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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION
15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED].
For the transition period from _______________ to _______________
Commission file number 1-8962
The Pinnacle West Capital Corporation Savings Plan
(Full title of the plan)
Pinnacle West Capital Corporation
(Name of issuer)
400 North Fifth Street
P.O. Box 53999
Phoenix, Arizona 85072-3999
(Address of issuer's principal executive office)
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TABLE OF CONTENTS
PAGE
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INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits
as of December 31, 2001 and 2000 2
Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 31, 2001 and 2000 3
Notes to Financial Statements 4 - 10
SUPPLEMENTAL SCHEDULE:
Form 5500, Schedule H: Schedule of Assets (Held at End of Year)
as of December 31, 2001 11
Exhibits Filed 12
INDEPENDENT AUDITORS' REPORT
To the Trustees and Participants of
The Pinnacle West Capital Corporation Savings Plan
Phoenix, Arizona
We have audited the accompanying statements of net assets available for benefits
of The Pinnacle West Capital Corporation Savings Plan (the "Plan") as of
December 31, 2001 and 2000, and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2001 and 2000, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment as of December 31, 2001, is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This schedule is the responsibility of
the Plan's management. Such schedule has been subjected to the auditing
procedures applied in our audit of the basic 2001 financial statements and, in
our opinion, is fairly stated in all material respects when considered in
relation to the basic financial statements taken as a whole.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
June 27, 2002
THE PINNACLE WEST CAPITAL CORPORATION SAVINGS PLAN
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STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2001 and 2000
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2001 2000
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ASSETS:
Investments at fair value except for
Fixed Income Fund that is at
contract value which
approximates fair value (Note 5) $520,394,373 $555,613,383
Temporary investments (at cost
which approximates fair value) 4,004,697 4,685,117
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TOTAL INVESTMENTS 524,399,070 560,298,500
Contributions receivable -- 1,460,970
Interest and other receivable 9,045 22,625
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TOTAL ASSETS 524,408,115 561,782,095
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LIABILITIES:
Securities purchased 524,850 803,188
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NET ASSETS AVAILABLE FOR BENEFITS $523,883,265 $560,978,907
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See notes to financial statements.
2
THE PINNACLE WEST CAPITAL CORPORATION SAVINGS PLAN
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STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2001 and 2000
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2001 2000
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ADDITIONS TO NET ASSETS
ATTRIBUTED TO:
Investment income (Note 2):
Dividends $ 5,984,220 $ 5,577,441
Interest and other income 3,105,013 2,680,044
Net appreciation/(depreciation) in fair
value of investments (Note 5)
Non-participant (Note 6): (9,648,818) 41,365,006
Participant (55,201,081) (13,326,560)
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Total net appreciation/(depreciation)
in fair value of investments (64,849,899) 28,038,446
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Total investment income/(loss) (55,760,666) 36,295,931
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Contributions (Note 1):
Pinnacle West Capital Corporation 8,760,678 8,317,161
Participants 30,821,858 28,937,199
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Total contributions 39,582,536 37,254,360
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Total additions/(deductions) (16,178,130) 73,550,291
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DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefit payments 20,683,414 28,146,206
Administrative expenses 211,194 251,111
Interplan transfers and other 22,904 (47,791)
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Total deductions 20,917,512 28,349,526
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Net increase/(decrease) (37,095,642) 45,200,765
NET ASSETS AVAILABLE FOR
BENEFITS:
Beginning of year 560,978,907 515,778,142
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End of year $ 523,883,265 $ 560,978,907
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See notes to financial statements.
3
THE PINNACLE WEST CAPITAL CORPORATION
SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE PLAN
The following description of The Pinnacle West Capital Corporation
Savings Plan (the "Plan") provides only general information. Participants
should refer to the plan agreement for a more complete description of the
Plan's provisions.
GENERAL - The Plan is sponsored by Pinnacle West Capital Corporation
("Pinnacle West," or "Company"). The Plan is administered by a committee
appointed by the Pinnacle West Board of Directors. The Plan is subject to
the provisions of the Employee Retirement Income Security Act of 1974
("ERISA"), as amended. Wells Fargo, Minnesota, N.A. ("Trustee") is the
trustee of the Plan.
