SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
(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 March 31, 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 10,896,733 shares of common stock
outstanding as of April 25, 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 April 25, 1995.
TNP Enterprises, Inc. and Subsidiaries
Texas-New Mexico Power Company and Subsidiaries
Combined Quarterly Report on Form 10-Q/A for the period ended March 31, 1995
This Combined Quarterly Report on Form 10-Q/A 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 March 31, 1995 and 1994)
TNP Enterprises, Inc. and Subsidiaries:
Consolidated Statements of Operations
Three Month Periods Ended March 31, 1995 and 1994 3
Consolidated Statements of Cash Flows
Three Month Periods Ended March 31, 1995 and 1994 4
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 5
Texas-New Mexico Power Company and Subsidiaries:
Consolidated Statements of Operations
Three Month Periods Ended March 31, 1995 and 1994 6
Consolidated Statements of Cash Flows
Three Month Periods Ended March 31, 1995 and 1994 7
Consolidated Balance Sheets
March 31, 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 4. Submission of Matters to a Vote of Security Holders. 14
Item 6. Exhibits and Reports on Form 8-K. 14
(a) Exhibits 14
(b) Reports on Form 8-K 14
Signature page (TNPE and TNMP) 15
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The following interim consolidated financial statements of TNP
Enterprises, Inc. ("TNPE") and subsidiaries and Texas-New Mexico Power
Company ("TNMP") and subsidiaries are unaudited. They have been
restated to reflect a change in accounting for unbilled revenues as
described in note 1 of Notes to Consolidated Financial Statements. 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
March 31,
1995 1994
(In Thousands Except
Per Share Amounts)
OPERATING REVENUES (note 1) $105,647 $107,599
OPERATING EXPENSES:
Power purchased for resale 42,007 46,308
Fuel 10,698 10,172
Other operating and general expenses 18,235 17,450
Maintenance 2,851 3,053
Depreciation of utility plant 9,376 9,105
Taxes, other than on income 6,688 7,192
Income taxes (note 3) (1,252) (1,385)
Total operating expenses 88,603 91,895
NET OPERATING INCOME 17,044 15,704
Other income, net of taxes (note 3) 37 7
EARNINGS BEFORE INTEREST CHARGES
AND CHANGE IN ACCOUNTING 17,081 15,711
INTEREST CHARGES:
Interest on long-term debt 18,451 17,753
Amortization of debt-related costs
and other interest 1,006 950
Allowance for borrowed funds
used during construction (55) (108)
Total interest charges 19,402 18,595
LOSS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING (2,321) (2,884)
Cumulative effect of change in
accounting for unbilled revenues,
net of taxes (notes 1, 3) 8,445 -
NET EARNINGS (LOSS) 6,124 (2,884)
DIVIDENDS ON PREFERRED STOCK 188 211
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $5,936 $(3,095)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,877 10,702
LOSS PER SHARE OF COMMON STOCK BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING $ (0.23) $(0.29)
Cumulative effect of change in accounting
for unbilled revenues per share of common stock 0.78 -
EARNINGS (LOSS) PER SHARE OF COMMON STOCK $ 0.55 $(0.29)
DIVIDENDS PER SHARE OF COMMON STOCK $ 0.20 $0.4075
See accompanying Notes to Consolidated Financial Statements.
