-----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, tj4T0fbQ8iHkPXvbhN8ItFSg3lwbBi2IG7cxx/Q12oBSpeuws1gfn5xT1BfPW8PE WaDujqKCDJKokfkCv2HdDQ== 0000950147-95-000076.txt : 19950516 0000950147-95-000076.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950147-95-000076 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PINNACLE WEST CAPITAL CORP CENTRAL INDEX KEY: 0000764622 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [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: 95539815 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 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 1-8962 --------------- 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 May 1, 1995: 87,399,103 -i- Glossary ACC - Arizona Corporation Commission AFUDC - Allowance for funds used during construction APS - Arizona Public Service Company Company - Pinnacle West Capital Corporation CSW - Central and South West Corporation El Dorado - El Dorado Investment Company EPA - Environmental Protection Agency EPEC - El Paso Electric Company Four Corners - Four Corners Power Plant ITCs - Investment tax credits 1994 10-K - Pinnacle West Capital Corporation 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" SunCor - SunCor Development Company PART 1. 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 March 31, 1995 1994 ------------ ------------ Operating Revenues Electric $ 336,968 $ 346,049 Real estate 9,146 9,424 ------------ ------------ Total 346,114 355,473 ------------ ------------ Fuel Expenses Fuel for electric generation 46,710 57,968 Purchased power 8,210 10,063 ------------ ------------ Total 54,920 68,031 ------------ ------------ Operating Expenses Utility operations and maintenance 91,432 97,621 Real estate operations 7,495 8,661 Depreciation and amortization 60,847 58,195 Taxes other than income taxes 35,721 34,495 ------------ ------------ Total 195,495 198,972 ------------ ------------ Operating Income 95,699 88,470 ------------ ------------ Other Income (Deductions) Allowance for equity funds used during construction 1,186 846 Palo Verde accretion income -- 19,980 Interest on long-term debt (54,920) (56,364) Other interest (3,236) (3,987) Allowance for borrowed funds used during construction 1,996 1,167 Preferred stock dividend requirements of APS (4,807) (7,510) Other-net 4,592 230 ------------ ------------ Total (55,189) (45,638) ------------ ------------ Income Before Income Taxes 40,510 42,832 Income Tax Expense 15,887 21,213 ------------ ------------ Net Income $ 24,623 $ 21,619 ============ ============ Average Common Shares Outstanding 87,393,085 87,418,161 Earnings Per Average Common Share Outstanding $ 0.28 $ 0.25 ============ ============ Dividends Declared Per Share $ 0.225 $ 0.200 ============ ============ See Notes to Condensed Consolidated Financial Statements. PINNACLE WEST CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts) Twelve Months Ended March 31, 1995 1994 ------------ ------------ Operating Revenues Electric $ 1,617,087 $ 1,594,572 Real estate 58,975 37,873 ------------ ------------ Total 1,676,062 1,632,445 ------------ ------------ Fuel Expenses Fuel for electric generation 225,845 234,394 Purchased power 61,733 68,679 ------------ ------------ Total 287,578 303,073 ------------ ------------ Operating Expenses Utility operations and maintenance 405,732 407,726 Real estate operations 58,623 43,011 Depreciation and amortization 239,978 226,027 Taxes other than income taxes 143,152 138,820 ------------ ------------ Total 847,485 815,584 ------------ ------------ Operating Income 540,999 513,788 ------------ ------------ Other Income (Deductions) Allowance for equity funds used during construction 4,281 2,520 Palo Verde accretion income 13,616 76,870 Interest on long-term debt (228,366) (240,907) Other interest (14,434) (16,604) Allowance for borrowed funds used during construction 6,271 4,434 Preferred stock dividend requirements of APS (22,571) (30,461) Other-net 21,471 (2,340) ------------ ------------ Total (219,732) (206,488) ------------ ------------ Income Before Income Tax 321,267 307,300 ------------ ------------ Income Tax Expense (Benefit) Income tax expense 144,414 143,177 Non-recurring income tax benefit (26,770) -- ------------ ------------ Total 117,644 143,177 ------------ ------------ Net Income $ 203,623 $ 164,123 ============ ============ Average Common Shares Outstanding 87,405,051 87,305,670 Earnings Per Average Common Share Outstanding $ 2.33 $ 1.88 ============ ============ Dividends Declared Per Share $ 0.850 $ 0.400 ============ ============ See Notes to Condensed Consolidated Financial Statements. PINNACLE WEST CAPITAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS (Thousands of Dollars) March 31, December 31, 1995 1994 ------------ ------------ Current Assets Cash and cash equivalents $ 20,654 $ 34,719 Customer and other receivables--net 111,284 136,143 Accrued utility revenues 45,547 55,432 Material and supplies 90,872 89,864 Fossil fuel 35,762 35,735 Deferred income taxes 66,066 68,263 Other current assets 18,653 15,422 ----------- ----------- Total current assets 388,838 435,578 ----------- ----------- Investments and Other Assets Real estate investments--net 414,157 408,505 Other assets 156,025 