ELIGIBILITY - Generally, all active employees of Pinnacle West and its
subsidiaries, including, Arizona Public Service Company, Pinnacle West
Energy Corporation, APS Energy Services Company, Inc., El Dorado Investment
Company and the active salaried employees of SunCor Development Company,
(collectively, "Employer"), are eligible to participate in the pre-tax and
after-tax features of the Plan upon attaining age 21 and completing
thirty-one days of consecutive employment and are eligible to participate
in the matching feature upon attaining age 21 and completing one year of
service. The Plan provides credit for periods of employment with an
affiliate of Pinnacle West as if the service was performed for the
Employer.
CONTRIBUTIONS - The Plan is a defined contribution plan. The Plan
allows employees to contribute up to 16% of their base pay on a pre-tax
basis or after-tax basis, provided that in no event can the total pre-tax
and after-tax contributions made by any participant in any year exceed 16%
of his or her base pay. The maximum allowable base pay ($170,000) and
pre-tax contribution ($10,500) are linked to the cost of living index and
could change on an annual basis.
Employer contributions are fixed at 50% of the first 6% of an
employee's pre-tax contributions. The Employer contributions may be in
cash, common stock or other property acceptable to the Trustee.
The Plan allows rollover contributions from another qualified plan or
individual retirement rollover account, subject to certain criteria.
INVESTMENT CHOICES - Participants' contributions may be invested in
one or more of the following funds: Pinnacle West Stock Fund, Index Fund,
Fixed Income Fund, Large Cap Equity Fund, International Equity Fund,
Conservative, Moderate, and Aggressive Lifestyle Funds, and Small Cap
Equity Fund.
4
LOAN FEATURE - Participants may borrow money from their pre-tax
contributions account, vested Employer contributions account and rollover
account (if any). Participants may not borrow against their Employer
transfer account or their after-tax contributions account.
The minimum participant loan available is $1,000, and the maximum
available is 50% of the participant's vested account balance, up to
$50,000, reduced by the participant's highest outstanding loan balance in
the 12-month period ending on the day before the loan is made. Only one
loan per participant may be outstanding at any one time. Loan terms range
from six months to five years, or up to 15 years for the purchase of a
principal residence. An administrative fee is charged to the participant's
account for each loan.
The interest rate is determined at the time the loan is requested and
is fixed for the life of the loan. The interest rate shall be at least as
great as the interest rate charged by the Trustee to its individual clients
for an unsecured loan on the date the loan is made. The Trustee currently
charges prime interest rate plus one percent, determined as of the first
business day of the month in which the loan is issued. Interest rates for
loans issued during 2001 ranged from 6.00% to 10.00%.
Loans are treated as an investment of the participant's accounts. To
fund the loan, transfers are made from the participant's investment funds
on a pro-rata basis. Loan repayments are invested in the participant's
investment funds based on the participant's current investment election.
Loan repayments, including interest, are generally made through irrevocable
semi-monthly payroll deductions.
VESTING - Each participant is fully vested as to the participant's
pre-tax, after-tax, and rollover contribution accounts (consisting of the
participant's contributions and related income and appreciation or
depreciation) and Employer transfer account. The participants become vested
in their Employer contribution account (consisting of Employer
contributions and related income and appreciation or depreciation) in the
event of termination of service by death, disability or retirement, upon
attaining the age of sixty-five, upon the completion of five years of
service, upon termination of the Plan, or upon complete discontinuance of
Employer contributions; otherwise, participants vest in graduated amounts
with 100 percent vesting in five years of plan participation, beginning
with the first plan year of employee participation.
WITHDRAWALS AND DISTRIBUTIONS - A participant may at any time make a
full or partial withdrawal of the balance in the participant's after-tax
contribution account and rollover contribution account. No withdrawals
before retirement are permitted from a participant's Employer transfer
account. No withdrawals before retirement are permitted from the
participant's pre-tax contribution account, except under certain limited
circumstances relating to financial hardship. If an employee withdraws
pre-tax contributions, the only earnings on those contributions that can be
withdrawn are those credited prior to 1989. Generally, participants who are
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fully vested and who have participated in the Plan for five complete plan
years may withdraw the amount in their Employer contribution account. When
the participant's employment with the Employer is terminated, the
participant generally can elect to receive, as soon as administratively
possible, a distribution of the vested portion of his or her Employer
contribution account together with the participant's contribution accounts
and Employer transfer account.
