OG&E 2011 Annual Report Download - page 36

34 OGE Energy Corp.
Balance Sheets. At December 31, 2011, the Company had $1,120.7 million
of net available liquidity under its revolving credit agreements. OG&E
has the necessary regulatory approvals to incur up to $800 million in
short-term borrowings at any one time for a two-year period beginning
January 1, 2011 and ending December 31, 2012. At December 31, 2011,
the Company had $4.6 million in cash and cash equivalents. See Note 13
of Notes to Consolidated Financial Statements for a discussion of the
Company’s short-term debt activity.
Expected Issuance of Long-Term Debt
OG&E expects to issue approximately $250 million of long-term debt in
late 2012, depending on market conditions, to fund capital expenditures,
repay short-term borrowings and for general corporate purposes.
Common Stock
The Company expects to issue between $13 million and $15 million
of common stock in its Automatic Dividend Reinvestment and Stock
Purchase Plan in 2012. See Note 11 of Notes to Consolidated Financial
Statements for a discussion of the Company’s common stock activity.
Minimum Quarterly Distributions by Enogex Holdings
Pursuant to the Enogex Holdings LLC Agreement, Enogex Holdings
will make minimum quarterly distributions equal to the amount of cash
required to cover OGE Energy’s anticipated tax liabilities plus $12.5 mil-
lion, to be distributed in proportion to each member’s percentage
ownership interest.
Critical Accounting Policies and Estimates
The Consolidated Financial Statements and Notes to Consolidated
Financial Statements contain information that is pertinent to Management’s
Discussion and Analysis. In preparing the Consolidated Financial
Statements, management is required to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and contingent liabilities at the date
of the Consolidated Financial Statements and the reported amounts
of revenues and expenses during the reporting period. Changes to
these assumptions and estimates could have a material effect on the
Company’s Consolidated Financial Statements. However, the Company
believes it has taken reasonable, but conservative, positions where
assumptions and estimates are used in order to minimize the negative
financial impact to the Company that could result if actual results vary
from the assumptions and estimates. In management’s opinion, the areas
of the Company where the most significant judgment is exercised for all
Company segments includes the valuation of Pension Plan assumptions,
impairment estimates of long-lived assets (including intangible assets)
and goodwill, income taxes, contingency reserves, asset retirement
obligations, fair value and cash flow hedges and the allowance for
uncollectible accounts receivable. For the electric utility segment, the
most significant judgment is also exercised in the valuation of regulatory
assets and liabilities and unbilled revenues. For the natural gas transporta-
tion and storage, gathering and processing and marketing segments, the
most significant judgment is also exercised in the valuation of operating
revenues, natural gas purchases, purchase and sale contracts, assets
and depreciable lives of property, plant and equipment and amortization
methodologies related to intangible assets. The selection, application
and disclosure of the following critical accounting estimates have been
discussed with the Company’s Audit Committee. The Company discusses
its significant accounting policies, including those that do not require
management to make difficult, subjective, or complex judgments or
estimates, in Note 1 of Notes to Consolidated Financial Statements.
Consolidated (Including all Company Segments)
Pension and Postretirement Benefit Plans
The Company has a Pension Plan that covers substantially all of the
Company’s employees hired before December 1, 2009. Also, effective
December 1, 2009, the Company’s Pension Plan is no longer being
offered to employees hired on or after December 1, 2009. The Company
also has defined benefit postretirement plans that cover substantially all
of its employees. Pension and other postretirement plan expenses and
liabilities are determined on an actuarial basis and are affected by the
market value of plan assets, estimates of the expected return on plan
assets, assumed discount rates and the level of funding. Actual changes
in the fair market value of plan assets and differences between the
actual return on plan assets and the expected return on plan assets
could have a material effect on the amount of pension expense ulti-
mately recognized. The pension plan rate assumptions are shown in
Note 14 of Notes to Consolidated Financial Statements. The assumed
return on plan assets is based on management’s expectation of the
long-term return on the plan assets portfolio. The discount rate used to
compute the present value of plan liabilities is based generally on rates
of high-grade corporate bonds with maturities similar to the average
period over which benefits will be paid. The level of funding is depend-
ent on returns on plan assets and future discount rates. Higher returns
on plan assets and an increase in discount rates will reduce funding
requirements to the Pension Plan. The following table indicates the
sensitivity of the Pension Plan funded status to these variables.
Impact on
Change Funded Status
Actual plan asset returns +/- 5 percent +/- $29.5 million
Discount rate +/- 0.25 percent +/- $20.3 million
Contributions +/- $10 million +/- $10 million