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 June 30, 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 10,980,881 shares of common stock outstanding as of
July 23, 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.
<PAGE>
TNP Enterprises Inc. and Subsidiaries
Texas-New Mexico Power Company and Subsidiaries
Combined Quarterly Report on Form 10-Q for the period ended June 30, 1996
This Combined Quarterly Report on Form 10-Q is filed separately 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 June 30, 1996, and 1995)
TNP Enterprises, Inc. ("TNPE") and Subsidiaries:
Consolidated Statements of Operations
Three- and Six-Month Periods Ended June 30, 1996, and 1995 3
Consolidated Statements of Cash Flows
Six-Month Periods Ended June 30, 1996, and 1995 4
Consolidated Balance Sheets
June 30, 1996, and December 31, 1995 5
Texas-New Mexico Power Company ("TNP") and Subsidiaries:
Consolidated Statements of Operations
Three- and Six-Month Periods Ended June 30, 1996, and 1995 6
Consolidated Statements of Cash Flows
Six-Month Periods Ended June 30, 1996, and 1995 7
Consolidated Balance Sheets
June 30, 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. 13
Item 6. Exhibits and Reports on Form 8-K. 14
(a) Exhibits 14
(b) Reports on Form 8-K 14
Signature page (TNPE and TNP) 14
</TABLE>
<PAGE>
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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES........................................................$ 122,020 $ 121,237 $ 221,847 $ 226,884
--------- --------- -------- --------
OPERATING EXPENSES:
Purchased power........................................................ 41,326 44,648 73,961 86,655
Fuel................................................................... 12,182 11,527 23,237 22,225
Other operating and general expenses................................... 19,419 17,578 37,369 35,813
Maintenance............................................................ 2,412 2,873 5,149 5,724
Depreciation of utility plant.......................................... 9,309 9,538 19,004 18,914
Taxes other than income taxes.......................................... 8,124 7,020 15,475 13,708
Income taxes (Note 3).................................................. 3,921 2,953 4,539 1,701
--------- --------- -------- --------
Total operating expenses........................................... 96,693 96,137 178,734 184,740
--------- --------- -------- --------
NET OPERATING INCOME...................................................... 25,327 25,100 43,113 42,144
Other income (loss), net of taxes (Note 3)................................ (130) 90 (7) 127
--------- --------- -------- --------
EARNINGS BEFORE INTEREST CHARGES
AND CHANGE IN ACCOUNTING............................................... 25,197 25,190 43,106 42,271
--------- --------- -------- --------
INTEREST CHARGES:
Interest on long-term debt............................................. 16,555 18,138 33,124 36,589
Other interest and amortization of debt-related costs.................. 811 921 1,589 1,872
--------- --------- -------- --------
Total interest charges............................................. 17,366 19,059 34,713 38,461
--------- --------- -------- --------
EARNINGS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING................................................ 7,831 6,131 8,393 3,810
Cumulative effect of change in accounting for
unbilled revenues, net of taxes (Note 1)............................... - - - 8,445
--------- --------- -------- --------
NET EARNINGS ............................................................. 7,831 6,131 8,393 12,255
Dividends on preferred stock.............................................. 42 180 84 368
--------- --------- -------- --------
EARNINGS APPLICABLE TO COMMON STOCK.......................................$ 7,789 $ 5,951 $ 8,309 $ 11,887
========= ========= ======== ========
EARNINGS PER SHARE OF COMMON STOCK BEFORE
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING..............................$ 0.71 $ 0.54 $ 0.76 $ 0.31
Cumulative effect of change in accounting for unbilled revenues
per share of common stock.............................................. - - - 0.78
--------- --------- -------- --------
EARNINGS PER SHARE OF COMMON STOCK........................................$ 0.71 $ 0.54 $ 0.76 $ 1.09
========= ========= ======== ========
DIVIDENDS PER SHARE OF COMMON STOCK.......................................$ 0.22 $ 0.20 $ 0.44 $ 0.40
========= ========= ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING.......................................... 11,028 10,901 10,989 10,889
========= ========= ======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
Six Months Ended
June 30, June 30,
1996 1995
------ -----
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers.......................................................... $ 216,143 $ 224,086
Purchased power ...................................................................... (79,212) (88,301)
Fuel costs paid....................................................................... (23,856) (20,460)
Cash paid for payroll and to other suppliers.......................................... (45,799) (30,345)
Interest paid, net of amounts capitalized............................................. (32,913) (36,819)
Income taxes paid..................................................................... (8,631) (895)
Other taxes paid, net of amounts capitalized.......................................... (19,872) (19,190)
Other operating cash receipts and payments, net....................................... (479) 855
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................................. 5,381 28,931
