86 P N M R E S O U R C E S TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF PNM RESOURCES, INC. AND PUBLIC SERVICE COMPANY OF NEW MEXICO We have audited the consolidated financial statements of PNM Resources, Inc. and subsidiaries and Public Service Company of New Mexico and subsidiaries (collectively, the “Companies”) as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, and have issued our reports thereon dated March 8, 2004 (which reports express unqualified opinions and include explanatory paragraphs referring to the adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003 and the change in actuarial valuation measurement date for the pension plan and other post-retirement benefits from September 30 to December 31); such financial statements and reports are included in this Annual Report on Form 10-K of PNM Resources, Inc. and Public Service Company of New Mexico. Our audits also included the consolidated financial statement schedules listed in Item 15. These financial statement schedules are the responsibility of each of the respective Companies’ management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Omaha, Nebraska March 8, 2004 Independent Auditors’ Report on Schedules INDEPENDENT AUDITORS’ REPORT ON SCHEDULES Quarterly Operating Results QUARTERLY OPERATING RESULTS The unaudited operating results by quarters for 2003 and 2002 are as follows (In thousands, except per share amounts): QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 2003: Operating Revenues $ 387,691(A) $ 340,211(A) $ 385,161(A) $ 342,651(A) Operating Income 33,426(A) 29,914(A) 35,881(A) 19,371(A) Net Earnings Before Cumulative Effect of Changes in Accounting Principles 10,748(A) 17,596(A) 16,568(A) 13,640(A) Net Earnings 48,170(A) 17,596(A) 16,568(B) 12,839(A) Net Earnings Per Share (Basic): Net Earnings Before Cumulative Effect of Changes in Accounting Principles 0.28(A) 0.45(A) 0.41(A) 0.34(A) Net Earnings 1.23(A) 0.45(A) 0.41(A) 0.32(A) Net Earnings Per Share (Diluted): Net Earnings Before Cumulative Effect of Changes in Accounting Principles 0.27(A) 0.44(A) 0.41(A) 0.34(A) Net Earnings 1.22(A) 0.44(A) 0.41(A) 0.32(A) 2002: Operating Revenues $ 301,817(A) $ 250,189(A) $ 274,675(A) $ 292,013(A) Operating Income 32,687(A) 19,449(A) 29,135(A) 20,503(A) Net Earnings Before Cumulative Effect of Changes in Accounting Principles 24,803(A) 11,010(A) 17,650(A) 10,223(A) Net Earnings  24,803(A) 11,010(A) 17,650(C) 10,223(A) Net Earnings Per Share (Basic): Net Earnings Before Cumulative Effect of Changes in Accounting Principles 0.63(A) 0.28(A) 0.45(A) 0.26(A) Net Earnings 0.63(A) 0.28(A) 0.45(A) 0.26(A) Net Earnings Per Share (Diluted): Net Earnings Before Cumulative Effect of Changes in Accounting Principles 0.63(A) 0.28(A) 0.45(A) 0.26(A) Net Earnings 0.63(A) 0.28(A) 0.45(A) 0.26(A) In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for such periods have been included. (A) Effective January 1, 2003, the Company adopted SFAS 143, Accounting for Asset Retirement Obligations. The effect was reported as a  cumulative effect of a change in accounting principle, which increased the Company’s net earnings by approximately $37.4 million, net of tax expense of approximately $24.5 million, or $0.93 per diluted common share. In the first quarter of 2003, the Company wrote-off  transition costs previously capitalized in anticipation of deregulation, which decreased the Company’s net earnings by approximately $9.5 million, net of tax benefit of $7.2 million, or $0.24 per diluted common share. (B) In the third quarter of 2003, the Company recognized a loss on reacquired debt, which decreased the Company’s net earnings by $10.0  million, net of tax benefit of $6.6 million, or $0.25 per diluted common share. (C) In the third quarter of 2002, the Company was realigned due to changes in the industry, which decreased the Company’s net earnings  by $5.3 million, net of tax benefit of $3.5 million, or $0.14 per diluted common share. • 2 0 0 3 A n n u a l R e p o r t t o S h a r e h o l d e r s 87