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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12579
OGE ENERGY CORP.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1481638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
321 North Harvey
P. O. Box 321
Oklahoma City, Oklahoma 73101-0321
(Address of principal executive offices)
(Zip Code)
405-553-3000
(Registrant's telephone number, including area code)
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
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There were 80,771,834 Shares of Common Stock, par value $0.01 per share,
outstanding as of July 31, 1998.
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OGE ENERGY CORP.
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30 JUNE 30
-------------------------------- ---------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric utility......................................... $ 336,017 $ 282,148 $ 572,662 $ 510,026
Non-utility.............................................. 113,084 51,080 182,323 114,417
-------------- -------------- -------------- --------------
Total operating revenues............................... 449,101 333,228 754,985 624,443
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Fuel..................................................... 78,555 60,348 138,169 116,962
Purchased power.......................................... 57,757 52,693 114,082 110,850
Gas and electricity purchased for resale................. 92,257 32,501 140,504 75,459
Other operation and maintenance.......................... 79,441 74,943 158,842 146,568
Depreciation and amortization............................ 36,157 34,900 73,208 70,220
Current income taxes..................................... 29,302 18,724 27,306 17,838
Deferred income taxes, net............................... 114 169 1,022 (50)
Deferred investment tax credits, net..................... (1,287) (1,288) (2,575) (2,575)
Taxes other than income.................................. 12,284 12,189 25,609 25,121
-------------- -------------- -------------- --------------
Total operating expenses............................... 384,580 285,179 676,167 560,393
-------------- -------------- -------------- --------------
OPERATING INCOME........................................... 64,521 48,049 78,818 64,050
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OTHER INCOME AND DEDUCTIONS:
Interest income.......................................... 1,497 824 2,981 1,371
Other.................................................... (2,118) (313) (2,299) (418)
-------------- -------------- -------------- --------------
Net other income (deductions).......................... (621) 511 682 953
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INTEREST CHARGES:
Interest on long-term debt............................... 13,535 15,558 27,325 30,977
Allowance for borrowed funds used during construction.... (278) (157) (459) (224)
Other.................................................... 2,778 2,074 5,109 3,425
-------------- -------------- -------------- --------------
Total interest charges, net............................ 16,035 17,475 31,975 34,178
-------------- -------------- -------------- --------------
NET INCOME................................................. 47,865 31,085 47,525 30,825
PREFERRED DIVIDEND REQUIREMENTS............................ - 572 733 1,143
-------------- -------------- -------------- --------------
EARNINGS AVAILABLE FOR COMMON.............................. $ 47,865 $ 30,513 $ 46,792 $ 29,682
============== ============== ============== ==============
AVERAGE COMMON SHARES OUTSTANDING.......................... 80,772 80,745 80,772 80,747
EARNINGS PER AVERAGE COMMON SHARE.......................... $ 0.59 $ 0.38 $ 0.58 $ 0.37
EARNINGS PER AVERAGE COMMON SHARE -
ASSUMING DILUTION........................................ $ 0.59 $ 0.38 $ 0.58 $ 0.37
============== ============== ============== ==============
DIVIDENDS DECLARED PER SHARE............................... $ 0.3325 $ 0.3325 $ 0.665 $ 0.665
<FN>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
</FN>
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CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30 DECEMBER 31
1998 1997
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(DOLLARS IN THOUSANDS)
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ASSETS
PROPERTY, PLANT AND EQUIPMENT:
In service.................................................... $ 4,158,409 $ 4,125,858
Construction work in progress................................. 51,663 25,799
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Total property, plant and equipment......................... 4,210,072 4,151,657
Less accumulated depreciation............................. 1,851,755 1,797,806
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Net property, plant and equipment............................. 2,358,317 2,353,851
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OTHER PROPERTY AND INVESTMENTS, at cost......................... 36,009 37,898
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CURRENT ASSETS:
Cash and cash equivalents..................................... 1,555 4,257
Accounts receivable - customers, less reserve of $5,606 and
$4,507 respectively......................................... 159,316 117,842
Accrued unbilled revenues..................................... 61,100 36,900
Accounts receivable - other................................... 18,631 11,470
Fuel inventories, at LIFO cost................................ 49,998 49,369
Materials and supplies, at average cost....................... 28,026 28,430
Prepayments and other......................................... 7,347 4,489
Accumulated deferred tax assets............................... 7,721 6,925
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Total current assets........................................ 333,694 259,682
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DEFERRED CHARGES:
Advance payments for gas...................................... 10,500 10,500
