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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 40,362,919 Shares of Common Stock, par value $2.50 per share,
outstanding as of July 31, 1996.
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OKLAHOMA GAS AND ELECTRIC COMPANY
PART I. FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months Ended 6 Months Ended
June 30 June 30
-------------------------------- ----------------------------------
1996 1995 1996 1995
-------------- -------------- ---------------- ----------------
(thousands except per share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric utility...................................... $ 303,077 $ 275,524 $ 536,903 $ 490,400
Non-utility subsidiary................................ 45,567 28,589 89,793 60,229
-------------- -------------- ---------------- ----------------
Total operating revenues............................ 348,644 304,113 626,696 550,629
-------------- -------------- ---------------- ----------------
OPERATING EXPENSES:
Fuel.................................................. 69,504 62,676 129,084 111,448
Purchased power....................................... 52,949 53,779 109,598 107,362
Gas purchased for resale.............................. 30,225 19,444 59,512 39,534
Other operation....................................... 62,426 55,467 119,265 111,058
Maintenance........................................... 13,622 13,413 27,816 23,115
Depreciation and amortization......................... 33,485 31,924 66,955 64,145
Current income taxes.................................. 24,835 15,367 25,763 13,534
Deferred income taxes, net............................ (2,352) (925) (3,450) (862)
Deferred investment tax credits, net.................. (1,288) (1,288) (2,575) (2,574)
Taxes other than income............................... 11,615 11,456 23,888 22,661
-------------- -------------- ---------------- ----------------
Total operating expenses............................ 295,021 261,313 555,856 489,421
-------------- -------------- ---------------- ----------------
OPERATING INCOME........................................... 53,623 42,800 70,840 61,208
-------------- -------------- ---------------- ----------------
OTHER INCOME AND DEDUCTIONS:
Interest income....................................... 651 801 1,162 2,388
Other................................................. (919) (911) (1,236) (2,396)
-------------- -------------- ---------------- ----------------
Net other income and deductions..................... (268) (110) (74) (8)
-------------- -------------- ---------------- ----------------
INTEREST CHARGES:
Interest on long-term debt............................ 15,570 14,674 31,169 30,924
Allowance for borrowed funds used during construction. (147) (529) (334) (993)
Other................................................. 2,604 4,287 4,065 7,872
-------------- -------------- ---------------- ----------------
Total interest charges, net......................... 18,027 18,432 34,900 37,803
-------------- -------------- ---------------- ----------------
NET INCOME ................................................ 35,328 24,258 35,866 23,397
PREFERRED DIVIDEND REQUIREMENTS............................ 579 579 1,158 1,158
-------------- -------------- ---------------- ----------------
EARNINGS AVAILABLE FOR COMMON.............................. $ 34,749 $ 23,679 $ 34,708 $ 22,239
============== ============== ================ ================
AVERAGE COMMON SHARES OUTSTANDING.......................... 40,368 40,354 40,369 40,354
EARNINGS PER AVERAGE COMMON SHARE.......................... $ 0.86 $ 0.59 $ 0.86 $ 0.55
============== ============== ================ ================
DIVIDENDS DECLARED PER SHARE.............................. $ 0.66 1/2 $ 0.66 1/2 $ 1.33 $ 1.33
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part hereof.
