Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated on-going earnings of $123.1 million, or $1.12 per diluted share of common stock, for the quarter ended June 30, 2012. This result compares with on-going earnings of $86.0 million or $0.78 per share, in the same 2011 period. The Company’s consolidated net income attributable to common shareholders for the 2012 second quarter was $122.3 million, or $1.11 per diluted share, compared with net income of $86.7 million, or $0.79 per share, for the same quarter a year ago. On-going earnings exclude results of discontinued operations related to the Company’s former real estate activities and energy services business. A reconciliation of reported earnings to on-going earnings is provided at the end of this release. “Temperatures well above normal during the quarter – combined with temperatures significantly below historical averages a year ago – positively impacted our second-quarter results,” said Pinnacle West Chairman, President and Chief Executive Officer Don Brandt. “The quarter-over-quarter swing in weather produced an 8.1 percent increase in retail electricity sales over the same period a year ago as people used their air-conditioners more to combat the early summer heat. “Looking forward, we continue to create value by achieving operational excellence, investing in Arizona’s sustainable energy future, and remaining focused on disciplined cost-management. Sticking with this approach provides us the opportunity to maintain high levels of reliability and customer satisfaction, while achieving our financial goals for investors through the duration of the four-year base-rate stay-out period agreed to in our 2012 retail regulatory settlement.” The second-quarter on-going results comparison was positively impacted by the following factors:
NON-GAAP FINANCIAL INFORMATION In this press release, we refer to “on-going earnings.” On-going earnings is a “non-GAAP financial measure,” as defined in accordance with SEC rules. We believe on-going earnings provide investors with a useful indicator of our results that is comparable among periods because it excludes the effects of unusual items that may occur on an irregular basis. Investors should note that these non-GAAP financial measures involve judgments by management, including whether an item is classified as an unusual item. We use on-going earnings, or similar concepts, to measure our performance internally in reports for management.
- Hotter-than-normal weather improved the Company’s earnings by $0.23 per share compared to the 2011 second quarter, during which abnormally mild weather adversely affected earnings by $0.15 per share compared with historically normal conditions. In the 2012 second quarter, there were 568 residential cooling degree-days (a proxy for the effects of weather) – 14 percent more than normal and 51 percent more than the year-ago second quarter.
- Lower infrastructure-related costs increased earnings by $0.06 per share, related to lower depreciation and amortization, primarily attributable to the operating license extensions at the Palo Verde Nuclear Generating Station in 2011; and decreased interest expense due to lower debt balances and interest rates. These lower costs were partially offset by higher property taxes .
- Higher transmission revenues augmented results by $0.05 per share, primarily because of a retail transmission rate increase implemented in July 2011.
- Lower fuel costs and improved mark-to-market valuations of fuel contracts, net of regulatory deferrals, raised results by $0.04 per share.
- The net effect of other miscellaneous items increased earnings $0.02 per share.
- Increased operations and maintenance expenses, due largely to stock compensation costs resulting from an improved company stock price and estimated performance, decreased earnings by $0.05 per share. The variance excludes costs associated with renewable energy, demand side management and similar regulatory programs, which are offset by comparable amounts of operating revenues.
- Lower retail electricity sales – excluding the effects of weather variations – reduced results $0.01 per share. The sales decrease, which was substantially offset by modest customer growth of about 1 percent, was primarily related to the impacts of customer conservation and energy efficiency and distributed renewable generation initiatives.
- Actual weather for the first six months of the year and normal weather patterns for remainder of the year;
- Weather-normalized retail electricity sales volume slightly below the prior year, in part due to the effects of customer conservation and energy efficiency and distributed renewable generation initiatives;
- Retail customer growth of about 1 percent;
- Total electricity gross margin (operating revenues, net of fuel and purchased power expenses, excluding Renewable Energy Surcharge and similar rate adjustors) of about $2.13 billion to $2.18 billion;
- Operating expenses (operations and maintenance, excluding costs for Renewable Energy Standard and similar regulatory programs; depreciation and amortization; and taxes other than income taxes) of about $1.33 billion to $1.36 billion;
- Interest expense, net of allowances for borrowed and equity funds used for construction, of about $180 million to $190 million; and
- An effective tax rate of about 35 percent.
