-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JT22EMl720wWpX8aYyBHgVJdYVF0NTGcEUnA2DFt9iXXASuoyjkQL5KVPowNuyMD JCCF4e9TdwJhgVhX3kPjmg== 0000912057-96-021273.txt : 19960927 0000912057-96-021273.hdr.sgml : 19960927 ACCESSION NUMBER: 0000912057-96-021273 CONFORMED SUBMISSION TYPE: 424B4 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960926 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TNP ENTERPRISES INC CENTRAL INDEX KEY: 0000741612 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 751907501 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10957 FILM NUMBER: 96635220 BUSINESS ADDRESS: STREET 1: 4100 INTERNATIONAL PLZ STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 BUSINESS PHONE: 8177310099 424B4 1 424B4 FILED PURSUANT TO RULE 424(b)(4) REGISTRATION NO. 333-10957 PROSPECTUS 1,750,000 SHARES TNP Enterprises, Inc. COMMON STOCK --------- All of the shares of Common Stock offered hereby are being sold by TNP Enterprises, Inc. The Common Stock of the Company is traded on the New York Stock Exchange under the symbol "TNP." The last reported sale price of the Common Stock on the New York Stock Exchange on September 25, 1996, was $24 3/8 per share (see "Common Stock Price Range and Dividends"). -------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS (1) COMPANY (2) Per Share......................... $24.375 $0.79 $23.585 Total (3)......................... $42,656,250 $1,382,500 $41,273,750
(1) For information regarding indemnification of the Underwriters, see "Underwriting." (2) Before deducting expenses payable by the Company estimated at $200,000. (3) The Company has granted the Underwriters a 30-day option to purchase up to 250,000 additional shares solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to the Public, Underwriting Discounts and Commissions, and Proceeds to Company will be $48,750,000, $1,580,000 and $47,170,000, respectively. -------------- The shares of Common Stock are being offered by the several Underwriters named herein, subject to prior sale, when, as and if accepted by them and subject to certain conditions. It is expected that the certificates for the shares of Common Stock offered hereby will be available for delivery on or about October 1, 1996, at the office of Smith Barney Inc., 333 West 34th Street, New York, New York 10001. -------------- SMITH BARNEY INC. EDWARD D. JONES & CO., L.P. LEGG MASON WOOD WALKER INCORPORATED September 25, 1996 SERVICE TERRITORY OF TEXAS - NEW MEXICO POWER COMPANY [Graphic/Image Material - The Prospectus includes an image depicting a map of the States of Texas and New Mexico and the Company's three regional operating divisions. The map also depicts the locations of the Company's headquarters, regional headquarters, and the Company's power plant.] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. UNLESS OTHERWISE INDICATED, (i) ALL REFERENCES IN THIS PROSPECTUS TO THE COMPANY SHALL MEAN TNP ENTERPRISES, INC. AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS, AND (ii) THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. THE COMPANY TNP Enterprises, Inc., a non-utility holding company, is engaged in the generation, purchase, transmission, distribution and sale of electricity to customers within the States of Texas and New Mexico through its wholly-owned subsidiary, Texas-New Mexico Power Company ("TNP"). The Company is exempt from regulation as a "registered holding company" as that term is defined in the Public Utility Holding Company Act of 1935. TNP provides electric service to approximately 216,000 customers in 85 municipalities and adjacent rural areas. TNP's service territory is divided into three regional divisions. TNP's largest region, the South-Western Region, includes the area along the Texas Gulf Coast, between the cities of Houston and Galveston. This region accounted for 57.4% of total operating revenues in 1995. The North-Central Region, TNP's second largest region, extends from Lewisville, Texas, which is north of Dallas-Fort Worth International Airport, to municipalities along the Red River and accounted for 28.3% of total operating revenues in 1995. The New Mexico Region includes areas in Southwest and South Central New Mexico and accounted for 14.3% of total operating revenues in 1995. The areas served by TNP contain a population of approximately 420,000. The electric utility industry in general has experienced a significant increase in the level of competition in the market for the generation and transmission of electricity as a result of certain recent regulatory changes and customer demands for lower energy costs. The Company believes that as the electric utility industry moves toward a more deregulated and competitive environment, customers will have more choice in the products and services available to them. The Company is seeking to enhance its competitive position and strengthen its financial position by pursuing a strategy to expand its customer base, lower its cost of power and cost of capital, provide additional customer services and take advantage of new opportunities in unregulated energy management services. See "The Company--Strategy." THE OFFERING Common Stock offered........................ 1,750,000 shares (1) Common Stock to be outstanding after the offering................................... 12,736,397 shares (1)(2) Price Range of Common Stock (January 1, 1996, through September 25, 1996).......... $18 1/2 to $28 5/8 Closing Price on September 25, 1996......... $24 3/8 Indicated Annual Dividend................... $0.98 per share (3) Use of Proceeds............................. Capital contribution to TNP for repayment of certain indebtedness, to provide working capital and for other general corporate purposes. See "Use of Proceeds." New York Stock Exchange Symbol.............. TNP
