<PAGE>
================================================================================
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, 1997
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
------- -------
There were 40,378,745 Shares of Common Stock, par value $2.50 per share,
outstanding as of October 31, 1997.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA GAS AND ELECTRIC COMPANY
PART I. FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
See Note 1
----------
3 Months Ended 9 Months Ended
September 30 September 30
-------------------------------- ----------------------------------
1997 1996 1997 1996
-------------- -------------- ---------------- ----------------
(thousands except per share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES: $ 417,612 $ 411,764 $ 927,637 $ 948,667
-------------- -------------- ---------------- ----------------
OPERATING EXPENSES:
Fuel..................................................... 105,258 98,365 243,189 249,524
Purchased power.......................................... 55,081 56,534 165,931 166,132
Other operation and maintenance.......................... 63,093 62,907 177,885 188,111
Depreciation and amortization............................ 28,985 28,232 86,132 83,875
Current income taxes..................................... 43,298 56,077 61,714 77,999
Deferred income taxes, net............................... 11,461 (1,056) 9,057 (5,209)
Deferred investment tax credits, net..................... (1,287) (1,286) (3,862) (3,861)
Taxes other than income.................................. 11,223 10,893 33,700 32,749
-------------- -------------- ---------------- ----------------
Total operating expenses............................... 317,112 310,666 773,746 789,320
-------------- -------------- ---------------- ----------------
OPERATING INCOME........................................... 100,500 101,098 153,891 159,347
-------------- -------------- ---------------- ----------------
OTHER INCOME (DEDUCTIONS):
Interest income.......................................... 1,858 827 3,133 2,161
Other.................................................... (754) (772) (1,445) (2,623)
-------------- -------------- ---------------- ----------------
Net other income (deductions).......................... 1,104 55 1,688 (462)
-------------- -------------- ---------------- ----------------
INTEREST CHARGES:
Interest on long-term debt............................... 14,573 13,539 41,343 40,572
Allowance for borrowed funds used during construction.... (249) (272) (473) (606)
Other.................................................... 679 1,461 2,869 5,451
-------------- -------------- ---------------- ----------------
Total interest charges, net............................ 15,003 14,728 43,739 45,417
-------------- -------------- ---------------- ----------------
INCOME FROM CONTINUING OPERATIONS.......................... 86,601 86,425 111,840 113,468
INCOME FROM OPERATIONS OF ENOGEX
DISTRIBUTED TO OGE ENERGY CORP. (less applicable taxes
of $1,773 and $6,317 respectively)....................... --- 3,740 --- 12,563
-------------- -------------- ---------------- ----------------
NET INCOME ................................................ 86,601 90,165 111,840 126,031
PREFERRED DIVIDEND REQUIREMENTS............................ 571 572 1,714 1,730
-------------- -------------- ---------------- ----------------
EARNINGS AVAILABLE FOR COMMON.............................. $ 86,030 $ 89,593 $ 110,126 $ 124,301
============== ============== ================ ================
AVERAGE COMMON SHARES OUTSTANDING.......................... 40,379 40,363 40,379 40,367
EARNINGS PER AVERAGE COMMON SHARE
Income from continuing operations........................ $ 2.13 $ 2.13 $ 2.73 $ 2.77
Income from Enogex operations............................ --- 0.09 --- 0.31
-------------- -------------- ---------------- ----------------
Earnings per average common share........................ $ 2.13 $ 2.22 $ 2.73 $ 3.08
============== ============== ================ ================
DIVIDENDS DECLARED PER SHARE............................... $ .640 $ .665 $ 2.04 $ 1.995
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part hereof.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
See Note 1
----------
September 30 December 31
1997 1996
------------- --------------
(dollars in thousands)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
In service.................................................... $ 3,635,896 $ 3,574,241
Construction work in progress................................. 21,811 26,807
------------- --------------
Total property, plant and equipment......................... 3,657,707 3,601,048
Less accumulated depreciation............................. 1,638,415 1,560,546
------------- --------------
Net property, plant and equipment............................. 2,019,292 2,040,502
------------- --------------
OTHER PROPERTY AND INVESTMENTS, at cost......................... 25,907 21,869
------------- --------------
CURRENT ASSETS:
Cash and cash equivalents..................................... 2,854 200
Accounts receivable - customers, less reserve of $3,163 and
$3,520, respectively........................................ 136,334 96,067
Accrued unbilled revenues..................................... 49,300 34,900
Accounts receivable - other................................... 10,427 44,699
Fuel inventories, at LIFO cost................................ 48,026 60,463
Materials and supplies, at average cost....................... 25,461 20,387
Prepayments and other......................................... 513 3,094
Accumulated deferred tax assets............................... 5,985 8,994
------------- --------------
Total current assets........................................ 278,900 268,804
------------- --------------
DEFERRED CHARGES:
Advance payments for gas...................................... 10,500 9,500
Income taxes recoverable through future rates................. 43,004 44,368
