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WGL Holdings, Inc. Reports Third Quarter Fiscal Year 2011 Earnings; Increases Annual 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 quarter ended June 30, 2011 of $3.0 million, or $0.06 per share, compared to net income of $9.7 million, or $0.19 per share, reported for the quarter ended June 30, 2010.

For the nine months ended June 30, 2011, we reported GAAP net income of $147.6 million, or $2.88 per share, compared to net income of $136.0 million, or $2.69 per share, reported for the same comparative period of the prior fiscal year. Our operations are seasonal and, accordingly, our operating results for the three and nine months ended June 30, 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 June 30, 2011, we reported a non-GAAP operating loss of $(1.8) million, or $(0.03) per share, compared to a non-GAAP operating loss of $(3.6) million, or $(0.07) per share, for the same quarter of the prior fiscal year. For the nine months ended June 30, 2011, our non-GAAP operating earnings were $128.9 million, or $2.52 per share, compared to non-GAAP operating earnings of $129.9 million, or $2.57 per share, for the same period of the prior fiscal year.

"We are happy to announce third quarter results that reflect an improvement in earnings over the third quarter of 2010," said Terry D. McCallister, Chairman and Chief Executive Officer of WGL Holdings. "We saw improvement driven by net revenue growth in our regulated utility segment, while our retail energy-marketing segment benefited from customer growth and higher unit margins. Based on these results and our expectations of further improvements in the fourth quarter, we are again increasing our annual guidance for 2011."

Third Quarter Results by Business Segment

Regulated Utility Segment

We typically report a net loss for quarters ending June 30 because of the seasonal nature of our utility operations and the corresponding reduced demand for natural gas during this period. For the quarter ended June 30, 2011, our regulated utility segment reported a seasonal net loss of $(3.9) million, or $(0.08) per share, compared to a net loss of $(10.5) million, or $(0.21) per share, reported for the third quarter of the prior fiscal year. After adjustments, the non-GAAP operating loss for the regulated utility segment was $(6.4) million, or $(0.12) per share, for the quarter ended June 30, 2011, compared to a non-GAAP operating loss of $(9.0) million, or $(0.18) per share, for the same quarter of the prior fiscal year. This three month comparison reflects: (i) higher revenues from an increase in average active customer meters of more than 10,200 over the same three month period in the prior fiscal year; (ii) favorable effects of changes in natural gas consumption patterns; (iii) a decrease in recurring business process outsourcing costs and (iv) the impact of the reduction in Maryland depreciation rates effective June 1, 2010, creating a timing difference between the recognition and recovery of depreciation expense. Partially offsetting these favorable variances was higher employee benefit expense due to changes in pension and retiree medical plan valuation assumptions and higher depreciation expense associated with the increase in our utility plant investment.

For the nine months ended June 30, 2011, our regulated utility segment reported net income of $107.6 million, or $2.10 per share, compared to net income of $121.2 million, or $2.39 per share, for the same period of the prior fiscal year. After adjustments, non-GAAP operating earnings for the regulated utility segment were $110.4 million, or $2.15 per share, for the nine months ended June 30, 2011, compared to non-GAAP operating earnings of $115.0 million, or $2.27 per share, for the same period of the prior fiscal year. For the nine months ended June 30, 2011, lower non-GAAP operating earnings reflects: (i) higher employee benefit expense due to changes in pension and retiree medical plan valuation assumptions; (ii) an unfavorable impact of the reduction in the Maryland depreciation rates effective on June 1, 2010, creating a timing difference between the recognition and recovery of depreciation expense; (iii) higher costs for weather protection products related to the District of Columbia; (iv) higher uncollectible accounts expense and (v) higher depreciation expense associated with the increase in our utility plant investment. Partially offsetting these unfavorable variances were higher revenues from an increase in average active customer meters of more than 9,900 over the same nine month period of the prior fiscal year and a decrease in recurring business process outsourcing costs.

