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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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1994 FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
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
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PINNACLE WEST CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
ARIZONA 86-0512431
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
400 East Van Buren Street, Suite 700
Phoenix, Arizona 85004 (602) 379-2500
(Address of principal executive offices, (Registrant's telephone number,
including zip code) including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, New York Stock Exchange
No Par Value....................................... Pacific Stock Exchange
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AGGREGATE MARKET VALUE
OF SHARES HELD BY
TITLE OF EACH CLASS SHARES OUTSTANDING NON-AFFILIATES AS OF
OF VOTING STOCK AS OF MARCH 24, 1995 MARCH 24, 1995
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Common Stock, No Par Value..... 87,393,521 $1,829,434,614(a)
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(A) COMPUTED BY REFERENCE TO THE CLOSING PRICE ON THE COMPOSITE TAPE ON MARCH
24, 1995, AS REPORTED BY THE WALL STREET JOURNAL.
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement relating to its annual
meeting of shareholders to be held on May 17, 1995 are incorporated by reference
into Part III hereof.
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TABLE OF CONTENTS
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Supplemental Item.
Executive Officers of the Registrant........................ 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 17
Item 6. Selected Consolidated Financial Data........................ 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 8. Financial Statements and Supplementary Data................. 23
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 46
PART III
Item 10. Directors and Executive Officers of the Registrant......... 47
Item 11. Executive Compensation..................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 47
Item 13. Certain Relationships and Related Transactions............. 47
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement
Schedules, and Reports on Form 8-K......................... 48
SIGNATURES.............................................................. 65
PART I
ITEM 1. BUSINESS
THE COMPANY
Pinnacle West Capital Corporation (the "Company") was incorporated in 1985
under the laws of the State of Arizona and is engaged in the acquisition and
holding of securities of corporations for investment purposes. The principal
executive offices of the Company are located at 400 East Van Buren Street,
Phoenix, Arizona 85004 (telephone 602-379-2500).
The Company and its subsidiaries employ approximately 7,440 persons. Of
these employees, approximately 6,535 are employees of the Company's principal
subsidiary, Arizona Public Service Company ("APS"), and employees assigned to
joint projects of APS where APS serves as a project manager, and approximately
905 are employees of the Company and its other subsidiaries.
Other subsidiaries of the Company, in addition to APS, include SunCor
Development Company ("SunCor") and El Dorado Investment Company ("El Dorado").
SunCor is engaged primarily in the owning, holding, and development of real
property. El Dorado is involved in the business of making equity investments in
other companies. See "Business of Non-Utility Subsidiaries" in this Item for
further information regarding SunCor and El Dorado.
CAPITAL REQUIREMENTS
During the past three years, the Company's primary cash needs were for the
payment of interest and the optional and mandatory repayment of principal on its
long-term debt. Additional cash needs in 1993 and 1994 were related to the
resumption and subsequent growth of common stock dividends. The Company's
ability to satisfy its debt service obligations is substantially dependent upon
the receipt of common stock dividends from APS. See Note 5 of the Notes to the
Consolidated Financial Statements in Item 8 for additional information regarding
the Company's and APS' outstanding long-term debt.
The terms and provisions of certain of the Company's financing agreements
place severe restrictions on the Company's ability to incur additional debt, to
make capital infusions into its subsidiaries (excluding APS), to make other new
investments, and to pay cash dividends to its shareholders unless certain
conditions are met. While the debt under these financing agreements remains
outstanding, the Company has agreed not to incur new debt, except generally (and
with certain restrictions) for borrowings to reduce, refinance, or prepay
existing debt. The Company's ability to pay cash dividends or to make other
corporate distributions is dependent upon the satisfaction of certain financial
covenants. As of December 31, 1994, the Company could have declared dividends of
approximately $259 million based on these covenants.
In the event of a sale of all or substantially all of the assets or shares
of common stock of El Dorado or SunCor, the net cash proceeds must be applied by
the Company to reduce its outstanding debt. Until the Company's lenders are
fully repaid, (1) any new investments by the Company in its subsidiaries
(excluding APS) are generally restricted to $15 million in the aggregate and (2)
any other new investments by the Company are generally restricted to $20 million
in the aggregate. As of December 31, 1994, the Company had not made any such
investments.
As part of the Company's 1990 debt restructuring, the Company granted
substantially all of its lenders a security interest in the outstanding common
stock of APS pursuant to a Pledge Agreement, dated as of January 31, 1990 (the
"Pledge Agreement"). At December 31, 1994, the APS common stock secured
approximately $430 million of the Company's outstanding debt. Until the Company
and the collateral agent under the Pledge Agreement (the "Collateral Agent")
receive notice of the occurrence and continuation of an Event of Default (as
defined in the Pledge Agreement), the Company is entitled to exercise or refrain
from exercising any and all voting and other consensual rights pertaining to the
APS common stock. As to matters other than the election of directors, the
Company agreed not to exercise or refrain from exercising any such rights if, in
the Collateral Agent's judgment, such action would have a material adverse
effect on the value of the APS common stock. After notice of an Event of
Default, the Collateral Agent would have the right to vote the APS common stock.
REGULATION
PUBLIC UTILITY HOLDING COMPANY. The Company currently conducts no
significant business activities other than investing in its subsidiaries and
owns no significant assets other than the common stock of its subsidiaries. The
Company and its subsidiaries are currently exempt from registration under the
Public Utility Holding Company Act of 1935 (the "1935 Act"); however, the
Securities and Exchange Commission (the "SEC") has the authority to revoke or
condition an exemption if it appears that any question exists as to whether the
exemption may be detrimental to the public interest or the interest of investors
or consumers. In May 1990, the Arizona Corporation Commission (the "ACC") filed
a petition with the SEC requesting the SEC to revoke or modify the Company's
exemption under the 1935 Act. To date, the SEC has not taken any action with
respect to the ACC petition. The Company cannot predict what action, if any, the
SEC may take with respect to such petition.
ARIZONA CORPORATION COMMISSION AFFILIATED INTEREST RULES. On March 14, 1990
the ACC issued an order adopting certain rules purportedly applicable only to a
certain class of public utilities regulated by the ACC, including APS. The rules
define the terms "public utility holding company" and "affiliate" with respect
to public service corporations regulated by the ACC in such a manner as to
include the Company and all of the Company's non-public service corporation
subsidiaries. By their terms, the rules, among other things, require public
utilities, such as APS, to receive ACC approval prior to (1) obtaining an
interest in, or guaranteeing or assuming the liabilities of, any affiliate not
regulated by the ACC; (2) lending to any such affiliate (except for short-term
loans in an amount less than $100,000); or (3) using utility funds to form a
subsidiary or divest itself of any established subsidiary. The rules also would
prevent a utility from transacting business with an affiliate unless the
affiliate agrees to provide the ACC "access to the books and records of the
affiliate to the degree required to fully audit, examine or otherwise
investigate transactions between the public utility and the affiliate." In
addition, the rules provide that an "affiliate or holding company may not divest
itself of, or otherwise relinquish control of, a public utility without thirty
(30) days prior written notification to the [ACC]" and would require all public
utilities subject to them and all public utility holding companies to annually
"provide the [ACC] with a description of diversification plans for the current
calendar year that have been approved by the Boards of Directors." The order
became effective as to APS on December 1, 1992. The rules have not had, nor does
the Company expect the rules to have, a material adverse impact on the business
or operations of the Company.
BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY
Following is a discussion of the business of APS, the Company's principal
subsidiary.
GENERAL
APS was incorporated in 1920 under the laws of Arizona and is engaged
principally in serving electricity in the State of Arizona. The principal
executive offices of APS are located at 400 North Fifth Street, Phoenix, Arizona
85004 (telephone 602-250-1000). APS currently employs approximately 6,535
people, which includes employees assigned to joint projects where APS is project
manager.
APS serves approximately 681,000 customers in an area that includes all or
part of 11 of Arizona's 15 counties. During 1994, no single purchaser or user of
energy accounted for more than 3% of total electric revenues.
INDUSTRY AND COMPANY ISSUES
The utility industry continues to experience a number of challenges.
Depending on the circumstances of a particular utility, these may include (i)
competition in general from numerous sources (see "Competition" below); (ii)
difficulties in meeting government imposed environmental requirements; (iii) the
necessity to make substantial capital outlays for transmission and distribution
facilities; (iv) uncertainty regarding projected electrical demand growth; (v)
controversies over electromagnetic fields; (vi) controversies over the safety
and use of nuclear power; (vii) issues related to spent fuel and low-level waste
(see "Generating Fuel" below); and (viii) increasing costs of wages and
materials.
COMPETITION
Certain territory adjacent to or within areas served by APS is served by
other investor-owned utilities (notably Tucson Electric Power Company serving
electricity in the Tucson area, Southwest Gas Corporation serving gas throughout
the state, and Citizens Utilities Company serving electricity and gas in various
locations throughout the state) and a number of cooperatives, municipalities,
electrical districts, and similar types of governmental organizations
(principally the Salt River Project Agricultural Improvement and Power District
("SRP") serving electricity in various areas in and around Phoenix).
Electric utilities have historically operated in a highly-regulated
environment that provides limited opportunities for direct competition in
providing electric service to their customers. The National Energy Policy Act of
1992 (the "Energy Act") has far-reaching implications for APS by moving
utilities toward a more competitive environment. The Energy Act is designed,
among other things, to promote competition among utility and non-utility
generators by amending the 1935 Act to exempt a new class of independent power
producers that are not subject to regulation under the 1935 Act. The Energy Act
also amends the Federal Power Act to allow the Federal Energy Regulatory
Commission ("FERC") to order electric utilities to transmit, or "wheel,"
wholesale power for others. The FERC is prohibited under the Energy Act from
requiring utilities to provide transmission access to retail customers, and
there remains uncertainty about a state's ability to authorize such transmission
access to and for retail electric customers.
One of the issues that must be addressed responsibly is the recovery in a
more competitive environment of the carrying value of assets (including those
referred to in Note 1K of the Notes to the Consolidated Financial Statements in
Item 8) acquired or recorded under the existing regulatory environment. Pursuant
to a 1994 rate settlement (see Note 2 of Notes to Consolidated Financial
Statements in Item 8), 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 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. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Competition" in
Item 7 for a discussion of some of APS' strategies.
CAPITAL STRUCTURE
The capital structure of APS (which, for this purpose, includes short-term
borrowings and current maturities of long-term debt) as of December 31, 1994 is
tabulated below.
Amount Percentage
---------- ----------
(Thousands
of
Dollars)
Long-Term Debt Less Current Maturities:
First mortgage bonds................................ $1,740,071
Other............................................... 441,761
----------
Total long-term debt less current maturities...... 2,181,832 52.5%
----------
Non-Redeemable Preferred Stock........................ 193,561 4.7
----------
Redeemable Preferred Stock............................ 75,000 1.8
----------
Common Stock Equity:
Common stock, $2.50 par value, 100,000,000 shares
authorized; 71,264,947 shares outstanding......... 178,162
Premiums and expenses............................... 1,039,303
Retained earnings................................... 353,655
----------
Total common stock equity......................... 1,571,120 37.8
----------
Total capitalization............................ 4,021,513
Current Maturities of Long-Term Debt.................. 3,428 .1
Short-Term Borrowings................................. 131,500 3.1
---------- --------
Total........................................... $4,156,441 100.0%
========== ========
See Notes 4, 5 and 6 of Notes to the Consolidated Financial Statements in Item
8.
On January 12, 1995, APS issued $75 million of its 10% junior subordinated
deferrable interest debentures, Series A (MIDS), due 2025, and applied the net
proceeds to the repayment of short-term borrowings incurred for the redemption
of preferred stock in 1994. On March 2, 1995, APS redeemed $49.15 million in
aggregate principal amount of APS' First Mortgage Bonds, 10.25% Series due 2000
(the "10.25% Bonds").
So long as any of APS' first mortgage bonds are outstanding, APS is required
for each calendar year to deposit with the trustee under its mortgage cash in a
formularized amount related to net additions to APS' mortgaged utility plant;
however, APS may satisfy all or any part of this "replacement fund" requirement
by utilizing redeemed or retired bonds, net property additions, or property
retirements. For 1994, the replacement fund requirement amounted to
approximately $125 million. Many, though not all, of the bonds issued by APS
under its mortgage are redeemable at their par value plus accrued interest with
cash deposited by APS in the replacement fund, subject in many cases to a period
of time after the original issuance of the bonds during which they may not be so
redeemed and/or to other restrictions on any such redemption. The cash deposited
with the trustee by APS in partial satisfaction of its 1994 replacement fund
requirements was used to redeem the 10.25% Bonds at their principal amount plus
accrued interest.
RATES
STATE. The ACC has regulatory authority over APS in matters relating to
retail electric rates and the issuance of securities. See Note 2 of the Notes to
the Consolidated Financial Statements in Item 8 for a discussion of the 1994
retail rate settlement agreement between APS and the ACC.
FEDERAL. APS' rates for wholesale power sales and transmission services are
subject to regulation by the FERC. During 1994, approximately 6% of APS'
electric operating revenues resulted from such sales and charges. For most
wholesale transactions regulated by the FERC, a fuel adjustment clause results
in monthly adjustments for changes in the actual cost of fuel for generation and
in the fuel component of purchased power expense.
CONSTRUCTION PROGRAM
Present construction plans exclude any major baseload generating plants.
Utility construction expenditures for the years 1995 through 1997 are therefore
expected to be primarily for expanding transmission and distribution
capabilities to meet customer growth, upgrading existing facilities, and for
environmental purposes. Construction expenditures, including expenditures for
environmental control facilities, for the years 1995 through 1997 have been
estimated as follows:
(MILLIONS OF DOLLARS)
BY YEAR BY MAJOR FACILITIES
---------------------------------- ----------------------------------------
1995 $300 Electric generation $278
1996 257 Electric transmission 59
1997 236 Electric distribution 367
----- General facilities 89
$793 ----
===== $793
====
The amounts for 1995 through 1997 exclude capitalized interest costs and
capitalized property taxes. These amounts include about $27 million each year
for nuclear fuel expenditures. APS conducts a continuing review of its
construction program. This program and the above estimates are subject to
periodic revisions based upon changes in projections as to system reliability,
system load growth, rates of inflation, the availability and timing of
environmental and other regulatory approvals, the availability and costs of
outside sources of capital, and changes in project construction schedules.
During the years 1992 through 1994, APS incurred approximately $728 million in
construction expenditures and approximately $31 million in additional
capitalized items.
ENVIRONMENTAL MATTERS
Pursuant to the Clean Air Act, the United States Environmental Protection
Agency ("EPA") has adopted regulations, applicable to certain
federally-protected areas, that address visibility impairment that can be
reasonably attributed to specific sources. In September 1991, the EPA issued a
final rule that would limit sulfur dioxide emissions at the Navajo Generating
Station ("NGS"). Compliance with the emission limitation becomes applicable to
NGS Units 1, 2, and 3 in 1997, 1998, and 1999, respectively. SRP, the NGS
operating agent, has estimated a capital cost of $500 million, most of which
will be incurred from 1995-1998, and annual operations and maintenance costs of
approximately $14 million for all three units, for NGS to meet these
requirements. APS will be required to fund 14% of these expenditures.
The Clean Air Act Amendments of 1990 (the "Amendments") became effective on
November 15, 1990. The Amendments address, among other things, "acid rain,"
visibility in certain specified areas, toxic air pollutants, and the
nonattainment of national ambient air quality standards. With respect to "acid
rain," the Amendments establish a system of sulfur dioxide emissions
"allowances." Each existing utility unit is granted a certain number of
"allowances." On March 5, 1993, the EPA promulgated rules listing allowance
allocations applicable to APS-owned plants, which allocations will begin in the
year 2000. Based on those allocations, APS will have sufficient allowances to
permit continued operation of its plants at current levels without installing
additional equipment. In addition, the Amendments require the EPA to set
nitrogen oxides emissions limitations which would require certain plants to
install additional pollution control equipment. On March 22, 1994, the EPA
issued rules for nitrogen oxides emissions limitations; however, on November 29,
1994, the United States Court of Appeals for the District of Columbia Circuit
vacated the rules and remanded them to the EPA for further consideration. The
EPA has not yet proposed revised rules.
With respect to protection of visibility in certain specified areas, the
Amendments require the EPA to complete a study by November 1995 concerning
visibility impairment in those areas and identification of sources contributing
to such impairment. Interim findings of this study have indicated that any
beneficial effect on visibility as a result of the Amendments would be offset by
expected population and industry growth. The EPA has 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. NGS, the Cholla Power Plant ("Cholla"), and the Four Corners Power
Plant ("Four Corners") are located near the "Golden Circle of National Parks."
Based on the recommendations of the Commission, the EPA may require additional
emissions controls at various sources causing visibility impairment in the
"Golden Circle of National Parks" and may limit economic development in several
western states. APS cannot currently estimate the capital expenditures, if any,
which may be required as a result of the EPA studies and the Commission's
recommendations.
With respect to hazardous air pollutants emitted by electric utility steam
generating units, the Amendments require two studies. The results of the first
study indicated an impact from mercury emissions from such units in certain
unspecified areas; however, the EPA has not yet stated whether or not emissions
limitations will be imposed. Next, the EPA will complete a general study by
November 1995 concerning the necessity of regulating such units under the
Amendments. Due to the lack of historical data, and because APS cannot speculate
as to the ultimate requirements by the EPA, APS cannot currently estimate the
capital expenditures, if any, which may be required as a result of these
studies.
Certain aspects of the Amendments may require related expenditures by APS,
such as permit fees, none of which APS expects to have a material impact on its
financial position.
<TABLE>
GENERATING FUEL
Coal, nuclear, gas, and other contributions to total net generation of
electricity by APS in 1994, 1993, and 1992, and the average cost to APS of those
fuels (in dollars per Megawatt hour), were as follows:
<CAPTION>
COAL NUCLEAR GAS OTHER ALL FUELS
------------------------- ------------------------- ------------------------- ------------------------- -----------
PERCENT OF AVERAGE PERCENT OF AVERAGE PERCENT OF AVERAGE PERCENT OF AVERAGE AVERAGE
GENERATION COST GENERATION COST GENERATION COST GENERATION COST COST
------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
(estimate).. 59.7% $13.84 33.8% $6.09 6.3% $24.64 0.2% $16.26 $11.90
1993......... 62.3 12.95 32.4 6.17 5.1 31.53 0.2 18.32 11.70
1992......... 58.8 13.06 36.4 5.84 4.5 31.27 0.3 20.75 11.26
</TABLE>
Other includes oil and hydro generation.