Other......................................................... 44,175 36,198
------------- --------------
Total deferred charges...................................... 97,679 90,066
------------- --------------
TOTAL ASSETS.................................................... $ 2,421,778 $ 2,421,241
============= ==============
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and retained earnings............................ $ 868,654 $ 841,035
Cumulative preferred stock.................................... 49,266 49,379
Long-term debt................................................ 691,905 709,281
------------- --------------
Total capitalization........................................ 1,609,825 1,599,695
------------- --------------
CURRENT LIABILITIES:
Accounts payable.............................................. 113,520 138,454
Dividends payable............................................. 571 572
Customers' deposits........................................... 23,882 23,257
Accrued taxes................................................. 27,621 18,428
Accrued interest.............................................. 14,438 16,386
Long-term debt due within one year............................ 25,000 15,000
Other......................................................... 36,028 35,739
------------- --------------
Total current liabilities................................... 241,060 247,836
------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued pension and benefit obligation........................ 56,692 57,137
Accumulated deferred income taxes............................. 433,496 429,766
Accumulated deferred investment tax credits................... 74,166 78,028
Other......................................................... 6,539 8,779
------------- --------------
Total deferred credits and other liabilities................ 570,893 573,710
------------- --------------
COMMITMENTS AND CONTINGENCIES................................... --- ---
------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES............................ $ 2,421,778 $ 2,421,241
============= ==============
The accompanying Notes to Consolidated Financial Statements are an integral part hereof.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
9 Months Ended
September 30
See Note 1
----------
1997 1996
-------------- --------------
(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ........................................................ $ 111,840 $ 126,031
Adjustments to Reconcile Net Income to Net
Cash Provided From Operating Activities:
Depreciation and amortization.................................. 86,132 101,581
Deferred income taxes and investment tax credits, net.......... 5,195 (8,006)
Provision for rate refund...................................... --- 1,804
Change in Certain Current Assets and Liabilities:
Accounts receivable - customers.............................. (40,267) (46,335)
Accrued unbilled revenues.................................... (14,400) (5,450)
Fuel, materials and supplies inventories..................... 7,363 (172)
Accumulated deferred tax assets.............................. 3,009 1,777
Other current assets......................................... 36,853 (6,376)
Accounts payable............................................. 16,466 (26,510)
Accrued taxes................................................ 9,193 53,017
Accrued interest............................................. (1,948) (1,613)
Accumulated provision for rate refunds....................... --- (2,415)
Other current liabilities.................................... 913 (1,277)
Other operating activities..................................... (9,006) 12,880
-------------- --------------
Net cash provided from operating activities................ 211,343 198,936
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................... (68,202) (106,943)
-------------- --------------
Net cash used in investing activities...................... (68,202) (106,943)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt, net.................................. (15,000) ---
Short-term debt, net............................................... (41,400) (10,300)
Redemption of preferred stock...................................... (113) (560)
Retirement of treasury stock....................................... 285 ---
Cash dividends declared on preferred stock......................... (1,714) (1,730)
Cash dividends declared on common stock............................ (82,545) (80,528)
-------------- --------------
Net cash used in financing activities...................... (140,487) (93,118)
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................ 2,654 (1,125)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD:
From continuing operations......................................... 200 397
From Enogex Operations............................................. --- 5,023
-------------- --------------
Total cash and cash equivalents at beginning of period..... 200 5,420
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD:
From continuing operations......................................... 2,854 428
From Enogex operations............................................. --- 3,867
-------------- --------------
Total cash and cash equivalents at end of period........... $ 2,854 $ 4,295
============== ==============
- --------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest (net of amount capitalized)............................. $ 43,692 $ 51,517
Income taxes..................................................... $ 24,215 $ 41,032
- --------------------------------------------------------------------------------------------------------------
<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>
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed consolidated financial statements included herein have been
prepared by Oklahoma Gas and Electric Company (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 avoid presenting misleading information.
