UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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 of Registrant's Principal Executive Offices)
Telephone Number: 817-731-0099
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 of Registrant's Principal Executive Offices)
Telephone Number: 817-731-0099
Indicate by check mark whether the registrants (1) have 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) have been subject to such filing
requirements for the past 90 days.
Yes X No
As of October 31, 1994, TNP Enterprises, Inc. had outstanding
10,811,585 shares of common stock, no par value. As of October
31, 1994, all 10,705 outstanding shares of Texas-New Mexico Power
Company's common stock ($10 par value), were held, beneficially
and of record, by TNP Enterprises, Inc.
<PAGE>
TNP ENTERPRISES INC. AND SUBSIDIARIES
TEXAS NEW-MEXICO POWER COMPANY AND SUBSIDIARIES
Form 10-Q for the period ended September 30, 1994
This combined Form 10-Q is separately filed by TNP Enterprises, Inc.
and Texas-New Mexico Power Company. Information contained herein
relating to Texas-New Mexico Power Company is filed by TNP
Enterprises, Inc. and separately by Texas-New Mexico Power Company on
its own behalf. 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>
<CAPTION>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Consolidated Financial Statements
(Unaudited for Periods Ended September 30, 1994 and 1993)
TNP Enterprises, Inc. and Subsidiaries:
Consolidated Statements of Operations
Three-Month and Nine-Month Periods Ended
September 30, 1994 and 1993 3
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993 4
Consolidated Statements of Cash Flows
Nine-Month Periods Ended September 30, 1994 and 1993 5
Texas-New Mexico Power Company and Subsidiaries:
Consolidated Statements of Operations
Three-Month and Nine-Month Periods Ended
September 30, 1994 and 1993 6
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993 7
Consolidated Statements of Cash Flows
Nine-Month Periods Ended September 30, 1994 and 1993 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibit Index 16
(b) Reports on Form 8-K 16
Signature page (TNPE) 17
Signature page (TNP) 17
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.Consolidated 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 but, in the opinion of
management, reflect all adjustments consisting of the provision for
regulatory disallowances and the normal recurring accruals which are
necessary for the fair statement of the results of the interim periods
presented. Results for interim periods are not necessarily indicative
of the results to be expected for a full year or for periods which
have been previously reported, due in part to the seasonal
fluctuations in revenues and possible developments in regulatory and
judicial proceedings. Amounts shown for TNPE and TNMP at December 31,
1993, are based on audited consolidated financial statements appearing
in TNPE's 1993 Annual Report and TNMP's 1993 Annual Report on Form 10-
K, respectively.
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating revenues $149,864 150,067 368,509 360,747
Operating expenses:
Power purchased for resale 59,788 61,872 151,790 151,571
Fuel 14,793 14,317 35,722 33,962
Other operating and
general expenses 18,387 17,397 54,240 52,771
Maintenance 2,929 2,619 8,990 8,549
Depreciation of utility plant 9,132 9,014 27,459 26,959
Taxes, other than on income 8,853 8,901 23,443 23,531
Income taxes (note 3) 4,998 6,371 2,555 3,652
Total operating expenses 118,880 120,491 304,199 300,995
Net operating income 30,984 29,576 64,310 59,752
Other income (loss):
Provision for regulatory
disallowances (note 4) - - (31,546) -
Other income and
deductions, net 761 488 898 1,497
Income taxes (notes 3,4) (787) (169) 10,189 (512)
Other income (loss), net of taxes (26) 319 (20,459) 985
Earnings before interest charges 30,958 29,895 43,851 60,737
Interest charges:
Interest on long-term debt 18,028 15,408 53,720 46,276
Other interest and amortization
of debt discount,
premium and expense 1,059 994 2,959 3,385
Allowance for borrowed funds used
during construction (50) (86) (211) (227)
Total interest charges 19,037 16,316 56,468 49,434
Net earnings (loss) 11,921 13,579 (12,617) 11,303
Dividends on preferred stock (189) (211) (601) (668)
Earnings (loss) applicable
to common stock $11,732 13,368 (13,218) 10,635
Weighted average number of common
shares outstanding 10,752 10,653 10,726 10,628
Earnings (loss) per
share of common stock $ 1.09 1.25 (1.23) 1.00
Dividends per share
of common stock $0.2000 0.4075 1.0150 1.2225
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1994 December 31,
ASSETS (Unaudited) 1993
(In Thousands)
Utility plant, at original cost:
<S> <C> <C>
Electric plant $1,221,683 1,203,636
Construction work in progress 3,426 5,282
1,225,109 1,208,918
Less accumulated depreciation 224,851 202,923
Utility plant less
accumulated depreciation 1,000,258 1,005,995
Less reserve for
regulatory disallowances (note 4) 31,546 -
Net utility plant 968,712 1,005,995
Nonutility property, at cost 1,309 1,673
Current assets:
Cash and cash equivalents 13,381 12,423
Investment securities 5,522 -
Customer receivables 5,128 764
Inventories, at lower of average cost or market:
Fuel 1,152 1,422
Materials and supplies 7,708 7,793
Deferred purchased power and fuel costs 16,222 15,151
Accumulated deferred taxes on income 5,165 4,251
Other current assets 1,175 1,071
Total current assets 55,453 42,875
Regulatory tax assets 17,470 16,915
Deferred charges 34,290 37,779
$1,077,234 1,105,237
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock, no par value per share.
