UNITED STATES 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 March 31, 1996
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 10,974,573 shares of common stock outstanding as of
May 1, 1996.
- --------------------------------------------------------------------------------
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 \ \
TNP Enterprises, Inc. holds all 10,705 outstanding common shares of Texas-New
Mexico Power Company.
TNP Enterprises, Inc. and Subsidiaries
Texas-New Mexico Power Company and Subsidiaries
Combined Quarterly Report on Form 10-Q for the period ended March 31, 1996
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>
<CAPTION>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements. Page
(Unaudited for Periods Ended March 31, 1996, and 1995)
TNP Enterprises, Inc. ("TNPE") and Subsidiaries:
Consolidated Statements of Operations
Three-Month Periods Ended March 31, 1996, and 1995 3
Consolidated Statements of Cash Flows
Three-Month Periods Ended March 31, 1996, and 1995 4
Consolidated Balance Sheets
March 31, 1996, and December 31, 1995 5
Texas-New Mexico Power Company ("TNP") and Subsidiaries:
Consolidated Statements of Operations
Three-Month Periods Ended March 31, 1996, and 1995 6
Consolidated Statements of Cash Flows
Three-Month Periods Ended March 31, 1996, and 1995 7
Consolidated Balance Sheets
March 31, 1996, and December 31, 1995 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders. 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K. 13
(a) Exhibits 13
(b) Reports on Form 8-K 13
Signature page (TNPE and TNP) 14
</TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The following interim consolidated financial statements of TNPE and
subsidiaries and TNP and subsidiaries are unaudited. The 1995 financial
statements reflect a change in accounting for unbilled revenues. 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 the 1995 change in accounting.
Amounts shown for TNPE and TNP at December 31, 1995, are based on audited
consolidated financial statements appearing in TNPE's and TNP's 1995 Combined
Annual Report on Form 10-K.
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended
March 31,
1996 1995
---- ----
(In Thousands Except
Per Share Amounts)
<S> <C> <C>
OPERATING REVENUES..........................................................................$ 99,827 $105,647
--------- -------
OPERATING EXPENSES:
Purchased power......................................................................... 32,635 42,007
Fuel.................................................................................... 11,055 10,698
Other operating and general expenses.................................................... 17,950 18,235
Maintenance............................................................................. 2,737 2,851
Depreciation of utility plant........................................................... 9,695 9,376
Taxes other than income taxes........................................................... 7,351 6,688
Income taxes (Note 2)................................................................... 618 (1,252)
--------- -------
Total operating expenses.......................................................... 82,041 88,603
--------- -------
NET OPERATING INCOME........................................................................ 17,786 17,044
--------- -------
OTHER INCOME:
Other income and deductions , net ...................................................... 208 321
Income taxes (Note 2)................................................................... (85) (284)
--------- -------
Other income, net of taxes........................................................ 123 37
--------- -------
EARNINGS BEFORE INTEREST CHARGES AND CHANGE IN ACCOUNTING................................... 17,909 17,081
--------- -------
INTEREST CHARGES:
Interest on long-term debt.............................................................. 16,569 18,451
Other interest and amortization of debt-related costs .................................. 778 951
--------- -------
Total interest charges............................................................ 17,347 19,402
--------- -------
EARNINGS (LOSS) BEFORE
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING............................................... 562 (2,321)
Cumulative effect of change in accounting for unbilled revenues, net of taxes (Note 1)...... - 8,445
--------- -------
NET EARNINGS................................................................................ 562 6,124
Dividends on preferred stock................................................................ 42 188
--------- -------
EARNINGS APPLICABLE TO COMMON STOCK.........................................................$ 520 $ 5,936
========= =======
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Earnings (loss) before cumulative effect of change in accounting........................$ 0.05 $ (0.23)
Cumulative effect of change in accounting for unbilled revenues ........................ - 0.78
--------- -------
Earnings per share......................................................................$ 0.05 $ 0.55
======== =======
DIVIDENDS PER SHARE OF COMMON STOCK.........................................................$ 0.22 $ 0.20
======== =======
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING...................................................................... 10,986 10,877
========= =======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
1996 1995
---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers.......................................................... $ 100,052 $ 108,979
Purchased power....................................................................... (39,758) (42,828)
Fuel costs paid....................................................................... (10,998) ( 9,515)
Cash paid for payroll and to other suppliers.......................................... (25,302) (20,892)
Interest paid, net of amounts capitalized............................................. (25,407) (22,889)
