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Item 1. Financial Statements

2024-05-08 compared with 2023-11-01 · 104 added, 292 removed, 287 unchanged (58% of the section changed)

1 unchanged sentence

Condensed Consolidated Statements of Income

Dollar and share amounts in millions, except per share amounts

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Amounts in millions, except per share amounts

Three Months Ended March 31,

Net sales $ 724 $ 584

2 unchanged sentences

Selling, general, and administrative expenses ( 69 ) ( 66 )

Impairment of long-lived assets, net ( 1 ) — ( 25 ) —

Other operating credits and charges, net 1 ( 5 )

2 unchanged sentences

Investment income 6 5

Other non-operating items — ( 3 ) ( 17 ) ( 11 )

Other non-operating income (expense) 1 ( 8 )

Income before income taxes 148 23

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Equity in unconsolidated affiliate 1 —

Income from continuing operations 118 129 119 898

Income from discontinued operations, net of income taxes — 97 — 196

Net income $ 108 $ 22

Net loss attributed to non-controlling interest — — — 1

Net income attributed to non-controlling interest — ( 1 )

Net income attributed to LP $ 108 $ 21

Net income attributed to LP per share of common stock:

Income per share continuing operations - basic $ 1.63 $ 1.75 $ 1.65 $ 11.23

Income per share discontinued operations - basic — 1.32 — 2.45

Net income attributed to LP per share - basic $ 1.63 $ 3.07 $ 1.65 $ 13.67

Income per share continuing operations - diluted $ 1.63 $ 1.74 $ 1.65 $ 11.16

Income per share discontinued operations - diluted — 1.31 — 2.43

Net income attributed to LP per share - diluted $ 1.63 $ 3.05 $ 1.65 $ 13.59

Average shares of common stock used to compute Net income per share:

Basic $ 1.49 $ 0.29

Diluted $ 1.48 $ 0.29

Average shares of common stock used to compute Net income per share:

Diluted 72 72

The accompanying Notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Condensed Consolidated Statements of Comprehensive Income

Dollar amounts in millions

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Amounts in millions

Three Months Ended March 31,

Net income $ 108 $ 22

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Foreign currency translation adjustments ( 15 ) 15

Changes in defined benefit pension plans — 3 4 6

Other comprehensive income (loss), net of tax ( 15 ) 19

Comprehensive income 93 42

Comprehensive loss associated with non-controlling interest — — — 1

Comprehensive income associated with non-controlling interest — ( 1 )

Comprehensive income attributed to LP $ 93 $ 41

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Condensed Consolidated Balance Sheets

Dollar amounts in millions

September 30, 2023 December 31, 2022

Amounts in millions, except per share amounts

March 31, 2024 December 31, 2023

Cash and cash equivalents $ 244 $ 222

Receivables, net of allowance for doubtful accounts of $ 3 million and $ 1 million as of September 30, 2023, and December 31, 2022, respectively

Receivables, net of allowance for doubtful accounts of $ 2 as of March 31, 2024 and December 31, 2023.

Inventories 398 378

1 unchanged sentence

Total current assets 842 778

Timber and timberlands 32 40

Property, plant, and equipment, net 1,533 1,540

Timber and timberlands 31 32

Operating lease assets, net 24 25

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Investments in and advances to affiliates 6 5

Restricted cash — 14

Other assets 20 20

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Total liabilities $ 869 $ 880

Redeemable noncontrolling interest — —

Stockholders’ equity:

Common stock, $ 1 par value, 200 shares authorized;

87,986,865 and 72,114,051 shares issued and outstanding, respectively, as of September 30, 2023;

and 87,986,865 and 71,748,200 shares issued and outstanding, respectively, as of December 31, 2022

88 and 72 shares issued and outstanding, respectively, as of March 31, 2024 and December 31, 2023

Additional paid-in capital 465 465

Retained earnings 1,555 1,479

Treasury stock, 15,872,814 shares and 16,238,665 shares, at cost as of September 30, 2023, and December 31, 2022, respectively

Treasury stock, 16 shares at cost as of March 31, 2024 and December 31, 2023

( 386 ) ( 386 )

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Condensed Consolidated Statements of Cash Flows

Dollar amounts in millions

Nine Months Ended September 30,

Amounts in millions

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Depreciation and amortization 31 28

Impairment of goodwill and long-lived assets 25 —

Gain on sale of assets, net ( 6 ) ( 157 )

