Business Context and Reporting Period
This Form 8-K is a current report filed by PNM Resources, Inc. and its subsidiaries, Public Service Company of New Mexico and Texas-New Mexico Power Company (TXNM Energy Inc). The report, dated November 1, 2007, announces preliminary unaudited results of operations for the nine-month period ended September 30, 2007.
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 press release furnished as Exhibit 99.1, which is incorporated by reference but not detailed in the body of this 8-K.
Material Changes and Accounting Policy Updates
Beginning with this quarter, management has implemented a significant change in the presentation of non-GAAP financial measures. The company will now exclude net unrealized mark-to-market gains and losses on economic hedges from ongoing earnings. Management justifies this change because a large portion of the company's economic hedging activity is expected to settle in 2008 and beyond, meaning their inclusion in current earnings does not reflect the fundamental operations of the company's segments.
Guidance, Outlook, and Risks
The company utilizes "ongoing earnings guidance" to communicate expectations of financial performance. This guidance is a non-GAAP measure and is not intended to represent an expectation of net earnings as defined by GAAP. Management states it is generally unable to estimate the impact of reconciling items between ongoing earnings guidance and forecasted GAAP earnings, nor can it provide a corresponding GAAP equivalent for the guidance. Reconciling items may include cumulative effects of accounting changes, unusual transactions, and the aforementioned unrealized mark-to-market gains and losses.
Investor Verification Checklist
- Review Exhibit 99.1 (Press Release) for specific revenue, net income, and earnings per share figures for the nine months ended September 30, 2007.
- Verify the reconciliation between GAAP net income and the new non-GAAP "ongoing earnings" metric to understand the magnitude of excluded unrealized hedge gains/losses.
- Assess the impact of the accounting policy change on year-over-year comparability of non-GAAP results.
- Confirm the specific settlement timeline for economic hedges to validate management's rationale for the exclusion.