</FN>
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<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30 December 31
1996 1995
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(dollars in thousands)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
In service.................................................... $ 3,947,355 $ 3,898,829
Construction work in progress................................. 35,937 29,705
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Total property, plant and equipment...................... 3,983,292 3,928,534
Less accumulated depreciation........................ 1,639,240 1,585,274
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Net property, plant and equipment............................. 2,344,052 2,343,260
------------- --------------
OTHER PROPERTY AND INVESTMENTS, at cost......................... 7,550 9,943
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CURRENT ASSETS:
Cash and cash equivalents..................................... 15,615 5,420
Accounts receivable - customers, net.......................... 138,690 126,273
Accrued unbilled revenues..................................... 65,000 43,550
Accounts receivable - other................................... 11,787 9,152
Fuel inventories, at LIFO cost................................ 59,939 60,356
Materials and supplies, at average cost....................... 21,302 22,996
Prepayments and other......................................... 9,137 4,535
Accumulated deferred tax assets............................... 10,135 10,759
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Total current assets...................................... 331,605 283,041
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DEFERRED CHARGES:
Advance payments for gas...................................... 6,500 6,500
Income taxes recoverable through future rates................. 38,489 41,934
Other......................................................... 64,565 70,193
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Total deferred charges.................................... 109,554 118,627
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TOTAL ASSETS.................................................... $ 2,792,761 $ 2,754,871
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CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and retained earnings............................ $ 918,152 $ 937,535
Cumulative preferred stock.................................... 49,934 49,939
Long-term debt................................................ 829,071 843,862
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Total capitalization...................................... 1,797,157 1,831,336
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CURRENT LIABILITIES:
Short-term debt............................................... 121,700 67,600
Accounts payable.............................................. 66,684 72,089
Dividends payable............................................. 27,420 27,427
Customers' deposits........................................... 22,611 21,920
Accrued taxes................................................. 43,245 27,937
Accrued interest.............................................. 19,339 19,144
Long-term debt due within one year............................ 15,000 ---
Accumulated provision for rate refunds........................ 4,454 2,650
Other......................................................... 32,476 33,388
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Total current liabilities................................. 352,929 272,155
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DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued pension and benefit obligation........................ 71,070 67,350
Accumulated deferred income taxes............................. 476,340 485,078
Accumulated deferred investment tax credits................... 80,603 83,178
Other......................................................... 14,662 15,774
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Total deferred credits and other liabilities.............. 642,675 651,380
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COMMITMENTS AND CONTINGENCIES................................... --- ---
------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES............................ $ 2,792,761 $ 2,754,871
============= ==============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part hereof.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
6 Months Ended
June 30
1996 1995
-------------- --------------
(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ........................................................ $ 35,866 $ 23,397
Adjustments to Reconcile Net Income to Net
Cash Provided From Operating Activities:
Depreciation and amortization................................. 66,955 64,145
Deferred income taxes and investment tax credits, net......... (6,025) (3,436)
Provision for rate refund..................................... 1,804 2,650
Change in Certain Current Assets and Liabilities:
Accounts receivable - customers............................ (12,417) 991
Accrued unbilled revenues.................................. (21,450) (21,400)
Fuel, materials and supplies inventories................... 2,111 (11,070)
Accumulated deferred tax assets............................ 624 3,131
Other current assets....................................... (7,237) 35,921
Accounts payable........................................... (5,838) (7,642)
Accrued taxes.............................................. 15,308 10,258
Accrued interest........................................... 195 (1,149)
Accumulated provision for rate refund...................... 1,804 1,680
Other current liabilities.................................. (228) (7,385)
Other operating activities.................................... 12,116 17,566
-------------- --------------
Net cash provided from operating activities.............. 83,588 107,657
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................... (72,643) (65,533)
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Net cash used in investing activities.................... (72,643) (65,533)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt, net........................................... --- (26,150)
Short-term debt, net.......................................... 54,100 40,150
Redemption of preferred stock................................. (5) ---
Cash dividends declared on preferred stock.................... (1,158) (1,158)
Cash dividends declared on common stock....................... (53,687) (53,671)
-------------- --------------
Net cash used in financing activities.................... (750) (40,829)
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................ 10,195 1,295
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 5,420 2,455
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 15,615 $ 3,750
============== ==============
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest (net of amount capitalized).......................... $ 33,209 $ 37,161
Income taxes.................................................. $ 11,963 $ 6,085
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<FN>
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of these statements, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. These investments are carried at cost which approximates market.
The accompanying Notes to Consolidated Financial Statements are an integral part hereof.
</FN>
</TABLE>
<PAGE>
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 June 30, 1996, and December 31,
1995, and the results of operations and the changes in cash flows for the
periods ended June 30, 1996, and June 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.
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis presents factors which affected the
results of operations for the three and six months ended June 30, 1996
(respectively, the "current periods"), and the financial position as of June 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 87 percent and
86 percent of the Company's revenues consisted of regulated sales of electricity
as a public utility, while the remaining 13 percent and 14 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.