Pension loss due to settlement — 6

Deferred taxes 9 ( 2 )

Foreign currency remeasurement and transaction gains (1) —

Other adjustments, net 5 9

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Income taxes payable, net of receivables 22 ( 30 )

Net cash provided by operating activities 157 1,103

Net cash provided by (used in) operating activities 105 ( 119 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Property, plant, and equipment additions ( 41 ) ( 114 )

Acquisition of facility assets ( 80 ) —

Proceeds from sales of assets — 1

Proceeds from divestiture of business — 265

Other investing activities, net ( 4 ) 3

Net cash used in investing activities ( 41 ) ( 113 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowing of long-term debt 80 —

Repayment of long-term debt ( 80 ) —

Payment of cash dividends ( 19 ) ( 17 )

Purchase of stock — ( 900 )

Repurchase of common stock ( 13 ) —

Other financing activities ( 6 ) ( 10 )

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EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 3 ) 3

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 223 ) 111

Net increase (decrease) in cash, cash equivalents, and restricted cash 22 ( 257 )

Cash, cash equivalents, and restricted cash at beginning of period 222 383

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Condensed Consolidated Statements of Stockholders’ Equity

Dollar and share amounts in millions, except per share amounts

Amounts in millions, except per share amounts

Common Stock Treasury Stock Additional

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88 $ 88 16 $ ( 386 ) $ 465 $ 1,555 $ ( 104 ) $ 1,617

Net loss attributed to LP — — — — — ( 20 ) — ( 20 )

Dividends paid ($ 0.24 per share)

— — — — — ( 17 ) — ( 17 )

Issuance of shares under stock plans — — — 2 — — — 2

Taxes paid related to net settlement of stock-based awards — — — ( 1 ) — — — ( 1 )

Purchase of stock — — — — — — — —

Compensation expense associated with stock-based compensation — — — — 3 — — 3

Other comprehensive income — — — — — — 1 1

Balance, June 30, 2023

88 $ 88 16 $ ( 387 ) $ 458 $ 1,337 $ ( 78 ) $ 1,419

Net income attributed to LP — — — — — 118 — 118

Dividends paid ($0.24 per share)

— — — — — ( 17 ) — ( 17 )

Issuance of shares under stock plans — — — — — — — —

Taxes paid related to net settlement of stock-based awards — — — — — — — —

Purchase of stock — — — — — — — —

Compensation expense associated with stock-based compensation — — — — 2 — — 2

Other comprehensive loss — — — — — — ( 19 ) ( 19 )

Balance, September 30, 2023

88 $ 88 16 $ ( 387 ) $ 460 $ 1,438 $ ( 98 ) $ 1,502

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Common Stock Treasury Stock Additional

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Taxes paid related to net settlement of stock-based awards — — — ( 10 ) — — — ( 10 )

Purchase of stock ( 2 ) ( 2 ) — — — ( 102 ) — ( 104 )

Compensation expense associated with stock-based compensation — — — — 4 — — 4

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88 $ 88 16 $ ( 388 ) $ 455 $ 1,375 $ ( 80 ) $ 1,450

Net income attributed to LP — — — — — 384 — 384

Dividends paid ($ 0.22 per share)

— — — — — ( 18 ) — ( 18 )

Issuance of shares under stock plans — — — 2 — — — 2

Taxes paid related to net settlement of stock-based awards — — — ( 1 ) — — — ( 1 )

Purchase of stock ( 7 ) ( 7 ) — — — ( 463 ) — ( 471 )

Compensation expense associated with stock-based compensation — — — — 7 — — 7

Other comprehensive loss — — — — — — ( 31 ) ( 31 )

Balance, June 30, 2022

94 $ 94 16 $ ( 390 ) $ 457 $ 1,505 $ ( 181 ) $ 1,484

Net income attributed to LP — — — — — 226 — 226

Dividends paid ($0.22 per share)

— — — — — ( 16 ) — ( 16 )

Issuance of shares under stock plans — — — — — — — —

Taxes paid related to net settlement of stock-based awards — — — — — — — —

Purchase of stock ( 6 ) ( 6 ) — — — ( 320 ) — ( 325 )

Compensation expense associated with stock-based compensation — — — — 2 — — 2

Other comprehensive loss — — — — — — ( 9 ) ( 9 )

Balance, September 30, 2022

88 $ 88 16 $ ( 390 ) $ 459 $ 1,395 $ ( 190 ) $ 1,361

The accompanying Notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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Serving the new home construction, repair and remodeling, and outdoor structures markets, we have leveraged our expertise to become an industry leader known for innovation, quality, reliability, and sustainability.