APS believes that Cholla has sufficient reserves of low sulfur coal
committed to that plant for the next five years, the term of the existing coal
contract. Sufficient reserves of low sulfur coal are available to continue
operating Cholla for its useful life. APS also believes that Four Corners and
NGS have sufficient reserves of low sulfur coal available for use by those
plants to continue operating them for their useful lives. The current sulfur
content of coal being used at Four Corners, NGS, and Cholla is approximately
0.8%, 0.6%, and 0.4%, respectively. In 1994, average prices paid for coal
supplied from reserves dedicated under the existing contracts were relatively
stable, although applicable contract clauses permit escalations under certain
conditions. In addition, major price adjustments can occur from time to time as
a result of contract renegotiation.
NGS and Four Corners are located on the Navajo Reservation and held under
easements granted by the federal government as well as leases from the Navajo
Tribe. See "Properties" in Item 2. APS purchases all of the coal which fuels
Four Corners from a coal supplier with a long-term lease of coal reserves owned
by the Navajo Tribe and for NGS from a coal supplier with a long-term lease with
the Navajo and Hopi Tribes. APS purchases all of the coal which fuels Cholla
from a coal supplier who mines all of the coal under a long-term lease of coal
reserves owned by the Navajo Tribe, the federal government, and private
landholders.
APS is a party to contracts with 26 natural gas operators and marketers
which allow APS to purchase natural gas in the method it determines to be most
economic. During 1994, the principal sources of APS' natural gas generating fuel
were 21 of these companies. APS is currently purchasing the majority of its
natural gas requirements from twelve companies pursuant to contracts. APS'
natural gas supply is transported pursuant to a firm transportation service
contract between APS and El Paso Natural Gas Company. APS continues to analyze
the market to determine the source and method of meeting its natural gas
requirements.
The fuel cycle for the Palo Verde Nuclear Generating Station ("Palo Verde")
is comprised of the following stages: (1) the mining and milling of uranium ore
to produce uranium concentrates, (2) the conversion of uranium concentrates to
uranium hexafluoride, (3) the enrichment of uranium hexafluoride, (4) the
fabrication of fuel assemblies, (5) the utilization of fuel assemblies in
reactors, and (6) the storage of spent fuel and the disposal thereof. The Palo
Verde participants have made arrangements through contract flexibilities to
obtain quantities of uranium concentrates anticipated to be sufficient to meet
operational requirements through 1997. Existing contracts and options could be
utilized to meet approximately 80% of requirements in 1998 and 1999 and 70% of
requirements from 2000 through 2002. Spot purchases in the uranium market will
be made, as appropriate, in lieu of any uranium that might be obtained through
contract flexibilities and options. The Palo Verde participants have contracted
for all conversion services required through 2000 and with options for up to 70%
through 2002. The Palo Verde participants, including APS, have an enrichment
services contract with United States Enrichment Corporation ("USEC") which
obligates USEC to furnish enrichment services required for the operation of the
three Palo Verde units over a term expiring in September 2002, with options to
continue through September 2007. In addition, existing contracts will provide
fuel assembly fabrication services for at least ten years from the date of
operation of each Palo Verde unit, and through contract options, approximately
fifteen additional years are available. The Energy Act includes an assessment
for decontamination and decommissioning of the enrichment facilities of the
United States Department of Energy ("DOE"). The total amount of this assessment
that APS expects for Palo Verde will be approximately $3 million per year, plus
escalation for inflation, for fifteen years beginning in 1993. APS is required
to fund 29.1% of this assessment.
Existing spent fuel storage facilities at Palo Verde have sufficient
capacity with certain modifications to store all fuel expected to be discharged
from normal operation of all Palo Verde units through at least the year 2005.
Pursuant to the Nuclear Waste Policy Act of 1982, as amended in 1987 (the "Waste
Act"), DOE is obligated to accept and dispose of all spent nuclear fuel and
other high-level radioactive wastes generated by all domestic power reactors.
The Nuclear Regulatory Commission (the "NRC"), pursuant to the Waste Act, also
requires operators of nuclear power reactors to enter into spent fuel disposal
contracts with DOE. APS, on its own behalf and on behalf of the other Palo Verde
participants, has executed a spent fuel disposal contract with DOE. The Waste
Act also obligates DOE to develop the facilities necessary for the permanent
disposal of all spent fuel generated, and to be generated, by domestic power
reactors and to have the first such facility in operation by 1998 under
prescribed procedures. In November 1989, DOE reported that such permanent
disposal facility will not be in operation until 2010. As a result, under DOE's
current criteria for shipping allocation rights, Palo Verde's spent fuel
shipments to the DOE permanent disposal facility would begin in approximately
2025. In addition, APS believes that on-site storage of spent fuel may be
required beyond the life of Palo Verde's generating units. APS currently
believes that alternative interim spent fuel storage methods are or will be
available on-site or off-site for use by Palo Verde to allow its continued
operation beyond 2005 and to safely store spent fuel until DOE's scheduled
shipments from Palo Verde begin.
There are no existing off-site facilities for storage or disposal of
low-level waste available for Palo Verde, so the waste is currently being stored
on-site until an off-site location becomes available. APS currently believes
that interim low-level waste storage methods are or will be available for use by
Palo Verde to allow its continued operation and to safely store low-level waste
until a permanent disposal facility is available.
While believing that scientific and financial aspects of the issues with
respect to fuel and low-level waste can be resolved satisfactorily, APS
acknowledges that their ultimate resolution will require political resolve and
action on national and regional scales which it is less able to predict.
PALO VERDE NUCLEAR GENERATING STATION
REGULATORY. Operation of each of the three Palo Verde units requires an
operating license from the NRC. Full power operating licenses for Units 1, 2,
and 3 were issued by the NRC in June 1985, April 1986, and November 1987,
respectively. The full power operating licenses, each valid for a period of
approximately 40 years, authorize APS, as operating agent for Palo Verde, to
operate the three Palo Verde units at full power.
STEAM GENERATORS. See "Palo Verde Nuclear Generating Station" in Note 11 of
the Notes to the Consolidated Financial Statements in Item 8 for a discussion of
issues relating to the Palo Verde steam generators.
PALO VERDE LIABILITY AND INSURANCE MATTERS. See "Palo Verde Nuclear
Generating Station" in Note 11 of the Notes to the Consolidated Financial
Statements in Item 8 for a discussion of the insurance maintained by the Palo
Verde participants, including APS, for Palo Verde.
DEPARTMENT OF LABOR MATTER. By letter dated July 7, 1993, the NRC advised
APS that, as a result of a Recommended Decision and Order by a Department of
Labor Administrative Law Judge (the "ALJ") finding that APS discriminated
against a former contract employee at Palo Verde because he engaged in
"protected activities" (as defined under federal regulations), the NRC intended
to schedule an enforcement conference with APS. Following the ALJ's finding, APS
investigated various elements of both the substantive allegations and the manner
in which the United States Department of Labor (the "DOL") proceedings were
conducted. As a result of that investigation, APS determined that one of its
employees had falsely testified during the proceedings, that there were
inconsistencies in the testimony of another employee, and that certain documents
were requested in, but not provided during, discovery. The two employees in
question are no longer with APS. APS provided the results of its investigation
to the ALJ, who referred matters relating to the conduct of two former employees
of APS to the United States Attorney's office in Phoenix, Arizona. On December
15, 1993, APS and the former contract employee who had raised the DOL claim
entered into a settlement agreement, which was approved by the Secretary of
Labor on March 21, 1994. On May 19, 1994, the Secretary of Labor rescinded the
March 21, 1994 order and remanded the matter to the responsible Administrative
Law Judges for clarification. On August 9, 1994, and September 20, 1994, the
Administrative Law Judges again recommended to the Secretary of Labor that the
settlement be approved. By letter dated August 10, 1993, APS also provided the
results of its investigation to the NRC, and advised the NRC that, as a result
of APS' investigation, APS had changed its position opposing the finding of
discrimination. The NRC is investigating this matter and APS is fully
cooperating with the NRC in this regard.
WATER SUPPLY
Assured supplies of water are important both to APS (for its generating
plants) and to its customers. However, conflicting claims to limited amounts of
water in the southwestern United States have resulted in numerous court actions
in recent years.
Both groundwater and surface water in areas important to APS' operations
have been the subject of inquiries, claims, and legal proceedings which will
require a number of years to resolve. APS is one of a number of parties in a
proceeding before a state court in New Mexico to adjudicate rights to a stream
system from which water for Four Corners is derived. (State of New Mexico, in
the relation of S.E. Reynolds, State Engineer v. United States of America, City
of Farmington, Utah International, Inc., et al., San Juan County, New Mexico,
District Court No. 75-184). An agreement reached with the Navajo Tribe in 1985,
however, provides that if Four Corners loses a portion of its rights in the
adjudication, the Tribe will provide, for a then-agreed upon cost, sufficient
water from its allocation to offset the loss.
A summons served on APS in early 1986 required all water claimants in the
Lower Gila River Watershed in Arizona to assert any claims to water on or before
January 20, 1987, in an action pending in Maricopa County Superior Court. (In re
The General Adjudication of All Rights to Use Water in the Gila River System and
Source, Supreme Court Nos. WC-79-0001 through WC 79-0004 (Consolidated) [WC-1,
WC-2, WC-3 and WC-4 (Consolidated)], Maricopa County Nos. W-1, W-2, W-3 and W-4
(Consolidated)). Palo Verde is located within the geographic area subject to the
summons, and the rights of the Palo Verde participants, including APS, to the
use of groundwater and effluent at Palo Verde is potentially at issue in this
action. APS, as project manager of Palo Verde, filed claims that dispute the
court's jurisdiction over the Palo Verde participants' groundwater rights and
their contractual rights to effluent relating to Palo Verde and, alternatively,
seek confirmation of such rights. Three of APS' less-utilized power plants are
also located within the geographic area subject to the summons. APS' claims
dispute the court's jurisdiction over APS' groundwater rights with respect to
these plants and, alternatively, seek confirmation of such rights. On December
10, 1992, the Arizona Supreme Court heard oral argument on certain issues in
this matter which are pending on interlocutory appeal. Issues important to APS'
claims were remanded to the trial court for further action and the trial court
certified its decision for interlocutory appeal to the Arizona Supreme Court. On
September 28, 1994, the Arizona Supreme Court granted review of the trial court
decision. No trial date concerning the water rights claims of APS has been set
in this matter.
APS has also filed claims to water in the Little Colorado River Watershed in
Arizona in an action pending in the Apache County Superior Court. (In re The
General Adjudication of All Rights to Use Water in the Little Colorado River
System and Source, Supreme Court No. WC-79-0006 WC-6, Apache County No. 6417).
APS' groundwater resource utilized at Cholla is within the geographic area
subject to the adjudication and is therefore potentially at issue in the case.
APS' claims dispute the court's jurisdiction over APS' groundwater rights and,
alternatively, seek confirmation of such rights. The parties are in the process
of settlement negotiations with respect to this matter. No trial date concerning
the water rights claims of APS has been set in this matter.
Although the foregoing matters remain subject to further evaluation, APS
expects that the described litigation will not have a materially adverse impact
on its operations or financial position.
BUSINESS OF NON-UTILITY SUBSIDIARIES
SUNCOR DEVELOPMENT COMPANY
SunCor was incorporated in 1965 under the laws of the State of Arizona and
is engaged primarily in the owning, holding, and development of real property.
The principal executive offices of SunCor are located at 2828 North Central,
Suite 900, Phoenix, Arizona 85004 (telephone 602-285-6800). SunCor and its
subsidiaries, excluding SunCor Resort & Golf Management, Inc. ("Resort
Management"), employ approximately 78 persons. Resort Management, which manages
the Wigwam Resort and Country Club (the "Wigwam"), employs between 400 and 715
persons, depending on the Wigwam's operating season. Resort Management also
operates other golf operations.
SunCor's assets consist primarily of land and improvements and other real
estate investments. SunCor's holdings include approximately 11,000 acres west of
Phoenix in the area of Goodyear/Litchfield Park, Arizona ("Palm Valley"),
including a private water and sewer company to provide those utility services to
the property. A substantial portion of the undeveloped property is currently
being used for agricultural purposes. SunCor has completed the master-plan for
developing Palm Valley and has begun commercial and residential development of
approximately 640 acres. The initial phase included the development of an
18-hole championship golf course that was completed in 1993. In addition, within
the Palm Valley project, SunCor has entered into joint ventures to develop 2,200
acres as a retirement community, known as PebbleCreek, and 350 acres as a
planned area development, known as Litchfield Greens.
SunCor's holdings also include a 1,400 acre master-planned community north
of Phoenix called Tatum Ranch, a 1,400 acre master-planned community northeast
of Phoenix called Scottsdale Mountain, a 140 acre master-planned project for
business use northwest of Phoenix called Talavi and a 420 acre master-planned
project for business use east of Phoenix called MarketPlace.
For the years ended December 31, 1994, 1993, and 1992, SunCor's operating
revenues were approximately $59.3 million, $32.2 million, and $20.0 million,
respectively, and its pre-tax income (losses) were approximately $0.5 million,
($4.0 million), and ($6.2 million), respectively. SunCor's capital needs consist
primarily of construction expenditures, which are expected to approximate $35
million, $31 million, and $11 million for 1995, 1996, and 1997, respectively,
based on existing holdings. See "The Company -- Capital Requirements" in this
Item for a discussion of restrictions on the Company's ability to make new
investments in SunCor.
At December 31, 1994, SunCor had total assets of approximately $435 million,
approximately $269 million of which has been pledged to secure certain long-term
debt of SunCor. See Note 5 of Notes to the Consolidated Financial Statements in
Item 8 for information regarding SunCor's long-term debt. SunCor intends to
continue its focus on real estate development in residential, commercial, and
industrial projects.
EL DORADO INVESTMENT COMPANY
El Dorado was incorporated in 1983 under the laws of the State of Arizona
and is engaged in the business of making equity investments in other companies.
El Dorado's offices are located at 400 East Van Buren Street, Suite 750,
Phoenix, Arizona 85004 (telephone 602-252-3441).
El Dorado has investments in three major venture capital partnerships
totalling approximately $24.3 million. El Dorado has remaining funding
commitments to these partnerships in the aggregate amount of approximately $4
million through 1995. In addition to the foregoing investments, through 1994 El
Dorado had directly invested approximately $20.5 million in other private and
public companies and partnerships with perceived high growth potential.
For the years ended December 31, 1994, 1993, and 1992 El Dorado's pre-tax
losses were approximately $4.0 million, $3.9 million, and $2.6 million,
respectively. At December 31, 1994, El Dorado had total assets of approximately
$53 million. See "The Company -- Capital Requirements" in this Item for a
discussion of restrictions on the Company's ability to make new investments in
El Dorado.
ITEM 2. PROPERTIES
APS' present generating facilities have an accredited capacity aggregating
4,022,410 kilowatts (kW), comprised as follows:
Capacity(kW)
------------
Coal:
Units 1, 2, and 3 at Four Corners, aggregating........... 560,000
15% owned Units 4 and 5 at Four Corners, representing.... 222,000
Units 1, 2, and 3 at Cholla Plant, aggregating........... 590,000
14% owned Units 1, 2, and 3 at the Navajo Plant,
representing........................................... 315,000
-----------
1,687,000
===========
Gas or Oil:
Two steam units at Ocotillo, two steam units at Saguaro,
and one steam unit at Yucca, aggregating............... 468,400(1)
Eleven combustion turbine units, aggregating............. 500,600
Three combined cycle units, aggregating.................. 253,500
-----------
1,222,500
===========
Nuclear:
29.1% owned or leased Units 1, 2, and 3 at Palo Verde,
representing........................................... 1,108,710
===========
Other........................................................ 4,200
===========
----------
(1) West Phoenix steam units (96,300 kW) are currently mothballed.
--------------
APS' peak one-hour demand on its electric system was recorded on June 29,
1994 at 4,214,000 kW, compared to the 1993 peak of 3,802,300 kW recorded on
August 2. Taking into account additional capacity then available to it under
purchase power contracts as well as its own generating capacity, APS' capability
of meeting system demand on June 29, 1994, computed in accordance with accepted
industry practices, amounted to 4,514,300 kW, for an installed reserve margin of
8.1%. The power actually available to APS from its resources fluctuates from
time to time due in part to planned outages and technical problems. The
available capacity from sources actually operable at the time of the 1994 peak
amounted to 4,193,500 kW, for a margin of -0.5%. Firm purchases from neighboring
utilities totaling 550 megawatts were in place at the time of the 1994 peak,
ensuring the Company's ability to meet the load requirement.
NGS and Four Corners are located on land held under easements from the
federal government and also under leases from the Navajo Tribe. The risk with
respect to enforcement of these easements and leases is not deemed by APS to be
material. APS is dependent, however, in some measure upon the willingness and
ability of the Navajo Tribe to honor its commitments. Certain of APS'
transmission lines and almost all of its contracted coal sources are also
located on Indian reservations. See "Generating Fuel" in Item 1.
On August 18, 1986 and December 19, 1986, APS entered into a total of three
sale and leaseback transactions under which it sold and leased back
approximately 42% of its 29.1% ownership interest in Palo Verde Unit 2. The
leases under each of the sale and leaseback transactions have initial lease
terms expiring on December 31, 2015. Each of the leases also allows APS to
extend the term of the lease and/or to repurchase the leased Unit 2 interest
under certain circumstances at fair market value. The leases in the aggregate
require annual payments of approximately $40 million through 1999, approximately
$46 million in 2000, and approximately $49 million through 2015 (see Note 9 of
the Notes to the Consolidated Financial Statements in Item 8).
See "Water Supply" in Item 1 with respect to matters having possible impact
on the operation of certain of APS' power plants, including Palo Verde.
APS' construction plans are susceptible to changes in forecasts of future
demand on its electric system and in its ability to finance its construction
program. Although its plans are subject to change, present construction plans
exclude any major baseload generating plants. Important factors affecting APS'
ability to delay the construction of new major generating units are continuing
efforts to upgrade and improve the reliability of existing generating stations,
system load diversity with other utilities, and continuing efforts in customer
demand-side conservation and load management programs.
In addition to that available from its own generating capacity, APS
purchases electricity from other utilities under various arrangements. One of
the most important of these is a long-term contract with SRP which may be
canceled by SRP on three years' notice and which requires SRP to make available,
and APS to pay for, certain amounts of electricity that are based in large part
on customer demand within certain areas now served by APS pursuant to a related
territorial agreement. APS believes that the prices payable by it under the
contract are fair to both parties. The generating capacity available to APS
pursuant to the contract was 304,000 kW until May 1994, at which time the
capacity increased to 313,000 kW. In 1994, APS received approximately 887,650
Megawatt hours (MWh) of energy under the contract and paid approximately $40
million for capacity availability and energy received.