Income taxes recoverable through future rates................. 41,640 42,549
Other......................................................... 58,512 61,385
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Total deferred charges...................................... 110,652 114,434
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TOTAL ASSETS.................................................... $ 2,838,672 $ 2,765,865
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CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and retained earnings............................ $ 978,041 $ 984,960
Cumulative preferred stock.................................... - 49,266
Long-term debt................................................ 858,516 841,924
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Total capitalization........................................ 1,836,557 1,876,150
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CURRENT LIABILITIES:
Short-term debt............................................... 115,000 1,000
Accounts payable.............................................. 78,927 77,733
Dividends payable............................................. 26,857 27,428
Customers' deposits........................................... 23,808 23,847
Accrued taxes................................................. 39,310 21,677
Accrued interest.............................................. 17,809 20,041
Long-term debt due within one year............................ - 25,000
Other......................................................... 47,349 38,518
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Total current liabilities................................... 349,060 235,244
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DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued pension and benefit obligation........................ 63,089 62,023
Accumulated deferred income taxes............................. 504,225 503,952
Accumulated deferred investment tax credits................... 70,303 72,878
Other......................................................... 15,438 15,618
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Total deferred credits and other liabilities................ 653,055 654,471
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TOTAL CAPITALIZATION AND LIABILITIES............................ $ 2,838,672 $ 2,765,865
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<FN>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
</FN>
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CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED)
6 MONTHS ENDED
JUNE 30
1998 1997
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(DOLLARS IN THOUSANDS)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income......................................................... $ 47,525 $ 30,825
Adjustments to Reconcile Net Income to Net
Cash Provided From Operating Activities:
Depreciation and amortization.................................... 73,208 70,220
Deferred income taxes and investment tax credits, net............ (1,553) (2,625)
Change in Certain Current Assets and Liabilities:
Accounts receivable - customers................................ (41,474) 20,090
Accrued unbilled revenues...................................... (24,200) (20,700)
Fuel, materials and supplies inventories....................... (225) (520)
Accumulated deferred tax assets................................ (796) 4,117
Other current assets........................................... (7,151) 2,069
Accounts payable............................................... 1,194 (23,398)
Accrued taxes.................................................. 17,633 7,688
Accrued interest............................................... (2,232) (834)
Other current liabilities...................................... 8,221 4,199
Other operating activities....................................... 2,224 (2,174)
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Net cash provided from operating activities.................. 72,374 88,957
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................... (76,885) (84,240)
Other investment activities........................................ (1,650) -
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Net cash used in investing activities........................ (78,535) (84,240)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt....................................... (112,500) (15,000)
Proceeds from long-term debt....................................... 105,672 -
Short-term debt, net............................................... 114,000 72,200
Redemption of preferred stock...................................... (49,266) (110)
Cash dividends declared on preferred stock......................... (733) (1,143)
Cash dividends declared on common stock............................ (53,714) (53,696)
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Net cash provided from financing activities.................. 3,459 2,251
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................. (2,702) 6,968
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 4,257 2,523
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CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 1,555 $ 9,491
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest (net of amount capitalized)............................. $ 29,025 $ 32,885
Income taxes..................................................... $ 11,696 $ 11,887
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<FN>
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of these statements, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. These investments are carried at cost which approximates market.
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
</FN>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed consolidated financial statements included herein have been
prepared by OGE Energy Corp. (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are
adequate to make the information presented not misleading.