Retail Energy-Marketing Segment

For the quarter ended June 30, 2011, the retail energy-marketing segment reported net income of $8.4 million, or $0.16 per share, compared to net income of $20.7 million, or $0.41 per share, reported for the third quarter of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $7.8 million, or $0.15 per share, for the third quarter ended June 30, 2011, an increase of $1.8 million or $0.03 per share, over non-GAAP operating earnings of $6.0 million, or $0.12 per share, for the third quarter of the prior fiscal year.

For the nine months ended June 30, 2011, the retail energy-marketing segment reported net income of $42.8 million, or $0.84 per share, an increase of $26.0 million, or $0.51 per share, over net income of $16.8 million, or $0.33 per share, reported for the same period of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $22.4 million, or $0.44 per share, for the nine months ended June 30, 2011, an increase of $5.5 million or $0.11 per share, over non-GAAP operating earnings of $16.9 million, or $0.33 per share, for the same period of the prior year.

Variations between GAAP net income and non-GAAP operating earnings are attributable to unrealized mark-to-market gains and losses on certain wholesale energy supply and retail sales contracts. The increase in non-GAAP operating earnings for the quarter was driven by higher natural gas margins related to favorable timing on the recognition of margins compared to the prior year, and to customer growth and increased sales of higher margin products. Also contributing to improved operating earnings were slightly higher electric margins reflecting higher sales volumes associated with customer growth as well as favorable weather and pricing conditions in June 2011, partially offset by the favorable effect in the prior year of a true-up with the electric grid operator. Partially offsetting the benefits of increased margins were higher operating expenses due to higher marketing and salary expenses.

For the nine months ended June 30, 2011, the improvement in non-GAAP operating earnings was due to increased natural gas sales margins attributed to higher gas sales volumes driven by customer growth, unusually favorable market conditions for portfolio optimization activity this past winter, and improved unit margins on retail sales. Electric sales margins also increased due to higher electric sales volumes associated with customer growth and favorable pricing on electricity supply. Partially offsetting these increases were higher operating expenses due to higher marketing and salary expenses.

Design-Build Energy Systems Segment

For the quarter ended June 30, 2011, the design-build energy systems segment reported a net loss of $(26,000), an increase of $51,000 over a net loss of $(77,000) for the same quarter of the prior year. For the nine months ended June 30, 2011, the design-build energy systems segment reported net income of $162,000, an increase of $542,000 over a net loss of $(380,000) for the same period of the prior fiscal year. For both the three and nine month periods ended June 30, 2011, earnings increased primarily 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 any of the periods presented.

Other Activities

For the quarter ended June 30, 2011, other activities reported a net loss of $(1.5) million, or $(0.02) per share, compared to a net loss of $(509,000), or $(0.01) per share, for the same quarter of the prior fiscal year. For the nine months ended June 30, 2011, other activities reported a net loss of $(2.9) million, or $(0.06) per share, compared to a net loss of $(1.6) million, or $(0.03) per share, for the same period of the prior fiscal year. After adjustments to eliminate mark-to-market gains and losses, the non-GAAP operating loss for other activities was $(3.2) million, or $(0.06) per share, for the quarter ended June 30, 2011, compared to an operating loss of $(509,000), or $(0.01) per share, for the same quarter of the prior fiscal year. For the nine months ended June 30, 2011, other activities reported a non-GAAP operating loss of $(4.1) million, or $(0.07) per share, compared to $(1.6) million, or $(0.03) per share, for the same period of the prior fiscal year. For both the three and nine month periods, non-GAAP operating losses were higher than in the prior year principally due to higher initial expenses associated with activities of our non-utility wholesale energy company, Capitol Energy Ventures, that are expected to contribute revenues in subsequent periods.

Earnings Outlook

We are updating our GAAP earnings estimate for the fiscal year 2011 in a range of $2.48 per share to $2.60 per share. This estimate includes projected fiscal year 2011 earnings from our regulated utility segment in a range of $1.57 per share to $1.63 per share and projected fiscal year 2011 earnings from our unregulated business segments in a range of $0.91 per share to $0.97 per share.

