================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
1995 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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ------------
Commission File Number 1-8962
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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)
----------
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
- - --------------------------------------------------------------------------------
Common Stock, ............................New York Stock Exchange
No Par Value Pacific Stock Exchange
<TABLE>
<CAPTION>
===============================================================================================================
Aggregate Market Value
of Shares Held by
Title of Each Class Shares Outstanding Non-affiliates as of
of Voting Stock as of March 25, 1996 March 25, 1996
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, No Par Value 87,430,265 $2,483,359,384 (a)
<FN>
- - ----------------------------------------------------------------------------------------------------------------
(a) Computed by reference to the closing price on the composite tape on March
25, 1996, as reported by The Wall Street Journal.
</FN>
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</TABLE>
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 22, 1996 are incorporated by
reference into Part III hereof.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
GLOSSARY ........................................................................ 1
PART I
Item 1. Business ................................................................ 2
Item 2. Properties ..............................................................11
Item 3. Legal Proceedings .......................................................14
Item 4. Submission of Matters to a Vote of Security Holders .....................17
Supplemental Item.
Executive Officers of the Registrant ......................................17
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder Matters 18
Item 6. Selected Financial Data .................................................19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...............................................20
Item 8. Financial Statements and Supplementary Data .............................24
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure ................................................48
PART III
Item 10. Directors and Executive Officers of the Registrant .....................49
Item 11. Executive Compensation .................................................49
Item 12. Security Ownership of Certain Beneficial Owners and Management ........49
Item 13. Certain Relationships and Related Transactions .........................49
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedules,
and Reports on Form 8-K ................................................50
SIGNATURES ......................................................................69
</TABLE>
i
<PAGE>
GLOSSARY
ACC -- Arizona Corporation Commission
ACC Staff -- Staff of the Arizona Corporation Commission
AFUDC -- Allowance for Funds Used During Construction
Amendments -- Clean Air Act Amendments of 1990
ANPP -- Arizona Nuclear Power Project, also known as Palo Verde
APS -- Arizona Public Service Company
Cholla -- Cholla Power Plant
Cholla 4 -- Unit 4 of the Cholla Power Plant
Company -- Pinnacle West Capital Corporation
DOE -- United States Department of Energy
El Dorado -- El Dorado Investment Company
EPA -- United States Environmental Protection Agency
Energy Act -- National Energy Policy Act of 1992
FERC -- Federal Energy Regulatory Commission
Four Corners -- Four Corners Power Plant
ITC -- Investment Tax Credit
kW -- Kilowatt, one thousand watts
kWh -- Kilowatt-hour, one thousand watts per hour
Mortgage -- APS' Mortgage and Deed of Trust, dated as of July 1, 1946, as
supplemented and amended
MWh -- Megawatt hours, one million watts per hour
1935 ACT -- Public Utility Holding Company Act of 1935
NGS -- Navajo Generating Station
NRC -- Nuclear Regulatory Commission
PacifiCorp -- An Oregon-based utility company
Palo Verde -- Palo Verde Nuclear Generating Station
SEC -- Securities and Exchange Commission
SRP -- Salt River Project Agricultural Improvement and Power District
SunCor -- SunCor Development Company
USEC -- United States Enrichment Corporation
1
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
GENERAL
Pinnacle West Capital Corporation was incorporated in 1985 under the laws of
the State of Arizona and is engaged, through its subsidiaries, in the generation
and distribution of electricity; in real estate development; and in venture
capital investment. 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 7,335 persons. Of these
employees, approximately 6,484 are employees of the Company's major subsidiary,
APS, and employees assigned to joint projects of APS where APS serves as a
project manager, and approximately 851 are employees of the Company and its
other subsidiaries.
Other subsidiaries of the Company, in addition to APS, include SunCor and El
Dorado. See "Business of SunCor Development Company" and "Business of El Dorado
Investment Company" in this Item for further information regarding SunCor and El
Dorado.
REGULATION
1935 ACT. The Company currently owns no significant assets other than the
common stock of its subsidiaries. The Company and its subsidiaries are currently
exempt from registration under the 1935 Act; however, 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. On June 20, 1995, the SEC issued a Report on the
Regulation of Public Utility Holding Companies in which, as its preferred
option, the SEC recommended to the Congress conditional repeal of the 1935 Act,
with an adequate transition period. The SEC further recommended that legislation
repealing the 1935 Act should include provision for state access to books and
records of all companies in the holding company system, and for federal audit
authority and oversight of affiliate transactions. The Company cannot predict
what action, if any, the Congress may take with respect to the SEC's
recommendation.
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.
2
<PAGE>
BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY
Following is a discussion of the business of APS, the Company's major
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). At December 31, 1995, APS employed 6,484 people,
which includes employees assigned to joint projects where APS is project
manager.
APS serves approximately 705,000 customers in an area that includes all or
part of 11 of Arizona's 15 counties. During 1995, 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
Although APS currently serves electricity in particular areas pursuant to
certain retail service territorial rights, APS is subject to varying degrees of
competition in certain territories adjacent to or within areas that it serves
which are also currently served by other utilities in its region (such as Tucson
Electric Power Company, Southwest Gas Corporation, and Citizens Utility Company)
as well as cooperatives, municipalities, electrical districts and similar types
of governmental organizations (principally SRP). In addition, APS is competing
for large commercial and industrial projects which move into Arizona, and faces
challenges from low-cost hydroelectric power and natural gas fuel and the access
of some utilities to preferential low-priced federal power and other subsidies.
Partly as a result of the Energy Act, the electric utility industry is moving
toward a more competitive environment. The Energy Act is designed, among other
things, to promote competition among utility and non-utility generators. The
Energy Act also amends the Federal Power Act to allow the FERC to order electric
utilities to transmit, or "wheel," wholesale power for others. Presently, the
Company's primary competitors are the major utilities in its region as
competition for wholesale transactions in electricity is already intense in the
West. As competition in the electric utility industry continues to evolve, APS
will continue to pursue strategies to enhance its competitive position.
The FERC has been encouraging increased competition in the wholesale market,
and a proposed FERC rule would require each utility that markets wholesale power
to provide access over its transmission system to other energy providers at
prices and terms comparable to those which the utility applies to itself. The
FERC has also encouraged the formation of regional transmission groups to
enhance coordinated transmission planning and comparable access, as APS, other
utilities in the Southwest and several power marketers are doing with the
Southwestern Regional Transmission Association. All of the members of this
association will file comparability and market base tariffs with the FERC this
summer.
In 1995, APS and the ACC Staff proposed a regulatory settlement agreement
which APS believes lays the groundwork for a responsible transition to a
competitive future. See "1995 Regulatory Agreement" in Note 3 of Notes to
Consolidated Financial Statements in Item 8.
3
<PAGE>
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, 1995 is
tabulated below.
Amount Percentage
------------ ------------
(Thousands
of Dollars)
Long-Term Debt Less Current Maturities:
First mortgage bonds .............................$1,604,317
Other ............................................ 527,704
------------
Total long-term debt less current maturities ... 2,132,021 50.7%
------------
Non-Redeemable Preferred Stock .................... 193,561 4.6
------------
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 ............................ 1,039,550
Retained earnings ................................ 403,843
------------
Total common stock equity ....................... 1,621,555 38.6
-----------
Total capitalization ........................... 4,022,137
Current Maturities of Long-Term Debt .............. 3,512 .1
Short-Term Borrowings ............................. 177,800 4.2
------------ ------------
Total ..........................................$4,203,449 100.0%
============ ============
See Notes 6, 7, and 8 of Notes to Consolidated Financial Statements in Item 8.
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 1995, the replacement fund requirement amounted to
approximately $128 million. Many, though not all, of the bonds issued by APS
under the 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.
RATES
STATE. The ACC has regulatory authority over APS in matters relating to
retail electric rates and the issuance of securities. See Note 3 of Notes to
Consolidated Financial Statements in Item 8 for a discussion of the 1995
regulatory agreement between APS and the ACC Staff.
FEDERAL. APS' rates for wholesale power sales and transmission services are
subject to regulation by the FERC. During 1995, 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.
4
<PAGE>
CONSTRUCTION PROGRAM
During the years 1993 through 1995, APS incurred approximately $807 million
in capitalized expenditures. Utility capitalized expenditures for the years 1996
through 1998 are expected to be primarily for expanding transmission and
distribution capabilities to meet customer growth, upgrading existing facilities
and for environmental purposes. Capitalized expenditures, including expenditures
for environmental control facilities, for the years 1996 through 1998 have been
estimated as follows:
(Millions of Dollars)
By Year By Major Facilities
- - --------------------------------------------------------------------------------
1996 $246 Electric generation $244
1997 242 Electric transmission 29
1998 244 Electric distribution 352
----- General facilities 107
$732 ----
==== $732
====
The amounts for 1996 through 1998 exclude capitalized interest costs and
include capitalized property taxes and about $30 million each year for nuclear
fuel expenditures. APS conducts a continuing review of its construction program.
ENVIRONMENTAL MATTERS
EPA ENVIRONMENTAL REGULATION. Pursuant to the Clean Air Act, the EPA has
adopted regulations that address visibility impairment in certain
federally-protected areas which can be reasonably attributed to specific
sources. In September 1991, the EPA issued a final rule that would limit sulfur
dioxide emissions at NGS. Compliance with the emission limitation becomes
applicable to NGS Units 3, 2, and 1 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 through 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") 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. In March 1995, the EPA issued
revised rules for nitrogen oxides emissions limitations, which may require APS
to install additional pollution control equipment at Four Corners. In the year
2000, Four Corners must comply with either these or recently proposed
requirements which the EPA published in January 1996. The EPA has until 1997 to
finalize these proposed requirements. Based on its initial evaluation, APS
currently estimates its capital cost of complying with the March 1995 rules may
be approximately $20 million, the incurrence of which began in 1995 and will
continue through 1999, with the highest expenditures expected during 1998.
With respect to protection of visibility in certain specified areas, the
Amendments require the EPA to conduct a study which the EPA estimates will be
completed in late 1996 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 May 1996 on visibility impairment in the "Golden Circle of
National Parks" in the Colorado Plateau. NGS, Cholla, and
5
<PAGE>
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 in late
1996 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.
PURPORTED NAVAJO ENVIRONMENTAL REGULATION. Four Corners and NGS are located
on the Navajo Reservation and are held under easements granted by the federal
government as well as leases from the Navajo Nation. APS is the Four Corners
operating agent and owns a 100% interest in Four Corners Units 1, 2 and 3, and a
15% interest in Four Corners Units 4 and 5. APS owns a 14% interest in NGS Units
1, 2 and 3. In July 1995 the Navajo Nation enacted the Navajo Nation Air
Pollution Prevention and Control Act, the Navajo Nation Safe Drinking Water Act,
and the Navajo Nation Pesticide Act (collectively, the "Acts").
Pursuant to the Acts, the Navajo Nation Environmental Protection Agency is
authorized to promulgate regulations covering air quality, drinking water and
pesticide activities, including those that occur at Four Corners and NGS. By
separate letters dated October 12 and October 13, 1995, the Four Corners
participants and the NGS participants requested the United States Secretary of
the Interior to resolve their dispute with the Navajo Nation regarding whether
or not the Acts apply to operations of Four Corners and NGS. On October 17,
1995, the Four Corners participants and the NGS participants each filed a
lawsuit in the District Court of the Navajo Nation, Window Rock District,
seeking, among other things, a declaratory judgment that (i) their respective
leases and federal easements preclude the application of the Acts to the
operations of Four Corners and NGS, and (ii) the Navajo Nation and its agencies
and courts lack adjudicatory jurisdiction to determine the enforceability of the
Acts as applied to Four Corners and NGS. On October 18, 1995, the Navajo Nation
and the Four Corners and NGS participants agreed to indefinitely stay the
proceedings referenced in the preceding two sentences so that the parties may
attempt to resolve the dispute without litigation, and the Secretary and the
Court have stayed these proceedings pursuant to a request by the parties. APS
cannot currently predict the outcome of this matter.
GENERATING FUEL
Coal, nuclear, gas, and other contributions to total net generation of
electricity by APS in 1995, 1994, and 1993, and the average cost to APS of those
fuels (in dollars per MWh), were as follows:
<TABLE>
<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>
1995 (estimate) 54.7% $13.83 40.1% $5.21 5.0% $19.52 0.2% $11.84 $10.66
1994 ............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
</TABLE>
Other includes oil and hydro generation.
6
<PAGE>
APS believes that Cholla has sufficient reserves of low sulfur coal committed
to that plant for the next four 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 1995, 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
Nation. 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 Nation and for NGS from a coal supplier with a long-term lease
with the Navajo Nation and the Hopi Tribe. 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 Nation, the federal government, and
private landholders. See Note 12 of Notes to Consolidated Financial Statements
in Item 8 for information regarding APS' obligation for coal mine reclamation.
APS is a party to contracts with twenty-seven natural gas operators and
marketers which allow APS to purchase natural gas in the method it determines to
be most economic. During 1995, the principal sources of APS' natural gas
generating fuel were 19 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 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 2000.
Existing contracts and options could be utilized to meet approximately 80% of
requirements in 2001 and 2002 and 50% of requirements from 2003 through 2007.
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 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 until at least 2003 for each Palo
Verde unit, and through contract options, approximately fifteen additional years
are available.
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 NRC, pursuant to the Waste Act, also requires operators of nuclear
power reactors to enter into spent fuel disposal contracts with DOE and APS, on
its own behalf and on behalf of the other Palo Verde participants, has done so.
Under the Waste Act, DOE was to develop the facilities necessary for the storage
and disposal of spent nuclear fuel and to have the first such facility in
operation by 1998. That facility was to be a permanent repository, but DOE has
announced that such a repository now cannot be completed before 2010. Several
bills have been introduced in Congress contemplating the construction of a
central interim storage facility which could be available in the latter part of
the current decade; however, there is resistance to certain features of these
bills both in Congress and in the Administration.
Facility funding is a further complication. While all nuclear utilities pay
into a so-called nuclear waste fund an amount calculated on the basis of the
output of their respective plants, the annual Congressional appropriations for
the permanent repository have been for amounts less than the amounts paid into
the waste fund (the balance of which is being used for other purposes) and,
according to DOE spokespersons, may now be at a level less than needed to
achieve a 2010 operational date for a permanent repository. No funding will be
available for a central interim facility until one is authorized by Congress.
APS has storage capacity in existing fuel storage pools at Palo Verde which,
with certain modifications, could accommodate all fuel expected to be discharged
from normal operation of Palo Verde through about 2005, and believes it could
augment that wet storage with new facilities for on-site dry storage of spent
fuel for an indeterminate period of operation beyond 2005, subject to obtaining
any required governmental approvals.
7
<PAGE>
One way or another, APS currently believes that spent fuel storage or
disposal methods will be available for use by Palo Verde to allow its continued
operation beyond 2005.
Currently, low-level waste is being stored on-site. A new low-level waste
facility was built in 1995 on-site which could store an amount of waste
equivalent to up to ten years of normal operation at Palo Verde. APS is
currently evaluating whether to ship low-level waste to off-site facilities or
to continue to store the waste on-site. 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 of spent
fuel and low-level waste storage and disposal can be resolved satisfactorily,
APS acknowledges that their ultimate resolution in a timely fashion 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. See Note 13 of Notes to
Consolidated Financial Statements in Item 8 for a discussion of APS' nuclear
decommissioning costs.
STEAM GENERATORS. See "Palo Verde Nuclear Generating Station" in Note 12
of Notes to 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 12 of Notes to 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. On May 10, 1993, a Department of Labor ("DOL")
Administrative Law Judge issued a Recommended Decision and Order finding that
APS discriminated against a former contract employee who worked at Palo Verde
because he engaged in protected activities (as defined under federal
regulations). 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
in June 1995. By letter dated March 7, 1996, the NRC sent a Notice of Violation
and Proposed Imposition of Civil Penalty notifying APS that the NRC proposes to
impose a $100,000 civil penalty for a "Severity Level III" violation of NRC
requirements relating to the circumstances surrounding this matter. The NRC also
concluded in its March 7, 1996 letter that APS' actions taken and planned to
correct the violation have already been addressed and therefore APS is not
required to respond to the Notice of Violation. APS plans to pay the associated
penalty within thirty days.
8
<PAGE>
WATER SUPPLY
Assured supplies of water are important both to APS (for its generating
plants) and to its customers and, at the present time, APS has adequate water to
meet its needs. 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 vs. 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 Nation in 1985,
however, provides that if Four Corners loses a portion of its rights in the
adjudication, the Navajo Nation 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 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,
including homebuilding. The principal executive offices of SunCor are located at
3838 North Central, Suite 1500, Phoenix, Arizona 85012 (telephone 602-
285-6800). SunCor and its subsidiaries, excluding SunCor Resort & Golf
Management, Inc. ("Resort Management"), employ approximately 97 persons. Resort
Management, which manages the Wigwam Resort and Country Club (the "Wigwam"),
employs between 205 and 720 persons, depending on the Wigwam's operating season.
Resort Management also operates other golf operations.
9
<PAGE>
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 the commercial and residential development of
approximately 640 acres is well underway. 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. Two recent projects
- - -- SunRidge Canyon, a 950 acre golf and residential master-planned community
northeast of Phoenix, and Sedona Golf Resort, a 300 acre golf and residential
master-planned community near Sedona, Arizona -- are also being developed
jointly with other venture partners.
For the years ended December 31, 1995, 1994, and 1993, SunCor's operating
revenues were approximately $54.8 million, $59.3 million, and $32.2 million,
respectively, and its income (losses) were approximately $4.1 million, $0.5
million, and ($4.0 million), respectively. SunCor's capital needs consist
primarily of capital expenditures and home construction, which, on the basis of
projects now under development, are expected to approximate $85 million, $68
million, and $60 million for 1996, 1997, and 1998, respectively.
At December 31, 1995, SunCor had total assets of approximately $436 million,
approximately $221 million of which has been pledged to secure certain long-term
debt of SunCor. See Note 6 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.
BUSINESS OF EL DORADO INVESTMENT COMPANY
El Dorado was incorporated in 1983 under the laws of the State of Arizona and
is engaged principally 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 had investments in venture capital partnerships totalling
approximately $7.3 million at December 31, 1995. El Dorado has remaining funding
commitments in the aggregate amount of approximately $3.1 million through 1996.
In addition to the foregoing investments, at December 31, 1995, El Dorado had
direct investments of approximately $17.9 million in other private and public
companies and partnerships.
For the years ended December 31, 1995, 1994, and 1993 El Dorado's income
(losses) were approximately $8.5 million, ($4.0 million), and ($3.9 million),
respectively. At December 31, 1995, El Dorado had total assets of approximately
$38.4 million.
10
<PAGE>
ITEM 2. PROPERTIES
APS' present generating facilities have an accredited capacity aggregating
4,025,241 kW, comprised as follows:
<TABLE>
<CAPTION>
Capacity(kW)
-------------
<S> <C>
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 ....................... 615,000
14% owned Units 1, 2, and 3 at the Navajo Plant, representing ....... 315,000
----------
1,712,000
==========
Gas or Oil:
Two steam units at Ocotillo, two steam units at Saguaro, and one
steam unit at Yucca, aggregating ..................................... 463,400(1)
Eleven combustion turbine units, aggregating ......................... 500,600
Three combined cycle units, aggregating .............................. 253,500
----------
1,217,500
==========
Nuclear:
29.1% owned or leased Units 1, 2, and 3 at Palo Verde, representing 1,091,541
==========
Other ................................................................ 4,200
==========
<FN>
- - ----------
(1) West Phoenix steam units (96,300 kW) are currently mothballed.
</FN>
</TABLE>
----------
APS' peak one-hour demand on its electric system was recorded on July 28,
1995 at 4,420,400 kW, compared to the 1994 peak of 4,214,000 kW recorded on June
29. 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 July 28, 1995, computed in accordance with accepted
industry practices, amounted to 4,608,941 kW, for an installed reserve margin of
6.4%. 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 1995 peak
amounted to 4,469,841 kW, for a margin of 1.3%.
NGS and Four Corners are located on land held under easements from the
federal government and also under leases from the Navajo Nation. 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 Nation to honor its commitments. The lease for Four
Corners contains a waiver until 2001 of the requirement that APS pay certain
taxes to the Navajo Nation. APS and the Navajo Nation are currently negotiating
an agreement regarding taxes to be assessed against APS after the expiration of
the waiver. APS cannot currently predict the outcome of this matter. 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 10 of
Notes to 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.
11
<PAGE>
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 313,000 kW through May 1995, at which time the capacity decreased
to 305,000 kW. In 1995, APS received approximately 657,765 MWh of energy under
the contract and paid approximately $30 million for capacity availability and
energy received.
In September 1990, APS and PacifiCorp 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 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 4. In April 1995 APS gave PacifiCorp the required three-year
notice to change the existing 175 megawatt purchase to one-for-one seasonal
capacity exchange beginning in the summer of 1998. APS has one option remaining
to increase the firm purchase to the rated capacity of Cholla 4 (less the
current exchange capacity) and also to convert this increase to one-for-one
seasonal exchange by a three-year written notice prior to May 1, 1996.
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 May 15, 1997 or the completion of certain new transmission projects. In
addition, PacifiCorp agreed to pay APS (i) $20 million prior to January 15, 1997
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 1995. In 1995, APS received 386,350 MWh of energy
from PacifiCorp under these transactions and paid approximately $18 million for
capacity availability and the energy received.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Capital Needs and Resources -- APS" in Item 7 for a discussion
of APS' construction plans.
