FORM 10-Q
Securities and Exchange Commission
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2003
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-8962
PINNACLE WEST CAPITAL CORPORATION
| Arizona | 86-0512431 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| 400 North Fifth Street, P.O. Box 53999, Phoenix, Arizona | 85072-3999 | |
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| (Address of principal executive offices) | (Zip Code) | |
| Registrant’s telephone number, including area code: | (602) 250-1000 |
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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Number of shares of common stock, no par value,
outstanding as of November 12, 2003: 91,275,079
Glossary
ACC – Arizona Corporation Commission
ACC Staff – Staff of the Arizona Corporation Commission
AFUDC – allowance for funds used during construction
ALJ – administrative law judge
APS – Arizona Public Service Company, a subsidiary of the Company
APS Energy Services – APS Energy Services Company, Inc., a subsidiary of the Company
CAISO – California Independent System Operator
CC&N – Certificate of Convenience and Necessity
Citizens – Citizens Communications Company
Company – Pinnacle West Capital Corporation
CPUC – California Public Utility Commission
EITF – the FASB’s Emerging Issues Task Force
El Dorado – El Dorado Investment Company, a subsidiary of the Company
ERMC –Energy Risk Management Committee
FASB – Financial Accounting Standards Board
FERC – United States Federal Energy Regulatory Commission
FIN – FASB Interpretation
Financing Order – ACC order issued on April 4, 2003 relating to APS’ request to provide up to $500 million of financing or credit support to Pinnacle West Energy or the Company
GAAP – accounting principles generally accepted in the United States of America
Interim Financing Order – ACC order issued on November 22, 2002 relating to APS’ request to provide up to $125 million of financing or credit support to the Company
IRS – United States Internal Revenue Service
June 2003 10-Q – Pinnacle West Capital Corporation Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2003
March 2003 10-Q – Pinnacle West Capital Corporation Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2003
Moody’s – Moody’s Investors Service
MW – megawatt, one million watts
MWh – megawatt-hours, one million watts per hour
NAC – NAC International Inc., a subsidiary of El Dorado
Native Load – retail and wholesale sales supplied under traditional cost-based rate regulation
1999 Settlement Agreement – comprehensive settlement agreement approved by the ACC related to the implementation of retail electric competition
NRC – United States Nuclear Regulatory Commission
OCI – other comprehensive income
Palo Verde – Palo Verde Nuclear Generating Station
PG&E – PG&E Corp.
Pinnacle West – Pinnacle West Capital Corporation, the Company
Pinnacle West Energy – Pinnacle West Energy Corporation, a subsidiary of the Company
PWEC Dedicated Assets – the following Pinnacle West Energy power plants, each of which is dedicated to serving APS’ customers: Redhawk Units 1 and 2, West Phoenix Units 4 and 5 and Saguaro Unit 3
PX – California Power Exchange
Rules – ACC retail electric competition rules
SCE – Southern California Edison Company
SEC – United States Securities and Exchange Commission
SFAS – Statement of Financial Accounting Standards
SNWA – Southern Nevada Water Authority
SPE – special-purpose entity
Standard & Poor’s – Standard & Poor’s Corporation
SunCor – SunCor Development Company, a subsidiary of the Company
T&D – transmission and distribution
Track A Order – ACC order dated September 10, 2002 regarding generation asset transfers and related issues
Track B Order –ACC order dated March 14, 2003 regarding competitive solicitation requirements for power purchases by Arizona’s investor-owned electric utilities
Trading – energy-related activities entered into with the objective of generating profits on changes in market prices
2002 10-K – the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002
UniSource – UniSource Energy Corporation
VIE – variable interest entity
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
PINNACLE WEST CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
| Three Months Ended | ||||||||||
| September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Operating Revenues |
||||||||||
Regulated electricity segment |
$ | 694,306 | $ | 719,361 | ||||||
Marketing and trading segment |
154,519 | 87,258 | ||||||||
Real estate segment |
75,009 | 43,547 | ||||||||
Other revenues |
22,736 | 21,224 | ||||||||