We are also updating our consolidated earnings estimate for fiscal year 2011 based on non-GAAP operating earnings in a range of $2.12 per share to $2.24 per share. This estimate includes projected fiscal year 2011 non-GAAP operating earnings from our regulated utility segment in a range of $1.62 per share to $1.68 per share, and projected fiscal year 2011 non-GAAP operating earnings from our unregulated business segments in a range of $0.50 per share to $0.56 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 August 4, 2011, to discuss our third quarter and fiscal year 2011 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 September 5, 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)

 
         
June 30, September 30,
(In thousands)   2011   2010
ASSETS
Property, Plant and Equipment
At original cost $ 3,496,643 $ 3,383,364
Accumulated depreciation and amortization     (1,068,567 )     (1,037,156 )
Net property, plant and equipment     2,428,076       2,346,208  
 
Current Assets
Cash and cash equivalents 139,030 8,849
Accounts receivable, net 338,531 298,212

Storage gas — at cost (first-in, first-out)

207,765 242,223
Other     137,530       167,981  
Total current assets     822,856       717,265  
Deferred Charges and Other Assets     545,745       580,421  
Total Assets   $ 3,796,677     $ 3,643,894  
 
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 1,252,176 $ 1,153,395
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt     587,239       592,875  
Total capitalization     1,867,588       1,774,443  
 
 
Current Liabilities
Notes payable and current maturities of long-term debt 90,125 130,515
Accounts payable and other accrued liabilities 282,194 225,362
Other     203,194       188,174  
Total current liabilities     575,513       544,051  
Deferred Credits     1,353,576       1,325,400  
Total Capitalization and Liabilities   $ 3,796,677     $ 3,643,894  
 
       
WGL Holdings, Inc.
Consolidated Statements of Income

(Unaudited)

 
                 
Three Months Ended Nine Months Ended
    June 30,   June 30,
(In thousands, except per share data)   2011   2010   2011   2010
OPERATING REVENUES
Utility $ 178,466 $ 168,379 $ 1,149,057 $ 1,170,536
Non-utility     311,815       291,294       1,154,319       1,073,198  
Total Operating Revenues     490,281       459,673       2,303,376       2,243,734  
 
OPERATING EXPENSES
Utility cost of gas 60,774 60,001 555,964 576,200
Non-utility cost of energy-related sales 281,817 243,983 1,032,935 1,008,971
Operation and maintenance 80,776 79,062 245,875 230,850
Depreciation and amortization 22,833 23,634 68,124 72,032
General taxes and other assessments     28,840       25,752       123,515       100,179  
Total Operating Expenses     475,040       432,432       2,026,413       1,988,232  
 
OPERATING INCOME 15,241 27,241 276,963 255,502

Other Income — Net

481 280 49 1,144
Interest Expense
Interest on long-term debt 10,022 9,913 29,919 29,816

AFUDC and other — net

    210       87       631       143  
Total Interest Expense     10,232       10,000       30,550       29,959  
INCOME BEFORE INCOME TAXES 5,490 17,521 246,462 226,687
INCOME TAX EXPENSE     2,208       7,510       97,860       89,669  
NET INCOME 3,282 10,011 148,602 137,018
Dividends on Washington Gas preferred stock     330       330       990       990  
 
NET INCOME APPLICABLE TO COMMON STOCK   $ 2,952     $ 9,681     $ 147,612     $ 136,028  
 
AVERAGE COMMON SHARES OUTSTANDING
Basic 51,243 50,664 51,153 50,422
Diluted     51,314       50,918       51,235       50,638  
 
EARNINGS PER AVERAGE COMMON SHARE
Basic $ 0.06 $ 0.19 $ 2.89 $ 2.70
Diluted   $ 0.06     $ 0.19     $ 2.88     $ 2.69  
 

