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, 1997
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 13,107,874 shares of common stock outstanding as of
July 31, 1997.
- --------------------------------------------------------------------------------
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 periods ended June 30, 1997
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 OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TNP Enterprises, Inc. (TNP) and Subsidiaries:
Consolidated Statements of Income
Three and Six Month Periods Ended June 30, 1997, and 1996 3
Consolidated Statements of Cash Flows
Six Month Periods Ended June 30, 1997, and 1996 4
Consolidated Balance Sheets
June 30, 1997, and December 31, 1996 5
Texas-New Mexico Power Company (TNMP) and Subsidiaries:
Consolidated Statements of Income
Three and Six Month Periods Ended June 30, 1997, and 1996 6
Consolidated Statements of Cash Flows
Six Month Periods Ended June 30, 1997, and 1996 7
Consolidated Balance Sheets
June 30, 1997, and December 31, 1996 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. 14
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 6. Exhibits and Reports on Form 8-K. 14
(a) Exhibit Index 14
(b) Reports on Form 8-K 14
Signature page 15
<PAGE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------------------
1997 1996 1997 1996
---------------- ---------------- ---------------- ---------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 136,026 $ 122,020 $ 264,423 $ 221,847
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Purchased power 54,872 41,326 113,219 73,961
Fuel 9,884 12,182 19,853 23,237
Other operating and general expenses 24,576 19,419 44,185 37,369
Maintenance 3,429 2,412 6,441 5,149
Depreciation 9,782 9,309 19,447 19,004
Taxes other than income taxes 7,972 8,124 15,966 15,475
Income taxes 3,893 3,921 5,271 4,539
-------------- -------------- -------------- --------------
Total operating expenses 114,408 96,693 224,382 178,734
-------------- -------------- -------------- --------------
NET OPERATING INCOME 21,618 25,327 40,041 43,113
-------------- -------------- -------------- --------------
OTHER INCOME (LOSS):
Other income and deductions, net 246 (261) 445 (53)
Income taxes 24 131 23 46
-------------- -------------- -------------- --------------
Other income (loss), net of taxes 270 (130) 468 (7)
-------------- -------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 21,888 25,197 40,509 43,106
-------------- -------------- -------------- --------------
INTEREST CHARGES:
Interest on long-term debt 13,408 16,555 26,914 33,124
Other interest and amortization of
debt-related costs 1,049 811 2,054 1,589
-------------- -------------- -------------- --------------
Total interest charges 14,457 17,366 28,968 34,713
-------------- -------------- -------------- --------------
NET INCOME 7,431 7,831 11,541 8,393
Dividends on preferred stock 40 42 80 84
-------------- -------------- -------------- --------------
INCOME APPLICABLE TO COMMON STOCK $ 7,391 $ 7,789 $ 11,461 $ 8,309
============== ============== ============== ==============
EARNINGS PER SHARE OF COMMON STOCK $ 0.56 $ 0.71 $ 0.87 $ 0.76
============== ============== ============== ==============
DIVIDENDS PER SHARE OF COMMON STOCK $ 0.245 $ 0.22 $ 0.49 $ 0.44
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 13,161 11,028 13,139 10,989
============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-------------------------------------
1997 1996
---------------- ---------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers $ 263,391 $ 216,143
Purchased power (110,338) (79,212)
Fuel costs paid (18,513) (23,856)
Cash paid for payroll and to other suppliers (61,068) (45,799)
Interest paid, net of amounts capitalized (31,875) (32,913)
Income taxes paid (705) (8,631)
Other taxes paid (21,237) (19,872)
Other operating cash receipts and payments, net 1,126 (479)
---------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,781 5,381
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (13,068) (13,531)
Additions to other property and nonregulated investments (2,015) -
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (15,083) (13,531)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (6,482) (4,910)
Borrowings under revolving credit facilities 108,000 7,000
Common stock issuances 2,633 1,287
Redemptions:
Other long-term debt (61) -
Obligation - FWI investment aquisition (300) -
First mortgage bonds (100,800) (712)
---------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,990 2,665
---------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 8,688 (5,485)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,387 21,105
---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,075 $ 15,620
================ ===============
