<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Com-
mission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
OKLAHOMA GAS AND ELECTRIC COMPANY
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Oklahoma Gas and Electric Company
Proxy Statement
and
Notice of Annual Meeting
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May 18, 1995
[LOGO]
<PAGE> 3
CONTENTS
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NOTICE OF ANNUAL MEETING
PAGE OF SHAREOWNERS
AND PROXY STATEMENT
CHAIRMAN'S LETTER 1
NOTICE OF ANNUAL MEETING 2
PROXY STATEMENT 3 THURSDAY, MAY 18, 1995, AT 10:00 A.M.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS 4
INFORMATION ABOUT DIRECTORS
AND NOMINEES 4 NATIONAL COWBOY HALL OF FAME
INFORMATION CONCERNING THE 1700 N.E. 63RD STREET
BOARD OF DIRECTORS 7 OKLAHOMA CITY, OKLAHOMA
EXECUTIVE OFFICERS' REMUNERATION 8
REPORT OF COMPENSATION
COMMITTEE ON EXECUTIVE
COMPENSATION 8
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER
PARTICIPATION 10
SUMMARY COMPENSATION
TABLE 11
PENSION PLAN TABLE 12
COMPANY STOCK PERFORMANCE 13
SECURITY OWNERSHIP 13
PROPOSAL NO. 2 - AMENDMENTS TO
COMPANY'S RESTATED CERTIFICATE
OF INCORPORATION REMOVING
LIMITS ON UNSECURED
INDEBTEDNESS 14
RELATIONSHIP WITH INDEPENDENT
PUBLIC ACCOUNTANTS 15
SHAREOWNER PROPOSALS 15
MAP 15
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(LOGO)
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Oklahoma Gas and Electric Company
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March 29, 1995
DEAR SHAREOWNER:
You are cordially invited to attend the annual meeting of Oklahoma Gas and
Electric Company at 10:00 a.m. on Thursday, May 18, 1995, at the National Cowboy
Hall of Fame, 1700 N.E. 63rd Street, Oklahoma City, Oklahoma.
In addition to the election of three directors, all shareowners will be
asked to consider and vote on proposed amendments to the Company's Restated
Certificate of Incorporation. The proposed amendments would give the Board of
Directors more flexibility in issuing unsecured indebtedness. For the reasons
stated in the accompanying Proxy Statement, the Board of Directors believes that
the proposed amendments are in the best interests of the Company and its
shareowners and recommends a vote "FOR" the proposed amendments.
Even though you may own only a few shares, your proxy is important in
making up the total number of shares necessary to hold the meeting. Whether or
not you plan to attend the meeting, please fill out, sign and return your proxy
card in the envelope provided as soon as possible. Your cooperation will be
appreciated.
Those arriving before the meeting will have the opportunity to visit
informally with the management of your Company. In addition to the business
portion of the meeting, there will be reports on the Company's current
operations and outlook.
Your continued interest in the Company is most encouraging and, on behalf
of the Board of Directors and employees of the Company, I want to express our
gratitude for your confidence and support.
Very truly yours,
/s/ JAMES G. HARLOW, JR.
JAMES G. HARLOW, JR.
Chairman of the Board
and President
1
<PAGE> 5
Notice of Annual Meeting
of Shareowners
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The Annual Meeting of Shareowners of Oklahoma Gas and Electric Company will
be held on Thursday, May 18, 1995, at 10:00 a.m. at the National Cowboy Hall of
Fame, 1700 N.E. 63rd Street, Oklahoma City, Oklahoma, for the following
purposes:
(1) To elect three directors to serve for a three-year term;
(2) To consider amendments to the Company's Restated Certificate of
Incorporation that would remove limitations on the Company's issuance
of unsecured indebtedness; and
(3) To transact such other business as may properly come before the
meeting.
The map on page 15 will assist you in locating the National Cowboy Hall of Fame.
The Board of Directors has fixed the close of business on March 20, 1995,
as the record date for the determination of shareowners entitled to notice of
and to vote at this meeting or any adjournment of the meeting. A list of such
shareowners will be available, as required by law, at the principal offices of
the Company at 101 N. Robinson, Oklahoma City, Oklahoma 73102-3405.
/s/ IRMA B. ELLIOTT
Irma B. Elliott
Secretary
Dated: March 29, 1995
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IMPORTANT -- YOUR PROXY CARD IS ENCLOSED IN THIS ENVELOPE
Shareowners are requested to fill in, sign, date and return the proxy
promptly in the enclosed envelope. No postage is required for mailing in the
United States. Your cooperation will be greatly appreciated.
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<PAGE> 6
Proxy Statement
March 29, 1995
The Annual Meeting of Shareowners of Oklahoma Gas and Electric Company will
be held at the National Cowboy Hall of Fame, 1700 N.E. 63rd Street, Oklahoma
City, Oklahoma, on May 18, 1995, at 10:00 a.m. For the convenience of those
shareowners who may attend the meeting, a map is printed on page 15 that gives
directions to the National Cowboy Hall of Fame. At the meeting, it is intended
that the first two items in the accompanying notice be presented. The Board of
Directors does not now know of any other matters to be presented at the meeting,
but, if any other matters are properly presented to the meeting for action, the
persons named in the accompanying proxy will vote upon them in accordance with
their best judgment.
The Board of Directors solicits your proxy for use at this meeting. You may
revoke your proxy at any time before it is exercised by giving written notice of
its revocation to the Secretary of the Company or filing with her another proxy
as provided by law. All proxies properly executed by shareowners and received by
the Company prior to the meeting will be voted and will be voted in accordance
with the directions made on the proxy and, if no directions are made, the proxy
will be voted in favor of election of the Board's nominees for directors and the
proposal to amend the Company's Restated Certificate of Incorporation.
The cost of soliciting proxies will be borne by the Company. In addition to
the use of the mails, proxies may be solicited personally or by telephone or
telegram by officers and regular employees of the Company. Morrow & Co. Inc.,
New York, New York, will assist in solicitation of proxies and the Company will
pay Morrow & Co. Inc. for its proxy solicitation services approximately $12,500
plus expenses. The Company does not expect to pay any additional compensation
for the solicitation of proxies; however, brokers and other custodians,
nominees, or fiduciaries may be reimbursed for their expenses in forwarding
proxy material to principals and obtaining their proxies.
On March 1, 1995, the Company had outstanding approximately 40,354,387
shares of Common Stock, par value $2.50 per share; 423,663 shares of 4%
Cumulative Preferred Stock, par value $20 per share; and the following shares of
Cumulative Preferred Stock, par value $100 per share: 50,000 shares of the 4.20%
series, 75,000 shares of the 4.24% series, 65,000 shares of the 4.44% series,
75,000 shares of the 4.80% series and 150,000 shares of the 5.34% series.
The owners of the 4% Cumulative Preferred Stock and Common Stock are
entitled to one vote on each matter presented for a vote at the meeting for each
$2.50 of par value (eight votes per share as to the 4% Cumulative Preferred
Stock, $20 par value, and one vote per share as to the Common Stock, $2.50 par
value) of stock held by such owners of record at the close of business on March
20, 1995. Owners of record on March 20, 1995, of the Company's Cumulative
Preferred Stock, par value $100 per share, are entitled to one vote per share on
the proposal to amend the Company's Restated Certificate of Incorporation, but
are not entitled to vote on any other matter intended to be presented at the
meeting.
The Company's 1994 Annual Report to its shareowners, including financial
statements for the year 1994, was sent on or about March 29, 1995, to all
shareowners of the Company of record on March 20, 1995. The following portions
of the Company's 1994 Annual Report are incorporated herein and made a part of
this Proxy Statement: (1) the information on page 17 under the caption
"Management's Discussion and Analysis," (2) the consolidated financial
statements and Report of Independent Public Accountants relating thereto, (3)
the information on page 41 under the caption "Interim Consolidated Financial
Information (Unaudited)," and (4) the information on page 42 under the caption
"Historical Data."
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PROPOSAL NO. 1 - ELECTION OF DIRECTORS
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The Board of Directors consists of nine members with terms expiring on
different Annual Meeting dates. Approximately one-third of the members of the
Board of Directors are nominated each year to serve as directors for a term of
three years. Directors are elected at the Annual Meeting for the terms specified
and continue in office until their successors are elected and qualified.
At the Annual Meeting to be held on May 18, 1995, three persons are to be
elected to the Board of Directors for a term expiring at the Annual Meeting in
1998. The following three persons are the nominees of the Board to be elected
for such three-year term: Messrs. James G. Harlow, Jr., Bill Swisher, and John
A. Taylor. Each of these individuals is currently a director of the Company
whose term as a director is scheduled to expire at the Annual Meeting. Each
director serves according to the Company's retirement policy for directors.
Accordingly, under the Company's current policy, it is expected that Mr. Taylor
will retire from the Board on or about his 70th birthday in April of 1996, at
which time the Board may elect a new director to serve the balance of Mr.
Taylor's term.
The enclosed proxy, unless otherwise specified, will be voted in favor of
the election as directors of the previously listed three nominees. The Board of
Directors does not know of any nominee who will be unable to serve, but if any
of them should be unable to serve, the proxy holder may vote for a substitute
nominee. No nominee or director owns more than 0.12% of any class of voting
securities of the Company.
For the nominees described herein to be elected as directors, they must
receive a plurality of the votes of shares of Common Stock and 4% Preferred
present in person or by proxy and entitled to vote. "Plurality" means that the
individuals who receive the largest number of votes are elected as directors up
to the maximum number of directors to be chosen at the meeting. Consequently,
any shares not voted (whether by withholding authority, broker non-vote, or
otherwise) have no impact on the election of directors, except to the extent the
failure to vote for an individual results in the individual receiving fewer
votes than another individual.
INFORMATION ABOUT DIRECTORS AND NOMINEES
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The following contains certain information as of March 1, 1995, concerning
the three nominees for directors, as well as the directors whose terms of office
do not expire at the Annual Meeting on May 18, 1995.
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NOMINEES FOR ELECTION FOR TERM EXPIRING AT 1998 ANNUAL
MEETING OF SHAREOWNERS
<TABLE>
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JAMES G. HARLOW, JR., 60, is Chairman of the Board, President and Chief [PHOTO]
Executive Officer of the Company, named to the position of President in
1973, named Chief Executive Officer in 1976, and named Chairman in 1982. He
serves as a member of the Board of Directors of Fleming Companies, Inc.,
Massachusetts Mutual Life Insurance Company and Associated Electric & Gas
Insurance Services Limited. Mr. Harlow has been a director of Oklahoma Gas and
Electric Company since 1970. He beneficially owns, directly or indirectly,
44,591 shares of Common Stock of the Company.
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BILL SWISHER, 64, is Chairman of the Board and Chief Executive Officer of [PHOTO]
CMI Corporation, a manufacturer of road construction equipment that is
located in Oklahoma City, Oklahoma. Mr. Swisher has been a director of
Oklahoma Gas and Electric Company since 1979, and is chairman of the
compensation committee and a member of the audit committee of the Board. He
beneficially owns, directly or indirectly, 4,739 shares of Common Stock of the
Company. This does not include Mr. Swisher's economic interest in 3,974 common
stock units under the Directors' Deferred Compensation Plan. See "INFORMATION
CONCERNING THE BOARD OF DIRECTORS."
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</TABLE>
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<TABLE>
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JOHN A. TAYLOR, 69, is President and majority stockholder of Hiawatha [PHOTO]
Exploration Company, which is an oil and gas producing company engaged in
various oil and gas exploration ventures. He is also President of ComQuest
Exploration Company, a high-technology oil and gas exploration organization.
Both companies are headquartered in Oklahoma City, Oklahoma. Mr. Taylor also
has served as an outside director of GTS Corp., Houston, since 1989. At the
request of the Board of Directors of GTS Corp., due to the continuing
financial problems of GTS Corp., Mr. Taylor served as President of GTS Corp.
from March 1992 to June 1993, for which he received no compensation other than
the reimbursement of his expenses. In May 1992, GTS Corp. filed a voluntary
petition in bankruptcy. Mr. Taylor has been a director of Oklahoma Gas and
Electric Company since 1977, and is chairman of the nominating committee and a
member of the audit committee of the Board. He beneficially owns, directly or
indirectly, 2,512 shares of Common Stock of the Company. This does not include
Mr. Taylor's economic interest in 108 common stock units under the Directors'
Deferred Compensation Plan. See "INFORMATION CONCERNING THE BOARD OF
DIRECTORS."
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DIRECTORS WHOSE TERMS EXPIRE AT 1997 ANNUAL MEETING OF SHAREOWNERS
WILLIAM E. DURRETT, 64, is Chairman of the Board, President and Chief [PHOTO]
Executive Officer of American Fidelity Corporation, an insurance holding
company, and numerous other subsidiaries of American Fidelity Corporation. He
serves as Chairman of the Board and director of American Fidelity Assurance
Company, an insurance company wholly-owned by American Fidelity Corporation.
He also serves as a director of BOK Financial Corporation and Oklahoma
Healthcare Corporation. Mr. Durrett has been a director of Oklahoma Gas and
Electric Company since March 1991, and is a member of the audit and
compensation committees of the Board. He beneficially owns, directly or
indirectly, 1,090 shares of Common Stock of the Company. This does not include
Mr. Durrett's economic interest in 108 common stock units under the Directors'
Deferred Compensation Plan. See "INFORMATION CONCERNING THE BOARD OF
DIRECTORS." This also does not include 2,600 shares of Common Stock of the
Company held by a subsidiary of American Fidelity Corporation, for which Mr.
Durrett disclaims beneficial ownership. See "COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION" for a description of transactions in 1994 between
the Company and American Fidelity Assurance Company.
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H. L. HEMBREE, III, 63, is Chairman of the Executive Committee of [PHOTO]
Merchants National Bank, Fort Smith, Arkansas. Prior to 1989, he was
Chairman and Chief Executive Officer of Arkansas Best Corporation, a
diversified holding company located in Fort Smith, Arkansas. He has been a
director of Oklahoma Gas and Electric Company since 1985, and is a member of
the compensation committee of the Board. He beneficially owns, directly or
indirectly, 9,242 shares of Common Stock of the Company. This does not include
Mr. Hembree's economic interest in 3,703 common stock units under the
Directors' Deferred Compensation Plan. See "INFORMATION CONCERNING THE BOARD
OF DIRECTORS."
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JOHN F. SNODGRASS, 69, is President Emeritus and Trustee of The Samuel [PHOTO]
Roberts Noble Foundation, Inc. (a not-for-profit charitable organization) in
Ardmore, Oklahoma. He serves as a director of Noble Affiliates Inc., Noble
Drilling Corporation, Investors Trust Company and Exchange National Bank and
Trust Company, Ardmore, Oklahoma and Centaur Pharmaceuticals, Inc., Sunnyvale,
California. Mr. Snodgrass has been a director of Oklahoma Gas and Electric
Company since 1985, and is a member of the compensation and the nominating
committees of the Board. He beneficially owns, directly or indirectly, 3,847
shares of Common Stock, 34 shares of 4% Cumulative Preferred Stock and 25
shares of 4.24% Cumulative Preferred Stock of the Company. This does not
include Mr. Snodgrass' economic interest in 108 common stock units under the
Directors' Deferred Compensation Plan. See "INFORMATION CONCERNING THE BOARD
OF DIRECTORS."
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DIRECTORS WHOSE TERMS EXPIRE AT 1996 ANNUAL MEETING OF SHAREOWNERS [PHOTO]
HERBERT H. CHAMPLIN, 57, is President of Champlin Exploration, Inc., an
independent oil producer, and President of Enid Data Systems, computer
marketers, both located in Enid, Oklahoma. Mr. Champlin has been a director of
Oklahoma Gas and Electric Company since 1982, and is chairman of the audit
committee and a member of the nominating committee of the Board. He
beneficially owns, directly or indirectly, 2,753 shares of Common Stock of the
Company. This does not include Mr. Champlin's economic interest in 3,167
common stock units under the Directors' Deferred Compensation Plan. See
"INFORMATION CONCERNING THE BOARD OF DIRECTORS." Mr. Champlin also was engaged
separately during 1994 as a part of his principal business occupation in the
petroleum industry and had interests in oil and gas wells. During 1994, under
terms of gas purchase contracts, the Company paid $185,765 to him and his
family business interests. The terms of the contracts were no less favorable
to the Company than the terms that would have been obtained from other
independent producers.
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MARTHA W. GRIFFIN, 60, owner of Martha Griffin White Enterprises, is [PHOTO]
presently engaged in the management of her personal investments, the
operation of a ranch and various civic activities. Prior to September 30,
1994, she served as Chairman of the Board of Griffin Television, Inc., located
in Oklahoma City, Oklahoma, and Chairman of the Board of Griffin Food Company
(a subsidiary of Griffin Television, Inc.). Mrs. Griffin has been a director
of Oklahoma Gas and Electric Company since 1987, and is a member of the audit
and nominating committees of the Board. She beneficially owns, directly or
indirectly, 2,330 shares of Common Stock of the Company. This does not include
Mrs. Griffin's economic interest in 108 common stock units under the
Directors' Deferred Compensation Plan. See "INFORMATION CONCERNING THE BOARD
OF DIRECTORS." During 1994, Mrs. Griffin was also a major stockholder of
television station KWTV, Channel 9, Oklahoma City, Oklahoma. During 1994, the
Company paid an aggregate of approximately $107,635 to KWTV for showing
television commercials of the Company. This television time was purchased by
contract with the station, and the rate paid was no less favorable to the
Company than the rate that would have been paid to similar stations in the
Oklahoma City area.
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RONALD H. WHITE, M.D., 58, is a practicing cardiologist and is President [PHOTO]
of Cardiology, Inc. in Oklahoma City. He serves as a member of the Board of
Directors of Baptist Medical Center of Oklahoma City, and was a member of the
Board of Regents of the University of Oklahoma for 14 years. Dr. White has
been a director of Oklahoma Gas and Electric Company since 1989, and is a
member of the audit committee of the Board. He beneficially owns, directly or
indirectly, 400 shares of Common Stock of the Company. This does not include
Dr. White's economic interest in 108 common stock units under the Directors'
Deferred Compensation Plan. See "INFORMATION CONCERNING THE BOARD OF
DIRECTORS."
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</TABLE>
The information set forth above on share ownership is based on information
furnished to the Company by the directors and all shares listed are beneficially
owned by the individuals or by members of their immediate family unless
otherwise indicated.
6
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INFORMATION CONCERNING THE BOARD OF DIRECTORS
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The Board of Directors of the Company met on nine occasions during 1994.
Each director attended at least 92% of the total number of meetings of the Board
of Directors and the committees of the Board on which he or she served.