The principal customers for our building solutions are retailers, wholesalers, and home building and industrial businesses in North America and South America, with limited sales to Asia, Australia, and Europe.

The Company operates 23 plants across the U.S., Canada, Chile, and Brazil through foreign subsidiaries, an d operates additional facilities through a joint venture.

The principal customers for our building solutions are retailers, wholesalers, and home building and industrial businesses in North America and South America, and we make limited sales to customers in Asia, Australia, and Europe.

The Company operates 22 plants across the U.S., Canada, Chile, and Brazil, in certain cases, through foreign subsidiaries, an d operates additional facilities through a joint venture.

References to "LP," the "Company," "we," "our," and "us" refer to Louisiana-Pacific Corporation and its consolidated subsidiaries as a whole.

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 Engineered Wood Product (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 (defined below).

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.

Basis for Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S.

See "Note 14 - Selected Segment Data" below for further information regarding our products and segments.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.

GAAP) for interim financial information.

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Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.

The following table presents our reportable segment revenues, disaggregated by revenue source.

The Condensed Consolidated Financial Statements include the accounts of LP and our controlled subsidiaries.

All intercompany transactions, profits, and balances have been eliminated.

All dollar amounts included in tables in the Notes are in millions except per share amounts.

We disaggregate revenue from contracts with customers into major product lines.

We have determined that disaggregating revenue into these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

As noted in the segment reporting information in “Note 17 - Selected Segment Data” below, our reportable segments are Siding, Oriented Strand Board (OSB), and South America.

The following tables set forth our revenue by segment (dollar amounts in millions).

Three Months Ended September 30, 2023

By Product type and family:

Siding OSB South America Other Inter-segment Total

Siding Solutions $ 342 $ — $ 5 $ — $ — $ 347

OSB - Structural Solutions — 174 40 — — 213

342 174 44 — — 560

OSB - commodity — 157 — — — 157

Other products 2 5 — 4 — 11

$ 345 $ 335 $ 45 $ 4 $ — $ 728

Three Months Ended September 30, 2022

By Product type and family:

Siding OSB South America Other Inter-segment Total

Siding Solutions $ 393 $ — $ 6 $ — $ — $ 399

OSB - Structural Solutions — 205 47 — — 251

393 205 53 — — 650

OSB - commodity — 180 — — — 180

Other products 1 3 — 17 — 22

$ 394 $ 388 $ 53 $ 17 $ ( 1 ) $ 852

Nine Months Ended September 30, 2023

As noted in the segment reporting information in “Note 14 - Selected Segment Data” below, our reportable segments are Siding, Oriented Strand Board (OSB), and LP South America (LPSA).

The following tables present our reportable segment revenues, disaggregated by revenue source (dollar amounts in millions):

Three Months Ended March 31, 2024

By product type and family:

Siding OSB South America Other Inter-segment Total

Siding OSB LPSA Other Total

Siding Solutions $ 359 $ — $ 7 $ — $ 366

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$ 361 $ 313 $ 47 $ 3 $ 724

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

By product type and family:

Siding OSB South America Other Inter-segment Total

Siding OSB LPSA Other Total

Siding Solutions $ 329 $ — $ 8 $ — $ 337

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$ 331 $ 189 $ 55 $ 8 $ 584

Revenue is recognized when obligations under the terms of a contract (i.e.

Revenue is recognized when obligations under the terms of a contract (e.g.

, purchase orders) with our customers are satisfied;

generally, this occurs with the transfer of control of our products to the customer at a point in time.

generally, this occurs with the transfer of control of our products at a point in time.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods.

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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 deductions from Net sales at the time the program is initiated.

These reductions from revenue are recorded at the time of sale or the implementation of the program based on management’s best estimates.

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.

The costs include, but are not limited to, volume allowances and rebates, promotional allowances, and cooperative advertising programs.

These costs are recorded at the later of (i) the time of sale or (ii) the implementation of the program based on management’s best estimates.

Estimates are based on historical and projected experience for each type of program or customer.

