-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BHNJbFeSEkfYNUNvxeVER6su1rQztYYkP+uJw73IFkeVplUiMPDLOZ3picXmQnm5 O3DnJj5DKAtvqGo9mLhYKQ== 0000950147-96-000330.txt : 19960911 0000950147-96-000330.hdr.sgml : 19960911 ACCESSION NUMBER: 0000950147-96-000330 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PINNACLE WEST CAPITAL CORP CENTRAL INDEX KEY: 0000764622 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 860512431 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08962 FILM NUMBER: 96609027 BUSINESS ADDRESS: STREET 1: 400 E VAN BUREN ST P.O. BOX 52132 CITY: PHOENIX STATE: AZ ZIP: 85072-2132 BUSINESS PHONE: 6023792616 MAIL ADDRESS: STREET 1: 400 E VAN BUREN ST STREET 2: P.O. BOX 52132 CITY: PHOENIX STATE: AZ ZIP: 85072-2132 FORMER COMPANY: FORMER CONFORMED NAME: AZP GROUP INC DATE OF NAME CHANGE: 19870506 10-Q 1 SECOND QUARTER REPORT 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 June 30, 1996 ------------------------ 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 1-8962 --------------- PINNACLE WEST CAPITAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Arizona 86-0512431 - - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 400 E. Van Buren St., P.O. Box 52132, Phoenix, Arizona 85072-2132 - - ---------------------------------------------------------- ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (602) 379-2500 - - -------------------------------------------------------------------------------- (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, no par value, outstanding as of August 1, 1996: 87,443,399 - i - Glossary -------- ACC -- Arizona Corporation Commission ACC Staff -- Staff of the Arizona Corporation Commission AFUDC -- Allowance for funds used during construction APS -- Arizona Public Service Company Company -- Pinnacle West Capital Corporation El Dorado -- El Dorado Investment Company EPA -- Environmental Protection Agency ITCs -- Investment tax credits March 10-Q -- Pinnacle West Capital Corporation Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996 1995 10-K -- Pinnacle West Capital Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1995 Palo Verde -- Palo Verde Nuclear Generating Station Pinnacle West -- Pinnacle West Capital Corporation SunCor -- SunCor Development Company PART I. FINANCIAL INFORMATION ----------------------------- Item 1. Financial Statements. - - ----------------------------- PINNACLE WEST CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended June 30, 1996 1995 ------------ ------------ Operating Revenues Electric $ 426,658 $ 380,178 Real estate 26,150 13,053 ------------ ------------ Total 452,808 393,231 ------------ ------------ Fuel Expenses Fuel for electric generation 57,289 44,823 Purchased power 22,466 17,814 ------------ ------------ Total 79,755 62,637 ------------ ------------ Operating Expenses Utility operations and maintenance 100,296 94,251 Real estate operations 25,811 12,856 Depreciation and amortization 59,342 60,843 Taxes other than income taxes 35,510 35,435 ------------ ------------ Total 220,959 203,385 ------------ ------------ Operating Income 152,094 127,209 ------------ ------------ Other Income (Deductions) Allowance for equity funds used during construction 2,003 1,348 Interest on long-term debt (44,675) (52,677) Other interest (6,201) (4,517) Allowance for borrowed funds used during construction 2,164 2,355 Preferred stock dividend requirements of APS (4,326) (4,776) Other-net (980) 1,286 ------------ ------------ Total (52,015) (56,981) ------------ ------------ Income Before Income Taxes and Extraordinary Charge 100,079 70,228 Income Tax Expense 38,625 27,979 ------------ ------------ Income Before Extraordinary Charge 61,454 42,249 Extraordinary Charge for Early Retirement of Debt, Net of Income Tax of $1,674 (2,471) - ------------ ------------ Net Income $ 58,983 $ 42,249 ============ ============ Average Common Shares Outstanding 87,420,263 87,403,426 Earnings Per Average Common Share Outstanding: Income Before Extraordinary Charge $ 0.70 $ 0.48 Extraordinary Charge (0.03) - ------------ ------------ Total $ 0.67 $ 0.48 ============ ============ Dividends Declared Per Share $ 0.250 $ 0.225 ============ ============
See Notes to Condensed Consolidated Financial Statements. 1 PINNACLE WEST CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (Unaudited) (Dollars in thousands, except per share amounts)
