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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-1097
OKLAHOMA GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Oklahoma 73-0382390
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 North Robinson
P. O. Box 321
Oklahoma City, Oklahoma 73101-0321
(Address of principal executive offices)
(Zip Code)
405-553-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes x No
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There were 40,362,721 Shares of Common Stock, par value $2.50 per share,
outstanding as of October 31, 1996.
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<CAPTION>
OKLAHOMA GAS AND ELECTRIC COMPANY
PART I. FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months Ended 9 Months Ended
September 30 September 30
------------------------------- ----------------------------------
1996 1995 1996 1995
-------------- -------------- --------------- ----------------
(thousands except per share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric utility...................................... $ 411,764 $ 436,846 $ 948,667 $ 927,246
Non-utility subsidiary................................ 37,460 30,664 127,253 90,893
-------------- -------------- --------------- ---------------
Total operating revenues............................ 449,224 467,510 1,075,920 1,018,139
-------------- -------------- --------------- ---------------
OPERATING EXPENSES:
Fuel.................................................. 87,105 94,786 216,189 206,234
Purchased power....................................... 56,534 55,444 166,132 162,806
Gas purchased for resale.............................. 20,884 20,953 80,396 60,488
Other operation....................................... 60,576 58,926 179,841 169,984
Maintenance........................................... 14,909 16,767 42,725 39,881
Depreciation and amortization......................... 34,626 32,926 101,581 97,071
Current income taxes.................................. 57,489 67,032 83,252 80,566
Deferred income taxes, net............................ (695) (5,591) (4,145) (6,452)
Deferred investment tax credits, net.................. (1,286) (1,287) (3,861) (3,862)
Taxes other than income............................... 11,930 11,563 35,818 34,224
-------------- -------------- --------------- ---------------
Total operating expenses............................ 342,072 351,519 897,928 840,940
-------------- -------------- --------------- ---------------
OPERATING INCOME........................................... 107,152 115,991 177,992 177,199
-------------- -------------- --------------- ---------------
OTHER INCOME AND DEDUCTIONS:
Interest income....................................... 522 446 1,684 2,834
Other................................................. (678) (910) (1,914) (3,306)
-------------- -------------- --------------- ----------------
Net other income and deductions..................... (156) (464) (230) (472)
-------------- -------------- --------------- ---------------
INTEREST CHARGES:
Interest on long-term debt............................ 15,607 15,742 46,776 46,666
Allowance for borrowed funds used during construction. (272) (34) (606) (1,027)
Other................................................. 1,496 2,850 5,561 10,722
-------------- -------------- --------------- ---------------
Total interest charges, net......................... 16,831 18,558 51,731 56,361
-------------- -------------- --------------- ---------------
NET INCOME ................................................ 90,165 96,969 126,031 120,366
PREFERRED DIVIDEND REQUIREMENTS............................ 572 579 1,730 1,737
-------------- -------------- --------------- ---------------
EARNINGS AVAILABLE FOR COMMON.............................. $ 89,593 $ 96,390 $ 124,301 $ 118,629
============== ============== =============== ===============
AVERAGE COMMON SHARES OUTSTANDING.......................... 40,363 40,355 40,367 40,354
EARNINGS PER AVERAGE COMMON SHARE.......................... $ 2.22 $ 2.39 $ 3.08 $ 2.94
============== ============== =============== ===============
DIVIDENDS DECLARED PER SHARE............................... $ 0.665 $ 0.665 $ 1.995 $ 1.995
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part hereof.
</FN>
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<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 December 31
1996 1995
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(dollars in thousands)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
In service.................................................... $ 3,971,220 $ 3,898,829
Construction work in progress................................. 34,750 29,705
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Total property, plant and equipment...................... 4,005,970 3,928,534
Less accumulated depreciation........................ 1,667,301 1,585,274
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Net property, plant and equipment............................. 2,338,669 2,343,260
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OTHER PROPERTY AND INVESTMENTS, at cost......................... 9,002 9,943
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CURRENT ASSETS:
Cash and cash equivalents..................................... 4,295 5,420
Accounts receivable - customers, net.......................... 172,608 126,273
Accrued unbilled revenues..................................... 49,000 43,550
Accounts receivable - other................................... 10,927 9,152
Fuel inventories, at LIFO cost................................ 62,513 60,356
Materials and supplies, at average cost....................... 21,011 22,996
Prepayments and other......................................... 9,136 4,535
Accumulated deferred tax assets............................... 8,982 10,759
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Total current assets...................................... 338,472 283,041
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DEFERRED CHARGES:
Advance payments for gas...................................... 6,500 6,500
Income taxes recoverable through future rates................. 43,549 41,934
Other......................................................... 66,456 70,193
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Total deferred charges.................................... 116,505 118,627
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TOTAL ASSETS.................................................... $ 2,802,648 $ 2,754,871
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CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and retained earnings............................ $ 981,071 $ 937,535
Cumulative preferred stock.................................... 49,379 49,939
Long-term debt................................................ 829,176 843,862
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Total capitalization...................................... 1,859,626 1,831,336
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CURRENT LIABILITIES:
Short-term debt............................................... 57,300 67,600
Accounts payable.............................................. 46,152 72,089
Dividends payable............................................. 27,413 27,427
Customers' deposits........................................... 23,037 21,920
Accrued taxes................................................. 80,954 27,937
Accrued interest.............................................. 17,531 19,144
Long-term debt due within one year............................ 15,000 ---
Accumulated provision for rate refunds........................ 235 2,650
Other......................................................... 31,008 33,388
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Total current liabilities................................. 298,630 272,155
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DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued pension and benefit obligation........................ 71,671 67,350
Accumulated deferred income taxes............................. 480,248 485,078
Accumulated deferred investment tax credits................... 79,315 83,178
Other......................................................... 13,158 15,774
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Total deferred credits and other liabilities.............. 644,392 651,380
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COMMITMENTS AND CONTINGENCIES................................... --- ---
------------- -------------
TOTAL CAPITALIZATION AND LIABILITIES............................ $ 2,802,648 $ 2,754,871
============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part hereof.
