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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12579
OGE ENERGY CORP.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1481638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 North Robinson
P. O. Box 321
Oklahoma City, Oklahoma 73101-0321
(Address of principal executive offices)
(Zip Code)
405-553-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No
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There were 40,371,469 Shares of Common Stock, par value $0.01 per share,
outstanding as of October 31, 1997.
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OGE ENERGY CORP.
PART I. FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months Ended 9 Months Ended
September 30 September 30
-------------------------------- ----------------------------------
1997 1996 1997 1996
-------------- -------------- ---------------- ----------------
(thousands except per share data)
OPERATING REVENUES:
Electric utility......................................... $ 417,612 $ 411,764 $ 927,637 $ 948,667
Non-utility.............................................. 56,975 37,460 171,393 127,253
-------------- -------------- ---------------- ----------------
Total operating revenues............................... 474,587 449,224 1,099,030 1,075,920
-------------- -------------- ---------------- ----------------
OPERATING EXPENSES:
Fuel..................................................... 94,820 87,105 211,783 216,189
Purchased power.......................................... 55,081 56,534 165,931 166,132
Gas purchased for resale................................. 38,855 20,884 114,314 80,396
Other operation and maintenance.......................... 79,440 75,485 226,008 222,566
Depreciation and amortization............................ 35,880 34,626 106,100 101,581
Current income taxes..................................... 43,344 57,489 61,182 83,252
Deferred income taxes, net............................... 12,617 (695) 12,566 (4,145)
Deferred investment tax credits, net..................... (1,287) (1,286) (3,862) (3,861)
Taxes other than income.................................. 12,569 11,930 37,690 35,818
-------------- -------------- ---------------- ----------------
Total operating expenses............................... 371,319 342,072 931,712 897,928
-------------- -------------- ---------------- ----------------
OPERATING INCOME........................................... 103,268 107,152 167,318 177,992
-------------- -------------- ---------------- ----------------
OTHER INCOME (DEDUCTIONS):
Interest income.......................................... 1,362 522 2,733 1,684
Other.................................................... 2,012 (678) 1,594 (1,914)
-------------- -------------- ---------------- ----------------
Net other income (deductions).......................... 3,374 (156) 4,327 (230)
-------------- -------------- ---------------- ----------------
INTEREST CHARGES:
Interest on long-term debt............................... 16,687 15,607 47,665 46,776
Allowance for borrowed funds used during construction.... (249) (272) (473) (606)
Other.................................................... 684 1,496 4,109 5,561
-------------- -------------- ---------------- ----------------
Total interest charges, net............................ 17,122 16,831 51,301 51,731
-------------- -------------- ---------------- ----------------
NET INCOME ................................................ 89,520 90,165 120,344 126,031
PREFERRED DIVIDEND REQUIREMENTS............................ 571 572 1,714 1,730
-------------- -------------- ---------------- ----------------
EARNINGS AVAILABLE FOR COMMON.............................. $ 88,949 $ 89,593 $ 118,630 $ 124,301
============== ============== ================ ================
AVERAGE COMMON SHARES OUTSTANDING.......................... 40,372 40,363 40,373 40,367
EARNINGS PER AVERAGE COMMON SHARE.......................... $ 2.20 $ 2.22 $ 2.94 $ 3.08
============== ============== ================ ================
DIVIDENDS DECLARED PER SHARE.............................. $ 0.665 $ 0.665 $ 1.995 $ 1.995
The accompanying Notes to Consolidated Financial Statements are an integral part hereof.