COMMITTEES. The committees of the Company's Board of Directors include a
compensation committee, an audit committee and a nominating committee. Members
of the compensation committee are Bill Swisher, chairman, and Messrs. Durrett,
Hembree and Snodgrass. During 1994, the committee met on three occasions to
review and make recommendations to the Board of Directors with respect to
compensation of principal officers, salary policy for the period, benefit
programs for employees, compensation for outside directors for service on the
Board and the Board committees, and future objectives and goals of the Company.
Members of the audit committee are Herbert H. Champlin, chairman, Mrs.
Griffin and Messrs. Durrett, Swisher, Taylor and Dr. White. During 1994, the
committee met on two occasions to review and make recommendations to the Board
of Directors with respect to internal audit procedures, engagement of
independent public accountants, their review with the independent accountants of
the results of the auditing engagement, and matters having a material effect
upon the Company's financial operations.
Members of the nominating committee are John A. Taylor, chairman, Messrs.
Champlin and Snodgrass and Mrs. Griffin. During 1994, the committee met on two
occasions to review and make recommendations to the Board of Directors with
respect to nominees for election as directors. Similarly, recommendations were
made concerning membership of the audit, compensation and nominating committees
and rotation of committee assignments among directors. It is expected that the
nominating committee will consider nominees recommended by shareowners in
accordance with the Company's By-laws. The Company's By-laws provide that a
shareowner intending to nominate director candidates for election at an Annual
Meeting of Shareowners must deliver written notice thereof to the Secretary of
the Company not later than 90 days in advance of the meeting. The notice must
set forth certain information concerning such shareowner and the nominee(s),
including each nominee's name and address, a representation that the shareowner
is entitled to vote at such meeting and intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice, a
description of all arrangements or understandings between the shareowner and
each nominee and any other person pursuant to which the nomination or
nominations are to be made by the shareowner, such other information as would be
required to be included in a proxy statement soliciting proxies for the election
of the nominee(s) of such shareowner and the consent of each nominee to serve as
a director of the Company if so elected. The chairman of the Annual Meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure.
DIRECTOR COMPENSATION. In November 1994, the Board of Directors amended the
Directors' Deferred Compensation Plan to permit a portion of the cash
compensation payable to non-officer directors to be paid in common stock units
pursuant to the Plan. This change will permit the Board to cause a significant
portion of each non-officer director's compensation to be tied directly to the
performance of the Company's Common Stock.
Compensation of non-officer directors consists of an annual retainer fee of
$27,500, of which $2,000 is payable monthly in cash (the same amount that has
been paid monthly since August 1994) and $3,500 was deposited in the director's
Stock Account under the Deferred Compensation Plan and converted to 106 common
stock units based on the closing price of the Company's Common Stock on November
30, 1994. In addition, all non-officer directors receive $1,000 for each Board
meeting and $1,000 for each committee meeting attended. Under the Directors'
Deferred Compensation Plan, non-officer directors also may defer payment of all
or part of their attendance fees and the cash portion of their annual retainer
fee, which deferred amounts are, at the election of the director, credited to a
Dollar Account or a Stock Account or a combination of both, on the date the
deferred amounts otherwise would have been paid.
Amounts credited to the Dollar Account accrue interest approximately equal
to the commercial paper rate for established companies. Amounts credited to the
Stock Account are converted into common stock units equal in number to the
number of shares of the Company's Common Stock which the amounts would purchase
based on the fair market value of the Company's Common Stock on the date the
amounts would otherwise be paid. The Stock Account is credited on each dividend
payment date for the Company's Common Stock with additional common stock units
by dividing the aggregate cash dividend which would have been paid if existing
common stock units were actual shares of the Company's Common Stock by the fair
market value of the Company's Common Stock as of the dividend payment date.
When an individual ceases to be a director of the Company, all amounts
credited under the Plan are paid in cash in a lump sum or installments, with the
value of common stock units based on the fair market value of the Company's
Common Stock at the time of payment. In addition, amounts that are credited to
the Stock Account are automatically transferred to a Dollar Account upon the
occurrence of certain mergers and related transactions in which the Company is
not the survivor. As an alternative to the foregoing investment options, the
Plan permits a non-officer director to have all or any deferred portion of the
attendance fees and the cash portion of the annual retainer fee applied to
purchase life insurance for the director.
7
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EXECUTIVE OFFICERS' REMUNERATION
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The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors of the Company (the
"Committee"). Set forth below is the Committee's report on compensation paid to
executive officers during 1994.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
GENERAL. The primary goals of the Committee in setting executive
compensation in 1994 were: (i) to provide a total compensation package that
enables the Company to attract and retain key executives and (ii) to align the
executives' interests with those of shareowners and with Company performance.
Compensation of the Company's executive officers in 1994 was comprised
primarily of salary, awards under the Company's Annual Incentive Compensation
Plan, awards under the Company's Restricted Stock Plan, and benefits under the
Company's Employees' Retirement Savings Plan and pension plan. As discussed more
fully below, part of the compensation paid in 1994 also consisted of payouts
under the Annual Incentive Compensation Plan with respect to the Company's 1993
performance. Virtually all employees, including executive officers, are eligible
to participate in the Retirement Savings Plan and pension plan. Both the
Retirement Savings Plan and pension plan have a supplemental restoration plan
that enables executive officers to receive the same benefits that they would
have received in the absence of limitations imposed by the federal tax laws on
contributions or payouts. In addition, a Supplemental Executive Retirement Plan
(the "SERP"), which was adopted in 1993, offers attractive pension benefits to
lateral hires. The SERP is not expected to benefit present executive officers
generally. In reviewing the benefits under the SERP, Retirement Savings Plan,
pension plan and related restoration plans, the Committee seeks to provide
participants with benefits generally commensurate with those offered by other
utilities of comparable size. The restoration plans for the Retirement Savings
Plan and pension plan contain provisions requiring their immediate funding in
the event of certain mergers, consolidations or tender offers involving the
Company.
The target level of total compensation of the Company's executives is set
generally at approximately the average of the compensation paid to similar
executives within the approximately 120 electric utilities included in the
Edison Electric Institute Survey (the "Survey Group")(1). In recent years, the
Committee has significantly altered the structure of the Company's compensation
system and the composition of the individual compensation packages, shifting
from a compensation system based in large part on individual performance and
continued employment to a compensation system that places a significant portion
of compensation at risk dependent on Company performance.
The first step in the process of switching to a more incentive-based system
for executive officers occurred in 1992 with awards of Restricted Stock tied not
only to continued employment, but also to the achievement of specified
performance targets over a three-year period. The remaining step occurred in
1993 when the Committee froze the salaries of senior executives and implemented
the Annual Incentive Compensation Plan. The implementation of the Annual
Incentive Compensation Plan was a result of a study by Towers Perrin, at the
Committee's request, of the Survey Group that indicated that although the total
compensation of the Company's executive officers was commensurate with the total
compensation of similar officers within the Survey Group, the Company's
executive officers received a greater proportion of their compensation in salary
and a lesser proportion in incentive-based awards. Accordingly, in an effort to
bring the Company's compensation system more in line with the Survey Group, the
salaries of senior executives were frozen at 1992 levels, the Annual Incentive
Compensation Plan was implemented and executives received increased
incentive-based awards. This process continued in 1994 as salary levels
generally remained frozen at 1992 levels. As a result, the potential total cash
compensation of the Company's executives, as well as the makeup of that
compensation, is more consistent with the average compensation paid to similar
executives by corporations in the Survey Group.
As discussed in last year's Committee Report, the Committee, with the
approval of the Board, declined to authorize the payout of any awards under the
Annual Incentive Compensation Plan with respect to 1993 performance. The
decision to defer the payout of these awards was not the result of poor
performance by the Company, but rather resulted from the Company's rate refund
and reduction case then-pending before the Oklahoma Corporation Commission. The
Company had previously determined not to increase for 1994 the pay schedule for
its salaried and non-salaried employees until the rate case had been resolved.
The Committee believed it was inappropriate to authorize payments to the
executives under those conditions. The rate refund case was concluded in
February 1994 and the general salary freeze for salaried and non-salaried
employees was lifted in September 1994. Following those two events, the Board
determined that it was appropriate to reconsider the payout of these awards and
directed the Committee to do so. Based on the same criteria and conditions
discussed more fully
- ---------------
(1) While similar, the utilities in the Survey Group are not the same utilities
in the Dow Jones Electric Utilities Index utilized in the Stock Performance
Graph on page 13. The Survey Group was selected by Towers Perrin and, in the
judgment of the Committee, is an appropriate peer group to use for
compensation purposes.
8
<PAGE> 12
below with respect to 1994 awards, on September 13, 1994, the Committee
authorized the payout of the 1993 awards. In 1993, the Company's earnings per
share ($2.78) and the Company's operating and maintenance expenses were above
the threshold or minimum levels, but below the target levels. As a result of the
Company's performance and the performance by executive officers of their
individual goals, payouts of the 1993 awards ranged from 95% to 105% of the
targeted award amounts and from 9.5% to 15% of base salary.
Due to the Company's rate refund order discussed above and ever-increasing
competition in the utility industry, in early 1994 the Company undertook a
complete review and redesign of its operations which resulted in downsizing and
other cost-cutting measures. As part of this overall effort, in April 1994, the
Board of Directors approved a voluntary early retirement program for employees
at least 50 years old with at least five years of service. The early retirement
program was accepted by three executive officers, including Mr. Bunce, the
former Senior Vice President -- Accounting and Administration, who retired from
the Company effective August 1, 1994. In order to compensate Mr. Bunce and two
other officers of the Company for benefits and other non-cash compensation that
they forfeited by accepting the early retirement offer, the Compensation
Committee and the Board of Directors authorized lump sum payments to such
individuals in amounts ranging from $49,000 to $105,000.
In 1993, a new Federal tax law was passed which limits the deductibility of
executive compensation in excess of $1,000,000 unless certain exceptions are
met. Under transition rules adopted by the Internal Revenue Service, this new
law is not expected to impact the Company with respect to executive compensation
paid in 1995. The Committee continues to review the new law and associated
regulations, as well as the structure of its salary and various compensation
programs, and its present intent is to take appropriate steps to ensure the
continued deductibility of its executive compensation.
ANNUAL INCENTIVE COMPENSATION PLAN. The Annual Incentive Compensation Plan
was adopted in late 1992. Through annual awards, the Plan is designed to provide
incentives to key management personnel to achieve Company objectives tied
directly to profitability. Awards with respect to 1994 performance were made
under the Plan to ten employees, including all executive officers, and specified
performance goals were established in February 1994. Awards with respect to 1994
performance also were made to five other individuals who were named executive
officers during 1994. Payouts of the awards are in cash and are dependent
primarily on the achievement of such specified performance goals. In 1994, these
goals were based 50% on earnings per share as compared to earnings goals set by
the Committee and 50% on operating and maintenance expense per kilowatt-hour, as
compared to approximately 25 electric utilities. The amount of the award for
each executive officer was expressed as a percentage of base salary (the
"targeted amount"), with the officer having the ability, depending upon
achievement of the Company goals, to receive from 0% to 150% of such targeted
amount. For 1994, the targeted amounts ranged from 15% to 25% of base salary.
The percentage of the targeted amount that an officer ultimately receives is
subject to being increased or decreased by up to 20% at the discretion of the
Committee, depending on the individual's achievement of pre-established personal
goals approved by the Committee. In no event, however, will any payouts be made
unless the specified minimum Company performance goals are satisfied. For 1994,
the Company's earnings per share ($3.01) exceeded the threshold, but were below
the target levels, while operating and maintenance expenses exceeded the target
levels. The Company's performance in 1994 and performance by individuals of
their pre-established personal goals resulted in payouts ranging from 121% to
131% of their target amounts and from 18.2% to 31.5% of base salary earned in
1994.
RESTRICTED STOCK AWARDS. The other significant component of executive
compensation in 1994 was awards under the Company's Restricted Stock Plan. The
Plan empowers the Committee to make contingent awards of Common Stock
("Restricted Stock") to key employees. Each share of Restricted Stock is subject
to a Restricted Period of three or four years during which the share is subject
to forfeiture if the recipient of the share ceases to render substantial
services to the Company for any reason (other than death, disability or normal
retirement) and during which the share may not be transferred. The Committee has
the power in the event of certain mergers, consolidations or tender offers
involving the Company to lapse all restrictions on shares of Restricted Stock.
Awards under the Restricted Stock Plan were made at the end of 1994 and were
based, as required by the Plan, on the individual's performance during 1994. In
evaluating an individual's performance, the Committee considered individual job
performance, experience and individual characteristics such as leadership and
dedication, with no particular weight given to one factor over another. The
Committee also considered the long-term incentives provided to executives in the
Survey Group and the amount of the 1994 awards made for each executive officer
generally represented the long-term incentives awarded to similar executives by
corporations in approximately the 50th percentile of the Survey Group. For 1994,
awards of Restricted Stock ranged from 10% to 30% of an executive's base salary.
As in prior years, each share of Restricted Stock awarded in 1994 is subject to
forfeiture during a Restricted Period. Moreover, as in 1992 and 1993, the shares
awarded in 1994 to eight key officers contained a significant additional
condition. Such officers generally will be entitled at the end of the Restricted
Period of three years to keep the full amount of the shares awarded to them only
if the Company during such period meets or exceeds a specific return on equity
target as compared to the return on
9
<PAGE> 13
average equity for the approximately 90 electric and combination utility
companies shown in the Standard & Poor's Compustat Services Inc. Utility
Compustat II, with the officer receiving fewer shares and possibly no shares if
such target is not achieved. The Committee's rationale for this additional
condition was to continue to reward past service and to align the officers'
interests with those of shareowners and, at the same time, to tie the Restricted
Stock awards directly to long-term performance by the Company. The amount of
shares awarded in 1994 that an officer will ultimately receive will not be
determined until the end of 1997. Prior awards of Restricted Stock were not
considered by the Committee in making awards in 1994.
CEO COMPENSATION. The 1994 compensation for Mr. Harlow, the Chief Executive
Officer of the Company, consisted of the same components as the compensation for
other executive officers. His salary remained frozen at 1992 levels for the same
reasons discussed above with respect to the other executive officers, namely
that his total potential cash compensation would approximate the average cash
compensation for chief executive officers of the companies in the Survey Group.
His targeted award under the Annual Incentive Plan was 20% of his base salary
(i.e. $100,000), and, as a result of the Company's performance as described
above, he received a payout of $131,000, representing 131% of his targeted
award, of which 111% was attributable to Company performance and 20% was
attributable to his individual performance. At the present time, it is the
intent of the Committee to keep Mr. Harlow's salary at its current level for
1995, and to increase his targeted award from 20% to 30% for 1995. Mr. Harlow's
Restricted Stock Award was based on his performance in 1994 and a comparison of
his award to the long-term compensation of other chief executive officers in the
Survey Group. Consideration also was given to Mr. Harlow's 18 years of
experience as Chief Executive Officer of the Company, his demonstrated
leadership skills and his positive reputation within the community and utility
industry. Based on these factors, the Committee determined to grant Mr. Harlow a
Restricted Stock award having an approximate value at the date of its grant of
30% of his base salary. As was the case with respect to awards of Restricted
Stock to other key officers, Mr. Harlow's ultimate receipt of the shares awarded
to him will be dependent upon the Company's achievement of specified return on
equity targets during 1995, 1996 and 1997.
CONCLUSION. The Committee believes that the Company's current executive
compensation system serves the interests of the Company and its shareowners
effectively. The Committee takes very seriously its responsibilities with
respect to the Company's executive compensation system. To this end, the
Committee will continue to monitor and revise the compensation policies as
necessary to ensure that the Company's compensation system continues to meet the
needs of the Company and its shareowners.
Compensation Committee
<TABLE>
<S> <C>
Bill Swisher, Chairman Hugh L. Hembree, III, member
William E. Durrett, member John F. Snodgrass, member
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- --------------------------------------------------------------------------------
Bill Swisher is the Chairman and William E. Durrett, H.L. Hembree, III and
John F. Snodgrass are the members of the Compensation Committee. William E.
Durrett, also serves as Chairman of the Board and Chief Executive Officer of
American Fidelity Corporation and as Chairman of the Board of its subsidiary
American Fidelity Assurance Company. In 1994, the Company paid American Fidelity
Assurance Company $947,384 (which includes employee contributions) for a
long-term disability policy for its employees and $607,675 for services in
administering the Company's medical, health and similar benefit plans. The terms
of these transactions were no less favorable to the Company than the terms that
would have been obtained from similar insurance companies. It is expected that
similar transactions will occur in the future.
10
<PAGE> 14
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
The following table provides information regarding compensation to the
Company's Chief Executive Officer and four other most highly compensated
executive officers for the past three years, as well as one former executive
officer who would have been one of the four most highly compensated officers had
he not retired before the end of the year.
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
------------------------------------- ------------------------ -------
Other Restricted Securities
Annual Stock Underlying LTIP
Name and Principal Salary Bonus(1) Compensation Awards(2) Options/ Payouts
Position Year ($) ($) ($) ($) SAR (#) ($)
--------------------- ---- ------- -------- ------------ --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
J.G. Harlow, Jr. 1994 500,000 131,000 0 149,976 0 0
Chairman, President 1993 500,000 52,500 0 149,976 0 0
and Chief Executive 1992 500,000 0 0 149,993 0 0
Officer
P.J. Ryan 1994 295,000 92,925 0 73,739 0 0
Vice Chairman 1993 295,000 36,875 0 73,728 0 0
1992 295,000 0 0 73,718 0 0
A.M. Strecker 1994 197,083 51,090 0 39,384 0 0
Senior Vice President 1993 195,000 20,475 0 38,988 0 0
Finance and Administration 1992 195,000 0 0 38,980 0 0
S.E. Moore 1994 162,917 41,920 0 32,579 0 0
Senior Vice President-Law 1993 160,000 16,800 0 31,968 0 0
and Public Affairs 1992 160,000 0 0 31,987 0 0
B.G. Bunce (4) 1994 113,750 28,665 0 0 0 0
Senior Vice President 1993 195,000 19,500 0 38,988 0 0
Accounting and 1992 195,000 0 0 38,980 0 0
Administration
D. L. Young 1994 112,083 27,720 0 22,388 0 0
Controller 1993 110,000 11,000 0 21,996 0 0
1992 110,000 0 0 21,983 0 0
<CAPTION>
All Other
Name and Principal Compensation(3)
Position Year ($)
--------------------- ---- ---------------
<S> <C> <C>
J.G. Harlow, Jr. 1994 52,934
Chairman, President 1993 55,296
and Chief Executive 1992 50,621
Officer
P.J. Ryan 1994 27,982
Vice Chairman 1993 30,409
1992 29,006
A.M. Strecker 1994 19,557
Senior Vice President 1993 20,216
Finance and Administration 1992 19,868
S.E. Moore 1994 15,334
Senior Vice President-Law 1993 13,940
and Public Affairs 1992 13,318
B.G. Bunce (4) 1994 122,382
Senior Vice President 1993 24,543
Accounting and 1992 22,145
Administration
D. L. Young 1994 11,726
Controller 1993 11,837
1992 18,154
</TABLE>
- ---------------
(1) As explained on page 8, on September 13, 1994, the Compensation Committee
and the Board of Directors approved the payment of bonuses based on 1993
performance which had been deferred pending the outcome of the Company's
rate refund case before the Oklahoma Corporation Commission. Accordingly,
amounts shown in the column for 1993 have not previously been reported.
