EX-99.7 9 ex99-7.txt EARNINGS VARIANCE EXPLANATIONS Exhibit 99.7 Last updated 02/03/03 PINNACLE WEST CAPITAL CORPORATION EARNINGS VARIANCE EXPLANATIONS FOR PERIODS ENDED DECEMBER 31, 2002 AND 2001 This discussion explains the changes in our earnings for the three and twelve month periods ended December 31, 2002 and 2001. Consolidated income statements for the three and twelve months ended December 31, 2002 and 2001 follow this discussion. We will file our 2002 Annual Report on Form 10-K on or before March 31, 2003. We suggest this section be read in connection with the Pinnacle West Capital Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2001, Form 8-K dated November 21, 2002 (which includes certain restated prior year numbers), and the Pinnacle West Capital Corporation Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2002, June 30, 2002 and September 30, 2002. We have reclassified certain prior period amounts to conform to our current period presentation. Additional operating and financial statistics and a glossary of terms are available on our website (www.pinnaclewest.com). EARNINGS CONTRIBUTIONS BY SUBSIDIARY AND BUSINESS SEGMENT We have two principal business segments (determined by products, services and the regulatory environment): * Our regulated electricity segment, which consists of regulated traditional retail and wholesale electricity businesses and related activities, and includes electricity transmission, distribution, and generation; and * Our marketing and trading segment, which consists of our competitive business activities, including wholesale marketing and trading and APS Energy Services' commodity-related energy services. The following tables summarize net income and segment details for the three and twelve months ended December 31, 2002 and the comparable prior year periods for Pinnacle West and each of our subsidiaries (dollars in millions):
REGULATED MARKETING AND TOTAL ELECTRICITY TRADING OTHER (d) THREE MONTHS ENDED ---------------- ---------------- ---------------- ---------------- DECEMBER 31, 2002 2001 2002 2001 2002 2001 2002 2001 ------------ ------ ------ ------ ------ ------ ------ ------ ------ Arizona Public Service (a) $ 16 $ 39 $ 16 $ 37 $ -- $ 2 $ -- $ -- Pinnacle West Energy (a) (31) 4 (33) 4 2 -- -- -- APS Energy Services (e) 8 -- -- -- 5 -- 3 -- SunCor 10 -- -- -- -- -- 10 -- El Dorado (e) (37) -- -- -- -- -- (37) -- Parent company 19 (7) 2 -- 2 (7) 15 -- ------ ------ ------ ------ ------ ------ ------ ------ Income/(Loss) before accounting change (15) 36 (15) 41 9 (5) (9) -- Cumulative effect of a change in accounting - net of income taxes (c) (66) -- -- -- (66) -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ Net Income/(Loss) $ (81) $ 36 $ (15) $ 41 $ (57) $ (5) $ (9) $ -- ====== ====== ====== ====== ====== ====== ====== ======
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REGULATED MARKETING AND TOTAL ELECTRICITY TRADING OTHER (d) TWELVE MONTHS ENDED ---------------- ---------------- ---------------- ---------------- DECEMBER 31, 2002 2001 2002 2001 2002 2001 2002 2001 ------------ ------ ------ ------ ------ ------ ------ ------ ------ Arizona Public Service (a) $ 199 $ 281 $ 198 $ 139 $ 1 $ 142 $ -- $ -- Pinnacle West Energy (a) (19) 18 (21) 18 2 -- -- -- APS Energy Services (e) 28 (10) -- -- 23 (11) 5 1 SunCor 19 3 -- -- -- -- 19 3 El Dorado (e) (55) -- -- -- -- -- (55) -- Parent company 43 35 (7) (5) 32 40 18 -- ------ ------ ------ ------ ------ ------ ------ ------ Income/(Loss) before accounting change 215 327 170 152 58 171 (13) 4 Cumulative effect of a change in accounting - net of income taxes (b)(c) (66) (15) -- (15) (66) -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ Net Income/(Loss) $ 149 $ 312 $ 170 $ 137 $ (8) $ 171 $ (13) $ 4 ====== ====== ====== ====== ====== ====== ====== ======
