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WGL Holdings, Inc. Reports Fiscal Year 2010 Financial Results; Issues Fiscal Year 2011 Guidance

WASHINGTON--(BUSINESS WIRE)-- WGL Holdings, Inc. (NYSE:WGL):

Consolidated Results

WGL Holdings, Inc. (NYSE:WGL), the parent company of Washington Gas Light Company (Washington Gas) and other energy-related subsidiaries, today reported net income determined in accordance with generally accepted accounting principles in the United States of America (GAAP) for the fiscal year ended September 30, 2010 of $109.9 million, or $2.16 per share, compared to net income of $120.4 million, or $2.39 per share, reported for the fiscal year ended September 30, 2009.

"Our solid fiscal year 2010 results continue to show the strength and success of WGL Holdings' businesses," said Terry McCallister, chairman and chief executive officer of WGL Holdings. Mr. McCallister added, "We are able to leverage the experience gained from our recent achievements to grow the non-utility businesses, as demonstrated by our recently announced investment in American Solar Direct. We also continue to expand our existing non-utility operations while remaining committed to providing safe and reliable service to our growing base of utility customers. Having a strong financial position and dedicated workforce made these accomplishments possible and enable us to take advantage of new opportunities for sustained future growth."

For the quarter ended September 30, 2010, we reported a net loss determined in accordance with GAAP of $(26.1) million, or $(0.51) per share, compared to a net loss of $(11.1) million, or $(0.22) per share, reported for the same quarter of the prior fiscal year. Reporting a net loss for quarters ended September 30 is typical due to the seasonal nature of our utility operations and the corresponding reduced demand for natural gas during this period.

Financial performance is also evaluated based on non-GAAP operating earnings (loss). Non-GAAP operating earnings (loss) excludes the effects of: (i) unrealized mark-to-market gains (losses) on energy-related derivatives; (ii) certain gains and losses associated with optimizing the utility segment's system capacity assets and (iii) certain unusual transactions. Refer to "Use of Non-GAAP Operating Earnings (Loss)" and supporting reconciliations attached to this news release for a detailed discussion of management's use of this non-GAAP financial measure, as well as reconciliations of net income determined in accordance with GAAP to non-GAAP operating earnings (loss) for both our consolidated and segment results.

For the fiscal year ended September 30, 2010, non-GAAP operating earnings were $115.0 million, or $2.27 per share, compared to non-GAAP operating earnings of $127.7 million, or $2.53 per share, for the prior fiscal year. For the fourth quarter of fiscal year 2010, our non-GAAP operating loss was $(14.8) million, or $(0.29) per share, compared to a non-GAAP operating loss of $(12.4) million, or $(0.25) per share, for the same quarter of the prior fiscal year.

Fiscal Year and Fourth Quarter Results by Business Segment

Regulated Utility Segment

For the fiscal year ended September 30, 2010, our regulated utility segment reported net income of $101.7 million, or $2.00 per share, compared to net income of $106.0 million, or $2.10 per share, for the prior fiscal year. After adjustments, non-GAAP operating earnings for the regulated utility segment were $96.0 million, or $1.89 per share, for the fiscal year ended September 30, 2010, compared to non-GAAP operating earnings of $102.7 million, or $2.04 per share, for the prior fiscal year. The year-over-year comparisons of non-GAAP operating earnings reflect: (i) a decrease in the recovery of storage gas inventory carrying costs, reflecting lower average inventory values; (ii) higher employee benefit expense due to changes in plan asset values and plan valuation assumptions; (iii) an increase in the effective tax rate due to higher state taxes and the effects of health care legislation and (iv) higher property tax expense. Partially offsetting these unfavorable variances were: (i) higher revenues from an increase in average active customer meters over the prior period; (ii) favorable effects of changes in natural gas consumption patterns; (iii) lower costs for weather protection products related to the District of Columbia and (iv) lower interest expense related to both lower interest rates and decreased borrowing levels.