Income taxes paid..................................................................... (8,386) (905)
Other taxes paid, net of amounts capitalized.......................................... (16,845) (16,081)
Other operating cash receipts and payments, net....................................... 1,636 447
-------- --------
NET CASH USED IN OPERATING ACTIVITIES..................................................... (25,008) (3,684)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of capitalized depreciation and interest.............. (6,460) (5,822)
Purchases of temporary investments.................................................... - (9,997)
Maturities of temporary investments................................................... - 5,636
-------- --------
NET CASH USED IN INVESTING ACTIVITIES..................................................... (6,460) (10,183)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks......................................... (2,453) (2,364)
Issuances:
Common stock....................................................................... 934 309
Borrowings under revolving credit facility......................................... 65,000 16,000
Redemptions:
Preferred stock.................................................................... - (300)
Repayments under revolving credit facility......................................... (35,000) (9,000)
First mortgage bonds............................................................... (120) -
-------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES................................................. 28,361 4,645
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................................... (3,107) (9,222)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................................... 21,105 15,297
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................ $ 17,998 $ 6,075
======== ========
RECONCILIATION OF NET EARNINGS TO NET CASH USED IN
OPERATING ACTIVITIES:
Net earnings.......................................................................... $ 562 $ 6,124
Adjustments to reconcile net earnings to net cash used in operating activities:
Cumulative effect of change in accounting, net of taxes............................ - (8,445)
Depreciation of utility plant...................................................... 9,695 9,376
Amortization of debt-related costs and other deferred charges...................... 1,122 1,244
Allowance for borrowed funds used during construction.............................. (39) (55)
Deferred income taxes (excluding cumulative effect of change in accounting)........ 901 (957)
Investment tax credits............................................................. (267) (300)
Cash flows impacted by changes in current assets and liabilities:
Customer receivables............................................................... 434 3,752
Accrued interest................................................................... (7,252) (4,326)
Accrued taxes...................................................................... (17,780) (9,453)
Accounts payable................................................................... (4,854) (1,515)
Purchased power costs subject to refund............................................ (5,688) -
Changes in other current assets and liabilities.................................... (1,479) 1,261
Other, net................................................................................ (363) (390)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES..................................................... $ (25,008) $ (3,684)
======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 December 31,
ASSETS (Unaudited) 1995
(In Thousands)
UTILITY PLANT:
<S> <C> <C>
Electric plant............................................................... $ 1,199,664 $ 1,193,538
Construction work in progress................................................ 1,243 3,334
---------- ----------
Total.................................................................. 1,200,907 1,196,872
Less accumulated depreciation................................................ 260,099 252,868
---------- ----------
Net utility plant...................................................... 940,808 944,004
---------- ----------
NONUTILITY PROPERTY, at cost................................................... 1,194 1,156
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents.................................................... 17,998 21,105
Customer receivables......................................................... 15,135 15,569
Inventories, at lower of average cost or market:
Fuel....................................................................... 587 492
Materials and supplies..................................................... 7,251 7,287
Deferred purchased power and fuel costs...................................... 7,805 9,261
Accumulated deferred income taxes ........................................... 261 144
Other current assets......................................................... 1,313 960
---------- ----------
Total current assets................................................... 50,350 54,818
---------- ----------
DEFERRED CHARGES............................................................... 29,744 30,455
---------- ----------
$ 1,022,096 $ 1,030,433
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholders' equity:
Common stock - no par value per share. Shares authorized 50,000,000;
issued 10,968,223 shares in 1996 and 10,920,060 in 1995................ $ 135,907 $ 134,973
Retained earnings.......................................................... 80,593 82,484
---------- ----------
Total common stockholders' equity...................................... 216,500 217,457
Preferred stock.............................................................. 3,600 3,600
Long-term debt, less current maturities...................................... 541,014 611,925
---------- ----------
