LOUISIANA-PACIFIC CORP [LPX] Filings

10-Q 1 lpx-20230930.htm 10-Q lpx-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2023

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-7107

LOUISIANA-PACIFIC CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						93-0609074
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

1610 West End Avenue, Suite 200, Nashville, TN 37203

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (615) 986 - 5600

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $1 par value	LPX	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 72,114,703 shares of common stock, $1 par value, outstanding as of October 30, 2023.

Except as otherwise specified and unless the context otherwise requires, references to "LP," the “Company,” “we,” “us,” and “our” refer to Louisiana-Pacific Corporation and its consolidated subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their businesses and other matters as long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in such forward-looking statements. This quarterly report on Form 10-Q contains, and other reports and documents we file with, or furnish to, the Securities and Exchange Commission (SEC) may contain forward-looking statements. These statements are based upon the beliefs and assumptions of, and on information available to, our management.

The following statements are or may constitute forward-looking statements: (1) statements preceded by, followed by, or that include words like “may,” “will,” “could,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” “potential,” “continue,” “likely,” or “future” or the negative or other variations thereof and (2) other statements regarding matters that are not historical facts, including without limitation, plans for product development, forecasts of future costs and expenditures, possible outcomes of legal proceedings, capacity expansion, and other growth initiatives, and the adequacy of reserves for loss contingencies.

Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following:

•changes in governmental fiscal and monetary policies, including tariffs and levels of employment;

•changes in general and global economic conditions, including impacts from global pandemics, rising inflation, supply chain disruptions, and ongoing military conflicts including the conflict between Russia and Ukraine and the conflict in Israel and the surrounding areas;

•changes in the cost and availability of capital;

•changes in the level of home construction and repair and remodel activity;

•changes in competitive conditions and prices for our products;

•changes in the relationship between supply of and demand for building products;

•changes in the financial or business conditions of third-party wholesale distributors and dealers;

•changes in the relationship between the supply of and demand for raw materials, including wood fiber and resins, used in manufacturing our products;

•changes in the cost and availability of energy, primarily natural gas, electricity, and diesel fuel;

•changes in the cost and availability of transportation;

•impact of manufacturing our products internationally;

•difficulties in the launch or production ramp-up of newly introduced products;

•impacts from public health issues (including global pandemics) on the economy, demand for our products or our operations, including the actions and recommendations of governmental authorities to contain such public health issues;

•unplanned interruptions to our manufacturing operations, such as explosions, fires, inclement weather, natural disasters, accidents, equipment failures, labor shortages or disruptions, transportation interruptions, supply interruptions, public health issues (including pandemics and quarantines), riots, civil insurrection or social unrest, looting, protests, strikes, and street demonstrations;

•changes in other significant operating expenses;

•changes in currency values and exchange rates between the U.S. dollar and other currencies, particularly the Canadian dollar, Brazilian real, and Chilean peso;

•changes in, and compliance with, general and industry-specific laws and regulations, including environmental and health and safety laws and regulations, the U.S. Foreign Corrupt Practices Act and anti-bribery laws, laws related to our international business operations, and changes in building codes and standards;

•changes in tax laws and interpretations thereof;

•changes in circumstances giving rise to environmental liabilities or expenditures;

•warranty costs exceeding our warranty reserves;

•challenges to or exploitation of our intellectual property or other proprietary information by others in the industry;

•the resolution of existing and future product-related litigation, environmental proceedings and remediation efforts, and other legal or environmental proceedings or matters;

•the effect of covenants and events of default contained in our debt instruments;

•the amount and timing of any repurchases of our common stock and the payment of dividends on our common stock, which will depend on market and business conditions and other considerations;

•cybersecurity events affecting our information technology systems or those of our third-party providers and the related costs and impact of any disruption on our business; and

•acts of public authorities, war, political or civil unrest, natural disasters, fire, floods, earthquakes, inclement weather, and other matters beyond our control.