For the quarter ended September 30, 2010, our regulated utility segment reported a net seasonal loss of $(19.6) million, or $(0.38) per share, compared to a net loss of $(20.7) million, or $(0.41) per share, reported for the fourth quarter of the prior fiscal year. After adjustments, the non-GAAP operating loss for the regulated utility segment was $(19.1) million, or $(0.37) per share, for the quarter ended September 30, 2010, compared to a non-GAAP operating loss of $(17.4) million, or $(0.35) per share, for the same quarter of the prior fiscal year. This three month comparison of non-GAAP operating earnings reflects: (i) higher employee benefit expense; (ii) an increase in the effective tax rate and (iii) the effects of reversing an accrued obligation for the earnings sharing mechanism in the prior fiscal year. Partially offsetting these unfavorable variances were: (i) higher revenues from an increase in average active customer meters from the prior period; (ii) an increase in realized margins associated with our asset optimization program; (iii) lower uncollectible accounts expense and (iv) favorable changes in depreciation rates due to an order issued by the Public Service Commission of Maryland (PSC of MD).

Retail Energy-Marketing Segment

For the fiscal year ended September 30, 2010, the retail energy-marketing segment reported net income of $11.1 million, or $0.22 per share, compared to net income of $15.0 million, or $0.30 per share, reported for the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $22.8 million, or $0.45 per share, for the fiscal year ended September 30, 2010, compared to non-GAAP operating earnings of $25.5 million, or $0.51 per share, for the prior fiscal year. For the quarter ended September 30, 2010, the retail energy-marketing segment reported a net loss of $(5.7) million, or $(0.11) per share, compared to net income of $11.3 million, or $0.23 per share, reported for the same quarter of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $5.9 million, or $0.12 per share, for the quarter ended September 30, 2010, compared to non-GAAP operating earnings of $6.7 million, or $0.13 per share, for the same quarter of the prior year.

The differences between GAAP net income and non-GAAP operating earnings are due to adjustments to eliminate unrealized mark-to-market gains and losses attributable to certain wholesale energy supply and retail sales contracts. There is also an adjustment between GAAP and non-GAAP operating earnings for certain electric costs attributable to prior periods that impact only the year-to-date comparison. For both the fiscal year and quarter comparisons, the decrease in non-GAAP operating earnings reflect lower realized natural gas margins and higher operating expenses partially offset by higher realized electricity margins. Declines in gas sales margins are attributed to warmer weather in fiscal year 2010 and to favorable gas price movements experienced during the 2009 fiscal year. Operating expenses were higher due to increased marketing initiatives designed to take advantage of unique marketing opportunities. Electric sales margin improvements primarily reflect higher electric sales associated with customer growth.

Design-Build Energy Systems Segment

For the fiscal year ended September 30, 2010, the design-build energy systems segment reported a net loss of $(0.6) million, or $(0.01) per share, compared to net income of $3.2 million, or $0.06 per share, for the prior fiscal year. For the quarter ended September 30, 2010, the design-build energy systems segment reported a net loss of $(0.3) million or $(0.01) per share, compared to net income of $0.3 million, or $0.01 per share, for the same quarter of the prior year. For both the fiscal year and quarter comparison, the decrease in earnings is primarily due to delays in the initiation of certain planned project work for government agency customers in 2010 compared to 2009. Operating expenses were also higher due to increased labor expense associated with expansion plans. There were no non-GAAP adjustments for this segment for any of the periods presented.

Earnings Outlook

Our GAAP earnings estimate for the fiscal year 2011 is in a range of $2.24 per share to $2.36 per share. This estimate includes projected fiscal year 2011 earnings from our regulated utility segment in a range of $1.51 per share to $1.57 per share and projected fiscal year 2011 earnings from our unregulated business segments in a range of $0.73 per share to $0.79 per share.