Six Months Ended June 30, 1996 1995 ------------ ------------ Operating Revenues Electric $ 771,919 $ 717,146 Real estate 42,144 22,199 ------------ ------------ Total 814,063 739,345 ------------ ------------ Fuel Expenses Fuel for electric generation 99,623 91,533 Purchased power 36,404 26,024 ------------ ------------ Total 136,027 117,557 ------------ ------------ Operating Expenses Utility operations and maintenance 188,039 185,683 Real estate operations 43,353 20,351 Depreciation and amortization 118,277 121,690 Taxes other than income taxes 69,711 71,156 ------------ ------------ Total 419,380 398,880 ------------ ------------ Operating Income 258,656 222,908 ------------ ------------ Other Income (Deductions) Allowance for equity funds used during construction 3,678 2,534 Interest on long-term debt (90,584) (107,597) Other interest (11,047) (7,753) Allowance for borrowed funds used during construction 5,401 4,351 Preferred stock dividend requirements of APS (8,803) (9,583) Other-net 687 5,878 ------------ ------------ Total (100,668) (112,170) ------------ ------------ Income Before Income Taxes and Extraordinary Charge 157,988 110,738 Income Tax Expense 61,675 43,866 ------------ ------------ Income Before Extraordinary Charge 96,313 66,872 Extraordinary Charge for Early Retirement of Debt, Net of Income Tax of $4,110 (6,068) - ------------ ------------ Net Income $ 90,245 $ 66,872 ============ ============ Average Common Shares Outstanding 87,435,309 87,398,822 Earnings Per Average Common Share Outstanding: Income Before Extraordinary Charge $ 1.10 $ 0.77 Extraordinary Charge (0.07) - ------------ ------------ Total $ 1.03 $ 0.77 ============ ============ Dividends Declared Per Share $ 0.500 $ 0.450 ============ ============
See Notes to Condensed Consolidated Financial Statements. 2 PINNACLE WEST CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (Unaudited) (Dollars in thousands, except per share amounts)
Twelve Months Ended June 30, 1996 1995 ------------ ------------ Operating Revenues Electric $ 1,669,725 $ 1,600,109 Real estate 74,791 56,592 ------------ ------------ Total 1,744,516 1,656,701 ------------ ------------ Fuel Expenses Fuel for electric generation 217,018 210,578 Purchased power 71,250 63,243 ------------ ------------ Total 288,268 273,821 ------------ ------------ Operating Expenses Utility operations and maintenance 403,170 391,539 Real estate operations 73,346 55,877 Depreciation and amortization 240,576 242,868 Taxes other than income taxes 140,984 141,717 ------------ ------------ Total 858,076 832,001 ------------ ------------ Operating Income 598,172 550,879 ------------ ------------ Other Income (Deductions) Allowance for equity funds used during construction 6,126 4,652 Interest on long-term debt (192,280) (223,841) Other interest (20,269) (14,974) Allowance for borrowed funds used during construction 10,115 7,276 Preferred stock dividend requirements of APS (18,354) (20,375) Other-net (8,687) 2,662 ------------ ------------ Total (223,349) (244,600) ------------ ------------ Income Before Income Taxes and Extraordinary Charge 374,823 306,279 ------------ ------------ Income Taxes Income tax expense 145,774 135,879 Non-recurring income tax benefit - (26,770) ------------ ------------ Total 145,774 109,109 ------------ ------------ Income Before Extraordinary Charge 229,049 197,170 Extraordinary Charge for Early Retirement of Debt, Net of Income Tax of $11,944 (17,639) - ------------ ------------ Net Income $ 211,410 $ 197,170 ============ ============ Average Common Shares Outstanding 87,437,388 87,401,261 Earnings Per Average Common Share Outstanding: Income Before Extraordinary Charge $ 2.62 $ 2.26 Extraordinary Charge (0.20) - ------------ ------------ Total $ 2.42 $ 2.26 ============ ============ Dividends Declared Per Share $ 0.975 $ 0.875 ============ ============
See Notes to Condensed Consolidated Financial Statements. 3 PINNACLE WEST CAPITAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Unaudited) ASSETS ------ (Thousands of Dollars)
June 30, December 31, 1996 1995 ---------- ----------- Current Assets Cash and cash equivalents $ 18,865 $ 79,539 Customer and other receivables--net 137,551 131,393 Accrued utility revenues 63,932 53,519 Material and supplies 77,242 78,271 Fossil fuel 17,422 21,722 Deferred income taxes 46,316 46,355 Other current assets 17,798 19,671 ---------- ---------- Total current assets 379,126 430,470 ---------- ---------- Investments and Other Assets Real estate investments--net 410,729 411,693 Other assets 167,933 151,127 ---------- ---------- Total investments and other assets 578,662 562,820 ---------- ---------- Utility Plant Electric plant in service and held for future use 6,643,725 6,544,860 Less accumulated depreciation and amortization 2,334,170 2,231,614 ---------- ---------- Total 4,309,555 4,313,246 Construction work in progress 271,889 281,757 Nuclear fuel, net of amortization 52,404 52,084 ---------- ---------- Net utility plant 4,633,848 4,647,087 ---------- ---------- Deferred Debits Regulatory asset for income taxes 544,615 548,464 Palo Verde Unit 3 cost deferral 278,845 283,426 Palo Verde Unit 2 cost deferral 162,842 165,873 Other deferred debits 366,924 358,912 ---------- ---------- Total deferred debits 1,353,226 1,356,675 ---------- ---------- Total Assets $6,944,862 $6,997,052 ========== ==========
