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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 March 31, 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
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There were 40,378,745 Shares of Common Stock, par value $2.50 per share,
outstanding as of April 30, 1998, all of which were held by OGE Energy Corp.
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<CAPTION>
OKLAHOMA GAS AND ELECTRIC COMPANY
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
STATEMENTS OF INCOME
(Unaudited)
3 MONTHS ENDED
MARCH 31
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
OPERATING REVENUES............................... $ 236,645 $ 227,878
---------- ----------
OPERATING EXPENSES:
Fuel......................................... 69,868 67,307
Purchased power.............................. 56,325 58,157
Other operation & maintenance................ 62,165 56,106
Depreciation and amortization................ 29,607 28,476
Current income taxes......................... (1,645) (1,088)
Deferred income taxes, net................... 26 (1,416)
Deferred investment tax credits, net......... (1,288) (1,287)
Taxes other than income...................... 11,800 11,514
---------- ----------
Total operating expenses.................. 226,858 217,769
---------- ----------
OPERATING INCOME................................. 9,787 10,109
---------- ----------
OTHER INCOME (DEDUCTIONS):
Interest Income.............................. 563 781
Other........................................ (451) (347)
---------- ----------
Net other income.......................... 112 434
---------- ----------
INTEREST CHARGES:
Interest on long-term debt................... 11,159 13,316
Allowance for borrowed funds used
during construction........................ (181) (67)
Other........................................ 1,000 1,179
---------- ----------
Total interest charges, net................. 11,978 14,428
---------- ----------
NET LOSS......................................... (2,079) (3,885)
PREFERRED DIVIDEND REQUIREMENTS.................. 733 571
---------- ----------
LOSS AVAILABLE FOR COMMON........................ $ (2,812) $ (4,456)
========== ==========
AVERAGE COMMON SHARES OUTSTANDING (thousands).... 40,379 40,379
LOSS PER AVERAGE COMMON SHARE.................... $ (0.07) $ (0.11)
========== ==========
DIVIDENDS DECLARED PER SHARE..................... $ .640 $ .764
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
</TABLE>
1
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<TABLE>
<CAPTION>
BALANCE SHEETS
(Unaudited)
MARCH 31 DECEMBER 31
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
In service.......................................... $ 3,656,332 $ 3,647,366
Construction work in progress....................... 31,090 18,910
------------ ------------
Total property, plant and equipment............ 3,687,422 3,666,276
Less accumulated depreciation.............. 1,681,984 1,653,771
------------ ------------
Net property, plant and equipment................... 2,005,438 2,012,505
------------ ------------
OTHER PROPERTY AND INVESTMENTS, at cost............... 26,934 28,140
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents........................... 175 228
Accounts receivable - customers, less reserve
of $2,509 and $3,583 respectively................. 77,270 92,379
Accrued unbilled revenues........................... 29,200 36,900
Accounts receivable - other......................... 9,322 9,795
Fuel inventories, at LIFO cost...................... 45,434 43,577
Materials and supplies, at average cost............. 24,554 24,481
Prepayments and other............................... 1,778 2,533
Accumulated deferred tax assets..................... 5,797 6,048
------------ ------------
Total current assets.............................. 193,530 215,941
------------ ------------
DEFERRED CHARGES:
Advance payments for gas............................ 10,500 10,500
Income taxes recoverable through future rates....... 42,095 42,549
Other............................................... 40,135 41,147
------------ ------------
Total deferred charges............................ 92,730 94,196
------------ ------------
TOTAL ASSETS.......................................... $ 2,318,632 $ 2,350,782
============ ============
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and retained earnings.................. $ 822,724 $ 851,390
Cumulative preferred stock.......................... --- 49,266
Long-term debt...................................... 679,443 691,924
------------ ------------
Total capitalization.............................. 1,502,167 1,592,580
------------ ------------
CURRENT LIABILITIES:
Accounts payable - affiliates....................... 104,186 14,986
Accounts payable - other............................ 45,545 47,802
Dividends payable................................... --- 571
Customers' deposits................................. 23,851 23,846
Accrued taxes....................................... 10,799 18,963
Accrued interest.................................... 13,740 15,746
Long-term debt due within one year.................. 12,500 25,000
Other............................................... 33,518 35,386
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Total current liabilities......................... 244,139 182,300
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DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued pension and benefit obligation.............. 55,935 57,418
Accumulated deferred income taxes................... 438,660 439,657
Accumulated deferred investment tax credits......... 71,591 72,878
Other............................................... 6,140 5,949
------------ ------------
Total deferred credits and other liabilities...... 572,326 575,902
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES.................. $ 2,318,632 $ 2,350,782
============ ============
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART HEREOF.