We are also providing a consolidated earnings estimate for fiscal year 2011 based on non-GAAP operating earnings in a range of $1.94 per share to $2.06 per share. This estimate includes projected fiscal year 2011 non-GAAP operating earnings from our regulated utility segment in a range of $1.52 per share to $1.58 per share, and projected fiscal year 2011 non-GAAP operating earnings from our unregulated business segments in a range of $0.42 per share to $0.48 per share. Refer to the "Reconciliation of GAAP Earnings Guidance to Non-GAAP Earnings Guidance" attached to this press release for a reconciliation of our GAAP earnings per share estimate to our estimate based on non-GAAP operating earnings per share.

We assume no obligation to update this guidance. The absence of any statement by us in the future should not be presumed to represent an affirmation of this earnings guidance. For the assumptions underlying this guidance, please refer to the slides accompanying our webcast that will be posted to the WGL Holdings website, www.wglholdings.com.

Other Information

We will hold a conference call at 10:30 a.m. Eastern time on November 18, 2010, to discuss our fourth quarter and fiscal year 2010 financial results. The live conference call will be available to the public via a link located on the WGL Holdings website, www.wglholdings.com. To hear the live webcast, click on the "Webcast" link located on the home page of the referenced site. The webcast and related slides will be archived on the WGL Holdings website through December 17, 2010.

Headquartered in Washington, D.C., WGL Holdings has three operating segments: (i) the regulated utility segment which primarily consists of Washington Gas, a natural gas utility that serves over one million customers throughout metropolitan Washington, D.C., and the surrounding region; (ii) the retail-energy marketing segment which consists of Washington Gas Energy Services, Inc., a third-party marketer that competitively sells natural gas and electricity and (iii) the design-build energy systems segment, which consists of Washington Gas Energy Systems, Inc., a provider of design-build energy efficiency solutions to government and commercial clients. Additional information about WGL Holdings is available on our website, www.wglholdings.com.

Unless otherwise noted, earnings per share amounts are presented on a diluted basis, and are based on weighted average common and common equivalent shares outstanding.

Please see the attached comparative statements for additional information on our operating results. Also attached to this news release are reconciliations of net income determined in accordance with GAAP to non-GAAP operating earnings (loss) for both our consolidated and segment results as well as reconciliations of our GAAP earnings guidance to our non-GAAP earnings guidance.

Forward-Looking Statements

This news release and other statements by us include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the outlook for earnings, revenues and other future financial business performance or strategies and expectations. Forward-looking statements are typically identified by words such as, but not limited to, "estimates," "expects," "anticipates," "intends," "believes," "plans," and similar expressions, or future or conditional verbs such as "will," "should," "would," and "could." Although we believe such forward-looking statements are based on reasonable assumptions, we cannot give assurance that every objective will be achieved. Forward-looking statements speak only as of today, and we assume no duty to update them. Factors that could cause actual results to differ materially from those expressed or implied include, but are not limited to, general economic conditions and the factors discussed under the "Risk Factors" heading in our most recent annual report on Form 10-K and other documents we have filed with, or furnished to, the U.S. Securities and Exchange Commission.

 
WGL Holdings, Inc.
Consolidated Balance Sheets

(Unaudited)

             
  September 30,   September 30,
(In thousands)     2010       2009  
ASSETS
Property, Plant and Equipment
At original cost $ 3,383,364 $ 3,242,413
Accumulated depreciation and amortization     (1,037,156 )     (973,272 )
Net property, plant and equipment     2,346,208       2,269,141  
 
Current Assets
Cash and cash equivalents 8,849 7,845
Accounts receivable, net 298,212 308,915
Storage gas—at cost (first-in, first-out) 242,223 237,681
Other     167,981       129,073  
Total current assets     717,265       683,514  
Deferred Charges and Other Assets     580,421       397,235  
Total Assets   $ 3,643,894     $ 3,349,890  
 
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 1,153,395 $ 1,097,698
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt     592,875       561,830  
Total capitalization     1,774,443       1,687,701  
 
Current Liabilities
Notes payable and current maturities of long-term debt 130,515 266,443
Accounts payable and other accrued liabilities 225,362 213,529
Other     188,174       154,644  
Total current liabilities     544,051       634,616  
Deferred Credits     1,325,400       1,027,573  
Total Capitalization and Liabilities   $ 3,643,894     $ 3,349,890  
 
