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 September 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 10,914,076 shares of common stock
outstanding as of October 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 October 26, 1995.
Page 1
TNP Enterprises, Inc. And Subsidiaries
Texas New-Mexico Power Company And Subsidiaries
Combined Quarterly Report on Form 10-Q for the period ended
September 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 September 30, 1995, and 1994)
TNP Enterprises, Inc. ("TNPE") and Subsidiaries:
Consolidated Statements of Operations
Three- and Nine-Month Periods Ended September 30, 1995, and 1994 3
Consolidated Statements of Cash Flows
Nine-Month Periods Ended September 30, 1995, and 1994 4
Consolidated Balance Sheets
September 30, 1995, and December 31, 1994 5
Texas-New Mexico Power Company ("TNMP") and Subsidiaries:
Consolidated Statements of Operations
Three- and Nine-Month Periods Ended September 30, 1995, and 1994 6
Consolidated Statements of Cash Flows
Nine-Month Periods Ended September 30, 1995, and 1994 7
Consolidated Balance Sheets
September 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. 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 6. Exhibits and Reports on Form 8-K. 14
(a) Exhibit Index 14
(b) Reports on Form 8-K 14
Signature page (TNPE and TNMP) 15
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The following interim consolidated financial statements of TNPE and
subsidiaries and TNMP and subsidiaries are unaudited. The 1995
financial statements reflect the sale of the Texas Panhandle
properties, a change in accounting for unbilled revenues, and
recognition of revenues that previously were deferred, as described in
Notes to Consolidated Financial Statements. The 1994 financial
statements reflect the recognition of regulatory disallowances. 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 and certain one-time items.
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.
Page 2
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(In Thousands Except Per Share Amounts)
OPERATING REVENUES (note 3) $151,586 $149,864 $378,470 $ 368,509
OPERATING EXPENSES:
Power purchased for resale 52,060 59,788 138,715 151,790
Fuel 15,815 14,793 38,040 35,722
Other operating and general expenses 18,172 18,387 53,985 54,240
Maintenance 2,843 2,929 8,567 8,990
Depreciation of utility plant 9,544 9,132 28,458 27,459
Taxes, other than on income 8,158 8,853 21,866 23,443
Income taxes (note 4) 9,847 4,998 11,548 2,555
Total operating expenses 116,439 118,880 301,179 304,199
NET OPERATING INCOME 35,147 30,984 77,291 64,310
OTHER INCOME (LOSS):
Gain on sale of Texas
Panhandle properties (note 1) 14,583 - 14,583 -
Recognition of regulatory disallowances - - - (31,546)
Other income and deductions, net 572 761 1,097 898
Income taxes (note 4) (5,299) (787) (5,697) 10,189
Other income (loss), net of taxes 9,856 (26) 9,983 (20,459)
EARNINGS BEFORE INTEREST CHARGES
AND CHANGE IN ACCOUNTING 45,003 30,958 87,274 43,851
INTEREST CHARGES:
Interest on long-term debt 17,638 18,028 54,227 53,720
Other interest and amortization
of debt-related costs 676 1,059 2,635 2,959
Allowance for borrowed funds
used during construction (39) (50) (126) (211)
Total interest charges 18,275 19,037 56,736 56,468
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING 26,728 11,921 30,538 (12,617)
Cumulative effect of change in
accounting for unbilled revenues,
net of taxes (notes 2, 4) - - 8,445 -
NET EARNINGS (LOSS) 26,728 11,921 38,983 (12,617)
Dividends on preferred stock 152 189 520 601
EARNINGS (LOSS) APPLICABLE
TO COMMON STOCK $26,576 $11,732 $38,463 $(13,218)
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Earnings (loss) before cumulative
effect of change in accounting $ 2.44 $ 1.09 $ 2.75 $ (1.23)
Cumulative effect of change in
accounting for unbilled revenues - - 0.78 -
Earnings (loss) per share $ 2.44 $ 1.09 $ 3.53 $ (1.23)
DIVIDENDS PER SHARE $ 0.20 $ 0.20 $ 0.60 $ 1.015
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,909 10,752 10,896 10,726
PRO FORMA AMOUNTS ASSUMING RETROACTIVE
APPLICATION OF CHANGE IN ACCOUNTING :
Earnings (loss) applicable
to common stock $26,576 $10,290 $30,018 $(12,332)
Earnings (loss) per share $ 2.44 $ 0.96 $ 2.75 $ (1.15)
See accompanying Notes to Consolidated Financial Statements.