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 11,541 $ 8,393
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 19,447 19,004
Amortization of debt-related costs and other deferred charges 1,926 2,260
Allowance for borrowed funds used during construction (23) (62)
Deferred income taxes 2,727 3,486
Investment tax credits 19 (195)
Cash flows impacted by changes in current assets and liabilities:
Deferred purchased power and fuel costs 1,540 (8,214)
Accrued interest (4,810) 309
Accrued taxes (3,472) (11,676)
Accounts payable 3,570 2,178
Changes in other current assets and liabilities (10,996) (5,539)
Other, net (688) (4,563)
---------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 20,781 $ 5,381
================ ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 December 31,
(Unaudited) 1996
--------------- ----------------
(In thousands)
ASSETS
UTILITY PLANT:
<S> <C> <C>
Electric plant $ 1,225,396 $ 1,215,355
Construction work in progress 421 906
-------------- ----------------
Total 1,225,817 1,216,261
Less accumulated depreciation 298,122 282,322
-------------- ----------------
Net utility plant 927,695 933,939
-------------- ----------------
OTHER PROPERTY AND INVESTMENTS, at cost 5,830 3,927
-------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 17,075 8,387
Customer receivables 17,864 16,362
Inventories, at lower of average cost or market:
Fuel 430 367
Materials and supplies 5,006 6,384
Deferred purchased power and fuel costs 2,996 3,565
Accumulated deferred income taxes 2,147 1,937
Other current assets 10,320 1,121
-------------- ----------------
Total current assets 55,838 38,123
-------------- ----------------
DEFERRED CHARGES 28,487 30,795
-------------- ----------------
$ 1,017,850 $ 1,006,784
============== ================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock - no par value per share. Authorized 50,000,000
shares; issued 13,102,478 shares in 1997 and 13,006,492
in 1996 $ 186,404 $ 183,771
Retained earnings 99,762 94,703
------------- ---------------
Total common shareholders' equity 286,166 278,474
Preferred stock 3,420 3,420
Long-term debt, less current maturities 541,119 533,964
------------- ---------------
Total capitalization 830,705 815,858
------------- ---------------
CURRENT LIABILITIES:
Current maturities of long-term debt 122 138
Accounts payable 32,016 28,446
Accrued interest 6,069 10,879
Accrued taxes 15,361 18,833
Customers' deposits 3,132 2,662
Deferred purchased power costs 971 -
Other current liabilities 7,641 11,797
------------- --------------
Total current liabilities 65,312 72,755
------------- --------------
REGULATORY TAX LIABILITIES 8,431 10,963
ACCUMULATED DEFERRED INCOME TAXES 80,313 74,844
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 19,752 19,734
DEFERRED CREDITS 13,337 12,630
COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
------------- --------------
$ 1,017,850 $ 1,006,784
============= ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------------
1997 1996 1997 1996
--------------- -------------- -------------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 132,361 $ 122,020 $ 258,584 $ 221,847
--------------- -------------- -------------- ---------------
OPERATING EXPENSES:
Purchased power 54,872 41,326 113,219 73,961
Fuel 9,884 12,182 19,853 23,237
Other operating and general expenses 18,019 19,419 33,777 37,369
Maintenance 3,429 2,412 6,441 5,149
Depreciation of utility plant 9,725 9,309 19,335 19,004
Taxes other than income taxes 7,813 8,124 15,608 15,475
Income taxes 4,972 3,921 7,037 4,539
--------------- -------------- -------------- ---------------
Total operating expenses 108,714 96,693 215,270 178,734
--------------- -------------- -------------- ---------------
NET OPERATING INCOME 23,647 25,327 43,314 43,113
--------------- -------------- -------------- ---------------
OTHER INCOME:
Other income and deductions, net 193 62 352 358
Income taxes 24 19 23 (97)
--------------- -------------- -------------- ---------------
Other income, net of taxes 217 81 375 261
--------------- -------------- -------------- ---------------
INCOME BEFORE INTEREST CHARGES 23,864 25,408 43,689 43,374
--------------- -------------- -------------- ---------------
INTEREST CHARGES:
Interest on long-term debt 13,408 16,555 26,914 33,124
Other interest and amortization of debt-related costs 1,049 811 2,054 1,589
--------------- -------------- -------------- ---------------
Total interest charges 14,457 17,366 28,968 34,713
--------------- -------------- -------------- ---------------
NET INCOME 9,407 8,042 14,721 8,661
Dividends on preferred stock 40 42 80 84
--------------- -------------- -------------- ---------------
INCOME APPLICABLE TO COMMON STOCK $ 9,367 $ 8,000 $ 14,641 $ 8,577
=============== ============== ============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDAIRIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------------------