In addition to the foregoing and any risks and uncertainties specifically identified in the text surrounding forward-looking statements, any statements in the reports and other documents filed or furnished by us with the SEC that warn of risks or uncertainties associated with future results, events, or circumstances identify important factors that could cause actual results, events, and circumstances to differ materially from those reflected in the forward-looking statements.

The forward-looking statements that we make, or that are made by others on our behalf, are based on our knowledge of our business and our operating environment and assumptions that we believe to be, or will believe to be, reasonable when such forward-looking statements were or will be made. As a consequence of the factors described above, the other risks, uncertainties, and factors we disclose below and in the reports and other documents filed by us with the SEC, other risks not known to us at this time, changes in facts, assumptions not being realized or other circumstances, our actual results may differ materially from those discussed in or implied or contemplated by our forward-looking statements. Consequently, this cautionary statement qualifies all forward-looking statements we make, or that are made on our behalf, including those made herein and incorporated by reference herein. We cannot assure you that the results or developments expected or anticipated by us will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for us or affect us, our business, our operations or our operating results in the manner or to the extent we expect. We caution readers not to place undue reliance on such forward-looking statements, which speak only as of their dates. We undertake no obligation to revise or update any of the forward-looking statements to reflect subsequent events or circumstances except to the extent required by applicable law.

ABOUT THIRD-PARTY INFORMATION

In this quarterly report on Form 10-Q, we rely on, and refer to, information regarding industry data obtained from market research, publicly available information, industry publications, U.S. government sources, and other third parties. Although we believe the information is reliable, we cannot guarantee the accuracy or completeness of the information and have not independently verified it.

PART I - FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Condensed Consolidated Statements of Income

Dollar and share amounts in millions, except per share amounts

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net sales	$	728	$	852	$	1,923	$	3,149
Cost of sales	(514)		(620)		(1,489)		(1,778)
Gross profit	214		232		434		1,370
Selling, general, and administrative expenses	(58)		(67)		(191)		(196)
Impairment of long-lived assets, net	(1)		—		(25)		—

Other operating credits and charges, net	6		7		(20)		17
Income from operations	161		172		198		1,191
Interest expense	(4)		(3)		(9)		(9)
Investment income	4		5		10		8
Other non-operating items	—		(3)		(17)		(11)
Income before income taxes	160		172		183		1,178
Provision for income taxes	(44)		(44)		(66)		(284)
Equity in unconsolidated affiliate	1		1		3		4
Income from continuing operations	118		129		119		898
Income from discontinued operations, net of income taxes	—		97		—		196
Net income	$	118	$	226	$	119	$	1,093
Net loss attributed to non-controlling interest	—		—		—		1
Net income attributed to LP	$	118	$	226	$	119	$	1,094

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	72		74		72		80
Diluted	72		74		72		80

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

Condensed Consolidated Statements of Comprehensive Income

Dollar amounts in millions

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	118	$	226	$	119	$	1,093
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	(19)		(13)		(3)		(22)

Changes in defined benefit pension plans	—		3		4		6
Other comprehensive income (loss), net of tax	(19)		(9)		2		(16)
Comprehensive income	99		216		120		1,077
Comprehensive loss associated with non-controlling interest	—		—		—		1
Comprehensive income attributed to LP	$	99	$	216	$	121	$	1,078

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

Condensed Consolidated Balance Sheets

Dollar amounts in millions

(Unaudited)


	September 30, 2023		December 31, 2022
ASSETS
Cash and cash equivalents	$	160	$	369
Receivables, net of allowance for doubtful accounts of $3 million and $1 million as of September 30, 2023, and December 31, 2022, respectively	181		127
Inventories	379		337
Prepaid expenses and other current assets	25		20

Total current assets	745		854

Timber and timberlands	32		40
Property, plant, and equipment, net	1,512		1,326
Operating lease assets, net	34		44
Goodwill and other intangible assets	27		36
Investments in and advances to affiliates	6		6
Restricted cash	—		14
Other assets	19		24
Deferred tax asset	4		7

Total assets	$	2,380	$	2,350

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities	$	264	$	317
Income taxes payable	2		19