1
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 December 31
1997 1996
------------- --------------
(dollars in thousands)
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
In service.................................................... $ 4,098,054 $ 4,005,532
Construction work in progress................................. 31,971 27,968
------------- --------------
Total property, plant and equipment......................... 4,130,025 4,033,500
Less accumulated depreciation............................. 1,781,410 1,687,423
------------- --------------
Net property, plant and equipment............................. 2,348,615 2,346,077
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OTHER PROPERTY AND INVESTMENTS, at cost......................... 33,088 24,802
------------- --------------
CURRENT ASSETS:
Cash and cash equivalents..................................... 7,788 2,523
Accounts receivable - customers, less reserve of $4,063 and
$4,626, respectively........................................ 162,184 128,974
Accrued unbilled revenues..................................... 49,300 34,900
Accounts receivable - other................................... 13,111 11,748
Fuel inventories, at LIFO cost................................ 56,327 62,725
Materials and supplies, at average cost....................... 29,388 24,827
Prepayments and other......................................... 1,952 4,300
Accumulated deferred tax assets............................... 5,937 10,067
------------- --------------
Total current assets........................................ 325,987 280,064
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DEFERRED CHARGES:
Advance payments for gas...................................... 10,500 9,500
Income taxes recoverable through future rates................. 43,004 44,368
Other......................................................... 62,146 57,544
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Total deferred charges...................................... 115,650 111,412
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TOTAL ASSETS.................................................... $ 2,823,340 $ 2,762,355
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CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and retained earnings............................ $ 999,473 $ 961,603
Cumulative preferred stock.................................... 49,266 49,379
Long-term debt................................................ 841,905 829,281
------------- --------------
Total capitalization........................................ 1,890,644 1,840,263
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CURRENT LIABILITIES:
Short-term debt............................................... 18,000 41,400
Accounts payable.............................................. 67,632 86,856
Dividends payable............................................. 27,392 27,421
Customers' deposits........................................... 23,883 23,257
Accrued taxes................................................. 75,195 26,761
Accrued interest.............................................. 15,817 19,832
Long-term debt due within one year............................ 25,000 15,000
Other......................................................... 40,423 39,188
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Total current liabilities................................... 293,342 279,715
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DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued pension and benefit obligation........................ 61,361 61,335
Accumulated deferred income taxes............................. 494,049 488,016
Accumulated deferred investment tax credits................... 74,166 78,028
Other......................................................... 9,778 14,998
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Total deferred credits and other liabilities.............`... 639,354 642,377
------------- --------------
COMMITMENTS AND CONTINGENCIES................................... --- ---
------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES............................ $ 2,823,340 $ 2,762,355
============= ==============
The accompanying Notes to Consolidated Financial Statements are an integral part hereof.
2
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
9 Months Ended
September 30
1997 1996
-------------- --------------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ........................................................ $ 120,344 $ 126,031
Adjustments to Reconcile Net Income to Net
Cash Provided From Operating Activities:
Depreciation and amortization.................................... 106,100 101,581
Deferred income taxes and investment tax credits, net............ 8,704 (8,006)
Provision for rate refund........................................ --- 1,804
Change in Certain Current Assets and Liabilities:
Accounts receivable - customers................................ (33,210) (46,335)
Accrued unbilled revenues...................................... (14,400) (5,450)
Fuel, materials and supplies inventories....................... 1,837 (172)
Accumulated deferred tax assets................................ 4,130 1,777
Other current assets........................................... 985 (6,376)
Accounts payable............................................... (19,224) (26,510)
Accrued taxes.................................................. 48,434 53,017
Accrued interest............................................... (4,015) (1,613)
Accumulated provision for rate refund.......................... --- (2,415)
Other current liabilities...................................... 1,832 (1,277)
Other operating activities....................................... (6,810) 12,880
-------------- --------------
Net cash provided from operating activities.................. 214,707 198,936
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................... (118,983) (106,943)
-------------- --------------
Net cash used in investing activities........................ (118,983) (106,943)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt....................................... (265,000) ---
Proceeds from long-term debt....................................... 280,000 ---
Short-term debt, net............................................... (23,400) (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............................ (80,517) (80,528)
-------------- --------------
Net cash used in financing activities........................ (90,459) (93,118)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. 5,265 (1,125)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 2,523 5,420
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 7,788 $ 4,295
============== ==============
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest (net of amount capitalized)............................. $ 53,261 $ 51,517
Income taxes..................................................... $ 25,067 $ 41,032
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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.
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed consolidated financial statements included herein have been
prepared by OGE Energy Corp. (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.
The Company became the parent company for Oklahoma Gas and Electric Company
("OG&E") and its former subsidiary, Enogex Inc. on December 31, 1996. On
that date, all outstanding OG&E common stock was exchanged on a
share-for-share basis for common stock of OGE Energy Corp. and the common
stock of Enogex Inc. was distributed to the Company. The financial
information presented represents the consolidated results of the Company
for the three months and nine months ended September 30, 1997. All
significant intercompany transactions have been eliminated in
consolidation.