See Notes 6 and 10 of Notes to Consolidated Financial Statements in Item 8
with respect to property of APS not held in fee or held subject to any major
encumbrance.
As part of the Company's restructuring of its debt in 1990, the Company
granted substantially all of its lenders at that time 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, 1995, the APS common
stock secured approximately $210 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.
See "Business of SunCor Development Company" and "Business of El Dorado
Investment Company" in Item 1 for a description of properties held by SunCor and
El Dorado, respectively.
12
<PAGE>
[MAP PAGE]
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
APS
On June 29, 1990, a new Arizona state property tax law was enacted, effective
as of December 31, 1989, which adversely impacted APS' earnings before income
taxes in tax years 1990 through 1995 by an aggregate amount of approximately $21
million per year. 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 appealed
this decision to the Arizona Court of Appeals. In November 1995, the Arizona
Court of Appeals reversed that decision, holding that the law is
unconstitutional. The matter has been returned to the Arizona Tax Court for
determination of the appropriate remedy consistent with the Arizona Court of
Appeals decision. Pursuant to the provisions of APS' 1995 proposed regulatory
settlement agreement (see Note 3 of Notes to Consolidated Financial Statements
in Item 8), if any overcollected property taxes are refunded to APS by the State
of Arizona as a result of the disposition of this lawsuit, APS would refund all
of the net jurisdictional amount of such refund to its retail customers. APS
cannot currently predict the ultimate outcome of this matter.
See "Environmental Matters," "Palo Verde Nuclear Generating Station," and
"Water Supply" in Item 1 in regard to pending or threatened litigation and other
disputes involving APS.
PINNACLE WEST
On November 7, 1988 and December 20, 1988, two separate lawsuits were filed
in the United States District Court for the District of Arizona against the
Company and certain of its directors and officers. The lawsuits, which were
consolidated on October 2, 1989, alleged 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 consolidated complaint
sought unspecified compensatory and punitive damages as well as fees and costs.
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 alleged 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.
14
<PAGE>
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 two 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. On August 28, 1995, the same individuals filed a petition with
the U.S. Supreme Court seeking that court's review of the settlement. On January
16, 1996, the Supreme Court denied the petition and the settlement became final.
The non-settling individuals have filed a third-party complaint against the
Company in the United States 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 was served on the Company on or about November 15, 1995,
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 December 30, 1993 settlement
order barred the non-settling individuals from asserting claims for contribution
and certain claims for noncontractual indemnification against the Company. This
order is dispositive of some but not all of the claims alleged in the
third-party complaint. 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, plus interest. On June 8, 1993, the Ohio court ordered this case
to be transferred to the District of Arizona. The individual director defendants
were subsequently dismissed without prejudice pursuant to the stipulation of the
parties. On November 10, 1994, the Company filed a motion for summary judgment
on all counts, which on September 20, 1995 was granted in part and denied in
part. The order rejected the plaintiff's claims as to one of the two purchases
of MeraBank debentures at issue, and accordingly, reduced the amount in
controversy to one-half of the original claimed amount. The Company and the
individual directors and officers believe that the lawsuit is without merit and
will vigorously defend themselves.
On August 17, 1993, the Company was served with a separate complaint filed by
the same plaintiff in the United States District Court for the District of
Arizona alleging claims under the Arizona Racketeering Act and the Arizona
Consumer Fraud Act seeking compensatory damages in
15
<PAGE>
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 plaintiff has filed
a motion for reconsideration which remains under advisement. The plaintiff has
also appealed the dismissal to the Ninth Circuit Court of Appeals. That appeal
has been stayed pending the trial court's ruling on the motion for
reconsideration.
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 above. 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,
promissory estoppel, racketeering and intentional interference with contractual
relations. On October 7, 1994, the court dismissed the plaintiff's federal
securities law claims. On May 4, 1995, the Court granted the Company's motion
for reconsideration and also dismissed plantiff's state securities law claims.
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. On
October 6, 1995, the Company filed a motion for summary judgment seeking
dismissal of the suit based on, among other things, a claim that the applicable
statute of limitations had expired. On November 13, 1995, the plaintiffs filed a
cross-motion for partial summary judgment with respect to certain of the
Company's alleged misrepresentations and omissions and on a fraudulent
concealment defense to the expiration of the applicable statutes of limitations.
Both motions remain under consideration by the court. The Company intends to
vigorously defend itself in this action.
16
<PAGE>
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
Name March 1, 1996 Position(s) at March 1, 1996
- - ----------------- --------------- -------------------------------------
Michael S. Ash 42 Corporate Counsel
Arlyn J. Larson 61 Vice President of Corporate
Planning and Development
Nancy E. Newquist 44 Vice President and Treasurer
William J. Post 45 Executive Vice President
Richard Snell 65 Chairman of the Board of Directors,
President and Chief Executive Officer
Faye Widenmann 47 Vice President of Corporate Relations
and Administration and Secretary
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.
Mr. Post was elected Executive Vice President of the Company effective June
30, 1995. Since September 1994 he has also been Senior Vice President and Chief
Operating Officer of APS. From June 1993 to September 1994 he was Senior Vice
President, Planning, Information & Financial Services of APS. Prior to June 1993
he was Vice President, Finance and Rates of 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. Mr. Snell is a director of Aztar
Corporation and is also a director of Banc One Arizona Corporation and Bank One,
Arizona N.A., Phoenix, Arizona.
Ms. Widenmann was elected Secretary of the Company in 1985 and Vice President
of Corporate Relations and Administration in November 1986.
17
<PAGE>
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 13, 1996, the
Company's common stock was held of record by approximately 55,000 shareholders.
The chart below sets forth the common stock price ranges on the composite
tape, as reported in the Wall Street Journal for 1995 and 1994. The chart also
sets forth the dividends declared and paid per share during each of the four
quarters for 1995 and 1994.
Common Stock Price Ranges and Dividends
- - ------------------------------------------------------
DIVIDEND
1995 HIGH LOW PER SHARE
- - ------------------------------------------------------
1st Quarter 21-1/2 19-5/8 .225
2nd Quarter 24-3/4 20-7/8 .225
3rd Quarter 26-1/2 23-3/8 .225
4th Quarter 28-7/8 26-1/8 .25
- - ------------------------------------------------------
1994
- - ------------------------------------------------------
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
- - ------------------------------------------------------
18
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------ --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating revenues
Electric $ 1,614,952 $ 1,626,168 $ 1,602,413 $ 1,587,582 $ 1,385,815
Real estate 54,846 59,253 32,248 19,959 12,697
Income (loss) from continuing
operations (a) 199,608 $ 200,619(b) $ 169,978 $ 150,440 $ (340,317)
Income from discontinued
operations -- net of income tax
(c) -- -- -- 6,000 153,455
Extraordinary charge for early
retirement of debt -- net of
income tax (d) (11,571) -- -- -- --
Cumulative effect of change
in accounting for
income taxes (e) -- -- 19,252 -- --
------------ --------------- ------------- ------------- ------------
Net income (loss) $ 188,037 $ 200,619 $ 189,230 $ 156,440 $ (186,862)
============ =============== ============= ============= ============
COMMON STOCK DATA
Book value per share -- year-end $ 21.49 $ 20.32 $ 18.87 $ 17.00 $ 15.23
Earnings (loss) per average common
share outstanding
Continuing operations $ 2.28 $ 2.30 $ 1.95 $ 1.73 $ (3.91)
Discontinued operations -- -- -- 0.07 1.76
Extraordinary charge (0.13) -- -- -- --
Accounting change -- -- 0.22 -- --
------------ --------------- ------------- ------------- ------------
Total $ 2.15 $ 2.30 $ 2.17 $ 1.80 $ (2.15)
============ =============== ============= ============= ============
Dividends declared per share (f) $ 0.925 $ 0.825 $ 0.20 $ -- $ --
Common shares outstanding
Year-end 87,515,847 87,429,642 87,423,817 87,161,872 87,009,974
Average 87,419,300 87,410,967 87,241,899 87,044,180 86,937,052
TOTAL ASSETS $ 6,997,052 $ 6,909,752 $ 6,956,799 $ 6,270,476 $ 6,147,639
============ =============== ============= ============= =============
LIABILITIES AND EQUITY
Long-term debt less current
maturities $ 2,510,709 $ 2,588,525 $ 2,633,620 $ 2,774,305 $ 2,996,910
Other liabilities 2,336,695 2,276,249 2,282,508 1,620,250 1,429,488
------------ --------------- ------------- ------------- ------------
Total liabilities 4,847,404 4,864,774 4,916,128 4,394,555 4,426,398
Minority interests
Non-redeemable preferred stock of
APS 193,561 193,561 193,561 168,561 168,561
Redeemable preferred stock of APS 75,000 75,000 197,610 225,635 227,278
Common stock equity 1,881,087 1,776,417 1,649,500 1,481,725 1,325,402
------------ --------------- ------------- ------------- ------------
Total liabilities and equity $ 6,997,052 $ 6,909,752 $ 6,956,799 $ 6,270,476 $ 6,147,639
============ =============== ============= ============= =============
<FN>
- - ----------
(a) 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. Also includes approximately $407 million of
write-offs and adjustments in 1991, net of income tax, related to the Palo
Verde Nuclear Generating Station
(b) Includes a non-recurring income tax benefit of $26.8 million related to a
change in tax law.
(c) Tax benefits associated with MeraBank, A Federal Savings Bank.
(d) Prepayment penalty associated with the refinancing of $100 million of
parent company debt.
(e) Results of the adoption of the liability method of accounting for income
taxes. See Note 4 of Notes to Consolidated Financial Statements.
(f) In October 1993, the Board of Directors declared a quarterly dividend on
common stock, which was previously suspended in October 1989.
</FN>
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to Pinnacle West and its subsidiaries: APS,
SunCor and El Dorado.
CAPITAL NEEDS AND RESOURCES
Parent Company
During the past three years, the parent company's primary cash needs were
for the payment of common stock dividends, interest and optional and mandatory
repayment of principal on its long-term debt (see Note 6 of Notes to
Consolidated Financial Statements).
Dividends from APS have been the parent company's primary source of cash.
SunCor and El Dorado provided cash in 1995. Tax allocations within the
consolidated group have been additional sources of cash.
The parent company prepaid or repaid approximately $120 million, $134
million and $152 million of its debt in 1995, 1994 and 1993, respectively. In
1995, the parent company refinanced $100 million of 11.61% debentures due in
2000 to achieve a lower ongoing interest rate, thereby incurring a prepayment
penalty of $11.6 million after income taxes.
Management expects to have sufficient cash flow in 1996 to reduce parent
company debt by approximately $100 million, of which $30 million was prepaid on
March 1, 1996 at a prepayment penalty of $3.6 million after income taxes.
Additional prepayments, and perhaps refinancing, could result in substantial
prepayment penalties in 1996. Subject to approval of the 1995 regulatory
agreement (see Note 3 of Notes to Consolidated Financial Statements), $50
million annually for the years 1996 through 1999 will be invested in APS by the
parent company.
In the refinancing of $100 million of long-term debt in 1995, the parent
company established a revolving line of credit of $100 million; as of December
31, 1995, borrowings of $100 million were outstanding thereunder.
APS
APS' capital requirements consist primarily of capital expenditures and
optional and mandatory repayments of long-term debt and preferred stock. The
resources available to meet these requirements include funds provided by
operations and external financings.
Present construction plans through the year 2005 do not include any major
baseload generating plants. In general, most of the capital expenditures are for
expanding transmission and distribution capabilities to meet customer growth,
upgrading existing facilities and for environmental purposes. Capital
expenditures are anticipated to be approximately $246 million, $242 million and
$244 million for 1996, 1997 and 1998, respectively. These amounts include about
$30 million each year for nuclear fuel expenditures.
In the period 1993 through 1995, APS funded all capital expenditures with
funds provided by operations, after the payment of dividends. For the period
1996 through 1998, APS estimates that it will fund substantially all capital
expenditures in the same manner.
During 1995, APS redeemed $147 million of long-term debt, of which $144
million was optional. Refunding obligations for preferred stock, long-term debt,
a capitalized lease obligation and certain anticipated early redemptions are
expected to approximate $75 million, $164 million and $114 million for the years
1996, 1997 and 1998, respectively. As of March 1, 1996, APS had redeemed
approximately $46 million of its long-term debt and approximately $15 million of
its preferred stock.
Although provisions in APS' bond indenture, articles of incorporation, and
financing orders from the Arizona Corporation Commission (ACC) restrict the
issuance of additional first mortgage bonds and preferred stock, management does
not expect any of these restrictions to limit APS' ability to meet its capital
requirements.
As of December 31, 1995, 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. At the end of
1995, there were $177.8 million of commercial paper and no bank borrowings
outstanding.
20
<PAGE>
Non-Utility Subsidiaries
During the past three years, SunCor and El Dorado together, funded all of
their operations through cash flow from operations and financings. SunCor's
capital needs consist primarily of capital expenditures and home construction
which, on the basis of projects now under development, are expected to
approximate $85 million, $68 million and $60 million for 1996, 1997 and 1998,
respectively. Capital resources available to meet these requirements include
funds provided by SunCor's operations and external financings.
During 1995, SunCor increased its existing revolving lines of credit to $40
million; at December 31, 1995, borrowings of $40 million were outstanding
thereunder.
RESULTS OF OPERATIONS
1995 Compared with 1994
The Company reported net income of $188.0 million in 1995 compared with
$200.6 million in 1994. However, both years included significant extraordinary
or non-recurring items. In 1995, an extraordinary charge of $11.6 million after
income taxes was recorded for a debt prepayment penalty. Net income for 1994
included a non-recurring income tax benefit of $26.8 million. Excluding the
effects of the extraordinary and non-recurring items, the Company earned $199.6
million in 1995 compared with $173.8 million in 1994. The earnings improvement
reflects earnings at the subsidiaries and lower interest expense at the parent
company due to continued debt reduction.
APS earnings in 1995 were $220.4 million compared with $218.2 million in
1994. Earnings increased primarily due to customer growth, lower fuel expenses,
accelerated amortization of investment tax credits (ITCs), lower operations and
maintenance expenses, lower preferred stock dividends, and a gain recognized on
the sale of a small subsidiary. Fuel expenses decreased due to lower fuel prices
and a more favorable mix resulting from increased nuclear generation. 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. The accelerated amortization of ITCs was a result of a 1994 rate
settlement (see Note 3 of Notes to Consolidated Financial Statements) and is
reflected as an $18 million decrease in consolidated income tax expense.
Operations and maintenance expense decreased as a result of lower fossil plant
overhaul costs, improved nuclear operations and severance costs incurred in
1994. Preferred stock dividends decreased due to less preferred stock
outstanding.
Substantially offsetting the positive factors at APS were the absence of
non-cash income related to a 1991 rate settlement, milder weather, the reversal
in 1994 of certain previously recorded depreciation, a retail rate reduction
which became effective June 1, 1994, and in 1995 a $13 million pretax write-down
of an APS office building and an $8 million pretax write-down of certain
inventory.
SunCor reported net income of $4.1 million in 1995 compared with $0.5
million in 1994. The improvement reflects increased commercial land sales, the
expiration of a lease agreement related to the Wigwam Resort and an increase in
management fees.
El Dorado reported net income of $8.5 million in 1995 compared to a $4.0
million loss in 1994. The improvement reflects sales in 1995 of El Dorado
investments and an investment write-down in 1994.
1994 Compared with 1993
The Company reported net income of $200.6 million in 1994, which included a
non-recurring income tax benefit of $26.8 million. Excluding that benefit,
earnings in 1994 were $173.8 million compared with earnings before an accounting
change of $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 (see Note 3 of Notes to Consolidated Financial
Statements). Interest expense declined due primarily to parent company debt
repayment and APS' refinancing activity in 1994 and 1993.
21
<PAGE>
Substantially offsetting these positive factors were the completion in May
1994 of the recording of non-cash income related to a 1991 rate settlement (see
Note 1 of Notes to Consolidated Financial Statements); increased utility
operations and maintenance expense due primarily to employee severance costs;
and increased nuclear decommissioning costs.
Higher fuel and purchased power expenses in 1994 over 1993 to meet increased
retail sales were about offset by lower fuel costs for reduced interchange
sales.
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.
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
increases (decreases) in 1995 and 1994 electric operating revenues compared with
the prior year follows (in millions of dollars):
1995 1994
---- ----
Volume variance:
Customer growth $ 48.4 $ 56.4
Weather (42.0) 42.0
Other 7.8 (11.7)
1994 rate reduction (11.4) (26.5)
Interchange sales (7.2) (19.5)
Reversal of refund obligation (9.3) (12.1)
Other operating revenues 2.5 (4.8)
------- -------
Total change $ (11.2) $ 23.8
======= =======
INCOME TAX ISSUES
See Note 4 of Notes to Consolidated Financial Statements regarding
accelerated amortization of ITCs, recognition of $26.8 million of non-recurring
income tax benefits in 1994 and an 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
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 a 1991 rate
settlement (see Consolidated Statements of Cash Flows and Note 1 of Notes to
Consolidated Financial Statements). The accretion income and refund reversals,
net of income taxes, totaled $25.9 million and $58.2 million in 1994 and 1993,
respectively. Also in 1994 was a one-time depreciation reversal of $15 million,
after income taxes, which was included in "Other -- net" in the Consolidated
Statements of Income (see Note 3 of Notes to Consolidated Financial Statements).
1995 REGULATORY AGREEMENT
In December 1995, APS and the ACC Staff announced an agreement which
includes an economic proposal to be heard by the full ACC in April 1996.
Principal features include an annual rate reduction of approximately $48 million
($29 million after income taxes) and recovery of substantially all of APS'
present regulatory assets through accelerated amortization over an eight-year
period beginning July 1, 1996 increasing annual amortization by approximately
$120 million ($72 million after income taxes). The agreement also includes an
industry restructuring element. See Note 3 of Notes to Consolidated Financial
Statements for further discussion of this agreement.
22
<PAGE>
ACCOUNTING MATTERS
Note 2 of Notes to Consolidated Financial Statements describes two new
accounting standards related to asset impairment and stock-based compensation,
which are effective in 1996. The standards do not have a material impact on the
Company's financial position or results of operations at the time of adoption.
See Note 13 of Notes to Consolidated Financial Statements for a description of a
proposed standard on accounting for certain liabilities related to closure or
removal of long-lived assets.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Management ................................................................. 25
Independent Auditors' Report ......................................................... 26
Consolidated Statements of Income for each of the three years in the period ended
December 31, 1995 ................................................................... 27
Consolidated Balance Sheets -- December 31, 1995 and 1994 ............................ 28
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1995 ................................................................... 30
Consolidated Statements of Retained Earnings for each of the three years in the
period ended December 31, 1995 ...................................................... 31
Notes to Consolidated Financial Statements ........................................... 32
Financial Statement Schedule for each of the three years in the period ended December
31, 1995
Schedule II -- Valuation and Qualifying Accounts for the years ended December 31,
1995, 1994 and 1993 .................................................................. 48
</TABLE>
See Note 14 of Notes to Consolidated Financial Statements for the selected
quarterly financial data required to be presented in this Item.
24
<PAGE>
REPORT OF MANAGEMENT
The primary responsibility for the integrity of the Company'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 the Company's system provides the appropriate balance between such costs
and benefits.
