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WGL Holdings, Inc. Reports Second Quarter Fiscal Year 2011 Earnings; Increases Annual Guidance and Highlights Regulatory Developments

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 quarter ended March 31, 2011, of $79.4 million, or $1.55 per share, compared to net income of $78.7 million, or $1.56 per share, reported for the quarter ended March 31, 2010.

For the first six months of fiscal year 2011, we reported net income determined in accordance with GAAP of $144.7 million, or $2.83 per share, compared to net income of $126.3 million, or $2.50 per share, reported for the comparative period of fiscal year 2010. Our operations are seasonal and, accordingly, our operating results for the three and six months ended March 31, 2011, are not indicative of the results expected for the 12 months ending September 30, 2011.

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 quarter ended March 31, 2011, our non-GAAP operating earnings were $78.4 million, or $1.53 per share, compared to non-GAAP operating earnings of $82.7 million, or $1.64 per share, for the same quarter of the prior fiscal year. For the six months ended March 31, 2011, our non-GAAP operating earnings were $130.7 million, or $2.55 per share, compared to non-GAAP operating earnings of $133.5 million, or $2.64 per share, for the same period of the prior fiscal year.

"We are pleased to report second quarter earnings that, while below prior year levels, represent an improvement to the results anticipated in our previous annual guidance," said Terry D. McCallister, Chairman and Chief Executive Officer of WGL Holdings. "These results combined with our strong first quarter performance demonstrate that we are successfully executing our strategies for growth in our non-utility businesses while at the same time efficiently managing our core utility operations in the face of rising costs. We have also recently taken steps to improve our opportunity in future periods to earn the authorized rates of return in our regulated utility business. On January 31, 2011, we filed a base rate case in Virginia requesting a $29.6 million annual revenue increase; on April 15, 2011, we filed a rate case in the state of Maryland requesting a $30 million increase in annual revenues and on April 21, 2011, the Virginia State Corporation Commission (SCC of VA) approved our request under the SAVE (Steps to Advance Virginia's Energy Plan) law for approval of a five year, $116.5 million accelerated pipeline replacement plan. These initiatives will allow us to continue to provide safe and reliable service to our customers while realizing appropriate returns for our shareholders."

Second Quarter Results by Business Segment

Regulated Utility Segment

For the quarter ended March 31, 2011, our regulated utility segment reported net income of $70.8 million, or $1.38 per share compared to net income of $91.0 million, or $1.80 per share, reported for the second quarter of the prior fiscal year. After adjustments, non-GAAP operating earnings for the regulated utility segment were $72.5 million, or $1.41 per share, for the quarter ended March 31, 2011, compared to non-GAAP operating earnings of $80.1 million, or $1.58 per share, for the same quarter of the prior fiscal year.

For the six months ended March 31, 2011, our regulated utility segment reported net income of $111.5 million, or $2.18 per share compared to net income $131.7 million, or $2.61 per share, reported for the six months ended March 31, 2010. After adjustments, non-GAAP operating earnings for the regulated utility segment were $116.8 million, or $2.28 per share, for the six months ended March 31, 2011, compared to non-GAAP operating earnings of $124.0 million, or $2.46 per share, for the same six months of the prior fiscal year.

For both the three and six months ended March 31, 2011, lower non-GAAP operating earnings reflect: (i) the impact of the reduction in Maryland depreciation rates effective on June 1, 2010, creating a timing difference between the recognition and recovery of depreciation expense; (ii) unfavorable effects of changes in natural gas consumption patterns and (iii) higher employee benefit expense due to changes in pension and retiree medical plan valuation assumptions. Partially offsetting these unfavorable variances were higher revenues from an increase in average active customer meters of more than 10,200 and 9,800 over the prior year three and six month periods, respectively, and a decrease in recurring business process outsourcing costs.

Retail Energy-Marketing Segment

For the quarter ended March 31, 2011, the retail energy-marketing segment reported net income of $9.6 million, or $0.19 per share, an increase of $21.0 million, or $0.42 per share, over a net loss of $(11.4) million, or $(0.23) per share, reported for the second quarter of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $7.9 million, or $0.15 per share, for the quarter ended March 31, 2011, an increase of $4.4 million, or $0.08 per share, over non-GAAP operating earnings of $3.5 million, or $0.07 per share, for the same quarter of the prior fiscal year.

For the six months ended March 31, 2011, the retail energy-marketing segment reported net income of $34.4 million, or $0.67 per share, an increase of $38.3 million, or $0.75 per share, over a net loss of $(3.9) million, or $(0.08) per share, reported for the same period of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $14.6 million, or $0.29 per share, for the six months ended March 31, 2011, an increase of $3.7 million, or $0.07 per share, over non-GAAP operating earnings of $10.9 million, or $0.22 per share, for the same period of the prior fiscal year.