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of capitalized depreciation and interest.............. (13,531) (13,006)
Purchases of temporary investments.................................................... - (10,859)
Maturities of temporary investments................................................... - 8,414
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES..................................................... (13,531) (15,451)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks......................................... (4,910) (4,650)
Issuances:
Common stock....................................................................... 1,287 494
Borrowings under revolving credit facility......................................... 75,000 20,000
Redemptions:
Preferred stock.................................................................... - (1,100)
Repayments under revolving credit facility......................................... (68,000) (33,000)
Other long-term debt............................................................... (712) (1,045)
-------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....................................... 2,665 (19,301)
-------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................................... (5,485) (5,821)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................................... 21,105 15,297
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................ $ 15,620 $ 9,476
======== =========
RECONCILIATION OF NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net earnings ......................................................................... $ 8,393 $ 12,255
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Cumulative effect of change in accounting for unbilled revenues, net of taxes...... - (8,445)
Depreciation of utility plant...................................................... 19,004 18,914
Amortization of debt-related costs and other deferred charges...................... 2,260 2,480
Allowance for borrowed funds used during construction.............................. (62) (87)
Deferred income taxes (excluding effect of change in accounting)................... 3,486 328
Investment tax credit adjustments.................................................. (195) (111)
Cash flows impacted by changes in current assets and liabilities:
Customer receivables............................................................... (5,465) (2,018)
Accounts payable................................................................... 2,178 5,334
Accrued taxes...................................................................... (11,676) (4,266)
Purchased power costs subject to refund............................................ (5,688) -
Changes in other current assets and liabilities.................................... (2,960) 4,782
Other, net............................................................................ (3,894) (235)
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................................. $ 5,381 $ 28,931
======== =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1996 December 31,
(Unaudited) 1995
(In Thousands)
ASSETS
UTILITY PLANT:
<S> <C> <C>
Electric plant........................................................................ $ 1,205,201 $ 1,193,538
Construction work in progress......................................................... 1,363 3,334
----------- -----------
Total........................................................................... 1,206,564 1,196,872
Less accumulated depreciation......................................................... 267,970 252,868
----------- -----------
Net utility plant............................................................... 938,594 944,004
----------- -----------
NONUTILITY PROPERTY, at cost.............................................................. 1,512 1,156
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents............................................................. 15,620 21,105
Customer receivables.................................................................. 21,034 15,569
Inventories, at lower of average cost or market:
Fuel............................................................................... 330 492
Materials and supplies............................................................. 7,473 7,287
Deferred purchased power and fuel costs............................................... 11,787 9,261
Accumulated deferred income taxes..................................................... - 144
Other current assets.................................................................. 1,314 960
----------- -----------
Total current assets............................................................ 57,558 54,818
----------- -----------
DEFERRED CHARGES......................................................................... 28,976 30,455
----------- -----------
$ 1,026,640 $ 1,030,433
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholders' equity:
Common stock - no par value per share. Shares authorized
50,000,000; issued 10,980,529 shares in 1996 and 10,920,060 in 1995............. $ 136,260 $ 134,973
Retained earnings.................................................................. 85,967 82,484
----------- -----------
Total common stockholders' equity............................................... 222,227 217,457
Preferred stock....................................................................... 3,600 3,600
Long-term debt, less current maturities............................................... 517,431 611,925
----------- -----------