Total capitalization................................................... 761,114 832,982
---------- ----------
CURRENT LIABILITIES:
Current maturities of long-term debt ........................................ 101,870 1,070
Accounts payable............................................................. 17,186 22,040
Accrued interest............................................................. 6,730 13,982
Accrued taxes ............................................................... 8,425 26,205
Customers' deposits.......................................................... 2,284 2,493
Purchased power costs subject to refund...................................... - 5,688
Other current liabilities.................................................... 10,159 12,472
---------- ----------
Total current liabilities.............................................. 146,654 83,950
---------- ----------
REGULATORY TAX LIABILITIES..................................................... 26,727 26,826
ACCUMULATED DEFERRED INCOME TAXES.............................................. 58,468 57,381
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS.................................... 18,325 18,592
DEFERRED CREDITS............................................................... 10,808 10,702
CONTINGENCIES (Notes 2 and 3)
$ 1,022,096 $ 1,030,433
========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
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,
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
OPERATING REVENUES ......................................................................... $ 99,827 $ 105,647
-------- ---------
OPERATING EXPENSES:
Purchased power.......................................................................... 32,635 42,007
Fuel..................................................................................... 11,055 10,698
Other operating and general expenses..................................................... 17,950 18,235
Maintenance.............................................................................. 2,737 2,851
Depreciation of utility plant............................................................ 9,695 9,376
Taxes other than income taxes............................................................ 7,351 6,688
Income taxes (Note 2).................................................................... 618 (1,252)
-------- ---------
Total operating expenses......................................................... 82,041 88,603
-------- ---------
NET OPERATING INCOME........................................................................ 17,786 17,044
--------- ---------
OTHER INCOME:
Other income and deductions, net ........................................................ 296 349
Income taxes (Note 2).................................................................... (116) (145)
--------- -------
Other income, net of taxes....................................................... 180 204
-------- ---------
EARNINGS BEFORE INTEREST CHARGES AND CHANGE IN ACCOUNTING................................... 17,966 17,248
-------- ---------
INTEREST CHARGES:
Interest on long-term debt............................................................... 16,569 18,451
Other interest and amortization of debt-related costs ................................... 778 951
--------- ---------
Total interest charges........................................................... 17,347 19,402
--------- ---------
EARNINGS (LOSS) BEFORE
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING................................................ 619 (2,154)
Cumulative effect of change in accounting for unbilled revenues, net of taxes (Note 1)...... - 8,445
-------- ---------
NET EARNINGS ............................................................................... 619 6,291
Dividends on preferred stock................................................................ 42 188
-------- ---------
EARNINGS APPLICABLE TO COMMON STOCK......................................................... $ 577 $ 6,103
======== =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
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,
1996 1995
---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers......................................................... $ 100,052 $ 108,979
Purchased power...................................................................... (39,758) (42,828)
Fuel costs paid...................................................................... (10,998) (9,515)
Cash paid for payroll and to other suppliers......................................... (25,138) (20,834)
Interest paid, net of amounts capitalized............................................ (25,407) (22,889)
Income taxes paid.................................................................... (8,499) (569)
Other taxes paid, net of amounts capitalized......................................... (16,845) (16,488)
Other operating cash receipts and payments, net...................................... 1,723 349
--------- --------
NET CASH USED IN OPERATING ACTIVITIES.................................................... (24,870) (3,795)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of
capitalized depreciation and interest.............................................. (6,460) (5,822)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks........................................ (2,442) (188)
Issuances:
Borrowings under revolving credit facility........................................ 65,000 16,000
Redemptions:
Preferred stock................................................................... - (300)
Repayments under revolving credit facility........................................ (35,000) (9,000)
First mortgage bonds.............................................................. (120) -
--------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES................................................ 27,438 6,512
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................................................. (3,892) (3,105)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......................................... 14,450 8,614
