Lost Worlds
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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 theU.S. ,Canada ,Chile , andBrazil .
To serve these markets, we operate in three segments: Siding, OSB and
InMarch 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 ofResolute-LP Engineered Wood Larouche Inc. inLarouche, Quebec , andResolute-LP Engineered Wood St-Prime Limited Partnership inSaint-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 during the six months endedJune 30, 2022 , within Income from discontinued operations in the Condensed Consolidated Statements of Income. InJune 2022 , LP and one of its wholly-owned subsidiaries entered into an asset purchase agreement withPacific Woodtech Corporation , aWashington corporation, andPacific Woodtech Canada Holdings Limited , aBritish Columbia limited company (collectively, the Purchaser). Pursuant to the terms and conditions of the asset purchase agreement, LP agreed to sell to the Purchaser the assets related to its Engineered Wood Products (EWP) segment in exchange for the Purchaser's payment to the Company of$210 million in cash, subject to certain purchase price adjustments, and the Purchaser's assumption of certain liabilities of the EWP segment. OnAugust 1, 2022 , the Company completed the sale of the EWP assets to the Purchaser. Upon closing, the Company entered into a transition services agreement with the Purchaser, pursuant to which the Company agreed to support the various activities of the EWP segment for a period not to exceed eight months. As ofJune 30, 2022 , we have classified the related assets and liabilities associated with the EWP segment as held for sale in our Condensed Consolidated Balance Sheets. The results of our EWP segment have been presented as discontinued operations in our Condensed Consolidated Statements of Income for all periods presented. See "Note 7 - Discontinued Operations" of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q for additional information.
Request for our construction products
Demand for our products correlates positively with new home construction and repair and remodeling activity inNorth America , which historically has been characterized by significant cyclicality.The U.S. Department of Census reported onJuly 19, 2022 , that actual single housing starts were 3% lower for the three months endedJune 30, 2022 , and flat for the six months endedJune 30, 2022 , as compared to the same periods 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 strong, future economic conditions inthe United States and the demand for homes remain uncertain due to inflationary impacts on the economy, including interest rates, employment levels, consumer confidence, and financial markets, among other things. Additionally, we have experienced increases in material prices, supply disruptions, and labor shortages, which will be a challenge as we continue to work to meet the demands of builders, remodelers, and homeowners worldwide. The potential effect of 22 --------------------------------------------------------------------------------
these factors on our future operating and financial performance is uncertain. Therefore, our past performance may not be indicative of future results.
Supply and demand of OSB panels
OSB is a commodity product, and it is subject to competition from manufacturers worldwide. Product supply is influenced primarily by fluctuations in available manufacturing capacity and imports. The ratio of overall OSB demand to capacity generally drives price. We cannot predict whether the prices of our OSB products will remain at current levels or 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.
Significant Accounting Policies and 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.
There have been no changes in the application of the principles, methods and assumptions used to determine our significant estimates since
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 byU.S. GAAP. In this quarterly report on Form 10-Q, we disclose income attributed to LP from continuing operations 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 from continuing operations (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 from continuing operations, 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 from continuing operations (Adjusted Income). We also disclose Adjusted Diluted EPS from continuing operations (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 theU.S. GAAP measures of net income and net income per diluted share or for any otherU.S. GAAP measures of operating performance. It should be noted that other companies may present similarly titled measures differently, and therefore, as presented by us, these measures may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA, Adjusted Income, and Adjusted Diluted EPS have material limitations as performance measures because they exclude items that are actually incurred or experienced in connection with the operation of our business.