In September 1990, APS and PacifiCorp, an Oregon-based utility company,
entered into certain agreements relating principally to sales and purchases of
electric power and electric utility assets, and in July 1991, after regulatory
approvals, APS sold Cholla Unit 4 to PacifiCorp for approximately $230 million.
As part of the transaction, PacifiCorp agreed to make a firm system sale to APS
for thirty years during APS' summer peak season in the amount of 175 megawatts
for the first five years, increasing thereafter, at APS' option, up to a maximum
amount equal to the rated capacity of Cholla Unit 4. After the first five years,
all or part of the sale may be converted to a one-for-one seasonal capacity
exchange. PacifiCorp has the right to purchase from APS up to 125 average
megawatts of energy per year for thirty years. PacifiCorp and APS also entered
into a 100 megawatt one-for-one seasonal capacity exchange to be effective upon
the latter of January 1, 1996 or the completion of certain new transmission
projects. In addition, PacifiCorp agreed to pay APS (i) $20 million upon
commercial operation of 150 megawatts of peaking capacity constructed by APS and
(ii) $19 million ($9.5 million of which has been paid) in connection with the
construction of transmission lines and upgrades that will afford PacifiCorp 150
megawatts of northbound transmission rights. In addition, PacifiCorp secured
additional firm transmission capacity of 30 megawatts, for which approximately
$0.5 million was paid during 1994. In 1994, APS received 389,110 MWh of energy
from PacifiCorp under these transactions and paid approximately $18 million for
capacity availability and the energy received, and PacifiCorp paid approximately
$0.5 million for approximately 32,000 MWh.
See "El Paso Electric Company Bankruptcy" in Note 11 of the Notes to the
Consolidated Financial Statements in Item 8 for a discussion of the filing by El
Paso Electric Company ("EPEC") of a voluntary petition to reorganize under
Chapter 11 of the Bankruptcy Code. EPEC has a joint ownership interest with APS
and others in Palo Verde and Four Corners Units 4 and 5.
Substantially all of APS' utility plant is subject to the lien of APS'
mortgage bond indenture. See Note 9 of the Notes to the Consolidated Financial
Statements in Item 8 with respect to certain leased property of APS. See "The
Company -- Capital Requirements" in Item 1 for information regarding the Pledge
Agreement to which the APS common stock owned by the Company is subject.
See "SunCor Development Company" and "El Dorado Investment Company" under
the heading "Business of Non-Utility Subsidiaries" in Item 1 for a description
of properties held by the non-utility subsidiaries of the Company.
GRAPHIC
-------
In accordance with Item 304 of Regulation S-T of the Securities Exchange Act of
1934, APS' Service Territory map contained in this Form 10-K is a map of the
state of Arizona showing APS' service area, the location of its major power
plants and principal transmission lines, and the location of transmission lines
operated by APS for others. The major power plants shown on such map are the
Navajo Generating Station located in Coconino County, Arizona; the Four Corners
Power Plant located near Farmington, New Mexico; the Cholla Power Plant, located
in Navajo County, Arizona; the Yucca Power Plant, located near Yuma, Arizona;
and the Palo Verde Nuclear Generating Station, located about 55 miles west of
Phoenix, Arizona (each of which plants is reflected on such map as being jointly
owned with other utilities), as well as the Ocotillo Power Plant and West
Phoenix Power Plant, each located near Phoenix, Arizona, and the Saguaro Power
Plant, located near Tucson, Arizona. APS' major transmission lines shown on such
map are reflected as running between the power plants named above and certain
major cities in the state of Arizona. The transmission lines operated for others
shown on such map are reflected as running from the Four Corners Plant through a
portion of northern Arizona to the California border.
ITEM 3. LEGAL PROCEEDINGS
APS
On June 29, 1990, a new Arizona state tax law was enacted, effective as of
December 31, 1989, which adversely impacted APS' earnings in tax years 1990
through 1994 by an aggregate amount of approximately $21 million per year,
before income taxes. On December 20, 1990, the Palo Verde participants,
including APS, filed a lawsuit in the Arizona Tax Court, a division of the
Maricopa County Superior Court, against the Arizona Department of Revenue, the
Treasurer of the State of Arizona, and various Arizona counties, claiming, among
other things, that portions of the new tax law are unconstitutional. (Arizona
Public Service Company, et al. v. Apache County, et al., No. TX 90-01686
(Consol.), Maricopa County Superior Court). In December 1992, the court granted
summary judgment to the taxing authorities, holding that the law is
constitutional. APS has appealed this decision to the Arizona Court of Appeals.
APS cannot currently predict the ultimate outcome of this matter.
See "Water Supply" and "Palo Verde Nuclear Generating Station" in Item 1 and
"El Paso Electric Company Bankruptcy" in Note 11 of the Notes to the
Consolidated Financial Statements in Item 8 in regard to other pending or
threatened litigation involving APS.
PINNACLE WEST
A lawsuit was filed in the United States District Court for the District of
Arizona against the Company, its inside directors and certain of its officers on
November 7, 1988 and was amended on December 15, 1988 to add the remaining
directors and additional substantive claims. As amended, the complaint alleges
violations of federal securities laws and Arizona securities, consumer fraud and
other state laws in connection with certain actions of the Company and
statements made on its behalf relating to the Company's diversification
activities, future business prospects and dividends. The Court certified a class
consisting of all purchasers of the Company's common stock between April 1, 1987
and October 7, 1988 (the alleged "Class Period"). The complaint sought
unspecified compensatory and punitive damages as well as fees and costs.
On December 20, 1988 a lawsuit was filed in the United States District Court
for the District of Arizona against the Company and certain officers and
directors, alleging violations of federal securities laws and Arizona
securities, consumer fraud and other state laws in connection with certain
actions of the Company and statements made on its behalf relating to the
Company's diversification activities, future business prospects and dividends.
The lawsuit is substantially similar to the lawsuit referenced in the preceding
paragraph. The plaintiffs, two individuals who claim to have purchased the
Company's common stock between April 1, 1987 and October 7, 1988 (the alleged
"Class Period"), requested unspecified compensatory and punitive damages as well
as fees and costs. On October 2, 1989, the cases described in this and the
preceding paragraph were consolidated.
On December 15, 1989 a shareholder derivative lawsuit was filed in the
United States District Court for the District of Arizona naming the Company's
directors as defendants and the Company as nominal defendant. The lawsuit
alleges breach of fiduciary duties by the directors in connection with the
Company's diversification activities, and further alleges violation of federal
securities laws by one director in connection with the sale of MeraBank to the
Company in 1986. The plaintiffs requested, on the Company's behalf, unspecified
compensatory and punitive damages.
On April 22, 1991 a lawsuit was filed in the United States District Court
for the District of Arizona by the Resolution Trust Corporation (the "RTC")
against certain former officers and directors of MeraBank. The suit sought,
among other things, damages in excess of $270 million, and alleged negligence,
gross negligence, breach of fiduciary duty, breach of duty of loyalty and breach
of contract with respect to the management and operation of MeraBank by the
defendants beginning in the early 1980s. Although the Company was not a
defendant, the Company agreed to advance reasonable attorneys' fees and
expenses, in various amounts, to those defendants who served on the MeraBank
Board of Directors at the request of the Company. The Company reserved the right
to alter the amount of such advances or to terminate them as the case developed,
and has also received undertakings from the persons receiving such advances to
repay such amounts in the event that they are ultimately determined not to be
entitled to indemnification. The Company has terminated future such advances as
to certain of those defendants. In addition, in June and November of 1989 the
Company's Board of Directors adopted resolutions whereby the Company agreed to
indemnify the non-officer members of the MeraBank Board of Directors against
claims brought against such individuals in their capacity as directors of
MeraBank, for acts occurring on or after June and November 1989, the effective
dates of the indemnification resolutions.
On December 30, 1993, and as the result of a negotiated settlement, the
United States District Court for the District of Arizona entered orders and
final judgments (1) dismissing the consolidated shareholder class litigation and
shareholder derivative litigation initiated in 1988 and 1989, respectively, and
described in the first three paragraphs under this heading and (2) partially
dismissing the litigation initiated by the RTC and described in the immediately
preceding paragraph. The settlement provides for payments totaling $61.625
million, of which the Company's share is $5.75 million. A litigation reserve
previously established by the Company is sufficient to cover the Company's share
of the settlement. The balance of the settlement payment will be funded by the
Company's insurers. Two non-settling individuals who pursued independent claims
against the RTC were not dismissed from the RTC litigation and have appealed the
settlement. On March 23, 1995, the appeals court affirmed the judgment entered
by the District Court which approved the settlement and dismissed the litigation
described above. The non-settling individuals have filed a third-party complaint
against the Company in the District Court for the District of Arizona alleging
claims for contractual and statutory indemnification in the event that these
individuals are found liable on the RTC's claims against them. The third-party
complaint, which has not been served on the Company, further alleges that the
Company acted in bad faith and wrongfully denied indemnification to these
individuals and seeks compensatory and punitive damages in an unspecified amount
as well as costs and attorneys' fees. In addition, one of these individuals
seeks a judicial determination that the Company is obligated to pay him pension
benefits in an unspecified amount in the event that the RTC does not fully pay
these benefits. The Company believes that it has no obligation with respect to
any such costs or damages.
On January 18, 1991 a lawsuit was filed in the United States District Court,
Southern District of Ohio, Western Division, against, among other parties, the
Company and certain of its officers and directors, the Office of Thrift
Supervision ("OTS"), the RTC and the Federal Deposit Insurance Corporation
("FDIC"). The amended complaint in this lawsuit alleges that the plaintiff
purchased MeraBank subordinated debentures with a face amount of $1 million in
1987 in reliance upon a capital maintenance stipulation executed by the Company
as a condition to the Company's acquisition of MeraBank. The plaintiff further
alleges that the value of such debentures was impaired because of the Company's
release from its purported obligations under the stipulation and the actions of
the OTS in placing MeraBank in receivership. The amended complaint alleges
claims under the federal securities laws, the federal racketeering statutes, and
state consumer fraud statutes and seeks damages in the approximate amount of
$4.8 million. On August 2, 1991 the Ohio court issued an order dismissing the
case with prejudice as to the Company and the officer/director defendants for
lack of personal jurisdiction. The court also ordered the case dismissed with
prejudice as to the OTS, the RTC and the FDIC. On October 1, 1991 the plaintiff
appealed the court's order. On February 17, 1993, the United States Court of
Appeals for the Sixth Circuit affirmed the entry of summary judgment in favor of
the RTC, OTS, and FDIC, but reversed the district court's dismissal in favor of
the Company and certain of its officers and directors. The Court of Appeals
remanded the case to the district court for a determination of whether the
plaintiff had adequately pled its claims so that the district court could
exercise personal jurisdiction. The district court was further instructed to
consider whether the Southern District of Ohio was the proper venue for the
suit. On June 8, 1993, the Ohio court ordered this case to be transferred to the
District of Arizona. On August 17, 1993, the Company was served with a separate
complaint filed by the same plaintiff in the District Court for the District of
Arizona alleging claims under the Arizona Racketeering Act and the Arizona
Consumer Fraud Act seeking compensatory damages in the amount of $1.2 million
plus interest, punitive damages, treble damages, interest, attorneys' fees and
costs. On September 24, 1993, the plaintiff voluntarily dismissed the Arizona
Consumer Fraud Act claims. On March 6, 1995, the court dismissed the Arizona
Racketeering Act claims. The federal securities law, federal racketeering and
state consumer fraud claims remain pending. The Company and the individual
directors and officers believe that the lawsuit is without merit and will
vigorously defend themselves.
On May 1, 1991, a lawsuit was filed in the United States District Court for
the District of Arizona against the Company by another purchaser of the same
issue of MeraBank subordinated debentures referred to in the immediately
preceding paragraph. This plaintiff also claims to have purchased the
debentures, with a face amount of approximately $12.4 million, in reliance upon
the stipulation. The suit further alleges that the Company induced the plaintiff
to retain its investment in the debentures by representing to the plaintiff that
the Company would keep MeraBank capitalized in accordance with federal
regulatory requirements. The suit alleges violations of federal and state
securities laws, fraud, negligent representation, racketeering and intentional
interference with contractual relations. On October 7, 1994, the court dismissed
the plaintiff's federal securities law claims. Motions for reconsideration of
the court's ruling are pending. The plaintiff seeks unspecified compensatory and
punitive damages and has requested that the compensatory damages be trebled
under Arizona's civil racketeering statute. The Company intends to vigorously
defend itself in this action.
On December 22, 1993, the Company was served with a complaint filed by other
purchasers of MeraBank subordinated debentures with a face amount of
approximately $1.5 million alleging claims substantially similar to the claims
described in the preceding paragraph. The complaint which was filed in the
United States District Court for the District of Arizona, seeks compensatory and
punitive damages in an unspecified amount plus attorneys' fees and costs. The
Company intends to vigorously defend itself in this action.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report, through the solicitation of
proxies or otherwise.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are as follows:
AGE AT
MARCH 1, 1995
NAME ------------- POSITION(S) AT MARCH 1, 1995
---- ----------------------------
Michael S. Ash 41 Corporate Counsel
Arlyn J. Larson 60 Vice President of Corporate
Planning and Development
Nancy E. Newquist 43 Vice President and Treasurer
Henry B. Sargent 60 Executive Vice President and
Chief Financial Officer(1)
Richard Snell 64 Chairman of the Board of Directors,
President and Chief Executive Officer(1)
Faye Widenmann 46 Vice President of Corporate Relations
and Administration and Secretary
----------
(1) Member of the Board of Directors.
The executive officers of the Company are elected no less often than
annually and may be removed by the Board of Directors at any time. The terms
served by the named officers in their current positions and the principal
occupations (in addition to those stated in the table) of such officers for the
past five years have been as follows:
Mr. Ash was elected Corporate Counsel of the Company in February 1991. He
previously held the position of Legal Counsel to the Company from December 1986
to February 1991.
Mr. Larson was elected Vice President, Corporate Planning and Development
in July 1986.
Ms. Newquist was elected Treasurer in June 1990 and as a Vice President in
February 1994. Ms. Newquist also serves as Treasurer of APS, a position she
was elected to in June 1993 after serving as Assistant Treasurer of APS since
October 1992. From May 1987 to June 1990, Ms. Newquist served as the Company's
Director of Finance.
Mr. Sargent was elected Executive Vice President and Chief Financial
Officer of the Company in April 1985. Mr. Sargent was Executive Vice President
and Chief Financial Officer of APS from September 1981 until July 1986. He is
also a director of Magma Copper Company, Tucson, Arizona; Megafoods Stores,
Inc., Phoenix, Arizona and APS.
Mr. Snell was elected Chairman of the Board, President and Chief Executive
Officer of the Company effective February 5, 1990. He was also elected Chairman
of the Board of APS effective the same date. Previously, he was Chairman of the
Board (1989-1992) and Chief Executive Officer (1989-1990) of Aztar Corporation.
Mr. Snell remains a director of Aztar Corporation and is also a director of Bank
One Arizona Corporation, Phoenix, Arizona.
Ms. Widenmann was elected Secretary of the Company in 1985 and Vice
President of Corporate Relations and Administration in November 1986. She was
Secretary of APS from June 1983 until April 1987.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is publicly held and is traded on the New York
and Pacific Stock Exchanges. At the close of business on March 24, 1995, the
Company's common stock was held of record by approximately 55,400 shareholders.
The chart below sets forth the common stock price ranges on the composite
tape, as reported in the Wall Street Journal for 1994 and 1993. The chart also
sets forth the dividends declared and paid per share during each of the four
quarters for 1994 and 1993.
COMMON STOCK PRICE RANGES AND DIVIDENDS
------------------------------------------------------------------------------
DIVIDEND
1994 HIGH LOW PER SHARE
------------------------------------------------------------------------------
1st Quarter 22-7/8 19-1/2 .20
2nd Quarter 21 16 .20
3rd Quarter 18-3/4 16-1/8 .20
4th Quarter 20-1/8 17-1/8 .225
------------------------------------------------------------------------------
1993
------------------------------------------------------------------------------
1st Quarter 21-3/4 19-5/8
2nd Quarter 23-1/2 20-7/8
3rd Quarter 25-1/4 23-1/8
4th Quarter 24-3/8 20-3/8 .20
------------------------------------------------------------------------------
<TABLE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
1994 1993 1992 1991 1990
-------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating revenues
Electric (a) $ 1,616,860 $ 1,581,039 $ 1,566,208 $ 1,437,871 $ 1,434,750
Rate refund reversal (provision) 9,308 21,374 21,374 (52,056) --
Real estate 59,253 32,248 19,959 12,697 81,264
Income (loss) from continuing
operations (b) $ 200,619 $ 169,978 $ 150,440 $ (340,317) $ 70,208
Income (loss) from discontinued
operations -- net of tax (c) -- -- 6,000 153,455 27,125
Cumulative effect of change in
accounting for income taxes (d) -- 19,252 -- -- --
-------------- -------------- -------------- --------------- --------------
Net income (loss) $ 200,619 $ 189,230 $ 156,440 $ (186,862) $ 97,333
============== ============== ============== =============== ==============
COMMON STOCK DATA
Book value per share -- year-end $ 20.32 $ 18.87 $ 17.00 $ 15.23 $ 17.40
Earnings (loss) per average common
share outstanding
Continuing operations $ 2.30 $ 1.95 $ 1.73 $ (3.91) $ 0.81
Discontinued operations -- -- 0.07 1.76 0.31
Accounting change -- 0.22 -- -- --
-------------- -------------- -------------- --------------- --------------
Total $ 2.30 $ 2.17 $ 1.80 $ (2.15) $ 1.12
============== ============== ============== =============== ==============
Dividends declared per share (e) $ 0.825 $ 0.20 $ -- $ -- $ --
Common shares outstanding
Year-end 87,429,642 87,423,817 87,161,872 87,009,974 86,873,174
Average 87,410,967 87,241,899 87,044,180 86,937,052 86,769,924
TOTAL ASSETS $ 6,909,752 $ 6,956,799 $ 6,270,476 $ 6,147,639 $ 6,793,755
============== ============== ============== =============== ==============
LIABILITIES AND EQUITY
Long-term debt less current
maturities $ 2,588,525 $ 2,633,620 $ 2,774,305 $ 2,996,910 $ 3,218,168
Other liabilities 2,276,249 2,282,508 1,620,250 1,429,488 1,702,628
-------------- -------------- -------------- --------------- --------------
Total liabilities 4,864,774 4,916,128 4,394,555 4,426,398 4,920,796
Minority interests
Non-redeemable preferred stock of
APS 193,561 193,561 168,561 168,561 168,561
Redeemable preferred stock of APS 75,000 197,610 225,635 227,278 192,453
Common stock equity 1,776,417 1,649,500 1,481,725 1,325,402 1,511,945
-------------- -------------- -------------- --------------- --------------
Total liabilities and equity $ 6,909,752 $ 6,956,799 $ 6,270,476 $ 6,147,639 $ 6,793,755
============== ============== ============== =============== ==============
----------
(a) Consistent with the 1994 presentation, prior years' electric operating
revenues and other taxes have been restated to exclude sales tax on
electric revenues.