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................... $ 10,558 $ 5,509
========= ========
RECONCILIATION OF NET EARNINGS TO NET CASH USED IN
OPERATING ACTIVITIES:
Net earnings......................................................................... $ 619 $ 6,291
Adjustments to reconcile net earnings to net cash used in operating activities:
Cumulative effect of change in accounting, net of taxes........................... - (8,445)
Depreciation of utility plant..................................................... 9,695 9,376
Amortization of debt-related costs and other deferred charges..................... 1,122 1,244
Allowance for borrowed funds used during construction............................. (39) (55)
Deferred income taxes (excluding cumulative effect of change in accounting)....... 884 (1,112)
Investment tax credits............................................................ (262) (299)
Cash flows impacted by changes in current assets and liabilities:
Customer receivables.............................................................. 434 3,752
Accrued interest.................................................................. (7,252) (4,326)
Accrued taxes..................................................................... (17,878) (9,624)
Accounts payable.................................................................. (4,854) (1,515)
Purchased power costs subject to refund........................................... (5,688) -
Changes in other current assets and liabilities................................... (1,316) 1,202
Other, net............................................................................... (335) (284)
--------- --------
NET CASH USED IN OPERATING ACTIVITIES.................................................... $ (24,870) $ (3,795)
========= ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
Consolidated Balance Sheets
March 31, 1996 December 31,
ASSETS (Unaudited) 1995
(In Thousands)
UTILITY PLANT:
<S> <C> <C>
Electric plant................................................................$ 1,199,664 $ 1,193,538
Construction work in progress................................................. 1,243 3,334
---------- ----------
Total................................................................... 1,200,907 1,196,872
Less accumulated depreciation................................................. 260,099 252,868
---------- ----------
Net utility plant....................................................... 940,808 944,004
---------- ----------
NONUTILITY PROPERTY, at cost.................................................... 214 175
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents..................................................... 10,558 14,450
Customer receivables ......................................................... 15,135 15,569
Inventories, at lower of average cost or market:
Fuel........................................................................ 587 492
Materials and supplies...................................................... 7,251 7,287
Deferred purchased power and fuel costs....................................... 7,805 9,261
Accumulated deferred taxes on income ......................................... 261 144
Other current assets.......................................................... 1,464 1,274
---------- ----------
Total current assets.................................................... 43,061 48,477
---------- ----------
DEFERRED CHARGES................................................................ 31,576 32,287
---------- ----------
$ 1,015,659 $ 1,024,943
========== ==========
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.............................................. 174,931 174,931
Retained earnings........................................................... 47,490 49,313
---------- ----------
Total common stockholder's equity....................................... 222,528 224,351
Redeemable cumulative preferred stock......................................... 3,600 3,600
Long-term debt, less current maturities....................................... 541,014 611,925
---------- ----------
Total capitalization.................................................... 767,142 839,876
---------- ----------
CURRENT LIABILITIES:
Current maturities of long-term debt.......................................... 101,870 1,070
Accounts payable.............................................................. 17,186 22,040
Accrued interest.............................................................. 6,730 13,982
Accrued taxes ................................................................ 7,452 25,330
Customers' deposits........................................................... 2,284 2,493
Purchased power costs subject to refund....................................... - 5,688
Other current liabilities..................................................... 10,159 12,472
---------- ----------
Total current liabilities............................................... 145,681 83,075
---------- ----------
REGULATORY TAX LIABILITIES...................................................... 26,727 26,826
ACCUMULATED DEFERRED INCOME TAXES............................................... 48,165 47,066
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS..................................... 17,136 17,398
DEFERRED CREDITS................................................................ 10,808 10,702
CONTINGENCIES (Notes 2 and 3) ---------- ----------
$ 1,015,659 $ 1,024,943
========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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, TNP changed its method of accounting for
operating revenues from cycle billing to accrual. This change required the
recognition on January 1, 1995 of $12,993,000 ($8,445,000, net of taxes) of
additional revenues. Accruing unbilled revenues more closely matches revenues
and expenses and conforms to common utility industry practice.