In the opinion of management, all adjustments necessary to present fairly
the financial position of the Company and its subsidiaries as of June 30,
1998, and December 31, 1997, and the results of operations and the changes
in cash flows for the periods ended June 30, 1998, and June 30, 1997, have
been included and are of a normal recurring nature (excluding amortization
of a regulatory asset relating to a Voluntary Early Retirement Package
("VERP") and severance package - See Item 2 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for related
discussion).
The results of operations for such interim periods are not necessarily
indicative of the results for the full year. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 1997.
2. In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
About Segments of an Enterprise and Related Information." Adoption of SFAS
No. 131 is required for fiscal years beginning after December 15, 1997. The
Company will adopt this new standard effective December 31, 1998. Adoption
of this new standard will change the presentation of certain financial
information of the Company, but will not affect reported earnings.
3. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." Adoption of SFAS No. 132
is required for financial statements for periods beginning after December
15, 1997. The Company will adopt this new standard effective December 31,
1998. Adoption of this new standard will change the presentation of certain
disclosure information of the Company, but will not affect reported
earnings.
4. In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Cost
of Start-Up Activities". Adoption of SOP 98-5 is required in fiscal years
beginning after December 15, 1998. The Company will adopt this new standard
effective March 31, 1999, and management believes the adoption of this new
standard will not have a material impact on its consolidated financial
position or results of operation.
4
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5. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and for Hedging Activities". Adoption of SFAS No. 133 is
required for financial statements for periods beginning after June 15,
1999. The Company will adopt this new standard effective January 1, 2000,
and management believes the adoption of this new standard will not have a
material impact on its consolidated financial position or results of
operations.
6. In January 1998, the Company awarded approximately 221,900 stock options,
with an exercise price of $51.875, to certain employees, subject to
shareowners' approval of the Company Stock Incentive Plan. The Stock
Incentive Plan was subsequently approved at the 1998 Annual Meeting of
Shareowners - See Item 4 "Submission of Matters to a Vote of Security
Holders". Consequently, and taking into account the two-for-one stock split
authorized by the Board of Directors on May 21, 1998, the number of stock
options outstanding at June 30, 1998, was approximately 443,800, with an
exercise price of $25.9375. These options were considered in the
calculation of Earnings Per Average Common Share - Assuming Dilution. All
references in the accompanying financial statements to the number of common
shares and per share amounts for the three month and six month ended June
30 periods have been restated to reflect the stock split.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis presents factors which affected the
results of operations for the three and six months ended June 30, 1998
(respectively, the "current periods"), and the financial position as of June 30,
1998, of the Company and its subsidiaries: Oklahoma Gas and Electric Company
("OG&E"), Enogex Inc. and its subsidiaries ("Enogex") and Origen and its
subsidiaries ("Origen"). For current periods, approximately 75 percent and 76
percent of the Company's revenues consisted of regulated sales of electricity by
OG&E, a public utility, while the remaining 25 percent and 24 percent were
provided by the non-utility operations of Enogex. Origen recently was formed and
its operations to date have been deminimis. Revenues from sales of electricity
are somewhat seasonal, with a large portion of OG&E's annual electric revenues
occurring during the summer months when the electricity needs of its customers
increase. Enogex's primary operations consist of transporting natural gas
through its intra-state pipeline to various customers (including OG&E),
marketing electricity, natural gas and natural gas products and investing in the
drilling for and production of crude oil and natural gas. Actions of the
regulatory commissions that set OG&E's electric rates will continue to affect
the Company's financial results. Unless indicated otherwise, all comparisons are
with the corresponding periods of the prior year.
5
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Some of the matters discussed in this Form 10-Q may contain forward-looking
statements that are subject to certain risks, uncertainties and assumptions.
Actual results may vary materially. Factors that could cause actual results to
differ materially include, but are not limited to: general economic conditions,
including their impact on capital expenditures; business conditions in the
energy industry; competitive factors; unusual weather; failure of companies that
the Company does business with to be Year 2000 compliant; regulatory decisions
and other risk factors listed in the Company's Form 10-K for the year ended
December 31, 1997 including Exhibit 99.01 thereto and other factors described
from time to time in the Company's reports to the Securities and Exchange
Commission.
