|
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
GENERAL
LP is a leading manufacturer of sustainable, quality engineered wood building materials including Oriented Strand Board (OSB), structural framing products, and exterior siding for use in residential, industrial and light commercial construction. Our products are used primarily in new home construction, repair and remodeling, and outdoor structures. We also market and sell our products in light industrial and commercial construction and we have a modest export business. Our manufacturing facilities are primarily located in the U.S. and Canada, but we also operate two facilities in Chile and one facility in Brazil.
To serve these markets, we operate in four segments: Siding; North America Oriented Strand Board (OSB); Engineered Wood Products (EWP); and South America.
Demand for our products correlates to a significant degree to the level of new home construction activity in North America, which historically has been characterized by significant cyclicality. For the
third
quarter and first nine months of
2017
, the U.S. Department of Census reported that U.S. single and multi-family housing starts were
2%
higher than for the same quarter of
2016
and
3%
higher than the comparable nine month period. OSB is sold as a commodity for which sales prices fluctuate daily based on market factors over which we have little or no control. We cannot predict whether the prices of our OSB products will remain at current levels or increase or decrease in the future. OSB prices (NC 7/16"), as reported by Random Lengths, were
33%
higher for the
third
quarter of
2017
and
30%
for the first nine months of 2017 compared to the same periods in
2016
.
For additional factors affecting our results, refer to the Management Discussion and Analysis of Financial Condition and Results of Operations overview contained in our Annual Report on Form 10-K for the year ended
December 31, 2016
and to “About Forward-Looking Statements” and “Risk Factors” in this report.
EXECUTIVE SUMMARY
We recorded a
20%
increase in sales to
$718.3 million
for the quarter ended
September 30, 2017
from
$596.4 million
reported for the quarter ended
September 30, 2016
. We recorded income from operations of
$158.9 million
for the quarter ended
September 30, 2017
compared to
$76.9 million
for the quarter ended
September 30, 2016
. We recorded net income of
$109.8 million
(
$0.75
per diluted share) for the quarter ended
September 30, 2017
compared to
$65.6 million
(
$0.45
per diluted share) for the quarter ended
September 30, 2016
. We reported an increase of
$81.3 million
in Adjusted EBITDA from continuing operations for the third quarter of 2017 as compared to the third quarter of 2016. Improvements in OSB pricing in all North American operations had a positive impact on our operating results of
$83.6 million
for the quarter ended
September 30, 2017
as compared to the quarter ended
September 30, 2016
.
We recorded a
20%
increase in sales to
$2.0 billion
for the nine months ended
September 30, 2017
from
$1.7 billion
reported for the six months ended
September 30, 2016
. We recorded income from operations of
$364.4 million
for the nine months ended
September 30, 2017
compared to
$148.0 million
for the nine months ended
September 30, 2016
. We recorded net income of
$259.2 million
(
$1.77
per diluted share) for the nine months ended
September 30, 2017
compared to
$107.6 million
(
$0.74
per diluted share) for the nine months ended
September 30, 2016
. We reported an increase of
$206.2 million
in Adjusted EBITDA from continuing operations for the nine months ended
September 30, 2017
compared to the same period in 2016. Improvements in OSB pricing in all North American operations had a positive impact on our operating results of
$211.3 million
for the nine months ended
September 30, 2017
as compared to the nine months ended
September 30, 2016
.
These changes are discussed further in "Our Operating Results" below.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
Presented in Note 1 of the Notes to the financial statements included in LP’s Annual Report on Form 10-K for the year ended
December 31, 2016
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. For
2017
, these significant accounting estimates and judgments include:
Legal Contingencies.
Our estimates of loss contingencies for legal proceedings are based on various judgments and assumptions regarding the potential resolution or disposition of the underlying claims and associated costs. In making judgments and assumptions regarding legal contingencies for ongoing class action settlements, we consider, among other things, discernible trends in the rate of claims asserted and related damage estimates and information obtained through consultation with statisticians and economists, including statistical analysis of potential outcomes based on experience to date and the experience of third parties who have been subject to product-related claims judged to be comparable. Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties. We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change our estimates significantly.
Environmental Contingencies
. Our estimates of loss contingencies for environmental matters are based on various judgments and assumptions. These estimates typically reflect judgments and assumptions relating to the probable nature, magnitude and timing of required investigation, remediation and/or monitoring activities and the probable cost of these activities, and in some cases reflect judgments and assumptions relating to the obligation or willingness and ability of third parties to bear a proportionate or allocated share of the cost of these activities, including third parties who purchased assets from us subject to environmental liabilities. We consider the ability of third parties to pay their apportioned cost when developing our estimates. In making these judgments and assumptions related to the development of our loss contingencies, we consider, among other things, the activity to date at particular sites, information obtained through consultation with applicable regulatory authorities and third-party consultants and contractors and our historical experience at other sites that are judged to be comparable. Due to the numerous variables associated with these judgments and assumptions, 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. At
September 30, 2017
, we excluded from our estimates approximately $2.1 million of potential environmental liabilities that we estimate will be allocated to third parties pursuant to existing and anticipated future cost-sharing arrangements.
Impairment of Long-Lived Assets.
We review the long-lived assets held and used by us (primarily property, plant and equipment and timber and timberlands) for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. We consider the necessity of undertaking such a review at least quarterly, and also when certain events or changes in circumstances occur. Events and changes in circumstances that may necessitate such a review include, but are not limited to: a significant decrease in the market price of a long-lived asset or group of long-lived assets; a significant adverse change in the extent or manner in which a long-lived asset or group of long-lived assets is being used or in its physical condition; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or group of long-lived assets, including an adverse action or assessment by a regulator; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or group of long-lived assets; current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or group of long-lived assets; and current expectation that, more likely than not, a long-lived asset or group of long-lived assets will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Identifying these events and changes in circumstances, and assessing their impact on the appropriate valuation of the affected assets under accounting principles generally accepted in the U.S., requires us to make judgments, assumptions and estimates.