</FN>
</TABLE>
2
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
9 Months Ended
September 30
1996 1995
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(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ........................................................ $ 126,031 $ 120,366
Adjustments to Reconcile Net Income to Net
Cash Provided From Operating Activities:
Depreciation and amortization................................. 101,581 97,071
Deferred income taxes and investment tax credits, net......... (8,006) (10,314)
Provision for rate refund..................................... 1,804 3,050
Change in Certain Current Assets and Liabilities:
Accounts receivable - customers............................ (46,335) (64,436)
Accrued unbilled revenues.................................. (5,450) (14,200)
Fuel, materials and supplies inventories................... (172) (5,332)
Accumulated deferred tax assets............................ 1,777 1,044
Other current assets....................................... (6,376) 36,406
Accounts payable........................................... (26,510) (5,612)
Accrued taxes.............................................. 53,017 58,380
Accrued interest........................................... (1,613) (8,692)
Accumulated provision for rate refund...................... (2,415) 2,080
Other current liabilities.................................. (1,277) (8,075)
Other operating activities.................................... 12,880 24,412
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Net cash provided from operating activities.............. 198,936 226,148
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................... (106,943) (104,725)
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Net cash used in investing activities.................... (106,943) (104,725)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt, net........................................... --- 87,750
Short-term debt, net.......................................... (10,300) (124,850)
Redemption of preferred stock................................. (560) ---
Cash dividends declared on preferred stock.................... (1,730) (1,737)
Cash dividends declared on common stock....................... (80,528) (80,507)
------------- --------------
Net cash used in financing activities.................... (93,118) (119,344)
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................. (1,125) 2,079
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 5,420 2,455
------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 4,295 $ 4,534
============== ==============
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest (net of amount capitalized).......................... $ 51,517 $ 63,001
Income taxes.................................................. $ 41,032 $ 35,752
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<FN>
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of these statements, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. These investments are carried at cost which approximates market.
The accompanying Notes to Consolidated Financial Statements are an integral part herof.
</FN>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations; however, the
Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of the Company, all adjustments
necessary to present fairly the financial position of Oklahoma Gas and
Electric Company and its subsidiary as of September 30, 1996, and December
31, 1995, and the results of operations and the changes in cash flows for
the periods ended September 30, 1996, and September 30, 1995, have been
included and are of a normal recurring nature (excluding amortization of a
regulatory asset relating to a Voluntary Early Retirement Package ("VERP")
and severance package - See Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for related discussion).
The results of operations for such interim periods are not necessarily
indicative of the results for the full year. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 1995.
2. In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Adoption of SFAS No. 121 is required for fiscal years beginning after
December 15, 1995. The Company adopted this new standard effective January
1, 1996, and the adoption of the standard did not have a material impact on
its consolidated financial position or results of operations.
3. In October 1995 the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company has elected to continue to measure stock
compensation cost as prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and will make the appropriate annual pro forma
disclosures of net income and earnings.
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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis presents factors which affected the
results of operations for the three and nine months ended September 30, 1996
(respectively, the "current periods"), and the financial position as of
September 30, 1996, of Oklahoma Gas and Electric Company ("OG&E") and its
wholly-owned non-utility subsidiary, Enogex Inc. and its subsidiaries ("Enogex")
(collectively, the "Company"). For current periods, approximately 92 percent and
88 percent of the Company's revenues consisted of regulated sales of electricity
as a public utility, while the remaining 8 percent and 12 percent were provided
by the non-utility operations of Enogex. Revenues from sales of electricity are
somewhat seasonal, with a large portion of the Company's annual electric
revenues occurring during the summer months when the electricity needs of its
customers increase. Enogex's primary operations consist of transporting natural
gas through its intra-state pipeline to various customers (including OG&E),
marketing (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. Unless indicated otherwise, all comparisons are with the corresponding
period of the prior year.
On June 17, 1996, the Company filed an application with the Oklahoma
Corporation Commission ("OCC") for an annual electric utility rate reduction of
$14.2 million. This review of OG&E's electric utility rates is expected to
conclude no later than six months after the rate case filing, a new requirement
under Oklahoma law. On October 14, 1996, the staff of the OCC recommended that
OG&E lower its annual revenues by $94.5 million. In a separate recommendation,
the Oklahoma Attorney General proposed a $79.8 million annual OG&E rate
reduction. See Part II, Item 1 - "Legal Proceedings" for a discussion of the
Application.