(2) Amounts in this column reflect the market value of the shares of Restricted
Stock awarded under the Company's Restricted Stock Plan, based on the
closing price of the Company's Common Stock on the date the award was made.
The number of shares awarded in 1994, 1993 and 1992 was as follows: (i) Mr.
Harlow, 4,562 shares, 4,166 shares and 4,633 shares, respectively; (ii) Mr.
Ryan, 2,243 shares, 2,048 shares and 2,277 shares, respectively; (iii) Mr.
Strecker, 1,198 shares, 1,083 shares and 1,204 shares, respectively; (iv)
Mr. Moore, 991 shares, 888 shares and 988 shares, respectively; (v) Mr.
Bunce, 0 shares, 1,083 shares and 1,204 shares, respectively; and (vi) Mr.
Young, 681 shares, 611 shares and 679 shares, respectively. In the absence
of death, disability or normal retirement, the shares awarded to these
individuals in 1994, 1993 and 1992 are subject to forfeiture for three
years with the amount the recipient ultimately receives dependent on
Company performance, while the shares awarded in prior years vest as
follows: 20% at the end of each of the first three years following the year
in which granted and 40% at the end of the fourth year following the year
in which granted. The total number of shares and market value of Restricted
Stock held by each of the named individuals as of December 31, 1994, were
as follows: Mr. Harlow, 15,640 shares, $518,075; Mr. Ryan, 7,911 shares,
$262,052; Mr. Strecker, 4,374 shares, $144,889; Mr. Moore, 3,592 shares,
$118,985; and Mr. Young, 2,352 shares, $77,910. Dividends are paid to these
individuals on the shares of Restricted Stock owned by them.
(3) Amounts in this column for 1994 reflect: (i) for Mr. Harlow, $22,500
(Retirement Savings Plan and Retirement Savings Restoration Plan) and
$30,434 (insurance premiums); (ii) for Mr. Ryan, $13,275 (Retirement
Savings Plan and Retirement Savings Restoration Plan) and $14,707
(insurance premiums); (iii) for Mr. Strecker, $8,841 (Retirement Savings
Plan and Retirement Savings Restoration Plan) and $10,716 (insurance
premiums); (iv) for Mr. Moore, $5,892 (Retirement Savings Plan and
Retirement Savings Restoration Plan) and $9,442 (insurance premiums); (v)
for Mr. Bunce, $5,119 (Retirement Savings Plan), $12,263 (insurance
premiums) and $105,000 for benefits and non-cash compensation (primarily
restricted stock) forfeited by his acceptance of the Company's early
retirement program; and (vi) for Mr. Young, $5,016 (Retirement Savings
Plan) and $6,710 (insurance premiums). A significant portion of the
insurance premiums reported for each of these individuals is for life
insurance policies and such premiums are recovered by the Company from the
proceeds of the policies.
(4) Mr. Bunce retired effective August 1, 1994.
To the extent the table shows zeros for bonuses, other annual compensation,
stock options, stock appreciation rights or payouts under long-term incentive
plans for a particular year, these forms of compensation were not provided to
executive officers in such year or, in the case of other annual compensation,
the amounts were below the threshold required for disclosure under the SEC's
rules.
11
<PAGE> 15
PENSION PLAN TABLE
- --------------------------------------------------------------------------------
The Company maintains a qualified non-contributory Retirement Plan covering
all employees of the Company who have completed one year's service. Subject to
limitations imposed by the Employee Retirement Income Security Act of 1974
("ERISA"), benefits under the Retirement Plan are based upon the five highest
consecutive years of cash compensation (which for the executives named in the
Summary Compensation Table prior to 1993 has consisted solely of salaries and
for 1993 and 1994 consists of salary and bonus) during an employee's last ten
years prior to retirement and length of service. Social Security benefits are
deducted in determining benefits payable under the Plan. Remuneration covered by
the Plan includes salaries, bonuses and overtime pay. Retirement benefits are
payable to participants upon normal retirement (at or after age 65) or early
retirement (at or after attaining age 55 and completing five or more years of
service), to former employees after reaching retirement age who have completed
five or more years of service before terminating their employment and to
participants after reaching retirement age upon total and permanent disability.
As indicated above, the benefits payable under the Plan are subject to maximum
limitations under ERISA. Should benefits at the time of retirement exceed the
then permissible limits of ERISA, the Retirement Restoration Plan will provide
benefits through a lump-sum distribution actuarially equivalent to the amounts
that would have been payable annually under the Retirement Plan but for the
ERISA limits. The Company funds the estimated benefits payable under the
Retirement Restoration Plan through contributions to a trust for the benefit of
those employees who will be entitled to receive payments under the Retirement
Restoration Plan.
The following table sets forth the estimated annual benefits payable upon
normal retirement under the Company's Retirement Plan and Retirement Restoration
Plan to persons in the remuneration classification specified.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE AT RETIREMENT
COMPENSATION ---------------------------------------------------------------------------------------------------
5 HIGHEST YEARS 10 15 20 25 30 35 40 45
- --------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 13,601 $ 20,401 $ 27,202 $ 34,002 $ 40,802 $ 47,603 $ 54,403 $ 61,204
$ 125,000 $ 17,351 $ 26,026 $ 34,702 $ 43,377 $ 52,052 $ 60,728 $ 69,403 $ 78,079
$ 150,000 $ 21,101 $ 31,651 $ 42,202 $ 52,752 $ 63,302 $ 73,853 $ 84,403 $ 94,954
$ 175,000 $ 24,851 $ 37,276 $ 49,702 $ 62,127 $ 74,552 $ 86,978 $ 99,403 $111,829
$ 200,000 $ 28,601 $ 42,901 $ 57,202 $ 71,502 $ 85,802 $100,103 $114,403 $128,704
$ 225,000 $ 32,351 $ 48,526 $ 64,702 $ 80,877 $ 97,052 $113,228 $129,403 $145,579
$ 250,000 $ 36,101 $ 54,151 $ 72,202 $ 90,252 $108,302 $126,353 $144,403 $162,454
$ 300,000 $ 43,601 $ 65,401 $ 87,202 $109,002 $130,802 $152,603 $174,403 $196,204
$ 350,000 $ 51,101 $ 76,651 $102,202 $127,752 $153,302 $178,853 $204,403 $229,954
$ 400,000 $ 58,601 $ 87,901 $117,202 $146,502 $175,802 $205,103 $234,403 $263,704
$ 450,000 $ 66,101 $ 99,151 $132,202 $165,252 $198,302 $231,353 $264,403 $297,454
$ 500,000 $ 73,601 $110,401 $147,202 $184,002 $220,802 $257,603 $294,403 $331,204
$ 550,000 $ 81,101 $121,651 $162,202 $202,752 $243,302 $283,853 $324,403 $364,954
$ 600,000 $ 88,601 $132,901 $177,202 $221,502 $265,802 $310,103 $354,403 $398,704
$ 650,000 $ 96,101 $144,151 $192,202 $240,252 $288,302 $336,353 $384,403 $432,454
$ 700,000 $103,601 $155,401 $207,202 $259,002 $310,802 $362,603 $414,403 $466,204
$ 750,000 $111,101 $166,651 $222,202 $277,752 $333,302 $388,853 $444,403 $499,954
</TABLE>
- --------------------------------------------------------------------------------
As of December 31, 1994, the credited years of service for the individuals
listed in the remuneration table on page 11 are as follows: J. G. Harlow,
Jr. - 33 years; P. J. Ryan - 33 years; A. M. Strecker - 23 years; S. E.
Moore - 20 years; and D. L. Young - 31 years. Mr. Bunce retired from the Company
effective August 1, 1994 after 44 years of service and received benefits under
the Retirement Restoration Plan.
In 1993, the Company adopted a Supplemental Executive Retirement Plan (the
"SERP"). The SERP is an unfunded supplemental plan that is not subject to the
benefits limit imposed by ERISA. The plan generally provides for an annual
retirement benefit at age 65 equal to 65% of the participant's average cash
compensation during his or her final 36 months of employment, reduced by Social
Security benefits, by amounts payable under the Company's Retirement and
Restoration Plans described above and by amounts received under pension plans
from other employers. None of the individuals listed in the remuneration table
on page 11 is expected to receive benefits under the SERP at normal retirement
as the benefits payable to such individuals under the Company's Retirement and
Restoration Plans are expected to exceed the benefits payable under the SERP.
12
<PAGE> 16
COMPANY STOCK PERFORMANCE
- --------------------------------------------------------------------------------
The following graph shows a five-year comparison of cumulative total returns
for the Company's Common Stock, the Dow Jones Equity Market Index and the Dow
Jones Electric Utilities Index. The graph assumes that the value of the
investment in the Company's Common Stock and each index was $100 at December 31,
1989, and that all dividends were reinvested.
<TABLE>
<CAPTION>
Dow Jones Dow Jones
Measurement Period Equity Market Electric
(Fiscal Year Covered) OG&E Index Utilities Index
--------------------- ---- ------------- ---------------
<S> <C> <C> <C>
1989 100 100 100
1990 107 96 102
1991 129 127 132
1992 108 138 141
1993 126 152 158
1994 122 153 138
</TABLE>
SECURITY OWNERSHIP
- --------------------------------------------------------------------------------
Information regarding ownership of the Company's stock by each of the
Directors of the Company is set forth under "INFORMATION ABOUT DIRECTORS AND
NOMINEES." The following table shows the number of shares of the Company's
Common Stock and Preferred Stock beneficially owned on March 1, 1995, by each of
the named Executive Officers and by all Executive Officers and Directors as a
group:
<TABLE>
<CAPTION>
Number of Common Shares(1) Number of Preferred Shares(1)
-------------------------- -----------------------------
<S> <C> <C>
J.G. Harlow, Jr. 44,591 0
P.J. Ryan 30,799 0
A.M. Strecker 18,471 0
S.E. Moore 16,459 0
B.G. Bunce 17,448 0
D.L. Young 9,153 53
All Executive Officers and
Directors as a group
(20 persons) 184,152 112
</TABLE>
(1) Mr. Harlow's ownership of Common Stock represents less than 0.12% of the
outstanding Common Stock. Ownership by each other executive officer is less
than 0.1% of the class, by each other director is less than 0.04% of the
class and, for all executive officers and directors as a group, is less than
0.5% of the class. Amounts shown include shares for which, in certain
instances, an individual has disclaimed beneficial interest. Amounts shown
for executive officers include 122,806 shares of Common Stock representing
their interest in shares held under the Company's Employees' Stock Ownership
Plan, Retirement Savings Plan and Restricted Stock Plan, for which in
certain instances they have voting power but not investment power.
The foregoing information on share ownership is based on information
furnished to the Company by the individuals listed above and all shares listed
are beneficially owned by the individuals or by members of their immediate
family unless otherwise indicated.
13
<PAGE> 17
Under federal securities laws, the Company's directors and executive
officers are required to report, within specified monthly and annual due dates,
their initial ownership in the Company's common and preferred stocks and
subsequent acquisitions, dispositions or other transfers of interest in such
securities. The Company is required to disclose whether it has knowledge that
any person required to file such a report may have failed to do so in a timely
manner. To the Company's knowledge, all of the Company's directors and officers
subject to such reporting obligations have satisfied their reporting obligations
in full except for William E. Durrett, Donald R. Rowlett and James R. Hatfield.
Mr. Durrett filed one report after the due date relating to one transaction
involving Company securities which were owned by a corporation with which Mr.
Durrett is associated. Messrs. Rowlett and Hatfield became executive officers
this year and filed their required initial reports of ownership after the due
date for such reports.
PROPOSAL NO. 2 - AMENDMENTS TO RESTATED CERTIFICATE OF
INCORPORATION REMOVING LIMITS ON UNSECURED INDEBTEDNESS
- --------------------------------------------------------------------------------
Under Article VII of the Company's Restated Certificate of Incorporation
(the "Articles"), the holders of the Company's (i) Cumulative Preferred Stock,
par value $100 per share ("$100 Preferred"), (ii) Cumulative Preferred Stock,
par value $25 per share ("$25 Preferred"), and (iii) 4% Cumulative Preferred
Stock, par value $20 per share ("4% Preferred", and, together with the $100
Preferred and the $25 Preferred, the "Preferred Stock") have special voting
rights with respect to certain matters, including among others the amendment of
the Articles to authorize any prior ranking stock, the issuance of Preferred
Stock unless certain coverage tests are met, and the issuance of unsecured
indebtedness unless certain coverage tests are met.
Specifically, Article VII(5)(a) provides that the approval of a majority of
each of the $100 Preferred, $25 Preferred and 4% Preferred, each voting
separately as a class, is required for the Company to:
Issue or assume any unsecured notes, debenture or other securities
representing unsecured indebtedness for any purpose other than the
refunding of secured or unsecured indebtedness theretofore created or
assumed by the corporation and then outstanding, or the retiring, by
redemption or otherwise of shares of the [Preferred Stock], or shares of
any stock ranking prior thereto or pari passu with the [Preferred Stock]
as to dividends or liquidation rights, if immediately after such issue
or assumption the total principal amount of all unsecured notes,
debentures or other securities representing unsecured indebtedness
issued or assumed by the corporation and then outstanding would exceed
20% of the aggregate of (i) the total principal amount of all bonds or
other securities representing secured indebtedness issued or assumed by
the corporation and then outstanding, and (ii) the total of the capital
and surplus of the corporation, as then recorded on its books.
The proposed amendments would eliminate the special voting rights contained
in clause (a) and thereby enable the Company to incur unsecured indebtedness
without a shareowner vote. The amendments are intended to increase the
flexibility of the Board of Directors in obtaining financing on the best
possible terms for the Company. Historically, the Company's long-term debt
financing generally has been accomplished through the issuance of first mortgage
bonds (secured debt financing) pursuant to the Company's Trust Indenture (the
"First Mortgage Indenture"). All of the first mortgage bonds issued by the
Company pursuant to the First Mortgage Indenture are secured by a first priority
lien on substantially all of the Company's properties. In light of the
increasingly competitive pressures in the utility industry and the financial
markets, the Board of Directors believes it is in the Company's best interests
to have maximum flexibility with respect to obtaining future financing to meet
the Company's needs. The elimination of the special voting rights with respect
to the issuance or assumption of unsecured indebtedness would provide the
Company with the ability to obtain the best terms available in the debt markets.
This should result in long-term benefits for all the Company's shareowners,
including the owners of the Preferred Stock.
Even though removal of the special voting rights would permit the Company to
issue a greater amount of unsecured debt, the Company does not have any present
intention to issue an aggregate amount of debt greater than it otherwise would
be permitted to issue. In other words, the total amount of secured and unsecured
debt intended to be issued and outstanding would not exceed the total amount of
secured and unsecured debt currently permitted by the Articles and the First
Mortgage Indenture; instead, unsecured debt would become a more significant
component of the overall debt of the Company.
Moreover, adoption of the proposed amendments would not remove all
restrictions on the Company's issuance of debt securities. As a regulated
utility, the issuance of any securities by the Company would continue to be
subject to the prior approval of the Oklahoma Corporation Commission (with
respect to securities maturing in more than one year) or the Federal Energy
Regulatory Commission (with respect to securities maturing in one year or less).
Consequently, although the removal of the special voting rights will increase
the flexibility of the Company by removing a limitation on the amount of
unsecured debt that the Company is permitted to issue, it is not intended that
the overall debt capacity levels would be increased, and, in any event, the
issuance of any debt securities will continue to be reviewed by regulatory
agencies.
14
<PAGE> 18
VOTE REQUIRED. Currently there are no shares of $25 Preferred outstanding.
Therefore, adoption of the proposed amendments requires the affirmative vote of
the owners of: (i) at least a majority of the outstanding Common Stock, voting
separately as a class, (ii) two-thirds of the outstanding 4% Cumulative
Preferred Stock, par value $20 per share, voting separately as a class, and
(iii) two-thirds of the outstanding Cumulative Preferred Stock, par value $100
per share, voting separately as a class. Abstentions from voting are treated as
votes against, while broker nonvotes are treated as shares not voted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSED
AMENDMENTS.
RELATIONSHIP WITH INDEPENDENT
PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
During 1994, Oklahoma Gas and Electric Company engaged Arthur Andersen LLP
as its independent public accountants. The Board of Directors has appointed
Arthur Andersen LLP as the independent public accountants for the Company for
1995. Representatives of Arthur Andersen LLP will be present at the Annual
Meeting of Shareowners and will have the opportunity to make a statement if they
so desire. Such representatives will be available to respond to appropriate
questions from shareowners at the meeting.
SHAREOWNER PROPOSALS
- --------------------------------------------------------------------------------
Any shareowner proposal intended to be presented at the Annual Meeting in
1996 must be received by the Company on or before November 30, 1995, for
inclusion in the Company's proxy statement and form of proxy relating to that
meeting. Proposals received by that date, deemed to be proper for consideration
at the Annual Meeting and otherwise conforming to the rules of the Securities
and Exchange Commission, will be included in the 1996 proxy statement.
LOCATION OF NATIONAL COWBOY HALL OF FAME
- --------------------------------------------------------------------------------
[MAP]
15
<PAGE> 19
OG&E [LOGO] OKLAHOMA GAS AND ELECTRIC COMPANY
Annual Meeting of Shareowners
May 18, 1995
P The undersigned hereby appoints James G. Harlow, Jr., Herbert H.
Champlin, and Bill Swisher, and each of them severally, with full power of
substitution and with full power to act with or without the other, as the
proxies of the undersigned to represent and to vote all shares of stock of
R Oklahoma Gas and Electric Company held of record by the undersigned on
March 20, 1995, at the Company's Annual Meeting of Shareowners to be
held on May 18, 1995, and at all adjournments thereof, on all matters
coming before said meeting.
O
THIS PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, WILL BE
VOTED AS DIRECTED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE PROPOSALS NUMBERED 1 AND 2 ON THE REVERSE SIDE OF THIS PROXY CARD.
X
------------------------------------------------------------------------
Y PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. Unless you attend and vote in person, you MUST sign
and return your proxy in order to have shares voted at the meeting.