Authorized 50,000,000 shares;
issued 10,796,655 shares in 1994
and 10,695,860 shares in 1993 $133,118 131,615
Retained earnings (note 2) 57,911 82,012
Total common stock equity 191,029 213,627
Redeemable cumulative preferred stock 8,860 9,560
Long-term debt, net of
amount due within one year (note 1) 686,923 678,994
Total capitalization 886,812 902,181
Current liabilities:
Long-term debt due within one year 1,070 1,070
Accounts payable 25,139 22,450
Accrued interest 7,372 16,115
Accrued taxes 17,887 17,221
Customers' deposits 4,459 4,464
Revenues subject to refund (note 4) 4,606 3,400
Other current and accrued liabilities 13,445 13,581
Total current liabilities 73,978 78,301
Regulatory tax liabilities 47,789 49,314
Accumulated deferred taxes on income 50,792 57,093
Accumulated deferred investment tax credits 17,863 18,348
Commitments and contingencies (notes 3,4,5)
$1,077,234 1,105,237
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30, September 30,
1994 1993
(In Thousands)
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Net earnings (loss) $(12,617) 11,303
Items not requiring cash:
Depreciation of utility plant 27,459 26,959
Amortization of debt expense,
discount and premium and
other deferred charges 4,399 3,536
Allowance for borrowed funds
used during construction (211) (227)
Deferred taxes on income (9,230) 2,942
Investment tax credit adjustments (485) (353)
Provision for regulatory disallowances 31,546 -
40,861 44,160
Changes in certain current assets and liabilities:
Customer receivables (4,364) (4,404)
Inventories 355 (1,331)
Deferred purchased power and fuel costs (1,071) 5,164
Other current assets (104) (966)
Accounts payable 2,689 30
Accrued interest (8,743) (1,666)
Accrued taxes 666 (2,670)
Customers' deposits (5) 177
Revenues subject to refund 1,206 (14,479)
Other current and accrued liabilities (136) 5,256
Other - net (876) 1,647
TOTAL 30,478 30,918
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant,
net of capitalized depreciation
and interest (21,218) (18,031)
Purchases of investment securities (5,522) -
TOTAL (26,740) (18,031)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on preferred and common stocks (11,484) (13,661)
Issuances:
Common stock 1,503 1,292
Borrowings under secured notes payable 151,500 -
Other long-term debt - 240,000
Deferred expenses associated with financings - (8,815)
Redemptions:
Preferred stock (700) (700)
Repayments under secured notes payable (142,529) -
Other long-term debt (1,070) (278,837)
TOTAL (2,780) (60,721)
NET CHANGE IN CASH AND CASH EQUIVALENTS 958 (47,834)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 12,423 86,785
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,381 38,951
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $62,633 49,285
Income taxes 56 2,790
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
On January 1, 1993, TNPE recognized certain assets and liabilities
as the result of implementation of Statement of Financial Accounting
Standards No. 109.
