<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, 1998
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.)
321 North Harvey
P. O. Box 321
Oklahoma City, Oklahoma 73101-0321
(Address of principal executive offices)
(Zip Code)
405-553-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--------- ---------
There were 40,378,745 Shares of Common Stock, par value $2.50 per share,
outstanding as of October 31, 1998.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA GAS AND ELECTRIC COMPANY
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
STATEMENTS OF INCOME
(Unaudited)
3 Months Ended 9 Months Ended
September 30 September 30
------------------------------- ----------------------------------
1998 1997 1998 1997
------------- -------------- ---------------- ---------------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING REVENUES: $ 474,209 $ 417,612 $ 1,046,871 $ 927,637
------------- ------------- ---------------- ---------------
OPERATING EXPENSES:
Fuel..................................................... 120,188 105,258 278,978 243,189
Purchased power.......................................... 65,107 55,081 179,189 165,931
Other operation and maintenance.......................... 56,688 63,093 182,058 177,885
Depreciation and amortization............................ 28,390 28,985 87,317 86,132
Current income taxes..................................... 65,391 43,298 93,647 61,714
Deferred income taxes, net............................... 11,326 11,461 10,304 9,057
Deferred investment tax credits, net..................... (1,287) (1,287) (3,862) (3,862)
Taxes other than income.................................. 10,141 11,223 32,866 33,700
------------- ------------- ---------------- ---------------
Total operating expenses............................... 355,944 317,112 860,497 773,746
------------- ------------- ---------------- ---------------
OPERATING INCOME........................................... 118,265 100,500 186,374 153,891
------------- ------------- ---------------- ---------------
OTHER INCOME (DEDUCTIONS):
Interest income.......................................... 887 1,858 2,089 3,133
Other.................................................... (1,588) (754) (3,088) (1,445)
------------- ------------- ---------------- ---------------
Net other income (deductions).......................... (701) 1,104 (999) 1,688
------------- ------------- ---------------- ---------------
INTEREST CHARGES:
Interest on long-term debt............................... 11,268 14,573 33,332 41,343
Allowance for borrowed funds used during construction.... (280) (249) (740) (473)
Other.................................................... 645 679 3,052 2,869
------------- ------------- ---------------- ---------------
Total interest charges, net............................ 11,633 15,003 35,644 43,739
------------- ------------- ---------------- ---------------
NET INCOME ................................................ 105,931 86,601 149,731 111,840
PREFERRED DIVIDEND REQUIREMENTS............................ - 571 733 1,714
------------- ------------- ---------------- ---------------
EARNINGS AVAILABLE FOR COMMON.............................. $ 105,931 $ 86,030 $ 148,998 $ 110,126
============= ============= ================ ===============
AVERAGE COMMON SHARES OUTSTANDING.......................... 40,379 40,379 40,379 40,379
EARNINGS PER AVERAGE COMMON SHARE.......................... $ 2.62 $ 2.13 $ 3.69 $ 2.73
============= ============= ================ ================
DIVIDENDS DECLARED PER SHARE............................... $ 1.953 $ 0.640 $ 3.258 $ 2.04
<FN>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
(Unaudited)
September 30 December 31
1998 1997
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
In service.................................................... $ 3,667,636 $ 3,647,366
Construction work in progress................................. 31,820 18,910
---------------- ----------------
Total property, plant and equipment......................... 3,699,456 3,666,276
Less accumulated depreciation............................. 1,713,180 1,653,771
---------------- ----------------
Net property, plant and equipment............................. 1,986,276 2,012,505
---------------- ----------------
OTHER PROPERTY AND INVESTMENTS, at cost......................... 33,184 28,140
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents..................................... 268 228
Accounts receivable - customers, less reserve of $2,588
and $3,583, respectively.................................... 156,177 92,379
Accrued unbilled revenues..................................... 46,600 36,900
Accounts receivable - other................................... 7,465 9,795
Fuel inventories, at LIFO cost................................ 35,154 43,577
Materials and supplies, at average cost....................... 24,643 24,481
Prepayments and other......................................... 20,915 2,533
Accumulated deferred tax assets............................... 6,308 6,048
---------------- ----------------
Total current assets........................................ 297,530 215,941
---------------- ----------------
DEFERRED CHARGES:
Advance payments for gas...................................... 10,500 10,500
Income taxes recoverable through future rates................. 40,592 42,549
Other......................................................... 39,073 41,147
---------------- ----------------
Total deferred charges...................................... 90,165 94,196
---------------- ----------------
