What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-08-07 · 80 added, 76 removed, 213 unchanged (42% of the section changed)

12 unchanged sentences

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.

Census Bureau reported on July 17, 2024, that actual single-family housing starts were 7% higher for the three months ended June 30, 2024, and 16% higher for the six months ended June 30, 2024, as compared to the same periods in 2023.

Actual multi-family housing starts for the three and six months ended June 30, 2024 were about 35% lower as compared to the same periods in 2023.

Census Bureau reported on October 18, 2024 that actual single-family housing starts were flat for the three months ended September 30, 2024 and 10% higher for the nine months ended September 30, 2024, as compared to the same periods in 2023.

Actual multi-family housing starts for the three and nine months ended September 30, 2024 were 10% and 29% lower, respectively, as compared to the same periods in 2023.

Repair and remodeling activity is difficult to reasonably measure, but many indicators suggest that it has declined modestly year-over-year.

12 unchanged sentences

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.

We cannot predict whether the prices of our OSB products will remain at current levels or fluctuate in the future.

Critical Accounting Policies and Significant Estimates

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

In this quarterly report on Form 10-Q, we disclose income attributed to LP 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 and credits, product-line discontinuance charges, other operating credits and charges, net, loss on early debt extinguishment, investment income, pension settlement charges, and other non-operating items, as Adjusted EBITDA (Adjusted EBITDA), which is a non-GAAP financial measure.

In this quarterly report on Form 10-Q, we disclose income attributed to LP before interest expense, provision for income taxes, depreciation and amortization, and excluding stock-based compensation expense, loss on impairment attributed to LP, business exit credits and 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 (Adjusted EBITDA), which is a non-GAAP financial measure.

We have included Adjusted EBITDA in this report because we view it as an important supplemental measure of our performance and believe that it is frequently used by interested persons in the evaluation of companies that have different financing and capital structures and/or tax rates.

We also disclose income attributed to LP, excluding loss on impairment attributed to LP, business exit charges and credits, 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 income attributed to LP, excluding loss on impairment attributed to LP, business exit credits and 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.

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The following table reconciles net income to Adjusted EBITDA (dollar amounts in millions):

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

Net income (loss) $ 160 $ (21) $ 267 $ 1

Net income $ 90 $ 118 $ 358 $ 119

Add (deduct):

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

Income (loss) attributed to LP 160 (20) 267 1

Net income attributed to non-controlling interest — — — —

Income attributed to LP 90 118 358 119

Provision for income taxes 23 44 117 66

1 unchanged sentence

Stock-based compensation expense 4 2 15 9

Loss on impairment attributed to LP — 1 — 1

Other operating credits and charges, net 1 (7) 2 16

Business exit charges and credits (14) 34 (15) 34

Business exit credits and charges — 1 (14) 35

Interest expense 4 4 12 9

11 unchanged sentences

The following table provides the reconciliation of net income to Adjusted Income (dollar amounts in millions, except per share amounts):

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

Net income (loss) per share - diluted $ 2.23 $ (0.28) $ 3.71 $ 0.02

Net income (loss) $ 160 $ (21) $ 267 $ 1

Net income per share - diluted $ 1.28 $ 1.63 $ 5.00 $ 1.65

Net income $ 90 $ 118 $ 358 $ 119

Add (deduct):

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

Income (loss) attributed to LP 160 (20) 267 1

Net income attributed to non-controlling interest — — — —

Income attributed to LP 90 118 358 119

Loss on impairment attributed to LP — 1 — 1

Other operating credits and charges, net 1 (7) 2 16

Business exit charges and credits (14) 34 (15) 34

Business exit credits and charges — 1 (14) 35

Pension settlement charges — — — 6

10 unchanged sentences

(i) housing starts within the United States, (ii) our sales volumes, and (iii) our OEE performance.

We consider the following items to be key performance indicators for our business because LP’s management uses these metrics to evaluate our business and trends in our industry, measure our performance, and make strategic decisions.

We consider these items to be key performance indicators for our business because LP’s management uses these metrics to evaluate our business and trends in our industry, measure our performance, and make strategic decisions.

We believe that the key performance indicators presented may provide additional perspective and insights when analyzing our core operating performance.

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Other companies may present housing start data differently, and therefore, as presented by us, our housing start data may not be comparable to similarly titled performance indicators reported by other companies.

The following table sets forth housing starts for the three and six months ended June 30, 2024 and 2023 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

The following table sets forth housing starts for the three and nine months ended September 30, 2024 and 2023 (in thousands):

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

2024 2023 2024 2023

5 unchanged sentences

housing starts data, in thousands, reported by the U.S.

Census Bureau as published through July 17, 2024.

Census Bureau as published through October 18, 2024.

