GENERAL

Our products are used primarily in new home construction, repair and remodeling, and manufactured housing. 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 have a 75% ownership interest in a Brazilian facility.

To serve these markets, we operate in three segments: Oriented Strand Board (OSB), Siding, and Engineered Wood Products (EWP).

Demand for our products correlates to a significant degree to the level of residential construction activity in North America, which historically has been characterized by significant cyclicality. The U.S. Department of Census reported that actual single and multi-family housing starts in the first nine months of 2009 were about 43% lower than the first nine months of 2008. We believe that the reduced level of building is due to the increase in the inventory of unoccupied homes for sale coupled with a much more restrictive mortgage market. Additionally, the current recession and related job losses, the reduction in home values and the large amount of variable rate mortgages that have reset at higher rates of interest has increased the number of foreclosures, which adds to the stock of homes for sale. Building activity is unlikely to improve until the number of homes available for sale is reduced, foreclosure activity subsidies, and the level of unemployment stabilizes and housing prices stop declining.

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 products will remain at current levels or increase or decrease in the future.

For additional factors affecting our results, refer to the Management Discussion and Analysis overview contained in our Annual Report on Form 10-K for the year ended December 31, 2008 and to "About Forward-Looking Statements" and "Risk Factors" in this report.

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, 2008 is a discussion of our significant accounting policies and significant accounting estimates and judgments. The discussion of each of the policies and estimates outlines the specific accounting treatment related to each of these accounting areas.

Accounting Policies

There are several policies that we have adopted and implemented from among acceptable alternatives that could lead to different financial results had another policy been chosen:

Inventory valuation. We use the LIFO (last-in, first-out) method for some of our log inventories with the remaining inventories valued at FIFO (first-in, first-out) or average cost. Our inventories would have been approximately $1.8 million higher if the LIFO inventories were valued at average cost as of September 30, 2009.

Property, plant and equipment. We principally use the units of production method of depreciation for machinery and equipment. This method amortizes the cost of machinery and equipment over the estimated units that will be produced during its estimated useful life.

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 2009, these significant accounting estimates and judgments include:

Auction Rate Securities: Auction rate securities represent interests in collateralized debt obligations, a portion of which are collateralized by pools of residential and commercial mortgages, interest-bearing corporate debt obligations, dividend-yielding preferred stock or other instruments. Liquidity for these auction rate securities historically was provided by an auction process that resets the applicable interest rate at pre-determined intervals, usually every 7, 28, 35 or 90 days. Because of the short interest rate reset period, we have historically recorded auction rate securities in current available-for-sale securities. As of September 30, 2009, we had auction rate securities with a par value of $151.8 million that have experienced multiple failed auctions as the amount of securities for sale exceeded the amount of purchase orders. We have recorded cumulative other-than-temporary impairments aggregating $141.3 million on these securities through September 30, 2009. In addition, through the third quarter of 2009, we have recorded gross unrealized gains through Other Comprehensive Income of $31.8 million. Auction rate securities with a fair value of $42.3 million are included in the accompanying consolidated financial statements under the caption "long-term investments".

Our estimates of the valuation of our current holdings of auction rate securities are based upon our evaluation of the structure of our auction rate securities and current market estimates of fair value, including fair value estimates from issuing banks. In accordance with the Investment Topic of the FASB ASC we review several factors to determine whether a loss is other-than-temporary. These factors include but are not limited to: (i) the length of time a security is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition and near term prospects of the issuer and the underlying collateral, and (iv) our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. Due to the numerous variables associated with these judgments, both the precision and reliability of the resulting estimates of the related valuation allowance are subject to substantial uncertainties. We regularly monitor our estimated exposure to these investments and, as additional information becomes known, may change our estimates significantly.

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 analyses 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, 2009, we excluded from our estimates approximately $1.0 million of potential environmental liabilities that we estimate will be allocated to third parties pursuant to existing and anticipated future cost sharing arrangements.

When impairment is indicated, the book values of the assets to be held and used are written down to their estimated fair value, which is generally based upon discounted future cash flows. Assets to be disposed of 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, 2009, we had established valuation allowances against certain deferred tax assets, primarily related to state and certain foreign carryovers of net operating losses, credits and foreign capital loss. We have not established valuation allowances against other deferred tax assets based upon expected future taxable income and/or tax strategies planned to mitigate the risk of impairment of these assets. 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 some 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. See further discussion related to pension plans below under the heading "Defined Benefit Pension Plans" and in Note 15 of the Notes to the financial statements included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2008.