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(In Thousands)
<S> <C> <C> <C> <C>
Operating revenues $149,864 150,067 368,509 360,747
Operating expenses:
Power purchased for resale 59,788 61,872 151,790 151,571
Fuel 14,793 14,317 35,722 33,962
Other operating and
general expenses 18,387 17,397 54,240 52,771
Maintenance 2,929 2,619 8,990 8,549
Depreciation of utility plant 9,132 9,014 27,459 26,959
Taxes, other than on income 8,853 8,901 23,443 23,531
Income taxes (note 3) 4,998 6,371 2,555 3,652
Total operating expenses 118,880 120,491 304,199 300,995
Net operating income 30,984 29,576 64,310 59,752
Other income (loss):
Provision for regulatory
disallowances (note 4) - - (31,546) -
Other income and deductions, net 888 480 1,239 1,518
Income taxes (notes 3,4) (320) (163) 10,581 (516)
Other income (loss),
net of taxes 568 317 (19,726) 1,002
Earnings before
interest charges 31,552 29,893 44,584 60,754
Interest charges:
Interest on long-term debt 18,028 15,408 53,720 46,276
Other interest and amortization
of debt discount, premium
and expense 1,059 994 2,959 3,385
Allowance for borrowed funds
used during construction (50) (86) (211) (227)
Total interest charges 19,037 16,316 56,468 49,434
Net earnings (loss) 12,515 13,577 (11,884) 11,320
Dividends on preferred stock (189) (211) (601) (668)
Earnings (loss) applicable
to common stock $12,326 13,366 (12,485) 10,652
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1994 December 31,
ASSETS (Unaudited) 1993
(In Thousands)
Utility plant, at original cost:
<S> <C> <C>
Electric plant $1,221,683 1,203,636
Construction work in progress 3,426 5,282
1,225,109 1,208,918
Less accumulated depreciation 224,851 202,923
Utility plant less accumulated depreciation 1,000,258 1,005,995
Less reserve for regulatory
disallowances (note 4) 31,546 -
Net utility plant 968,712 1,005,995
Nonutility property, at cost 183 541
Current assets:
Cash and cash equivalents 8,637 2,078
Customer receivables 5,128 764
Inventories, at lower of average cost or market:
Fuel 1,152 1,422
Materials and supplies 7,708 7,793
Deferred purchased power and fuel costs 16,222 15,151
Accumulated deferred taxes on income 5,165 4,251
Other current assets 1,723 1,091
Total current assets 45,735 32,550
Regulatory tax assets 17,470 16,915
Deferred charges 35,634 39,118
$1,067,734 1,095,119
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock 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 175,094 175,094
Retained earnings (note 2) 17,698 38,983
Total common stock equity 192,899 214,184
Redeemable cumulative preferred stock 8,860 9,560
Long-term debt, net of
amount due within one year (note 1) 686,923 678,994
Total capitalization 888,682 902,738
Current liabilities:
Long-term debt due within one year 1,070 1,070
Accounts payable 25,139 22,450
Accrued interest 7,372 16,115
Accrued taxes 17,938 18,006
Customers' deposits 4,459 4,464
Revenues subject to refund (note 4) 4,606 3,400
Other current and accrued liabilities 13,436 13,573
Total current liabilities 74,020 79,078
Regulatory tax liabilities 47,789 49,314
Accumulated deferred taxes on income 40,589 46,907
Accumulated deferred investment tax credits 16,654 17,082
Commitments and contingencies (notes 3,4,5) $1,067,734 1,095,119
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30, September 30,
1994 1993
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net earnings (loss) $(11,884) 11,320
Items not requiring cash:
Depreciation of utility plant 27,459 26,959
Amortization of debt expense,
discount and premium and
other deferred charges 4,399 3,536
Allowance for borrowed funds
used during construction (211) (227)
Deferred taxes on income (9,246) 2,944
Investment tax credit adjustments (428) (352)
Provision for regulatory disallowances 31,546 -
41,635 44,180
Changes in certain current
assets and liabilities:
Customer receivables (4,364) (4,404)
Inventories 355 (1,331)
Deferred purchased power
and fuel costs (1,071) 5,164
Other current assets (632) (762)
Accounts payable 2,689 30
Accrued interest (8,743) (1,666)
Accrued taxes (68) (1,910)
Customers' deposits (5) 177
Revenues subject to refund 1,206 (14,479)
Other current and accrued liabilities (137) 5,343
Other - net (888) (514)
TOTAL 29,977 29,828
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant,
net of capitalized depreciation
and interest (21,218) (18,031)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on preferred and common stocks (9,401) (13,676)
Issuances:
Borrowings under secured notes payable 151,500 -
Other long-term debt - 240,000
Deferred expenses associated
with financing - (8,815)