Page 3
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
1995 1994
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $108,979 $104,158
Power purchased for resale (42,828) (44,828)
Fuel costs paid (9,515) (11,404)
Cash paid to other suppliers and for payroll (20,892) (19,635)
Interest paid, net of amounts capitalized (22,889) (26,782)
Income taxes paid (905) -
Other taxes paid, net of amounts capitalized (16,081) (16,283)
Other operating cash receipts and payments, net 447 496
NET CASH USED IN OPERATING ACTIVITIES (3,684) (14,278)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of
capitalized depreciation and interest (5,822) (5,742)
Purchases of temporary investments (9,997) -
Maturities of temporary investments 5,636 -
NET CASH USED IN INVESTING ACTIVITIES (10,183) (5,742)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (2,364) (4,571)
Issuances:
Common stock 309 371
Borrowings under secured notes payable 16,000 77,000
Redemptions:
Preferred stock (300) (300)
Repayments under secured notes payable (9,000) (50,151)
Other long-term debt - (120)
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,645 22,229
NET CHANGE IN CASH AND CASH EQUIVALENTS (9,222) 2,209
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,297 12,423
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,075 $14,632
RECONCILIATION OF NET EARNINGS (LOSS)
TO NET CASH USED IN OPERATING ACTIVITIES:
Net earnings (loss) $6,124 $(2,884)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Cumulative effect of change in accounting
for unbilled revenues, net of taxes (8,445) -
Depreciation of utility plant 9,376 9,105
Amortization of debt-related costs
and other deferred charges 1,244 1,294
Allowance for borrowed funds used
during construction (55) (108)
Deferred income taxes (excluding
cumulative effect of change in accounting) (957) (351)
Investment tax credit adjustments (300) (448)
Cash flows impacted by changes in
current assets and liabilities:
Customer receivables 3,752 (3,898)
Accrued interest (4,326) (8,963)
Accrued taxes (9,453) (9,407)
Changes in other current assets and liabilities (254) 1,515
Other, net (390) (133)
NET CASH USED IN OPERATING ACTIVITIES $(3,684) $(14,278)
See accompanying Notes to Consolidated Financial Statements.
Page 4
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 December 31,
ASSETS (Unaudited) 1994
(In Thousands)
UTILITY PLANT:
Electric plant $1,198,138 $1,192,277
Construction work in progress 2,105 3,816
Total 1,200,243 1,196,093
Less accumulated depreciation 236,469 228,820
Net utility plant 963,774 967,273
NONUTILITY PROPERTY, at cost 1,206 1,308
CURRENT ASSETS:
Cash and cash equivalents 6,075 15,297
Temporary investments 10,041 5,590
Customer receivables (note 1) 13,073 3,832
Inventories, at lower of average
cost or market:
Fuel 976 1,157
Materials and supplies 7,495 7,527
Deferred purchased power and fuel costs 15,113 15,258
Accumulated deferred taxes
on income (notes 1, 3) - 2,702
Other current assets 1,002 1,817
Total current assets 53,775 53,180
REGULATORY TAX ASSETS 17,299 17,304
DEFERRED CHARGES 31,610 32,727
$1,067,664 $1,071,792
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholders' equity:
Common stock - no par value per share.
Shares authorized 50,000,000;
issued 10,896,733 shares in 1995
and 10,866,441 in 1994 $134,426 $134,117
Retained earnings (note 2) 54,512 50,752
Total common stockholders' equity 188,938 184,869
Preferred stock 8,380 8,680
Long-term debt, less current maturities 689,841 682,832
Total capitalization 887,159 876,381
CURRENT LIABILITIES:
Current maturities of long-term debt 2,670 2,670
Accounts payable 20,436 21,951
Accrued interest 7,367 11,693
Accrued taxes (notes 1, 3) 8,269 17,722
Customers' deposits 3,553 3,973
Revenues subject to refund (note 4) 4,881 4,782
Other current liabilities 11,470 10,621
Total current liabilities 58,646 73,412
REGULATORY TAX LIABILITIES 47,688 47,307
ACCUMULATED DEFERRED INCOME TAXES 47,021 46,960
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 16,612 16,912
DEFERRED CREDITS 10,538 10,820
COMMITMENTS AND CONTINGENCIES (notes 3, 4)
$1,067,664 $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
March 31,
1995 1994
(In Thousands)
OPERATING REVENUES (note 1) $105,647 $107,599
OPERATING EXPENSES:
Power purchased for resale 42,007 46,308
Fuel 10,698 10,172
Other operating and general expenses 18,235 17,450
Maintenance 2,851 3,053
Depreciation of utility plant 9,376 9,105
Taxes, other than on income 6,688 7,192
Income taxes (note 3) (1,252) (1,385)
Total operating expenses 88,603 91,895
NET OPERATING INCOME 17,044 15,704
Other income, net of taxes (note 3) 204 93
EARNINGS BEFORE INTEREST
CHARGES AND CHANGE IN ACCOUNTING 17,248 15,797