For both the three and six month comparisons, the significant improvements in GAAP net income are due to unrealized mark-to-market gains attributable to certain wholesale energy supply and retail sales contracts compared to unrealized losses in the prior periods. The increases in non-GAAP operating earnings for both the three and six month periods primarily reflect higher realized natural gas and electricity margins, partially offset by higher operating expenses. Increases in natural gas sales margins are attributed to favorable price spreads on higher gas sales volumes driven by additional natural gas retail customers and favorable market conditions for portfolio optimization activity. Electric sales margins were higher due to higher electric sales volumes associated with customer growth. In addition, electricity unit margins were higher in the current quarter, as the prior year was impacted by increased balancing supply costs resulting from warmer weather which occurred in March 2010 and the pattern of margin recognition that results from sales under generally fixed-priced contracts with customers. Operating expenses were higher due to increased marketing initiatives (both mass market and large commercial) and higher labor costs.

Design-Build Energy Systems Segment

For the quarter ended March 31, 2011, the design-build energy systems segment reported net income of $74,000, an increase of $165,000 over a net loss of $(91,000) reported for the second quarter of the prior fiscal year. For the six months ended March 31, 2011, the design-build energy systems segment reported net income of $188,000, an increase of $491,000 over net loss of $(303,000) reported for the same period of the prior fiscal year. The increase in earnings is due to the commencement of project work for government agency customers that was delayed in the prior year, partially offset by higher operating expenses due to higher labor expense associated with increased project work. There were no non-GAAP adjustments for this segment for either period.

Earnings Outlook

We are updating our GAAP earnings estimate for the fiscal year 2011 in a range of $2.36 to $2.48 per share. This estimate includes projected fiscal year 2011 earnings from our regulated utility segment in a range of $1.51 to $1.57 per share and projected fiscal year 2011 earnings from our unregulated business segments in a range of $0.85 per share to $0.91 per share.

We are also updating our consolidated earnings estimate for fiscal year 2011 based on non-GAAP operating earnings in a range of $2.00 per share to $2.12 per share. This estimate includes projected fiscal year 2011 non-GAAP operating earnings from our regulated utility segment in a range of $1.57 per share to $1.63 per share, and projected fiscal year 2011 non-GAAP operating earnings from our unregulated business segments in a range of $0.43 per share to $0.49 per share. Refer to the "Reconciliation of GAAP Earnings Guidance to Non-GAAP Earnings Guidance" attached to this news 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 May 5, 2011, to discuss our second quarter financial results for fiscal year 2011. 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 June 3, 2011.

Headquartered in Washington, D.C., WGL Holdings, Inc. 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, Inc. 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)

         
March 31, September 30,
(In thousands)   2011   2010
ASSETS
Property, Plant and Equipment
At original cost $ 3,444,726 $ 3,383,364
Accumulated depreciation and amortization     (1,059,817 )     (1,037,156 )
Net property, plant and equipment     2,384,909       2,346,208  
 
Current Assets
Cash and cash equivalents 190,004 8,849
Accounts receivable, net 522,418 298,212
Storage gas—at cost (first-in, first-out) 83,505 242,223
Other     124,355       167,981  
Total current assets     920,282       717,265  
Deferred Charges and Other Assets     564,508       580,421  
Total Assets   $ 3,869,699     $ 3,643,894  
 
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 1,264,008 $ 1,153,395
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt     614,930       592,875  
Total capitalization     1,907,111       1,774,443  
 
Current Liabilities
Notes payable and current maturities of long-term debt 67,823 130,515
Accounts payable and other accrued liabilities 292,719 225,362
Other     249,766       188,174  
Total current liabilities     610,308       544,051  
Deferred Credits     1,352,280       1,325,400  
Total Capitalization and Liabilities   $ 3,869,699     $ 3,643,894  
 
       
WGL Holdings, Inc.
Consolidated Statements of Income

(Unaudited)

                 
Three Months Ended Six Months Ended
    March 31,   March 31,
(In thousands, except per share data)   2011   2010   2011   2010
OPERATING REVENUES
Utility $ 561,297 $ 611,625 $ 970,591 $ 1,002,157
Non-utility     455,924       445,013       842,504       781,904  
Total Operating Revenues     1,017,221       1,056,638       1,813,095       1,784,061  
 