Total capitalization............................................................ 743,258 832,982
----------- -----------
CURRENT LIABILITIES:
Current maturities of long-term debt ................................................. 101,870 1,070
Accounts payable...................................................................... 24,218 22,040
Accrued interest...................................................................... 14,291 13,982
Accrued taxes......................................................................... 14,529 26,205
Customers' deposits................................................................... 2,254 2,493
Purchased power costs subject to refund .............................................. - 5,688
Accumulated deferred income taxes..................................................... 490 -
Other current liabilities................................................................. 8,687 12,472
----------- -----------
Total current liabilities....................................................... 166,339 83,950
----------- -----------
REGULATORY TAX LIABILITIES................................................................ 25,854 26,826
ACCUMULATED DEFERRED INCOME TAXES......................................................... 61,062 57,381
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS............................................... 18,397 18,592
DEFERRED CREDITS.......................................................................... 11,730 10,702
COMMITMENTS AND CONTINGENCIES (Notes 2 and 3)
$ 1,026,640 $ 1,030,433
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES................................................. $ 122,020 $ 121,237 $ 221,847 $ 226,884
-------- --------- --------- --------
OPERATING EXPENSES:
Purchased power................................................. 41,326 44,648 73,961 86,655
Fuel............................................................ 12,182 11,527 23,237 22,225
Other operating and general expenses............................ 19,419 17,578 37,369 35,813
Maintenance..................................................... 2,412 2,873 5,149 5,724
Depreciation of utility plant................................... 9,309 9,538 19,004 18,914
Taxes other than income taxes................................... 8,124 7,020 15,475 13,708
Income taxes (Note 3)........................................... 3,921 2,953 4,539 1,701
-------- --------- --------- --------
Total operating expenses.................................... 96,693 96,137 178,734 184,740
-------- --------- --------- --------
NET OPERATING INCOME............................................... 25,327 25,100 43,113 42,144
Other income, net of taxes (Note 3)................................ 81 127 261 331
-------- --------- --------- --------
EARNINGS BEFORE INTEREST CHARGES AND
CHANGE IN ACCOUNTING............................................. 25,408 25,227 43,374 42,475
-------- --------- --------- --------
INTEREST CHARGES:
Interest on long-term debt...................................... 16,555 18,138 33,124 36,589
Other interest and amortization of debt-related costs........... 811 921 1,589 1,872
-------- --------- --------- --------
Total interest charges...................................... 17,366 19,059 34,713 38,461
-------- --------- --------- --------
EARNINGS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING.......................................... 8,042 6,168 8,661 4,014
Cumulative effect of change in accounting
for unbilled revenues, net of taxes (Note 1)..................... - - - 8,445
-------- --------- --------- --------
NET EARNINGS....................................................... 8,042 6,168 8,661 12,459
Dividends on preferred stock....................................... 42 180 84 368
-------- --------- --------- --------
EARNINGS APPLICABLE TO COMMON STOCK................................ $ 8,000 $ 5,988 $ 8,577 $ 12,091
======== ========= ========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1995
------ -----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers.......................................................... $ 216,195 $ 224,086
Purchased power....................................................................... (79,212) (88,301)
Fuel costs paid....................................................................... (23,856) (20,461)
Cash paid for payroll and to other suppliers.......................................... (45,558) (30,066)
Interest paid, net of amounts capitalized............................................. (32,913) (36,819)
Income taxes paid..................................................................... (8,626) (559)
Other taxes paid, net of amounts capitalized.......................................... (19,868) (19,416)
Other operating cash receipts and payments, net....................................... 246 596
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................................. 6,408 29,060
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of
capitalized depreciation and interest............................................... (13,531) (13,006)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks......................................... (4,884) (368)
Issuances:
Borrowings under secured notes payable............................................. 75,000 20,000
Redemptions:
Preferred stock.................................................................... - (1,100)
Repayments under secured notes payable............................................. (68,000) (33,000)
Other long-term debt............................................................... (712) (1,045)
