-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ikGNSaWNhacA2NXujSORZt34uEncI7T3wn3gJRAAlrIEiriRQ/Mivrps03Lm0A0g yFJFA6xqyvnnPcnXb3vG4Q== 0000950147-95-000074.txt : 19950516 0000950147-95-000074.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950147-95-000074 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARIZONA PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000007286 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 860011170 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04473 FILM NUMBER: 95538526 BUSINESS ADDRESS: STREET 1: 400 N FIFTH ST STREET 2: P O BOX 53999 CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022501000 10-Q 1 FORM 10-Q FORM 10-Q Securities and Exchange Commission Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 -------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ----------------- Commission file number 1-4473 -------------- ARIZONA PUBLIC SERVICE COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) Arizona 86-0011170 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 North Fifth Street, P.O. Box 53999, Phoenix, Arizona 85072-3999 - ------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (602) 250-1000 - ------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of shares of common stock, $2.50 par value, outstanding as of May 12, 1995: 71,264,947 -i- Glossary ACC - Arizona Corporation Commission AFUDC - Allowance for funds used during construction Company - Arizona Public Service Company CSW - Central and South West Corporation EPA - Environmental Protection Agency EPEC - El Paso Electric Company Four Corners - Four Corners Power Plant ITCs - Investment tax credits 1994 10-K - Arizona Public Service Company Annual Report on Form 10-K for the fiscal year ended December 31, 1994 Palo Verde - Palo Verde Nuclear Generating Station Pinnacle West - Pinnacle West Capital Corporation SFAS No. 71 - Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" SFAS No. 121 - Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" INDEPENDENT ACCOUNTANTS' REPORT Arizona Public Service Company: We have reviewed the accompanying condensed balance sheet of Arizona Public Service Company as of March 31, 1995 and the related condensed statements of income for the three-month and twelve-month periods ended March 31, 1995 and 1994 and cash flows for the three-month periods ended March 31, 1995 and 1994. These condensed financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of Arizona Public Service Company as of December 31, 1994 and the related statements of income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated March 3, 1995, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 1994 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Phoenix, Arizona May 11, 1995 PART I - FINANCIAL INFORMATION Item 1. Financial Statements ARIZONA PUBLIC SERVICE COMPANY CONDENSED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, 1995 1994 --------- --------- (Thousands of Dollars) ELECTRIC OPERATING REVENUES ......................... $ 336,968 $ 346,049 --------- --------- FUEL EXPENSES: Fuel for electric generation ...................... 46,710 57,968 Purchased power ................................... 8,210 10,063 --------- --------- Total .......................................... 54,920 68,031 --------- --------- OPERATING REVENUES LESS FUEL EXPENSES ............... 282,048 278,018 --------- --------- OTHER OPERATING EXPENSES: Operations excluding fuel expenses ................ 65,566 66,336 Maintenance ....................................... 25,866 31,285 Depreciation and amortization ..................... 60,426 57,910 Income taxes - current ............................ 17,167 12,944 Income taxes - deferred ........................... 4,455 8,192 Other taxes ....................................... 35,354 34,204 --------- --------- Total .......................................... 208,834 210,871 --------- --------- OPERATING INCOME .................................... 73,214 67,147 --------- --------- OTHER INCOME (DEDUCTIONS): AFUDC - equity .................................... 1,186 846 Palo Verde accretion income ....................... -- 19,980 Other - net ....................................... 4,784 (396) Income taxes - current ............................ (2,061) 506 Income taxes - deferred ........................... 3,783 (7,299) --------- --------- Total .......................................... 7,692 13,637 --------- --------- INCOME BEFORE INTEREST DEDUCTIONS ................... 80,906 80,784 --------- --------- INTEREST DEDUCTIONS: Interest on long-term debt ........................ 41,872 39,476 Interest on short-term borrowings ................. 1,224 1,595 Debt discount, premium and expense ................ 1,974 2,412 AFUDC - debt ...................................... (1,996) (1,167) --------- --------- Total .......................................... 43,074 42,316 --------- --------- NET INCOME .......................................... 37,832 38,468 PREFERRED STOCK DIVIDEND REQUIREMENTS ............... 4,807 7,510 --------- --------- EARNINGS FOR COMMON STOCK ........................... $ 33,025 $ 30,958 ========= ========= See Notes to Condensed Financial Statements. ARIZONA PUBLIC SERVICE COMPANY CONDENSED STATEMENTS OF INCOME (Unaudited) Twelve Months Ended March 31, 1995 1994 ----------- ----------- (Thousands of Dollars) ELECTRIC OPERATING REVENUES ...................... $ 1,617,087 $ 1,594,572 ----------- ----------- FUEL EXPENSES: Fuel for electric generation ................... 