Redemptions:
Preferred stock (700) (700)
Repayments under secured
notes payable (142,529) -
Other long-term debt (1,070) (278,837)
TOTAL (2,200) (62,028)
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,559 (50,231)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,078 63,843
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $8,637 13,612
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $62,633 49,285
Income taxes 944 1,915
<FN>
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
On January 1, 1993, TNMP recognized certain assets and liabilities
as the result of implementation of Statement of Financial Accounting
Standards No. 109.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
(1) Long-term Debt
<TABLE>
<CAPTION>
Long-term debt outstanding was as follows:
September 30, December 31,
1994 1993
(In Thousands)
First mortgage bonds:
<S> <C> <C>
Series L, 10.500% due 2000 $9,720 9,840
Series M, 8.700 due 2006 8,300 8,400
Series R, 10.000 due 2017 63,050 63,700
Series S, 9.625 due 2019 19,800 20,000
Series T, 11.250 due 1997 130,000 130,000
Series U, 9.250 due 2000 100,000 100,000
Total 330,870 331,940
Unamortized discount,
net of premium (649) (676)
First mortgage bonds, net 330,221 331,264
Secured debentures:
12.50% due 1999 130,000 130,000
Series A, 10.75% due 2003 140,000 140,000
270,000 270,000
Secured notes payable 87,772 78,800
Total long-term debt 687,993 680,064
Less long-term debt
due within one year (1,070) (1,070)
Total long-term debt, net $686,923 678,994
</TABLE>
(2) Retained Earnings Restriction
The Bond Indenture under which first mortgage bonds are issued
contains restrictions as to the payment of cash dividends on common
stock of TNMP. Due to the provision made during the second quarter of
1994 for certain regulatory disallowances (discussed in note 4),
TNMP's unrestricted retained earnings were eliminated requiring a
suspension of cash dividends on TNMP's common stock solely held by
TNPE.
As a result of generating approximately $12.3 million in third quarter
earnings applicable to common stock, TNMP's unrestricted retained
earnings were restored to a level of approximately $4.2 million;
however, based upon the seasonal nature of TNMP's operations, TNMP's
unrestricted retained earnings at September 30, 1994 may be eliminated
by seasonal operations in the next two quarters. Information
concerning TNMP's retained earnings is summarized below:
<TABLE>
<CAPTION>
Sept. 30, June 30, March 31, Dec. 31,
1994 1994 1994 1993
(In Thousands)
<S> <C> <C> <C> <C>
Total retained earnings $17,698 5,373 31,574 38,983
Less restricted level
required by Bond Indenture
before payment of common
stock dividends 13,517 13,517 13,117 12,817
Unrestricted retained earnings $4,181 (8,144) 18,457 26,166
<FN>
The provision for regulatory disallowances will not impair the ability
of TNMP to pay cash dividends on its preferred stock.
</TABLE>
<PAGE>
(3) Income Taxes
(a) TNP Enterprises, Inc. and Subsidiaries
Income taxes as set forth in TNPE's consolidated statements of
operations consisted of the following components:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
(In Thousands)
<S> <C> <C> <C> <C>
Charged (credited) to
operating expenses:
Current Federal $2,396 727 1,052 783
Current State 80 166 136 277
Deferred Federal 2,023 5,440 1,795 2,944
Investment tax credit
adjustments, net 499 38 (428) (352)
Total charged to
operating expenses 4,998 6,371 2,555 3,652
Charged to other income (loss):
Current Federal 786 167 893 515
Deferred Federal 48 2 (11,025) (2)
Investment tax
credit adjustments (47) - (57) (1)
Total charged to
other income (loss) 787 169 (10,189) 512
Total $5,785 6,540 (7,634) 4,164
</TABLE>
TNPE's Federal income tax returns for 1990 and 1991 are currently
under audit by the Internal Revenue Service ("IRS"). In 1991, TNPE
received a private letter ruling from the IRS which confirmed Unit 1
of the TNP One generating plant as being qualified, transitional
property eligible for investment tax credits ("ITC"). The IRS revenue
agent has informally advised TNPE that he will recommend that the
private letter ruling be revoked which could lead to a denial of
TNPE's claim for the ITC. Management believes the claim for ITC is
correct and valid; however, if the revenue agent's position is upheld,
an eventual denial of the ITC would have a negative effect on future
cash flows to the extent of ITC utilized on TNPE's tax returns and any
related interest and penalties. Of the $22 million of ITC at issue,
TNPE and its subsidiaries have utilized approximately $5 million in
the consolidated tax returns.
