PNM Resources Reports Fourth Quarter and Year-End Results

PNM Resources (In millions, except EPS)

Q4 2018

Q4 2017

YE 2018

YE 2017

GAAP net earnings (loss) attributable to PNM Resources

($55.1)

($54.3)

$85.6

$79.9

GAAP diluted EPS

($0.69)

($0.68)

$1.07

$1.00

Ongoing net earnings

$14.7

$19.4

$160.0

$155.3

Ongoing diluted EPS

$0.18

$0.24

$2.00

$1.94

PNM (In millions, except EPS)

Q4 2018

Q4 2017

YE 2018

YE 2017

GAAP net earnings (loss) attributable to PNM Resources

($56.9)

($32.2)

$54.7

$71.9

GAAP diluted EPS

($0.71)

($0.40)

$0.68

$0.90

Ongoing net earnings

$7.7

$12.8

$122.7

$118.4

Ongoing diluted EPS

$0.10

$0.16

$1.54

$1.48

TNMP (In millions, except EPS)

Q4 2018

Q4 2017

YE 2018

YE 2017

GAAP net earnings attributable to PNM Resources

$10.7

$1.0

$51.6

$35.6

GAAP diluted EPS

$0.13

$0.01

$0.64

$0.44

Ongoing net earnings

$11.8

$8.9

$52.7

$43.4

Ongoing diluted EPS

$0.14

$0.11

$0.65

$0.54

Corporate and Other (In millions, except EPS)

Q4 2018

Q4 2017

YE 2018

YE 2017

GAAP net earnings (loss) attributable to PNM Resources

($8.9)

($23.2)

($20.6)

($27.6)

GAAP diluted EPS

($0.11)

($0.29)

($0.25)

($0.34)

Ongoing net earnings (loss)

($4.7)

($2.2)

($15.3)

($6.5)

Ongoing diluted EPS

($0.06)

($0.03)

($0.19)

($0.08)

CONTACTS:

Analysts

Media

Lisa Goodman

Pahl Shipley

(505) 241-2160

(505) 259-8063

PNM Resources, Inc. and Subsidiaries

Schedule 1

Reconciliation of GAAP to Ongoing Earnings

Preliminary and Unaudited)

PNM

TNMP

Corporate
and Other

Consolidated

(in thousands)

Quarter Ended December 31, 2018

GAAP Net Earnings (Loss) Attributable to PNMR:

$

(56,938)

$

10,711

$

(8,850)

$

(55,077)

Adjusting items before income tax effects

Mark-to-market impact of economic hedges^4a

83

—

—

83

Net change in unrealized gains and losses on investment securities^4b

17,980

—

—

17,980

Regulatory disallowances and restructuring costs^{3, 4c}

66,191

(741)

—

65,450

Pension expense related to previously disposed of gas distribution business^4d

850

—

—

850

Loss related to previously disposed of activities^4e

—

—

1,354

1,354

Cost to review strategic growth opportunities^4d

—

—

1,034

1,034

Total adjustments before income tax effects

85,104

(741)

2,388

86,751

Income (taxes) on above adjustments¹

(21,617)

156

(607)

(22,068)

Impairment of state tax credits

—

—

(123)

(123)

Change in federal tax rate and other income tax adjustments²

1,119

1,673

2,473

5,265

Total income tax impacts^4f

(20,498)

1,829

1,743

Adjusting items, net of income taxes

64,606

1,088

4,131

69,825

Ongoing Earnings (Loss)

$

7,668

$

11,799

$

(4,719)

$

14,748

Year Ended December 31, 2018

GAAP Net Earnings (Loss) Attributable to PNMR:

$

54,683

$

51,591

$

(20,632)

$

85,642

Adjusting items before income tax effects

Mark-to-market impact of economic hedges^4a

—

—

—

—

Net change in unrealized gains and losses on investment securities^4b

19,910

—

—

19,910

Regulatory disallowances and restructuring costs^{3, 4c}

66,339

(741)

—

65,598

Pension expense related to previously disposed of gas distribution business^4d

3,401

—

—

3,401

Loss related to previously disposed of activities^4e

—

—

1,293

1,293

Cost to review strategic growth opportunities^4d

—

—

2,499

2,499

Total adjustments before income tax effects

89,650

(741)