Volume allowances are accrued based on management’s estimation of customer volume achievement and other factors incorporated into customer agreements, such as new product purchases, store sell-through, and merchandising support.

Management adjusts accruals when circumstances indicate (typically as a result of a change in sales volume expectations).

Volume allowances are accrued based on our estimates of customer volume achievement and other factors incorporated into customer agreements, such as new product purchases, store sell-through, merchandising support, and customer training.

Management adjusts accruals when circumstances indicate (typically as a result of a change in volume expectations).

We ship some of our products to customers’ distribution centers on a consignment basis.

We retain title to our products stored at the distribution centers.

As our products are removed from the distribution centers by retailers and shipped to retailers’ stores, title passes from us to the retailers.

As our products are removed from the distribution centers by retailers and

shipped to retailers’ stores, title passes from us to the retailers.

At that time, we invoice the retailers and recognize revenue for these consignment transactions.

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Diluted earnings per share is based upon the weighted-average number of shares of common stock outstanding, plus all potentially dilutive securities that were assumed to be converted into common shares at the beginning of the period under the treasury stock method.

This method requires that the effect of potentially dilutive common stock equivalents (stock options, stock-settled appreciation rights, restricted stock units, and performance stock units) be excluded from the calculation of diluted earnings per share for the periods in which losses from continuing operations are reported because the effect is anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share (dollar and share amounts in millions, except per share amounts):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Income from continuing operations $ 118 $ 129 $ 119 $ 898

Net loss attributed to non-controlling interest — — — 1

Income attributed to LP from continuing operations 118 129 119 898

Income from discontinued operations, net of income taxes — 97 — 196

Three Months Ended March 31,

Net income attributed to LP $ 108 $ 21

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Shares used for diluted earnings per share 72 72

Net income attributed to LP per share - basic:

Continuing operations $ 1.63 $ 1.75 $ 1.65 $ 11.23

Discontinued operations — 1.32 — 2.45

Net income attributed to LP per share - basic $ 1.63 $ 3.07 $ 1.65 $ 13.67

Net income attributed to LP per share - diluted:

Continuing operations $ 1.63 $ 1.74 $ 1.65 $ 11.16

Discontinued operations — 1.31 — 2.43

Net income attributed to LP per share - diluted $ 1.63 $ 3.05 $ 1.65 $ 13.59

Earnings per share:

Basic $ 1.49 $ 0.29

Diluted $ 1.48 $ 0.29

FAIR VALUE MEASUREMENTS

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(i) recurring—measured on a periodic basis, and (ii) non-recurring—measured on an as-needed basis.

The net carrying value of the 3.625 % Senior Notes due in 2029 (2029 Senior Notes) was $ 347 million and $ 346 million as of September 30, 2023 and December 31, 2022, respectively.

The fair value of the 2029 Senior Notes was estimated to be $ 295 million and $ 306 million as of September 30, 2023 and December 31, 2022, respectively, based on market quotations.

The net carrying value of the 3.625 % Senior Notes due in 2029 (2029 Senior Notes) was $ 347 million as of March 31, 2024 and December 31, 2023.

Based on market quotations, the fair value of the 2029 Senior Notes was estimated to be $ 319 million and $ 314 million as of March 31, 2024 and December 31, 2023, respectively.

The 2029 Senior Notes and other long-term debt are categorized as Level 1 in the U.S.

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Fair values are based on trading activity among the Company’s lenders and the average bid and ask price is determined using published rates.

Agreement), relating to its revolving credit facility (as amended, the Amended Credit Facility).

In November 2022, LP entered into a Second Amended and Restated Credit Agreement with American AgCredit, PCA, as administrative agent and sole lead arranger, and CoBank, ACB, as letter of credit issuer (the Credit Agreement), relating to its revolving credit facility (as amended, 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, there were no outstanding borrowings under our Amended Credit Facility.

As of March 31, 2024, there were no outstanding borrowings under our Amended Credit Facility.

Carrying amounts reported on the balance sheet for cash and cash equivalents, accounts receivables, and accounts payable approximate fair value due to the short-term maturity of these items.

Receivables consisted of the following (dollar amounts in millions):

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Trade receivables $ 148 $ 104

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Allowance for doubtful accounts ( 2 ) ( 2 )

Total $ 181 $ 127

Total Receivables $ 180 $ 155

Trade receivables are primarily generated by sales of our products to our wholesale and retail customers.