(2) Income Taxes
The components of income taxes for the three months ended March 31,
1996, and 1995, respectively, were as follows:
<TABLE>
<CAPTION>
TNPE TNP
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands)
Taxes included in net operating income:
<S> <C> <C> <C> <C>
Federal - current $ 164 $ 359 $ 164 $ 359
Federal - deferred 712 (1,312) 712 (1,312)
ITC adjustments (258) (299) (258) (299)
------- ------ ------- -------
618 (1,252) 618 (1,252)
------- ------ ------- -------
Taxes included in other income :
Federal - current (95) (70) (52) (55)
Federal - deferred 189 355 172 200
ITC adjustments (9) (1) (4) -
------- ------ ------- ------
85 284 116 145
------- ------ ------- -------
Taxes on cumulative effect of change in
accounting, federal - deferred - 4,548 - 4,548
------- ------ ------- -------
Total income taxes $ 703 $ 3,580 $ 734 $ 3,441
======= ====== ======= =======
</TABLE>
The following summarizes federal tax carryforwards as of March 31,
1996:
<TABLE>
<CAPTION>
TNPE TNP
(In Thousands)
Net operating loss
<S> <C> <C>
Amount $ 16,063 $ 31,301
First year of expiration period 2008 2006
Last year of expiration period 2011 2011
Minimum tax credits
Amount $ 22,497 $ 27,467
Expiration period none none
Investment tax credit ("ITC")
Amount $ 14,366 $ 15,554
Expiration period 2005 2005
</TABLE>
As indicated in the 1995 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 TNP'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 tax returns through 1994 and expect to utilize $2.9 million in the
1995 consolidated tax return. TNP's portion is $4.0 million and $2.9 million,
respectively. However, through 1995, TNPE and TNP have only recognized $1.1
million of the ITC in results of operations since 1990.
(3) Accounting for the Effects of Regulation
TNPE's and TNP's consolidated financial statements reflect the
application of certain accounting standards, including Statement of Financial
Accounting Standard (SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation," which provide for recognition of the economic effects of rate
regulation. On May 2, 1996 TNP made a filing with the Public Utility Commission
of Texas ("PUCT") requesting approval of a rate proposal designed to better
position TNP for a competitive future. Management believes that TNPE and TNP
satisfy the criteria for accounting in accordance with SFAS 71.
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.
Overall Results
TNPE's net earnings applicable to common stock were $0.5 million for
the first quarter of 1996 ("current period"). In the first quarter of 1995
("prior period") TNPE had a loss of $2.5 million, excluding $8.4 million
recorded as a one time item for the change in accounting for unbilled revenues.
The increase in earnings of $3.0 million resulted primarily from an increase in
base revenues and lower operating and interest expenses. The effect of the
change in accounting for unbilled revenues is described in Note 1.
Operating Revenues
<TABLE>
<CAPTION>
The components of operating revenues are summarized in the following
table (in thousands):
Variance:
Current Prior Increase
period period (Decrease)
<S> <C> <C> <C>
Operating revenues $ 99,827 $ 105,647 $ (5,820)
Less pass-through items:
Purchased power 32,635 42,007 (9,372)
Fuel & standby power 11,771 11,484 287
-------- -------- -------
Base revenues $ 55,421 $ 52,156 $ 3,265
======== ======== =======
</TABLE>
Pass-through items are the portion of operating revenues that recover
from customers the costs of purchased power, fuel, and standby power. These
items affect customer rates but do not affect operating income. The $9.4 million
reduction in purchased power and the $0.3 million increase in fuel and standby
power are discussed under "Results of Operations -- Operating Expenses."