(b) Includes approximately $407 million of write-offs and adjustments in
1991, net of income tax related to the Palo Verde Nuclear Generating
Station. Also includes after-tax Palo Verde Unit 3 accretion income in
1994, 1993, 1992 and 1991 of approximately $20.3 million, $45.3
million, $40.7 million and $3.2 million, respectively.
(c) Results of MeraBank, a Federal Savings Bank, and Malapai Resources
Company, a uranium mining company.
(d) Results of the adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." See Note 3 of Notes to
Consolidated Financial Statements.
(e) In October 1993, the Pinnacle West Board of Directors declared a
quarterly dividend, which was previously suspended in October 1989.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to Pinnacle West Capital Corporation
(Pinnacle West) and its subsidiaries: Arizona Public Service Company (APS),
SunCor Development Company (SunCor) and El Dorado Investment Company (El
Dorado). The discussion also relates to the discontinued operations of MeraBank,
A Federal Savings Bank (MeraBank).
CAPITAL NEEDS AND RESOURCES
Parent Company
During the past three years, Pinnacle West's primary cash needs were for
the payment of interest and the optional and mandatory repayment of principal on
its long-term debt (see Note 5 of Notes to Consolidated Financial Statements).
Additional cash needs in 1993 and 1994 were related to the resumption and
subsequent growth of common stock dividends.
Dividends from APS have been Pinnacle West's primary source of cash. Tax
allocations within the consolidated group and net operating loss carryforwards
associated primarily with MeraBank have also been sources of cash.
SunCor provided cash in 1994, and SunCor and El Dorado are both expected
to contribute to Pinnacle West's cash flow in 1995.
Pinnacle West repaid substantial amounts of its parent-level debt in
each of the last three years. Management expects Pinnacle West to have
sufficient cash flow to reduce parent company debt to approximately $310 million
at the end of 1995 from $430 million at the end of 1994.
APS
APS' capital needs consist primarily of construction expenditures and
optional and mandatory repayments or redemptions of long-term debt and preferred
stock. The capital resources available to meet these requirements include funds
provided by operations and external financings.
Present construction plans do not include any major baseload generating
plants. In general, most of the construction expenditures are for expanding
transmission and distribution capabilities to meet customer growth, upgrading
existing facilities and for environmental purposes. Construction expenditures
are anticipated to be approximately $300 million, $257 million and $236 million
for 1995, 1996 and 1997, respectively. These amounts include about $27 million
each year for nuclear fuel expenditures.
In the period 1992 through 1994, APS funded all of its construction
expenditures and capitalized property taxes with funds provided by operations,
after the payment of dividends. For the period 1995 through 1997, APS estimates
that it will fund substantially all such expenditures in the same manner.
During 1994, APS repurchased or redeemed approximately $587 million of
long-term debt and preferred stock, of which approximately $518 million was
optional. Refunding obligations for preferred stock, long-term debt, a
capitalized lease obligation and certain anticipated early redemptions are
expected to total approximately $106 million, $4 million and $164 million for
the years 1995, 1996 and 1997, respectively. On March 2, 1995, APS redeemed all
of its outstanding first mortgage bonds, 10.25% Series due 2000 (the 10.25%
Bonds) for approximately $50 million.
APS currently expects to issue up to $175 million of debt in 1995. Of
this amount, on January 12, 1995, APS issued $75 million of 10% junior
subordinated deferrable interest debentures (MIDS) due 2025, and applied the net
proceeds to the repayment of short-term debt that had been incurred for the
redemption of preferred stock in 1994. APS expects that substantially all of the
net proceeds of the remaining financing activity in 1995 will be used for the
retirement of outstanding debt.
Provisions in APS' mortgage bond indenture and articles of incorporation
require certain coverage ratios to be met before APS 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. After giving proforma effect to the redemption of the 10.25% Bonds as
of December 31, 1994, APS estimates that the bond indenture and the articles of
incorporation would then have allowed it to issue up to approximately $1.33
billion and $768 million of additional first mortgage bonds and preferred stock,
respectively.
The Arizona Corporation Commission (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.
As of December 31, 1994, APS had credit commitments from various banks
totaling approximately $300 million, which were available either to support the
issuance of commercial paper or to be used as bank borrowings. There were no
bank borrowings outstanding at the end of 1994. Commercial paper borrowings
totaling $131.5 million were then outstanding.
Non-Utility Subsidiaries
During the past three years, the non-utility subsidiaries together
funded all of their operations through cash flow from operations and financings
that did not involve Pinnacle West. SunCor's capital needs consist primarily of
construction expenditures, which, on the basis of projects now under development
by it, are expected to approximate $35 million, $31 million and $11 million for
1995, 1996 and 1997, respectively. Capital resources available to meet these
requirements include funds provided by SunCor's operations and external
financings.
During 1994, SunCor issued $30 million of collateralized mortgage bonds.
These bonds are secured by specified parcels of real property. Additionally,
SunCor established revolving lines of credit totaling $24.5 million; at December
31, 1994, borrowings of $18.5 million were outstanding thereunder.
RESULTS OF OPERATIONS
1994 Compared with 1993
Pinnacle West reported income from continuing operations of $200.6
million in 1994, which included a non-recurring income tax benefit of $26.8
million. Excluding the non-recurring tax benefit, income from continuing
operations in 1994 was $173.8 million compared with $170.0 million in 1993.
Underlying the small increase were several significant factors. Electric
operating revenues increased primarily due to strong customer growth and
significantly warmer weather in 1994, partially offset by lower interchange
sales and the 1994 rate reduction. Substantially offsetting the earnings effect
of the 1994 rate reduction was a one-time depreciation reversal, also occasioned
by the 1994 rate settlement. Interest expense declined due primarily to parent
company debt repayment and APS' refinancing efforts in 1994 and 1993. APS'
effort to refinance high-cost debt, started in 1992, was substantially completed
at the end of 1994.
Substantially offsetting these positive factors were the completion in
May 1994 of the recording of non-cash income related to a 1991 rate settlement;
increased utility operations and maintenance expense due primarily to employee
severance costs related to various cost-reduction efforts; and increased nuclear
decommissioning costs reflecting the most recent site-specific study.
Fuel and purchased power expenses remained relatively unchanged in 1994
compared with 1993. Higher costs to meet increased retail sales were about
offset by lower fuel costs for reduced interchange sales. APS does not have a
fuel adjustment clause as part of its retail rate structure; therefore, changes
in fuel and purchased power expenses are reflected currently in earnings.
SunCor reported a small profit in 1994 compared with a $4.0 million loss
in 1993. Real estate revenues and operating expenses in 1994 increased $27.0
million and $21.6 million, respectively, reflecting increased volumes of
residential and commercial property sales.
1993 Compared with 1992
Pinnacle West reported income from continuing operations of $170.0
million in 1993 compared with $150.4 million in 1992. The primary factor that
contributed to this increase was lower interest expense due to refinancing debt
at lower rates, lower average debt balances and lower interest rates on APS'
variable-rate debt. Partially offsetting the lower interest expense were
increased taxes and higher utility operating expenses.
Electric operating revenue increased significantly due to customer
growth. Offsetting customer growth were the effects of milder weather and
increased fuel and purchased power costs due to Palo Verde outages and reduced
power levels related to steam generator tube problems (see Note 11 of Notes to
Consolidated Financial Statements).
Utility operations and maintenance expense for 1993 increased over 1992
levels primarily due to the implementation of new accounting standards for
postemployment benefits and postretirement benefits other than pensions, which
added $17.0 million to expense in 1993 (see Note 8 of Notes to Consolidated
Financial Statements). Partially offsetting these factors were lower power plant
operating costs, lower rent expense and lower costs for an employee cost-saving
incentive plan.
Real estate revenues and operating expenses increased $12.3 million and
$10.9 million, respectively, in 1993 due primarily to increased sales of
residential lots.
Electric Operating Revenues
Electric operating revenues reflect changes in both the volume of units
sold and price per kilowatt-hour (kWh) of electric sales. An analysis of the
changes in 1994 and 1993 electric operating revenues compared with the prior
year follows (in millions of dollars):
1994 1993
---- ----
Volume variance $86.7 $22.3
1994 rate reduction (27.4) --
Interchange sales (19.5) (7.2)
Reversal of refund obligation (12.1) --
Other operating revenues (3.9) (0.3)
----- -----
Total change $23.8 $14.8
===== =====
The volume increase in 1994 primarily reflects the effects on retail
sales of customer growth ($56 million) and warmer weather ($42 million). The
volume increase in 1993 was primarily due to customer growth ($41 million),
partially offset by milder weather ($20 million reduction). Other factors
affecting volumes include changes in usage, unbilled revenue and firm sales for
resale for a net total of $11 million reduction in 1994 and $1 million increase
in 1993.
Income Tax Issues
See Note 3 of Notes to Consolidated Financial Statements regarding
recognition of $26.8 million of income tax benefits in 1994 and a recent
accounting standard for income taxes which required the recognition in 1993 of
$19.3 million of tax benefits related to net operating loss carryforwards.
Other Income/Rate Settlement Impacts
Net income reflects accounting practices required for regulated public
utilities and represents a composite of cash and non-cash items, including
Allowance for Funds Used During Construction (AFUDC), accretion income on Palo
Verde Unit 3 and the reversal of a refund obligation arising out of the 1991
rate settlement (see Consolidated Statements of Cash Flows and Note 1 of Notes
to Consolidated Financial Statements). The accretion and refund reversals, net
of income taxes, totaled $25.9 million, $58.2 million and $53.6 million in 1994,
1993 and 1992, respectively. APS has now recorded all of the Palo Verde Unit 3
accretion income and refund obligation reversals related to the 1991 settlement.
Also in 1994 was a one-time Palo Verde depreciation reversal of $15 million, net
of income tax, which is included in "Other -- net" in the Consolidated
Statements of Income (see Note 2 of Notes to Consolidated Financial Statements).
The retail rate settlement which was approved by the ACC in May 1994 did
not significantly affect 1994 earnings as previously discussed, and is not
expected to significantly affect earnings for the years 1995 through 1999
because the rate reduction will be substantially offset by accelerated
amortization of deferred investment tax credits (see Note 2 of Notes to
Consolidated Financial Statements).
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
APS' 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 (including those
referred to in Note 1K of Notes to Consolidated Financial Statements) 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 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.
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<CAPTION>
Page
----------
<S> <C>
Report of Management........................................................... 24
Independent Auditors' Report................................................... 25
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1994...................................................... 26
Consolidated Balance Sheets -- December 31, 1994 and 1993...................... 27, 28
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1994...................................................... 29
Consolidated Statements of Retained Earnings for each of the three years in the
period ended December 31, 1994............................................... 30
Notes to Consolidated Financial Statements..................................... 31
Financial Statement Schedule for each of the three years in the period ended
December 31, 1994
Schedule II -- Valuation and Qualifying Accounts for the years ended
December 31, 1994, 1993 and 1992......................................... 46
See Note 12 of Notes to Consolidated Financial Statements for the selected
quarterly financial data required to be presented in this Item.
</TABLE>
REPORT OF MANAGEMENT
The primary responsibility for the integrity of Pinnacle West's financial
information rests with management, which has prepared the accompanying financial
statements and related information. Such information was prepared in accordance
with generally accepted accounting principles appropriate in the circumstances,
based on management's best estimates and judgments and giving due consideration
to materiality. These financial statements have been audited by independent
auditors and their report is included.
Management maintains and relies upon systems of internal accounting
controls. A limiting factor in all systems of internal accounting control is
that the cost of the system should not exceed the benefits to be derived.
Management believes that Pinnacle West's system provides the appropriate balance
between such costs and benefits.
Periodically the internal accounting system is reviewed by both Pinnacle
West's internal auditors and its independent auditors to test for compliance.
Reports issued by the internal auditors are released to management, and such
reports, or summaries thereof, are transmitted to the Audit Committee of the
Board of Directors and the independent auditors on a timely basis.
The Audit Committee, composed solely of outside directors, meets
periodically with the internal auditors and independent auditors (as well as
management) to review the work of each. The internal auditors and independent
auditors have free access to the Audit Committee, without management present, to
discuss the results of their audit work.
Management believes that Pinnacle West's systems, policies and procedures
provide reasonable assurance that operations are conducted in conformity with
the law and with management's commitment to a high standard of business conduct.
Richard Snell Henry B. Sargent
Chairman & President Executive Vice President
& Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Pinnacle
West Capital Corporation and its subsidiaries as of December 31, 1994 and 1993
and the related consolidated statements of income, retained earnings and cash
flows for each of the three years in the period ended December 31, 1994. Our
audits also included the financial statement schedule listed in the Index at
Item 8. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Pinnacle West Capital
Corporation and its subsidiaries at December 31, 1994 and 1993 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 3 of Notes to Consolidated Financial Statements, the
Company changed its method of accounting for income taxes effective January 1,
1993 to conform with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche LLP
Phoenix, Arizona
March 3, 1995
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
Consolidated Statements of Income
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
Year Ended December 31,
------------------------------------------
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C> <C>
Operating Revenues
Electric (Note 1) ............................................... $ 1,626,168 $ 1,602,413 $ 1,587,582
Real estate ..................................................... 59,253 32,248 19,959
------------ ------------ -----------
Total ........................................... 1,685,421 1,634,661 1,607,541
------------ ------------ -----------
Fuel Expenses
Fuel for electric generation .................................... 237,103 231,434 230,194
Purchased power ................................................. 63,586 69,112 57,007
------------ ------------ -----------
Total ........................................... 300,689 300,546 287,201
------------ ------------ -----------
Operating Expenses
Utility operations and maintenance .............................. 411,921 401,216 390,512
Real estate operations .......................................... 59,789 38,220 27,309
Depreciation and amortization ................................... 237,326 223,558 220,076
Taxes other than income taxes ................................... 141,926 138,468 134,966
------------ ------------ -----------
Total ........................................... 850,962 801,462 772,863
------------ ------------ -----------
Operating Income ........................................................ 533,770 532,653 547,477
------------ ------------ -----------
Other Income (Deductions)
Allowance for equity funds used during construction (Note 1) .... 3,941 2,326 3,103
Palo Verde accretion income (Note 1) ............................ 33,596 74,880 67,421
Interest on long-term debt ...................................... (229,810) (245,961) (272,240)
Other interest .................................................. (15,185) (16,505) (12,718)
Allowance for borrowed funds used during construction (Note 1) .. 5,442 4,153 4,492
Preferred stock dividend requirements of APS .................... (25,274) (30,840) (32,452)
Other - net ..................................................... 17,109 (2,282) (13,045)
------------ ------------ -----------
Total ........................................... (210,181) (214,229) (255,439)
------------ ------------ -----------
Income from Continuing Operations Before Income Taxes ................... 323,589 318,424 292,038
------------ ------------ -----------
Income Taxes (Note 3)
Income tax expense .............................................. 149,740 148,446 141,598
Non-recurring income tax benefit ................................ (26,770) -- --
------------ ------------ -----------
Total ........................................... 122,970 148,446 141,598
------------ ------------ -----------
Income From Continuing Operations ....................................... 200,619 169,978 150,440
Income From Discontinued Operations ..................................... -- -- 6,000
Cumulative Effect of Change in Accounting for
Income Taxes (Note 3) ........................................... -- 19,252 --
------------ ------------ -----------
Net Income .............................................................. $ 200,619 $ 189,230 $ 156,440
============ ============ ===========
Average Common Shares Outstanding ....................................... 87,410,967 87,241,899 87,044,180
Earnings Per Average Common Share Outstanding
Continuing operations ........................................... $ 2.30 $ 1.95 $ 1.73
Discontinued operations ......................................... -- -- 0.07
Accounting change ............................................... -- 0.22 --
------------ ------------ -----------
Total ........................................... $ 2.30 $ 2.17 $ 1.80
============ ============ ===========
Dividends Declared Per Share ............................................ $ 0.825 $ 0.200 $ --
============ ============ ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
Consolidated Balance Sheets
(Thousands of Dollars)
<CAPTION>
December 31,
---------------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .................................................... $ 34,719 $ 52,127
Customer and other receivables - net ......................................... 136,143 126,343
Accrued utility revenues (Note 1) ............................................ 55,432 60,356
Materials and supplies (at average cost) ..................................... 89,864 96,174
Fossil fuel (at average cost) ................................................ 35,735 34,220
Other current assets ......................................................... 15,422 13,782
Deferred income taxes (Note 3) ............................................... 68,263 100,234
---------- ----------
Total current assets ................................................. 435,578 483,236
---------- ----------
Investments and Other Assets
Real estate investments - net ................................................ 408,505 402,873
Other assets (Note 1) ........................................................ 153,384 136,074
---------- ----------
Total investments and other assets ................................... 561,889 538,947
---------- ----------
Utility Plant (Notes 5, 9 and 10)
Electric plant in service, including nuclear fuel ............................ 6,602,799 6,462,589
Construction work in progress ................................................ 224,312 197,556
---------- ----------
Total utility plant .................................................. 6,827,111 6,660,145
Less accumulated depreciation and amortization ............................... 2,203,038 2,058,895
---------- ----------
Net utility plant .................................................... 4,624,073 4,601,250
---------- ----------
Deferred Debits
Regulatory asset for income taxes (Note 3) ................................... 557,049 585,294
Palo Verde Unit 3 cost deferral (Note 1) ..................................... 292,586 301,748
Palo Verde Unit 2 cost deferral (Note 1) ..................................... 171,936 177,998
Other deferred debits ........................................................ 266,641 268,326
---------- ----------
Total deferred debits ................................................ 1,288,212 1,333,366
---------- ----------
Total Assets ......................................................................... $6,909,752 $6,956,799
========== ==========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
Consolidated Balance Sheets
(Thousands of Dollars)
<CAPTION>
December 31,
--------------------------
1994 1993
---------- ----------
<S> <C> <C>
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable ........................................................... $ 126,842 $ 97,489
Accrued taxes .............................................................. 89,144 96,303
Accrued interest ........................................................... 56,058 57,674
Short-term borrowings (Note 4) ............................................. 131,500 148,000
Current maturities of long-term debt (Note 5) .............................. 78,512 78,841
Other current liabilities .................................................. 50,060 60,845
---------- ----------
Total current liabilities .................................. 532,116 539,152
---------- ----------
Non-Current Liabilities
Long-term debt less current maturities (Note 5) ............................ 2,588,525 2,633,620
Other liabilities .......................................................... 8,679 8,246
---------- ----------
Total non-current liabilities .............................. 2,597,204 2,641,866
---------- ----------
Deferred Credits and Other
Deferred income taxes (Note 3) ............................................. 1,297,298 1,278,673
Deferred investment tax credit (Note 1) .................................... 121,426 127,331
Unamortized gain - sale of utility plant ................................... 98,551 107,344
Other deferred credits ..................................................... 218,179 221,762
---------- ----------
Total deferred credits and other ........................... 1,735,454 1,735,110
---------- ----------
Commitments and Contingencies (Note 11)
Minority Interests (Note 6)
Non-redeemable preferred stock of APS ...................................... 193,561 193,561
---------- ----------
Redeemable preferred stock of APS .......................................... 75,000 197,610
---------- ----------
Common Stock Equity
Common stock, no par value; authorized
150,000,000 shares; issued and outstanding 87,429,642
in 1994 and 87,423,817 in 1993 ..................................... 1,641,196 1,642,783
Retained earnings........................................................... 135,221 6,717
---------- ----------
Total common stock equity .................................. 1,776,417 1,649,500
---------- ----------
Total Liabilities and Equity ....................................................... $6,909,752 $6,956,799
========== ==========
</TABLE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
Consolidated Statements of Cash Flows
(Thousands of Dollars)
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (Note 1)
Income from continuing operations ........................... $ 200,619 $ 169,978 $ 150,440
Items not requiring cash
Depreciation and amortization ....................... 271,654 258,562 259,637
Deferred income taxes - net ......................... 78,841 139,725 84,146
Rate refund reversal (Note 1) ....................... (9,308) (21,374) (21,374)
Palo Verde accretion income (Note 1) ................ (33,596) (74,880) (67,421)
Other - net ......................................... (5,093) (168) (1,829)
Changes in current assets and liabilities
Accounts receivable - net ........................... (7,693) 31,090 (31,715)
Accrued utility revenues ............................ 4,924 (8,839) (7,055)
Materials, supplies and fossil fuel ................. 4,795 2,252 5,094
Other current assets ................................ (1,640) (5,782) 2,042
Accounts payable .................................... 25,068 (27,196) 9,547
Accrued taxes ....................................... (7,159) (21,391) 45,962
Accrued interest .................................... (1,616) (905) (16,593)
Other current liabilities ........................... (1,730) (18,408) (16,549)
Decrease (increase) in land held ............................ (10,163) (7,894) 1,975
Other - net ................................................. (10,730) 34,292 5,973
----------- ----------- -----------
Net Cash Flow Provided By Operating Activities .............. 497,173 449,062 402,280
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ........................................ (255,308) (234,944) (224,419)
Allowance for equity funds used during construction ......... 3,941 2,326 3,103
Sale of property ............................................ 151 89 5,480
Other - net ................................................. (1,924) 1,609 (6,555)
----------- ----------- -----------
Net Cash Flow Used For Investing Activities ................. (253,140) (230,920) (222,391)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt .................................. 595,362 535,893 649,165
Issuance of preferred stock ................................. -- 72,644 24,781
Short-term borrowings - net ................................. (16,500) (47,000) 195,000
Dividends paid on common stock .............................. (72,115) (17,466) --
Repayment of long-term debt ................................. (643,991) (711,241) (1,109,181)
Redemption of preferred stock ............................... (124,096) (78,663) (27,850)
Other - net ................................................. (101) (8,108) 2,407
----------- ----------- -----------
Net Cash Flow Used For Financing Activities ................. (261,441) (253,941) (265,678)
----------- ----------- -----------
Net Cash Flow ............................................... (17,408) (35,799) (85,789)
Cash and Cash Equivalents at Beginning of Year .............. 52,127 87,926 173,715
----------- ----------- -----------
Cash and Cash Equivalents at End of Year .................... $ 34,719 $ 52,127 $ 87,926
=========== =========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
Consolidated Statements of Retained Earnings
(Thousands of Dollars)
<CAPTION>
Year Ended December 31,
-------------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Retained Earnings (Deficit) at Beginning of Year ............... $ 6,717 $(165,047) $(321,487)
Net Income ..................................................... 200,619 189,230 156,440
Common Stock Dividends ......................................... (72,115) (17,466) --
--------- --------- ---------
Retained Earnings (Deficit) at End of Year ..................... $ 135,221 $ 6,717 $(165,047)
========= ========= =========
See Notes to Consolidated Financial Statements.