(b) Texas-New Mexico Power Company and Subsidiaries
Income taxes as set forth in TNMP's consolidated statements of
operations consisted of the following components:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
(In Thousands)
Charged (credited) to
operating expenses:
<S> <C> <C> <C> <C>
Current Federal $2,396 727 1,052 783
Current State 80 166 136 277
Deferred Federal 2,023 5,440 1,795 2,944
Investment tax credit
adjustments, net 499 38 (428) (352)
Total charged to
operating expenses 4,998 6,371 2,555 3,652
Charged to other income (loss):
Current Federal 320 163 460 516
Deferred Federal - - (11,041) -
Total charged to other
income (loss) 320 163 (10,581) 516
Total $5,318 6,534 (8,026) 4,168
</TABLE>
Reference is made to part (a) of this note which discusses a current
audit of TNPE's 1990 and 1991 Federal Income Tax returns. The loss of
TNPE's claim for ITC would have a similar negative effect on TNMP's
future cash flows. Of the $22 million of ITC at issue, TNMP has
utilized approximately $4 million to date.
(4) Regulatory Matters
On October 6, 1994, the Public Utility Commission of Texas ("PUCT")
issued a final order approving a unanimous settlement agreement among
the parties in TNMP's most recent Texas retail rate application. TNMP
had requested an increase of $34.8 million, or 8.9%, over annualized
test year revenues. TNMP's request included the remaining $11.1
million of Unit 2 costs in rate base, as prescribed in a previous rate
case. The final order provides for an increase in annualized revenues
of $17.5 million, or 4.5%, which TNMP implemented on October 2, 1994.
The final order and the settlement agreement resolve all outstanding
court appeals in connection with TNMP's two previous rate cases and
provides for TNMP to write off $35 million of the PUCT's total
disallowances of $61.4 million regarding TNP One. TNMP recognized the
write-off in the second quarter of 1994.
For a discussion of the judicial appeals of TNMP's rate orders in the
two previous Texas retail rate applications and certain other matters
concerning the Texas rate base treatment of TNP One, reference is made
to note 5 of both the "Notes to Consolidated Financial Statements"
included in TNPE's 1993 Annual Report, incorporated by reference in
TNPE's 1993 Annual Report on Form 10-K and the "Notes to Consolidated
Financial Statements" included in TNMP's 1993 Annual Report on Form 10-
K, for TNPE and TNMP, which notes are incorporated herein by
reference.
The final order further includes a moratorium restricting TNMP from
filing applications for rate increases in Texas for a five-year period
beginning March 31, 1994, subject to certain conditions. Those
conditions do not allow TNMP to file for any base rate increase under
any circumstances prior to March 31, 1997 but would allow an
application for increased rates to be filed after that time if certain
force majeure events (as defined in the agreement) occur at any time
during the five-year moratorium period.
At September 30, 1994, revenues subject to refund totaled $4.6 million
under a tax-related issue from the previous rate case. The recent
final order does not change the status of the $1.6 million in
additional annualized revenues granted to TNMP, subject to refund, by
the PUCT in the previous rate case. These revenues subject to refund
have not been reflected in the results of operations as of September
30, 1994. 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. The private
letter ruling will not affect revenues related to electricity sales on
and after October 2, 1994, when the new rates in the most recent rate
case were implemented. While there can be no assurances given, based
upon a similar revenue ruling received by an unrelated utility, TNMP
expects to receive a favorable ruling before the end of 1994. An
unfavorable ruling would result in a refund to TNMP's Texas customers
of the $4.6 million of deferred revenues and in the recognition of a
regulatory liability for the income tax benefits of a portion of the
disallowances recognized.