- ------------------------ (1) Assuming Underwriters' over-allotment option is not exercised. See "Underwriting." (2) Common Stock to be outstanding after the offering is based on 10,986,397 shares of Common Stock outstanding as of September 25, 1996, and does not include shares that will be issued after such date pursuant to the Company's Dividend Reinvestment Plan, Equity Incentive Plan or Non-Employee Director's Stock Plan. (3) Based upon a quarterly dividend of $0.245 per share. The third quarter 1996 dividend was paid on September 15, 1996, to shareholders of record on August 28, 1996. 3 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Twelve Months Ended June Year Ended December 31, 30, 1996 ---------------------------------------- (Unaudited) 1995 1994 1993 ------------- ------------- ------------- ---------- INCOME STATEMENT DATA: Operating revenues...................................... $ 480,786 $ 485,823 $ 477,989 $ 474,242 Operating income: before income taxes................................... 112,719 108,912 76,753 82,534 after income taxes.................................... 97,564 96,595 77,991 78,240 Net earnings (loss)..................................... $ 37,643 $ 41,505 $ (17,441) $ 11,605 ------------- ------------- ------------- ---------- ------------- ------------- ------------- ---------- Earnings (loss) applicable to Common Stock.............. 37,272 40,850 (18,231) 10,726 Earnings (loss) per share of Common Stock............... $ 3.40 $ 3.75 $ (1.70) $ 1.01 ------------- ------------- ------------- ---------- ------------- ------------- ------------- ---------- Earnings per share of Common Stock excluding one-time items................................................. $ 2.26(1) $ 1.83(1) $ 0.74(2) $ 1.01 ------------- ------------- ------------- ---------- ------------- ------------- ------------- ---------- Dividends per share of Common Stock..................... 0.86 0.82 1.22 1.63 Weighted average number of shares of Common Stock outstanding........................................... 10,967 10,901 10,750 10,641
As of June 30, 1996 (Unaudited) -------------------------- Actual As Adjusted(3) ---------- -------------- BALANCE SHEET DATA: Long-term debt (excluding current maturities)........................................ $ 517,431 $ 579,327 Preferred stock...................................................................... 3,600 3,600 Common equity........................................................................ 222,227 263,301 Total capitalization............................................................. 743,258 846,228 Net utility plant.................................................................... 938,594 938,594 Current maturities of long-term debt (4)............................................. 101,870 0
- ------------------------ (1) One-time items that increased earnings in 1995 included (i) a gain from the sale of the Company's properties in the Texas Panhandle ($9.48 million or $0.87 per share); (ii) the effect of the Company's change in the method of accounting for operating revenues from cycle billing to the accrual method ($8.45 million or $0.77 per share); and (iii) the recognition of deferred revenues ($3.02 million or $0.28 per share). Excluding the effects of these items in 1995, (i) net earnings (loss) would have been $20.56 million; and (ii) earnings (loss) applicable to Common Stock would have been $19.90 million. (2) One-time items that decreased earnings in 1994 included (i) the recognition of regulatory disallowances ($20.51 million or $1.91 per share); and (ii) reorganization costs ($5.72 million or $0.53 per share). Excluding the effects of these items in 1994, (i) net earnings (loss) would have been $8.79 million; and (ii) earnings (loss) applicable to Common Stock would have been $8.0 million. (3) Adjusted to give effect to the issuance and sale of 1,750,000 shares of Common Stock at an assumed net price of $23.47 per share and borrowings under the Company's bank line of credit. See "Use of Proceeds." (4) Represents primarily the $100,800,000 in aggregate principal amount due January 15, 1997 (the "Maturity Date"), on the Company's 11 1/4% First Mortgage Bonds, due 1997 (the "11 1/4% Bonds"). Assumes that the Company uses all of the net proceeds from the offering, together with sufficient borrowings from its bank line of credit, to repay the 11 1/4% Bonds on the Maturity Date. See "Use of Proceeds." 4 THE COMPANY OVERVIEW TNP Enterprises, Inc. (the "Company"), a non-utility holding company, is engaged in the generation, purchase, transmission, distribution and sale of electricity to customers within the States of Texas and New Mexico through its wholly-owned subsidiary, Texas-New Mexico Power Company ("TNP"). The Company is exempt from regulation as a "registered holding company" as that term is defined in the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"). TNP provides electric service to approximately 216,000 customers in 85 municipalities and adjacent rural areas through three operating regions. TNP owns one electric generating facility, TNP One, which is located in Robertson County, Texas. TNP One consists of two 150-megawatt units, each of which utilizes a lignite-fueled, circulating fluidized bed technology. The two units are supplying, on an annualized basis, approximately 25% of TNP's power requirements. The Company and its subsidiaries are all Texas corporations. Their executive offices are located at 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113 and their telephone number is (817) 731-0099. COMPETITION LEGISLATIVE AND REGULATORY DEVELOPMENTS Electric utilities have historically faced limited or no competition within the areas they serve. Recently, however, there has been substantial discussion within the electric utility industry in the United States concerning the potential for increased competition. Several states, including Texas and New Mexico, are examining the consequences and feasibility of various legislative and regulatory options concerning competition. Each of the Texas Senate and House of Representatives has appointed an interim committee to report on the status of competition in the electric utility industry and recommend possible legislation. The Public Utility Regulatory Act of the State of Texas ("PURA") requires the Public Utility Commission of Texas ("PUCT") to prepare a report to the Texas legislature prior to each of its regular sessions on the scope and impact of competition and possible industry restructuring on customers. The Senate interim committee has issued a report recommending that Texas maintain current regulations relating to wholesale and retail competition until such time as further legislative action on competition occurs in other states. Both the House interim committee and the PUCT, through its Project No. 15000, are in the process of gathering information for their respective reports. However, neither has issued a report and the content of such reports is not yet known. The Company expects legislation relating to competition to be introduced in the next Texas legislative session in 1997, but cannot predict the outcome of such proceedings. The New Mexico legislature also has appointed an interim committee to examine the status of competition within the electric utility industry. Although this interim committee has previously issued a report stating that legislation concerning retail competition was not yet appropriate in New Mexico, the interim committee is continuing to study the issue. The New Mexico Public Utility Commission ("NMPUC") also has initiated a review of competition, industry restructuring as it relates to competition, and other related issues. The Company cannot predict what either the interim committee or the NMPUC may recommend at the conclusion of their respective proceedings. The Company believes that wholesale competition within the electric utility industry is likely to increase in the near future. Federal Energy Regulatory Commission ("FERC") Order 888 and PUCT Substantive Rule 23.67 require open access transmission on terms and conditions that will encourage and enhance the development of a competitive wholesale market. See "--Regulation." 