</TABLE>
2
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<TABLE>
<CAPTION>
STATEMENTS OF
CASH FLOWS
(Unaudited)
3 MONTHS ENDED
MARCH 31
1998 1997
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(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................... $ (2,079) $ (3,885)
Adjustments to Reconcile Net Loss to Net
Cash Provided From Operating Activities:
Depreciation and amortization............................ 29,607 28,476
Deferred income taxes and investment tax credits, net.... (1,262) (2,703)
Change in Certain Current Assets and Liabilities:
Accounts receivable - customers........................ 15,109 21,841
Accrued unbilled revenues.............................. 7,700 10,000
Fuel, materials and supplies inventories............... (1,930) 824
Accumulated deferred tax assets........................ 251 2,780
Other current assets................................... 1,228 29,868
Accounts payable....................................... 44,888 (3,540)
Accrued taxes.......................................... (8,164) (14,966)
Accrued interest....................................... (2,006) (957)
Other current liabilities.............................. (2,434) (27,518)
Other operating activities............................... 41 (521)
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Net cash provided from operating activities........... 80,949 39,699
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................... (22,202) (17,700)
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Net cash used in investing activities................. (22,202) (17,700)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt............................. (25,000) (15,000)
Short-term debt, net..................................... 42,055 24,500
Redemption of preferred stock............................ (49,266) (50)
Cash dividends declared on preferred stock............... (733) (571)
Cash dividends declared on common stock.................. (25,856) (30,849)
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Net cash used in financing activities................. (58,800) (21,970)
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.......... (53) 29
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 228 200
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CASH AND CASH EQUIVALENTS AT END OF PERIOD.................... $ 175 $ 229
========== ===========
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest (net of amount capitalized)....................... $ 13,283 $ 14,077
Income taxes............................................... $ 9,908 $ 5,175
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</TABLE>
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.
3
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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 March 31, 1998, and December
31, 1997, and the results of operations and the changes in cash flows for
the periods ended March 31, 1998, and March 31, 1997, 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 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. 130, "Reporting Comprehensive
Income." Adoption of SFAS No. 130 is required for both interim and annual
periods beginning after December 15, 1997. The Company adopted this new
standard effective March 31, 1998. Comprehensive income as defined in SFAS
No. 130 equals the Company's net income as shown in the Statements of
Income.
3. 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.
4. 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
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis presents factors which affected the
results of operations for the three months ended March 31, 1998 (the "current
period"), and the financial position as of March 31, 1998, of the Company.
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 period of the prior year.
Some of the 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, 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.
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.
In response to an application filed by the Company, the Oklahoma
Corporation Commission ("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 this period.
5
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REVENUES
Operating revenues increased $8.8 million or 3.8 percent. The increase in
electric sales was attributable to continued electric customer growth, favorable
weather conditions and the impact of the Generation Efficiency Performance Rider
("GEP Rider") that was authorized by the OCC in the Company's most recent rate
order. The GEP Rider increased revenue by approximately $6.4 million. These
increases offset the effects of the $50 million annual rate reduction that
became effective March 5, 1997.
Customer growth and the more favorable weather conditions in the electric
service area resulted in a 3.3 percent increase in kilowatt-hour sales to OG&E
customers ("system sales"). Sales to other utilities increased 1.6 percent;
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.
EXPENSES
Operating expenses increased $9.1 million or 4.2 percent due to increased
fuel cost and other operation and maintenance expenses.
Fuel expense increased $2.6 million or 3.8 percent primarily due to
increased generation as a result of more favorable weather conditions. 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. 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 increased $6.1 million or 10.8 percent
primarily due to increased costs associated with scheduled overhauls at three
power generating stations.
Interest charges decreased $2.5 million or 17 percent primarily due to the
redemption on August 21, 1997 of $250 million of long-term debt, refinanced at
lower interest cost, the refinancing of $56 million of 7 percent Pollution
Control Revenue Bonds in July 1997 and the retirement of $25 million of 6.375
percent First-Mortgage Bonds in January 1998.