153,384 ----------- ----------- Total investments and other assets 570,182 561,889 ----------- ----------- Utility Plant Electric plant in service, including nuclear fuel 6,650,844 6,602,799 Construction work in progress 234,865 224,312 ----------- ----------- Total utility plant 6,885,709 6,827,111 Less accumulated depreciation and amortization 2,263,432 2,203,038 ----------- ----------- Net utility plant 4,622,277 4,624,073 ----------- ----------- 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 Other deferred debits 277,097 266,641 ----------- ----------- Total deferred debits 1,292,818 1,288,212 ----------- ----------- Total Assets $ 6,874,115 $ 6,909,752 =========== =========== See Notes to Condensed Consolidated Financial Statements. PINNACLE WEST CAPITAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) LIABILITIES AND EQUITY (Thousands of Dollars) March 31, December 31, 1995 1994 ------------ ------------ Current Liabilities Accounts payable $ 88,890 $ 126,842 Accrued taxes 137,661 89,144 Accrued interest 38,938 56,058 Short-term borrowings 80,500 131,500 Current maturities of long-term debt 129,923 78,512 Other current liabilities 61,354 50,060 ---------- ---------- Total current liabilities 537,266 532,116 ---------- ---------- Non-Current Liabilities Long-term debt less current maturities 2,550,044 2,588,525 Other liabilities 10,188 8,679 ---------- ---------- Total non-current liabilities 2,560,232 2,597,204 ---------- ---------- Deferred Credits and Other Deferred income taxes 1,297,587 1,297,298 Deferred investment tax credit 118,596 121,426 Unamortized gain - sale of utility plant 96,352 98,551 Other deferred credits 214,224 218,179 ---------- ---------- Total deferred credits and other 1,726,759 1,735,454 ---------- ---------- Commitments and Contingencies (Notes 6, 7 and 8) Minority Interests Non-redeemable preferred stock of APS 193,561 193,561 ---------- ---------- Redeemable preferred stock of APS 75,000 75,000 ---------- ---------- Common Stock Equity Common stock, no par value 1,641,118 1,641,196 Retained earnings 140,179 135,221 ---------- ---------- Total common stock equity 1,781,297 1,776,417 ---------- ---------- Total Liabilities and Equity $6,874,115 $6,909,752 ========== ========== See Notes to Condensed Consolidated Financial Statements. PINNACLE WEST CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (THOUSANDS OF DOLLARS) Three Months Ended March 31, 1995 1994 ---------- ---------- Cash Flows From Operating Activities Income from continuing operations $ 24,623 $ 21,619 Items not requiring cash Depreciation and amortization 68,705 65,030 Deferred income taxes--net 4,531 16,580 Provision for rate refund -- (5,344) Palo Verde accretion income -- (19,980) Other--net (278) (1,665) Changes in current assets and liabilities Accounts receivable--net 24,770 22,216 Accrued utility revenues 9,885 12,115 Materials, supplies and fossil fuel (1,035) 4,412 Other current assets (3,231) (2,214) Accounts payable (29,756) (18,785) Accrued taxes 48,517 37,886 Accrued interest (17,120) (9,756) Other current liabilities 14,377 12,443 Decrease (increase) in land held (6,539) 2,322 Other--net (16,106) 860 --------- --------- Net Cash Flow Provided By Operating Activities 121,343 137,739 --------- --------- Cash Flows From Investing Activities Capital expenditures (72,730) (68,684) Allowance for equity funds used during construction 1,186 846 Other--net 19 (1,101) --------- --------- Net Cash Flow Used For Investing Activities (71,525) (68,939) --------- --------- Cash Flows From Financing Activities Issuance of long-term debt 81,811 123,899 Short-term borrowings--net (51,000) (69,000) Dividends paid on common stock (19,665) (17,486) Repayment of long-term debt (74,951) (68,823) Redemption of preferred stock (4) (14,225) Other--net (74) 197 --------- --------- Net Cash Flow Used For Financing Activities (63,883) (45,438) --------- --------- Net Cash Flow (14,065) 23,362 Cash and Cash Equivalents at Beginning of Period 34,719 52,127 --------- --------- Cash and Cash Equivalents at End of Period $ 20,654 $ 75,489 ========= ========= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest, net of amounts capitalized $ 72,085 $ 65,889 Income taxes $ -- $ -- See Notes to Condensed Consolidated Financial Statements. 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. 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. 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 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 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 1994 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, Pinnacle West's consolidated 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 since December 31, 1994. 5. In May 1994, the ACC approved a retail rate settlement agreement between APS and the ACC staff 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, APS 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 APS 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 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 $2.78 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 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 further tube problems to manageable levels. Although the steam generators are capable of operating for their designed life of 40 years, APS 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, APS does not expect that there would be a material adverse effect on its operations or financial position. 