Other receivables as of September 30, 2023 and December 31, 2022, primarily consist of sales tax receivables, vendor rebates, and other miscellaneous receivables.

Other receivables as of March 31, 2024 and December 31, 2023 primarily consist of sales tax receivables, vendor rebates, and other miscellaneous receivables.

Inventories are valued at the lower of cost or net realizable value.

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The major types of inventories (work in process is not material and is included in semi-finished inventory) are as follows (dollar amounts in millions):

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Logs $ 97 $ 81

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Finished products 228 217

Total $ 379 $ 337

DISCONTINUED OPERATIONS

In March 2022, the Company sold its 50 % equity interest in two joint ventures that produce I-joists for $ 59 million, resulting in a pre-tax gain associated with the sale of $ 39 million recorded in the year ended December 31, 2022 within Income from discontinued operations, net of income taxes in the Condensed Consolidated Statements of Income.

On August 1, 2022, the Company completed the sale of the assets related to the EWP segment.

As a result of the sale, the Company received $ 217 million in gross cash proceeds after taking into account working capital adjustments.

The Company paid $ 12 million in direct transaction costs, resulting in net proceeds of $ 205 million.

During the year ended December 31, 2022, the Company recorded a pre-tax gain of approximately $ 118 million within Income from discontinued operations, net of income taxes in the Condensed Consolidated Statements of Income.

Upon closing, the Company entered into a transition services agreement with the purchaser of the assets, pursuant to which the Company agreed to support the various activities of the EWP segment, which concluded during the three months ended March 31, 2023.

The Company has classified the results of its EWP segment as discontinued operations in its Condensed Consolidated Statements of Income for the prior period presented.

The following table presents the financial results of the EWP segment for the three and nine months ended September 30, 2022 (dollar amounts in millions):

Three Months Ended September 30, Nine Months Ended September 30,

Net sales $ 67 $ 455

Cost of sales ( 54 ) ( 352 )

Gross profit 13 103

Selling, general, and administrative expenses ( 2 ) ( 12 )

Income from operations of discontinued operations 12 91

Gain on disposal before income taxes 118 158

Income from discontinued operations before income taxes 130 249

Provision for income taxes ( 33 ) ( 53 )

Income from discontinued operations, net of income taxes $ 97 $ 196

The following summarizes the total cash provided by operations and total cash provided by investing activities related to the EWP segment and included in the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 (dollar amounts in millions):

Net cash provided by discontinued operating activities $ 18

Net cash provided by discontinued investing activities $ 258

Net cash provided by discontinued investing activities for the nine months ended September 30, 2022, includes $ 59 million of proceeds from the sale of our 50 % equity interest in two joint ventures that produce I-joists and $ 202 million of net proceeds from the sale of the EWP segment assets.

BUSINESS EXIT CHARGES

During the second quarter of 2023, we ceased the manufacturing operations of Entekra Holdings, LLC (Entekra), an off-site framing operation previously reported within our “Other” category, which comprises other products that are not individually significant.

Business exit charges were $ 1 million and $ 35 million for the three and nine months ended September 30, 2023, respectively, which consist of the following (dollar amounts in millions):

Three Months Ended September 30, Nine Months Ended September 30,

Impairment of property, plant and equipment, operating lease assets, and other intangible assets 1

Restructuring and other related charges:

Inventory write-down 2

Other expenses including personnel-related costs such as severance 3

1 Included within Impairment of long-lived assets, net on the Condensed Consolidated Income Statements.

2 Included within Cost of sales on the Condensed Consolidated Income Statements.

3 Included within Other operating credits and charges, net on the Condensed Consolidated Income Statements.

Total Inventories $ 398 $ 378

GOODWILL AND OTHER INTANGIBLES

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The Company’s annual assessment date is October 1.

During the nine months ended September 30, 2023, we recorded impairment charges of $9 million related to developed technology and trademarks related to Entekra, which is discussed further in “Note 8 - Business Exit Charges.”

Changes in goodwill and other intangible assets for the nine months ended September 30, 2023 are provided in the following table (dollar amounts in millions):

Changes in goodwill and other intangible assets for the three months ended March 31, 2024 are provided in the following table (dollar amounts in millions):

Timber Licenses 1

Goodwill Developed Technology Trademarks

Goodwill Developed Technology

Beginning balance December 31, 2023

$ 25 $ 19 $ 7

Impairment charges — — ( 7 ) ( 2 )

Amortization ( 1 ) — —

Ending balance September 30, 2023

Ending balance March 31, 2024

$ 24 $ 19 $ 7

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Changes in profitability estimates in various jurisdictions will impact our quarterly effective income tax rates.