225,845 234,394 Purchased power ................................ 61,733 68,679 ----------- ----------- Total ....................................... 287,578 303,073 ----------- ----------- OPERATING REVENUES LESS FUEL EXPENSES ............ 1,329,509 1,291,499 ----------- ----------- OTHER OPERATING EXPENSES: Operations excluding fuel expenses ............. 291,522 285,822 Maintenance .................................... 114,210 121,904 Depreciation and amortization .................. 238,624 225,031 Income taxes - current ......................... 110,872 91,090 Income taxes - deferred ........................ 57,816 69,579 Other taxes .................................... 141,965 137,879 ----------- ----------- Total ....................................... 955,009 931,305 ----------- ----------- OPERATING INCOME ................................. 374,500 360,194 ----------- ----------- OTHER INCOME (DEDUCTIONS): AFUDC - equity .................................. 4,281 2,520 Palo Verde accretion income ..................... 13,616 76,870 Other - net ..................................... 21,195 (2,001) Income taxes - current .......................... 3,363 4,309 Income taxes - deferred ......................... (3,890) (26,238) ----------- ----------- Total ....................................... 38,565 55,460 ----------- ----------- INCOME BEFORE INTEREST DEDUCTIONS ................ 413,065 415,654 ----------- ----------- INTEREST DEDUCTIONS: Interest on long-term debt ..................... 162,236 162,275 Interest on short-term borrowings .............. 5,834 6,776 Debt discount, premium and expense ............. 8,416 9,349 AFUDC - debt ................................... (6,271) (4,434) ----------- ----------- Total ....................................... 170,215 173,966 ----------- ----------- NET INCOME ....................................... 242,850 241,688 PREFERRED STOCK DIVIDEND REQUIREMENTS ............ 22,571 30,461 ----------- ----------- EARNINGS FOR COMMON STOCK ........................ $ 220,279 $ 211,227 =========== =========== See Notes to Condensed Financial Statements. ARIZONA PUBLIC SERVICE COMPANY CONDENSED BALANCE SHEETS ASSETS (Unaudited)
March 31, December 31, 1995 1994 ----------- ----------- (Thousands of Dollars) UTILITY PLANT: Electric plant in service and held for future use .................. $ 6,499,665 $ 6,475,249 Less accumulated depreciation and amortization ..................... 2,175,110 2,122,439 ----------- ----------- Total ........................................................... 4,324,555 4,352,810 Construction work in progress ...................................... 234,865 224,312 Nuclear fuel, net of amortization .................................. 62,857 46,951 ----------- ----------- Utility plant - net ............................................. 4,622,277 4,624,073 ----------- ----------- INVESTMENTS AND OTHER ASSETS : ............................................ 91,554 90,105 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents .......................................... 9,898 6,532 Accounts receivable: Service customers ............................................... 79,368 103,711 Other ........................................................... 23,551 27,008 Allowance for doubtful accounts ................................. (1,271) (2,176) Accrued utility revenues ........................................... 45,547 55,432 Materials and supplies, at average cost ............................ 90,872 89,864 Fossil fuel, at average cost ....................................... 35,762 35,735 Deferred income taxes .............................................. 16,917 19,114 Other .............................................................. 16,991 14,162 ----------- ----------- Total current assets ............................................ 317,635 349,382 ----------- ----------- DEFERRED DEBITS: Regulatory asset for income taxes .................................. 555,004 557,049 Palo Verde Unit 3 cost deferral .................................... 290,296 292,586 Palo Verde Unit 2 cost deferral .................................... 170,421 171,936 Unamortized costs of reacquired debt ............................... 60,827 60,942 Unamortized debt issue costs ....................................... 19,150 17,673 Other .............................................................. 193,786 184,515 ----------- ----------- Total deferred debits ........................................... 1,289,484 1,284,701 ----------- ----------- TOTAL ........................................................... $ 6,320,950 $ 6,348,261 =========== =========== See Notes to Condensed Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY CONDENSED BALANCE SHEETS LIABILITIES (Unaudited)