In general, for assets held and used in our operations, impairments are recognized when the carrying amount of the long-lived asset or groups of long-lived assets is not recoverable and exceeds the fair value of the asset or group of
assets. The carrying amount of a long-lived asset or groups of long-lived assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets or group of assets. The key assumptions in estimating these cash flows relate to future production volumes, pricing of commodity or specialty products and future estimates of expenses to be incurred as reflected in our long-range internal planning models. Our assumptions regarding pricing are based upon the average pricing over the commodity cycle (generally five years) due to the inherent volatility of commodity product pricing, and reflect our assessment of information gathered from industry research firms, research reports published by investment analysts and other published forecasts. Our assumptions regarding expenses reflect our expectation that we will continue to reduce production costs to offset inflationary impacts.
When impairment is indicated for assets held and used in our operations, the book values of the affected assets are written down to their estimated fair value, which is generally based upon discounted future cash flows associated with the affected assets. When impairment is indicated for assets to be disposed of, the book values of the affected assets are written down to their estimated fair value, less estimated selling costs. Consequently, a determination to dispose of particular assets can require us to estimate the net sales proceeds expected to be realized upon such disposition, which may be less than the estimated undiscounted future net cash flows associated with such assets prior to such determination, and thus require an impairment charge. In situations where we have experience in selling assets of a similar nature, we may estimate net sales proceeds on the basis of that experience. In other situations, we hire independent appraisers to estimate net sales proceeds.
Due to the numerous variables associated with our judgments and assumptions relating to the valuation of assets in these circumstances, and the effects of changes in circumstances affecting these valuations, both the precision and reliability of the resulting estimates of the related impairment charges are subject to substantial uncertainties and, as additional information becomes known, we may change our estimates significantly.
Income Taxes.
The determination of the provision for income taxes, and the resulting current and deferred tax assets and liabilities, involves significant management judgment, and is based upon information and estimates available to management at the time of such determination. The final income tax liability to any taxing jurisdiction with respect to any calendar year will ultimately be determined long after our financial statements have been published for that year. We maintain reserves for known estimated tax exposures in federal, state and international jurisdictions; however, actual results may differ materially from our estimates.
Judgment is also applied in determining whether deferred tax assets will be realized in full or in part. When we consider it to be more likely than not that all or some portion of a deferred tax asset will not be realized, a valuation allowance is established for the amount of the deferred tax asset that is estimated not to be realizable. As of
September 30, 2017
, we had established valuation allowances against certain deferred tax assets, primarily related to foreign and state carryovers of net operating losses, credits and capital losses. We have not established valuation allowances against other deferred tax assets based upon positive evidence such as recent earnings history, generally improving economic conditions and deferred tax liabilities which we anticipate to reverse within the carry forward period. Accordingly, changes in facts or circumstances affecting the likelihood of realizing a deferred tax asset could result in the need to record additional valuation allowances.
Pension Plans
. Most of our U.S. employees and many of our Canadian employees participate in defined benefit pension plans sponsored by LP. We account for the consequences of our sponsorship of these plans in accordance with accounting principles generally accepted in the U.S., which require us to make actuarial assumptions that are used to calculate the related assets, liabilities and expenses recorded in our financial statements. While we believe we have a reasonable basis for these assumptions, which include assumptions regarding long-term rates of return on plan assets, life expectancies, rates of increase in salary levels, rates at which future values should be discounted to determine present values and other matters, the amounts of our pension related assets, liabilities and expenses recorded in our financial statements would differ if we used other assumptions.
Warranty Obligations.
Customers are provided with a limited warranty against certain defects associated with our products for periods of up to fifty years. We estimate the costs to be incurred under these warranties and record a liability in the amount of such costs at the time product revenue is recognized. Factors that affect our warranty liability include the historical and anticipated rates of warranty claims and the cost of resolving such. We periodically assess the adequacy of our recorded warranty liability for each product and adjust the amounts as
necessary. While we believe we have a reasonable basis for these assumptions, actual warranty costs in the future could differ from our estimates.
NON-GAAP FINANCIAL MEASURES
In evaluating our business, we utilize several non-GAAP financial measures. A non-GAAP financial measure is generally defined by the SEC as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so excluded or included under applicable GAAP guidance. We disclose earnings before interest expense, taxes, depreciation and amortization ("EBITDA from continuing operations") which is a non-GAAP financial measure. Additionally, we disclose "Adjusted EBITDA from continuing operations" which further adjusts EBITDA from continuing operations to exclude stock-based compensation expense, (gain) loss on sale or impairment of long-lived assets, other operating credits and charges and investment income. Neither EBITDA from continuing operations nor Adjusted EBITDA from continuing operations is a substitute for the GAAP measures of net income or operating cash flows or for any other GAAP measures of operating performance or liquidity.
We have included EBITDA from continuing operations and Adjusted EBITDA from continuing operations because we use them as important supplemental measures of our performance and believe that they are frequently used by securities analysts, investors and other interested persons in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We use EBITDA from continuing operations and Adjusted EBITDA from continuing operations to evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates. It should be noted that companies calculate EBITDA and Adjusted EBITDA differently and, therefore, our EBITDA and Adjusted EBITDA measures may not be comparable to EBITDA and Adjusted EBITDA reported by other companies. Our EBITDA and Adjusted EBITDA have material limitations as performance measures because they exclude interest expense, income tax (benefit) expense, and depreciation and amortization, which are necessary to operate our business or which we otherwise incur or experience in connection with the operation of our business.