------------------------------------------------------------------------
<PAGE> 20
<TABLE>
<CAPTION>
PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS BELOW. EACH JOINT OWNER SHOULD SIGN. ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
OTHERS SIGNING IN A REPRESENTATIVE CAPACITY SHOULD GIVE THEIR FULL TITLES.
<S> <C>
- ------------------------------------------------------
PROXY TOTAL COMMON SHARES PREFERRED SHARES
NUMBER INCLUDING REINVESTMENT The Board recommends a vote FOR the proposals numbered
PLAN AND CUSTOMER STOCK 1 and 2 below.
PLAN
1. Election of Directors.
- ------------------------------------------------------ NOMINEES:
James G. Harlow, Jr.; Bill Swisher; John A. Taylor
X / / 95 / /FOR all nominees / /WITHHOLD AUTHORITY
- ------------------------------------------------------ (list exceptions below). to vote for all nominees.
Signature of Shareowner Date
--------------------------------------------------------------
X / / 95 Instruction: To withhold authority to vote for any individual
- ------------------------------------------------------ nominee, write that nominee's name on the line above.
Signature of Shareowner Date
2. Proposal to amend Restated Certificate of Incorporation
removing limits on unsecured indebtedness.
/ /For / /Against / /Abstain
3. In their discretion, the proxies are authorized to vote
upon such other business as may properly come before the
meeting.
</TABLE>
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS APPENDIX
OVERVIEW
<TABLE>
<CAPTION>
PERCENT CHANGE
FROM PRIOR YEAR
------------------
(THOUSANDS EXCEPT PER SHARE AMOUNTS) 1994 1993 1992 1994 1993
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Operating revenues . . . . . . . . . $1,355,168 $1,447,252 $1,314,984 (6.4) 10.1
Earnings available for common stock . $ 121,468 $ 111,960 $ 97,395 8.5 15.0
Average shares outstanding . . . . . 40,344 40,328 40,310 -- --
Earnings per average common share . . $ 3.01 $ 2.78 $ 2.42 8.3 14.9
Dividends paid per share . . . . . . $ 2.66 $ 2.66 $ 2.66 -- --
==================================================================================================================
</TABLE>
Earnings for 1994 increased significantly from $2.78 per share in 1993 to
$3.01 per share in 1994. This improvement in earnings occurred despite the
order in February 1994 from the Oklahoma Corporation Commission (the
"Commission"), which effectively reduced OG&E's rates to its Oklahoma customers
by approximately $17 million annually. The Commission's order also required
OG&E to refund $41.3 million to its customers. The refund had only a slight
impact on 1994 results as approximately $39.1 million of the refund had been
recorded in 1993 and 1992.
In 1994, the Company restructured and redesigned its operations to reduce
costs in order to more favorably position itself for the competitive electric
utility environment. As part of this process, the Company implemented a
Voluntary Early Retirement Package ("VERP") and a severance package in 1994.
Those two programs reduced the Company's workforce by more than 900 employees.
In the third quarter of 1994, OG&E deferred the costs associated with the
VERP and severance package, pending a Commission order. Labor savings in 1994
approximated the amortization of the deferred amount and therefore, did not
significantly impact 1994 results. However, approximately $6.5 million in other
restructuring expenses reduced 1994 earnings by $0.10 per share. At December
31, 1994, the deferred amount was $48.9 million, which is included on the
Consolidated Balance Sheets as Deferred Charges - Other. In response to an
application filed by OG&E on August 9, 1994, the Commission issued an order on
October 26, 1994, that permitted the Company to amortize the December 31, 1994,
balance of the regulatory asset over 26 months and reduced OG&E's electric
rates by approximately $15 million annually, effective January 1995. In 1995
and 1996, the labor savings are expected to substantially offset the
amortization of the regulatory asset and the annual rate reduction of $15
million. See Note 10 of Notes to Consolidated Financial Statements for a
further discussion of the Commission's orders in February and October 1994.
The dividend payout ratio (expressed as a percentage of earnings available
for common) improved in 1994 to 88 percent as compared to 96 percent for 1993.
The Company's long-term goal is to achieve a dividend payout ratio of 75
percent based on long-term earnings expectations.
The following discussion and analysis presents factors which had a material
effect on the Company's operations and financial position during the last three
years and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto. Trends and contingencies of a material nature are
discussed to the extent known and considered relevant.
EARNINGS
In 1994, earnings per share increased $0.23, or 8.3 percent from those
reported in 1993. The increase resulted primarily from increased retail
electric kilowatt-hour sales in 1994 and less impact than in 1993 from the
Commission's February 1994 rate order. The 1993 increase in earnings was
attributable almost in its entirety to increased retail electric sales from
more normal weather in the Company's service territory, which more than offset
the provision for rate refund recorded in 1993 ($0.32 per share) related to
the Commission's refund order in February 1994.
17
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
REVENUES PERCENT CHANGE
FROM PRIOR YEAR
-------------------
(THOUSANDS) 1994 1993 1992 1994 1993
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Sales of electricity to OG&E customers . . $ 1,188,550 $ 1,242,964 $ 1,149,894 (4.4) 8.1
Provision for rate refund . . . . . . . . . (3,417) (14,963) (18,000) * *
Sales of electricity to other utilities . . 11,765 54,815 62,099 (78.5) (11.7)
Enogex . . . . . . . . . . . . . . . . . . 158,270 164,436 120,991 (3.7) 35.9
- ------------------------------------------------------------------------------------------
Total operating revenues . . . . . . . . $ 1,355,168 $ 1,447,252 $ 1,314,984 (6.4) 10.1
=================================================================================================================
System kilowatt-hour sales . . . . . . . . 20,642,675 20,201,533 19,236,843 2.2 5.0
Kilowatt-hour sales to other utilities 556,765 3,103,977 4,141,084 (82.1) (25.0)
- ------------------------------------------------------------------------------------------
Total kilowatt-hour sales . . . . . . . 21,199,440 23,305,510 23,377,927 (9.0) (0.3)
=================================================================================================================
</TABLE>
* Not meaningful
In 1994, approximately 88 percent of the Company's revenues consisted of
regulated sales of electricity as a public utility, while the remaining 12
percent was provided by the non-utility operations of the Company's
wholly-owned subsidiary, Enogex Inc. and its subsidiaries (collectively
"Enogex"). Revenues from sales of electricity are somewhat seasonal, with a
large portion of the Company's annual electric revenues being derived 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), buying and selling
natural gas to third parties, selling natural gas liquids extracted by its
natural gas processing plants and investing in natural gas exploration and
production activities. Actions of the regulatory commissions that set OG&E's
electric rates will continue to affect the Company's financial results. The
commissions also have the authority to examine the appropriateness of OG&E's
recovery from its customers of fuel costs, which include the transportation
fees that OG&E pays Enogex for transporting natural gas to OG&E's generating
units.
Overall, 1994 operating revenues decreased $92.1 million, or 6.4 percent,
primarily due to recovery of substantially reduced fuel costs, a significant
reduction in kilowatt-hour sales to other utilities, milder weather and lower
revenue from Enogex businesses. Partially offsetting the impact of these
reductions was a 2.2 percent growth in kilowatt-hour sales to OG&E customers
("system sales"). The 1994 rate reduction did not significantly affect 1994
revenues when compared to 1993, due to the increased system sales in 1994, and
since 1993 revenues reflected a $15 million provision for rate refund.
Enogex revenues decreased 3.7 percent in 1994. Primary factors for the
decreases were lower natural gas prices, slightly lower volumes of natural gas
sold by Enogex and lower transportation fees on gas transported for OG&E. These
decreases were only partially offset by increased sales of natural gas liquids.
During 1993, operating revenues increased $132.3 million or 10.1 percent
compared to 1992. Increased system sales, the recovery of higher purchased
power costs and Enogex accounted for the increased revenues. These increases
were only partially offset by the Commission's rate order in February 1994,
which reduced 1993 operating revenues by approximately $15 million.
A return to near normal weather and continued slight customer growth
contributed to the increase in system sales for 1993. This increase in system
sales was partially offset by a 25.0 percent decrease in sales to other
utilities; causing total kilowatt-hour sales to be down by 0.3 percent for
1993. However, sales to other utilities are at much lower prices per
kilowatt-hour and have less impact on operating revenues and income than system
sales.
Enogex's 1993 revenues increased due to higher prices on natural gas sales
and increased sales of petroleum products.
18
<PAGE> 23
<TABLE>
<CAPTION>
EXPENSES AND OTHER ITEMS PERCENT CHANGE
FROM PRIOR YEAR
-------------------
(DOLLARS IN THOUSANDS) 1994 1993 1992 1994 1993
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Fuel . . . . . . . . . . . . . . $ 263,329 $ 383,207 $ 377,575 (31.3) 1.5
Purchased power . . . . . . . . . 228,701 218,689 182,230 4.6 20.0
Gas purchased for resale (Enogex) 114,044 140,311 97,486 (18.7) 43.9
Other operation and maintenance . 284,194 274,988 266,061 3.3 3.4
Restructuring . . . . . . . . . . 21,035 -- -- * *
Depreciation . . . . . . . . . . 126,377 119,543 110,700 5.7 8.0
Taxes . . . . . . . . . . . . . . 117,022 115,361 103,928 1.4 11.0
- -------------------------------------------------------------------------------------
Total operating expenses . . . $1,154,702 $1,252,099 $1,137,980 (7.8) 10.0
=================================================================================================================
</TABLE>
* Not meaningful
Total operating expenses decreased $97.4 million, or 7.8 percent in 1994, due
to reduced fuel costs for the production of electricity and decreases in both
quantities and prices of gas purchased for resale by Enogex. These reductions
were partially offset by the cost of restructuring and increases in purchased
power and depreciation.
The Company's generating capability is almost evenly divided between coal and
natural gas and provides the flexibility to use either fuel to the best
economic advantage for the Company and its customers. During 1994, fuel costs
decreased approximately $120.0 million, or 31.3 percent, due to renegotiated
coal and transportation contracts, lower natural gas usage and a 15.9 percent
reduction in the volume of kilowatt-hours generated (due to economic purchases
of power from other utilities and a reduction in sales to other utilities). In
1993, fuel expense increased approximately $5.6 million, or 1.5 percent,
primarily due to increased prices of gas used in the generation of electricity,
which more than offset a 3.5 percent reduction in consumption of natural gas
used to generate electricity.
Purchased power costs amounted to $228.7 million in 1994, up from $218.7
million and $182.2 million, in 1993 and 1992, respectively. The $10.0 million
increase in 1994 resulted from economic purchases of power from other
utilities, while the $36.5 million increase in 1993 resulted from price
escalation provisions contained in certain cogeneration contracts. As required
by the Public Utility Regulatory Policy Act of 1978 ("PURPA"), the Company must
currently purchase power from qualified cogeneration facilities. In 1998,
another qualified cogeneration facility is scheduled to become operational and
the Company is obligated to purchase up to 100 megawatts of capacity from this
facility as well. See related discussion of purchased power in Note 9 of Notes
to Consolidated Financial Statements.
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 fuel adjustment clauses are subject to
periodic review by the Commission, the Arkansas Public Service Commission and
the Federal Energy Regulatory Commission ("FERC").
Even though increases and decreases are passed through to customers, in 1993
the Company began utilizing a natural gas storage facility which helps OG&E
lower fuel costs and receive greater value from its remaining take-or-pay gas
contracts. By diverting natural gas into storage, OG&E is able to use as much
coal as possible to generate electricity, and use gas from storage when needed
to meet increases in demand for electricity. The higher level of fuel
inventories at the end of 1994 was attributable to increased usage of the
natural gas storage facility and the relatively low level of fuel inventories at
the end of 1993 was due to significant Kilowatt-hour sales to other utilities.
The Company has initiated numerous other ongoing programs that have helped
reduce the cost of generating electricity over the last several years. These
programs include: 1) spot market purchases of coal; 2) renegotiated contracts
for coal, gas, railcar maintenance and coal transportation; and 3) a heat rate
awareness program to produce kilowatt-hours with less fuel. Reducing fuel
costs helps OG&E remain competitive, which in turn helps OG&E's electric
customers remain competitive in a global economy.
Enogex's gas purchased for resale decreased $26.3 million or 18.7 percent for
1994 compared to an increase of $42.8 million or 43.9 percent for 1993. The
1994 decrease was due to reduced volumes and lower natural gas prices, while
the 1993 increase
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
resulted from higher gas prices and increased volumes compared to 1992.
Other operation and maintenance increased by approximately $9.2 million and
$8.9 million in 1994 and 1993, respectively. A $5.4 million decrease in
production maintenance in 1994, net of labor savings, was more than offset by:
(i) expensing $8.4 million of previously deferred costs associated with
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions;" (ii) current
recognition of SFAS No. 106 costs; and (iii) increased costs of producing
natural gas liquids at Enogex. The 1993 increase in other operation and
maintenance expenses resulted from major overhauls at two generating plants and
increased labor costs.
The Company offered a Voluntary Early Retirement Package ("VERP") and more
than 730 employees elected to retire in July, at a cost of approximately $58.5
million. The Company also incurred approximately $4.9 million of costs related
to a severance package. The costs of the VERP and severance package were
deferred, pending a Commission order. Between August 1, and December 31, 1994,
the amount deferred was reduced by approximately $14.5 million, which is the
approximate amount of labor savings during that same period. In response to an
application filed by the Company, the Commission issued an order in October
1994 approving the Company's proposed accounting treatment of certain
restructuring costs. At December 31, 1994, the unamortized balance of the
regulatory asset was $48.9 million, which is included on the Consolidated
Balance Sheets as Deferred Charges - Other. This regulatory asset will be
amortized over 26 months, as permitted by the Commission's order. Restructuring
expenses, which resulted from a complete review and redesign of the Company's
operations, were approximately $21.0 million in 1994 (including amortization of
the deferred charge). Restructuring expenses included only costs that were
actually incurred in 1994. See Note 7 of Notes to Consolidated Financial
Statements.
The increases in depreciation for 1994 and 1993 reflect higher levels of
depreciable plant. Also, the adoption of SFAS No. 109, "Accounting for Income
Taxes," during 1993 and its effect on Enogex contributed to the increase in
depreciation. See Note 2 of Notes to Consolidated Financial Statements.
In 1994, income taxes increased primarily due to higher pre-tax earnings.
Income taxes during 1993 increased primarily due to higher pre-tax earnings and
a one percent increase in the federal income tax rate to 35 percent.
The variances in interest expense for 1994 and 1993 were primarily
attributable to the approximate $6.2 million of interest in 1993, associated
with the refund ordered by the Commission in February 1994. See Note 10 of
Notes to Consolidated Financial Statements.
LIQUIDITY, CAPITAL RESOURCES AND CONTINGENCIES
The primary capital requirements for 1994 and as estimated for 1995 through
1997 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1994 1995 1996 1997
==========================================================================================================
<S> <C> <C> <C> <C>
Construction expenditures
including AFUDC . . . . . . . . . . . . . . . . . $ 150 $ 89 $ 89 $ 89
Maturities of long-term
debt and sinking fund
requirements . . . . . . . . . . . . . . . . . . . -- 25 -- 15
- ----------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . $ 150 $ 114 $ 89 $104
==========================================================================================================
</TABLE>
CONSTRUCTION
The Company's primary needs for capital are related to construction of new
facilities to meet anticipated demand for service, to replace or expand
existing facilities in both its electric and non-utility businesses, and to
some extent, for satisfying maturing debt and sinking fund obligations.
Approximately $7.4 million of the Company's construction expenditures budgeted
for 1995 are to comply with environmental laws and regulations. Because of the
continuing trend toward greater environmental awareness and increasingly
stringent regulation, the Company has been experiencing a trend towards
increasing environmental costs. This trend has caused and may continue to cause
slightly higher operating expenditures and capital expenditures for
environmental matters.
The construction program for the next several years does not include any
additional base-load generating units. Rather, to meet the increased
electricity needs of its customers during the balance of this century, the
Company will concentrate on
20
<PAGE> 25
maintaining the reliability and increasing the utilization of existing capacity
and increasing demand-side management efforts.
FINANCE
The Company meets its cash needs through internally generated funds,
short-term borrowings and permanent financing. Cash flows from operations
remained strong, which enabled the Company to internally generate the required
funds to satisfy construction expenditures during 1994 and 1993. Management
expects that internally generated funds will be adequate over the next three
years to meet anticipated capital requirements. Short-term borrowings will
continue to be used to meet temporary cash requirements. The maximum amount of
outstanding short-term borrowings during 1994 was $220 million. The Company has
the necessary regulatory approvals to incur up to $400 million in short-term
borrowings at any one time.
The Company continues to evaluate opportunities to enhance shareowner returns
and achieve long-term financial objectives through acquisitions of non-utility
businesses. Permanent financing could be required for such acquisitions.
In August 1994, Enogex redeemed its $90 million of outstanding medium-term
notes, with interest rates ranging from 9.88% to 10.11%. Enogex anticipates
issuing long-term debt in 1995 to replace short-term borrowings in connection
with such redemption.
In January 1995, OG&E refinanced its obligations with respect to $47,000,000
of 5 7/8% Pollution Control Revenue Bonds due December 1, 2007 and $32,050,000
of 6 3/4% Pollution Control Revenue Bonds due March 1, 2006 through the
issuance of two new series of pollution control bonds bearing interest at
variable, tax-exempt rates. These refinancings are expected to result in lower
long-term interest rates during 1995.
CONTINGENCIES
The Company is defending various claims and legal actions, including
environmental actions, which are common to its operations. As to environmental
matters, the Company has been designated as a "potentially responsible party"
("PRP") with respect to three waste disposal sites to which the Company sent
materials. Under applicable law, the Company and each PRP could be held jointly
and severally liable for site remediation. Neither the amount of cleanup costs
nor the final method of their allocation among all designated PRPs at any of
these sites has been determined. While it is not possible to determine the
precise outcome of these matters, in the opinion of management, the Company's
ultimate liability for the clean-up costs of these sites will not have a
material adverse effect on the Company's consolidated financial position or
results of operations. Management's opinion is based on the following: 1) the
clean-up costs already paid by certain parties, 2) the financial viability of
the other PRPs, and 3) the portion of the total wastes disposed at the sites
attributable to the Company. Management also believes that costs incurred in
connection with the sites, which are not recovered from insurance carriers or
other parties, may be allowable costs for future ratemaking purposes.