The tax provision for income taxes from continuing operations for the nine months ended September 30, 2023 and 2022, reflected an estimated annual effective tax rate of 27 % and 25 %, respectively, excluding discrete items discussed below.

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 period in 2022.

We recognized net discrete tax expense of $ 16 million and net discrete tax benefits of $ 9 million in the nine months ended September 30, 2023 and 2022, respectively.

The net discrete tax expense in the current year relates primarily to a $ 22 million expense related to the second quarter change in management’s indefinite reinvestment assertion on Chile and Brazil earnings described in “Item 2 - Management's Discussion and Analysis of Financial Conditions and Results of Operation” of this quarterly report on Form 10-Q, while the net discrete tax benefit in the prior year primarily relates to excess tax benefits from stock-based compensation.

The provision for income taxes for the three months ended March 31, 2024 and 2023 reflected an estimated annual effective tax rate of 25 % and 28 % , respectively, excluding discrete items discussed below.

The total effective tax rate for the three months ended March 31, 2024 was 28 % , compared to 5 % for the comparable period in 2023.

We recognized a net discrete tax expense of $ 4 million and a net discrete tax benefit of $ 5 million in the three months ended March 31, 2024 and 2023, respectively.

The net discrete tax expense and benefit primarily relates to an excess tax benefit from stock-based compensation and inflationary tax adjustments in certain South American entities.

In 2021 the Organization for Economic Cooperation and Development announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%.

As of March 31, 2024 none of the jurisdictions in which LP operates has enacted Pillar Two legislation and one jurisdiction has issued proposed legislation.

We are continuing to evaluate the impact of proposed legislative changes as new guidance becomes available.

If proposed Pillar Two model rules are enacted, they are not expected to have a material impact on our 2024 financial statements.

COMMITMENTS AND CONTINGENCIES

We maintain reserves for various contingent liabilities as follows (dollar amounts in millions):

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Environmental reserves $ 26 $ 26

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Due to the numerous uncertainties and variables associated with these assumptions and judgments, both the precision and reliability of the resulting estimates of the related contingencies are subject to substantial uncertainties.

We regularly monitor our

estimated exposure to contingencies and, as additional information becomes known, may change our estimates significantly.

We regularly monitor our estimated exposure to contingencies and, as additional information becomes known, may change our estimates significantly.

While no estimate of the range of any such change can be made at this time, the amount that we may ultimately pay in connection with these matters could materially exceed, in either the near term or the longer term, the amounts accrued to date.

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From time to time, we and our subsidiaries are parties to certain legal proceedings arising in our ordinary course of business.

During the second quarter of 2023, we agreed to pay $ 16 million to resolve certain patent-related claims and to obtain certain patent rights, which is recorded within Other operating credits and charges, net in our Condensed Consolidated Statements of Income.

As of September 30, 2023, $ 12 million of the settlement amount is outstanding and is included Accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets.

Based on the information currently available, management believes the resolution of such ongoing and future proceedings will not have a material effect on our financial position, results of operations, cash flows, or liquidity.

IMPAIRMENT OF LONG-LIVED ASSETS

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.

We review the carrying values of our long-lived assets for potential impairments and believe we have adequate support for such carrying values.

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.

As of March 31, 2024, 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.

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 Accounting Standards Codification 820, Fair Value Measurement (ASC 820), using quoted market prices.

See further discussion in “Note 8 - Business Exit Charges.” As of September 30, 2023, there were no other indications of impairment.

PRODUCT WARRANTIES

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Such accruals are based upon historical experience and management’s estimate of the level of future claims.

The activity in warranty reserves for the three and nine months ended September 30, 2023 and 2022, is summarized in the following table (dollar amounts in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

The activity in warranty reserves for the three months ended March 31, 2024 and 2023, is summarized in the following table (dollar amounts in millions):

Three Months Ended March 31,

Beginning balance $ 8 $ 8

Accrued to expense 1 1

Credited to other operating credits and charges ( 1 ) — ( 1 ) —

Payments made — —

2 unchanged sentences

Long-term portion of warranty reserves (included in Other long-term liabilities) $ 6 $ 7

We continue to monitor warranty and other claims associated with our products and believe, as of September 30, 2023, that the warranty reserve balances associated with these matters are adequate to cover future warranty payments.