(a) Consistent with APS' October 2001 ACC filing, APS entered into agreements with its affiliates to buy power. The agreements reflect a price based on the fully-dispatchable dedication of the Pinnacle West Energy generating assets to APS' native load customers. (b) APS recorded a $15 million after-tax loss in 2001 for the cumulative effect of a change in accounting for derivatives related to the adoption of Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." (c) We recorded a $66 million after-tax loss in 2002 for the cumulative effect of a change in accounting for trading activities, for the early adoption of Emerging Issues Task Force (EITF) Issue No. 02-3 "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" as of October 1, 2002. (d) Primarily includes activities related to SunCor and El Dorado. (e) APS Energy Services and El Dorado's net income are primarily reported before income taxes, in accordance with generally accepted accounting principles. The income tax expense or benefit for these subsidiaries is recorded at the parent company. 2 Last updated 02/03/03 EARNINGS VARIANCE EXPLANATIONS Throughout these explanations, we refer to "gross margin." With respect to our regulated electricity segment and marketing and trading segment, gross margin refers to electric operating revenues less purchased power and fuel costs. Real estate gross margin refers to real estate revenues less real estate operations costs of SunCor. Other gross margin refers to other operating revenues less other operating expenses, which includes El Dorado's investment in NAC International Inc. (NAC), which we began consolidating in our financial statements in July 2002 (see further discussions in "NAC International Inc. Losses" below). Other gross margin also includes amounts related to APS Energy Services' energy consulting services. OPERATING RESULTS - THREE-MONTH PERIOD ENDED DECEMBER 31, 2002 COMPARED WITH THREE-MONTH PERIOD ENDED DECEMBER 31, 2001 Our consolidated net loss for the three months ended December 31, 2002 was $81 million compared with net income of $36 million for the same period in the prior year. We recognized a $66 million after-tax loss in the three months ended December 31, 2002 for the cumulative effect of a change in accounting for trading activities as a result of our adoption of EITF 02-3 as of October 1, 2002. Our consolidated loss before accounting change for the three months ended December 31, 2002 was $15 million compared with income before accounting change of $36 million for the same period in the prior year. The period-to-period decrease was primarily the result of a $49 million pretax write-off related to the cancellation of Pinnacle West Energy's Redhawk Units 3 and 4, of which $47 million was recorded in operations and maintenance expense and $2 million was recorded in capitalized interest, pretax losses of $38 million at El Dorado primarily related to its subsidiary, NAC, in the fourth quarter of 2002 (see further discussion in "NAC International Inc. Losses" below) and pretax severance costs of $11 million recorded in the fourth quarter of 2002 related to a voluntary workforce reduction. The regulated electricity comparison was negatively impacted by higher costs for purchased power and gas, weather impacts and a 1.5% electric retail price reduction that took effect July 1, 2002. These factors were offset by lower replacement power costs for power plant outages, higher earnings contributions from our marketing and trading activities and customer growth of 3.2% for the fourth quarter of 2002. 3 Last updated 02/03/03 The major factors that increased (decreased) income before accounting change were as follows (dollars in millions):
Increase (Decrease) ---------- Marketing and trading segment gross margin: Increase in generation sales other than native load due to higher sales volumes $ 6 Lower realized wholesale margins net of related mark-to-market reversals due to lower prices and volumes (12) Higher competitive retail sales in California by APS Energy Services 7 2001 write-off of prior period mark-to-market value related to trading with Enron and its affiliates 8 Lower mark-to-market reversals due to the adoption of EITF 02-3 8 Higher electricity mark-to-market gains for future delivery primarily as a result of increased activity 8 -------- Net increase in marketing and trading segment gross margin 25 -------- Regulated electricity segment gross margin: Increased purchased power and fuel costs due to higher hedged gas and power prices partially offset by improved hedge management, net of mark-to-market reversals (16) Effects of weather on retail sales (6) Retail price reduction effective July 1, 2002 (6) 2001 charges related to purchased power contracts with Enron and its affiliates 13 Lower replacement power costs from plant outages due to lower market prices and fewer unplanned outages 4 Higher retail sales volumes due to customer growth, partially offset by lower average usage, excluding weather effects 1 Miscellaneous factors, net 11 -------- Net increase in regulated electricity segment gross margin 1 -------- Net increase