INTEREST CHARGES:
Interest on long-term debt 18,451 17,753
Amortization of debt-related costs
and other interest 1,006 950
Allowance for borrowed funds
used during construction (55) (108)
Total interest charges 19,402 18,595
LOSS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING (2,154) (2,798)
Cumulative effect of change in
accounting for unbilled revenues,
net of taxes (notes 1, 3) 8,445 -
NET EARNINGS (LOSS) 6,291 (2,798)
DIVIDENDS ON PREFERRED STOCK 188 211
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $6,103 $(3,009)
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)
Three Months Ended
March 31,
1995 1994
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $108,979 $104,158
Power purchased for resale (42,828) (44,828)
Fuel costs paid (9,515) (11,404)
Cash paid to other suppliers and for payroll (20,834) (19,811)
Interest paid, net of amounts capitalized (22,889) (26,782)
Income taxes paid (569) -
Other taxes paid, net of amounts capitalized (16,488) (16,209)
Other operating cash receipts and payments, net 349 620
NET CASH USED IN OPERATING ACTIVITIES (3,795) (14,256)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of
capitalized depreciation and interest (5,822) (5,742)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (188) (4,611)
Issuances:
Borrowings under secured notes payable 16,000 77,000
Redemptions:
Preferred stock (300) (300)
Repayments under secured notes payable (9,000) (50,151)
Other long-term debt - (120)
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,512 21,818
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,105) 1,820
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,614 2,078
CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,509 $3,898
RECONCILIATION OF NET EARNINGS (LOSS)
TO NET CASH USED IN OPERATING ACTIVITIES:
Net earnings (loss) $6,291 $(2,798)
Adjustments to reconcile net earnings
(loss) to net cash used in
operating activities:
Cumulative effect of change in
accounting for unbilled revenues,
net of taxes (8,445) -
Depreciation of utility plant 9,376 9,105
Amortization of debt-related
costs and other deferred charges 1,244 1,294
Allowance for borrowed funds
used during construction (55) (108)
Deferred income taxes (excluding
cumulative effect of change in
accounting) (1,112) (335)
Investment tax credit adjustments (299) (443)
Cash flows impacted by changes in
current assets and liabilities:
Customer receivables 3,752 (3,898)
Accrued interest (4,326) (8,963)
Accrued taxes (9,624) (9,484)
Changes in other current
assets and liabilities (313) 1,508
Other, net (284) (134)
NET CASH USED IN OPERATING ACTIVITIES $(3,795) $(14,256)
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
March 31, 1995 December 31,
ASSETS (Unaudited) 1994
(In Thousands)
UTILITY PLANT:
Electric plant $1,198,138 $1,192,277
Construction work in progress 2,105 3,816
Total 1,200,243 1,196,093
Less accumulated depreciation 236,469 228,820
Net utility plant 963,774 967,273
NONUTILITY PROPERTY, at cost 183 183
CURRENT ASSETS:
Cash and cash equivalents 5,509 8,614
Customer receivables (note 1) 13,073 3,832
Inventories, at lower of average
cost or market:
Fuel 976 1,157
Materials and supplies 7,495 7,527
Deferred purchased power and fuel costs 15,113 15,258
Accumulated deferred taxes
on income (notes 1, 3) - 2,702
Other current assets 1,200 1,958
Total current assets 43,366 41,048
REGULATORY TAX ASSETS 17,299 17,304
DEFERRED CHARGES 33,441 34,674
$1,058,063 $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) 16,662 10,559
Total common stockholder's equity 191,880 185,777
Redeemable cumulative preferred stock 8,380 8,680
Long-term debt, less current maturities 689,841 682,832
Total capitalization 890,101 877,289
CURRENT LIABILITIES:
Current maturities of long-term debt 2,670 2,670
Accounts payable 20,436 21,951
Accrued interest 7,367 11,693
Accrued taxes (notes 1, 3) 7,274 16,898
Customers' deposits 3,553 3,973
Revenues subject to refund (note 4) 4,881 4,782
Other current liabilities 11,470 10,622
Total current liabilities 57,651 72,589
REGULATORY TAX LIABILITIES 47,688 47,307
ACCUMULATED DEFERRED INCOME TAXES 36,676 36,769
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 15,409 15,708
DEFERRED CREDITS 10,538 10,820
COMMITMENTS AND CONTINGENCIES (notes 3, 4)
$1,058,063 $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 (including TNPE) 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 had been recognized based on
amounts billed to customers from the monthly cycle of meter
readings. Electric service provided to customers subsequent to
billing dates through the end of each calendar month was recognized
as operating revenues in the following month.