5 EXISTING RETAIL COMPETITION The existing statutory and regulatory systems in Texas and New Mexico limit retail transmission and distribution competition. In Texas, retail competition currently exists only where the PUCT has certified more than one electric utility to serve a particular area. Currently, such areas contain approximately 15% of TNP's customers and comprise 10% of its total revenues attributable to Texas. Since the regulatory system in New Mexico generally does not result in more than one utility being authorized to serve a particular area, there is currently very limited retail competition in New Mexico. FERC is expressly prohibited by the Energy Policy Act of 1992 from ordering transmission and distribution of electric services to retail customers. WHOLESALE COMPETITION PURA provides for a competitive wholesale market in Texas and allows utilities to seek approval from the PUCT for flexible pricing that can be set between the utility's approved rate and its marginal cost. This flexible pricing can be used to attract or retain customers on a utility's system. THE COMPANY'S RESPONSE Competition in the electric utility industry could result in many companies, including TNP, not being able to recover potential "stranded costs," which represent the difference between the cost to a company of providing energy and what a customer would be willing to pay for such energy in a competitive market. In order to address this significant uncertainty in the absence of legislation or regulatory guidance, the Company has filed applications with the PUCT and NMPUC for approval of its competitive retail electric service plan, Community Choice-SM-. Community Choice-SM- provides the Company an opportunity to recover from its customers a significant portion of the Company's estimate of its potential stranded costs during a reasonable transition period. There is no assurance that Community Choice-SM- will obtain regulatory approval or, if approved, that Community Choice-SM- will be successful. The Company's inability to recover a significant portion of its estimated potential stranded costs could have a materially adverse effect on the Company's financial condition. See "--Strategy--Community Choice-SM-." STRATEGY COMPONENTS OF THE COMPANY'S STRATEGY The Company believes that as the electric utility industry moves toward a more deregulated and competitive environment, customers will have more choice in the products and services available to them. The Company is seeking to enhance its competitive position and strengthen its financial position in this new environment by pursuing a strategy to expand its customer base, lower its cost of power and cost of capital, provide additional customer services, and take advantage of new opportunities in unregulated energy management services. The Company believes that this strategy, as described in more detail below, will allow TNP to continue positioning itself to be competitive in the increasingly deregulated utility industry. EXPAND CUSTOMER BASE. RESIDENTIAL AND COMMERCIAL CUSTOMERS. The Company principally focuses on providing personalized electric service to residential and commercial customers in small and medium-sized communities. The Company believes that its focus on providing local, personalized service will allow TNP to grow along with the communities it serves. This strategy differentiates the Company from other electric utilities that have withdrawn from small and medium-sized communities and become more centralized and focused on urban areas. The Company believes that by maintaining a local presence in the communities it serves, it will continue to be recognized as a valuable member of those communities. 6 INDUSTRIAL CUSTOMERS. Industrial customers have more power supply options and are, consequently, more price sensitive. The Company will seek to expand its industrial customer base by providing flexible pricing and services. One method of pursuing this strategy is to match competitive purchased power resources with a particular customer's requirements. Another method is to provide self-generating customers with innovative power arrangements that may lower their costs and increase their operational efficiency. LOAD CONTROL AREA SERVICES. In July 1996, TNP began operating its own electrical control area to manage its resources in its South-Western Region. The implementation of the control area provides TNP with the flexibility to balance its generated power from TNP One and its purchased power requirements with its customers' needs. The increased efficiency provided by its new electrical control area also enables TNP to reduce its costs of standby power. TNP also will seek to market its control area services to other potential users. REDUCE COST OF POWER. PURCHASED POWER COSTS. Unlike many utilities that generate most of the power provided to their customers, TNP generates approximately 25% of its total power requirements and purchases the remainder from other electric utilities and third-party power providers. This allows TNP to take advantage of the current surplus of low-cost power available in the southwestern region of the United States by replacing expiring high cost purchase power contracts with lower cost contracts. This strategy provides the Company with the increased flexibility necessary to benefit from a competitive wholesale market. GENERATED POWER COSTS. The Company continues to seek ways to decrease the annual operation and maintenance costs of TNP One. As discussed above, the Company recently reduced the standby power costs of TNP One by installing new control area facilities in its South-Western Region. The Company