OGE Energy Corp. ("Energy Corp.") became the parent company of the Company
and its former subsidiary, Enogex Inc. ("Enogex") on December 31, 1996. On
that date, all outstanding Company common stock was exchanged on a
share-for-share basis for common stock of Energy Corp. and the Company
distributed its ownership of Enogex to Energy Corp. Although Enogex
continues to operate as a subsidiary of Energy Corp., for purposes of these
consolidated financial statements, Enogex has been accounted for as
discontinued operations. The net income of Enogex for the three months and
nine months ended September 30, 1996, is included in the consolidated
statements of income as "Income from Operations of Enogex Distributed to
OGE Energy Corp." Prior period consolidated financial statements have been
restated to reflect Enogex being accounted for as discontinued operations.
In the opinion of management, all adjustments necessary to present fairly
the financial position of the Company as of September 30, 1997, and
December 31, 1996, and the results of operations and the changes in cash
flows for the periods ended September 30, 1997, and September 30, 1996,
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, 1996.
2. In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." Adoption of SFAS No. 128 is required for both interim and annual
periods ending after December 15, 1997. The Company will adopt this new
standard effective December 31, 1997, and management believes the adoption
of this standard will not have a material impact on the Company's earnings
per share.
4
<PAGE>
3. In March 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." Adoption of SFAS No. 129 is required for
financial statements for periods ending after December 15, 1997. The
Company will adopt this new standard effective December 31, 1997. Adoption
of this new standard will change the presentation of certain financial
information of the Company, but will not affect reported earnings.
4. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." Adoption of SFAS No. 130 is required for both interim and annual
periods beginning after December 15, 1997. The Company will adopt this new
standard effective March 31, 1998, and management believes the adoption of
this standard will not have a material impact on the Company's financial
position or results of operations.
5. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." Adoption of SFAS No. 131 is
required for fiscal years beginning after December 15, 1997. The Company
will adopt this new standard effective December 31, 1998. Adoption of this
new standard will change the presentation of certain financial information
of the Company, but will not affect reported earnings.
5
<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 nine months ended September 30, 1997
(respectively, the "current periods"), and the Company's financial position as
of September 30, 1997. 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. Because
of seasonal fluctuations and other factors, the results of one interim period
are not necessarily indicative of results to be expected for the year. Actions
of the regulatory commissions that set the Company's electric rates will
continue to affect financial results. Unless indicated otherwise, all
comparisons are with the corresponding periods of the prior year.
Some matters discussed in this Form 10-Q may contain forward-looking
statements that are subject to certain risks, uncertainties and assumptions.
Actual results may vary materially. Factors that could cause actual results to
differ materially include, but are not limited to: general economic conditions,
including their impact on capital expenditures; business conditions in the
energy industry; competitive factors; unusual weather; regulatory decisions and
other risk factors listed in the Company's Form 10-K for the year ended December
31, 1996, including Exhibit 99.01 thereto, and other factors described from time
to time in the Company's reports to the Securities and Exchange Commission.