The following table represents significant items by operating segment and reconciles income (loss) from continuing operations to EBITDA from continuing operations and Adjusted EBITDA from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, 2017 (Dollar amounts in millions)
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Corporate
|
|
Total
|
Net Sales
|
$
|
226.2
|
|
|
$
|
350.9
|
|
|
$
|
98.1
|
|
|
$
|
38.3
|
|
|
$
|
6.5
|
|
|
$
|
(1.7
|
)
|
|
$
|
718.3
|
|
Depreciation and amortization
|
8.1
|
|
|
15.2
|
|
|
4.0
|
|
|
2.4
|
|
|
0.7
|
|
|
0.7
|
|
|
31.1
|
|
Cost of sales and selling and administrative
|
165.3
|
|
|
209.3
|
|
|
88.8
|
|
|
30.1
|
|
|
7.4
|
|
|
27.6
|
|
|
528.5
|
|
Loss on sale or impairment of long lived assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
0.7
|
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
|
(0.9
|
)
|
Total operating costs
|
173.4
|
|
|
224.5
|
|
|
92.8
|
|
|
32.5
|
|
|
8.1
|
|
|
28.1
|
|
|
559.4
|
|
Income (loss) from operations
|
52.8
|
|
|
126.4
|
|
|
5.3
|
|
|
5.8
|
|
|
(1.6
|
)
|
|
(29.8
|
)
|
|
158.9
|
|
Total non-operating expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.6
|
)
|
|
(2.6
|
)
|
Income (loss) from continuing operations before taxes and equity in income of unconsolidated affiliates
|
52.8
|
|
|
126.4
|
|
|
5.3
|
|
|
5.8
|
|
|
(1.6
|
)
|
|
(32.4
|
)
|
|
156.3
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46.4
|
|
|
46.4
|
|
Equity in income of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(1.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.0
|
)
|
Income (loss) from continuing operations
|
$
|
52.8
|
|
|
$
|
126.4
|
|
|
$
|
6.3
|
|
|
$
|
5.8
|
|
|
$
|
(1.6
|
)
|
|
$
|
(78.8
|
)
|
|
$
|
110.9
|
|
Reconciliation of income (loss) from continuing operations to Adjusted EBITDA from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
52.8
|
|
|
$
|
126.4
|
|
|
$
|
6.3
|
|
|
$
|
5.8
|
|
|
$
|
(1.6
|
)
|
|
$
|
(78.8
|
)
|
|
$
|
110.9
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46.4
|
|
|
46.4
|
|
Interest expense, net of capitalized interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.9
|
|
|
4.9
|
|
Depreciation and amortization
|
8.1
|
|
|
15.2
|
|
|
4.0
|
|
|
2.4
|
|
|
0.7
|
|
|
0.7
|
|
|
31.1
|
|
EBITDA from continuing operations
|
60.9
|
|
|
141.6
|
|
|
10.3
|
|
|
8.2
|
|
|
(0.9
|
)
|
|
(26.8
|
)
|
|
193.3
|
|
Stock-based compensation expense
|
0.2
|
|
|
0.2
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
1.5
|
|
|
2.0
|
|
Loss on sale or impairment of long lived assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
0.7
|
|
Investment income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.9
|
)
|
|
(2.9
|
)
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
|
(0.9
|
)
|
Adjusted EBITDA from continuing operations
|
$
|
61.1
|
|
|
$
|
141.8
|
|
|
$
|
10.4
|
|
|
$
|
8.2
|
|
|
$
|
(0.9
|
)
|
|
$
|
(28.4
|
)
|
|
$
|
192.2
|
|
Adjusted EBITDA Margin
|
27.0
|
%
|
|
40.4
|
%
|
|
10.6
|
%
|
|
21.4
|
%
|
|
(13.8
|
)%
|
|
NA
|
|
|
26.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, 2016
(Dollar amounts in millions)
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Corporate
|
|
Total
|
Net Sales
|
$
|
194.8
|
|
|
$
|
282.1
|
|
|
$
|
80.7
|
|
|
$
|
31.7
|
|
|
$
|
7.6
|
|
|
$
|
(0.5
|
)
|
|
$
|
596.4
|
|
Depreciation and amortization
|
6.3
|
|
|
15.3
|
|
|
3.8
|
|
|
2.5
|
|
|
0.9
|
|
|
0.8
|
|
|
29.6
|
|
Cost of sales and selling and administrative
|
153.3
|
|
|
199.4
|
|
|
78.3
|
|
|
25.9
|
|
|
7.1
|
|
|
25.6
|
|
|
489.6
|
|
Loss on sale or impairment of long lived assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total operating costs
|
159.6
|
|
|
214.7
|
|
|
82.1
|
|
|
28.4
|
|
|
8.0
|
|
|
26.7
|
|
|
519.5
|
|
Income (loss) from operations
|
35.2
|
|
|
67.4
|
|
|
(1.4
|
)
|
|
3.3
|
|
|
(0.4
|
)
|
|
(27.2
|
)
|
|
76.9
|
|
Total non-operating expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20.2
|
)
|
|
(20.2
|
)
|
Income (loss) from continuing operations before taxes and equity in income of unconsolidated affiliates
|
35.2
|
|
|
67.4
|
|
|
(1.4
|
)
|
|
3.3
|
|
|
(0.4
|
)
|
|
(47.4
|
)
|
|
56.7
|
|
Benefit for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.5
|
)
|
|
(7.5
|
)
|
Equity in income of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(1.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.4
|
)
|
Income (loss) from continuing operations
|
$
|
35.2
|
|
|
$
|
67.4
|
|
|
$
|
—
|
|
|
$
|
3.3
|
|
|
$
|
(0.4
|
)
|
|
$
|
(39.9
|
)
|
|
$
|
65.6
|
|
Reconciliation of income (loss) from continuing operations to Adjusted EBITDA from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
35.2
|
|
|
$
|
67.4
|
|
|
$
|
—
|
|
|
$
|
3.3
|
|
|
$
|
(0.4
|
)
|
|
$
|
(39.9
|
)
|
|
$
|
65.6
|
|
Benefit for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.5
|
)
|
|
(7.5
|
)
|
Interest expense, net of capitalized interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.0