We monitor sales volumes for our products in our Siding, OSB, and LPSA segments, which we define as the number of units of our products sold within the applicable period.

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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 six months ended June 30, 2024 and 2023:

Three Months Ended June 30, 2024 Three Months Ended June 30, 2023

The following table sets forth sales volumes for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30, 2024 Three Months Ended September 30, 2023

Sales Volume Siding OSB LPSA Total Siding OSB LPSA Total

2 unchanged sentences

OSB - commodity (MMSF) — 431 — 431 — 401 — 401

Six Months Ended June 30, 2024 Six Months Ended June 30, 2023

Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023

Sales Volume Siding OSB LPSA Total Siding OSB LPSA Total

5 unchanged sentences

We believe that OEE, when used in conjunction with other metrics, can be a useful measure for evaluating our ability to generate profits, and that providing this measure should allow interested persons to monitor operational improvements.

We use a best-in-class target across all LP manufacturing sites that allows us to optimize capital investments, focus maintenance and reliability improvements, and improve overall equipment efficiency.

We believe that we use a best-in-class target across all LP manufacturing sites that allows us to optimize capital investments, focus maintenance and reliability improvements, and improve overall equipment efficiency.

It should be noted that other companies may present OEE data differently, and therefore, as presented by us, OEE data may not be comparable to similarly titled measures reported by other companies.

OEE for the three and six months ended June 30, 2024 and 2023 for each of our segments is listed below:

Three Months Ended June 30, Six Months Ended June 30,

OEE for the three and nine months ended September 30, 2024 and 2023 for each of our segments is listed below:

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

2024 2023 2024 2023

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Segment net sales and Adjusted EBITDA for this segment were as follows (dollar amounts in millions):

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 % Change 2024 2023 % Change

2 unchanged sentences

Net sales in this segment by product line were as follows (dollar amounts in millions):

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 % Change 2024 2023 % Change

2 unchanged sentences

Total $ 420 $ 345 22 % $ 1,196 $ 996 20 %

Percent changes in average net sales prices and unit shipments for the three and six months ended June 30, 2024, compared to the corresponding periods in 2023, were as follows:

Percent changes in average net sales prices and unit shipments for the three and nine months ended September 30, 2024, compared to the corresponding periods in 2023, were as follows:

Three Months Ended

June 30, 2024 versus 2023 Six Months Ended

June 30, 2024 versus 2023

September 30, 2024 versus 2023 Nine Months Ended

September 30, 2024 versus 2023

Selling Price Unit

2 unchanged sentences

Siding Solutions 6 % 15 % 6 % 14 %

The year-over-year net sales increase for the Siding segment for the three and six months ended June 30, 2024 reflects increased sales volumes and list price increases.

Second quarter 2024 Adjusted EBITDA increased year-over-year by $46 million, reflecting the impact of the net sales increase and a $5 million net decrease in freight, raw materials, and labor, partially offset by a $7 million increase in mill overhead.

For the six months ended June 30, 2024, the year-over-year increase in Adjusted EBITDA of $69 million primarily reflects the impact of the net sales increase.

The year-over-year net sales increase for the Siding segment for the three and nine months ended September 30, 2024 reflects increased sales volumes and list price increases.

Third quarter 2024 Adjusted EBITDA increased year-over-year by $51 million, primarily reflecting the impacts of the net sales increase and a $5 million increase due to the non-recurrence of a manufacturing press rebuild in 2023.

For the nine months ended September 30, 2024, the year-over-year increase in Adjusted EBITDA of $120 million primarily reflects the impact of the net sales increase.

The 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).

1 unchanged sentence

Segment net sales and Adjusted EBITDA for this segment were as follows (dollar amounts in millions):

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 % Change 2024 2023 % Change

2 unchanged sentences

Net sales in this segment by product line were as follows (dollar amounts in millions):

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 % Change 2024 2023 % Change

3 unchanged sentences

Total $ 253 $ 335 (24) % $ 917 $ 754 22 %

Percent changes in average net sales prices and unit shipments for the three and six months ended June 30, 2024, compared to the corresponding periods in 2023, were as follows:

Percent changes in average net sales prices and unit shipments for the three and nine months ended September 30, 2024, compared to the corresponding periods in 2023, were as follows:

Three Months Ended

June 30, 2024 versus 2023

Six Months Ended

June 30, 2024 versus 2023

September 30, 2024 versus 2023

Nine Months Ended

September 30, 2024 versus 2023

Selling Price Unit

3 unchanged sentences

OSB - commodity (34) % 8 % 7 % 11 %

Second quarter 2024 net sales for the OSB segment increased year-over-year by $122 million (or 53%), reflecting a $73 million increase in revenue due to higher OSB selling prices and a $40 million increase in sales volumes.

