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Form 10-Q LOUISIANA-PACIFIC CORP For: Mar 31

May 3, 2022 2:57 PM EDT

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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 March 31, 2022
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)
Delaware93-0609074
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
414 Union Street, Suite 2000, Nashville, TN 37219
(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 classTrading SymbolName of each exchange on which registered
Common Stock, $1 par valueLPXNew 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 filerxAccelerated filero
Non-accelerated fileroSmaller 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: 82,118,548 shares of common stock, $1 par value, outstanding as of April 27, 2022.



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 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 the 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, which may be amplified by the invasion of Ukraine by Russia, the sanctions (including their duration), and other measures being imposed in response to this conflict, as well as any escalation or expansion of economic disruption or the conflict’s current scope:

impacts from public health issues (including global pandemics, such as the ongoing COVID-19 pandemic) on the economy, demand for our products or our operations, including the actions and recommendations of governmental authorities to contain such public health issues;
changes in governmental fiscal and monetary policies, including tariffs, and levels of employment;
changes in general economic conditions, including impacts from the ongoing COVID-19 pandemic;
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 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;
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;
2


challenge to or exploitation of our intellectual property or other proprietary information by others in the industry;
changes in the funding requirements of our defined benefit pension plans;
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; and
acts of public authorities, war, 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 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 are 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 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.

3


PART I - FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Condensed Consolidated Statements of Income
Dollar amounts in millions, except per share amounts
(Unaudited)
 Three Months Ended March 31,
 20222021
Net sales$1,337 $1,017 
Cost of sales(676)(538)
Gross profit661 479 
Selling, general, and administrative expenses(65)(48)
Other operating credits and charges, net38  
Income from operations633 431 
Interest expense(3)(5)
Investment income1  
Other non-operating items(10)(10)
Income before income taxes621 416 
Provision for income taxes(139)(96)
Equity in unconsolidated affiliate1  
Net income$483 $320 
Net loss attributed to noncontrolling interest1 1 
Net income attributed to LP$484 $320 
Net income per share of common stock:
Net income per share - basic$5.64 $3.02 
Net income per share - diluted$5.60 $3.00 
Average shares of common stock used to compute net income per share:
Basic86 106 
Diluted86 107 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
4


Condensed Consolidated Statements of Comprehensive Income
Dollar amounts in millions
(Unaudited) 
 Three Months Ended March 31,
 20222021
Net income $483 $320 
Other comprehensive income, net of tax
Foreign currency translation adjustments23 (7)
Changes in defined benefit pension plans1  
Other comprehensive income (loss), net of tax24 (6)
Comprehensive income508 313 
Comprehensive loss associated with noncontrolling interest1 1 
Comprehensive income attributed to LP$508 $314 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
5