in regulated electricity and marketing and trading segments' gross margins 26 Higher real estate gross margin primary due to increased sales activities 5 Lower other gross margin primarily related to losses recorded on El Dorado's investment in NAC (32) Higher operations and maintenance expense related to a $47 million write-off of Redhawk Units 3 and 4, 2002 severance costs of $11 million and other costs (72) Higher depreciation and amortization primarily due to higher depreciation on higher plant balances, partially offset by lower regulatory asset amortization (5) Higher taxes other than income taxes (6) Lower other expenses 7 Higher net interest expense primarily due to lower capitalized interest (8) Miscellaneous items, net (3) -------- Decrease in income before income taxes (88) Lower income taxes primarily due to lower pretax income 37 -------- Decrease in income before accounting change $ (51) ========
4 Last updated 02/03/03 MARKETING AND TRADING SEGMENT GROSS MARGIN Marketing and trading segment revenues were $96 million higher in the three-month period ended December 31, 2002, compared with the same period in the prior year as a result of: * increased revenues from generation sales other than native load due to higher sales volumes ($26 million); * higher realized wholesale revenues net of related mark-to-market reversals due to higher volumes ($20 million); * increased revenues from higher competitive retail sales in California by APS Energy Services ($26 million); * 2001 write-off of prior period mark-to-market value related to trading with Enron and its affiliates ($8 million increase); * higher revenues related to the adoption of EITF 02-3 ($8 million); and * higher electricity mark-to-market gains for future delivery primarily as a result of increased activity ($8 million). Marketing and trading segment purchased power and fuel costs were $71 million higher in the three-month period ended December 31, 2002, compared to the same period in the prior year as a result of: * increased fuel costs related to generation sales other than native load primarily because of higher natural gas prices and higher sales volumes ($20 million); * increased purchased power costs related to other realized marketing activities in the current period primarily due to higher purchased power prices and higher sales volumes, net of mark-to-market reversals ($32 million); * increased purchased power costs related to higher competitive retail sales in California by APS Energy Services ($19 million). REGULATED ELECTRICITY SEGMENT GROSS MARGIN Revenues related to our regulated retail and wholesale electricity businesses were $20 million lower in the three-month period ended December 31, 2002, compared with the same period in the prior year as a result of: * decreased revenues related to wholesale sales for retail native load hedge management, as a result of lower prices ($16 million); * decreased retail revenues related to milder weather ($9 million); * decreased retail revenues related to a reduction in retail electricity prices ($6 million); * increased retail revenues related to customer growth partially offset by lower average usage, excluding weather effects ($1 million); and * other miscellaneous factors ($10 million net increase). Regulated electricity segment purchased power and fuel costs were $21 million lower in the three-month period ended December 31, 2002, compared with the same period in the prior year as a result of: * increased costs related to higher hedged natural gas and purchased power prices, net of mark-to-market reversals ($26 million); 5 Last updated 02/03/03 * decreased purchased power costs related to wholesale sales for retail load hedge management as a result of lower prices ($26 million); * decreased costs related to the effects of milder weather on retail sales ($3 million); * 2001 charges related to purchased power contracts with Enron and its affiliates ($13 million decrease); * decreased replacement power costs for power plant outages due to lower market prices and fewer unplanned nuclear and coal plant outages ($4 million); and * other miscellaneous factors ($1 million net decrease). The increase in real estate gross margin of $5 million was primarily due to increased sales activities. The decrease in other gross margin of $32 million was primarily due to losses on El Dorado's investment in NAC (see further discussion in NAC International Inc. Losses below). The increase in operations