1997 1996
----------------- ---------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers $ 259,545 $ 216,195
Purchased power (110,338) (79,212)
Fuel costs paid (18,513) (23,856)
Cash paid for payroll and to other suppliers (49,221) (45,558)
Interest paid, net of amounts capitalized (31,875) (32,913)
Income taxes paid (79) (8,626)
Other taxes paid (21,360) (19,868)
Other operating cash receipts and payments, net 1,036 246
----------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,195 6,408
----------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (13,068) (13,531)
Withdrawal from escrow account 1,670 -
----------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES (11,398) (13,531)
----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (20,880) (4,884)
Borrowings under revolving credit facilities 108,000 7,000
First mortgage bond redemption (100,800) (712)
----------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (13,680) 1,404
----------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,117 (5,719)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,115 14,450
----------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,232 $ 8,731
================= ===============
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 14,721 $ 8,661
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of utility plant 19,335 19,004
Amortization of debt-related costs and other deferred charges 1,926 2,260
Allowance for borrowed funds used during construction (23) (62)
Deferred income taxes 3,697 3,405
Investment tax credits 216 (175)
Cash flows impacted by changes in current assets and liabilities:
Deferred purchased power and fuel costs 1,540 (8,214)
Accounts payable 2,927 2,178
Accrued interest (4,810) 309
Accrued taxes (2,730) (11,611)
Changes in other current assets and liabilities (6,860) (4,921)
Other, net (744) (4,426)
----------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 29,195 $ 6,408
================= ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED BALANCE SHEETS
June 30, 1997 December 31,
(Unaudited) 1996
--------------- ----------------
(In thousands)
ASSETS
UTILITY PLANT:
<S> <C> <C>
Electric plant $ 1,225,396 $ 1,215,355
Construction work in progress 421 906
-------------- ----------------
Total 1,225,817 1,216,261
Less accumulated depreciation 298,122 282,322
-------------- ----------------
Net utility plant 927,695 933,939
-------------- ----------------
OTHER PROPERTY AND INVESTMENTS, at cost 214 1,884
-------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 9,232 5,115
Customer receivables 15,040 15,521
Inventories, at lower of average cost or market:
Fuel 430 367
Materials and supplies 5,006 6,384
Deferred purchased power and fuel costs 2,996 3,565
Accumulated deferred income taxes 2,147 1,937
Other current assets 9,095 1,324
-------------- ----------------
Total current assets 43,946 34,213
-------------- ----------------
DEFERRED CHARGES 29,590 32,121
-------------- ----------------
$ 1,001,445 $ 1,002,157
============== ================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholder'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 222,133 222,133
Retained earnings 59,149 65,308
-------------- ----------------
Total common shareholder's equity 281,389 287,548
Redeemable cumulative preferred stock 3,420 3,420
Long-term debt, less current maturities 541,000 533,800
-------------- ----------------
Total capitalization 825,809 824,768
-------------- ----------------
CURRENT LIABILITIES:
Current maturities of long-term debt 100 100
Accounts payable 30,181 27,254
Accrued interest 6,069 10,879
Accrued taxes 14,171 16,901
Customers' deposits 3,142 2,662
Deferred purchased power costs 971 -
Other current liabilities 7,552 10,993
-------------- ----------------
Total current liabilities 62,186 68,789
-------------- ----------------
REGULATORY TAX LIABILITIES 8,431 10,963
ACCUMULATED DEFERRED INCOME TAXES 72,302 65,860
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 19,381 19,164
DEFERRED CREDITS 13,336 12,613
COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
-------------- ----------------
$ 1,001,445 $ 1,002,157
============== ================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
Note 1. Interim Financial Statements
The interim consolidated financial statements of TNP and subsidiaries, and
TNMP and subsidiaries are unaudited, and contain all adjustments (consisting
primarily of normal recurring accruals) necessary for a fair statement of the
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. It is
suggested that these consolidated financial statements be read in conjunction
with the audited consolidated financial statements and notes thereto included in
TNP's and TNMP's 1996 Combined Annual Report on Form 10-K.
