Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q. The following discussion includes 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 2023 Annual Report on Form 10-K and in this quarterly report on Form 10-Q. These risks and uncertainties could cause actual results to differ materially from those projected in the forward-looking statements contained in this quarterly report on Form 10-Q or implied by past results and trends. 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 serving the new home construction, repair and remodeling, and outdoor structures markets to become an industry leader known for innovation, quality, and reliability. Our manufacturing facilities are located in the U.S., Canada, Chile, and Brazil. To serve these markets, we operate in three segments: Siding, OSB, and LPSA.
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, 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.
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. The potential effect of these factors on our future operational and financial performance is uncertain. As a result, our past performance may not be indicative of future results.
Supply and Demand for Siding
Our Siding Solutions products are specialty building materials and are 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 in North America and South America. We have consistently grown our Siding segment above the underlying market growth rates. Our Siding segment is generally less sensitive to new housing market cyclicality since a majority of its demand comes from other markets, including off-site structure producers and repair and remodel. Our growth in this market depends upon the continued displacement of vinyl, wood, fiber cement, stucco, bricks, and other alternatives, our product innovation and our technological expertise in wood and wood composites to address the needs of our customers.
Supply and Demand for OSB
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 fluctuate in the future.
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Critical Accounting Policies and Significant Estimates
Note 1 of the Notes to the Consolidated Financial Statements included in our 2023 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, 2023.
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 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 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. 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 measures, net income, income attributed to LP and income attributed to LP per diluted share, respectively, 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, and income attributed to LP per diluted share or for any other U.S. GAAP measures of operating performance. It should be noted that other companies may present similarly titled measures differently, and therefore, as presented by us, these measures may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS have material limitations as performance measures because they exclude items that are actually incurred or experienced in connection with the operation of our business.
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The following table reconciles net income to Adjusted EBITDA (dollar amounts in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Net income $ 90 $ 118 $ 358 $ 119
Add (deduct):
Net income attributed to non-controlling interest — — — —
Income attributed to LP 90 118 358 119
Provision for income taxes 23 44 117 66
Depreciation and amortization 31 30 93 87
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 credits and charges — 1 (14) 35
Interest expense 4 4 12 9
Investment income (6) (4) (17) (10)
Pension settlement charges — — — 6
Other non-operating items 4 — (2) 11
Adjusted EBITDA $ 153 $ 190 $ 564 $ 349
SEGMENT ADJUSTED EBITDA
Siding $ 123 $ 71 $ 318 $ 198
OSB 33 120 249 161
LPSA 9 6 29 31
Other (3) — (6) (15)
Corporate (9) (7) (26) (26)
Adjusted EBITDA $ 153 $ 190 $ 564 $ 349
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The following table provides the reconciliation of net income to Adjusted Income (dollar amounts in millions, except per share amounts):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Net income per share - diluted $ 1.28 $ 1.63 $ 5.00 $ 1.65
Net income $ 90 $ 118 $ 358 $ 119
Add (deduct):
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 credits and charges — 1 (14) 35
Pension settlement charges — — — 6
Reported tax provision 23 44 117 66
Adjusted income before tax 115 157 463 242
Normalized tax provision at 25% (29) (39) (116) (61)
Adjusted Income $ 86 $ 117 $ 347 $ 182
Diluted shares outstanding 71 72 72 72
Adjusted Diluted EPS $ 1.22 $ 1.62 $ 4.84 $ 2.51
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 present summary data relating to: (i) housing starts within the United States, (ii) our sales volumes, and (iii) our OEE performance. 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. 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 financial measures that were prepared in accordance with U.S. GAAP. 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 housing starts 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, as presented by us, our housing start data may not be comparable to similarly titled performance indicators reported by other companies.