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 a
Voluntary Early Retirement Package ("VERP") and a severance package in 1994.
These two packages reduced the Company's workforce by approximately 900
employees.
In January 1995, OG&E began amortizing a regulatory asset of $48.9 million
consisting of the balance of the deferred costs associated with the VERP and the
severance package, in accordance with an order of the Oklahoma Corporation
Commission ("OCC") issued on October 26, 1994. The OCC order permitted the
Company to amortize the $48.9 million over 26 months and reduced electric rates
by approximately $15 million annually. At June 30, 1996, the unamortized
regulatory asset was $15.0 million, which is included on the Consolidated
Balance Sheets as Deferred Charges - Other. In 1995, the labor savings from the
VERP and severance package approximated the amortization of the regulatory asset
and the annual rate reduction of $15 million and therefore, did not
significantly impact 1995 operating results. In 1996, the labor savings are
again expected to substantially offset the amortization of the regulatory asset
and the rate reduction of $15 million.
<PAGE>
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. Regulatory approvals are expected to be
received, 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
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."
On June 17, 1996, the Company filed an application with the 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. See Part II, Item 1
- - "Legal Proceedings" for a discussion of the Application.
REVENUES
Total operating revenues increased $44.5 million or 14.6 percent and $76.1
million or 13.8 percent in the current periods. These increases were primarily
attributable to increased electric sales due to warmer than normal weather, an
increase in the number of electric customers and higher Enogex revenues.
The impact of the increase in the number of electric customers and the
warmer than normal weather resulted in a 12.0 percent and 8.4 percent increase
in kilowatt-hour sales to OG&E customers ("system sales") in the current
periods. Sales to other utilities increased significantly ($4.7 million and $6.9
million during the current periods); however, sales to other utilities are at
much lower prices per kilowatt-hour and have less impact on operating revenues
and earnings than system sales.
Enogex revenues increased $17.0 million or 59.4 percent and $29.6 million
or 49.1 percent in the current periods, largely due to increased revenues from
its marketing of natural gas and natural gas liquids. These increased revenues
were attributable primarily to significantly higher sales prices and minimal
increases in volumes sold. Revenues from gas transportation increased $1.7
million in the 3 months ended June 30, 1996, due to an increase in volumes
transported for parties other than OG&E.
<PAGE>
EXPENSES
Total operating expenses increased $33.7 million or 12.9 percent and $66.4
million or 13.6 percent for the current periods primarily due to increased fuel
expense, higher prices paid by Enogex for gas purchased for resale to third
parties and increased other operation expense.
Fuel expense increased $6.8 million or 10.9 percent and $17.6 million or
15.8 percent in the current periods. These increases were primarily due to
increased generation as a result of the 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 $10.8 million or 55.4 percent and $20.0 million or 50.5 percent in the
current periods, due to slightly increased sales volumes and significantly
higher purchase prices.
Other operation increased $7.0 million or 12.5 percent and $8.2 million or
7.4 percent during the current periods. These increases resulted primarily from
costs associated with the new company-wide information system and increased
pension expense.
Maintenance increased in the 6 months ended June 30, 1996 due to expenses
associated with the Company's generating units including: 1) material and
overtime for minor overhauls at coal-fired generating plants, 2) the use of
contractors, including engineering and testing firms and 3) repair of coal
handling equipment. There was also increased tree-trimming costs and more line
work done by contract crews.
Depreciation and amortization increased 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). Income taxes increased
during the current periods primarily due to higher pre-tax earnings.
Interest expense decreased $405,000 or 2.2 percent and $2.9 million or 7.7
percent for the current periods. This decrease was 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
<PAGE>
resulted in a savings of approximately $1.2 million and $3.2 million in the
current periods, which were partially offset by increased long-term debt 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 increased $11.0 million or 45.6 percent and $12.5 million or
53.3 percent in the current periods. Enogex's net income increased $1.3 million
or 42.2 percent and $2.5 million or 40.2 percent in the current periods.
