SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
(X) COMBINED QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-8847
TNP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1907501
(State of incorporation) (I.R.S. employer identification number)
4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code 817-731-0099
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes \X\ No \ \
TNP Enterprises, Inc. had 10,907,896 shares of common stock
outstanding as of July 26, 1995.
Commission File Number: 2-97230
TEXAS-NEW MEXICO POWER COMPANY
(Exact name of registrant as specified in its charter)
Texas 75-0204070
(State of incorporation) (I.R.S. employer identification number)
4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code 817-731-0099
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes \X\ No \ \
Texas-New Mexico Power Company had 10,705 shares of common stock
outstanding as of July 26, 1995.
TNP Enterprises Inc. and Subsidiaries
Texas-New Mexico Power Company and Subsidiaries
Combined Quarterly Report on Form 10-Q for the period ended June 30, 1995
This Combined Quarterly Report on Form 10-Q is separately filed by TNP
Enterprises, Inc. and Texas-New Mexico Power Company. Texas-New Mexico
Power Company makes no representation as to information relating to
TNP Enterprises, Inc., except as it may relate to Texas-New Mexico
Power Company, or to any other affiliate or subsidiary of TNP
Enterprises, Inc.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
(Unaudited for Periods Ended June 30, 1995, and 1994)
TNP Enterprises, Inc. ("TNPE") and Subsidiaries:
Consolidated Statements of Operations
Three- and Six-Month Periods Ended June 30, 1995, and 1994 3
Consolidated Statements of Cash Flows
Six-Month Periods Ended June 30, 1995, and 1994 4
Consolidated Balance Sheets
June 30, 1995, and December 31, 1994 5
Texas-New Mexico Power Company ("TNMP") and Subsidiaries:
Consolidated Statements of Operations
Three- and Six-Month Periods Ended June 30, 1995, and 1994 6
Consolidated Statements of Cash Flows
Six-Month Periods Ended June 30, 1995, and 1994 7
Consolidated Balance Sheets
June 30, 1995, and December 31, 1994 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 15
Item 6. Exhibits and Reports on Form 8-K. 15
(a) Exhibits 15
(b) Reports on Form 8-K 15
Signature page (TNPE and TNMP) 16
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The following interim consolidated financial statements of TNPE and
subsidiaries and TNMP and subsidiaries are unaudited. They reflect a
change in accounting in 1995, as described in note 1 of Notes to
Consolidated Financial Statements, and the recognition of regulatory
disallowances in 1994. In management's opinion, the financial
statements reflect all other adjustments (consisting only of normal
recurring accruals) necessary to state fairly results for the interim
periods presented. Results for interim periods are not necessarily
indicative of results to be expected for a full year or for previously
reported periods, due in part to seasonal revenue fluctuations.
Amounts shown for TNPE and TNMP at December 31, 1994, are based on
audited consolidated financial statements appearing in TNPE's and
TNMP's 1994 Combined Annual Report on Form 10-K.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(In Thousands Except Per Share Amounts)
OPERATING REVENUES $121,237 $111,046 $226,884 $ 218,645
OPERATING EXPENSES:
Power purchased for resale 44,648 45,694 86,655 92,002
Fuel 11,527 10,757 22,225 20,929
Other operating and general expenses 17,578 18,403 35,813 35,853
Maintenance 2,873 3,008 5,724 6,061
Depreciation of utility plant 9,538 9,222 18,914 18,327
Taxes, other than on income 7,020 7,398 13,708 14,590
Income taxes (note 3) 2,953 (1,058) 1,701 (2,443)
Total operating expenses 96,137 93,424 184,740 185,319
NET OPERATING INCOME 25,100 17,622 42,144 33,326
OTHER INCOME (LOSS):
Recognition of regulatory
disallowances, net of taxes (note 3) - (20,505) - (20,505)
Other income and deductions,
net of taxes (note 3) 90 65 127 72
Other income (loss), net of taxes 90 (20,440) 127 (20,433)
EARNINGS (LOSS) BEFORE INTEREST
CHARGES AND CHANGE IN ACCOUNTING 25,190 (2,818) 42,271 12,893
INTEREST CHARGES:
Interest on long-term debt 18,138 17,939 36,589 35,692
Other interest and amortization
of debt-related costs 953 950 1,959 1,900
Allowance for borrowed funds
used during construction (32) (53) (87) (161)
Total interest charges 19,059 18,836 38,461 37,431
EARNINGS (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING 6,131 (21,654) 3,810 (24,538)
Cumulative effect of change in
accounting for unbilled revenues,
net of taxes (notes 1, 3) - - 8,445 -
NET EARNINGS (LOSS) 6,131 (21,654) 12,255 (24,538)
Dividends on preferred stock 180 201 368 412
EARNINGS (LOSS) APPLICABLE
TO COMMON STOCK $5,951 $(21,855) $11,887 $(24,950)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,901 10,725 10,889 10,713
EARNINGS (LOSS) PER SHARE OF
COMMON STOCK BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING $0.54 $(2.04) $0.31 $(2.33)
Cumulative effect of change in
accounting for unbilled revenues
per share of common stock - - 0.78 -
EARNINGS (LOSS) PER SHARE
OF COMMON STOCK $0.54 $(2.04) $1.09 $(2.33)
DIVIDENDS PER SHARE OF COMMON STOCK $ 0.20 $0.4075 $ 0.40 $0.8150
See accompanying Notes to Consolidated Financial Statements.