FORFEITURES - Forfeitures of nonvested Employer contributions will
occur upon the earlier of distribution following termination of employment
with the Employer or the end of the fifth calendar year following the
calendar year in which the participant terminated employment. However, if a
former participant who received a distribution becomes reemployed prior to
the end of the fifth calendar year following the calendar year in which the
participant's earlier termination of employment occurred, the forfeited
Employer contributions will be restored to the participant's Employer
contribution account; however, the forfeiture is restored only if the
participant repays the full amount previously distributed to him or her
within five years of his or her date of reemployment or, if earlier, the
last day of the fifth calendar year following the calendar year in which
the distribution occurred. Forfeitures are used to reduce future Employer
contributions to the Plan.
TERMINATION OF THE PLAN - It is the Company's present expectation that
the Plan and the payment of Employer contributions will be continued
indefinitely. However, continuance of any feature of the Plan is not
assumed as a contractual obligation. The Company, at its discretion, may
terminate the Plan and distribute net assets, subject to the provisions set
forth in ERISA. In this event, the balance credited to the accounts of
participants at the date of termination shall be fully vested and
nonforfeitable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING - The financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America. Investment transactions are recorded as of the trade
date. Interest income is recorded on the accrual basis. Dividend income is
recorded as of ex-dividend dates.
INVESTMENTS - The Plan consists of a salary reduction arrangement, an
employee after-tax contribution feature, and an employer matching
contribution feature. The investment choices for the Plan consisted of:
Pinnacle West Stock Fund -- The fund consists primarily of common
stock of Pinnacle West. The common stock is stated at fair value based
on quoted market prices in an active market.
Index Fund -- The fund consists of common stocks maintained by
the Trustee as part of a commingled fund. The fund is an S&P 500 and
is stated at fair value generally based on the last reported sales
price on the last business day of the calendar year.
6
Fixed Income Fund -- The fund consists primarily of several
benefit-responsive guaranteed investment contracts with varying rates
of interest and varying maturities maintained by Gartmore Morley
Financial. The fund is stated at contract value, which approximates
fair value.
Large Cap Equity Fund -- The fund consists primarily of common
stocks maintained by Putnam Investments as part of the Putnam Voyager
Fund, Class A. The fund is stated at fair value generally based on the
last reported sales price on the last business day of the calendar
year.
International Equity Fund -- The fund consists primarily of
stocks outside the United States and is maintained by Deutsche Asset
Management International Equity. The fund is stated at fair value
generally based on the last reported sales price on the last business
day of the calendar year.
Conservative, Moderate and Aggressive Lifestyle Funds -- These
funds consist primarily of cash, domestic stocks, international
stocks, and domestic bonds and are maintained by the Vanguard Group as
part of the Lifestrategy Portfolios. The funds are stated at fair
market value (marked to market) as of the market close each day.
Small Cap Equity Fund--This is a new fund as of July 3, 2001.
This fund consists primarily of common stock and emerging growth
companies regardless of size. The fund is stated at fair market value
(marked to market) as of the market close each day.
Temporary investments - Temporary investments represent cash or
other cash equivalents that are held until investments in other funds
can be made. All highly liquid debt instruments purchased with an
initial maturity of three months or less are treated as cash
equivalents. The fund is stated at cost, which approximates fair
value.
ADMINISTRATIVE EXPENSES - Substantially all costs of administration of
the Plan, except for loan administration fees, have been paid by the
Company.
PAYMENT OF BENEFITS - Benefits are recorded when paid.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of net assets available for benefits and
changes therein. Actual results could differ from those estimates. The Plan
utilizes various investment instruments. Investment securities, in general,
are exposed to various risks, such as interest rate, credit, and overall
market volatility. Due to the level of risk associated with certain
investment securities, it is reasonably possible that changes in the values
of investment securities will occur in the near term and that such changes
could materially affect the amounts reported in the financial statements.