In 1994, OG&E restructured and redesigned its operations to reduce costs
and to more favorably position itself for the competitive electric utility
environment. As part of this process, OG&E implemented the VERP and a severance
package in 1994. These two packages reduced OG&E's workforce by approximately
900 employees.
In response to an application filed by OG&E, the Oklahoma Corporation
Commission ("OCC") issued an order on October 26, 1994, that permitted OG&E to:
(i) establish a regulatory asset in connection with the costs associated with
the workforce reduction; (ii) amortize the December 31, 1994, balance of the
regulatory asset over 26 months; and (iii) reduce OG&E's electric rates by
approximately $15 million annually, effective January 1995. In 1996, the labor
savings substantially offset the amortization of the regulatory asset and the
annual rate reduction of $15 million. The regulatory asset was fully amortized
at February 28, 1997 and again the labor savings substantially offset the
regulatory asset amortization in 1997 and therefore, did not significantly
impact operating results.
EARNINGS
Net income increased $16.8 million or 54.0 percent in the three months
ended June 30, 1998. For the six months ended June 30, 1998, net income
increased $16.7 million or 54.2 percent. Of the $16.7 million increase,
approximately $18.6 million was attributable to OG&E and a decrease of
approximately $2.4 million was attributable to Enogex. As explained below,
OG&E's increase in earnings was primarily attributable to higher revenues from
warmer weather and higher margins on off-systems sales. The decrease in Enogex's
earnings reflects depressed natural gas commodity prices, resulting in reduced
margins. As a result, the Company does not expect Enogex to meet its goal of 10
percent annual earnings growth in 1998 nor meet last year's net income of $16.2
million, but remains confident that a rebound in commodity prices would
substantially improve the outlook for Enogex. Earnings per average common share
increased from $0.38 to $0.59 and from $0.37 to $0.58 in the current periods.
REVENUES
Total operating revenues increased $115.9 million or 34.8 percent and
$130.5 million or 20.9 percent in the current periods. These increases were
attributable to increased electric sales by OG&E and significantly increased
Enogex revenues.
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Increased electric sales by OG&E were primarily attributable to
significantly warmer weather, continued electric customer growth and the impact
of the Generation Efficiency Performance Rider ("GEP Rider") that was authorized
by the OCC in OG&E's most recent rate order. The significantly warmer weather
resulted in increased electric utility revenue of approximately $22.8 million
and $23.4 million. The GEP Rider increased electric utility revenue by
approximately $4.2 million and $9.9 million. Together, these increases offset
the effects of the annual rate reduction that became effective March 5, 1997.
Favorable weather conditions in the electric service area and customer
growth resulted in a 12.7 percent and 8.1 percent increase in kilowatt-hour
sales to OG&E customers ("system sales"). Kilowatt-hour sales by OG&E to other
utilities increased 9.1 percent and decreased 1.3 percent; however, the early
summer heat drove prices of this off-system electricity to record levels,
increasing operating revenues approximately $8.5 million in the current periods
and at margins significantly higher than had been experienced in the past. There
can be no assurance that such margins on future off-system sales will continue.
Enogex revenues increased $62.1 million or 101.2 percent and $67.3 million
or 49.7 percent in the current periods, largely due to increased revenues from
its marketing of natural gas and natural gas products (increases of $48.4
million and a $53.2 million in the current periods). These increased gas-related
revenues were attributable primarily to significantly higher volumes sold with
little or no increase in sales prices as such commodity prices were depressed.
The recent expansion into the marketing of electricity also increased revenues
$13.2 million and $14.0 million in the current periods.
EXPENSES
Total operating expenses increased $99.4 million or 34.9 percent in the
three months ended June 30, 1998. This increase was primarily due to increased
gas and electricity purchased for resale, fuel expense and current income taxes.