See Notes to Condensed Consolidated Financial Statements. 4 PINNACLE WEST CAPITAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Unaudited) LIABILITIES AND EQUITY ---------------------- (Thousands of Dollars)
June 30, December 31, 1996 1995 ---------- ------------ Current Liabilities Accounts payable $ 99,189 $ 114,963 Accrued taxes 118,687 95,962 Accrued interest 44,651 48,958 Dividends payable 21,879 - Short-term borrowings 194,265 177,800 Current maturities of long-term debt 317,685 8,780 Customer deposits 34,709 32,746 Other current liabilities 33,437 25,284 ---------- ---------- Total current liabilities 864,502 504,493 ---------- ---------- Long-Term Debt Less Current Maturities 2,116,131 2,510,709 ---------- ---------- Deferred Credits and Other Deferred income taxes 1,327,677 1,327,881 Deferred investment tax credit 86,691 97,897 Unamortized gain - sale of utility plant 89,227 91,514 Other 314,562 314,910 ---------- ---------- Total deferred credits and other 1,818,157 1,832,202 ---------- ---------- Commitments and Contingencies (Notes 6 and 7) Minority Interests Non-redeemable preferred stock of APS 173,526 193,561 ---------- ---------- Redeemable preferred stock of APS 66,000 75,000 ---------- ---------- Common Stock Equity Common stock, no par value 1,639,492 1,638,684 Retained earnings 267,054 242,403 ---------- ---------- Total common stock equity 1,906,546 1,881,087 ---------- ---------- Total Liabilities and Equity $6,944,862 $6,997,052 ========== ==========
See Notes to Condensed Consolidated Financial Statements. 5 PINNACLE WEST CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Unaudited) (THOUSANDS OF DOLLARS)
Six Months Ended June 30, 1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Income before extraordinary charge $ 96,313 $ 66,872 Items not requiring cash Depreciation and amortization 134,567 137,165 Deferred income taxes--net 3,684 12,820 Allowance for equity funds used during construction (3,678) (2,534) Deferred investment tax credit (11,206) (8,167) Other--net (1,711) 4,069 Changes in current assets and liabilities Customer and other receivables -- net (5,896) 24,284 Accrued utility revenues (10,413) (9,902) Materials, supplies and fossil fuel 5,329 7,372 Other current assets 12,617 (5,233) Accounts payable (11,094) (30,668) Accrued taxes 22,725 21,596 Accrued interest (4,307) (3,892) Other current liabilities 14,225 11,391 Decrease (increase) in land held 7,156 (10,592) Other--net 557 (23,390) --------- --------- Net Cash Flow Provided By Operating Activities 248,868 191,191 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (120,810) (144,227) Allowance for borrowed funds used during construction (5,401) (4,351) Other--net (12,392) (1,259) --------- --------- Net Cash Flow Used For Investing Activities (138,603) (149,837) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of long-term debt 108,993 96,673 Short-term borrowings--net 16,465 47,755 Dividends paid on common stock (43,715) (39,330) Repayment of long-term debt (218,387) (150,003) Redemption of preferred stock (30,603) (4) Extraordinary charge for early retirement of debt (6,068) - Other--net 2,376 (130) --------- --------- Net Cash Flow Used For Financing Activities (170,939) (45,039) --------- --------- Net Cash Flow (60,674) (3,685) Cash and Cash Equivalents at Beginning of Period 79,539 34,719 --------- --------- Cash and Cash Equivalents at End of Period $ 18,865 $ 31,034 ========= ========= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest, net of amounts capitalized $ 95,810 $ 111,620 Income taxes $ 40,000 $ 21,317
