OG&E 2013 Annual Report Download - page 29

OGE Energy Corp. 23
The following table presents the status of the Company’s Pension
Plan, the Restoration of Retirement Income Plan and the postretirement
benefit plans at December 31, 2013 and 2012. These amounts have been
recorded in Accrued Benefit Obligations with the offset in Accumulated
Other Comprehensive Loss (except OG&E’s portion which is recorded
as a regulatory asset as discussed in Note 1 of Notes to Consolidated
Financial Statements) in the Company’s Consolidated Balance Sheet.
The amounts in Accumulated Other Comprehensive Loss and those
recorded as a regulatory asset represent a net periodic benefit cost to be
recognized in the Consolidated Statements of Income in future periods.
Restoration of Postretirement
Pension Plan Retirement Income Plan Benefit Plans
(In millions, year ended December 31) 2013 2012 2013 2012 2013 2012
Benefit obligations $(658.1) $(747.1) $(14.0) $(14.5) $(258.2) $(301.0))
Fair value of plan assets 654.9 626.0 ––61.4 59.6
Funded status at end of year $÷÷(3.2) $(121.1) $(14.0) $(14.5) $(196.8) $(241.4))
In accordance with ASC Topic 715, “Compensation – Retirement
Benefits,” a one-time settlement charge is required to be recorded by an
organization when lump sum payments or other settlements that relieve
the organization from the responsibility for the pension benefit obligation
during a plan year exceed the service cost and interest cost components
of the organization’s net periodic pension cost. During 2013, the Company
experienced an increase in both the number of employees electing to
retire and the amount of lump sum payments to be paid to such employ-
ees upon retirement. As a result, and based in part on the Company’s
historical experience regarding eligible employees who elect to retire
in the last quarter of a particular year, the Company recorded pension
settlement charges of $22.4 million in the fourth quarter of 2013, of
which $17.0 million related to OG&E’s Oklahoma jurisdiction and has
been included in the pension tracker. The pension settlement charge
did not require a cash outlay by the Company and did not increase the
Company’s total pension expense over time, as the charges were an
acceleration of costs that otherwise would be recognized as pension
expense in future periods.
Common Stock Dividends
The Company’s dividend policy is reviewed by the Board of Directors
at least annually and is based on numerous factors, including manage-
ment’s estimation of the long-term earnings power of its businesses.
The Company’s financial objective includes increasing the dividend to
meet the Company’s dividend payout objectives. The Company’s target
payout ratio is to pay out dividends of approximately 60 percent of its
normalized earnings on an annual basis. The target payout ratio has
been determined after consideration of numerous factors, including
the largely retail composition of the Company’s shareholder base,
the Company’s financial position, the Company’s growth targets, the
composition of the Company’s assets and investment opportunities.
At the Company’s December 2013 Board meeting, management, after
considering estimates of future earnings and numerous other factors,
recommended to the Board of Directors an increase in the current
quarterly dividend rate to $0.22500 per share from $0.20875 per share
effective with the Company’s first quarter 2014 dividend.
Security Ratings
Standard
Moody’s & Poor’s
Investor Ratings Fitch
Services Services Ratings
OG&E senior notes A1 A- A+
OGE Energy senior notes A3 BBB+ A-
OGE Energy commercial paper P2 A2 F2
Access to reasonably priced capital is dependent in part on credit
and security ratings. Generally, lower ratings lead to higher financing
costs. Pricing grids associated with the Company’s credit facilities could
cause annual fees and borrowing rates to increase if an adverse rating
impact occurs. The impact of any future downgrade could include an
increase in the costs of the Company’s short-term borrowings, but a
reduction in the Company’s credit ratings would not result in any defaults
or accelerations. Any future downgrade could also lead to higher long-
term borrowing costs and, if below investment grade, would require
the Company to post collateral or letters of credit.
In conjunction with the closing of Enable on May 1, 2013, on May 2,
2013, Standard & Poor’s Ratings Services upgraded the long-term senior
unsecured rating of OGE Energy to BBB+ and OG&E to A-. All other
security ratings from S&P remain unchanged.
On November 8, 2013, Moody’s Investors Services placed the credit
ratings of OGE Energy and OG&E on review for possible upgrade. On
January 31, 2014, Moody’s upgraded the long-term senior unsecured
rating of OGE Energy to A3 and OG&E to A1 primarily due to their more
favorable view of the relative credit supportiveness of the U.S. regulatory
environment. All other security ratings from Moody’s remain unchanged.
A security rating is not a recommendation to buy, sell or hold securities.
Such rating may be subject to revision or withdrawal at any time by the
credit rating agency and each rating should be evaluated independently
of any other rating.
Future financing requirements may be dependent, to varying degrees,
upon numerous factors such as general economic conditions, abnormal
weather, load growth, commodity prices, acquisitions of other businesses
and/or development of projects, actions by rating agencies, inflation,
changes in environmental laws or regulations, rate increases or decreases
allowed by regulatory agencies, new legislation and market entry of
competing electric power generators.