 
WGL Holdings, Inc.
Consolidated Statements of Income

(Unaudited)

 
  Three Months Ended   Fiscal Year Ended
      September 30,     September 30,
(In thousands, except per share data)     2010       2009       2010       2009  
OPERATING REVENUES    
Utility $ 127,250 $ 130,253 $ 1,297,786 $ 1,481,089
Non-utility     337,892       282,591       1,411,090       1,225,767  
Total Operating Revenues     465,142       412,844       2,708,876       2,706,856  
 
OPERATING EXPENSES
Utility cost of gas 42,108 48,007 618,308 805,119
Non-utility cost of energy-related sales 331,803 251,694 1,340,774 1,153,166
Operation and maintenance 78,239 77,250 309,089 297,471
Depreciation and amortization 21,979 23,863 94,011 95,357
General taxes and other assessments     22,618       19,520       122,797       114,054  
Total Operating Expenses     496,747       420,334       2,484,979       2,465,167  
 
OPERATING INCOME (LOSS) (31,605 ) (7,490 ) 223,897 241,689
Other Income (Expenses)—Net (213 ) 586 931 2,181
Interest Expense
Interest on long-term debt 9,597 9,538 39,413 40,432
AFUDC and other—net     511       899       654       4,471  
Total Interest Expense     10,108       10,437       40,067       44,903  
INCOME (LOSS) BEFORE INCOME TAXES (41,926 ) (17,341 ) 184,761 198,967
INCOME TAX EXPENSE (BENEFIT)     (16,113 )     (6,542 )     73,556       77,274  
NET INCOME (LOSS) BEFORE PREFERRED STOCK DIVIDENDS (25,813 ) (10,799 ) 111,205 121,693
Dividends on Washington Gas preferred stock     330       330       1,320       1,320  
 
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK   $ (26,143 )   $ (11,129 )   $ 109,885     $ 120,373  
 
AVERAGE COMMON SHARES OUTSTANDING
Basic 50,871 50,142 50,538 50,104
Diluted     50,871       50,142       50,765       50,382  
 
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
Basic $ (0.51 ) $ (0.22 ) $ 2.17 $ 2.40
Diluted   $ (0.51 )   $ (0.22 )   $ 2.16     $ 2.39  
 
Net Income (Loss) Applicable To Common Stock—By Segment ($000):
 
Regulated utility   $ (19,550 )   $ (20,749 )   $ 101,698     $ 105,952  
 
Non-utility operations:
Retail energy-marketing (5,689 ) 11,342 11,124 14,975
Design-build energy systems (255 ) 287 (635 ) 3,154
Other activities     (649 )     (2,009 )     (2,302 )     (3,708 )
Total non-utility     (6,593 )     9,620       8,187       14,421  
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK   $ (26,143 )   $ (11,129 )   $ 109,885     $ 120,373  
 
 
WGL Holdings, Inc.
Consolidated Financial and Operating Statistics

(Unaudited)

 
FINANCIAL STATISTICS        
               

 

   

Fiscal Year Ended September 30,

                      2010       2009  
 
Closing Market Price—end of period

$

37.78

$

33.14

52-Week Market Price Range

 

$

38.08-$30.96

 

$

37.08-$22.40

Price Earnings Ratio 17.4 13.8
Annualized Dividends Per Share

$

1.51

$

1.47

Dividend Yield 4.0 % 4.4 %
Return on Average Common Equity 9.8 % 11.2 %
Total Interest Coverage (times) 5.5 5.4
Book Value Per Share—end of period

$

22.63

$

21.89

Common Shares Outstanding—end of period (thousands)                     50,975       50,143  
 
UTILITY GAS STATISTICS                                
Three Months Ended Fiscal Year Ended
      September 30,       September 30,
(In thousands)     2010       2009       2010       2009  
Operating Revenues
Gas Sold and Delivered
Residential - Firm $ 70,883

