El Paso Electric Announces First Quarter Financial Results

EL PASO, Texas, April 28 /PRNewswire-FirstCall/ -- El Paso Electric today reported net income for the quarter ended March 31, 2005 of $4.8 million, or $0.10 basic and diluted income per share. Net income for the same period last year was $2.9 million, or $0.06 basic and diluted earnings per share.

Earnings for the quarter ended March 31, 2005 were positively affected by increased economy sales margins in 2005, loss on extinguishment of debt in 2004 with no comparable activity in 2005, decreased taxes other than income taxes in 2005, decreased insurance expenses in 2005, decreased outside services in 2005, and increased investment and interest income in 2005. These increases in earnings were partially offset by decreased retail base revenues in 2005 and increased non-Palo Verde operating and maintenance costs in 2005.

"We are pleased to announce an increase in earnings relative to the first quarter of 2004," said Gary Hedrick, El Paso Electric Company President and CEO. "Though retail sales were softer than expected they were more than offset by increased economy energy sales, decreased operating expenses, and reduced interest expense."

Stock and Debt Repurchases

Since the inception of the stock repurchase programs in 1999, EE has repurchased 15.3 million shares in total at an aggregate cost of $175.6 million, including commissions. No common stock was repurchased during the first quarter of 2005. EE may continue making purchases of its stock at open market prices and may engage in private transactions, where appropriate.

EE has repurchased or retired $586.5 million of first mortgage bonds with internally generated cash since the inception of its deleveraging program in 1996. No first mortgage bonds were repurchased during the first quarter of 2005. Common stock equity as a percentage of capitalization, including the current portion of long-term debt and financing obligations, was approximately 48% as of March 31, 2005.

EBITDA

The change in earnings before interest, income taxes, and depreciation and amortization ("EBITDA") for the quarter ended March 31, 2005, compared to the same period in 2004, is as follows (in thousands):

March 31, 2004 $ 39,265 Changes in: Decreased retail base revenues (3,510) Increased non-Palo Verde operating and maintenance costs (1,078) Increased pensions and benefits costs (739) Increased economy sales margins 2,448 Decreased loss on extinguishment of debt 2,107 Decreased taxes other than income taxes 1,121 Decreased insurance expenses 701 Decreased outside services 671 Increased investment and interest income 654 Other 682 March 31, 2005 $ 42,322

Management and some members of the investment community utilize EBITDA to measure financial performance on an ongoing basis. EBITDA is traditionally defined as earnings before interest, taxes, depreciation and amortization. This non-GAAP measure should be considered in addition to, not as a substitute for or superior to, net income, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP.

Conference Call

A conference call to discuss first quarter 2005 earnings and earnings guidance is scheduled for 4 p.m. Eastern Time, April 28, 2005. The dial-in number is 888-795-2173 with a passcode of 2005. The conference leader will be Gary Hedrick, President and Chief Executive Officer of EE. A replay will run through May 13, 2005. The dial-in number is 866-373-4987, and a passcode is not required for the replay. The conference call will be webcast live on EE's website found at http://www.epelectric.com/ and on http://www.streetevents.com/ . A replay of the webcast will be available shortly after the call.

Safe Harbor

This news release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This information may involve risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: (i) increased prices for fuel and purchased power and the possibility that regulators may not permit EE to pass through all such increased costs to customers; (ii) determinations by regulators that may adversely affect EE's ability to recover previously incurred fuel costs in rates; (iii) fluctuations in economy margins due to uncertainty in the economy power market; (iv) unanticipated increased costs associated with scheduled and unscheduled outages; (v) the cost of replacing steam generators for Palo Verde Units 1 and 3 and other costs at Palo Verde; (vi) the costs of legal defense and possible judgments which may accrue as the result of ongoing litigation arising out of the FERC investigation or any other regulatory proceeding; (vii) deregulation of the electric utility industry and (viii) other factors detailed by EE in its public filings with the Securities and Exchange Commission. EE's filings are available from the Securities and Exchange Commission or may be obtained through EE's website, http://www.epelectric.com/ . Any such forward-looking statement is qualified by reference to these risks and factors. EE cautions that these risks and factors are not exclusive. EE does not undertake to update any forward- looking statement that may be made from time to time by or on behalf of EE except as required by law.

El Paso Electric Company's consolidated results of operations for the quarter ended March 31, 2005 and 2004 are summarized as follows (In thousands except for share data):

Quarter Ended March 31, 2005 2004 Operating revenues, net of energy expenses $103,470 $103,951 Other operating expenses 84,809 85,379 Other income (deductions) 91 (2,486) Interest charges 11,019 12,051 Income tax expense 2,976 1,121 Net income $4,757 $2,914 Basic earnings per share $0.10 $0.06 Weighted average number of shares outstanding 47,405,270 47,451,300 Diluted earnings per share $0.10 $0.06 Weighted average number of shares and dilutive potential shares outstanding 48,250,450 47,900,302 Quarter Ended March 31, 2005 2004 Reconciliation of EBITDA to Cash Flow from Operations: EBITDA $42,322 $39,265 Interest expense (11,019) (12,051) Income tax expense (2,976) (1,121) Other non-cash expenses 7,612 6,440 Change in: Deferred income taxes (2,152) (3,460) Current assets 15,839 12,882 Current payables and accrued expenses (13,917) 2,509 Other (2,300) 5,619 Cash Flow from Operating Activities $33,409 $50,083

El Paso Electric Company's consolidated results of operations for the twelve months ended March 31, 2005 and 2004 are summarized as follows (In thousands except for share data):

