ACQUISITIONS & BUSINESS COMBINATIONS

9 Months Ended

Sep. 30, 2020

ACQUISITIONS & BUSINESS COMBINATIONS:

There were no changes to the accounting policy with regards to business combinations described in Note 1 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019.

Catamaran/Annadale Acquisition

On August 12, 2020, SJI, through its wholly-owned subsidiary Marina, formed the Catamaran joint venture with a third party partner. Catamaran was formed for the purpose of developing, owning and operating renewable energy projects, and will support SJI's commitment to clean energy initiatives. On the same date, Catamaran purchased 100% ownership in Annadale, an entity that is constructing two fuel cell projects totaling 7.5 MW in Staten Island, New York. These fuel cell projects are expected to be operational and placed into service in the fourth quarter of 2020. Marina has a 93% ownership interest in Annadale, and as a result Marina fully consolidates the entity as Marina has the power to direct the activities of the entity that most significantly impact the entity’s economic performance.

ASC Topic 805, “Business Combinations” states that a business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. As the acquisition did not meet the definition of a business combination under ASC 805, the Company accounted for the transaction as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets. The acquisition of Annadale included a land lease and working capital.

Marina recorded $58.5 million in Nonutility Property, Plant & Equipment on the condensed consolidated balance sheets as of September 30, 2020. Of this total, Marina invested a net amount of $54.3 million as of September 30, 2020. To account for the third party partner's interest in Annadale, Marina recorded $4.2 million of non-controlling interest in stockholder's equity on the condensed consolidated balance sheets as of September 30, 2020. The major depreciable assets of the Annadale Fuel Cell Project are the fuel cell modules, which will be depreciated over their estimated useful lives of 35 years. The land lease is being amortized over the lease term of 35 years.

As these projects are not yet placed into service, no revenues have been recorded, and expenses incurred in the Company's condensed consolidated statements of income for the three and nine months ended September 30, 2020, are not material.

EnerConnex Acquisition

On August 7, 2020, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of the remaining 75% of EnerConnex for total consideration of $7.5 million. This acquisition supports the Company's initiative to expand its energy consulting business.

The acquisition of EnerConnex was accounted for as a business combination using the acquisition method of accounting in accordance with GAAP. Under the acquisition method of accounting, the total estimated purchase price of an acquisition is allocated to the net assets based on their estimated fair values. EnerConnex does not have any regulated operations.

Prior to this transaction, SJEI previously had a 25% investment in EnerConnex that was accounted for under the equity method of accounting. As this was a business combination achieved in stages, an approximately $2.0 million (pre-tax) gain was recorded as a result of remeasuring the carrying value of the previously held equity interest in EnerConnex to its acquisition date fair value. This gain was recorded in Other Income on the condensed consolidated statements of income. The acquisition date fair value of the previously held equity interest was $2.5 million and was determined based on the cash consideration exchanged for the remaining 75% of EnerConnex. The total of the $7.5 million in cash consideration for the remaining 75%, the $2.5 million acquisition date fair value of the previously held interest, and $0.2 million in assumed liabilities served as the total allocable basis shown in the preliminary purchase price allocation below.

The Company has not finalized its valuation of certain assets and liabilities in connection with the acquisition of EnerConnex. As such, the estimated measurements recorded to date are subject to change. Any changes will be recorded as adjustments to the fair value of those assets and liabilities and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to the consolidated statements of operations and cash flows. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date.

The purchase price for the EnerConnex acquisition has been allocated, on a preliminary basis, to the assets acquired and liabilities assumed as of the acquisition date and is as follows:


(in thousands)	EnerConnex
Cash	$	415
Accounts Receivable	249
Identifiable Intangible Assets (A)	4,500
Goodwill	4,890
Other Noncurrent Assets	100
Total assets acquired	10,154
Accounts Payable	4
Other Current Liabilities	150
Total liabilities assumed	154
Total net assets acquired	$	10,000

(A) The identifiable intangible asset balances shown in the table above are related to customer relationships acquired in the transaction, and are included in Other Noncurrent Assets on the condensed consolidated balance sheets.

All assets and financial results of EnerConnex are included in the Corporate & Services segment. The amount of revenues and net income included in the Company's condensed consolidated statements of income for the three and nine months ended September 30, 2020 related to EnerConnex is not material. Our results would not have been materially different if this acquisition had occurred at the beginning of the periods presented herein. The amount of acquisition-related costs for EnerConnex was not material.

Solar Projects Acquisition

SJI, through its wholly-owned subsidiary Marina, completed its acquisition of ESNJ-AL-Somers Point LLC, ESNJ-AL-Hamilton Square LLC, and ESNJ-AL-Browns Mills LLC on June 30, 2020, and acquired ESNJ-AL-Woodbury LLC on August 21, 2020. These entities own newly operational solar-generation sites located in New Jersey, and were acquired for $3.8 million in total consideration. The total purchase price equaled the fair value of property, plant, and equipment that were acquired in the transactions. Costs related to these acquisitions were not material. The purchase of these entities is in support of the New Jersey Energy Master Plan.

All assets and financial results of these entities are included in the On-Site Energy Production segment. The amount of revenues and net income included in the Company's condensed consolidated statements of income for the three and nine months ended September 30, 2020 related to these entities is not material.

AEP Acquisition

On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP for $4.0 million in total consideration, inclusive of certain working capital and other closing adjustments.

AEP does not have any regulated operations.

The Company has finalized its valuation of assets and liabilities in connection with the acquisition of AEP. There are no changes to the purchase price or the allocation disclosed in Note 20 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2019. All assets and financial results of AEP are included in the Corporate & Services segment. The amount of revenues and net income included in the Company's condensed consolidated statements of income for the three and nine months ended September 30, 2020 related to AEP is not material. Our results would not have been materially different if this acquisition had occurred at the beginning of the prior periods presented herein. The amount of acquisition-related costs for AEP was not material.