 

$

69,219

 

$

864,788

 

$

987,255
Commercial and Industrial - Firm 18,384 23,051 193,212 263,312
Commercial and Industrial - Interruptible 507 487 3,803 4,027
Electric Generation     275       275       1,100       1,100  
      90,049       93,032       1,062,903       1,255,694  
Gas Delivered for Others
Firm 21,101 20,160 160,952 144,998
Interruptible 8,054 7,522 47,116 47,699
Electric Generation     279       119       489       357  
      29,434       27,801       208,557       193,054  
119,483 120,833 1,271,460 1,448,748
Other     7,767       9,420       26,326       32,341  
Total   $ 127,250

 

 

$

130,253

 

 

$

1,297,786

 

 

$

1,481,089  
                                 
Three Months Ended Fiscal Year Ended
      September 30,       September 30,
(In thousands of therms)     2010       2009       2010       2009  
 
Gas Sales and Deliveries
Gas Sold and Delivered
Residential - Firm 36,115 36,775 662,357 689,986
Commercial and Industrial - Firm 14,570 17,300 170,534 203,039
Commercial and Industrial - Interruptible     445       495       3,649       3,377  
      51,130       54,570       836,540       896,402  
Gas Delivered for Others
Firm 44,115 45,398 481,099 462,051
Interruptible 45,373 45,247 267,823 273,820
Electric Generation     104,839       43,981       172,995       102,759  
      194,327       134,626       921,917       838,630  
Total     245,457       189,196       1,758,457       1,735,032  
 
WASHINGTON GAS ENERGY SERVICES                                
Natural Gas Sales
Therm Sales (thousands of therms) 63,181 62,383 593,319 627,428
 
Number of Customers (end of period)     160,900       151,500       160,900       151,500  
 
Electricity Sales
Electricity Sales (thousands of kWhs) 2,909,970 2,093,028 9,276,202 5,269,281
 
Number of Accounts (end of period)     154,900       113,000       154,900       113,000  
 
UTILITY GAS PURCHASED EXPENSE
(excluding asset optimization)     74.85 ¢     72.11 ¢     74.72 ¢     90.50 ¢
 
HEATING DEGREE DAYS                                
Actual - 8 3,825 4,211
Normal 14 14 3,765 3,773
Percent Colder (Warmer) than Normal     (100.0) %     (42.9) %     1.6 %     11.6 %
 
Average Active Customer Meters     1,074,396       1,065,107       1,074,505       1,065,573  
 

WGL HOLDINGS, INC.
USE OF NON-GAAP OPERATING EARNINGS (LOSS)
(Unaudited)

The attached reconciliations are provided to clearly identify adjustments made to net income calculated in accordance with GAAP to derive non-GAAP operating earnings (loss). Management believes non-GAAP operating earnings (loss) provides a more meaningful representation of our earnings from ongoing operations by adjusting for the effects of: (i) unrealized mark-to-market gains and losses from energy-related derivatives; (ii) certain gains and losses associated with optimizing the utility segment's capacity assets and (iii) certain unusual transactions. This presentation facilitates analysis by providing a consistent and comparable measure to help management, investors and analysts better understand and evaluate our operating results and performance trends, and assist in analyzing period-to-period comparisons. Additionally, we use this non-GAAP measure to report to the board of directors and to evaluate management's performance.

The economic substance underlying our adjustments to calculate non-GAAP operating earnings (loss) is as follows:

There are limits in using non-GAAP operating earnings (loss) to analyze our results, as they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. In addition, using non-GAAP operating earnings (loss) per share to analyze our earnings may have limited value as it excludes certain items that may have a material impact on our reported financial results. We compensate for these limitations by providing investors with the attached reconciliations to net income, the most directly comparable GAAP financial measure.