Base revenues increased approximately $3.3 million due to increased GWH
sales resulting from unseasonably cool temperatures, primarily in TNP's Texas
service area. Current period sales were 1,594 GWH, an 8.0% improvement as
compared to the prior period. Consumption during the current period increased
among all customer classes with the largest increase in sales to residential
customers. The colder than normal weather caused average consumption among Texas
residential customers to increase approximately 14% in the current period. TNP
also experienced approximately 8% growth in the number of residential customers
in its service area immediately north of Dallas, Texas.
Operating Expenses
Current period operating expenses decreased by $6.6 million as compared
to the prior period. The decrease is primarily due to lower pass-through
expenses. Excluding the effect of pass-through items ($9.1 million decrease),
current period operating expenses were $2.5 million higher than the prior period
primarily due to increases in income taxes, Texas franchise taxes and ad valorem
taxes. Income taxes and Texas franchise taxes increased due to increased
profitability. Current period ad valorem taxes increased due to higher tax rates
in 1996.
Pass-through Expenses
Pass-through expenses consist of purchased power, standby power and
certain fuel costs. The overall decreases in pass-through costs are primarily
due to lower costs of purchased power offset by increased fuel expense.
Purchased Power. Purchased power in the current period decreased $9.4
million from the prior period. The decrease in purchased power resulted
primarily from TNP refunding to Texas customers approximately $6.7 million
received from its suppliers. Additional reductions in purchased power costs
resulted from TNP exercising rights under its New Mexico purchased power
contracts to shift purchases to lower cost suppliers. These reductions in
purchased power costs flow directly through to TNP's customers through purchased
power adjustment factors used to calculate rates.
Fuel. The majority of TNP's monthly fuel costs are recovered in
revenues through a fixed fuel factor per KWH approved by the PUCT. The $0.3
million increase in pass-through fuel expense is due to increased GWH sales.
Interest Charges
Current period total interest charges decreased by $2.1 million over
the prior period amount due to the redemption of $29.2 million of Series T First
Mortgage Bonds (FMBs) in October 1995 and a reduction in the amount of
borrowings under the revolving credit facility. In addition the rates on the
revolving credit facility were lower in the current period than the prior
period.
Financial Condition
Liquidity
Management believes that cash flow from operations and periodic
borrowings under its revolving credit facility will be sufficient to meet
working capital requirements and planned capital expenditures at least through
December 1996. TNP has sufficient liquidity to satisfy the possibility of
adverse rulings, if any, for the contingencies described in Notes 2 and 3 and
Part II - Other Information, Item 1.
As of March 31, 1996, available unused credit under the revolving
credit facility was $77.0 million, subject to interest coverage and debt
capitalization tests. TNP can borrow up to $27 million of the unused commitment
with no additional collateral and can borrow the remainder of the unused
commitment ($50 million) by pledging FMBs equal in principal amount to such
borrowings.
Regulatory Matters
Community Choice(SM)
As discussed in the 1995 Combined Annual Report on Form 10-K, the
electric utility industry is evolving into an increasingly competitive,
market-oriented environment. TNP has created an initiative called Community
Choice as a proactive step to foster the transition of the company to
deregulation. Community Choice is a comprehensive, formal five-year plan
providing a clear path for TNP and its customers to successfully make the change
to a more competitive industry. This plan will benefit TNP in that it will allow
TNP to reduce its level of potential "stranded costs." "Stranded costs" in the
utility industry refer to the difference between the current cost of producing
power and what a customer might be expected to pay for it in a competitive
marketplace. TNP's stranded cost related to TNP One could potentially be more
than $250 million. TNP filed this plan with the PUCT on May 2, 1996. If the plan
is approved by the PUCT, Community Choice will begin in January 1997. The basic
premises of Community Choice are as follows:
- Constant Rates - Customer rates, including the purchased power
adjustment and fixed fuel factors, will be held constant for the
five-year transition period. (1997 - 2001)
- Customer Choice - After the five-year transition period is complete
customers will have the option of choosing their supplier of
electricity. To permit residential and smaller commercial customers to
have similar buying power as larger commercial and industrial
customers, TNP is recommending these customers be combined into groups
at the community level to choose a supplier. TNP will continue to
provide distribution services.
