TNP ENTERPRISES INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

¨	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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x

TNP Enterprises, Inc. has no publicly traded shares of common stock outstanding.

TNP Enterprises, Inc. And Subsidiaries

Quarterly Report on Form 10-Q for the period ended September 30, 2004

TABLE OF CONTENTS


PART 1. FINANCIAL STATEMENTS

Item 1.	Financial Statements.

	TNP Enterprises, Inc. (TNP) and Subsidiaries:

			Consolidated Statements of Income (Loss) Three and Nine Month Periods Ended September 30, 2004 and 2003	3

			Consolidated Statements of Comprehensive Income (Loss) Three and Nine Month Periods Ended September 30, 2004 and 2003	4

			Consolidated Statements of Cash Flows Nine Month Periods Ended September 30, 2004 and 2003	5

			Consolidated Balance Sheets September 30, 2004, and December 31, 2003	6

	Notes to Consolidated Interim Financial Statements			7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			19

Item 4.	Controls and Procedures			28

PART 2. OTHER INFORMATION

Item 1.	Legal Proceedings			29

Item 6.	Exhibits and Reports on Form 8-K			29

	(a)	Exhibit Index		29

	(b)	Reports on Form 8-K		29

	Statement Regarding Forward Looking Information			29

Signature page				30

Certifications				31

-2-

TNP ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	*(In thousands)*
OPERATING REVENUES	$	216,637		$	252,687		$	556,291		$	659,933

OPERATING EXPENSES:
Purchased power		109,416			143,144			276,909			418,137
Other operating and maintenance		47,622			55,837			142,004			162,847
Accrual for payment (credit) to TNMP		—			3,589			(48	)		4,008
Depreciation		7,541			7,277			22,471			21,597
Taxes other than income taxes		8,362			8,328			22,652			22,037

Total operating expenses		172,941			218,175			463,988			628,626

OPERATING INCOME		43,696			34,512			92,303			31,307

INTEREST CHARGES, PREFERRED DIVIDENDS, AND OTHER INCOME AND DEDUCTIONS:
Interest on long-term debt		15,535			15,416			46,620			43,915
Other interest and amortization of debt-related costs		1,097			2,669			3,330			6,035
Dividends on preferred stock and other		6,327			—			18,561			—
Carrying charges on deferred stranded costs		(928	)		—			(928	)		—
Other income and deductions, net		(334	)		(787	)		(1,378	)		(1,663	)

Total		21,697			17,298			66,205			48,287

INCOME (LOSS) BEFORE INCOME TAXES		21,999			17,214			26,098			(16,980	)
Income tax expenses (benefits)		10,443			6,698			15,966			(6,452	)

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM		11,556			10,516			10,132			(10,528	)
Extraordinary item - disallowance of stranded costs, net of taxes (Note 3)		—			—			(97,836	)		—

NET INCOME (LOSS)		11,556			10,516			(87,704	)		(10,528	)
Dividends on preferred stock and other		—			5,515			—			16,179

INCOME (LOSS) APPLICABLE TO COMMON STOCK	$	11,556		$	5,001		$	(87,704	)	$	(26,707	)

The accompanying notes are an integral part of these consolidated financial statements.

-3-

TNP ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	*(In thousands)*
NET INCOME (LOSS)	$	11,556		$	10,516		$	(87,704	)	$	(10,528	)

Other comprehensive income, net of tax:
Gas hedge, net of reclassification adjustment (Note 5)		(2,297	)		(2,563	)		(2,456	)		(4,825	)
Interest rate hedge, net of reclassification adjustment (Note 5)		255			364			702			(1,271	)

Total other comprehensive income		(2,042	)		(2,199	)		(1,754	)		(6,096	)

COMPREHENSIVE INCOME (LOSS)	$	9,514		$	8,317		$	(89,458	)	$	(16,624	)

The accompanying notes are an integral part of these consolidated financial statements.

-4-

TNP ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
	2004			2003
	*(In thousands)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales to customers	$	528,387		$	613,008
Purchased power costs paid		(276,484	)		(389,594	)
Natural gas option premiums paid		—			(19,642	)
Cash paid for payroll and to other suppliers		(119,763	)		(140,041	)
Interest paid, net of amounts capitalized		(38,822	)		(39,023	)
Income taxes refunded		673			585
Other taxes paid		(21,975	)		(19,877	)
Other operating cash receipts and payments, net		863			751

NET CASH PROVIDED BY OPERATING ACTIVITIES		72,879			6,167

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant and other investing activities		(34,519	)		(28,361	)

NET CASH USED IN INVESTING ACTIVITIES		(34,519	)		(28,361	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances:
TNMP senior notes, net of discount		—			248,923
TNP senior secured credit facility		—			112,500
Repayments to TNMP/First Choice credit facility - net		—			(171,000	)
Redemptions:
TNMP senior notes		(8,375	)		—
TNP senior secured credit facility		(844	)		(281	)
TNP term loan		—			(71,300	)
Financing and redemption costs		(1,033	)		(5,534	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(10,252	)		113,308

NET CHANGE IN CASH AND CASH EQUIVALENTS		28,108			91,114
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		117,788			16,690

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	145,896		$	107,804

RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss	$	(87,704	)	$	(10,528	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Extraordinary item - disallowance of stranded costs, net of taxes		97,836			—
Accrued dividends on preferred stock and other		18,561			—
Accrual for payment (credit) to TNMP		(48	)		4,008
Depreciation		22,471			21,597
Credit for Texas system benefit fund regulatory asset		(244	)		(3,960	)
Amortization of debt-related costs and other deferred charges		3,331			6,171
Carrying charges on deferred stranded costs		(928	)		—
Allowance for funds used during construction		(661	)		(693	)
Deferred income taxes		28,070			1,573
Investment tax credits		(794	)		(635	)
Deferred purchased power and fuel costs		540			2,513

Cash flows impacted by changes in current assets and liabilities:
Accounts receivable		(1,997	)		(21,815	)
Accounts payable		(4,567	)		20,432
Accrued interest		8,108			9,333
Accrued taxes		(9,000	)		(4,622	)
Changes in other current assets and liabilities		(1,086	)		(5,131	)
Interest rate lock on issuance of senior notes		—			(4,162	)
Other, net

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