Condensed Consolidated Balance Sheets
Dollar amounts in millions
(Unaudited) 
March 31, 2022December 31, 2021
ASSETS
Cash and cash equivalents$624 $358 
Receivables, net of allowance for doubtful accounts of $2 million as of March 31, 2022, and December 31, 2021
320 191 
Inventories382 323 
Prepaid expenses and other current assets15 18 
Total current assets1,341 890 
Timber and timberlands54 84 
Property, plant, and equipment, net1,132 1,069 
Operating lease assets51 52 
Goodwill and other intangible assets38 39 
Investments in and advances to affiliates7 21 
Restricted cash14 13 
Other assets25 25 
Deferred tax asset8 2 
Total assets$2,670 $2,194 
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities$330 $338 
Income tax payable129 13 
Total current liabilities459 351 
Long-term debt346 346 
Deferred income taxes103 86 
Non-current operating lease liabilities 44 44 
Contingency reserves, excluding current portion23 24 
Other long-term liabilities80 105 
Total liabilities1,054 955 
Redeemable noncontrolling interest3 4 
Stockholders’ equity:
Common stock, $1 par value, 200,000,000 shares authorized; 100,884,145 and 84,496,113 shares issued and outstanding, respectively, at March 31, 2022; and 102,415,883 and 85,636,154 shares issued and outstanding, respectively, at December 31, 2021
101 102 
Additional paid-in capital451 458 
Retained earnings1,601 1,239 
Treasury stock, 16,388,032 shares and 16,779,729 shares, at cost as of March 31, 2022, and December 31, 2021, respectively
(391)(390)
Accumulated comprehensive loss(149)(174)
Total stockholders’ equity1,613 1,235 
Total liabilities and stockholders’ equity$2,670 $2,194 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
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Condensed Consolidated Statements of Cash Flows
Dollar amounts in millions
(Unaudited) 
 Three Months Ended March 31,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $483 $320 
Adjustments to net income:
Depreciation and amortization32 29 
Gain on sale of joint ventures(39) 
Deferred taxes11 4 
Loss on early debt extinguishment 11 
Other adjustments, net5 3 
Changes in assets and liabilities (net of acquisitions and divestitures):
Receivables(127)(74)
Prepaid expenses and other current assets3 3 
Inventories(55)(50)
Accounts payable and accrued liabilities(2)(3)
Income taxes payable, net of receivables116 71 
Net cash provided by operating activities425 314 
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment additions(92)(34)
Proceeds from business divestiture59  
Other investing activities1 2 
Net cash used in investing activities(33)(32)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing of long-term debt 350 
Repayment of long-term debt, including redemption premium (359)
Payment of cash dividends(19)(17)
Purchase of stock(104)(122)
Other financing activities(15)(10)
Net cash used in financing activities(137)(158)
EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH11 (2)
Net increase in cash, cash equivalents and restricted cash266 122 
Cash, cash equivalents, and restricted cash at beginning of period371 535 
Cash, cash equivalents, and restricted cash at end of period$637 $658 
Supplemental cash flow information:
Cash paid for income taxes, net of cash received$12 $21 
Cash paid for interest, net of cash received$4 $9 
Unpaid capital expenditures$41 $14 


The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
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Condensed Consolidated Statements of Stockholders' Equity
Dollar and share amounts in millions, except per share amounts
(Unaudited) 
 Common StockTreasury StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Comprehensive
Loss
Total
Stockholders'
Equity
 SharesAmountSharesAmount
Balance, December 31, 2021102 $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 loss— — — — — — 24 24 
Balance, March 31, 2022101 $101 16 $(391)$451 $1,601 $(149)$1,613 



 Common StockTreasury StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Comprehensive
Loss
Total
Stockholders'
Equity
 SharesAmountSharesAmount
Balance, December 31, 2020124 $124 17 $(397)$452 $1,206 $(151)$1,234 
Net income attributed to LP— — — — — 320 — 320 
Dividends paid ($0.16 per share)— — — — — (17)— (17)
Issuance of shares under stock plans— —  11 (11)— —  
Taxes paid related to net settlement of stock-based awards— — — (6)— — — (6)
Purchase of stock(2)(2)— —  (120)— (122)
Compensation expense associated with stock-based compensation— — — — 1 — — 1 
Other comprehensive loss      (6)(6)
Balance, March 31, 2021121 $121 17 $(393)$443 $1,390 $(157)$1,404 


The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
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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, and reliability. The Company operates 25 plants across the U.S., Canada, Chile, and Brazil, through foreign subsidiaries, and operates facilities through joint ventures. The principal customers for our building solutions are retailers, wholesalers, and homebuilding and industrial businesses, in North America and South America, with limited sales to Asia, Australia, and Europe. References to "LP," the "Company," "we," "our," and "us" refer to Louisiana-Pacific Corporation and its consolidated subsidiaries as a whole.

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, 2021, filed with the SEC on February 22, 2022 (2021 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 achieves the disclosure objective to depict 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 18 below, our reportable segments are Siding, Oriented Strand Board (OSB), Engineered Wood Products (EWP), and South America (dollar amounts in millions).

