Acquisition of Peace Valley OSB (Notes)

12 Months Ended

Dec. 31, 2015

Acquisition of Peace Valley OSB [Abstract]

Business Combination Disclosure [Text Block]

.    ACQUISITION OF PEACE VALLEY OSB

On May 31, 2013, LP acquired full control of the Peace Valley OSB joint venture in which LP previously maintained a 50% interest. Peace Valley OSB's results of operations have been fully consolidated in all periods subsequent to May 31, 2013. Since LP previously served as the exclusive distributor of all OSB produced by this venture, this acquisition will not have a material impact on LP's consolidated net sales.

Due to LP's pre-existing 50% ownership interest in Peace Valley OSB, this acquisition was accounted for as a step acquisition in accordance with ASC 805, Business Combinations (ASC 805). Accordingly, LP recognized a gain of $35.9 million in connection with this transaction to remeasure its 50% ownership interest in Peace Valley at fair value on the acquisition date. The gain is reflected in Other operating credits and charges, net on the Consolidated Statement of Income. The fair value of LP's existing 50% interest ($95.9 million) was determined using a combination of the income and market approach. In completing this valuation, management considered future earnings and cash flow potential of the business, earnings multiples, and recent market transactions of similar businesses. This gain is included in "Non-operating income (expense)."

The purchase price of the 50% acquired interest was $74.6 million (including working capital) paid in cash. Additionally, as part of the purchase consideration, LP agreed to pay contingent consideration equal to a pre-defined percentage of the operation's earnings before interest, taxes, depreciation and amortization (EBITDA) over a pre-defined threshold for each of the next three years. As of May 31, 2013, the fair value of the contingent consideration payable was valued at $24.3 million and was recorded in “accounts payable and accrued liabilities” and “other long term liabilities”. The fair value of the contingent consideration payable will be remeasured at the end of each reporting period. The fair value of the contingent consideration payable was remeasured and reduced by $20.5 million, $3.2 million, and $0.2 million during 2013, 2014, and 2015. This reduction was due to the decline in projected OSB prices in the near term as compared to the date of acquisition. This reduction in OSB pricing reduces the estimated EBITDA of the operation.

Including the 50% interest previously owned by LP, LP acquired net assets of $194.8 million, consisting of $22.7 million in current assets, $146.4 million in fixed assets, $43.8 million of intangible assets (comprised of $34.1 million of timber licenses and $9.7 million of goodwill) and $8.7 million in current liabilities and $9.4 million in long-term liabilities. Additional financial information about Peace Valley OSB (e.g., pro forma financial information and allocation of purchase price) is not presented because such information is not material to LP's results of operations and financial position.