Enogex's gas and electricity purchased for resale pursuant to its gas and
electric marketing operations increased $59.8 million or 183.9 percent in the
three months ended June 30, 1998, due to significantly higher sales volumes
resulting from Enogex's expansion into electricity marketing, expansion of
natural gas marketing and recent expansion and acquisition of natural gas and
natural gas liquids facilities. OG&E's fuel expense increased $18.2 million or
30.2 percent primarily due to increased generation as a result of significantly
warmer weather.
In the six months ended June 30, 1998, total operating expenses were up
$115.8 million or 20.7 percent primarily due to increased gas and electricity
purchased for resale ($65.0 million or 86.2 percent), fuel expense ($21.2
million or 18.1 percent), purchased power ($3.2 million or 2.9 percent),
operation and maintenance ($12.3 million or 8.4 percent) and current income
taxes ($9.5 million or 53.1 percent).
Variances in the actual cost of fuel used in electric generation and
certain purchased power costs, as compared to that component in cost-of-service
for ratemaking, are passed through to OG&E's electric customers through
automatic fuel adjustment clauses. The automatic
7
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fuel adjustment clauses are subject to periodic review by the OCC, the Arkansas
Public Service Commission ("APSC") and the Federal Energy Regulatory Commission
("FERC"). Enogex Inc. owns and operates a pipeline business that delivers
natural gas to the generating stations of OG&E. The OCC, the APSC and the FERC
have authority to examine the appropriateness of any gas transportation charges
or other fees OG&E pays Enogex, which OG&E seeks to recover through the fuel
adjustment clause or other tariffs.
OG&E's purchased power costs increased $5.1 million or 9.6 percent and $3.2
million or 2.9 percent primarily due to the start of a power purchase contract
with a cogeneration plant near Pryor, Oklahoma, from which OG&E is obligated to
purchase 110 megawatts of peaking capacity, beginning in January 1998. See
"Liquidity and Capital Requirements."
Other operation and maintenance increased $4.5 million or 6.0 percent and
$12.3 million or 8.4 percent in the current periods. These increases were
primarily due to increased costs associated with scheduled overhauls at three
OG&E power generating stations and costs at Enogex associated with increased
sales volumes and costs resulting from its expansion activities.
Depreciation and amortization increased $1.3 million or 3.6 percent and
$3.0 million or 4.3 percent during the current periods due to an increase in
depreciable property and higher oil and gas production volumes (based on units
of production depreciation method).
Current income taxes increased $10.6 million or 56.5 percent and $9.5
million or 53.1 percent in the current periods due to higher pre-tax earnings.
Interest income increased $0.7 million and $1.6 million primarily due to a
$50 million loan to the NOARK Pipeline System, L.P. ("NOARK") from Enogex in
January 1998 as part of Enogex's entry into the NOARK partnership. This loan was
repaid in June 1998. See "Liquidity and Capital Requirements."
Interest charges decreased $1.4 million or 8.2 percent and $2.2 million or
6.4 percent primarily due to the redemption on August 21, 1997 of OG&E's $250
million of long-term debt, refinanced at lower interest cost, OG&E refinancing
$56 million of 7 percent Pollution Control Revenue Bonds in July 1997 and OG&E
retiring $25 million of 6.375 percent First-Mortgage Bonds in January 1998.
These interest savings were partially offset by costs associated with increased
short-term debt.
LIQUIDITY AND CAPITAL REQUIREMENTS
The Company meets its cash needs through internally generated funds,
permanent financing and short-term borrowings. Internally generated funds and
short-term borrowings are expected to meet virtually all of the Company's
capital requirements through the remainder of 1998. Short-term borrowings will
continue to be used to meet temporary cash requirements.
8
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The Company's primary needs for capital are related to construction of new
facilities to meet anticipated demand for OG&E's utility service, to replace or
expand existing facilities in OG&E's electric utility business and to acquire
new facilities or replace or expand existing facilities at Enogex and other
non-utility businesses, and to some extent, for satisfying maturing debt and
sinking fund obligations. Capital expenditures of $76.9 million for the six
months ended June 30, 1998 were financed with internally generated funds and
short-term borrowings.