EARNINGS
The current period net loss of $2.1 million represents an improvement of
$1.8 million in the current period. Earnings per share improved from an eleven
cent loss in the first quarter of
6
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1997 to a seven cent loss in the current period, which reflects 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 1998. Short-term borrowings will
continue to be used to meet temporary cash requirements. Short-term borrowings
are included in accounts payable - affiliates on the accompanying balance sheet
and increased $89.2 million during the current period primarily due to the
redemption of preferred stock, payment of long-term debt and property taxes.
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 for the current period of $22.2 million
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 decreased
approximately $53,000 during the three months ended March 31, 1998. The decrease
reflects the Company's cash flow from operations plus an increase in short-term
borrowings, net of retirement of long-term debt, construction expenditures and
dividend payments.
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. Under the Public
Utility Regulatory Policies Act of 1978 ("PURPA"), the Company was obligated to
enter into the original contract, which was approved by the OCC in 1987, and
which required the Company to purchase peaking capacity from the plant for 10
years beginning in 1998 - whether the capacity was needed or not. In December
1997, Energy Corp. agreed to purchase the stock of Oklahoma Loan Acquisition
Corporation, the company that owns the MCPC plant. As part of the transaction,
the duration of the existing cogeneration contract with the Company would be
reduced from 10 years ending December 31, 2007, to four and one half years
ending June 30, 2002. If the transaction is approved by the necessary regulatory
agencies and is consummated, the Company estimates that it will provide
aggregate savings for its Oklahoma customers of approximately $46 million as
compared to the existing cogeneration contract. Additional regulatory approvals
of the FERC and the APSC, among others, are needed to complete the transaction.
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" and Item 5 - "Other Information" of
7
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this Form 10-Q 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.
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Reference is made to Item 3 of the Company's 1997 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 previously reported, in 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, on
February 24, 1997, the taxpayers instituted litigation against OG&E and
Co-Defendants Oklahoma Corporation Commission, Oklahoma Tax Commission and
individual commissioners seeking judgment in the amount of $970,184.14 and
treble penalties of $2,910,552.42, plus interest and costs, for overcharges
refunded by OG&E to its ratepayers in compliance with an Order of the OCC which
Plaintiffs allege was illegal. Plaintiffs allege the refunds should have been
paid into the state Unclaimed Property Fund. In June 1997, OG&E's Motion for
Summary Judgment was granted. Plaintiffs appealed. On April 10, 1998, the Court
of Civil Appeals affirmed the order of the trial court granting OG&E Summary
Judgment. On April 29, 1998, Plaintiffs petitioned the Court of Civil Appeals
for rehearing. Plaintiffs' petition is pending. Management believes that the
lawsuit is without merit and will not have a material adverse effect on the
Company's financial position or its results of operations.
8
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ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.01 - Financial Data Schedule.
(b) Reports on Form 8-K - None.
9
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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)
May 14, 1998
10
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<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<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 March 31, 1998 and is qualified in its
entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,005,438
<OTHER-PROPERTY-AND-INVEST> 26,934
<TOTAL-CURRENT-ASSETS> 193,530
<TOTAL-DEFERRED-CHARGES> 92,730
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,318,632
<COMMON> 100,947
<CAPITAL-SURPLUS-PAID-IN> 411,499
<RETAINED-EARNINGS> 310,278
<TOTAL-COMMON-STOCKHOLDERS-EQ> 822,724
0
0
<LONG-TERM-DEBT-NET> 679,443
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 12,500
0
<CAPITAL-LEASE-OBLIGATIONS> 4,073
<LEASES-CURRENT> 2,697
<OTHER-ITEMS-CAPITAL-AND-LIAB> 790,765
<TOT-CAPITALIZATION-AND-LIAB> 2,318,632
<GROSS-OPERATING-REVENUE> 236,645
<INCOME-TAX-EXPENSE> (2,907)
<OTHER-OPERATING-EXPENSES> 229,765
<TOTAL-OPERATING-EXPENSES> 226,858
<OPERATING-INCOME-LOSS> 9,787
<OTHER-INCOME-NET> 112
<INCOME-BEFORE-INTEREST-EXPEN> 9,899
<TOTAL-INTEREST-EXPENSE> 11,978
<NET-INCOME> (2,079)
733
<EARNINGS-AVAILABLE-FOR-COMM> (2,812)
<COMMON-STOCK-DIVIDENDS> 25,856
<TOTAL-INTEREST-ON-BONDS> 11,159
<CASH-FLOW-OPERATIONS> 80,949
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