Note 2. Income Taxes
As indicated in the 1996 Combined Annual Report on Form 10-K, an Internal
Revenue Service (IRS) revenue agent involved in auditing TNP'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
investment tax credit (ITC) be revoked retroactively. On July 29, 1997, TNP
received notification from the IRS that revoked the private letter ruling.
However, the IRS has granted full relief from the effects of this revocation and
has allowed TNP to rely on the private letter ruling as issued. The current
ruling will have no material effect on the amount of ITC previously recognized.
Note 3. Regulatory Matters
Rate Filing with the PUCT and Texas Gulf Coast Cities
Beginning in late December 1996, certain cities in the Texas gulf coast
area (Gulf Coast Cities) served by TNMP passed resolutions requiring TNMP to
file complete rate information with those cities. On July 1, 1997, TNMP made an
informational filing with the Gulf Coast Cities, which included preliminary rate
filing information. On July 31, 1997, TNMP filed the required complete
traditional rate information, based on the test year ended December 31, 1996,
with the Gulf Coast Cities and the Public Utility Commission of Texas (PUCT). In
addition to the required traditional rate filing, the Company also filed a
transition to competition plan with the PUCT and all of its cities. The
transition to competition plan proposes a five year transition period, with a
series of rate reductions for residential, commercial and municipal customers
beginning in 1998. At the end of the transition period TNMP's Texas customers
would be allowed to choose their energy supplier. The plan provides the
opportunity for TNMP to recover an estimate of its stranded costs during the
transition period, and establishes a Competitive Transition Charge (CTC) to
recover any stranded cost that remains at the end of the transition period. TNMP
does not expect a final resolution of the rate filings before late 1997.
Agreements with the Gulf Coast Cities provide that any rate reduction
resulting from the city ordinances requiring the traditional rate filing will be
placed into effect retroactive to May 15, 1997. Based on its analysis, TNMP
believes the filing supports the reasonableness of TNMP's current rates.
Texas Transmission Access
During 1996, the PUCT passed a wholesale transmission access rule which
established 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 transmission system. The new transmission fee structure was
scheduled to start in early 1997. However, during the first quarter of 1997
several Texas utilities unsuccessfully petitioned the PUCT to revise the new
transmission rules, and an appeal has been filed in a state district court.
During the second quarter of 1997, the PUCT approved TNMP's tariffs for
transmission service. Consequently, TNMP recognized the effects of the new
transmission rules retroactive to January 1, 1997, during the second quarter,
which increased pre-tax net income by $3.2 million.
<PAGE>
Fuel Reconciliation Filing
On June 30, 1997, TNMP filed a reconciliation of fuel expenses for the
period September 30, 1993 to December 31, 1996, with the PUCT. At the beginning
of the reconciliation period TNMP had a cumulative under recovery of $11
million, and had a $4.4 million under-recovery as of the end of the
reconciliation period. TNMP believes that the total fuel costs incurred during
the reconciliation period were reasonable and necessary to provide reliable
electric service. In the filing, TNMP proposed no change to the fixed fuel
factor, and plans to collect the under-recovery that existed as of the end of
the reconciliation period through the existing fixed fuel factor.
