OG&E 2012 Annual Report Download - page 26

24 OGE Energy Corp.
Non-GAAP Financial Measure
Enogex has included in the Company’s Form 10-K the non-GAAP
financial measure EBITDA. EBITDA is a supplemental non-GAAP financial
measure used by external users of the Company’s financial statements
such as investors, commercial banks and others, to assess:
•The financial performance of Enogex’s assets without regard to
financing methods, capital structure or historical cost basis;
•Enogex’s operating performance and return on capital as compared
to other companies in the midstream energy sector, without regard to
financing or capital structure; and
•The viability of acquisitions and capital expenditure projects and the
overall rates of return on alternative investment opportunities.
Enogex provides a reconciliation of EBITDA to net income attributable
to Enogex Holdings, which Enogex considers to be its most directly
comparable financial measure as calculated and presented in accor-
dance with accounting principles generally accepted in the United States
(“GAAP”). The non-GAAP financial measure of EBITDA should not be
considered as an alternative to GAAP net income attributable to Enogex
Holdings. EBITDA is not a presentation made in accordance with GAAP
and has important limitations as an analytical tool. EBITDA should not
be considered in isolation or as a substitute for analysis of Enogex’s
results as reported under GAAP. Because EBITDA excludes some, but
not all, items that affect net income and is defined differently by different
companies in Enogex’s industry, Enogex’s definition of EBITDA may not
be comparable to a similarly titled measure of other companies.
To compensate for the limitations of EBITDA as an analytical tool,
Enogex believes it is important to review the comparable GAAP measure
and understand the differences between the measures.
(In millions) 2012 2011 2010
Reconciliation of EBITDA to net income
attributable to Enogex Holdings
Net income attributable to
Enogex Holdings $147.8 $155.9 $476.1
Add:
Interest expense, net 32.6 22.9 30.3
Income tax expense(A) 0.2 0.2 (325.0)
Depreciation and
amortization expense(B) 111.6 77.2 70.2
EBITDA $292.2 $256.2 $251.6
OGE Energy’s portion $236.6 $222.9 $248.8
(A) As of November 1, 2010, Enogex Holdings’ earnings are no longer subject to tax (other than
Texas state margin taxes) and are taxable at the individual partner level.
(B) Includes amortization of certain customer-based intangible assets associated with the acquisition
from Cordillera in November 2011, which is included in gross margin for financial reporting purposes.
Off-Balance Sheet Arrangement
OG&E Railcar Lease Agreement
OG&E has a noncancellable operating lease with purchase options,
covering 1,389 coal hopper railcars to transport coal from Wyoming to
OG&E’s coal-fired generation units. Rental payments are charged to Fuel
Expense and are recovered through OG&E’s tariffs and fuel adjustment
clauses. On December 15, 2010, OG&E renewed the lease agreement
effective February 1, 2011. At the end of the new lease term, which is
February 1, 2016, OG&E has the option to either purchase the railcars at
a stipulated fair market value or renew the lease. If OG&E chooses not
to purchase the railcars or renew the lease agreement and the actual fair
value of the railcars is less than the stipulated fair market value, OG&E
would be responsible for the difference in those values up to a maxi-
mum of $22.8 million.
On January 11, 2012, OG&E executed a five-year lease agreement
for 135 railcars to replace railcars that have been taken out of service
or destroyed. OG&E is also required to maintain all of the railcars it has
under lease to transport coal from Wyoming and has entered into agree-
ments with Progress Rail Services and WATCO, both of which are
non-affiliated companies, to furnish this maintenance.
Liquidity and Capital Resources
Working Capital
Working capital is defined as the amount by which current assets
exceed current liabilities. The Company’s working capital requirements
are driven generally by changes in accounts receivable, accounts payable,
commodity prices, credit extended to, and the timing of collections
from, customers, the level and timing of spending for maintenance and
expansion activity, inventory levels and fuel recoveries.
The balance of Accounts Receivable, Net and Accrued Unbilled
Revenues was $352.7 million and $381.8 million at December 31, 2012
and 2011, respectively, a decrease of $29.1 million, or 7.6 percent, primarily
due to a decrease in billings to OG&E’s customers in 2012 due to milder
weather in 2012, a decrease at Enogex due to lower natural gas sales
volumes and prices and the timing of customer payments received par-
tially offset by higher transmission revenue and increased rates at OG&E.
The balance of Accounts Payable was $396.7 million and $388.0 million
at December 31, 2012 and 2011, respectively, an increase of $8.7 mil-
lion, or 2.2 percent, primarily due to increased NGLs volumes at Enogex
partially offset by lower NGLs prices at Enogex, a decrease in accruals
and the timing of ad valorem payments.