Page 3
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30, September 30,
1995 1994
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $373,127 $365,095
Power purchased for resale (138,838) (150,270)
Fuel costs paid (32,434) (36,568)
Cash paid to other suppliers and for payroll (52,551) (60,706)
Interest paid, net of amounts capitalized (58,929) (62,633)
Income taxes paid (781) (56)
Other taxes paid, net of amounts capitalized (24,652) (23,950)
Other operating cash receipts and payments, net 916 (434)
NET CASH PROVIDED BY OPERATING ACTIVITIES 65,858 30,478
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of capitalized
depreciation and interest (19,956) (21,218)
Net proceeds from sale of Texas Panhandle properties 29,009 -
Purchases of temporary investments (11,171) (5,522)
Maturities of temporary investments 10,612 -
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 8,494 (26,740)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (7,062) (11,484)
Issuances:
Common stock 743 1,503
Borrowings under secured notes payable 28,000 151,500
Redemptions:
Preferred stock (1,100) (700)
Repayments under secured notes payable (64,000) (142,529)
Long-term debt - first mortgage bonds (1,070) (1,070)
NET CASH USED IN FINANCING ACTIVITIES (44,489) (2,780)
NET CHANGE IN CASH AND CASH EQUIVALENTS 29,863 958
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,297 12,423
CASH AND CASH EQUIVALENTS AT END OF PERIOD $45,160 $13,381
RECONCILIATION OF NET EARNINGS (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net earnings (loss) $38,983 $(12,617)
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) -
Recognition of deferred revenues (4,782) -
Gain on sale of Texas Panhandle properties (14,583) -
Depreciation of utility plant 28,458 27,459
Amortization of debt-related costs
and other deferred charges 3,634 4,399
Allowance for borrowed funds used during construction (126) (211)
Deferred income taxes (excluding
effect of change in accounting) 4,138 (9,230)
Investment tax credits 2,263 (485)
Recognition of regulatory disallowances - 31,546
Cash flows impacted by changes in
current assets and liabilities:
Customer receivables 3 (4,364)
Deferred purchased power and fuel costs 5,959 (1,071)
Accounts payable 7,195 2,689
Accrued interest (4,454) (8,743)
Accrued taxes 7,615 666
Changes in other current assets and liabilities 1,232 1,316
Other, net (1,232) (876)
NET CASH PROVIDED BY OPERATING ACTIVITIES $65,858 $30,478
See accompanying Notes to Consolidated Financial Statements.
Page 4
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1995 December 31,
(Unaudited) 1994
(In Thousands)
ASSETS
UTILITY PLANT (note 1):
Electric plant $1,187,339 $1,192,277
Construction work in progress 3,271 3,816
Total 1,190,610 1,196,093
Less accumulated depreciation 245,974 228,820
Net utility plant 944,636 967,273
NONUTILITY PROPERTY, at cost 1,159 1,308
CURRENT ASSETS:
Cash and cash equivalents (note 1) 45,160 15,297
Temporary investments 6,149 5,590
Customer receivables (note 2) 16,822 3,832
Inventories, at lower of average cost or market:
Fuel 1,051 1,157
Materials and supplies 7,724 7,527
Deferred purchased power and fuel costs 9,299 15,258
Accumulated deferred taxes on income 53 2,702
Other current assets 1,181 1,817
Total current assets 87,439 53,180
REGULATORY TAX ASSETS 16,642 17,304
DEFERRED CHARGES 29,997 32,727
$1,079,873 $1,071,792
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholders' equity:
Common stock - no par value per share.