OPERATING EXPENSES
Utility cost of gas 286,570 318,922 495,190 516,199
Non-utility cost of energy-related sales 422,325 451,783 751,118 764,988
Operation and maintenance 87,531 78,272 165,099 151,788
Depreciation and amortization 22,647 24,235 45,291 48,398
General taxes and other assessments     54,203       43,007       94,675       74,427  
Total Operating Expenses     873,276       916,219       1,551,373       1,555,800  
 
OPERATING INCOME 143,945 140,419 261,722 228,261
Other Income (Expenses)—Net (1,320 ) 495 (432 ) 864
Interest Expense
Interest on long-term debt 10,123 10,008 19,897 19,903
AFUDC and other—net     249       194       421       56  
Total Interest Expense     10,372       10,202       20,318       19,959  
INCOME BEFORE INCOME TAXES 132,253 130,712 240,972 209,166
INCOME TAX EXPENSE     52,495       51,676       95,652       82,159  
NET INCOME 79,758 79,036 145,320 127,007
Dividends on Washington Gas preferred stock     330       330       660       660  
 
NET INCOME APPLICABLE TO COMMON STOCK   $ 79,428     $ 78,706     $ 144,660     $ 126,347  
 
AVERAGE COMMON SHARES OUTSTANDING
Basic 51,143 50,366 51,104 50,305
Diluted     51,242       50,572       51,191       50,502  
 
EARNINGS PER AVERAGE COMMON SHARE
Basic $ 1.55 $ 1.56 $ 2.83 $ 2.51
Diluted   $ 1.55     $ 1.56     $ 2.83     $ 2.50  
 
Net Income (Loss) Applicable To Common Stock—By Segment ($000):
 
Regulated utility   $ 70,843     $ 91,006     $ 111,527     $ 131,702  
 
Non-utility operations:
Retail energy-marketing 9,582 (11,437 ) 34,401 (3,930 )
Design-build energy systems 74 (91 ) 188 (303 )
Other activities     (1,071 )     (772 )     (1,456 )     (1,122 )
Total non-utility     8,585       (12,300 )     33,133       (5,355 )
NET INCOME APPLICABLE TO COMMON STOCK   $ 79,428     $ 78,706     $ 144,660     $ 126,347  
 
           
WGL Holdings, Inc.
Consolidated Financial and Operating Statistics

(Unaudited)

 
FINANCIAL STATISTICS                                
                      Twelve Months Ended March 31,
                      2011         2010
 
Closing Market Price — end of period $

39.00

$ 34.65
52-Week Market Price Range $ 40.00-$32.75 $ 35.02-$28.59
Price Earnings Ratio 15.5 14.9
Annualized Dividends Per Share $ 1.55 $ 1.51
Dividend Yield 4.0 % 4.4 %
Return on Average Common Equity 10.4 % 10.0 %
Total Interest Coverage (times) 6.2 5.6
Book Value Per Share — end of period $ 24.70 $ 23.65
Common Shares Outstanding — end of period (thousands)                       51,167             50,570  
 
UTILITY GAS STATISTICS                                    
Three Months Ended Six Months Ended Twelve Months Ended
    March 31,   March 31,   March 31,
(In thousands)   2011   2010   2011   2010   2011   2010
 
Operating Revenues
Gas Sold and Delivered
Residential — Firm $ 383,596 $

430,570

$ 655,034 $

694,461

$

825,361

$ 874,061
Commercial and Industrial — Firm 86,350 93,723 151,566 150,131 194,647 203,633
Commercial and Industrial — Interruptible 832 1,522 1,614 2,920 2,497 4,132
Electric Generation     275       275       550       550       1,100       1,100  
      471,053       526,090       808,764       848,062       1,023,605       1,082,926  
Gas Delivered for Others
Firm 68,434 66,904 115,753 113,949 162,756 161,991
Interruptible 17,957 17,357 32,854 29,691 50,279 47,417
Electric Generation     48       53       118       101       506       276  
      86,439       84,314       148,725       143,741       213,541       209,684  
557,492 610,404 957,489 991,803 1,237,146 1,292,610
Other     3,805       1,221       13,102       10,354       29,074       25,758  
Total   $ 561,297     $ 611,625     $ 970,591     $

1,002,157

   

$

1,266,220

   

$

1,318,368  
                                     
Three Months Ended Six Months Ended Twelve Months Ended
    March 31,   March 31,   March 31,
(In thousands of therms)   2011   2010   2011   2010   2011   2010
 