Periodically the internal accounting system is reviewed by both the Company'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 the Company'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 William J. Post
Chairman of the Board of Directors, Executive Vice President
President and Chief Executive Officer
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Pinnacle West
Capital Corporation and its subsidiaries as of December 31, 1995 and 1994 and
the related consolidated statements of income, retained earnings and cash flows
for each of the three years in the period ended December 31, 1995. Our audits
also included the financial statement schedules listed in the Index at Item 8.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules 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, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
As discussed in Note 4 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 1, 1996
26
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Consolidated Statements of Income
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Revenues
Electric ............................................... $ 1,614,952 $ 1,626,168 $ 1,602,413
Real estate ............................................ 54,846 59,253 32,248
------------ ------------ ------------
Total ...................................... 1,669,798 1,685,421 1,634,661
------------ ------------ ------------
Fuel Expenses
Fuel for electric generation ........................... 208,928 237,103 231,434
Purchased power ........................................ 60,870 63,586 69,112
------------ ------------ ------------
Total ...................................... 269,798 300,689 300,546
------------ ------------ ------------
Operating Expenses
Utility operations and maintenance ..................... 400,814 411,921 401,216
Real estate operations ................................. 50,344 59,789 38,220
Depreciation and amortization .......................... 243,989 237,326 223,558
Taxes other than income taxes .......................... 142,429 141,926 138,468
------------ ------------ ------------
Total ...................................... 837,576 850,962 801,462
------------ ------------ ------------
Operating Income ......................................... 562,424 533,770 532,653
------------ ------------ ------------
Other Income (Deductions)
Allowance for equity funds used during construction .... 4,982 3,941 2,326
Palo Verde accretion income (Note 1) ................... -- 33,596 74,880
Interest on long-term debt ............................. (209,293) (229,810) (245,961)
Other interest ......................................... (16,975) (15,185) (16,505)
Allowance for borrowed funds used during construction .. 9,065 5,442 4,153
Preferred stock dividend requirements of APS ........... (19,134) (25,274) (30,840)
Other-- net ............................................ (3,496) 17,109 (2,282)
------------ ------------ ------------
Total ...................................... (234,851) (210,181) (214,229)
------------ ------------ ------------
Income Before Income Taxes, Extraordinary
Charge and Accounting Change ........................... 327,573 323,589 318,424
------------ ------------ ------------
Income Taxes (Note 4)
Income tax expense ..................................... 127,965 149,740 148,446
Non-recurring income tax benefit ....................... -- (26,770) --
------------ ------------ ------------
Total ...................................... 127,965 122,970 148,446
------------ ------------ ------------
Income Before Extraordinary Charge
and Accounting Change .................................. 199,608 200,619 169,978
Extraordinary Charge for Early Retirement of Debt -
Net of Income Tax of $7,834 ............................ (11,571) -- --
Cumulative Effect of Change in Accounting for
Income Taxes (Note 4) .................................. -- -- 19,252
------------ ------------ ------------
Net Income ............................................... $ 188,037 $ 200,619 $ 189,230
============ ============ ============
Average Common Shares Outstanding ........................ 87,419,300 87,410,967 87,241,899
Earnings Per Average Common Share Outstanding
Income before extraordinary charge and accounting change $ 2.28 $ 2.30 $ 1.95
Extraordinary charge ................................... (0.13) -- --
Accounting change ........................................ -- -- 0.22
------------ ------------ ------------
Total ...................................... $ 2.15 $ 2.30 $ 2.17
============ ============ ============
Dividends Declared Per Share ............................. $ 0.925 $ 0.825 $ 0.200
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
----------------
1995 1994
---- ----
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents ............................... $ 79,539 $ 34,719
Customer and other receivables -- net ................... 131,393 136,143
Accrued utility revenues (Note 1) ....................... 53,519 55,432
Materials and supplies (at average cost) ................ 78,271 89,864
Fossil fuel (at average cost) ........................... 21,722 35,735
Other current assets .................................... 19,671 15,422
Deferred income taxes (Note 4) .......................... 46,355 68,263
---------- ----------
Total current assets ..................... 430,470 435,578
---------- ----------
Investments and Other Assets
Real estate investments -- net .......................... 411,693 408,505
Other assets (Note 13) .................................. 151,127 150,589
---------- ----------
Total investments and other assets ...................... 562,820 559,094
---------- ----------
Utility Plant (Notes 6, 10 and 11)
Electric plant in service and held for future use ....... 6,544,860 6,475,249
Less accumulated depreciation and amortization .......... 2,231,614 2,122,439
---------- ----------
Total .................................... 4,313,246 4,352,810
Construction work in progress ........................... 281,757 224,312
Nuclear fuel, net of amortization of $68,275 and $80,599 52,084 46,951
---------- ----------
Net utility plant ........................ 4,647,087 4,624,073
---------- ----------
Deferred Debits
Regulatory asset for income taxes (Note 4) .............. 548,464 557,049
Palo Verde Unit 3 cost deferral (Note 1) ................ 283,426 292,586
Palo Verde Unit 2 cost deferral (Note 1) ................ 165,873 171,936
Other deferred debits ................................... 358,912 269,436
---------- ----------
Total deferred debits .................... 1,356,675 1,291,007
---------- ----------
Total Assets ................................................. $6,997,052 $6,909,752
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Consolidated Balance Sheets
(Thousands of Dollars)
December 31,
------------------
1995 1994
---- ----
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable .............................. $ 114,963 $ 126,842
Accrued taxes ................................. 95,962 89,144
Accrued interest .............................. 48,958 56,058
Short-term borrowings (Note 5) ................ 177,800 131,500
Current maturities of long-term debt (Note 6) . 8,780 78,512
Other current liabilities ..................... 58,030 48,792
---------- ----------
Total current liabilities ................ 504,493 530,848
---------- ----------
Long-term debt less current maturities (Note 6) .... 2,510,709 2,588,525
---------- ----------
Deferred Credits and Other
Deferred income taxes (Note 4) ................ 1,327,881 1,297,298
Deferred investment tax credit (Note 4) ....... 97,897 121,426
Unamortized gain -- sale of utility plant ..... 91,514 98,551
Other ......................................... 314,910 228,126
---------- ----------
Total deferred credits and other ........ 1,832,202 1,745,401
---------- ----------
Commitments and Contingencies (Note 12)
Minority Interests (Note 7)
Non-redeemable preferred stock of APS ......... 193,561 193,561
---------- ----------
Redeemable preferred stock of APS ............. 75,000 75,000
---------- ----------
Common Stock Equity (Note 8)
Common stock, no par value; authorized
150,000,000 shares; issued and outstanding
87,515,847 in 1995 and 87,429,642 in 1994 .... 1,638,684 1,641,196
Retained earnings ............................. 242,403 135,221
---------- ----------
Total common stock equity ................ 1,881,087 1,776,417
---------- ----------
Total Liabilities and Equity ....................... $6,997,052 $6,909,752
========== ==========
29
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Consolidated Statements of Cash Flows
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (Note 1)
Income before extraordinary charge
and accounting change ............................. $ 199,608 $ 200,619 $ 169,978
Items not requiring cash
Depreciation and amortization ..................... 276,288 271,654 258,562
Deferred income taxes-- net ....................... 61,076 78,841 139,725
Rate refund reversal .............................. -- (9,308) (21,374)
Palo Verde accretion income ....................... -- (33,596) (74,880)
Allowance for equity funds used during construction (4,982) (3,941) (2,326)
Deferred investment tax credit .................... (23,529) (5,905) (6,028)
Other-- net ....................................... 16,099 4,753 8,186
Changes in current assets and liabilities
Customer and other receivables-- net .............. 4,653 (7,693) 31,090
Accrued utility revenues .......................... 1,913 4,924 (8,839)
Materials, supplies and fossil fuel ............... 25,606 4,795 2,252
Other current assets .............................. (4,249) (1,640) (5,782)
Accounts payable .................................. (2,093) 25,068 (27,196)
Accrued taxes ..................................... 6,818 (7,159) (21,391)
Accrued interest .................................. (7,100) (1,616) (905)
Other current liabilities ......................... 3,714 (1,730) (18,408)
Increase in land held .................................. (4,660) (10,163) (7,894)
Other-- net ............................................ 6,700 (10,730) 34,292
--------- --------- ---------
Net Cash Flow Provided By Operating Activities ......... 555,862 497,173 449,062
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................... (295,772) (245,925) (228,465)
Allowance for borrowed funds used during construction .. (9,065) (5,442) (4,153)
Other-- net ............................................ 422 (1,773) 1,698
--------- --------- ---------
Net Cash Flow Used For Investing Activities ............ (304,415) (253,140) (230,920)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt ............................. 225,128 595,362 535,893
Issuance of preferred stock ............................ -- -- 72,644
Short-term borrowings-- net ............................ 46,300 (16,500) (47,000)
Dividends paid on common stock ......................... (80,855) (72,115) (17,466)
Repayment of long-term debt ............................ (383,117) (643,991) (711,241)
Redemption of preferred stock .......................... -- (124,096) (78,663)
Extraordinary charge for early retirement of debt ...... (11,571) -- --
Other-- net ............................................ (2,512) (101) (8,108)
--------- --------- ---------
Net Cash Flow Used For Financing Activities ............ (206,627) (261,441) (253,941)
--------- --------- ---------
Net Cash Flow .......................................... 44,820 (17,408) (35,799)
Cash and Cash Equivalents at Beginning of Year ......... 34,719 52,127 87,926
--------- --------- ---------
Cash and Cash Equivalents at End of Year ............... $ 79,539 $ 34,719 $ 52,127
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Consolidated Statements of Retained Earnings
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Retained Earnings (Deficit) at Beginning of Year $ 135,221 $ 6,717 $(165,047)
Net Income ..................................... 188,037 200,619 189,230
Common Stock Dividends ......................... (80,855) (72,115) (17,466)
--------- --------- ---------
Retained Earnings at End of Year ............... $ 242,403 $ 135,221 $ 6,717
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Consolidation and Nature of Operations
The consolidated financial statements include the accounts of Pinnacle West
and its subsidiaries: APS, SunCor, and El Dorado.
APS, the Company's major subsidiary, is the state's largest electric utility
serving approximately 705,000 customers in an area that includes all or part of
11 of Arizona's 15 counties. SunCor is a developer of residential, commercial
and industrial projects on some 14,000 acres predominantly in the metropolitan
Phoenix area, and El Dorado is a venture capital firm with a diversified
portfolio.
Accounting Records
The accounting records are maintained in accordance with generally accepted
accounting principles (GAAP). The preparation of financial statements in
accordance with GAAP requires the use of estimates by management. Actual results
could differ from those estimates.
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 "Palo Verde
Cost Deferrals" in this note) and deferred taxes (see Note 4). These items,
combined with miscellaneous regulatory assets and liabilities, amounted to
approximately $1.2 billion and $1.1 billion at December 31, 1995 and 1994,
respectively, most of which are included in "Deferred Debits" on the
Consolidated Balance Sheets.
APS' current regulatory orders and regulatory environment support the
recognition of regulatory assets. If rate recovery of these costs becomes
unlikely or uncertain, whether due to competition or regulatory action, APS may
no longer be able to apply the provisions of SFAS No. 71 to all or a part of its
operations.
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. See
Note 13 for information on a proposed accounting standard which impacts
accounting for removal costs.
Depreciation on utility property is recorded on a straight-line basis. The
applicable rates for 1993 through 1995 ranged from 1.77% to 15%, which resulted
in an annual composite rate of 3.44% for 1995. 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.
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 8.52% for 1995;
7.70% for 1994; and 7.20% for 1993. APS compounds AFUDC semiannually and ceases
to accrue AFUDC when construction is completed and the property is placed in
service.
32
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
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, a refund obligation of $53.4 million ($32.3 million after income
taxes) was recorded 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 amounted to $5.6 million in 1994 and $12.9 million
in 1993.
Palo Verde Accretion Income
In 1991, the carrying value of Palo Verde Unit 3 was discounted 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, accretion income was
recorded over a thirty-month period ended May 1994 in the aggregate amount of
the original discount. The after-tax accretion income recorded in 1994 and 1993
was $20.3 million and $45.3 million, respectively.
Palo Verde Cost Deferrals
As authorized by the ACC, operating costs (excluding fuel) and financing
costs of Palo Verde Units 2 and 3 were deferred 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.
Nuclear Fuel
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 is responsible for
the permanent disposal of spent nuclear fuel, and assesses $0.001 per kWh of
nuclear generation. This amount is charged to nuclear fuel expense. See Note 13
for information on nuclear decommissioning costs.
Income Taxes
The Company files 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 the parent company.
Reacquired Debt Costs
APS amortizes gains and losses on reacquired debt over the remaining life of
the original debt, consistent with ratemaking.
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 1995, 1994 and 1993 the Company paid interest, net of amounts
capitalized, of $216.8 million, $231.6 million and $243.9 million, respectively.
Income taxes paid were $77.4 million, $56.5 million and $45.3 million,
respectively; and dividends paid on preferred stock of APS were $19.1 million,
$26.2 million and $30.9 million, respectively.
33
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
Reclassifications
Certain prior year balances have been restated to conform to the 1995
presentation.
2. Accounting Matters
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which is effective in 1996. This statement requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss would be recognized if the sum of the estimated future
undiscounted cash flows to be generated by an asset is less than its carrying
value. The amount of the loss would be based on a comparison of book value to
fair value. The standard also amends SFAS No. 71 to require the write-off of a
regulatory asset if it is no longer probable that future revenues will recover
the cost of the asset. SFAS No. 121 does not have a material impact on financial
position or results of operations upon adoption.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective in 1996. This
statement establishes a fair-value based method of accounting for stock
compensation plans. The statement encourages but does not require companies to
recognize compensation expense based on the new fair value method. The Company
will not apply the recognition and measurement approach in SFAS No. 123 upon
adoption.
See Note 13 for a description of a proposed standard on accounting for
liabilities related to closure or removal of long-lived assets.
3. Regulatory Matters
1995 Regulatory Agreement
In December 1995, APS and the ACC Staff announced an agreement which
includes an economic proposal to be heard by the full ACC beginning on April 9,
1996. In recognition of evolving competition in the electric utility industry
and an ongoing investigation by the ACC Staff into industry restructuring in an
open competition docket involving many parties, the agreement also includes an
element setting out a number of issues which APS and the ACC Staff agree the ACC
should be requested to consider in developing restructuring policies.
Economic Proposal
The major provisions of the economic proposal are:
* An annual rate reduction of approximately $48 million ($29 million after
income taxes), or 3.25% on average, effective no earlier than July 1,
1996.
* Recovery of substantially all of APS' present regulatory assets through
accelerated amortization over an eight-year period beginning July 1,
1996, increasing annual amortization by approximately $120 million ($72
million after income taxes). See Note 1.
* A formula for sharing future cost savings between customers and
shareholders referencing an APS return on equity (as defined) of 11.25%.
* A moratorium on filing for permanent rate changes, except under the
sharing formula and under certain other limited circumstances, prior to
July 2, 1999.
* Infusion of $200 million of common equity into APS by the parent
company, in annual increments of $50 million starting in 1996.
34
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
Industry Restructuring
The issues listed by APS and the ACC Staff in the industry restructuring
element of their agreement include the legal nature of utilities' service rights
and responsibilities, including the obligation to serve in a restructured
environment; compensation for restructuring, taking into account (among other
matters) stranded investment; ACC jurisdiction over market entrants; reciprocity
of access among electricity providers; maintenance of system reliability; the
utility tax structure; and clarification of federal-state jurisdictional
uncertainties.
APS believes that, after a series of hearings on these and related issues in
the competition docket, the ACC could produce a set of regulatory and
legislative reforms for presentation to the appropriate bodies in 1997. Bills
for industry restructuring or studies thereof have already been introduced in
Congress and the Arizona legislature; the Arizona bill, which is supported by
APS, would establish a committee to study the issues and to report back to the
legislature by the end of 1997.
Assuming timely resolution of the issues and approval of the economic
proposal in the agreement, APS therein proposes (independently of the ACC Staff)
a plan whereby it would request the ACC to authorize access by retail customers
of Arizona public service corporations to the broad generation market starting
in the year 2000 for large customers, and thereafter in phased steps up to all
customers in about 2004. Other parties may submit other plans, and the ultimate
outcome is not predictable.
1994 Settlement Agreement
In May 1994, the ACC approved a retail rate settlement agreement which
provided for a net annual retail rate reduction of 2.2% on average, or
approximately $32 million ($19 million after income taxes), effective June 1,
1994. As part of the settlement, in 1994 APS reversed approximately $20 million
of depreciation ($15 million after income taxes) related to a 1991 Palo Verde
write-off. The 1994 rate settlement also provided for the accelerated
amortization of substantially all deferred ITCs over a five-year period
beginning in 1995.
4. Income Taxes
Investment Tax Credit
Beginning in 1995, substantially all of the unamortized ITCs are being
amortized over a five-year period in accordance with the 1994 rate settlement
agreement. Prior to 1995, ITCs were deferred and amortized to other income over
the estimated lives of the related assets as directed by the ACC.
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 in 1993, the Company adopted the liability method of accounting for
income taxes which requires that deferred income taxes be recorded for all
temporary differences between the tax bases of assets and liabilities and the
amounts recognized for financial reporting. The cumulative effect of the change
in accounting principle on prior years 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 the parent
company. In accordance with SFAS No. 71, APS established a regulatory asset for
certain temporary differences, primarily AFUDC equity, that is flowed through
for regulatory purposes. This regulatory asset is being amortized as the related
differences reverse.
35
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
Income Taxes
The components of income tax expense before extraordinary charge and
accounting change are as follows:
Year Ended December 31,
------------------------------
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
Current
Federal ............................ $ 77,869 $ 49,112 $ 43,065
State .............................. 1,081 922 816
--------- --------- ---------
Total current ........................... 78,950 50,034 43,881
Deferred ................................ 21,339 (10,012) 33,954
NOL and ITC carryforward utilized ....... 58,019 115,623 81,494
Change in valuation allowance ........... (6,814) -- --
Change in federal tax rate .............. -- -- (4,855)
Change in tax law ....................... -- (26,770) --
Investment tax credit amortization ...... (23,529) (5,905) (6,028)
--------- --------- ---------
Total expense ........................... $ 127,965 $ 122,970 $ 148,446
========= ========= =========
Income tax expense differed from the amount computed by multiplying income
before income taxes by the statutory federal income tax rate due to the
following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Federal income tax expense at statutory rate, 35% ..... $ 114,651 $ 113,256 $ 111,448
Increases (reductions) in tax expense resulting from:
Tax under book depreciation ...................... 18,186 17,236 17,671
Preferred stock dividends of APS ................. 6,697 8,846 10,794
ITC amortization ................................. (23,529) (5,905) (6,002)
State income tax net of federal income tax benefit 19,245 (5,983) 21,604
Change in federal tax rate ....................... -- -- (4,855)
Other ........................................ (7,285) (4,480) (2,214)
--------- --------- ---------
Income tax expense .................................... $ 127,965 $ 122,970 $ 148,446
========= ========= =========
</TABLE>
36
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
The components of the net deferred income tax liability at December 31 were as
follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------
(Thousands of Dollars)
<S> <C> <C>
Deferred tax assets
NOL and ITC carryforwards ................................... $ -- $ 72,139
Alternative minimum tax (can be carried forward indefinitely) 140,708 165,971
Deferred gain on Palo Verde Unit 2 sale/leaseback ........... 60,686 63,720
Other ....................................................... 110,094 124,498
Valuation allowance ......................................... (25,552) (58,431)
----------- -----------
Total deferred tax assets .............................. 285,936 367,897
----------- -----------
Deferred tax liabilities
Plant-related ............................................... 813,229 802,645
Income taxes recoverable through future rates -- net ........ 548,464 557,049
Palo Verde deferrals ........................................ 148,395 153,410
Other ....................................................... 57,374 83,828
----------- -----------
Total deferred tax liabilities ......................... 1,567,462 1,596,932
----------- -----------
Accumulated deferred income taxes -- net ...................... $ 1,281,526 $ 1,229,035
=========== ===========
</TABLE>
5. Lines of Credit
APS had committed lines of credit with various banks of $300 million at
December 31, 1995 and 1994, which were available either to support the issuance
of commercial paper or to be used for bank borrowings. The commitment fees at
December 31, 1995 and 1994 on $200 million of these lines were 0.15% and 0.20%
per annum, respectively, and on $100 million were 0.10% and 0.15% per annum,
respectively. APS had commercial paper borrowings outstanding of $177.8 million
at December 31, 1995 and $131.5 million at December 31, 1994. The weighted
average interest rate on commercial paper borrowings was 6.06% on December 31,
1995 and 6.25% on December 31, 1994. By Arizona statute, APS' short-term
borrowings cannot exceed 7% of its total capitalization without the consent of
the ACC.
The parent company had a revolving line of credit of $100 million at
December 31, 1995 and none at December 31, 1994. Interest is based on the London
Interbank Offered Rate (LIBOR) and the commitment fees on this line are 0.13%
per annum through December 14, 1996 and 0.18% thereafter. There was $100 million
outstanding under this line at December 31, 1995.
SunCor had revolving lines of credit totalling $40 million at December 31,
1995 and $24.5 million at December 31, 1994. Any borrowings are collateralized
by certain real property and bear interest based on the prime rate or on LIBOR.
The commitment fees on these lines were 0.5% and 0.2% per annum on $25 million
and $15 million, respectively. SunCor had $40 million and $18.5 million
outstanding under these lines at December 31, 1995 and 1994, respectively.
6. Long-Term Debt
Borrowings under the APS mortgage bond indenture are secured by
substantially all utility plant; SunCor's debt is collaterized by certain real
property; and Pinnacle West's debentures are secured by the common stock of APS.
Pinnacle West's bond debenture agreement includes provisions which restrict the
payment of common stock dividends (an additional $273 million could have been
declared as of December 31, 1995). Aggregate investments in its existing
subsidiaries (excluding APS) and aggregate new investments are also restricted.
The following table presents consolidated long-term debt outstanding:
37
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
December 31,
-----------------
Maturity Dates Interest Rates 1995 1994
-------------- -------------- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
APS
First mortgage bonds ........... 1997-2028 5.5%-13.25%(a) $1,604,317 $1,740,071
Pollution control indebtedness . 2024-2029 Adjustable(b) 433,280 418,824
Debentures (c) ................. 2025 10% 75,000 --
Capitalized lease obligation (d) 1995-2001 7.48% 22,936 26,365
---------- ----------
2,135,533 2,185,260
---------- ----------
SUNCOR
Mortgage bonds ................. 1996-2002 (e) 30,000 30,000
Notes payable .................. 1997-1998 (f) 3,545 3,450
Revolving credit ............... 1998-2001 LIBOR plus 2.50% to 2.75%(g) 40,000 18,500
---------- ----------
73,545 51,950
---------- ----------
PINNACLE WEST
Debentures ..................... 1995-2000 11.35%-11.61%(h) 210,411 385,411
Revolving credit ............... 2000 (i) 100,000 --
Bank term loans ................ 1996 (j) -- 44,416
---------- ----------
310,411 429,827
---------- ----------
Total long-term debt ........... 2,519,489 2,667,037
Less current maturities ........ 8,780 78,512
---------- ----------
Total long-term debt less
current maturities ........ $2,510,709 $2,588,525
========== ==========
</TABLE>
- - ----------
(a) The weighted-average rate at December 31, 1995 and 1994 was 7.79% and 8.04%,
respectively. The weighted-average years to maturity at December 31, 1995
and 1994 was 19 years.
(b) The weighted-average rates for the years ended December 31, 1995 and 1994
were 4.31% and 3.91%, respectively. Changes in short-term interest rates
would affect the costs associated with this debt.
(c) Junior subordinated deferrable interest debentures due in 2025, redeemable
at the option of APS as a whole or in part on or after January 31, 2000 at
par plus accrued interest.