On July 19, 1995, OG&E announced plans to create a holding company
structure with OGE Energy Corp. becoming the parent company of OG&E. At a
special meeting of shareowners on November 16, 1995, OG&E shareowners approved
the new holding company structure. Final regulatory actions are expected to be
completed, and consummation of the transaction is expected to be completed later
in 1996. Pursuant to the proposed transaction, OG&E's common stock will be
exchanged on a share-for-share basis for common stock of OGE Energy Corp. and
OG&E will become a subsidiary of OGE Energy Corp. As part of this corporate
restructuring, OG&E's wholly-owned subsidiary, Enogex Inc., will also become a
direct subsidiary of OGE Energy Corp. The holding company structure will provide
greater flexibility to take advantage of opportunities to develop or acquire
other businesses, providing opportunities for increased earnings in an
increasingly competitive business environment. The holding company structure
will clearly separate the Company's electric utility business from the
5
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non-utility businesses of the other OGE Energy Corp. subsidiaries for
regulatory, capital structure and other purposes. See Part II, Item 5 -
"Unaudited Pro Forma Financial Information."
As reported in the Company's Form 10-K for the year ended December 31,
1995, the Company restructured and redesigned its operations in 1994 to reduce
costs in order to more favorably position itself for the competitive electric
utility environment. As part of this process, the Company implemented the VERP
and the severance package in 1994, which reduced the Company's workforce by
approximately 900 employees. In accordance with an order of the OCC issued on
October 26, 1994, that reduced OG&E's electric rates by approximately $15
million annually, OG&E has been amortizing since January 1995 a regulatory asset
of $48.9 million consisting of the balance of the deferred costs associated with
the VERP and the severance package.
At September 30, 1996, the unamortized regulatory asset was $9.4 million,
which is included on the Consolidated Balance Sheets as Deferred Charges -
Other. The amortization of the regulatory asset and the annual rate reduction of
$15 million have not significantly impacted and are not expected to
significantly impact operating results as these amounts are substantially offset
by the savings from the 1994 workforce reduction.
REVENUES
Total operating revenues decreased $18.3 million or 3.9 percent in the
three months ended September 30, 1996. This decrease was primarily attributable
to decreased electric sales due to cooler than normal weather. The decrease was
partially offset by customer growth and increased Enogex revenues. In the
nine-month period, total operating revenues increased $57.8 million or 5.7
percent. This increase was due to increased electric sales from cooler than
normal weather in the first quarter, warmer than normal weather in the second
quarter, the recovery of higher fuel costs, continued customer growth and higher
Enogex revenues.
The impact of the cooler than normal weather, partially offset by continued
customer growth, resulted in a decrease of 2.9 percent in kilowatt-hour sales to
OG&E customers ("system sales") in the three months ended September 30, 1996.
For the nine months ended September 30, 1996, system sales increased 3.8 percent
due to the cooler than normal weather in the first quarter of 1996, warmer than
normal weather in the second quarter of 1996 and continued customer growth
during all three quarters. Sales to other utilities decreased significantly
during the current periods; however, sales to other utilities are at much lower
prices per kilowatt-hour and have less impact on operating revenues than system
sales.
Enogex revenues increased $6.8 million or 22.2 percent and $36.4 million or
40.0 percent in the current periods, largely due to increased revenues from
production activities and its marketing of natural gas and natural gas liquids.
These increased revenues were attributable primarily to significantly higher
sales prices and moderate increases in volumes sold. Revenues from gas
transportation increased $1.9 million or 13.8 percent and $4.5 million or 11.2
percent in the current periods, due primarily to an increase in volumes
transported for parties other than OG&E.
6
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EXPENSES
Total operating expenses decreased $9.4 million or 2.7 percent in the three
months ended September 30, 1996 and increased $57.0 million or 6.8 percent in
the nine-month period. In the three-month period, the decrease was primarily due
to reduced fuel costs and reduced current income taxes. In the nine-month
period, the increase was primarily due to increased fuel costs, higher other
operation expense and increased volumes and prices paid by Enogex for gas
purchased for resale to third parties.
Fuel expense decreased $7.7 million or 8.1 percent in the three months
ended September 30, 1996 due to decreased generation of electricity as a result
of cooler than normal weather. In the nine-month period, fuel expense increased
$10.0 million or 4.8 percent due to increased generation of electricity in the
first quarter due to cooler than normal weather and in the second quarter as a
result of warmer than normal weather. 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 OCC, the Arkansas
Public Service Commission ("APSC") and the Federal Energy Regulatory Commission
("FERC"). Enogex Inc. owns and operates a pipeline business that delivers
natural gas to the generating stations of OG&E. The OCC, the APSC and the FERC
have authority to examine the appropriateness of any gas transportation charges
or other fees OG&E pays Enogex, which OG&E seeks to recover through the fuel
adjustment clause or other tariffs. See Part II, Item 1 - "Legal Proceedings"
for a discussion of the review by the APSC of gas transportation charges paid by
OG&E to Enogex.