See Notes to Condensed Consolidated Financial Statements. 6 PINNACLE WEST CAPITAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The condensed consolidated financial statements include the accounts of Pinnacle West and its subsidiaries: APS, SunCor and El Dorado. All significant intercompany balances have been eliminated. Certain prior year balances have been restated to conform to the current year presentation. 2. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position of Pinnacle West and its subsidiaries as of June 30, 1996, the results of operations for the three months, six months and twelve months ended June 30, 1996 and 1995, and the cash flows for the six months ended June 30, 1996 and 1995. It is suggested that these condensed consolidated financial statements and notes to condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes to consolidated financial statements included in the 1995 10-K. 3. The operations of APS 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. 4. See "Liquidity and Capital Resources" in Part I, Item 2 of this report for changes in capitalization for the six months ended June 30, 1996. 5. Regulatory Matters Regulatory Agreement In April 1996, the ACC approved a regulatory agreement between APS and the ACC Staff. This agreement is substantially the same as the agreement proposed by APS and the ACC Staff in December 1995. The major provisions of the 1996 regulatory agreement are: * An annual rate reduction of approximately $48.5 million ($29 million after income taxes), or an average 3.4% for all customers except certain contract customers, effective July 1, 1996. * Recovery of substantially all of APS' present regulatory assets through accelerated amortization over an eight-year period beginning July 1, 1996, increasing annual amortization by approximately $120 million ($72 million after income taxes). 7 * A formula for sharing future cost savings between customers and shareholders, referencing a return on equity (as defined) of 11.25%. * A moratorium on filing for permanent rate changes, except under the sharing formula and under certain other limited circumstances, prior to July 2, 1999. * Infusion of $200 million of common equity into APS by the parent company, in annual increments of $50 million starting in 1996. Competition and Electric Industry Restructuring In recognition of evolving competition in the electric utility industry and an ongoing investigation by the ACC Staff into industry restructuring in an open competition docket involving many parties, the 1996 regulatory agreement also includes an element setting out a number of issues which APS and the ACC Staff agree the ACC should be requested to consider in developing restructuring policies. See Note 3 of Notes to Consolidated Financial Statements in Part II, Item 8 of the 1995 10-K for further discussion of the industry restructuring element of the agreement. As part of the competition docket, and in response to the ACC Staff's request, on June 28, 1996 APS filed its recommended phased retail access plan under which APS proposed generation market access to larger customers beginning in the year 2000 and expanding such access to smaller commercial and industrial customers, and eventually all customers, in successive steps thereafter. APS expects that the implementation of its plan would support effective competition, including resolving issues of exclusive service territory rights, obligation to serve, reciprocity and the recovery of potentially stranded costs. Other parties have also submitted their plans as part of this docket. The ACC Staff has advised that they presently intend to prepare a draft rule on competition and will solicit comments from all parties on the draft rule. APS cannot currently predict the outcome of this matter. 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. If losses at any nuclear power plant covered by this program exceed the accumulated funds for this program, APS could be assessed retrospective premium adjustments. The maximum assessment per reactor under the program for each nuclear incident is approximately $79 million, subject to an annual limit of $10 million per incident. Based upon APS' 29.1% interest in the three Palo Verde units, APS' 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 $2.75 billion, a substantial portion of which must first be applied to stabilization and decontamination. APS has also secured insurance against portions of any increased cost of generation or purchased power and business 8 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. APS 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 the rate of tube degradation. The projected service life of the steam generators is reassessed periodically in conjunction with inspections made during scheduled outages of the Palo Verde units. APS' ongoing analyses indicate that it will be economically desirable for APS to replace the Unit 2 steam generators, which have been most affected by tube cracking, in five to ten years. APS expects that