The change affected results of operations for the first quarter of
1995 as follows (in thousands except per share amounts):
Recognized at January 1, 1995: Amount EPS
Cumulative unbilled revenues recognized as of January 1, 1995 $12,993
Less related income taxes 4,548
Cumulative effect of change in accounting for
unbilled revenues, net of taxes 8,445 $0.78
Recognized in the first quarter:
Effect of change in accounting on operating
revenues for the quarter (1,975)
Income tax benefit 691
Effect of change in accounting included
in net operating income (1,284) (0.12)
Increase in net earnings $7,161 $0.66
As shown above, the effect of the change increased net earnings by
$7,161,000, of which $8,445,000 represents the cumulative effect of
the change to increase net earnings at January 1, 1995 and $1,284,000
is the decrease in net operating income for the first quarter.
Assuming the change in accounting was retroactively applied, net
operating income for the 1994 first quarter would have decreased by
$1,231,000. The pro forma effect of the change in accounting to
results of operations are summarized below (in thousands except per
share amounts):
TNPE TNMP
1995 1994 1995 1994
As reported:
Earnings (loss) applicable to common stock $5,936 $(3,095) $ 6,103 $(3,009)
Earnings (loss) per share applicable
to common stock $0.55 $ (0.29)
Pro forma:
Loss applicable to common stock $(2,509) $(4,326) $(2,342) $(4,240)
Loss per share applicable to common stock $ (0.23) $ (0.40)
Page 9
(2) Retained Earnings
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 and precluded TNMP from
paying cash dividends to TNPE until unrestricted retained earnings
were available. The change in accounting to accrue unbilled revenues
described in note 1 resulted in a $7.1 million increase in net
earnings during the first quarter of 1995. Information concerning
TNMP's unrestricted retained earnings is summarized below:
Mar. 31, 1995 Dec. 31, 1994
(In Thousands)
Total retained earnings $16,662 $10,559
Less restricted level
required by bond indenture 13,879 13,696
Unrestricted retained earnings $2,783 $(3,137)
TNMP is able to pay cash dividends to TNPE only to the extent that
unrestricted retained earnings are positive. Therefore, as of March
31, 1995 TNMP had the ability to pay dividends of $2.7 million to
TNPE.
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 for the three months ended March 31,
1995, and 1994, respectively, were as follows:
TNPE TNMP
1995 1994 1995 1994
(In Thousands)
Taxes included in net operating income:
Federal - current $ 359 $(607) $359 $(607)
Federal - deferred (1,312) (335) (1,312) (335)
ITC adjustments (299) (443) (299) (443)
(1,252) (1,385) (1,252) (1,385)
Taxes included in other income :
Federal - current (70) 49 (55) 66
Federal - deferred 355 (16) 200 -
ITC adjustments (1) (5) - -
284 28 145 66
Taxes on cumulative effect of change in
accounting, federal-deferred (note 1) 4,548 - 4,548 -
Total income taxes $3,580 $(1,357) $3,441 $(1,319)
The following summarizes federal tax carryforwards as of March 31, 1995:
TNPE TNMP
(In Thousands)
Net operating loss
Amount $56,896 $72,416
First year of expiration period 2008 2006
Last year of expiration period 2010 2010
Minimum tax credits
Amount $9,959 $14,872
Expiration period none none
Investment tax credit ("ITC")
Amount $17,501 $18,702
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 March
31, 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.
Page 10
(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 March 31, 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
Since the operations of TNMP (the principal subsidiary) represent
virtually all of TNPE's operations, this discussion focuses
primarily on TNMP's operations.
Overall Results
TNPE's net earnings applicable to common stock were $5.9 million
for the first quarter of 1995 ("current period") as compared to
the loss applicable to common stock of $3.1 million for the first
quarter of 1994 ("prior period"). The $9.0 million increase
resulted primarily from the change in accounting. Excluding the
one-time $7.1 million effect of the change in accounting
described in note 1, results of operations improved $1.9 million.
This improvement resulted primarily from rate increases granted
late in 1994 which were partially offset by increased interest
charges.