The Company's capital structure and cash flow remained strong throughout
the current period. The Company's combined cash and cash equivalents decreased
approximately $2.7 million during the six months ended June 30, 1998. The
decrease reflects the Company's cash flow from operations plus an increase in
short-term borrowings, net of retirement of long-term debt, construction
expenditures, Enogex acquisition, redemption of preferred stock and dividend
payments.
In January 1998, Enogex, through a newly-formed subsidiary, Enogex Arkansas
Pipeline Corp. ("EAPC") acquired a 40 percent interest in NOARK, a natural gas
pipeline, for approximately $30 million and agreed to acquire Ozark Pipeline
("Ozark"), for approximately $55 million. The NOARK line is a 302-mile
intra-state pipeline system that extends from near Fort Chaffee, Arkansas to
near Paragould, Arkansas. Current throughput capacity on the NOARK line is
approximately 130 million cubic feet per day. The Ozark line is a 437-mile
interstate pipeline system that begins near McAlester, Oklahoma and terminates
near Searcy, Arkansas. Current throughput capacity on the Ozark line is
approximately 170 million cubic feet per day.
In July 1998, EAPC acquired Ozark and contributed Ozark to the NOARK
partnership. The two pipelines will be integrated into a single, interstate
transmission system at an estimated additional cost of $15 million. After the
integration, which is to be funded by EAPC, EAPC will own a 75 percent interest
in the NOARK partnership and Southwestern Energy Pipeline Co. will retain its 25
percent interest in the partnership.
In June 1998, NOARK Pipeline Finance, L.L.C., a finance company subsidiary
of NOARK, issued $80.0 million aggregate principal amount of unsecured 7.15
percent Notes due 2018. These Notes are entitled to the benefits of a guaranty
issued by Enogex pursuant to which Enogex has guaranteed 40 percent (subject to
certain adjustments) of the principal, interest and premium on such Notes. The
remaining 60 percent of the principal, interest and premium on such Notes are
guaranteed by Southwestern Energy Company, the parent company of Southwestern
Energy Pipeline Company. The proceeds from the sale of the Notes were loaned by
NOARK Pipeline Finance, L.L.C. to NOARK and utilized by NOARK (i) to repay a
bank revolving line of credit (approximately $29.75 million), (ii) to repay an
outstanding term loan from Enogex (approximately $48.825 million) and (iii) for
general corporate purposes.
In July 1998, Enogex agreed to lease underground gas storage from Central
Oklahoma Oil and Gas Corp. ("COOG"). COOG currently leases gas storage capacity
to OG&E. As part of this lease transaction, the Company made a $12 million
secured loan to an affiliate of COOG. The loan is repayable in 2003 and is
secured by the assets and stock of COOG.
9
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In January 1998, OG&E filed an application with the OCC seeking approval to
revise an existing cogeneration contract with Mid-Continent Power Company
("MCPC"), a cogeneration plant near Pryor, Oklahoma. Under the Public Utility
Regulatory Policies Act of 1978 ("PURPA"), OG&E was obligated to enter into the
original contract, which was approved by the OCC in 1987, and which required
OG&E to purchase 110 megawatts of peaking capacity from the plant for 10 years
beginning in 1998 - whether the capacity was needed or not. As part of this
transaction, the Company agreed to purchase the stock of Oklahoma Loan
Acquisition Corporation ("OLAC"), the company that owns the MCPC plant, for
approximately $25 million. OG&E has obtained the required regulatory approvals
from the OCC, APSC and FERC. Assuming the transaction is completed, the term of
the existing cogeneration contract will be reduced by four and one-half years,
which should reduce the amounts to be paid by OG&E, and should provide savings
for its Oklahoma customers, of approximately $46 million as compared to the
existing cogeneration contract. Funding for the $25 million purchase price is
expected to be provided by internally generated funds and short-term borrowings.