Page 3
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30, June 30,
1995 1994
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $224,086 $215,933
Power purchased for resale (88,301) (93,419)
Fuel costs paid (20,460) (23,596)
Cash paid to other suppliers and for payroll (30,345) (38,298)
Interest paid, net of amounts capitalized (36,819) (36,290)
Income taxes paid (895) (50)
Other taxes paid, net of amounts capitalized (19,190) (20,367)
Other operating cash receipts and payments, net 855 663
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,931 4,576
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of
capitalized depreciation and interest (13,006) (13,082)
Purchases of temporary investments (10,859) -
Maturities of temporary investments 8,414 -
NET CASH USED IN INVESTING ACTIVITIES (15,451) (13,082)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (4,650) (9,143)
Issuances:
Common stock 494 748
Borrowings under secured notes payable 20,000 113,500
Redemptions:
Preferred stock (1,100) (700)
Repayments under secured notes payable (33,000) (92,029)
Other long-term debt (1,045) (120)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (19,301) 12,256
NET CHANGE IN CASH AND CASH EQUIVALENTS (5,821) 3,750
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,297 12,423
CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,476 $16,173
RECONCILIATION OF NET EARNINGS (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net earnings (loss) $12,255 $(24,538)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Cumulative effect of change
in accounting for unbilled
revenues, net of taxes (8,445) -
Depreciation of utility plant 18,914 18,327
Amortization of debt-related costs
and other deferred charges 2,480 2,792
Allowance for borrowed funds used
during construction (87) (161)
Deferred income taxes (excluding
effect of change in accounting) 328 (11,301)
Investment tax credit adjustments (111) (937)
Recognition of regulatory disallowances - 31,546
Cash flows impacted by changes in current
assets and liabilities:
Customer receivables (2,018) (3,331)
Accounts payable 5,334 4,600
Accrued taxes (4,266) (6,653)
Changes in other current assets and liabilities 4,782 (4,942)
Other, net (235) (826)
NET CASH PROVIDED BY OPERATING ACTIVITIES $28,931 $4,576
See accompanying Notes to Consolidated Financial Statements.
Page 4
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30,1995 December 31,
(Unaudited) 1994
(In Thousands)
ASSETS
UTILITY PLANT:
Electric plant $1,202,910 $1,192,277
Construction work in progress 2,233 3,816
Total 1,205,143 1,196,093
Less accumulated depreciation 243,691 228,820
Net utility plant 961,452 967,273
NONUTILITY PROPERTY, at cost 1,205 1,308
CURRENT ASSETS:
Cash and cash equivalents 9,476 15,297
Temporary investments 8,035 5,590
Customer receivables (note 1) 18,843 3,832
Inventories, at lower of average cost or market:
Fuel 1,020 1,157
Materials and supplies 7,844 7,527
Deferred purchased power and fuel costs 15,124 15,258
Accumulated deferred taxes on income 52 2,702
Other current assets 1,660 1,817
Total current assets 62,054 53,180
REGULATORY TAX ASSETS 16,968 17,304
DEFERRED CHARGES 30,570 32,727
$1,072,249 $1,071,792
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholders' equity:
Common stock - no par value per share.
