APS 2015 Annual Report Download - page 40

Table of Contents
postretirement benefit costs, cash contributions, regulatory assets, and charges to OCI. Changes in demographics, including increased
number of retirements or changes in life expectancy and changes in other actuarial assumptions, may also result in similar impacts. The
minimum contributions required under these plans are impacted by federal legislation. Increasing liabilities or otherwise increasing
funding requirements under these plans, resulting from adverse changes in legislation or otherwise, could result in significant cash
funding obligations that could have a material impact on our financial position, results of operations or cash flows.
We recover most of the pension costs and other postretirement benefit costs and all of the nuclear decommissioning costs in our
regulated rates. Any inability to fully recover these costs in a timely manner would have a material negative impact on our financial
condition, results of operations or cash flows.
Employee healthcare costs in recent years have continued to rise. Most of the Patient Protection and Affordable Care Act
provisions have been implemented; however, costs and other effects of the legislation, which may include the cost of compliance and
potentially increased costs of providing for medical insurance for our employees, cannot be determined with certainty at this time.
Our cash flow depends on the performance of APS.
We derive essentially all of our revenues and earnings from our wholly owned subsidiary, APS. Accordingly, our cash flow
and our ability to pay dividends on our common stock is dependent upon the earnings and cash flows of APS and its distributions to
us. APS is a separate and distinct legal entity and has no obligation to make distributions to us.
APS’s financing agreements may restrict its ability to pay dividends, make distributions or otherwise transfer funds to us. In
addition, an ACC financing order requires APS to maintain a common equity ratio of at least 40% and does not allow APS to pay
common dividends if the payment would reduce its common equity below that threshold. The common equity ratio, as defined in the
ACC order, is total shareholder equity divided by the sum of total shareholder equity and long-term debt, including current maturities of
long-term debt.
Pinnacle West’s ability to meet its debt service obligations could be adversely affected because its debt securities are structurally
subordinated to the debt securities and other obligations of its subsidiaries.
Because Pinnacle West is structured as a holding company, all existing and future debt and other liabilities of our subsidiaries
will be effectively senior in right of payment to our debt securities. The assets and cash flows of our subsidiaries will be available, in
the first instance, to service their own debt and other obligations. Our ability to have the benefit of their cash flows, particularly in the
case of any insolvency or financial distress affecting our subsidiaries, would arise only through our equity ownership interests in our
subsidiaries and only after their creditors have been satisfied.
The market price of our common stock may be volatile.
The market price of our common stock could be subject to significant fluctuations in response to factors such as the following,
some of which are beyond our control:
• variations in our quarterly operating results;
• operating results that vary from the expectations of management, securities analysts and investors;
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