and maintenance expense of $72 million was due to a $47 million write-off related to the cancellation of Redhawk Units 3 and 4, severance costs of $11 million related to a 2002 voluntary workforce reduction and other costs of $14 million. The increase in depreciation and amortization expenses of $5 million was primarily related to increased depreciation and amortization on higher property, plant and equipment balances partially offset by lower regulatory asset amortization, in accordance with APS' 1999 Regulatory Agreement. The increase in taxes other than income taxes of $6 million is primarily due to increased property taxes on higher property balances. Other expense decreased $7 million primarily due to lower miscellaneous non-operating costs. Interest expense, net of amounts capitalized, increased $8 million primarily due to decreased capitalized interest related to our generation expansion program. 6 Last updated 02/03/03 OPERATING RESULTS - TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2002 COMPARED WITH TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2001 Our consolidated net income for the twelve months ended December 31, 2002 was $149 million compared with $312 million for the same period in the prior year. We recognized a $66 million after-tax loss in the twelve months ended December 31, 2002 for the cumulative effect of a change in accounting for trading activities for the early adoption of EITF 02-3 as of October 1, 2002. We recognized a $15 million after-tax loss in the twelve months ended December 31, 2001 as a cumulative effect of a change in accounting for derivatives, as required by SFAS No. 133. Our income before accounting change for the twelve months ended December 31, 2002 was $215 million compared with $327 million for the same period a year earlier. The period-to-period comparison was lower due to lower earnings contributions from our marketing and trading activities, pretax losses of $59 million related to El Dorado's investment in NAC, a $49 million pretax write-off related to the cancellation of Redhawk Units 3 and 4, of which $47 million was recorded in operations and maintenance expense and $2 million was recorded in capitalized interest, and severance costs of approximately $36 million pretax recorded in the second half of 2002 relating to a voluntary workforce reduction, partially offset by increased earnings contributions from our regulated electricity and real estate operations. The regulated electricity comparison was favorably impacted by lower replacement power costs for power plant outages and customer growth and higher average usage per customer, partially offset by the effects of milder weather, retail electricity price decreases and higher costs for purchased power and gas due to higher hedged gas and power prices. The real estate results benefited primarily from more sales activities. The comparison for marketing and trading activities reflects lower liquidity and lower price volatility in the wholesale power markets in the western United States. 7 Last updated 02/03/03 The major factors that increased (decreased) income before accounting change were as follows (dollars in millions):
Increase (Decrease) ---------- Marketing and trading segment gross margin: Decrease in generation sales other than native load due to lower market prices partially offset by higher sales volumes $ (66) Lower realized wholesale margins net of related mark-to-market reversals due to lower prices and volumes (91) Higher competitive retail sales in California by APS Energy Services 32 2001 write-off of prior period mark-to-market value related to trading with Enron and its affiliates 8 Lower mark-to-market reversals due to the adoption of EITF 02-3 8 Lower mark-to-market gains for future delivery due to lower market liquidity and lower price volatility (76) -------- Net decrease in marketing and trading segment gross margin (185) -------- Regulated electricity segment gross margin: Lower replacement power costs for plant outages due to lower market prices and fewer unplanned outages 127 Increased purchased power and fuel costs due to higher hedged gas and power prices, partially offset by improved hedge management, net of mark-to-market reversals (9) Higher retail sales volumes due to customer growth and higher average usage, excluding weather effects 38 2001 charges related to purchased power contracts with Enron and its affiliates 13 Retail price reductions effective July 1, 