Gas Sales and Deliveries
Gas Sold and Delivered
Residential — Firm 338,757 352,690 576,929 569,441 669,845 680,212
Commercial and Industrial — Firm 79,413 84,019 142,452 137,216 175,770 179,746
Commercial and Industrial — Interruptible     801       1,416       1,593       2,867       2,375       4,052  
      418,971       438,125       720,974       709,524       847,990       864,010  
Gas Delivered for Others
Firm 212,528 211,568 379,340 370,468 489,970 484,858
Interruptible 93,536 97,875 179,865 175,422 272,266 275,725
Electric Generation     7,050       12,418       23,362       23,550       172,807       79,989  
      313,114       321,861       582,567       569,440       935,043       840,572  
Total     732,085       759,986       1,303,541       1,278,964       1,783,033       1,704,582  
 
WASHINGTON GAS ENERGY SERVICES                                    
Natural Gas Sales
Therm Sales (thousands of therms) 302,407 265,962 518,928 442,937 669,309 608,137
 
Number of Customers (end of period)     173,400       159,700       173,400       159,700       173,400       159,700  
 
Electricity Sales
Electricity Sales (thousands of kWh) 2,610,955 2,134,831 5,057,410 4,008,214 10,325,398 7,394,582
 
Number of Accounts (end of period)     183,700       130,100       183,700       130,100       183,700       130,100  
 
UTILITY GAS PURCHASED EXPENSE
(excluding asset optimization)    

68.54

¢

 

77.27

¢

 

68.14

¢

 

74.58

¢

 

69.72

¢

 

74.51

¢

 
HEATING DEGREE DAYS                                    
Actual 2,207 2,177 3,712 3,608 3,929 3,959
Normal 2,109 2,104 3,455 3,451 3,769 3,767
Percent Colder than Normal    

4.6

%

   

3.5

%

   

7.4

%

   

4.5

%

   

4.2

%

   

5.1

%

 
Average Active Customer Meters    

1,088,647

      1,078,358      

1,083,555

      1,073,732      

1,080,292

      1,070,924  
 
 

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)

 

Three Months Ended March 31, 2011

 
(In thousands, except per share data)  

Regulated

Utility

 

Retail Energy-

Marketing

 

Design-Build

Energy

Systems

 

Other

Activities*

 

Consolidated

GAAP net income (loss) $ 70,843 $ 9,582 $ 74 $ (1,071 ) $ 79,428
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 2,869 (1,683 ) - (950 ) 236
Storage optimization program (b) (637 ) - - - (637 )
Amortization of derivative contract termination (c) (645 ) - - - (645 )
Weather derivative products (d)     58       -       -       -       58  
Non-GAAP operating earnings (loss)   $ 72,488     $ 7,899     $ 74     $ (2,021 )   $ 78,440  
GAAP diluted earnings (loss) per average common share (51,242 shares) $ 1.38 $ 0.19 $ - $ (0.02 ) $ 1.55
Per share effect of non-GAAP adjustments     0.03       (0.04 )     -       (0.01 )     (0.02 )
Non-GAAP operating earnings (loss) per share   $ 1.41     $ 0.15     $ -     $ (0.03 )   $ 1.53  
 
Three Months Ended March 31, 2010
 
(In thousands, except per share data)  

Regulated

Utility

 

Retail Energy-

Marketing

 

Design-Build

Energy

Systems

 

Other

Activities^

  Consolidated
GAAP net income (loss) $ 91,006 $ (11,437 ) $ (91 ) $ (772 ) $ 78,706
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (9,760 ) 14,907 - - 5,147
Storage optimization program (b) 871 - - - 871
Amortization of derivative contract termination (c) (579 ) - - - (579 )
Weather derivative products (d)     (1,424 )     -       -       -       (1,424 )
Non-GAAP operating earnings (loss)   $ 80,114     $ 3,470     $ (91 )   $ (772 )   $ 82,721  
GAAP diluted earnings (loss) per average common share (50,572 shares) $ 1.80 $ (0.23 ) $ - $ (0.01 ) $ 1.56
Per share effect of non-GAAP adjustments     (0.22 )     0.30       -       -       0.08  
Non-GAAP operating earnings (loss) per share   $ 1.58     $ 0.07     $ -     $ (0.01 )   $ 1.64  
 
Six Months Ended March 31, 2011
 
(In thousands, except per share data)  

Regulated

Utility

 

Retail Energy-

Marketing

 

Design-Build

Energy

Systems

 

Other

Activities*

  Consolidated
GAAP net income (loss) $ 111,527 $ 34,401 $ 188 $ (1,456 ) $ 144,660
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 8,799 (19,809 ) - 579 (10,431 )
Storage optimization program (b) (2,357 ) - - - (2,357 )
Amortization of derivative contract termination (c) (1,074 ) - - - (1,074 )
Weather derivative products (d)     (124 )     -       -       -       (124 )
Non-GAAP operating earnings (loss)   $ 116,771     $ 14,592     $ 188     $ (877 )   $ 130,674  
GAAP diluted earnings (loss) per average common share (51,191 shares) $ 2.18 $ 0.67 $ - $ (0.02 ) $ 2.83
Per share effect of non-GAAP adjustments     0.10       (0.38 )     -       -       (0.28 )
Non-GAAP operating earnings (loss) per share   $ 2.28     $ 0.29     $ -     $ (0.02 )   $ 2.55  
 
