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| PNW > SEC Filings for PNW > Form 10-Q on 29-Oct-2009 | All Recent SEC Filings |
29-Oct-2009
Quarterly Report
During the first quarter of 2009, SunCor undertook and completed a review of its
assets and strategies within its various markets as a result of the then current
and anticipated continuing distressed conditions in real estate and credit
markets. Based on the results of the review, on March 27, 2009, SunCor's Board
of Directors authorized a series of strategic transactions to dispose of
SunCor's homebuilding operations, master-planned communities, land parcels,
commercial assets and golf courses in order to reduce SunCor's outstanding debt.
This resulted in a pretax impairment charge of approximately $202 million, or
$123 million after income taxes, in the first quarter of 2009. During the second
and third quarters of 2009, SunCor reassessed market conditions and recorded
additional pretax impairment charges of approximately $6 million and
$38 million, or $4 million and $23 million after income taxes, respectively. Of
the total $246 million impairment charge for the nine months ended September 30,
2009, approximately $13 million related to assets held for sale and
approximately $233 million related to held and used assets. We believe that most
of the assets to be sold do not meet the held for sale and discontinued
operations criteria as of September 30, 2009 because of the uncertainties
related to the current market conditions and obtaining necessary approvals. See
"Liquidity and Capital Resources - Other Subsidiaries - SunCor" below for a
discussion of SunCor's outstanding debt and related matters.
Our other first tier subsidiaries, El Dorado and APSES, are not expected to have
any material impact on our financial results, or to require any material amounts
of capital, over the next three years.
See "Factors Affecting Our Financial Outlook" below for a discussion of several
factors that could affect our future financial results.
• our real estate segment, which consists of SunCor's real estate development and investment activities.
Operating Results - Three-month period ended September 30, 2009 compared with three-month period ended September 30, 2008 Our consolidated net income attributable to common shareholders for the three months ended September 30, 2009 was $187 million, compared with net income of $152 million for the comparable prior-year period. The increase in net income was primarily due to improved results from the Company's regulated electricity segment relating to increased mark-to-market valuations of fuel and purchased power contracts and increased revenues due to the interim rate increase effective January 1, 2009. These positive factors were partially offset by higher interest charges, net of capitalized financing costs.
The following table presents net income attributable to common shareholders by business segment compared with the prior-year period:
Increase
(Decrease)
in Net Income
Three Months Ended Attributable
September 30, to Common
2009 2008 Shareholders
(dollars in millions)
Regulated Electricity Segment:
Operating revenues less fuel and purchased
power expenses $ 702 $ 620 $ 82
Operations and maintenance (205 ) (209 ) 4
Depreciation and amortization (101 ) (97 ) (4 )
Taxes other than income taxes (34 ) (28 ) (6 )
Other income (expenses), net 2 (6 ) 8
Interest charges, net of capitalized financing
costs (53 ) (41 ) (12 )
Income taxes (111 ) (81 ) (30 )
Regulated electricity segment net income 200 158 42
Real Estate Segment:
Other real estate activities 18 (11 ) 29
Real estate impairment charges (37 ) - (37 )
Income taxes 7 5 2
Real estate segment net loss (12 ) (6 ) (6 )
All other (a) (1 ) - (1 )
Net Income Attributable to Common Shareholders $ 187 $ 152 $ 35
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(a) Includes activities related to marketing and trading, APSES and El Dorado. None of these segments is a reportable segment.
Regulated electricity segment
This section includes a discussion of major variances in income and expense
amounts for the regulated electricity segment.
Operating revenues less fuel and purchased power expenses Regulated electricity segment operating revenues less fuel and purchased power expenses were $82 million higher for the three months ended September 30, 2009 compared with the prior-year period. The following table describes the major components of this change:
Increase (Decrease)
Purchased
Operating power and fuel
revenues expenses Net change
(dollars in millions)
Increased mark-to-market valuations of fuel
and purchased power contracts related to
favorable changes in market prices, net of
related PSA deferrals $ $ (37 ) $ 37
Interim retail rate increases effective
January 1, 2009 21 21
Higher renewable energy and demand-side
management surcharges (substantially offset in
operations and maintenance expense) 17 17
Effects of hotter weather on retail sales 12 4 8
Transmission rate increases 7 7
Lower retail sales primarily due to lower
usage per customer, including the effects of
the energy efficiency programs, but excluding
the effects of weather (11 ) (4 ) (7 )
Higher retail revenues related to recovery of
PSA deferrals, offset by amortization of the
same amount recorded as fuel and purchased
power expense (see Note 5) 5 5 -
Miscellaneous items, net (8 ) (7 ) (1 )
Total $ 43 $ (39 ) $ 82
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Operations and maintenance Operations and maintenance expenses decreased
$4 million for the three months ended September 30, 2009 compared with the
prior-year period primarily because of:
• A decrease of $21 million associated with cost saving measures and other
factors, including the absence of employee severance costs in 2009; and
• An increase of $17 million related to renewable energy and demand-side management programs, which are offset in operating revenues.