3,792

92,701

Income (taxes) benefits on above adjustments¹

(22,771)

156

(963)

(23,578)

Impairment of state tax credits

—

—

—

—

Change in federal tax rate and other income tax adjustments²

1,119

1,673

2,473

5,265

Total income tax impacts^4f

(21,652)

1,829

1,510

(18,313)

Adjusting items, net of income taxes

67,998

1,088

5,302

74,388

Ongoing Earnings (Loss)

$

122,681

$

52,679

$

(15,330)

$

160,030

¹ 2018 income taxes effects calculated using tax rates of 21.00% for TNMP and 25.40% for other segments

² The Company completed its analysis and recorded related adjustments in the quarter ended December 31, 2018 to reflect the impacts of the reduction in the federal corporate income tax rate (as provided under Staff Accounting Bulletin No. 118)

³ Regulatory disallowances and restructuring costs are primarily related to impairment of PNM's 132 MW and 65 MW interests in SJGS Unit 4, adjustments to PNM's coal mine reclamation obligation that will not be recovered in the event of an early retirement of SJGS, and recovery of certain costs in TNMP's 2018 Rate Case

⁴ The pre-tax impacts (in thousands) of adjusting items are reflected on the GAAP Consolidated Statement of Earnings as follows:

^a Reductions in "Electric Operating Revenues" and "Cost of energy" of $230 and $147 in the three months ended December 31, 2018 and $1,051 and $1,051 in the year ended December 31, 2018

^b Losses included in "Gains (losses) on investment securities"

^c Increases (decreases) in "Regulatory disallowances and restructuring costs"

^d Increases in "Administrative and general"

^e Increases in "Taxes other than income taxes" of $1,354 in the three months and year ended December 31, 2018 and (increases) in "Other income" of $61 in the year ended December 31, 2018

^f Income tax impacts reflected in "Income Taxes"

PNM Resources, Inc. and Subsidiaries

Schedule 2

Reconciliation of GAAP to Ongoing Earnings

(Preliminary and Unaudited)

PNM

TNMP

Corporate
and Other

Consolidated

(in thousands)

Quarter Ended December 31, 2017

GAAP Net Earnings (Loss) Attributable to PNMR:

$

(32,154)

$

1,024

$

(23,152)

$

(54,282)

Adjusting items before income tax effects

Mark-to-market impact of economic hedges^4a

2,017

—

—

2,017

Net change in unrealized impairments of available-for-sale securities^4b

(2,124)

—

—

(2,124)

Regulatory disallowances and restructuring costs^{3, 4c}

27,036

—

—

27,036

Pension expense related to previously disposed of gas distribution business^4d

961

—

—

961

Total adjustments before income tax effects

27,890

—

—

27,890

Income (taxes) on above adjustments¹

(10,822)

—

—

(10,822)

Change in federal corporate income tax rate²

29,606

7,865

19,990

57,461

Other income tax impairments and valuation allowances

2,732

—

1,100

3,832

New Mexico corporate income tax rate change

(1,201)

—

(163)

(1,364)

Recovery of prior tax impairments in New Mexico general rate review

(3,297)

—

—

(3,297)

Total income tax impacts^4e

17,018

7,865

20,927

45,810

Adjusting items, net of income taxes

44,908

7,865

20,927

73,700

Ongoing Earnings (Loss)

$

12,754

$

8,889

$

(2,225)

$

19,418

Year Ended December 31, 2017

GAAP Net Earnings (Loss) Attributable to PNMR:

$

71,868

$

35,559

$

(27,553)

$

79,874

Adjusting items before income tax effects

Mark-to-market impact of economic hedges^4a

2,875

—

—

2,875

Net change in unrealized impairments of available-for-sale securities^4b

(3,258)

—

—

(3,258)

Regulatory disallowances and restructuring costs^{3, 4c}

27,036

—

—

27,036

Pension expense related to previously disposed of gas distribution business^4d

3,846

—

—

3,846

Total adjustments before income tax effects

30,499

—

—

30,499

Income (taxes) on above adjustments¹

(11,833)