Shares authorized 50,000,000; issued
10,914,076 shares in 1995 and 10,866,441
in 1994 $134,860 $134,117
Retained earnings 82,677 50,752
Total common stockholders' equity 217,537 184,869
Preferred stock 7,580 8,680
Long-term debt, less current maturities (note 1) 616,588 682,832
Total capitalization 841,705 876,381
CURRENT LIABILITIES:
Current maturities of long-term debt 31,870 2,670
Accounts payable 29,146 21,951
Accrued interest 7,239 11,693
Accrued taxes 25,337 17,722
Customers' deposits 2,756 3,973
Revenues subject to refund (note 3) - 4,782
Other current liabilities 12,525 10,621
Total current liabilities 108,873 73,412
REGULATORY TAX LIABILITIES 43,404 47,307
ACCUMULATED DEFERRED INCOME TAXES 56,237 46,960
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 19,176 16,912
DEFERRED CREDITS 10,478 10,820
COMMITMENTS AND CONTINGENCIES (notes 1, 4)
$1,079,873 $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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(In Thousands)
OPERATING REVENUES (note 3) $151,586 $149,864 $378,470 $368,509
OPERATING EXPENSES:
Power purchased for resale 52,060 59,788 138,715 151,790
Fuel 15,815 14,793 38,040 35,722
Other operating and general expenses 18,172 18,387 53,985 54,240
Maintenance 2,843 2,929 8,567 8,990
Depreciation of utility plant 9,544 9,132 28,458 27,459
Taxes, other than on income 8,158 8,853 21,866 23,443
Income taxes (note 4) 9,847 4,998 11,548 2,555
Total operating expenses 116,439 118,880 301,179 304,199
NET OPERATING INCOME 35,147 30,984 77,291 64,310
OTHER INCOME (LOSS):
Gain on sale of Texas
Panhandle properties (note 1) 14,583 - 14,583 -
Recognition of regulatory
disallowances - - - (31,546)
Other income and deductions, net 657 888 1,252 1,239
Income taxes (note 4) (5,329) (320) (5,593) 10,581
Other income (loss), net of taxes 9,911 568 10,242 (19,726)
EARNINGS BEFORE INTEREST CHARGES AND
CHANGE IN ACCOUNTING 45,058 31,552 87,533 44,584
INTEREST CHARGES:
Interest on long-term debt 17,638 18,028 54,227 53,720
Other interest and amortization
of debt-related costs 676 1,059 2,635 2,959
Allowance for borrowed funds
used during construction (39) (50) (126) (211)
Total interest charges 18,275 19,037 56,736 56,468
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING 26,783 12,515 30,797 (11,884)
Cumulative effect of change in
accounting for unbilled revenues,
net of taxes (notes 2, 4) - - 8,445 -
NET EARNINGS (LOSS) 26,783 12,515 39,242 (11,884)
Dividends on preferred stock 152 189 520 601
EARNINGS (LOSS) APPLICABLE
TO COMMON STOCK $26,631 $12,326 $38,722 $(12,485)
PRO FORMA EARNINGS (LOSS) APPLICABLE
TO COMMON STOCK ASSUMING RETROACTIVE
APPLICATION OF CHANGE IN ACCOUNTING $26,631 $10,884 $30,277 $(11,599)
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)
Nine Months Ended
September 30, September 30,
1995 1994
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $373,127 $365,095
Power purchased for resale (138,838) (150,270)
Fuel costs paid (32,434) (36,568)
Cash paid to other suppliers and for payroll (52,327) (60,882)
Interest paid, net of amounts capitalized (58,929) (62,633)
Income taxes paid (1,037) (944)
Other taxes paid, net of amounts capitalized (24,301) (23,950)
Other operating cash receipts and payments, net 595 129
NET CASH PROVIDED BY OPERATING ACTIVITIES 65,856 29,977
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of
capitalized depreciation and interest (19,956) (21,218)
Net proceeds from sale of Texas Panhandle properties 29,009 -
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES 9,053 (21,218)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (525) (9,401)
Issuances:
Borrowings under secured notes payable 28,000 151,500
Redemptions:
Preferred stock (1,100) (700)
