Business Context and Reporting Period
This Form 8-K, filed on August 2, 2007, reports a material accounting restatement for PNM Resources, Inc. (PNMR) and its wholly-owned subsidiary, Public Service Company of New Mexico (PNM). The filing addresses an error in the amortization of gains from 1985-1986 sale-leaseback transactions involving the Palo Verde Nuclear Generating Station. Management determined that financial statements for the fiscal year ended December 31, 2006, and the quarter ended March 31, 2007, must be restated in accordance with SEC Staff Accounting Bulletin 108.
Key Financial Metrics and Restatement Impact
The restatement corrects the amortization period for gains attributable to New Mexico customers, which should have been amortized over 15 years rather than the lease lives. The filing does not provide current revenue, cash flow, or debt figures, focusing solely on the adjustment to net earnings and retained earnings.
- Retained Earnings Adjustment: Beginning balance as of January 1, 2004, increased by $15.5 million for both PNMR and PNM.
- Annual Net Earnings Impact: A reduction of $1.3 million in net earnings due to the removal of the incorrect amortization.
- Cash Flow Impact: No impact on net cash flows from operating activities, as the change in net earnings is offset by a change in deferred credits.
Material Changes Versus Prior Periods
The following table summarizes the restatement impacts on previously reported net earnings and earnings per share (EPS) for PNMR:
| Period | Previously Reported Net Earnings ($M) | Restatement Adjustment ($M) | Restated Net Earnings ($M) | Previously Reported Basic EPS | Restated Basic EPS |
|---|---|---|---|---|---|
| Year Ended Dec 31, 2006 | 122.1 | (1.3) | 120.8 | 1.75 | 1.73 |
| Year Ended Dec 31, 2005 | 67.2 | (1.3) | 65.9 | 1.02 | 1.00 |
| Year Ended Dec 31, 2004 | 87.7 | (1.3) | 86.4 | 1.45 | 1.43 |
| Three Months Ended Mar 31, 2007 | 30.0 | (0.3) | 29.7 | 0.39 | 0.39 |
| Three Months Ended Mar 31, 2006 | 26.3 | (0.3) | 26.0 | 0.38 | 0.38 |
| Three Months Ended Jun 30, 2006 | 16.3 | (0.3) | 16.0 | 0.24 | 0.23 |
| Six Months Ended Jun 30, 2006 | 42.6 | (0.6) | 42.0 | 0.62 | 0.61 |
PNM, as a subsidiary, does not report earnings per share. Its net earnings were similarly reduced by $1.3 million annually for the years 2004-2006.
Guidance, Outlook, and Risks
The filing contains no forward-looking guidance, outlook, or management commentary regarding future operational performance. The primary risk disclosed is the historical accounting error regarding the treatment of sale-leaseback gains, which has now been corrected. The filing notes that the New Mexico Public Service Commission had previously ordered the rate-making treatment to reduce electric rates over 15 years, which was not aligned with the financial reporting treatment until this restatement.
Key Facts for Investor Verification
- Verify the updated Form 10-K and Form 10-Q filings to confirm the restated financial statements are reflected in subsequent reports.
- Confirm that the $15.5 million increase to retained earnings as of January 1, 2004, has been properly recorded in the balance sheet.
- Note that the restatement reduces historical net earnings by $1.3 million annually but has no impact on cash flow.
- Review the specific impact on diluted EPS, which decreased by $0.02 per share for full years and $0.01 for certain quarters.