Enogex's gas purchased for resale pursuant to its gas marketing operations
increased $19.9 million or 32.9 percent in the nine-month period, due to
increased sales volumes and significantly higher purchase prices.
Other operation expense increased $1.7 million or 2.8 percent and $9.9
million or 5.8 percent during the current periods. The increase in the
three-month period was due primarily to increased production costs associated
with higher oil and gas production from exploration activities by Enogex. In the
nine-month period, the increase was due primarily to the cost of the new
company-wide information system, increased pension expense and increased oil and
gas production and pipeline operations by Enogex.
Maintenance expense decreased $1.9 million or 11.1 percent in the
three-month period primarily due to the write-off of obsolete inventory in the
third quarter of 1995. In the nine-month period, maintenance increased $2.8
million or 7.1 percent due primarily to minor overhauls at coal-fired generating
plants, repair of coal handling equipment and increased pipeline maintenance by
Enogex associated with increased gas gathering and sales.
7
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Depreciation and amortization increased $1.7 million or 5.2 percent and
$4.5 million or 4.6 percent during the current periods due to an increase in
depreciable property and higher oil and gas production volumes (based on units
of production depreciation method).
Current and deferred income taxes had a net decrease of $4.6 million in the
three-month period due to lower pre-tax income and normally occurring temporary
differences. In the nine-month period, these taxes increased $5.0 million due to
slightly higher pre-tax income and normally occurring temporary differences.
Interest expense decreased $1.7 million or 9.3 percent and $4.6 million or
8.2 percent for the current periods. These decreases were primarily attributable
to the successful refinancing in October 1995, of $220 million aggregate
principal amount of first mortgage bonds (bearing a composite annual interest
rate of 8.7 percent) through the issuance of $220 million aggregate principal
amount of senior notes bearing a composite annual rate of 6.8 percent. This
refinancing resulted in a savings of approximately $941,000 and $4.6 million in
the current periods, which were partially offset by increased long-term debt
interest at Enogex.
In addition, in August and September 1995, Enogex issued $120 million of
medium-term notes at a composite interest rate of 6.89 percent. These notes were
issued to replace $90 million of short-term borrowings incurred by Enogex in
connection with refinancing medium-term notes with an annualized composite rate
of 9.99 percent, the redemption of a $6.9 million long-term note payable which
carried an interest rate of prime less one-quarter of one percent and the
redemption of $22 million of associated companies short-term borrowings.
EARNINGS
Net income decreased $6.8 million or 7.0 percent in the three-month period
and increased $5.7 million or 4.7 percent in the nine-month period. Enogex's net
income increased $896,000 or 31.5 percent and $3.4 million or 37.5 percent in
the current periods. Earnings per share decreased from $2.39 to $2.22 per common
share in the three-month period. In the nine-month period, earnings per share
increased from $2.94 to $3.08 per common share. These changes reflect the above
items and the seasonal nature of the Company's regulated electric business.
LIQUIDITY AND CAPITAL REQUIREMENTS
The Company meets its cash needs through internally generated funds,
permanent financing and short-term borrowings. Internally generated funds and
short-term borrowings are expected to meet virtually all of the Company's
capital requirements through the remainder of 1996. Short-term borrowings will
continue to be used to meet temporary cash requirements.
The Company's primary needs for capital are related to construction of new
facilities to meet anticipated demand for utility 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
8
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fund obligations. Construction expenditures of $106.9 million for the nine
months ended September 30, 1996 were financed with internally generated funds.
The Company's capital structure and cash flow remained strong throughout
the current period. The Company's combined cash and cash equivalents decreased
approximately $1.1 million during the nine months ended September 30, 1996. The
decrease reflects the Company's cash flow from operations net of short-term debt
reduction, redemption of preferred stock, construction expenditures and dividend
payments.
In April 1996, OG&E filed a registration statement for the sale of up to
$300 million of senior notes. Assuming favorable market conditions, OG&E plans
to issue all or part of the debt to refinance, at lower interest rates, one or
more series of outstanding first mortgage bonds.
Like any business, the Company is subject to numerous contingencies, many
of which are beyond its control. For discussion of significant contingencies
that could affect the Company, reference is made to Part II, Item 1 - "Legal
Proceedings" of this Form 10-Q and to "Management's Discussion and Analysis" and
Notes 9 and 10 of Notes to the Consolidated Financial Statements in the
Company's 1995 Form 10-K.
PART II. OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
For a description of certain legal proceedings presently pending, reference
is made to (i) Item 3 of the Company's 1995 Form 10-K, (ii) Item 1 of Part II of
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
and (iii) Item I of Part II of the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996. Except as set forth below, there are no new
significant cases to report against Oklahoma Gas and Electric Company or its
subsidiary, Enogex Inc., and there have been no significant changes in the
previously reported proceedings.
On May 2, 1996, the Company filed a Notice of Intent with the OCC seeking
to reduce rates and charges in the amount of $15.6 million per year based on the
single issue of labor savings after the VERP is fully amortized. The OCC staff,
however, determined a comprehensive audit was desirable and did not accept the
Company's single issue of labor savings. The Company conducted a study of
operations and as a result, on June 17, 1996, filed an Application with the OCC
seeking to reduce its rates and charges for retail electric service to Oklahoma
jurisdiction customers in the amount of $14.2 million per year. The proposed
effective date of the rate reduction is March 1, 1997. See Part I, Item 2 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the VERP.