7
RECLASSIFICATIONS- Certain prior year balances have been reclassified
to conform to current year presentation.
3. INCOME TAX STATUS
A determination letter dated March 12, 2002 has been received from the
Internal Revenue Service indicating that the Plan has been determined to be
a qualified plan under the provisions of the Internal Revenue Code. The
Plan has been amended since receiving the determination letter, and on
June 3, 2002, the Company filed a letter with the Internal Revenue
Service requesting a favorable determination letter relating to this
amendment. However, the Company's management and the plan administrator
believe that the Plan is currently designed and operated in compliance with
the applicable requirements of the Internal Revenue Code, and the Plan and
related trust continue to be tax-exempt (See Note 8 for additional
information). Therefore, no provision for income taxes has been included in
the Plan's financial statements.
4. GUARANTEED INVESTMENT CONTRACTS
Under the benefit-responsive contracts, interest rates on guaranteed
investment contracts ("GICs") vary within the Fixed Income Fund. The
contracts held in the Plan have a weighted average crediting interest rate
at December 31, 2001 of 6.03% and at December 31, 2000 of 6.44%. The
average yield for 2001 approximated the weighted average crediting interest
rate. The crediting interest rates on the GICs may be reset on a quarterly
or semi-annual basis, or may be fixed, based on the terms of the contract.
Twenty-three of the GICs are managed synthetic investment contracts.
The fair value of the assets related to these contracts is $57,372,410. The
contract value of these assets is $56,732,320.
5. INVESTMENTS AND UNITS OF PARTICIPATION
In accordance with the provisions of the Plan, the Trustee maintains
separate units of participation in the Plan and related net asset value per
unit for the Pinnacle West Stock Fund, Index Fund, Fixed Income Fund, Large
Cap Equity Fund, International Equity Fund, Conservative, Moderate and
Aggressive Lifestyle Funds, and Small Cap Equity Fund. The number of units
and the related value at December 31, 2001 and 2000 are as follows:
2001 Number of Units Value
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Pinnacle West Stock Fund 3,680,950 $153,618,604
Index Fund 3,839,465 128,940,333
Fixed Income Fund 7,302,346 84,689,385
Large Cap Equity Fund 4,114,563 70,966,542
International Equity Fund 647,249 6,705,967
Conservative Lifestyle Fund 414,655 5,834,649
Moderate Lifestyle Fund 854,844 13,635,275
Aggressive Lifestyle Fund 839,757 14,634,077
Small Cap Equity Fund 716,956 17,841,964
Participant Loans 23,527,577
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Total $520,394,373
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8
2000 Number of Units Value
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Pinnacle West Stock Fund 3,487,052 $166,480,849
Index Fund 3,870,143 148,052,969
Fixed Income Fund 6,126,617 67,305,627
Large Cap Equity Fund 4,952,745 106,890,926
International Equity Fund 742,860 9,897,831
Conservative Lifestyle Fund 330,329 4,863,689
Moderate Lifestyle Fund 794,673 13,757,799
Aggressive Lifestyle Fund 770,661 15,184,606
Participant Loans 23,179,087
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Total $555,613,383
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The Plan's investments (including gains and losses on investments
purchased and sold, as well as held during the year) appreciated
(depreciated) in value as follows for the years ended December 31, 2001 and
2000:
2001 2000
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Guaranteed Investment Contracts $ 4,233,132 $ 4,006,173
Mutual Funds (48,047,919) (39,636,842)
Pinnacle West Stock Fund (21,035,112) 63,669,113
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Net appreciation/(depreciation) in
fair value of investments ($64,849,899) $ 28,038,446
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6. NON-PARTICIPANT DIRECTED INVESTMENTS
Information about the net assets and the significant components of the
changes in net assets relating to the non-participant directed investments
is as follows as of and for the years ended December 31, 2001 and 2000:
2001 2000
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Pinnacle West Stock Fund Net Assets, beginning of year $107,966,421 $ 69,138,017
Changes in net assets during the year:
Net appreciation/(depreciation) in value (9,648,818) 41,365,006
Employer contributions 8,760,678 8,317,161
Benefits paid to participants (7,425,383) (10,853,763)
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Pinnacle West Stock Fund Net Assets, end of year $ 99,652,898 $107,966,421
============ ============
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7. RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by the
Trustee as defined by the Plan. Therefore, these transactions qualify as
party-in-interest transactions. In addition, certain Plan investments are
Pinnacle West common stock, qualifying these transactions as
party-in-interest transactions. Pinnacle West pays all administrative
expenses.