On February 11, 1997, the Oklahoma Corporation Commission ("OCC") issued an
order (the "Order") that, among other things, effectively lowered the Company's
rates to its Oklahoma retail customers by $50 million annually (based on a test
year ended December 31, 1995). Of the $50 million rate reduction, approximately
$45 million became effective on March 5, 1997, and the remaining $5 million
becomes effective March 1, 1998. This $50 million rate reduction is in addition
to the $15 million rate reduction discussed below that was effective January 1,
1995. The Order also directed the Company to transition to competitive bidding
of its gas transportation requirements, currently met by Enogex, no later than
April 30, 2000, and set annual compensation for the transportation services
provided by Enogex to OG&E at $41.3 million until competitively-bid gas
transportation begins.
On June 18, 1997, the Company filed documents with the OCC relating to a
Generation Efficiency Performance Rider ("GEP Rider"), which was approved in the
Order. The GEP Rider is designed so that when the Company's average annual cost
of fuel per kwh is less than 96.261 percent of the average non-nuclear fuel cost
per kwh of certain other investor-owned utilities, the Company is allowed to
collect, through the GEP Rider, one-third of the amount by which the Company's
average annual cost of fuel comes in below 96.261 percent of the average of the
other specified utilities. If the Company's fuel cost exceeds 103.379 percent of
the stated average, the
6
<PAGE>
Company will not be allowed to recover one-third of the fuel costs above that
average from Oklahoma customers.
The fuel cost information used to calculate the GEP Rider is based on fuel
cost data submitted by each of the utilities in their Form No. 1 Annual Report
filed with the Federal Energy Regulatory Commission ("FERC"). The GEP Rider is
revised effective July 1 of each year to reflect any changes in the relative
annual cost of fuel reported for the preceding calendar year. Management
estimates that the additional 1997 revenue impact from the current revision to
the GEP Rider will be approximately $9 million. The current GEP Rider is
estimated to positively impact revenue by $27 million during the 12 months
ending June 1998.
In 1994, the Company restructured and redesigned its operations to reduce
costs in order to more favorably position itself for the competitive electric
utility environment. As part of this process, the Company implemented a VERP and
a severance package in 1994. These two packages reduced the Company's workforce
by approximately 900 employees.
As previously reported, Oklahoma enacted the Electric Restructuring Act of
1997 (the "Act") in April 1997 that is intended to permit increased competition
among retail electric customers in Oklahoma by July 2002. The purposes of the
Act are generally to restructure the electric industry to provide for more
competition and, in particular, to provide for the orderly restructuring of the
electric utility industry in the State of Oklahoma in order to allow direct
access by retail consumers to the competitive market for the generation of
electricity while maintaining the safety and reliability of the electric system
in the state. The Act, which is described in detail in the Company's Form 10-Q
for the quarter ended March 31, 1997, requires, among other things, the
establishment of various task forces and preparation of numerous reports. The
Company is actively participating in this process. While the Company intends to
remain a competitive supplier of electricity, it cannot at this time predict the
impact that the Act and the related restructuring of the electric industry in
Oklahoma will have on its operations.
In response to an application filed by the Company, the OCC issued an order
on October 26, 1994, that permitted the Company to: (i) establish a regulatory
asset in connection with the costs associated with the workforce reduction; (ii)
amortize the December 31, 1994, balance of the regulatory asset over 26 months;
and (iii) reduce the Company's electric rates by approximately $15 million
annually, effective January 1995. In 1996, the labor savings substantially
offset the amortization of the regulatory asset and the annual rate reduction of
$15 million. The regulatory asset was fully amortized at February 28, 1997, and
again, the labor savings substantially offset the regulatory asset amortization
in 1997 and, therefore, did not significantly impact operating results in the
current periods.