We continue to monitor warranty and other claims associated with our products and believe, as of March 31, 2024, that the warranty reserve balances associated with these matters are adequate to cover future warranty payments.

However, it is possible that additional changes may be required in the future.

DEFINED BENEFIT PENSION PLANS

The following table summarizes our net periodic pension cost for our defined benefit pension and postretirement plans during the three and nine months ended September 30, 2023 and 2022 (dollar amounts in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Service cost $ — $ 1 $ — $ 3

Other components of net periodic pension cost 1 :

Interest cost — 2 — 5

Expected return on plan assets — ( 2 ) — ( 5 )

Amortization of prior service cost — — — —

Amortization of net loss — 1 — 4

Net periodic pension costs before loss due to settlement — 2 — 7

Loss due to settlement — 4 6 4

Net periodic pension cost $ — $ 7 $ 6 $ 11

1 Other components of net periodic pension cost are included in Other non-operating items on our Condensed Consolidated Statements of Income.

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

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

During the year ended December 31, 2022, the Company liquidated substantially all of the Plan assets to fund lump-sum distributions to participants and purchase non-participating group annuity contracts.

As a result, a substantial portion of the Plan was settled during the year ended December 31, 2022.

During the three months ended March 31, 2023, the Company completed the termination of the Plan resulting in the recognition of non-cash, pre-tax charges of $ 6 million from Accumulated comprehensive loss to Other non-operating items in our Condensed Consolidated Statements of Income.

The changes recognized in Other comprehensive loss were as follows (dollar amounts in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Net actuarial gain (loss) and prior service (cost) arising during the period, net of tax $ — $ ( 1 ) $ — $ ( 1 )

Amortization of actuarial loss, prior service cost and settlements, net of tax — 4 4 7

Total amounts recognized in Other comprehensive income $ — $ 3 $ 4 $ 6

ACCUMULATED COMPREHENSIVE LOSS

Accumulated comprehensive loss is provided in the following table for the three months ended September 30, 2023, and 2022 (dollar amounts in millions):

Pension Translation Adjustments Other Total

Balance at June 30, 2023

$ — $ ( 78 ) $ — $ ( 78 )

Reclassified to income statement, net of taxes 1

Translation adjustments — ( 19 ) — ( 19 )

Balance at September 30, 2023

$ — $ ( 97 ) $ — $ ( 98 )

Pension Translation Adjustments Other Total

Balance at June 30, 2022

$ ( 74 ) $ ( 105 ) $ ( 1 ) $ ( 181 )

Reclassified to income statement, net of taxes 1

Translation adjustments — ( 13 ) — ( 13 )

Balance at September 30, 2022

$ ( 71 ) $ ( 118 ) $ ( 1 ) $ ( 190 )

1 Amounts of actuarial loss and prior service cost are components of net periodic benefit cost.

See “Note 14 - Defined Benefit Pension Plans” above for additional details.

Accumulated comprehensive loss is provided in the following table for the nine months ended September 30, 2023 and 2022 (dollar amounts in millions):

Pension Translation Adjustments Other Total

Accumulated comprehensive loss is provided in the following table for the three months ended March 31, 2024 and 2023 (dollar amounts in millions):

Translation Adjustments Other Total

Balance at December 31, 2023

$ ( 89 ) $ ( 1 ) $ ( 89 )

Reclassified to income statement, net of taxes 1

Translation adjustments ( 15 ) — ( 15 )

Balance at September 30, 2023

Balance at March 31, 2024

$ ( 104 ) $ — $ ( 104 )

Pension Translation Adjustments Other Total

Translation Adjustments Other Total

Balance at December 31, 2022

2 unchanged sentences

Translation adjustments 15 — 15

Balance at September 30, 2022

Balance at March 31, 2023

$ ( 79 ) $ ( 1 ) $ ( 80 )

1 Amounts of actuarial loss and prior service cost are components of net periodic benefit cost.

See “Note 14 - Defined Benefit Pension Plans” above for additional details.