Total current liabilities	266		336

Long-term debt	347		346
Deferred income taxes	152		113
Non-current operating lease liabilities	35		41
Contingency reserves, excluding current portion	25		26
Other long-term liabilities	53		53

Total liabilities	$	878	$	916

Redeemable noncontrolling interest	—		—

Stockholders’ equity:
Common stock, $1 par value, 200,000,000 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		88
Additional paid-in capital	460		462
Retained earnings	1,438		1,371
Treasury stock, 15,872,814 shares and 16,238,665 shares, at cost as of September 30, 2023, and December 31, 2022, respectively	(387)		(388)
Accumulated comprehensive loss	(98)		(99)
Total stockholders’ equity	1,502		1,433
Total liabilities and stockholders’ equity	$	2,380	$	2,350

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

Condensed Consolidated Statements of Cash Flows

Dollar amounts in millions

(Unaudited)


	Nine Months Ended September 30,
		2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	119	$	1,093
Adjustments to net income:
Depreciation and amortization		87		99
Impairment of goodwill and long-lived assets		25		—
Gain on sale of assets, net		(6)		(157)
Pension loss due to settlement		6		4

Deferred taxes		44		27
Other adjustments, net		48		29
Changes in assets and liabilities (net of acquisitions and divestitures):
Receivables		(52)		(20)
Inventories		(46)		(72)
Prepaid expenses and other current assets		(5)		(11)
Accounts payable and accrued liabilities		(36)		40
Income taxes payable, net of receivables		(26)		70
Net cash provided by operating activities		157		1,103
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment additions		(236)		(282)
Acquisition of facility assets		(80)		—
Proceeds from sales of assets		9		—
Proceeds from divestiture of business		—		265
Other investing activities, net		(4)		3
Net cash used in investing activities		(312)		(14)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing of long-term debt		80		—
Repayment of long-term debt		(80)		—
Payment of cash dividends		(52)		(53)
Purchase of stock		—		(900)
Other financing activities		(10)		(15)
Net cash used in financing activities		(61)		(968)
EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		(6)		(11)
Net (decrease) increase in cash, cash equivalents, and restricted cash		(223)		111
Cash, cash equivalents, and restricted cash at beginning of period		383		371
Cash, cash equivalents, and restricted cash at end of period		$	160	$	482

Supplemental cash flow information:
Cash paid for income taxes, net		$	49	$	242
Cash paid for interest, net		$	14	$	14
Unpaid capital expenditures		$	17	$	44

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

Condensed Consolidated Statements of Stockholders’ Equity

Dollar and share amounts in millions, except per share amounts

(Unaudited)


	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2022	88	$	88	16	$	(388)	$	462	$	1,371	$	(99)	$	1,433
Net income attributed to LP	—	—		—	—		—		21		—		21
Dividends paid ($0.24 per share)	—	—		—	—		—		(17)		—		(17)
Issuance of shares under stock plans	—	—		—	10		(10)		—		—		—
Taxes paid related to net settlement of stock-based awards	—	—		—	(10)		—		—		—		(10)
Purchase of stock	—	—		—	—		—		—		—		—
Compensation expense associated with stock-based compensation	—	—		—	—		4		—		—		4
Other comprehensive income	—	—		—	—		—		—		19		19
Balance, March 31, 2023	88	$	88	16	$	(388)	$	455	$	1,375	$	(80)	$	1,450
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 Paid-in Capital		Retained Earnings		Accumulated Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2021	102	$	102	17	$	(390)	$	458	$	1,239	$	(174)	$	1,235
Net income attributed to LP	—	—		—	—		—		484		—		484
Dividends paid ($0.22 per share)	—	—		—	—		—		(19)		—		(19)
Issuance of shares under stock plans	—	—		(1)	14		(14)		—		—		—
Taxes paid related to net settlement of stock-based awards	—	—		—	(15)		—		—		—		(15)
Purchase of stock	(2)	(2)		—	—		—		(102)		—		(104)
Compensation expense associated with stock-based compensation	—	—		—	—		7		—		—		7
Other comprehensive income	—	—		—	—		—		—		24		24
Balance, March 31, 2022	101	$	101	16	$	(391)	$	451	$	1,601	$	(149)	$	1,613
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.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND BASIS FOR PRESENTATION

Nature of Operations

Louisiana-Pacific Corporation and our subsidiaries are a leading provider of high-performance building solutions that meet the demands of builders, remodelers, and homeowners worldwide. 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, and 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 two 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. GAAP) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. These Condensed Consolidated Financial Statements and related Notes should be read in conjunction with our annual report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 21, 2023 (2022 Annual Report on Form 10-K). Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.