the steam generator replacement can be accomplished within financial parameters established before replacement was a consideration, and APS estimates that its share of the replacement costs (in 1996 dollars and including installation and replacement power costs) will be between $30 million and $50 million, most of which will be incurred after the year 2000. APS expects that the replacement would be performed in conjunction with a normal refueling outage in order to limit incremental outage time to approximately 50 days. Based on the latest available data, APS estimates that the Unit 1 and Unit 3 steam generators should operate for the license periods (until 2025 and 2027, respectively), although APS will continue its normal periodic assessment of these steam generators. 9 PINNACLE WEST CAPITAL CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and - - ------------------------------------------------------------------------- Results of Operations. - - ---------------------- The following discussion relates to Pinnacle West and its subsidiaries: APS, SunCor and El Dorado. LIQUIDITY AND CAPITAL RESOURCES Parent Company - - -------------- The parent company's cash requirements and its ability to fund those requirements are discussed under "Capital Needs and Resources" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the 1995 10-K. During June 1996, the parent company prepaid $30 million of its debt, incurring a prepayment penalty of $2.5 million after income taxes, reducing the aggregate principal amount to approximately $250 million. On August 12, Pinnacle West will prepay the remaining $150 million of 11.61% bond debentures due March 2000, incurring an extraordinary charge of $14.3 million after income taxes. Proceeds for the debt prepayment will be from a short-term borrowing that will be refinanced with long-term debt at a later date. As a result of the 1996 regulatory agreement (see Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report), the parent company will infuse $200 million into APS, in annual increments of $50 million starting in 1996. The Board declared a quarterly dividend of 25 cents per share of common stock totaling approximately $21.9 million, payable September 1, 1996 to shareholders of record on August 1, 1996. APS - - --- For the six months ended June 30, 1996, APS incurred approximately $114 million in capital expenditures, accounting for approximately 44% of the most recently estimated 1996 capital expenditures. APS has estimated total capital expenditures for the years 1996, 1997 and 1998 to be approximately $260 million, $284 million and $284 million, respectively. These amounts include about $30 million each year for nuclear fuel expenditures. Required and optional redemptions of preferred stock and long-term debt, including premiums thereon, and a capitalized lease obligation are expected to total 10 approximately $214 million, $164 million, and $114 million for the years 1996, 1997, and 1998, respectively. During the six months ended June 30, 1996, APS redeemed approximately $140 million of its long-term debt and approximately $30 million of its preferred stock, and incurred $100 million of long-term debt under a revolving credit agreement. It is APS' intention over the next several years to use excess cash flow to retire debt and preferred stock. Although provisions in APS' bond indenture, articles of incorporation and financing orders from the ACC restrict the issuance of additional first mortgage bonds and preferred stock, management does not expect any of these restrictions to limit APS' ability to meet its capital requirements. OPERATING RESULTS The following table shows the income and/or loss of Pinnacle West and its subsidiaries for the three-month, six-month and twelve-month periods ended June 30, 1996 and 1995: 11 Income (Loss) (Unaudited) (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1996 1995 1996 1995 1996 1995 --------- --------- --------- --------- --------- --------- APS $ 66,114 $ 48,676 $ 107,243 $ 81,701 $ 245,978 $ 210,076 SunCor 118 187 (1,092) 1,354 1,632 1,329 El Dorado 97 1,260 (39) 403 8,065 (2,721) Pinnacle West (1) (7,346) (7,874) (15,867) (16,586) (44,265) (11,514) --------- --------- --------- --------- --------- --------- NET INCOME $ 58,983 $ 42,249 $ 90,245 $ 66,872 $ 211,410 $ 197,170 ========= ========= ========= ========= ========= =========