REVENUES
Operating revenues increased $5.8 million or 1.4 percent in the three
months ended September 30, 1997 primarily due to increased electric sales as a
result of warmer weather, continued electric customer growth and the GEP Rider.
The increase was partially offset by the $45 million annual rate reduction that
went into effect in March 1997. Operating revenues
7
<PAGE>
decreased $21 million or 2.2 percent in the nine-month period due to milder
weather in the first and second quarters of 1997 and the rate reduction in March
1997. The decrease was partially offset by the GEP Rider and continued electric
customer growth.
The customer growth and warmer weather in the Company's service area
resulted in a 6.3 percent increase in kilowatt-hour sales to OG&E customers
("system sales") in the three months ended September 30, 1997. In the nine-month
period, warmer weather in the third quarter and customer growth offset the
milder weather in the first and second quarters, resulting in a 1.4 percent
increase in system sales. Sales to other utilities increased approximately $4.3
million or 67.1 percent in the three months ended September 30, 1997. In the
nine-month period, sales to other utilities decreased approximately $3.6 million
or 15.2 percent. Sales to other utilities are at much lower prices per
kilowatt-hour and have less impact on operating revenues and earnings than
system sales.
EXPENSES
Total operating expenses increased $6.4 million or 2.1 percent in the three
months ended September 30, 1997, primarily due to increased fuel expense. In the
nine-month period, total operating expenses decreased $15.6 million or 2 percent
primarily due to the completion of the VERP amortization in February 1997 and
costs associated with the development of the enterprise software in 1996.
Fuel expense increased $6.9 million or 7 percent in the three-month period
ended September 30, 1997, primarily due to increased generation as a result of
the warmer weather. In the nine-month period, fuel expense decreased $6.3
million or 2.5 percent primarily due to an increase in the percentage of less
expensive coal-fired generation relative to total generation. 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 the Company'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 FERC. Enogex Inc. owns and operates a pipeline business that delivers
natural gas to the generating stations of the Company. The OCC, the APSC and the
FERC have authority to examine the appropriateness of any gas transportation
charges or other fees the Company pays Enogex, which the Company seeks to
recover through the fuel adjustment clause or other tariffs.
Other operation and maintenance remained relatively constant in the three
months ended September 30, 1997. In the nine-month period, other operation and
maintenance decreased $10.2 million or 5.4 percent primarily due to the
completion of the VERP amortization in February 1997 and costs associated with
the development of the enterprise software in 1996.
Depreciation and amortization increased $.8 million or 0.3 percent and $2.3
million or 2.7 percent in the current periods due to an increase in depreciable
property.
8
<PAGE>
Current and deferred income taxes had a net decrease of $.3 million or 0.5
percent and $2 million or 2.8 percent in the current periods due to slightly
lower pre-tax income and normally occurring temporary differences.
Interest income increased $1 million or 124.7 percent and $1 million or 45
percent in the current periods. This increase is due to the temporary investment
of $250 million of long-term debt issued in July 1997 pending application of the
proceeds to the redemption on August 21, 1997, of $250 million of refinanced
long-term debt. Other income remained relatively constant in the three months
ended September 30, 1997. In the nine-month period, other income increased $1.2
million or 44.9 percent primarily due to various non-regulated marketing efforts
in 1996 and gains on the sale of sulfur dioxide allowances in 1997.
Interest charges increased $.3 million or 1.9 percent in the three-month
period ended September 30, 1997, primarily due to the interest on $250 million
of long-term debt issued in July 1997 that accrued pending the redemption on
August 21, 1997, of $250 million of refinanced long-term debt. This increase was
partially offset by a lower average daily balance in short-term debt. In the
nine-month period, interest charges decreased $1.7 million or 3.7 percent as a
result of retiring $15 million of 5.25 percent First-Mortgage Bonds in January
1997 and a lower average daily balance in short-term debt.
