Avista (AVA) 8-K Entry into a Material Definitive Agreement

AVISTA CORPORATION Exhibit 99.1

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following Unaudited Pro Forma Condensed Consolidated Financial Statements of Avista Corporation (Avista Corp.) present financial information giving effect to the disposition of substantially all of the contracts and ongoing operations of Avista Energy, Inc. (Avista Energy) as described in Note 1 of the Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2007 presents the consolidated financial condition of Avista Corp., giving effect to the disposition as if it had occurred on March 31, 2007. The Unaudited Pro Forma Condensed Consolidated Statements of Income for the three months ended March 31, 2007 and for the year ended December 31, 2006 present the consolidated results of operations of Avista Corp., giving effect to the disposition as if it had occurred immediately prior to January 1, 2006.

This information should be read in conjunction with:

• the accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements that describe the transaction and the adjustments to such financial statements,

• Avista Corp.’s unaudited consolidated financial statements included in Avista Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, and

• Avista Corp.’s consolidated financial statements included in Avista Corp.’s Annual Report on Form 10-K for the year ended December 31, 2006.

The Unaudited Pro Forma Condensed Consolidated Financial Statements have been prepared for informational purposes only and are not necessarily indicative of what Avista Corp.’s financial condition or results of operations actually would have been had the transaction been completed on the dates indicated. In addition, the Unaudited Pro Forma Condensed Consolidated Financial Statements do not represent a projection of Avista Corp.’s future financial condition or results of operations.

1

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

Avista Corporation
For the Three Months Ended March 31, 2007
Dollars in thousands				Pro forma			Pro forma
	As reported			adjustments			as adjusted
Operating Revenues:					(a)
Utility revenues	$	414,266					$	414,266
Non-utility energy marketing and trading revenues		29,409			(23,840	)		5,569
Other non-utility revenues		15,512						15,512
Total operating revenues		459,187			(23,840	)		435,347
Operating Expenses:
Utility operating expenses:
Resource costs		269,986						269,986
Other operating expenses		49,041						49,041
Depreciation and amortization		21,090						21,090
Taxes other than income taxes		23,995						23,995
Non-utility operating expenses:
Resource costs		37,727			(32,158	)		5,569
Other operating expenses		17,136			(5,085	)		12,051
Depreciation and amortization		1,275			(90	)		1,185
Total operating expenses		420,250			(37,333	)		382,917
Income from operations		38,937			13,493			52,430
Other Income (Expense):
Interest expense		(20,373	)		83			(20,290	)
Interest expense to affiliated trusts		(1,810	)					(1,810	)
Capitalized interest		1,116						1,116
Other income—net		3,711			(1,581	)		2,130
Total other income (expense)-net		(17,356	)		(1,498	)		(18,854	)
Income before income taxes		21,581			11,995			33,576
Income taxes		7,487			4,346			11,833
Net income	$	14,094		$	7,649		$	21,743
Weighted-average common shares outstanding (thousands), basic		52,684						52,684
Weighted-average common shares outstanding (thousands), diluted		53,322						53,322
Total earnings per common share, basic	$	0.27					$	0.41
Total earnings per common share, diluted	$	0.26					$	0.41

2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

Avista Corporation
For the Year Ended December 31, 2006
Dollars in thousands				Pro forma			Pro forma
	As reported			adjustments			as adjusted
Operating Revenues:					(a)
Utility revenues	$	1,267,938					$	1,267,938
Non-utility energy marketing and trading revenues		177,551			(154,697	)		22,854
Other non-utility revenues		60,822						60,822
Total operating revenues		1,506,311			(154,697	)		1,351,614
Operating Expenses:
Utility operating expenses:
Resource costs		751,646						751,646
Other operating expenses		187,161						187,161
Depreciation and amortization		81,904						81,904
Taxes other than income taxes		69,882						69,882
Non-utility operating expenses:
Resource costs		144,137			(121,283	)		22,854
Other operating expenses		66,546			(18,941	)		47,605
Depreciation and amortization		5,179			(490	)		4,689
Total operating expenses		1,306,455			(140,714	)		1,165,741
Income from operations		199,856			(13,983	)		185,873
Other Income (Expense):
Interest expense		(89,051	)		199			(88,852	)
Interest expense to affiliated trusts		(7,116	)					(7,116	)
Capitalized interest		2,934						2,934
Other income—net		8,600			(4,839	)		3,761
Total other income (expense)-net		(84,633	)		(4,640	)		(89,273	)
Income before income taxes		115,223			(18,623	)		96,600
Income taxes		42,090			(6,762	)		35,328
Net income	$	73,133		$	(11,861	)	$	61,272
Weighted-average common shares outstanding (thousands), basic		49,162						49,162
Weighted-average common shares outstanding (thousands), diluted		49,897						49,897
Total earnings per common share, basic	$	1.49					$	1.25
Total earnings per common share, diluted	$	1.47					$	1.23