Repayments under secured notes payable (64,000) (142,529)
Long-term debt - first mortgage bonds (1,070) (1,070)
NET CASH USED IN FINANCING ACTIVITIES (38,695) (2,200)
NET CHANGE IN CASH AND CASH EQUIVALENTS 36,214 6,559
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,614 2,078
CASH AND CASH EQUIVALENTS AT END OF PERIOD $44,828 $8,637
RECONCILIATION OF NET EARNINGS (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net earnings (loss) $39,242 $(11,884)
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) -
Recognition of deferred revenues (4,782) -
Gain on sale of Texas Panhandle properties (14,583) -
Depreciation of utility plant 28,458 27,459
Amortization of debt-related costs and
other deferred charges 3,634 4,399
Allowance for borrowed funds used during construction (126) (211)
Deferred income taxes (excluding effect of
change in accounting) 4,003 (9,246)
Investment tax credits 2,271 (428)
Recognition of regulatory disallowances - 31,546
Cash flows impacted by changes in current
assets and liabilities:
Customer receivables 3 (4,364)
Deferred purchased power and fuel costs 5,959 (1,071)
Accounts payable 7,195 2,689
Accrued interest (4,454) (8,743)
Accrued taxes 7,398 (68)
Changes in other current assets and liabilities 1,493 787
Other, net (1,410) (888)
NET CASH PROVIDED BY OPERATING ACTIVITIES $65,856 $29,977
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
September 30, 1995 December 31,
(Unaudited) 1994
(In Thousands)
ASSETS
UTILITY PLANT (note 1):
Electric plant $1,187,339 $1,192,277
Construction work in progress 3,271 3,816
Total 1,190,610 1,196,093
Less accumulated depreciation 245,974 228,820
Net utility plant 944,636 967,273
NONUTILITY PROPERTY, at cost 175 183
CURRENT ASSETS:
Cash and cash equivalents (note 1) 44,828 8,614
Customer receivables (note 2) 16,822 3,832
Inventories, at lower of average cost or market:
Fuel 1,051 1,157
Materials and supplies 7,724 7,527
Deferred purchased power and fuel costs 9,299 15,258
Accumulated deferred taxes on income 53 2,702
Other current assets 1,212 1,958
Total current assets 80,989 41,048
REGULATORY TAX ASSETS 16,642 17,304
DEFERRED CHARGES 31,829 34,674
$1,074,271 $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 49,281 10,559
Total common stockholder's equity 224,499 185,777
Redeemable cumulative preferred stock 7,580 8,680
Long-term debt, less current maturities (note 1) 616,588 682,832
Total capitalization 848,667 877,289
CURRENT LIABILITIES:
Current maturities of long-term debt 31,870 2,670
Accounts payable 29,146 21,951
Accrued interest 7,239 11,693
Accrued taxes 24,296 16,898
Customers' deposits 2,756 3,973
Revenues subject to refund (note 3) - 4,782
Other current liabilities 12,525 10,622
Total current liabilities 107,832 72,589
REGULATORY TAX LIABILITIES 43,404 47,307
ACCUMULATED DEFERRED INCOME TAXES 45,911 36,769
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 17,979 15,708
DEFERRED CREDITS 10,478 10,820
COMMITMENTS AND CONTINGENCIES (notes 1, 4)
$1,074,271 $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) Sale of Texas Panhandle Properties
TNMP completed the $29.2 million sale of its Texas Panhandle
properties to Southwestern Public Service Company ("SPS") on September
15, 1995, and recognized a net of tax gain of $9.5 million, or $0.87
per share. The sale was consummated pursuant to the sale agreement
between TNMP and SPS discussed in TNPE's and TNMP's 1994 Combined
Annual Report on Form 10-K on page 52. The Panhandle properties
comprised a relatively small portion of TNMP's business. The book
value of the Panhandle properties sold was $14.3 million. For the nine-
month period ended September 30, 1995, revenues for the properties
were $7.4 million with corresponding sales of 76.3 gigawatt-hours to
7,350 customers.