EARNINGS
Income from continuing operations increased $.2 million or 0.2 percent in
the three months ending September 30, 1997, and decreased $1.6 million or 1.4
percent in the nine-month period. 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 1997. Short-term borrowings will
continue to be used to meet temporary cash requirements. Short-term borrowings
are included in accounts payable on the accompanying balance sheet.
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 and to some extent, for satisfying maturing debt and sinking
fund obligations. Capital expenditures of $68.2 million for the nine months
ended September 30, 1997, were financed with internally generated funds.
9
<PAGE>
The Company's capital structure and cash flow remained strong throughout
the current period. The Company's combined cash and cash equivalents increased
approximately $2.6 million during the nine months ended September 30, 1997. The
increase reflects the Company's cash flow from operations, net of retirement of
long-term debt, a reduction in short-term debt, construction expenditures and
dividend payments.
In July 1997, the Company issued $250 million of long-term debt with $125
million at 6.50 percent due July 15, 2017, and $125 million at 6.65 percent due
July 15, 2027. The proceeds from the sale of this new debt were applied to the
redemption on August 21, 1997, of $75 million principal amount of 8.375 percent
First Mortgage Bonds due January 1, 2007, $100 million principal amount of 8.25
percent First Mortgage Bonds due August 15, 2016, and $75 million principal
amount of 8.875 percent First Mortgage Bonds due December 1, 2020 at the
principal amount plus the applicable redemption premium and accrued interest to
the redemption date. In July 1997, the Company also refinanced its obligations
with respect to $56 million of 7 percent Pollution Control Revenue Bonds due
March 1, 2017, through the issuance of a new series due June 1, 2027, and
bearing interest at a variable rate. The annualized interest rate on these bonds
from their date of issuance through September 30, 1997, was approximately 3.4
percent.
In February 1997, the Company filed a registration statement for up to $50
million of grantor trust preferred securities. Assuming favorable market
conditions, the Company may issue all or part of the $50 million of grantor
trust preferred securities to refinance preferred stock.
Like any business, the Company is subject to numerous contingencies, many
of which are beyond its control. For discussion of significant contingencies
that could affect the Company, reference is made to Part II, Item 1 - "Legal
Proceedings" of this Form 10-Q, to Item 5 - "Other Information" in the Company's
Form 10-Q for the quarter ended March 31, 1997 and to "Management's Discussion
and Analysis" and Notes 8 and 9 of Notes to the Consolidated Financial
Statements in the Company's 1996 Form 10-K.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
Reference is made to Item 3 of the Company's 1996 Form 10-K for a
description of certain legal proceedings presently pending. Except as described
below, there are no new significant cases to report against the Company and
there have been no significant changes in the previously reported proceedings.
1. As reported in paragraph 1 of Item 3 - Legal Proceedings in the
Company's 1996 Form 10-K, on July 8, 1994, an employee of the Company filed a
lawsuit in state court against the Company in connection with the Company's
VERP. The case was removed to the U.S. District Court in Tulsa, Oklahoma. On
August 23, 1994, the trial court granted the Company's Motion to Dismiss
Plaintiffs Complaint in its entirety. On September 12, 1994, Plaintiff, along
with two other Plaintiffs, filed an Amended Complaint alleging substantially the
same allegations which were in the original complaint. The action was filed as a
class action, but no motion to certify a class was ever filed. Plaintiffs want
credit, for retirement purposes, for years they worked prior to a pre-ERISA
(1974) break in service. They allege violations of ERISA, the Veterans
Reemployment Act, Title VII, and the Age Discrimination in Employment Act.
Certain other state law violations, including one for intentional infliction of
emotional distress, are also alleged. On October 10, 1994, Defendants filed a
Motion to Dismiss Counts II, IV, V, VI and VII of Plaintiffs' Amended Complaint.