Earnings per share increased from fifty-nine cents to eighty-six cents in the
three months ended June 30, 1996. In the six months ended June 30, 1996,
earnings per share increased from fifty-five cents to eighty-six cents. 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 fund obligations. Construction
expenditures of $72.6 million for the six months ended June 30, 1996 were
financed with internally generated funds and short-term borrowings.
The Company's capital structure and cash flow remained strong throughout
the current period. The Company's combined cash and cash equivalents increased
approximately $10.2 million during the six months ended June 30, 1996. The
increase reflects the Company's cash flow from operations plus an increase in
short-term borrowings, net of 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,
<PAGE>
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
Reference is made to Item 3 of the Company's 1995 Form 10-K for a
description of certain legal proceedings presently pending. 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.
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
will refund $4.5 million from August 1996 through December 1996 to retail
electric customers in the Arkansas jurisdiction. Approximately $2.7 million of
this refund was recorded as a provision for a potential refund in prior periods
and $1.8 million in the three months ended June 30, 1996.
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
<PAGE>
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. Management is
currently preparing a reply to the Notice of Inquiry. 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 competitve supplier of electricity.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
(a) The Company's Annual Meeting of Shareowners was held on May 16, 1996.
(b) Not applicable.
(c) The matters voted upon and the results of the voting at the Annual
Meeting were as follows:
(1) The Shareowners voted to elect the Company's nominees for
election to the Board of Directors as follows:
Herbert H. Champlin - 37,850,395 votes for election and
910,958 votes withheld
Martha W. Griffin - 37,912,983 votes for election and 848,370
votes withheld
Ronald H. White, M.D. - 37,799,504 votes for election and
961,850 votes withheld
Item 5 OTHER INFORMATION
Sooner Generating Plant
- -----------------------
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 currently is not operational and is being assessed for damage at the
present time. Estimates for total repairs are currently being made. The
estimated outage time depends on the assessment of turbine-generator number one,
but could vary from several weeks to several months. The Company believes that
it has adequate capacity to meet demand during this period. The 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.
<PAGE>
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 June 30, 1996, gives effect to the
restructuring as if it had occurred at June 30, 1996. The unaudited pro forma
statements of income and retained earnings for the period ended June 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 June 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 PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
Twelve Months
Ended
June 30, 1996
-------------
Unaudited Pro Forma Ratio of
Earnings to Fixed Charges 3.95
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.
<PAGE>
<TABLE>
<CAPTION>
Oklahoma Gas and Electric Company
Unaudited Pro Forma Balance Sheet
June 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.................................... $ 3,947,355 $ (398,378) $ 3,548,977
Construction work in progress................. 35,937 (13,332) 22,605
--------------- ---------------- ----------------
Total property, plant and equipment...... 3,983,292 (411,710) 3,571,582
Less accumulated depreciation.......... 1,639,240 (113,259) 1,525,981
--------------- ---------------- ----------------
Net property, plant and equipment........ 2,344,052 (298,451) 2,045,601
--------------- ---------------- ----------------
OTHER PROPERTY AND INVESTMENTS, at cost............ 7,550 (1,953) 5,597
--------------- ---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents..................... 15,615 (15,290) 325
Accounts receivable - customers, less reserve. 138,690 (19,804) 118,886
Accrued unbilled revenues..................... 65,000 --- 65,000
Accounts receivable - other................... 11,787 21,953 33,740
Fuel inventories, at LIFO cost................ 59,939 (1,512) 58,427
Materials and supplies, at average cost....... 21,302 (3,756) 17,546
Prepayments and other......................... 9,137 (408) 8,729
Accumulated deferred tax assets............... 10,135 --- 10,135
--------------- ---------------- ----------------
Total current assets..................... 331,605 (18,817) 312,788
--------------- ---------------- ----------------
DEFERRED CHARGES:
Advance payments for gas...................... 6,500 --- 6,500
Income taxes recoverable - future rates....... 38,489 --- 38,489
Other......................................... 64,565 (14,696) 49,869
--------------- ---------------- ----------------
Total deferred charges................... 109,554 (14,696) 94,858
--------------- ---------------- ----------------