Note 4. Accounting for the Effects of Regulation
TNP's and TNMP'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
1, 1997, TNMP placed into effect its transition to competition plan in New
Mexico. On July 31, 1997, TNMP filed a new plan for transition to competition
with the PUCT. Additional information regarding these two transition plans is
provided under "MD&A--Regulatory Matters." Continued applicability of SFAS 71 to
TNP's and TNMP's financial statements requires that rates set by an independent
regulator on a cost-of-service basis can actually be charged to and collected
from customers. Management believes that as of June 30, 1997, and for the
foreseeable future, TNP and TNMP 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
interim consolidated financial statements and notes.
TNP is a holding company, in which TNMP currently represents most of TNP's
operations. Additionally, Facility Works Inc., (Facility Works) is a wholly
owned subsidiary of TNP, that began operations in early 1996. Facility Works
provides facility-related services and products to commercial and institutional
customers. The following discussion focuses on TNMP's operations except where
otherwise noted.
Results Of Operations
Overall Results
TNP's income applicable to common stock was $7.4 million and $11.5 million
for the three and six months ended June 30, 1997, respectively. TNP's income
applicable to common stock decreased $0.4 million for the three months ended
June 30, 1997, and increased $3.2 million for the six months ended June 30,
1997, when compared to the same periods of last year.
TNMP's income applicable to common stock increased for the three months
ended June 30, 1997, as a result of reduced interest expense, increased revenues
from new transmission rates in Texas, the continued benefits from the
implementation in August 1996 of a control area, and increased sales to
industrial customers. Partially offsetting those increases was reduced sales to
residential and commercial customers due to milder than normal weather. Facility
Works, Inc. (Facility Works), incurred net operating losses of $1.4 million
during the three months ended June 30, 1997. In addition, TNP's earnings per
share were reduced due to a 19 percent increase in the number of weighted
average common shares outstanding, due to the issuance of two million shares of
common stock in October 1996.
TNMP's income applicable to common stock increased $6.1 million for the six
months ended June 30, 1997, due to the same reasons as discussed above. Facility
Works incurred $2.4 million of net operating losses during the six months ended
June 30, 1997. Weighted average common shares increased 20 percent for the six
months ended June 30, 1997, which reduced TNP's earnings per share.
Operating Revenues
TNMP's operating revenues increased $10.3 million for the second quarter of
1997, and $36.7 million for the six months ended June 30, 1997, when compared to
the corresponding periods of 1996. Second quarter base revenues decreased $0.4
million, while year-to-date base revenues increased $2.8 million.
<PAGE>
The components of TNMP's operating and base revenues are summarized in the
following tables (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
Increase Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
_________ __________ __________ __________ _________ __________
<S> <C> <C> <C> <C> <C>
Operating revenues $ 132,361 $ 122,020 $ 10,341 $ 258,584 $ 221,847 $ 36,737
Less pass-through items 64,585 53,798 10,787 132,127 98,204 33,923
_________ __________ __________ __________ _________ __________
Base revenues $ 67,776 $ 68,222 $ (446) $ 126,457 $ 123,643 $ 2,814
========= ========== ========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Base revenues
-------------
<S> <C> <C>
Weather related $ (4,931) $ (5,517)
Price - sales mix and other (51) 273
Customer growth 937 1,792
Industrial - economy rate sales 2,155 4,116
Industrial - firm rate sales (1,112) (1,390)
Non industrial standby revenues 817 1,635
Transmission revenue 4,173 4,129
Unbilled revenue (2,246) (2,252)
Other electric revenue (188) 28
__________ ___________
$ (446) $ 2,814
========== ===========
</TABLE>
Pass-through items are the portion of operating revenues that recover the
costs of purchased power, fuel, and standby power from customers. These items
affect customer rates but do not affect operating income. Explanations for the
second quarter and year-to-date variances are discussed under "Results of
Operations -- Operating Expenses."