Shares authorized 50,000,000; issued
10,907,896 shares in 1995 and 10,866,441
in 1994 $134,611 $134,117
Retained earnings (note 2) 58,357 50,752
Total common stockholders' equity 192,968 184,869
Preferred stock 7,580 8,680
Long-term debt, less current maturities 668,880 682,832
Total capitalization 869,428 876,381
CURRENT LIABILITIES:
Current maturities of long-term debt 2,595 2,670
Accounts payable 27,285 21,951
Accrued interest 11,633 11,693
Accrued taxes 13,456 17,722
Customers' deposits 3,193 3,973
Revenues subject to refund (note 4) 4,980 4,782
Other current liabilities 15,934 10,621
Total current liabilities 79,076 73,412
REGULATORY TAX LIABILITIES 46,852 47,307
ACCUMULATED DEFERRED INCOME TAXES 49,302 46,960
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 16,802 16,912
DEFERRED CREDITS 10,789 10,820
COMMITMENTS AND CONTINGENCIES (notes 3, 4)
$1,072,249 $1,071,792
See accompanying Notes to Consolidated Financial Statements.
Page 5
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(In Thousands)
OPERATING REVENUES $121,237 $111,046 $226,884 $218,645
OPERATING EXPENSES:
Power purchased for resale 44,648 45,694 86,655 92,002
Fuel 11,527 10,757 22,225 20,929
Other operating and
general expenses 17,578 18,403 35,813 35,853
Maintenance 2,873 3,008 5,724 6,061
Depreciation of utility plant 9,538 9,222 18,914 18,327
Taxes, other than on income 7,020 7,398 13,708 14,590
Income taxes (note 3) 2,953 (1,058) 1,701 (2,443)
Total operating expenses 96,137 93,424 184,740 185,319
NET OPERATING INCOME 25,100 17,622 42,144 33,326
OTHER INCOME (LOSS):
Recognition of regulatory
disallowances, net of
taxes (note 3) - (20,505) - (20,505)
Other income and deductions,
net of taxes (note 3) 127 118 331 211
Other income (loss), net of taxes 127 (20,387) 331 (20,294)
EARNINGS BEFORE INTEREST CHARGES
AND CHANGE IN ACCOUNTING 25,227 (2,765) 42,475 13,032
INTEREST CHARGES:
Interest on long-term debt 18,138 17,939 36,589 35,692
Other interest and amortization
of debt-related costs 953 950 1,959 1,900
Allowance for borrowed funds
used during construction (32) (53) (87) (161)
Total interest charges 19,059 18,836 38,461 37,431
EARNINGS (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING 6,168 (21,601) 4,014 (24,399)
Cumulative effect of change
in accounting for unbilled
revenues, net of taxes
(notes 1, 3) - - 8,445 -
NET EARNINGS (LOSS) 6,168 (21,601) 12,459 (24,399)
Dividends on preferred stock 180 201 368 412
EARNINGS (LOSS) APPLICABLE
TO COMMON STOCK $ 5,988 $(21,802) $12,091 $(24,811)
See accompanying Notes to Consolidated Financial Statements.
Page 6
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30, June 30,
1995 1994
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $224,086 $215,933
Power purchased for resale (88,301) (93,419)
Fuel costs paid (20,461) (23,596)
Cash paid to other suppliers and for payroll (30,066) (38,063)
Interest paid, net of amounts capitalized (36,819) (36,290)
Income taxes paid (559) (50)
Other taxes paid, net of amounts capitalized (19,416) (20,142)
Other operating cash receipts and payments, net 596 648
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,060 5,021
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of
capitalized depreciation and interest (13,006) (13,082)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (368) (9,212)
Issuances:
Borrowings under secured notes payable 20,000 113,500
Redemptions:
Preferred stock (1,100) (700)
Repayments under secured notes payable (33,000) (92,029)
Other long-term debt (1,045) (120)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (15,513) 11,439
NET CHANGE IN CASH AND CASH EQUIVALENTS 541 3,378
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,614 2,078
CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,155 $5,456
RECONCILIATION OF NET EARNINGS (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net earnings (loss) $12,459 $(24,399)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Cumulative effect of change in
accounting for unbilled revenues,
net of taxes (8,445) -
Depreciation of utility plant 18,914 18,327
Amortization of debt-related costs
and other deferred charges 2,480 2,792
Allowance for borrowed funds
used during construction (87) (161)
Deferred income taxes (excluding
effect of change in accounting) 180 (11,269)
Investment tax credit adjustments (107) (927)
Recognition of regulatory disallowances - 31,546
Cash flows impacted by changes in current
assets and liabilities:
Customer receivables (2,018) (3,331)
Accounts payable 5,334 4,600
Accrued taxes (4,373) (6,621)
Changes in other current assets and liabilities 4,944 (4,710)
Other, net (221) (826)
NET CASH PROVIDED BY OPERATING ACTIVITIES $29,060 $5,021
See accompanying Notes to Consolidated Financial Statements.