-------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....................................... 1,404 (15,513)
-------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................................... (5,719) 541
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................................... 14,450 8,614
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................ $ 8,731 $ 9,155
======== =========
RECONCILIATION OF NET EARNINGS
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net earnings.......................................................................... $ 8,661 $ 12,459
Adjustments to reconcile net earnings to net cash provided by operating activities:
Cumulative effect of change in accounting for unbilled revenues, net of taxes...... - (8,445)
Depreciation of utility plant...................................................... 19,004 18,914
Amortization of debt-related costs and other deferred charges...................... 2,260 2,480
Allowance for borrowed funds used during construction.............................. (62) (87)
Deferred income taxes (excluding effect of change in accounting)................... 3,405 180
Investment tax credit adjustments.................................................. (175) (107)
Cash flows impacted by changes in current assets and liabilities:
Customer receivables............................................................... (5,414) (2,018)
Accounts payable................................................................... 2,178 5,334
Accrued taxes...................................................................... (11,611) (4,373)
Purchased power costs subject to refund............................................ (5,688) -
Changes in other current assets and liabilities.................................... (6,543) 4,944
Other, net............................................................................ 393 (221)
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................................. $ 6,408 $ 29,060
======== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1996 December 31,
(Unaudited) 1995
(In Thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant........................................................................ $ 1,205,201 $ 1,193,538
Construction work in progress......................................................... 1,363 3,334
----------- -----------
Total........................................................................... 1,206,564 1,196,872
Less accumulated depreciation......................................................... 267,970 252,868
----------- -----------
Net utility plant............................................................... 938,594 944,004
----------- -----------
NONUTILITY PROPERTY, at cost.............................................................. 212 175
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents............................................................. 8,731 14,450
Customer receivables...................................................................... 20,983 15,569
Inventories, at lower of average cost or market:
Fuel............................................................................... 330 492
Materials and supplies............................................................. 7,473 7,287
Deferred purchased power and fuel costs............................................... 11,787 9,261
Accumulated deferred income taxes..................................................... - 144
Other current assets.................................................................. 1,549 1,274
----------- -----------
Total current assets............................................................ 50,853 48,477
----------- -----------
DEFERRED CHARGES......................................................................... 30,298 32,287
----------- -----------
$ 1,019,957 $ 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 ................................................................. 53,090 49,313
----------- -----------
Total common stockholder's equity............................................... 228,128 224,351
Redeemable cumulative preferred stock................................................. 3,600 3,600
Long-term debt, less current maturities............................................... 517,431 611,925
----------- -----------
Total capitalization............................................................ 749,159 839,876
----------- -----------
CURRENT LIABILITIES:
Current maturities of long-term debt.................................................. 101,870 1,070
Accounts payable...................................................................... 24,218 22,040
Accrued interest...................................................................... 14,291 13,982
Accrued taxes......................................................................... 13,719 25,330
Customers' deposits................................................................... 2,254 2,493
Purchased power costs subject to refund .............................................. - 5,688
Accumulated deferred income taxes..................................................... 490 -
Other current liabilities............................................................. 8,685 12,472
----------- -----------
Total current liabilities....................................................... 165,527 83,075
----------- -----------
REGULATORY TAX LIABILITIES................................................................ 25,854 26,826
ACCUMULATED DEFERRED INCOME TAXES......................................................... 50,808 47,066
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS............................................... 17,224 17,398