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 Pinnacle West Pinnacle West's cash requirements and its ability to fund those requirements are discussed under "Liquidity and Capital Resources" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the 1994 10-K. During March 1995, Pinnacle West prepaid $15 million of its debt, reducing the aggregate principal amount of its outstanding debt to approximately $415 million. The Board declared a quarterly dividend of 22.5 cents per share of common stock, payable on March 1, 1995 to shareholders of record on February 1, 1995, totaling approximately $19.7 million. APS For the three months ended March 31, 1995, APS incurred approximately $61 million in construction expenditures, accounting for approximately 20% of the most recently estimated 1995 construction expenditures. APS 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, APS 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, APS refunded approximately $52 million (48%) of the estimated 1995 total. Provisions in APS' mortgage bond indenture and articles of incorporation require certain coverage ratios to be met before it 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, APS estimates that the mortgage bond indenture and the articles of incorporation would have allowed it 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 APS with respect to the issuance of long-term debt and equity securities. Existing ACC orders allow APS 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 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 and twelve-month periods ended March 31, 1995 and 1994: Income (Loss) (Unaudited) (Thousands of Dollars) Three Months Ended Twelve Months Ended March 31, March 31, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- APS $ 33,025 $ 30,958 $ 220,279 $ 211,227 SunCor 1,167 964 742 (3,364) El Dorado (857) (426) (4,438) (4,145) Pinnacle West (1) (8,712) (9,877) (12,960) (39,595) ---------- ---------- ---------- ---------- NET INCOME $ 24,623 $ 21,619 $ 203,623 $ 164,123 ========== ========== ========== ========== (1) Includes Pinnacle West's interest expense and operating expenses net of income tax benefits. Income tax benefits are as follows (in thousands): $3,994 and $6,726 for the three months ended March 31, 1995 and 1994, respectively; and $51,565 and $39,447 for the twelve months ended March 31, 1995 and 1994, respectively. APS 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 APS 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 Consolidated 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 Consolidated 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. Non-utility Operations Pinnacle West's interest expense decreased in the three-month and twelve-month periods as it continued to prepay its outstanding debt. Earnings increased in the twelve-month period due to a non-recurring income tax benefit of approximately $26.8 million related to a change in tax law. SunCor's earnings in the twelve-month period were positively impacted by increased land sales. El Dorado's earnings decreased in the three-month and twelve-month periods due to lower earnings on venture capital investments. 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 APS' 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 Consolidated 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. APS has recorded all of the Unit 3 accretion income and refund reversals related to the 1991 rate settlement. See Note 1 of Notes to Consolidated Financial Statements in Part II, Item 8 of the 1994 10-K. 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 APS 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 The following information relates primarily to Pinnacle West Capital Corporation (the "Company") and its principal subsidiary, Arizona Public Service Company ("APS"). ITEM 5. Other Information 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 "Business of Arizona Public Service Company - 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 APS 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, APS 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 "Business of Arizona Public Service Company - 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 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 did not file any reports on Form 8-K. 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: May 15, 1995 By: Henry Sargent ----------------------------- ----------------------------- Henry Sargent Executive Vice President and Chief Financial Officer (Principal Financial Officer and Officer Duly Authorized to sign this Report) EX-27 2 FINANCIAL DATA SCHEDULE UT
UT 1,000 U.S. DOLLARS 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 1 PER-BOOK 4,622,277 570,182 388,838 1,292,818 0 6,874,115 1,641,118 0 140,179 1,781,297 75,000 193,561 2,550,044 0 0 80,500 129,923 0 0 0 2,063,790 6,874,115 346,114 15,887 195,495 250,415 95,699 (55,189) 0 56,160 24,623 0 24,623 19,665 53,358 121,343 0.28 0
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