For the six months ended June 30, 2024, the year-over-year increase in net sales of $246 million (or 59%) reflects a $135 million increase in revenue due to higher OSB selling prices and a $96 million increase in sales volumes.

Adjusted EBITDA for the three and six months ended June 30, 2024 increased year-over-year by $88 million and $174 million, respectively, reflecting the impact of higher OSB prices and sales volumes, partially offset by higher mill-related costs.

Third quarter 2024 net sales for the OSB segment decreased year-over-year by $82 million (or 24%), reflecting an $88 million decrease from lower OSB selling prices, partially offset by a $4 million increase in sales volumes.

For the nine months ended September 30, 2024, the year-over-year increase in net sales of $164 million (or 22%) reflects a $47 million increase in revenue due to higher OSB selling prices and a $100 million increase in sales volumes.

Adjusted EBITDA for the three months ended September 30, 2024 decreased year-over-year by $87 million, primarily reflecting the impact of lower OSB prices.

Adjusted EBITDA for the nine months ended September 30, 2024 increased year-over-year by $87 million, reflecting the impact of higher OSB prices and sales volumes, partially offset by higher mill-related costs.

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

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Segment net sales and Adjusted EBITDA for this segment were as follows (dollar amounts in millions):

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 % Change 2024 2023 % Change

2 unchanged sentences

Net sales in this segment by product were as follows (dollar amounts in millions):

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 % Change 2024 2023 % Change

3 unchanged sentences

Total $ 47 $ 45 4 % $ 140 $ 153 (9) %

Percent changes in average net sales price and unit shipments for the three and six months ended June 30, 2024, compared to the corresponding periods in 2023, were as follows:

Percent changes in average net sales price and unit shipments for the three and nine months ended September 30, 2024, compared to the corresponding periods in 2023, were as follows:

Three Months Ended

June 30, 2024 versus 2023 Six Months Ended

June 30, 2024 versus 2023

September 30, 2024 versus 2023 Nine Months Ended

September 30, 2024 versus 2023

Selling Price Unit

3 unchanged sentences

Siding (32) % 76 % (22) % 14 %

The year-over-year net sales and Adjusted EBITDA decreases for the LPSA segment for the three and six months ended June 30, 2024 reflect unfavorable currency fluctuations, partially offset by local currency revenues.

The year-over-year net sales and Adjusted EBITDA increases for the three months ended September 30, 2024 reflect higher sales volumes offset by unfavorable currency fluctuations.

The year-over-year net sales and Adjusted EBITDA decreases for the nine months ended September 30, 2024 reflect lower constant currency selling prices and unfavorable currency fluctuations, partially offset by higher sales volumes.

Our other products segment includes 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 our off-site framing operation Entekra Holdings LLC (Entekra).

Other net sales were $2 million and $5 million for the three and six months ended June 30, 2024, respectively, as compared to $9 million and $17 million for the corresponding periods in 2023.

The year-over-year decrease in other net sales for the three and six months ended June 30, 2024 was primarily due to lower Entekra sales volumes as a result of the aforementioned shutdown.

Adjusted EBITDA was $(2) million and $(3) million for the three and six months ended June 30, 2024, respectively, as compared to $(6) million and $(14) million for the corresponding periods in 2023.

Other net sales were $2 million and $7 million for the three and nine months ended September 30, 2024, respectively, as compared to $4 million and $21 million for the corresponding periods in 2023, respectively.

The year-over-year decrease in other net sales for the three and nine months ended September 30, 2024 was primarily due to lower Entekra sales volumes as a result of the aforementioned shutdown.

Adjusted EBITDA was $(3) million and $(6) million for the three and nine months ended September 30, 2024, respectively, as compared to $0 million and $(15) million for the corresponding periods in 2023, respectively.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses were $71 million and $140 million for the three and six months ended June 30, 2024, respectively, compared to $66 million and $133 million for the corresponding periods in 2023.

The year-over-year increase in selling, general, and administrative expenses was driven by higher employee compensation.

We recognized an estimated tax provision of $53 million and $94 million in the three and six months ended June 30, 2024, respectively, as compared to $21 million and $22 million for the corresponding periods in 2023, respectively.

Selling, general, and administrative expenses were $75 million and $215 million for the three and nine months ended September 30, 2024, respectively, compared to $58 million and $191 million for the corresponding periods in 2023, respectively.

The year-over-year increase in selling, general, and administrative expenses was driven by higher employee compensation and marketing expenses.

We recognized an estimated tax provision of $23 million and $117 million in the three and nine months ended September 30, 2024, respectively, as compared to $44 million and $66 million for the corresponding periods in 2023, 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 2024, the primary differences between the U.S.

statutory rate of 21% and the effective rate relates to state income tax and foreign tax rates.