DEFERRED CREDITS.......................................................................... 11,385 10,702
COMMITMENTS AND CONTINGENCIES (Notes 2 and 3)
$ 1,019,957 $ 1,024,943
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
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 were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
TNPE TNP
------------------ -------------------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands)
Taxes included in net operating income:
<S> <C> <C> <C> <C>
Federal - current $ 1,436 $ 1,670 $ 1,436 $ 1,670
State - current 6 - 6 -
Federal - deferred 2,349 1,091 2,349 1,091
Investment tax credit ("ITC") adjustments 130 192 130 192
------- ------- ------- --------
3,921 2,953 3,921 2,953
------- ------- ------- --------
Taxes included in other income:
Federal - current (309) (77) (148) (82)
Federal - deferred 236 194 172 201
ITC adjustments (58) (3) (43) -
------- ------- ------- --------
(131) 114 (19) 119
------- ------- ------- --------
Total income taxes $ 3,790 $ 3,067 $ 3,902 $ 3,072
======= ======= ======= ========
<CAPTION>
Six Months Ended June 30,
TNPE TNP
------------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands)
Taxes included in net operating income:
Federal - current $ 1,600 $ 2,029 $ 1,600 $ 2,029
State - current 6 - 6 -
Federal - deferred 3,061 (221) 3,061 (221)
ITC adjustments (128) (107) (128) (107)
------- ------- ------- --------
4,539 1,701 4,539 1,701
------- ------- ------- --------
Taxes included in other income:
Federal - current (404) (147) (200) (137)
Federal - deferred 425 549 344 401
ITC adjustments (67) (4) (47) -
------- ------- ------- -------
(46) 398 97 264
------- ------- ------- --------
Taxes on cumulative effect of change in
accounting, federal - deferred - 4,548 - 4,548
------- ------- ------- ---------
Total income taxes $ 4,493 $ 6,647 $ 4,636 $ 6,513
======= ======= ======= =======
</TABLE>
(3) Income Taxes - continued
The following summarizes federal tax carryforwards as of June 30, 1996:
<TABLE>
<CAPTION>
TNPE TNP
(In Thousands)
Net operating loss
<S> <C> <C>
Amount $ 12,690 $ 27,608
First year of expiration period 2008 2006
Last year of expiration period 2010 2010
Minimum tax credits
Amount $ 24,140 $ 29,173
Expiration period none none
ITC
Amount $ 13,956 $ 15,127
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 returns through 1994 and expect to utilize $2.9 million in the 1995
consolidated return. TNP's portion is $4.0 million and $2.9 million,
respectively. However, since 1990, TNPE and TNP have only recognized $1.3
million of the ITC in results of operations.
(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 proposal designed to better position
TNP for a competitive future. On June 21, 1996, TNP made a similar filing with
the New Mexico Public Utility Commission ("NMPUC"). Additional information
regarding these two filings is provided under "MD&A--Regulatory Matters."
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 ("MD&A").
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 $7.8 million for the
three-month period ended June 30, 1996, compared to earnings of $6.0 million for
the corresponding 1995 period. Earnings were $8.3 million for the six-month
period ended June 30, 1996, compared to earnings of $3.5 million for the
corresponding 1995 period, excluding the effect of the $8.4 million change in
accounting described in Note 1.
The earnings improvements of $1.8 million and $4.8 million,
respectively, for the three- and six-month periods resulted from increased base
revenues and lower interest expense partially offset by higher tax-related
expenses and other operating expenses.
Operating Revenues
The components of operating revenues are summarized in the following
table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
Increase Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
-------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 122,020 $ 121,237 $ 783 $ 221,847 $ 226,884 $ (5,037)
Less pass-through items:
Purchased power 41,326 44,648 (3,322) 73,961 86,655 (12,694)
Fuel & standby power 12,472 11,774 698 24,243 23,258 985
-------- --------- ------- --------- --------- -------
Total pass-through items 53,798 56,422 (2,624) 98,204 109,913 (11,709)
------- -------- ------- -------- -------- -------
Base revenues $ 68,222 $ 64,815 $ 3,407 $ 123,643 $ 116,971 $ 6,672
======= ======== ======= ======== ======== =======
GWH Sales 1,759 1,565 194 3,353 3,040 313
======== ========= ======= ========= ========= =======
</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. Explanations for
the three- and six-month period variances are discussed under "Results of
Operations -- Operating Expenses."
Current three- and six-month period base revenues exceeded the
corresponding 1995 periods by $3.4 million and $6.7 million, respectively. The
base revenue increases are primarily due to increased sales to residential and
commercial customers due to weather-related conditions, higher usage by certain
industrial customers, and the addition of new customers. Approximately 3,000
customers have been added to TNP's system since the sale of the Texas Panhandle
properties in September 1995.
Current quarter sales of 1,759 GWH represented a 12.4% improvement over
prior quarter sales. Consumption increased among all customer classes.
Industrial sales increased by 20.4% due the addition of new load from an
existing customer and increased standby sales to cogenerating customers. Sales
to residential and commercial customers increased 8.9% and 4.6%, respectively,
due to warmer-than-normal temperatures in the company's Texas service area.