In the opinion of management, all adjustments necessary to present fairly
the financial position of the Company and its subsidiaries 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.
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
4
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 its consolidated 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
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 financial position as of
September 30, 1997, of the Company and its subsidiaries: OG&E, Enogex Inc. and
its subsidiaries ("Enogex") and Origen and its subsidiaries ("Origen").
Approximately 88 percent and 84 percent of the Company's revenues for the
current periods consisted of regulated sales of electricity by OG&E, a public
utility, while the balance of the revenues were provided by the non-utility
operations of Enogex. Origen recently was formed and its operations to date have
been deminimis. Revenues from sales of electricity are somewhat seasonal, with a
large portion of OG&E's annual electric revenues occurring during the summer
months when the electricity needs of its customers increase. Enogex's primary
operations consist of transporting natural gas through its intra-state pipeline
to various customers (including OG&E), marketing (buying and selling) natural
gas to third parties, selling natural gas liquids extracted by its natural gas
processing plants and investing in natural gas development and production
activities. Actions of the regulatory commissions that set OG&E's electric rates
will continue to affect the Company's financial results. Unless indicated
otherwise, all comparisons are with the corresponding periods 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, 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 OG&E'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 OG&E 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.
6
On June 18, 1997, OG&E filed documents with the OCC relating to a
Generation Efficiency Performance Rider ("GEP Rider"), pursuant to the Order.
The GEP Rider is designed so that when OG&E'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, OG&E is allowed to collect, through the
GEP Rider, one-third of the amount by which OG&E's average annual cost of fuel
comes in below 96.261 percent of the average of the other specified utilities.
If OG&E's fuel cost exceeds 103.379 percent of the stated average, OG&E will not
be allowed to recover one-third of the fuel costs above that amount 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. 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, or approximately $0.13 per share. The current GEP
Rider is estimated to positively impact revenue by $27 million, or approximately
$0.41 per share during the 12 months ending June 1998.
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. OG&E
is actively participating in this process. While OG&E 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 1994, OG&E restructured and redesigned its operations to reduce costs
and to more favorably position itself for the competitive electric utility
environment. As part of this process, OG&E implemented a Voluntary Early
Retirement Package ("VERP") and a severance package in 1994. These two packages
reduced OG&E's workforce by approximately 900 employees.
In response to an application filed by OG&E, the OCC issued an order on
October 26, 1994, that permitted OG&E 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 OG&E'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.
7
REVENUES
Total operating revenues increased $25.4 million or 5.6 percent and $23.1
million or 2.1 percent in the current periods. In the three months ended
September 30, 1997, the increase was primarily attributable to increased
electric sales as a result of warmer weather, continued electric customer
growth, the GEP Rider and increased Enogex revenues. The increase was partially
offset by the $45 million annual rate reduction that went into effect in March
1997. In the nine-month period, the increase was due to increased Enogex
revenues, the GEP Rider and electric customer growth. The increase was partially
offset by decreased OG&E revenues as a result of milder weather in the first and
second quarters of 1997 and the rate reduction in March 1997.
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.
Enogex revenues increased $19.5 million or 51.9 percent and $44.0 million
or 34.6 percent in the current periods. In the three-month period, the increased
revenues were primarily due to a significant increase in volumes of natural gas
sold through its gas marketing activities with only a modest increase in prices
of natural gas and significant increases of the volume of natural gas liquids
processed and sold mainly due to the acquisition of the NUSTAR Joint Venture in
May 1997, with a slight decrease in prices for natural gas liquids. See
"Liquidity and Capital Requirements" for a further discussion of the NUSTAR
Joint Venture acquisition. In the nine-month period, the increased revenues were
due to significant increases in the volume of natural gas sold through its gas
marketing activities and of natural gas liquids processed and sold, with a
slight increase in prices for natural gas and natural gas liquids.