The Company has been notified by the company that currently owns the stock of
OLAC (the "Seller") that it is in arbitration with a third party over its
ability to sell the stock of OLAC to the Company. The Company has been further
notified that the arbitrator has ruled that the stock of OLAC may not be sold to
the Company until it has first been offered to the third party on the same terms
as it was offered to the Company. If the Seller does not sell the stock of OLAC
to the Company, the Company intends to pursue its available legal remedies.
Like any business, the Company is subject to numerous contingencies, many
of which are beyond its control. For discussion of significant contingencies
that could affect the Company, reference is made to Part II, Item 1 - "Legal
Proceedings" of this Form 10-Q, to Part II, Item 1 - "Legal Proceedings" in the
Company's Form 10-Q for the quarter ended March 31, 1998 and to "Management's
Discussion and Analysis" and Notes 9 and 10 of Notes to the Consolidated
Financial Statements in the Company's 1997 Form 10-K.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Reference is made to Item 3 of the Company's 1997 Form 10-K for a
description of certain legal proceedings presently pending. Except as described
below, there are no new significant cases to report against the Company or its
subsidiaries and there have been no significant changes in the previously
reported proceedings.
As reported in the Company's Form 10-Q, for the quarter ended March 31,
1998, in the State of Oklahoma, ex rel., Teresa Harvey (Carroll); Margaret B.
Fent and Jerry R. Fent v. Oklahoma Gas and Electric Company, et al., District
Court, Oklahoma County, Case No. CJ-97-1242-63, on February 24, 1997, the
taxpayers instituted litigation against OG&E and Co-Defendants Oklahoma
Corporation Commission, Oklahoma Tax Commission and individual commissioners
seeking judgment in the amount of $970,184.14 and treble penalties of
$2,910,552.42, plus interest and costs, for overcharges refunded by OG&E to its
ratepayers in compliance with an Order of the OCC which Plaintiffs allege was
illegal. Plaintiffs allege the refunds should have been paid into the state
Unclaimed Property Fund. In June 1997, OG&E's Motion for Summary Judgment was
granted. Plaintiffs appealed. On April 10, 1998, the Court of Civil Appeals
affirmed the order of the trial court granting OG&E Summary Judgment. On April
29, 1998, Plaintiffs petitioned the Court of Civil Appeals for rehearing.
Plaintiffs' Petition for Rehearing was overruled. Plaintiffs timely filed a
Petition for Certiorari with the Oklahoma Supreme Court. Plaintiffs' Petition
for Certiorari with the Oklahoma Supreme Court is presently pending. Management
believes that the lawsuit is without merit and will not have a material adverse
effect on the Company's financial position or its results of operations.
As reported under Item 1 of the Company's 1997 Form 10-K, the Staff of the
APSC commenced a proceeding in February 1998 seeking a $3.1 million annual
reduction of OG&E's electric rates in Arkansas. OG&E has made various filings in
this proceeding asserting that no reduction in its rates is appropriate. OG&E
cannot predict at the present time when this matter will be concluded or its
ultimate outcome.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Shareowners was held on May
21, 1998.
(b) Not applicable.
(c) The matters voted upon and the results of the voting at the
Annual Meeting were as follows:
(1) The Shareowners voted to elect the Company's nominees
for election to the Board of Directors as follows:
11
<PAGE>
Luke R. Corbett - 34,598,715 votes for election and
774,210 votes withheld
Robert Kelley - 34,628,186 votes for election and
744,739 votes withheld
Bill Swisher - 34,558,746 votes for election and
814,179 votes withheld
(2) The Shareowners voted for approval of the OGE Energy
Corp. Stock Incentive Plan with 30,775,438 votes for
approval, 3,460,355 votes against, 1,137,128 votes
abstaining and 4 broker non-votes.
(3) The Shareowners voted for approval of the OGE Energy
Corp. Annual Incentive Compensation Plan with
31,198,811 votes for approval, 2,921,624 votes
against, 1,252,478 votes abstaining
and 12 broker non-votes.