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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
Housing starts 1 :
Single-Family 258 259 780 709
Multi-Family 94 105 263 371
352 364 1,043 1,079
1 Actual U.S. housing starts data, in thousands, reported by the U.S. 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. 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 volume data differently, and therefore, as presented by us, sales volume data 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, 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
Siding Solutions (MMSF) 460 — 11 470 398 — 6 405
OSB - Structural Solutions (MMSF) — 402 130 532 — 412 115 528
OSB - commodity (MMSF) — 431 — 431 — 401 — 401
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Sales Volume Siding OSB LPSA Total Siding OSB LPSA Total
Siding Solutions (MMSF) 1,318 — 29 1,347 1,158 — 25 1,183
OSB - Structural Solutions (MMSF) — 1,297 397 1,693 — 1,151 370 1,521
OSB - commodity (MMSF) — 1,261 — 1,261 — 1,137 — 1,137
We measure OEE at 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 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 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 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
Siding 77 % 77 % 78 % 77 %
OSB 78 % 74 % 78 % 75 %
LPSA 68 % 74 % 73 % 74 %
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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 15 - 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.
Siding
The 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.
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,
2024 2023 % Change 2024 2023 % Change
Net sales $ 420 $ 345 22 % $ 1,196 $ 996 20 %
Adjusted EBITDA 123 71 72 % 318 198 61 %
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,
2024 2023 % Change 2024 2023 % Change
Siding Solutions $ 418 $ 342 22 % $ 1,190 $ 989 20 %
Other 3 2 17 % 7 7 1 %
Total $ 420 $ 345 22 % $ 1,196 $ 996 20 %
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
September 30, 2024 versus 2023 Nine Months Ended
September 30, 2024 versus 2023
Average Net
Selling Price Unit
Shipments Average Net
Selling Price Unit
Shipments
Siding Solutions 6 % 15 % 6 % 14 %
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.
OSB
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). OSB products are manufactured using wood strands arranged in layers and bonded with resins.
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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,
2024 2023 % Change 2024 2023 % Change
Net sales $ 253 $ 335 (24) % $ 917 $ 754 22 %
Adjusted EBITDA 33 120 (72) % 249 161 54 %
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,
2024 2023 % Change 2024 2023 % Change
OSB - Structural Solutions $ 136 $ 174 (22) % $ 507 $ 412 23 %
OSB - commodity 112 157 (29) % 395 332 19 %
Other 5 5 17 % 15 9 67 %
Total $ 253 $ 335 (24) % $ 917 $ 754 22 %
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
September 30, 2024 versus 2023
Nine Months Ended
September 30, 2024 versus 2023
Average Net
Selling Price Unit
Shipments Average Net
Selling Price Unit
Shipments
OSB - Structural Solutions (20) % (3) % 9 % 13 %
OSB - commodity (34) % 8 % 7 % 11 %
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.
LPSA
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.
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,
2024 2023 % Change 2024 2023 % Change
Net sales $ 47 $ 45 4 % $ 140 $ 153 (8) %
Adjusted EBITDA 9 6 41 % 29 31 (5) %
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Net sales in this segment by product were as follows (dollar amounts in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 % Change 2024 2023 % Change
OSB - Structural Solutions $ 40 $ 40 — % $ 119 $ 132 (10) %
Siding 6 5 19 % 17 19 (11) %
Other 1 — 292 % 4 2 91 %
Total $ 47 $ 45 4 % $ 140 $ 153 (9) %
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
September 30, 2024 versus 2023 Nine Months Ended
September 30, 2024 versus 2023
Average Net
Selling Price Unit
Shipments Average Net
Selling Price Unit
Shipments
OSB - Structural Solutions (11) % 13 % (16) % 7 %
Siding (32) % 76 % (22) % 14 %
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.
Other
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 $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 $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.
Income Taxes
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. 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 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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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 2023 Annual Report on Form 10-K and "Note 10 - 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 expect 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 share 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, 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 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 nine months ended September 30, 2024 were primarily related to growth and sustaining maintenance projects.
Financing Activities
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 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
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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 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 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. 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, 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. This agreement 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). The Letter of Credit Facility provides for a letter of credit fee, due quarterly, ranging from 1.000% 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. All amounts outstanding under the Letter of Credit Facility become due on April 15, 2029. 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 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 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 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. Because a determination to dispose of particular assets can require management to make assumptions regarding the transaction structure of the disposition and to estimate the net sales proceeds, which may be less than previous estimates of undiscounted future net cash flows, we may be required to record impairment charges in connection with decisions to dispose of assets.
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