The accompanying consolidated financial statements of TNMP and TNPE
for the nine months ended September 30, 1994 include a provision for
$35 million of the disallowances, which resulted in an after-tax
charge to results of operations of approximately $20.5 million, or
$1.91 per share of TNPE common stock, as detailed below:
<TABLE>
<S> <C>
Disallowances recognized
under the settlement agreement $35,000,000
Less accumulated depreciation
previously recognized 3,453,930
Provision for regulatory
disallowances 31,546,070
Less related income taxes 11,041,025
Provision for regulatory
disallowances, after income taxes $20,505,045
Weighted average number of TNPE
common shares outstanding 10,726,000
Loss per share of TNPE common stock $ 1.91
</TABLE>
<PAGE>
(5) Early Retirement Package
On August 29, 1994, TNMP announced a voluntary early retirement
package for employees who would be age 55 or older and would have 10
or more years of service with TNMP as of December 31, 1994. Of TNMP's
75 employees eligible for the package, 70 employees accepted the
package. Annual pretax cash savings of slightly more than $3.6 million
will result for TNMP starting in 1995. The costs associated with the
early retirement package, including post-retirement benefits, will be
funded through TNMP's pension plan trust and TNMP's post-retirement
medical and death benefits trust. The package is not expected to
require any cash payments by TNMP in the next few years; however, TNMP
will have to recognize in the fourth quarter of 1994 a one-time
expense of about $6.4 million before taxes to reflect the increased
actuarial liabilities for the pension and post-retirement benefits
costs.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
This discussion presents management's analysis of significant factors
in TNPE's and TNMP's consolidated financial condition and results of
operations and should be read in conjunction with related consolidated
financial statements and notes thereto.
TNPE's consolidated assets, liabilities and earnings capability are
principally those of TNMP. TNPE's nonutility earnings consist mainly
of interest income on short-term investments.
Financial Condition
Regulatory Matters
On October 6, 1994, the PUCT issued a final order approving a
unanimous settlement agreement among the parties involved in TNMP's
most recent Texas rate case. The final order provides for an increase
in annualized revenues of $17.5 million, or 4.5%, which TNMP
implemented on October 2, 1994.
The final order and the settlement agreement resolve all outstanding
court appeals in connection with TNMP's two previous rate cases and
provided for TNMP to write off $35 million of the PUCT's total
disallowances of $61.4 million regarding TNP One. TNMP recorded a
provision for the write-off in the second quarter of 1994.
Under no circumstances may TNMP file another Texas rate application
prior to March 31, 1997. After that date but before March 31, 1999,
TNMP may file another Texas rate application only upon the occurrence
during the five years ending March 31, 1999 of certain events which
are:
- Changes in Federal income taxes exceeding $2.5 million,
- Legislative or regulatory actions exceeding $2.5 million,
- Inflation greater than 8% for one year,
- 30 year U.S. Treasury Bond yield greater than 8.75% for six
months, and/or
- Base revenue decrease greater than $2.5 million.
Liquidity and Capital Resources
TNMP's 1994 capital requirements consist of (1) payments for additions
to utility plant and (2) bond sinking fund payments and maturities and
preferred stock redemptions. Capital requirements of $23 million for
the nine months ended September 30, 1994 were funded with
approximately $20.5 million in cash flows from operations (after
payment of cash dividends on common and preferred stocks) and
reborrowings under the Unit 2 financing facility. TNMP expects that
the remaining capital requirements for 1994 of about $5 million will
be funded internally with cash flows from operations. TNMP's capital
requirements for plant additions over the next several years are
expected to be met with cash flows from operations.
TNMP's next major capital requirement will be $130 million for the
maturity of Series T, First Mortgage Bonds, which mature on January
15, 1997. In order to fund the $130 million needed for the maturity of
Series T Bonds, TNMP expects to use a combination of cash flows from
operations and proceeds from issuances of additional debt and equity.
TNMP has the ability to borrow under the Unit 2 financing facility the
unused portion of its $147.75 million commitment. The commitment
reduces in annual increments of $36.9 million beginning December 31,
1995. At September 30, 1994, TNMP had the ability to borrow an
additional $60 million under the financing facility.
<PAGE>
TNPE's Common Stock Dividend
TNPE's common stock dividend for the third quarter was $0.20 per
share, a 51% decrease from the previous quarterly dividend of $0.4075
per common share. One factor which led to the Board of Directors'
decision to reduce the dividend was the suspension of cash dividends
on TNMP's common stock (to TNPE) in the third quarter. This suspension
was caused by TNMP's provision for the write-off of the $35 million in
regulatory disallowances during the second quarter of 1994 which
eliminated TNMP's unrestricted retained earnings.