also is seeking methods to reduce the work force at TNP One by up to 40 percent prior to the end of 1997. CAPITAL INVESTMENT COSTS. The Company is working towards achieving an investment grade credit rating over the next several years. Part of the Company's strategy is to use a significant amount of its annual free cash flows to retire outstanding indebtedness and reduce its cost of borrowed funds. Additionally, TNP currently internally generates all of its capital requirements. OPPORTUNITIES IN UNREGULATED BUSINESSES. Another part of the Company's strategy is to capitalize on unregulated business opportunities. Community Public Service Company ("CPS"), a wholly-owned subsidiary of the Company, is currently evaluating a variety of unregulated opportunities in energy management services. CPS's strategy is to provide energy-related services to small and to medium-sized communities in the Company's service areas, and, as this business expands, throughout the southwestern region of the United States. The Company believes that its ability to take advantage of these new unregulated opportunities may play an important role in enhancing the Company's long-term financial performance as the electric utility industry moves toward increased competition. COMMUNITY CHOICE-SM- Community Choice-SM- is designed to provide economic benefits to the Company's customers and shareholders. During a four to five year transition period, the Company would have the opportunity to reduce its potential "stranded costs," and TNP would hold its rates constant at their 1995 level. At the end of the transition period, TNP proposes to aggregate its customers at the community level and permit these customer groups to choose their energy supplier and the types and nature of electric services they desire. TNP would continue to provide transmission and distribution services to its customers. There can be no 7 assurance that Community Choice-SM- will obtain regulatory approval. If Community Choice-SM- is not approved but the retail electric service market eventually becomes deregulated, the Company intends to develop an alternative strategy that will provide the Company and its customers with many of the benefits of Community Choice-SM-. SERVICE TERRITORY TNP's service territory is divided into three regional divisions: the South-Western Region, the North-Central Region and the New Mexico Region. SOUTH-WESTERN REGION The South-Western Region includes the area along the Texas Gulf Coast between Houston and Galveston. The oil and petrochemical industries, agricultural industry and general commercial activity in the Houston area support the economy of this area. This region also includes the area in far west Texas between Midland and El Paso. The economy in this area is based primarily on oil and gas production, agriculture and food processing. NORTH-CENTRAL REGION The North-Central Region extends from Lewisville, Texas, which is north of Dallas-Fort Worth International Airport, to municipalities along the Red River. TNP provides electric service to a variety of commercial, agricultural and petroleum industry customers in this area. This region also includes municipalities and communities south and west of Fort Worth. This area's economy depends largely on agriculture and, to a lesser extent, tourism and oil production. NEW MEXICO REGION The New Mexico Region includes areas in southwest and south-central New Mexico. This region's economy is primarily dependent upon mining and agriculture. Copper mines are the major industrial customers in this region. TNP's sales in all regions are primarily to retail customers. Revenues contributed by each operating region and its percentage of total operating revenues in 1995, 1994 and 1993, respectively, are set forth in the following table. No single customer accounted for more than 10% of operating revenues during the years presented in the table. OPERATING REVENUES (DOLLARS IN THOUSANDS)
REGION 1995 1994 1993 - ---------------------------- --------------------- --------------------- --------------------- South-Western............... $ 278,791 57.4% $ 269,194 56.3% $ 262,979 55.4% North-Central............... 137,521 28.3 132,595 27.8 131,725 27.8 New Mexico.................. 69,511 14.3 76,200 15.9 79,538 16.8 ---------- --------- ---------- --------- ---------- --------- Total..................... $ 485,823 100.0% $ 477,989 100.0% $ 474,242 100.0% ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- ---------
8 The following table provides certain information regarding the total revenues of the Company from the sale of electricity and average revenue per kilowatt hour by customer class during the years presented:
1995 1994 1993 ---------- ---------- ---------- REVENUE FROM SALE OF ELECTRICITY (IN THOUSANDS): Residential............................................ $ 200,455 $ 194,933 $ 193,484 Commercial............................................. 148,908 141,886 138,680 Industrial............................................. 113,728 122,714 124,474 Other.................................................. 22,732 18,456 17,604 ---------- ---------- ---------- Total................................................ $ 485,823 $ 477,989 $ 474,242 ---------- ---------- ---------- ---------- ---------- ---------- AVERAGE REVENUE PER KILOWATT HOUR (IN CENTS): Residential............................................ 9.4 9.3 9.5 Commercial............................................. 8.9 8.8 8.8 Industrial............................................. 4.2 4.6 4.8
The following table provides the number of customers of the Company by class at December 31 for each of the three years presented:
1995 (1) 1994 1993 ---------- ---------- ---------- Residential............................................ 183,863 185,364 181,298 Commercial............................................. 29,361 30,624 30,235 Industrial............................................. 136 142 142 Other.................................................. 244 237 237 ---------- ---------- ---------- Total................................................ 213,604 216,367 211,911 ---------- ---------- ---------- ---------- ---------- ----------