TOTAL ASSETS.................................................... $ 2,407,155 $ 2,350,782
================ ================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and retained earnings............................ $ 868,821 $ 851,390
Cumulative preferred stock.................................... - 49,266
Long-term debt................................................ 702,877 691,924
---------------- ----------------
Total capitalization........................................ 1,571,698 1,592,580
---------------- ----------------
CURRENT LIABILITIES:
Short-term debt............................................... - -
Accounts payable - affiliates................................. 130,510 14,986
Accounts payable.............................................. 31,679 47,802
Dividends payable............................................. - 571
Customers' deposits........................................... 24,180 23,846
Accrued taxes................................................. 28,147 18,963
Accrued interest.............................................. 14,902 15,746
Long-term debt due within one year............................ - 25,000
Other......................................................... 35,385 35,386
---------------- ----------------
Total current liabilities................................... 264,803 182,300
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued pension and benefit obligation........................ 47,578 57,418
Accumulated deferred income taxes............................. 448,910 439,657
Accumulated deferred investment tax credits................... 69,016 72,878
Other......................................................... 5,150 5,949
---------------- ----------------
Total deferred credits and other liabilities................ 570,654 575,902
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES............................ $ 2,407,155 $ 2,350,782
================ ================
<FN>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF
CASH FLOWS
(Unaudited)
9 Months Ended
September 30
1998 1997
-------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.......................................................... $ 149,731 $ 111,840
Adjustments to Reconcile Net Income to Net Cash:
Depreciation and amortization..................................... 87,317 86,132
Deferred income taxes and investment tax credits, net............. 6,442 5,195
Change in Certain Current Assets and Liabilities:
Accounts receivable - customers................................. (63,798) (40,267)
Accrued unbilled revenues....................................... (9,700) (14,400)
Fuel, materials and supplies inventories........................ 8,261 7,363
Accumulated deferred tax assets................................. (260) 3,009
Other current assets............................................ (3,136) 36,853
Accounts payable................................................ 99,401 16,466
Accrued taxes................................................... 9,184 9,193
Accrued interest................................................ (844) (1,948)
Other current liabilities....................................... (238) 913
Other operating activities........................................ (13,744) (9,006)
-------------- -------------
Net cash provided by operating activities..................... 268,616 211,343
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................ (74,508) (68,202)
-------------- -------------
Net cash used in investing activities......................... (74,508) (68,202)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt, net................................... (112,500) (15,000)
Proceeds from long-term debt........................................ 100,000 -
Short-term debt, net................................................ - (41,400)
Redemption of preferred stock....................................... (49,266) (113)
Retirement of treasury stock........................................ - 285
Cash dividends declared on preferred stock.......................... (733) (1,714)
Cash dividends declared on common stock............................. (131,569) (82,545)
-------------- -------------
Net cash used in financing activities......................... (194,068) (140,487)
-------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................. 40 2,654
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... 228 200
-------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 268 $ 2,854
============== =============
- --------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized).............................. $ 32,871 $ 43,692
Income taxes...................................................... $ 42,876 $ 24,215
- ---------------------------------------------------------------------------------------------------------------
<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 FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
</FN>
</TABLE>
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The condensed 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 make the information presented not misleading.
In the opinion of management, all adjustments necessary to present fairly
the financial position of the Company as of September 30, 1998, and
December 31, 1997, and the results of operations and the changes in cash
flows for the periods ended September 30, 1998, and September 30, 1997,
have been included and are of a normal recurring nature.
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 financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's Form 10-K for
the year ended December 31, 1997.