March 31, December 31, 1995 1994 ---------- ---------- (Thousands of Dollars) CAPITALIZATION: Common stock ............................................. $ 178,162 $ 178,162 Premiums and expenses - net .............................. 1,039,299 1,039,303 Retained earnings ........................................ 344,180 353,655 ---------- ---------- Common stock equity ................................... 1,561,641 1,571,120 Non-redeemable preferred stock ........................... 193,561 193,561 Redeemable preferred stock ............................... 75,000 75,000 Long-term debt less current maturities ................... 2,156,828 2,181,832 ---------- ---------- Total capitalization .................................. 3,987,030 4,021,513 ---------- ---------- CURRENT LIABILITIES: Commercial paper ......................................... 80,500 131,500 Current maturities of long-term debt ..................... 53,364 3,428 Accounts payable ......................................... 75,721 110,854 Accrued taxes ............................................ 142,941 89,412 Accrued interest ......................................... 34,451 45,170 Other .................................................... 60,769 50,487 ---------- ---------- Total current liabilities ............................. 447,746 430,851 ---------- ---------- DEFERRED CREDITS AND OTHER: Deferred income taxes .................................... 1,436,473 1,436,184 Deferred investment tax credit ........................... 139,136 142,994 Unamortized gain - sale of utility plant ................. 96,352 98,551 Customer advances for construction ....................... 17,628 16,564 Other .................................................... 196,585 201,604 ---------- ---------- Total deferred credits and other ...................... 1,886,174 1,895,897 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 8) TOTAL ................................................. $6,320,950 $6,348,261 ========== ========== See Notes to Condensed Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ------------------- 1995 1994 --------- ------- (Thousands of Dollars) Cash Flows from Operating Activities: Net income ............................................. $ 37,832 $ 38,468 Items not requiring cash: Depreciation and amortization ........................ 60,426 57,910 Nuclear fuel amortization ............................ 7,723 6,433 AFUDC - equity ....................................... (1,186) (846) Deferred income taxes - net .......................... 4,531 16,580 Deferred investment tax credit - net ................. (3,858) (1,089) Refund obligation - net .............................. -- (5,344) Palo Verde accretion income .......................... -- (19,980) Changes in certain current assets and liabilities: Accounts receivable - net ............................ 26,895 25,327 Accrued utility revenues ............................. 9,885 12,115 Materials, supplies and fossil fuel .................. (1,035) 4,412 Other current assets ................................. (2,829) (2,302) Accounts payable ..................................... (26,184) (17,920) Accrued taxes ........................................ 53,529 44,601 Accrued interest ..................................... (10,719) (7,759) Other current liabilities ............................ 10,302 12,863 Other - net ............................................ (12,566) 2,993 --------- --------- Net cash flow provided by operating activities ..... 152,746 166,462 --------- --------- Cash Flows from Financing Activities: Long-term debt ......................................... 73,811 98,899 Short-term borrowings - net ............................ (51,000) (69,000) Dividends paid on common stock ......................... (42,500) (42,500) Dividends paid on preferred stock ...................... (4,827) (7,621) Repayment of preferred stock ........................... (4) (14,225) Repayment and reacquisition of long-term debt .......... (51,867) (60,285) --------- --------- Net cash flow used for financing activities ....... (76,387) (94,732) --------- --------- Cash Flows from Investing Activities: Capital expenditures ................................... (72,730) (68,684) AFUDC - equity ......................................... 1,186 846 Other .................................................. (1,449) (2,842) --------- --------- Net cash flow used for investing activities ........ (72,993) (70,680) --------- --------- Net increase in cash and cash equivalents ................ 3,366 1,050 Cash and cash equivalents at beginning of period ......... 6,532 7,557 --------- --------- Cash and cash equivalents at end of period ............... $ 9,898 $ 8,607 ========= ========= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest (excluding capitalized interest) ............ $ 51,900 $ 47,246 Income taxes ......................................... $ -- $ -- See Notes to Condensed Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited condensed financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position of the Company as of March 31, 1995, the results of operations for the three months and twelve months ended March 31, 1995 and 1994, and the cash flows for the three months ended March 31, 1995 and 1994. It is suggested that these condensed financial statements and notes to condensed financial statements be read in conjunction with the financial statements and notes to financial statements included in the 1994 10-K. Consistent with the 1995 presentation, prior year's electric operating revenues and other taxes have been restated to exclude sales tax on electric revenues. 2. The Company's operations are subject to seasonal fluctuations, with variations occurring in energy usage by customers from season to season and from month to month within a season, primarily as a result of changing weather conditions. For this and other reasons, the results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. 