With regard to Counts I and III, Defendants filed a Motion for Summary Judgment
on January 18, 1996. On September 8, 1997, the United States Magistrate Judge
recommended that Defendants' motion to dismiss or for summary judgment should be
granted and that the case be dismissed in its entirety and judgment entered for
the Company. The United States District Judge can accept or reject, in whole or
in part, this recommendation. The Plaintiffs have objected to the Magistrate
Judge's recommendation, while the Company has requested that it be approved.
While the Company cannot predict the precise outcome of the proceeding, the
Company continues to believe that the lawsuit is without merit and will not have
a material adverse effect on the Company's financial position or results of
operations.
2. As reported in paragraph 5 of Item 3 - Legal Proceedings in the
Company's 1996 Form 10-K, in February 1997, certain taxpayers instituted
litigation (The State of Oklahoma, ex rel., Teresa Harvey (Carroll); Margaret B.
--------------------------------------------------------------------
Fent and Jerry R. Fent v. Oklahoma Gas and Electric Company, et.al, District
- --------------------------------------------------------------------------------
Court, Oklahoma County, Case No. CJ-97-1242-63) against the Company and certain
- ----------------------------------------------
other defendants relating to overcharges refunded by the Company to its
customers in compliance with an order of the OCC, which plaintiffs alleged
should have been paid into the state Unclaimed Property Fund. In June 1997, the
Company was dismissed from this proceeding. On August 18, 1997, the plaintiffs
filed an appeal. Management still believes that the lawsuit is without merit and
will not have a material adverse effect on the Company's financial position or
results of operations.
11
<PAGE>
3. As reported in paragraph 6 of Item 3 - Legal Proceedings of the
Company's Form 10-K for the year ended December 31, 1996, the City of Enid,
Oklahoma ("Enid") through its City Council, notified the Company of its intent
to purchase the Company's electric distribution facilities for Enid and to
terminate the Company's franchise to provide electricity within Enid as of June
26, 1998. On August 22, 1997, the City Council of Enid adopted Ordinance No.
97-30, which in essence granted the Company a new 25-year franchise subject to
approval of the electorate of Enid on November 18, 1997. In October 1997,
eighteen residents of Enid filed a lawsuit against Enid, the Company and others
in the District Court of Garfield County, State of Oklahoma, Case No.
CJ-97-829-01. Plaintiffs seek a declaration holding that (a) the Mayor of Enid
and the City Council breached their fiduciary duty to the public and violated
Article 10, Section 17 of the Oklahoma Constitution by allegedly "gifting" to
the Company the option to acquire the Company's electric system when the City
Council approved the new franchise by Ordinance No. 97-30; (b) the subsequent
approval of the new franchise by the electorate of the City of Enid at the
November 18, 1997, franchise election cannot cure the alleged breach of
fiduciary duty or the alleged constitutional violation; (c) violations of the
Oklahoma Open Meetings Act occurred and that such violations render the
resolution approving Ordinance No. 97-30 invalid; (d) the Company's support of
the Enid Citizens' Against the Government Takeover was improper; (e) the Company
has violated the favored nations clause of the existing franchise; and (f) the
City of Enid and the Company have violated the competitive bidding requirements
found at 11 O.S. Section 35-201, et seq. Plaintiffs seek money damages against
the Defendants under 62 O.S. Sections 372 and 373. Plaintiffs allege that the
action of the City Council in approving the proposed franchise allowed the
option to purchase the Company's property to be transferred to the Company for
inadequate consideration. Plaintiffs demand judgment for treble the value of the
property allegedly wrongfully transferred to the Company. On October 28, 1997,
another resident filed a similar lawsuit against the Company, Enid and the
Garfield County Election Board in the District Court of Garfield County, State
of Oklahoma, Case No. CJ-97-852-01. While the Company cannot predict the precise
outcome of these proceedings, the Company believes at the present time that the
lawsuits are without merit and intends to vigorously defend these cases.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.01 Supplemental Indenture No. 2, dated as of July 1,
1997, between the Company and NationsBank, N.A.,
creating $125,000,000 principal amount of 6.65
percent Senior Notes, Series due July 15, 2027,
and $125,000,000 principal amount of 6.50 percent
Senior Notes, Series due July 15, 2017, (Filed as
Exhibit 4.01 to the Company's Form 8-K filed on
July 17, 1997, (File No. 1-1097) and incorporated
by reference herein).