- ------------------------ (1) Excludes approximately 7,300 residential, commercial and industrial customers located within the Company's former service area in the Texas Panhandle. The Company sold its properties in this service area to Southwestern Public Service Co. in September 1995. SOURCES OF ENERGY TNP generates electricity at TNP One and purchases the remainder of its requirements of electricity from various suppliers with diversified fuel sources. TNP One, which has 300 megawatts of capacity, provided approximately 25% of TNP's total power requirements during 1995. Power generated at TNP One is transmitted over TNP's own transmission lines to other utilities' transmission systems for delivery to TNP's Texas service area systems. To maintain a reliable power supply for its customers and to coordinate interconnected operations, TNP is a member of the Electric Reliability Council of Texas ("ERCOT"), the Inland Power Pool and the New Mexico Power Pool. The availability and cost of purchased energy to TNP may be affected by changes in supplier costs, regulations and laws, fuel costs and other factors. TNP is pursuing various opportunities to reduce purchased power costs. See "--Strategy--Reduce Cost of Power." Management believes that current supply arrangements and the availability of electricity on the wholesale market are adequate to satisfy TNP's foreseeable power requirements. 9 The following table sets forth certain information concerning TNP's sources of electric energy in 1995 by state:
Year Contract Percent of Energy Expires Provided ------------- ------------------- TEXAS GENERATION TNP One..................................................... -- 44% PURCHASED POWER Texas Utilities Electric Co. ("TU") (1)..................... 1999 29% Clear Lake Cogeneration L.P................................. 2004 19% Other....................................................... Various 8% --- Total......................................................... 100% --- --- NEW MEXICO PURCHASED POWER Tucson Electric Power Co.................................... 1996 35% Public Service Co. of New Mexico (2)........................ 2006 26% El Paso Electric Co. (2).................................... 2002 21% Southwestern Public Service Co. (2)......................... 2001 11% Other....................................................... Various 7% --- Total......................................................... 100% --- ---
- ------------------------ (1) TNP has notified TU of its intent to cease purchasing its full requirements of power and energy effective January 1, 1999. (2) Supplier may not terminate service to TNP without FERC authorization. SEASONALITY OF BUSINESS TNP experiences increased sales and operating revenues during the summer months as a result of increased air conditioner usage in hot weather. In 1995, approximately 40% of annual revenues were recorded in June, July, August and September. REGULATION GENERAL The Company is a holding company as defined in the 1935 Act. However, the Company and its subsidiaries are exempt from the provisions of the 1935 Act, except Section 9(a)(2) thereof, which relates to the acquisition of securities of public utility companies. TNP is subject to regulation by the PUCT and the NMPUC, and certain of its activities in New Mexico are subject to the jurisdiction of FERC. In addition, each of the cities within TNP's Texas service areas that have not surrendered jurisdiction to the PUCT has original rate jurisdiction over the utilities that provide electricity to the city. The rate-related decisions of each of these cities are appealable to the PUCT on a DE NOVO basis. PUCT Amendments to PURA, the legal foundation of electric regulation in Texas, became effective in September 1995. Among other things, the amendments deregulate the wholesale bulk power market in the ERCOT region, permit pricing flexibility for utilities facing competitive challenges, provide for a market- 10 driven integrated resource planning process and mandate open access transmission service comparable to the service a utility provides itself. The PUCT recently passed Substantive Rule 23.67, which establishes the terms and conditions for regional wholesale transmission access and a reasonable method of transmission pricing. The purpose of the rule is to unbundle the price for transmission rate services within Texas and establish an independent system operator for the ERCOT transmission system. As a direct result, cost data from all Texas utilities have been filed with the PUCT. These filings will be used by the PUCT to set the transmission pricing rules for the ERCOT region. TNP's initial review of these rules indicates that implementation results in a greater reduction in its transmission expenses than the expected reduction in transmission related revenues. TNP believes it should benefit from the new rules as competition increases in the wholesale power market, thereby providing TNP with increased access to the ERCOT transmission system and resulting in reduced purchased power and transmission costs. TNP currently recovers its eligible fuel costs by means of a fixed fuel factor set by the PUCT. Eligible fuel costs may be reconciled at a utility's option every six months but must be reconciled on a three year basis or, if an over or under cost recovery greater than 4% occurs, then the utility must file a fuel reconciliation with the PUCT within six months after any such occurrence. The PUCT allows the current recovery of TNP's purchased power through a recovery factor that changes each month. TNP expects that its fuel factor will be reviewed this year by the PUCT. In the event Community Choice-SM- receives regulatory approval, both the fuel and purchased power factors will be fixed at their 1995 levels, and any recovery in excess of costs will be used to reduce TNP's potential stranded costs. NMPUC The NMPUC is presently engaged in work sessions to develop proposed rulemaking or legislation that will address the restructuring of the electric utility industry in New Mexico with respect to competition in retail utility service, including potential open access of transmission and distribution lines and customer choice of energy suppliers. In addition, the NMPUC has proposed new regulations that address the manner in which electric utilities may engage in non-utility activities, form affiliated entities and engage in transactions with affiliates. The Company cannot predict the outcome of the NMPUC's proposed rulemaking proceedings and work sessions or the impact that any permanent regulations or legislation that result from the NMPUC's efforts will have on TNP's operations in New Mexico. FERC In March 1995, FERC released a notice of proposed rulemaking (the "MegaNOPR") to solicit comments on pending policy changes aimed at increasing access to the nation's electric transmission lines. The proposed changes would require utilities with