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Three Months Ended March 31, 2022
By product type and family:SidingOSBEWPSouth AmericaOtherInter-segmentTotal
Value-add
Siding Solutions$330 $ $ $6 $ $ $336 
OSB - Structural Solutions— 406  58  (1)464 
I-Joist— — 79 — — — 79 
LVL  65    65 
330 406 144 64  (1)945 
Commodity
OSB - commodity 334    — 334 
Plywood  11    11 
 334 11    345 
Other
Other products2 4 14 2 26  48 
$332 $744 $170 $67 $26 $(1)$1,337 


Three Months Ended March 31, 2021
By product type and family:SidingOSBEWPSouth AmericaOtherInter-segmentTotal
Value-add
Siding Solutions$282 $ $ $9 $ $ $291 
OSB - Structural Solutions 254  41   295 
I-Joist— — 48 — — — 48 
LVL  43    43 
LSL  8    8 
282 254 100 50   686 
Commodity
OSB - commodity 282     281 
Plywood  13    13 
 282 13    294 
Other
Other products3 3 11 3 18 — 37 
$285 $539 $123 $53 $18 $ $1,017 
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 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.

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Our businesses routinely incur customer program costs to obtain favorable product placement, to promote sales of products, and to 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 estimates 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 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 upon 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 (SSARs), restricted stock units, and performance stock units) be excluded from the calculation of diluted earnings per share for the periods in which losses are reported because the effect is anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share (dollar amounts in millions, except per share amounts):
Three Months Ended March 31,
20222021
Net income attributed to LP$484 $320 
Weighted average common shares outstanding - basic86 106 
Dilutive effect of employee stock plans1 1 
Shares used for diluted earnings per share86 107 
Earnings per share:
Basic earnings$5.64 $3.02 
Diluted earnings$5.60 $3.00 


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.

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Trading securities consist of rabbi trust financial assets, which are recorded in Other assets in our Condensed Consolidated Balance Sheets. The assets of the rabbi trust are invested in mutual funds and are reported at fair value based on active market quotations, which represent Level 1 inputs.

The fair value of the 3.625% Senior Notes due in 2029 (2029 Senior Notes) was estimated to be $324 million and $358 million as of March 31, 2022, and December 31, 2021, respectively, based upon 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 as determined using published rates.

There were no outstanding amounts borrowed under our Amended Credit Facility (defined below) as of March 31, 2022.

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):
March 31, 2022December 31, 2021
Trade receivables$305 $172 
Income tax receivable 1 
Other receivables17 20 
Allowance for doubtful accounts(2)(2)
Total$320 $191 

Trade receivables are primarily generated by sales of our products to our wholesale and retail customers. Other receivables as of March 31, 2022 and December 31, 2021, 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):
March 31, 2022December 31, 2021
Logs$86 $59 
Other raw materials69 59 
Semi-finished inventory38 38 
Finished products189 168 
Total$382 $323 


NOTE 7. DIVESTITURES

During the three months ended March 31, 2022, we sold our 50% equity interest in two joint ventures that produce I-joists to Resolute Forest Products Inc. (Resolute) for $59 million. The total net carrying value of our equity method
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investment at the date of sale was $19 million, and we recognized a gain associated with the sale of $39 million in the three-month period ended March 31, 2022, within Other operating credits and charges, net, in the Condensed Consolidated Statements of Income. The Condensed Consolidated Statements of Income for the three months ended March 31, 2022 and 2021, include income from these joint ventures of $5 million and $2 million, respectively.

In connection with the closing of the sale of our equity interest in the joint ventures, LP entered into separate agreements with Resolute to continue serving as the exclusive distributor of the engineered wood products manufactured at the two operations.


NOTE 8. 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.

Changes in goodwill and other intangible assets for the three months ended March 31, 2022, are provided in the following table (dollar amounts in millions):
Timber licenses1
GoodwillDeveloped TechnologyTrademarks
Beginning balance December 31, 2021$31 $19 $17 $2 
Amortization(1)— (1) 
Ending balance March 31, 2022$31 $19 $16 $2 
1Timber licenses are included in Timber and timberlands on the Condensed Consolidated Balance Sheets.