At September 30, 1994 TNPE had approximately $10 million in
unconsolidated cash and investments which could be used for payment of
dividends on its common stock; however, in the long-term, TNPE's
ability to pay dividends on its common stock is dependent upon TNMP's
ability to pay dividends to TNPE.
As a result of generating approximately $12.3 million in third quarter
earnings applicable to common stock, TNMP's unrestricted retained
earnings were restored to a level of approximately $4.2 million;
however, based upon the seasonal nature of TNMP's operations, TNMP's
unrestricted retained earnings at September 30, 1994 may be eliminated
by seasonal operations in the next two quarters. TNMP anticipates,
assuming that no abnormal circumstances occur during the next twelve
months, that it will again have sufficient unrestricted retained
earnings before September 30, 1995 to permit the resumption of payment
of cash dividends on TNMP's common stock.
Early Retirement Package
During the third quarter, TNMP offered a voluntary early retirement
package which now has been accepted by most of the eligible employees.
This action will result in annual pretax cash savings of about $3.6
million starting in 1995. The costs associated with the early
retirement package, including post-retirement benefits, will be funded
through TNMP's pension plan trust and TNMP's post-retirement medical
and death benefit trust. The package is not expected to require any
cash payments by TNMP in the next few years; however, TNMP will have
to recognize in the fourth quarter of 1994 a one-time expense of about
$6.4 million before taxes to reflect the increased actuarial
liabilities for the pension and post-retirement benefits costs.
TNMP Prepares Texas Panhandle Solicitation
In the settlement of the recent Texas rate case, TNMP agreed with its
Texas Panhandle cities to sell or transfer its Texas Panhandle
properties if certain conditions are met. In accordance with that
agreement, TNMP has presented to interested parties a solicitation for
the sale, transfer or other disposition of the Texas Panhandle area
properties.
TNMP's Texas Panhandle properties comprise a relatively small portion
of TNMP's business as shown in the following table:
<TABLE>
<S> <C>
Book Value of Utility Plant $ 14.5 million
Annual Revenues $ 9.5 million
Customers 7,300
</TABLE>
Management believes the solicitation will lead to a successful sale of
the Texas Panhandle properties, subject to various regulatory
approvals being obtained. If the solicitation fails to locate a buyer
who meets the conditions set forth in the agreement, TNMP is not
obligated to sell the properties. The terms of the Bond Indenture
require that any proceeds of the sale would be paid to the Trustee of
the Bond Indenture. The proceeds may then be used by the Trustee to
either redeem first mortgage bonds directly from holders or tender for
redemption on the open market, at the discretion of TNMP.
Other
Implementation in 1993 of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Post-retirement Benefits Other
Than Pensions," has resulted in increased costs of employee benefits.
TNMP's settlement of its New Mexico rate application earlier this year
includes recovery of post-retirement benefits for its New Mexico
operations. The final order in the recently settled Texas rate case
approved TNMP's adoption for Texas ratemaking purposes of the full
accrual basis for post-retirement benefits other than pensions in
accordance with generally accepted accounting principles.
TNPE's Federal income tax returns for 1990 and 1991 are currently
under audit by the Internal Revenue Service ("IRS"). In 1991, TNPE
received a private letter ruling from the IRS which confirmed Unit 1
of the TNP One generating plant as being qualified, transitional
property eligible for investment tax credits ("ITC"). The IRS revenue
agent has informally advised TNPE that he will recommend that the
private letter ruling be revoked which could lead to a denial of
TNPE's claim for the ITC. Management believes the claim for ITC is
correct and valid; however, if the revenue agent's position is upheld,
an eventual denial of the ITC would have a negative effect on future
cash flows to the extent of ITC utilized on TNPE's tax returns and any
related interest and penalties. Of the $22 million of ITC at issue,
TNPE and its subsidiaries have utilized approximately $5 million in
the consolidated tax returns.
<PAGE>
Results of Operations
Operating Revenues
<TABLE>
<CAPTION>
The following table presents the components of the changes in
operating revenues for the periods ended September 30, 1994:
Increase (Decrease) From Prior Year
Three Months Nine Months
(In thousands)
<S> <C> <C>
Recovery of purchased power $(2,084) 219
Customer usage 1,610 6,171
Recovery of fuel costs 225 1,090
Other revenues 100 77
Base operating revenues (54) 205
Total $(203) 7,762
</TABLE>
Total operating revenues for the quarter ended September 30, 1994,
decreased slightly from the same quarter last year. Changes due to
recovery of purchased power and customer usage represented the major
variances. Recovery of purchased power decreased $2,084,000 primarily
from a decrease in the average cost of kilowatt-hour ("KWH") purchases
charged by TNMP's suppliers. For the quarter, KWH sales increased 2.8%
due to an increase in customers in all classes and increases in
consumption per customer in the commercial and industrial classes of
customers.