As previously reported, on October 14, 1996, the staff of the OCC and the
Oklahoma Attorney General recommended OG&E lower its annual revenues by $94.5
million and $79.8
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million, respectively. In another separate recommendation, the Oklahoma
Industrial Energy Consumers proposed a $107.8 million annual OG&E rate
reduction.
The OCC's recommended annual rate reduction is based on a proposed rate of
return of 11.0 percent and the Oklahoma Attorney General's recommended annual
rate reduction is based on an assumed rate of return of 12.75 percent. The
dollar amounts of each of these recommended annual rate reductions may vary
significantly depending upon the rate of return that is used. At this time, the
Company is unable to predict what the ultimate authorized rate of return will
be.
On November 6, 1996, OG&E filed a rebuttal to the proposed rate reductions
with the OCC. A settlement conference is scheduled with OG&E management and all
other parties involved on November 20 and 21, 1996. The rate case hearing before
the OCC is scheduled for November 22 through December 13, 1996. If a compromise
is not reached, it is expected that the OCC will deliberate on the proposed rate
reduction from December 16 through 20, 1996. While OG&E remains optimistic that
a reasonable settlement will be reached, OG&E cannot predict the outcome of this
matter.
The APSC has been reviewing the amounts that OG&E pays Enogex and recovers
through its fuel adjustment clause for transporting natural gas to OG&E's
gas-fired generating stations. On June 18, 1996, the APSC staff and OG&E filed a
Joint Stipulation recommending a settlement of certain issues. As a result, OG&E
has refunded approximately $4.3 million through September 1996, and an
additional $235,000 will be refunded by December 1996, to retail electric
customers in the Arkansas jurisdiction. The $4.5 million refund was recorded as
a provision for a potential refund prior to August 1996.
On September 18, 1996, Trigen-Oklahoma City Energy Corporation ("Trigen")
sued OG&E in the United States District Court for the Western District of
Oklahoma, Case No. CIV-96-1595-M. Trigen's business includes the furnishing of
heating and cooling services for commercial and government buildings in Oklahoma
City. Trigen alleges, among other things, that OG&E has engaged in
monopolization in violation of Section 2 of the Sherman Act, attempts to
monopolize in violation of the Sherman Act, acts in restraint of trade in
violation of Oklahoma law, discriminatory sales in violation of Oklahoma law,
tortious interference with contract, and tortious interference with a
prospective economic advantage. Damages are sought against OG&E in the amount of
at least $7,000,000, plus punitive damages and costs, treble damages, costs of
litigation, prejudgment and post-judgment interest and reasonable attorney's
fees. OG&E currently believes that this lawsuit is without merit, intends to
vigorously defend this lawsuit and has filed a counterclaim against Trigen
seeking $5 million in actual damages, plus fees and costs. OG&E's counterclaim
asserts that Trigen violated the Oklahoma Deceptive Trade Practices Act, made
false claims, misrepresented facts and published false statements about OG&E.
Due to the early stages of this lawsuit, OG&E cannot predict its outcome at this
time.
Reference is made to paragraph 3 of Item 3 of the Company's 1995 Form 10-K
regarding the Hardage Criner site. Remediation of this site has been completed
and the case is now considered closed. The unreimbursed costs incurred by OG&E
in connection with the remediation of the site were not material. While the
parties involved in this matter (including
10
<PAGE>
OG&E) have agreed to pay the ongoing maintenance costs of the site, OG&E's
portion of these costs (approximately $1.4 million) is not significant.
Reference is made to paragraph 5 of Item 3 of the Company's 1995 Form 10-K
regarding the Double Eagle Refinery Superfund Site. As previously reported, OG&E
elected to participate in the de minimus settlement, which limited OG&E's
financial obligation to less than $2,000. One of the other potentially
responsible parties is currently contesting OG&E's participation as a de minimus
party. Regardless of the outcome of this issue, OG&E believes that its ultimate
liability for this site will not be material primarily due to the limited volume
sent by OG&E to the site.
As reported in Item 1 and Item 7 of the Company's 1995 Form 10-K, the
Federal Energy Regulatory Commission ("FERC") issued a Notice of Proposed
Rulemaking on Open Access Nondiscriminatory Transmission Services and a
Supplemental Notice of Proposed Rulemaking on Stranded Investment (collectively,
the "Mega-NOPR"). On April 24, 1996, the FERC adopted final rules (Order 888 and
889) which are similar in many respects to the Mega-NOPR. The final rules are
intended, among other things, to create a vigorous wholesale electric market by
requiring transmission providers to functionally unbundle transmission for
distribution and generation businesses and to offer open access to their
transmission systems. The Company is still reviewing the provisions of the final
rules and is unable at this time to determine its effect on the Company's
operations.