The following table reconciles net income to adjusted EBITDA (amounts in millions of dollars):
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Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income $ 385 $ 497 $ 868 $ 817
Add (deduct):
Net loss attributed to noncontrolling
interest - - 1 1
Income from discontinued operations, net
of income taxes (37) (11) (99) (14)
Income attributed to LP from continuing
operations 348 486 770 803
Provision for income taxes 116 144 240 239
Depreciation and amortization 32 29 64 57
Stock-based compensation expense 6 3 13 5
Other operating credits and charges, net (11) (3) (10) (3)
Loss on early debt extinguishment - - - 11
Interest expense 3 4 6 9
Investment income (2) - (3) (1)
Other non-operating items (2) 3 8 -
Adjusted EBITDA $ 491 $ 665 $ 1,089 $ 1,119
Siding $ 78 $ 77 $ 160 $ 168
OSB 403 565 908 919
South America 26 34 51 54
Other (7) (4) (13) (8)
Corporate (9) (7) (17) (14)
Adjusted EBITDA $ 491 $ 665 $ 1,089 $ 1,119
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The following table provides a reconciliation of net earnings to adjusted earnings (amounts in millions of dollars, except per share amounts):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income $ 385 $ 497 $ 868 $ 817
Add (deduct):
Net loss attributed to noncontrolling
interest - - 1 1
Loss from discontinued operations (37) (11) (99) (14)
Income attributed to LP from continuing
operations 348 486 770 803
Other operating credits and charges, net (11) (3) (10) (3)
Loss on early debt extinguishment - - - 11
Reported tax provision 116 144 240 239
Adjusted income before tax 453 627 1,001 1,050
Normalized tax provision at 25% (113) (157) (250) (263)
Adjusted Income $ 340 $ 470 $ 751 $ 788
Diluted shares outstanding 81 102 84 104
Diluted net income attributed to LP per
share $ 4.73 $ 4.90 $ 10.36 $ 7.85
Adjusted Diluted EPS $ 4.19 $ 4.63 $ 8.96 $ 7.56
Key performance indicators
In addition, management monitors certain key performance indicators to evaluate our business performance, which include our Overall Equipment Effectiveness (OEE) and our sales volume relative to housing starts, as provided by reports from theU.S. Department of Census . The following tables set forth: (1) housing starts, (2) our North American sales volume, and (3) OEE. We consider the following items to be key performance indicators because LP's management uses these metrics to evaluate our business and trends, measure our performance, and make strategic decisions, and believes that the key performance indicators presented provide additional perspective and insights when analyzing the core operating performance of LP. These key performance indicators should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, theU.S. GAAP financial measures presented herein. These measures may not be comparable to similarly-titled performance indicators used by other companies. We monitor housing starts, which is a leading external indicator of residential construction inthe United States that correlates with the demand for many of our products. We believe that this is a useful measure for evaluating our results and that providing this measure should allow interested persons to more readily compare our sales volume for past and future periods to an external indicator of product demand. Other companies may present housing start data differently, and therefore, housing starts data presented by us may not be comparable to similarly-titled indicators reported by other companies. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Housing starts1: Single-Family 299 309 566 565 Multi-Family 151 126 274 229 450 436 840 793
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We monitor sales volumes for our products in our Siding and OSB segments, which
we define as the number of units of our products sold within the applicable
period. Evaluating sales volume by product type helps us identify and address
changes in product demand, broad market factors that may affect our performance,
and opportunities for future growth. It should be noted that other companies may
present sales volumes differently and, therefore, as presented by us, sales
volumes may not be comparable to similarly-titled measures reported by other
companies. We believe that sales volumes can be a useful measure for evaluating
and understanding our business.
The following table sets forth sales volumes for the three and six months ended
June 30, 2022 and 2021:
Three Months Ended June 30, 2022 Three Months Ended June 30, 2021
Sales Volume Siding OSB South America Total Siding OSB South America Total
Siding Solutions (MMSF) 448 - 9 457 406 - 13 419
OSB - commodity (MMSF) - 460 - 460 - 481 - 481
OSB - Structural Solutions (MMSF) - 514 149 664 - 403 147 550
Six Months Ended June 30, 2022 Six Months Ended June 30, 2021
Sales Volume Siding OSB South America Total Siding OSB South America Total
Siding Solutions (MMSF) 869 - 16 885 810 - 26 836
OSB - commodity (MMSF) - 897 - 897 - 936 - 936
OSB - Structural Solutions (MMSF) - 1,040 293 1,333 - 804 296 1,100
We measure the OEE of each of our mills to track improvements in the utilization
and productivity of our manufacturing assets. OEE is a composite metric that
considers asset uptime (adjusted for capital project downtime and similar
events), production rates, and finished product quality. It should be noted that
other companies may present OEE differently and, therefore, as presented by us,
OEE may not be comparable to similarly-titled measures reported by other
companies. We believe that when used in conjunction with other metrics, OEE can
be a useful measure for evaluating our ability to generate profits, and
providing this measure should allow interested persons to more readily monitor
operational improvements. OEE for the three and six months ended June 30, 2022
and 2021, for each of our segments is listed below:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Siding 76 % 74 % 75 % 74 %
OSB 71 % 77 % 73 % 75 %
South America 75 % 78 % 75 % 76 %
Results of Operations
Our results of operations are separately discussed below for each of our
segments, as well as for the "Other" category, which comprises other products
that are not individually significant. See Note 17 of the Notes to the Condensed
Consolidated Financial Statements included in Item 1 of this quarterly report on
Form 10-Q for further information regarding our segments.