Depreciation and amortization Depreciation and amortization expenses increased
$4 million for the three months ended September 30, 2009 compared with the
prior-year period primarily because of increases in utility plant in service.
The increases in utility plant in service are the result of various improvements
to APS' existing fossil and nuclear generating plants and distribution and
transmission infrastructure additions and upgrades.
Taxes other than income taxes Taxes other than income taxes increased $6 million
for the three months ended September 30, 2009 compared with the prior-year
period primarily because of higher property tax assessments as a result of
increased utility plant in service described above.
Interest charges, net of capitalized financing costs Interest charges, net of
capitalized financing costs increased $12 million for the three months ended
September 30, 2009 compared with the prior-year period primarily because of
higher debt balances, partially offset by the effects of lower interest rates
(see discussion related to APS' debt issuances in "Pinnacle West Consolidated -
Liquidity and Capital Resources" below). Interest charges, net of capitalized
financing costs are comprised of the line items interest expense, capitalized
interest and allowance for equity funds used during construction from the
Condensed Consolidated Statements of Income.
Other income (expenses), net Other income (expenses), net improved $8 million
for the three months ended September 30, 2009 compared with the prior-year
period primarily because of improved investment gains (losses). Other income
(expenses), net is comprised of the line items other income and other expense
from the Condensed Consolidated Statements of Income.
Income taxes Income taxes were $30 million higher for the three months ended
September 30, 2009 compared with the prior-year period primarily because of
higher pretax income.
Real estate segment
During the first quarter of 2009, we decided to restructure SunCor through the
sale of the substantial majority of its assets. The real estate segment net
income attributable to common shareholders was $6 million lower for the three
months ended September 30, 2009 compared with the prior-year period primarily
because of:
• Real estate impairment charges of $37 million recorded in the 2009 period
(see Note 21 for details of the impairment charge), without comparable
charges in the prior-year period;
• A $29 million increase in other real estate activities primarily due to increased parcel sales in the 2009 period; and
• A $2 million decrease in income taxes related to lower pretax income.
Operating Results - Nine-month period ended September 30, 2009 compared with
nine-month period ended September 30, 2008
Our consolidated net income attributable to common shareholders for the nine
months ended September 30, 2009 was $98 million, compared with net income of
$281 million for the comparable prior-year period. The decrease in net income
was primarily due to 2009 real estate impairment charges recorded by SunCor, the
Company's real estate subsidiary.
In addition, regulated electricity segment net income decreased approximately
$16 million from the prior-year period primarily due to lower retail sales
resulting from lower usage per customer; higher interest charges, net of
capitalized financing costs; higher depreciation and amortization expenses; and
the absence of income tax benefits related to prior years recorded in 2008.
These negative factors were partially offset by increased revenues due to the
interim rate increase effective January 1, 2009 and transmission rate increases.
The following table presents net income attributable to common shareholders by business segment compared with the prior-year period:
Increase
(Decrease)
in Net Income
Nine Months Ended Attributable
September 30, to Common
2009 2008 Shareholders
(dollars in millions)
Regulated Electricity Segment:
Operating revenues less fuel and purchased
power expenses $ 1,578 $ 1,476 $ 102
Operations and maintenance (633 ) (589 ) (44 )
Depreciation and amortization (298 ) (287 ) (11 )
Taxes other than income taxes (101 ) (94 ) (7 )
Other income (expenses), net 1 (12 ) 13
Interest charges, net of capitalized financing
costs (147 ) (121 ) (26 )
Income taxes (143 ) (100 ) (43 )
Regulated electricity segment net income 257 273 (16 )
Real Estate Segment:
Real estate impairment charges (247 ) - (247 )
Other real estate operations (6 ) (28 ) 22
Income taxes 93 11 82
Income (loss) from discontinued operations (8 ) 25 (33 )
Noncontrolling interests 15 - 15
Real estate segment net income (loss) (153 ) 8 (161 )
All Other (a) (6 ) - (6 )
Net Income Attributable to Common Shareholders $ 98 $ 281 $ (183 )
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(a) Includes activities related to marketing and trading, APSES and El Dorado. None of these segments is a reportable segment.
Regulated electricity segment
This section includes a discussion of major variances in income and expense
amounts for the regulated electricity segment.