NOTE 2. REVENUE

The following table presents our reportable segment revenues, disaggregated by revenue source. 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
Value-add
Siding Solutions	$	342	$	—	$	5	$	—	$	—	$	347
OSB - Structural Solutions	—		174		40		—		—		213
	342		174		44		—		—		560
Commodity
OSB - commodity	—		157		—		—		—		157

Other
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
Value-add
Siding Solutions	$	393	$	—	$	6	$	—	$	—	$	399
OSB - Structural Solutions	—		205		47		—		—		251
	393		205		53		—		—		650
Commodity
OSB - commodity	—		180		—		—		—		180

Other
Other products	1		3		—		17		—		22
	$	394	$	388	$	53	$	17	$	(1)	$	852


Nine Months Ended September 30, 2023
By Product type and family:	Siding		OSB		South America		Other		Inter-segment		Total
Value-add
Siding Solutions	$	989	$	—	$	19	$	—	$	—	$	1,008
OSB - Structural Solutions	—		412		132		—		—		544
	989		412		151		—		—		1,552
Commodity
OSB - commodity	—		332		—		—		—		332

Other
Other products	7		9		2		21		—		39
	$	996	$	754	$	153	$	21	$	—	$	1,923


Nine Months Ended September 30, 2022
By Product type and family:	Siding		OSB		South America		Other		Inter-segment		Total
Value-add
Siding Solutions	$	1,079	$	—	$	18	$	—	$	—	$	1,097
OSB - Structural Solutions	—		995		172		—		(2)		1,165
	1,079		995		190		—		(2)		2,262
Commodity
OSB - commodity	—		801		—		—		(1)		801

Other
Other products	4		9		—		72		—		86
	$	1,083	$	1,805	$	190	$	72	$	(2)	$	3,149

Revenue is recognized when obligations under the terms of a contract (i.e., 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. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. The shipping cost incurred by us to deliver products to our customers is recorded in cost of sales. The expected costs associated with our warranties continue to be recognized as an expense when the products are sold.

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. 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).

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. At that time, we invoice the retailers and recognize revenue for these consignment transactions. We do not offer a right of return for products shipped to the retailers’ stores from the distribution centers.

NOTE 3. EARNINGS PER SHARE

Basic earnings per share is based on the weighted-average number of shares of common stock outstanding. 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
Net income attributed to LP	$	118	$	226	$	119	$	1,094

Weighted average common shares outstanding - basic	72		74		72		80
Dilutive effect of employee stock plans	—		—		—		1
Shares used for diluted earnings per share	72		74		72		80

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

NOTE 4. FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We are required to classify these financial assets and liabilities into two groups: (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 2029 Senior Notes and other long-term debt are categorized as Level 1 in the U.S. GAAP fair value hierarchy. Fair values are based on trading activity among the Company’s lenders and the average bid and ask price is determined using published rates.

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.

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.

NOTE 5. RECEIVABLES

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


	September 30, 2023		December 31, 2022
Trade receivables	$	148	$	106
Other receivables	27		19
Income tax receivable	9		4
Allowance for doubtful accounts	(3)		(1)
Total	$	181	$	127

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.

NOTE 6. INVENTORIES

Inventories are valued at the lower of cost or net realizable value. Inventory cost includes materials, labor, and operating overhead. 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
Logs	$	75	$	59
Other raw materials	48		72
Semi-finished inventories	33		25
Finished products	222		180
Total	$	379	$	337

NOTE 7. 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,
	2022		2022
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.