2001 and July 1, 2002 (28) Effects of milder weather on retail sales (27) Miscellaneous factors, net (2) -------- Net increase in regulated electricity segment gross margin 112 -------- Net decrease in regulated electricity and marketing and trading segments' gross margins (73) Higher real estate gross margin primarily due to increased sales activities 16 Lower other gross margin primarily related to losses recorded on El Dorado's investment in NAC (44) Higher operations and maintenance expense related to a $47 million write-off of Redhawk Units 3 and 4, 2002 severance costs of approximately $36 million, partially offset by lower generation reliability costs (54) Higher taxes other than income taxes (7) Lower other income primarily due to a 2001 insurance recovery of environmental remediation costs (11) Higher net interest expense primarily due to higher debt balances and lower capitalized interest (16) Miscellaneous factors, net 2 -------- Decrease in income before income taxes (187) Lower income taxes primarily due to lower income 75 -------- Decrease in income before accounting change $ (112) ========
8 Last updated 02/03/03 MARKETING AND TRADING SEGMENT GROSS MARGIN Marketing and trading segment revenues were $325 million lower in the twelve-month period ended December 31, 2002, compared to the same period in the prior year as a result of: * decreased revenues from generation sales other than native load due to lower market prices partially offset by higher sales volumes ($98 million); * lower realized wholesale revenues net of related mark-to-market reversals due to lower prices partially offset by higher volumes ($273 million); * increased revenues from higher competitive retail sales in California by APS Energy Services ($105 million); * 2001 write-off of prior period mark-to-market value related to trading with Enron and its affiliates ($8 million increase); * higher revenues related to the adoption of EITF 02-3 ($8 million); and * lower mark-to-market gains for future delivery primarily as a result of lower market liquidity and lower price volatility, resulting in lower volumes ($75 million). Marketing and trading segment purchased power and fuel costs were $140 million lower in the twelve-month period ended December 31, 2002, compared to the same period in the prior year as a result of: * decreased fuel costs related to generation sales other than native load primarily because of lower natural gas prices partially offset by higher sales volumes ($32 million); * decreased purchased power costs related to other realized marketing activities in the current period primarily due to lower prices partially offset by higher volumes ($182 million); * increased purchased power costs related to higher competitive retail sales in California by APS Energy Services ($73 million); and * change in mark-to-market fuel costs for future delivery ($1 million increase). REGULATED ELECTRICITY SEGMENT GROSS MARGIN Revenues related to our regulated retail and wholesale electricity businesses were $549 million lower in the twelve-month period ended December 31, 2002, compared to the same period in the prior year as a result of: * decreased revenues related to traditional wholesale sales as a result of lower sales volumes and lower prices ($64 million); * decreased revenues related to retail load hedge management wholesale sales, as a result of lower prices and lower sales volumes ($455 million); * decreased retail revenues related to milder weather ($60 million); * increased retail revenues related to customer growth and higher average usage, excluding weather effects ($69 million); * decreased retail revenues related to reductions in retail electricity prices ($28 million); and * other miscellaneous factors ($11 million net decrease). 9 Last updated 02/03/03 Regulated electricity segment purchased power and fuel costs were $661 million lower in the twelve-month period ended December 31, 2002, compared with the same period in the prior year as a result of: * decreased costs related to traditional wholesale sales as a result of lower sales volumes and lower prices ($64 million); * decreased costs related to retail load hedge management wholesale sales, as a result of lower prices and lower sales volumes ($460 million); * increased costs related to higher prices for hedged natural gas and purchased power, net of mark-to-market reversals ($14 million); * decreased costs related to the effects of milder weather on retail sales ($33 million); * increased costs related to retail sales growth, excluding weather effects ($31 million); * charges in 2001 related to purchased power contracts with Enron and its affiliates ($13 million net decrease); * decreased replacement power costs for power plant outages due to lower market prices and fewer unplanned outages ($127 million); and * miscellaneous factors ($9 million net decrease). The increase in real estate gross margin of $16 million was primarily due to increased sales activities. The decrease in other gross margin of $44 million was primarily due to losses on El Dorado's investment in NAC (see further discussion in "NAC International Inc. Losses" below). The increase in operations and maintenance expense of $54 million was due to a $47 million write-off related to the cancellation of Redhawk Units 3 and 4, severance costs of $36 million related to a 2002 voluntary workforce reduction and other costs of $9 million, partially offset by lower costs related to generation reliability, plant outages and maintenance costs of $38 million. The increase in taxes other than income taxes of $7 million is primarily due to increased property taxes on higher property balances. Other income decreased $11 million primarily due to an insurance recovery recorded in 2001 related to environmental remediation costs and other costs. Other expense remained constant compared to the prior year primarily due to losses recorded related to El Dorado's investment in NAC of approximately $8 million (see further discussion in "NAC International Inc. Losses" below) offset by $8 million of lower miscellaneous non-operating costs. Net interest expense increased $16 million primarily because of higher debt balances related to our generation expansion program and lower capitalized interest on our generation expansion program. 10 Last updated 02/03/03 NAC INTERNATIONAL INC. LOSSES We, through an unregulated wholly-owned subsidiary (El Dorado), own a majority interest in NAC, a company that develops, markets and contracts for the manufacture of cask designs for spent nuclear fuel storage and transportation. Prior to the third quarter of 2002, the Company's investment in NAC was accounted for under the equity method and the Company's share of NAC's earnings and losses were recorded in other income or expense in the consolidated income statement. Beginning in the third quarter of 2002, the Company fully consolidated NAC's financial statements after acquiring a controlling interest in NAC as a result of increased voting representation on NAC's board of directors. During the second and third quarters of 2002, the Company recorded cumulative losses of approximately $21 million before income taxes related to NAC, primarily as a result of expected losses under contracts with two customers, including a contract between NAC and Maine Yankee Atomic Power Company ("Maine Yankee"). See Note 14 of Notes to Condensed Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations in our Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 2002 and September 30, 2002 for additional information about NAC. On January 15, 2003, Maine Yankee notified NAC of its intention to terminate its contract with NAC. The Company recorded additional NAC losses of $38 million before income taxes in the fourth quarter of 2002, the substantial majority of which relates to the termination of the Maine Yankee contract. 11 PINNACLE WEST CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Amounts) (Unaudited)
THREE MONTHS ENDED December 31, Increase (Decrease) ------------------------ ------------------------ 2002 2001 Amount Percent ---------- ---------- ---------- ---------- OPERATING REVENUES Regulated electricity segment $ 416,583 $ 436,567 $ (19,984) 4.6% W Marketing and trading segment 113,355 17,419 95,936 550.8% B Real estate 80,943 61,095 19,848 32.5% B Other revenues 33,555 5,893 27,662 469.4% B ---------- ---------- ---------- Total 644,436 520,974 123,462 23.7% B ---------- ---------- ---------- OPERATING EXPENSES Regulated electricity segment purchased power and fuel 75,932 96,625 (20,693) 21.4% B Marketing and trading segment purchased power and fuel 84,413 13,354 71,059 532.1% W Operations and maintenance 193,674 121,790 71,884 59.0% W Real estate operations 66,816 52,214 14,602 28.0% W Depreciation and amortization 114,074 109,061 5,013 4.6% W Taxes other than income taxes 26,805 20,967 5,838 27.8% W Other expenses 65,844 6,348 59,496 937.2% W ---------- ---------- ---------- Total 627,558 420,359 207,199 49.3% W ---------- ---------- ---------- OPERATING INCOME 16,878 100,615 (83,737) 83.2% W ---------- ---------- ---------- OTHER Other income 4,791 7,590 (2,799) 36.9% W Other expenses (6,873) (13,469) 6,596 49.0% B ---------- ---------- ---------- Total (2,082) (5,879) 3,797 64.6% B ---------- ---------- ---------- INTEREST EXPENSE Interest charges 47,204 46,719 485 1.0% W Capitalized interest (4,967) (12,458) 7,491 60.1% W ---------- ---------- ---------- Total 42,237 34,261 7,976 23.3% W ---------- ---------- ---------- INCOME/(LOSS) BEFORE INCOME TAXES (27,441) 60,475 (87,916) 145.4% W INCOME TAXES (12,556) 24,669 (37,225) 150.9% B ---------- ---------- ---------- INCOME/(LOSS) BEFORE ACCOUNTING CHANGE (14,885) 35,806 (50,691) 141.6% W CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR TRADING ACTIVITIES - NET OF INCOME TAX (65,745) -- (65,745) 100.0% W ---------- ---------- ---------- NET INCOME/(LOSS) $ (80,630) $ 35,806 $ (116,436) 325.2% W ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 85,302 84,679 623 0.7% WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 85,302 84,824 478 0.6% EARNINGS PER WEIGHTED AVERAGE COMMON SHARE OUTSTANDING Income Before Accounting Change - Basic $ (0.17) $ 0.42 $ (0.59) 140.5% W Net Income - Basic $ (0.95) $ 0.42 $ (1.37) 326.2% W Income Before Accounting Change - Diluted $ (0.17) $ 0.42 $ (0.59) 140.5% W Net Income - Diluted $ (0.95) $ 0.42 $ (1.37) 326.2% W Certain prior year amounts have been restated to conform to the 2002 presentation. B -- Better W -- Worse
12 PINNACLE WEST CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Amounts) (Unaudited)
TWELVE MONTHS ENDED December 31, Increase (Decrease) -------------------------- -------------------------- 2002 2001 Amount Percent ----------- ----------- ----------- ----------- OPERATING REVENUES Regulated electricity segment $ 2,013,023 $ 2,562,089 $ (549,066) 21.4% W Marketing and trading segment 325,931 651,230 (325,299) 50.0% W Real estate 236,388 168,908 67,480 40.0% B Other revenues 61,937 11,771 50,166 426.2% B ----------- ----------- ----------- Total 2,637,279 3,393,998 (756,719) 22.3% W ----------- ----------- ----------- OPERATING EXPENSES Regulated electricity segment purchased power and fuel 499,543 1,160,863 (661,320) 57.0% B Marketing and trading segment purchased power and fuel 194,039 334,209 (140,170) 41.9% B Operations and maintenance 584,538 530,095 54,443 10.3% W Real estate operations 205,315 153,462 51,853 33.8% W Depreciation and amortization 424,886 427,903 (3,017) 0.7% B Taxes other than income taxes 107,952 101,068 6,884 6.8% W Other expenses 104,959 10,375 94,584 911.7% W ----------- ----------- ----------- Total 2,121,232 2,717,975 (596,743) 22.0% B ----------- ----------- ----------- OPERATING INCOME 516,047 676,023 (159,976) 23.7% W ----------- ----------- ----------- OTHER Other income 15,104 26,416 (11,312) 42.8% W Other expenses (33,655) (33,577) (78) 0.2% W ----------- ----------- ----------- Total (18,551) (7,161) (11,390) 159.1% W ----------- ----------- ----------- INTEREST EXPENSE Interest charges 188,353 175,822 12,531 7.1% W Capitalized interest (44,110) (47,862) 3,752 7.8% W ----------- ----------- ----------- Total 144,243 127,960 16,283 12.7% W ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 353,253 540,902 (187,649) 34.7% W INCOME TAXES 138,100 213,535 (75,435) 35.3% B ----------- ----------- ----------- INCOME BEFORE ACCOUNTING CHANGE 215,153 327,367 (112,214) 34.3% W CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR DERIVATIVES - NET OF INCOME TAX -- (15,201) 15,201 100.0% B CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR TRADING ACTIVITIES - NET OF INCOME TAX (65,745) -- (65,745) 100.0% W ----------- ----------- ----------- NET INCOME $ 149,408 $ 312,166 $ (162,758) 52.1% W =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 84,903 84,718 185 0.2% WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 84,964 84,930 34 0.0% EARNINGS PER WEIGHTED AVERAGE COMMON SHARE OUTSTANDING Income Before Accounting Change - Basic $ 2.53 $ 3.86 $ (1.33) 34.5% W Net Income - Basic $ 1.76 $ 3.68 $ (1.92) 52.2% W Income Before Accounting Change - Diluted $ 2.53 $ 3.85 $ (1.32) 34.3% W Net Income - Diluted $ 1.76 $ 3.68 $ (1.92) 52.2% W Certain prior year amounts have been restated to conform to the 2002 presentation. B -- Better W -- Worse
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