3. All the outstanding shares of common stock of the Company are owned by Pinnacle West. Pursuant to a Pledge Agreement, dated as of January 31, 1990, and as part of a restructuring of substantially all of its outstanding indebtedness, Pinnacle West granted certain of its lenders a security interest in all of the Company's outstanding common stock. 4. See "Liquidity and Capital Resources" in Part I, Item 2 of this report for changes in capitalization since December 31, 1994. 5. In May 1994, the ACC approved a retail rate settlement agreement which provided for a net annual retail rate reduction of approximately $32.3 million ($19 million after tax), or 2.2% on average, effective June 1, 1994. As part of the settlement, the Company reversed approximately $20 million of depreciation ($15 million after tax) related to a 1991 Palo Verde write-off. The 1994 rate settlement also provided for the accelerated amortization of substantially all deferred ITCs over a five-year period beginning in 1995. In addition, the 1994 rate settlement included a moratorium on filing for permanent rate changes, except under certain circumstances, prior to the end of 1996 for both the Company and the ACC staff, and an incentive rewarding reduction in fuel and operating and maintenance cost per kilowatt-hour below established targets. 6. The Palo Verde participants have insurance for public liability payments resulting from nuclear energy hazards to the full limit of liability under federal law. This potential liability is covered by primary liability insurance provided by commercial insurance carriers in the amount of $200 million and the balance by an industry-wide retrospective assessment program. The maximum assessment per reactor under the retrospective rating program for each nuclear incident is approximately $79 million, subject to an annual limit of $10 million per incident. Based upon the Company's 29.1% interest in the three Palo Verde units, the Company's maximum potential assessment per incident is approximately $69 million, with an annual payment limitation of approximately $9 million. The Palo Verde participants maintain "all risk" (including nuclear hazards) insurance for property damage to, and decontamination of, property at Palo Verde in the aggregate amount of $2.78 billion, a substantial portion of which must first be applied to stabilization and decontamination. The Company has also secured insurance against portions of any increased cost of generation or purchased power and business interruption resulting from a sudden and unforeseen outage of any of the three units. The insurance coverage discussed in this and the previous paragraph is subject to certain policy conditions and exclusions. 7. The Company has encountered tube cracking in the Palo Verde steam generators and has taken, and will continue to take, remedial actions that it believes have slowed further tube problems to manageable levels. Although the steam generators are capable of operating for their designed life of 40 years, the Company believes that, at some point, long-term economic considerations could make steam generator replacement desirable. 8. El Paso Electric Company, one of the joint owners of Palo Verde and Four Corners, has been operating under Chapter 11 of the Bankruptcy Code since 1992. A plan whereby EPEC would become a wholly-owned subsidiary of Central and South West Corporation has been confirmed by the bankruptcy court, but cannot become fully effective until several other approvals are obtained. Under the plan, certain issues, including EPEC allegations regarding the 1989-1990 Palo Verde outages, would be resolved, and EPEC would assume the joint facilities operating agreements. CSW has stated that several matters have arisen which may impede completion of the merger. If the plan is not approved, the Company does not expect that there would be a material adverse effect on its operations or financial position. ARIZONA PUBLIC SERVICE COMPANY Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Operating Results The following table summarizes the Company's revenues and earnings for the three-month and twelve-month periods ended March 31, 1995 and 1994: Periods ended March 31 (Thousands of Dollars) Three Months Twelve Months ----------------------- ----------------------- 1995 1994 1995 1994 ----------------------- ----------------------- Operating revenues ......... $ 336,968 $ 346,049 $1,617,087 $1,594,572 Earnings for common stock ...................... $ 33,025 $ 30,958 $ 220,279 $ 211,227 Operating Results - Three-month period ended March 31, 1995 compared to three-month period ended March 31, 1994 Earnings increased in the three-month period ended March 31, 1995 primarily due to lower fuel costs, lower operations and maintenance expenses, a gain recognized on the sale of a small subsidiary, and lower preferred stock dividends. Fuel expense was lower due largely to lower average fuel costs resulting from increased nuclear generation and lower natural gas and coal prices. Operations and maintenance expenses decreased due to improved Palo Verde operations and lower fossil plant overhaul costs. Preferred stock dividends decreased due to less preferred stock outstanding. Partially offsetting these positive factors were decreased operating revenues and the absence of non-cash income related to a 1991 rate settlement, which the Company completed recording in May 1994 (see "Other Income" below). Operating