NOTE 9. REDEEMABLE NONCONTROLLING INTEREST

Redeemable noncontrolling interest is interest in subsidiaries that is redeemable outside of our control either for cash or other assets. These interests are classified as mezzanine equity and measured at the greater of estimated redemption value or carrying value at the end of each reporting period. Net loss attributed to noncontrolling interest is recorded in the Condensed Consolidated Statements of Income. Any adjustments to the redemption value of redeemable noncontrolling interest are recognized in either net income or through accumulated paid-in capital, depending on the nature of the underlying security (preferred or common units).

The components of redeemable noncontrolling interest as of March 31, 2022, are as follows (dollar amounts in millions):
Beginning balance December 31, 2021$4 
Net loss attributed to noncontrolling interest(1)
Ending balance March 31, 2022$3 


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.
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The tax provision for income taxes for the three months ended March 31, 2022 and 2021, reflected an estimated annual tax rate of 24% and 25%, respectively, excluding discrete items discussed below. The total effective tax rate for the three months ended March 31, 2022 was 22%, compared to 23% for the comparable period in 2021.

We recognized a net discrete tax benefit of $9 million and $5 million during the three months ended March 31, 2022 and 2021, respectively, with the most significant benefit related to excess tax benefits from stock-based compensation for both periods.


NOTE 11. STOCK-BASED COMPENSATION

We have stock award plans for key employees and directors, pursuant to which awards of stock options, SSARs, restricted stock, restricted stock units, and performance stock units are granted. In addition, we offer an employee stock purchase plan to employees.

During the three months ended March 31, 2022, we granted awards of 135,381 restricted stock units and 88,239 performance stock units, at an average grant date fair value of $70.55 per share.

We recognized $7 million and $1 million in stock-based compensation expense during the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022, there was $36 million of unrecognized stock-based compensation expense related to unvested performance stock units, restricted stock units, and SSARs attributable to future service.


NOTE 12. COMMITMENTS AND CONTINGENCIES

We maintain reserves for various contingent liabilities as follows (dollar amounts in millions):
March 31, 2022December 31, 2021
Environmental reserves$24 $25 
Other reserves  
Total contingencies24 25 
Current portion (included in Accounts payable and accrued liabilities)(1)(1)
Long-term portion$23 $24 

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 considering the particular facts and circumstances surrounding each environmental loss contingency. These estimates typically reflect assumptions and judgments as to the
14


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


NOTE 13. 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 value 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 March 31, 2022, 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.

15



NOTE 14. 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 months ended March 31, 2022 and 2021, is summarized in the following table (dollar amounts in millions):
Three Months Ended March 31,
20222021
Beginning balance$7 $8 
Accrued to expense1  
Payments made  
Total warranty reserves8 8 
Current portion of warranty reserves (included in Accounts payable and accrued liabilities)(2)(2)
Long-term portion of warranty reserves (included in Other long-term liabilities)$6 $6 

We continue to monitor warranty and other claims associated with our products and believe as of March 31, 2022, 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 15. DEFINED BENEFIT PENSION PLANS

The following table summarizes our net periodic pension cost for our defined benefit pension and postretirement plans during the three months ended March 31, 2022 and 2021 (dollar amounts in millions):
Three Months Ended March 31,
20222021
Service cost$1 $ 
Other components of net periodic pension cost1:
Interest cost2 2 
Expected return on plan assets(2)(3)
Amortization of prior service cost  
Amortization of net loss1 1 
Net periodic pension cost$2 $1 
1
Other components of net periodic pension cost are included in Other non-operating items on our Condensed Consolidated Statements of Income.

In November 2021, the Company initiated the termination of our frozen U.S. and Canadian defined benefit pension plans (the Plan), which would result in the full settlement of the Company's Plan obligations. The distribution of Plan assets pursuant to the termination will not be made until the Plan termination satisfies all regulatory requirements, which is expected to occur by the end of 2022. Plan participants will receive their full accrued benefits from Plan assets by electing either lump-sum distributions or annuity contracts with a qualifying third-party annuity provider. The Plan termination is expected to result in pension settlement expense in 2022, which will be determined based on prevailing market conditions, the actual lump-sum distributions, and annuity purchase rates at the date of distribution. As a result, we are currently unable to reasonably estimate the timing or final amount of such settlement charges. Upon settlement, we expect to recognize pre-tax pension settlement charges that will include (1) a non-cash charge for the recognition of all pre-tax actuarial losses accumulated in Accumulated other comprehensive loss ($99
16


million as of March 31, 2022) and (2) any cash contributions to settle the Plan’s obligations ($8 million net projected benefit obligation as of March 31, 2022). The actual amount of the settlement charges and any potential cash contribution will depend on various factors, including interest rates, Plan asset returns, and the lump-sum election rate.