Cladding
The Siding segment serves diverse end markets with a broad product offering of engineered wood siding, trim, and fascia, including LP® SmartSide® Trim & Siding, LP® SmartSide® ExpertFinish® Trim & Siding, LP BuilderSeries® Lap Siding, and LP® Outdoor Building Solutions® (collectively referred to as Siding Solutions).
Segment sales, Adjusted EBITDA and Adjusted EBITDA margin for this segment were as follows (amounts in millions of dollars):
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Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
Net sales $ 358 $ 291 23 % $ 689 $ 576 20 %
Adjusted EBITDA 78 77 - % 160 168 (5) %
Adjusted EBITDA margin 22 % 27 % 23 % 29 %
Sales in this segment by product line were as follows (dollar amounts in
millions):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
Siding Solutions $ 356 $ 288 24 % $ 686 $ 570 20 %
Other 1 3 (63) % 3 6 (48) %
Total $ 358 $ 291 23 % $ 689 $ 576 20 %
Percent changes in average sales prices and unit shipments for the three and six
months ended June 30, 2022 , compared to the corresponding periods in 2021, were
as follows:
Three Months Ended Six Months Ended
June 30, 2022 versus 2021 June 30, 2022 versus 2021
Average Net Unit Average Net Unit
Selling Price Shipments Selling Price Shipments
Siding Solutions 12 % 10 % 12 % 7 %
The combined effects of list price increases and improving mix of innovative
products drove year-over-year increases in the average net selling price for the
three and six months ended June 30, 2022 . Additionally, the production ramp-up
of the Houlton facility was ahead of schedule and contributed almost half of the
year-over-year sales volume increase during the three months ended June 30,
2022 .
Adjusted EBITDA increased for the three months ended June 30, 2022 , reflecting
price and volume growth largely offset by $29 million of raw material and
freight inflation and $7 million of discretionary investments in support of
future growth, including siding mill conversions and sales and marketing costs.
The decrease in Adjusted EBITDA of $8 million for the six months ended June 30,
2022 , reflects price and volume growth offset primarily by $55 million of raw
material and freight inflation and $19 million of discretionary investments in
support of future growth, including siding mill and sales and marketing costs.
OSB
The OSB segment manufactures and distributes OSB structural panel products, including our value-added OSB portfolio known as LP Structural Solutions (which includes LP® TechShield® Radiant Barrier, LP WeatherLogic® Air & Water Barrier, LP Legacy® Premium Sub-Flooring, and LP® FlameBlock® Fire-Rated Sheathing) and LP® TopNotch® Sub-Flooring. OSB is manufactured using wood strands arranged in layers and bonded with resins.
Segment sales, Adjusted EBITDA and Adjusted EBITDA margin for this segment were as follows (amounts in millions of dollars):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
Net sales $ 673 $ 778 (14) % $ 1,417 $ 1,317 8 %
Adjusted EBITDA 403 565 (29) % 908 919 (1) %
Adjusted EBITDA margin 60 % 73 % 64 % 70 %
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Sales in this segment by product line were as follows (dollar amounts in
millions):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
OSB - Structural Solutions $ 384 $ 350 10 % $ 791 $ 605 31 %
OSB - commodity 287 425 (32) % 621 707 (12) %
Other 2 2 (21) % 5 5 2 %
Total $ 673 $ 778 (14) % $ 1,417 $ 1,317 8 %
Percent changes in average sales prices and unit shipments for the three and six
months ended June 30, 2022 , compared to the corresponding periods in 2021, were
as follows:
Three Months Ended Six Months Ended
June 30, 2022 versus 2021 June 30, 2022 versus 2021
Average Net Unit Average Net Unit
Selling Price Shipments Selling Price Shipments
OSB - Structural Solutions (14) % 28 % 1 % 29 % OSB - Commodity (30) % (4) % (8) % (4) % OSB average net selling prices decreased year-over-year by 22% on 10% higher OSB sales volume for the three months endedJune 30, 2022 , resulting in a 14% decrease in net sales. OSB average net selling prices decreased year-over-year by 3% on 11% higher OSB sales volume for the six months endedJune 30, 2022 , resulting in an 8% increase in net sales. The decrease in Adjusted EBITDA of$162 million for the three months endedJune 30, 2022 , reflects$195 million from lower prices and$22 million of increased raw material inflation offset partially by$54 million from higher sales volume. The decrease in Adjusted EBITDA of$11 million for the six months endedJune 30, 2022 , reflects$65 million from lower prices and$45 million of increased raw material inflation offset partially by$96 million from higher sales volume.