2. In June 1997, the 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.
3. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits." Adoption of SFAS No. 132
is required for financial statements for periods beginning after December
15, 1997. The Company will adopt this new standard effective December 31,
1998. Adoption of this new standard will change the presentation of certain
disclosure information of the Company, but will not affect reported
earnings.
4. In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use".
Adoption of SOP 98-1 is required for fiscal years beginning after December
15, 1998. The Company will adopt this new standard effective March 31,
1999, and management believes the adoption of this new standard will not
have a material impact on its financial position or results of operation.
5. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and for Hedging Activities". Adoption of SFAS No. 133 is
required for financial statements for
4
<PAGE>
periods beginning after June 15, 1999. The Company will adopt this new
standard effective January 1, 2000, and management believes the adoption of
this new standard will not have a material impact on its financial position
or results of operations.
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, 1998
(respectively, the "current periods"), and the Company's financial position as
of September 30, 1998. 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; failure of companies that
the Company does business with to be Year 2000 ready; regulatory decisions and
other risk factors listed in the Company's Form 10-K for the year ended December
31, 1997, including Exhibit 99.01 thereto, and other factors described from time
to time in the Company's reports to the Securities and Exchange Commission.
EARNINGS
Net income increased $19.3 million or 22.3 percent and $37.9 million or
33.9 percent in the current periods. As explained below, the Company's increase
in earnings was primarily attributable to higher revenues from warmer weather
and higher margin sales to other utilities and power marketers ("off-system
sales").
REVENUES
Total operating revenues increased $56.6 million or 13.6 percent and $119.2
million or 12.9 percent in the current periods. These increases were
attributable to increased electric sales primarily attributable to significantly
warmer weather and the impact of the Generation Efficiency Performance Rider
("GEP Rider") that was authorized by the Oklahoma Corporation Commission ("OCC")
in the Company's most recent rate order. The significantly warmer weather
resulted in increased revenue of approximately $24.6 million and $43.9 million.
The GEP Rider increased revenue by approximately $2.1 million and $11.9 million.
These increases offset the effects of the annual rate reduction that became
effective March 5, 1997.
6
<PAGE>
Warmer weather in the electric service area resulted in an 11.4 percent and
9.5 percent increase in kilowatt-hour sales to Company customers ("system
sales"). Off-system kilowatt-hour sales decreased 63.4 and 32.0 percent;
however, the summer heat drove prices of this off-system electricity to record
levels, increasing operating revenues approximately $6.0 and $16.4 million in
the current periods and at margins significantly higher than had been
experienced in the past. There can be no assurance that such margins on future
off-system sales will continue.
EXPENSES
Total operating expenses increased $38.8 million or 12.2 percent and $86.8
million or 11.2 percent in the current periods primarily due to increased fuel
costs, current income taxes and purchased power.
Fuel expense increased $14.9 million or 14.2 percent and $35.8 million or
14.7 percent in the current periods. These increases were primarily due to
increased generation as a result of the significantly 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 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 Federal Energy Regulatory Commission ("FERC"). Enogex Inc., an
affiliate of the Company; 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.
Current income taxes increased $22.1 million or 51.0 percent and $31.9
million or 51.7 percent in the current periods primarily due to higher pre-tax
earnings.
Purchased power costs increased $10.0 million or 18.2 percent and $13.3
million or 8.0 percent primarily due to increased summer demand for and the
availability of electricity at favorable prices. The start of a power purchase
contract with a cogeneration plant near Pryor, Oklahoma, from which the Company
was obligated to purchase 110 megawatts of peaking capacity, beginning in
January 1998, also contributed to this increase. See "Liquidity and Capital
Requirements."
Other operation and maintenance expense decreased $6.4 million or 10.2
percent for the three-month period and increased $4.2 million or 2.3 percent for
the nine-month period. The three-month decrease is primarily due to reduced
costs for professional and other outside services and employee benefit costs.
The nine-month increase resulted primarily from increased costs associated with
scheduled overhauls at three power generating plants, increased maintenance
costs on generating units due to increased electric sales and increased labor
costs.
