EX-99.2 5 exh99_2.htm ITEM 6 OF FORM 10-K FOR F/Y/E 12/31/05: SELECTED CONSOLIDATED FINANCIAL DATA Item 6 of Form 10-K for F/Y/E 12/31/05: Selected Consolidated Financial Data
EXHIBIT 99.2
 
ITEM 6. - SELECTED CONSOLIDATED FINANCIAL DATA 

UniSource Energy
  
2005
  
2004
  
2003
  
2002
  
2001
  
   
- In Thousands -
(except per share data)
  
Summary of Operations
                      
Operating Revenues (1)
  
$
1,224,056
  
$
1,164,988
  
$
970,651
  
$
838,829
  
$
1,607,156
  
Loss Before Income Taxes of Millennium Energy Businesses
  
$
(9,449
)
$
(6,920
)
$
(26,350
)
$
(30,702
)
$
(14,455
)
Income Before Discontinued Operations, Extraordinary Item and Accounting Change (1)
  
$
52,253
  
$
50,982
  
$
53,942
  
$
47,847
  
$
73,295
  
Net Income (1) (2)
  
$
46,144
  
$
45,919
  
$
113,941
  
$
34,928
  
$
63,839
  
Basic Earnings per Share:
                                
Before Discontinued Operations, Extraordinary Item & Accounting Change
  
$
1.51
  
$
1.49
  
$
1.60
  
$
1.42
  
$
2.20
  
Net Income
  
$
1.33
  
$
1.34
  
$
3.37
  
$
1.04
  
$
1.91
  
Diluted Earnings per Share:
                                
Before Discontinued Operations, Extraordinary Item & Accounting Change
  
$
1.44
  
$
1.45
  
$
1.57
  
$
1.40
  
$
2.15
  
Net Income
  
$
1.28
  
$
1.31
  
$
3.32
  
$
1.02
  
$
1.87
  
Shares of Common Stock Outstanding
                                
Average
    
34,798
    
34,380
    
33,828
    
33,665
    
33,398
  
End of Year
    
34,874
    
34,255
    
33,788
    
33,579
    
33,502
  
                                 
Year-end Book Value per Share
  
$
17.69
  
$
16.95
  
$
16.47
  
$
13.60
  
$
13.17
  
Cash Dividends Declared per Share
  
$
0.76
  
$
0.64
  
$
0.60
  
$
0.50
  
$
0.40
  
                                 
Financial Position
                                
Total Utility Plant - Net
  
$
2,171,461
  
$
2,081,137
  
$
2,069,215
  
$
1,835,904
  
$
1,832,164
  
Investments in Lease Debt and Equity
  
$
156,301
  
$
170,893
  
$
178,789
  
$
191,867
  
$
84,459
  
Other Investments and Other Property
  
$
55,694
  
$
68,846
  
$
90,137
  
$
104,884
  
$
84,172
  
Total Assets
  
$
3,138,319
  
$
3,186,936
  
$
3,135,013
  
$
2,897,932
  
$
2,931,302
  
                                 
Long-Term Debt (3)
  
$
1,212,420
  
$
1,257,595
  
$
1,286,320
  
$
1,128,963
  
$
802,804
  
Non-Current Capital Lease Obligations
    
665,737
    
701,931
    
762,968
    
801,611
    
853,793
  
Common Stock Equity
    
616,741
    
580,718
    
556,472
    
456,640
    
441,133
  
Total Capitalization
  
$
2,494,898
  
$
2,540,244
  
$
2,605,760
  
$
2,387,214
  
$
2,097,730
  
                                 
Selected Cash Flow Data
                                
Net Cash Flows From Operating Activities
  
$
276,410
  
$
306,979
  
$
263,396
  
$
176,437
  
$
215,379
  
                                 
  Capital Expenditures
  
$
(203,362
)
$
(166,861
)
$
(135,731
)
$
(105,359
)
$
(119,609
)
  Other Investing Cash Flows
    
32,794
    
10,672
    
(215,001
)
  
(165,531
)
  
2,762
  
Net Cash Flows From Investing Activities
  
$
(170,568
)
$
(156,189
)
$
(350,732
)
$
(270,890
)
$
(116,847
)
                                 
Net Cash Flows From Financing Activities
  
$
(115,191
)
$
(98,028
)
$
97,674
  
$
(42,773
)
$
(33,382
)
                                 
Ratio of Earnings to Fixed
Charges (4)
    
1.55
    
1.48
    
1.44
    
1.50
    
1.87
  
 
- 21 -

(1) In 2003, Operating Revenues, Income Before Extraordinary Item and Accounting Change and Net Income include results from UES for the period from August 11, 2003 to December 31, 2003.