|
|
|
9.0
|
|
Depreciation and amortization
|
6.3
|
|
|
15.3
|
|
|
3.8
|
|
|
2.5
|
|
|
0.9
|
|
|
0.8
|
|
|
29.6
|
|
EBITDA from continuing operations
|
41.5
|
|
|
82.7
|
|
|
3.8
|
|
|
5.8
|
|
|
0.5
|
|
|
(37.6
|
)
|
|
96.7
|
|
Stock-based compensation expense
|
0.2
|
|
|
0.3
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
2.5
|
|
|
3.2
|
|
Loss on sale or impairment of long lived assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
Investment income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.5
|
)
|
|
(2.5
|
)
|
Loss on early debt extinguishment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.2
|
|
|
13.2
|
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted EBITDA from continuing operations
|
$
|
41.7
|
|
|
$
|
83.0
|
|
|
$
|
4.0
|
|
|
$
|
5.8
|
|
|
$
|
0.5
|
|
|
$
|
(24.1
|
)
|
|
$
|
110.9
|
|
Adjusted EBITDA Margin
|
21.4
|
%
|
|
29.4
|
%
|
|
5.0
|
%
|
|
18.3
|
%
|
|
6.6
|
%
|
|
NA
|
|
|
18.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017 (Dollar amounts in millions)
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Corporate
|
|
Total
|
Net Sales
|
$
|
671.2
|
|
|
$
|
944.3
|
|
|
$
|
274.4
|
|
|
$
|
114.8
|
|
|
$
|
22.3
|
|
|
$
|
(3.7
|
)
|
|
$
|
2,023.3
|
|
Depreciation and amortization
|
23.7
|
|
|
44.8
|
|
|
11.6
|
|
|
6.8
|
|
|
2.1
|
|
|
2.3
|
|
|
91.3
|
|
Cost of sales and selling and administrative
|
506.0
|
|
|
610.1
|
|
|
254.6
|
|
|
91.6
|
|
|
22.9
|
|
|
79.7
|
|
|
1,564.9
|
|
Gain on sale or impairment of long lived assets, net
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
|
(1.8
|
)
|
Other operating credits and charges, net
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.5
|
|
|
4.5
|
|
Total operating costs
|
529.7
|
|
|
654.9
|
|
|
266.2
|
|
|
98.4
|
|
|
25.0
|
|
|
84.7
|
|
|
1,658.9
|
|
Income (loss) from operations
|
141.5
|
|
|
289.4
|
|
|
8.2
|
|
|
16.4
|
|
|
(2.7
|
)
|
|
(88.4
|
)
|
|
364.4
|
|
Total non-operating expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10.0
|
)
|
|
(10.0
|
)
|
Income (loss) from continuing operations before taxes and equity in income of unconsolidated affiliates
|
141.5
|
|
|
289.4
|
|
|
8.2
|
|
|
16.4
|
|
|
(2.7
|
)
|
|
(98.4
|
)
|
|
354.4
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
97.9
|
|
|
97.9
|
|
Equity in income of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(3.8
|
)
|
|
—
|
|
|
—
|
|
|
|
|
(3.8
|
)
|
Income (loss) from continuing operations
|
$
|
141.5
|
|
|
$
|
289.4
|
|
|
$
|
12.0
|
|
|
$
|
16.4
|
|
|
$
|
(2.7
|
)
|
|
$
|
(196.3
|
)
|
|
$
|
260.3
|
|
Reconciliation of income (loss) from continuing operations to Adjusted EBITDA from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
141.5
|
|
|
$
|
289.4
|
|
|
$
|
12.0
|
|
|
$
|
16.4
|
|
|
$
|
(2.7
|
)
|
|
$
|
(196.3
|
)
|
|
$
|
260.3
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
97.9
|
|
|
97.9
|
|
Interest expense, net of capitalized interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14.8
|
|
|
14.8
|
|
Depreciation and amortization
|
23.7
|
|
|
44.8
|
|
|
11.6
|
|
|
6.8
|
|
|
2.1
|
|
|
2.3
|
|
|
91.3
|
|
EBITDA from continuing operations
|
165.2
|
|
|
334.2
|
|
|
23.6
|
|
|
23.2
|
|
|
(0.6
|
)
|
|
(81.3
|
)
|
|
464.3
|
|
Stock-based compensation expense
|
0.6
|
|
|
0.6
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
6.6
|
|
|
8.0
|
|
Gain on sale or impairment of long lived assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
|
(1.8
|
)
|
Investment income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.2
|
)
|
|
(7.2
|
)
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.5
|
|
|
4.5
|
|
Adjusted EBITDA from continuing operations
|
$
|
165.8
|
|
|
$
|
334.8
|
|
|
$
|
23.8
|
|
|
$
|
23.2
|
|
|
$
|
(0.6
|
)
|
|
$
|
(79.2
|
)
|
|
$
|
467.8
|
|
Adjusted EBITDA Margin
|
24.7
|
%
|
|
35.5
|
%
|
|
8.7
|
%
|
|
20.2
|
%
|
|
(2.7
|
)%
|
|
NA
|
|
|
23.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
(Dollar amounts in millions)
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Corporate
|
|
Total
|
Net Sales
|
$
|
583.3
|
|
|
$
|
751.9
|
|
|
$
|
230.5
|
|
|
$
|
103.2
|
|
|
$
|
20.3
|
|
|
$
|
(5.8
|
)
|
|
$
|
1,683.4
|
|
Depreciation and amortization
|
20.7
|
|
|
44.6
|
|
|
10.2
|
|
|
6.6
|
|
|
1.7
|
|
|
2.2
|
|
|
86.0
|
|
Cost of sales and selling and administrative
|
458.7
|
|
|
580.6
|
|
|
226.7
|
|
|
81.3
|
|
|
19.6
|
|
|
70.1
|
|
|
1,437.0
|
|
Loss on sale or impairment of long lived assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11.4
|
|
|
11.4
|
|
Total operating costs
|
479.4
|
|
|
625.2
|
|
|
236.9
|
|
|
87.9
|
|
|
21.3
|
|
|
84.7
|
|
|
1,535.4
|
|
Income (loss) from operations
|
103.9
|
|
|
126.7
|
|
|
(6.4
|
)
|
|
15.3
|
|
|
(1.0
|
)
|
|
(90.5
|
)
|
|
148.0
|
|
Total non-operating expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31.7
|
)
|
|
(31.7
|
)
|
Income (loss) from continuing operations before taxes and equity in income of unconsolidated affiliates
