NOTE 15. SUPPLEMENTAL CASH FLOW INFORMATION

A reconciliation of net income to net cash flows from operating activities follows:


	UNS Energy
	Years Ended December 31,
	2012			2011			2010
	-Thousands of Dollars-
Net Income	$	90,919		$	109,975		$	112,984
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities
Depreciation Expense		141,303			133,832			128,215
Amortization Expense		35,784			30,983			28,094
Depreciation and Amortization Recorded to Fuel and O&M Expense		6,622			6,140			5,432
Amortization of Deferred Debt-Related Costs included in Interest Expense		3,000			3,985			3,753
Provision for Retail Customer Bad Debts		2,767			2,072			3,724
Use of Renewable Energy Credits for Compliance		5,935			5,695			4,745
Deferred Income Taxes		60,273			75,787			28,142
Deferred Tax Valuation Allowance		(9	)		(272	)		7,510
Pension and Retiree Expense		21,856			21,202			19,688
Pension and Retiree Funding		(29,058	)		(28,775	)		(27,742	)
Share-Based Compensation Expense		2,573			2,599			2,751
Excess Tax Benefit from Stock Options Exercised		(145	)		—			(3,338	)
Allowance for Equity Funds Used During Construction		(3,464	)		(4,496	)		(4,232	)
Increase (Decrease) to Reflect PPFAC/PGA Recovery		32,246			(4,932	)		(29,622	)
Competition Transition Charge Revenue Refunded		—			(35,958	)		(10,095	)
Partial Write-off of Tucson to Nogales Transmission Line		4,668			—			—
Liquidated Damages for Springerville Unit 3 Outage		2,050			—			—
Gain on Settlement of El Paso Electric Dispute		—			(7,391	)		—
Loss on Millennium’s Investments		—			—			9,936
Changes in Assets and Liabilities which Provided (Used)
Cash Exclusive of Changes Shown Separately
Accounts Receivable		3,369			2,743			(8,851	)
Materials and Fuel Inventory		(39,429	)		(20,864	)		21,744
Accounts Payable		595			8,792			2,661
Income Taxes		(11,557	)		(2,739	)		24,470
Interest Accrued		6,922			14,344			14,354
Taxes Other Than Income Taxes		(58	)		2,857			2,442
Current Regulatory Liabilities		(684	)		2,644			2,788
Other		11,631			19,097			7,367

Net Cash Flows – Operating Activities	$	348,109		$	337,320		$	346,920


	TEP
	Years Ended December 31,
	2012			2011			2010
	-Thousands of Dollars-
Net Income	$	65,470		$	85,334		$	108,260
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities
Depreciation Expense		110,931			104,894			99,510
Amortization Expense		39,493			34,650			32,196
Depreciation and Amortization Recorded to Fuel and O&M Expense		5,384			4,509			3,855
Amortization of Deferred Debt-Related Costs included in Interest Expense		2,227			2,378			2,146
Provision for Retail Customer Bad Debts		1,871			1,447			2,506
Use of Renewable Energy Credits for Compliance		5,071			5,190			4,245
Deferred Income Taxes		45,232			59,309			24,897
Pension and Retiree Expense		19,289			18,816			17,454
Pension and Retiree Funding		(25,899	)		(25,878	)		(25,672	)
Share-Based Compensation Expense		2,029			2,027			2,131
Allowance for Equity Funds Used During Construction		(2,840	)		(3,842	)		(3,567	)
Increase (Decrease) to Reflect PPFAC Recovery		31,113			(6,165	)		(21,541	)
Competition Transition Charge Revenue Refunded		—			(35,958	)		(10,095	)
Partial Write-off of Tucson to Nogales Transmission Line		4,484			—			—
Liquidated Damages for Springerville Unit 3 Outage		2,050			—			—
Gain on Settlement of El Paso Electric Dispute		—			(7,391	)		—
Changes in Assets and Liabilities which Provided (Used)
Cash Exclusive of Changes Shown Separately
Accounts Receivable		(871	)		4,809			(5,156	)
Materials and Fuel Inventory		(38,384	)		(19,789	)		20,920
Accounts Payable		1,115			14,561			(447	)
Income Taxes		(11,421	)		(5,582	)		20,203
Interest Accrued		8,055			14,268			14,431
Taxes Other Than Income Taxes		905			2,282			1,469
Current Regulatory Liabilities		(3,040	)		303			2,500
Other		5,655			18,122			12,238

Net Cash Flows – Operating Activities	$	267,919		$	268,294		$	302,483

NON-CASH TRANSACTIONS

In 2012, the following non-cash transactions occurred:

•

UNS Energy converted $147 million of the previously outstanding $150 million Convertible Senior Notes into Common Shares. See Note 6; and

•

TEP redeemed $193 million of tax-exempt bonds and reissued debt using a trustee. Since the cash flowed through trust accounts, the redemption and reissuance of debt resulted in a non-cash transaction at TEP. See Note 6.

In 2010, the following non-cash transactions occurred:

•

TEP used a trustee to issue and redeem $37 million tax-exempt bonds. TEP had no cash receipts or payments as a result of this transaction. See Note 6; and

•

TEP deposited proceeds from the issuance of $100 million Pima County tax-exempt IDBs in a construction fund with a trustee. TEP drew down funds as qualified expenditures were incurred. The $11 million remaining in the construction fund at December 31, 2010, affected recognized assets and liabilities but did not result in cash receipts or payments. TEP drew down the remaining funds in the construction fund by March 2011. See Note 6.

Other non-cash investing and financing activities that affected recognized assets and liabilities but did not result in cash receipts or payments were as follows:


	Years Ended December 31,
	2012		2011			2010
	-Thousands of Dollars-
(Decrease)/Increase to Utility Plant Accruals⁽¹⁾	$	4,813	$	(2,741	)	$	8,514
Net Cost of Removal of Interim Retirements⁽²⁾		35,983		31,626			4,592
Capital Lease Obligations⁽³⁾		11,967		15,162			16,630
Asset Retirement Obligations⁽⁴⁾		789		7,638			(1,872	)
UED Secured Term Loan Prepayments⁽⁵⁾		—		—			3,188

⁽¹⁾	The non-cash additions to Utility Plant represent accruals for capital expenditures.

⁽²⁾	The non-cash net cost of removal of interim retirements represents an accrual for future asset retirement obligations that does not impact earnings.

⁽³⁾	The non-cash change in capital lease obligations represents interest accrued for accounting purposes in excess of interest payments.

⁽⁴⁾	The non-cash additions to asset retirement obligations and related capitalized assets represent revision of estimated asset retirement cost due to changes in timing and amount of expected future asset retirement obligations.

⁽⁵⁾	The non-cash UED Secured Term Loan prepayment represents deposits applied to $30 million of loan principal.