Current six-month period sales of 3,353 GWH represented a 10.3%
improvement over the corresponding 1995 period due to the reasons stated above
and colder than normal weather during the first quarter of 1996 causing
increased consumption among Texas residential customers.
Operating Expenses
The components of operating expenses are summarized in the following
table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
Increase Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
-------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pass-through expenses $ 53,798 $ 56,422 $ (2,624) $ 98,204 $ 109,913 (11,709)
Other operating expenses 30,850 29,742 1,108 60,516 59,418 1,098
Tax-related expenses 12,045 9,973 2,072 20,014 15,409 4,605
------- -------- -------- -------- --------- -------
Operating Expenses $ 96,693 $ 96,137 $ 556 $ 178,734 $ 184,740 $ (6,006)
======= ======== ======== ======== ========= =======
</TABLE>
Total operating expenses for the current quarter increased by $0.6
million as compared to the same quarter last year due to an increase in
tax-related expenses of $2.1 million and other operating expenses of $1.1
million offset by lower pass-through expenses of $2.6 million.
Current six-month period operating expenses decreased by $6.0 million
as compared to the corresponding 1995 period. This resulted from lower
pass-through expenses of $11.7 million offset by increases in tax-related
expenses of $4.6 million and other operating expenses of $1.1 million.
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 costs decreased by $3.3 million in the
current quarter due to reductions in the cost of power from existing suppliers
and shifting purchases to new, lower cost suppliers. Purchased power costs
decreased by $12.7 million for the current six-month period due to the
previously stated reasons and TNP passing through to Texas customers refunds
from two suppliers of $6.7 million.
Fuel. The increases in current quarter and current six-month periods of
$0.7 million and $1.0 million, respectively, are attributed to increased GWH
sales. The majority of TNP's monthly fuel costs are recovered in revenues
through a fixed fuel factor per KWH approved by the PUCT. TNP records as fuel
expense the amount collected through this fixed fuel factor. Any difference
between the amount collected and actual cost is deferred for collection/refund
in future periods. TNP has an under-recovered fuel cost at June 30, 1996 of
$8.4 million.
Tax-Related Expenses and Other Operating Expenses
Tax-related expenses consist of income taxes and taxes other than
income taxes. The increase of $2.1 million and $4.6 million in the current
three- and six- month periods, respectively, is due to improved operating
results and increased ad valorem tax rates.
Other operating expenses increased by $1.1 million in both the current
three- and six-month periods, respectively. The increase is due to increased
labor and employee benefits costs from severance payments in June 1996 related
to recent workforce reductions.
Interest Expense
Interest charges during the current three- and six-month periods
decreased by $1.7 million and $3.7 million, respectively. The decreases are
attributed to reduced long-term debt levels and decreased interest rates
associated with the revolving credit facility. Contributing to the long-term
debt reduction were the retirement of $29.2 million of Series T First Mortgage
Bonds in October 1995 and a reduction in the amount of borrowings under the
revolving credit facility due to use of excess cash to repay debt.
Financial Condition
Liquidity
TNP has sufficient liquidity to satisfy the possibility of any known
contingencies. Management believes cash flow from operations and periodic
borrowings under its revolving credit facility should be sufficient to meet
working capital requirements and planned capital expenditures at least through
1998. Liquidity requirements may be supplemented by capital contributions from
proceeds of the private or public placement of TNPE common stock.
As of June 30, 1996, unused credit under the revolving credit facility was
$100 million, subject to interest coverage and capitalization tests. TNP can
borrow up to $50 million of the unused commitment with no additional collateral
and can borrow the remainder of the unused commitment ($50 million) by pledging
First Mortgage Bonds ("FMBs") equal in principal amount to such borrowings.
Presently, TNP is limited in its ability to issue new FMBs as collateral. In
order to use the additional $50 million of unused commitment, TNP would have to
redeem existing FMBs which could then be used as collateral for borrowings under
such unused commitment.