7
<PAGE>
Depreciation decreased $0.6 million or 2.1 percent for the three-months
ended September 30, 1998 and increased $1.2 million or 1.4 percent for the
nine-month period. The three-month decrease is primarily due to the
reclassification of certain costs ($10.2 million) of the Company's
enterprise-wide software system, installed in January 1997, from utility to
non-utility corporate costs. The nine-month increase is due to an increase in
depreciable property.
Interest charges decreased $3.4 million or 22.5 percent and $8.1 million or
18.5 percent primarily due to the redemption on August 21, 1997 of the Company's
$250 million of long-term debt, refinanced at lower interest cost, the Company
refinancing $56 million of 7 percent Pollution Control Revenue Bonds in July
1997 and the Company retiring $25 million of 6.375 percent First-Mortgage Bonds
in January 1998. These interest savings were partially offset by costs
associated with increased short-term debt.
LIQUIDITY AND CAPITAL REQUIREMENTS
The Company meets its cash needs through internally generated funds,
permanent financing and short-term borrowings. Internally generated funds and
short-term borrowings are expected to meet virtually all of the Company's
capital requirements through the remainder of 1998. Short-term borrowings will
continue to be used to meet temporary cash requirements.
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 $74.5 million for the nine months
ended September 30, 1998, 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 increased
approximately $0.04 million during the nine months ended September 30, 1998. The
increase reflects the Company's cash flow from operations, net of retirement of
long-term debt, construction expenditures, redemption of preferred stock and
dividend payments.
As previously reported, in January 1998, the Company filed an application
with the OCC seeking approval to revise an existing cogeneration contract with
Mid-Continent Power Company ("MCPC"), a cogeneration plant near Pryor, Oklahoma.
As part of this transaction, OGE Energy Corp. ("Energy Corp.") agreed to
purchase the stock of Oklahoma Loan Acquisition Corporation ("OLAC"), the
company that owns the MCPC plant, for approximately $25 million. The Company
obtained the required regulatory approvals from the OCC, APSC and FERC. If the
transaction was completed, the term of the existing cogeneration contract would
have been reduced by four and one-half years, which would have reduced the
amounts to be paid by the Company, and would have provided savings for its
Oklahoma customers, of approximately $46 million as compared to the existing
cogeneration contract. Following an arbitrator's decision that the owner of the
stock of OLAC could not sell the stock of OLAC to
8
<PAGE>
Energy Corp. until it had offered such stock to a third party on the same terms
as it was offered to Energy Corp., the third party purchased the stock of OLAC
and assumed ownership of the cogeneration plant in October 1998. The effect of
this transaction is that the Company's original contract with the cogeneration
plant remains in place.
Like any business, the Company is subject to numerous contingencies, many
of which are beyond its control. For discussion of significant contingencies
that could affect the Company, reference is made to Part II, Item 1 - "Legal
Proceedings" of this Form 10-Q, to Part II, Item 1 - "Legal Proceedings" in the
Company's Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998, to
Item 5 - "Other Information" in the Company's Form 10-Q for the quarter ended
March 31, 1998 and to "Management's Discussion and Analysis" and Notes 8 and 9
of Notes to the Financial Statements in the Company's 1997 Form 10-K.
THE YEAR 2000 ISSUE
There has been a great deal of publicity about the Year 2000 (Y2K) and the
possible problems that information technology systems may suffer as a result.
The Y2K problem originated with the early development of computerized business
applications. To save then-expensive storage space, reduce the complexity of
calculations and yield better system performance, programmers and developers
used a two-digit date scheme to represent the year (i.e. "72" for "1972"). This
two-digit date scheme was used well into the 1980s and 1990s in traditional
computer hardware such as mainframe systems, desktop personal computers and
network servers, in customized software systems, off-the-shelf applications and
operating systems as well as in embedded systems ("ships") in everything from
elevators to industrial plants to consumer products. As the Year 2000
approaches, date-sensitive systems will recognize the Year 2000 as 1900, or not
at all. This inability to recognize or properly treat the Year 2000 may cause
systems, including those of the Company, its customers, suppliers, business
partners and neighboring utilities to process critical financial and operational
information incorrectly if they are not Year 2000 ready. A failure to identify
and correct any such processing problems prior to January 1, 2000 could result
in material operational and financial risks if the affected systems either cease
to function or produce erroneous data. Such risks are described in more detail
below, but could include an inability to operate the Company's generating
plants, disruptions in the operation of its transmission and distribution system
and an inability to access interconnections with the systems of neighboring
utilities.