12
<PAGE>
4.02 Supplemental Trust Indenture dated as of July 1,
1997, between the Company and NationsBank, N.A.,
creating $125,000,000 principal amount of First
Mortgage Bonds, Senior Note Series C and
$125,000,000 principal amount of First Mortgage
Bonds, Senior Note Series D (Filed as Exhibit
4.02 to the Company's Form 8-K filed on July 17,
1997, (File No. 1-1097) and incorporated by
reference herein).
27.01 - Financial Data Schedule.
(b) Reports on Form 8-K
A Form 8-K Current Report under Item 5 - Other Events
and Item 7 - Financial Statement and Exhibits, dated July
17, 1997, reported on the Company's Underwriting Agreements
and Supplemental Indentures with respect to $250 million in
Senior Notes.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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, 1997
14
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT INDEX DESCRIPTION
- ------------- -----------
<S> <C>
4.01 Supplemental Indenture No. 2, dated as of July 1, 1997, between the
Company and NationsBank, N.A., creating $125,000,000 principal amount
of 6.65 percent Senior Notes, Series due July 15, 2027, and
$125,000,000 principal amount of 6.50 percent Senior Notes, Series due
July 15, 2017, (Filed as Exhibit 4.01 to the Company's Form 8-K filed
on July 17, 1997, (File No. 1-1097) and incorporated by reference
herein).
4.02 Supplemental Trust Indenture dated as of July 1, 1997, between the
Company and NationsBank, N.A., creating $125,000,000 principal amount
of First Mortgage Bonds, Senior Note Series C and $125,000,000
principal amount of First Mortgage Bonds, Senior Note Series D (Filed
as Exhibit 4.02 to the Company's Form 8-K filed on July 17, 1997,
(File No. 1-1097) and incorporated by reference herein).
27.01 Financial Data Schedule
</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, 1997 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-30-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,019,292
<OTHER-PROPERTY-AND-INVEST> 25,907
<TOTAL-CURRENT-ASSETS> 278,900
<TOTAL-DEFERRED-CHARGES> 97,679
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,421,778
<COMMON> 100,947
<CAPITAL-SURPLUS-PAID-IN> 411,497
<RETAINED-EARNINGS> 356,210
<TOTAL-COMMON-STOCKHOLDERS-EQ> 868,654
0
49,266
<LONG-TERM-DEBT-NET> 691,905
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 25,000
0
<CAPITAL-LEASE-OBLIGATIONS> 5,428
<LEASES-CURRENT> 2,875
<OTHER-ITEMS-CAPITAL-AND-LIAB> 778,650
<TOT-CAPITALIZATION-AND-LIAB> 2,421,778
<GROSS-OPERATING-REVENUE> 927,637
<INCOME-TAX-EXPENSE> 66,909
<OTHER-OPERATING-EXPENSES> 706,837
<TOTAL-OPERATING-EXPENSES> 773,746
<OPERATING-INCOME-LOSS> 153,891
<OTHER-INCOME-NET> 1,688
<INCOME-BEFORE-INTEREST-EXPEN> 155,579
<TOTAL-INTEREST-EXPENSE> 43,739
<NET-INCOME> 111,840
1,714
<EARNINGS-AVAILABLE-FOR-COMM> 110,126
<COMMON-STOCK-DIVIDENDS> 82,545
<TOTAL-INTEREST-ON-BONDS> 41,343
<CASH-FLOW-OPERATIONS> 211,343
<EPS-PRIMARY> 2.73
<EPS-DILUTED> 2.73
</TABLE>