(2) Net Income includes an after-tax loss for discontinued operations of $5 million in 2005, $5 million in 2004, $7 million in 2003, $13 million in 2002 and $10 million in 2001. Net income includes an after-tax loss of $0.6 million for the Cumulative Effect of Accounting Change from the implementation of FIN 47 in 2005, an after-tax gain of $67 million for the Cumulative Effect of Accounting Change from the implementation of FAS 143 in 2003 and $0.5 million for the Cumulative Effect of Accounting Change from the implementation of FAS 133 in 2001.

(3) TEP’s tax-exempt variable rate bonds in the amount of $329 million are backed by LOCs issued under TEP’s Credit Agreement. TEP’s obligations under the Credit Agreement are collateralized with 1992 Mortgage Bonds. In November 2002, TEP obtained new LOCs in the amount of $341 million to replace the LOCs provided under its then existing Credit Agreement that would have expired on December 30, 2002. The 2002 LOCs would have expired in 2006. Accordingly, these IDBs were classified as short-term debt at December 31, 2001 and classified as long-term debt at December 31, 2002. TEP entered into a new Credit Agreement in May 2005, which provided LOCs that expire in 2010.

(4) For purposes of this computation, earnings are defined as pre-tax earnings from continuing operations before minority interest, plus interest expense, and amortization of debt discount and expense related to indebtedness. Fixed charges are interest expense, including amortization of debt discount and expense on indebtedness.

See Item 7. - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 6. - SELECTED CONSOLIDATED FINANCIAL DATA 

TEP
  
2005
  
2004
  
2003
  
2002
  
2001
  
   
-Thousands of Dollars-
  
Summary of Operations
                      
Operating Revenues
  
$
937,470
  
$
889,298
  
$
851,551
  
$
834,447
  
$
1,604,961
  
Income Before Extraordinary Item and Accounting Change
  
$
48,893
  
$
46,127
  
$
61,442
  
$
55,390
  
$
77,308
  
Net Income (1)
  
$
48,267
  
$
46,127
  
$
128,913
  
$
55,390
  
$
77,778
  
                                 
Financial Position
                                
Total Utility Plant - Net
  
$
1,866,622
  
$
1,816,782
  
$
1,832,156
  
$
1,835,904
  
$
1,832,164
  
Investments in Lease Debt and Equity
  
$
156,301
  
$
170,893
  
$
178,789
  
$
191,867
  
$
84,459
  
Other Investments and Other Property
  
$
24,238
  
$
23,393
  
$
41,285
  
$
21,358
  
$
21,416
  
Total Assets
  
$
2,575,435
  
$
2,742,168
  
$
2,767,047
  
$
2,808,810
  
$
2,824,555
  
                                 
Long-Term Debt(2)
  
$
821,170
  
$
1,097,595
  
$
1,126,320
  
$
1,128,410
  
$
801,924
  
Non-Current Capital Lease Obligations
    
665,299
    
701,405
    
762,323
    
801,508
    
853,447
  
Common Stock Equity
    
558,646
    
414,510
    
406,054
    
353,832
    
337,082
  
Total Capitalization
  
$
2,045,115
  
$
2,213,510
  
$
2,294,697
  
$
2,283,750
  
$
1,992,453
  
                                 
Selected Cash Flow Data
                                
Net Cash Flows From Operating Activities
  
$
243,013
  
$
275,151
  
$
260,989
  
$
206,991
  
$
261,169
  
 
                                
Capital Expenditures
  
$
(149,906
)
$
(129,505
)
$
(121,854
)
$
(103,307
)
$
(103,913
)
Other Investing Cash Flows
    
21,001
    
3,743
    
11,408
    
(151,035
)
  
(8,861
)
Net Cash Flows From Investing Activities
  
$
(128,905
)
$
(125,762
)
$
(110,446
)
$
(254,342
)
$
(112,774
)
                                 
Net Cash Flows From Financing Activities
  
$
(173,882
)
$
(101,444
)
$
(141,059
)
$
(56,551
)
$
(77,427
)
                                 
Ratio of Earnings to Fixed Charges (3)
    
1.60
    
1.52
    
1.51
    
1.60
    
1.85
  
 
- 22 -

(1) Net Income includes an after-tax loss of $0.6 million for the Cumulative Effect of Accounting Change from the implementation of FIN 47 in 2005, an after-tax gain of $67 million for the Cumulative Effect of Accounting Change from the implementation of FAS 143 in 2003 and $0.5 million for the Cumulative Effect of Accounting Change from the implementation of FAS 133 in 2001.