revenues were down primarily due to milder weather and a retail rate reduction which became effective June 1, 1994 (see Note 5 of Notes to Condensed Financial Statements in Part I, Item 1 of this report), partially offset by customer growth. The effects of the rate reduction were substantially offset by the accelerated amortization of investment tax credits provided for in the 1994 rate settlement. Operating Results - Twelve-month period ended March 31, 1995 compared to twelve-month period ended March 31, 1994 Earnings increased in the twelve-month period ended March 31, 1995 primarily due to increased operating revenues, lower fuel expenses, and lower preferred stock dividends. Operating revenues were up due to customer growth and warmer weather, partially offset by a retail rate reduction which became effective June 1, 1994. The effects of the rate reduction were offset by the reversal of certain previously recorded depreciation related to Palo Verde (see Note 5 of Notes to Condensed Financial Statements in Part I, Item 1 of this report) and the accelerated amortization of investment tax credits. Although sales were up, fuel expenses were down primarily due to lower average fuel costs resulting from increased nuclear generation. Preferred stock dividends were lower due to less preferred stock outstanding. Partially offsetting these positive factors were the decrease in non-cash income related to the 1991 rate settlement (see "Other Income" below) and increased depreciation expense. Depreciation expense was up primarily due to higher plant balances and increased nuclear decommissioning costs reflecting the most recent site-specific study. Other Income Other income reflects accounting practices required for regulated public utilities and represents a composite of cash and non-cash items, including AFUDC. For the three months ended March 31, 1995, other income included a gain of about $5 million on the sale of a small subsidiary. Included in other income for the twelve months ended March 31, 1995, were $8.2 million of after-tax accretion income on Palo Verde Unit 3 and a one-time depreciation reversal related to Palo Verde of approximately $15.0 million, after tax. See Note 5 of Notes to Condensed Financial Statements in Part I, Item 1 of this report. Other non-cash income, in the twelve months ended March 31, 1995, included $2.4 million of after-tax income (included in operating revenues) from the reversal of the Palo Verde refund obligation which was recorded in accordance with the 1991 rate settlement. The Company has recorded all of the Unit 3 accretion income and refund reversals related to the 1991 rate settlement. See Note 1 of Notes to Financial Statements in Part II, Item 8 of the 1994 10-K. Liquidity and Capital Resources For the three months ended March 31, 1995, the Company incurred approximately $61 million in construction expenditures, accounting for approximately 20% of the most recently estimated 1995 construction expenditures. The Company has estimated total construction expenditures for the years 1995, 1996, and 1997 to be approximately $300 million, $257 million, and $236 million, respectively. These amounts include about $27 million each year for nuclear fuel expenditures. Since December 31, 1994, the Company has (i) issued $75 million of its Junior Subordinated Deferrable Interest Debentures ("MIDS"), (ii) incurred approximately $4 million of long-term debt in connection with a tax-exempt financing, (iii) redeemed on March 2, 1995, $49.15 million of its First Mortgage Bonds, 10.25% Series due 2000, (iv) repurchased on March 17, 1995, approximately $2.5 million of its First Mortgage Bonds, 9 1/2% Series due 2021, and (v) redeemed on May 1, 1995, $50 million of its First Mortgage Bonds, 13 1/4% Series due 2007 (the "13 1/4% Bonds"). Refunding obligations for preferred stock and long-term debt, a capitalized lease obligation, and certain actual and anticipated early redemptions, including premiums thereon, are expected to total approximately $109 million, $4 million, and $164 million for the years 1995, 1996, and 1997, respectively. During the first three months of 1995, the Company refunded approximately $52 million (48%) of the estimated 1995 total. Provisions in the Company's mortgage bond indenture and articles of incorporation require certain coverage ratios to be met before the Company can issue additional first mortgage bonds or preferred stock. In addition, the bond indenture limits the amount of additional first mortgage bonds which may be issued to a percentage of net property additions, to the amount of certain first mortgage bonds that have been redeemed or retired, and/or to cash deposited with the mortgage bond trustee. As of March 31, 1995, and adjusting for the (i) incurrence of approximately $4 million of long-term debt in connection with a tax-exempt financing and (ii) redemption of the 13 1/4% Bonds, the Company estimates that the mortgage bond indenture and the articles of incorporation would have allowed the Company to issue up to approximately $1.417 billion and $928 million of additional first mortgage bonds and preferred stock, respectively. The ACC has authority over the Company with respect to the issuance of long-term debt and equity securities. Existing ACC orders allow the Company to have up to approximately $2.6 billion in long-term debt and approximately $501 million of preferred stock outstanding at any one time. Management does not expect any of the foregoing restrictions to limit the Company's ability to meet its capital requirements. Accounting Issue In March 1995 the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which is effective in 1996. