Business Acquisitions

3 Months Ended

Mar. 31, 2015

Business Acquisitions [Abstract]

Business Combination Disclosure

BUSINESS ACQUISITIONS

Alaska Energy and Resources Company

On July 1, 2014, the Company acquired AERC, based in Juneau, Alaska, and as of that date, AERC became a wholly-owned subsidiary of Avista Corp.

The primary subsidiary of AERC is AEL&P, a regulated utility which provides electric services to 16,452 customers in the City and Borough of Juneau (CBJ), Alaska. In addition to the regulated utility, AERC owns AJT Mining, which is an inactive mining company holding certain properties.

The purpose of the acquisition was to expand and diversify Avista Corp.'s energy assets and deliver long-term value to its customers, communities and investors.

In connection with the closing, on July 1, 2014 Avista Corp. issued 4,500,014 new shares of common stock to the shareholders of AERC based on a contractual formula that resulted in a price of $32.46 per share, reflecting a purchase price of $170.0 million, plus acquired cash, less outstanding debt and other closing adjustments.

The $32.46 price per share of Avista Corp. common stock was determined based on the average closing stock price of Avista Corp. common stock for the 10 consecutive trading days immediately preceding, but not including, the trading day prior to July 1, 2014. This value was used solely for determining the number of shares to issue based on the adjusted contract closing price (see reconciliation below). The fair value of the consideration transferred at the closing date was based on the closing stock price of Avista Corp. common stock on July 1, 2014, which was $33.35 per share.

On October 1, 2014, a working capital adjustment was made in accordance with the agreement and plan of merger which resulted in Avista Corp. issuing an additional 1,427 shares of common stock to the shareholders of AERC. The number of shares issued on October 1, 2014 was based on the same contractual formula described above. The fair value of the new shares issued in October was $30.71 per share, which was the closing stock price of Avista Corp. common stock on that date.

The contract acquisition price and the fair value of consideration transferred for AERC were as follows (in thousands, except "per share" and number of shares data):

	July 1, 2014
Contract acquisition price (using the calculated $32.46 per share common stock price)
Gross contract price	$	170,000
Acquired cash	19,704
Acquired debt (excluding capital lease obligation)	(38,832		)
Other closing adjustments	(58		)
Total adjusted contract price	$	150,814
Fair value of consideration transferred
Avista Corp. common stock (4,500,014 shares at $33.35 per share)	$	150,075
Avista Corp. common stock (1,427 shares at $30.71 per share)	44
Cash	4,697
Fair value of total consideration transferred	$	154,816

The estimated fair value of assets acquired and liabilities assumed as of July 1, 2014 have not changed from the amounts disclosed in the Company's 2014 Form 10-K. The transaction resulted in the recording of $52.7 million in goodwill during 2014. The goodwill associated with this acquisition is not deductible for tax purposes.

The majority of AERC’s operations are subject to the rate-setting authority of the Regulatory Commission of Alaska (RCA) and are accounted for pursuant to GAAP, including the accounting guidance for regulated operations. The rate-setting and cost recovery provisions currently in place for AERC’s regulated operations provide revenues derived from costs, including a return on investment, of assets and liabilities included in rate base. Due to this regulation, the fair values of AERC’s assets and liabilities subject to these rate-setting provisions are assumed to approximate their carrying values. There were not any identifiable intangible assets associated with this acquisition. The excess of the purchase consideration over the estimated fair values of the assets acquired and liabilities assumed was recognized as goodwill at the acquisition date. The goodwill reflects the value paid for the expected continued growth of a rate-regulated business located in a defined service area with a constructive regulatory environment, the attractiveness of stable, growing cash flows, as well as providing a platform for potential future growth outside of the rate-regulated electric utility in Alaska.

The following table summarizes the supplemental pro forma information for the three months ended March 31, 2014 compared to actual 2015 information related to the acquisition of AERC as if the acquisition had occurred on January 1, 2013 (dollars in thousands - unaudited):

	Actual		Pro forma
	2015		2014
Actual Avista Corp. revenues from continuing operations (excluding AERC)	$	433,699	$	446,578
Supplemental pro forma AERC revenues (1)	12,791		13,186
Total pro forma revenues	446,490		459,764
Actual AERC revenues included in Avista Corp. revenues (1)	12,791		—
Actual Avista Corp. net income from continuing operations attributable to Avista Corp. shareholders (excluding AERC)	43,918		47,476
Actual Avista Corp. net income from discontinued operations attributable to Avista Corp. shareholders	—		1,023
Adjustment to Avista Corp.'s net income for acquisition costs (net of tax) (2)	5		294
Supplemental pro forma AERC net income (1)	2,531		3,256
Total pro forma net income	46,454		52,049
Actual AERC net income included in Avista Corp. net income (1)	$	2,531	$	—

(1) AERC was acquired on July 1, 2014; therefore, none of the supplemental revenues and net income for the first quarter of 2014 were included in the actual results of Avista Corp. for that period. The amounts disclosed for the first quarter of 2015 were included in the overall results of Avista Corp.

(2) This adjustment is to treat all transaction costs as if they occurred on January 1, 2013 and to remove them from the periods in which they actually occurred. The transaction costs were expensed and presented in the Condensed Consolidated Statements of Income in other operating expenses within utility operating expenses. Since the start of the transaction through March 31, 2015, Avista Corp. has expensed $3.0 million (pre-tax) in total transaction fees. In addition to the amounts expensed, through March 31, 2015, Avista Corp. has included $0.4 million in fees associated with the issuance of common stock for the transaction as a reduction to common stock. These fees do not impact the supplemental pro forma information above.