As detailed below, gigawatt-hour (GWH) sales increased due to increased
economy rate sales which are low margin, high volume, and generally short-term.
The components of GWH sales are summarized in the following table:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
Increase Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
______ ______ __________ ______ ______ __________
GWH sales:
----------
<S> <C> <C> <C> <C> <C> <C>
Residential 450 517 (67) 944 1,015 (71)
Commercial 421 429 (8) 801 799 2
Industrial:
Firm 287 369 (82) 554 695 (141)
Economy 1,084 415 669 2,145 789 1,356
Other 38 29 9 93 55 38
_______ ________ _________ _______ ______ _______
Total GWH sales 2,280 1,759 521 4,537 3,353 1,184
======= ======== ========= ======= ====== ======
</TABLE>
The increases in the three and six month ended periods ended June 30, 1997,
resulted from increased industrial economy sales, offset in part by reductions
in firm industrial sales and weather-related sales reductions to residential and
commercial customers. Economy industrial sales increased due to contractual
agreements entered into with two existing cogeneration customers in mid-1996,
whereby TNMP purchases the output from those cogeneration facilities and resells
the power to those customers. Weather during the three months ended June 30,
1997, was much milder than normal, while weather for the three months ended June
30, 1996 was much hotter than normal. The combination of those two weather
effects was a significant decrease in sales to residential and commercial
customers for the three months ended June 30, 1997 when compared to the same
period of last year.
Firm industrial sales decreased for both the three and six months ended
June 30, 1997. Over the last several years, cogeneration projects developed or
considered by certain industrial customers resulted in TNMP offering economy
rates to qualifying customers. Previously, those industrial customers had
paid firm rates. The economy rates are designed to retain such customers, and to
compete for and develop new loads.
<PAGE>
Operating Expenses
Total operating expenses increased $12 million and $36.5 million for the
three and six months ended June 30, 1997, as compared to the same periods of
last year due primarily to an increase in pass-through expenses. The components
of TNMP's operating expenses are summarized in the following table (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ -----------------------------------
Increase Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
__________ __________ __________ ___________ _________ _________
Pass-through expenses:
<S> <C> <C> <C> <C> <C> <C>
Purchased power $ 54,872 $ 41,326 $ 13,546 $ 113,219 $ 73,961 $ 39,258
Standby power - 1,216 (1,216) - 2,771 (2,771)
Fuel 9,713 11,256 (1,543) 18,908 21,472 (2,564)
__________ __________ __________ ___________ _________ _________
Total pass-through items 64,585 53,798 10,787 132,127 98,204 33,923
Other operating expenses 31,344 30,850 494 60,498 60,516 (18)
Income and other tax expenses 12,785 12,045 740 22,645 20,014 2,631
__________ __________ __________ ___________ _________ _________
Operating expenses $ 108,714 $ 96,693 $ 12,021 $ 215,270 $178,734 $ 36,536
========== ========== ========== =========== ========= =========
</TABLE>
Pass-through Expenses
Pass-through expenses consist of purchased power, standby power, and
certain fuel costs. Current quarter and year-to-date pass-through expenses
increased due to higher purchased power costs.
Purchased Power. Purchased power costs, including standby, increased by
$12.3 million and $36.5 million for the three and six months ended June 30,
1997, when compared to the same periods of 1996 due primarily to increased power
requirements to meet higher economy sales to industrial customers. During the
first quarter of 1996, purchased power supplier refunds of $6.7 million were
passed through to Texas customers, which reduced purchased power expense for the
six months ended June 30, 1996.