OurSouth America segment manufactures and distributes OSB structural panel and siding products inSouth America and certain export markets. This segment has manufacturing operations in two countries,Chile andBrazil , and operates sales offices inChile ,Brazil ,Peru ,Colombia ,Argentina , andParaguay .
Segment sales, Adjusted EBITDA and Adjusted EBITDA margin for this segment were as follows (amounts in millions of dollars):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
Net sales $ 70 $ 74 (5) % $ 137 $ 126 8 %
Adjusted EBITDA 26 34 (23) % 51 54 (5) %
Adjusted EBITDA margin 37 % 46 % 37 % 43 %
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Sales in this segment by product line were as follows (dollar amounts in
millions):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
OSB - Structural Solutions $ 64$ 63 2 % $ 123$ 104 17 % Siding 6 10 (39) % 12 20 (41) % Other - - (100) % 2 3 (15) % Total $ 70$ 74 (5) % $ 137$ 126 8 % Percent changes in average sales prices and unit shipments for the three and six months endedJune 30, 2022 , compared to the corresponding periods in 2021, were as follows: Three Months Ended Six Months Ended June 30, 2022 versus 2021 June 30, 2022 versus 2021 Average Net Unit Average Net Unit Selling Price Shipments Selling Price Shipments
OSB - Structural Solutions 4 % (4) % 15 % (1) % Siding (14) % (32) % (3) % (37) % Net sales inSouth America decreased year-over-year by 5% for the three months endedJune 30, 2022 , predominately due to 6% lower sales volume. Net sales increased year-over-year by 8% for the six months endedJune 30, 2022 , due in large part to higher OSB prices. The year-over-year decrease in Adjusted EBITDA of$8 million for the three months endedJune 30, 2022 , reflects lower sales volume and higher costs for raw material costs. The year-over-year decrease in Adjusted EBITDA of$3 million for the first six months of 2022 reflects the net effect of lower sales volume, higher raw materials costs, and higher OSB prices.
Others products
Our Other products segment includes off-site framing operationEntekra Holdings LLC (Entekra), remaining timber and timberlands, and other minor products, services, and closed operations, which do not qualify as discontinued operations. Other net sales were$30 million and$55 million for the three and six months endedJune 30, 2022 , respectively, as compared to$26 million and$43 million for the corresponding periods in 2021. These increases are primarily due to increases in Entekra sales volumes. Adjusted EBITDA was$(7) million and$(13) million for the three and six months endedJune 30, 2022 , respectively, as compared to$(4) million and$(8) million for the corresponding periods in 2021.
Selling, general and administrative expenses
Selling, general, and administrative expenses were$67 million and$129 million for the three and six months endedJune 30, 2022 , respectively, compared to$53 million and$97 million for the corresponding periods in 2021. The increase in 2022 is due to increased travel, sales and marketing, and corporate overhead primarily driven by the reduction of restrictions related to the COVID-19 pandemic and costs associated with stock compensation and performance incentives.
Income taxes
We recognized an estimated tax provision from continuing operations of$116 million and$240 million for the three and six months endedJune 30, 2022 , respectively, compared to$144 million and$239 million for the corresponding periods of 2021. The total effective tax rate for continuing operations for the three and six months endedJune 30, 2022 , was 25% and 24% compared to the 23% for the comparable periods in 2021, respectively. Each quarter the income tax accrual is adjusted to the latest estimate, and the difference from the previously accrued year-to-date balance is recorded in the current quarter. For 2022 and 2021, the primary difference between theU.S. statutory rate of 21% and the effective rate relates to state income tax. 29 --------------------------------------------------------------------------------
Legal and environmental issues
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 2021 Annual Report on Form 10-K and Note 11 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-Q.
Cash and capital resources
Insight
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, paying dividends, and making capital expenditures. We may also, from time to time, prepay or repurchase outstanding indebtedness or shares or acquire assets or businesses that are complementary to our operations. Any such repurchases may be commenced, suspended, discontinued, or resumed, and the method or methods of effecting any such repurchases may be changed, at any time, or from time to time, without prior notice. We expect to fund our capital expenditures through cash on hand, cash generated from operations, and available borrowing under our Amended Credit Facility, as necessary. Operating Activities During the six months endedJune 30, 2022 and 2021, cash provided by operations was$908 million and$772 million , respectively. The improvement in cash provided by operations for the period endedJune 30, 2022 , was primarily related to changes in working capital and lower income payments.