3

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)
Avista Corporation
As of March 31, 2007
Dollars in thousands
	As reported		Pro forma adjustments			Pro forma as adjusted
Assets:
Current Assets:
Cash and cash equivalents	$	56,974	$	21,962	(b)	$	78,936
Restricted cash		26,237					26,237
Accounts and notes receivable		258,932					258,932
Utility energy commodity derivative assets		19,716					19,716
Funds held for customers		91,506					91,506
Deposits with counterparties		85,366					85,366
Materials and supplies, fuel stock and natural gas stored		19,495					19,495
Deferred income taxes		14,769					14,769
Assets held for sale		600,962		(597,503	) (c)		3,459
Other current assets		29,068					29,068
Total current assets		1,203,025		(575,541	)		627,484
Net Utility Property:
Utility plant in service		2,959,749					2,959,749
Construction work in progress		115,920					115,920
Total		3,075,669					3,075,669
Less: Accumulated depreciation and amortization		842,895					842,895
Total net utility property		2,232,774					2,232,774
Other Property and Investments:
Investment in exchange power-net		30,421					30,421
Non-utility properties and investments-net		59,955					59,955
Investment in affiliated trusts		13,403					13,403
Other property and investments-net		16,829					16,829
Total other property and investments		120,608					120,608
Deferred Charges:
Regulatory assets for deferred income tax		104,718					104,718
Regulatory assets for pensions and other postretirement benefits		53,555					53,555
Other regulatory assets		31,578					31,578
Non-current utility energy commodity derivative assets		16,418					16,418
Power and natural gas deferrals		84,110					84,110
Unamortized debt expense		44,895					44,895
Other deferred charges		12,948					12,948
Total deferred charges		348,222					348,222
Total assets	$	3,904,629	($	575,541	)	$	3,329,088

4

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (continued)

(Unaudited)
Avista
As of March 31, 2007
Dollars in thousands
	As reported			Pro forma adjustments			Pro forma as adjusted
Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable	$	243,910					$	243,910
Customer fund obligations		91,506						91,506
Deposits from counterparties		40,950						40,950
Current portion of long-term debt		14,607						14,607
Current portion of preferred stock-cumulative		26,250						26,250
Interest accrued		25,468						25,468
Regulatory liability for utility derivatives		14,658						14,658
Liabilities held for sale		574,372			(574,372	) (d)		—
Other current liabilities		76,365						76,365
Total current liabilities		1,108,086			(574,372	)		533,714
Long-term debt		950,053						950,053
Long-term debt to affiliated trusts		113,403						113,403
Other Non-Current Liabilities and Deferred Credits:
Regulatory liability for utility plant retirement costs		200,665						200,665
Non-current regulatory liability for utility derivatives		11,255						11,255
Pensions and other postretirement benefits		98,239						98,239
Deferred income taxes		430,393						430,393
Other non-current liabilities and deferred credits		65,261						65,261
Total other non-current liabilities and deferred credits		805,813						805,813
Total liabilities		2,977,355			(574,372	)		2,402,983
Stockholders’ Equity:
Common stock—net		717,938						717,938
Accumulated other comprehensive loss		(16,388	)		(1,169	) (e)		(17,557	)
Retained earnings		225,724						225,724
Total stockholders’ equity		927,274			(1,169	)		926,105
Total liabilities and stockholders’ equity	$	3,904,629		($	575,541	)	$	3,329,088

5

AVISTA CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DISPOSITION OF AVISTA ENERGY’S ASSETS

On June 30, 2007, Avista Energy, a subsidiary of Avista Capital, Inc. and an indirect subsidiary of Avista Corp., and Avista Energy Canada, Ltd. (Avista Energy Canada), a wholly-owned subsidiary of Avista Energy, completed the sale of substantially all of their contracts and ongoing operations to Coral Energy Holding, L.P. (Coral Energy), a subsidiary of the Shell Group of Companies, as well as certain other subsidiaries of Coral Energy. Avista Energy sold substantially all of its contracts and ongoing operations to Coral Energy and Avista Energy Canada sold substantially all of its contracts and ongoing operations to Coral Energy Canada Inc., a subsidiary of Coral Energy.

The transaction was completed through a purchase and sale agreement and certain other ancillary agreements. As consideration for the assets acquired (net of liabilities assumed), the purchase price paid by Coral Energy is being calculated on the closing date as the sum of the following (subject to certain adjustments):

• the net trade book value of contracts acquired,

• the market value of the natural gas inventory, and

• the net book value of the tangible fixed assets acquired.