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss would be recognized if the sum of the estimated future undiscounted cash flows to be generated by an asset is less than its carrying value. The amount of the loss would be based on a comparison of book value to fair value. The standard also amends SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," to require write-off of a regulatory asset if it is no longer probable that future revenues will recover the cost of the asset. This new standard does not impact the Company at this time, however, it will be reviewed on an ongoing basis. Competition A significant challenge for the Company will be how well it is able to respond to increasingly competitive conditions in the electric utility industry, while continuing to earn an acceptable return for its shareholders. Strategies emphasize managing costs, stabilizing electric rates, negotiating long-term contracts with large customers and capitalizing on the growth characteristics of its service territory. One of the issues that must be addressed responsibly is the recovery in a more competitive environment of the carrying value of assets acquired or recorded under the existing regulatory environment. Pursuant to the 1994 rate settlement, APS and the ACC staff will develop certain procedures that are responsive to the competitive forces in larger customer segments, with the objective of making joint recommendations to the ACC in 1995. A separate ACC proceeding on competition was opened by the ACC in mid-1994 and is expected to continue for some months. As the forces of competition continue to impact the industry, it will become clearer as to what customer sectors and what regions will be most affected and what strategies are best to deal with those forces. PART II - OTHER INFORMATION ITEM 5. Other Information Construction and Financing Programs See "Liquidity and Capital Resources" in Part I, Item 2 of this report for a discussion of the Company's construction and financing programs. Environmental Matters As previously reported, on November 24, 1994, the United States Court of Appeals for the District of Columbia Circuit vacated the rules for nitrogen oxides emissions limitations and remanded them to the EPA for further consideration. See "Environmental Matters" in Part I, Item 1 of the 1994 10-K. On March 28, 1995, the EPA issued revised rules for nitrogen oxides emissions limitations, which will require the Company to install additional pollution control equipment at Four Corners. In the year 2000 Four Corners must comply with either these or more stringent requirements which might be promulgated by the EPA. The EPA has until 1997 to set more stringent requirements. Based on its initial evaluation, the Company currently estimates its capital cost of complying with the March 28 rules will be approximately $20 million, most of which will be incurred in 1997. As previously reported, the EPA established a "Grand Canyon Visibility Transport Commission" to complete a study by November 1995 on visibility impairment in the "Golden Circle of National Parks" in the Colorado Plateau. See "Environmental Matters" in Part I, Item 1 of the 1994 10-K. The EPA recently agreed to the extension of the completion of this study until March or April 1996. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description ----------- ----------- 15.1 Letter in Lieu of Consent Regarding Unaudited Interim Financial Information 27 Financial Data Schedule (b) Reports on Form 8-K During the quarter ended March 31, 1995, and the period ended May 12, 1995, the Company filed the following reports on Form 8-K: Report filed January 11, 1995, comprised of exhibits to the Company's Registration Statements (Registration Nos. 33-61228 and 33-55473) relating to the Company's offering of $75 million of its Junior Subordinated Deferrable Interest Debentures. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARIZONA PUBLIC SERVICE COMPANY (Registrant) Dated: May 12, 1995 By Jaron B. Norberg ------------------------- ---------------- Jaron B. Norberg Executive Vice President and Chief Financial Officer (Principal Financial Officer and Officer Duly Authorized to sign this Report) EX-15.1 2 Exhibit 15.1 May 11, 1995 Arizona Public Service Company Post Office Box 53999 Phoenix, Arizona 85072-3999 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Arizona Public Service Company for the periods ended March 31, 1995 and 1994, as indicated in our report dated May 11, 1995; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, is incorporated by reference in Registration Statement Nos. 33-51085, 33-57822, 33-61228 and 33-55473 on Form S-3. We are also aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1993, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Phoenix, Arizona EX-27 3 FDS
UT 1,000 U.S. DOLLARS 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 1 PER-BOOK 4,622,277 91,554 317,635 1,289,484 0 6,320,950 178,162 1,039,299 344,180 1,561,641 75,000 193,561 2,156,828 0 0 80,500 53,364 0 0 0 2,200,056 6,320,950 336,968 21,622 242,132 263,754 73,214 7,692 80,906 43,074 37,832 4,807 33,025 42,500 40,310 152,746 0 0
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