 
WGL HOLDINGS, INC. (Consolidating by Segment)
RECONCILIATION OF GAAP NET INCOME (LOSS) TO
NON-GAAP OPERATING EARNINGS (LOSS)

(Unaudited)

 
Fiscal Year Ended September 30, 2010
(In thousands, except per share data)   Regulated Utility   Retail Energy-Marketing   Design-Build Energy Systems   Other Activities*   Consolidated
GAAP net income (loss)   $ 101,698   11,124   (635 )   (2,302 )   109,885
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (7,234 ) 11,719 - (812 ) 3,673
Storage optimization program (b) 204 - - - 204
Amortization of derivative contract termination (c) (964 ) - - - (964 )
Weather derivative products (d) 110 - - - 110
Partial settlement of the Supplemental Executive Retirement Program (e)     2,140       -       -       -       2,140  
Non-GAAP operating earnings (loss)   $ 95,954       22,843       (635 )     (3,114 )     115,048  
GAAP diluted earnings (loss) per average common share (50,765 shares) $ 2.00 0.22 (0.01 ) (0.05 ) 2.16
Per share effect of non-GAAP adjustments     (0.11 )     0.23       -       (0.01 )     0.11  
Non-GAAP operating earnings (loss) per share   $ 1.89       0.45       (0.01 )     (0.06 )     2.27  
 
Fiscal Year Ended September 30, 2009
(In thousands, except per share data)   Regulated Utility   Retail Energy-Marketing   Design-Build Energy Systems   Other Activities*   Consolidated
GAAP net income (loss) $ 105,952 $ 14,975 $ 3,154 $ (3,708 ) $ 120,373
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (2,545 ) 11,776 - - 9,231
Storage optimization program (b) 33 - - - 33
Amortization of derivative contract termination (c) 2,035 - - - 2,035
Reversal of reserve for natural gas costs (f) (2,781 ) - - - (2,781 )
Reversal of prior period electric costs (g)     -       (1,229 )     -       -       (1,229 )
Non-GAAP operating earnings (loss)   $ 102,694     $ 25,522     $ 3,154     $ (3,708 )   $ 127,662  
GAAP diluted earnings (loss) per average common share (50,382 shares) $ 2.10 $ 0.30 $ 0.06 $ (0.07 ) $ 2.39
Per share effect of non-GAAP adjustments     (0.06 )     0.21       -       (0.01 )     0.14  
Non-GAAP operating earnings (loss) per share   $ 2.04     $ 0.51     $ 0.06     $ (0.08 )   $ 2.53  
 
Three Months Ended September 30, 2010
(In thousands, except per share data)   Regulated Utility   Retail Energy-Marketing   Design-Build Energy Systems   Other Activities*   Consolidated
GAAP net income (loss) $ (19,550 ) (5,689 ) (255 ) (649 ) (26,143 )
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 929 11,628 - (812 ) 11,745
Storage optimization program (b) (554 ) - - - (554 )
Weather derivative products (d)     111       -       -       -       111  
Non-GAAP operating earnings (loss)   $ (19,064 )     5,939       (255 )     (1,461 )     (14,841 )
GAAP diluted earnings (loss) per average common share (50,871 shares) $ (0.38 ) (0.11 ) (0.01 ) (0.01 ) (0.51 )
Per share effect of non-GAAP adjustments     0.01       0.23       -       (0.02 )     0.22  
Non-GAAP operating earnings (loss) per share   $ (0.37 )     0.12       (0.01 )     (0.03 )     (0.29 )
 
Three Months Ended September 30, 2009
(In thousands, except per share data)   Regulated Utility   Retail Energy-Marketing   Design-Build Energy Systems   Other Activities*   Consolidated
GAAP net income (loss) $ (20,749 ) $ 11,342 $ 287 $ (2,009 ) $ (11,129 )
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 3,824 (4,632 ) - - (808 )
Storage optimization program (b) (2,467 ) - - - (2,467 )
Amortization of derivative contract termination (c)     2,035       -       -       -       2,035  
Non-GAAP operating earnings (loss)   $ (17,357 )   $ 6,710     $ 287     $ (2,009 )   $ (12,369 )
GAAP diluted earnings (loss) per average common share (50,142 shares) $ (0.41 ) $ 0.23 $ 0.01 $ (0.05 ) $ (0.22 )
Per share effect of non-GAAP adjustments     0.06       (0.10 )     -       0.01       (0.03 )
Non-GAAP operating earnings (loss) per share   $ (0.35 )   $ 0.13     $ 0.01     $ (0.04 )   $ (0.25 )
 

* Other Activities in 2010 include the results of Capitol Energy Ventures and include non-GAAP adjustments for net unrealized gains on energy related derivatives.