</TABLE>
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
A. Consolidation
The consolidated financial statements include the accounts of Pinnacle
West Capital Corporation and its subsidiaries: Arizona Public Service Company,
an electric utility; SunCor Development Company, a real estate development
company; and El Dorado Investment Company, a venture capital firm.
B. Utility Plant and Depreciation
Utility plant represents the buildings, equipment and other facilities
used to provide electric service. The cost of utility plant includes labor,
materials, contract services, other related items and an allowance for funds
used during construction. The cost of retired depreciable utility plant, plus
removal costs less salvage realized, is charged to accumulated depreciation.
Depreciation on utility property is recorded on a straight-line basis.
The applicable rates for 1992 through 1994 ranged from 0.84% to 15.00%, which
resulted in an annual composite rate of 3.43% for 1994. Depreciation and
amortization of non-utility property and equipment are provided over the
estimated useful lives of the related assets, ranging from 3 to 33.3 years.
C. Revenues
Electric operating revenues are recognized on the accrual basis and
include estimated amounts for service rendered but unbilled at the end of each
accounting period.
In 1991 APS recorded a refund obligation of $53.4 million ($32.3 million
after tax) as a result of a 1991 rate settlement. The refund obligation was used
to reduce the amount of a 1991 rate increase granted rather than require
specific customer refunds and was reversed over the thirty months ended May
1994. The after-tax refund obligation reversals that were recorded as electric
operating revenues by APS amounted to $5.6 million in 1994 and $12.9 million in
each of the years 1993 and 1992.
Consistent with the 1994 presentation, prior years electric operating
revenues and other taxes have been restated to exclude sales tax on electric
revenue.
D. Allowance for Funds Used During Construction
AFUDC represents the cost of debt and equity funds used to finance
construction of utility plant. Plant construction costs, including AFUDC, are
recovered in authorized rates through depreciation when completed projects are
placed into commercial operation. AFUDC does not represent current cash
earnings.
AFUDC has been calculated using composite rates of 7.70% for 1994; 7.20%
for 1993; and 10.00% for 1992. APS compounds AFUDC semiannually and ceases to
accrue AFUDC when construction work is completed and the property is placed in
service.
E. Income Taxes
Pinnacle West and its subsidiaries file a consolidated U.S. income tax
return. Provisions for income taxes are made by each subsidiary as if separate
income tax returns were filed. The difference, if any, between these provisions
and consolidated income tax expense is allocated to Pinnacle West.
Investment tax credits (ITCs) were deferred and are being amortized to
other income over the estimated lives of the related assets as directed by the
ACC. The 1994 retail rate settlement provides for accelerated amortization of
ITCs over five years beginning in 1995 (see Note 2).
F. Reacquired Debt Costs
APS amortizes gains and losses on reacquired debt over the remaining
life of the original debt, consistent with ratemaking.
G. Nuclear Fuel and Decommissioning Costs
Nuclear fuel is charged to fuel expense using the unit-of-production
method under which the number of units of thermal energy produced in the current
period is related to the total thermal units expected to be produced over the
remaining life of the fuel.
Under federal law, the United States Department of Energy (DOE) is
responsible for the permanent disposal of spent nuclear fuel. The DOE assesses
$.001 per kWh of nuclear generation. This amount is charged to nuclear fuel
expense and recovered through rates.
In 1994, APS recorded $11.9 million for decommissioning expense. APS
estimates it will cost approximately $2.1 billion ($425 million in 1994
dollars), over a thirteen-year period beginning in 2023, to decommission its
29.1% interest in Palo Verde. Decommissioning costs are charged to expense over
the respective units operating license term and are included in the accumulated
depreciation balance until each Palo Verde unit is fully decommissioned. Nuclear
decommissioning costs are currently recovered in rates.
APS is utilizing a 1992 site-specific study for Palo Verde, prepared for
APS by an independent consultant, that assumes the prompt removal/dismantlement
method of decommissioning. The study is updated every three years.
As required by the ACC, APS has established external trust accounts into
which quarterly deposits are made for decommissioning. As of December 31, 1994,
APS has deposited a total of $45.0 million. The trust accounts are included in
Investments and Other Assets on the Consolidated Balance Sheets at a market
value of $55.2 million on December 31, 1994. The trust funds are invested
primarily in fixed-income securities and domestic stock and are classified as
available for sale. Gains and losses are reflected in accumulated depreciation.
In 1994, the Financial Accounting Standards Board (FASB) added a project
to its agenda on accounting for nuclear decommissioning obligations. Only
preliminary views have been discussed at this time, however, there is some
indication the FASB may require the estimated present value of the cost of
decommissioning to be recorded as a liability along with an offsetting plant
asset. Pinnacle West is unable to determine what, if any, impact these
deliberations may have on its financial position or results of operations.
H. Statements of Cash Flows
Temporary cash investments and marketable securities are considered to
be cash equivalents for purposes of the Consolidated Statements of Cash Flows.
During 1994, 1993 and 1992 Pinnacle West and its subsidiaries paid interest, net
of amounts capitalized, of $231.6 million, $243.9 million and $286.4 million,
respectively. Income taxes paid were $56.5 million, $45.3 million and $33.8
million, respectively; and dividends paid on preferred stock of APS were $26.2
million, $30.9 million and $32.6 million, respectively.
I. Palo Verde Cost Deferrals
As authorized by the ACC, APS deferred operating costs (excluding fuel)
and financing costs of Palo Verde Units 2 and 3 from the commercial operation
date (September 1986 and January 1988, respectively) until the date the units
were included in a rate order (April 1988 and December 1991, respectively). The
deferrals are being amortized and recovered through rates over thirty-five year
periods.
J. Palo Verde Accretion Income
In 1991, APS discounted the carrying value of Palo Verde Unit 3 to
reflect the present value of lost cash flows resulting from a 1991 rate
settlement agreement deeming a portion of the unit to temporarily be excess
capacity. In accordance with generally accepted accounting principles, APS
recorded accretion income over a thirty-month period ended May 1994 in the
aggregate amount of the original discount. The after-tax accretion income
recorded by APS in 1994, 1993 and 1992 was $20.3 million, $45.3 million and
$40.7 million, respectively.
K. Regulatory Accounting
APS prepares its financial statements in accordance with the provisions
of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation". SFAS No. 71 requires a cost-based
rate-regulated enterprise to reflect the impact of regulatory decisions in its
financial statements.
APS' major regulatory assets are Palo Verde cost deferrals (see Note 1)
and deferred taxes (see Note 3). These items, combined with miscellaneous other
items and regulatory liabilities, amounted to approximately $1.1 billion at
December 31, 1994 and 1993, most of which are included in "Deferred Debits" on
the Consolidated Balance Sheets.
2. Regulatory Matters
In May 1994, the ACC approved a retail rate settlement agreement which
was jointly proposed by APS and the ACC staff. The major provisions of the
settlement include:
o A net annual rate reduction of approximately $32.3 million ($19
million after tax), or 2.2% on average effective June 1, 1994.
o 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.
o A joint APS-ACC study to develop rate principles allowing APS
greater flexibility to deal with market conditions and increasing
competition in the electric industry.
o All of Palo Verde Unit 3 included in rate base.
o An incentive rewarding reduction in fuel and operating and
maintenance cost per kWh below established targets.
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 settlement also provided for the accelerated amortization of substantially
all deferred ITCs over a five-year period beginning in 1995. Overall, the
settlement is not expected to materially affect APS results of operations for
the years 1995-1999.
3. Income Tax Expense
Non-recurring Income Tax Benefit
The recognition of $26.8 million of non-recurring income tax benefits
in 1994 relates to a change in tax law.
Change in Accounting for Income Taxes
Effective January 1, 1993, Pinnacle West adopted SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method of
accounting for income taxes. The cumulative effect on prior years of this change
in accounting principle resulted in an increase in 1993 net income of $19.3
million, due primarily to the recognition of deferred tax benefits relating to
state net operating loss (NOL) carryforwards of Pinnacle West.
As a result of adopting SFAS No. 109, APS recorded additional deferred
income taxes related to the equity component of AFUDC; the debt component of
AFUDC recorded net-of-tax; and other temporary differences for which deferred
income taxes had not been provided. Deferred tax balances were also adjusted for
changes in tax rates. The adoption of SFAS No. 109 increased net deferred income
tax liabilities by $585.3 million at December 31, 1993. Historically, the
Federal Energy Regulatory Commission and the ACC have allowed revenues
sufficient to pay for these deferred tax liabilities and, in accordance with
SFAS No. 109, a regulatory asset was established in a corresponding amount.
<TABLE>
Income Taxes
The components of income tax expense from continuing operations are as follows:
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1993 1992
--------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Current
Federal ............................................. $ 49,112 $ 43,065 $ 30,418
State ............................................... 922 816 624
--------- --------- ---------
Total current ............................................... 50,034 43,881 31,042
--------- --------- ---------
Deferred
Depreciation - net .................................. 56,450 58,844 76,175
Investment tax credit - net ......................... (5,905) (6,028) (5,574)
Alternative minimum tax ............................. (65,510) (53,212) (40,434)
Palo Verde start-up costs ........................... (1,590) (1,335) (28,976)
Palo Verde accretion income ......................... 13,288 29,618 26,668
NOL and ITC carryforward utilized ................... 115,623 81,494 81,180
Change in federal tax rate .......................... -- (4,855) --
Change in tax law ................................... (26,770) -- --
Other - net ......................................... (12,650) 39 1,517
--------- --------- ---------
Total deferred .............................................. 72,936 104,565 110,556
--------- --------- ---------
Total ....................................................... $ 122,970 $ 148,446 $ 141,598
========= ========= =========
</TABLE>
<TABLE>
Income tax expense differed from the amount computed by multiplying
income from continuing operations before income taxes by the statutory federal
income tax rate due to the following:
<CAPTION>
Year Ended December 31,
--------------------------------------
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Federal income tax expense at statutory rate
(35% in 1994 and 1993, 34% in 1992) ............................. $113,256 $111,448 $ 99,293
Increases (reductions) in tax expense resulting from:
Tax under book depreciation ..................................... 17,236 17,671 17,499
Preferred stock dividends of APS ................................ 8,846 10,794 11,034
ITC amortization ................................................ (5,905) (6,002) (6,124)
State income tax net of federal income tax benefit .............. (5,983) 21,604 21,589
Change in federal tax rate ...................................... -- (4,855) --
Other ........................................................... (4,480) (2,214) (1,693)
-------- -------- --------
Income tax expense ...................................................... $122,970 $148,446 $ 141,598
======== ======== ========
</TABLE>
<TABLE>
The components of the net deferred income tax liability at December 31
were as follows:
<CAPTION>
1994 1993
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Deferred tax assets
NOL and ITC carryforwards ........................................................ $ 72,139 $ 159,490
Alternative minimum tax (can be carried forward indefinitely) .................... 165,971 100,461
Deferred gain on Palo Verde Unit 2 sale/leaseback ................................ 63,720 66,754
Other ............................................................................ 124,498 126,905
Valuation allowance .............................................................. (58,431) (43,818)
----------- -----------
Total deferred tax assets ........................................ 367,897 409,792
Deferred tax liabilities
Plant-related .................................................................... 802,645 751,520
Income taxes recoverable through future rates - net .............................. 557,049 585,294
Palo Verde deferrals ............................................................. 153,410 158,424
Other ............................................................................ 83,828 92,993
----------- -----------
Total deferred tax liabilities ................................... 1,596,932 1,588,231
----------- -----------
Accumulated deferred income taxes - net .................................................. $ 1,229,035 $ 1,178,439
=========== ===========
</TABLE>
At December 31, 1994, Pinnacle West had federal NOL carryforwards of
approximately $80 million which may be used through 2005 and state NOL
carryforwards of approximately $490 million which expire in 1995. Pinnacle West
also had ITC carryforwards of approximately $18 million which expire in 2000
through 2005.
4. Lines of Credit
APS had committed lines of credit with various banks of $300 million at
December 31, 1994, and $302 million at December 31, 1993, which were available
either to support the issuance of commercial paper or to be used for bank
borrowings. The commitment fees on these lines were 0.25% per annum through June
30, 1994, 0.20% per annum on $200 million and 0.15% per annum on $100 million
thereafter, through December 31, 1994. APS had commercial paper borrowings
outstanding of $131.5 million at December 31, 1994, and $148.0 million at
December 31, 1993. The weighted average interest rate on commercial paper
borrowings was 6.25% on December 31, 1994, and 3.48% on December 31, 1993. By
Arizona statute, APS short-term borrowings cannot exceed 7% of its total
capitalization without the consent of the ACC.
SunCor had revolving lines of credit totaling $24.5 million at December
31, 1994, and none at December 31, 1993. Any borrowings are collateralized by
certain real property and would bear interest based on the prime rate or on
London Interbank Offered Rate (LIBOR). The commitment fees on these lines were
0.5% per annum on $15.0 million and 0.2% per annum on $9.5 million. SunCor had
$18.5 million outstanding under these lines at December 31, 1994.
5. Long-Term Debt
<TABLE>
In January 1990, Pinnacle West restructured the majority of its
long-term debt. Pinnacle West granted the affected lenders a security interest
in the outstanding common stock of APS and agreed not to incur new debt except
to reduce, refinance or prepay existing debt. Pinnacle West's ability to pay
dividends is dependent upon the satisfaction of specified interest coverage
ratios. Additionally, cumulative dividend payments for the period April 1, 1990
through any dividend declaration date are limited to 50% of cumulative
consolidated net income (as defined) for the same period. As of December 31,
1994, Pinnacle West could have declared dividends of approximately $259 million
based on this formula. Pinnacle West's aggregate investments in its existing
subsidiaries (excluding APS) and new investments are generally limited to $15
million and $20 million, respectively. Pinnacle West must maintain certain
interest coverage ratios and meet certain funded debt tests. Additionally,
Pinnacle West would be required to use the net cash proceeds from the sale of
SunCor or El Dorado or substantially all of their assets to repay debt. The
following table presents long-term debt outstanding as of December 31, 1994 and
1993.