The $29.2 million in proceeds received from SPS were deposited
directly with Bank of America, Illinois, as Trustee, to redeem $29.2
million of Series T First Mortgage Bonds ("FMBs") in accordance with
the indenture governing TNMP's FMBs. On October 16, 1995, the Trustee
paid the proceeds to the holders of the FMBs that were redeemed.
After receiving notice of the redemption, PPM America, Inc. ("PPM"),
representing certain bondholders, contacted TNMP questioning the
appropriateness of the redemption and threatening to take legal action
against TNMP. On September 28, 1995, TNMP filed a lawsuit against PPM
and Bank of America-Illinois in Texas state court. On PPM's motion,
the lawsuit was removed to the United States District Court, Northern
District of Texas, Fort Worth Division (No. 495-CV-738-A). In general,
TNMP seeks a declaratory judgment that redemption of $29.2 million of
its Series T FMBs with proceeds from the sale of its Panhandle
properties is proper under the indenture governing its FMBs. PPM filed
a counterclaim in the lawsuit. In its counterclaim, PPM seeks a
declaration that TNMP cannot partially redeem the Series T FMBs and
that TNMP's partial redemption breached indenture provisions governing
the Series T FMB's. PPM also claims that TNMP violated the Texas
Securities Act, and is seeking alleged actual and punitive damages of
approximately $6.0 million. PPM has requested certification of the
proceeding as a class action. Management believes that PPM's claims
are without merit and is vigorously contesting the claims. In the
opinion of management, the ultimate disposition of this matter will
not have a material adverse effect on TNPE's and TNMP's consolidated
financial position or results of operations.
As of September 30, 1995, cash and cash equivalents included the $29.2
million received from SPS (restricted for redemption of FMBs), and the
related $29.2 million for Series T FMBs has been presented as a
current liability in the accompanying interim consolidated balance
sheets.
(2) 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
resulted in the recognition of $12,993,000 of additional revenues
($8,445,000, net of taxes). 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.
(3) Revenues Subject to Refund
During the third quarter of 1995, the Internal Revenue Service ("IRS")
issued TNMP a favorable private letter ruling that enabled TNMP to
recognize additional revenues and accrued interest of $4.9 million
that previously had been deferred. This resulted in a one-time after-
tax earnings increase of $3.0 million, or $0.28 per share. The Public
Utility Commission of Texas ("PUCT") ordered TNMP to seek the private
letter ruling from the IRS concerning the regulatory tax treatment of
disallowed utility plant costs as discussed in TNPE's and TNMP's 1994
Combined Annual Report on Form 10-K on page 51.