NOTE 16. ACCUMULATED COMPREHENSIVE LOSS

Accumulated comprehensive loss is provided in the following table for the three months ended March 31, 2022 and 2021 (dollar amounts in millions):
PensionTranslation AdjustmentsOtherTotal
Balance at December 31, 2021$(76)$(96)$(1)$(174)
Reclassified to income statement, net of taxes1
— — 1 
Translation adjustments— 23 — 23 
Balance at March 31, 2022$(75)$(73)$(1)$(149)
PensionTranslation AdjustmentsOtherTotal
Balance at December 31, 2020$(81)$(68)$(2)$(151)
Reclassified to income statement, net of taxes1
— — — — 
Translation adjustments— (7)— (7)
Balance at March 31, 2021$(81)$(75)$(2)$(157)
1 Amounts of actuarial loss and prior service cost are components of net periodic benefit cost.


NOTE 17. OTHER OPERATING AND NON-OPERATING ITEMS

Other operating credits and charges, net

During the three months ended March 31, 2022, we recognized a gain of $39 million on the sale of our 50% interest in two joint ventures. See Note 7 above. In addition, we incurred severance and other charges of $1 million related to certain reorganizations.

During the three months ended March 31, 2021, we recorded a gain of $1 million related to the sale of assets previously classified as held for sale, offset by other expenses, including severance associated with certain reorganizations within the corporate office.

Other non-operating items

During the three months ended March 31, 2022, we recorded realized foreign currency losses of $9 million primarily related to the strengthening of the Chilean peso and Brazilian real.

During the three months ended March 31, 2021, we recorded an early debt extinguishment charge of $11 million related to the redemption of our 2024 Senior Notes, offset by a foreign currency gain of $1 million.



17


NOTE 18. SELECTED SEGMENT DATA

We operate in four segments: Siding, OSB, EWP, and South America. Our business units have been aggregated into these four segments based upon the similarity of economic characteristics, customers, and distribution methods. Our results of operations are summarized below for each of these segments separately as well as for the “Other” category, which comprises other products that are not individually significant.

We evaluate the performance of our business segments based on net sales and Adjusted EBITDA. Accordingly, our chief operating decision maker evaluates performance and allocates resources based primarily on net sales and Adjusted EBITDA for our business segments. Adjusted EBITDA is a non-GAAP financial measure and is defined as income attributed to LP before interest expense, provision for income taxes, depreciation and amortization, and excludes stock-based compensation expense, loss on impairment attributed to LP, product-line discontinuance charges, other operating credits and charges, net, loss on early debt extinguishment, investment income, pension settlement charges, and other non-operating items.

Information about our product segments is as follows (dollar amounts in millions):
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 Three Months Ended March 31,
20222021
Net sales
Siding$332 $285 
OSB744 539 
EWP170 123 
South America67 53 
Other26 18 
Intersegment sales(1) 
Total sales$1,337 $1,017 
PROFIT BY SEGMENT
Net income$483 $320 
Add (deduct):
Net loss attributed to noncontrolling interest1 1 
Income attributed to LP484 320 
Provision for income taxes139 96 
Depreciation and amortization32 29 
Stock-based compensation expense7 1 
Other operating credits and charges, net(38) 
Loss on early debt extinguishment 11 
Interest expense3 5 
Investment income(1) 
Other non-operating items10 (1)
Adjusted EBITDA$636 $461 
Siding$83 $90 
OSB505 354 
EWP38 7 
South America25 21 
Other(6)(5)
Corporate(9)(6)
Adjusted EBITDA$636 $461 


NOTE 19. SUBSEQUENT EVENT

On November 2, 2021, LP's Board of Directors authorized the Second 2021 Share Repurchase Program under which we may repurchase up to $500 million of shares of our common stock. Subsequent to March 31, 2022, through May 3, 2022, we used $182 million to repurchase 2.9 million shares of LP common stock under the Second 2021 Share Repurchase Program.