In accordance with FERC's direction regarding competition and alternative
regulation of the electric energy utility market on the national scale, the OCC
is seeking to identify, describe and create a process to implement a
comprehensive and integrated restructuring of the electric utility industry for
the State of Oklahoma. On June 6, 1996, the OCC issued a Notice of Inquiry
proposing questions for comment. In response to the Notice of Inquiry, OG&E
filed comments with the OCC on September 9, 1996. The comments listed, among
other things, that five critical issues must be addressed to ensure a successful
transition to a deregulated environment. These issues are: 1) retail wheeling
should be implemented in Oklahoma at the same time it is implemented and on the
same terms in all surrounding states, 2) stranded costs must be recovered, 3) a
level playing field must be established, 4) state regulators role must be
restructured and 5) there must be no exceptions to the new rules. The Company
has taken steps such as its 1994 restructuring of its operations and its
anticipated holding company reorganization, and intends to take appropriate
steps in the future, to remain a competitive supplier of electricity.
Item 5 OTHER INFORMATION
Sooner Generating Plant
- -----------------------
As previously reported, on July 31, 1996, a malfunction at generating unit
number one at Sooner Generating Plant resulted in a fire causing significant
damage. Generating unit number one was out of operation for approximately ninety
days and was brought back on line at 50 percent capacity on October 25, 1996.
The unit may reach 100 percent capacity by mid November if all necessary testing
and preparations are complete. The Company has had adequate capacity to meet
demand during this period. Estimates for total repairs are still being made. The
11
<PAGE>
damage is expected to be covered by OG&E's insurance carrier for amounts in
excess of the deductible provision. Management does not believe this damage will
have a material adverse effect on the Company's consolidated financial position
or its results of operations.
Unaudited Pro Forma Financial Information
- -----------------------------------------
The following unaudited pro forma financial information presents the
historical consolidated balance sheet, statement of income and retained earnings
and ratio of earnings to fixed charges of OG&E after giving effect to the
restructuring discussed in Part I, Item 2 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview", including
the transfer of Enogex Inc. and its subsidiaries to OGE Energy Corp. The
unaudited pro forma balance sheet at September 30, 1996, gives effect to the
restructuring as if it had occurred at September 30, 1996. The unaudited pro
forma statements of income and retained earnings for the period ended September
30, 1996, gives effect to the restructuring as if it had occurred at the
beginning of the period presented. The unaudited pro forma ratio of earnings to
fixed charges for the twelve months ended September 30, 1996, gives effect to
the restructuring as if it had occurred at the beginning of the period
presented.
The pro forma financial information has been prepared from, and should be
read in conjunction with, the historical consolidated financial statements and
related notes thereto of OG&E in the Form 10-K for the year ended December 31,
1995 (File No. 1-1097) which is incorporated herein by reference. The following
information is not necessarily indicative of the financial position or operating
results that would have occurred had the transaction been consummated on the
date, or at the beginning of the periods, for which the transaction is being
given effect nor is it necessarily indicative of future operating results or
financial position.
UNAUDITED RATIO OF EARNINGS TO FIXED CHARGES
Twelve Months
Ended
September 30, 1996
------------------
Unaudited Ratio of Earnings
to Fixed Charges 3.76
Unaudited Pro Forma Ratio of
Earnings to Fixed Charges 3.82
For purposes of this ratio, "Earnings" consist of the aggregate of net
income, taxes on income, investment tax credit (net) and "fixed charges." "Fixed
charges" consist of interest on long-term debt, related amortization, interest
on short-term borrowings and a calculated portion of rents considered to be
interest.
See Notes to Unaudited Pro Forma Financial Statements for a description of
the assumptions used to prepare the unaudited pro forma ratio of earnings to
fixed charges.
12
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA GAS AND ELECTRIC COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
- ----------------------------------------------------------------------------------------------------------------
OG&E PRO FORMA PRO FORMA
(AS REPORTED) ADJUSTMENTS (1) OG&E
--------------- ---------------- ----------------
(dollars in thousands)
<S> <C> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
In service.................................... $ 3,971,220 $ (412,293) $ 3,558,927
Construction work in progress................. 34,750 (9,792) 24,958
--------------- ---------------- ----------------
Total property, plant and equipment...... 4,005,970 (422,085) 3,583,885
Less accumulated depreciation.......... 1,667,301 (119,186) 1,548,115
--------------- ---------------- ----------------
Net property, plant and equipment........ 2,338,669 (302,899) 2,035,770
--------------- ---------------- ----------------
OTHER PROPERTY AND INVESTMENTS, at cost............ 9,002 (3,389) 5,613
--------------- ---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents..................... 4,295 (3,867) 428
Accounts receivable - customers, less reserve. 172,608 (17,601) 155,007
Accrued unbilled revenues..................... 49,000 --- 49,000
Accounts receivable - other................... 10,927 21,388 32,315
Fuel inventories, at LIFO cost................ 62,513 (1,391) 61,122
Materials and supplies, at average cost....... 21,011 (3,732) 17,279
Prepayments and other......................... 9,136 (326) 8,810
Accumulated deferred tax assets............... 8,982 --- 8,982
--------------- ---------------- ----------------
Total current assets..................... 338,472 (5,529) 332,943