Page 7
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
Consolidated Balance Sheets
June 30, 1995 December 31,
(Unaudited) 1994
(In Thousands)
ASSETS
UTILITY PLANT:
Electric plant $1,202,910 $1,192,277
Construction work in progress 2,233 3,816
Total 1,205,143 1,196,093
Less accumulated depreciation 243,691 228,820
Net utility plant 961,452 967,273
NONUTILITY PROPERTY, at cost 183 183
CURRENT ASSETS:
Cash and cash equivalents 9,155 8,614
Customer receivables (note 1) 18,843 3,832
Inventories, at lower of average cost or market:
Fuel 1,020 1,157
Materials and supplies 7,844 7,527
Deferred purchased power and fuel costs 15,124 15,258
Accumulated deferred taxes on income 52 2,702
Other current assets 1,636 1,958
Total current assets 53,674 41,048
REGULATORY TAX ASSETS 16,968 17,304
DEFERRED CHARGES 32,402 34,674
$1,064,679 $1,060,482
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholder's equity:
Common stock, $10 par value per share.
Authorized 12,000,000 shares;
issued 10,705 shares $ 107 $ 107
Capital in excess of par value 175,111 175,111
Retained earnings (note 2) 22,650 10,559
Total common stockholder's equity 197,868 185,777
Redeemable cumulative preferred stock 7,580 8,680
Long-term debt, less current maturities 668,880 682,832
Total capitalization 874,328 877,289
CURRENT LIABILITIES:
Current maturities of long-term debt 2,595 2,670
Accounts payable 27,285 21,951
Accrued interest 11,633 11,693
Accrued taxes 12,525 16,898
Customers' deposits 3,193 3,973
Revenues subject to refund (note 4) 4,980 4,782
Other current liabilities 15,934 10,622
Total current liabilities 78,145 72,589
REGULATORY TAX LIABILITIES 46,852 47,307
ACCUMULATED DEFERRED INCOME TAXES 38,964 36,769
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 15,601 15,708
DEFERRED CREDITS 10,789 10,820
COMMITMENTS AND CONTINGENCIES (notes 3, 4)
$1,064,679 $1,060,482
See accompanying Notes to Consolidated Financial Statements.
Page 8
TNP Enterprises Inc. and Subsidiaries
Texas-New Mexico Power Company and Subsidiaries
Notes to Consolidated Financial Statements
(1) Change in Accounting for Unbilled Revenues
Effective January 1, 1995, TNMP changed its method of accounting for
operating revenues from cycle billing to full accrual. This change
required the recognition of $12,993,000 ($8,445,000, net of taxes) of
additional revenues. Accruing unbilled revenues more closely matches
revenues and expenses and more closely conforms to common utility
industry practice. Unbilled revenues represent the estimated amount
customers will be charged for service received, but not yet billed, as
of the end of each month. Previously these revenues were recognized as
operating revenues in the following month.