(2) TEP’s tax-exempt variable rate bonds in the amount of $329 million are backed by LOCs issued under TEP’s Credit Agreement. TEP’s obligations under the Credit Agreement are collateralized with 1992 Mortgage Bonds. In November 2002, TEP obtained new LOCs in the amount of $341 million to replace the LOCs provided under its then existing Credit Agreement that would have expired on December 30, 2002. The 2002 LOCs would have expired in 2006. Accordingly, these IDBs were classified as short-term debt at December 31, 2001 and classified as long-term debt at December 31, 2002. TEP entered into a new Credit Agreement in May 2005, which provided LOCs that expire in 2010.

(3) For purposes of this computation, earnings are defined as pre-tax earnings from continuing operations before minority interest, plus interest expense and amortization of debt discount and expense related to indebtedness. Fixed charges are interest expense, including amortization of debt discount and expense on indebtedness.

Note: Disclosure of earnings per share information for TEP is not presented as the common stock of TEP is not publicly traded.

See Item 7. - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

NON-GAAP MEASURES

Adjusted EBITDA

Adjusted EBITDA represents EBITDA excluding the cumulative effect of accounting change which is a non-cash item. EBITDA is earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is presented here as a measure of liquidity because it can be used as an indication of a company’s ability to incur and service debt and is commonly used as an analytical indicator in our industry. Adjusted EBITDA measures presented may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is not a measurement presented in accordance with United States generally accepted accounting principles (GAAP), and we do not intend Adjusted EBITDA to represent cash flows from operations as defined by GAAP. Adjusted EBITDA should not be considered to be an alternative to cash flows from operations or any other items calculated in accordance with GAAP or an indicator of our operating performance.

UniSource Energy and TEP believe Adjusted EBITDA, which is a non-GAAP financial measure, provides useful information to investors as a measure of liquidity. The most directly comparable GAAP measure to Adjusted EBITDA is Net Cash Flows from Operating Activities.

Adjusted EBITDA and Net Cash Flows from Operating Activities
 
UniSource Energy
  
2005
 
2004
 
2003
 
2002
  
   
- Millions of Dollars -
  
Adjusted EBITDA
  
$
445
  
$
444
  
$
404
  
$
384
  
Net Cash Flows from Operating Activities
  
$
276
  
$
307
  
$
263
  
$
176
  

TEP
  
2005
  
2004
  
2003
  
2002
  
   
- Millions of Dollars -
  
Adjusted EBITDA
  
$
400
  
$
411
  
$
403
  
$
399
  
Net Cash Flows from Operating Activities
  
$
243
  
$
275
  
$
261
  
$
207
  
 
- 23 -
 
Reconciliation of Adjusted EBITDA to Cash Flows from Operations

UniSource Energy
  
2005
 
2004
 
2003
 
2002
  
   
- Millions of Dollars -
  
Adjusted EBITDA (1) 
  
$
445
  
$
444
  
$
404
  
$
384
  
Amounts from the Income Statements:
                         
Less:  Income Taxes
    
38
    
37
    
17
    
26
  
    Total Interest Expense
    
160
    
168
    
167
    
155
  
Changes in Assets and Liabilities and Other Non-Cash Items
    
29
    
68
    
43
    
(27
)
Net Cash Flows from Operating Activities
 
$
276
  
$
307
  
$
263
  
$
176
  

TEP
  
2005
  
2004
  
2003
  
2002
  
   
- Millions of Dollars -
  
Adjusted EBITDA (1) 
  
$
400
  
$
411
  
$
403
  
$
399
  
Amounts from the Income Statements:
                         