<CAPTION>
December 31,
Maturity Dates Interest Rates 1994 1993
-------------- ---------------------------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
APS
First mortgage bonds .......................... 1997-2028 5.5%-13.25%(a) $1,740,071 $1,729,070
Pollution control indebtedness ................ 2024-2029 Adjustable(b) 418,824 369,130
Capitalized lease obligation (c) .............. 1995-2001 7.48% 26,365 29,633
---------- ----------
2,185,260 2,127,833
---------- ----------
SUNCOR
Revolving credit .............................. 1997-2001 LIBOR plus 2.50% to 2.75%(d) 18,500 --
Notes payable ................................. 1994-1998 (e) 3,450 20,936
Mortgage bonds ................................ 1996-2004 LIBOR plus 3%(f) 30,000 --
---------- ----------
51,950 20,936
---------- ----------
PINNACLE WEST
Bank term loans ............................... 1996 (g) 44,416 112,663
Debentures .................................... 1994-2000 11.35%-11.61%(h) 385,411 451,029
---------- ----------
429,827 563,692
---------- ----------
Total long-term debt .......................... 2,667,037 2,712,461
Less current maturities ....................... 78,512 78,841
---------- ----------
Total long-term debt less
current maturities .................... $2,588,525 $2,633,620
========== ==========
-----------
(a) The weighted-average rate at December 31, 1994, and 1993 was 8.04% and
8.25%, respectively. The weighted-average years to maturity at December 31,
1994 and 1993 was 19 years and 20 years, respectively.
(b) The weighted-average rates for the years ended December 31, 1994, and 1993
were 2.99% and 2.64%, respectively. Changes in short-term interest rates
would affect the costs associated with this debt.
(c) Represents the present value of future lease payments (discounted at an
interest rate of 7.48%) on a combined cycle plant sold and leased back from
the independent owner-trustee formed to own the facility. See Note 9.
(d) The weighted-average interest rate at December 31, 1994 was 8.47%.
(e) Includes $2.0 million of fixed-rate notes in 1994 at 10.25% and $8.1
million in 1993 at 10.25% to 12.00%. Interest rates on the balance vary
with the lenders prime rates.
(f) The bonds have a two-year interest-only period and quarterly principal
repayments over the remaining term. The interest rate at December 31, 1994
was 9.00%. Subsequent to year-end, the bonds were purchased by a third
party and certain terms of the debt may be modified.
(g) The 1994 balance includes $30.0 million at LIBOR plus 0.55%, adjusted
periodically, and the balance at 9.21%. The 1993 balance consists of $74.0
million at 10.56% and the balance at 8.91%.
(h) Includes $310.4 million of 11.61% senior secured debentures at December 31,
1994 and 1993, which are due in 2000 and are redeemable before then only at
a premium determined by a make-whole formula related to U.S. Treasuries.
The balance in both years represents senior debentures with a
weighted-average interest rate of approximately 11.35%.
</TABLE>
Aggregate annual principal payments due on total long-term debt and for
sinking fund requirements through 1999 are as follows: 1995, $78.5 million;
1996, $50.7 million; 1997, $166.9 million; 1998, $113.4 million; and 1999,
$112.8 million. See Note 6 for redemption and sinking fund requirements of
redeemable preferred stock of APS.
On January 12, 1995, APS issued $75 million of 10% junior subordinated
deferrable interest debentures (MIDS) due 2025.
<TABLE>
6. Preferred Stock of APS
Non-redeemable preferred stock is not redeemable except at the option
of APS. Redeemable preferred stock is redeemable through sinking fund
obligations in addition to being callable by APS. The balances at December 31,
1994 and 1993 of preferred stock of APS are shown below:
<CAPTION>
Number of Shares Par Value
--------------------------------- -------------------------------
Outstanding at Outstanding at
December 31, December 31, Call
------------------- ------------------- Price Per
Authorized 1994 1993 Per Share 1994 1993 Share (a)
--------- -------- --------- -------- -------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
NON-REDEEMABLE:
$1.10 preferred 160,000 155,945 155,945 $ 25.00 $ 3,898 $ 3,898 $ 27.50
$2.50 preferred 105,000 103,254 103,254 50.00 5,163 5,163 51.00
$2.36 preferred 120,000 40,000 40,000 50.00 2,000 2,000 51.00
$4.35 preferred 150,000 75,000 75,000 100.00 7,500 7,500 102.00
Serial preferred 1,000,000
$2.400 Series A 240,000 240,000 50.00 12,000 12,000 50.50
$2.625 Series C 240,000 240,000 50.00 12,000 12,000 51.00
$2.275 Series D 200,000 200,000 50.00 10,000 10,000 50.50
$3.250 Series E 320,000 320,000 50.00 16,000 16,000 51.00
Serial preferred 4,000,000(b)
Adjustable rate Series Q 500,000 500,000 100.00 50,000 50,000 (c)
Serial preferred: 10,000,000
$1.8125 Series W 3,000,000 3,000,000 25.00 75,000 75,000 (d)
--------- --------- -------- ---------
Total 4,874,199 4,874,199 $193,561 $ 193,561
========= ========= ======== =========
REDEEMABLE:
Serial preferred:
$8.80 Series K -- 142,100 $100.00 $ -- $ 14,210
$11.50 Series R -- 284,000 100.00 -- 28,400
$8.48 Series S -- 300,000 100.00 -- 30,000
$8.50 Series T -- 500,000 100.00 -- 50,000
$10.00 Series U 500,000 500,000 100.00 50,000 50,000
$7.875 Series V 250,000 250,000 100.00 25,000 25,000 (e)
--------- --------- -------- ---------
Total 750,000 1,976,100 $ 75,000 $ 197,610
========= ========= ======== =========
-------------
(a) In each case plus accrued dividends.
(b) This authorization also covers all outstanding redeemable preferred
stock.
(c) Dividend rate adjusted quarterly to 2% below that of certain United
States Treasury securities, but in no event less than 6% or greater
than 12% per annum. Redeemable at par.
(d) Redeemable at par after December 1, 1998.
(e) Redeemable at $106.30 through May 31, 1995, and thereafter declining
by a predetermined amount each year to par after May 31, 2002.
</TABLE>
If there were to be any arrearage in dividends on any of its preferred
stock or in the sinking fund requirements applicable to any of its redeemable
preferred stock, APS could not pay dividends on its common stock or acquire any
shares thereof for consideration. The redemption requirements for the above
issues for the next five years are: $0 in 1995 and 1996, and $10.0 million in
each of the years 1997 through 1999.
Redeemable preferred stock transactions of APS during each of the three
years in the period ended December 31, 1994, are as follows:
Number Par
of Value
Shares Amount
--------- -----------
(Dollars in Thousands)
Balance, December 31, 1991 ............... 2,272,782 $ 227,278
Issuance
$7.875 Series V .................. 250,000 25,000
Retirements
$10.00 Series H .................. (8,677) (868)
$8.80 Series K ................... (4,725) (472)
$12.90 Series N .................. (213,280) (21,328)
$11.50 Series R .................. (39,750) (3,975)
--------- -----------
Balance, December 31, 1992 ............... 2,256,350 225,635
Retirements
$8.80 Series K ................... (45,000) (4,500)
$11.50 Series R .................. (35,250) (3,525)
$8.48 Series S ................... (200,000) (20,000)
--------- -----------
Balance, December 31, 1993 ............... 1,976,100 197,610
Retirements
$8.80 Series K ................... (142,100) (14,210)
$11.50 Series R .................. (284,000) (28,400)
$8.48 Series S ................... (300,000) (30,000)
$8.50 Series T ................... (500,000) (50,000)
--------- -----------
Balance, December 31, 1994 ............... 750,000 $ 75,000
========= ===========
7. Common Stock
Pinnacle West's common stock issued during each of the three years in
the period ended December 31, 1994, is as follows:
Number
of
Shares Amount(a)
---------- ------------
(Dollars in Thousands)
Balance, December 31, 1991 .............. 87,009,974 $ 1,646,889
Common stock issued ............. 151,898 (117)
---------- ------------
Balance, December 31, 1992 .............. 87,161,872 1,646,772
Common stock issued ............. 261,945 (3,989)
---------- ------------
Balance, December 31, 1993 .............. 87,423,817 1,642,783
Common stock issued ............. 5,825 (1,587)
---------- ------------
Balance, December 31, 1994 .............. 87,429,642 $ 1,641,196
========== ============
------------
(a) Including premiums and expenses of preferred stock issues of APS.
The Pinnacle West Stock Purchase and Dividend Reinvestment Plan (renamed
the Investors Advantage Plan in 1995) provides that any participant may purchase
shares of its common stock directly from Pinnacle West.
Both Pinnacle West and APS have employee savings plans under which
contributions by participating employees and contributions by employers could
involve the issuance of new shares of Pinnacle West common stock. Contributions
made by Pinnacle West and APS to their respective employee retirement plans may
also involve one or more such issuances of common stock. However, Pinnacle West
plans to continue making market purchases of its outstanding stock to meet its
needs related to the Stock Purchase and Dividend Reinvestment Plan, the employee
savings plans and the employee retirement plans.
Pinnacle West has incentive plans under which it may grant non-qualified
stock options (NQSOs), incentive stock options (ISOs) and restricted stock
awards to officers and key employees of Pinnacle West and its subsidiaries up to
an aggregate of 6.5 million shares of Pinnacle West common stock. The plans also
provide for the granting of any combination of stock appreciation rights or
dividend equivalents. As of December 31, 1994, approximately 1,917,500 NQSOs,
9,000 ISOs, 287,000 restricted shares and 35,000 dividend equivalent shares were
outstanding. A plan for Pinnacle West's directors under which an additional
150,500 NQSOs were outstanding at December 31, 1994, was replaced in 1994 by a
plan that provides for the granting of stock to directors as part of their
annual retainers up to an aggregate amount of 50,000 shares.
8. Pension Plans and Other Benefits
Pension Plans
Pinnacle West and its subsidiaries sponsor defined benefit pension
plans covering substantially all employees. Benefits are based on years of
service and compensation utilizing a final average pay benefit formula. The
plans are funded on a current basis to the extent deductible under existing tax
regulations. Plan assets consist primarily of domestic and international common
stocks and bonds and real estate. Pension cost, including administrative cost,
for 1994, 1993 and 1992 was approximately $25.8 million, $14.3 million and $14.4
million, respectively, of which approximately $12.3 million, $6.8 million and
$4.3 million, respectively, was charged to expense. The remainder was either
capitalized or billed to others.
<TABLE>
Excluding the costs of special termination benefits of $1.4 million in
1994, the components of net periodic pension costs are as follows:
<CAPTION>
1994 1993 1992
-------- -------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost - benefits earned during the period .................... $ 20,728 $ 17,051 $ 17,227
Interest cost on projected benefit obligation ....................... 39,748 35,046 33,633
Return on plan assets ............................................... 6,053 (52,026) (23,225)
Net amortization and deferral ....................................... (44,283) 13,547 (15,097)
-------- -------- ---------
Net consolidated periodic pension cost .............................. $ 22,246 $ 13,618 $ 12,538
======== ======== =========
</TABLE>
<TABLE>
A reconciliation of the funded status of the plan to the amounts recognized in
the balance sheets is presented below:
<CAPTION>
1994 1993
--------- ---------
(Thousands of Dollars)
<S> <C> <C>
Plan assets at fair value ............................................... $ 391,620 $ 421,563
--------- ---------
Less:
Accumulated benefit obligation, including vested benefits of
$311,126 and $350,812 in 1994 and 1993, respectively ............ 336,880 375,800
Effect of projected future compensation increases ....................... 113,753 128,797
--------- ---------
Total projected benefit obligation ...................................... 450,633 504,597
--------- ---------
Plan assets less than projected benefit obligation ...................... (59,013) (83,034)
Plus:
Unrecognized net loss (gain) from past experience
different from that assumed ............................. (9,900) 51,551
Unrecognized prior service cost ................................. 25,628 14,866
Unrecognized net transition asset ............................... (36,143) (39,371)
--------- ---------
Accrued pension liability ....................................... $ (79,428) $ (55,988)
========= =========
Principal actuarial assumptions used were:
1994 1993
--------- ---------
Discount rate ........................................................... 8.75% 7.50%
Rate of increase in compensation levels ................................. 5.00% 5.00%
Expected long-term rate of return on assets ............................. 9.00% 9.50%
</TABLE>
In addition to the defined benefit pension plans described above,
Pinnacle West and its subsidiaries also sponsor qualified defined contribution
plans. Collectively, these plans cover substantially all employees. The plans
provide for employee contributions and partial employer matching contributions
after certain eligibility requirements are met. The cost of these plans for
1994, 1993 and 1992 was $7.0 million, $6.4 million and $5.4 million,
respectively, of which $3.3 million, $3.1 million and $2.6 million,
respectively, was charged to expense.
Postretirement Plans
Pinnacle West and its subsidiaries provide medical and life insurance
benefits to their retired employees. Employees may become eligible for these
retirement benefits based on years of service and age. The retiree medical
insurance plans are contributory; the retiree life insurance plans are
noncontributory. In accordance with the governing plan documents, the companies
retain the right to change or eliminate these benefits.
During 1993, Pinnacle West adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires the cost of
postretirement benefits be accrued during the years employees render service.
Prior to 1993, the costs of retiree benefits were recognized as expense when
claims were paid. This change had the effect of increasing 1994 and 1993 retiree
benefits costs from approximately $6 million in each year to $28 million and $35
million, respectively. The amount charged to expense for 1994 increased from
about $3 million to $14 million, and for 1993 increased from about $2 million to
$17 million. The balance was either capitalized or billed to others. The above
amounts include the amortization (over 20 years) of the initial postretirement
benefit obligation estimated at January 1, 1993, to be $184 million. Funding is
based upon actuarially determined contributions that take tax consequences into
account. Plan assets consist primarily of domestic stocks and bonds.
<TABLE>
The components of the net periodic postretirement benefit costs are as
follows:
<CAPTION>
1994 1993
-------- --------
(Thousands of Dollars)
<S> <C> <C>
Service cost - benefits earned during the period .................................... $ 9,030 $ 9,710
Interest cost on accumulated benefit obligation ..................................... 14,152 15,755
Return on plan assets ............................................................... (6,459)
Net amortization and deferral ....................................................... 11,680 9,212
-------- --------
Net consolidated periodic postretirement benefit cost ............................... $ 28,403 $ 34,677
======== ========
</TABLE>
<TABLE>
A reconciliation of the funded status of the plan to the amounts
recognized in the balance sheets is presented below:
<CAPTION>
1994 1993
--------- ----------
(Thousands of Dollars)
<S> <C> <C>
Plan assets at fair value ............................................................ $ 49,666 $ 28,154
--------- ----------
Less accumulated postretirement benefit obligation:
Retirees ............................................................. 65,712 87,169
Fully eligible plan participants ..................................... 9,219 10,180
Other active plan participants ....................................... 88,396 104,179
--------- ----------
Total accumulated postretirement benefit obligation .................................. 163,327 201,528
-------- ----------
Plan assets less than accumulated benefit obligation ................................. (113,661) (173,374)
Plus:
Unrecognized transition obligation ........................................... 165,811 175,023
Unrecognized net gain from past experience different from
that assumed ................................................................. (53,012) (2,089)
--------- ----------
Accrued postretirement liability ..................................................... $ (862) $ (440)
========= ==========
Principal actuarial assumptions used were:
1994 1993
-------- --------
Discount rate ........................................................................ 8.75% 7.50%
Annual salary increases for life insurance obligation ................................ 5.00% 5.00%
Expected long-term rate of return on assets .......................................... 9.00% --
Initial health care cost trend rate - under age 65 ................................... 11.50% 12.00%
Initial health care cost trend rate - age 65 and over ................................ 8.50% 9.00%
Ultimate health care cost trend rate (reached in the year 2003) ...................... 5.50% 5.50%
</TABLE>
Assuming a one percent increase in the health care cost trend rate, the
1994 cost of postretirement benefits other than pensions would increase by
approximately $5 million and the accumulated benefit obligation as of December
31, 1994, would increase by approximately $31 million.
In 1993, Pinnacle West adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits". The standard required a change from a cash method to
an accrual method in accounting for benefits (such as long-term disability)
provided to former or inactive employees after employment but before retirement.
The adoption of this standard resulted in an increase in 1993 postemployment
benefit expense of approximately $2 million.
9. Leases
In 1986, APS entered into sale and leaseback transactions under which
it sold approximately 42% of its share of Palo Verde Unit 2 and certain common
facilities. The gain of approximately $140.2 million has been deferred and is
being amortized to operations expense over the original lease term. The leases
are being accounted for as operating leases. The amounts paid each year
approximate $40.1 million through December 1999, $46.3 million through December
2000, and $49.0 million through December 2015. Options to renew for two
additional years and to purchase the property at fair market value at the end of
the lease terms are also included. Consistent with the ratemaking treatment, an
amount equal to the annual lease payments is included in rent expense. A
regulatory asset (totaling approximately $52.8 million at December 31, 1994) has
been established for the difference between lease payments and rent expense
calculated on a straight-line basis. Lease expense for 1994, 1993 and 1992 was
$42.2 million, $41.8 million and $45.8 million, respectively.
APS has a capital lease on a combined cycle plant which it sold and
leased back. The lease requires semiannual payments of $2.6 million through June
2001, and includes renewal and purchase options based on fair market value. This
plant is included in plant in service at its original cost of $54.4 million;
accumulated amortization at December 31, 1994, was $40.3 million.
In addition, Pinnacle West and its subsidiaries lease certain land,
buildings, equipment and miscellaneous other items through operating rental
agreements with varying terms, provisions and expiration dates. Rent expense for
1994, 1993 and 1992 was approximately $21.3 million, $21.5 million and $26.1
million, respectively. Annual future minimum rental commitments, excluding the
Palo Verde and combined cycle leases, through 1999 are as follows: 1995, $17.6
million; 1996, $14.6 million; 1997, $14.5 million; 1998, $14.6 million; and
1999, $14.7 million. Total rental commitments after 1999 are estimated at $189
million.
<TABLE>
10. Jointly-Owned Facilities
At December 31, 1994, APS owned interests in the following
jointly-owned electric generating and transmission facilities. APS share of
related operating and maintenance expenses is included in utility operations and
maintenance.