Page 9
(4) Income Taxes
The components of income taxes were as follows:
Three Months Ended September 30,
TNPE TNMP
1995 1994 1995 1994
(In Thousands)
Taxes included in net operating income:
Federal - current $ 915 $2,396 $915 $2,396
State - current 541 80 541 80
Federal - deferred 5,993 2,023 5,993 2,023
Investment tax credits ("ITC") 2,398 499 2,398 499
9,847 4,998 9,847 4,998
Taxes included in other income:
Federal - current 7,506 786 7,519 320
Federal - deferred (2,183) 48 (2,170) -
ITC (24) (47) (20) -
5,299 787 5,329 320
Total income taxes $15,146 $5,785 $15,176 $ 5,318
Nine Months Ended September 30,
TNPE TNMP
1995 1994 1995 1994
(In Thousands)
Taxes included in net operating income:
Federal - current $2,944 $1,052 $2,944 $1,052
State - current 541 136 541 136
Federal - deferred 5,772 1,795 5,772 1,795
ITC 2,291 (428) 2,291 (428)
11,548 2,555 11,548 2,555
Taxes included in other income :
Federal - current 7,359 893 7,382 460
Federal - deferred (1,634) (11,025) (1,769) (11,041)
ITC (28) (57) (20) -
5,697 (10,189) 5,593 (10,581)
Taxes on cumulative effect of
change in accounting, federal
- deferred (note 2) 4,548 - 4,548 -
Total income taxes $21,793 $(7,634) $21,689 $(8,026)
The following summarizes federal tax carryforwards as of September 30, 1995:
TNPE TNMP
(In Thousands)
Net operating loss
Amount $11,868 $27,257
First year of expiration period 2009 2008
Last year of expiration period 2009 2009
Minimum tax credits
Amount $22,441 $27,379
Expiration period none none
ITC
Amount $14,381 $15,576
Expiration period 2005 2005
As indicated in the 1994 Combined Annual Report on Form 10-K on page
50, an 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 the TNP One generating plant's
eligibility for ITC be revoked retroactively. Management believes that
TNMP's claim for ITC is valid and is contesting the agent's
recommendation. Of the $22.5 million of ITC at issue, TNPE and its
subsidiaries have utilized $5.2 million in the consolidated returns
through 1994; TNMP's portion is $4.0 million. However, TNPE and TNMP
have only recognized a cumulative of $0.9 million of the ITC in
results of operations since 1990.
Page 10
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 $26.6 million for
the third quarter of 1995 ("current quarter") as compared to
$11.7 million for the third quarter of 1994 ("prior quarter").
Exclusive of one-time items and the change in unbilled revenues,
earnings for the current quarter were $16.2 million, an
improvement of $4.5 million over the prior quarter. The $4.5
million improvement resulted primarily from higher base revenues,
increased GWH sales, and cost containment.
Two one-time items also contributed to the improvement in current
quarter earnings. First, TNMP completed the sale of its Texas
Panhandle properties to SPS and recognized a net of tax gain of
$9.5 million as described in note 1. Second, TNMP recognized a
net of tax increase of $3.0 million from previously deferred
revenues after receiving a favorable IRS private letter ruling as
described in note 3. In addition, the change in unbilled revenues
as described in note 2 decreased current quarter earnings by $2.1
million.
For the nine-month period ended September 30, 1995 ("current nine-
month period"), TNPE's earnings applicable to common stock were
$38.5 million as compared to the loss applicable to common stock
of $13.2 million for the same period ended September 30, 1994
("prior nine-month period"). Exclusive of one-time items in both
nine-month periods and the change in unbilled revenues, current
nine-month period earnings were $17.6 million as compared to $7.3
million for the prior nine-month period. The $10.3 million
improvement resulted primarily from higher base revenues and cost
containment.
Three one-time items contributed to the improvement in earnings
for the current nine-month period: the $9.5 million gain on
TNMP's sale of its Panhandle properties as described in note 1,
recognition of the net increase from previously deferred revenues
of $3.0 million as described in note 3, and the cumulative effect
of change in accounting for unbilled revenues of $8.4 million as
described in note 2. For the prior nine-month period, earnings
decreased by $20.5 million for the one-time 1994 recognition of
regulatory disallowances.
The sale of the Panhandle properties is not expected to
materially affect future results of operations.
