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13. BUSINESS ACQUISITION
In March 2013 FortisBC Electric acquired the City of Kelowna's (the "City's") electrical utility assets for approximately $55 million, which now allows FortisBC Electric to directly serve some 15,000 customers formerly served by the City. FortisBC Electric had provided the City with electricity under a wholesale tariff and had operated and maintained the City's electrical utility assets under contract since 2000.
The acquisition was approved by the British Columbia Utilities Commission in March 2013 and allowed for approximately $38 million of the purchase price to be included in FortisBC Electric's rate base. Based on this regulatory decision, the book value of the assets acquired has been assigned as fair value in the preliminary purchase price allocation. FortisBC Electric is regulated under cost of service and the determination of revenue and earnings is based on a regulated rate of return that is applied to historic values, which do not change with a change of ownership. Therefore, fair market value approximates book value and no fair market value adjustments were recorded for the assets acquired because all of the economic benefits and obligations associated with them beyond regulated rates of return accrue to the customers.
The following table summarizes the preliminary allocation of the purchase price to the assets acquired as at the date of acquisition based on their fair values.
($ millions)----------------------------------------------------------------------------Fair value assigned to assets:Utility capital assets 38Long-term deferred income tax asset 3Goodwill 14---------------------------------------------------------------------------- 55 ------------------------------------ ------------------------------------
The acquisition, which qualifies as a business combination, has been accounted for using the acquisition method, whereby financial results of the business acquired have been consolidated in the financial statements of Fortis commencing in March 2013.
14. SEGMENTED INFORMATION
Information by reportable segment is as follows:
REGULATED -------------------------------------------------------------- Gas Utilities Electric Utilities -------------------------------------------------------------- FortisBC Energy New-Quarter Ended Companies found- TotalMarch 31, 2013 - Fortis FortisBC land Other Electric Electric($ millions) Canadian Alberta Electric Power Canadian Canadian Caribbean----------------------------------------------------------------------------Revenue 492 118 88 197 96 499 66Energy supply costs 232 - 25 145 62 232 41Operating expenses 72 40 20 23 13 96 8Depreciation and amortization 46 36 13 12 7 68 8----------------------------------------------------------------------------Operating income 142 42 30 17 14 103 9Other income, net 1 2 - 1 - 3 -Finance charges 35 17 9 9 5 40 4Income tax expense (recovery) 23 1 3 2 3 9 -----------------------------------------------------------------------------Net earnings (loss) before extraordinary item 85 26 18 7 6 57 5Extraordinary gain, net of tax - - - - - - -----------------------------------------------------------------------------Net earnings (loss) 85 26 18 7 6 57 5Non- controlling interests - - - - - - 2Preference share dividends - - - - - - -----------------------------------------------------------------------------Net earnings (loss) attributable to common equity shareholders 85 26 18 7 6 57 3--------------------------------------------------------------------------------------------------------------------------------------------------------Goodwill 913 227 235 - 67 529 143Identifiable assets 4,608 2,806 1,758 1,419 709 6,692 758----------------------------------------------------------------------------Total assets 5,521 3,033 1,993 1,419 776 7,221 901(1)--------------------------------------------------------------------------------------------------------------------------------------------------------Gross capital expenditures 38 95 17 15 13 140 11--------------------------------------------------------------------------------------------------------------------------------------------------------Quarter EndedMarch 31, 2012($ millions)----------------------------------------------------------------------------Revenue 548 108 87 192 91 478 63Energy supply costs 302 - 25 142 58 225 40Operating expenses 70 39 21 20 12 92 8Depreciation and amortization 40 35 12 11 7 65 7----------------------------------------------------------------------------Operating income 136 34 29 19 14 96 8Other income (expenses), net - 2 - - - 2 -Finance charges 35 15 10 9 5 39 4Income tax expense (recovery) 19 - 3 3 2 8 -----------------------------------------------------------------------------Net earnings (loss) 82 21 16 7 7 51 4Non- controlling interests - - - - - - 1Preference share dividends - - - - - - -----------------------------------------------------------------------------Net earnings (loss) attributable to common equity shareholders 82 21 16 7 7 51 3--------------------------------------------------------------------------------------------------------------------------------------------------------Goodwill 913 227 221 - 63 511 139Identifiable assets 4,586 2,506 1,677 1,324 690 6,197 708----------------------------------------------------------------------------Total assets 5,499 2,733 1,898 1,324 753 6,708 847(1)--------------------------------------------------------------------------------------------------------------------------------------------------------Gross capital expenditures 46 79 17 15 9 120 10-------------------------------------------------------------------------------------------------------------------------------------------------------- NON-REGULATED -----------------------------------Quarter Ended Inter-March 31, 2013 Fortis Fortis Corporate segment($ millions) Generation Properties and Other eliminations Consolidated----------------------------------------------------------------------------Revenue 5 53 6 (8) 1,113Energy supply costs - - - - 505Operating expenses 2 42 3 (2) 221Depreciation and amortization 1 5 1 - 129----------------------------------------------------------------------------Operating income 2 6 2 (6) 258Other income, net - - 2 - 6Finance charges - 6 10 (6) 89Income tax expense (recovery) - - (2) - 30----------------------------------------------------------------------------Net earnings (loss) before extraordinary item 2 - (4) - 145Extraordinary gain, net of tax 22 - - - 22----------------------------------------------------------------------------Net earnings (loss) 24 - (4) - 167Non- controlling interests - - - - 2Preference share dividends - - 14 - 14----------------------------------------------------------------------------Net earnings (loss) attributable to common equity shareholders 24 - (18) - 151--------------------------------------------------------------------------------------------------------------------------------------------------------Goodwill - - - - 1,585Identifiable assets 780 678 514 (460) 13,570----------------------------------------------------------------------------Total assets 780 678 514 (460) 15,155--------------------------------------------------------------------------------------------------------------------------------------------------------Gross capital expenditures 48 13 - - 250--------------------------------------------------------------------------------------------------------------------------------------------------------Quarter EndedMarch 31, 2012($ millions)----------------------------------------------------------------------------Revenue 9 52 6 (7) 1,149Energy supply costs - - - (1) 566Operating expenses 3 40 3 (2) 214Depreciation and amortization 1 5 1 - 119----------------------------------------------------------------------------Operating income 5 7 2 (4) 250Other income (expenses), net 1 - (5) (1) (3)Finance charges 1 6 11 (5) 91Income tax expense (recovery) - - (4) - 23----------------------------------------------------------------------------Net earnings (loss) 5 1 (10) - 133Non- controlling interests - - - - 1Preference share dividends - - 11 - 11----------------------------------------------------------------------------Net earnings (loss) attributable to common equity shareholders 5 1 (21) - 121--------------------------------------------------------------------------------------------------------------------------------------------------------Goodwill - - - - 1,563Identifiable assets 612 612 462 (399) 12,778----------------------------------------------------------------------------Total assets 612 612 462 (399) 14,341--------------------------------------------------------------------------------------------------------------------------------------------------------Gross capital expenditures 48 5 - - 229--------------------------------------------------------------------------------------------------------------------------------------------------------(1) Includes the Corporation's long-term other asset associated with its expropriated investment in Belize Electricity