For the nine-month period, a 3.8% increase in KWH sales was the
primary contributor to the increase in operating revenues. About one-
half of the increase in customer usage for the nine-months-to-date
resulted from increased residential usage in Texas during the second
quarter of 1994; warmer temperatures in 1994 compared to 1993 gave
rise to this increased usage. Increases in commercial and industrial
customers also contributed to the nine-months-to-date customer usage
increase. An increase in the recovery of fuel costs also contributed
to the nine-month operating revenue increase.
Third Quarter Results
TNMP's third quarter earnings for 1994 were down from 1993 mainly
because of $2,721,000 in increased interest charges. Series U First
Mortgage Bonds and Series A Secured Debentures were issued in
September 1993 and bear higher interest rates than the rates on debt
that was replaced by these securities.
An increase of $990,000 in other operating and general expenses was
caused primarily by increases in medical and post-retirement employee
benefits and the resumption in July 1994 of TNMP's thrift plan
matching contributions. The resumption of TNMP's thrift plan matching
contributions is expected to add approximately $400,000 to operating
expenses for the fourth quarter of 1994.
Nine-Months-to-Date Results
The $12.6 million loss for the nine-months-ended was primarily the
result of the after-tax write off of $20.5 million in regulatory
disallowances in the second quarter of this year. (Further discussion
of the disallowances is provided under "Regulatory Matters" and in
note 4 to the consolidated financial statements.)
The higher interest rates of Series U First Mortgage Bonds and Series
A Secured Debentures led to the $7,034,000 increase in interest
charges; this increase contributed to the decline in earnings from
last year. Based on the current outstanding debt, total annual
interest charges are expected to be about $75 million.
The increase in other operating and general expenses of $1,469,000 was
caused primarily by the factors discussed above for the third quarter.
TNMP also experienced increases in purchased power and fuel of
$219,000 and $1,760,000, respectively. Purchased power increased due
to an increase in KWH purchased, the effect of which more than offset
a decrease in the average cost per KWH. The increase in fuel expense
resulted primarily from increased KWH sales to TNMP's Texas customers.
Due to the provision for the regulatory disallowances, a net loss for
1994 is expected. TNMP expects 1995 to be profitable, assuming no
adverse circumstances. The recent approval by the PUCT of a $17.5
million annualized increase in revenues and cost savings anticipated
from the early retirement package are expected to contribute to an
improvement in results of operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On June 1, 1994, the Third District of Texas Court of Appeals
denied TNMP's motions for rehearing on the Court's decision
rendered on August 25, 1993. The August 1993 ruling related
to the 53rd District Court of Texas' decision on appeals of
the PUCT final order in Docket No. 9491.
Subsequent to the above ruling and in conjunction with the
settlement agreement and PUCT final order in Docket No.
12900, all parties agreed to terminate all court appeals of
Docket Nos. 9491 and 10200. Motions for dismissals of the
appeals are expected to be filed in the fourth quarter of
1994.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Refer to TNPE's and TNMP's 1993 Annual Reports on Form 10-K
for an Exhibit Index.
Refer to TNPE's and TNMP's 1994 Quarterly Reports on Form 10-
Q for the periods March 31, 1994 and June 30, 1994 for
exhibits filed subsequent to December 31, 1993.
Exhibits filed herewith;
27 - Texas-New Mexico Power Company Financial Data Schedule.
27(a) - TNP Enterprises, Inc. Financial Data Schedule.
(b) Reports on Form 8-K
None during the period covered by this report.
<PAGE>
SIGNATURE
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.
TNP ENTERPRISES, INC.
Date November 10, 1994 By \s\ Monte W. Smith
Monte W. Smith
Treasurer
(Chief Accounting Officer)
SIGNATURE
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.
TEXAS-NEW MEXICO POWER COMPANY
Date November 10, 1994 By \s\ Monte W. Smith
Monte W. Smith
Controller
(Chief Accounting Officer)