(d) 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 10).
(e) The bonds have interest-only payments until March 1, 1996 and quarterly
principal repayments thereafter. Interest rates were LIBOR plus 2.3% and
LIBOR plus 3% for the years 1995 and 1994, respectively. The interest rate
at December 31, 1995 and 1994 was 8.175% and 9.00%, respectively.
(f) The 1995 balance is at 9.75% (prime rate plus 1.25%) at December 31, 1995.
The 1994 amount includes $2.0 million at 10.25%, and the balance varied with
the lender's prime rate.
(g) The weighted-average interest rate at December 31, 1995 and 1994 was 8.43%
and 8.47%, respectively.
(h) Includes $210.4 million and $310.4 million of 11.61% senior secured
debentures at December 31, 1995 and 1994, respectively, which are due in
2000 and are redeemable before then only at a premium determined by a
make-whole formula related to U.S. Treasury obligations. The balance in 1994
represents senior debentures with a weighted-average interest rate of
approximately 11.35%.
38
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
(i) The weighted average interest rate was 6.21% at December 31, 1995. Interest
is based on LIBOR plus 0.30% through December 15, 1996 and LIBOR plus 0.35%
thereafter.
(j) The weighted average interest rate was 7.71% at December 31, 1994.
In December 1995, the parent company prepaid at a premium $100 million of
its 11.61% debentures due December 2000, using funds from a revolving line of
credit (see Note 5). The prepayment yielded a penalty of $11.6 million after
income taxes, which has been reflected as an extraordinary charge in the
Consolidated Statements of Income.
Aggregate annual principal payments due on total long-term debt and for
sinking fund requirements through 2000 are as follows: 1996, $8.8 million; 1997,
$156.3 million; 1998, $131.8 million; 1999, $107.3 million; and 2000, $418.3
million. See Note 7 for redemption and sinking fund requirements of redeemable
preferred stock of APS.
7. 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. Preferred stock balances of APS are shown
below:
<TABLE>
<CAPTION>
Number of Shares Par Value
Outstanding at Outstanding at
December 31, December 31, Call
---------------- Par Value --------------- Price Per
Authorized 1995 1994 Per Share 1995 1994 Share (a)
---------- ---- ---- --------- ---- ---- ---------
(Thousands of Dollars)
<C> <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:
$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 ...................... 750,000 750,000 $ 75,000 $ 75,000
========= ========== ======== ========
</TABLE>
- - ----------
(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.
39
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
(d) Redeemable at par after December 1, 1998.
(e) Redeemable at $105.51 through May 31, 1996, and thereafter declining by a
predetermined amount each year to par after May 31, 2002.
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 1996 and $10.0 million in each of the
years 1997 through 2000.
Redeemable preferred stock transactions of APS during each of the three
years in the period ended December 31, 1995 are as follows:
Number Par
of Value
Shares Amount
------ ------
(Dollars in Thousands)
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
Retirements ....................................... -- --
--------- ----------
Balance, December 31, 1995 ........................ 750,000 $ 75,000
========= ==========
40
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
8. Common Stock
The Company's common stock issued during each of the three years in the
period ended December 31, 1995 is as follows:
Number
of
Shares Amount(a)
------ --------
(Dollars in Thousands)
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
Common stock issued ................ 86,205 (2,512)
---------- -----------
Balance, December 31, 1995 .............. 87,515,847 $ 1,638,684
========== ===========
- - ----------
(a) Including premiums and expenses of preferred stock issues of APS.
The Company 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. The plans also provided for the granting of any
combinations of stock appreciation rights or dividend equivalents. The awards
outstanding under the various plans at December 31, 1995 approximate 1,944,100
NQSOs, 300 ISOs, 251,433 restricted shares and 25,408 dividend equivalent
shares. The plans provide for the granting of new options on or awards of up to
3.5 million shares at a price not less than the fair market value on the date
the option is granted.
9. Pension Plans and Other Benefits
Pension Plans
The Company sponsors 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 funding policy is to contribute the net
periodic cost accrued each year. However, the contribution will not be less than
the minimum required contribution nor greater than the maximum tax-deductible
contribution. Plan assets consist primarily of domestic and international common
stocks and bonds and real estate. Pension cost, including administrative cost,
for 1995, 1994 and 1993 was approximately $21.6 million, $25.8 million and $14.3
million, respectively, of which approximately $10.0 million, $12.3 million and
$6.8 million, respectively, was charged to expense. The remainder was either
capitalized or billed to others.
The components of net periodic pension costs (excluding the costs of special
termination benefits of $1.4 million in 1994) are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost-- benefits earned during the period $ 16,390 $ 20,728 $ 17,051
Interest cost on projected benefit obligation .. 39,762 39,748 35,046
Return on plan assets .......................... (83,031) 6,053 (52,026)
Net amortization and deferral .................. 46,469 (44,283) 13,547
-------- -------- --------
Net consolidated periodic pension cost ......... $ 19,590 $ 22,246 $ 13,618
======== ======== ========
</TABLE>
41
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
A reconciliation of the funded status of the plan to the amounts recognized
in the balance sheets is presented below:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Thousands of Dollars)
<S> <C> <C>
Plan assets at fair value .................................. $ 474,583 $ 391,620
--------- ---------
Less:
Accumulated benefit obligation, including vested benefits of
$399,962 and $311,126 in 1995 and 1994, respectively .. 432,772 336,880
Effect of projected future compensation increases .......... 151,897 113,753
--------- ---------
Total projected benefit obligation ......................... 584,669 450,633
--------- ---------
Plan assets less than projected benefit obligation ......... (110,086) (59,013)
Plus:
Unrecognized net loss (gain) from past experience
different from that assumed ........................ 45,227 (9,900)
Unrecognized prior service cost ....................... 23,892 25,628
Unrecognized net transition asset ..................... (32,917) (36,143)
--------- ---------
Accrued pension liability .................................. $ (73,884) $ (79,428)
========= =========
Principal actuarial assumptions used were:
1995 1994
---- ----
Discount rate .............................................. 7.25% 8.75%
Rate of increase in compensation levels .................... 4.50% 5.00%
Expected long-term rate of return on assets ................ 9.00% 9.00%
</TABLE>
In addition to the defined benefit pension plans, the Company also sponsors
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 1995, 1994 and 1993 was $7.0 million, $7.0
million and $6.4 million, respectively, of which $3.2 million, $3.3 million and
$3.1 million, respectively, was charged to expense.
Postretirement Plans
The Company provides medical and life insurance benefits to its 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 non-contributory. In accordance with the
governing plan documents, the companies retain the right to change or eliminate
these benefits.
Funding is based upon actuarially determined contributions that take tax
consequences into account. Plan assets consist primarily of domestic stocks and
bonds. The postretirement benefit cost for 1995, 1994 and 1993 was approximately
$23 million, $28 million and $35 million, respectively, of which approximately
$14 million, $14 million and $17 million was charged to expense. The remainder
was either capitalized or billed to others.
42
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
The components of net periodic postretirement benefit costs are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost-- benefits earned during the period ........................ $ 6,925 $ 9,030 $ 9,710
Interest cost on accumulated benefit obligation ......................... 13,879 14,152 15,755
Return on plan assets ................................................... (15,133) (6,459) --
Net amortization and deferral ........................................... 17,179 11,680 9,212
-------- -------- --------
Net consolidated periodic postretirement benefit cost ................... $ 22,850 $ 28,403 $ 34,677
======== ======== ========
</TABLE>
A reconciliation of the funded status of the plan to the amounts recognized in
the balance sheets is presented below:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Thousands of Dollars)
<S> <C> <C>
Plan assets at fair value ............................................................ $ 81,309 $ 49,666
--------- ---------
Less accumulated postretirement benefit obligation:
Retirees ........................................................................ 90,616 65,712
Fully eligible plan participants ................................................ 15,659 9,219
Other active plan participants .................................................. 108,235 88,396
--------- ---------
Total accumulated postretirement benefit obligation .................................. 214,510 163,327
--------- ---------
Plan assets less than accumulated benefit obligation ................................. (133,201) (113,661)
Plus:
Unrecognized transition obligation .............................................. 156,599 165,811
Unrecognized net gain from past experience different from that assumed .......... (24,621) (53,012)
--------- ---------
Accrued postretirement liability ..................................................... $ (1,223) $ (862)
========= =========
Principal actuarial assumptions used were:
1995 1994
---- ----
Discount rate ........................................................................ 7.25% 8.75%
Annual salary increases for life insurance obligation ................................ 4.50% 5.00%
Expected long-term rate of return on assets -- after tax ............................ 7.64% 7.71%
Initial health care cost trend rate -- under age 65 .................................. 9.50% 11.50%
Initial health care cost trend rate -- age 65 and over ............................... 8.50% 8.50%
Ultimate health care cost trend rate (reached in the year 2002) ..................... 5.50% 5.50%
</TABLE>
Assuming a one percent increase in the health care cost trend rate, the 1995
cost of postretirement benefits other than pensions would increase by
approximately $4.5 million and the accumulated benefit obligation as of December
31, 1995 would increase by approximately $33.7 million.
10. 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 operat-
43
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
ing leases. The amounts to be paid each year approximate $40.1 million through
1999, $46.3 million in 2000, and $49.0 million through 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 $56.9 million at December
31, 1995) has been established for the difference between lease payments and
rent expense calculated on a straight-line basis. Lease expense for 1995, 1994
and 1993 was $41.7 million, $42.2 million and $41.8 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, 1995 was $42.4 million.
In addition, the Company leases certain land, buildings, equipment and
miscellaneous other items through operating rental agreements with varying
terms, provisions and expiration dates. Rent expense for 1995, 1994 and 1993 was
approximately $15.4 million, $21.3 million and $21.5 million, respectively.
Annual future minimum rental commitments, excluding the Palo Verde and combined
cycle leases, through 2000 are as follows: 1996, $15.5 million; 1997, $15.5
million; 1998, $15.5 million; 1999 $15.6 million and 2000, $15.7 million. Total
rental commitments after the year 2000 are estimated at $181 million.
11. Jointly-Owned Facilities
At December 31, 1995, 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.
<TABLE>
<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% $1,823,062 $ 477,569 $ 18,743
Palo Verde Nuclear Generating Station
Unit 2 (see Note 10) ........................... 17.0% 556,236 149,837 9,925
Four Corners Steam Generating Station
Units 4 and 5 .................................. 15.0% 142,449 54,349 1,208
Navajo Steam Generating Station
Units 1, 2 and 3 ............................... 14.0% 139,607 78,490 38,633
Cholla Steam Generating Station
Common Facilities(a) ........................... 62.8%(b) 70,761 35,900 734
TRANSMISSION FACILITIES
ANPP 500 KV system .................................. 35.8%(b) 62,607 16,589 1,106
Navajo Southern System .............................. 31.4%(b) 26,737 15,561 23
Palo Verde-- Yuma 500 KV System ..................... 23.9%(b) 11,375 3,483 9
Four Corners Switchyards ............................ 27.5%(b) 3,068 1,561 53
Phoenix-- Mead System ............................... 17.1%(b) -- -- 39,918
</TABLE>
- - ----------
(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.
44
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
12. Commitments and Contingencies
Litigation
The Company is party 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 the Company.
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 the rate of
tube degradation. The projected service life of the steam generators is
reassessed periodically in conjunction with inspections made during scheduled
outages at the Palo Verde units. APS' ongoing analyses indicate that it will be
economically desirable for APS to replace the Unit 2 steam generators, which
have been most affected by tube cracking, in five to ten years. APS expects that
the steam generator replacement can be accomplished within financial parameters
established before replacement was a consideration, and APS estimates that its
share of the replacement costs (in 1995 dollars and including installation and
replacement power costs) will be between $30 million and $50 million, most of
which will be incurred after the year 2000. APS expects that the replacement
would be performed in conjunction with a normal refueling outage in order to
limit incremental outage time to approximately 50 days. Based on the latest
available data, APS estimates that the Unit 1 and Unit 3 steam generators should
operate for the license periods (until 2025 and 2027, respectively), although
APS will continue its normal periodic assessment of these steam generators.
The Palo Verde participants have insurance for public liability payments
resulting from nuclear energy hazards to the full limit of liability under
federal law. This potential liability is covered by primary liability insurance
provided by commercial insurance carriers in the amount of $200 million and the
balance by an industry-wide retrospective assessment program. If losses at any
nuclear power plant covered by this program exceed the accumulated funds for
this program, APS could be assessed retrospective premium adjustments. The
maximum assessment per reactor under the program for each nuclear incident is
approximately $79 million, subject to an annual limit of $10 million per
incident. Based upon APS' 29.1% interest in the three Palo Verde units, APS'
maximum potential assessment per incident 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 $2.75 billion, a substantial portion of which must
first be applied to stabilization and decontamination. APS has also secured
insurance against portions of any increased cost of generation or purchased
power and business 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.
Construction Program
APS' total capital expenditures in 1996 are estimated at $246 million.
Fuel and Purchased Power Commitments
APS is a party to various fuel and purchased power contracts with terms
expiring from 1996 through 2020 that include required purchase provisions. APS
estimates its 1996 contract requirements to be approximately $99 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.
Additionally, APS is contractually obligated to reimburse certain coal
providers for amounts incurred for coal mine reclamation. APS' share of the
total obligation is estimated at $123 million. The portion of the coal mine
reclamation obligation which was recorded in 1995 on the Consolidated Balance
Sheets as "Deferred Credits -- Other" with a corresponding regulatory asset for
approximately $74 million relates to coal already burned.
45
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
13. Nuclear Decommissioning Costs
In 1995, APS recorded $11.7 million for decommissioning expense. APS
estimates it will cost approximately $2.0 billion ($421 million in 1995
dollars), over a fourteen year period beginning in 2024, to decommission its
29.1% interest in Palo Verde. Decommissioning costs are charged to expense over
the respective unit's operating license term and are included in the accumulated
depreciation balance until each unit is retired. Nuclear decommissioning costs
are currently recovered in rates.
APS is utilizing a 1995 site-specific study for Palo Verde, prepared for APS
by an independent consultant, that assumes the prompt removal/dismantlement
method of decommissioning. APS is required to update the study every three
years.
As required by regulation, APS has established external trust accounts into
which quarterly deposits are made for decommissioning. As of December 31, 1995,
APS had deposited a total of $56.7 million. The trust accounts are included in
"Investments and Other Assets" on the Consolidated Balance Sheets at a market
value of $74.5 million on December 31, 1995. The trust funds are invested
primarily in fixed-income securities and domestic stock and are classified as
available for sale. Realized and unrealized gains and losses are reflected in
accumulated depreciation.
In 1994, FASB added a project to its agenda on accounting for nuclear
decommissioning obligations. FASB recently issued an exposure draft on
"Accounting for Certain Liabilities Related to Closure or Removal of Long-lived
Assets" (formerly Nuclear Decommissioning) which would require the estimated
present value of the cost of decommissioning and certain other removal cost to
be recorded as a liability, along with an offsetting plant asset when a
decommissioning or other removal obligation is incurred. FASB has requested
comments on its proposed statement. The expected effective date is 1997. APS is
unable at this time to determine what impact the final statement may have on its
financial position or results of operation.
14. Selected Quarterly Financial Data (Unaudited)
Consolidated quarterly financial information for 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1995
---------------------------------------------------------
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 ..................................................... $ 336,968 $ 380,178 $ 549,082 $ 348,724
Real estate .................................................. 9,146 13,018 9,709 22,973
Operating Income (a) .............................................. $ 95,699 $ 127,174 $ 261,048 $ 78,503
Income before extraordinary charge ................................ $ 24,623 $ 42,249 $ 114,495 $ 18,241
Extraordinary charge for early retirement of
debt-- net of income tax ..................................... -- -- -- (11,571)
--------- --------- --------- ---------
Net Income ........................................................ $ 24,623 $ 42,249 $ 114,495 $ 6,670
========= ========= ========= =========
Earnings per average share of common stock outstanding
Income before extraordinary charge ........................... $ 0.28 $ 0.48 $ 1.31 $ 0.21
Extraordinary charge ......................................... -- -- -- (0.13)
--------- --------- --------- ---------
Total ........................................................ $ 0.28 $ 0.48 $ 1.31 $ 0.08
========= ========= ========= =========
Dividends declared per share ...................................... $ 0.225 $ 0.225 $ 0.225 $ 0.25
========= ========= ========= =========
</TABLE>
46
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
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 .......................................... $346,049 $ 397,156 $540,883 $342,080
Real estate ....................................... 9,424 15,436 13,473 20,920
Operating Income (a) ................................... $ 88,470 $ 117,329 $245,436 $ 82,535
Net Income (b) ......................................... $ 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
======== ========= ======== ========
</TABLE>
- - ----------
(a) 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.
(b) Net income for the quarter ended December 31, 1994 includes $26.8 million
($0.31 per share) of non-recurring income tax benefits related to a change
in income tax law.
15. Fair Value of Financial Instruments
The Company estimates that the carrying amounts of its cash equivalents and
commercial paper are reasonable estimates of their fair values at December 31,
1995 and 1994 due to their short maturities.
Investments in debt and equity securities are held for purposes other than
trading. The December 31, 1995 and 1994 fair values of such investments,
determined by using quoted market values or by discounting cash flows at rates
equal to the Company's cost of capital, approximate their carrying amounts. It
was not practical to estimate the fair value 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 $22.8 million and
$40.6 million at year-end 1995 and 1994, respectively.
The carrying value of long-term debt (excluding a capitalized lease
obligation) on December 31, 1995 and 1994 was $2.50 billion and $2.64 billion,
respectively, and the estimated fair value was $2.52 billion and $2.49 billion,
respectively. The fair value estimates are based on quoted market prices of the
same or similar issues.
47
<PAGE>
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, 1995
Real Estate Valuation Reserves $84,000 $ -- $ -- $ 37,000(a) $47,000
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
</TABLE>
(a) Represents pro-rata allocations for sale of land.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
48
<PAGE>
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 22, 1996 (the "1996 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 fourth and fifth paragraphs under the heading
"The Board and its Committees," and to "Executive Compensation" in the 1996
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is hereby made to "Certain Securities Ownership" in the 1996 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the last paragraph under the heading "The Board
and its Committees" in the 1996 Proxy Statement.