The effect of the change increased net earnings by $3,769,000 for the
second quarter and by $10,931,000 for the six months ended June 30,
1995. The $10,931,000 six-month period increase is comprised of the
$8,445,000 cumulative effect of the change to increase net earnings at
January 1, 1995, and $2,486,000 in net operating income. Assuming the
change in accounting was retroactively applied, net operating income
for the 1994 second quarter and six months ended June 30, 1994, would
have increased by $3,559,000 and $2,328,000, respectively. The pro
forma effect of the change in accounting to results of operations is
summarized below (in thousands except per share amounts):
Three Months Ended June 30,
TNPE TNMP
1995 1994 1995 1994
As reported:
Earnings (loss) applicable to common stock $5,951 $(21,855) $ 5,988 $(21,802)
Earnings (loss) per share applicable
to common stock $ 0.54 $ (2.04)
Pro forma:
Earnings (loss) applicable to common stock $5,951 $(18,296) $ 5,988 $(18,243)
Earnings (loss) per share applicable
to common stock $ 0.54 $ (1.71)
Six Months Ended June 30,
TNPE TNMP
1995 1994 1995 1994
As reported:
Earnings (loss) applicable to common stock $11,887 $(24,950) $12,091 $(24,811)
Earnings (loss) per share applicable
to common stock $ 1.09 $ (2.33)
Pro forma:
Earnings (loss) applicable to common stock $ 3,442 $(22,622) $ 3,646 $(22,483)
Earnings (loss) per share applicable
to common stock $ 0.31 $ (2.11)
Page 9
(2) Retained Earnings
TNMP is able to pay cash dividends to TNPE to the extent that
unrestricted retained earnings are positive. The change in accounting
to accrue unbilled revenues described in note 1 resulted in a $10.9
million increase in net earnings during the first six months of 1995.
As a result of this change and second quarter results, TNMP had the
ability to pay dividends of $7.9 million to TNPE at June 30, 1995, as
summarized below:
June 30, 1995 Dec. 31, 1994
(In Thousands)
Total retained earnings $22,650 $10,559
Less restricted level required
by bond indenture 14,679 13,696
Unrestricted retained earnings $7,971 $(3,137)
TNMP's first mortgage bond indenture restricts the payment of cash
dividends on TNMP's common stock (which is wholly owned by TNPE). The
restrictions do not permit TNMP to pay cash dividends to TNPE unless
unrestricted retained earnings are available.
The restriction became operative during 1994 due to the recognition of
$35.0 million of regulatory disallowances ($20.5 million, net of
taxes) as discussed in the 1994 Combined Annual Report on Form 10-K
and precluded TNMP from paying cash dividends to TNPE until
unrestricted retained earnings were available. TNPE paid cash
dividends to its shareholders from cash on hand at the parent company
level during the period that TNMP was unable to pay cash dividends to
TNPE.
(3) Income Taxes
The components of income taxes were as follows:
Three Months Ended June 30,
TNPE TNMP
1995 1994 1995 1994
(In Thousands)
Taxes included in net operating income:
Federal - current $1,670 $(737) $1,670 $(737)
State - current - 56 - 56
Federal - deferred 1,091 107 1,091 107
Investment tax credit
("ITC") adjustments 192 (484) 192 (484)
2,953 (1,058) 2,953 (1,058)
Taxes included in other income :
Federal - current (77) 58 (82) 74
Federal - deferred 194 (11,057) 201 (11,041)
ITC adjustments (3) (5) - -
114 (11,004) 119 (10,967)
Total income taxes $3,067 $(12,062) $3,072 $(12,025)
Six Months Ended June 30,
TNPE TNMP
1995 1994 1995 1994
(In Thousands)
Taxes included in net operating income:
Federal - current $2,029 $(1,344) $2,029 $(1,344)
State - current - 56 - 56
Federal - deferred (221) (228) (221) (228)
ITC adjustments (107) (927) (107) (927)
1,701 (2,443) 1,701 (2,443)
Taxes included in other income :
Federal - current (147) 107 (137) 140
Federal - deferred 549 (11,073) 401 (11,041)
ITC adjustments (4) (10) - -
398 (10,976) 264 (10,901)
Taxes on cumulative effect of change in
accounting, federal - deferred (note 1) 4,548 - 4,548 -
Total income taxes $6,647 $(13,419) $6,513 $(13,344)
Page 10
(3) Income Taxes - continued
The following summarizes federal tax carryforwards as of June 30, 1995:
TNPE TNMP
(In Thousands)
Net operating loss
Amount $53,544 $69,022
First year of expiration period 2008 2006
Last year of expiration period 2010 2010
Minimum tax credits
Amount $11,791 $16,712
Expiration period none none
ITC
Amount $17,043 $18,242
Expiration period 2005 2005
Based on TNPE's and TNMP's historical and projected pretax
earnings, management believes that both TNPE and TNMP more likely than
not will realize the benefit of the deferred tax assets existing
at June 30, 1995.