—

—

(11,833)

Change in federal corporate income tax rate²

29,606

7,865

19,990

57,461

Other income tax impairments and valuation allowances

2,732

—

1,100

3,832

New Mexico corporate income tax rate change

(1,179)

—

(80)

(1,259)

Recovery of prior tax impairments in New Mexico general rate review

(3,297)

—

—

(3,297)

Total income tax impacts^4e

16,029

7,865

21,010

44,904

Adjusting items, net of income taxes

46,528

7,865

21,010

75,403

Ongoing Earnings (Loss)

$

118,396

$

43,424

$

(6,543)

$

155,277

¹ 2017 income taxes calculated using a tax rate of 38.80%

² Federal tax reform, which was enacted in December 2017, reduced the federal corporate income tax rate from 35% to 21%; GAAP required that accumulated deferred income tax assets and liabilities be re-measured to reflect the new rate; the re-measurement reductions in net deferred income tax liabilities related to regulated activities were recorded as increases in regulatory liabilities; the re-measurement reductions in net deferred income tax assets related to non-regulated activities were recorded as increases in income tax expense and are reflected as adjustments above

³ Regulatory disallowances and restructuring costs are primarily related to the January 2018 order in PNM's general rate review granting a debt-only return on $148.1 million of investments in the Four Corners Power Plant

⁴ The pre-tax impacts (in thousands) of adjusting items are reflected on the GAAP Consolidated Statement of Earnings as follows:

^a Reductions in "Electric Operating Revenues" and "Cost of energy" of $2,224 and $207 in the three months ended December 31, 2017 and increases in "Electric Operating Revenues and "Cost of energy" of $6,594 and $9,469 in the year ended December 31, 2017

^b (Gains) in "Gains (losses) on investment securities"

^c Increases in "Regulatory disallowances and restructuring costs"

^d Increases in "Administrative and general"

^e Income tax impacts reflected in "Income Taxes"

PNM Resources, Inc. and Subsidiaries

Schedule 3

Reconciliation of GAAP to Ongoing Earnings Per Diluted Share

(Preliminary and Unaudited)

PNM

TNMP

Corporate
and Other

Consolidated

(per diluted share)

Quarter Ended December 31, 2018

GAAP Net Earnings (Loss) Attributable to PNMR:

$

(0.71)

$

0.13

$

(0.11)

$

(0.69)

Adjusting items, net of income tax effects

Mark-to-market impact of economic hedges

—

—

—

—

Net change in unrealized gains and losses on investment securities

0.17

—

—

0.17

Regulatory disallowances and restructuring costs

0.62

(0.01)

—

0.61

Pension expense related to previously disposed of gas distribution business

0.01

—

—

0.01

Loss related to previously disposed of activities

—

—

0.01

0.01

Cost to review strategic growth opportunities

—

—

0.01

0.01

Change in federal tax rate and other income tax adjustments

0.01

0.02

0.03

0.06

Total Adjustments

0.81

0.01

0.05

0.87

Ongoing Earnings (Loss)

$

0.10

$

0.14

$

(0.06)

$

0.18

Average Diluted Shares Outstanding:  80,078,310

Year Ended December 31, 2018

GAAP Net Earnings (Loss) Attributable to PNMR:

$

0.68

$

0.64

$

(0.25)

$

1.07

Adjusting items, net of income tax effects

Mark-to-market impact of economic hedges

—

—

—

—

Net change in unrealized gains and losses on investment securities

0.20

—

—

0.20

Regulatory disallowances and restructuring costs

0.62

(0.01)

—

0.61

Pension expense related to previously disposed of gas distribution business

0.03

—

—

0.03

Loss related to previously disposed of activities

—

—

0.01

0.01

Cost to review strategic growth opportunities

—

—

0.02

0.02

Impairment of state tax credits

—

—

—

—

Change in federal tax rate and other income tax adjustments

0.01

0.02

0.03

0.06

Total Adjustments

0.86

0.01

0.06

0.93

Ongoing Earnings (Loss)

$

1.54

$

0.65

$

(0.19)

