UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| (Mark One) |
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____to_____ |
Commission File Number: 1-1097
Oklahoma Gas and Electric Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by General Instruction H(2).
OKLAHOMA GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
| Oklahoma (State or other jurisdiction of incorporation or organization) |
73-0382390 (I.R.S. Employer 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
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X
As of July 31, 2003, 40,378,745 shares of common stock, par value $2.50 per share, were outstanding.
| Part I - FINANCIAL INFORMATION | Page |
| Item 1. Financial Statements (Unaudited) | |
| Condensed Balance Sheets | 1 |
| Condensed Statements of Income | 3 |
| Condensed Statements of Cash Flows | 4 |
| Notes to Condensed Financial Statements | 5 |
| Item 2. Management's Discussion and Analysis of Financial Condition | |
| and Results of Operations | 20 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 37 |
| Item 4. Controls and Procedures | 37 |
| Part II - OTHER INFORMATION | |
| Item 1. Legal Proceedings | 38 |
| Item 4. Submission of Matters to a Vote of Security Holders | 39 |
| Item 6. Exhibits and Reports on Form 8-K | 39 |
| Signature | 40 |
i
OKLAHOMA GAS AND ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
| June 30, 2003 |
December 31, 2002 | |
| (In millions) | ||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | --- | $ | 0 | .3 | |||
| Accounts receivable - customers, net | 112 | .9 | 97 | .7 | ||||
| Accrued unbilled revenues | 64 | .8 | 28 | .2 | ||||
| Accounts receivable - other, net | 6 | .7 | 8 | .1 | ||||
| Fuel inventories, at LIFO cost | 66 | .8 | 65 | .4 | ||||
| Materials and supplies, at average cost | 38 | .1 | 40 | .7 | ||||
| Accumulated deferred tax assets | 6 | .8 | 7 | .5 | ||||
| Fuel clause under recoveries | 38 | .3 | 14 | .7 | ||||
| Other | 3 | .0 | 5 | .3 | ||||
| Total current assets | 337 | .4 | 267 | .9 | ||||
| OTHER PROPERTY AND INVESTMENTS, at cost | 7 | .0 | 8 | .1 | ||||
| PROPERTY, PLANT AND EQUIPMENT | ||||||||
| In service | 4,161 | .9 | 4,098 | .2 | ||||
| Construction work in progress | 36 | .4 | 38 | .7 | ||||
| Other | 1 | .0 | 1 | .0 | ||||
| Total property, plant and equipment | 4,199 | .3 | 4,137 | .9 | ||||
| Less accumulated depreciation | 1,971 | .2 | 1,931 | .0 | ||||
| Net property, plant and equipment | 2,228 | .1 | 2,206 | .9 | ||||
| DEFERRED CHARGES AND OTHER ASSETS | ||||||||
| Recoverable take or pay gas charges | 32 | .5 | 32 | .5 | ||||
| Income taxes recoverable from customers, net | 32 | .4 | 34 | .8 | ||||
| Intangible asset - unamortized prior service cost | 37 | .8 | 37 | .8 | ||||
| Prepaid benefit obligation | 14 | .2 | 29 | .6 | ||||
| Price risk management | 9 | .2 | 7 | .5 | ||||
| Other | 32 | .7 | 34 | .8 | ||||
| Total deferred charges and other assets | 158 | .8 | 177 | .0 | ||||
| TOTAL ASSETS | $ | 2,731 | .3 | $ | 2,659 | .9 | ||
The accompanying Notes to Condensed Financial Statements are an integral part hereof.