As indicated in the 1994 Combined Annual Report on Form 10-K, an
Internal Revenue Service ("IRS") revenue agent involved in auditing
TNPE's 1990 and 1991 consolidated federal income tax returns
recommended, in March 1995, that a private letter ruling concerning
eligibility of the TNP One generating plant for ITC be revoked
retroactively. Management believes that TNMP's claim for ITC is
valid and is contesting the agent's recommendation.
(4) Commitments and Contingencies
Sale of Texas Panhandle Properties
As discussed in the 1994 Combined Annual Report on Form 10-K, TNMP
has agreed to sell the Panhandle properties to Southwestern Public
Service Company for $29.2 million, subject to certain conditions
and regulatory approvals. Management anticipates that the sale will
be finalized during 1995.
Revenues Subject to Refund
At June 30, 1995, revenues subject to refund totaled $4.9 million
under an income tax-related issue from a Texas rate case. The
revenues subject to refund, which were billed from 1991 through
October 1, 1994, have been excluded from results of operations.
Recognition of these revenues is conditioned upon TNMP obtaining a
private letter ruling from the IRS supporting TNMP's position on
certain related income tax consequences.
While no assurances can be given, based upon a similar revenue
ruling received by an unrelated utility, TNMP expects a favorable
ruling during 1995. In addition, the Texas Supreme Court recently
ruled that Texas law does not bind the Public Utility Commission of
Texas to require a utility to pass through to its Texas customers
income tax benefits applicable to disallowed utility plant.
An unfavorable private letter ruling would require TNMP to refund
to Texas customers the $4.9 million previously collected. In
addition, TNMP would recognize an expense of $7.9 million to
provide for a regulatory liability and would pass through to Texas
customers income tax benefits applicable to disallowed plant.
Page 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion should be read in conjunction with the
related consolidated financial statements and notes. References
to "note(s)" will mean Notes to Consolidated Financial
Statements.
RESULTS OF OPERATIONS
Overall Results
TNPE's earnings applicable to common stock were $6.0 million for
the second quarter of 1995 ("current quarter") as compared to the
loss applicable to common stock of $21.8 million for the second
quarter of 1994 ("prior quarter"). The $27.8 million increase in
earnings reflects both the change in accounting for unbilled
revenues described in note 1, which increased current quarter
earnings by $3.8 million, and the 1994 recognition of regulatory
disallowances which decreased prior quarter earnings by $20.5
million. Excluding the effects of the change in accounting and
the regulatory disallowances, results of operations improved by
$3.5 million. This improvement resulted primarily from the rate
increase granted late in 1994.
For the six-month period ended June 30, 1995 ("current six-month
period"), TNPE's earnings applicable to common stock were $11.9
million as compared to the loss applicable to common stock of
$24.9 million for the same period ended June 30, 1994 ("prior six-
month period"). Excluding the effects of the change in accounting
of $10.9 million described in note 1 and the 1994 regulatory
disallowances, results of operations improved by $5.4 million.
This improvement resulted primarily from the previously discussed
rate increase offset by increased interest charges of $1.0
million. Interest charges increased due to higher interest rates
under the Unit 2 Credit Agreement.
Since the operations of TNMP (the principal subsidiary) represent
virtually all of TNPE's operations, this discussion focuses
primarily on TNMP's operations.
Operating Revenues
The components of operating revenues are summarized in the
following table (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
Total operating revenues $121,237 $111,046 $10,191 $226,884 $218,645 $8,239
Effect of change in accounting
for unbilled revenues (5,799) - (5,799) (3,824) - (3,824)
Operating revenues excluding the
effect of change in accounting 115,438 111,046 4,392 223,060 218,645 4,415
Less pass-through items:
Power purchased for resale 44,648 45,694 (1,046) 86,655 92,002 (5,347)
Fuel 10,506 9,867 639 20,228 19,097 1,131
Standby power 1,268 2,239 (971) 3,030 3,415 (385)
Total pass-through items 56,422 57,800 (1,378) 109,913 114,514 (4,601)
Base revenues-billed $59,016 $53,246 $5,770 $113,147 $104,131 $9,016
The change in accounting described in note 1 was applied retroactively to
January 1, 1995, and increased operating revenues for the current quarter
and current six-month period by $5.8 million and $3.8 million, respectively.
The change in accounting is not expected to materially affect total annual
revenues as compared to the prior fiscal year. However, revenues in particular
months are expected to fluctuate as compared to the same months in the prior
year due to the seasonal variation in sales.