|
103.9
|
|
|
126.7
|
|
|
(6.4
|
)
|
|
15.3
|
|
|
(1.0
|
)
|
|
(122.2
|
)
|
|
116.3
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.1
|
|
|
13.1
|
|
Equity in income of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(4.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.4
|
)
|
Income (loss) from continuing operations
|
$
|
103.9
|
|
|
$
|
126.7
|
|
|
$
|
(2.0
|
)
|
|
$
|
15.3
|
|
|
$
|
(1.0
|
)
|
|
$
|
(135.3
|
)
|
|
$
|
107.6
|
|
Reconciliation of income (loss) from continuing operations to Adjusted EBITDA from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
103.9
|
|
|
$
|
126.7
|
|
|
$
|
(2.0
|
)
|
|
$
|
15.3
|
|
|
$
|
(1.0
|
)
|
|
$
|
(135.3
|
)
|
|
$
|
107.6
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.1
|
|
|
13.1
|
|
Interest expense, net of capitalized interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26.3
|
|
|
26.3
|
|
Depreciation and amortization
|
20.7
|
|
|
44.6
|
|
|
10.2
|
|
|
6.6
|
|
|
1.7
|
|
|
2.2
|
|
|
86.0
|
|
EBITDA from continuing operations
|
124.6
|
|
|
171.3
|
|
|
8.2
|
|
|
21.9
|
|
|
0.7
|
|
|
(93.7
|
)
|
|
233.0
|
|
Stock-based compensation expense
|
0.7
|
|
|
0.7
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
7.5
|
|
|
9.4
|
|
Loss on sale or impairment of long lived assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
Investment income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6.4
|
)
|
|
(6.4
|
)
|
Loss on early debt extinguishment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.2
|
|
|
13.2
|
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11.4
|
|
|
11.4
|
|
Adjusted EBITDA from continuing operations
|
$
|
125.3
|
|
|
$
|
172.0
|
|
|
$
|
8.7
|
|
|
$
|
21.9
|
|
|
$
|
0.7
|
|
|
$
|
(67.0
|
)
|
|
$
|
261.6
|
|
Adjusted EBITDA Margin
|
21.5
|
%
|
|
22.9
|
%
|
|
3.8
|
%
|
|
21.2
|
%
|
|
3.4
|
%
|
|
NA
|
|
15.5
|
%
|
OUR OPERATING RESULTS
Our results of operations for each of our segments are discussed below, as are results of operations for the “other” category, which comprises other products that are not individually significant. See Note 10 of the Notes to the consolidated financial statements included in item 1 of this report for further information regarding our segments.
SIDING
Our siding segment produces and markets wood-based siding and related accessories and commodity OSB product.
Segment sales, operating income and Adjusted EBITDA from continuing operations for this segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
Net sales
|
$
|
226.2
|
|
|
$
|
194.8
|
|
|
16
|
%
|
|
$
|
671.2
|
|
|
$
|
583.3
|
|
|
15
|
%
|
Operating income
|
$
|
52.8
|
|
|
$
|
35.2
|
|
|
50
|
%
|
|
$
|
141.5
|
|
|
$
|
103.9
|
|
|
36
|
%
|
Adjusted EBITDA from continuing operations
|
$
|
61.1
|
|
|
$
|
41.7
|
|
|
47
|
%
|
|
$
|
165.8
|
|
|
$
|
125.3
|
|
|
32
|
%
|
Adjusted EBITDA margin
|
27.0
|
%
|
|
21.4
|
%
|
|
|
|
|
24.7
|
%
|
|
21.5
|
%
|
|
|
|
Sales in this segment by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
SmartSide siding
|
$
|
190.2
|
|
|
$
|
170.9
|
|
|
11
|
%
|
|
$
|
568.4
|
|
|
$
|
507.2
|
|
|
12
|
%
|
CanExel siding
|
12.9
|
|
|
$
|
10.8
|
|
|
19
|
%
|
|
41.6
|
|
|
36.1
|
|
|
15
|
%
|
OSB
|
20.2
|
|
|
$
|
11.1
|
|
|
82
|
%
|
|
53.6
|
|
|
32.8
|
|
|
63
|
%
|
Other
|
2.9
|
|
|
$
|
2.0
|
|
|
45
|
%
|
|
7.6
|
|
|
7.2
|
|
|
6
|
%
|
Total
|
$
|
226.2
|
|
|
$
|
194.8
|
|
|
16
|
%
|
|
$
|
671.2
|
|
|
$
|
583.3
|
|
|
15
|
%
|
Percent changes in average sales prices and unit shipments for the quarter and
nine
months ended
September 30, 2017
compared to the quarter and
nine
months ended
September 30, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
2017 versus 2016
|
|
Nine Months Ended September 30,
2017 versus 2016
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
SmartSide siding
|
5
|
%
|
|
6
|
%
|
|
4
|
%
|
|
8
|
%
|
CanExel siding
|
8
|
%
|
|
11
|
%
|
|
2
|
%
|
|
12
|
%
|
OSB
|
26
|
%
|
|
40
|
%
|
|
25
|
%
|
|
27
|
%
|
For the quarter and
nine
months ended
September 30, 2017
compared to the corresponding periods in
2016
, sales volumes increased in our SmartSide siding line based upon increased demand in our key markets. Sales prices in our SmartSide siding product line for the quarter and
nine
months ended
September 30, 2017
as compared to the corresponding periods in
2016
were due to changes in product mix as well as a price increase, which was implemented in the second quarter of 2017.
For CanExel, sales volumes increased in the
third
quarter and first
nine
months of
2017
as compared to the corresponding periods in
2016
due to increased demand in Canada as well as demand related to the introduction of several new colors. Sales prices were higher for the
third
quarter and first nine months of
2017
as compared to the corresponding period in
2016
due to changes in our product mix and the fluctuations in the U.S. to Canadian dollar as majority of these sales are denominated in Canadian dollars.