Regulatory Matters
Community Choice(SM)
On May 2, 1996, TNP filed an application with the PUCT requesting
approval of a program known as Community Choice that would apply to electric
services provided by TNP in Texas. On June 21, 1996, TNP filed an application
with the NMPUC requesting approval of a similar Community Choice program that
would apply to electric service provided by TNP in New Mexico. Community Choice
is a transition plan designed to address the opportunities and challenges
presented by the increasingly deregulated and competitive environment of the
electric services industry. Each of these filings requests that TNP be allowed
to implement the Community Choice program beginning in January 1997.
As proposed by TNP, Community Choice provides for transition periods of
four years in New Mexico and five years in Texas. During these transition
periods, TNP's rates for electric service in New Mexico and Texas would be
structured to provide TNP a reasonable opportunity to reduce its so-called
"stranded costs." "Stranded costs" means the difference between what it
currently costs TNP to provide electric service and what a customer would be
willing to pay in a competitive retail electric services market. In Texas, TNP's
potential stranded cost relates to TNP One, its 300 MW generating unit, and
could potentially be more than $250 million. In New Mexico, TNP's potential
stranded cost relates to its purchased power contracts and could potentially be
more than $30 million. At the end of the transition periods, TNP would
aggregate, or combine, its customers at the community level and permit these
aggregated electrical loads to choose the types and nature of electric services
that will be available to individual customers within each aggregated load.
There can be no assurance that Community Choice will be approved by the
PUCT or the NMPUC, or that Community Choice, if approved, will be successful.
The success of Community Choice and its impact on the financial performance of
TNP depends on many factors, including regulatory approval, customer interest
and satisfaction, and its ability to develop and implement programs tailored for
its customers individually. The PUCT has raised a number of issues which it
desires to have addressed by TNP and the various intervenors. TNP will continue
to evaluate the effect of these and other issues on the eventual approval by the
PUCT of its application.
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 increase competition in wholesale energy sales 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 were made with the PUCT in May 1996. These
filings will be used by the PUCT to set the transmission pricing rules for the
ERCOT region. TNP believes it should benefit from the new rules as competition
should increase in the wholesale power market and result in reduced purchased
power and wheeling costs. TNP expects the PUCT to finalize the transmission fee
structure by the end of 1996.
Control Area
TNP implemented a control area in Texas which became operational on
July 31, 1996. The control area is an electrical system which enables TNP to
instantaneously balance its system resources with loads. TNP had previously
contracted with another utility for these services. It also permits TNP to
replace standby power with its reserves at TNP One, its generation plant, which
should result in annual cost savings of at least $3.1 million annually.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As discussed in TNPE's and TNP's 1995 Combined Annual Report of Form 10-K
at page 38, incorporated in this report by reference, TNP filed proceedings in
July 1995 with the PUCT and in a Texas state district court to declare TNP's
wholesale purchased power agreement with Texas Utilities Electric Company ("TU")
null and void. TNP requested a declaration that certain provisions in the TU
agreement are against public policy and violate Texas law.
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 abated the
proceeding for 90 days and ordered TNP and TU to renegotiate the contract. TNP
and TU have since filed pleadings indicating that negotiations are at an impasse
and requesting that the PUCT issue a final order. On August 7, 1996, the PUCT
addressed the motions and found two of the terms of the contract void and voted
to issue a final order ordering the parties to reform the transmission services
portion of the contract. Any final order issued is subject to motions for
rehearing and appeal by TNP and/or TU. The ultimate outcome of these motions and
any subsequent appeals cannot be determined at this time.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed with this report:
27(a) Financial Data Schedule for TNPE
27(b) Financial Data Schedule for TNP
(b) Reports on Form 8-K
None.
<PAGE>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
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: August 12, 1996 Sr. Vice President and
as Chief Financial Officer
(Registrant) TEXAS-NEW MEXICO POWER COMPANY
By \s\ MELISSA D. DAVIS
-----------------------------
Melissa D. Davis
Date: August 12, 1996 Controller and as
Chief Accounting Officer
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<CIK> 0000741612
<NAME> TNP ENTERPRISES, INC.
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<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000022767
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<S> <C>
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