Business Acquisitions

9 Months Ended

Sep. 30, 2015

Business Combinations [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 16,676 customers in the City and Borough of Juneau (Juneau), 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):

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	4,792
Fair value of total consideration transferred	$	154,911

During the second quarter of 2015, the Company recorded a reduction to goodwill of approximately $0.3 million due to income tax related adjustments. After consideration of the goodwill adjustment in the second quarter of 2015, the transaction resulted in a total amount of goodwill of $52.4 million. The goodwill associated with this acquisition is not deductible for tax purposes. The remainder of the assets acquired and liabilities assumed have not changed from the amounts disclosed in the 2014 Form 10-K.

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 and potential additional utility investment.

The following table summarizes the supplemental pro forma information for the three and nine months ended September 30, 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):

	Three months ended September 30,					Nine months ended September 30,
	2015		2014			2015		2014
	Actual		Actual			Actual		Pro forma
Actual Avista Corp. revenues from continuing operations (excluding AERC)	$	304,342	$	292,334		$	1,065,126	$	1,051,492
Total AERC revenues (1)	9,307		9,224			32,345		35,319
Total pro forma revenues	313,649		301,558			1,097,471		1,086,811
Actual AERC revenues included in Avista Corp. revenues (1)	9,307		9,224			32,345		9,224
Actual Avista Corp. net income from continuing operations attributable to Avista Corp. shareholders (excluding AERC)	12,422		9,982			80,562		88,712
Actual Avista Corp. net income (loss) from discontinued operations attributable to Avista Corp. shareholders	289		(55		)	485		70,585
Adjustment to Avista Corp.'s net income for acquisition costs (net of tax) (2)	—		401			21		838
Supplemental pro forma AERC net income (1)	300		524			3,659		6,151
Total pro forma net income	13,011		10,852			84,727		166,286
Actual AERC net income included in Avista Corp. net income (1)	$	300	$	524		$	3,659	$	524

(1) AERC was acquired on July 1, 2014; therefore, all the revenues and net income for the third quarter of 2014 are actual amounts that are included in Avista Corp.'s overall results. All revenue and net income amounts prior to July 1, 2014 are supplemental pro forma amounts and are excluded from Avista Corp.'s overall results. The amounts disclosed for the three and nine months ended September 30, 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 September 30, 2015, Avista Corp. has expensed $3.0 million (pre-tax) in total transaction fees. In addition to the amounts expensed, through September 30, 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.