49
<PAGE>
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
- - ---- --------------------------------------------------------------------------
3.1 -- Bylaws, amended as of February 21, 1996
10.1(a) -- Summary of the Pinnacle West Capital Corporation 1996 Bonus
Plan
10.2(a) -- First Amendment to Employment Agreement, effective as of
March 31, 1995, between
Richard Snell and the Company
22 -- Subsidiaries of the Company
23.1 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule
In addition to those Exhibits shown above, the Company hereby incorporates
the following Exhibits pursuant to Exchange Act Rule 12b-32 and Regulation
201.24 by reference to the filings set forth below:
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------- ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
3.2 Articles of Incorporation, 19.1 to the Company's 1-8962 11-14-88
restated as of July 29, 1988 September 1988 Form
10-Q Report
3.3 Agreement, dated March 21, 4.1 to APS' 1993 Form 1-4473 3-30-94
1994, relating to the filing of 10-K Report
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 4.1 to APS' September 1992 1-4473 11-9-92
Relating to APS' First Form 10-Q Report
Mortgage Bonds, together with
forty-eight indentures
supplemental thereto
Forty-ninth Supplemental 4.1 to APS' 1992 Form 1-4473 3-30-93
Indenture 10-K Report
Fiftieth Supplemental 4.2 to APS' 1993 Form 1-4473 3-30-94
Indenture 10-K Report
Fifty-first Supplemental 4.1 to APS' August 1, 1993 1-4473 9-27-93
Indenture Form 8-K Report
Fifty-second Supplemental 4.1 to APS' September 30, 1-4473 11-15-93
Indenture 1993 Form 10-Q Report
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------- ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
Fifty-third Supplemental 4.5 to APS' Registration 1-4473 3-1-94
Indenture Statement No. 33-61228 by
means of February 23, 1994
Form 8-K Report
4.2 Indenture dated as of January 4.6 to APS' Registration 1-4473 1-11-95
1, 1995 among APS and The Bank Statement Nos. 33-61228 and
of New York, as Trustee 33-55473 by means of January
1, 1995 Form 8-K Report
4.3 Agreement of Resignation, 4.1 to APS' September 25, 1-4473 10-24-95
Appointment, Acceptance and 1995 Form 8-K Report
Assignment dated as of August
18, 1995 by and among APS, Bank
of America National Trust and
Savings Association and The
Bank of New York
4.4 Portions of the Debenture 4.1 to the Company's 1989 1-8962 3-31-90
Agreement, dated as of March Form 10-K Report
22, 1990, among the 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
4.5 Rights Agreement, amended as of 4.1 to the Company's 1990 1-8962 3-28-91
November 14, 1990, between the Form 10-K Report
Company and The 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
4.6 Specimen Certificate of 4.2 to the Company's 1988 1-8962 3-31-89
Pinnacle West Capital Form 10-K Report
Corporation Common Stock, no
par value
4.7 Agreement, dated March 29, 4.1 to the Company's 1987 1-8962 3-30-88
1988, relating to the filing Form 10-K Report
of instruments defining the
rights of holders of long-term
debt not in excess of 10% of
the Company's total assets
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------ ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
10.4 Agreement, dated December 6, 4.1 to the Company's 1-8962 12-7-89
1989, between the December 6, 1989
Company and the Office of Form 8-K Report
Thrift Supervision, United
States Department of
Treasury, and related
documents
10.5 Release from the Office of 10.1 to the Company's 1-8962 3-31-89
Thrift Supervision, United 1989 Form 10-K Report
States Department of Report
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
10.6 Release from the Federal 10.2 to the Company's 1-8962 3-31-89
Deposit Insurance Corporation 1989 Form 10-K Report
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
10.7 Release from the Resolution 10.3 to the Company's 1-8962 3-31-89
Trust Corporation (in its 1989 Form 10-K Report
corporate capacity) 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
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------ ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
10.8 Release from the Resolution Trust 10.4 to the Company's 1989
Corporation (in its capacity as Form 10-K Report 1-8962 3-31-89
Receiver 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
10.9(ac) Form of Key Executive 10.5 to the Company's 1989 1-8962 3-31-89
Employment and Severance Form 10-K Report
Agreement between the Company
and each of its executive
officers
10.10(a) Employment Agreement, 10.1 to the Company's 1990 2-96386 3-28-91
effective as of February 5, Form 10-K Report
1990, between Richard Snell
and the Company
10.11 Two separate Decommissioning 10.2 to APS' September 1991 1-4473 11-14-91
Trust Agreements (relating to Form 10-Q Report
PVNGS Units 1 and 3,
respectively), each dated
July 1, 1991,
between APS and
Mellon Bank, N.A., as
Decommissioning Trustee
10.12 Amendment No. 1 to 10.1 to APS' 1994 Form 10-K 1-4473 3-30-95
Decommissioning Trust Report
Agreement (PVNGS Unit 1),
dated as of December 1, 1994
10.13 Amendment No. 1 to 10.2 to APS' 1994 Form 10-K 1-4473 3-30-95
Decommissioning Trust Report
Agreement (PVNGS Unit 3),
dated as of December 1, 1994
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------ ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
10.14 Amended and Restated 10.1 to the Company's 1991
Decommissioning Trust Form 10-K Report 1-8962 3-26-92
Agreement (PVNGS Unit
2) dated as of January 31,
1992, among APS, Mellon
Bank, N.A., as Decommissioning
Trustee, and State Street Bank
and Trust Company, as Successor
to 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
10.15 First Amendment to Amended and 10.2 to APS' 1992 Form 10-K 1-4473 3-30-93
Restated Decommissioning Trust Report
Agreement (PVNGS Unit 2),
dated as of November 1, 1992
10.16 Amendment No. 2 to Amended and 10.2 to APS' 1994 Form 10-K 1-4473 3-30-95
Restated Decommissioning Trust Report
Agreement (PVNGS Unit 2),
dated as of November 1, 1994
10.17 Asset Purchase and Power 10.1 to APS' June 1991 Form 1-4473 8-8-91
Exchange Agreement dated 10-Q Report
September 21, 1990 between APS
and PacifiCorp, as amended as
of October 11, 1990 and as of
July 18, 1991
10.18 Long-Term Power Transactions 10.2 to APS' June 1991 Form 1-4473 8-8-91
Agreement dated September 21, 10-Q Report
1990 between APS and PacifiCorp,
as amended as of
October 11, 1990, and as of
July 8, 1991
10.19 Amendment No. 1 dated April 5, 10.3 to APS' 1995 Form 10-K 1-4473 3-29-96
1995 to the Long-Term Power Report
Transaction Agreement and
Asset Purchase and Power
Exchange Agreement between
PacifiCorp and APS
10.20 Restated Transmission 10.4 to APS' 1995 Form 10-K 1-4473 3-29-96
Agreement between PacifiCorp Report
and APS dated April 5, 1995
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------- ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
10.21 Contract among PacifiCorp, APS 10.5 to APS' 1995 Form 10-K 1-4473 3-29-96
and United States Department of Report
Energy Western Area Power
Administration, Salt Lake Area
Integrated Projects for Firm
Transmission Service dated May
5, 1995
10.22 Reciprocal Transmission Service 10.6 to APS' 1995 Form 10-K 1-4473 3-29-96
Agreement between APS and Report
PacifiCorp dated as of March 2,
1994
10.23 Contract, dated July 21, 1984, 10.31 to the Company's 2-96386 3-13-85
with DOE providing for the Form S-14 Registration
disposal of nuclear fuel and/or Statement
high-level radioactive waste,
ANPP
10.24 Indenture of Lease with 5.01 to APS' Form S-7 2-59644 9-1-77
Navajo Tribe of Indians, Four Registration Statement
Corners Plant
10.25 Supplemental and Additional 5.02 to APS' Form S-7 2-59644 9-1-77
Indenture of Lease, including Registration Statement
amendments and supplements to
original lease with Navajo
Tribe of Indians, Four Corners
Plant
10.26 Amendment and Supplement No. 1 10.36 to the Company's 1-8962 7-25-85
to Supplemental and Additional Registration Statement on
Indenture of Lease, Four Form 8-B Report
Corners, dated April 25, 1985
10.27 Application and Grant of 5.04 to APS' Form S-7
multi-party rights-of-way and Registration Statement 2-59644 9-1-77
easements, Four Corners Plant
Site
10.28 Application and Amendment No. 1 10.37 to the Company's 1-8962 7-25-85
to Grant of multi-party Registration Statement on
rights-of-way and easements, Form 8-B
Four Corners Power Plant Site,
dated April 25, 1985
10.29 Application and Grant of 5.05 to APS' Form S-7 2-59644 9-1-77
Arizona Public Service Registration Statement
Company rights-of-way and
easements, Four Corners Plant
Site
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ----------------------------- ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
10.30 Application and Amendment No. 10.38 to the Company's 1-8962 7-25-85
1 to Grant of Arizona Public Registration Statement on
Service Company rights-of-way Form 8-B
and easements, Four Corners
Power Plant Site, dated April
25, 1985
10.31 Indenture of Lease, Navajo 5(g) to APS' Form S-7 2-36505 3-23-70
Units 1, 2, and 3 Registration Statement
10.32 Application and Grant of 5(h) to APS' Form S-7
rights-of-way and easements, Registration Statement 2-36505 3-23-70
Navajo Plant
10.33 Water Service Contract 5(l) to APS' Form S-7
Assignment with the United Registration Statement 2-394442 3-16-71
States Department of
Interior, Bureau of
Reclamation, Navajo Plant
10.34 Arizona Nuclear Power 10.1 to APS' 1988 1-4473 3-8-89
Project Participation Form 10-K
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
10.35 Amendment No. 13, dated as of 10.1 to APS' March 1991 1-4473 5-15-91
April 22, 1991, to Arizona Form 10-Q
Nuclear Power Project
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
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- --------------------------- ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
10.36(b) Facility Lease, dated as of 4.3 to APS' Form S-3 33-9480 10-24-86
August 1, 1986, between Registration Statement
State Street Bank and Trust
Company, as successor to
the First National Bank of
Boston, in its capacity as
Owner Trustee, as Lessor,
and APS, as Lessee
10.37(b) Amendment No. 1, dated as 10.5 to APS' September 1-4473 12-4-86
of November 1, 1986, to 1986 Form 10-Q Report by
Facility Lease, dated as of means of Amendment
August 1, 1986, between No. 1 on December 3, 1986
State Street Bank and Trust Form 8
Company, as successor to
The First National Bank of
Boston, in its capacity as
Owner Trustee, as Lessor,
and APS, as Lessee
10.38(b) Amendment No. 2 dated as of 10.3 to APS' 1988 Form 1-4473 3-8-89
June 1, 1987 to Facility 10-K Report
Lease dated as of August 1,
1986 between State Street
Bank and Trust Company, as
successor to The First
National Bank of Boston, as
Lessor, and APS, as Lessee
10.39(b) Amendment No. 3, dated as 10.3 to APS' 1992 Form 1-4473 3-30-93
of March 17, 1993, to 10-K Report
Facility Lease, dated as of
August 1, 1986, between
State Street Bank and Trust
Company, as successor to
The First National Bank of
Boston, as Lessor, and APS,
as Lessee
10.40 Facility Lease, dated as of 10.1 to APS' November 18, 1-4473 1-20-87
December 15, 1986, between 1986 Form 8-K Report
State Street Bank and Trust
Company, as successor to
The First National Bank of
Boston, in its capacity as
Owner Trustee, as Lessor,
and APS, as Lessee
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
- - ------------- ------------------------------ ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
10.41 Amendment No. 1, dated as of 4.13 to APS' Form S-3 1-4473 8-24-87
August 1, 1987, to Facility Registration Statement No.
Lease, dated as of December 33-9480 by means of
15, 1986, between State Street August 1, 1987 Form 8-K
Bank and Trust Company, as Report
successor to the First
National Bank of Boston, as
Lessor, and APS, as Lessee
10.42 Amendment No. 2, dated as of 10.4 to APS' 1992 Form 1-4473 3-30-93
March 17, 1993, to 10-K Report
Facility Lease, dated as of
December 15, 1986, between
State Street Bank and Trust
Company, as successor to The
First National Bank of
Boston, as Lessor, and APS, as
Lessee
10.43(a) Directors' Deferred 10.1 to APS' June 1986 1-4473 8-13-86
Compensation Plan, as Form 10-Q Report
restated, effective January 1,
1986
10.44(a) Second Amendment to the 10.2 to APS' 1993 Form 1-4473 3-30-94
Arizona Public Service 10-K Report
Company Deferred Compensation
Plan, effective as of January
1, 1993
10.45(a) Third Amendment to the 10.1 to APS' September 1-4473 11-10-94
Arizona Public Service 1994 Form 10-Q
Company Directors' Deferred
Compensation Plan, effective
as of May 1, 1993
10.46(a) Arizona Public Service 10.4 to APS' 1988 Form 1-4473 3-8-89
Company Deferred Compensation 10-K Report
Plan, as restated, effective
January 1, 1984, and the
second and third amendments
thereto, dated December 22,
1986, and December 23, 1987,
respectively
10.47 Third Amendment to the 10.3 to APS' 1993 Form 1-4473 3-30-94
Arizona Public Service 10-K Report
Company Deferred Compensation
Plan, effective as of January
1, 1993
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ---------------------------- ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
10.48(a) Fourth Amendment to the 10.2 to APS' September 1-4473 11-10-94
Arizona Public Service 1994 Form 10-Q Report
Company deferred
Compensation Plan
10.49(a) Pinnacle West Capital 10.7 to APS' 1994 Form 1-4473 3-30-95
Corporation and Arizona 10-K Report
Public Service Company
Directors' Retirement Plan,
effective as of January 1,
1995
10.50(a) Letter Agreement dated 10.7 to APS' 1994 Form 1-4473 3-30-95
December 21, 1993, between 10-K Report
APS and William L. Stewart
10.51(a) Agreement for Utility 10.6 to APS' 1988 Form 1-4473 3-8-89
Consulting Services, dated 10-K Report
March 1, 1985, between APS
and Thomas G. Woods, Jr.,
and Amendment No. 1 thereto,
dated January 6, 1986
10.52(a) Letter Agreement, dated 10.7 to APS' 1988 Form 1-4473 3-8-89
April 3, 1978, between APS 10-K Report
and O. Mark De Michele,
regarding certain retirement
benefits granted to Mr.
De Michele
10.53(a) Letter Agreement dated July 10.1 to APS' September 1995 1-4473 11-14-95
28, 1995, between APS and 10-Q Report
Jaron B. Norberg regarding
certain of Mr. Norberg's
retirement benefits.
10.54(a) Letter Agreement dated as of 10.7 to APS' 1995 Form 10-K 1-4473 3-29-96
January 1, 1996 between APS Report
and Kenneth M. Carr for
consulting services
10.56(a) Letter Agreement dated as of 10.8 to APS' 1995 Form 10-K 1-4473 3-29-96
January 1, 1996 between APS Report
and Robert G. Mattock &
Associates, Inc. for
consulting services
10.56(ac) Key Executive Employment and 10.3 to APS' 1989 Form 1-4473 3-8-90
Severance Agreement between 10-K Report
APS and certain executive
officers of APS
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------- ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
10.57(ac) Revised Form of Key Executive 10.5 to APS' 1993 Form 1-4473 3-30-94
Employment and 10-K Report
Severance Agreement
between APS and certain
executive officers of APS
10.58(ac) Second revised form of Key 10.9 to APS' 1994 Form 1-4473 3-30-95
Executive Employment and 10-K Report
Severance Agreement
between APS and certain
executive officers of APS
10.59(ac) Key Executive Employment and 10.4 to APS' 1989 Form 1-4473 3-8-90
Severance Agreement between APS10-K Report
and certain
managers of APS
10.60(ac) Revised form of Key Executive 10.4 to APS' 1993 Form 1-4473 3-30-94
Employment and 10-K Report
Severance Agreement
between APS and certain key
employees of APS
10.61(ac) Second revised Form of Key 10.8 to APS' 1994 Form 1-4473 3-30-95
Executive Employment and 10-K Report
Severance Agreement
between APS and certain key
employees of APS
10.62(a) 1996 APS Senior Management 10.1 to APS' 1995 Form 1-4473 3-29-96
Variable Pay Plan 10-K Report
10.63(a) 1996 APS Officers Variable Pay 10.2 to APS' 1995 Form 1-4473 3-29-96
Plan 10-K Report
10.64(a) Arizona Public Service 10.5 to APS' 1989 Form 1-4473 3-8-90
Company Performance 10-K Report
Review Severance Pay Plan,
effective January 1, 1990
10.65(a) Arizona Public Service 10.1 to APS' September 30, 1-4473 11-15-93
Company Severance Plan, as 1993 Form 10-Q Report
adopted on June 22, 1993
10.66(a) First Amendment to the Arizona 10.9 to APS' 1995 Form 10-K 1-4473 3-29-96
Public Service Company Report
Severance Plan, as adopted on
August 19, 1994
10.67(a) Pinnacle West Capital 10.1 to APS' 1992 Form 1-4473 3-30-93
Corporation Stock Option and 10-K Report
Incentive Plan
10.68(a) Pinnacle West Capital A to the Proxy Statement for 1-8962 4-16-94
Corporation 1994 Long-Term the Company's 1994 Annual
Incentive Plan, effective as Meeting of Shareholders
of March 23, 1994
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------ ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
10.69(a) Pinnacle West Capital B to the Proxy Statement for 1-8962 4-16-94
Corporation Director Equity the Company's 1994 Annual
Participation Plan Meeting of Shareholders
10.70(a) Pinnacle West Capital 10.10 to APS' 1995 Form 1-4473 3-29-96
Corporation, Arizona Public 10-K Report
Service Company, SunCor
Development Company, and El
Dorado Investment
Company Deferred Compensation
Plan, as amended and restated
effective January 1, 1996
10.71(a) Pinnacle West Capital 10.7 to APS' 1993 Form 1-4473 3-30-94
Corporation, Arizona Public 10-K Report
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
10.72(a) Arizona Public Service 10.11 to APS' 1995 Form 1-4473 3-29-96
Company Supplemental 10-K Report
Excess Benefit Retirement
Plan, as amended and restated
on December 20, 1995
10.73 Agreement No. 13904 10.3 to APS' 1991 Form 1-4473 3-19-92
(Option and Purchase of 10-K Report
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
10.74 Agreement for the Sale and 10.4 to APS' 1991 Form 1-4473 3-19-92
Purchase of Wastewater 10-K Report
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
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------ ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
99.1 Collateral Trust Indenture 4.2 to APS' 1992 Form 1-4473 3-30-93
among PVNGS II Funding Corp., 10-K Report
Inc., APS and Chemical Bank,
as Trustee
99.2 Supplemental Indenture to 4.3 to APS' 1992 Form 1-4473 3-30-93
Collateral Trust Indenture 10-K Report
among PVNGS II Funding Corp.,
Inc., APS and
Chemical Bank, as Trustee
99.3(b) Participation Agreement, dated 28.1 to APS' September 1992 1-4473 11-9-92
as of August 1, 1986, among Form 10-Q Report
PVNGS Funding
Corp., Inc., Bank of America
National Trust and Savings
Association, State Street Bank
and Trust Company, as
successor to 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
99.4(b) Amendment No. 1 dated as of 10.8 to APS' September 1986 1-4473 12-4-86
November 1, 1986, to Form 10-Q Report by means of
Participation Agreement, dated Amendment No. 1, on December
as of August 1, 1986, among 3, 1986 Form 8
PVNGS Funding Corp., Inc.,
Bank of America National Trust
and Savings Association, State
Street Bank and Trust Company, as
successor to 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
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------ ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
99.5(b) Amendment No. 2, dated as of 28.4 to APS' 1992 Form 1-4473 3-30-93
March 17, 1993, to 10-K Report
Participation Agreement, dated
as of August 1, 1986, among
PVNGS funding corp., inc.,
PVNGS II Funding Corp., Inc.,
State Street Bank and Trust
Company, as successor to 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
99.6(b) Trust Indenture, Mortgage, 4.5 to APS' Form S-3 33-9480 10-24-86
Security Agreement and Registration Statement
Assignment of Facility Lease,
dated as of August 1, 1986,
between State Street Bank and
Trust Company, as successor to
The First National Bank of
Boston, as Owner Trustee, and
Chemical Bank, as
Indenture Trustee
99.7(b) Supplemental Indenture No. 1, 10.6 to APS' September 1-4473 12-4-86
dated as of November 1, 1986 1986 Form 10-Q Report by
to Trust Indenture, Mortgage, means of Amendment No. 1
Security Agreement and on December 3, 1986
Assignment of Facility Lease, Form 8
dated as of August 1, 1986,
between State Street Bank and
Trust Company, as successor to
The First National Bank of
Boston, as
Owner Trustee, and
Chemcial Bank, as
Indenture Trustee
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------ ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
99.8(b) Supplemental Indenture No. 2 28.14 to APS' 1992 1-4473 3-30-93
to Trust Indenture, Form 10-K Report
Mortgage, Security
Agreement and Assignment of
Facility Lease, dated as of
August 1, 1986, between state
Street Bank and Trust Company,
as successor to the First
National Bank of
Boston, as Owner Trustee, and
Chemical Bank, as Lease
Indenture Trustee
99.9(b) Assignment, Assumption and 28.3 to APS' Form S-3 33-9480 10-24-86
Further Agreement, dated as of Registration Statement
August 1, 1986, between APS
and State Street Bank and
Trust Company, as successor to
The First National Bank of
Boston, as Owner Trustee
99.10(b) Amendment No. 1, dated as of 10.10 to APS' September 1-4473 12-4-86
November 1, 1986, to 1986 Form 10-Q Report by
Assignment, Assumption and means of Amendment
Further Agreement, dated as of No. 1 on December 3, 1986
August 1, 1986, between APS Form 8
and State Street Bank and
Trust Company, as successor to
The First National Bank of
Boston, as Owner Trustee
99.11(b) Amendment No. 2, dated as of 28.6 to APS' 1992 Form 1-4473 3-30-93
March 17, 1993, to 10-K Report
Assignment, Assumption and
Further Agreement, dated as of
August 1, 1986, between APS
and State Street Bank and
Trust Company, as successor to
The First National Bank of
Boston, as Owner Trustee
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------ ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
99.12 Participation Agreement, dated 28.2 to APS' September 1992 1-4473 11-9-92
as of December 15, 1986, among Form 10-Q Report
PVNGS Funding Report Corp.,
inc., State Street Bank and
Trust Company, as successor
to 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 28.20 to APS' Form S-3 1-4473 8-10-87
August 1, 1987, to Registration Statement No.
Participation Agreement, dated 33-9480 by means of a
as of December 15, 1986, among November 6, 1986 Form
PVNGS Funding Corp., Inc. as 8-K Report
Funding Corporation, State
Street Bank and Trust Company,
as successor to 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 28.5 to APS' 1992 Form 1-4473 3-30-93
March 17, 1993, to 10-K Report
Participation Agreement, dated
as of December 15, 1986, among
PVNGS Funding Corp., Inc.,
PVNGS II Funding Corp., Inc.,
State Street Bank and Trust
Company, as successor to 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
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ------------------------------ ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
99.15 Trust Indenture, Mortgage, 10.2 To APS' November 18, 1-4473 1-20-87
Security Agreement and 1986 Form 10-K Report
Assignment of Facility
Lease, dated as of
December 15, 1986,
between State Street Bank
and Trust Company,
as Successor to The First
National Bank of Boston, as
Owner Trustee, and Chemical
Bank, as Indenture Trustee
99.16 Supplemental Indenture No. 1, 4.13 to APS' Form S-3 1-4473 8-24-87
dated as of August 1, 1987, to Registration Statement No.