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. In this report on Form 10-Q, we disclose continuing earnings before interest, 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 sales or impairment of long lived assets, other operating charges and credits, other than temporary investment impairment and early debt extinguishment. Both EBITDA from continuing operations and adjusted EBITDA from continuing operations are not a substitute for the GAAP measure of net income or operating cash flows or other GAAP measures of operating performance or liquidity.

We have included EBITDA from continuing operations and Adjusted EBITDA from continuing operations in this report on Form 10-Q because we use as an 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 contuing operations to evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates. In addition, the instruments governing our indebtedness use EBITDA (with additional adjustments) to measure our compliance with covenants such as interest coverage and debt incurrence. It should be noted that companies calculate EBITDA differently and, therefore, our EBITDA measures may not be comparable to EBITDA reported by other companies. Our EBITDA measures have material limitations as performance measures because they exclude interest expense, income tax (benefit) expense, depreciation and amortization which are necessary to operate our business or which we otherwise incurred or experienced in connection with the operation of our business.

(Dollar amounts in millions)                   OSB        Siding      EWP        Other        Corporate        Total
Quarter Ended September 30, 2009
Sales                                        $ 122.5      $ 111.3   $  47.8      $ 27.2      $        -       $  308.8

Depreciation and amortization                   10.3          5.1       3.2         2.9              0.7          22.2
Cost of sales and selling and
administative                                  116.3         90.1      50.9        23.2             17.0         297.5
(Gain) loss on sale or impairment of long
lived assets                                                                                        (1.2 )        (1.2 )
Other operating credits and charges, net                                                            (1.6 )        (1.6 )

Total operating costs                          126.6         95.2      54.1        26.1             14.9         316.9

Income (loss) from operations                   (4.1 )       16.1      (6.3 )       1.1            (14.9 )        (8.1 )
Total non-operating income (expense)                                                               (12.3 )       (12.3 )
Income (loss) before income taxes and
equity in earnings of unconsolidated
affiliates                                      (4.1 )       16.1      (6.3 )       1.1            (27.2 )       (20.4 )
Provision (benefit) for income taxes                                                               (10.5 )       (10.5 )
Equity in (income) loss of unconsolidated
affiliates                                       1.9           -         -          0.9               -            2.8

Income (loss) from continuing operations     $  (6.0 )    $  16.1   $  (6.3 )    $  0.2      $     (16.7 )    $  (12.7 )

Reconciliation of loss from continuing
operations to adjusted EBITDA from
continuing operations
Income (loss) from continuing operations     $  (6.0 )    $  16.1   $  (6.3 )    $  0.2      $     (16.7 )    $  (12.7 )
Income tax benefit                                                                                 (10.5 )       (10.5 )
Investment income                                                                                   (7.4 )        (7.4 )
Interest expense, net of capitalized
interest                                                                                            20.4          20.4
Depreciation and amortization                   10.3          5.1       3.2         2.9              0.7          22.2

EBITDA from continuing operations            $   4.3      $  21.2   $  (3.1 )    $  3.1      $     (13.5 )    $   12.0

Stock based compensation expense             $   0.1      $   0.1   $   0.1                  $       1.2      $    1.5
(Gain) loss on sale or impairment of long
lived assets                                                                                        (1.2 )        (1.2 )
Other operating credits and charges, net                                                            (1.6 )        (1.6 )
Other than temporary asset impairment                                                                0.1           0.1
Early debt extinguishment                                                                            0.2           0.2

Adjusted EBITDA from continuing operations   $   4.4      $  21.3   $  (3.0 )    $  3.1      $     (14.8 )    $   11.0

Quarter Ended September 30, 2008
Sales                                        $ 183.3      $ 117.0   $  63.4      $ 25.9      $        -       $  389.6

Depreciation and amortization                   13.3          5.2       4.4         2.6              1.5          27.0
Cost of sales and selling and
administative                                  196.0        107.2      70.3        24.1             21.2         418.8
(Gain) loss on sale or impairment of long
lived assets                                                                                         9.8           9.8
Other operating credits and charges, net                                                             1.6           1.6

Total operating costs                          209.3        112.4      74.7        26.7             34.1         457.2

Loss from operations                           (26.0 )        4.6     (11.3 )      (0.8 )          (34.1 )       (67.6 )
Total non-operating income (expense)                                                               (90.7 )       (90.7 )
Income (loss) before income taxes and
equity in earnings of unconsolidated
affiliates                                     (26.0 )        4.6     (11.3 )      (0.8 )         (124.8 )      (158.3 )
Provision (benefit) for income taxes                                                               (61.0 )       (61.0 )
Equity in (income) loss of unconsolidated
affiliates                                       1.7                   (0.3 )       1.7               -            3.1