Per share amounts for "Other Activities" may include adjustments for rounding.

(Footnote references are described on the following page)
 
         
WGL HOLDINGS, INC. (Consolidated by Quarter)
RECONCILIATION OF GAAP NET INCOME (LOSS) TO
NON-GAAP OPERATING EARNINGS (LOSS)

(Unaudited)

 
Fiscal Year 2010
      Quarterly Period Ended (h)
(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
GAAP net income (loss) $ 47,641 $ 78,706 $ 9,681 $ (26,143 ) $ 109,885
Adjusted for (items shown after-tax):
Unrealized mark-to-market (gain) loss on energy-related derivatives (a) 2,371 5,147 (15,590 ) 11,745 3,673
Storage optimization program (b) 385 871 (498 ) (554 ) 204
Amortization of derivative contract termination (c) (385 ) (579 ) - - (964 )
Weather derivative products (d) 786 (1,424 ) 637 111 110
Partial settlement of the Supplemental Executive Retirement Program (e)     -       -       2,140       -       2,140  
Non-GAAP operating earnings (loss)   $ 50,798     $ 82,721     $ (3,630 )   $ (14,841 )   $ 115,048  
Diluted average common shares outstanding     50,429       50,572       50,918       50,871     $ 50,765  
GAAP diluted earnings (loss) per average common share $ 0.94 $ 1.56 $ 0.19 $ (0.51 ) 2.16
Per share effect of non-GAAP adjustments     0.07       0.08       (0.26 )     0.22       0.11  
Non-GAAP operating earnings (loss) per share   $ 1.01     $ 1.64     $ (0.07 )   $ (0.29 )   $ 2.27  
 
Fiscal Year 2009
      Quarterly Period Ended (h)
(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
GAAP net income (loss) $ 54,625 $ 75,070 $ 1,807 $ (11,129 ) $ 120,373
Adjusted for (items shown after-tax):
Unrealized mark-to-market (gain) loss on energy-related derivatives (a) (960 ) 6,407 4,592 (808 ) 9,231
Storage optimization program (b) 767 2,538 (805 ) (2,467 ) 33
Amortization of derivative contract termination (c) - - - 2,035 2,035
Reversal of reserve for natural gas costs (f) (2,781 ) - - - (2,781 )
Reversal of period electric costs (g)     -       (1,229 )     -       -       (1,229 )
Non-GAAP operating earnings (loss)   $ 51,651     $ 82,786     $ 5,594     $ (12,369 )   $ 127,662  
Diluted average common shares outstanding     50,208       50,420       50,435       50,142       50,382  
GAAP diluted earnings (loss) per average common share $ 1.09 $ 1.49 $ 0.04 $ (0.22 ) $ 2.39
Per share effect of non-GAAP adjustments     (0.06 )     0.15       0.07       (0.03 )     0.14  
Non-GAAP operating earnings (loss) per share   $ 1.03     $ 1.64     $ 0.11     $ (0.25 )   $ 2.53  
 

Footnotes:

 

(a)

 

Represents the change in the unrealized mark-to-market positions of our energy-related derivatives that were recorded to income during the period. For the regulated utility segment, to the extent that our unrealized mark-to-market gains and losses are not shared with customers, these amounts are recorded directly to income. All unrealized mark-to-market gains and losses for the retail energy-marketing segment and to Capitol Energy Ventures in the other activities segment are recorded directly to income.