Since the operations of TNMP (the principal subsidiary) represent
virtually all of TNPE's operations, the following 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 Sept. 30, Nine Months Ended Sept. 30,
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
Total operating revenues $151,586 149,864 1,722 378,470 368,509 9,961
Effect of change in
unbilled revenues 3,220 - 3,220 (604) - (604)
Effect of recognizing
deferred revenue from
private letter ruling (4,128) - (4,128) (4,128) - (4,128)
Subtotal 150,678 149,864 814 373,738 368,509 5,229
Less pass-through items:
Power purchased for resale 52,060 59,788 (7,728) 138,715 151,790 (13,075)
Fuel 14,744 13,400 1,344 34,972 32,497 2,475
Standby power 1,346 1,294 52 4,376 4,709 (333)
Total pass-through items 68,150 74,482 (6,332) 178,063 188,996 (10,933)
Base revenues-billed $82,528 $75,382 $7,146 $195,675 $179,513 $ 16,162
The change in accounting for unbilled revenues was applied
retroactively to January 1, 1995. Unbilled revenues for the
current quarter decreased by $3.2 million and increased by $0.6
million for the current nine-month period. 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.
Page 11
The recognition of previously deferred revenues as
described at note 3 increased operating revenues by $4.1 million.
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
nine-month period variances are discussed under "Results of
Operations -- Operating Expenses."
Excluding the effect of the change in accounting, recognition of
deferred revenue, and pass-through items, current quarter and
nine-month period base revenues exceeded the corresponding
periods last year by $7.1 million and $16.2 million,
respectively. The base revenue increases are primarily due to
rate increases in both Texas ($17.5 million annualized) and New
Mexico ($0.4 million annualized). These rate increases resulted
from settlement agreements in October 1994 and May 1994,
respectively.
Increased sales also contributed to the base revenue increases.
Current quarter sales of 2,023 GWH represented a 3.8% improvement
over prior quarter sales and contributed $2.7 million to the
increase in base revenues. The increase in sales resulted from
increased consumption by all customer classes, and is attributed
to warmer weather and customer growth. The increases for each
customer class are residential (4.7%), commercial (4.0%), and
industrial (3.1%). Excluding the reduction in customers from the
sale of the Texas Panhandle properties (note 1), total customers
increased by 2.3%.
Current nine-month period sales of 5,063 GWH represented a 2.1%
improvement over prior nine-month period sales and contributed
$3.5 million to the increase in base revenues. The increase in
sales resulted from the increase in total customers (as described
above) and more consumption by residential (2.9%) and commercial
(4.4%) customers.
Operating Expenses
Current quarter operating expenses decreased by $2.4 million as
compared to the prior quarter. The decrease is primarily due to
lower pass-through expenses of $6.3 million and other operating
expenses of $0.9 million offset by increased income tax expense
of $4.8 million.
Current nine-month period operating expenses decreased by $3.0
million as compared to the prior nine-month period. The decrease
is primarily due to decreased pass-through expenses of $10.9
million and other operating expenses of $1.1 million offset by
increased income tax expense of $9.0 million.
Pass-through Expenses. Pass-through expenses consist of power
purchased for resale, fuel, and standby power. The overall
decreases are primarily due to lower costs of power purchased for
resale offset by increased fuel expense.
Power purchased for resale in the current quarter and current
nine-month period decreased $7.7 million and $13.1 million,
respectively, as compared to the corresponding periods last year.
In Texas, the reduction in the cost of power purchased for resale
was achieved by shifting purchases to lower cost suppliers for
supplemental summer peaking capacity. This arrangement became
effective May 1, 1995, and is expected to result in cost savings
of $7.0 million annually. Also, TNMP actively intervened in a
Texas rate case of a major supplier and is benefiting with cost
savings of $10.5 million annually. In New Mexico, TNMP exercised
rights under its purchased power contracts applicable to its New
Mexico customers to shift purchases to lower cost suppliers.
TNMP's customers directly benefit from these cost reductions as
these expenses are recovered through adjustment clauses.
Increases in fuel expense in the current quarter and current nine-
month period were $1.3 million and $2.5 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. The current fixed fuel factor was
established to recover current expense as well as the under
recovered fuel amounting to $15.3 million at December 31, 1994.