|PINNACLE WEST CAPITAL CORPORATION NON-GAAP FINANCIAL MEASURE RECONCILIATION|
|NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS (GAAP MEASURE) TO ON-GOING EARNINGS (NON-GAAP FINANCIAL MEASURE)|
|Three Months EndedJune 30, 2012||Three Months EndedJune 30, 2011|
|Dollars inMillions||DilutedEPS||Dollars inMillions||DilutedEPS|
|Net Income Attributable to Common Shareholders||$||122.3||$||1.11||$||86.7||$||0.79|
|Less: Income (loss) from discontinued operations||(0.8||)||(0.01||)||0.7||0.01|
FORWARD-LOOKING STATEMENTSThis press release contains forward-looking statements based on our current expectations, including statements regarding our earnings guidance and financial outlook and goals. These forward-looking statements are often identified by words such as “estimate,” “predict,” “may,” “believe,” “plan,” “expect,” “require,” “intend,” “assume” and similar words. Because actual results may differ materially from expectations, we caution readers not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from outcomes currently expected or sought by Pinnacle West or APS. These factors include, but are not limited to:
- our ability to manage capital expenditures and operations and maintenance costs while maintaining reliability and customer service levels;
- variations in demand for electricity, including those due to weather, the general economy, customer and sales growth (or decline), and the effects of energy conservation measures and distributed generation;
- power plant and transmission system performance and outages;
- volatile fuel and purchased power costs;
- fuel and water supply availability;
- our ability to achieve timely and adequate rate recovery of our costs, including returns on debt and equity capital;
- regulatory and judicial decisions, developments and proceedings;
- new legislation or regulation including those relating to environmental requirements and nuclear plant operations;
- our ability to meet renewable energy and energy efficiency mandates and recover related costs;
- risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty;
- competition in retail and wholesale power markets;
- the duration and severity of the economic decline in Arizona and current real estate market conditions;
- the cost of debt and equity capital and the ability to access capital markets when required;
- changes to our credit ratings;
- the investment performance of the assets of our nuclear decommissioning trust, pension, and other postretirement benefit plans and the resulting impact on future funding requirements;
- the liquidity of wholesale power markets and the use of derivative contracts in our business;
- potential shortfalls in insurance coverage;
- new accounting requirements or new interpretations of existing requirements;
- generation, transmission and distribution facility and system conditions and operating costs;
- the ability to meet the anticipated future need for additional baseload generation and associated transmission facilities in our region;
- the willingness or ability of our counterparties, power plant participants and power plant land owners to meet contractual or other obligations or extend the rights for continued power plant operations;
- technological developments affecting the electric industry; and
- restrictions on dividends or other provisions in our credit agreements and Arizona Corporation Commission orders.
|PINNACLE WEST CAPITAL CORPORATION|
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME|
|(dollars and shares in thousands, except per share amounts)|
|THREE MONTHS ENDED||SIX MONTHS ENDED|
|JUNE 30,||JUNE 30,|
|Fuel and purchased power||264,723||244,049||481,032||456,056|
|Operations and maintenance||216,236||210,590||426,899||465,619|
|Depreciation and amortization||100,606||106,617||200,715||213,200|
|Taxes other than income taxes||41,289||40,155||83,764||77,779|
|Other Income (Deductions)|
|Allowance for equity funds used during construction||5,175||5,924||9,931||11,319|
|Allowance for borrowed funds used during construction||(3,447||)||(3,856||)||(6,598||)||(7,432||)|
|Income From Continuing Operations Before Income Taxes||207,619||144,003||203,258||127,630|
|Income From Continuing Operations||130,930||93,185||131,214||82,817|
|Income (Loss) From Discontinued Operations|
|Net of Income Taxes||(819||)||654||(1,584||)||1,348|
|Less: Net income attributable to noncontrolling interests||7,766||7,154||15,542||12,615|
|Net Income Attributable To Common Shareholders||$||122,345||$||86,685||$||114,088||$||71,550|
|Weighted-Average Common Shares Outstanding - Basic||109,491||109,044||109,395||108,939|
|Weighted-Average Common Shares Outstanding - Diluted||110,359||109,718||110,183||109,540|
|Earnings Per Weighted-Average Common Share Outstanding|
|Income from continuing operations attributable to common shareholders - basic||$||1.12||$||0.79||$||1.06||$||0.64|
|Net income attributable to common shareholders - basic||$||1.12||$||0.80||$||1.04||$||0.66|
|Income from continuing operations attributable to common shareholders - diluted||$||1.12||$||0.78||$||1.05||$||0.64|
|Net income attributable to common shareholders - diluted||$||1.11||$||0.79||$||1.04||$||0.65|
|Amounts Attributable To Common Shareholders|
|Income from continuing operations, net of tax||$||123,164||$||86,001||$||115,681||$||70,163|
|Discontinued operations, net of tax||(819||)||684||(1,593||)||1,387|
|Net income attributable to common shareholders||$||122,345||$||86,685||$||114,088||$||71,550|