EXPENSES
Total operating expenses increased $29.2 million or 8.5 percent and $33.8
million or 3.8 percent in the current periods primarily due to increased volumes
and prices paid by Enogex for natural gas purchased for resale to third parties
and, for the three months ended September 30, 1997, due to increased fuel
expenses.
Fuel expense increased $7.7 million or 8.9 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
$4.4 million or 2 percent primarily due to an increase in the percentage of
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 OG&E's electric
8
customers through automatic fuel adjustment clauses. The automatic fuel
adjustment clauses are subject to periodic review by the OCC, the Arkansas
Public Service Commission ("APSC") and the Federal Energy Regulatory Commission
("FERC"). Enogex Inc. owns and operates a pipeline business that delivers
natural gas to the generating stations of OG&E. The OCC, the APSC and the FERC
have authority to examine the appropriateness of any gas transportation charges
or other fees OG&E pays Enogex, which OG&E seeks to recover through the fuel
adjustment clause or other tariffs.
Enogex's gas purchased for resale pursuant to its gas marketing operations
increased $18.0 million or 86.1 percent and $33.9 million or 42.2 percent in the
current periods, due to significantly higher sales volumes and purchase prices.
Other operation and maintenance increased $4 million or 5.2 percent and
$3.4 million or 1.5 percent in the current periods. These increases were
primarily due to increased corporate expenses and costs at Enogex associated
with expansion activities. These increases were partially offset by completion
of the VERP amortization in February 1997, and costs associated with the
development of the enterprise software in 1996.
Depreciation and amortization increased $1.3 million or 3.6 percent and
$4.5 million or 4.4 percent during the current periods due to an increase in
depreciable property and higher oil and gas production volumes (based on units
of production depreciation method).
Current and deferred income taxes had a net decrease of $.8 million or 1.5
percent and $5.4 million or 7.1 percent in the current periods primarily due to
slightly lower pre-tax income and normally occurring temporary differences.
Interest income increased $.8 million and $1.0 million in the current
periods due to the temporary investment of $250 million of OG&E's long-term debt
issued in July 1997, pending application of the proceeds to the redemption on
August 21, 1997, of OG&E's $250 million of refinanced long-term debt. Other
income increased $2.7 million and $3.5 million in the current periods primarily
due to a gain on the sale of underutilized assets by Enogex in the third quarter
and gains on the sale of sulfur dioxide allowances by OG&E.
Interest charges increased $.3 million or 1.7 percent in the three-month
period ended September 30, 1997 primarily due to the interest on OG&E's $250
million of long-term debt issued in July 1997, that accrued pending the
redemption on August 21, 1997, of OG&E's $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 decreased $.4 million or 0.1
percent as a result of OG&E retiring $15 million of 5.25 percent First-Mortgage
Bonds in January 1997, and a lower average daily balance in short-term debt.
EARNINGS
Net income decreased approximately $.6 million or 0.1 percent in the three
months ended September 30, 1997. An increase of approximately $1.5 million in
non-regulated corporate
9
expenses was partially offset by a $.2 million increase in OG&E's income from
continuing operations and a $ .7 million increase in net income at Enogex. For
the nine months ended September 30, 1997, net income decreased $5.7 million or
4.5 percent. Of the $5.7 million decrease, approximately $4 million was related
to non-regulated corporate expenses, $1.6 million was attributable to a decrease
in OG&E's income from continuing operations and approximately $.1 million was
attributable to a decrease in Enogex's net income. Earnings per average common
share decreased from $2.22 to $2.20 and from $3.08 to $2.94 in the current
periods. 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.
The Company's primary needs for capital are related to construction of new
facilities to meet anticipated demand for OG&E's utility service, to replace or
expand existing facilities in OG&E's electric utility business and to acquire
new facilities or replace or expand existing facilities at Enogex and other
non-utility businesses and, to some extent, for satisfying maturing debt and
sinking fund obligations. Capital expenditures of $119 million for the nine
months ended September 30, 1997, were financed with internally generated funds
and the medium-term notes issued by Enogex in July 1997.
The Company's capital structure and cash flow remained strong throughout
the current period. The Company's combined cash and cash equivalents increased
approximately $5 million during the nine months ended September 30, 1997. The
increase reflects the Company's cash flow from operations plus the net proceeds
from long-term debt, a reduction in short-term debt, construction expenditures
and dividend payments.