The Company continues to explore options to comply with the Clean Air Act
Amendments of 1990 ("CAAA"). Since all of OG&E's coal-fired generating units
currently burn low-sulfur coal, OG&E will not need to take any steps to comply
with the new sulfur dioxide emission limits until January 1, 2000. In
compliance with Title IV of the CAAA, the Company has completed installation of
continuous emission monitors ("CEMs") on each of its five coal-fired generating
units and three of its 12 gas-fired generating units. Expenditures on CEMs in
1994 totalled approximately $6 million. The Environmental Protection Agency
("EPA") established a time extension for installation of CEMs on gas-fired
units which allowed the Company to defer CEM installation on the remaining nine
units subject to the requirements of Title IV. Completion of this project is
expected to cost approximately $1 million during 1995. The CAAA Title V
operating permits are expected to cost approximately $400,000 in 1995.
21
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The CAAA will also regulate emissions of nitrogen oxides and certain air
toxic compounds. Although final regulations concerning all of these issues have
not been written, additional capital expenditures may be necessary in future
years. The Company will continue to examine all alternatives to comply with
the CAAA as part of its Integrated Resource Planning process. This planning
approach will assure the Company employs the least cost option to comply with
the CAAA and be in a competitive position to market its services.
During 1992, OG&E disclosed to the EPA discrepancies in the 1991 annual
report required by the Toxic Substance Control Act ("TSCA"). These
discrepancies were administrative in nature and presented no harm to the
environment and presented no health problems to our Company members or the
public. However, the Company has instituted specific systems and measures to
correct each of the reported discrepancies. No actions were taken by the EPA on
this matter during 1994. See Note 9 of Notes to Consolidated Financial
Statements for a further discussion of this matter.
In October 1992, the National Energy Policy Act of 1992 ("Energy Act") was
enacted. Among many other provisions, the Energy Act is designed to promote
competition in the development of wholesale power generation in the electric
utility industry. It exempts a new class of independent power producers from
regulation under the Public Utility Holding Company Act of 1935 and allows the
FERC to order "wholesale wheeling" by public utilities to provide utility and
non-utility generators access to public utility transmission facilities. Also,
numerous states are considering proposals to require "retail wheeling" which is
the delivery of power generated by a third party to retail customers. In 1995,
the Company intends to make a transmission open access filing before the FERC,
in compliance with the Energy Act, and the Company intends to implement Real
Time Pricing for a pilot group of its retail customers. The Energy Act, these
proposals and other factors are expected to significantly increase competition
in the electric industry. The Company has taken steps in the past and intends
to take appropriate steps in the future to remain a competitive supplier of
electricity. Past actions include the redesign and restructuring effort in 1994
and the actions to reduce fuel costs, both of which have resulted in lower
retail rates, especially for industrial customers.
Besides the existing contingencies described above and those described in
Note 9 of Notes to Consolidated Financial Statements, the Company's ability to
fund its future operational needs and to finance its construction program is
dependent upon numerous other factors beyond its control, such as general
economic conditions, abnormal weather, load growth, inflation, new
environmental laws or regulations and the cost and availability of external
financing.
22
<PAGE> 27
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . . $ 1,355,168 $ 1,447,252 $ 1,314,984
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263,329 383,207 377,575
Purchased power . . . . . . . . . . . . . . . . . . . . . . . 228,701 218,689 182,230
Gas purchased for resale . . . . . . . . . . . . . . . . . . . 114,044 140,311 97,486
Other operation . . . . . . . . . . . . . . . . . . . . . . . 216,961 196,323 193,622
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . 67,233 78,665 72,439
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . 21,035 -- --
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 126,377 119,543 110,700
Current income taxes . . . . . . . . . . . . . . . . . . . . . 50,129 72,003 61,325
Deferred income taxes, net . . . . . . . . . . . . . . . . . . 27,092 5,286 4,346
Deferred investment tax credits, net . . . . . . . . . . . . (5,150) (5,150) (5,465)
Taxes other than income . . . . . . . . . . . . . . . . . . . 44,951 43,222 43,722
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses . . . . . . . . . . . . . . . . . . 1,154,702 1,252,099 1,137,980
- ----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 200,466 195,153 177,004
- ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS:
Interest income . . . . . . . . . . . . . . . . . . . . . . . 3,409 1,431 629
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,576) (2,732) (1,196)
- ----------------------------------------------------------------------------------------------------------------------
Net other income and deductions . . . . . . . . . . . . . . (2,167) (1,301) (567)
- ----------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES:
Interest on long-term debt . . . . . . . . . . . . . . . . . . 67,680 70,490 71,230
Allowance for borrowed funds used during construction (1,073) (433) (809)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,907 9,518 6,304
- ----------------------------------------------------------------------------------------------------------------------
Total interest charges, net . . . . . . . . . . . . . . . . 74,514 79,575 76,725
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,785 114,277 99,712
PREFERRED DIVIDEND REQUIREMENTS . . . . . . . . . . . . . . . . . 2,317 2,317 2,317
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS AVAILABLE FOR COMMON . . . . . . . . . . . . . . . . . . $ 121,468 $ 111,960 $ 97,395
======================================================================================================================
AVERAGE COMMON SHARES OUTSTANDING (thousands) . . . . . . . . . . 40,344 40,328 40,310
EARNINGS PER AVERAGE COMMON SHARE . . . . . . . . . . . . . . . . $ 3.01 $ 2.78 $ 2.42
======================================================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (DOLLARS IN THOUSANDS) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . $ 395,811 $ 391,135 $ 400,976
ADD--net income . . . . . . . . . . . . . . . . . . . . . . . . . 123,785 114,277 99,712
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 519,596 505,412 500,688
- ----------------------------------------------------------------------------------------------------------------------
DEDUCT:
Cash dividends declared on preferred stock . . . . . . . . . . 2,317 2,317 2,317
Cash dividends declared on common stock . . . . . . . . . . . 107,319 107,284 107,236
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,636 109,601 109,553
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . $ 409,960 $ 395,811 $ 391,135
======================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part hereof.
23
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 (DOLLARS IN THOUSANDS) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
In service . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,770,247 $ 3,656,113 $ 3,471,588
Construction work in progress . . . . . . . . . . . . . . . . 43,943 33,970 37,147
- ----------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment . . . . . . . . . . . . 3,814,190 3,690,083 3,508,735
Less accumulated depreciation . . . . . . . . . . . . . . 1,487,300 1,370,227 1,267,472
- ----------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment . . . . . . . . . . . . . . 2,326,890 2,319,856 2,241,263
- ----------------------------------------------------------------------------------------------------------------------
OTHER PROPERTY AND INVESTMENTS, at cost . . . . . . . . . . . . . 7,868 6,920 6,269
- ----------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . 2,455 6,593 11,316
Accounts receivable--customers, less reserve of $3,719,
$4,070 and $4,039, respectively . . . . . . . . . . . . . . 118,318 126,997 107,805
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . 36,800 45,100 45,300
Accounts receivable--other . . . . . . . . . . . . . . . . . . 8,601 6,269 6,378
Fuel inventories, at LIFO cost . . . . . . . . . . . . . . . . 46,494 27,127 37,066
Materials and supplies, at average cost . . . . . . . . . . . 30,401 26,813 24,614
Prepayments and other . . . . . . . . . . . . . . . . . . . . 43,137 28,648 5,215
Accumulated defferred tax asset . . . . . . . . . . . . . . . 12,077 24,088 --
- ----------------------------------------------------------------------------------------------------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . 298,283 291,635 237,694
- ----------------------------------------------------------------------------------------------------------------------
DEFERRED CHARGES:
Advance payments for gas . . . . . . . . . . . . . . . . . . . 10,000 21,165 22,743
Income taxes recoverable through future rates . . . . . . . . 47,246 47,593 44,387
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,342 44,255 37,727
- ----------------------------------------------------------------------------------------------------------------------
Total deferred charges . . . . . . . . . . . . . . . . . . . 149,588 113,013 104,857
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,782,629 $ 2,731,424 $ 2,590,083
======================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part hereof.
24
<PAGE> 29
<TABLE>
<CAPTION>
DECEMBER 31 (DOLLARS IN THOUSANDS) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statements):
Common stock and retained earnings . . . . . . . . . . . . . . $ 921,177 $ 906,804 $ 901,503
Cumulative preferred stock . . . . . . . . . . . . . . . . . . 49,973 49,973 49,973
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 730,567 838,660 838,654
- ----------------------------------------------------------------------------------------------------------------------
Total capitalization . . . . . . . . . . . . . . . . . . . . 1,701,717 1,795,437 1,790,130
- ----------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . 182,750 47,000 26,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 66,391 100,285 94,549
Dividends payable . . . . . . . . . . . . . . . . . . . . . . 27,415 27,410 27,397
Customers' deposits . . . . . . . . . . . . . . . . . . . . . 20,904 19,353 17,891
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . 25,153 24,717 27,169
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . 23,873 26,712 29,961
Long-term debt due within one year . . . . . . . . . . . . . . 25,350 350 15,300
Accumulated provision for rate refund . . . . . . . . . . . . 2,970 39,117 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,321 48,666 45,541
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities . . . . . . . . . . . . . . . . . 416,127 333,610 283,808
- ----------------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued pension and benefit obligation . . . . . . . . . . . . 71,014 16,210 5,620
Accumulated provision for rate refund . . . . . . . . . . . . -- -- 18,000
Accumulated deferred income taxes . . . . . . . . . . . . . . 497,056 484,003 384,114
Accumulated deferred investment tax credits . . . . . . . . . 88,328 93,478 98,627
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,387 8,686 9,784
- ----------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities . . . . . . . . 664,785 602,377 516,145
- ----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 9 AND 10)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . . . . . . $ 2,782,629 $ 2,731,424 $ 2,590,083
======================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part hereof.
25
<PAGE> 30
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31 (DOLLARS IN THOUSANDS) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
COMMON STOCK AND RETAINED EARNINGS:
Common stock, par value $2.50 per share;
Authorized 100,000,000 shares;
issued 46,470,616 shares . . . . . . . . . . . . . . . . . $ 116,177 $ 116,177 $ 116,177
Premium on capital stock . . . . . . . . . . . . . . . . . . . 608,158 608,195 608,174
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 409,960 395,811 391,135
Treasury stock--6,116,229, 6,124,139 and
6,141,591 shares, respectively . . . . . . . . . . . . . . . (213,118) (213,379) (213,983)
- ----------------------------------------------------------------------------------------------------------------------
Total common stock and retained earnings . . . . . . . . . . 921,177 906,804 901,503
- ----------------------------------------------------------------------------------------------------------------------
CUMULATIVE PREFERRED STOCK:
Par value $20, authorized 675,000 shares--4%;
outstanding 423,663 shares . . . . . . . . . . . . . . . . . 8,473 8,473 8,473
Par value $25, authorized and unissued 4,000,000 shares . . . -- -- --
Par value $100, authorized 1,865,000 shares--
SERIES SHARES OUTSTANDING
4.20% 50,000 . . . . . . . . . . . . . . . . . . . . . 5,000 5,000 5,000
4.24% 75,000 . . . . . . . . . . . . . . . . . . . . . 7,500 7,500 7,500
4.44% 65,000 . . . . . . . . . . . . . . . . . . . . . 6,500 6,500 6,500
4.80% 75,000 . . . . . . . . . . . . . . . . . . . . . 7,500 7,500 7,500
5.34% 150,000 . . . . . . . . . . . . . . . . . . . . . 15,000 15,000 15,000
- ----------------------------------------------------------------------------------------------------------------------
Total cumulative preferred stock . . . . . . . . . . . . . . . . 49,973 49,973 49,973
- ----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT:
First mortgage bonds--
SERIES DATE DUE
4 1/4% March 1, 1993 . . . . . . . . . . . . . . . . . . -- -- 15,000
4 1/2% March 1, 1995 . . . . . . . . . . . . . . . . . . 25,000 25,000 25,000
5 1/8% January 1, 1997 . . . . . . . . . . . . . . . . . 15,000 15,000 15,000
6 3/8% January 1, 1998 . . . . . . . . . . . . . . . . . 25,000 25,000 25,000
7 1/8% January 1, 1999 . . . . . . . . . . . . . . . . . 12,500 12,500 12,500
8 5/8% January 1, 2000 . . . . . . . . . . . . . . . . . 30,000 30,000 30,000
7 1/8% January 1, 2002 . . . . . . . . . . . . . . . . . 40,000 40,000 40,000
8 3/8% January 1, 2004 . . . . . . . . . . . . . . . . . 75,000 75,000 75,000
9 1/8% January 1, 2005 . . . . . . . . . . . . . . . . . 60,000 60,000 60,000
8 5/8% January 1, 2006 . . . . . . . . . . . . . . . . . 55,000 55,000 55,000
8 3/8% January 1, 2007 . . . . . . . . . . . . . . . . . 75,000 75,000 75,000
8 5/8% November 1, 2007 . . . . . . . . . . . . . . . . 35,000 35,000 35,000
8 1/4% August 15, 2016 . . . . . . . . . . . . . . . . . 100,000 100,000 100,000
8 7/8% December 1, 2020 . . . . . . . . . . . . . . . . 75,000 75,000 75,000
5 7/8% Pollution Control Series A, December 1, 2007 . . 47,000 47,000 47,000
7% Pollution Control Series C, March 1, 2017 . . . . 56,000 56,000 56,000
Other bonds--
6 3/4% Muskogee Industrial Trust Bonds, March 1, 2006 . 32,050 32,400 32,700
Unamortized premium and discount, net . . . . . . . . . . . . (8,533) (8,890) (9,246)
Enogex Inc. notes . . . . . . . . . . . . . . . . . . . . . . 6,900 90,000 90,000
- ----------------------------------------------------------------------------------------------------------------------
Total long-term debt . . . . . . . . . . . . . . . . . . . . 755,917 839,010 853,954
Less long-term debt due within one year . . . . . . . . . . 25,350 350 15,300
- ----------------------------------------------------------------------------------------------------------------------
Total long-term debt (excluding long-term
debt due within one year) . . . . . . . . . . . . . . . . . 730,567 838,660 838,654
- ----------------------------------------------------------------------------------------------------------------------
Total Capitalization . . . . . . . . . . . . . . . . . . . . . . $ 1,701,717 $ 1,795,437 $ 1,790,130
======================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part hereof.
26
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (DOLLARS IN THOUSANDS) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123,785 $ 114,277 $ 99,712
Adjustments to Reconcile Net Income to Net Cash Provided
from Operating Activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . 126,377 119,543 110,700
Deferred income taxes and investment tax credits, net . . 21,942 136 (1,119)
Provision for rate refund . . . . . . . . . . . . . . . . 4,200 21,117 18,000
Change in Certain Current Assets and Liabilities:
Accounts receivable--customers . . . . . . . . . . . . . 8,679 (19,192) 1,803
Accrued unbilled revenues . . . . . . . . . . . . . . . 8,300 200 (12,500)
Fuel, materials and supplies inventories . . . . . . . . (22,955) 7,740 5,473
Accumulated deferred tax assets . . . . . . . . . . . . 12,011 (24,088) --
Other current assets . . . . . . . . . . . . . . . . . . (16,821) (23,324) (762)
Accounts payable . . . . . . . . . . . . . . . . . . . . (35,667) 5,268 6,220
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 436 (2,452) (7,331)
Accrued interest . . . . . . . . . . . . . . . . . . . . (2,839) (3,249) 4,537
Accumulated provision for rate refund . . . . . . . . . (36,147) 39,117 --
Other current liabilities . . . . . . . . . . . . . . . (5,789) 4,600 4,433
Other operating activities . . . . . . . . . . . . . . . . 18,698 (12,841) 12,863
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities . . . . . . 204,210 226,852 242,029
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . (151,012) (127,674) (141,936)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities . . . . . . . . . (151,012) (127,674) (141,936)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt . . . . . . . . . . . . . . . (83,450) (15,300) (300)
Short-term debt . . . . . . . . . . . . . . . . . . . . . 135,750 21,000 13,500
Cash dividends declared on preferred stock . . . . . . . . (2,317) (2,317) (2,317)
Cash dividends declared on common stock . . . . . . . . . (107,319) (107,284) (107,236)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities . . . . . . . . . (57,336) (103,901) (96,353)
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . (4,138) (4,723) 3,740
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . 6,593 11,316 7,576
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . $ 2,455 $ 6,593 $ 11,316
======================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest (net of amount capitalized) . . . . . . . . . . . . $ 74,372 $ 71,401 $ 73,691
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ 57,416 $ 79,953 $ 60,229
- ----------------------------------------------------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part hereof.
27
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Oklahoma Gas
and Electric Company ("OG&E"), its wholly-owned non-utility subsidiary Enogex
Inc. and its subsidiaries ("Enogex") (collectively, the "Company"). All
significant intercompany transactions have been eliminated in consolidation.
ACCOUNTING RECORDS
The accounting records of OG&E are maintained in accordance with the Uniform
System of Accounts prescribed by the Federal Energy Regulatory Commission
("FERC") and adopted by the Oklahoma Corporation Commission (the "Oklahoma
Commission") and the Arkansas Public Service Commission (the "Arkansas
Commission"). Additionally, OG&E is subject to the accounting principles
prescribed by Statement of Financial Accounting Standards ("SFAS") No. 71,
"Accounting for the Effects of Certain Types of Regulation." SFAS No. 71
provides that, based upon the expectation to recover from, or flowback to,
future customers, certain costs can be deferred as regulatory assets, rather
than expensed and certain credits can be recognized as regulatory liabilities,
rather than treated as income. Management's expected recovery of deferred costs
and flowback of deferred credits generally results from specific decisions by
regulators granting such ratemaking treatment. Management continuously monitors
the future recoverability of regulatory assets. When, in management's judgment,
future recovery becomes impaired, the amount of the regulatory asset is reduced
or written-off, as appropriate. See Notes 7 and 10 of Notes to Consolidated
Financial Statements for related discussion.
PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment is recorded at cost. Electric utility
plant is recorded at its original cost. Newly constructed plant is added to
plant balances at costs which include contracted services, direct labor,
materials, overhead and allowance for funds used during construction.
Replacement of major units of property are capitalized as plant. The replaced
plant is removed from plant balances and the cost of such property together
with the cost of removal less salvage is charged to accumulated depreciation.
Repair and replacement of minor items of property are included in the
Consolidated Statements of Income as maintenance expense.
DEPRECIATION
The provision for depreciation, which was approximately 3.2% of the average
depreciable utility plant, for each of the years 1994, 1993 and 1992, is
provided on a straight-line method over the estimated service life of the
property. Depreciation is provided at the unit level for production plant and
at the account or sub-account level for all other plant, and is based on the
average life group procedure.
Enogex's gas pipeline and gas processing plants are depreciated on a
straight-line method over a period of 20 to 48 years.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Allowance for funds used during construction ("AFUDC") is calculated
according to FERC pronouncements for the imputed cost of equity and borrowed
funds. AFUDC, a non-cash item, is reflected as a credit on the Consolidated
Statements of Income and a charge to construction work in progress.