Investing activities
During the six months endedJune 30, 2022 and 2021, cash used in investing activities was$135 million and$63 million , respectively. During the six months endedJune 30, 2022 , we received$59 million in proceeds from the sale of our 50% equity interest in two joint ventures. Capital expenditures for the six months endedJune 30, 2022 and 2021, were$196 million and$65 million , respectively, primarily related to siding conversion expenditures and growth and maintenance capital.
Fundraising activities
During the six months endedJune 30, 2022 , cash used in financing activities was$626 million . OnMay 3, 2022 , LP's Board of Directors authorized a share repurchase plan under which LP was authorized to repurchase shares of LP's common stock totaling up to$600 million (the 2022 Share Repurchase Program). During the six months endedJune 30, 2022 , we used$575 million to repurchase shares of LP common stock ($500 million from the Second 2021 Share Repurchase Program (defined below) and$75 million from the 2022 Share Repurchase Program (defined below)). Additionally, we paid cash dividends of$37 million and used$15 million to repurchase stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans. During the six months endedJune 30, 2021 , cash used in financing activities was$642 million . During the six months endedJune 30, 2021 , we used$300 million to repurchase shares of LP common stock under the share repurchase program authorized by LP's Board of Directors in 2020 and$288 million to repurchase shares of LP common stock under the repurchase program authorized by LP's Board of Directors inMay 2021 . Additionally, we paid cash dividends of$33 million and used$12 million to repurchase stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans. InMarch 2021 , we issued$350 million in aggregate principal amount of the 2029 Senior Notes, and inFebruary 2021 , LP delivered to holders of the 2024 Senior Notes a conditional notice of redemption to redeem onMarch 27, 2021 , all of the 2024 Senior Notes outstanding at a redemption price of 102.438% of the principal amount thereof plus 30 -------------------------------------------------------------------------------- accrued and unpaid interest up to, but not including, the redemption date. The redemption notice became irrevocable onMarch 11, 2021 , and the 2024 Senior Notes were fully redeemed onMarch 27, 2021 . In connection with these aforementioned financing activities, we paid$13 million in redemption premiums and debt issuance costs.
Credit facility and letter of credit facility
InJune 2021 andAugust 2021 , we entered into the third and fourth amendments to our revolving credit facility, dated as ofJune 27, 2019 (Credit Facility), with American AgCredit, PCA, as administrative agent, and CoBank, ACB, as letter of credit issuer (as amended, the Amended Credit Facility). The Amended Credit Facility provides for a revolving credit facility in the principal amount of up to$550 million , with a$60 million sub-limit for letters of credit. The Amended Credit Facility, and all loans thereunder, become due onJune 8, 2027 . As ofJune 30, 2022 , we had no amounts outstanding under the Amended Credit Facility. The Amended Credit Facility contains various restrictive covenants and customary events of default, the occurrence of which could result in the acceleration of our obligation to repay the indebtedness outstanding thereunder. The Amended Credit Facility also contains financial covenants that require us and our consolidated subsidiaries to have, as of the end of each quarter, a capitalization ratio (i.e., funded debt less unrestricted cash to total capitalization) of no more than 57.5%. As ofJune 30, 2022 , we were in compliance with all financial covenants under the Amended Credit Facility. InMarch 2020 , LP entered into the Letter of Credit Facility, which provides for the funding of letters of credit up to an aggregate outstanding amount of$20 million , which may be secured by certain cash collateral of LP. The Letter of Credit Facility includes an unused commitment fee, due quarterly, ranging from 0.50% to 1.875% of the daily available amount to be drawn on each letter of credit issued under the Letter of Credit Facility. The Letter of Credit Facility is subject to similar affirmative, negative, and financial covenants as those set forth in the Amended Credit Facility, including the capitalization ratio covenant. As ofJune 30, 2022 , we were in compliance with all financial covenants under the Letter of Credit Facility.
Other liquidity issues
Off-balance sheet arrangements
As ofJune 30, 2022 , we had standby letters of credit of$13 million outstanding related to collateral for environmental impact on owned properties, a deposit for a forestry license, and insurance collateral, including workers' compensation.
Potential deficiencies
We review our plant and investment assets for potential impairments at least annually and believe we have adequate support for the book value of our assets as of
If demand and pricing for our products are significantly below cycle average demand and pricing, should we decide to invest capital in alternative projects, should changes occur related to our wood supply for these locations, or should demand and pricing of our products fall as a result of the long-term effects of the COVID-19 pandemic, it is possible that future impairment charges will be required. As ofJune 30, 2022 , there were no indications of impairment. We also review from time to time possible 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. 31
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