For our OSB produced in the siding segment for the quarter and
nine
months ended
September 30, 2017
compared to the corresponding periods in
2016
, sales prices increased as compared to the same periods in the prior year, as discussed in the OSB segment below. The increase in selling price favorably impacted operating results and Adjusted EBITDA from continuing operations by approximately
$4.3 million
for the quarter and
$11.0 million
for the
nine
months ended
September 30, 2017
as compared to the corresponding periods of 2016.
Overall, the improvement in the siding segment for the
third
quarter of 2017 and the first
nine
months of 2017 compared to the same periods of
2016
was primarily due to increased siding sales volumes and price and higher OSB prices.
OSB
Our OSB segment manufactures and distributes OSB structural panel products in North America and certain export markets.
Segment sales, operating income and Adjusted EBITDA from continuing operations for this segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
Net sales
|
$
|
350.9
|
|
|
$
|
282.1
|
|
|
24
|
%
|
|
$
|
944.3
|
|
|
$
|
751.9
|
|
|
26
|
%
|
Operating income
|
$
|
126.4
|
|
|
$
|
67.4
|
|
|
88
|
%
|
|
$
|
289.4
|
|
|
$
|
126.7
|
|
|
128
|
%
|
Adjusted EBITDA from continuing operations
|
$
|
141.8
|
|
|
$
|
83.0
|
|
|
71
|
%
|
|
$
|
334.8
|
|
|
$
|
172.0
|
|
|
95
|
%
|
Adjusted EBITDA Margin
|
40.4
|
%
|
|
29.4
|
%
|
|
|
|
35.5
|
%
|
|
22.9
|
%
|
|
|
Percent changes in average sales prices and unit shipments for the quarter and
nine
months ended
September 30, 2017
compared to the quarter and
nine
months ended
September 30, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
2017 versus 2016
|
|
Nine Months Ended September 30,
2017 versus 2016
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
OSB
|
29
|
%
|
|
(3
|
)%
|
|
27
|
%
|
|
(1
|
)%
|
For the quarter and
nine
months ended
September 30, 2017
, OSB prices increased compared to the corresponding periods in
2016
. The increase in OSB prices was likely due to higher demand compared to the supply available in the market and the continued focus on higher value products which resulted in a higher average selling price. The increase in selling price favorably impacted operating results and Adjusted EBITDA from continuing operations by
$79.1 million
for the quarter and
$200.4 million
for the
nine
months ended
September 30, 2017
as compared to the same periods in
2016
. OSB sales volumes were essentially flat between periods.
Overall the improvements in our OSB segment results for the quarter and the
nine
month period ended
September 30, 2017
as compared to the same periods in 2016 was due to increased sales prices offset by increases in raw material costs (primarily resin) and increases in manufacturing costs due to downtime related to capital and maintenance projects.
EWP
Our EWP segment manufactures and distributes laminated veneer lumber (LVL), I-Joists, laminated strand lumber (LSL) and other related products. This segment also includes the sale of I-Joist and LVL products produced by our joint venture with Resolute Forest Products and LVL sold under a sales and marketing arrangement with Murphy Plywood. A plywood mill associated with our LVL operations in British Columbia and minor amounts of commodity OSB are included in this segment.
Segment sales, operating results and Adjusted EBITDA from continuing operations for this segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
Net sales
|
$
|
98.1
|
|
|
$
|
80.7
|
|
|
22
|
%
|
|
$
|
274.4
|
|
|
$
|
230.5
|
|
|
19
|
%
|
Operating income (loss)
|
$
|
6.3
|
|
|
$
|
—
|
|
|
NM
|
|
|
$
|
12.0
|
|
|
$
|
(2.0
|
)
|
|
NM
|
|
Adjusted EBITDA from continuing operations
|
$
|
10.4
|
|
|
$
|
4.0
|
|
|
160
|
%
|
|
$
|
23.8
|
|
|
$
|
8.7
|
|
|
174
|
%
|
Adjusted EBITDA margin
|
10.6
|
%
|
|
5.0
|
%
|
|
|
|
|
8.7
|
%
|
|
3.8
|
%
|
|
|
|
Sales in this segment by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
LVL/LSL
|
$
|
50.4
|
|
|
$
|
41.7
|
|
|
21
|
%
|
|
$
|
143.2
|
|
|
$
|
124.8
|
|
|
15
|
%
|
I-Joist
|
31.8
|
|
|
$
|
27.4
|
|
|
16
|
%
|
|
87.7
|
|
|
76.9
|
|
|
14
|
%
|
OSB
|
5.2
|
|
|
2.8
|
|
|
86
|
%
|
|
16.6
|
|
|
8.0
|
|
|
108
|
%
|
Plywood
|
8.0
|
|
|
$
|
5.1
|
|
|
57
|
%
|
|
18.8
|
|
|
12.0
|
|
|
57
|
%
|
Related products
|
2.7
|
|
|
3.7
|
|
|
(27
|
)%
|
|
8.1
|
|
|
8.8
|
|
|
(8
|
)%
|
Total
|
$
|
98.1
|
|
|
$
|
80.7
|
|
|
22
|
%
|
|
$
|
274.4
|
|
|
$
|
230.5
|
|
|
19
|
%
|
Percent changes in average sales prices and unit shipments for the quarter and
nine
months ended
September 30, 2017
compared to the quarter and
nine
months ended
September 30, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
2017 versus 2016
|
|
Nine Months Ended September 30,
2017 versus 2016
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
LVL/LSL
|
6
|
%
|
|
12
|
%
|
|
4
|
%
|
|
9
|
%
|
I-Joist
|
9
|
%
|
|
6
|
%
|
|
4
|
%
|
|
9
|
%
|
OSB
|
4
|
%
|
|
69
|
%
|
|
(1
|
)%
|
|
100
|
%
|
Plywood
|
28
|
%
|
|
27
|
%
|
|
16
|
%
|
|
37
|
%
|
For the quarter and
nine
months ended
September 30, 2017
, compared to the same periods in
2016
, sales volumes increased in LVL/LSL, I-joist and plywood due to improved market demand due to increased housing starts. Net average selling prices increased due to changes in product mix and price increases implemented across all product lines. OSB prices changed due to changes in product based on the decision to produce a higher percentage of commodity OSB in our Houlton, Maine facility. Plywood prices increased due to increase market demand. The increase in selling prices for plywood favorably impacted operating results and Adjusted EBITDA from continuing operations by
$1.8 million
for the quarter and
$2.6 million
for the
nine
months ended
September 30, 2017
as compared to the same periods in
2016
whereas OSB had minimal impact due to the change in product mix.