$

2.00

Average Diluted Shares Outstanding:  80,012,440

PNM Resources, Inc. and Subsidiaries

Schedule 4

Reconciliation of GAAP to Ongoing Earnings Per Diluted Share

(Preliminary and Unaudited)

PNM

TNMP

Corporate and Other

Consolidated

(per diluted share)

Quarter Ended December 31, 2017

GAAP Net Earnings (Loss) Attributable to PNMR:

$

(0.40)

$

0.01

$

(0.29)

$

(0.68)

Adjusting items, net of income tax effects

Mark-to-market impact of economic hedges

0.02

—

—

0.02

Net change in unrealized impairments of available-for-sale securities

(0.02)

—

—

(0.02)

Regulatory disallowances and restructuring costs

0.21

—

—

0.21

Pension expense related to previously disposed of gas distribution business

0.01

—

—

0.01

Change in federal corporate income tax rate

0.37

0.10

0.25

0.72

Other income tax impairments and valuation allowances

0.03

—

0.01

0.04

New Mexico corporate income tax rate change

(0.02)

—

—

(0.02)

Recovery of prior year impairments in New Mexico general rate review

(0.04)

—

—

(0.04)

Total Adjustments

0.56

0.10

0.26

0.92

Ongoing Earnings (Loss)

$

0.16

$

0.11

$

(0.03)

$

0.24

Average Diluted Shares Outstanding:  80,169,385

Year Ended December 31, 2017

GAAP Net Earnings (Loss) Attributable to PNMR:

$

0.90

$

0.44

$

(0.34)

$

1.00

Adjusting items, net of income tax effects

Mark-to-market impact of economic hedges

0.02

—

—

0.02

Net change in unrealized impairments of available-for-sale securities

(0.02)

—

—

(0.02)

Regulatory disallowances and restructuring costs

0.21

—

—

0.21

Pension expense related to previously disposed of gas distribution business

0.03

—

—

0.03

Change in federal corporate income tax rate

0.37

0.10

0.25

0.72

Other income tax impairments and valuation allowances

0.03

—

0.01

0.04

New Mexico corporate income tax rate change

(0.02)

—

—

(0.02)

Recovery of prior year impairments in New Mexico general rate review

(0.04)

—

—

(0.04)

Total Adjustments

0.58

0.10

0.26

0.94

Ongoing Earnings (Loss)

$

1.48

$

0.54

$

(0.08)

$

1.94

Average Diluted Shares Outstanding:  80,141,447

PNM Resources, Inc. and Subsidiaries

Schedule 5

Consolidated Statements of Earnings

(Preliminary and Unaudited)

Year Ended December 31,

2018

2017

2016

(In thousands, except per share amounts)

Electric Operating Revenues

$

1,436,613

$

1,445,003

$

1,362,951

Operating Expenses:

Cost of energy

399,726

407,479

380,596

Administrative and general

188,470

177,791

184,774

Energy production costs

149,477

137,450

146,187

Regulatory disallowances and restructuring costs

65,598

27,036

15,011

Depreciation and amortization

241,188

231,942

209,110

Transmission and distribution costs

76,434

71,576

66,227

Taxes other than income taxes

79,673

76,690

76,321

Total operating expenses

1,200,566

1,129,964

1,078,226

Operating income

236,047

315,039

284,725

Other Income and Deductions:

Interest income

15,540

15,916

22,293

Gains (losses) on investment securities

(17,176)

27,161

19,517

Other income

17,586

19,515

17,796

Other (deductions)

(15,696)

(24,247)

(20,524)

Net other income and deductions

254

38,345

39,082

Interest Charges

127,244

127,625

128,633

Earnings before Income Taxes

109,057

225,759

195,174

Income Taxes

7,775

130,340

63,278

Net Earnings

101,282

95,419

131,896

(Earnings) Attributable to Valencia Non-controlling Interest

(15,112)

(15,017)

(14,519)

Preferred Stock Dividend Requirements of Subsidiary

(528)

(528)

(528)

Net Earnings Attributable to PNMR

$

85,642

$

79,874

$

116,849

Net Earnings Attributable to PNMR per Common Share:

Basic

$

1.07

$

1.00

$

1.47

Diluted

$

1.07

$

1.00

$

1.46