<CAPTION>
Construction
Percent Plant in Accumulated Work in
Owned by APS Service Depreciation Progress
------------ ---------- ------------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
GENERATING FACILITIES
Palo Verde Nuclear Generating Station
Units 1 and 3 ......................... 29.1% $1,832,522 $425,908 $14,181
Palo Verde Nuclear Generating Station
Unit 2 (see Note 9) ................... 17.0% 563,115 131,764 13,415
Four Corners Steam Generating Station
Units 4 and 5 ......................... 15.0% 142,297 50,414 497
Navajo Steam Generating Station
Units 1, 2 and 3 ...................... 14.0% 139,648 74,513 17,035
Cholla Steam Generating Station
Common Facilities(a) .................. 62.8%(b) 70,657 33,967 335
TRANSMISSION FACILITIES
ANPP 500 KV system ............................ 35.8%(b) 62,607 15,313 1,013
Navajo Southern System ........................ 31.4%(b) 26,737 15,038 15
Palo Verde - Yuma 500 KV System ............... 23.9%(b) 11,411 3,304 20
Four Corners Switchyards ...................... 27.5%(b) 2,796 1,635 53
Phoenix - Mead System ......................... 17.1%(b) -- -- 18,036
---------
(a) APS is the operating agent for Cholla Unit 4, which is owned by
PacifiCorp. The common facilities at the Cholla Plant are
jointly-owned.
(b) Weighted average of interests.
</TABLE>
11. Commitments and Contingencies
Litigation
Pinnacle West and its subsidiaries are parties to various claims, legal
actions and complaints arising in the ordinary course of business. In the
opinion of management, the ultimate resolution of these matters will not have a
material adverse effect on the operations or financial position of Pinnacle
West.
Palo Verde Nuclear Generating Station
APS has encountered tube cracking in steam generators and has taken,
and will continue to take, remedial actions that it believes have slowed further
tube problems to manageable levels. APS believes that the Palo Verde steam
generators are capable of operating for their designed life of 40 years,
although at some point, long-term economic considerations may make steam
generator replacement desirable. All of the Palo Verde units were operating at
full power at December 31, 1994.
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 for all three units
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.
El Paso Electric Company Bankruptcy
El Paso Electric Company (EPEC), one of the joint owners of the Palo
Verde and Four Corners facilities, 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 (CSW) 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 1989-90 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, Pinnacle West does not expect that there would be a
material adverse effect on its operations or financial position.
Construction Program
Total construction expenditures in 1995 are estimated at $335 million,
excluding capitalized property taxes and capitalized interest.
Fuel and Purchased Power Commitments
APS is a party to various fuel and purchased power contracts with terms
expiring from 1995 through 2020. APS estimates its 1995 contract requirements to
be approximately $127 million. However, this amount may vary significantly
pursuant to certain provisions in such contracts which permit APS to decrease
its required purchases under certain circumstances.
<TABLE>
12. Selected Quarterly Financial Data (Unaudited)
Consolidated quarterly financial information for 1994 and 1993 is as
follows:
<CAPTION>
1994
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
QUARTER ENDED
Operating Revenues
Electric (a) ..................................... $346,049 $397,156 $540,883 $342,080
Real estate ...................................... 9,424 15,436 13,473 20,920
Operating Income (b) ..................................... $ 88,470 $117,329 $245,436 $ 82,535
-------- -------- -------- ---------
Net Income ............................................... $ 21,619 $ 48,702 $ 93,991 $ 36,307
======== ======== ======== =========
Earnings per average share of common stock
outstanding ...................................... $ 0.25 $ 0.56 $ 1.08 $ 0.41
======== ======== ======== =========
Dividends declared per share ............................. $ 0.200 $ 0.200 $ 0.200 $ 0.225
======== ======== ======== =========
1993
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(Thousands of Dollars, Except Per Share Amounts)
QUARTER ENDED
Operating Revenues
Electric (a) ..................................... $353,891 $387,871 $497,282 $363,369
Real estate ...................................... 3,799 6,277 10,093 12,079
Operating Income (b) ..................................... $107,335 $129,155 $207,954 $ 88,209
Income from continuing operations ........................ $ 27,474 $ 38,899 $ 86,734 $ 16,871
Cumulative effect of change in accounting
for income taxes ................................. 19,252 -- -- --
-------- -------- -------- ---------
Net Income ............................................... $ 46,726 $ 38,899 $ 86,734 $ 16,871
======== ======== ======== =========
Earnings per average share of common stock outstanding
Continuing operations ............................ $ 0.32 $ 0.45 $ 0.99 $ 0.19
Accounting change ................................ 0.22 -- -- --
-------- -------- -------- ---------
Total ............................................ $ 0.54 $ 0.45 $ 0.99 $ 0.19
======== ======== ======== =========
Dividends declared per share ............................. $ -- $ -- $ -- $ 0.200
======== ======== ======== =========
------------
(a) Consistent with the presentation for the quarter ended December 31,
1994, prior quarters' electric operating revenues and other taxes have
been restated to exclude sales tax on electric revenues.
(b) APS' operations are subject to seasonal fluctuations primarily as a
result of weather conditions. The results of operations for interim
periods are not necessarily indicative of the results to be expected
for the full year.
</TABLE>
13. Fair Value of Financial Instruments
Pinnacle West estimates that carrying amounts of its cash equivalents
and commercial paper are reasonable estimates of their fair values at December
31, 1994 and 1993 due to their short maturities.
The December 31, 1994 and 1993 fair values of debt and equity
investments, determined by using quoted market values or by discounting cash
flows at rates equal to Pinnacle West's cost of capital, approximate their
carrying amounts. It was not practical to estimate the fair values of several
investments in joint ventures and untraded equity securities because costs to do
so would be excessive. The carrying value of these investments totaled $40.6
million and $45.6 million at year-end 1994 and 1993, respectively. Investments
in debt and equity securities are held for purposes other than trading.
On December 31, 1994, the carrying amount of long-term debt (excluding
$26 million of capital lease obligations) was $2.64 billion and its estimated
fair value was approximately $2.49 billion. On December 31, 1993, the carrying
amount of long-term debt (excluding $30 million of capital lease obligations)
was $2.68 billion and its estimated fair value was approximately $2.91 billion.
The fair value estimates were determined by independent sources using quoted
market rates where available. Where market prices were not available, the fair
values were based on market values of comparable instruments.
PINNACLE WEST CAPITAL CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
----------------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
----------- -------------- -------------- ------------ -------------- ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Real Estate Valuation Reserves $84,000 $ -- $ -- $ -- $84,000
YEAR ENDED DECEMBER 31, 1993
Real Estate Valuation Reserves $84,000 $ -- $ -- $ -- $84,000
YEAR ENDED DECEMBER 31, 1992
Real Estate Valuation Reserves $84,000 $ -- $ -- $ -- $84,000
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT
Reference is hereby made to "Election of Directors" and "Section 16
Requirements" in the Company's Proxy Statement relating to the annual meeting of
shareholders to be held on May 17, 1995 (the "1995 Proxy Statement") and to the
Supplemental Item -- "Executive Officers of the Company" in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
Reference is hereby made to the last two paragraphs under the heading "The
Board and its Committees," and to "Executive Compensation" in the 1995 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is hereby made to "Certain Securities Ownership" in the 1995 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
See the Index to Financial Statements and Financial Statement Schedule in
Part II, Item 8.
EXHIBITS FILED
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1a -- Summary of the Pinnacle West Capital Corporation
1995 Bonus Plan
22 -- Subsidiaries of the Company
23.1 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule
<TABLE>
In addition to those Exhibits shown above, the Company hereby incorporates
the following Exhibits pursuant to Exchange Act Rule 12b-32 and Regulation (S)
201.24 by reference to the filings set forth below:
<CAPTION>
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- ---------------------------- -------- --------------
<S> <C> <C> <C> <C>
3.1 Bylaws, amended as of October 23, 1991 3.1 to the Company's January 27, 1992 1-8962 2-10-92
Form 8-K Report
3.2 Articles of Incorporation, restated as of 19.1 to the Company's September 1988 1-8962 11-14-88
July 29, 1988 Form 10-Q Report
3.3 Agreement, dated March 21, 1994, relating 4.1 to APS' 1993 Form 10-K Report 1-4473 3-30-94
to the filing of instruments defining the
rights of holders of APS long-term debt
not in excess of 10% of APS' total assets
4.1 Mortgage and Deed of Trust Relating to 4.1 to APS' September 1992 Form 10-Q 1-4473 11-9-92
APS' First Mortgage Bonds, together with Report
forty-eight indentures supplemental
thereto
Forty-ninth Supplemental Indenture 4.1 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Fiftieth Supplemental Indenture 4.2 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Fifty-first Supplemental Indenture 4.1 to APS' August 1, 1993 Form 8-K 1-4473 9-27-93
Report
Fifty-second Supplemental Indenture 4.1 to APS' September 30, 1993 Form 1-4473 11-15-93
10-Q Report
Fifty-third Supplemental Indenture 4.5 to APS' Registration Statement No. 1-4473 3-1-94
33-61228 by means of February 23, 1994
Form 8-K Report
4.2 Portions of the Debenture Agreement, 4.1 to the Company's 1989 Form 10-K 1-8962 3-31-90
dated as of March 22, 1990, among the Report
Company and the Purchasers named therein
relating to the declaration or payment of
dividends or the making of other
corporate distributions on or the
purchase by the Company of its common
stock
4.3 Portions of Master Extension and 4.1 to the Company's January 31, 1990 1-8962 2-6-90
Modification Agreement, dated as of Form 8-K Report
January 19, 1990, by and among the
Company and the institutions listed
therein relating to the declaration and
payment of dividends or the making of
other distributions on or the purchase by
the Company of its common stock
4.4 Rights Agreement, amended as of November 4.1 to the Company's 1990 Form 10-K 1-8962 3-28-91
14, 1990, between the Company and The Report
Valley National Bank of Arizona, as
Rights Agent, which includes the
Certificate of Designation of Series A
Participating Preferred Stock as Exhibit
A, the form of Rights Certificate as
Exhibit B and the Summary of Rights as
Exhibit C
4.5 Specimen Certificate of Pinnacle West 4.2 to the Company's 1988 Form 10-K 1-8962 3-31-89
Capital Corporation Common Stock, no par Report
value
4.6 Agreement, dated March 29, 1988, relating 4.1 to the Company's 1987 Form 10-K 1-8962 3-30-88
to the filing of instruments defining the Report
rights of holders of long-term debt not
in excess of 10% of the Company's total
assets
10.2 Agreement, dated December 6, 1989, 4.1 to the Company's 1-8962 12-7-89
between the Company and the Office of December 6, 1989
Thrift Supervision, United States Form 8-K Report
Department of Treasury, and related
documents
10.3 Release from the Office of Thrift 10.1 to the Company's 1-8962 3-31-89
Supervision, United States Department 1989 Form 10-K Report
of the Treasury, to the Company,
dated March 22, 1990, releasing
the Company from its purported
obligations under the Stipulation and
under any other source of alleged
obligation of the Company to infuse
equity capital into MeraBank
10.4 Release from the Federal Deposit 10.2 to the Company's 1-8962 3-31-89
Insurance Corporation to the Company, 1989 Form 10-K Report
dated March 22, 1990, releasing the
Company from its purported obligations
under the Stipulation and under any other
source of alleged obligation of the
Company to infuse equity capital into
MeraBank
10.5 Release from the Resolution Trust 10.3 to the Company's 1-8962 3-31-89
Corporation (in its corporate capacity) 1989 Form 10-K Report
to the Company, dated March 21, 1990,
releasing the Company from its purported
obligations under the Stipulation and
under any other source of alleged
obligation of the Company to infuse
equity capital into MeraBank
10.6 Release from the Resolution Trust 10.4 to the Company's 1-8962 3-31-89
Corporation (in its capacity as Receiver 1989 Form 10-K Report
of MeraBank) to the Company, dated
March 21, 1990, releasing the Company
from its purported obligations under
the Stipulation and under any other
source of alleged obligation to the
Company to infuse equity capital into
MeraBank
10.7ac Form of Key Executive Employment and 10.5 to the Company's 1989 Form 10-K 1-8962 3-31-89
Severance Agreement between the Company Report
and each of its executive officers
10.8a Employment Agreement, effective as of 10.1 to the Company's 1990 Form 10-K 2-96386 3-28-91
February 5, 1990, between Richard Snell Report
and the Company
10.9 Two separate Decommissioning Trust 10.2 to APS' September 1991 Form 10-Q 1-4473 11-14-91
Agreements (relating to PVNGS Units 1 Report
and 3, respectively), each dated July 1,
1991, between APS and Mellon Bank,
N.A., as Decommissioning Trustee
10.10 Amendment No 1 to Decommissioning Trust 10.1 to APS' 1994 Form 10-K Report 1-4473 3- -95
Agreement (PVNGS Unit 1), dated as of
December 1, 1994
10.11 Amendment No. 1 to Decommissioning Trust 10.2 to APS' 1994 Form 10-K Report 1-4473 3- -95
Agreement (PVNGS Unit 3), dated as of
December 1, 1994
10.12 Amended and Restated Decommissioning 10.1 to the Company's 1991 Form 10-K 1-8962 3-26-92
Trust Agreement (PVNGS Unit 2) dated as Report
of January 31, 1992, among APS, Mellon
Bank, N.A., as Decommissioning Trustee,
and The First National Bank of Boston,
as Owner Trustee under two separate
Trust Agreements, each with a separate
Equity Participant, and as Lessor under
two separate Facility Leases, each
relating to an undivided interest in
PVNGS Unit 2
10.13 First Amendment to Amended and Restated 10.2 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Decommissioning Trust Agreement (PVNGS
Unit 2), dated as of November 1, 1992
10.14 Amendment No. 2 to Amended and Restated 10.2 to APS' 1994 Form 10-K Report 1-4473 3-30-95
Decommissioning Trust Agreement (PVNGS
Unit 2), dated as of November 1, 1994
10.15 Asset Purchase and Power Exchange 10.1 to APS' June 1991 Form 10-Q 1-4473 8-8-91
Agreement dated September 21, 1990 Report
between APS and PacifiCorp, as amended as
of October 11, 1990 and as of July 18,
1991
10.16 Long-Term Power Transactions Agreement 10.2 to APS' June 1991 Form 10-Q 1-4473 8-8-91
dated September 21, 1990 between APS and Report
PacifiCorp, as amended as of October 11,
1990, and as of July 8, 1991
10.17 Contract, dated July 21, 1984, with DOE 10.31 to the Company's Form S-14 2-96386 3-13-85
providing for the disposal of nuclear Registration Statement
fuel and/or high-level radioactive waste,
ANPP
10.18 Indenture of Lease with Navajo Tribe of 5.01 to APS' Form S-7 Registration 2-59644 9-1-77
Indians, Four Corners Plant Statement
10.19 Supplemental and Additional Indenture of 5.02 to APS' Form S-7 Registration 2-59644 9-1-77
Lease, including amendments and Statement
supplements to original lease with Navajo
Tribe of Indians, Four Corners Plant
10.20 Amendment and Supplement No. 1 to 10.36 to the Company's Registration 1-8962 7-25-85
Supplemental and Additional Indenture of Statement on Form 8-B
Lease, Four Corners, dated April 25, 1985
10.21 Application and Grant of multi-party 5.04 to APS' Form S-7 Registration 2-59644 9-1-77
rights-of-way and easements, Four Corners Statement
Plant Site
10.22 Application and Amendment No. 1 to Grant 10.37 to the Company's Registration 1-8962 7-25-85
of multi-party rights-of-way and Statement on Form 8-B
easements, Four Corners Power Plant Site,
dated April 25, 1985
10.23 Application and Grant of Arizona Public 5.05 to APS' Form S-7 Registration 2-59644 9-1-77
Service Company rights-of-way and Statement
easements, Four Corners Plant Site
10.24 Application and Amendment No. 1 to Grant 10.38 to the Company's Registration 1-8962 7-25-85
of Arizona Public Service Company rights- Statement on Form 8-B
of-way and easements, Four Corners Power
Plant Site, dated April 25, 1985
10.25 Indenture of Lease, Navajo Units 1, 2, 5(g) to APS' Form S-7 Registration 2-36505 3-23-70
and 3 Statement
10.26 Application and Grant of rights-of-way 5(h) to APS' Form S-7 Registration 2-36505 3-23-70
and easements, Navajo Plant Statement
10.27 Water Service Contract Assignment with 5(l) to APS' Form S-7 Registration 2-39442 3-16-71
the United States Department of Interior, Statement
Bureau of Reclamation, Navajo Plant
10.28 Arizona Nuclear Power Project 10.1 to APS' 1988 Form 10-K Report 1-4473 3-8-89
Participation Agreement, dated August 23,
1973, among APS, Salt River Project
Agricultural Improvement and Power
District, Southern California Edison
Company, Public Service Company of New
Mexico, El Paso Electric Company,
Southern California Public Power
Authority, and Department of Water and
Power of the City of Los Angeles, and
amendments 1-12 thereto
10.29 Amendment No. 13, dated as of April 22, 10.1 to APS' March 1991 Form 10-Q 1-4473 5-15-91
1991, to Arizona Nuclear Power Project Report
Participation Agreement, dated August 23,
1973, among APS, Salt River Project
Agricultural Improvement and Power
District, Southern California Edison
Company, Public Service Company of New
Mexico, El Paso Electric Company,
Southern California Public Power
Authority, and Department of Water and
Power of the City of Los Angeles
10.30b Facility Lease, dated as of August 1, 4.3 to APS' Form S-3 Registration 33-9480 10-24-86
1986, between The First National Bank of Statement
Boston, in its capacity as Owner Trustee,
as Lessor, and APS, as Lessee
10.31b Amendment No. 1, dated as of November 1, 10.5 to APS' September 1986 Form 10-Q 1-4473 12-4-86
1986, to Facility Lease, dated as of Report by means of Amendment No. 1 on
August 1, 1986, between The First December 3, 1986 Form 8
National Bank of Boston, in its capacity
as Owner Trustee, as Lessor, and APS, as
Lessee
10.32b Amendment No. 2 dated as of June 1, 1987 10.3 to APS' 1988 Form 10-K Report 1-4473 3-8-89
to Facility Lease dated as of August 1,
1986 between The First National Bank of
Boston, as Lessor, and APS, as Lessee
10.33b Amendment No. 3, dated as of March 17, 10.3 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Facility Lease, dated as of
August 1, 1986, between The First
National Bank of Boston, as Lessor, and
APS, as Lessee
10.34 Facility Lease, dated as of December 15, 10.1 to APS' November 18, 1986 Form 1-4473 1-20-87