NOTE 8. 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,
	2023			2023
Impairment of property, plant and equipment, operating lease assets, and other intangible assets1	$	—		$	24
Restructuring and other related charges:
Inventory write-down2	—			6
Other expenses including personnel-related costs such as severance3	1			4
	$	1		$	35

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

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

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

NOTE 9. GOODWILL AND OTHER INTANGIBLES

Goodwill and indefinite-lived intangible assets are not amortized and are subject to assessment for impairment by applying a fair value-based test on an annual basis, or more frequently if circumstances indicate a potential impairment. 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):


	Timber Licenses1		Goodwill		Developed Technology		Trademarks
Beginning balance December 31, 2022	$	28	$	19	$	15	$	2

Impairment charges	—		—		(7)		(2)
Amortization	(2)		—		(1)		—
Ending balance September 30, 2023	$	25	$	19	$	7	$	—

1Timber licenses are included in Timber and timberlands on the Condensed Consolidated Balance Sheets.

NOTE 10. INCOME TAXES

For interim periods, we recognize income tax expense by applying the estimated annual effective income tax rate to year to date results unless this method does not result in a reliable estimate of year to date income tax expense. Each period, the income tax accrual is adjusted to the latest estimate, and the difference from the previously accrued year to date balance is adjusted in the current quarter. 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.

NOTE 11. COMMITMENTS AND CONTINGENCIES

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


	September 30, 2023		December 31, 2022
Environmental reserves	$	26	$	27
Other reserves	—		—
Total contingencies	26		27
Current portion (included in Accounts payable and accrued liabilities)	(1)		(1)
Long-term portion	$	25	$	26

Estimates of our loss contingencies are based on various assumptions and judgments. 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. 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. Our estimates of our loss contingencies do not reflect potential future recoveries from insurance carriers except to the extent that recovery may, from time to time, be deemed probable as a result of an insurer’s agreement to payment terms.

Environmental Matters

We maintain a reserve for undiscounted estimated environmental loss contingencies. This reserve is primarily for estimated future costs of remediation of hazardous or toxic substances at numerous sites currently or previously owned by the Company. Our estimates of our environmental loss contingencies are based on various assumptions and judgments, the specific nature of which varies based on the particular facts and circumstances surrounding each environmental loss contingency. These estimates typically reflect assumptions and judgments as to the probable nature, magnitude, and timing of the required investigation, remediation, and/or monitoring activities and the probable cost of these activities, and in some cases, reflect assumptions and judgments as to the obligation or willingness and ability of third parties to bear a proportionate or allocated share of the cost of these activities. Due to the numerous uncertainties and variables associated with these assumptions and judgments, and the effects of changes in governmental regulation and environmental technologies, 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 environmental loss contingencies and, as additional information becomes known, may change our estimates significantly.

Other Proceedings

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.

NOTE 12. 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. If demand and pricing for our products fall to levels significantly below cycle average demand and pricing, should we decide to invest capital in alternative projects, or should changes occur related to our wood supply for our mills, it is possible that future impairment charges will be required. As of September 30, 2023, there were no indications of impairment.

We also review from time to time potential dispositions of various assets, considering current and anticipated economic and industry conditions, our strategic plan, and other relevant factors. Because a determination to dispose of particular assets can require management to make assumptions regarding the transaction structure of the disposition and to estimate the net sales proceeds, which may be less than previous estimates of undiscounted future 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.

NOTE 13. PRODUCT WARRANTIES

We offer warranties on the sale of most of our products and record an accrual for estimated future claims. 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
Beginning balance	$	8	$	7	$	8	$	7
Accrued to expense	—		1		2		3
Credited to other operating credits and charges	(1)		—		(1)		—
Payments made	—		(1)		(1)		(2)
Total warranty reserves	7		8		7		8
Current portion of warranty reserves (included in Accounts payable and accrued liabilities)	(2)		(2)		(2)		(2)
Long-term portion of warranty reserves (included in Other long-term liabilities)	$	6	$	6	$	6	$	6

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

NOTE 14. 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 cost1:
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

1Other 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 Othe