Business Context and Reporting Period
This Form 8-K, filed on November 3, 2011, reports the unaudited results of operations for PNM Resources, Inc. (the "Company") and its subsidiaries, Public Service Company of New Mexico and Texas-New Mexico Power Company, for the three and nine months ended September 30, 2011. The filing incorporates by reference a press release (Exhibit 99.1) containing detailed financial statements.
Key Financial Metrics
The filing text does not provide specific numerical values for revenue, profit, cash flow, margins, debt, or liquidity. These figures are contained within the incorporated press release (Exhibit 99.1) and are not explicitly stated in the body of this 8-K document.
The Company utilizes several non-GAAP financial measures to evaluate performance, including:
- Ongoing earnings and ongoing earnings per diluted share.
- Cash earnings.
- Earnings before interest, taxes, depreciation, and amortization (EBITDA).
These measures exclude net unrealized mark-to-market gains/losses on economic hedges, changes in unrealized impairments on nuclear decommissioning trusts, and certain non-recurring items.
Material Changes and Unusual Items
Optim Energy Investment:
- Impairment: As of December 31, 2010, the Company determined its entire investment in Optim Energy was impaired and reduced the carrying value to zero. No further GAAP losses were recorded in 2011 as there is no contractual requirement to provide additional resources.
- Ownership Reduction: On September 23, 2011, the Company reduced its ownership stake in Optim Energy from 50% to 1%.
- Non-GAAP Treatment: The Company included its share of Optim Energy ongoing losses in ongoing earnings through August 31, 2011, to reflect its prior involvement in the business.
Guidance, Outlook, and Management Commentary
Management provides guidance based on non-GAAP "ongoing earnings," "ongoing EBITDA," and "cash earnings" to reflect expectations of ongoing financial performance. The Company explicitly states that:
- Ongoing earnings guidance is not a substitute for GAAP net earnings.
- Management is generally unable to estimate the impact of reconciling items (such as mark-to-market adjustments or non-recurring transactions) on forecasted GAAP earnings.
- Consequently, the Company does not provide a corresponding GAAP equivalent for its earnings guidance.
Investor Verification Checklist
- Review Exhibit 99.1 (Press Release) for specific GAAP and non-GAAP financial figures for the three and nine months ended September 30, 2011.
- Verify the reconciliation between reported GAAP earnings and the non-GAAP "ongoing earnings" metrics used in management guidance.
- Confirm the impact of the Optim Energy ownership reduction on future financial reporting and potential residual liabilities.
- Assess the magnitude of excluded items (mark-to-market hedges, nuclear decommissioning impairments) to understand the variance between GAAP and non-GAAP results.