Operating revenues less fuel and purchased power expenses Regulated electricity segment operating revenues less fuel and purchased power expenses were $102 million higher for the nine months ended September 30, 2009 compared with the prior-year period. The following table describes the major components of this change:
Increase (Decrease)
Purchased
Operating power and fuel
revenues expenses Net change
(dollars in millions)
Interim retail rate increases effective
January 1, 2009 $ 50 $ $ 50
Higher renewable energy and demand-side
management surcharges (substantially offset in
operations and maintenance expense) 49 49
Transmission rate increases 16 16
Increased mark-to-market valuations of fuel
and purchased power contracts related to
favorable changes in market prices, net of
related PSA deferrals (9 ) 9
Effects of weather on retail sales, primarily
due to hotter weather in the third quarter of
2009 9 2 7
Lower retail sales primarily due to lower
usage per customer, including the effects of
the Company's energy efficiency programs, but
excluding the effects of weather (41 ) (18 ) (23 )
Higher fuel and purchased power costs
including the effects of lower off-system
sales, net of related PSA deferrals (26 ) (21 ) (5 )
Lower retail revenues related to recovery of
PSA deferrals, offset by lower amortization of
the same amount recorded as fuel and purchased
power expense (see Note 5) (43 ) (43 ) -
Miscellaneous items, net (8 ) (7 ) (1 )
Total $ 6 $ (96 ) $ 102
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Operations and maintenance Operations and maintenance expenses increased
$44 million for the nine months ended September 30, 2009 compared with the
prior-year period primarily because of:
• An increase of $48 million related to renewable energy and demand-side
management programs, which are offset in operating revenues;
• An increase of $14 million in generation costs, including more planned maintenance, partially offset by lower costs at Palo Verde due to cost efficiency measures; and
• A decrease of $18 million associated with cost saving measures and other factors, including the absence of employee severance costs in 2009.
Depreciation and amortization Depreciation and amortization expenses increased
$11 million for the nine months ended September 30, 2009 compared with the
prior-year period primarily because of increases in utility plant in service.
The increases in utility plant in service are the result of various improvements
to APS' existing fossil and nuclear generating plants and distribution and
transmission infrastructure additions and upgrades.
Taxes other than income taxes Taxes other than income taxes increased $7 million
for the nine months ended September 30, 2009 compared with the prior-year period
primarily because of higher property tax assessments as a result of increased
utility plant in service described above.
Interest charges, net of capitalized financing costs Interest charges, net of
capitalized financing costs increased $26 million for the nine months ended
September 30, 2009 compared with the prior-year period primarily because of
higher debt balances, partially offset by the effects of lower interest rates
(see discussion related to APS' debt issuances in "Pinnacle West Consolidated -
Liquidity and Capital Resources" below). Interest charges, net of capitalized
financing costs are comprised of the line items interest expense, capitalized
interest and allowance for equity funds used during construction from the
Condensed Consolidated Statements of Income.
Other income (expenses), net Other income (expenses), net improved $13 million
for the nine months ended September 30, 2009 compared with the prior-year period
primarily because of improved investment gains (losses). Other income
(expenses), net is comprised of the line items other income and other expense
from the Condensed Consolidated Statements of Income.
Income taxes Income taxes were $43 million higher for the nine months ended
September 30, 2009 compared with the prior-year period primarily because of
$30 million of income tax benefits related to prior years recorded in 2008 and
higher pretax income.
Real estate segment
During the first quarter of 2009, we decided to restructure SunCor through the
sale of the substantial majority of its assets. The real estate segment net loss
attributable to common shareholders was $161 million higher for the nine months
ended September 30, 2009 compared with the prior-year period primarily because
of:
• Real estate impairment charges of $247 million recorded in the 2009 period
(see Note 21 for details of the impairment charge), without comparable
charges in the prior-year period;
• An increase of $22 million from other real estate operations primarily due to increased parcel sales in the 2009 period;
• A decrease of $33 million in income from discontinued operations related to gains on certain real estate commercial property sales in 2008 and real estate impairment charges in 2009 (see Note 21);
• An increase of $15 million related to noncontrolling interests' portion of real estate impairment charges and other results (see Note 21); and
• An increase in income tax benefits of $82 million primarily because of higher net loss.
All other
All other earnings were $6 million lower for the nine months ended September 30,
2009 compared to the prior-year period primarily because of planned reductions
of marketing and trading activities.
PINNACLE WEST CONSOLIDATED - LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following table presents net cash provided by (used for) operating,
investing and financing activities for the nine months ended September 30, 2009
and 2008 (dollars in millions):
Nine Months Ended
September 30,
2009 2008
Net cash flow provided by operating activities $ 761 $ 784
Net cash flow used for investing activities (537 ) (597 )
Net cash flow used for financing activities (229 ) (139 )
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The decrease of approximately $23 million in net cash provided by operating
activities is primarily due to changes in working capital, including a 2009
income tax refund (see Note 8).
The decrease of approximately $60 million in net cash used for investing
activities is primarily due to lower levels of capital expenditures net of
contributions (see table and discussion below), partially offset by lower real
estate sales primarily due to a commercial property sale in 2008.
The increase of approximately $90 million in net cash used for financing
activities is primarily due to repayments of short-term borrowings and SunCor's
repayment of long-term debt, partially offset by APS' issuance of $500 million
of unsecured senior notes (see Note 4).
CAPITAL EXPENDITURES
(dollars in millions)
Nine Months Ended Estimated for the Year Ended
. . .
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