After the Company's mainframe conversion in 1994, some 300 programs were
identified as having date sensitive code. All of these programs have since been
corrected or will be replaced by Y2K ready packaged applications.
The Company continues to address the Y2K issues in an aggressive manner.
This is reflected by the January 1, 1997 implementation throughout the Company
of SAP Enterprise Software, which is Y2K ready, for the financial systems. The
SAP installation significantly
9
<PAGE>
reduced the potential risks in our older computer systems. The Company is making
significant progress towards the implementation, in February 1999, of the
enterprise-wide software system for customer systems. In addition to
significantly reducing the potential risks of its current customer systems, the
Company is set to streamline work processes in customer service and power
delivery by integrating separate systems into a single system using the
enterprise-wide software system. This new single system will also provide for a
more flexible automated billing system and enhancements in handling customer
service orders, energy outage incidents and customer services.
In October of 1997, the Company formed a multi-functional Y2K Project Team
of experienced and knowledgeable members from each business unit to review and
test its operational systems in an effort to further eliminate any potential
problems, should they exist. The team provides regular monthly reports on its
progress to the Y2K Executive Steering Committee and senior management as well
as helping prepare presentations to the Board of Directors.
The Company's Year 2000 effort generally follows a three-phase process:
Phase I - Inventory and Assess Y2K Issues
Phase II - Determine Y2K Readiness of Vendors, Suppliers & Customers
Phase III - Correct, Test, Implement Solutions and Contingency Planning
STATE OF READINESS
At present, the Company has substantially completed the internal inventory
and assessment (Phase 1) of the Year 2000 plan. Vendor surveys are still being
sent out and their responses are being recorded. Additional notices, however,
will have to be sent to vendors that have not responded to our original requests
for information (Phase II). Remediation efforts are ongoing and even though
contingency planning is a normal part of our business, plans must be prepared to
include specific activities with regard to Y2K issues (Phase III).
In addition, as a part of the Company's three-year lease agreement for
personal computers, all new personal computers are being issued with operating
systems and application software that is Y2K ready. All existing personal
computers will be upgraded with Y2K ready operating systems before the turn of
the century. For embedded and plant operational systems; the Company has
generally completed the evaluative process and is commencing corrective plans.
In particular, the Company's Energy Management System (EMS) that monitors
transmission interconnections and automatically signals generation output
changes, has been contracted for replacement in 1999. Equipment has been ordered
and software is currently being configured.
The Company is also participating in an "Electric System Readiness
Assessment" program, which provides monthly reports to the Southwest Power Pool
(SPP) and the North American Electric Reliability Council (NERC). The responses
from all participating companies are being compiled for an industry-wide status
report to the Department of Energy (DOE).
10
<PAGE>
COSTS OF YEAR 2000
As described above, with the mainframe conversion, the enterprise software
installations and the EMS replacement, a number of Y2K issues were addressed as
part of the Company's normal course upgrades to the information technology
systems. These upgrades were already contemplated and provided additional
benefits or efficiencies beyond the Year 2000 aspect. Other than the costs
associated with the mainframe conversion, the enterprise software installations
and the EMS replacement, the Company's costs to date for Y2K issues have been
less than $1 million. The Company expects to spend less than $5 million in 1999.
These costs represent estimates, however, and there can be no assurance that
actual costs associated with the Company's Y2K issues will not be higher.
RISKS OF YEAR 2000 ISSUES
As described above, the Company has made significant progress in the
implementation of its Year 2000 plan. Based upon the information currently known
regarding its internal operations and assuming successful and timely completion
of its remediation plan, the Company does not anticipate significant business
disruptions from its internal systems due to the Y2K issue. However, the Company
may possibly experience limited interruptions to some aspects of its activities,
whether information technology, operational, administrative or otherwise, and
the Company is considering such potential occurrences in planning for its most
reasonably likely worst case scenarios.