AFUDC rates, compounded semi-annually, were 4.58%, 3.60% and 4.30% for the
years 1994, 1993 and 1992, respectively.
UNBILLED REVENUE
OG&E accrues estimated revenues for services provided but not yet billed.
The cost of providing service is recognized as incurred.
AUTOMATIC FUEL ADJUSTMENT CLAUSES
Variances in the actual cost of fuel used in electric generation and certain
purchased power costs, as compared to that component in estimated
cost-of-service for ratemaking, are charged to substantially all of the
Company's electric customers through automatic fuel adjustment clauses, which
are subject to periodic review by the Oklahoma Commission, the Arkansas
Commission and the FERC.
FUEL INVENTORIES
Fuel inventories for the generation of electricity consist of coal, oil and
natural gas. These inventories are accounted for under the last-in, first-out
("LIFO") cost method. The estimated replacement cost of fuel inventories
exceeded the stated LIFO cost by approximately $2.5 million, $2.3 million and
$4.8 million for 1994, 1993 and 1992, respectively, based on the average cost
of fuel purchased late in the respective years. LIFO liquidation gains and
losses (no gains or losses in 1994, approximately $0.5 million gain in 1993 and
approximately $1.3 million loss in 1992) reduced or increased the Company's
recovery under its automatic fuel adjustment clauses, with no impact on net
income. Natural gas products inventories are held for sale and accounted for
based on the weighted average cost of production.
28
<PAGE> 33
- --------------------------------------------------------------------------------
2. INCOME TAXES
The items comprising tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (DOLLARS IN THOUSANDS) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
Current Income Taxes
Provision for current taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,974 $ 61,406 $ 52,191
State . . . . . . . . . . . . . . . . . . . . . . . . . . 7,155 10,597 9,134
- ----------------------------------------------------------------------------------------------------------------------
Total Current Income Taxes . . . . . . . . . . . . . . 50,129 72,003 61,325
- ----------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes, net
Provision (benefit) for deferred taxes:
Federal
Depreciation . . . . . . . . . . . . . . . . . . . . . . . 7,372 9,673 6,185
Repair allowance . . . . . . . . . . . . . . . . . . . . . 1,109 1,360 1,908
Removal costs . . . . . . . . . . . . . . . . . . . . . . . 1,542 1,026 635
Provision for rate refund . . . . . . . . . . . . . . . . . 12,406 (6,972) (5,774)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 812 (225) 1,059
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,851 424 333
- ----------------------------------------------------------------------------------------------------------------------
Total Deferred Income Taxes, net . . . . . . . . . . . . . 27,092 5,286 4,346
- ----------------------------------------------------------------------------------------------------------------------
Deferred Investment Tax Credits, net . . . . . . . . . . . . . . (5,150) (5,150) (5,465)
Income Taxes Relating to Other Income and Deductions . . . . . . 203 (538) (1,006)
- ----------------------------------------------------------------------------------------------------------------------
Total Income Tax Expense . . . . . . . . . . . . . . . . . $ 72,274 $ 71,601 $ 59,200
======================================================================================================================
Pretax Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196,059 $ 185,878 $ 158,912
======================================================================================================================
</TABLE>
The following schedule reconciles the statutory federal tax rate to the
effective income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
Statutory federal tax rate . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 34.0%
State income taxes, net of federal income tax benefit . . . . . . 3.7 3.9 3.9
Investment tax credits, net . . . . . . . . . . . . . . . . . . . (2.6) (2.8) (3.4)
Change in federal tax rate . . . . . . . . . . . . . . . . . . . -- 0.9 --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 1.5 2.8
- ----------------------------------------------------------------------------------------------------------------------
Effective income tax rate as reported . . . . . . . . . . . . 36.9% 38.5% 37.3%
======================================================================================================================
</TABLE>
The Company files consolidated income tax returns. Income taxes are
allocated to each company based on its separate taxable income or loss.
Investment tax credits on electric utility property have been deferred and
are being amortized to income over the life of the related property.
Payment of the rate refund in 1994 resulted in lower current income tax
expense. The provisions for rate refund accrued in 1992 and 1993 were not
deductible for income tax purposes until the refund was paid in 1994, resulting
in higher current income tax expense in 1992 and 1993.
The Company follows the provisions of SFAS No. 109, "Accounting for Income
Taxes," which it adopted effective January 1, 1993. SFAS No. 109 requires an
asset and liability approach to accounting for income taxes. Under SFAS No.
109, deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and liabilities
("temporary differences") using the enacted marginal tax rate. Deferred income
tax expenses or benefits are based on the changes in the asset or liability
from period to period. The Company elected not to restate the financial
statements for years ending before January 1, 1993. When adopted, SFAS No. 109
had no effect on net income.
29
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The deferred tax provisions, set forth above, are recognized as costs in the
ratemaking process by the commissions having jurisdiction over the rates
charged by OG&E.
The components of Accumulated Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) DEC 31, 1994 DEC 31, 1993 JAN 1, 1993
======================================================================================================================
<S> <C> <C> <C>
Current Deferred Tax Assets:
Accrued vacation . . . . . . . . . . . . . . . . . . . . . . . . $ 3,363 $ 4,177 $ 3,359
Postemployment medical and life insurance benefits . . . . . . . 3,235 -- --
Provision for rate refund . . . . . . . . . . . . . . . . . . . 375 14,965 --
Uncollectible accounts . . . . . . . . . . . . . . . . . . . . . 3,801 4,946 3,669
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . -- -- 1,102
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,303 -- --
- ----------------------------------------------------------------------------------------------------------------------
Accumulated deferred tax assets . . . . . . . . . . . . . . . $ 12,077 $ 24,088 $ 8,130
======================================================================================================================
Deferred Tax Liabilities:
Accelerated depreciation and other property-related differences $ 455,943 $ 439,253 $ 438,419
Allowance for funds used during construction . . . . . . . . . . 53,317 57,074 61,346
Income taxes recoverable through future rates . . . . . . . . . 58,470 62,441 61,829
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,730 558,768 561,594
- ----------------------------------------------------------------------------------------------------------------------
Deferred Tax Assets:
Deferred investment tax credits . . . . . . . . . . . . . . . . (28,868) (30,616) (32,850)
Income taxes refundable through future rates . . . . . . . . . . (40,186) (44,022) (49,100)
Provision for rate refund . . . . . . . . . . . . . . . . . . . -- -- (7,074)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,620) (127) (411)
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . (70,674) (74,765) (89,435)
- ----------------------------------------------------------------------------------------------------------------------
Accumulated Deferred Income Tax Liabilities . . . . . . . . . . . . $ 497,056 $ 484,003 $ 472,159
======================================================================================================================
</TABLE>
The effect of adopting SFAS No. 109 at January 1, 1993, before adjusting for
the new tax rate, resulted in a net increase in property, plant and equipment
of approximately $73.9 million, a net decrease in income taxes recoverable
through future rates of approximately $12.0 million and a net increase in
accumulated deferred income taxes of approximately $61.9 million. Also at
January 1, 1993, approximately $8.1 million of deferred tax assets which were
previously netted with accumulated deferred income taxes, were reclassified as
current assets as a result of adopting SFAS No. 109.
At December 31, 1992, the Company had recorded $44.4 million as unfunded
deferred income taxes recoverable from customers. A corresponding amount was
reflected as a component of accumulated deferred income taxes which represented
amounts refundable to customers. As a result of the adoption of SFAS No. 109,
the $44.4 million amount that was recorded as a component of accumulated
deferred income taxes at December 31, 1992, was reclassified January 1, 1993,
as a regulatory liability and netted against the regulatory asset. This
reclassification combined with the $12.0 million net decrease in income taxes
recoverable through future rates discussed above, resulted in a $32.4 million
net increase in the amount recognized as income taxes to be recovered through
future rates.
The Omnibus Reconciliation Act of 1993, signed into law on August 10, 1993,
increased the top federal corporate tax rate from 34 to 35 percent. The 35
percent rate was retroactively made effective January 1, 1993.
For the temporary differences that existed at January 1, 1993, the change in
the federal income tax rate increased the provision for income taxes and
accumulated deferred income taxes approximately $1.6 and $18.0 million,
respectively. Approximately $16.4 million of the increase which was applicable
to utility operations was recorded as income taxes recoverable from customers
through future rates and therefore had no impact on results of operations for
the year ended December 31, 1993.
For 1992, the provision for deferred income taxes was recorded primarily as
a result of the use of income tax law provisions which allowed for the
deduction or addition of items to taxable income in the tax return prior to or
after their being recorded on the books of the Company.
30
<PAGE> 35
- --------------------------------------------------------------------------------
3. COMMON STOCK AND RETAINED EARNINGS
There were no new shares of common stock issued during 1994, 1993 or 1992.
The $37,000 decrease in 1994 and $21,000 increase in 1993 in premium on capital
stock, as presented on the Consolidated Statements of Capitalization,
represents the gains and losses associated with the issuance of common stock
pursuant to the Restricted Stock Plan.
RESTRICTED STOCK PLAN
The Company has a Restricted Stock Plan whereby certain employees may
periodically receive shares of the Company's common stock at the discretion of
the Board of Directors. The Company distributed 18,950, 18,687 and 18,631
shares of common stock during 1994, 1993 and 1992, respectively. The Company
also reacquired 11,040 and 1,235 shares in 1994 and 1993, respectively. The
shares distributed/reacquired in the reported periods were recorded as treasury
stock.
Changes in common stock were:
<TABLE>
<CAPTION>
(THOUSANDS) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
Shares outstanding January 1 . . . . . . . . . . . . . . . . . . . 40,346 40,329 40,310
Issued/reacquired under the Restricted Stock Plan, net . . . . . . 8 17 19
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding December 31 . . . . . . . . . . . . . . . . . . 40,354 40,346 40,329
======================================================================================================================
</TABLE>
There were 4,009,021 shares of unissued common stock reserved for the
various employee and Company stock plans at December 31, 1994. With the
exception of the Restricted Stock Plan, the common stock requirements, pursuant
to those plans, are currently being satisfied with stock purchased on the open
market.
The Company's Restated Certificate of Incorporation and its Trust Indenture,
as supplemented, relating to the First Mortgage Bonds, contained provisions
which, under specific conditions, limit the amount of dividends (other than in
shares of common stock) and/or other distributions which may be made to common
shareowners.
In December 1991, holders of the Company's First Mortgage Bonds approved a
series of amendments to the Company's Trust Indenture. The amendments
eliminated the cumulative amount of the previous restrictions on retained
earnings related to the payment of dividends and provided management with the
flexibility to repurchase its common stock, when appropriate, in order to
maintain desired capitalization ratios and to achieve other business needs. The
Company is amortizing approximately $14.0 million of costs relating to
obtaining such amendments over the remaining life of the respective bond
issues. At the end of 1994, there was approximately $10.4 million in
unamortized costs associated with obtaining these amendments.
SHAREOWNERS RIGHTS PLAN
In December 1990, the Company adopted a Shareowners Rights Plan designed to
protect shareowners' interests in the event that the Company is ever confronted
with an unfair or inadequate acquisition proposal. Pursuant to the plan, the
Company declared a dividend distribution of one "right" for each share of
Company common stock. Each right entitles the holder to purchase from the
Company one one-hundredth of a share of new preferred stock of the Company
under certain circumstances. The rights may be exercised if a person or group
announces its intention to acquire, or does acquire, 20 percent or more of the
Company's common stock. Under certain circumstances, the holders of the rights
will be entitled to purchase either shares of common stock of the Company or
common stock of the acquirer at a reduced percentage of market value. The
rights will expire on December 11, 2000.
- --------------------------------------------------------------------------------
4. CUMULATIVE PREFERRED STOCK
Preferred stock is redeemable at the option of OG&E at the following amounts
per share plus accrued dividends: the 4% Cumulative Preferred Stock at the par
value of $20 per share; the Cumulative Preferred Stock, par value $100 per
share, as follows: 4.20% series-$102; 4.24% series-$102.875; 4.44% series-$102;
4.80% series-$102; and 5.34% series-$101.
As approved by shareowners on May 16, 1991, the Restated Certificate of
Incorporation was amended to permit the issuance of new series of preferred
stock with dividends payable other than quarterly.
31
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
5. LONG-TERM DEBT
OG&E's Trust Indenture, as supplemented, relating to the First Mortgage
Bonds, requires OG&E to pay to the trustee annually, an amount sufficient to
redeem, for sinking fund purposes, 1 1/4% of the highest amount outstanding at
any time. This requirement has been satisfied by pledging permanent additions
to property to the extent of 166 2/3% of principal amounts of bonds otherwise
required to be redeemed. Through December 31, 1994, gross property additions
pledged totaled approximately $355 million.
Annual sinking fund requirements for each of the five years subsequent to
December 31, 1994, are as follows:
<TABLE>
<CAPTION>
Year Amount
===========================================================================================
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,593,750
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,593,750
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,281,250
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,760,417
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,500,000
===========================================================================================
</TABLE>
As in prior years, OG&E expects to meet these requirements by pledging
permanent additions to property.
In January 1995, OG&E refinanced its obligations with respect to $47,000,000
of 5 7/8% Pollution Control Revenue Bonds due December 1, 2007 and $32,050,000
of 6 3/4% Pollution Control Revenue Bonds due March 1, 2006 through the
issuance of two new series of pollution control bonds bearing interest at
variable, tax-exempt rates and are due January 1, 2025. The 5 7/8% Series and
the 6 3/4% Series Bonds will be called March 1, 1995.
In August 1994, Enogex redeemed its $90 million of outstanding medium-term
notes, with interest rates ranging from 9.88% to 10.11%. As of December 31,
1994, Enogex long-term debt consisted of a $6.9 million, variable interest rate
note, maturing July 31, 2001. At December 31, 1994, the interest rate was 8
1/4%.
Maturities of First Mortgage Bonds during the next five years consist of $25
million in 1995, $15 million in 1997, $25 million in 1998 and $12.5 million in
1999.
Unamortized debt expense and unamortized premium and discount on long-term
debt are being amortized over the life of the respective debt.
Substantially all electric plant was subject to lien of the Trust Indenture
at December 31, 1994.
- --------------------------------------------------------------------------------
6. SHORT-TERM DEBT
The Company borrows on a short-term basis, as necessary, by the issuance of
commercial paper and by obtaining short-term bank loans. The maximum and
average amounts of short-term borrowings during 1994 were $220.0 million and
$130.6 million, respectively, at a weighted average interest rate of 4.76%. The
weighted average interest rates for 1993 and 1992 were 3.60% and 4.30%,
respectively. OG&E has an agreement for a flexible line of credit, up to $200
million, through December 31, 1997. The line of credit which was nominated by
OG&E at $160 million at year-end is maintained on a fee basis of 1/8 of 1%, per
year, on the unused balance. Enogex has a line of credit, up to $90 million,
through July 31, 1995. The Enogex line of credit is maintained on a fee basis
of LIBOR plus 1/2 of 1%, and a facility fee of 1/8 of 1% per year. Short-term
debt in the amount of $182.8 million was outstanding at December 31, 1994, of
which approximately $90 million pertained to debt incurred in connection with
Enogex's refinancing of its medium-term notes.
- --------------------------------------------------------------------------------
7. POSTEMPLOYMENT BENEFIT PLANS
During 1994, the Company restructured its operations, reducing its workforce
by approximately 24 percent. This was accomplished through a Voluntary Early
Retirement Package ("VERP") and an enhanced severance package. The VERP
included enhanced pension benefits as well as postemployment medical and life
insurance benefits.
As a result of the postemployment benefits provided in connection with this
workforce reduction, the Company incurred severance costs and certain one-time
costs computed in accordance with SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." In response to an application
filed by the Company, the Oklahoma Commission directed the Company to defer the
one-time costs which had not been offset by labor savings through December 31,
1994. The remaining balance of the one-time costs will be amortized over 26
months. The components of the severance and VERP costs and the amount deferred
are as follows:
32
<PAGE> 37
<TABLE>
<CAPTION>
SFAS SFAS
(DOLLARS IN THOUSANDS) NO. 88 NO. 106 SEVERANCE TOTAL
========================================================================================================
<S> <C> <C> <C> <C>
Curtailment Loss . . . . . . . . . . . . . . $ 1,042 $ 5,457 $ -- $ 6,499
Recognition of Transition Obligation . . . . -- 17,268 -- 17,268
Special Retirement Benefits . . . . . . . . . 28,198 6,566 -- 34,764
Enhanced Severance . . . . . . . . . . . . . -- -- 4,891 4,891
- --------------------------------------------------------------------------------------------------------
Total VERP and Severance Costs . . . . . . . $ 29,240 $ 29,291 $ 4,891 63,422
- --------------------------------------------------------------------------------------------------------
Deferred as a Regulatory Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,903)
- --------------------------------------------------------------------------------------------------------
Postemployment Costs
Recognized as Restructuring in 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 14,519
Consulting Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,750
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,766
- --------------------------------------------------------------------------------------------------------
1994 Restructuring Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,035
========================================================================================================
</TABLE>
The restructuring charges reflected above, include only costs that were
actually incurred in 1994.
PENSION PLAN
All eligible employees of the Company are covered by a non-contributory
defined benefit pension plan. Under the plan, retirement benefits are primarily
a function of both the years of service and the highest average monthly
compensation for 60 consecutive months out of the last 120 months of service.
It is the Company's policy to fund the plan on a current basis to comply
with the minimum required contributions under existing tax regulations. Such
contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future.
Net periodic pension cost is computed in accordance with provisions of SFAS
No. 87, "Employers' Accounting for Pensions," and is recorded in the
accompanying Consolidated Statements of Income as Other operation.
In determining the projected benefit obligation, the weighted average
discount rate used was 8.25%, 7.25% and 8.5% for 1994, 1993 and 1992,
respectively. The assumed rate of increase in future salary levels was 4.5% in
1994 and 1993 and 5.5% in 1992. The expected long-term rate of return on assets
used in determining net periodic pension cost was 9.0% for the reported
periods.
The plan's assets consist primarily of U. S. Government securities, listed
common stocks and corporate debt.