Total |
946,570 | 871,390 | ||||||||
Operating Expenses |
||||||||||
Regulated electricity segment purchased power and fuel |
235,663 | 257,484 | ||||||||
Marketing and trading segment purchased power and fuel |
156,156 | 43,361 | ||||||||
Operations and maintenance |
133,852 | 144,438 | ||||||||
Real estate segment operations |
63,196 | 44,041 | ||||||||
Depreciation and amortization |
110,997 | 108,672 | ||||||||
Taxes other than income taxes |
28,206 | 26,757 | ||||||||
Other expenses |
19,650 | 34,146 | ||||||||
Total |
747,720 | 658,899 | ||||||||
Operating Income |
198,850 | 212,491 | ||||||||
Other |
||||||||||
Allowance for equity funds used during construction (Note 20) |
11,194 | — | ||||||||
Other income (Note 16) |
5,533 | 3,026 | ||||||||
Other expense (Note 16) |
(5,791 | ) | (10,713 | ) | ||||||
Total |
10,936 | (7,687 | ) | |||||||
Interest Expense |
||||||||||
Interest charges |
52,571 | 49,255 | ||||||||
Capitalized interest (Note 20) |
(2,851 | ) | (11,015 | ) | ||||||
Total |
49,720 | 38,240 | ||||||||
Income From Continuing Operations Before Income Taxes |
160,066 | 166,564 | ||||||||
Income Taxes |
50,528 | 65,851 | ||||||||
Income From Continuing Operations |
109,538 | 100,713 | ||||||||
Income From Discontinued Operations
- - Net of Income Tax Expense of $332 and $133 |
510 | 203 | ||||||||
Net Income |
$ | 110,048 | $ | 100,916 | ||||||
Weighted-Average Common Shares Outstanding — Basic |
91,271 | 84,768 | ||||||||
Weighted-Average Common Shares Outstanding — Diluted |
91,467 | 84,797 | ||||||||
Earnings Per Weighted-Average Common Share Outstanding (Note 18) |
||||||||||
Income From Continuing Operations — Basic |
$ | 1.20 | $ | 1.19 | ||||||
Net Income — Basic |
1.21 | 1.19 | ||||||||
Income From Continuing Operations — Diluted |
1.20 | 1.19 | ||||||||
Net Income — Diluted |
1.20 | 1.19 | ||||||||
Dividends Declared Per Share |
$ | 0.425 | $ | 0.40 | ||||||
See Notes to Condensed Consolidated Financial Statements.
3
PINNACLE WEST CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
| Nine Months Ended | ||||||||||
| September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Operating Revenues |
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Regulated electricity segment |
$ | 1,585,898 | $ | 1,596,440 | ||||||
Marketing and trading segment |
484,737 | 212,576 | ||||||||
Real estate segment |
172,886 | 127,352 | ||||||||
Other revenues |
64,494 | 28,382 | ||||||||
Total |
2,308,015 | 1,964,750 | ||||||||
Operating Expenses |
||||||||||
Regulated electricity segment purchased power and fuel |
434,442 | 423,606 | ||||||||
Marketing and trading segment purchased power and fuel |
447,499 | 109,625 | ||||||||
Operations and maintenance |
408,488 | 390,864 | ||||||||
Real estate segment operations |
157,297 | 123,219 | ||||||||
Depreciation and amortization |
323,471 | 310,114 | ||||||||
Taxes other than income taxes |
84,851 | 81,147 | ||||||||
Other expenses |
51,380 | 39,116 | ||||||||
Total |
1,907,428 | 1,477,691 | ||||||||
Operating Income |
400,587 | 487,059 | ||||||||
Other |
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Allowance for equity funds used during construction (Note 20) |
11,194 | — | ||||||||
Other income (Note 16) |
13,886 | 10,139 | ||||||||
Other expense (Note 16) |
(15,079 | ) | (26,787 | ) | ||||||
Total |
10,001 | (16,648 | ) | |||||||
Interest Expense |
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Interest charges |
151,539 | 140,538 | ||||||||
Capitalized interest (Note 20) |
(24,061 | ) | (38,782 | ) | ||||||
Total |
127,478 | 101,756 | ||||||||
Income From Continuing Operations Before Income Taxes |
283,110 | 368,655 | ||||||||
Income Taxes |
98,530 | 145,888 | ||||||||
Income From Continuing Operations |
184,580 | 222,767 | ||||||||
Income From Discontinued Operations
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- - Net of Income Tax Expense of $4,524 and $4,768 |
6,908 | 7,271 | ||||||||
Net Income |
$ | 191,488 | $ | 230,038 | ||||||
Weighted-Average Common Shares Outstanding — Basic |
91,262 | 84,768 | ||||||||
Weighted-Average Common Shares Outstanding — Diluted |
91,432 | 84,859 | ||||||||
Earnings
Per Weighted-Average Common Share Outstanding (Note
18) |
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Income From Continuing Operations — Basic |
$ | 2.02 | $ | 2.63 | ||||||
Net Income — Basic |
2.10 | 2.71 | ||||||||
Income From Continuing Operations — Diluted |
2.02 | 2.63 | ||||||||
Net Income — Diluted |
2.09 | 2.71 | ||||||||
Dividends Declared Per Share |
$ | 1.28 | $ | 1.20 | ||||||
See Notes to Condensed Consolidated Financial Statements.