Twelve Months Ended March 31, 2005 2004 Operating revenues, net of energy expenses $447,272 $444,995 Impairment loss on CIS project --- 17,576 Other operating expenses 354,112 344,717 Other income (deductions) (1,651) (1,320) Interest charges 45,244 46,695 Income tax expense 11,053 13,494 Income before extraordinary item $35,212 $21,193 Extraordinary item, net (A) 1,802 --- Net income $37,014 $21,193 Basic earnings per share: Income before extraordinary item $0.74 $0.44 Extraordinary item, net 0.04 --- Net income $0.78 $0.44 Weighted average number of shares outstanding 47,415,395 47,965,274 Diluted earnings per share: Income before extraordinary item $0.73 $0.44 Extraordinary item, net 0.04 --- Net income $0.77 $0.44 Weighted average number of shares and dilutive potential shares outstanding 48,107,347 48,389,715 Twelve Months Ended March 31, 2005 2004 Reconciliation of EBITDA to Cash Flow from Operations: EBITDA (B) $185,272 $188,276 Interest expense (45,244) (46,695) Income tax expense (11,053) (13,494) Other non-cash expenses 29,249 24,143 Change in: Deferred income taxes 1,709 7,791 Current assets (18,991) (3,048) Current payables and accrued expenses (4,427) (16,035) Other (9,103) 6,605 Cash Flow from Operating Activities $127,412 $147,543 (A) Net of income tax expense of $1.0 million. (B) EBITDA is defined as net income before interest, income taxes, depreciation and amortization, impairment loss, and extraordinary item. Quarter Ended March 31, 2005 and 2004 (In thousands): Increase 2005 2004 (Decrease) kWh sales: Retail: Residential 449,464 468,317 (4.0%) Commercial and industrial, small 435,490 454,848 (4.3%) Commercial and industrial, large 267,840 303,390 (11.7%)(A) Sales to public authorities 268,046 278,904 (3.9%) Total retail sales 1,420,840 1,505,459 (5.6%) Wholesale: Sales for resale 8,165 9,267 (11.9%) Economy sales 587,111 486,620 20.7% (B) Total wholesale sales 595,276 495,887 20.0% Total kWh sales 2,016,116 2,001,346 0.7% Operating revenues: Base revenues: Retail: Residential $39,235 $40,171 (2.3%) Commercial and industrial, small 35,364 36,101 (2.0%) Commercial and industrial, large 9,274 10,290 (9.9%)(A) Sales to public authorities 15,737 16,558 (5.0%) Total retail base revenues 99,610 103,120 (3.4%) Wholesale: Sales for resale 325 392 (17.1%) Total base revenues 99,935 103,512 (3.5%) Fuel revenues 29,528 31,274 (5.6%) Economy sales 26,710 18,964 40.8% (B) Other 3,012 2,102 43.3% (C)(D) Total operating revenues $159,185 $155,852 2.1% Capital Expenditures $19,062 $15,656 Cash Interest Payments $12,104 $12,690 Depreciation and Amortization $23,570 $23,179 EBITDA $42,322 $39,265 (A) Primarily due to the closure or significantly reduced operations of several customers. (B) Primarily due to increased available generation and higher market prices. (C) Primarily due to increased transmission revenues. (D) Represents revenues with no related kWh sales. Twelve Months Ended March 31, 2005 and 2004 (In thousands): Increase 2005 2004 (Decrease) kWh sales: Retail: Residential 1,967,232 1,969,286 (0.1%) Commercial and industrial, small 2,096,464 2,114,145 (0.8%) Commercial and industrial, large 1,200,875 1,235,714 (2.8%) Sales to public authorities 1,232,146 1,245,747 (1.1%) Total retail sales 6,496,717 6,564,892 (1.0%) Wholesale: Sales for resale 39,991 67,129 (40.4%)(A) Economy sales 1,938,958 1,791,814 8.2% Total wholesale sales 1,978,949 1,858,943 6.5% Total kWh sales 8,475,666 8,423,835 0.6% Operating revenues: Base revenues: Retail: Residential $173,816 $174,247 (0.2%) Commercial and industrial, small 165,023 165,830 (0.5%) Commercial and industrial, large 42,134 43,698 (3.6%) Sales to public authorities 71,899 73,805 (2.6%) Total retail base revenues 452,872 457,580 (1.0%) Wholesale: Sales for resale 1,608 3,225 (50.1%)(A) Total base revenues 454,480 460,805 (1.4%) Fuel revenues 159,306 132,538 20.2% (B) Economy sales 86,279 70,469 22.4% (C) Other 11,896 8,916 33.4% (D)(E) Total operating revenues $711,961 $672,728 5.8% Capital Expenditures $75,905 $79,969 Cash Interest Payments $48,806 $50,026 Depreciation and Amortization $93,763 $89,318 EBITDA $185,272 $188,276 (A) Primarily due to sales to the CFE in 2003 with no comparable sales in 2004. (B) Primarily due to an increase in recoverable fuel expenses as a result of an increase in the price and volume of natural gas burned and an increase in purchased power costs. (C) Primarily due to increased available generation and higher market prices. (D) Primarily due to increased transmission revenues. (E) Represents revenues with no related kWh sales.

At March 31, 2005 and 2004 (In thousands, except number of shares and book value per share):

2005 2004 Cash and Temporary Investments $39,950 $44,348 Common Stock Equity $536,500 $499,239 Long-Term Debt, Net of Current Portion 183,555 574,159 Financing Obligations, Net of Current Portion 18,418 --- Total Capitalization $738,473 $1,073,398 Current Portion of Long-Term Debt and Financing Obligations $389,764 $40,838 Number of Shares 47,730,776 47,588,360 Book Value Per Share $11.24 $10.49 Number of Retail Customers 334 327