SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 12, 1996
TUCSON ELECTRIC POWER COMPANY
-----------------------------
(Exact name of registrant as specified in its charter)
Arizona 1-5924 86-0062700
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
220 West Sixth Street, Tucson, Arizona 85701
(Address of principal executive office) (Zip Code)
(602) 571-4000
(Registrant's telephone number, including area code)
ITEM 5. -- OTHER EVENTS
Income Tax Benefits
Based on actual operating results for July and August
of 1996 and estimated operating results for September 1996,
the Company believes it will recognize income tax benefits
in September 1996 of approximately $65 million to $75
million, or approximately $2.02 to $2.33 per average share
of common stock, related to the expected future utilization
of net operating losses (NOLs) generated in prior periods.
The Company believes it is more likely than not that such
NOLs will be used in the future to reduce income taxes
payable. These tax benefits will be partially offset by
income tax expense related to the operating results for the
third quarter of 1996.
The recognition of the estimated benefit in the third
quarter of 1996 results from a revision in the estimated
amount of NOLs that the Company believes are likely to
reduce future taxable income. The Company recognizes
benefits related to prior period NOLs based on changes in
the estimated amount of NOLs that, in the Company's
judgment, are more likely than not to be realized in the
future. A significant factor, among others, considered in
estimating such amount is the three year historical average
net book income. The Company's operating results for the
third quarter of 1996 are expected to be significantly
greater than those for the third quarter of 1993, causing
the three year historical average net book income of the
Company to increase.
If the Company's operating results continue to improve,
the three year historical average net book income will
increase. Correspondingly, the Company will likely
recognize NOL benefits totaling up to approximately $70
million over the next two years relating to the remaining
unrecognized balance of prior period NOLs at September 30,
1996. The amount of NOL benefits recognized in periods
subsequent to the third quarter of 1996, if any, may vary
significantly from the estimated benefits described in this
paragraph. In addition, in future periods when such NOLs
are utilized to offset taxable income, income tax expense
shown on the Company's Consolidated Statements of Income
(Loss) will not be reduced to reflect such utilization.
Ruling on Arizona Sales Tax Assessment
As previously reported in Note 2, Tax Assessments, of
the Company's Notes to Consolidated Financial Statements
(Note 2) contained in the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1996, the Arizona
Department of Revenue (ADOR) issued transaction privilege
(sales) tax assessments to the Company alleging that
Valencia Energy Company (Valencia), a wholly-owned
subsidiary of the Company, was liable for sales tax on gross
income received from coal sales, transportation and coal-
handling services to the Company for the period November
1985 through May 1993. The Company had protested these
assessments. On March 11, 1994, the Arizona Tax Court
issued a Minute Entry granting Summary Judgment to the ADOR
and upholding the validity of the assessment issued for the
period November 1985 through March 1990. The Company
appealed this decision to the Court of Appeals. On
September 12, 1996, the Arizona Court of Appeals upheld the
validity of the assessment issued for the period November
1985 through March 1990. The Company intends to ask the
Court of Appeals for reconsideration of their September 12,
1996 decision. Additionally, the Company is still
protesting the assessments for the period April 1990 through
May 1993.
Previously, the Company had recorded an expense,
through the Consolidated Statements of Income (Loss) in
current and prior years and related liability for the amount
of sales taxes and interest thereon which the Company then
believed was probable of incurrence. As a result of the
Court of Appeals decision, the Company has now recorded an
additional pre-tax expense of approximately $9.2 million
($5.5 million after tax) in September 1996. The amounts
recorded by the Company included estimates for the period
June 1993 through September 1996, the period for which the
Company has not yet been assessed.
Generally, Arizona law requires payment of an
assessment due prior to pursuing the appellate process. The
Company has previously paid, under protest, a total of $23
million of the disputed sales tax assessments, subject to
refund in the event the Company would prevail. The Court's
decision does not require additional cash payments by the
Company at this time.
On May 31, 1996, Valencia was merged into the Company.
Effective with the merger, Valencia no longer supplies coal
to the Company. Instead the Company acquires coal directly
from the supplier. As a result, the Company believes it
will not be liable for transaction privilege tax computed on
a basis similar to the assessments described herein
subsequent to May 31, 1996.
Ruling on New Mexico Sales Tax Liability
In the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1996, the Company reported in Note 2
that the New Mexico Taxation and Revenue Department had
issued a gross receipts tax assessment to a seller from whom
Valencia purchased coal, alleging sales tax liability of
approximately $12 million on payments made to the seller for
coal Valencia purchased for resale and which Valencia
resold. The terms of the coal supply agreement provide that
the buyer shall bear and pay all such gross receipt taxes.
The assessment covered the period June 1993 to April 1996.
On September 18, 1996, the New Mexico Taxation and Revenue
Department issued an amended assessment showing that no such
taxes were owed. No adjustment was required as a result of
this amended assessment.
Reversal of Prior Period Losses
In the third quarter of 1996, the Company's investment
subsidiaries satisfied approximately $8.5 million of short-
term debt obligations with the assignment of certain finance
receivables held by such investment subsidiaries. Upon
settlement, a provision for loss recorded against such
receivables in prior years was reversed, resulting in pre-
tax income of approximately $8.5 million ($5.1 million after
tax).
* * *
Statements regarding NOL benefits to be recognized in
the third quarter of 1996 and subsequent periods made under
the caption "Income Tax Benefits" of this report constitute
"forward-looking statements," as defined in the Securities
Litigation Reform Act of 1995. Such forward-looking
statements involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those
expressed in such forward-looking statements. The
projections made herein are expressed in good faith and
believed by the Company to have a reasonable basis, but
there can be no assurance that actual income tax benefits
will not differ materially from the estimates described
herein. Actual operating results for September 1996 and
operating results for future periods could cause actual
results to differ materially from those set forth in the
forward-looking statements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
TUCSON ELECTRIC POWER COMPANY
(Registrant)
Date: October 1, 1996 Ira R. Adler
Ira R. Adler
Senior Vice President and
Principal Financial Officer