Trust Indenture, Mortgage, 33-9480 by means of
Security August 1, 1987 Form 8-K
Agreement and Assignment of Report
Facility Lease, dated as of
December 15, 1986, between
State Street Bank and Trust
Company, as successor to The
First National Bank of
Boston, as Owner Trustee,
and Chemical
Bank, as Indenture Trustee
99.17 Supplemental Indenture No. 2 4.5 to APS' 1992 Form 1-4473 3-30-93
to Trust Indenture, 10-K Report
Mortgage, Security Agreement
and Assignment of Facility
Lease, dated as of December
15, 1986, between State Street
Bank and Trust Company, as
successor to The First
National Bank of Boston, as
Owner Trustee, and Chemical
Bank, as Lease Indenture
Trustee
99.18 Assignment, Assumption and 10.5 to APS' November 18, 1-4473 1-20-87
Further Agreement, dated as of 1986 Form 8-K Report
December 15, 1986, between APS
and State Street Bank and
Trust Company, as successor to
The First National Bank of
Boston, as Owner Trustee
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
- - ------------- ----------------------------- ---------------------------- ---------- --------------
<S> <C> <C> <C> <C>
99.19 Amendment No. 1, dated as of 28.7 TO APS' 1992 Form 10-K 1-4473 3-30-93
March 17, 1993, to Report
Assignment, Assumption and
Further Agreement, dated as
of December 15, 1986,
between APS and State Street
Bank and Trust Company, as
successor to the First
National Bank of Boston, as
Owner Trustee
99.20b Indemnity Agreement dated as 28.3 to APS' 1992 Form 10-K 1-4473 3-30-93
of March 17, 1993 by APS Report
99.21 Extension Letter, dated as 28.20 to APS' Form S-3 1-4473 8-10-87
of August 13, 1987, from the Registration Statement No.
signatories of the 33-9480 by means of a
Participation Agreement to November 6, 1986 Form
Chemical Bank 8-K Report
99.22 Pledge Agreement dated as of 28.1 to APS' January 21, 1-4473 2-15-90
January 31, 1990, between 1990 Form 8-K Report
Pinnacle West Capital
Corporation as Pledgor and
Citibank, N.A. as Collateral
Agent
99.23 Arizona Corporation 28.1 to APS' 1991 Form 10-K 1-4473 3-19-92
Commission Order dated Report
December 6, 1991
99.24 Arizona Corporation 10.1 to APS' June 1994 Form 1-4473 8-12-94
Commission Order dated June 10-Q Report
1, 1994
99.25 Rate Reduction Agreement 10.1 to APS' December 4, 1-4473 12-14-95
dated December 4, 1995 1995 8-K Report
between APS and the ACC Staff
<FN>
- - ----------
(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.
</FN>
</TABLE>
67
<PAGE>
REPORTS ON FORM 8-K
During the quarter ended December 31, 1995, and the period ended March 28,
1996, the Company did not file any Report on Form 8-K.
Report filed December 14, 1995 regarding APS' Rate Reduction Agreement with
the ACC Staff dated December 4, 1995.
68
<PAGE>
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 29, 1996
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ------------------------------------------------------ ------------------------- ------------------
<S> <C> <C>
RICHARD SNELL
------------------------------------------------------
(Richard Snell, Chairman of the Board of Directors, Principal Executive
President and Chief Executive Officer) Officer and Director March 29, 1996
WILLIAM J. POST Principal Financial
------------------------------------------------------ Officer and Principal
(William J. Post, Executive Vice President) Accounting Officer March 29, 1996
O. MARK DEMICHELE
------------------------------------------------------
(O. Mark DeMichele) Director March 29, 1996
PAMELA GRANT
------------------------------------------------------
(Pamela Grant) Director March 29, 1996
ROY A. HERBERGER, JR.
------------------------------------------------------
(Roy A. Herberger, Jr.) Director March 29, 1996
MARTHA O. HESSE
------------------------------------------------------
(Martha O. Hesse) Director March 29, 1996
WILLIAM S. JAMIESON, JR.
------------------------------------------------------
(William S. Jamieson, Jr.) Director March 29, 1996
H. B. SARGENT
------------------------------------------------------
(H. B. Sargent) Director March 29, 1996
JOHN R. NORTON, III
------------------------------------------------------
(John R. Norton, III) Director March 29, 1996
HUMBERTO S. LOPEZ
------------------------------------------------------
(Humberto S. Lopez) Director March 29, 1996
DOUGLAS J. WALL
------------------------------------------------------
(Douglas J. Wall) Director March 29, 1996
</TABLE>
69
<PAGE>
APPENDIX
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.
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COMMISSION FILE NUMBER 1-8962
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
EXHIBITS TO
1995 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, 1995
----------
PINNACLE WEST CAPITAL CORPORATION
(Exact name of registrant as specified in charter)
================================================================================
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - --------------- ---------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Bylaws, amended as of February 21, 1996
10.1(a) -- Summary of the Pinnacle West Capital Corporation 1996 Bonus Plan
10.2(a) -- First Amendment to Employment Agreement, effective as of March 31, 1995,
between Richard Snell and the Company
22 -- Subsidiaries of the Company
23.1 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule
<FN>
- - ----------
(a)Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
</FN>
</TABLE>
BYLAWS
OF
PINNACLE WEST CAPITAL CORPORATION
(Amended as of February 21, 1996)
I. REFERENCES; SENIORITY
1.01. References. Any reference herein made to law will be deemed to
refer to the law of the State of Arizona, including any applicable provision or
provisions of Chapters 1-17 of Title 10, Arizona Revised Statutes (or its
successor), as at any given time in effect. Any reference herein made to the
Articles will be deemed to refer to the applicable provision or provisions of
the Articles of Incorporation of the Company, and all amendments thereto, as at
any given time on file with the Arizona Corporation Commission (this reference
to that Commission being intended to include any successor to the incorporating
and related functions being performed by that Commission at the date of the
initial adoption of these Bylaws).
1.02. Seniority. Except as indicated in Part X of these Bylaws, the law
and the Articles (in that order of precedence) will in all respects be
considered senior and superior to these Bylaws, with any inconsistency to be
resolved in favor of the law and the Articles (in that order of precedence), and
with these Bylaws to be deemed automatically amended from time to time to
eliminate any such inconsistency which may then exist.
1.03. Shareholders of Record. Except as otherwise required by law and
subject to any procedure established by the Company pursuant to Arizona Revised
Statutes Section 10-723 (or any comparable successor provision), the word
"shareholder" as used herein shall mean one who is a holder of record of shares
in the Company.
II. SHAREHOLDERS MEETINGS
2.01. Annual Meetings. An annual meeting of the shareholders shall be
held within nine months after the end of the Company's fiscal year, at a time of
day and place as determined by the Board of Directors (or, in the absence of
action by the Board, as set forth in the notice given, or waiver signed, with
respect to such meeting as contemplated in Section 2.03 below). If any annual
meeting is for any reason not held within the period determined as aforesaid, a
special meeting may thereafter be called and held in lieu thereof pursuant to
the provisions of Section 2.02 below, and the same proceedings (including the
election of directors) may be conducted thereat as at a regular meeting. Any
director elected at any annual meeting, or special meeting in lieu of an annual
meeting, will continue in office until the election of his or her successor,
subject to his or her earlier resignation pursuant to Section 6.01 below or his
or her removal pursuant to Section 3.13 below.
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2.02. Special Meetings.
(a) Special meetings of the shareholders may be held whenever
and wherever called by the Chairman of the Board, the President, a majority of
the Board of Directors, or upon the delivery of proper written request of the
holders of not less than forty percent (40%) of all the shares outstanding and
entitled to vote at such meeting.
(b) For purposes of this Section, proper written request for
the call of a special meeting shall be made by a written request (i) specifying
the purposes for any special meeting requested and providing the information
required by Section 2.05(c) hereof, (ii) delivered either in person or by
registered or certified mail, return receipt requested, (iii) to the Chairman of
the Board, the President, or such other person as may be specifically authorized
by law to receive such request. Within thirty (30) days after receipt of proper
written request, a special meeting shall be called and notice given in the
manner required by these Bylaws, and the meeting shall be held at a time and
place selected by the Board of Directors, but not later than ninety (90) days
after receipt of such proper written request. The shareholder(s) requesting a
special meeting of shareholders must pay to the Company the Company's reasonably
estimated cost of preparing and mailing a notice of a meeting of shareholders
before such notice is prepared and mailed.
2.03. Notice. Notice of any meeting of the shareholders will be given
as provided by law to each shareholder entitled to vote at such meeting and, if
required by law, to each other shareholder of the Company. Any such notice may
be waived as provided by law.
2.04. Right to Vote. For each meeting of the shareholders, the Board of
Directors will fix in advance a record date as contemplated by law, and the
shares of stock and the shareholders "entitled to vote" (as that or any similar
term is herein used) at any meeting of the shareholders will be determined as of
the applicable record date. The Secretary (or in his or her absence an Assistant
Secretary) will see to the making and production of any record of shareholders
entitled to vote or otherwise entitled to notice of shareholder's meetings, in
either case which is required by law. Any voting entitlement may be exercised
through proxy, or in such other manner as specifically provided by law, in
accordance with the applicable law. In the event of contest, the burden of
proving the validity of any undated or irrevocable proxy will rest with the
person seeking to exercise the same. A telegram, cablegram or facsimile
appearing to have been transmitted by a shareholder (or by his or her duly
authorized attorney-in-fact) may be accepted as a sufficiently written and
executed proxy.
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<PAGE>
2.05. Manner of Bringing Business Before Meetings.
(a) At any annual or special meeting of shareholders only such
business shall be conducted as shall have been properly brought before the
meeting. In order to be properly brought before the meeting, such business must
be a proper subject for shareholder action under applicable law and must have
been (i) specified in the written notice of the meeting (or any supplement
thereto) given to shareholders who were shareholders on the record date for such
meeting by or at the direction of the Board of Directors or otherwise in
accordance with law or these Bylaws, (ii) brought before the meeting at the
direction of the Board of Directors or the Chairman of the meeting, selected as
provided in Section 2.09 hereof, or (iii) specified in a written notice given by
or on behalf of a shareholder who was a shareholder on the record date for such
meeting entitled to vote thereat or a duly authorized proxy for such
shareholder, in accordance with Section 2.05(b) and (c) hereof.
(b) A shareholder notice referred to in Section 2.05(a)(iii)
hereof must be delivered personally to, or mailed to and received at, the
principal executive office of the Company, addressed to the attention of the
Secretary, not more than ten (10) days after the date of the initial notice
referred to in Section 2.05(a)(i) hereof, in the case of business to be brought
before a special meeting of shareholders, and not less than thirty (30) days
prior to the anniversary date of the initial notice referred to in Section
2.05(a)(i) hereof with respect to the previous year's annual meeting, in the
case of business to be brought before an annual meeting of shareholders. Nothing
in this Section 2.05(b) limits Article Fifth of the Articles, which provides, in
part, that "except to fill vacancies resulting from the death or resignation of
a director and except for nominations by the Board of Directors or a committee
thereof, nominations for directors must be made in writing at least 180 days
prior to the date of the shareholders' meeting at which election is to occur."
(c) A shareholder notice referred to in Section 2.05(a)(iii)
hereof shall set forth:
(i) a full description of each item of business
proposed to be brought before the meeting and the reasons for
conducting such business at such meeting;
(ii) the name and address of the person proposing to
bring such business before the meeting;
(iii) the class and number of shares held of record,
held beneficially, and represented by proxy by such person as
of the record date for the meeting, if such date has been made
publicly available, or as of a date not more than thirty (30)
days prior to the delivery of the initial notice referred to
in Section 2.05(a)(i) hereof, if the record date has not been
made publicly available;
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<PAGE>
(iv) if any item of business involves a nomination
for director, all information regarding each such nominee that
would be required to be set forth in a definitive proxy
statement filed with the Securities and Exchange Commission
pursuant to Section 14 of the Securities Exchange Act of 1934,
as amended, or any successor thereto, and the written consent
of each such nominee to serve if elected;
(v) any material interest of such shareholder in the
specified business;
(vi) whether or not such shareholder is a member of
any partnership, limited partnership, syndicate, or other
group pursuant to any agreement, arrangement, relationship,
understanding, or otherwise, whether or not in writing,
organized in whole or in part for the purpose of acquiring,
owning, or voting shares of the Company; and
(vii) all other information that would be required to
be filed with the Securities and Exchange Commission, if, with
respect to the business proposed to be brought before the
meeting, the person proposing such business was a participant
in a solicitation subject to Section 14 of the Securities
Exchange Act of 1934, as amended, or any successor thereto.
No business shall be brought before any meeting of the shareholders of the
Company otherwise than as provided in this Section 2.05.
(d) Notwithstanding the provisions of this Section 2.05, the
Board of Directors shall not be obligated to include information as to any
shareholder nominee for director or any other shareholder proposal in any proxy
statements or other communication sent to shareholders.
(e) The Chairman of the meeting may, if the facts warrant,
determine that any proposed item of business was not brought before the meeting
in accordance with the provisions of this Section 2.05, and if he or she should
so determine, he or she shall so declare to the meeting and the defective item
of business shall be disregarded.
2.06. Right to Attend. Except only to the extent of persons designated
by the Board of Directors or the Chairman of the meeting to assist in the
conduct of the meeting (as referred to in Sections 2.08 and 2.09 below) and
except as otherwise permitted by the Board or such Chairman, the persons
entitled to attend any meeting of shareholders may be confined to (i)
shareholders entitled to vote thereat and other shareholders entitled to notice
of the meeting and (ii) the persons upon whom proxies valid for purposes of the
meeting have been conferred or their duly appointed substitutes (if the related
proxies confer a power of substitution); provided, however, that the Board of
Directors or the Chairman of the meeting may establish rules limiting the number
of persons referred to in clause (ii) as being entitled to attend on behalf of
any shareholder so as to preclude such an excessively large representation of
such shareholder at the meeting as, in the judgment
4
<PAGE>
of the Board or such Chairman, would be unfair to other shareholders represented
at the meeting or be unduly disruptive of the orderly conduct of business at
such meeting (whether such representation would result from fragmentation of the
aggregate number of shares held by such shareholder for the purpose of
conferring proxies, from the naming of an excessively large proxy delegation by
such shareholder or from employment of any other device). A person otherwise
entitled to attend any such meeting will cease to be so entitled if, in the
judgment of the Chairman of the meeting, such person engages thereat in
disorderly conduct impeding the proper conduct of the meeting in the interests
of all shareholders as a group.
2.07. Quorum. Matters related to a quorum of the shareholders at any
meeting thereof will be determined in accordance with applicable law and the
Articles, if applicable.
2.08. Election Inspectors. The Board of Directors, in advance of any
shareholders meeting may appoint an election inspector or inspectors to act at
such meeting (and any adjournment thereof). If an election inspector or
inspectors are not so appointed, the Chairman of the meeting may or, upon the
request of any person entitled to vote at the meeting will, make such
appointment. If any person appointed as an inspector fails to appear or to act,
a substitute may be appointed by the Chairman of the meeting. If appointed, the
election inspector or inspectors (acting through a majority of them if there be
more than one) will determine the number of shares outstanding, the
authenticity, validity and effect of proxies, the credentials of persons
purporting to be shareholders or persons named or referred to in proxies, and
the number of shares represented at the meeting in person and by proxy; they
will receive and count votes, ballots and consents and announce the results
thereof; they will hear and determine all challenges and questions pertaining to
proxies and voting; and, in general, they will perform such acts as may be
proper to conduct elections and voting with complete fairness to all
shareholders. No such election inspector need be a shareholder of the Company.
2.09. Organization and Conduct of Meetings. Each shareholders meeting
will be called to order and thereafter chaired by the Chairman of the Board if
there then is one; or, if not, or if the Chairman of the Board is absent or so
requests, then by the President; or if both the Chairman of the Board and the
President are unavailable, then by such other officer of the Company or such
shareholder as may be appointed by the Board of Directors. The Secretary (or in
his or her absence an Assistant Secretary) of the Company will act as secretary
of each shareholders meeting; if neither the Secretary nor an Assistant
Secretary is in attendance, the Chairman of the meeting may appoint any person
(whether a shareholder or not) to act as secretary thereat. After calling a
meeting to order, the Chairman thereof may require the registration of all
shareholders intending to vote in person, and the filing of all proxies, with
the election inspector or inspectors, if one or more have been appointed (or, if
not, with the secretary of the meeting). After the announced time for such
filing of proxies has ended, no further proxies or changes, substitutions or
revocations of proxies will be accepted. If directors are to be elected, a
tabulation of the proxies so filed will, if any person entitled to vote in such
election so requests, be announced at the meeting (or adjournment thereof) prior
to the closing of the election polls.
5
<PAGE>
Absent a showing of bad faith on his or her part, the Chairman of a meeting
will, among other things, have absolute authority to determine the order of
business to be conducted at such meeting and to establish rules for, and appoint
personnel to assist in, preserving the orderly conduct of the business of the
meeting (including any informal, or question and answer, portions thereof). Any
informational or other informal session of shareholders conducted under the
auspices of the Company after the conclusion of or otherwise in conjunction with
any formal business meeting of the shareholders will be chaired by the same
person who chairs the formal meeting, and the foregoing authority on his or her
part will extend to the conduct of such informal session.
2.10. Voting. The number of shares voted on any matter submitted to the
shareholders which is required to constitute their action thereon or approval
thereof will be determined in accordance with applicable law, the Articles, and
these Bylaws, if applicable. No ballot or change of vote will be accepted after
the polls have been declared closed following the ending of the announced time
for voting.
2.11. Shareholder Approval or Ratification. The Board of Directors may
submit any contract or act for approval or ratification at any duly constituted
meeting of the shareholders, the notice of which either includes mention of the
proposed submittal or is waived as provided in Section 2.03 above. Except as
otherwise required by law (e.g., Arizona Revised Statutes Section 10-863), any
contract or act so submitted is approved or ratified by a majority of the votes
cast thereon at such meeting, the same will be valid and as binding upon the
Company and all of its shareholders as it would be if approved and ratified by
each and every shareholder of the Company.
2.12. Informalities and Irregularities. All informalities or
irregularities in any call or notice of a meeting, or in the areas of
credentials, proxies, quorums, voting and similar matters, will be deemed waived
if no objection is made at the meeting.
2.13. Control Share Act. The provisions of Section 10-1211 through and
including Section 10-1217 of the Arizona Revised Statutes shall not apply to the
Company.
III. BOARD OF DIRECTORS
3.01. Membership. The Board of Directors of the corporation shall
consist of not less then nine (9) nor more than twenty-one (21) shareholders of
the Company or of any parent corporation thereof (except that it shall not be a
requirement that any member of the initial Board of Directors be a shareholder
of the Company or of any parent corporation thereof), and shall be divided into
three classes in the manner provided in the Articles (Art. Fifth). The Board
will have the power to increase or decrease its size within such limits. Any
vacancy occurring in the Board, whether by reason of death, resignation,
disqualification or otherwise, may be filled by the directors as contemplated by
law and as provided in the Articles (Art. Fifth). Any such increase in the size
of the Board, and the filling of any vacancy created thereby, will require
action by a majority of the whole membership of the Board as comprised
immediately before such increase.
6
<PAGE>
3.02. Qualifications. In order to qualify as a director, a person must
be the owner of one or more shares of the capital stock of the Company or of any
parent corporation thereof at the time of assuming office (except as may
otherwise be provided in these Bylaws or in the Articles) and for so long
thereafter as such person remains in office. A person will cease to qualify as a
director if he or she (i) is in good faith determined by a majority of the other
directors then in office to be physically or mentally incapable of competent
performance as a director for a period, starting with inception of the
incapacity, that has extended or is likely to extend for more than six months or
(ii) has failed to attend six successive regular meetings of the Board (as
determined in accordance with Section 3.03 below) unless and to the extent such
failure is waived by a majority of the other directors then in office; however,
disqualification pursuant to clause (i) or (ii) of this sentence will not
preclude the subsequent election or appointment of such person as a director by
the shareholders or the Board if a majority of the directors in office
immediately prior to the submission of such person for election or appointment
shall determine that his or her prior incapacity or principal reason for prior
non-attendance no longer exists. A person will not qualify for election or
appointment as a director, whether initially or on re-election and whether by
the shareholders at their annual meeting or by the Board of Directors as
contemplated in Section 3.01 above, if such person's 70th birthday occurs on or
has occurred before the date of such election, appointment or re-election. A
person who has been a full-time employee of the Company within twelve months
prior to the date of any election will not qualify for election as a director on
that date unless he or she then remains a full-time employee of the Company or
unless the Board of Directors specifically authorizes the election of such
person (but it is not intended that any such authorization will extend a
person's service on the Board beyond the age limitation set out in the preceding
sentence). A person who has qualified by age or employment status for his or her
most recent election as a director may serve throughout the term for which such
person was elected, notwithstanding the occurrence of his or her 70th birthday
or cessation of full-time employment by the Company between the date of such
election and the end of such term, subject, however, to his or her otherwise
remaining qualified for such office.
3.03. Regular Meetings. A regular annual meeting of the directors is to
be held as soon as practicable after the adjournment of each annual shareholders
meeting either at the place of the shareholders meeting or at such other place
as the directors elected at the shareholders meeting may have been informed of
at or before the time of their election. Regular meetings, other than the annual
ones, may be held at such intervals at such places and at such times as the
Board of Directors may provide.
3.04. Special Meetings. Special meetings of the Board of Directors may
be held whenever and wherever called for by the Chairman of the Board, the
President or the number of directors which would be required to constitute a
quorum.
3.05. Notice. No notice need be given of regular meetings of the Board
of Directors. Notice of the time and place (but not necessarily the purpose or
all of the purposes) of any special meeting will be given to each director in
person or by telephone, or via mail, telegram or facsimile addressed in the
manner appearing on the Company's records. Notice to any director of any such
special meeting will be deemed given sufficiently in
7
<PAGE>
advance when (i) if given by mail, the same is deposited in the United States
mail at least four days before the meeting date, with postage thereon prepaid,
(ii) if given by telegram, the same is delivered to the telegraph office for
fast transmittal at least 48 hours prior to the convening of the meeting, (iii)
if given by facsimile transmission, the same is received by the director or an
adult member of his or her office staff or household, at least 24 hours prior to
the convening of the meeting, or (iv) if personally delivered or given by
telephone, the same is handed, or the substance thereof is communicated over the
telephone to the director or to an adult member of his or her office staff or
household, at least 24 hours prior to the convening of the meeting. Any such
notice may be waived as provided by law. No call or notice of a meeting of
directors will be necessary if each of them waives the same in writing or by
attendance. Any meeting, once properly called and noticed (or as to which call
and notice have been waived as aforesaid) and at which a quorum is formed, may
be adjourned to another time and place by a majority of those in attendance.