For the quarter and
nine
months ended
September 30, 2017
, compared to the same periods in
2016
, results of operations improved due to increased sales and pricing and reductions in manufacturing costs due to higher utilization across all EWP mills.
SOUTH AMERICA
Our South America segment manufactures and distributes OSB structural panel and siding products in South America and selected export markets. This segment operates in two countries, Chile and Brazil.
Segment sales, operating income and Adjusted EBITDA from continuing operations for this segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
Net sales
|
$
|
38.3
|
|
|
$
|
31.7
|
|
|
21
|
%
|
|
$
|
114.8
|
|
|
$
|
103.2
|
|
|
11
|
%
|
Operating income
|
$
|
5.8
|
|
|
$
|
3.3
|
|
|
76
|
%
|
|
$
|
16.4
|
|
|
$
|
15.3
|
|
|
7
|
%
|
Adjusted EBITDA from continuing operations
|
$
|
8.2
|
|
|
$
|
5.8
|
|
|
41
|
%
|
|
$
|
23.2
|
|
|
$
|
21.9
|
|
|
6
|
%
|
Adjusted EBITDA margin
|
21.4
|
%
|
|
18.3
|
%
|
|
|
|
|
20.2
|
%
|
|
21.2
|
%
|
|
|
|
Sales in this segment by production location are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
Chile
|
$
|
26.4
|
|
|
$
|
21.3
|
|
|
24
|
%
|
|
$
|
80.3
|
|
|
$
|
73.6
|
|
|
9
|
%
|
Brazil
|
11.9
|
|
|
10.4
|
|
|
14
|
%
|
|
34.5
|
|
|
29.6
|
|
|
17
|
%
|
Total
|
$
|
38.3
|
|
|
$
|
31.7
|
|
|
21
|
%
|
|
$
|
114.8
|
|
|
$
|
103.2
|
|
|
11
|
%
|
Percent changes in average sales prices and unit shipments for the quarter and
nine
months ended
September 30, 2017
compared to the quarter and
nine
months ended
September 30, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
2017 versus 2016
|
|
Nine Months Ended September 30,
2017 versus 2016
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
Chile
|
3
|
%
|
|
12
|
%
|
|
3
|
%
|
|
3
|
%
|
Brazil
|
7
|
%
|
|
9
|
%
|
|
7
|
%
|
|
12
|
%
|
Sales volumes in Chile and Brazil increased for the quarter and nine months ended
September 30, 2017
due to increases in export sales with local sales country sales flat. Sales prices in Chile increased for the
third
quarter and
nine
months ended
September 30, 2017
as compared to the corresponding periods in
2016
due to increases in prices translated into U.S. dollars. Local currency selling prices in Chile were flat for the quarter and
1%
lower for the
nine
months ended
September 30, 2017
as compared to the corresponding period in 2016. Sales prices in Brazil increased for the
third
quarter and
nine
months ended
September 30, 2017
as compared to the corresponding periods in
2016
due to increases in prices translated into U.S. dollars. Local currency selling prices in Brazil were
4%
higher the quarter and
5%
lower for the
nine
months ended
September 30, 2017
as compared to the corresponding periods in
2016
primarily due to mix.
For the quarter and
nine
months ended
September 30, 2017
, compared to the same periods in
2016
, results of operations were higher driven by increases in sales volumes and prices offset by product costs primarily related to currency fluctuations.
OTHER PRODUCTS
Our other products segment includes our remaining timber and timberlands and other minor products, services and closed operations which are not classified as discontinued operations.
Segment sales, operating losses and Adjusted EBITDA from continuing operations for this category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
Net sales
|
$
|
6.5
|
|
|
$
|
7.6
|
|
|
(14
|
)%
|
|
$
|
22.3
|
|
|
$
|
20.3
|
|
|
10
|
%
|
Operating losses
|
$
|
(1.6
|
)
|
|
$
|
(0.4
|
)
|
|
(300
|
)%
|
|
$
|
(2.7
|
)
|
|
$
|
(1.0
|
)
|
|
(170
|
)%
|
Adjusted EBITDA from continuing operations
|
$
|
(0.9
|
)
|
|
$
|
0.5
|
|
|
NM
|
|
|
$
|
(0.6
|
)
|
|
$
|
0.7
|
|
|
NM
|
|
GENERAL CORPORATE AND OTHER EXPENSE, NET
For the quarter ended
September 30, 2017
compared to the same period in
2016
, general corporate expenses were
12%
higher and
10%
higher for the nine month period ended
September 30, 2017
compared to the same period in 2016 primarily due to higher incentive compensation expense due to improved financial performance and increased costs associated with corporate initiatives related to sales and marketing activities. General corporate and other expenses primarily consist of corporate overhead such as wages and benefits, professional fees, insurance and other expenses for corporate functions including certain executive officers, public company costs, information technology, financial services, environmental and safety, legal, supply management, human resources and other corporate functions.