Operating Revenues
Excluding the effect of the change in accounting described in
note 1, current period operating revenues of $107.6 million were
comparable to the prior period. The change of accounting
negatively impacted current period operating revenue by almost
$2.0 million. The components of operating revenues are summarized
in the following table (in thousands):
Variance:
Current Prior Increase
period period (Decrease)
Total operating revenues $105,647 $107,599 $(1,952)
Effect of change in
accounting for
unbilled revenues 1,975 - 1,975
Operating revenues before
effect of change
in accounting 107,622 107,599 23
Less pass-through items:
Power purchased for resale 42,007 46,308 (4,301)
Fuel & standby power 11,484 10,477 1,007
Base revenues $54,131 $50,814 $3,317
The change in accounting described in note 1 is not expected to
materially affect total annual revenues as compared to the prior
year. However, revenues in particular months are expected to
fluctuate as compared to the same months in the prior year. This
fluctuation is due to the effect of monthly weather patterns.
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. The $4.3 million reduction in power
purchased for resale and the $1.0 million increase in fuel and
standby power are discussed under "Results of Operations --
Operating Expenses."
Although total operating revenues before the effect of change in
accounting increased slightly, base revenues were $3.3 million
higher than the prior period. Base revenues increased 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 period sales of 1,475 GWH, a 1.6% improvement over prior
period sales, contributed $0.5 million to the increase in base
revenues. The increase in sales resulted from a 2.1% increase in
total customers and more consumption by commercial and industrial
users. However, residential sales were 3.7% lower than in the
prior period due to milder temperatures in the current period.
Page 12
Operating Expenses
TNMP's current period operating expenses decreased by $3.3
million as compared to the prior period. The decrease is
primarily due to lower pass-through expenses. Excluding the
effect of pass-through items ($3.3 million decrease), other
current period operating expenses were comparable to prior
period.
Pass-through Expenses. Pass-through expenses consist of power
purchased for resale, fuel, and standby power.
Power purchased for resale in the current period decreased $4.3
million from the prior period. 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. TNMP
recently undertook similar action in Texas to reduce the cost of
power purchased for resale for supplemental summer peaking
capacity. As a result, an additional cost savings of $8 million
annually is expected beginning in 1995.
The $1.0 million increase in fuel and standby power is directly
related to an increased fixed fuel recovery factor approved by
the Public Utility Commission of Texas 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.
Other Operating Expenses. In the current period other operating
expenses increased $0.7 million from the prior period. Although
direct payroll expenses decreased $0.8 million as a result of the
1994 reorganization, increases in certain employee benefits and
customer collection costs and decreases in income tax benefits
more than offset the decreases. Employee benefits increased as a
result of the 1995 adoption of cash incentive compensation plans.
Future results of operations are expected to be impacted by the
plans approved by the shareholders discussed in Item 4.
Interest Charges
Current period total interest charges increased by $0.8 million
over the prior period amount due to increased interest rates
under the Unit 2 Credit Agreement.
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 March 31, 1995, available unused credit under the Unit 2
Credit Agreement was $55.5 million, subject to interest coverage
and equity ratio tests. Management is investigating alternative
credit arrangements to lower interest expense and gain additional
financial flexibility.
Common Stock Dividend
At March 31, 1995, TNPE had unconsolidated cash and investments
of approximately $10.5 million and TNMP had unrestricted retained
earnings of $2.7 million available for cash dividends to TNPE.
These amounts would be 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 13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
TNPE's annual shareholders' meeting was held April 28, 1995. R.
Denny Alexander, Sidney M. Gutierrez, and Kevern R. Joyce were re-
elected as Class 1 directors. Voting results with respect to each
of them were: Mr. Alexander: 8,302,023 for, 349,674 against; Mr.
Gutierrez: 8,281,142 for, 370,555 against; and Mr. Joyce:
8,258,281 for, 393,416 against.
The TNPE Equity Incentive Plan was approved by a vote of
7,433,755 for, 1,001,998 against, 215,942 abstaining, and no
broker nonvotes.
The TNPE Nonemployee Director Stock Plan was approved by
7,353,064 for, 1,062,618 against, 236,014 abstaining, and no
broker nonvotes.
The appointment of KPMG Peat Marwick LLP, Independent Certified
Public Accountants, to continue to serve as independent auditors
for the current year was ratified by a vote of 8,431,072 for,
108,895 against, 111,729 abstaining, and no broker nonvotes.
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:
18 Letter re Change in Accounting Principle
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)
* Management contracts.
(b) Reports on Form 8-K
None.
Page 14
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