Consolidation and Nature of Operations

9 Months Ended

Sep. 30, 2011

Consolidation and Nature of Operations

Consolidation and Nature of Operations

1. Consolidation and Nature of Operations

The unaudited condensed consolidated financial statements include the accounts of Pinnacle West and our subsidiaries: APS, SunCor Development Company (“SunCor”), APS Energy Services Company, Inc. (“APSES”), and El Dorado Investment Company (“El Dorado”).  See Note 13 for discussion of discontinued operations of APSES.  Intercompany accounts and transactions between the consolidated companies have been eliminated.  The unaudited condensed consolidated financial statements for APS include the accounts of APS and the Palo Verde Nuclear Generating Station (“Palo Verde”) sale leaseback variable interest entities (“VIEs”) (see Note 7 for further discussion).  Our accounting records are maintained in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Weather conditions cause significant seasonal fluctuations in our revenues; therefore, results for interim periods do not necessarily represent results expected for the year.

In preparing the condensed consolidated financial statements, we have evaluated the events that have occurred after September 30, 2011 through the date the financial statements were issued.

Our condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments except as otherwise disclosed in the notes) that we believe are necessary for the fair presentation of our financial position, results of operations and cash flows for the periods presented.  These condensed consolidated financial statements and notes have been prepared consistently with the 2010 Form 10-K with the exception of the reclassification of certain prior year amounts on our Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows in accordance with accounting requirements for reporting discontinued operations (see Note 13) and the impacts related to the reclassification of regulatory assets and liabilities for the current portion (see Note 3).

The following tables show the impact of the reclassifications to prior year (previously reported) amounts (dollars in thousands):

Statement of Income for the Three Months Ended September 30, 2010	As previously reported			Reclassifications for discontinued operations			Amount reported after reclassification for discontinued operations
Operating Revenues
Other revenues	$	22,874		$	(22,375	)	$	499
Operating Expenses
Operations and maintenance	221,469			(1,811		)	219,658
Depreciation and amortization	104,194			(17		)	104,177
Other expenses	18,365			(17,196		)	1,169
Other
Other income	4,348			(87		)	4,261
Other expense	(3,855		)	(39		)	(3,894		)
Interest Expense
Interest charges	60,491			(72		)	60,419
Income Taxes	123,486			(1,139		)	122,347
Income From Continuing Operations	231,828			(2,266		)	229,562
Income From Discontinued Operations	7,211			2,266			9,477

Statement of Income for the Nine Months Ended September 30, 2010	As previously reported			Reclassifications for discontinued operations			Amount reported after reclassification for discontinued operations
Operating Revenues
Other revenues	$	52,982		$	(48,267	)	$	4,715
Operating Expenses
Operations and maintenance	644,415			(4,835		)	639,580
Depreciation and amortization	307,864			(58		)	307,806
Taxes other than income taxes	100,936			(3		)	100,933
Other expenses	41,009			(37,437		)	3,572
Other
Other income	3,828			23			3,851
Other expense	(8,650		)	(118		)	(8,768		)
Interest Expense
Allowance for borrowed funds used during construction	(12,314		)	60			(12,254		)
Income Taxes	168,143			(2,261		)	165,882
Income From Continuing Operations	338,395			(3,828		)	334,567
Income From Discontinued Operations	19,313			3,828			23,141

Balance Sheets - December 31, 2010	As previously reported		Reclassifications for regulatory assets and liabilities			Amount reported after reclassification for regulatory assets and liabilities
Current Assets — Deferred income taxes	$	94,602	$	30,295		$	124,897
Current Assets — Other regulatory assets	—		62,286			62,286
Deferred Debits — Regulatory assets	1,048,656		(62,286		)	986,370
Current Liabilities — Deferred fuel and purchased power regulatory liability	—		58,442			58,442
Current Liabilities — Other regulatory liabilities	—		80,526			80,526
Deferred Credits and Other — Deferred income taxes	1,833,566		30,295			1,863,861
Deferred Credits and Other — Deferred fuel and purchased power regulatory liability	58,442		(58,442		)	—
Deferred Credits and Other —Regulatory liabilities	694,589		(80,526		)	614,063

Statement of Cash Flows for the Nine Months Ended September 30, 2010	As previously reported			Reclassifications for regulatory assets and liabilities and to conform to current year presentation			Amount reported after reclassification for regulatory assets and liabilities and to conform to current year presentation
Cash Flows from Operating Activities
Other current assets	$	(13,236	)	$	7,209		$	(6,027	)
Other current liabilities	10,989			(4,251		)	6,738
Expenditures for real estate investments	(514		)	514			—
Gains and other changes in real estate assets	1,811			(1,811		)	—
Change in other regulatory liabilities	40,121			(40,121		)	—
Change in other long-term assets	(51,659		)	(7,723		)	(59,382		)
Change in other long-term liabilities	(28,547		)	46,183			17,636