Pass-through items are the portion of operating revenues that recover from
customers the costs of power purchased for resale, fuel, and standby power.
These items affect customer rates but do not affect operating income.
Explanations for the quarterly and six-month period variances are discussed
under "Results of Operations -- Operating Expenses."
Page 12
Excluding the effect of the change in accounting and pass-through items,
current quarter and six-month period base revenues exceeded the corresponding
periods last year by $5.8 million and $9.0 million, respectively. The base
revenue increases are primarily due to annualized rate increases in both
Texas ($17.5 million) and New Mexico ($0.4 million). These rate increases
resulted from settlement agreements in October 1994 and May 1994, respectively.
Current quarter sales of 1,565 GWH represented a 0.5% improvement over prior
quarter sales and contributed $0.3 million to the increase in base revenues.
The increase in sales resulted from a 2.2% increase in total customers and
more consumption by residential (7.0%) and commercial (6.2%) customers.
However, industrial sales were 6.8% lower than in the prior quarter due to
higher than normal standby sales to a cogenerating customer during the prior
quarter.
Current six-month period sales of 3,040 GWH represented a 1.0% improvement
over prior six-month period sales and contributed $0.8 million to the
increase in base revenues. The increase in sales resulted from the increase
in total customers and more consumption by residential (1.5%) and commercial
(4.6%) customers. However, industrial sales were 1.3% lower than in the
prior six-month period due to higher than normal standby sales to a
cogenerating customer during the second quarter of 1994.
Operating Expenses
Current quarter operating expenses increased by $2.7 million as compared to
the prior quarter. The increase is primarily due to increased income tax
expense of $4.0 million offset by lower pass-through expenses of $1.4 million.
Current six-month period operating expenses decreased by $0.6 million as
compared to the prior six-month period. The decrease is primarily due to
decreased pass-through expenses of $4.6 million offset by increased income
tax expense of $4.1 million.
Income Taxes. The income tax expense increases are due to improved operating
results and the change in accounting for unbilled revenues.
Pass-through Expenses. Pass-through expenses consist of power purchased for
resale, fuel, and standby power.
Power purchased for resale in the current quarter and current six-month
period decreased $1.0 million and $5.3 million, respectively, as compared to
the corresponding periods last year. The decrease in power purchased for
resale resulted from TNMP exercising rights under its New Mexico purchased
power contracts to shift purchases to lower cost suppliers. TNMP's customers
directly benefit from this reduction as these expenses are recovered through
adjustment clauses. Also, TNMP recently undertook similar action in Texas to
reduce the cost of power purchased for resale for supplemental summer peaking
capacity. This arrangement became effective May 1, 1995, and is expected to
result in additional cost savings of $8.0 million annually. See "Item 1.
Legal Proceedings." in Part II regarding purchases from Texas Utilities
Electric Company.
Increases in fuel expense in the current quarter and current six-month period
were $0.6 million and $1.1 million, respectively, and are directly related to
an increased fixed fuel recovery factor approved by the Public Utility
Commission of Texas ("PUCT") in connection with the 1994 Texas rate case
settlement. The majority of TNMP's fuel expense is equal to the amount
recovered in revenues and any difference from actual costs is deferred until
a new factor is established under a fuel factor reconciliation hearing.
Standby power in the current quarter and current six-month period decreased
by $1.0 million and $0.4 million, respectively, as compared to the
corresponding periods last year due to higher than normal standby sales to a
cogenerating customer during the prior quarter.
During May 1995, TNMP and Rayburn Country Electric Cooperative, a
cooperatively owned generation and transmission association, commenced a joint
study to determine the feasibility and economic benefits of forming a power
pool. Whether a power pool will be formed and provide economic benefits is
currently unknown.
Other Operating Expenses. Other operating expenses in the current quarter and
current six-month period were comparable to the corresponding periods last year.
Direct payroll expenses decreased in the current quarter and current six-month
period by $0.7 million and $1.5 million, respectively, as a result of the 1994
reorganization. Increases in certain employee benefits and customer collection
costs offset the payroll decreases.
Page 13
FINANCIAL CONDITION
Liquidity
TNMP believes that cash flow from operations and periodic borrowings under
its Unit 2 Credit Agreement will be sufficient to meet working capital
requirements and planned capital expenditures at least through December 1996.