(1)Includes Pinnacle West's interest expense, extraordinary charge for early retirement of debt and operating expenses net of income tax benefits. Income tax benefits are as follows (in thousands): $3,177 and $4,134 for the three months ended June 30, 1996 and 1995, respectively; $8,274 and $8,128 for the six months ended June 30, 1996 and 1995, respectively; and $21,253 and $49,061 for the twelve months ended June 30, 1996 and 1995, respectively. 12 APS - - --- Operating Results - Three-month period ended June 30, 1996 compared to three-month period ended June 30, 1995 Earnings increased in the three-month period ended June 30, 1996 primarily due to increased operating revenues resulting from warmer weather and customer growth. Partially offsetting the increased operating revenues were increases in fuel expenses and operations and maintenance expenses. Fuel expenses were higher due to increased retail sales, higher coal prices, and higher natural gas costs. Operations and maintenance expenses increased primarily due to the timing of charges for employee incentive plans. Operating Results - Six-month period ended June 30, 1996 compared to six-month period ended June 30, 1995 Earnings increased in the six-month period ended June 30, 1996 primarily due to increased operating revenues and lower interest expense. Operating revenues were higher due to customer growth and warmer weather. Interest expense decreased due to lower interest rates and lower debt balances. Partially offsetting these positive factors were an increase in fuel expenses and a gain on the sale of a small subsidiary in the first quarter of 1995. Fuel expenses were higher due to increased retail sales, higher coal prices, and higher natural gas costs. Operating Results - Twelve-month period ended June 30, 1996 compared to twelve-month period ended June 30, 1995 Earnings increased in the twelve-month period ended June 30, 1996 primarily due to increased operating revenues and accelerated investment tax credit amortization. Operating revenues increased due to customer growth, higher residential usage, and warmer weather. The accelerated investment tax credit amortization was a result of the 1994 rate settlement (see "Other Income" below) and is reflected as a decrease in income tax expense. Partially offsetting these positive factors were increased fuel expenses, write-downs of an office building and certain inventory, and a gain on the sale of a small subsidiary in the first quarter of 1995. Fuel expenses were higher primarily due to increased retail sales. Non-utility Operations - - ---------------------- The parent company incurred extraordinary charges for the prepayment of debt in the three-month, six-month and twelve-month periods. Interest expense decreased in all periods due primarily to debt reduction. Additionally, the parent company's 13 income tax benefit decreased in the twelve-month period due to a 1994 non-recurring income tax benefit of approximately $26.8 million related to a change in tax law. SunCor's earnings decreased in the six-month period due to the expiration in 1995 of a lease agreement related to the Wigwam Resort. Earnings increased in the twelve-month period as a result of increased earnings in joint ventures and management fees. El Dorado's earnings for the three-month and six-month periods decreased relative to the prior year periods because of the prior recognition of a gain from the sale of an investment in 1995. Earnings for the twelve-month period increased due to sales of investments, and also due to the absence of an investment writedown taken in the prior period. Other Income - - ------------ Other income reflects accounting practices required for regulated public utilities and represents a composite of cash and non-cash items, including AFUDC. See Note 1 of Notes to Consolidated Financial Statements in Part II, Item 8 of the 1995 10-K. As part of a 1994 rate settlement agreement with the ACC, the Company accelerated amortization of substantially all deferred ITCs over a five-year period beginning in 1995, resulting in a decrease in annual consolidated income tax expense of approximately $18 million. REGULATORY MATTERS See Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report and Note 3 of Notes to Consolidated Financial Statements in Part II, Item 8 of the 1995 10-K for a discussion of APS' regulatory agreement and industry restructuring. 