Fuel. Fuel expense decreased for the three and six months ended June 30,
1997, due primarily to a reduction in GWH sales, exclusive of industrial economy
sales. No fuel cost recovery is included in industrial economy rate sales. The
majority of TNMP's monthly fuel costs are recovered in revenues through a fixed
fuel factor per KWH approved by the PUCT. TNMP 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. See Note 3, for information regarding the June 30, 1997, fuel
reconciliation filing with the PUCT.
Other Operating Expenses, Income and Other Tax Expenses
TNMP's other operating expenses for the three and six months ended June 30,
1997, were approximately the same when compared to the same periods last year.
TNP's other operating expenses increased significantly for the three and six
months ended June 30, 1997, when compared to the same periods last year, due to
the inclusion of Facility Works operations during 1997. Facility Works had
virtually no activity during the first half of 1996.
TNMP's income and other tax expenses increased for the three and six months
ended June 30, 1997, due to higher pre-tax income and additional gross receipts
taxes. TNP's income tax expenses decreased for the three months ended June 30,
1997, due to lower pre-tax income and increased for the six months ended June
30, 1997, due to higher pre-tax income.
Interest Expense
Interest charges decreased $2.9 million and $5.7 million for the three and
six months ended June 30, 1997. The decrease is attributed to reduced long-term
debt levels and refinancing of debt at lower levels. Borrowings under the
revolving credit facilities and an equity contribution from TNP in late 1996,
resulting from a common stock sale, were used to redeem TNMP's higher interest
rate bonds.
Financial Condition
<PAGE>
Liquidity
The main sources of liquidity for TNMP are cash flow from operations and
borrowings from credit facilities. TNMP's cash flow from operations improved for
the six months ended June 30, 1997, compared to the six months ended June 30,
1996, due to higher receipts from customers, net of fuel and purchased power
payments, and the timing of income tax payments. As previously discussed, during
the first quarter of 1996, TNMP refunded $6.7 million to customers. TNP's
consolidated cash flow from operations also improved for the six months ended
June 30, 1997, for the same reasons as discussed above; however, they were
offset somewhat by $6.5 million of cash used by Facility Works in its
operations. Currently, TNP's primary source of cash is dividends from TNMP.
TNMP has two credit facilities with a total commitment of $250 million -
the 1995 Facility ($150 million) and the 1996 Facility ($100 million). As of
June 30, 1997, available unused credit under the 1995 Facility was $87 million,
subject to interest coverage and capitalization tests. Under the 1995 Facility,
TNMP can borrow up to $37 million of the unused commitment with no additional
collateral and borrow the remainder of the unused commitment ($50 million) by
pledging first mortgage bonds (FMBs) equal to the principal amount of such
borrowings.
There is currently no available credit under the $100 million 1996
Facility. The interest rates under both facilities are based on the London
Interbank Offered Rate (LIBOR). The interest rate margins on both facilities
will decrease as the ratings on TNMP's FMBs improve.
In January, TNMP used the credit facilities to retire $100.8 million of
11.25% Series T FMBs.
TNMP has sufficient liquidity to satisfy the possibility of existing known
contingencies. Management believes cash flow from operations and periodic
borrowings under its two revolving credit facilities should be sufficient to
meet working capital requirements and planned capital expenditures at least
through 1998.
Regulatory Matters
Community ChoiceSM
New Mexico. On May 1, 1997, TNMP implemented Community Choice, its plan
for transition to competition for its New Mexico service territory. The plan
provides TNMP's customers the right to choose their energy provider after a
three-year transition period. The plan freezes rates (including the recovery of
purchased power) during the transition period, and allows for customer
aggregation based on market forces. TNMP believes the plan will allow it to
recover most, if not all, of its potential stranded costs in New Mexico;
however, the actual recovery of stranded costs will depend on the future market
and price for energy through May 1, 2000.
Transition to Competition
Texas. On July 31, 1997, TNMP filed a new plan for transition to
competition with the PUCT and the communities within TNMP's service territory in
Texas. Due to the numerous issues involved, TNMP can provide no assurance as to
the timing or outcome of the new transition to competition plan in Texas. As
discussed previously in Note 3 - Rate Filing with the PUCT and Texas Gulf Coast
Cities, TNMP has filed traditional rate information with certain cities served
by TNMP in the Texas gulf coast area, due to their request, in order to
determine the reasonableness of TNMP's current rates.