TOTAL ASSETS....................................... $ 2,792,761 $ (333,917) $ 2,458,844
=============== ================ ================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and retained earnings............ $ 918,152 $ (120,990) $ 797,162
Cumulative preferred stock.................... 49,934 --- 49,934
Long-term debt................................ 829,071 (120,000) 709,071
--------------- ---------------- ----------------
Total capitalization..................... 1,797,157 (240,990) 1,556,167
--------------- ---------------- ----------------
CURRENT LIABILITIES:
Short-term debt............................... 121,700 --- 121,700
Accounts payable.............................. 66,684 (19,547) 47,137
Dividends payable............................. 27,420 --- 27,420
Customers' deposits........................... 22,611 --- 22,611
Accrued taxes................................. 43,245 (1,473) 41,772
Accrued interest.............................. 19,339 (3,447) 15,892
Long-term debt due within one year............ 15,000 --- 15,000
Accumulated provision for rate refunds........ 4,454 --- 4,454
Other......................................... 32,476 (2,035) 30,441
--------------- ---------------- ----------------
Total current liabilities................ 352,929 (26,502) 326,427
--------------- ---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued pension and benefit obligation........ 71,070 (3,836) 67,234
Accumulated deferred income taxes............. 476,340 (58,303) 418,037
Accumulated deferred investment tax credits... 80,603 --- 80,603
Other......................................... 14,662 (4,286) 10,376
--------------- ---------------- ----------------
Total deferred credits and other
liabilities............................ 642,675 (66,425) 576,250
--------------- ---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES............... $ 2,792,761 $ (333,917) $ 2,458,844
=============== ================ ================
<FN>
See accompanying notes to unaudited pro forma financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Oklahoma Gas and Electric Company
Unaudited Pro Forma Statements of Income and Retained Earnings
Six Months ended June 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......................... $ 536,903 $ --- $ 536,903
Non-utility subsidiary................... 89,793 (89,793) ---
---------------- --------------- ----------------
Total operating revenues............... 626,696 (89,793) 536,903
OPERATING EXPENSES:
Fuel .................................... 129,084 22,075 151,159
Purchased power.......................... 109,598 --- 109,598
Gas purchased for resale................. 59,512 (59,512) ---
Other operation.......................... 119,265 (20,491) 98,774
Maintenance.............................. 27,816 (1,386) 26,430
Depreciation and amortization............ 66,955 (11,312) 55,643
Current income taxes..................... 25,763 (3,842) 21,921
Deferred income taxes, net............... (3,450) (703) (4,153)
Deferred investment tax credits, net..... (2,575) --- (2,575)
Taxes other than income.................. 23,888 (2,030) 21,858
---------------- --------------- ----------------
Total operating expenses............... 555,856 (77,201) 478,655
---------------- --------------- ----------------
OPERATING INCOME.............................. 70,840 (12,592) 58,248
---------------- --------------- ----------------
OTHER INCOME AND DEDUCTIONS:
Interest income.......................... 1,162 (365) 797
Other.................................... (1,236) (615) (1,851)
---------------- --------------- ----------------
Net other income and deductions........ (74) (980) (1,054)
---------------- --------------- ----------------
INTEREST CHARGES:
Interest on long-term debt............... 31,169 (4,136) 27,033
Allowance for borrowed funds used
during construction.................... (334) --- (334)
Other.................................... 4,065 (613) 3,452
---------------- --------------- ----------------
Total interest charges, net............ 34,900 (4,749) 30,151
---------------- --------------- ----------------
NET INCOME.................................... 35,866 (8,823) 27,043
PREFERRED DIVIDEND REQUIREMENTS............... 1,158 --- 1,158
---------------- --------------- ----------------
EARNINGS AVAILABLE FOR COMMON................. $ 34,708 $ (8,823) $ 25,885
================ =============== ================
AVERAGE COMMON SHARES
OUTSTANDING............................... 40,369 --- 40,369
EARNINGS PER AVERAGE COMMON SHARE............. $ 0.86 $ (0.22) $ 0.64
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................................ 35,866 (8,823) 27,043
---------------- --------------- ----------------
Total..................................... 461,411 (129,066) 332,345
DEDUCT:
Cash dividends declared on preferred stock.. 1,158 --- 1,158
Cash dividends declared on common stock..... 53,687 (8,076) 45,611
---------------- --------------- ----------------
Total..................................... 54,845 (8,076) 46,769
---------------- --------------- ----------------
BALANCE AT END OF PERIOD...................... $ 406,566 $ (120,990) $ 285,576
================ =============== ================
<FN>
See accompanying notes to unaudited pro forma financial statements.