power transmission lines to grant access to those lines under the same terms and conditions as the utility itself uses the lines. The purpose of this initiative is to promote competition in bulk power markets. After receiving comments to the MegaNOPR, in April 1996, FERC issued orders 888 and 889. Order 888 opens wholesale power sales to competition by requiring public utilities that own, control, or operate transmission facilities to file non-discriminatory open access tariffs offering other utilities the same transmission service they provide themselves. Order 888 also allows utilities, under certain conditions, to petition FERC for the full recovery of stranded costs for wholesale requirements agreements signed before July 11, 1994. After that date, the recovery of stranded costs must be specifically provided for in the service agreement. Order 889 provides for a real time information system known as OASIS (Open Access Same-time Information System). It also addresses standards of conduct to ensure that transmission owners and their affiliates do not have an unfair competitive advantage by using transmission to sell power. This rule requires that transmission utilities provide information about their transmission system for their own 11 wholesale power transmissions and functionally separates the wholesale power marketing and transmission operation functions. Order 888 leaves pricing issues raised by the MegaNOPR to be resolved through subsequent litigation at the FERC on a case by case basis. Due to the uncertainty of this litigation, the Company is unable to estimate the potential impact of these orders on TNP's operations. ENVIRONMENTAL In addition to regulation as a utility, TNP's facilities are regulated by the Environmental Protection Agency and by Texas and New Mexico environmental agencies. TNP One uses environmentally efficient circulating fluidizing bed technology that eliminates the need for expensive scrubbers. TNP was allotted sufficient emission allowances to comply with the Clean Air Act of 1990 through the year 2000. During 1995, 1994 and 1993, TNP incurred expenses related to air, water and solid waste pollution abatement (including ash removal) of approximately $5.5 million, $5.9 million and $4.3 million, respectively. 12 USE OF PROCEEDS The net proceeds from the sale of 1,750,000 shares of Common Stock offered hereby are estimated to be $41.1 million ($47.0 million if the Underwriters' over-allotment is exercised) after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company intends to use such proceeds (i) to make contributions to the equity capital of TNP, (ii) to provide working capital, and (iii) for other general corporate purposes. TNP intends to utilize approximately $40.0 million of the net proceeds and borrowings in the amount of $60.8 from its bank line of credit to repay at maturity (January 15, 1997) the $100,800,000 outstanding principal amount of its 11 1/4% First Mortgage Bonds, due 1997. Pending application of the net proceeds for specific purposes, such proceeds may be used to reduce certain revolving bank indebtedness or may be invested in short-term or marketable securities. COMMON STOCK PRICE RANGE AND DIVIDENDS The Common Stock is listed on the New York Stock Exchange under the symbol "TNP." The following table sets forth on a per share basis the price range and cash dividends paid for the Common Stock as reported on the New York Stock Exchange for the periods indicated:
PRICE RANGE DIVIDENDS ------------------ PAID PER YEAR HIGH LOW SHARE - ---------------------------------------------------------- ------- ------- ----------- 1994 First Quarter........................................... $18 5/8 $16 5/8 $ 0.41 Second Quarter.......................................... 17 3/8 14 5/8 0.41 Third Quarter........................................... 15 5/8 13 1/4 0.20 (1) Fourth Quarter.......................................... 15 3/8 13 3/8 0.20 1995 First Quarter........................................... $16 $14 5/8 $ 0.20 Second Quarter.......................................... 16 3/4 15 0.20 Third Quarter........................................... 17 3/4 16 0.20 Fourth Quarter.......................................... 19 1/8 17 1/2 0.22 1996 First Quarter........................................... $23 1/4 $18 1/2 $ 0.22 Second Quarter.......................................... 28 5/8 22 0.22 Third Quarter (through September 25, 1996).............. 27 3/4 23 3/8 0.245(2)
- ------------------------ (1) The Board of Directors of the Company reduced the third quarter 1994 dividend due to the Company's financial condition during such period. (2) The third quarter 1996 dividend was paid on September 15, 1996, to shareholders of record on August 28, 1996. As of September 25, 1996, there were 6,389 record holders of Common Stock. For a recent closing sales price of the Common Stock, see the cover page of this Prospectus. The Company has a dividend reinvestment plan ("DRP") that allows shareholders of record to purchase additional shares of Common Stock with cash dividends paid by the Company. Currently, a person must either already own shares of Common Stock or purchase shares through a broker prior to participating in the DRP. After a shareholder becomes a participant in the DRP, the shareholder may purchase, without brokerage fees, additional shares from the Company in an amount of not less than $25 or more than $5,000 per calendar quarter. Since October 1984, the Company has issued approximately 900,000 of the 1,200,000 shares of Common Stock authorized for the DRP. 13 DESCRIPTION OF COMMON STOCK The statements herein concerning the Common Stock and the Articles of Incorporation, as amended (the "Articles"), are merely a summary and do not purport to be complete. The relative rights, authorized amounts, descriptions, and preferences and limitations of the preferred stock, no par value ("Preferred Stock"), of the Company and the Common Stock are stated in full in the Articles and other instruments, which are exhibits to the Registration Statement. Presently, the Company has no outstanding shares of Preferred Stock. All outstanding shares of preferred stock set forth in the Company's consolidated financial statements incorporated herein by reference were issued by TNP and only affect the rights of the holders of the Common Stock with respect to the ownership rights in the assets of TNP as a wholly owned subsidiary of the Company. DIVIDEND RIGHTS AND LIMITATIONS The holders of the Common Stock are entitled to receive such dividends