NON-OPERATING INCOME AND EXPENSE
Components of non-operating income and expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
Dollar amounts in millions
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest income
|
$
|
2.6
|
|
|
$
|
2.2
|
|
|
$
|
6.4
|
|
|
$
|
6.1
|
|
SERP market adjustments
|
0.3
|
|
|
0.3
|
|
|
0.8
|
|
|
0.3
|
|
Investment income
|
2.9
|
|
|
2.5
|
|
|
7.2
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(5.2
|
)
|
|
(9.3
|
)
|
|
(15.5
|
)
|
|
(27.0
|
)
|
Amortization of debt charges
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.7
|
)
|
|
(0.8
|
)
|
Capitalized interest
|
0.5
|
|
|
0.6
|
|
|
1.4
|
|
|
1.5
|
|
Interest expense, net of capitalized interest
|
(4.9
|
)
|
|
(9.0
|
)
|
|
(14.8
|
)
|
|
(26.3
|
)
|
|
|
|
|
|
|
|
|
Early debt extinguishment
|
—
|
|
|
(13.2
|
)
|
|
—
|
|
|
(13.2
|
)
|
Foreign currency gain (loss)
|
(0.6
|
)
|
|
(0.5
|
)
|
|
(2.4
|
)
|
|
1.4
|
|
Total non-operating expense
|
$
|
(2.6
|
)
|
|
$
|
(20.2
|
)
|
|
$
|
(10.0
|
)
|
|
$
|
(31.7
|
)
|
INCOME TAXES
For the first
nine
months of
2017
, we recorded an income tax expense on continuing operations of
27%
as compared to
11%
in the comparable period of
2016
. The primary differences between the U.S. statutory rate of
35%
and the effective rate applied to continuing operations for the first
nine
months of
2017
relate to foreign tax rates, changes in Canadian valuation allowances and the deduction for U.S. domestic production activities. For the first
nine
months of 2016, the primary differences between the U.S. statutory rate of 35% and the effective rate applied to continuing operations relate to foreign tax rates, changes in Canadian and state valuation allowances, excess tax benefits in connection with LP's stock-based compensation plans, recognition of research and development tax credits from prior years and an increase in the reserve for unrecognized tax benefits associated with LP's South American operations.
Each quarter the income tax accrual is adjusted to the latest estimate and the difference from the previously accrued year-to-date balance is recorded in the current quarter.
OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
Dollar amounts in millions
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Foreign currency translation adjustments
|
$
|
10.4
|
|
|
$
|
0.1
|
|
|
$
|
4.7
|
|
|
$
|
10.3
|
|
Unrealized gain (loss) on marketable securities
|
0.4
|
|
|
(0.5
|
)
|
|
0.8
|
|
|
(0.7
|
)
|
Defined benefit plans
|
0.7
|
|
|
1.0
|
|
|
2.4
|
|
|
2.0
|
|
Other
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
Comprehensive income (loss)
|
$
|
11.4
|
|
|
$
|
0.6
|
|
|
$
|
7.8
|
|
|
$
|
11.6
|
|
LEGAL AND ENVIRONMENTAL MATTERS
For a discussion of legal and environmental matters involving us and the potential impact thereof on our financial position, results of operations and cash flows, see Items 3, 7 and 8 in our Annual Report on Form 10-K for the year ended
December 31, 2016
and Note 9 to the Notes to the financial statements contained herein.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our principal sources of liquidity are existing cash and investment balances, cash generated by our operations and our ability to borrow under such credit facilities as we may have in effect from time to time. We may also from time to time issue and sell equity, debt or hybrid securities or engage in other capital market transactions.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness and making capital expenditures. We may also from time to time prepay or repurchase outstanding indebtedness, pay dividends or acquire assets or businesses that are complementary to our operations. Any such repurchases may be commenced, suspended, discontinued or resumed, and the method or methods of effecting any such repurchases may be changed, at any time or from time to time without prior notice.
OPERATING ACTIVITIES
During the first
nine
months of
2017
, operating activities provided
$305.0 million
of cash compared to
$240.3 million
during the first
nine
months of
2016
. This change was primarily related to improvements in operating results (higher OSB pricing and increased siding sales) and increases in accounts payable and accrued liabilities which were partially offset by increases in accounts receivable.
INVESTING ACTIVITIES
During the first
nine
months of
2017
, cash used in investing activities was approximately
$109.3 million
. Capital expenditures in the first
nine
months of
2017
were
$80.7 million
. We used
$32.0 million
to deposit cash with the U.S. I.R.S. to suspend the running of interest on potential underpayments of disputable income tax amounts for the year
2016
. Included in “Accounts payable” is
$8.2 million
related to capital expenditures that had not yet been paid as of
September 30, 2017
.
During the first
nine
months of
2016
, cash used in investing activities was approximately
$172.4 million
. Capital expenditures in the first
nine
months of
2016
were
$78.7 million
. Included in “Accounts payable” was
$11.5 million
related to capital expenditures that had not yet been paid as of
September 30, 2016
.
Capital expenditures in
2017
are expected to be approximately
$155 million
to
$165 million
related to productivity improvements, growth and maintenance projects and our South American expansion.
FINANCING ACTIVITIES
During the first
nine
months of
2017
, cash used in financing activities was
$8.2 million
. We used $
2.5 million
to repay outstanding debt in the first nine months of
2017
and
$5.3 million
to repurchase stock from employees in connection with income tax withholding requirements associated with our employee equity plans.
During the first
nine
months of 2016, cash provided by financing activities was
$53.3 million
. In the third quarter of 2016, we issued $350.0 million aggregate principle amount of 4.875% Senior Notes due 2024, and used approximately $262.4 million of the proceeds of this issuance to repurchase a portion of our Senior Notes due 2020. Additionally, we used $20.3 million to repay other outstanding debt in the first nine months of
2016
and
$8.9 million
to repurchase stock from employees in connection with income tax withholding requirements associated with our employee equity plans.
POTENTIAL IMPAIRMENTS
We continue to review several mills and investments for potential impairments. Management currently believes we have adequate support for the carrying value of each of these assets based upon the anticipated cash flows that result from our estimates of future demand, pricing and production costs assuming certain levels of planned capital expenditures. As of
September 30, 2017
, the fair value of facilities that have not been indefinitely curtailed was in excess of their carrying value and supports the conclusion that no impairment is necessary for those facilities.
We also review from time to time possible dispositions of various assets in light of 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.