APS 2013 Annual Report Download - page 147

Table of Contents
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options Shares
Weighted-
Average
Exercise
Price
Outstanding at January 1,
2013 7,925 $ 32.29
Exercised 3,625 32.29
Forfeited or expired 4,300 32.29
Outstanding at December 31,
2013 — —
Cash received from options exercised under our share-based payment arrangements was $0.1 million for 2013, $0.5 million for 2012, and $1.8
million for 2011. The tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements were immaterial for all years.
The intrinsic value of options exercised was immaterial for all years.
As of December 31, 2013, there was $17 million of total unrecognized compensation cost related to nonvested share-based compensation
arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 2.0 years. The total fair value of shares vested
during 2013, 2012 and 2011 was $20 million, $19 million and $14 million, respectively.
The compensation cost that has been charged against Pinnacle West’s income for share-based compensation plans was $25 million in 2013, $32
million in 2012, and $23 million in 2011. The compensation cost that Pinnacle West has capitalized is immaterial for all years. Pinnacle West’s total income
tax benefit recognized in the Consolidated Statements of Income for share-based compensation arrangements was $10 million in 2013, $13 million in 2012,
and $9 million in 2011. APS’s share of compensation cost that has been charged against income was $25 million in 2013, $32 million in 2012, and $22
million in 2011.
Pinnacle West’s current policy is to issue new shares to satisfy share requirements for stock compensation plans, and it does not expect to repurchase
any shares except to satisfy tax withholding obligations upon the vesting of restricted stock units and performance shares.
17. Derivative Accounting
We are exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity, natural gas, coal, emissions
allowances and in interest rates. We manage risks associated with market volatility by utilizing various physical and financial derivative instruments,
including futures, forwards, options and swaps. As part of our overall risk management program, we may use derivative instruments to hedge purchases and
sales of electricity and fuels. Derivative instruments that meet certain hedge accounting criteria may be designated as cash flow hedges and are used to limit
our exposure to cash flow variability on forecasted transactions. The changes in market value of such instruments have a high correlation to price changes in
the hedged transactions. We also enter into derivative instruments for economic hedging purposes. While we believe the economic hedges mitigate exposure to
fluctuations in commodity prices, these instruments have not been designated as accounting hedges. Contracts that have the same terms (quantities, delivery
points and
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