as may be declared by the Board of Directors, but no dividends may be declared or paid on the Common Stock (other than dividends payable solely in shares of the Common Stock) unless all past and current dividends on any issued and outstanding Preferred Stock of the Company have been paid or declared and set apart for payment and all requisite sinking or purchase fund obligations for the Preferred Stock have been fulfilled. Since TNP constitutes the Company's principal subsidiary, the ability of the Company to pay dividends may be dependent on the ability of TNP to pay dividends to the Company. A summary of the legal limitations on TNP's ability to pay dividends is set forth below and is qualified in its entirety by the documents referenced in such summary. Under TNP's Articles of Incorporation, the Company, as holder of the common stock of TNP, is entitled to receive such dividends as may be declared by the Board of Directors, but no dividends may be declared or paid on the common stock of TNP (other than dividends payable solely in shares of common stock of TNP) unless all past and current dividends on outstanding preferred stock of TNP have been paid or declared and set apart for payment and all requisite sinking or purchase fund obligations for the preferred stock of TNP have been fulfilled. Under TNP's Indenture of Mortgage and Deed of Trust dated as of November 1, 1944 (the "Mortgage"), as supplemented and modified, TNP may not pay cash dividends on its common stock to the Company (other than dividends payable solely in shares of its common stock), unless at the date of such declaration of dividends on its common stock, after giving effect thereto, the sum of $1,500,000 plus (or minus in case of a deficit) the Net Income of TNP from December 31, 1969, to and including the date of such common stock dividend declaration shall be greater than the aggregate amount of all such payments or distributions declared or authorized during such period on TNP's common stock plus the aggregate amount of all cash dividends on, and payment pursuant to any sinking, purchase or analogous fund for, preferred stock of TNP declared or made during such period. At June 30, 1996, the amount of restricted retained earnings of TNP was approximately $18.66 million. Under TNP's Credit Agreement dated as of November 3, 1995 (the "Credit Agreement"), TNP may not, without the consent of the holders of at least two-thirds of the indebtedness under the Credit Agreement declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any shares of its capital stock or directly or indirectly redeem, purchase, retire or otherwise acquire for value any shares of any class of its capital stock or set aside any amount for such purpose, subject to certain exceptions based upon TNP's compliance with debt and interest coverage ratios. Similar restrictions also are contained in separate credit agreements entered into by TGC and TGCII with third party creditors, pursuant to which TNP is subject to certain obligations and negative covenants. 14 VOTING RIGHTS The holders of the Common Stock are entitled to one vote for each share held at all meetings of shareholders. Pursuant to the Company's Bylaws, the Board of Directors has been divided into three equal classes. At each Annual Meeting, directors are elected to succeed those in the class whose terms then expire for three-year terms so that the terms of one class of directors will expire each year. LIQUIDATION RIGHTS In the event of liquidation, dissolution or winding up of the affairs of the Company, the holders of the Common Stock are entitled to receive pro rata all assets of the Company distributable to shareholders, but only after payment to the holders, if any, of the Preferred Stock of the Company of the full preferential amounts fixed for all series of the Company's Preferred Stock. SHAREHOLDER RIGHTS PLAN The Company has a Shareholder Rights Plan (the "Rights Plan") that is designed to protect the Company's shareholders from coercive takeover tactics and inadequate or unfair takeover bids. The Rights Plan, adopted in 1988 and amended on November 13, 1990, by the Company's Board of Directors, provides for the distribution of one right for each share of Common Stock held of record as of the close of business on November 4, 1988, and for each share of Common Stock issued thereafter until November 4, 1998. Each right entitles the shareholder to elect to exercise the right in whole or in part to purchase, upon the occurrence of certain events, one share of Common Stock at an initial price of $45 per share or, under certain circumstances, shares of Common Stock at half the then-current market price, or with an election to exercise such rights without payment of cash, to receive the number of shares of the Common Stock or other securities having an aggregate value equal to the excess of (i) the value of the Common Stock or other securities on the date of the exercise of the rights over (ii) the cash payment that would have been payable upon the exercise of the rights if an election for cash payment had been made. Until certain triggering events occur, the rights will trade together with the Common Stock, separate rights certificates will not be issued, and the rights will have no voting or dividend rights. Among the triggering events are the acquisition by a person or group of persons of 10% or more of the outstanding Common Stock or the commencement of a tender or exchange offer which, upon consummation, would result in a person or group of persons owning 15% or more of the outstanding Common Stock. The rights expire November 4, 1998, unless earlier redeemed or exchanged by the Company, and the existence of the rights has had no effect on earnings per share. The stock certificates relating to the shares of Common Stock offered hereby will bear a legend referring to the rights. MISCELLANEOUS The Common Stock has no preemptive rights or cumulative voting rights and there are no redemption, sinking fund, or conversion provisions with respect to the Common Stock. The outstanding Common Stock is, and the shares offered hereby when issued will be, fully paid and nonassessable. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is Society National Bank, in care of KeyCorp. Shareholder Services, Inc., 1201 Elm Street, Suite 5050, Dallas, Texas 75270. 