OG&E 2013 Annual Report Download - page 19

OGE Energy Corp. 13
2012 Compared to 2011
Net income attributable to OGE Energy was $355.0 million, or $1.79 per
diluted share, in 2012 as compared to $342.9 million, or $1.73 per diluted
share, in 2011. The increase in net income attributable to OGE Energy
of $12.1 million, or 3.5 percent, or $0.06 per diluted share, in 2012 as
compared to 2011 was primarily due to:
•An increase in net income at OG&E of $17.0 million, or 6.5 percent, or
$0.09 per diluted share of the Company’s common stock, primarily due
to a higher gross margin primarily due to increased recovery of invest-
ments and increased transmission revenue partially offset by milder
weather in OG&E’s service territory. The increase in gross margin was
partially offset by higher depreciation and amortization expense related
to additional assets being placed in service and lower allowance for
equity funds used during construction related to higher levels of
construction costs for the Crossroads wind farm in 2011;
•An increase in net income of Enogex LLC of $0.7 million, which was
offset by an $8.9 million increase in net income attributable to noncon-
trolling interests, resulting in a decrease in net income attributable to
OGE Holdings of $8.2 million, or 9.9 percent, or $0.04 per diluted share
of the Company’s common stock. The increase in net income attributable
to noncontrolling interests reflected a reduction in the Company’s own-
ership percentage of Enogex LLC due to increased capital contributions
from the ArcLight group. The improvement in Enogex LLC’s net income
reflected higher operating income on increased gathering rates and
volumes associated with ongoing expansion projects, increased volumes
from gas gathering assets acquired in November 2011 and August 2012
and increased inlet volumes, which were partially offset by lower average
natural gas and NGLs prices. Also contributing to the favorable results
were a higher gain on insurance proceeds in 2012 and an impairment
charge related to the Atoka processing plant in 2011 which did not
occur in 2012. These improvements were partially offset by increased
depreciation and amortization expense due to additional assets being
placed in service throughout 2011 and 2012, higher other operations
and maintenance expenses, and higher taxes other than income related
to sales taxes on assets acquired; and
•An increase in net income at OGE Energy of $3.3 million, or $0.01 per
diluted share of the Company’s common stock, primarily due to higher
other income due to a decrease in deferred compensation losses
partially offset by higher interest expense.
A more detailed discussion regarding the financial performance of
OG&E and the Natural Gas Midstream Operations can be found under
“Results of Operations” below.
2014 Outlook
The Company’s 2014 earnings guidance is between approximately
$388 million and $411 million of net income, or $1.94 to $2.06 per
average diluted share.
Key Assumptions for 2014 Include:
Consolidated OGE
•Approximately 200 million average diluted shares outstanding;
•An effective tax rate of approximately 30 percent; and
•A projected loss at the holding company of $2 million or $0.01 per
diluted share, primarily due to interest expense relating to long and
short-term debt borrowings partially offset by tax deductions.
OG&E
The Company projects OG&E to earn approximately $292 million to
$303 million, or $1.46 to $1.52 per average diluted share in 2014 and
is based on the following assumptions:
•Normal weather patterns are experienced for the remainder of the year;
•Gross margin on revenues of approximately $1.355 billion to $1.345 billion
based on sales growth of approximately 1.2 percent on a weather-
adjusted basis;
•Approximately $115 million of gross margin is primarily attributed to
regionally allocated transmission projects;
•Operating expenses of approximately $805 million to $815 million, with
operation and maintenance expenses comprising 56 percent of the total;
•Interest expense of approximately $141 million which assumes a $4 million
allowance for borrowed funds used during construction reduction to
interest expense and $250 million of long-term debt issued in the first
half of 2014;
•Other income of approximately $14 million including approximately
$11 million of allowance for equity funds used during construction; and
•An effective tax rate of approximately 28 percent.
OG&E has significant seasonality in its earnings. OG&E typically shows
minimal earnings in the first and fourth quarters with a majority of earnings
in the third quarter due to the seasonal nature of air conditioning demand.
OGE Enogex Holdings LLC
The Company projects equity earnings from its ownership interest in
Enable to be between approximately $98 million to $110 million, or $0.49
to $0.55 per average diluted share. The outlook does not include any
gains recognized each time Enable sells units representing the differ-
ence between book value and unit sales price or the dilution associated
with the issuance of limited partnership units from the planned Enable
initial public offering.