ITEM 5 OTHER INFORMATION
Reference is made to Item 1 of the Company's 1997 Form 10-K for a
discussion of the Electric Restructuring Act of 1997 (the "Act"), which, if
implemented as proposed, would allow electric retail customers in Oklahoma to
choose their electric supplier by July 2002. In June 1998, various amendments to
the Act were enacted, which amendments, among other things; (i) direct that the
Joint Electric Utility Task Force (i.e., a committee composed of members of the
Oklahoma Senate and Oklahoma House of Representatives), rather than the OCC or
Oklahoma Tax Commission, conduct the various studies required by the Act; (ii)
establish October 1, 1999 as the completion date for such studies; (iii) require
a uniform tax policy be established by July 1, 2002 (the original language of
the Act precluded retail consumer choice until a uniform tax policy was
established); and (iv) add a new provision to the Act that requires out-of-state
suppliers of electricity and their affiliates who make retail sales of
electricity in Oklahoma through the use of transmission and distribution
facilities of in-state suppliers to provide equal access to their transmission
and distribution facilities outside of Oklahoma.
Reference is made to Item 1 of the Company's 1997 Form 10-K for a
discussion of various proceedings established by the APSC to consider the
implementation of a competitive retail electric market in Arkansas. Those
proceedings have commenced and OG&E is actively participating in the process. It
appears that, following the completion of these proceedings, the APSC will
submit a report on retail choice to the Arkansas Legislature by the end of 1998.
12
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.01 - Financial Data Schedule.
(b) Reports on Form 8-K
(1) A Form 8-K Current Report under Item 5, Other Events,
dated May 21, 1998, announcing two-for-one stock
split effective June 15, 1998, to shareowners of
record on June 1, 1998.
(2) A Form 8-K Current Report under Item 5, Other Events,
dated June 12, 1998, announcing the number of shares
of common stock registered by Post-Effective
Amendment No. 1-B to Registration Statement 33-61699
has been increased from 3,000,000 shares to 5,448,941
shares, in conjunction with the previously announced
two-for-one stock split.
13
<PAGE>
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.
OGE ENERGY CORP.
(Registrant)
By /s/ Donald R. Rowlett
-------------------------------------
Donald R. Rowlett
Controller Corporate Accounting
(On behalf of the registrant and in
his capacity as Chief Accounting Officer)
August 13, 1998
14
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT INDEX DESCRIPTION
- ------------- -----------
<S> <C>
27.01 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the OGE
Energy Corp. Consolidated Statements of Income, Balance Sheets, and Statements
of Cash Flows as reported on Form 10-Q as of June 30, 1998 and is qualified in
its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,358,317
<OTHER-PROPERTY-AND-INVEST> 36,009
<TOTAL-CURRENT-ASSETS> 333,694
<TOTAL-DEFERRED-CHARGES> 110,652
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,838,672
<COMMON> 808
<CAPITAL-SURPLUS-PAID-IN> 512,091
<RETAINED-EARNINGS> 465,142
<TOTAL-COMMON-STOCKHOLDERS-EQ> 978,041
0
0
<LONG-TERM-DEBT-NET> 858,516
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 115,000
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 3,475
<LEASES-CURRENT> 2,580
<OTHER-ITEMS-CAPITAL-AND-LIAB> 881,060
<TOT-CAPITALIZATION-AND-LIAB> 2,838,672
<GROSS-OPERATING-REVENUE> 754,985
<INCOME-TAX-EXPENSE> 25,753
<OTHER-OPERATING-EXPENSES> 650,414
<TOTAL-OPERATING-EXPENSES> 676,167
<OPERATING-INCOME-LOSS> 78,818
<OTHER-INCOME-NET> 682
<INCOME-BEFORE-INTEREST-EXPEN> 79,500
<TOTAL-INTEREST-EXPENSE> 31,975
<NET-INCOME> 47,525
733
<EARNINGS-AVAILABLE-FOR-COMM> 46,792
<COMMON-STOCK-DIVIDENDS> 53,714
<TOTAL-INTEREST-ON-BONDS> 27,325
<CASH-FLOW-OPERATIONS> 72,374
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
</TABLE>