  Less:  Income Taxes
    
34
    
35
    
21
    
36
  
      Total Interest Expense
    
140
    
157
    
161
    
154
  
Changes in Assets and Liabilities and Other Non-Cash Items
    
17
    
56
    
40
    
(2
)
Net Cash Flows from Operating Activities
 
$
243
  
$
275
  
$
261
  
$
207
  

(1) Adjusted EBITDA was calculated as follows:

UniSource Energy
  
2005
 
2004
 
2003
 
2002
  
   
- Millions of Dollars -
  
Net Income
 
$
46
  
$
46
  
$
114
  
$
35
  
Amounts from the Income Statements:
                         
  Less: Discontinued Operations
    
(5
)
  
(5
)
  
(7
)
  
(13
)
           Cumulative Effect of Accounting Change
    
(1
)
  
-
   
67
   
-
 
  Plus:  Income Taxes
    
38
    
37
    
17
    
26
  
        Total Interest Expense
   
160
    
168
    
167
    
155
  
        Depreciation and Amortization
    
133
    
132
    
128
    
125
  
        Amortization of Transition Recovery Asset
    
56
    
50
    
32
   
24
  
        Depreciation Included in Fuel and Other O&M
                         
         Expense (See Note 20 of Notes to Consolidated
                         
         Financial Statements)
   
6
    
6
    
6
    
6
  
Adjusted EBITDA
 
$
445
  
$
444
  
$
404
  
$
384
  

TEP
  
2005
  
2004
 
2003
 
2002
  
   
- Millions of Dollars -
  
Net Income
 
$
48
  
$
46
  
$
129
  
$
55
  
Amounts from the Income Statements:
                         
  Less: Cumulative Effect of Accounting Change
    
(1
)
  
-
   
67
   
-
 
  Plus:  Income Taxes
    
34
    
35
    
21
    
36
  
     Total Interest Expense
   
140
    
157
    
161
    
154
  
     Depreciation and Amortization
    
115
    
117
    
121
    
124
  
     Amortization of Transition Recovery Asset
    
56
    
50
    
32
   
24
  
     Depreciation Included in Fuel and Other O&M
                         
      Expense (See Note 20 of Notes to Consolidated
                         
      Financial Statements)
   
6
    
6
    
6
    
6
  
Adjusted EBITDA
 
$
400
  
$
411
  
$
403
  
$
399
  
 
Net Debt and Total Debt and Capital Lease Obligations - TEP

Net Debt represents the current and non-current portions of TEP’s long-term debt and capital lease obligations less investment in lease debt. We have subtracted investment in lease debt because it represents TEP’s ownership of the debt component of its own capital lease obligations. Net Debt measures presented may not be comparable to similarly titled measures used by other companies. Net Debt is not a measurement

- 24 -
 
presented in accordance with GAAP and we do not intend Net Debt to represent debt as defined by GAAP. You should not consider Net Debt to be an alternative to debt or any other items calculated in accordance with GAAP. We believe Net Debt, which is a non-GAAP measure, provides useful information to investors as a measure of TEP’s debt and capital lease obligations.

As of December 31,
 
2005
  
2004
  
2003
  
2002
  
   
- Millions of Dollars -
  
Net Debt
  
$
1,379
  
$
1,684
  
$
1,761
  
$
1,783
  
Total Debt and Capital Lease Obligations
 
$
1,535
  
$
1,855
  
$
1,940
  
$
1,975
  

Reconciliation of Total Debt and Capital Lease Obligations to Net Debt

As of December 31,
 
2005
 
2004
 
2003
 
2002
  
   
- Millions of Dollars -
  
Long-Term Debt
  
$
821
  
$
1,098
  
$
1,126
  
$
1,182
  
Current Portion - Long-Term Debt
    
-
   
2
    
2
    
2
  
  Total Debt
    
821
    
1,100
    
1,128
    
1,130
  
                           
Capital Lease Obligations
    
665
    
701
    
762
    
802
  
Current Portion - Capital Lease Obligations
    
49
    
54
    
50
    
43
  
Total Debt and Capital Lease Obligations
    
1,535
    
1,855
    
1,940
    
1,975
  
 
                          
Investment in Lease Debt
    
(156
)
  
(171
)
  
(179
)
  
(192
)
Net Debt
  
$
1,379
  
$
1,684
  
$
1,761
  
$
1,783
  
 
- 25 -