In July 1997, OG&E 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 OG&E's 8.375 percent
First Mortgage Bonds due January 1, 2007, $100 million principal amount of
OG&E's 8.25 percent First Mortgage Bonds due August 15, 2016 and $75 million
principal amount of OG&E's 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, OG&E 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.
10
On May 2, 1997, Enogex acquired an 80 percent interest in the NUSTAR Joint
Venture for approximately $26 million. The assets of the joint venture include a
two-thirds interest in a gas processing plant, 100 percent interest in a gas
processing bypass plant, approximately 50 miles of natural gas liquid pipeline
and approximately 200 miles of related gas gathering facilities in West Texas.
For the year ended December 31, 1996, the joint venture generated revenues of
approximately $36.6 million and partnership net income (before income taxes) of
approximately $3.2 million. Enogex financed this acquisition with borrowings
from the Company and in July 1997, issued $30 million of medium-term notes at
6.79 percent, due July 23, 2004, to repay the amounts borrowed from the Company.
Effective March 31, 1997, Enogex also disposed of its 80 percent interest
in Centoma Gas Systems, Inc. for $3.2 million, which approximated the net book
value of Enogex's share of Centoma's assets at December 31, 1996. Enogex had
purchased its interest in Centoma in 1994 for approximately $6.5 million.
In February 1997, OG&E filed a registration statement for up to $50 million
of grantor trust preferred securities. Assuming favorable market conditions,
OG&E 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 9 and 10 of Notes to the Consolidated Financial
Statements in the Company's 1996 Form 10-K.
11
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 or its
subsidiaries 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 OG&E filed a lawsuit
in state court against OG&E in connection with OG&E's VERP. The case was removed
to the U.S. District Court in Tulsa, Oklahoma. On August 23, 1994, the trial
court granted OG&E's Motion to Dismiss Plaintiff's 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. State law claims, 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
OG&E. 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 OG&E 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 consolidated 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,
- --------------------------------------------------------------------------------
DistrictCourt, Oklahoma County, Case No. CJ-97-1242-63) against OG&E and certain
- ------------------------------------------------------
other defendants relating to overcharges refunded by OG&E 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, OG&E 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 consolidated financial position or
results of operations.
12
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 OG&E of its intent to
purchase OG&E's electric distribution facilities for Enid and to terminate
OG&E'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 OG&E 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, OG&E 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 OG&E the option to acquire
OG&E'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)
OG&E's support of the Enid Citizens' Against the Government Takeover was
improper; (e) OG&E has violated the favored nations clause of the existing
franchise; and (f) the City of Enid and OG&E 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 OG&E's property to be transferred to
OG&E for inadequate consideration. Plaintiffs demand judgment for treble the
value of the property allegedly wrongfully transferred to OG&E. On October 28,
1997, another resident filed a similar lawsuit against OG&E, 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 OG&E 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 OG&E'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 OG&E and NationsBank, N.A.,
creating $125,000,000 principal
13
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 OG&E'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
None
14
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.
OGE ENERGY CORP.
(Registrant)
By /s/ James R. Hatfield
-------------------------------------------
James R. Hatfield
Vice President and Treasurer
(On behalf of the registrant and in
his capacity as Vice President and Treasurer)
November 13, 1997
15
EXHIBIT INDEX
EXHIBIT INDEX DESCRIPTION
- ------------- -----------
4.01 Supplemental Indenture No. 2, dated as of July 1, 1997, between OG&E
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 OG&E'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 OG&E
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 OG&E's Form 8-K filed on July 17, 1997 (File No. 1-1097) and
incorporated by reference herein).
27.01 Financial Data Schedule
UT
1,000
9-MOS
SEP-30-1997
SEP-30-1997
PER-BOOK
2,348,615
33,088
325,987
115,650
0
2,823,340
404
511,758
487,311
999,473
0
49,266
841,905
0
0
18,000
25,000
0
5,428
2,875
881,393
2,823,340
1,099,030
69,886
861,826
931,712
167,318
4,327
171,645
51,301
120,344
1,714
118,630
80,517
47,665
214,707
2.94
2.94