Six Months Ended March 31, 2010
 

(In thousands, except per share data)

 

Regulated

Utility

 

Retail Energy-

Marketing

 

Design-Build

Energy

Systems

 

Other

Activities^

  Consolidated
GAAP net income (loss) $ 131,702 $ (3,930 ) $ (303 ) $ (1,122 ) $ 126,347
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (7,351 ) 14,869 - - 7,518
Storage optimization program (b) 1,256 - - - 1,256
Amortization of derivative contract termination (c) (964 ) - - - (964 )
Weather derivative products (d)     (638 )     -       -       -       (638 )
Non-GAAP operating earnings (loss)   $ 124,005     $ 10,939     $ (303 )   $ (1,122 )   $ 133,519  

GAAP diluted earnings (loss) per average common share (50,502 shares)

$ 2.61 $ (0.08 ) $ (0.01 ) $ (0.02 ) $ 2.50

Per share effect of non-GAAP adjustments

    (0.15 )     0.30       -       (0.01 )     0.14  
Non-GAAP operating earnings (loss) per share   $ 2.46     $ 0.22     $ (0.01 )   $ (0.03 )   $ 2.64  
 

* Other Activities for fiscal year 2011 include the results of operations of Capitol Energy Ventures and WGSW, Inc. and include non-GAAP adjustments for net unrealized losses (gains) on energy-related derivatives. Per share amounts may include adjustments for rounding.

^ Other Activities for fiscal year 2010 may include adjustments for rounding in its per share amounts.

(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 2011
    Quarterly Period Ended (e)
(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
GAAP net income $ 65,232 $

79,428

$

144,660

Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (10,667 ) 236

 

(10,431 )
Storage optimization program (b) (1,720 ) (637 ) (2,357 )
Amortization of derivative contract termination (c) (429 ) (645 ) (1,074 )
Weather derivative products (d)     (182 )     58               (124 )
Non-GAAP operating earnings   $ 52,234      

78,440

   

 

 

 

  $

130,674

 
Diluted average common shares outstanding     51,143       51,242               51,191  
GAAP diluted earnings per average common share $ 1.28 $ 1.55 $ 2.83
Per share effect of non-GAAP adjustments     (0.26 )     (0.02 )            

(0.28

)
Non-GAAP operating earnings per share   $ 1.02     $ 1.53             $ 2.55  
 
Fiscal Year 2010
    Quarterly Period Ended (e)
(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
GAAP net income $ 47,641 78,706 $ 126,347
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss on energy-related derivatives (a) 2,371 5,147 7,518
Storage optimization program (b) 385 871 1,256
Amortization of derivative contract termination (c) (385 ) (579 ) (964 )
Weather derivative products (d)     786       (1,424 )             (638 )
Non-GAAP operating earnings   $ 50,798     $ 82,721             $ 133,519  
Diluted average common shares outstanding     50,429       50,572               50,502  
GAAP diluted earnings per average common share $ 0.94 $ 1.56 $ 2.50
Per share effect of non-GAAP adjustments     0.07       0.08               0.14  
Non-GAAP operating earnings per share   $ 1.01     $ 1.64             $ 2.64  
 

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 was recognized during fiscal year 2010 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)

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 $ 2.36 $ 2.48
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.28 ) (0.28 )
Storage optimization program (b) (0.06 ) (0.06 )
Amortization of derivative contract termination (c)     (0.02 )     (0.02 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 2.00     $ 2.12  
 
 
Regulated Utility Segment
    Low   High
GAAP Earnings Per Share Guidance Range $ 1.51 $ 1.57
Adjusted for:
Unrealized mark-to-market loss on energy-related derivatives (a) 0.14 0.14
Storage optimization program (b) (0.06 ) (0.06 )
Amortization of derivative contract termination (c)     (0.02 )     (0.02 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 1.57     $ 1.63  
 
 
Unregulated Business Segments
    Low   High
GAAP Earnings Per Share Guidance Range $ 0.85 $ 0.91
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a)     (0.42 )     (0.42 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 0.43     $ 0.49  
 

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 fiscal year 2011 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
Douglas Bonawitz, 202-624-6129

Source: WGL Holdings, Inc.

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