14 PART II. OTHER INFORMATION -------------------------- The following information relates primarily to Pinnacle West and its principal subsidiary, APS. Item 1. Legal Proceedings - - ------------------------------ Property Taxes -------------- As previously reported, on April 23, 1996 the parties reached an agreement to settle the litigation in which the Arizona Court of Appeals held that an Arizona state property tax law, effective December 31, 1989, is unconstitutional and a lawsuit filed by the Palo Verde participants, including APS, was returned to the Arizona Tax Court for determination of the appropriate remedy consistent with that decision. See "Property Taxes" in Part II, Item 1 of the March 10-Q. On July 18, 1996, the Governor signed a new Arizona property tax law which amends the statute declared unconstitutional and is expected to reduce the aggregate property tax of APS by approximately $18 million (before income taxes) per year. Under the formula for potential future rate reduction pursuant to the 1996 regulatory agreement (see "Regulatory Matters - Regulatory Agreement" in Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report), the property tax reduction may reduce future retail rates. The parties to the litigation anticipate that a settlement will be reached pursuant to which APS will relinquish its claims for retrospective relief provided that the prospective relief provided by the new law is not changed (other than by changes in law affecting taxpayers generally) for a period of three years. Item 4. Submission of Matters to a Vote of Security-Holders - - -------------------------------------------------------------- At the Company's Annual Meeting of Shareholders held on May 22, 1996, the following persons were elected Class III Directors with a term to expire at the 1999 annual meeting: Abstentions Votes Votes and Broker For Against Non Votes --- ------- --------- Mark DeMichele 77,886,740 721,440 N/A John Norton 77,913,791 694,389 N/A Douglas Wall 77,884,722 723,457 N/A 15 Item 5. Other Information - - -------------------------- Environmental Matters --------------------- As previously reported, pursuant to the Clean Air Act Amendments of 1990, the EPA established a "Grand Canyon Visibility Transport Commission" to complete a study on visibility impairment in the "Golden Circle of National Parks." See "Environmental Matters - EPA Environmental Regulation" in Part I, Item 1 of the 1995 10-K. The Commission completed its study and on June 10, 1996 submitted its final recommendations to EPA. Pursuant to the recommendations, beginning in 2000 and every 5 years thereafter, sulfur dioxide emissions would be measured and if the emissions exceed the projected emissions, which under the current regulatory scheme are expected to decline, EPA would implement a program to limit total sulfur dioxide emissions in the western United States. If such a program was implemented, industry, including APS' coal plants, could be subject to further emissions limits. The EPA will consider these recommendations before promulgating final requirements. APS cannot currently predict the outcome of this matter. Palo Verde Nuclear Generating Station ------------------------------------- See Note 7 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of issues regarding the Palo Verde steam generators. Competition and Electric Industry Restructuring ----------------------------------------------- See Note 5 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of competition and restructuring issues. Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) Exhibits Exhibit No. Description ----------- ----------- 27 Financial Data Schedule 16 In addition to the Exhibit shown above, the Company hereby incorporates the following Exhibits pursuant to Exchange Act Rule 12b-32 by reference to the filings set forth below: Previously Filed File Date Exhibit No. Description As Exhibit No. Effective - - ----------- ----------- ---------- --- --------- 10.1 Amendment No. 3 to 10.1 to APS' 1-4473 8/9/96 Amended and Restated June 1996 Decommissioning Form 10-Q Report Trust Agreement (PVNGS Unit 2) dated as of Nov. 1, 1994. (b) Reports on Form 8-K During the quarter ended June 30, 1996, and the period ended August 9, 1996, the Company filed no reports on Form 8-K. 17 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. PINNACLE WEST CAPITAL CORPORATION (Registrant) Dated: August 9, 1996 By: /s/ Nancy Newquist ------------------ Nancy Newquist Vice President and Treasurer (Principal Financial Officer and Officer Duly Authorized to sign this Report) 18 EX-27 2 FINANCIAL DATA SCHEDULE
UT 1,000 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 PER-BOOK 4,633,848 578,662 379,126 1,353,226 0 6,944,862 1,639,492 0 267,054 1,906,546 66,000 173,526 2,116,131 0 0 194,265 317,685 0 0 0 2,170,709 6,944,862 814,063 61,675 419,380 555,407 258,656 (100,668) 0 96,230 90,245 0 90,245 43,715 83,956 248,868 1.03 0
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