- TNP One - TNP will reduce the book value of TNP One during the
transition period through a variety of methods, including increasing
TNP One's depreciation expense, while keeping the total company's
overall depreciation expense level. Purchased power and fuel cost
savings will be used to reduce the carrying value of TNP One.
The Community Choice program also includes an earnings cap
and a mechanism to share excess earnings between customers and shareholders if
actual return on equity for TNP's Texas regulated operations exceeds a benchmark
return.
A similar filing is expected to be made with the New Mexico Public
Utility Commission later in 1996.
Texas Transmission Access Filing
The PUCT recently passed a wholesale transmission access rule which
establishes a regional method of transmission pricing, terms and conditions. The
purpose is to unbundle the price for transmission rate services within Texas and
establish an Independent System Operator for the Electric Reliability Council of
Texas (ERCOT) transmission system. As a direct result, filings of cost data from
all Texas utilities are due to the PUCT on May 2, 1996. These filings will be
used by the PUCT to set the transmission pricing rules for the ERCOT region.
TNP's initial review of these rules indicates that implementation results in a
greater reduction in its transmission expenses than the expected reduction in
transmission related revenues. TNP believes it should benefit from the new rules
as competition should increase and result in reduced purchased power and
wheeling costs.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Wholesale Purchased Power Agreement
The discussion in TNPE's and TNP's 1995 Combined Annual Report of Form
10-K at page 38 concerning its wholesale purchased power agreement with Texas
Utilities Electric Company ("TU") is incorporated in this report by reference.
In an April 1996 meeting, the PUCT discussed TNP's complaint against TU
and the issues of whether the PUCT has the authority to rescind or restructure
this agreement. The PUCT issued an order requiring TNP and TU to submit briefs
on these issues. Further impacting these issues is the question of the degree to
which the TU agreement complies with the PUCT's new open access transmission
rules. In May the PUCT found that the agreement with TU for wholesale power and
transmission service was a single agreement and that the transmission terms
should comply with the new transmission access rules. The PUCT also agreed to
abate the proceeding for 90 days to allow TNP and TU time to renegotiate all
terms of the contract. The PUCT is scheduled to review this issue after the
90-day period. If TNP is successful in its complaint, TNP's cost of purchased
power should be reduced prior to 1999.
Early Redemption of Series T FMBs
The discussion in TNPE's and TNP's 1995 Combined Annual Report of Form
10-K at page 31 concerning litigation in the matter of the early redemption of
$29.2 million of Series T FMBs is incorporated in this report by reference.
TNP's lawsuit originally was filed in Texas state court in September
1995 against PPM America, Inc. ("PPM"), which claimed to be a bondholder and
threatened to take legal action against TNP over the redemption. Because PPM was
not a bondholder, it was dismissed from the lawsuit and, on PPM's motion,
Jackson National Life Insurance Company ("Jackson") was substituted as
defendant. Jackson proposes that its counterclaim be treated as a class action
on behalf of all parties who were holders of Series T FMBs at the time the
partial redemption was announced. TNP does not believe that the case is
appropriate for class treatment and is vigorously contesting this matter.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
TNPE held its annual shareholders' meeting on April 26, 1996. John A.
Fanning, Dwight R. Spurlock, and Dennis H. Withers were elected as Class 2
directors; and Carol D. Surles was elected as a Class 3 director. Voting results
with respect to each of them were: Mr. Fanning: 8,549,068 for, 116,004 against;
Mr. Spurlock: 8,558,201 for, 106,871 against; Mr. Withers: 8,565,199 for, 99,873
against; and Ms. Surles: 8,518,946 for, 146,126 against. Messrs. Kevern R.
Joyce, Harris L. Kempner, Jr., Sidney M. Gutierrez and R. Denny Alexander were
not standing for election and continued as directors in addition to these
directors standing for election. Mr. Cass O. Edwards, II resigned as a Class 3
director, effective April 26, 1996.