 

(b)

Adjustments to shift the timing of storage optimization margins from the periods recognized for GAAP purposes to the periods in which such margins are recognized for regulatory sharing purposes. In addition, lower-of-cost-or-market adjustments related to system and non-system storage optimization are eliminated for non-GAAP reporting, since the margins will be recognized for regulatory purposes when the withdrawals are made at the unadjusted historical cost of storage inventory.

 

(c)

During the fourth quarter of fiscal year 2009, Washington Gas terminated a long-term energy-related derivative contract related to its transportation capacity optimization and recognized an associated loss of $3.9 million for GAAP purposes. For non-GAAP purposes, this loss is being recognized in this period and in future periods to be matched against the margins earned in the quarters that would have been constrained if the contract had not been terminated.

 

(d)

Represents weather derivatives that are recorded at fair value rather than being valued based on actual variations from normal weather. Thus, any portion of recorded fair value that is not directly offset by an increase/decrease in revenue due to weather is excluded for non-GAAP purposes.

 

(e)

Represents the partial settlement of the Supplemental Employee Retirement Program due to lump sum distributions to certain retired employees that occurred in 2010.

 

(f)

In the quarter ended December 31, 2008, Washington Gas recorded a $4.6 million reversal of a reserve for disallowed gas costs in Maryland and recorded income of $4.6 million due to a February 5, 2009 Order issued by the Public Service Commission of Maryland (PSC of MD). This Order resolved a contingency related to a proposed order issued by a Hearing Examiner of the PSC of MD in fiscal year 2006.

 

(g)

Represents a non-GAAP adjustment to reverse a prior period electric cost adjustment during the quarter ended March 31, 2009.

 

(h)

Quarterly earnings per share may not sum to year-to-date or annual earnings per share as quarterly calculations are based on weighted average common and common equivalent shares outstanding, which may vary for each of those periods.

 
   

WGL HOLDINGS, INC.

RECONCILIATION OF GAAP EARNINGS GUIDANCE TO

NON-GAAP EARNINGS GUIDANCE

FISCAL YEAR ENDING SEPTEMBER 30, 2011

 
Consolidated
      Low     High
GAAP Earnings Per Share Guidance Range $ 2.24 $ 2.36
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.27 ) (0.27 )
Storage optimization program (b) (0.01 ) (0.01 )
Amortization of derivative contract termination (c)     (0.02 )     (0.02 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 1.94     $ 2.06  
 
 
Regulated Utility Segment
      Low     High
GAAP Earnings Per Share Guidance Range $ 1.51 $ 1.57
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) 0.04 0.04
Storage optimization program (b) (0.01 ) (0.01 )
Amortization of derivative contract termination (c)     (0.02 )     (0.02 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 1.52     $ 1.58  
 
 
Unregulated Business Segments
      Low     High
GAAP Earnings Per Share Guidance Range $ 0.73 $ 0.79
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a)     (0.31 )     (0.31 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 0.42     $ 0.48  
 

Footnotes:

 

(a)

 

Represents the estimated reversal of certain of our existing unrealized mark-to-market positions related to our energy derivatives that will be recorded to income during fiscal year 2011. For the regulated utility segment, to the extent that our unrealized mark-to-market gains and losses are not shared with customers, these amounts are recorded directly to income. All unrealized mark-to-market gains and losses for the retail-energy marketing segment and to Capitol Energy Ventures in the other activities segment are recorded directly to income.

 

(b)

Adjustment relates to the current period settlement of physical and financial derivatives resulting from the optimization of the regulated utility segment's system storage capacity assets.

 

(c)

During the fourth quarter of fiscal year 2009, Washington Gas terminated a long-term energy-related derivative contract related to its transportation capacity optimization and recognized an associated loss of $3.9 million for GAAP purposes. For non-GAAP purposes, this loss is being recognized in this period and in future periods to be matched against the margins earned in the quarters that would have been constrained if the contract had not been terminated.

WGL Holdings, Inc.
News Media:
Ruben Rodriguez, 202-624-6620
or
Financial Community:
Robert Dennis, 202-624-6129

Source: WGL Holdings, Inc.

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