8. SUBSEQUENT EVENTS
On March 1, 2002, the Plan was amended to permit fully vested
participants to transfer amounts in their Employer contributions account
from the Pinnacle West Stock Fund to one or more of the other investment
options available under the Plan.
On April 1, 2002, Pinnacle West replaced the current International
Equity Fund, with Putnam International Growth Fund-Class A, which is
maintained by Putnam Investments.
Effective May 1, 2002, a stock bonus employee stock ownership feature
was added to the Plan with respect to the assets that are invested in the
Pinnacle West Stock Fund. If the IRS does not issue a favorable
determination letter with respect to this feature (see Note 3), it will
become null and void.
On June 1, 2002, the maximum employee contribution increased from 16%
to 50% of base pay on a pre-tax or after-tax basis. In no event can the
pre-tax and after-tax contribution exceed 50% of base pay, subject to the
IRS imposed maximum on pre-tax contributions.
Effective June 1, 2002, the Plan was amended for 2002 to permit
participants who will reach age 50 on or before December 31 of an
applicable year, and contribute the maximum pre-tax contributions for the
applicable year, to make catch-up contributions on a pre-tax basis. For
2002, the maximum catch-up contribution is $1,000. The limit on catch-up
contributions increases each year on January 1st by $1,000 until it reaches
$5,000 in 2006 and may be adjusted in subsequent years for cost-of-living
increases.
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THE PINNACLE WEST CAPITAL CORPORATION SAVINGS PLAN
FORM 5500, SCHEDULE H: SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2001
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Identity of Issuer, Borrower Description of Current
Lessor or Similar Party Fund Name Investment Units Cost Value
----------------------- --------- ---------- ----- ---- -----
Pinnacle West Capital Pinnacle West Stock Shares of company 3,680,950 $ 90,837,528 $153,618,604
Corporation Stock Fund Fund** common stock
S&P 500 Index Fund Index Fund Shares of mutual 3,839,465 * 128,940,333
fund investments
Gartmore Morley Financial Fixed Income Fund Guaranteed investment 7,302,346 * 84,689,385
Fixed Income Fund contracts, interest
rates, 4.467% - 7.10%
Putnam Investments as a Large Cap Equity Shares of mutual 4,114,563 * 70,966,542
part of the Putnam Voyager Fund fund investments
Fund, Class A
Deutsche Institutional International Equity Shares of mutual 647,249 * 6,705,967
International Equity Fund Fund fund investments
Vanguard Lifestrategy Conservative Lifestyle Shares of mutual 414,655 * 5,834,649
Conservative Growth Fund Fund fund investments
Vanguard Lifestrategy Moderate Lifestyle Shares of mutual 854,844 * 13,635,275
Moderate Growth Fund Fund fund investments
Vanguard Lifestrategy Aggressive Lifestyle Shares of mutual 839,757 * 14,634,077
Growth Fund Fund fund investments
Merrill Lynch Small Cap Small Cap Equity Shares of mutual 716,956 * 17,841,964
Equity Fund Fund fund investments
Participant Loans Participant Loans Interest rates, N/A * 23,527,577
6.00% - 10.00%
Cash and Other Short-Term N/A * 4,004,697
Investments
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Total Assets Held for Investment Purposes $524,399,070
============
* Cost information not provided as investments are participant-directed.
** Related Party
11
Exhibits Filed.
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Exhibit No. Description
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23.1 Independent Auditors' Consent
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Committee has duly caused this annual report to be signed by the undersigned
hereunto duly authorized.
THE PINNACLE WEST CAPITAL CORPORATION
SAVINGS PLAN
(Name of Plan)
Date: July 1, 2002 By Armando B. Flores
----------------------------------------
Armando B. Flores
Chairman of the Administrative Committee
and Executive Vice President,
Corporate Business Services
Pinnacle West Capital Corporation
13