1
| June 30, 2003 |
December 31, 2002 | |
| (In millions) | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable - affiliates | $ | 70 | .3 | $ | 26 | .1 | ||
| Accounts payable - other | 60 | .6 | 63 | .2 | ||||
| Advances from parent | 158 | .6 | 101 | .1 | ||||
| Customers' deposits | 34 | .7 | 33 | .0 | ||||
| Accrued taxes | 20 | .0 | 20 | .3 | ||||
| Accrued interest | 13 | .8 | 13 | .9 | ||||
| Tax collections payable | 9 | .6 | 6 | .7 | ||||
| Accrued vacation | 12 | .2 | 11 | .6 | ||||
| Other | 10 | .3 | 10 | .4 | ||||
| Total current liabilities | 390 | .1 | 286 | .3 | ||||
| LONG-TERM DEBT | 712 | .3 | 710 | .5 | ||||
| DEFERRED CREDITS AND OTHER LIABILITIES | ||||||||
| Accrued pension and benefit obligations | 151 | .3 | 148 | .6 | ||||
| Accumulated deferred income taxes | 411 | .6 | 421 | .5 | ||||
| Accumulated deferred investment tax credits | 44 | .6 | 47 | .1 | ||||
| Accrued removal obligations, net | 112 | .7 | 109 | .3 | ||||
| Provision for payments of take or pay gas | 32 | .5 | 32 | .5 | ||||
| Total deferred credits and other liabilities | 752 | .7 | 759 | .0 | ||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stockholders' equity | 512 | .4 | 512 | .4 | ||||
| Retained earnings | 427 | .3 | 455 | .2 | ||||
| Accumulated other comprehensive loss, net of tax | (63 | .5) | (63 | .5) | ||||
| Total stockholders' equity | 876 | .2 | 904 | .1 | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,731 | .3 | $ | 2,659 | .9 | ||
The accompanying Notes to Condensed Financial Statements are an integral part hereof.
2
| Three Months Ended June 30, |
Six Months Ended June 30, | |||
| 2003 |
2002 |
2003 |
2002 | |
| (In millions) | ||||
| OPERATING REVENUES | $ | 357 | .9 | $ | 352 | .2 | $ | 690 | .5 | $ | 614 | .3 | ||
| COST OF GOODS SOLD | 186 | .9 | 178 | .0 | 400 | .9 | 326 | .8 | ||||||
| Gross margin on revenues | 171 | .0 | 174 | .2 | 289 | .6 | 287 | .5 | ||||||
| Other operation and maintenance | 74 | .9 | 75 | .5 | 146 | .8 | 140 | .2 | ||||||
| Depreciation | 29 | .1 | 30 | .3 | 61 | .7 | 61 | .1 | ||||||
| Taxes other than income | 11 | .7 | 11 | .6 | 23 | .7 | 23 | .5 | ||||||
| OPERATING INCOME | 55 | .3 | 56 | .8 | 57 | .4 | 62 | .7 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||
| Other income | 0 | .4 | 0 | .1 | 0 | .7 | 0 | .3 | ||||||
| Other expense | (0 | .6) | (0 | .9) | (1 | .4) | (1 | .5) | ||||||
| Net other expense | (0 | .2) | (0 | .8) | (0 | .7) | (1 | .2) | ||||||
| INTEREST INCOME (EXPENSE) | ||||||||||||||
| Interest income | -- | 0 | .4 | -- | 0 | .8 | ||||||||
| Interest on long-term debt | (9 | .3) | (9 | .6) | (18 | .6) | (19 | .1) | ||||||
| Allowance for borrowed funds used during construction | 0 | .1 | 0 | .3 | 0 | .4 | 0 | .7 | ||||||
| Interest on short-term debt and other interest charges. | (1 | .0) | (0 | .8) | (1 | .8) | (1 | .5) | ||||||
| Net interest expense | (10 | .2) | (9 | .7) | (20 | .0) | (19 | .1) | ||||||
| INCOME BEFORE TAXES | 44 | .9 | 46 | .3 | 36 | .7 | 42 | .4 | ||||||
| INCOME TAX EXPENSE | 17 | .0 | 15 | .5 | 12 | .1 | 13 | .1 | ||||||
| NET INCOME | $ | 27 | .9 | $ | 30 | .8 | $ | 24 | .6 | $ | 29 | .3 | ||
The accompanying Notes to Condensed Financial Statements are an integral part hereof.