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

For 2023, the primary difference 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 immediately below.

In the second quarter of fiscal 2023 management changed its intent to no longer assert indefinite reinvestment related to undistributed earnings in Chile and Brazil.

In the second quarter of 2023, management changed its intent to 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.

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Operating Activities

During the six months ended June 30, 2024 and 2023, cash provided (used) by operations was $317 million and $(30) million, respectively.

The increase in cash provided by operations was primarily related to higher net income, partially offset by changes in working capital.

During the nine months ended September 30, 2024 and 2023, cash provided by operations was $500 million and $157 million, respectively.

The increase in cash provided by operations was primarily related to higher net income and changes in working capital, partially offset by $31 million of higher income taxes paid.

Investing Activities

During the six months ended June 30, 2024 and 2023, cash used in investing activities was $61 million and $271 million, respectively.

During the six months ended June 30, 2024, we received $16 million in proceeds from our share of the sale of certain assets from an equity method investment.

During the six months ended June 30, 2023, we paid $80 million to acquire the assets owned by Wawa OSB, Inc.

Capital expenditures for the six months ended June 30, 2024 and 2023, were $77 million and $188 million, respectively.

During the nine months ended September 30, 2024 and 2023, cash used in investing activities was $122 million and $312 million, respectively.

During the nine months ended September 30, 2024, we received $16 million in proceeds from our share of the sale of certain assets from an equity method investment.

We also paid $17 million for an equity investment in South America.

During the nine months ended September 30, 2023, we paid $80 million to acquire the assets owned by Wawa OSB, Inc.

Capital expenditures for the nine months ended September 30, 2024 and 2023, were $121 million and $236 million, respectively.

The year-over-year decrease was primarily related to siding conversion expenditures in the prior year.

Capital expenditures for the six months ended June 30, 2024 were primarily related to growth and sustaining maintenance projects.

Capital expenditures for the nine months ended September 30, 2024 were primarily related to growth and sustaining maintenance projects.

Financing Activities

During the six months ended June 30, 2024, cash used in financing activities was $157 million.

During this period, we used $115 million to repurchase shares of LP common stock under the 2022 Share Repurchase Program (defined below).

During the nine months ended September 30, 2024, cash used in financing activities was $252 million, which includes $188 million to repurchase shares of LP common stock under the 2022 Share Repurchase Program (defined below).

Additionally, we paid cash dividends of $56 million and used $8 million to repurchase stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans.

During the six months ended June 30, 2023, cash used in financing activities was $14 million.

During this period, we paid cash dividends of $35 million and used $9 million to repurchase stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans.

payments were partially financed by net borrowings of $30 million under our Amended Credit Facility during the six months ended June 30, 2023.

During the nine months ended September 30, 2023, cash used in financing activities was $61 million, which includes $52 million of dividend payments and $10 million of stock repurchases from employees in connection with

income tax withholding requirements associated with our employee stock-based compensation plans.

We borrowed and subsequently repaid $80 million from our Amended Credit Facility.

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.

The Credit Agreement provides for the Amended 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 June 30, 2024, we had no outstanding borrowings under our Amended Credit Facility.

As of September 30, 2024, we had no outstanding borrowings under our Amended Credit Facility.

The Credit Agreement contains various restrictive covenants and customary events of default.

2 unchanged sentences

, funded debt less unrestricted cash to total capitalization) of no more than 57.5%.

As of June 30, 2024, we were in compliance with all financial covenants under the Credit Agreement.

As of September 30, 2024, we were in compliance with all financial covenants under the Credit Agreement.

In May 2024, LP entered into a new letter of credit facility agreement, replacing the letter of credit facility agreement dated May 2020.

3 unchanged sentences

All amounts outstanding under the Letter of Credit Facility become due on April 15, 2029.

As of June 30, 2024, we were in compliance with all covenants under the Letter of Credit Facility.

As of September 30, 2024, we were in compliance with all covenants under the Letter of Credit Facility.

Other Liquidity Matters

Off-Balance Sheet Arrangements

As of June 30, 2024, we had standby letters of credit of $14 million outstanding related to collateral for environmental impact on owned properties, a deposit for a forestry license, and insurance collateral, including workers' compensation.

As of September 30, 2024, we had standby letters of credit of $14 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 such carrying values as of June 30, 2024.

We review the carrying values of our long-lived assets for potential impairments and believe we have adequate support for such carrying values as of September 30, 2024.

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 June 30, 2024, there were no indications of impairment.

As of September 30, 2024, there were no indicators 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.

1 unchanged sentence

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 2. Management’s Discussion and Analysis