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 8,587,407 for, 31,752 against, 45,913 abstaining, and
no broker nonvotes.
Item 5. OTHER INFORMATION.
At the Board of Directors' Meeting held on April 29, 1996 Mr. Cass O.
Edwards, II resigned as a Class 3 director, effective April 26, 1996. Mr. James
R. Holland was appointed on April 26, 1996 to fill the position vacated by Mr.
Edwards.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The Exhibit Index on pages 42 to 47 of TNPE's and TNP's 1995
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 filed with this report:
27(a) Financial Data Schedule for TNPE
27(b) Financial Data Schedule for TNP
99(a) Exhibit Index (incorporated by reference to
pages 42 to 47 of TNPE's and TNP's 1995 Combined
Annual Report on Form 10-K)
(b) Reports on Form 8-K
None.
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: May 14, 1996 Vice President and as Chief
Financial Officer
(Registrant) TEXAS-NEW MEXICO POWER COMPANY
By \s\ MELISSA D. DAVIS
------------------------------
Melissa D. Davis
Date: May 14, 1996 Controller and as Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000741612
<NAME> TNP ENTERPRISES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 940,808
<OTHER-PROPERTY-AND-INVEST> 1,194
<TOTAL-CURRENT-ASSETS> 50,350
<TOTAL-DEFERRED-CHARGES> 29,744
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,022,096
<COMMON> 135,907
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 80,593
<TOTAL-COMMON-STOCKHOLDERS-EQ> 216,500
0
3,600
<LONG-TERM-DEBT-NET> 541,014
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 101,870
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 159,112
<TOT-CAPITALIZATION-AND-LIAB> 1,022,096
<GROSS-OPERATING-REVENUE> 99,827
<INCOME-TAX-EXPENSE> 618
<OTHER-OPERATING-EXPENSES> 81,423
<TOTAL-OPERATING-EXPENSES> 82,041
<OPERATING-INCOME-LOSS> 17,786
<OTHER-INCOME-NET> 123
<INCOME-BEFORE-INTEREST-EXPEN> 17,909
<TOTAL-INTEREST-EXPENSE> 17,347
<NET-INCOME> 562
42
<EARNINGS-AVAILABLE-FOR-COMM> 520
<COMMON-STOCK-DIVIDENDS> 2,411
<TOTAL-INTEREST-ON-BONDS> 16,569
<CASH-FLOW-OPERATIONS> (25,008)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000022767
<NAME> TEXAS-NEW MEXICO POWER CO.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 940,808
<OTHER-PROPERTY-AND-INVEST> 214
<TOTAL-CURRENT-ASSETS> 43,061
<TOTAL-DEFERRED-CHARGES> 32,287
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,015,659
<COMMON> 107
<CAPITAL-SURPLUS-PAID-IN> 174,931
<RETAINED-EARNINGS> 47,490
<TOTAL-COMMON-STOCKHOLDERS-EQ> 222,528
0
3,600
<LONG-TERM-DEBT-NET> 541,014
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 101,870
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 146,647
<TOT-CAPITALIZATION-AND-LIAB> 1,015,659
<GROSS-OPERATING-REVENUE> 99,827
<INCOME-TAX-EXPENSE> 618
<OTHER-OPERATING-EXPENSES> 81,423
<TOTAL-OPERATING-EXPENSES> 82,041
<OPERATING-INCOME-LOSS> 17,786
<OTHER-INCOME-NET> 180
<INCOME-BEFORE-INTEREST-EXPEN> 17,966
<TOTAL-INTEREST-EXPENSE> 17,347
<NET-INCOME> 619
42
<EARNINGS-AVAILABLE-FOR-COMM> 577
<COMMON-STOCK-DIVIDENDS> 2,400
<TOTAL-INTEREST-ON-BONDS> 16,569
<CASH-FLOW-OPERATIONS> (24,870)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