4
PINNACLE WEST CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
| Twelve Months Ended | |||||||||||
| September 30, | |||||||||||
| 2003 | 2002 | ||||||||||
Operating Revenues |
|||||||||||
Regulated electricity segment |
$ | 2,002,481 | $ | 2,033,006 | |||||||
Marketing and trading segment |
598,092 | 229,996 | |||||||||
Real estate segment |
246,615 | 188,447 | |||||||||
Other revenues |
98,049 | 34,275 | |||||||||
Total |
2,945,237 | 2,485,724 | |||||||||
Operating Expenses |
|||||||||||
Regulated electricity segment purchased power and fuel |
510,379 | 520,231 | |||||||||
Marketing and trading segment purchased power and fuel |
531,913 | 122,979 | |||||||||
Operations and maintenance |
602,162 | 512,654 | |||||||||
Real estate segment operations |
220,003 | 175,433 | |||||||||
Depreciation and amortization |
437,439 | 419,175 | |||||||||
Taxes other than income taxes |
111,656 | 102,114 | |||||||||
Other expenses |
117,223 | 45,464 | |||||||||
Total |
2,530,775 | 1,898,050 | |||||||||
Operating Income |
414,462 | 587,674 | |||||||||
Other |
|||||||||||
Allowance for equity funds used during construction (Note 20) |
11,194 | — | |||||||||
Other income (Note 16) |
16,591 | 17,729 | |||||||||
Other expense (Note 16) |
(19,881 | ) | (40,256 | ) | |||||||
Total |
7,904 | (22,527 | ) | ||||||||
Interest Expense |
|||||||||||
Interest charges |
198,513 | 187,257 | |||||||||
Capitalized interest (Note 20) |
(29,028 | ) | (51,240 | ) | |||||||
Total |
169,485 | 136,017 | |||||||||
Income From Continuing Operations Before Income Taxes |
252,881 | 429,130 | |||||||||
Income Taxes |
84,870 | 170,557 | |||||||||
Income From Continuing Operations |
168,011 | 258,573 | |||||||||
Income From Discontinued Operations
|
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- - Net of Income Tax Expense of $5,628 and $4,768 |
8,592 | 7,271 | |||||||||
Cumulative Effect of a Change in Accounting for Trading Activities
|
|||||||||||
- Net of Income Tax Benefit of $43,123 |
(65,745 | ) | — | ||||||||
Net Income |
$ | 110,858 | $ | 265,844 | |||||||
Weighted-Average Common Shares Outstanding — Basic |
89,760 | 84,746 | |||||||||
Weighted-Average Common Shares Outstanding — Diluted |
89,919 | 84,851 | |||||||||
Earnings
Per Weighted-Average Common Share Outstanding (Note 18) |
|||||||||||
Income From Continuing Operations — Basic |
$ | 1.87 | $ | 3.05 | |||||||
Net Income — Basic |
1.24 | 3.14 | |||||||||
Income From Continuing Operations — Diluted |
1.87 | 3.05 | |||||||||
Net Income — Diluted |
1.23 | 3.13 | |||||||||
Dividends Declared Per Share |
$ | 1.70 | $ | 1.60 | |||||||
See Notes to Condensed Consolidated Financial Statements.
5
PINNACLE WEST CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands)
ASSETS
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
Current Assets |
||||||||||
Cash and cash equivalents |
$ | 201,746 | $ | 77,566 | ||||||
Customer and other receivables—net |
421,428 | 374,569 | ||||||||
Accrued utility revenues |
106,861 | 72,915 | ||||||||
Materials and supplies (at average cost) |
93,443 | 91,652 | ||||||||
Fossil fuel (at average cost) |
29,524 | 28,185 | ||||||||
Deferred income taxes |
4,094 | 4,094 | ||||||||
Assets
from risk management and trading activities (Note 10) |
84,276 | 102,664 | ||||||||
Real
estate assets held for sale (Note 19) |
— | 42,339 | ||||||||
Other current assets |
98,963 | 103,978 | ||||||||
Total current assets |
1,040,335 | 897,962 | ||||||||
Investments and Other Assets |
||||||||||
Real estate investments—net |
378,015 | 385,482 | ||||||||
Assets
from risk management and trading activities — long-term (Note 10) |
156,950 | 191,754 | ||||||||
Decommissioning trust accounts (Note 13) |
226,709 | 194,440 | ||||||||
Other assets |
34,101 | 35,451 | ||||||||
Total investments and other assets |
795,775 | 807,127 | ||||||||
Property, Plant and Equipment |
||||||||||
Plant in service and held for future use |
9,718,815 | 9,058,900 | ||||||||
Less accumulated depreciation and amortization |
3,464,840 | 3,474,325 | ||||||||
Total |
6,253,975 | 5,584,575 | ||||||||
Construction work in progress |
581,030 | 777,542 | ||||||||
Intangible assets, net of accumulated amortization (Note 14) |
121,323 | 109,815 | ||||||||
Nuclear fuel, net of accumulated amortization |
15,139 | 7,466 | ||||||||
Net property, plant and equipment |
6,971,467 | 6,479,398 | ||||||||
Deferred Debits |
||||||||||
Regulatory assets |
186,479 | 241,045 | ||||||||
Other deferred debits |
118,810 | 113,194 | ||||||||
Total deferred debits |
305,289 | |||||||||