TNMP has sufficient liquidity to satisfy the possibility of adverse rulings,
if any, for the contingencies described in notes 3 and 4.
As of June 30, 1995, available unused credit under the Unit 2 Credit Agreement
was $75.5 million, subject to interest coverage and equity ratio tests.
Management is currently negotiating an alternative credit arrangement to lower
interest expense and gain additional financial flexibility. This new
arrangement should be finalized by year-end.
Common Stock Dividend
At June 30, 1995, TNPE had unconsolidated cash and investments of approximately
$8.3 million and TNMP had unrestricted retained earnings of $7.9 million
available for cash dividends to TNPE. These amounts are more than sufficient
to pay dividends at the current level for the remainder of the year.
Sale of Texas Panhandle Properties
The discussion in TNPE's and TNMP's 1994 Combined Annual Report on Form 10-K
at page 52 concerning the anticipated sale of the Panhandle properties is
incorporated in this report by reference.
Page 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The discussion in TNPE's and TNMP's 1994 Combined Annual Report
on Form 10-K at page 52 concerning its wholesale purchased power
agreement with Texas Utilities Electric Company ("TU") is
incorporated in this report by reference.
During July 1995, TNMP issued requests for proposals for
purchased power resources during 1996 through 2004 to replace
power currently purchased from TU.
On July 28, 1995, TNMP filed proceedings with the PUCT and in a
Texas state district court to declare TNMP's wholesale purchased
power agreement with TU null and void. In its complaint before
the PUCT, TNMP asserts that the terms of the agreement are
against public policy and violate Texas law. TNMP requests the
state court to declare that provisions in the TU agreement
prohibiting TNMP from disclosing the agreement's terms and filing
the agreement for regulatory review are against public policy and
violate Texas law.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The Exhibit Index on pages 56 to 67 of TNPE's and TNMP's 1994
Combined Annual Report on Form 10-K and the exhibits listed
in that Exhibit Index are incorporated in this report by
reference. A copy of the referenced Exhibit Index is filed as
Exhibit 99(c) to this report.
The following exhibits are incorporated by reference to the
exhibits with the same exhibit number designation in TNPE's
and TNMP's original Form 10-Q for the quarter ended March 31,
1995:
*10(vv) TNP Enterprises, Inc. Equity Incentive Plan
(incorporated by reference to Exhibit 4(i) of TNPE's
registration statement on Form S-8 filed with the SEC
on April 28, 1995, File No. 33-58897)
*10(ww) TNP Enterprises, Inc. Nonemployee Director
Stock Plan (incorporated by reference to Exhibit 4(j)
of TNPE's registration statement on Form S-8 filed with
the SEC on April 28, 1995, File No. 33-58897)
*10(xx) TNP Enterprises, Inc. Management Short-Term Incentive
Plan
*10(yy) TNP Enterprises, Inc. Broad-Based Short-Term Incentive
Plan
*10(zz) TNMP Excess Benefit Plan, as amended
The following exhibits are filed with this report:
27(a) Financial Data Schedule for TNPE
27(b) Financial Data Schedule for TNMP
99(a) Discussion of Private Letter Ruling on ITC
(incorporated by reference to the last paragraph on
page 50 of TNPE's and TNMP's 1994 Combined Annual
Report on Form 10-K)
99(b) Sale of Texas Panhandle Properties
(incorporated by reference to page 52 of TNPE's and
TNMP's 1994 Combined Annual Report on Form 10-K)
99(c) Exhibit Index (incorporated by reference to
pages 56 to 67 of TNPE's and TNMP's 1994 Combined
Annual Report on Form 10-K)
99(d) Discussion of Wholesale Purchased Power
Agreements with TU (incorporated by reference to the
fourth paragraph on page 52 of TNPE's and TNMP's 1994
Combined Annual Report on Form 10-K)
* Management contracts.
(b) Reports on Form 8-K
None.
Page 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
(Registrant) TNP ENTERPRISES, INC.
By \s\ Monte W. Smith
Monte W. Smith
Date: August 8, 1995 Treasurer and as Chief Accounting Officer
(Registrant) TEXAS-NEW MEXICO POWER COMPANY
By \s\ Monte W. Smith
Monte W. Smith
Date: August 8, 1995 Controller and as Chief Accounting Officer
Page 16