3.06. Quorum; Voting. A quorum for the transaction of business at any
meeting or adjourned meeting of the directors will consist of a majority of
those then in office. Any matter submitted to a meeting of the directors will be
resolved by a majority of the votes cast thereon, except as otherwise required
by these Bylaws (ss.ss. 3.01 and 3.02 above and ss.3.07 below), by law or by any
applicable Article. However, in case of an equality of votes, the Chairman of
the meeting will have a second or deciding vote. Where action by a majority of
the whole membership is required, such requirement will be deemed to relate to a
majority of the directors in office at the time the action is taken. In
computing any such majority, whether for purposes of determining the presence of
a quorum or the adequacy of the vote on any proposed action, any unfilled
vacancies at the time existing in the membership of the Board will be excluded
from the computation.
3.07. Executive Committee. The Board of Directors may, by resolution
adopted by a majority of the whole Board, name three or more of its members as
an Executive Committee. Such Executive Committee will have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Company while the Board is not in session, except only as precluded by
law or where action other than by a majority of the votes cast is required by
these Bylaws, or the law (all as referred to in Section 3.06 above), and subject
to such limitations as may be included in any applicable resolution passed by a
majority of the whole membership of the Board. A majority of those named to the
Executive Committee will constitute a quorum.
3.08. Other Committees. Other standing or ad hoc committees may from
time to time be appointed from its own membership by the Board of Directors and
be vested with such powers as the Board may see fit.
3.09. Committee Functioning. Notice requirements and related waiver
provisions for meetings of the Executive Committee and other committees of the
Board will be the same as those set forth in Section 3.05 above for meetings of
the Board of Directors. Except as provided in the next two succeeding sentences,
a majority of those named to the Executive Committee or any other committee of
the Board will constitute a quorum at any meeting thereof (with the effect of
departure of committee members from a meeting and
8
<PAGE>
the computation of a majority of committee members to be in accordance with the
applicable policies of Section 3.06 above), and any matter submitted to a
meeting of any such committee will be resolved by a majority of the votes cast
thereon. No distinction will be made among ex-officio or other members of any
such committee for quorum, voting or other purposes, except that the membership
of any committee (including the Executive Committee), in performing any function
vested in it as herein contemplated, may be deemed to exclude any officer or
employee of the Company, in either case, or other person having a direct or
indirect personal interest in any proposed exercise of such function, whose
exclusion for that purpose is deemed appropriate by a majority of the other
members of such committee proposing to perform such function. All committees are
to keep regular minutes of the transactions of their meetings.
3.10. Action by Telephone or Consent. Any meeting of the Board or any
committee thereof may be held by conference telephone or similar communications
equipment as permitted by law, in which case any required notice of such meeting
may generally describe the arrangements (rather than the place) for the holding
thereof, and all other provisions herein contained or referred to will apply to
such meeting as though it were physically held at a single place. Action may
also be taken by the Board or any committee thereof without a meeting if the
members thereof consent in writing thereto as contemplated by law.
3.11. Presumption of Assent. A director of the Company who is present
at a meeting of the Board of Directors, or of any committee when corporate
action is taken is deemed to have assented to the action taken unless either
(i) the director objects at the beginning of the meeting or promptly on the
director's arrival to holding it or transacting business at the meeting; (ii)
the director's dissent or abstention from the action taken is entered in the
minutes of the meeting; or (iii) the director delivers written notice of the
director's dissent or abstention to the presiding officer of the meeting before
its adjournment or to the Company before 5:00 P.M. on the next business day
after the meeting. The right of dissent or abstention is not available to a
director who votes in favor of the action taken.
3.12. Compensation. By resolution of the Board, the directors may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors, or of any committee, and may be paid a fixed sum for attendance at
each such meeting and/or a stated salary as a director or committee member. No
such payment will preclude any director from serving the Company in any other
capacity and receiving compensation therefor.
3.13. Removal. Any director or the entire Board of Directors may be
removed with or without cause, only at a special meeting of shareholders called
for that purpose, by the affirmative vote of sixty-six and two-thirds percent
(66 2/3%) of the issued and outstanding shares of stock then entitled to vote on
the election of directors, except that if less than the entire Board of
Directors is to be removed, no one of the directors may be removed if the votes
cast against the director's removal would be sufficient to elect the director if
then cumulatively voted at an election for the class of directors of which the
director is a part.
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IV. OFFICERS - GENERAL
4.01. Elections and Appointments. The directors will elect or appoint
the officers of the Company contemplated in Part V below. Such election or
appointment will regularly take place at the annual meeting of the directors,
but elections of officers may be held at any other meeting of the Board. A
person elected or appointed to any office will continue to hold that office
until the election or appointment of his or her successor, subject to action
earlier taken pursuant to Section 4.04 or 6.01 below. Any person may hold more
than one office.
4.02. Additional Appointments. In addition to the officers contemplated
in Part V below, the Board of Directors may create other corporate positions,
and appoint persons thereto, with such authority to perform such duties as may
be prescribed from time to time by the Board of Directors, by the President or
by the superior officer of any person so appointed. Notwithstanding such
additional appointments, only those persons whose offices are described in Part
V are to be considered an officer of the Company unless the resolution or other
Board action appointing such person expressly states that such person is to be
considered an officer of the Company. Each of such persons (in the order
designated by the Board, the President or the superior officer of such person)
will be vested with all of the powers and charged with all of the duties of his
or her superior officer in the event of such superior officer's absence or
disability.
4.03. Bonds and Other Requirements. The Board of Directors may require
any officer or other appointee to give bond to the Company (with sufficient
surety, and conditioned upon the faithful performance of the duties of his or
her office or position) and to comply with such other conditions as may from
time to time be required of him or her by the Board.
4.04. Removal or Delegation. Provided that a majority of the whole
membership thereof concurs therein, the Board of Directors may remove any
officer of the Company as provided by law and declare his or her office or
offices vacant or abolished or, in the case of the absence or disability of any
officer or for any other reason considered sufficient, may temporarily delegate
his or her powers and duties to any other officer or to any director. Similar
action may be taken by the Board of Directors in regard to appointees designated
pursuant to Section 4.02 above.
4.05. Salaries. Officer salaries may from time to time be fixed by the
Board of Directors or (except as to his or her own) be left to the discretion of
the President. No officer will be prevented from receiving a salary by reason of
the fact that he or she is also a director of the Company.
10
<PAGE>
V. SPECIFIC OFFICERS, FUNCTIONS AND POWERS
5.01. Chairman of the Board. The Board of Directors may elect a
Chairman to serve as a general executive officer of the Company and, if
specifically designated as such by the Board, as the Chief Executive Officer of
the Company. If elected, the Chairman will preside at all meetings of the
directors and be vested with such other powers and duties as the Board may from
time to time delegate to him or her.
5.02. Chief Executive Officer. Subject to the control of the Board of
Directors exercised as hereinafter provided, the Chief Executive Officer of the
Company will supervise its business and affairs and the performance of their
respective duties by all other officers, by appointees designated pursuant to
Section 4.02 above, and by such additional appointees to such additional
positions (corporate, divisional or otherwise) as the Chief Executive Officer
may designate, with authority on his or her part to delegate the foregoing duty
of supervision to such extent and to such person or persons as may be determined
by the Chief Executive Officer. Except as otherwise indicated from time to time
by resolution of the Board of Directors, its management of the business and
affairs of the Company will be implemented through the office of the Chief
Executive Officer.
5.03. President and Vice Presidents. Unless specified to the contrary
by resolution of the Board of Directors, the President will be the Chief
Executive Officer of the Company. In addition to the supervisory functions above
set forth on the part of the Chief Executive Officer or in lieu thereof if a
contrary specification is made by the Board relative to the Chief Executive
Officer, the President will be vested with such powers and duties as the Board
may from time to time designate. Vice Presidents may be elected by the Board of
Directors to perform such duties as may be designated by the Board or be
assigned or delegated to them by their respective superior officers. The Board
may identify (i) one or more Vice Presidents as "Executive" or "Senior" Vice
Presidents and (ii) the President or any Vice President as "General Manager" of
the Company and the title of any Vice President may include words indicative of
his or her particular area of responsibility and authority. Vice Presidents will
succeed to the responsibilities and authority of the President, in the event of
his or her absence or disability, in the order consistent with their respective
titles or regular duties or as specifically designated by the Board of
Directors.
5.04. Treasurer, Secretary and Corporate Counsel. The Treasurer,
Secretary and Corporate Counsel each will perform all such duties normally
associated with his or her office (including, in the case of the Secretary, the
giving of notice and the preparation and retention of minutes of corporate
proceedings and the custody of corporate records and the seal of the Company) as
are not assigned to a Vice President of the Company, along with such other
duties as may be designated by the Board or be assigned or delegated to them by
their respective superior officers. The Board may appoint one or more Assistant
Treasurers, Assistant Secretaries and Assistant Corporate Counsels, each of whom
(in the order designated by the Board or their respective superior officers)
will be vested with all of the powers and charged with all of the duties of the
Treasurer, the Secretary or the Corporate Counsel (as the case may be) in the
event of his or her absence or disability.
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5.05. Specific Powers. Except as may otherwise be specifically provided
in a resolution of the Board of Directors, any of the officers referred to in
this Part V will be a proper officer to authenticate records of the Company and
to sign on behalf of the Company any deed, bill of sale, assignment, option,
mortgage, pledge, note, bond, debenture, evidence of indebtedness, application,
consent (to service of process or otherwise), agreement, indenture or other
instrument of importance to the Company. Any such officer may represent the
Company at any meeting of the shareholders or members of any corporation,
association, partnership, joint venture or other entity in which this Company
then has an interest, and may vote such interest in person or by proxy appointed
by him or her, provided that the Board of Directors may from time to time confer
the foregoing authority upon any other person or persons.
VI. RESIGNATIONS AND VACANCIES
6.01. Resignations. Any director, committee member or officer may
resign from his or her office at any time by written notice as specified in
accordance with Arizona Revised Statutes Sections 10-807 and 10-843. The
acceptance of a resignation will not be required to make it effective.
6.02. Vacancies. If the office of any director, committee member or
officer becomes vacant by reason of his or her death, resignation,
disqualification, removal or otherwise, the Board of Directors may choose a
successor to hold office for the unexpired term.
VII. INDEMNIFICATION AND RATIFICATION
7.01. Indemnification. In order to induce qualified persons to serve
the Company (and any other corporation, joint venture, partnership, trust or
other enterprise at the request of the Company) as directors and officers, the
Company may indemnify any and all of its directors and officers, or former
directors and officers, to the fullest extent permitted by law or by the
Articles, if applicable. Insofar as applicable law requires a determination as
to the standard of conduct followed by a person seeking indemnification, the
Board of Directors or the disinterested members thereof will consider the
relevant facts, or cause them to be submitted for consideration, as soon as
practicable, but such consideration of any facts in issue in pending legal
proceedings will not be required before the final adjudication thereof. A
determination, whether favorable or adverse to the party seeking
indemnification, pursuant to any such consideration (which determination, if the
same is to be made by a court pursuant to law, will be deemed made when
contained in a final unappealed or unappealable decision) will be binding on all
parties concerned.
7.02. Ratification; Special Committee. Any transaction involving the
Company, any of its subsidiary corporations or any of its directors, officers,
employees or agents which at any time is questioned in any manner or context
(including a shareholder's derivative suit), on the ground of lack of authority,
conflict of interest, misleading or omitted statement of fact or law,
nondisclosure, miscomputation, improper principles or practices of accounting,
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inadequate records, defective or irregular execution or any similar ground, may
be investigated and/or ratified (before or after judgment), or an election may
be made not to institute or pursue a claim or legal proceedings on account
thereof or to accept or approve a negotiated settlement with respect thereto
(before or after the institution of legal proceedings), by the Board of
Directors or by a special committee thereof comprised of one or more
disinterested directors (that is, a director or directors who did not
participate in the questioned transaction with actual knowledge of the
questioned aspect or aspects thereof). Such a special committee may be validly
formed and fully empowered to act, in accordance with the purposes and duties
assigned thereto, by resolution or resolutions of the Board of Directors,
notwithstanding (i) the inclusion of Board members who are not disinterested as
aforesaid among those who form a quorum at the meeting or meetings at which one
or more members of such special committee are elected or appointed to the Board
or to such special committee or at which such committee is formed or empowered,
or their inclusion among the directors who vote upon or otherwise participate in
taking any of the foregoing actions, or (ii) the taking of any of such actions
by the disinterested members of the Board (or a majority of such members) whose
number is not sufficient to constitute a quorum or a majority of the membership
of the full Board. Any such special committee so comprised will, to the full
extent consistent with its purposes and duties as expressed in such resolution
or resolutions, have all of the authority and powers of the full Board and its
Executive Committee (the same as though it were the full Board and/or its
Executive Committee in carrying out such purposes and duties) and will function
in accordance with Section 3.09 above. No other provisions of these Bylaws which
may at any time appear to conflict with any provisions of this Section 7.02, and
no defect or irregularity in the formation, empowering or functioning of any
such special committee, will serve to impede, impair or bring into question any
action taken or purported to be taken by such committee or the validity of any
such action. Any ratification of a transaction pursuant to this Section 7.02
will have the same force and effect as if the transaction has been duly
authorized originally. Any such ratification, and any election made pursuant to
this Section 7.02 with respect to claims, legal proceedings or settlements, will
be binding upon the Company and its shareholders and will constitute a bar to
any claim or the execution of any judgment in respect of the transaction
involved in such ratification or election.
VIII. SEAL
8.01. Form Thereof. The seal of the Company will have inscribed thereon
the name of the Company, the state and year of its incorporation and the words
"SEAL".
IX. STOCK CERTIFICATES
9.01. Form Thereof. Each certificate representing stock of the Company
will be in such form conforming to law as may from time to time be approved by
the Board of Directors, and will bear the manual facsimile signatures and seal
of the Company as required or permitted by law.
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9.02. Ownership. The Company will be entitled to treat the registered
owner of any share as the absolute owner thereof and accordingly, will not be
bound to recognize any beneficial, equitable or other claim to, or interest in,
such share on the part of any other person, whether or not it has notice
thereof, except as may expressly be provided by Chapter 8 of Title 47, Arizona
Revised Statutes (or its successor), as at the time in effect, or other
applicable law.
9.03. Transfers. Transfer of stock will be made on the books of the
Company only upon surrender of the certificate therefor, duly endorsed by an
appropriate person, with such assurance of the genuineness and effectiveness of
the endorsement as the Company may require, all as contemplated by Chapter 8 of
Title 47, Arizona Revised Statutes (or its successor), as at the time in effect,
and/or upon submission of any affidavit, other document or notice which the
Company considers necessary.
9.04. Lost Certificates. In the event of the loss, theft or destruction
of any certificate representing capital stock of this Company, the Company may
issue (or, in the case of any such stock as to which a transfer agent and/or
registrar have been appointed, may direct such transfer agent and/or registrar
to countersign, register and issue) a replacement certificate in lieu of that
alleged to be lost, stolen or destroyed, and cause the same to be delivered to
the owner of the stock represented thereby, provided that the owner shall have
submitted such evidence showing the circumstances of the alleged loss, theft or
destruction, and his or her ownership of the certificate as the Company
considers satisfactory, together with any other factors which the Company
considers pertinent, and further provided that an indemnity agreement and/or
indemnity bond shall have been provided in form and amount satisfactory to the
Company and to its transfer agent and/or registrar, if applicable.
X. EMERGENCY BYLAWS
10.01. Emergency Conditions. The emergency Bylaws provided in this Part
X will be as effective in the event of an emergency as prescribed in Arizona
Revised Statutes Section 10-207.D. To the extent not inconsistent with the
provisions of this Part X, these Bylaws will remain in effect during such
emergency and upon its termination these emergency Bylaws will cease to be
operative.
10.02. Board Meetings. During any such emergency, a meeting of the
Board of Directors or any of its committees may be called by any officer or
director of the Company. Notice of the time and place of the meeting will be
given by the person calling the same to those of the directors whom it may be
feasible to reach by any available means of communication. Such notice will be
given so much in advance of the meeting as circumstances permit in the judgment
of the person calling the same. At any Board or committee meeting held during
any such emergency, a quorum will consist of a majority of those who could
reasonably be expected to attend the meeting if they were willing to do so, but
in no event more than a majority of those to whom notice of such meeting is
required to have been given as above provided.
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10.03. Certain Actions. The Board of Directors, either before or during
any such emergency, may provide and from time to time modify lines of succession
in the event that during such an emergency any or all officers, appointees,
employees or agents of the Company are for any reason rendered incapable of
discharging their duties. The Board, either before or during any such emergency,
may, effective in the emergency, change the head office or designate several
alternative head offices of the Company, or authorize the officers to do so.
10.04. Liability. No director, officer, appointee, employee or agent
acting in accordance with these emergency Bylaws will be liable except for
willful misconduct.
10.05. Modifications. These emergency Bylaws will be subject to repeal
or change by further action of the Board of Directors, but no such repeal or
change will modify the provisions of Section 10.04 with respect to action taken
prior to the time of such repeal or change. Any amendment of these emergency
Bylaws may make any further or different provisions that may be practical and
necessary for the circumstances of the emergency.
XI. DIVIDENDS
11.01. Declaration. Subject to such restrictions or requirements as may
be imposed by law or the Company's Articles or as may otherwise be binding upon
the Company, the Board of Directors may from time to time declare dividends on
stock of the Company outstanding on the dates of record fixed by the Board, to
be paid in cash, in property or in shares of the Company's stock on or as of
such payment or distribution dates as the Board may prescribe.
XII. BUSINESS COMBINATIONS
12.01. Definitions. In these Bylaws, the following definitions shall
apply:
1. "Affiliate" means a person that directly or indirectly
controls, is controlled by, or is under common control with a specified person.
2. "Announcement date," when used in reference to any business
combination, means the date of the first public announcement of the final,
definitive proposal for the business combination.
3. "Associate," when used to indicate a relationship with any
person, means any of the following:
(a) Any corporation or organization of which the person
is an officer, director, or partnership or is, directly or
indirectly, the beneficial owner of ten percent (10%) or more of
any class or series of shares entitled to vote or other equity
interest;
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(b) Any trust or estate in which the person has a
substantial beneficial interest or as to which the person serves
as trustee or personal representative or in a similar fiduciary
capacity; or
(c) Any relative or spouse of the person, or any relative
of the spouse, residing in the home of the person.
4. "Beneficial owner," when used with respect to shares or
other securities, includes any person who, directly or indirectly through any
agreement, arrangement, relationship, understanding, or otherwise, whether or
not in writing, has or shares the power to vote, or direct the voting of the
shares or securities or has or shares the power to dispose of or direct the
disposition of the shares or securities, except that:
(a) A person is not deemed the beneficial owner of shares
or securities tendered pursuant to a tender or exchange offer
made by the person or any of the person's affiliates or
associates until the tendered shares or securities are accepted
for purchase or exchange; and
(b) A person is not deemed the beneficial owner of shares
or securities with respect to which the person has the power to
vote or direct the voting arising solely from a revocable proxy
given in response to a proxy solicitation required to be made and
made in accordance with the applicable rules and regulations
under the Securities Exchange Act of 1934, as amended, and is not
then reportable under that act on a Schedule 13D or comparable
report.
5. "Beneficial ownership" includes the right to acquire shares
or securities through the exercise of options, warrants, or rights, the
conversion of convertible securities, or otherwise. The shares or securities
subject to the options, warrants, rights, or conversion privileges held by a
person are deemed to be outstanding for the purpose of computing the percentage
of outstanding shares or securities of the class or series owned by the person
but are not deemed to be outstanding for the purpose of computing the percentage
of the class or series owned by any other person. A person is deemed the
beneficial owner of shares and securities beneficially owned by the spouse of
the person or any relative of the spouse residing in the home of the person, any
trust or estate in which the person owns ten percent (10%) or more of the total
beneficial interest or serves as trustee or personal representative, any
corporation or entity in which the person owns ten percent (10%) or more of the
equity and any affiliate of the person.
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6. "Business combination," when used in reference to the
Company and any interested shareholder of the Company, means any of the
following:
(a) Any merger or consolidation of the Company or any
subsidiary of the Company with either:
(i) The interested shareholder; or
(ii) Any other domestic or foreign corporation,
whether or not itself an interested shareholder of the
Company, that is, or after the merger would be, an
affiliate or associate of the interested shareholder,
except that the foregoing does not include the merger of
a wholly-owned subsidiary of the Company into the Company
or the merger of two or more wholly-owned subsidiaries of
the Company.
(b) Any exchange, pursuant to a plan of exchange under
the laws of the State of Arizona or a comparable statute of any
other state or jurisdiction, of shares of the Company or any
subsidiary of the Company for shares of either:
(i) The interested shareholder; or
(ii) Any other domestic or foreign corporation,
whether or not itself an interested shareholder of the
Company, that is, or after the exchange would be, an
affiliate or associate of the interested shareholder.
(c) Any sale, lease, exchange, mortgage, pledge,
transfer, or other disposition, in a single transaction or a
series of transactions, to or with the interested shareholder or
any affiliate or associate of the interested shareholder, of
assets of the Company or any subsidiary of the Company to which
any of the following applies:
(i) Has an aggregate market value equal to ten
percent (10%) or more of the aggregate market value of
all the assets, determined on a consolidated basis, of
the Company.