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q. The following discussion includes statements that are forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. See "Cautionary Statement Regarding Forward-Looking Statements."

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 four segments: Siding, OSB, EWP, and South America.

During 2021, we ceased Laminated Strand Lumber (LSL) production at our Houlton, Maine facility to begin the conversion of that facility to Siding Solutions (defined below) production. We continue to explore strategic alternatives with respect to the remaining EWP segment, including a possible sale in whole or in part, as previously announced.

During the three months ended March 31, 2022, we sold our 50% equity interest in two joint ventures that produce I-joists to Resolute Forest Products Inc. (Resolute) for $59 million. The joint ventures were comprised of Resolute-LP Engineered Wood Larouche Inc. in Larouche, Quebec, and Resolute-LP Engineered Wood St-Prime Limited Partnership in Saint-Prime, Quebec. The total net carrying value of our equity method investment at the date of sale was $19 million. We recognized a gain on the sale of $39 million in the three-month period ended March 31, 2022, within Other operating credits and charges, net, in the Condensed Consolidated Statements of Income. The Condensed Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 include income from these joint ventures of $5 million and $2 million, respectively. In connection with the closing of the sale of our equity interest in the joint ventures, LP entered into separate agreements with Resolute to continue serving as the exclusive distributor of the engineered wood products manufactured at the two operations.

Demand for our 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. Department of Census reported on April 19, 2022, that actual single housing starts were 3% higher for the three months ended March 31, 2022, as compared to the same period in 2021. Repair and remodeling activity is difficult to reasonably measure, but many indications, including the increase in LP’s retail sales, suggest that repair and remodeling activity is continuing to grow.

Although housing market demand has recently been very strong, future economic conditions in the United States and the demand for homes remain uncertain due to continuing COVID-19-related disruptions, government directives, actions and economic relief efforts related thereto, and the impact of these actions on the economy, employment levels, consumer confidence, and financial markets, among other things. Additionally, as a result of increased demand in the housing market and a strengthening economy in the United States, we have experienced increases in material prices, supply disruptions, and labor shortages, which will be a challenge for LP as we continue to work to meet the demands of builders, remodelers, and homeowners worldwide. The potential effect of these factors on our future operational and financial performance is uncertain. As a result, our past performance may not be indicative of future results.

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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 experienced increased demand for commodity OSB during the three months ended March 31, 2022; however, we cannot predict whether the prices of our OSB products will remain at current levels or increase or decrease in the future.

For additional factors affecting our results, refer to the “Overview” within our “Management's Discussion and Analysis of Financial Condition and Results of Operations” section and our “Risk Factors” section contained in our 2021 Annual Report on Form 10-K, and to the “Cautionary Statement Regarding Forward-Looking Statements” section in this quarterly report on Form 10-Q.

Critical Accounting Policies and Significant Estimates

Note 1 of the Notes to the Condensed Consolidated Financial Statements included in our 2021 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.

While there have been no changes in the application of principles, methods, and assumptions used to determine our significant estimates since December 31, 2021, we may be required to revise certain accounting estimates and judgments related to the economic and business impact of the COVID-19 pandemic or the invasion of Ukraine by Russia, such as, but not limited to, those related to the valuation of goodwill, intangibles, long-lived assets, accounts receivable, and inventory, which could have a material adverse effect on our financial position and results of operations.

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 exclude stock-based compensation expense, loss on impairment attributed to LP, 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, 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, pension settlement charges, and adjusting for a normalized tax rate as Adjusted Income (Adjusted Income). We also disclose Adjusted Diluted EPS, 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.

Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS are not substitutes for the U.S. GAAP measures of net income and net income 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
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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.

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

Three Months Ended March 31,
20222021
Net income$483 $320 
Add (deduct):
Net loss attributed to noncontrolling interest
Income attributed to LP484 320 
Provision for income taxes139 96