1986, between The First National Bank of 8-K Report
Boston, in its capacity as Owner Trustee,
as Lessor, and APS, as Lessee
10.35 Amendment No. 1, dated as of August 1, 4.13 to APS' Form S-3 Registration 1-4473 8-24-87
1987, to Facility Lease, dated as of Statement No. 33-9480 by means of
December 15, 1986, between The First August 1, 1987 Form 8-K Report
National Bank of Boston, as Lessor, and
APS, as Lessee
10.36 Amendment No. 2, dated as of March 17, 10.4 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Facility Lease, dated as of
December 15, 1986, between The First
National Bank of Boston, as Lessor, and
APS, as Lessee
10.37 Cure and Assumption Agreement dated as of 10.1 to APS' 1993 Form 10-K Report 1-4473 3-30-94
November 19, 1993 among APS, Salt River
Project Agricultural Improvement and
Power District, Southern California
Edison Company, Public Service Company of
New Mexico, Southern California Public
Power Authority, Department of Water and
Power of the City of Los Angeles, and El
Paso Electric Company
10.38a Directors' Deferred Compensation Plan, as 10.1 to APS' June 1986 Form 10-Q 1-4473 8-13-86
restated, effective January 1, 1986 Report
10.39a Second Amendment to the Arizona Public 10.2 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Service Company Deferred Compensation
Plan, effective as of January 1, 1993
10.40a Third Amendment to the Arizona Public 10.1 to APS' September 1994 Form 10-Q 1-4473 11-10-94
Service Company Directors' Deferred
Compensation Plan, effective as of
January 1, 1993
10.41 Pinnacle West Capital Corporation and 10.7 to APS' 1994 Form 10-K Report 1-4473 3-30-95
Arizona Public Service Company Directors'
Retirement Plana
10.42a Arizona Public Service Company Deferred 10.4 to APS' 1988 Form 10-K Report 1-4473 3-8-89
Compensation Plan, as restated,
effective January 1, 1984, and the
second and third amendments thereto,
dated December 22, 1986, and December
23, 1987, respectively
10.43 Third Amendment to the Arizona Public 10.3 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Service Company Deferred Compensation
Plan, effective as of January 1, 1993
10.44a Fourth Amendment to the Arizona Public 10.2 to APS' September 1994 Form 10-Q 1-4473 11-10-94
Service Company Deferred Compensation Report
Plan
10.45a Agreement for Utility Consulting 10.6 to APS' 1988 Form 10-K Report 1-4473 3-8-89
Services, dated March 1, 1985, between
APS and Thomas G. Woods, Jr., and
Amendment No. 1 thereto, dated January 6,
1986
10.46a Letter Agreement, dated April 3, 1978, 10.7 to APS' 1988 Form 10-K Report 1-4473 3-8-89
between APS and O. Mark De Michele,
regarding certain retirement benefits
granted to Mr. De Michele
10.47 Letter Agreement dated December 21, 1993, 10.7 to APS' 1994 Form 10-K Report 1-4473 3-30-95
between APS and William L. Stewarta
10.48ac Key Executive Employment and Severance 10.3 to APS' 1989 Form 10-K Report 1-4473 3-8-90
Agreement between APS and certain
executive officers of APS
10.49ac Revised form of Key Executive Employment 10.5 to APS' 1993 Form 10-K Report 1-4473 3-30-94
and Severance Agreement between APS and
certain executive officers of APS
10.50ac Second revised form of Key Executive 10.9 to APS' 1994 Form 10-K Report 1-4473 3-30-95
Employment and Severance Agreement
between APS and certain executive
officers of APS
10.51ac Revised form of Key Executive Employment 10.4 to APS' 1993 Form 10-K Report 1-4473 3-30-94
and Severance Agreement between APS and
certain key employees of APS
10.52ac Second revised Form of Key Executive 10.8 to APS' 1994 Form 10-K Report 1-4473 3-30-95
Employment and Severance Agreement
between APS and certain key employees of
APS
10.53ac Key Executive Employment and Severance 10.4 to APS' 1989 Form 10-K Report 1-4473 3-8-90
Agreement between APS and certain
managers of APS
10.54a 1995 APS Key Employee Variable Pay Plan 10.4 to APS' 1994 Form 10-K Report 1-4473 3-30-95
10.55a 1995 APS Officers Variable Pay Plan 10.5 to APS' 1994 Form 10-K Report 1-4473 3-30-95
10.56a Arizona Public Service Company 10.5 to APS' 1989 Form 10-K Report 1-4473 3-8-90
Performance Review Severance Pay Plan,
effective January 1, 1990
10.57a Arizona Public Service Company Severance 10.1 to APS' September 30, 1993 Form 1-4473 11-15-93
Plan 10-Q Report
10.58a Pinnacle West Capital Corporation Stock 10.1 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Option and Incentive Plan
10.59a Pinnacle West Capital Corporation 1994 A to the Proxy Statement for the 1-8962 4-16-94
Long-Term Incentive Plan Company's Annual Meeting of
Shareholders
10.60a Pinnacle West Capital Corporation B to the Proxy Statement for the 1-8962 4-16-94
Director Equity Participation Plan Company's Annual Meeting of
Shareholders
10.61a Pinnacle West Capital Corporation, 10.1 to APS' 1991 Form 10-K Report 1-4473 3-19-92
Arizona Public Service Company, SunCor
Development Company, and El Dorado
Investment Company Deferred Compensation
Plan, effective January 1, 1992
10.62a Amendment to Pinnacle West Corporation, 10.6 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Arizona Public Service Company, SunCor
Development Company, El Dorado Investment
Company Deferred Compensation Plan,
effective as of December 4, 1992
10.63a Pinnacle West Capital Corporation, 10.7 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Arizona Public Service Company, SunCor
Development Company, and El Dorado
Investment Company Supplemental Executive
Benefit Plan as amended and restated on
December 31, 1992 effective as of January
1, 1992
10.64a Arizona Public Service Company 10.8 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Supplemental Excess Benefit Retirement
Plan and the First, Second, and Third
Amendments thereto
10.65 Agreement No. 13904 (Option and Purchase 10.3 to APS' 1991 Form 10-K Report 1-4473 3-19-92
of Effluent) with Cities of Phoenix,
Glendale, Mesa, Scottsdale, Tempe, Town
of Youngtown, and Salt River Project
Agricultural Improvement and Power
District, dated April 23, 1973
10.66 Agreement for the Sale and Purchase of 10.4 to APS' 1991 Form 10-K Report 1-4473 3-19-92
Wastewater Effluent with City of Tolleson
and Salt River Agricultural Improvement
and Power District, dated June 12, 1981,
including Amendment No. 1 dated as of
November 12, 1981 and Amendment No. 2
dated as of June 4, 1986
99.1 Collateral Trust Indenture among PVNGS II 4.2 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Funding Corp., Inc., APS and Chemical
Bank, as Trustee
99.2 Supplemental Indenture to Collateral 4.3 to APS' 1992 Form 10-K report 1-4473 3-30-93
Trust Indenture among PVNGS II Funding
Corp., Inc., APS and Chemical Bank, as
Trustee
99.3b Participation Agreement, dated as of 28.1 to APS' September 1992 Form 10-Q 1-4473 11-9-92
August 1, 1986, among PVNGS Funding Report
Corp., Inc., Bank of America National
Trust and Savings Association, The First
National Bank of Boston, in its
individual capacity and as Owner Trustee,
Chemical Bank, in its individual capacity
and as Indenture Trustee, APS, and the
Equity Participant named therein
99.4b Amendment No. 1 dated as of November 1, 10.8 to APS' September 1986 Form 10-Q 1-4473 12-4-86
1986, to Participation Agreement, dated Report by means of Amendment No. 1, on
as of August 1, 1986, among PVNGS Funding December 3, 1986 Form 8
Corp., Inc., Bank of America National
Trust and Savings Association, The First
National Bank of Boston, in its
individual capacity and as Owner Trustee,
Chemical Bank, in its individual capacity
and as Indenture Trustee, APS, and the
Equity Participant named therein
99.5b Amendment No. 2, dated as of March 17, 28.4 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Participation Agreement, dated
as of August 1, 1986, among PVNGS Funding
Corp., Inc., PVNGS II Funding Corp.,
Inc., The First National Bank of
Boston, in its individual capacity and
as Owner Trustee, Chemical Bank, in its
individual capacity and as Indenture
Trustee, APS, and the Equity
Participant named therein
99.6b Trust Indenture, Mortgage, Security 4.5 to APS' Form S-3 Registration 33-9480 10-24-86
Agreement and Assignment of Facility Statement
Lease, dated as of August 1, 1986,
between The First National Bank of
Boston, as Owner Trustee, and Chemical
Bank, as Indenture Trustee
99.7b Supplemental Indenture No. 1, dated as of 10.6 to APS' September 1986 Form 10-Q 1-4473 12-4-86
November 1, 1986 to Trust Indenture, Report by means of Amendment No. 1 on
Mortgage, Security Agreement and December 3, 1986 Form 8
Assignment of Facility Lease, dated as of
August 1, 1986, between The First
National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Indenture
Trustee
99.8b Supplemental Indenture No. 2 to Trust 28.14 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease, dated
as of August 1, 1986, between The First
National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Lease
Indenture Trustee
99.9b Assignment, Assumption and Further 28.3 to APS' Form S-3 Registration 33-9480 10-24-86
Agreement, dated as of August 1, 1986, Statement
between APS and The First National Bank
of Boston, as Owner Trustee
99.10b Amendment No. 1, dated as of November 1, 10.10 to APS' September 1986 Form 10-Q 1-4473 12-4-86
1986, to Assignment, Assumption and Report by means of Amendment No. 1 on
Further Agreement, dated as of August 1, December 3, 1986 Form 8
1986, between APS and The First National
Bank of Boston, as Owner Trustee
99.11b Amendment No. 2, dated as of March 17, 28.6 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Assignment, Assumption and
Further Agreement, dated as of August
1, 1986, between APS and The First
National Bank of Boston, as Owner
Trustee
99.12 Participation Agreement, dated as of 28.2 to APS' September 1992 Form 10-Q 1-4473 11-9-92
December 15, 1986, among PVNGS Funding
Report Corp., Inc., The First National
Bank of Boston, in its individual
capacity and as Owner Trustee, Chemical
Bank, in its individual capacity and as
Indenture Trustee under a Trust
Indenture, APS, and the Owner
Participant named therein
99.13 Amendment No. 1, dated as of August 1, 28.20 to APS' Form S-3 Registration 1-4473 8-10-87
1987, to Participation Agreement, dated Statement No. 33-9480 by means of a
as of December 15, 1986, among PVNGS November 6, 1986 Form 8-K Report
Funding Corp., Inc. as Funding
Corporation, The First National Bank of
Boston, as Owner Trustee, Chemical Bank,
as Indenture Trustee, APS, and the Owner
Participant named therein
99.14 Amendment No. 2, dated as of March 17, 28.5 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Participation Agreement,
dated as of December 15, 1986, among
PVNGS Funding Corp., Inc., PVNGS II
Funding Corp., Inc., The First National
Bank of Boston, in its individual
capacity and as Owner Trustee, Chemical
Bank, in its individual capacity and as
Indenture Trustee, APS, and the Owner
Participant named therein
99.15 Trust Indenture, Mortgage, Security 10.2 to APS' November 18, 1986 Form 1-4473 1-20-87
Agreement and Assignment of Facility 8-K Report
Lease, dated as of December 15, 1986,
between The First National Bank of
Boston, as Owner Trustee, and Chemical
Bank, as Indenture Trustee
99.16 Supplemental Indenture No. 1, dated as 4.13 to APS' Form S-3 Registration 1-4473 8-24-87
of August 1, 1987, to Trust Indenture, Statement No. 33-9480 by means of
Mortgage, Security Agreement and August 1, 1987 Form 8-K Report
Assignment of Facility Lease, dated as
of December 15, 1986, between The First
National Bank of Boston, as Owner
Trustee, and Chemical Bank, as
Indenture Trustee
99.17 Supplemental Indenture No. 2 to Trust 4.5 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease, dated
as of December 15, 1986, between The
First National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Lease
Indenture Trustee
99.18 Assignment, Assumption and Further 10.5 to APS' November 18, 1986 Form 1-4473 1-20-87
Agreement, dated as of December 15, 1986, 8-K Report
between APS and The First National Bank
of Boston, as Owner Trustee
99.19 Amendment No. 1, dated as of March 17, 28.7 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Assignment, Assumption and
Further Agreement, dated as of December
15, 1986, between APS and The First
National Bank of Boston, as Owner Trustee
99.20b Indemnity Agreement dated as of March 17, 28.3 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993 by APS
99.21 Extension Letter, dated as of August 13, 28.20 to APS' Form S-3 Registration 1-4473 8-10-87
1987, from the signatories of the Statement No. 33-9480 by means of a
Participation Agreement to Chemical Bank November 6, 1986 Form 8-K Report
99.22 Pledge Agreement dated as of January 31, 28.1 to APS' January 21, 1990 Form 8-K 1-4473 2-15-90
1990, between Pinnacle West Capital Report
Corporation as Pledgor and Citibank, N.A.
as Collateral Agent
99.23 Arizona Corporation Commission Order 28.1 to APS' 1991 Form 10-K Report 1-4473 3-19-92
dated December 6, 1991
99.24 Rate Settlement Agreement dated April 30, 10.1 to APS' March 1994 Form 10-Q 1-4473 5-16-94
1994, between APS and the Arizona Report
Corporation Commission staff
99.25 Arizona Corporation Commission Order 10.1 to APS' June 1994 form 10-Q 1-4473 8-12-94
dated June 1, 1994 Report
----------
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) An additional document, substantially identical in all material respects to
this Exhibit, has been entered into, relating to an additional Equity
Participant. Although such additional document may differ in other respects
(such as dollar amounts, percentages, tax indemnity matters, and dates of
execution), there are no material details in which such document differs from
this Exhibit.
(c) Additional agreements, substantially identical in all material respects to
this Exhibit have been entered into with additional persons. Although such
additional documents may differ in other respects (such as dollar amounts and
dates of execution), there are no material details in which such agreements
differ from this Exhibit.
</TABLE>
REPORTS ON FORM 8-K
During the quarter ended December 31, 1994, and the period ended March 30,
1995, the Company did not file any Reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PINNACLE WEST CAPITAL CORPORATION
(Registrant)
Date: March 30, 1995 RICHARD SNELL
----------------------------------------------------
(Richard Snell, Chairman of the Board of Directors,
President and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
RICHARD SNELL Principal Executive March 30, 1995
---------------------------------------- Officer and Director
(Richard Snell, Chairman of the Board of
Directors,
President and Chief Executive Officer)
H. B. SARGENT Principal Financial March 30, 1995
---------------------------------------- Officer, Principal
(H. B. Sargent, Executive Vice President Accounting Officer
and Chief Financial Officer) and Director
O. MARK DEMICHELE Director March 30, 1995
----------------------------------------
(O. Mark DeMichele)
PAMELA GRANT Director March 30, 1995
----------------------------------------
(Pamela Grant)
ROY A. HERBERGER, JR. Director March 30, 1995
----------------------------------------
(Roy A. Herberger, Jr.)
MARTHA O. HESSE Director March 30, 1995
----------------------------------------
(Martha O. Hesse)
WILLIAM S. JAMIESON, JR. Director March 30, 1995
----------------------------------------
(William S. Jamieson, Jr.)
JOHN R. NORTON, III Director March 30, 1995
----------------------------------------
(John R. Norton, III)
DONALD N. SOLDWEDEL Director March 30, 1995
----------------------------------------
(Donald N. Soldwedel)
DOUGLAS J. WALL Director March 30, 1995
----------------------------------------
(Douglas J. Wall)
COMMISSION FILE NUMBER 1-8962
------
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
EXHIBITS TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
--------------
PINNACLE WEST CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
================================================================================
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1a -- Summary of the Pinnacle West Capital Corporation 1995 Bonus Plan
22 -- Subsidiaries of the Company
23.1 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule
----------
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
EXHIBIT 10.1
SUMMARY OF THE COMPANY'S 1995 BONUS PLAN
Under the Pinnacle West Capital Corporation 1995 Bonus Plan, upon the
recommendation of the Human Resources Committee, the Board establishes on an
annual basis certain financial and other goals to be met, designating parameters
of performance and assigning relative weights. The principal measures of
performance during 1995 include per-share earnings, non-utility subsidiary
earnings, net cash flow before dividends, debt retirement, and the development
of long-term strategies for the Company and APS.
EXHIBIT 22
SUBSIDIARIES OF PINNACLE WEST CAPITAL CORPORATION
Arizona Public Service Company
State of Incorporation: Arizona
Bixco, Inc.
State of Incorporation: Arizona
APS Foundation, Inc.
State of Incorporation: Arizona
SunCor Development Company
State of Incorporation: Arizona
SunCor Resort & Golf Management, Inc.
State of Incorporation: Arizona
Litchfield Park Service Company
State of Incorporation: Arizona
SunCor Homes, Inc.
State of Incorporation: Arizona
SunCor Realty & Management
State of Incorporation: Arizona
SCM, Inc.
State of Incorporation: Arizona
Golf De Mexico, S.A. DE C.V.
Jurisdiction of Incorporation: Mexico
El Dorado Investment Company
State of Incorporation: Arizona
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to Registration Statement No. 33-15190 on Form S-3, Registration Statement Nos.
33- 39235, 33-47534 and 33-58372 on Form S-8, Post-Effective Amendment No. 1 to
Registration Statement No. 33-1720 on Form S-8, Post-Effective Amendment No. 2
to Registration Statement No. 33-10442 on Form S-8, and Post-Effective Amendment
No. 3 on Form S-3 to Registration Statement No. 2-96386 on Form S-14, all of
Pinnacle West Capital Corporation, of our report dated March 3, 1995 (which
expresses an unqualified opinion and includes an explanatory paragraph relating
to the Company's change in method of accounting for income taxes discussed in
Note 3 to those financial statements), appearing in this Annual Report on Form
10-K of Pinnacle West Capital Corporation for the year ended December 31, 1994.
/s/Deloitte & Touche LLP
-----------------------------
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
EXHIBIT 27
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4624073
<OTHER-PROPERTY-AND-INVEST> 561889
<TOTAL-CURRENT-ASSETS> 435578
<TOTAL-DEFERRED-CHARGES> 1288212
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6909752
<COMMON> 1641196
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 135221
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1776417
75000
193561
<LONG-TERM-DEBT-NET> 2588525
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 131500
<LONG-TERM-DEBT-CURRENT-PORT> 78512
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2066237
<TOT-CAPITALIZATION-AND-LIAB> 6909752
<GROSS-OPERATING-REVENUE> 1685421
<INCOME-TAX-EXPENSE> 122970
<OTHER-OPERATING-EXPENSES> 850962
<TOTAL-OPERATING-EXPENSES> 1151651
<OPERATING-INCOME-LOSS> 533770
<OTHER-INCOME-NET> (210181)
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 239553
<NET-INCOME> 200619
0
<EARNINGS-AVAILABLE-FOR-COMM> 200619
<COMMON-STOCK-DIVIDENDS> 72115
<TOTAL-INTEREST-ON-BONDS> 224783
<CASH-FLOW-OPERATIONS> 497173
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 0
</TABLE>