OTHER OPERATING AND NON-OPERATING ITEMS

1 unchanged sentence

Other operating credits and charges, net, is comprised of the following components (dollar amounts in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Insurance recoveries $ — $ 2 $ — $ 15

Three Months Ended March 31,

Reorganization charges ( 2 ) ( 2 )

Legal settlement — — ( 16 ) —

Environmental costs — — — ( 2 )

Gain on asset sales 6 — 6 —

Other 3 ( 3 )

2 unchanged sentences

Other non-operating items is comprised of the following components (dollar amounts in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Net periodic pension cost, excluding service cost $ — $ ( 1 ) $ — $ ( 4 )

Three Months Ended March 31,

Pension settlement charges $ — $ ( 6 )

Foreign currency gain (loss) 1 ( 3 )

Other $ — $ 1 $ 1 $ 1

Other non-operating items $ 1 $ ( 8 )

1 unchanged sentence

We operate in three segments:

Siding, OSB, and South America.

Siding, OSB, and LPSA.

Our business units have been aggregated into these three segments based upon the similarity of economic characteristics, customers, and distribution methods.

Our results of operations are summarized below for each of these segments separately, as well as for the “Other” category, which comprises other products that are not individually significant.

We evaluate the performance of our business segments based on Net sales and segment Adjusted EBITDA (defined below).

• Our Siding segment serves diverse end markets with a broad product offering, 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).

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

• Our OSB segment manufactures and distributes OSB structural panel products, including the innovative value-added OSB product 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.

• Our LPSA segment manufactures and distributes LP OSB structural panel and Siding Solutions products in South America and certain export markets.

This segment also sells and distributes a variety of companion products to support the region’s transition to wood frame construction.

The LPSA segment carries out manufacturing operations in Chile and Brazil and operates sales offices in Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, and Peru.

We evaluate the performance of our business segments based on net sales and segment Adjusted EBITDA.

Accordingly, our chief operating decision maker evaluates performance and allocates resources based primarily on net sales and segment Adjusted EBITDA for our business segments.

The Company's chief operating decision maker is the Chief Executive Officer.

Segment Adjusted EBITDA is defined as Income attributed to LP from continuing operations before interest expense, provision for income taxes, depreciation and amortization, and excludes 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.

During the nine months ended September 30, 2023, we updated our definition of Adjusted EBITDA to exclude other business exit charges not classified as exit operations.

Business exit charges consist of inventory and other asset impairment and exit charges related to the exit of businesses not individually significant.

We consider business exit charges to be outside the performance of our ongoing core business operations and believe that presenting Adjusted EBITDA 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 amounts because there were no significant costs similar in nature to these items.

Segment Adjusted EBITDA is defined as income attributed to LP before interest expense, provision for income taxes, depreciation and amortization, and excludes 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.

Information about our business segments is as follows (dollar amounts in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

NET SALES BY BUSINESS SEGMENT

Siding $ 361 $ 331

OSB 335 388 754 1,805

South America 45 53 153 190

Other 4 17 21 72

Intersegment sales — ( 1 ) — ( 2 )

Total sales $ 724 $ 584

NET INCOME TO ADJUSTED EBITDA

NET INCOME TO ADJUSTED EBITDA RECONCILIATION

Net income $ 108 $ 22

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

Net income attributed to non-controlling interest — ( 1 )

Income attributed to LP 108 21

Provision for income taxes 41 1

1 unchanged sentence

Stock-based compensation expense 6 4

Loss on impairment attributed to LP 1 — 1 —

Other operating credits and charges, net — 5

2 unchanged sentences

Investment income ( 6 ) ( 5 )

Other non-operating items — ( 1 ) 11 7

Pension settlement charges — 6

Other non-operating items ( 1 ) 3

Adjusted EBITDA $ 182 $ 66

1 unchanged sentence

Siding $ 90 $ 67

OSB 120 113 161 1,021

South America 6 14 31 65

Other ( 1 ) ( 9 )

Corporate ( 7 ) ( 9 )

Total Adjusted EBITDA $ 190 $ 200 $ 349 $ 1,289

Adjusted EBITDA $ 182 $ 66

SUBSEQUENT EVENTS

On May 3, 2022, LP's Board of Directors authorized a share repurchase program under which LP was authorized to repurchase shares of its common stock totaling up to $600 million (the 2022 Share Repurchase Program).

Subsequent to March 31, 2024, through May 7, 2024, we used $37 million to repurchase 0.5 million shares of LP common stock under the 2022 Share Repurchase Program.

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-Q

Item 1. Financial Statements