P N M R E S O U R C E S • 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 47 CONSOLIDATED STATEMENTS OF CASH FLOWS Consolidated Statements of Cash Flows  (In thousands) The accompanying notes are an integral part of these financial statements. AS OF DECEMBER 31, 2003 2002 2001 Cash Flows From Operating Activities: Net earnings $ 95,173)% $ $^{63,686}$)% $ $^{149,847}$)% Adjustments to reconcile net earnings to net cash flows from operating activities: Depreciation and amortization 144,854)% $^{115,415}$)% $^{106,768}$)% Allowance for equity funds used during construction (2,589)% $^{–}$)% $^{–}$)% Accumulated deferred income tax 90,175)% $^{44,138}$)% $^{(36,066)}$% Transition costs write-off 16,720)% $^{–}$)% $^{–}$)% Loss on reacquired debt 16,576)% $^{–}$)% $^{–}$)% Cumulative effect of a change in accounting principle (60,620)% $^{–}$)% $^{–}$)% Asset write-offs –)% $^{4,817}$)% $^{36,496}$)% Merger costs –)% $^{(2,436)}$% $^{17,975}$)% Net unrealized losses on trading and investment contracts (1,360)% $^{(29,513)}$% $^{26,172}$)% Wholesale credit reserve (2,433)% $^{–}$)% $^{(5,406)}$% Other, net –)% $^{2,083}$)% $^{(4,297)}$% Changes in certain assets and liabilities: Accounts receivables (21,344)% $^{2,830}$)% $^{36,297}$)% Unbilled revenues 5,539)% $^{3,936}$)% $^{22,765}$)% Accrued post-retirement benefit costs (14,962)% $^{(18,986)}$% $^{2,873}$)% Other assets (5,972)% $^{(41,152)}$% $^{17,841}$)% Accounts payable (7,317)% $^{34,597}$)% $^{(91,378)}$% Accrued interest and taxes (22,712)% $^{(25,833)}$% $^{35,133}$)% Other liabilities (1,036)% $^{(56,223)}$% $^{12,326}$)% NET CASH FLOWS FROM OPERATING ACTIVITIES 228,692)% $^{97,359}$)% $^{327,346}$)% Cash Flows From Investing Activities: Utility plant additions (167,701)% $^{(229,629)}$% $^{(253,899)}$)% Nuclear fuel additions (9,503)% $^{(10,596)}$% $^{(10,945)}$% Redemption of available-for-sale investments 80,291)% $^{76,633}$)% $^{(150,000)}$)% Combustion turbine payments (11,136)% $^{(29,975)}$% $^{–}$)% Bond purchase (6,675)% $^{(5,572)}$% $^{–}$)% Return of principal PVNGS lessor notes 18,360)% $^{17,531}$)% $^{16,674}$)% Merger acquisition costs –)% $^{–}$)% $^{(11,567)}$% Other (5,203)% $^{(18,819)}$% $^{2,723}$)% NET CASH FLOWS FROM INVESTING ACTIVITIES (101,567)% $^{(200,427)}$% $^{(407,014)}$% Cash Flows From Financing Activities: Short-term borrowings (repayments), net (note 4) (24,082)% $^{115,000}$)% $^{35,000}$)% Long-term debt borrowings 483,882)% $^{–}$)% $^{–}$)% Long-term debt repayments (476,572)% $^{–}$)% $^{–}$)% Premium on long-term debt refinancing (23,905)% $^{–}$)% $^{–}$)% Refund costs of pollution control bonds (31,427)% $^{–}$)% $^{–}$)% Exercise of employee stock options (note 10) (9,639)% $^{(2,412)}$% $^{(2,179)}$% Dividends paid (36,702)% $^{(34,226)}$% $^{(31,876)}$% Other 312)% $^{–}$)% $^{(560)}$% NET CASH FLOWS FROM FINANCING ACTIVITIES (118,133)% $^{78,362}$% $^{385}$)% Increase (Decrease) in Cash and Cash Equivalents 8,992)% $^{(24,706)}$% $^{(79,283)}$% Beginning of Year 3,702)% $^{28,408}$)% $^{107,691}$)% End of Year $ 12,694)% $ $^{3,702}$)% $ $^{28,408}$)% Supplemental Cash Flow Disclosures: Interest paid, net of capitalized interest $ 69,046)% $ $^{53,041}$)% $ $^{62,216}$)% Income taxes paid (refunded), net $ (23,154)% $ $^{13,541}$)% $ $^{72,146}$)% Non Cash Transactions: Long-term debt assumed for transmission line $ –)% $ $^{26,152}$)% $ $^{–}$)% Pension contribution of PNM Resources, Inc. common shares $ 28,950)% $ $^{–}$)% $ $^{–}$)% CONSOLIDATED STATEMENTS OF CAPITALIZATION 46 The accompanying notes are an integral part of these financial statements. AS OF DECEMBER 31, 2003 2002 Common Stock Equity: Common Stock, no par value (note 4) $ 647,722)% $ $^{624,119}$)% Accumulated other comprehensive income, net of tax (note 1) (73,487)% $^{(94,721)}$% Retained earnings 503,069)% $^{444,651}$)% TOTAL COMMON STOCK EQUITY 1,077,304)% $^{974,049}$)% Minority Interest (notes 1 and 5) –)% $^{11,760}$)% Cumulative Preferred Stock: (note 4) Without mandatory redemption requirements: 1965 Series, 4.58% with a stated value of $100.00 and a  current redemption price of $102.00. Outstanding shares  at December 31, 2003 and 2002 were 128,000 12,800)% $^{12,800}$)% Long-Term Debt: (note 4) Issue and Final Maturity First Mortgage Bonds, Pollution Control Revenue Bonds: 5.7% due 2016 65,000)% $^{65,000}$)% 6.375% due 2022 –)% $^{46,000}$)% TOTAL FIRST MORTGAGE BONDS 65,000)% $^{111,000}$)% Senior Unsecured Notes, Pollution Control Revenue Bonds: 6.30% due 2016 77,045)% $^{77,045}$)% 5.75% due 2022 37,300)% $^{37,300}$)% 5.80% due 2022 100,000)% $^{100,000}$)% 6.375% due 2022 90,000)% $^{90,000}$)% 6.375% due 2023 –)% $^{36,000}$)% 6.40% due 2023 –)% $^{100,000}$)% 6.30% due 2026 23,000)% $^{23,000}$)% 6.60% due 2029 11,500)% $^{11,500}$)% 2.75% due 2033 46,000)% $^{–}$)% 2.75% due 2033 100,000)% $^{–}$)% 2.75% due 2038 36,000)% $^{–}$)% TOTAL SENIOR UNSECURED NOTES, POLLUTION CONTROL REVENUE BONDS 520,845)% $^{474,845}$)% Senior Unsecured Notes: 7.10% due 2005 –)% $^{268,420}$)% 4.40% due 2008 300,000)% $^{–}$)% 7.50% due 2018 100,025)% $^{100,025}$)% EIP debt –)% $^{26,152}$)% Other, including unamortized discounts 1,340)% $^{(350)}$)% Total long-term debt 987,210)% $^{980,092}$)% TOTAL CAPITALIZATION $ 2,077,314)% $ $^{1,978,701}$)% Consolidated Statements of Capitalization  (In thousands)