15 UNDERWRITING Upon the terms and subject to the conditions stated in the Underwriting Agreement dated the date hereof, each of Smith Barney Inc., Edward D. Jones & Co., L.P. and Legg Mason Wood Walker, Inc. (collectively the "Underwriters") has severally agreed to purchase, and the Company has agreed to sell, shares of Common Stock in the following respective amounts: (i) 583,334 shares of Common Stock to Smith Barney Inc.; and (ii) 583,333 shares of Common Stock to each of Edward D. Jones & Co., L.P. and Legg Mason Wood Walker, Inc. The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock are subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to take and pay for all shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters propose to offer part of the shares of Common Stock directly to the public at the public offering price set forth on the cover page of this Prospectus and part of the shares to certain dealers at a price which represents a concession not in excess of $0.45 per share under the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $0.10 per share to certain other dealers. After the initial offering of the Common Stock, the public offering price and such concessions may be changed by the Underwriters. The Company has granted to the Underwriters an option, exercisable for thirty days from the date of this Prospectus, to purchase up to 250,000 additional shares of Common Stock at the price to public set forth on the cover page of this Prospectus minus the underwriting discounts and commissions. The Underwriters may exercise such option solely for the purpose of covering over-allotments, if any, in connection with the offering of the shares offered hereby. To the extent such option is exercised, each Underwriter will be obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number of shares of Common Stock set forth opposite each Underwriter's name in the preceding table bears to the total number of shares listed in such table. The Company and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933, as amended. Smith Barney Inc. has, from time to time, provided and may in the future provide certain investment banking services to the Company. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Michael D. Blanchard, Corporate Secretary and General Counsel of the Company, and by Haynes and Boone, LLP, Fort Worth, Texas. Certain legal matters in connection with the offering will be passed upon for the Underwriters by Milbank, Tweed, Hadley & McCloy, New York, New York. All matters pertaining to local laws in connection with the issuance of the shares offered hereby will be passed upon only by Haynes and Boone, LLP as to Texas law, and Rubin, Katz, Salazar, Alley & Rouse, Santa Fe, New Mexico, as to New Mexico law. EXPERTS The consolidated financial statements of TNP Enterprises, Inc. as of December 31, 1995 and 1994, and for each of the years in the three-year period ended December 31, 1995, included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP covering the Company's consolidated financial statements refers to a change in the method of accounting for operating revenues in 1995 and changes in the methods of accounting for income taxes and postretirement benefits in 1993. 16 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the Exchange Act, the Company files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The reports, proxy statements and other information can be inspected and copied at the public reference facilities that the Commission maintains at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of these materials can be obtained at prescribed rates from the Public Reference Section of the Commission at the principal offices of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, reports, proxy statements, and other information concerning the Company may be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. Such material may also be accessed electronically by means of the Commission's home page on the Internet at http://www.sec.gov. The Company has filed with the Commission a registration statement on Form S-3 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Common Stock. This Prospectus, which constitutes a part of the Registration Statement, does not contain all the information set forth in the Registration Statement, certain items of which are contained in schedules and exhibits to the Registration Statement as permitted by the rules and regulations of the Commission. Statements made in the Prospectus concerning the contents of any documents referred to herein are not necessarily complete. With respect to each such document filed with the Commission as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description, and each such statement shall be deemed qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by the Company with the Commission pursuant to the Exchange Act, are hereby incorporated by reference in this Prospectus: (i) Annual Report on Form 10-K for the year ended December 31, 1995; (ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; (iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1996; and (iv) the description of the Common Stock included in the Company's Report on Form 8-B dated January 9, 1985. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference in this Prospectus from their respective dates of filing. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, on the written or oral request of any such person, a copy of any or all of the documents incorporated by reference (other than exhibits to such documents which are not specifically incorporated by reference in such documents). Written requests for such copies should be directed to the Company at 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113. Telephone requests may be directed to Michael D. Blanchard, Corporate Secretary and General Counsel of the Company, at (817) 731-0099. 17 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. -------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................. 3 The Company.................................... 5 Use of Proceeds................................ 13 Common Stock Price Range and Dividends......... 13 Description of Common Stock.................... 14 Underwriting................................... 16 Legal Matters.................................. 16 Experts........................................ 16 Available Information.......................... 17 Incorporation of Certain Documents by Reference.................................... 17
1,750,000 SHARES TNP Enterprises, Inc. COMMON STOCK --------- PROSPECTUS SEPTEMBER 25, 1996 -------------- SMITH BARNEY INC. EDWARD D. JONES & CO., L.P. LEGG MASON WOOD WALKER INCORPORATED - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----