Net periodic pension costs for 1994, 1993 and 1992 included the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993 1992
================================================================================================================
<S> <C> <C> <C>
Service costs-benefits earned during year . . . . . . . . $ 7,824 $ 7,630 $ 7,266
Interest cost on projected benefit obligation . . . . . . 17,851 14,557 13,657
Return on plan assets . . . . . . . . . . . . . . . . . . (17,510) (15,697) (14,761)
Net amortization and deferral . . . . . . . . . . . . . . (1,263) (1,263) (1,263)
Amortization of unrecognized prior service cost . . . . . 1,489 671 671
- ----------------------------------------------------------------------------------------------------------------
Net periodic pension cost . . . . . . . . . . . . . . $ 8,391 $ 5,898 $ 5,570
================================================================================================================
</TABLE>
The following table sets forth the plan's funded status at December 31, 1994,
1993 and 1992:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993 1992
================================================================================================================
<S> <C> <C> <C>
Projected benefit obligation:
Vested benefits . . . . . . . . . . . . . . . . . . . $(208,438) $(140,958) $(113,072)
Nonvested benefits . . . . . . . . . . . . . . . . . . (14,664) (21,435) (17,709)
- ----------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation . . . . . . . . . . . . (223,102) (162,393) (130,781)
Effect of future compensation levels . . . . . . . . . (29,425) (51,196) (47,632)
- ----------------------------------------------------------------------------------------------------------------
Projected benefit obligation . . . . . . . . . . . . . . (252,527) (213,589) (178,413)
Plan's assets at fair value . . . . . . . . . . . . . . . 177,045 194,501 176,891
- ----------------------------------------------------------------------------------------------------------------
Plan's assets less than projected benefit obligation . . (75,482) (19,088) (1,522)
Unrecognized prior service cost . . . . . . . . . . . . . 43,250 7,942 8,613
Unrecognized net asset from application of SFAS No. 87 . (8,842) (10,106) (11,369)
Unrecognized net (gain) loss . . . . . . . . . . . . . . (900) 14,448 281
- ----------------------------------------------------------------------------------------------------------------
Accrued pension liability . . . . . . . . . . . . . . . . $ (41,974) $ (6,804) $ (3,997)
================================================================================================================
</TABLE>
33
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
In addition to providing pension benefits, the Company provides certain
medical and life insurance benefits for retired members ("postretirement
benefits"). Employees retiring from the Company on or after attaining age 55
who have met certain length of service requirements are entitled to these
benefits. The benefits are subject to deductibles, co-payment provisions and
other limitations. Prior to January 1, 1993, the costs of retiree medical and
life insurance benefits were recognized as expense when claims were paid
("pay-as-you-go"). Pay-as-you-go costs totaled approximately $4,621,000,
$3,804,000 and $3,443,000 for 1994, 1993 and 1992, respectively.
The Company adopted the provisions of SFAS No. 106 beginning January 1, 1993.
This standard requires that employers accrue the cost of postretirement
benefits during the active service periods of employees until the date they
attain full eligibility for the benefits.
During 1993, OG&E expensed "pay-as-you-go" postretirement benefits and
recorded a deferral for the difference between pay-as-you-go and SFAS No. 106
requirements. The February 25, 1994, Oklahoma Commission rate order directed
OG&E to recover postretirement benefit costs following the pay-as-you-go method
and to defer the incremental cost associated with accrual recognition of SFAS
No. 106 related costs following a "phase-in" plan. Accordingly, OG&E recorded a
regulatory asset for the difference between the amounts using the pay-as-you-go
method (adjusted for the phase-in plan) and those required by SFAS No. 106.
A decision was made in the second quarter of 1994 to discontinue deferral of
the differential and to charge to expense $8.4 million of postretirement
benefits that had been recorded as a regulatory asset. Although OG&E continues
to believe that it could have recovered these costs in future rate proceedings
before the Oklahoma Commission, OG&E decided to recognize these expenses
currently, due to its strategy to reduce its cost-structure, which minimizes
future revenue requirements. OG&E expects to continue charging to expense the
SFAS No. 106 costs and to include an annual amount as a component of
cost-of-service in future ratemaking proceedings.
Net postretirement benefit expense for the years ended December 31, 1994 and
December 31, 1993, included the following components:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993
==============================================================================================
<S> <C> <C>
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,714 $ 2,812
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . 5,978 6,158
Net amortization . . . . . . . . . . . . . . . . . . . . . . 3,549 3,687
Net amount capitalized or deferred . . . . . . . . . . . . . (4,557) (8,853)
Discontinued deferral of regulatory asset . . . . . . . . 8,359 --
- ----------------------------------------------------------------------------------------------
Net postretirement benefit expense . . . . . . . . . . . . $ 16,043 $ 3,804
==============================================================================================
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 8.25%, 7.25% and 8.5% for December 31, 1994, December 31, 1993
and January 1, 1993, respectively. The rate of increase in future compensation
levels used in measuring the life insurance accumulated postretirement benefit
obligation was 4.5% for December 31, 1994 and December 31, 1993 and 5.5% for
January 1, 1993. A 12.0 percent annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1994; the rate is assumed to
decrease gradually to 4.5% by the year 2006 and remain at that level
thereafter. A one-percentage-point increase in the assumed health care cost
trend rates would increase the accumulated postretirement benefit obligation as
of December 31, 1994 by approximately $7.3 million, and the aggregate of the
service and interest cost components of net postretirement health care cost for
1994 by approximately $1.0 million.
The following table sets forth the funded status of the postretirement
benefits and amounts recognized in the Company's Consolidated Balance Sheets as
of December 31, 1994 and December 31, 1993:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) DEC 31, 1994 DEC 31, 1993 JAN 1, 1993
================================================================================================================
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . $ (81,688) $ (42,891) $ (45,152)
Actives eligible to retire . . . . . . . . . . . . . . . (2,716) (17,479) (15,341)
Actives not yet eligible to retire . . . . . . . . . . . (7,870) (15,622) (13,241)
- ----------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . (92,274) (75,992) (73,734)
Plan assets at fair value . . . . . . . . . . . . . . . . 17,279 -- --
- ----------------------------------------------------------------------------------------------------------------
Funded status . . . . . . . . . . . . . . . . . . . . . . (74,995) (75,992) (73,734)
Unrecognized transition obligation . . . . . . . . . . . . 49,483 70,047 73,734
Unrecognized net actuarial gain . . . . . . . . . . . . . (2,930) (2,908) --
- ----------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation . . . . . . . . $ (28,442) $ (8,853) $ --
================================================================================================================
</TABLE>
34
<PAGE> 39
POSTEMPLOYMENT BENEFITS
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which requires the accrual of the estimated cost of
benefits provided to former or inactive employees after employment but before
retirement. The Company adopted this new standard effective January 1, 1994,
recording $4.7 million of postemployment benefits cost for the year.
- --------------------------------------------------------------------------------
8. REPORT OF BUSINESS SEGMENTS
The Company's electric utility segment is an operating public utility
engaged in the generation, transmission, distribution and sale of electric
energy. The non-utility subsidiary segment is engaged in the gathering and
transmission of natural gas, and through its subsidiaries, is engaged in the
processing of natural gas and the marketing of natural gas liquids, in the
buying and selling of natural gas to third parties, and in the exploration for
and production of natural gas and related products.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
Operating Information:
Operating Revenues
Electric utility . . . . . . . . . . . . . . . . . . . . . . . $ 1,196,898 $ 1,282,816 $1,193,993
Non-utility subsidiary . . . . . . . . . . . . . . . . . . . . 203,079 219,376 189,574
Intersegment revenues (A) . . . . . . . . . . . . . . . . . . . (44,809) (54,940) (68,583)
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,355,168 $ 1,447,252 $1,314,984
======================================================================================================================
Pre-tax Operating Income
Electric utility . . . . . . . . . . . . . . . . . . . . . . . $ 248,827 $ 238,761 $ 206,350
Non-utility subsidiary. . . . . . . . . . . . . . . . . . . . . 23,710 28,531 30,860
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 272,537 $ 267,292 $ 237,210
======================================================================================================================
Net Income
Electric utility . . . . . . . . . . . . . . . . . . . . . . . $ 113,795 $ 104,730 $ 88,293
Non-utility subsidiary . . . . . . . . . . . . . . . . . . . . 9,990 9,547 11,419
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123,785 $ 114,277 $ 99,712
======================================================================================================================
Investment Information:
Identifiable Assets as of December 31
Electric utility . . . . . . . . . . . . . . . . . . . . . . . $ 2,471,902 $ 2,443,651 $2,358,661
Non-utility subsidiary . . . . . . . . . . . . . . . . . . . . 310,727 287,773 231,422
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,782,629 $ 2,731,424 $2,590,083
======================================================================================================================
Other Information:
Depreciation
Electric utility . . . . . . . . . . . . . . . . . . . . . . . $ 107,239 $ 104,343 $ 100,531
Non-utility subsidiary . . . . . . . . . . . . . . . . . . . . 19,138 15,200 10,169
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 126,377 $ 119,543 $ 110,700
======================================================================================================================
Construction Expenditures
Electric utility . . . . . . . . . . . . . . . . . . . . . . . $ 104,256 $ 105,746 $ 109,650
Non-utility subsidiary . . . . . . . . . . . . . . . . . . . . 45,634 22,396 30,601
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 149,890 $ 128,142 $ 140,251
======================================================================================================================
</TABLE>
(A) Intersegment revenues are recorded at prices comparable to those of
unaffiliated customers and are affected by regulatory considerations.
35
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES
The Company has entered into purchase commitments in connection with its
construction program and the purchase of necessary fuel supplies of coal and
natural gas for its generating units. The Company's construction expenditures
for 1995 are estimated at $89 million.
The Company acquires natural gas for boiler fuel under 738 individual
contracts, some of which contain provisions allowing the owners to require
prepayments for gas if certain minimum quantities are not taken. At December
31, 1994, 1993 and 1992, outstanding prepayments for gas, including the amounts
classified as current assets, under these contracts were approximately
$10,879,000, $22,165,000 and $24,543,000, respectively. The Company may be
required to make additional prepayments in subsequent years. The Company
expects to recover these prepayments as fuel costs if unable to take the gas
prior to the expiration of the contracts.
At December 31, 1994, the Company held non-cancelable operating leases
covering approximately 1,500 coal hopper railcars. Rental payments are charged
to fuel expense and recovered through the Company's tariffs and automatic fuel
adjustment clauses. The leases have purchase and renewal options. Future
minimum lease payments due under the railcar leases, assuming the leases are
renewed under the renewal option are as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C> <C> <C>
1995 . . . . . . . . $ 5,530 1998 . . . . . . . . . . $ 5,214
1996 . . . . . . . . 5,425 1999 . . . . . . . . . . 5,108
1997 . . . . . . . . 5,319 2000 and beyond . . . . . 110,012
---------
Total Minimum Lease Payments . . . . . . . . . . . . . . . . . . . . $ 136,608
=========
</TABLE>
Rental payments under operating leases were approximately $5.6 million in
1994, $4.9 million in 1993 and $3.6 million in 1992.
OG&E is required to maintain the railcars it has under lease to transport
coal from Wyoming and has entered into an agreement with Railcar Maintenance
Company, a non-affiliated company, to furnish this maintenance.
The Company has entered into an agreement with an unrelated third party to
develop a natural gas storage facility. Pursuant to that agreement, the
Company made cash advances to the developer amounting to approximately $38.8
million, as of December 31, 1994, which is included in Prepayments and other on
the accompanying Consolidated Balance Sheets. Upon completion of the storage
facility, it is anticipated that the developer will obtain alternative
financing for the project and repay the cash advances. OG&E will utilize the
facility on a fee basis.
The Company has entered into agreements with four qualifying cogeneration
facilities having initial terms of 3 to 32 years. These contracts were entered
into pursuant to the Public Utility Regulatory Policy Act of 1978 ("PURPA").
Stated generally, PURPA and the regulations thereunder promulgated by FERC
require the Company to purchase power generated in a manufacturing process from
a qualified cogeneration facility ("QF"). The rate for such power to be paid by
the Company was approved by the Oklahoma Commission. The rate generally
consists of two components: one is a rate for actual electricity purchased from
the QF by the Company; the other is a capacity charge which the Company must
pay the QF for having the capacity available. However, if no electrical power
is made available to the Company for a period of time (generally three months),
the Company's obligation to pay the capacity charge is suspended. The total
cost of cogeneration payments is currently recoverable in rates from Oklahoma
customers.
During 1994, 1993 and 1992, OG&E made total payments to cogenerators of
approximately $210.3 million, $213.0 million and $179.4 million, of which
$173.2 million, $165.5 million and $101.6million, respectively, represented
capacity payments. All payments for purchased power, including cogeneration,
are included in the Consolidated Statements of Income as Purchased power. The
future minimum capacity payments under the contracts for the next five years
are approximately: 1995 - $174 million, 1996 - $175 million, 1997 - $176
million, 1998 - $184million and 1999 - $189 million.
Approximately $7.4 million of the Company's construction expenditures
budgeted for 1995 are to comply with environmental laws and regulations.
The Company continues to explore options to comply with the Clean Air Act
Amendments of 1990 ("CAAA"). Since all of OG&E's coal-fired generating units
currently burn low-sulfur coal, OG&E will not need to take any steps to comply
with the new sulfur dioxide emission limits until January 1, 2000. In
compliance with Title IV of the CAAA, the Company has completed installation of
continuous emission monitors ("CEMs") on each of its five coal-fired generating
units and three of its 12 gas-fired generating units. Expenditures on CEMs in
1994 totaled approximately $6million. The Environmental Protection Agency
("EPA") established a time extension for installation of CEMs on gas-fired
36
<PAGE> 41
units which allowed the Company to defer CEM installation on the remaining nine
units subject to the requirements of Title IV. Completion of this project is
expected to cost approximately $1million during 1995. The CAAA Title V
operating permits are expected to cost approximately $400,000 in 1995.
The CAAA will also regulate emissions of nitrogen oxides and certain air
toxic compounds. Although final regulations concerning all of these issues have
not been written, additional capital expenditures may be necessary in future
years. The Company will continue to examine all alternatives to comply with
the CAAA as part of its Integrated Resource Planning process. This planning
approach will assure the Company employs the least cost option to comply with
the CAAA and be in a competitive position to market its services.
The Company is a party to three separate actions brought by the EPA
concerning cleanup of disposal sites for hazardous waste. The Company was not
the owner or operator of those sites. Rather, the Company along with many
others, shipped materials to the owners or operators of the sites who failed to
dispose of the materials in an appropriate manner. The Company has calculated
that its portion of total waste disposed at the sites is relatively minor. The
cost of complying with the EPA sanctions at these sites is difficult to
estimate. However, based on the relative percentage attributed to the Company
and other considerations, management believes the ultimate outcome of these
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
In 1992, OG&E began a voluntary review of information contained in the
annual report required under the Toxic Substance Control Act ("TSCA") for 1991.
The initial result of the review revealed some discrepancies in operating
practices and documentation. The EPA was notified of these initial
discrepancies in December 1992. Because it was suspected that additional
discrepancies might be discovered during the continuing review/audit, OG&E
reached an agreement on January 12, 1993, with the EPA, Region VI, concerning
the notification and reporting requirements of any newly discovered
discrepancies.
After further investigation, OG&E reported in September 1993 numerous
additional discrepancies to the EPA, Region VI. Many of the discrepancies
could be deemed violations of the regulations under TSCA. Under the TSCA
regulations, the EPA has the authority to assess a maximum fine of up to
$25,000 per day, and to treat each day of violation as the basis for a separate
fine. OG&E has taken and is taking corrective action to remedy the
discrepancies.
The position of the EPA and OG&E is that they are currently in
pre-settlement negotiations. Since this matter is currently being negotiated,
OG&E does not know the amount of fines that the EPA may seek. The amount of the
fine is dependent upon numerous interpretative issues under the TSCA
regulations and potentially could be significant to the Company's results of
operations. However, at the present time, the Company does not expect that the
amount of the fine will have a material effect on its results of operations
based primarily on having voluntarily reported the discrepancies to the EPA
coupled with the Company's efforts to remedy the discrepancies and the lack of
releases into the environment or harm to individuals.
In the normal course of business, other lawsuits, claims, environmental
actions, and other governmental proceedings arise against the Company.
Management, after consultation with legal counsel, does not anticipate that
liabilities arising out of other currently pending or threatened lawsuits and
claims will have a material adverse effect on the Company's consolidated
financial position or results of operations.
- --------------------------------------------------------------------------------
10. RATE MATTERS AND REGULATION
On February 25, 1994, the Oklahoma Commission issued an order that, among
other things, lowered OG&E's rates to its Oklahoma retail customers by
approximately $14 million annually (based on a test year ended June 30, 1991)
and required OG&E to refund approximately $41.3 million. The $14 million annual
reduction in rates was expected to lower OG&E's rates to its Oklahoma customers
by approximately $17 million annually. With respect to the $41.3 million
refund, $39.1 million was associated with revenues prior to January 1, 1994,
while the remaining $2.2 million related to 1994.
During the first half of 1992 the Company participated in settlement
negotiations and offered a proposed refund and a reduction in rates in an
effort to reach settlement and conclude the proceedings. As a result, the
Company recorded an $18million provision for a potential refund in 1992. After
receiving the February 25, 1994 order, the Company recorded an additional
provision for rate refund of approximately $21.1million in 1993, (consisting of
a $14.9 million reduction in
37
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
revenue and $6.2 million in interest) which reduced net income by some $13
million or $0.32 per share.
Enogex transports natural gas to OG&E for use at its gas-fired generating
units and performs related gas gathering activities for OG&E. The entire $41.3
million refund relates to the Oklahoma Commission's disallowance of a portion
of the fees paid by OG&E to Enogex for such services in the past. Of the
approximately $17million annual rate reduction, approximately $9.9 million
reflects the Oklahoma Commission's reduction of the amount to be recovered by
OG&E from its Oklahoma customers for the future performance of such services by
Enogex.
As discussed in Note 7 of Notes to Consolidated Financial Statements, during
the third quarter of 1994, the Company incurred $63.4 million of costs related
to the Voluntary Early Retirement Package ("VERP") and enhanced severance
package. Pending an Oklahoma Commission order, OG&E deferred these costs;
however, between August 1, and December 31, 1994, the amount deferred was
reduced by approximately $14.5 million. In response to an application filed by
OG&E on August 9, 1994, the Oklahoma Commission issued an order on October 26,
1994, that permitted the Company to amortize the December 31, 1994, regulatory
asset of $48.9 million over 26 months and reduced OG&E's electric rates by
approximately $15 million annually, effective January 1995. The Company
anticipates that labor savings from the VERP and severance package will
substantially offset the amortization of the regulatory asset and annual rate
reduction of $15 million.