</FN>
</TABLE>
<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
$22.0 million for the six months ended June 30, 1996.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12.01 - Computation of Unaudited Ratio of Earnings
to Fixed Charges - Pro Forma
27.01 - Financial Data Schedule.
(b) Reports on Form 8-K
A Form 8-K Current Report under Item 5, dated May 17, 1996,
reported the appointment of a new Chief Executive Officer,
the declaration of quarterly dividends and the re-election
of three members of the board of directors at the May 16,
1996 Annual Shareowners Meeting.
A Form 8-K Current Report under Item 5, dated June 3, 1996,
reported the appointment of a new chairman of the board.
<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/ D. L. Young
------------------------
D. L. Young
Controller
(On behalf of the registrant and in
his capacity as Chief Accounting Officer)
August 13, 1996
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
12.01 Computation of Unaudited Ratio of Earnings
to Fixed Charges - Pro Forma.
27.01 Financial Data Schedule.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.01
Oklahoma Gas and Electric Company
S E C Method
Ratio of Earnings to Fixed Charges - Pro Forma
12 Months Ended
June 30, 1996
<S> <C>
Earnings:
Net Income $ 122,484,000
Plus Income Taxes:
Federal Income Taxes 81,907,000
State Income Taxes
Federal Deferred Income Taxes (4,680,000)
State Deferred Income Taxes
Invest Tax Credit (5,151,000)
Taxes (below the line)
Plus Fixed Charges 66,057,118
Total Earnings 260,617,118
Fixed Charges:
Long-term debt interest 60,328,000
Amortization of Discount and Expense
Amortization of Premium
Other interest expense 5,264,000
Calculated interest on leased property 465,118
Total Fixed Charges 66,057,118
Ratio of Earnings to Fixed Charges 3.95
</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 June 30, 1996 and is
qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,344,055
<OTHER-PROPERTY-AND-INVEST> 7,550
<TOTAL-CURRENT-ASSETS> 331,605
<TOTAL-DEFERRED-CHARGES> 109,554
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,792,761
<COMMON> 116,177
<CAPITAL-SURPLUS-PAID-IN> 395,409
<RETAINED-EARNINGS> 406,566
<TOTAL-COMMON-STOCKHOLDERS-EQ> 918,152
0
49,934
<LONG-TERM-DEBT-NET> 829,071
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 121,700
<LONG-TERM-DEBT-CURRENT-PORT> 15,000
0
<CAPITAL-LEASE-OBLIGATIONS> 9,173
<LEASES-CURRENT> 3,745
<OTHER-ITEMS-CAPITAL-AND-LIAB> 845,986
<TOT-CAPITALIZATION-AND-LIAB> 2,792,761
<GROSS-OPERATING-REVENUE> 626,696
<INCOME-TAX-EXPENSE> 19,738
<OTHER-OPERATING-EXPENSES> 536,118
<TOTAL-OPERATING-EXPENSES> 555,856
<OPERATING-INCOME-LOSS> 70,840
<OTHER-INCOME-NET> (74)
<INCOME-BEFORE-INTEREST-EXPEN> 70,766
<TOTAL-INTEREST-EXPENSE> 34,900
<NET-INCOME> 35,866
1,158
<EARNINGS-AVAILABLE-FOR-COMM> 34,708
<COMMON-STOCK-DIVIDENDS> 53,687
<TOTAL-INTEREST-ON-BONDS> 31,169
<CASH-FLOW-OPERATIONS> 83,588
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
</TABLE>