--------------- ---------------- ----------------
DEFERRED CHARGES:
Advance payments for gas...................... 6,500 --- 6,500
Income taxes recoverable - future rates....... 43,549 --- 43,549
Other......................................... 66,456 (16,141) 50,315
--------------- ---------------- ----------------
Total deferred charges................... 116,505 (16,141) 100,364
--------------- ---------------- ----------------
TOTAL ASSETS....................................... $ 2,802,648 $ (327,958) $ 2,474,690
=============== ================ ================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and retained earnings............ $ 981,071 $ (120,408) $ 860,663
Cumulative preferred stock.................... 49,379 --- 49,379
Long-term debt................................ 829,176 (120,000) 709,176
--------------- ---------------- ----------------
Total capitalization..................... 1,859,626 (240,408) 1,619,218
--------------- ---------------- ----------------
CURRENT LIABILITIES:
Short-term debt............................... 57,300 --- 57,300
Accounts payable.............................. 46,152 (14,277) 31,875
Dividends payable............................. 27,413 --- 27,413
Customers' deposits........................... 23,037 --- 23,037
Accrued taxes................................. 80,954 (2,270) 78,684
Accrued interest.............................. 17,531 (1,379) 16,152
Long-term debt due within one year............ 15,000 --- 15,000
Accumulated provision for rate refunds........ 235 --- 235
Other......................................... 31,008 (2,817) 28,191
--------------- ---------------- ----------------
Total current liabilities................ 298,630 (20,743) 277,887
--------------- ---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued pension and benefit obligation........ 71,671 (3,776) 67,895
Accumulated deferred income taxes............. 480,248 (58,676) 421,572
Accumulated deferred investment tax credits... 79,315 --- 79,315
Other......................................... 13,158 (4,355) 8,803
--------------- ---------------- ----------------
Total deferred credits and other 644,392 (66,807) 577,585
liabilities............................
--------------- ---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES............... $ 2,802,648 $ (327,958) $ 2,474,690
=============== ================ ================
<FN>
See accompanying notes to unaudited pro forma financial statements.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA GAS AND ELECTRIC COMPANY
UNAUDITED PRO FORMA STATEMENTS OF INCOME AND RETAINED EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------------------------------------
OG&E PRO FORMA PRO FORMA
(AS REPORTED) ADJUSTMENTS(2) OG&E
---------------- ---------------- ----------------
(thousands except per share data)
<S> <C> <C> <C>
OPERATING REVENUES:
Electric utility......................... $ 948,667 $ --- $ 948,667
Non-utility subsidiary................... 127,253 (127,253) ---
---------------- ---------------- ----------------
Total operating revenues............... 1,075,920 (127,253) 948,667
OPERATING EXPENSES:
Fuel .................................... 216,189 33,335 249,524
Purchased power.......................... 166,132 --- 166,132
Gas purchased for resale................. 80,396 (80,396) ---
Other operation.......................... 179,841 (32,043) 147,798
Maintenance.............................. 42,725 (2,411) 40,314
Depreciation and amortization............ 101,581 (17,706) 83,875
Current income taxes..................... 83,252 (5,254) 77,998
Deferred income taxes, net............... (4,145) (1,064) (5,209)
Deferred investment tax credits, net..... (3,861) --- (3,861)
Taxes other than income.................. 35,818 (3,069) 32,749
---------------- ---------------- ----------------
Total operating expenses............... 897,928 (108,608) 789,320
---------------- ---------------- ----------------
OPERATING INCOME.............................. 177,992 (18,645) 159,347
---------------- ---------------- ----------------
OTHER INCOME AND DEDUCTIONS:
Interest income.......................... 1,684 (480) 1,204
Other.................................... (1,914) (709) (2,623)
---------------- ---------------- ----------------
Net other income and deductions........ (230) (1,189) (1,419)
---------------- ---------------- ----------------
INTEREST CHARGES:
Interest on long-term debt............... 46,776 (6,204) 40,572
Allowance for borrowed funds used
during construction.................... (606) --- (606)
Other.................................... 5,561 (1,067) 4,494
---------------- ---------------- ----------------
Total interest charges, net............ 51,731 (7,271) 44,460
---------------- ---------------- ----------------
NET INCOME.................................... 126,031 (12,563) 113,468
PREFERRED DIVIDEND REQUIREMENTS............... 1,730 --- 1,730
---------------- ---------------- ----------------
EARNINGS AVAILABLE FOR COMMON................. $ 124,301 $ (12,563) $ 111,738
================ ================ ================
AVERAGE COMMON SHARES
OUTSTANDING............................... 40,367 --- 40,367
EARNINGS PER AVERAGE COMMON SHARE............. $ 3.08 $ (0.31) $ 2.77
STATEMENT OF RETAINED EARNINGS
OG&E PRO FORMA PRO FORMA
(AS REPORTED) ADJUSTMENTS OG&E
---------------- ---------------- ----------------
BALANCE AT BEGINNING OF PERIOD................ $ 425,545 $ (120,243) $ 305,302
ADD-net income................................ 126,031 (12,563) 113,468
---------------- ---------------- ----------------
Total..................................... 551,576 (132,806) 418,770
DEDUCT:
Cash dividends declared on preferred stock.. 1,730 --- 1,730
Cash dividends declared on common stock..... 80,528 (12,398) 68,130
---------------- ---------------- ----------------
Total..................................... 82,258 (12,398) 69,860
---------------- ---------------- ----------------
BALANCE AT END OF PERIOD...................... $ 469,318 $ (120,408) $ 348,910
================ ================ ================
<FN>
See accompanying notes to unaudited pro forma financial statements.