The components of Deferred Charges - Other, on the Consolidated Balance
Sheets included the following, as of December 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
Regulatory asset (restructuring) . . . . . . . . . . . . . . . . . $ 48,903 $ -- $ --
Unamortized debt expense . . . . . . . . . . . . . . . . . . . . . 12,871 14,146 15,462
Enogex gas sales contracts . . . . . . . . . . . . . . . . . . . . 12,690 -- --
Unamortized loss on reacquired debt . . . . . . . . . . . . . . . . 5,487 5,711 5,935
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,391 24,398 16,330
- ----------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,342 $ 44,255 $ 37,727
======================================================================================================================
</TABLE>
Regulatory Assets and Liabilities consisted of the following as of
December 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993 1992
======================================================================================================================
<S> <C> <C> <C>
Regulatory Assets:
Income Taxes Recoverable from Customers . . . . . . . . . . . . $ 151,086 $ 161,346 $ 44,387
Workforce Reduction . . . . . . . . . . . . . . . . . . . . . . 48,903 -- --
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 2,214 12,090 5,453
- ----------------------------------------------------------------------------------------------------------------------
Total Regulatory Assets . . . . . . . . . . . . . . . . . . . 202,203 173,436 49,840
Regulatory Liabilities:
Income Taxes Refundable to Customers . . . . . . . . . . . . . . (103,840) (113,753) (44,387)
Gain on Disposition of Allowances . . . . . . . . . . . . . . . (187) (79) --
- ----------------------------------------------------------------------------------------------------------------------
Net Regulatory Assets . . . . . . . . . . . . . . . . . . . . . . . $ 98,176 $ 59,604 $ 5,453
======================================================================================================================
</TABLE>
While the Company does not expect to cease meeting the criteria for
application of SFAS No. 71 in the foreseeable future, if the Company were
required to discontinue the application of SFAS No. 71 for some or all of its
operations, it would result in writing off the related regulatory assets; the
financial effects of which could be significant.
38
<PAGE> 43
- --------------------------------------------------------------------------------
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS AND CUSTOMER DEPOSITS
The fair value of cash and cash equivalents and customer deposits
approximate the carrying amount due to their short maturity.
CAPITALIZATION
The fair value of Long-term Debt and Preferred Stocks is estimated based on
quoted market prices and management's estimate of current rates available for
similar issues. The fair value of the Enogex Notes is based on management's
estimate of current rates available for similar issues with the same remaining
maturities.
Indicated below are the carrying amounts and estimated fair values of the
Company's financial instruments as of December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------------------ -------------------- -------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
(DOLLARS IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
CASH AND CASH EQUIVALENTS . . . . . $ 2,455 $ 2,455 $ 6,593 $ 6,593 $ 11,316 $ 11,316
=================================================================================================================
LIABILITIES:
CUSTOMER DEPOSITS . . . . . . . . . . $ 20,904 $ 20,904 $ 19,353 $ 19,353 $ 17,891 $ 17,891
=================================================================================================================
CAPITALIZATION:
First Mortgage Bonds . . . . . . . . $ 716,967 $ 710,523 $ 716,610 $ 749,684 $ 731,254 $ 740,755
Industrial Trust Bonds . . . . . . . 32,050 32,044 32,400 32,604 32,700 32,746
Enogex Inc. Notes . . . . . . . . . 6,900 6,900 90,000 100,486 90,000 95,715
Preferred Stock:
4% Series through 5.34% Series--
838,663 Shares outstanding . . . . 49,973 27,442 49,973 34,523 49,973 31,332
- -----------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . $ 805,890 $ 776,909 $ 888,983 $ 917,297 $ 903,927 $ 900,548
=================================================================================================================
</TABLE>
On January 1, 1994, SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," became effective. This did not have a material
adverse impact on the Company's consolidated financial position or results of
operations.
39
<PAGE> 44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREOWNERS OF
OKLAHOMA GAS AND ELECTRIC COMPANY:
We have audited the accompanying consolidated balance sheets and statements
of capitalization of Oklahoma Gas and Electric Company (an Oklahoma corporation)
and its subsidiaries as of December 31, 1994, 1993 and 1992, and the related
consolidated statements of income, retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Oklahoma Gas and Electric
Company and its subsidiaries as of December 31, 1994, 1993 and 1992, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
January 26, 1995
REPORT OF MANAGEMENT
TO OUR SHAREOWNERS:
The management of Oklahoma Gas and Electric Company and its subsidiaries has
prepared, and is responsible for the integrity and objectivity of the financial
and operating information contained in this Annual Report. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles and include certain amounts that are based on the best
estimates and judgments of management.
To meet its responsibility for the reliability of the consolidated financial
statements and related financial data, the Company's management has established
and maintains an internal control structure. This structure provides management
with reasonable assurance in a cost-effective manner that, among other things,
assets are properly safeguarded and transactions are executed and recorded in
accordance with its authorizations so as to permit preparation of financial
statements in accordance with generally accepted accounting principles. The
Company's internal auditors assess the effectiveness of this internal control
structure and recommend possible improvements thereto on an ongoing basis.
The Company maintains high standards in selecting, training and developing
its members. This, combined with Company policies and procedures, provides
reasonable assurance that operations are conducted in conformity with
applicable laws and with its commitment to the highest standards of business
conduct.
40
<PAGE> 45
INTERIM CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
In the opinion of the Company, the following quarterly information includes
all adjustments, consisting of normal recurring adjustments, necessary for a
fair statement of the results of operations for such periods:
<TABLE>
<CAPTION>
QUARTER ENDED (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) DEC 31 SEP 30 JUN 30 MAR 31
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . . 1994 $ 281,388 $ 443,173 $ 346,623 $ 283,984
1993 301,392 500,639 341,799 303,422
1992 304,093 443,327 306,341 261,223
- ---------------------------------------------------------------------------------------------------------------
Operating income . . . . . . . . . . . 1994 $ 23,792 $ 105,563 $ 50,427 $ 20,684
1993 18,899 111,576 39,457 25,221
1992 32,043 94,319 36,072 14,570
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) . . . . . . . . . . . . 1994 $ 4,952 $ 86,251 $ 31,082 $ 1,500
1993 (3,619) 90,810 20,396 6,690
1992 10,629 76,035 17,015 (3,967)
- ---------------------------------------------------------------------------------------------------------------
Earnings (loss) available for common . . 1994 $ 4,372 $ 85,672 $ 30,503 $ 921
1993 (4,199) 90,231 19,817 6,111
1992 10,050 75,456 16,436 (4,547)
- ---------------------------------------------------------------------------------------------------------------
Earnings (loss) per average common share 1994 $ 0.11 $ 2.12 $ 0.76 $ 0.02
1993 (0.10) 2.24 0.49 0.15
1992 0.25 1.87 0.41 (0.11)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 46
HISTORICAL DATA
<TABLE>
<CAPTION>
1994 1993 1992
========================================================================================================================
<S> <C> <C> <C>
SELECTED FINANCIAL DATA (dollars in thousands except per share data)
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,355,168 $ 1,447,252 $ 1,314,984
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 1,154,702 1,252,099 1,137,980
- ------------------------------------------------------------------------------------------------------------------------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . 200,466 195,153 177,004
Other income and deductions . . . . . . . . . . . . . . . . . . . . (2,167) (1,301) (567)
Interest charges . . . . . . . . . . . . . . . . . . . . . . . . . . 74,514 79,575 76,725
- ------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting change:
Accrual of unbilled revenues, net . . . . . . . . . . . . . . . . . -- -- --
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,785 114,277 99,712
Preferred dividend requirements . . . . . . . . . . . . . . . . . . 2,317 2,317 2,317
- ------------------------------------------------------------------------------------------------------------------------
Earnings available for common . . . . . . . . . . . . . . . . . . . $ 121,468 $ 111,960 $ 97,395
========================================================================================================================
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 730,567 $ 838,660 $ 838,654
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,782,629 $ 2,731,424 $ 2,590,083
Earnings per average common share . . . . . . . . . . . . . . . . . $ 3.01 $ 2.78 $ 2.42
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCK STATISTICS
Dividends declared per share . . . . . . . . . . . . . . . . . . . . $ 2.66 $ 2.66 $ 2.66
Dividends paid per share . . . . . . . . . . . . . . . . . . . . . . $ 2.66 $ 2.66 $ 2.66
Allowance for funds used during construction per average share,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.03 $ 0.01 $ 0.02
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22.83 $ 22.48 $ 22.35
Market price . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33 1/8 $ 37 $ 34 1/8
Price/Earnings ratio . . . . . . . . . . . . . . . . . . . . . . . . 11.0 13.3 14.1
Average shares outstanding (thousands) . . . . . . . . . . . . . . . 40,344 40,328 40,310
Actual shares outstanding (thousands) . . . . . . . . . . . . . . . 40,354 40,346 40,329
Number of shareowners . . . . . . . . . . . . . . . . . . . . . . . 44,464 36,201 37,081
- ------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION RATIOS
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 54.13% 50.51% 50.36%
Cumulative preferred stock . . . . . . . . . . . . . . . . . . . . . 2.94% 2.78% 2.79%
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.93% 46.71% 46.85%
- ------------------------------------------------------------------------------------------------------------------------
INTEREST COVERAGES
Before federal income taxes (including AFUDC) . . . . . . . . . . . 3.59X 3.32X 3.05X
(excluding AFUDC) . . . . . . . . . . . 3.58X 3.32X 3.04X
After federal income taxes (including AFUDC) . . . . . . . . . . . 2.64X 2.43X 2.29X
(excluding AFUDC) . . . . . . . . . . . 2.62X 2.42X 2.28X
- ------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS STATISTICS
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669,705 658,713 652,187
Kwh sales (millions) . . . . . . . . . . . . . . . . . . . . . . . . 21,199 23,306 23,378
Generating capability (mw):
Year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,637 5,637 5,653
Time of peak . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,637 5,653 5,655
Peak demand (mw) . . . . . . . . . . . . . . . . . . . . . . . . . . 5,060 5,010 4,550
Fuel:
Mix (kwh generated):
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28% 30% 30%
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72% 70% 70%
Cost per million Btu:
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.58 $ 3.64 $ 3.48
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.78 $ 1.16 $ 1.18
Weighted Average . . . . . . . . . . . . . . . . . . . . . . . . $ 1.58 $ 1.92 $ 1.88
Construction expenditures (thousands) . . . . . . . . . . . . . . . $ 149,890 $ 128,142 $ 140,251
Average residential customer sales (annual):
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 828.86 $ 861.72 $ 779.21
Usage (kwh) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,724 11,688 10,664
Price per kwh . . . . . . . . . . . . . . . . . . . . . . . . . . 7.07c. 7.37c. 7.31c.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The cumulative effect of accounting change increased 1987 earnings by $0.25
per share.
42
<PAGE> 47
<TABLE>
<CAPTION>
1991 1990 1989 1988
============================================================
<S> <C> <C> <C>
$ 1,314,770 $ 1,230,769 $1,141,319 $ 1,098,157
1,103,683 1,019,510 940,766 890,398
- ------------------------------------------------------------
211,087 211,259 200,553 207,759
(471) (263) 2,477 230
76,700 71,798 73,592 70,150
- ------------------------------------------------------------
-- -- -- --
133,916 139,198 129,438 137,839
2,317 2,467 2,518 2,518
- ------------------------------------------------------------
$ 131,599 $ 136,731 $ 126,920 $ 135,321
============================================================
$ 853,597 $ 853,540 $ 854,319 $ 861,255
$ 2,566,089 $ 2,522,907 $2,524,254 $ 2,521,145
$ 3.27 $ 3.38 $ 3.05 $ 3.20
- ------------------------------------------------------------
$ 2.60 $ 2.50 1/2 $ 2.40 1/2 $ 2.30 1/2
$ 2.58 $ 2.48 $ 2.38 $ 2.28
$ 0.07 $ 0.09 $ 0.09 $ 0.06
$ 22.59 $ 21.92 $ 21.28 $ 21.01
$ 44 $ 39 $ 39 $ 32 3/4
13.5 11.5 12.6 10.2
40,298 40,405 41,648 42,332
40,310 40,298 41,100 42,318
37,086 38,617 40,579 42,753
- ------------------------------------------------------------
50.20% 49.44% 49.03% 49.24%
2.75% 2.80% 3.08% 3.05%
47.05% 47.76% 47.89% 47.71%
- ------------------------------------------------------------
3.66X 3.91X 3.56X 3.72X
3.63X 3.87X 3.50X 3.66X
2.70X 2.84X 2.69X 2.86X
2.66X 2.79X 2.63X 2.81X
- ------------------------------------------------------------
645,955 641,994 638,558 636,036
22,082 20,424 19,508 19,214
5,655 5,691 5,703 5,703
5,628 5,703 5,703 5,703
4,680 4,810 4,560 4,690
39% 41% 45% 45%
61% 59% 55% 55%
$ 3.14 $ 3.06 $ 2.97 $ 2.75
$ 1.21 $ 1.38 $ 1.39 $ 1.52
$ 1.96 $ 2.08 $ 2.11 $ 2.08
$ 115,342 $ 113,687 $ 113,348 $ 91,056
$ 828.26 $ 777.54 $ 716.44 $ 715.46
11,587 11,501 10,916 11,194
7.15c. 6.76c. 6.56c. 6.39c.
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1987 1986 1985 1984
===============================================================
<S> <C> <C> <C>
$ 1,064,521 $ 1,090,872 $ 1,084,810 $ 1,028,537
877,112 899,483 927,547 875,835
- ---------------------------------------------------------------
187,409 191,389 157,263 152,702
673 2,281 10,289 17,581
74,093 67,402 58,998 57,015
- ---------------------------------------------------------------
10,623 -- -- --
124,612 126,268 108,554 113,268
2,518 7,217 11,916 11,916
- ---------------------------------------------------------------
$ 122,094 $ 119,051 $ 96,638 $ 101,352
===============================================================
$ 799,278 $ 836,522 $ 733,696 $ 733,707
$ 2,455,292 $ 2,500,460 $ 2,276,143 $ 2,201,553
$ 2.85* $ 2.75 $ 2.30 $ 2.47
- ---------------------------------------------------------------
$ 2.20 1/2 $ 2.10 1/2 $ 2.02 $ 1.94
$ 2.18 $ 2.08 $ 2.00 $ 1.92
$ 0.04 $ 0.05 $ 0.28 $ 0.49
$ 20.11 $ 20.43 $ 18.89 $ 18.52
$ 29 1/4 $ 34 1/2 $ 27 3/8 $ 22 3/4
10.1 13.2 12.0 9.3
42,887 43,300 41,954 41,052
42,340 45,541 42,313 41,478
44,491 46,623 53,234 55,178
- ---------------------------------------------------------------
49.92% 51.07% 47.21% 46.22%
3.22% 3.02% 9.45% 9.63%
46.86% 45.91% 43.34% 44.15%
- ---------------------------------------------------------------
3.73X 4.55X 4.02X 4.03X
3.69X 4.51X 3.80X 3.66X
2.62X 2.84X 2.70X 2.73X
2.59X 2.80X 2.47X 2.36X
- ---------------------------------------------------------------
634,414 639,333 645,529 640,955
18,854 18,400 19,544 20,570
5,703 5,772 5,655 5,656
5,772 5,655 5,656 5,814
4,570 4,870 4,670 4,890
46% 51% 49% 53%
54% 49% 51% 47%
$ 2.63 $ 2.68 $ 3.11 $ 2.68
$ 1.52 $ 1.59 $ 1.61 $ 1.61
$ 2.04 $ 2.15 $ 2.35 $ 2.18
$ 98,120 $ 98,934 $ 143,043 $ 149,995
$ 707.61 $ 732.46 $ 705.16 $ 658.80
10,857 10,591 11,097 11,127
6.50c. 6.92c. 6.35c. 5.92c.
- ---------------------------------------------------------------
</TABLE>
*The cumulative effect of accounting change increased 1987 earnings by $0.25
per share.
43
<PAGE> 48
DIVIDENDS
PREFERRED STOCK
================================================================================
4% Cumulative Preferred--$0.20 quarterly
Payable 15th of January, April, July, and October
- --------------------------------------------------------------------------------
4.20% Cumulative Preferred--$1.05 quarterly*
- --------------------------------------------------------------------------------
4.24% Cumulative Preferred--$1.06 quarterly*
- --------------------------------------------------------------------------------
4.44% Cumulative Preferred--$1.11 quarterly*
- --------------------------------------------------------------------------------
4.80% Cumulative Preferred--$1.20 quarterly*
- --------------------------------------------------------------------------------
5.34% Cumulative Preferred--$1.33 1/2 quarterly*
- --------------------------------------------------------------------------------
*Payable 20th of January, April, July, and October
- --------------------------------------------------------------------------------
COMMON STOCK
================================================================================
Common (as declared) quarterly dividends paid in 1994 and 1993 were $0.661/2.
Present rate--$0.661/2 quarterly
Payable 30th of January, April, July, and October
Security Ratings**
<TABLE>
<CAPTION>
Standard
Moody's and Poor's
===========================================================
<S> <C> <C>
First Mortgage Bonds A1 AA -
- -----------------------------------------------------------
Preferred Stock "a1" AA -
- -----------------------------------------------------------
Commercial Paper P-1 A-1+
- -----------------------------------------------------------
</TABLE>
** The ratings of Moody's and Standard and Poor's reflect only the views of
such organization and each rating should be evaluated independently of the
other. The ratings are not recommendations to purchase, sell or hold a
security. There can be no assurance that such ratings will remain in effect for
any given period of time or that they will not be revised downward or withdrawn
entirely by either or both of such rating agencies if, in the judgment of
either or both, circumstances so warrant.
For further information regarding these ratings, please contact the
Secretary of the Company at P.O. Box 321, Oklahoma City, Oklahoma 73101-0321,
(405) 553-3196.
MARKET PRICES
<TABLE>
<CAPTION>
1994 1993
===============================================================================================================
New York Stock Exchange High Low High Low
===============================================================================================================
<S> <C> <C> <C> <C>
Common
- ---------------------------------------------------------------------------------------------------------------
First Quarter $ 37 1/4 $ 33 1/2 $ 35 7/8 $ 33
- ---------------------------------------------------------------------------------------------------------------
Second Quarter 36 1/2 29 3/8 37 5/8 33 3/4
- ---------------------------------------------------------------------------------------------------------------
Third Quarter 34 3/8 29 5/8 38 5/8 34
- ---------------------------------------------------------------------------------------------------------------
Fourth Quarter 34 1/4 32 38 5/8 32 7/8
- ---------------------------------------------------------------------------------------------------------------
4% Cumulative Preferred
- ---------------------------------------------------------------------------------------------------------------
First Quarter $ 14 $ 12 1/4 $ 14 $ 12 1/4
- ---------------------------------------------------------------------------------------------------------------
Second Quarter 13 1/2 11 1/2 14 1/2 12 3/4
- ---------------------------------------------------------------------------------------------------------------
Third Quarter 13 10 1/2 15 12 5/8
- ---------------------------------------------------------------------------------------------------------------
Fourth Quarter 12 1/2 9 3/4 15 1/2 13
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Other classes of Preferred Stock are seldom traded, and representative
bid-asked quotes are not available.
44