Proceeds from the transaction include cash consideration for the net assets acquired by Coral Energy and the anticipated liquidation of the remaining net current assets of Avista Energy not sold to Coral Energy (primarily receivables, restricted cash and deposits with counterparties the majority of which will be liquidated within 60 days). On July 2, 2007, Avista Energy received $34.4 million from Coral Energy based on the value of the net assets sold as of May 31, 2007. This amount will be adjusted and settlement made sometime in the third quarter of 2007 based on the determination of final market values and other closing adjustments as of June 30, 2007. In addition to the cash proceeds received from Coral Energy, Avista Energy has liquidated approximately $95 million of net current assets through July 5, 2007. Over time, Avista Corp. plans to redeploy into its regulated utility operations the majority of the estimated $175 million of total proceeds either received from Coral Energy or realized from the liquidation of the remaining net current assets of Avista Energy. Certain assets of Avista Energy with a net book value of approximately $25 million will not be liquidated within 60 days. These primarily include natural gas storage and deferred tax assets.

Due to the complexities of determining the final market value of certain contracts, the termination of hedging contracts, foreign currency translation and certain other closing adjustments, the amount of the net loss on the transaction can not be determined at this time. However, Avista Corp. expects the after-tax net loss on the transaction to be less than $5 million. The estimated net loss on the transaction has increased from March 31, 2007 primarily due to a decrease in the market value of natural gas inventory and changes in the value of certain hedging contracts.

Assets and liabilities excluded from the sale and retained or liquidated by Avista Energy include:

• cash,

• certain agreements related to a power generation facility located in Idaho for periods after December 31, 2009,

• storage rights at a natural gas facility located in Washington for periods after April 30, 2011,

• accounts receivable,

• certain software, hardware, licenses and permits,

• accounts payable,

• tax obligations,

• cash deposits with and from counterparties,

• litigation matters (including matters related to western energy markets), and

• certain employment agreements and employee related obligations.

NOTE 2. BASIS OF PRESENTATION AND PRO FORMA ADJUSTMENTS

The “As reported” financial information as of and for the three months ended March 31, 2007 has been derived from the historical unaudited consolidated financial statements included in Avista Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007. The “As reported” financial information for the year ended December 31, 2006 has been derived from the historical consolidated financial statements included in Avista Corp.’s Annual Report on Form 10-K for the year ended December 31, 2006.

6

AVISTA CORPORATION

The historical consolidated financial statements of Avista Corp. have been adjusted to give effect to pro forma events that are (1) directly attributable to the sale of substantially all of Avista Energy’s contracts and ongoing operations, (2) factually supportable, and (3) with respect to the statements of income, expected to have a continuing impact on the consolidated results of operations.

Avista Corp. has not reflected any gain or loss in the pro forma statements of income as the gain or loss is considered to be non-recurring.

Pro forma adjustments included in the condensed consolidated pro forma financial statements are as follows:

(a) The adjustments reflected in the statements of income eliminate the results of operations of Avista Energy sold to Coral Energy.

(b) This adjustment on the balance sheet reflects the estimated net cash proceeds from the sale of Avista Energy’s assets (net of liabilities assumed) to Coral Energy based on the carrying value as of March 31, 2007. On July 2, 2007, Avista Energy received $34.4 million from Coral Energy based on the value of the net assets sold as of May 31, 2007. The change from the estimated net cash proceeds at March 31, 2007 of $22.0 million was due to injections of natural gas into storage and changes in the market value of contracts and natural gas inventory. The final amount of net cash proceeds will be adjusted and settlement made sometime in the third quarter of 2007 based on the determination of final market values and other closing adjustments as of June 30, 2007.

(c) This adjustment on the balance sheet reflects assets being sold to Coral Energy. Using the carrying value as of March 31, 2007, total assets to be disposed of totaled $597.5 million.

(d) This adjustment on the balance sheet reflects liabilities being assumed by Coral Energy. Using the carrying value as of March 31, 2007, total liabilities to be assumed by Coral Energy totaled $574.4 million.

(e) This adjustment on the balance sheet represents the elimination of Avista Energy’s accumulated other comprehensive income related to unrealized gains on derivative commodity instruments as of March 31, 2007.

In addition to the transactions described above that are directly attributable to the sale of Avista Energy’s assets, certain current assets and liabilities will be liquidated in accordance with their contractual terms (the majority of which will be liquidated within 60 days). This includes (based on carrying values as of March 31, 2007) (dollars in thousands):

Restricted cash	$	24,206
Accounts receivable		149,355
Deposits with counterparties		85,366
Other current assets		7,530
Accounts payable		(152,988	)
Deposits from counterparties		(2,150	)
Other current liabilities		(8,448	)

7