</FN>
</TABLE>
14
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Subsidiary assets, liabilities, equity and results of operations have been
eliminated from consolidated Oklahoma Gas and Electric Company amounts to
reflect the transfer of ownership and control of the consolidated
subsidiary from Oklahoma Gas and Electric Company to OGE Energy Corp.
2. After the transaction, Oklahoma Gas and Electric Company will not retain
ownership of the subsidiary currently being consolidated. Consequently,
intercompany transactions between Oklahoma Gas and Electric Company and its
current consolidated subsidiary have not been eliminated in the pro forma
financial statements.
The most significant intercompany transactions are transmission fees and
related charges to Oklahoma Gas and Electric Company from Enogex, its
subsidiary whose core business has been to deliver natural gas to Oklahoma
Gas and Electric Company power plants. The amount of these charges was
$33.3 million for the nine months ended September 30, 1996.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12.01 - Computation of Unaudited Ratio of Earnings
to Fixed Charges.
27.01 - Financial Data Schedule.
(b) Reports on Form 8-K
A Form 8-K Current Report under Item 5, dated October 16,
1996 reported the staff of the Oklahoma Corporation
Commission recommended that OG&E lower its annual revenues
by $94.5 million and that the Oklahoma Attorney General
proposed a $79.8 million annual OG&E rate reduction.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OKLAHOMA GAS AND ELECTRIC COMPANY
(Registrant)
By /s/ Donald R. Rowlett
---------------------------------
Donald R. Rowlett
Controller Corporate Accounting
(On behalf of the registrant and in
his capacity as Chief Accounting Officer)
November 13, 1996
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
12.01 Computation of Unaudited Ratio of Earnings
to Fixed Charges.
27.01 Financial Data Schedule.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.01
OKLAHOMA GAS AND ELECTRIC COMPANY
S E C METHOD
UNAUDITED RATIO OF EARNINGS TO FIXED CHARGES
12 Months Ended
September 30, 1996
------------------
(dollars in thousands)
Pro Forma OG&E
OG&E As Reported
------------------ -----------------
<S> <C> <C>
Earnings:
Net Income...................................................... $114,784 $130,921
Plus Income Taxes:
Federal Income Taxes........................................... 61,374 67,787
State Income Taxes............................................. 10,566 12,794
Federal Deferred Income Taxes.................................. (136) (796)
State Deferred Income Taxes.................................... 301 (823)
Investment Tax Credit.......................................... (5,150) (5,150)
Taxes (below the line)......................................... 182 182
Plus Fixed Charges.............................................. 64,593 74,330
Total Earnings............................................ 246,514 279,245
Fixed Charges:
Long-term Debt Interest........................................ 53,953 62,225
Amortization of Discount and Expense........................... 5,466 5,466
Amortization of Premium........................................ (32) (32)
Other Interest Expense......................................... 4,741 6,206
Calculated Interest on Leased Property......................... 465 465
Total Fixed Charges....................................... 64,593 74,330
Ratio of Earnings to Fixed Charges...................... 3.82 3.76
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Oklahoma
Gas and Electric Company Consolidated Statements of Income, Balance Sheets, and
Statements of Cash Flows as reported on Form 10-Q as of September 30, 1996 and
is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,338,669
<OTHER-PROPERTY-AND-INVEST> 9,002
<TOTAL-CURRENT-ASSETS> 338,472
<TOTAL-DEFERRED-CHARGES> 116,505
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,802,648
<COMMON> 116,177
<CAPITAL-SURPLUS-PAID-IN> 395,576
<RETAINED-EARNINGS> 469,318
<TOTAL-COMMON-STOCKHOLDERS-EQ> 981,071
0
49,379
<LONG-TERM-DEBT-NET> 829,176
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 57,300
<LONG-TERM-DEBT-CURRENT-PORT> 15,000
0
<CAPITAL-LEASE-OBLIGATIONS> 7,568
<LEASES-CURRENT> 2,751
<OTHER-ITEMS-CAPITAL-AND-LIAB> 860,403
<TOT-CAPITALIZATION-AND-LIAB> 2,802,648
<GROSS-OPERATING-REVENUE> 1,075,920
<INCOME-TAX-EXPENSE> 75,246
<OTHER-OPERATING-EXPENSES> 822,682
<TOTAL-OPERATING-EXPENSES> 897,928
<OPERATING-INCOME-LOSS> 177,992
<OTHER-INCOME-NET> (230)
<INCOME-BEFORE-INTEREST-EXPEN> 177,762
<TOTAL-INTEREST-EXPENSE> 51,731
<NET-INCOME> 126,031
1,730
<EARNINGS-AVAILABLE-FOR-COMM> 124,301
<COMMON-STOCK-DIVIDENDS> 80,528
<TOTAL-INTEREST-ON-BONDS> 46,776
<CASH-FLOW-OPERATIONS> 198,936
<EPS-PRIMARY> 3.08
<EPS-DILUTED> 3.08
</TABLE>