3
| Six Months Ended June 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 | |||||||
| (In millions) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | 24 | .6 | $ | 29 | .3 | ||
| Adjustments to reconcile net income to net cash provided from | ||||||||
| operating activities | ||||||||
| Depreciation | 61 | .7 | 61 | .1 | ||||
| Deferred income taxes and investment tax credits, net | (8 | .9) | 13 | .1 | ||||
| Other assets | 12 | .8 | (2 | .2) | ||||
| Other liabilities | 2 | .9 | (0 | .2) | ||||
| Change in certain current assets and liabilities | ||||||||
| Accounts receivable - customers, net | (15 | .2) | 4 | .5 | ||||
| Accounts receivable - other, net | 1 | .4 | (0 | .7) | ||||
| Accrued unbilled revenues | (36 | .6) | (28 | .6) | ||||
| Fuel, materials and supplies inventories | 1 | .2 | (15 | .0) | ||||
| Fuel clause under recoveries | (23 | .6) | --- | |||||
| Other current assets | 2 | .2 | 1 | .7 | ||||
| Accounts payable | (2 | .6) | 4 | .4 | ||||
| Accounts payable - affiliates | 43 | .9 | 30 | .8 | ||||
| Customers' deposits | 1 | .7 | 2 | .0 | ||||
| Accrued taxes | (0 | .3) | (0 | .8) | ||||
| Accrued interest | --- | (0 | .5) | |||||
| Fuel clause over recoveries | --- | (14 | .5) | |||||
| Other current liabilities | 3 | .4 | 6 | .2 | ||||
| Net Cash Provided from Operating Activities | 68 | .6 | 90 | .6 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Capital expenditures | (74 | .2) | (139 | .4) | ||||
| Net Cash Used in Investing Activities | (74 | .2) | (139 | .4) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Increase in short-term debt, net | 57 | .6 | 100 | .5 | ||||
| Dividends paid on common stock | (52 | .3) | (51 | .8) | ||||
| Net Cash Provided from Financing Activities | 5 | .3 | 48 | .7 | ||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (0 | .3) | (0 | .1) | ||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 0 | .3 | 0 | .4 | ||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | --- | $ | 0 | .3 | |||
The accompanying Notes to Condensed Financial Statements are an integral part hereof.
4
Oklahoma Gas and Electric Company (the “Company”) generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas and its operations are subject to regulation by the Oklahoma Corporation Commission (“OCC”), the Arkansas Public Service Commission (“APSC”) and the Federal Energy Regulatory Commission (“FERC”). The Company is a wholly-owned subsidiary of OGE Energy Corp. (“Energy Corp.”) which is an energy and energy services provider offering physical delivery and management of both electricity and natural gas in the south central United States. The Company was incorporated in 1902 under the laws of the Oklahoma Territory and is the largest electric utility in Oklahoma and its franchised service territory includes the Fort Smith, Arkansas area. The Company sold its retail gas business in 1928 and is no longer engaged in the gas distribution business.
The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to prevent the information presented from being misleading.
In the opinion of management, all adjustments necessary to fairly present the financial position of the Company at June 30, 2003 and December 31, 2002, the results of its operations for the three and six months ended June 30, 2003 and 2002, and the results of its cash flows for the six months ended June 30, 2003 and 2002, have been included and are of a normal recurring nature.
Due to seasonal fluctuations and other factors, the operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003 or for any future period. The accompanying condensed financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2002.
5
The accounting records of the Company are maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the OCC and the APSC. Additionally, the Company, as a regulated utility, is subject to the accounting principles prescribed by the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 71, “Accounting for the Effects of Certain Types of Regulation.” SFAS No. 71 provides that certain costs that would otherwise be charged to expense can be deferred as regulatory assets, based on the expected recovery from customers in future rates. Likewise, certain credits that would otherwise reduce expense can be deferred as regulatory liabilities, based on the expected flowback to customers in future rates. Management’s expected recovery of deferred costs and flowback of deferred credits generally results from specific decisions by regulators granting such ratemaking treatment. At June 30, 2003 and December 31, 2002, regulatory assets of approximately $59.6 million and approximately $63.9 million, respectively, are being amortized and reflected in rates charged to customers over periods of up to 20 years. At June 30, 2003 and December 31, 2002, regulatory liabilities of approximately $112.7 million and approximately $109.3 million, respectively, have been reclassified from Accumulated Depreciation in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations.”
The Company initially records costs: (i) that are probable of future recovery as a deferred charge until such time as the cost is approved by a regulatory authority, then the cost is reclassified as a regulatory asset; and (ii) that are probable of future liability as a deferred credit until such time as the amount is approved by a regulatory authority, then the amount is reclassified as a regulatory liability.
The following table is a summary of the Company’s regulatory assets and liabilities at:
| (In millions) |
June 30, 2003 |
December 31, 2002 | ||||||
| Regulatory Assets | ||||||||
| Income taxes recoverable from customers, net | $ | 32 | .4 | $ | 34 | .8 | ||