(ii) Has an aggregate market value equal to ten
percent (10%) or more of the aggregate market value of
all the outstanding shares of the Company.
(iii) Represents ten percent (10%) or more of the
earning power or net income, determined on a
consolidated basis, of the Company.
(d) The issuance or transfer by the Company or any
subsidiary of the Company, in a single transaction or a series of
transactions, of any shares of the Company or any subsidiary of
the Company that have an aggregate market value equal to five
percent (5%) or more of the aggregate market value of all the
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outstanding shares of the Company to the interested shareholder
or any affiliate or associate of the interested shareholder,
except pursuant to the exercise of warrants or rights to purchase
shares offered or a dividend or distribution paid or made pro
rata to all shareholders of the Company.
(e) The adoption of any plan or proposal for the
liquidation or dissolution of the Company, or any reincorporation
of the Company in another state or jurisdiction, proposed by, on
behalf of, or pursuant to any agreement, arrangement, or
understanding, whether or not in writing, with the interested
shareholder or any affiliate or associate of the interested
shareholder.
(f) Any reclassification of securities, including any
share dividend or split, reverse share split, or other
distribution of shares in respect of shares, recapitalization of
the Company, merger or consolidation of the Company with any
subsidiary of the Company exchange of shares of the Company with
any subsidiary of the Company or other transaction, whether or
not with or into or otherwise involving the interested
shareholder, proposed by, on behalf of, or pursuant to any
agreement, arrangement, or understanding, whether or not in
writing, with the interested shareholder or any affiliate or
associate of the interested shareholder that has the effect,
directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class or series of shares entitled
to vote, or securities that are exchangeable for or convertible
into or that carry a right to acquire shares entitled to vote, of
the Company or any subsidiary of the Company that is, directly or
indirectly, owned by the interested shareholder or any affiliate
or associate of the interested shareholder, except as a result of
immaterial changes due to fractional share adjustments.
(g) Any receipt by the interested shareholder or any
affiliate or associate of the interested shareholder of the
benefit, directly or indirectly, except proportionately as a
shareholder of the Company, of any loans, advances, guarantees,
pledges, or other financial assistance or any tax credits or
other tax advantages provided by or through the Company or any
subsidiary of the Company (other than expense account advances
made in the ordinary course of business).
7. "Consummation date," with respect to any business
combination, means the date of consummation of the business combination or, in
the case of a business combination as to which a shareholder vote is taken, the
later of:
(i) The business day before the vote; or
(ii) Twenty (20) days before the date of
consummation of the business combination.
8. "Control," "controlling," "controlled by" or "under common
control with" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting
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securities, by contract, or otherwise. A person's beneficial ownership of ten
percent (10%) or more of the voting power of the Company's outstanding shares
entitled to vote in the election of directors creates a presumption that the
person has control of the Company. A person is not considered to have control of
the Company if the person holds voting power, in good faith and not for the
purpose of avoiding any provision of law as an agent, bank, broker, nominee,
custodian, or trustee for one or more beneficial owners who do not individually
or as a group have control of the Company.
9. "Interested shareholder," when used in reference to the
Company means any person, other than the Company or any subsidiary of the
Company, that is either:
(a) The beneficial owner, directly or indirectly, of ten
percent (10%) or more of the voting power of the outstanding
shares entitled to vote of the Company; or
(b) An affiliate or associate of the Company.
10. "Interested shares" means the shares of the Company with
respect to which any of the following persons may exercise or direct the
exercise of voting power in the election of directors of the Company:
(a) An interested shareholder;
(b) Any officer of the Company; or
(c) Any director of the Company.
11. "Market value," when used in reference to shares or
property of the Company, means the following:
(a) In the case of shares, the highest closing sale
price during the thirty (30) day period immediately preceding the
date in question of a share on the composite tape for New York
Stock Exchange listed shares or, if the shares are not quoted on
the composite tape or not listed on the New York Stock Exchange,
on the principal United States securities exchange registered
under the Securities Exchange Act of 1934, as amended, on which
the share are listed or, if the shares are not listed on any such
exchange, on the National Association of Securities Dealers, Inc.
Automated Quotations National Market System or, if the shares are
not quoted on the National Association of Securities Dealers,
Inc. Automated Quotations National Market System, the highest
closing bid quotation during the thirty (30) day period preceding
the date in question of a share on the National Association of
Securities Dealers, Inc. Automated Quotations System or any
system then in use or, if no such quotation is available, the
fair market value on the date in question of a share as
determined in good faith by the Board of the Company, subject to
arbitration.
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(b) In the case of property other than cash or shares,
the fair market value of the property on the date in question as
determined in good faith by the Board of the Company, subject to
arbitration.
12. "Person" means any natural person, partnership,
corporation, group, association, venture, firm, or other entity (other than the
Company, any subsidiary of the Company, or a trustee or fiduciary holding stock
for the benefit of the employees of the Company or its subsidiaries or any one
of its subsidiaries, pursuant to one or more employee benefit plans). If two or
more persons act as a partnership, limited partnership, syndicate, or other
group pursuant to any agreement, arrangement, relationship, understanding, or
otherwise, whether or not in writing, for the purposes of acquiring, owning, or
voting shares of the Company, all members of the partnership, syndicate, or
other group shall be deemed a person. Person does not include a licensed broker,
dealer, or underwriter that purchases shares of the Company solely for purposes
of resale to the public that is not acting in concert with an interested
shareholder.
13. "Share acquisition date," with respect to any person and
the Company, means the date that the person first becomes an interested
shareholder of the Company.
12.02. Business Combination with Interested Shareholders;
Approved by Directors.
1. Except as set forth in these Bylaws, the Company may not
engage in any business combination or vote, consent or otherwise act to
authorize a subsidiary of the Company to engage in any business combination with
respect to, proposed by, or on behalf of, or pursuant to any agreement,
arrangement or understanding, whether or not in writing, with any interested
shareholder of the Company or any affiliate or associate of the interested
shareholder for a period of three (3) years after the interested shareholder's
share acquisition date, unless the business combination or the acquisition of
shares made by the interested shareholder on the interested shareholder's share
acquisition date is approved by a committee of the Board of Directors of the
Company before the interested shareholder's share acquisition date. The
committee shall be formed in accordance with subsection 4 of this Section 12.02.
2. If a good faith definitive proposal regarding a business
combination is made in writing to the Board of Directors of the Company, a
committee of the Board formed in accordance with subsection 4 of this Section
12.02 shall consider and take action on the proposal and respond in writing
within forty-five (45) days after receipt of the proposal by the Company,
setting forth its decision regarding the proposal.
3. If a good faith definitive proposal to acquire shares is
made in writing to the Board of Directors of the Company, a committee of the
Board of Directors formed in accordance with subsection 4 of this Section 12.02
shall consider and take action on the proposal. Unless the committee responds
affirmatively in writing within forty-five (45) days after receipt of the
proposal by the Company, the committee shall be considered to have disapproved
the share acquisition.
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4. When a business combination or acquisition of shares is
proposed pursuant to this Section 12.02, the Board of Directors shall promptly
form a committee composed of all of the Board's disinterested Directors. The
committee shall take action on the proposal by the affirmative vote of a simple
majority of the committee members. The committee is not subject to any direction
or control by the Board with respect to the committee's consideration of or any
action concerning a business combination or acquisition of shares pursuant to
this Section 12.02. A committee formed pursuant to this subsection shall be
composed of one or more members. Only disinterested Directors may be members of
a committee formed pursuant to this subsection. However, if the Board of
Directors has no disinterested Directors, the Board shall select three or more
disinterested persons to be committee members. For purposes of this subsection,
a Director or person is disinterested if the Director or person is not a present
or former officer or employee of the Company or an affiliate or associate of the
Company.
12.03. Requirements after Three Years. Except for the provisions
of Sections 12.02 and 12.04, the Company may not engage at any time in any
business combination or vote, consent, or otherwise act to authorize a
subsidiary of the Company to engage in any business combination with respect to,
proposed by, on behalf of, or pursuant to any agreement, arrangement, or
understanding, whether or not in writing, with an interested shareholder of the
Company or any affiliate or associate of the interested shareholder other than a
business combination meeting all the requirements of this Article XII, the
Articles, and the requirements specified in any of the following:
1. A business combination approved by the Board of Directors
of the Company before the interested shareholder's share acquisition date, or as
to which the acquisition of shares made by the interested shareholder on the
interested shareholder's acquisition date had been approved by the Board of
Directors before the interested shareholder's share acquisition date.
2. A business combination approved by the affirmative vote of
the holders of a majority of the outstanding shares entitled to vote not
beneficially owned by the interested shareholder proposing the business
combination or any affiliate or associate of the interested shareholder
proposing the business combination at a meeting called for that purpose no
earlier than three years after the interested shareholder's share acquisition
date.
3. A business combination, with respect to which the
consummation date is no earlier than three years after the interested
shareholder's share acquisition date, that meets all of the following
conditions:
(a) The aggregate amount of the cash and the market value as
of the consummation date of consideration other than cash to be
received per share by holders of outstanding common shares of the
Company in the business combination is at least equal to the
higher of the following:
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(i) The highest per share price paid by the interested
shareholder, at a time when the interested shareholder was the
beneficial owner, directly or indirectly, of five percent (5%)
or more of the outstanding shares entitled to vote of the
Company, for any common shares of the same class or series
acquired by it within the three (3) year period immediately
before the announcement date with respect to the business
combination or within the three (3) year period immediately
before, or in, the transaction in which the interested
shareholder became an interested shareholder, whichever is
higher, plus, in either case, interest compounded annually
from the earliest date on which the highest per share
acquisition price was paid through the consummation date at
the rate for one year United States treasury obligations from
time to time in effect less the aggregate amount of any cash
dividends paid, and the market value of any dividends paid
other than in cash, per common share since the earliest date,
up to the amount of the interest.
(ii) The market value per common share on the
announcement date with respect to the business combination or
on the interested shareholder's share acquisition date,
whichever is higher, plus interest compounded annually from
that date through the consummation date at the rate for one
year United States treasury obligations from time to time in
effect less the aggregate amount of any cash dividends paid
and the market value of any dividends paid other than in cash,
per common share since that date, up to the amount of the
interest.
(b) The aggregate amount of the cash and the market value as
of the consummation date of consideration other than cash to be
received per share by holders of outstanding shares of any class
or series of shares, other than common shares, of the Company in
the business combination is at least equal to the highest of the
following, whether or not the interested shareholder has
previously acquired any shares of the class or series:
(i) The highest per share price paid by the interested
shareholder, at a time when the interested shareholder was the
beneficial owner, directly or indirectly, of five percent (5%)
or more of the outstanding shares entitled to vote of the
Company, for any shares of the class or series acquired by it
within the three (3) year period immediately before the
announcement date with respect to the business combination or
within the three (3) year period immediately before, or in,
the transaction in which the interested shareholder became an
interested shareholder, whichever is higher, plus, in either
case, interest compounded annually from the earliest date on
which the highest per share acquisition price was paid through
the consummation date at the rate for one year United States
treasury obligations from time to time in effect less the
aggregate amount of any cash dividends paid and the market
value of any dividends paid other than in cash, per share of
the class or series since such earliest date, up to the amount
of the interest.
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(ii) The highest preferential amount per share to which
the holders of shares of the class or series are entitled in
the event of any voluntary liquidation, dissolution, or
winding up of the Company, plus the aggregate amount of any
unpaid dividends declared or due as to which the holders are
entitled before payment of dividends on some other class or
series of shares, unless the aggregate amount of the dividends
is included in the preferential amount.
(iii) The market value per share of the class or series
on the announcement date with respect to the business
combination or on the interested shareholder's share
acquisition date, whichever is higher, plus interest
compounded annually from that date through the consummation
date at the rate for one year United States treasury
obligations from time to time in effect less the aggregate
amount of any cash dividends paid and the market value of any
dividends paid other than in cash, per share of the class or
series since that date, up to the amount of the interest.
(c) The consideration to be received by holders of a
particular class or series of outstanding shares, including common
shares, of the Company in the business combination is in cash or in the
same form as the interested shareholder has used to acquire the largest
number of shares of the class or series of shares previously acquired
by it and the consideration is distributed promptly.
(d) The holders of all outstanding shares of the Company not
beneficially owned by the interested shareholder immediately before the
consummation date with respect to the business combination are entitled
to receive in the business combination cash or other consideration for
the shares in compliance with subdivisions (a), (b) and (c).
(e) After the interested shareholder's share acquisition date
and before the consummation date with respect to the business
combination, the interested shareholder has not become the beneficial
owner of any additional shares entitled to vote of the Company except:
(i) As part of the transaction that resulted in the
interested shareholder becoming an interested shareholder;
(ii) By virtue of proportionate share splits, share
dividends, or other distributions of shares in respect of
shares not constituting a business combination;
(iii) Through a business combination meeting all of the
conditions of Section 12.02 and this paragraph; or
23
<PAGE>
(iv) Through purchase by the interested shareholder at
any price that, if the price had been paid in an otherwise
permissible business combination the announcement date and
consummation date of which were the date of the purchase,
would have satisfied the requirements of subdivisions (a), (b)
and (c) of this Section.
12.04. Application. This Article XII does not apply to any
business combination of the Company with an interested shareholder of the
Company who became an interested shareholder inadvertently, if the interested
shareholder both:
1. As soon as practicable, divests itself of a sufficient
amount of the shares entitled to vote of the Company so that it no longer is the
beneficial owner, directly or indirectly, of ten percent (10%) or more of the
outstanding shares entitled to vote of the Company.
2. Would not at any time within the three (3) year period
preceding the announcement date with respect to the business combination have
been an interested shareholder except for the inadvertent acquisition.
XIII. LIMITATION ON SHARE REPURCHASES
13.01. Limitation on Share Repurchases. The Company shall not,
directly or indirectly, purchase or agree to purchase any shares entitled to
vote from a person, or two or more persons who act as a partnership, limited
partnership, syndicate or other group pursuant to any agreement, arrangement,
relationship, understanding or otherwise, whether or not in writing, for the
purpose of acquiring, owning or voting shares of the Company who beneficially
owns more than five per cent (5%) of the voting stock of the Company for more
than the "average market price" of the shares if the shares have been
beneficially owned by the person or persons for less than three (3) years,
unless the purchase or agreement to purchase is approved at a meeting of
shareholders by the affirmative vote of the holders of a majority of the voting
stock entitled to vote and not beneficially owned by such person or persons from
whom the proposed repurchase is to be made or the Company makes an offer, of at
least equal value per share, to all holders of shares of such class or series
and to all holders of any class or series into which the shares may be
converted.
13.02. Definitions. For the purposes of this Article, "average
market price" means the average closing sale price during the thirty trading
days immediately preceding the purchase of the shares in question, or if the
person or persons have commenced a tender offer or have announced an intention
to seek control of the Company, during the thirty trading days preceding the
earlier of the commencement of the tender offer or the making of the
announcement, of a share of the composite tape for New York Stock Exchange
listed shares or, if the shares are not quoted on the composite tape or not
listed on the New York Stock Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as amended, on
which the shares are listed or, if the
24
<PAGE>
shares are not listed on any such exchange, on the National Association of
Securities Dealers, Inc. Automated Quotations National Market System or, if the
shares are not quoted on the National Association of Securities Dealers, Inc.
Automated Quotations National Market System, the average closing bid quotation,
during the thirty trading days preceding the purchase of the shares in questions
of a share on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if the person or persons have
commenced a tender offer or have announced an intention to seek control of the
issuing public corporation, during the thirty trading days preceding the earlier
of the commencement of the tender offer or the making of the announcement,
except that if no quotation is available the average market price is the fair
market value on the date of purchase of the shares in question of a share as
determined in good faith by the Board of Directors of the Company.
XIV. AMENDMENTS
14.01. Amendment of Articles and Bylaws. Notwithstanding any
other provision of these Bylaws, Article Fifth of the Articles (Restated As of
July 29, 1988) and Sections 2.02, 3.01, and 3.13 and Articles XII, XIII, and XIV
of these Bylaws shall not be altered, amended, supplemented, repealed, or
temporarily or permanently suspended, in whole or in part, or replacement Bylaw
provisions adopted without: (I) the affirmative vote of a majority of the
directors then in office; or (ii) the affirmative vote of seventy-five percent
(75%) or more of the outstanding shares of the Company entitled to vote
generally.
25
<PAGE>
CERTIFICATE
I, FAYE WIDENMANN, Vice President and Secretary of Pinnacle West
Capital Corporation, an Arizona Corporation, do HEREBY CERTIFY that the
foregoing is a true and correct copy of the Company's Bylaws, as amended, and
that they are in full force and effect as of the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the corporation this 21st day of February, 1996.
FAYE WIDENMANN
Vice President and Secretary
26
EXHIBIT 10.1
SUMMARY OF THE COMPANY'S 1996 BONUS PLAN
Under the Pinnacle West Capital Corporation 1996 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 1996 include per-share earnings and the development and
implementation of long-term strategies for the Company and APS.
EXHIBIT 10.2a
FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT
BETWEEN PINNACLE WEST CAPITAL CORPORATION
AND RICHARD SNELL, DATED MARCH 28, 1991
WHEREAS, PINNACLE WEST CAPITAL CORPORATION, an Arizona corporation (the
"Company") and RICHARD SNELL (the "Employee") entered into an employment
agreement on March 28, 1991, effective as of February 5, 1990 (the "Agreement"),
pursuant to which the Company retained the services of the Employee as President
and Chief Executive Officer for a period of five years; and
WHEREAS, the Company now desires to continue to have the right to the services
of the Employee in such capacities for an additional period of two years and the
Employee is willing to continue his employment; and
WHEREAS, the Company and the Employee desire to amend the Agreement to extend
its term for an additional two years and to clarify the right of the Employee to
receive pension benefits which are equivalent to the pension benefits available
to officers of the Company generally; and
NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree as
follows:
1. This Amendment shall amend only the provisions of the Agreement as
set forth herein and those provisions not expressly amended hereby shall remain
in full force and effect.
2. Section 2.1(a) is hereby amended to read as follows:
(a) The Employee shall be employed by the Company for the duties as set
forth in Section 1 for the two (2) year period commencing on February
5, 1995, and ending on February 5, 1997, (the "Employment Term"),
unless the employment of the Employee terminates earlier in accordance
with the provisions of this Employment Agreement.
3. Section 3.3(c) is hereby amended to read as follows:
(c) The Company shall pay to the Employee a supplemental pension
benefit equal to the amount which the Employee would be entitled to
receive as an officer of the Company under the benefit formula set
forth under the terms and provisions of the Pinnacle West Capital
Corporation Supplemental Excess Benefit Retirement Plan (the "Excess
Benefit Plan") determined in accordance with the following assumptions:
(1) The Employee's "Years of Service" (as defined in
the Excess Benefit Plan) shall be assumed to be twenty-nine
(29) as of Februrary 5, 1990, and the Employee shall be
credited with an additional Year of Service for each year of
employment with the Company after that date;
<PAGE>
(2) The benefit shall be computed without regard to
any legal limitation and compensation that may be considered
as pensionable earnings under the Code or ERISA, without
regard to any legal limitation on benefits under the Code,
including Code Sections 401(a)(7) and 415 and the
corresponding provisions of the Pinnacle West Capital
Corporation Employees' Retirement Plan (the "Returement Plan")
and without regard to whether the employee is vested in his
benefits under the Retirement Plan;
(3) The benefit would be computed considering the
amounts payable under Section 3.1 and/or 3.2 here and above as
pensionable earnings;
(4) Any amounts payable to the Employee under the
Retirement Plan and under Excess Benefit Plan based on the
Employee's actual period of service and pensionable earnings
shall be subtracted from the amount payable pursuant to this
Section 3.3(c), so that there is no duplication of benefits;
and
(5) The benefit payable under this Section 3.3(c)
shall be paid in the same form as the benefit payable under
the Excess Benefit Plan.
The benefit payable hereunder may be paid, in the sole discretion of
the Company, from the Company's general assets or under a separate funding
vehicle.
4. This Amendment shall be effective as of February 5, 1995.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed by its duly authorized officers, and the Employee has executed this
Amendment this 31st day of March, 1995.
PINNACLE WEST CAPITAL CORPORATION
By H. B. Sargent
---------------------------------
Its Executive Vice President
---------------------------------
ATTEST:
By Faye Widenmann
- - ---------------------------
Its Secretary
- - ---------------------------
EMPLOYEE
Richard Snell
---------------------------------
Richard Snell
EXHIBIT 22
SUBSIDIARIES OF PINNACLE WEST CAPITAL CORPORATION
-------------------------------------------------
Arizona Public Service Company
State of Incorporation: Arizona
Bixco, 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
Golden Heritage Construction, Inc.
State of Incorporation: Arizona
SCM, Inc.
State of Incorporation: Arizona
Golf de Mexico, S.A. DE C.V.
Incorporation: Tijuana, Baja California, Mexico
SunCor Realty & Management Company
State of Incorporation: Arizona
Palm Valley Golf Club, Inc.
State of Incorporation: Arizona
El Dorado Investment Company
State of Incorporation: Arizona
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 2
to Registration Statement No. 33-15190 on Form S-3, Registration Statement Nos.
33-39208, 33-47534, 33-54287, 33-54307 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 1, 1996 (which expresses an unqualifed opinion and includes
an explanatory paragraph relating to the Company's change in method of
accounting for income taxes discussed in Note 4 to those financial statements),
appearing in this Annual Report on Form 10-K of Pinnacle West Capital
Corporation for the year ended December 31, 1995.
Deloitte & Touche LLP
Phoenix, Arizona
March 29, 1996
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