliance with all covenants under the Letter of Credit Facility. Other Liquidity Matters Off-Balance Sheet Arrangements As of September 30, 2023, we had standby letters of credit of $13.7 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, 2023. In April 2023, we announced the shutdown of Entekra resulting in pre-tax, non-cash charges of $31 million for the nine months ended September 30, 2023. See further discussion in “Note 8 - Business Exit Charges.” 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, 2023, there were no indications of impairment. We also review from time to time potential dispositions of various assets, considering current and anticipated economic and industry conditions, our strategic plan, and other relevant factors. Because a determination to dispose of particular assets can require management to make assumptions regarding the transaction structure of the disposition and to estimate the net sales proceeds, which may be less than previous estimates of undiscounted future 31 net cash flows, we may be required to record impairment charges in connection with decisions to dispose of assets. During the nine months ended September 30, 2023, we recorded impairment charges of $13 million and $3 million related to property, plant, and equipment and operating lease assets, respectively, related to Entekra which were written down to fair value based on Level 2 inputs under ASC 820, using quoted market prices. See further discussion in “Note 8 - Business Exit Charges.” 32