The under recovered amount at September 30, 1995 was $9.3
million. Also, contributing to the recovery of under recovered
fuel is the 20% reduction in the cost of lignite coal as
discussed in TNPE's and TNMP's 1994 Combined Annual Report on
Form 10-K on page 21. In management's opinion, the current fixed
fuel factor along with the fuel cost reduction should enable the
recovery of under-recovered fuel costs by the second half of
1996. Once the under recovery is eliminated, TNMP plans to
request a revised fuel factor from the PUCT, enabling cost
savings to be passed on to customers.
Other Operating Expenses. The overall decreases in other
operating expenses in the current quarter and current nine-month
period are primarily due to direct payroll expense decreases of
$0.7 million and $2.2 million, respectively, as a result of the
1994 reorganization. Increases in certain employee benefits and
customer collection costs partially offset the payroll decreases.
Income Taxes. The current quarter and current nine-month period
income tax expense increases are due to improved operating
results, the gain from the Panhandle properties sale, and the
recognition of the previously deferred revenues.
Page 12
FINANCIAL CONDITION
Liquidity
As of September 30, 1995, available unused credit under the Unit
2 Credit Agreement was $98.5 million (total commitment is $147.75
million), subject to interest coverage and equity ratio tests.
This compares to available unused credit of $62.5 million as of
December 31, 1994. The $36.0 million increase in available credit
is attributed to improved cash flow from operations as explained
in "Results of Operations."
TNMP entered into a new credit facility (the "New Credit
Agreement") effective November 3, 1995. The New Credit Agreement
provides for a total commitment of $150 million and replaced the
borrowings under the Unit 2 Credit Agreement. The interest rate
margins under the New Credit Agreement are initially 0.875% lower
than those under the Unit 2 Credit Agreement. In addition,
interest rate margins under the previous Unit 2 Credit Agreement
were scheduled to automatically increase each year while those
under the New Credit Agreement will decrease as the ratings on
TNMP's FMBs improve.
Collateral securing the New Credit Agreement is generally a first
lien on a portion of TNP One, a second lien on TNMP's first
mortgage bond trust estate located in Texas, and a pledge of $30
million of FMBs. Although the total commitment is for $150
million, TNMP may initially borrow only $100 million. To borrow
amounts above $100 million, TNMP must pledge additional FMBs, in
an amount equal to any borrowings in excess of $100 million, to
the New Credit Agreement banks. Therefore, to borrow the full
$150 million commitment, TNMP must pledge a total of $80 million
of FMBs. These FMBs are or will be issued for collateral purposes
only and will not bear interest except in the event of a default.
The New Credit Agreement will not only result in lower interest
rates, but also will provide TNMP with additional financing
flexibility. The Unit 2 Credit Agreement commitment was scheduled
to reduce by approximately $36.9 million each year beginning on
December 31, 1995. The New Credit Agreement commitment will
reduce to $125 million on November 3, 1998 and to $100 million on
November 3, 1999, and will expire on November 3, 2000. TNMP also
has the ability to draw on the New Credit Agreement to redeem
other outstanding debt.
TNMP believes that cash flow from operations and periodic
borrowings under the New 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 1 and 4.
Common Stock Dividend
On November 7, 1995, TNPE announced an increase in the quarterly
dividend from $0.20 to $0.22 per share. This will be effective
with the quarterly dividends to be paid on December 15, 1995.
At September 30, 1995, the amounts available to support TNPE's
dividend consist of TNPE's unconsolidated cash and investments of
approximately $6.4 million and TNMP's unrestricted retained
earnings of $34.6 million that are available for cash dividends
to TNPE.
Page 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth in note 1 of Notes to Consolidated
Financial Statements regarding legal matters is incorporated in
this Item 1 by reference.
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(a) 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) 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\ Manjit S. Cheema
Manjit S. Cheema
Date: November 14, 1995 Vice President & Chief Financial Officer
(Registrant) TEXAS-NEW MEXICO POWER COMPANY
By \s\ Melissa D. Davis
Melissa D. Davis
Date: November 14, 1995 Controller and as Chief Accounting Officer
Page 15