Additionally, risk exists regarding the non-readiness of third parties with
key business or operational importance to the Company. Year 2000 problems
affecting key customers, interconnected utilities, fuel suppliers and
transporters, telecommunications providers or financial institutions could
result in lost power sales, reductions in power production or transmission or
internal functional and administrative difficulties on the part of the Company.
The Company is not presently aware of any such situations, however, occurrences
of this type, if severe, could have material adverse impacts upon the business,
operating results or financial condition of the Company and there can be no
assurance that the Company will be able to identify and correct all aspects of
the Year 2000 problem that effect it in sufficient time, that it will develop
adequate contingency plans or that the costs of achieving Y2K readiness will not
be material.
The Company plans to develop contingency plans for all material areas of
Year 2000 risk and is in the process of preparing such plans. Among the areas
contingency planning will address include delays in completion in the Company's
remediation plans, failure or incomplete remediation results and failure of key
third party contacts to be Y2K ready.
FORWARD LOOKING STATEMENTS
The foregoing discussion regarding the timing, effectiveness,
implementation, and costs of the Company's Year 2000 efforts, contains
forward-looking statements, which are based on management's best estimates
derived from assumptions. These forward-looking statements
11
<PAGE>
involve inherent risks and uncertainties, and actual results could differ
materially from those contemplated by such statements. Factors that might cause
material differences include, but are not limited to, availability of key Year
2000 personnel, the Company's ability to locate and correct all relevant
computer code, the readiness of third parties, and the Company's ability to
respond to unforeseen Year 2000 complications.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Reference is made to Item 3 of the Company's 1997 Form 10-K and to Part II,
Item 1 of the Company's Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998 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.
As reported in the Company's Form 10-K for the year ended December 31,
1997, Trigen-Oklahoma City Energy Corporation sued OG&E in the United States
District Court, Western District of Oklahoma, Case No. CIV-96-1595-M. In the
third quarter of 1998, the Company withdrew its counterclaim. The case is
currently scheduled for trial on December 1, 1998. While the Company cannot
predict the outcome of this proceeding, the Company believes that it will not
have a material adverse effect on the Company's financial position or results of
operations.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.01 - Financial Data Schedule.
(b) Reports on Form 8-K
None
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, 1998
14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT INDEX DESCRIPTION
- ------------- -----------
<S> <C>
27.01 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Oklahoma Gas and Electric Company Statements of Income, Balance Sheets, and
Statements of Cash Flows as reported on Form 10-Q as of September 30, 1998
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-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,986,276
<OTHER-PROPERTY-AND-INVEST> 33,184
<TOTAL-CURRENT-ASSETS> 297,530
<TOTAL-DEFERRED-CHARGES> 90,165
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,407,155
<COMMON> 100,947
<CAPITAL-SURPLUS-PAID-IN> 411,499
<RETAINED-EARNINGS> 356,375
<TOTAL-COMMON-STOCKHOLDERS-EQ> 868,821
0
0
<LONG-TERM-DEBT-NET> 702,877
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 2,931
<LEASES-CURRENT> 2,400
<OTHER-ITEMS-CAPITAL-AND-LIAB> 830,126
<TOT-CAPITALIZATION-AND-LIAB> 2,407,155
<GROSS-OPERATING-REVENUE> 1,046,871
<INCOME-TAX-EXPENSE> 100,089
<OTHER-OPERATING-EXPENSES> 760,408
<TOTAL-OPERATING-EXPENSES> 860,497
<OPERATING-INCOME-LOSS> 186,374
<OTHER-INCOME-NET> (999)
<INCOME-BEFORE-INTEREST-EXPEN> 185,375
<TOTAL-INTEREST-EXPENSE> 35,644
<NET-INCOME> 149,731
733
<EARNINGS-AVAILABLE-FOR-COMM> 148,998
<COMMON-STOCK-DIVIDENDS> 131,569
<TOTAL-INTEREST-ON-BONDS> 33,332
<CASH-FLOW-OPERATIONS> 268,616
<EPS-PRIMARY> 3.69
<EPS-DILUTED> 3.69
</TABLE>