Income (loss) from continuing operations     $ (27.7 )    $   4.6   $ (11.0 )    $ (2.5 )    $     (63.8 )    $ (100.4 )

Reconciliation of loss from continuing
operations to adjusted EBITDA from
continuing operations
Income (loss) from continuing operations     $ (27.7 )    $   4.6   $ (11.0 )    $ (2.5 )    $     (63.8 )    $ (100.4 )
Income tax benefit                                                                                 (61.0 )       (61.0 )
Investment income                                                                                   (8.1 )        (8.1 )
Interest expense, net of capitalized
interest                                                                                            12.4          12.4
Depreciation and amortization                   13.3          5.2       4.4         2.6              1.5          27.0

EBITDA from continuing operations            $ (14.4 )    $   9.8   $  (6.6 )    $  0.1      $    (119.0 )    $ (130.1 )

Stock based compensation expense             $   0.4      $   0.2   $   0.1      $   -       $       1.8      $    2.5
(Gain) loss on sale or impairment of long
lived assets                                                                                         9.8           9.8
Other operating credits and charges, net                                                             1.6           1.6
Other than temporary asset impairment                                                               88.7          88.7
Early debt extinguishment                                                                             -             -

Adjusted EBITDA from continuing operations   $ (14.0 )    $  10.0   $  (6.5 )    $  0.1      $     (17.1 )    $  (27.5 )

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(Dollar amounts in millions)                   OSB         Siding      EWP        Other        Corporate         Total
Nine months Ended September 30, 2009
Sales                                        $  292.5      $ 287.7   $ 113.6      $ 85.8      $        -       $   779.6

Depreciation and amortization                    26.3         14.1       9.1         8.0              2.7           60.2
Cost of sales and selling and
administative                                   308.3        248.8     128.2        73.6             52.7          811.6
(Gain) loss on sale or impairment of long
lived assets                                                                                         (2.1 )         (2.1 )
Other operating credits and charges, net                                                             (7.3 )         (7.3 )

Total operating costs                           334.6        262.9     137.3        81.6             46.0          862.4

Income (loss) from operations                   (42.1 )       24.8     (23.7 )       4.2            (46.0 )        (82.8 )
Total non-operating income (expense)                                                                (24.3 )        (24.3 )
Income (loss) before income taxes and
equity in earnings of unconsolidated
affiliates                                      (42.1 )       24.8     (23.7 )       4.2            (70.3 )       (107.1 )
Provision (benefit) for income taxes                                                                (45.7 )        (45.7 )
Equity in (income) loss of unconsolidated
affiliates                                        6.5                    0.4         1.9                             8.8

Income (loss) from continuing operations     $  (48.6 )    $  24.8   $ (24.1 )    $  2.3      $     (24.6 )    $   (70.2 )

Reconciliation of loss from continuing
operations to adjusted EBITDA from
continuing operations
Income (loss) from continuing operations     $  (48.6 )    $  24.8   $ (24.1 )    $  2.3      $     (24.6 )        (70.2 )
Income tax expense                                                                                  (45.7 )        (45.7 )
Investment income                                                                                   (20.1 )        (20.1 )
Interest expense, net of capitalized
interest                                                                                             53.3           53.3
Depreciation and amortization                    26.3         14.1       9.1         8.0              2.7           60.2

EBITDA from continuing operations            $  (22.3 )    $  38.9   $ (15.0 )    $ 10.3      $     (34.4 )    $   (22.5 )

Stock based compensation expense             $    0.5      $   0.4   $   0.4      $   -       $       4.2      $     5.5
(Gain) loss on sale or impairment of long
lived assets                                                                                         (2.1 )         (2.1 )
Other operating credits and charges, net                                                             (7.3 )         (7.3 )
Other than temporary asset impairment                                                                 1.8            1.8
Early debt extinguishment                                                                            (0.4 )         (0.4 )

Adjusted EBITDA from continuing operations   $  (21.8 )    $  39.3   $ (14.6 )    $ 10.3      $     (38.2 )    $   (25.0 )

Nine months Ended September 30, 2008
Sales                                        $  512.5      $ 347.7   $ 189.2      $ 76.6      $        -       $ 1,126.0

Depreciation and amortization                    40.6         16.6      11.9         7.1              4.2           80.4
. . .