New Accounting Standards
The Financial Accounting Standards Board has issued SFAS 128, Earnings per
Share, which will become effective for financial statements ending December 31,
1997. SFAS 128 requires the calculation of basic and diluted earnings per share.
Basic earnings per share is computed by dividing income applicable to common
stock by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed by dividing income applicable to
common stock by the weighted average number of common shares outstanding and
common stock equivalents. SFAS 128 will not materially change TNP's reported
earnings per share.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Rate Filing with the PUCT and Texas Gulf Coast Cities, and Fuel Reconciliation
See Note 3 for information regarding the rate filing with the PUCT and
Texas Gulf Coast Cities, and the fuel reconciliation with the PUCT.
Item 4. Submission of Matters to a Vote of Securities Holders.
At the annual meeting of the Company's shareholders on May 6, 1997, the
shareholders (i) elected J.R. Holland, Jr., Harris L. Kempner and Carol D.
Surles as Class 3 directors for three-year terms; (ii) approved an amendment to
the TNP Enterprises Equity Incentive Plan that adds an additional performance
measure to be achieved for a participant to earn and receive payment of
performance-based stock awards; and (iii) ratified the appointment of Arthur
Andersen LLP, Certified Independent Public Accountants, as independent auditors
for 1997.
The vote in the election of directors was as follows:
J.R. Holland, Jr.: For: 11,287,536 Withheld: 99,822
Harris L. Kempner: For: 11,297,188 Withheld: 90,170
Carol D. Surles: For: 11,287,466 Withheld: 99,892
The vote in the amendment to the TNP Equity Incentive Plan was 10,848,916
for, 413,160 against, and 125,282 abstaining.
The vote in the ratification of Arthur Andersen LLP, Certified Independent
Public Accountants, as independent auditors was 11,136,871 for, 147,909 against,
and 102,578 abstaining.
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 TNP.
27(b) Financial Data Schedule for TNMP.
(b) Reports on Form 8-K - None
Statement Regarding Forward Looking Information
The discussions in this document that are not historical facts, including,
but not limited to, the outcome of current and future rate/regulatory
proceedings, the continued application of regulatory accounting principles,
future cash flows and the potential recovery of stranded costs, are based upon
current expectations. Actual results may differ materially. Among the facts that
could cause the results to differ materially from expectations are the
following: legislation in the states TNMP serves affecting the regulation of
TNMP's business; changes in regulations affecting TNP and TNMP's businesses;
results of regulatory proceedings affecting TNP and TNMP's operations; future
acquisitions or strategic partnerships; general business and economic
conditions; negotiations regarding TNMP's proposal regarding transition to
competition; and other factors described from time to time in TNP and TNMP's
reports filed with the Securities and Exchange Commission. TNP and TNMP wish to
caution readers not to place undue reliance on any such forward looking
statements, which are made pursuant to the Private Securities Litigation Reform
Act of 1995 and, as such, speak only as of the date made.
<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. AND
TEXAS-NEW MEXICO POWER COMPANY
By \s\ MANJIT S. CHEEMA
Manjit S. Cheema
Date: August 1, 1997 Senior Vice President and as Chief Financial Officer
By \s\ SCOTT FORBES
Scott Forbes
Date: August 1, 1997 Controller and as Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000741612
<NAME> TNP ENTERPRISES, INC.
<MULTIPLIER> 1000
<S> <C>
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<PERIOD-END> JUN-30-1997
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<COMMON> 186,404
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 286,166
0
3,420
<LONG-TERM-DEBT-NET> 541,119
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<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000022767
<NAME> TEXAS-NEW MEXICO POWER CO.
<MULTIPLIER> 1000
<S> <C>
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<PERIOD-END> JUN-30-1997
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</TABLE>