Net Income (Loss) Applicable To Common Stock — By Segment ($000):

 
Regulated utility   $ (3,931 )   $ (10,476 )   $ 107,596     $ 121,226  
 
Non-utility operations:
Retail energy-marketing 8,387 20,743 42,788 16,813
Design-build energy systems (26 ) (77 ) 162 (380 )
Other activities     (1,478 )     (509 )     (2,934 )     (1,631 )
Total non-utility     6,883       20,157       40,016       14,802  
NET INCOME APPLICABLE TO COMMON STOCK   $ 2,952     $ 9,681     $ 147,612     $ 136,028  
 
           
WGL Holdings, Inc.
Consolidated Financial and Operating Statistics

(Unaudited)

 
FINANCIAL STATISTICS                                    
                      Twelve Months Ended June 30,
                      2011         2010
 
Closing Market Price — end of period $ 38.49 $ 34.03
52-Week Market Price Range $ 40.00-$33.32 $ 36.57-$30.37
Price Earnings Ratio 16.2 13.7
Annualized Dividends Per Share $ 1.55 $

1.51

Dividend Yield 4.0

%

4.4 %
Return on Average Common Equity 9.9 % 10.7 %
Total Interest Coverage (times) 5.8 6.1
Book Value Per Share — end of period $

24.41

$

23.51

Common Shares Outstanding — end of period (thousands)                       51,293             50,720  
 
UTILITY GAS STATISTICS                                    
Three Months Ended Nine Months Ended Twelve Months Ended
    June 30,   June 30,   June 30,
(In thousands)   2011   2010   2011   2010   2011   2010
 
Operating Revenues
Gas Sold and Delivered
Residential — Firm $

102,919

 

 

$

99,444

$

757,953

$

793,905

 

$

828,836

$

863,124

Commercial and Industrial — Firm 26,446 24,697 178,012 174,828 196,396 197,879
Commercial and Industrial — Interruptible 516 376 2,130 3,296 2,637 3,783
Electric Generation     275       275       825       825       1,100       1,100  
      130,156       124,792       938,920       972,854       1,028,969       1,065,886  
Gas Delivered for Others
Firm 31,783 25,902 147,536 139,851 168,637 160,011
Interruptible 9,754 9,371 42,608 39,062 50,662 46,584
Electric Generation     135       109       253       210       532       329  
      41,672       35,382       190,397       179,123       219,831       206,924  
171,828 160,174 1,129,317 1,151,977 1,248,800 1,272,810
Other     6,638       8,205       19,740       18,559       27,507       27,979  
Total  

$

178,466

   

$

168,379

   

$

1,149,057

   

$

1,170,536

   

$

1,276,307

    $ 1,300,789  
                                     
Three Months Ended Nine Months Ended Twelve Months Ended
    June 30,   June 30,   June 30,
(In thousands of therms)   2011   2010   2011   2010   2011   2010
 
Gas Sales and Deliveries
Gas Sold and Delivered
Residential — Firm 70,907 56,801 647,836 626,242 683,951 663,017
Commercial and Industrial — Firm 22,873 18,748 165,325 155,964 179,895 173,264
Commercial and Industrial — Interruptible     493       337       2,086       3,204       2,531       3,699  
      94,273       75,886       815,247       785,410       866,377       839,980  
Gas Delivered for Others
Firm 82,207 66,516 461,547 436,984 505,662 482,382
Interruptible 47,429 47,028 227,294 222,450 272,667 267,697
Electric Generation     44,042       44,606       67,404       68,156       172,243       112,137  
      173,678       158,150       756,245       727,590       950,572       862,216  
Total     267,951       234,036       1,571,492       1,513,000       1,816,949       1,702,196  
 
WASHINGTON GAS ENERGY SERVICES                                    
Natural Gas Sales
Therm Sales (thousands of therms) 91,344 87,201 610,272 530,138 673,453 592,521
 
Number of Customers (end of period)     172,100       160,900       172,100       160,900       172,100       160,900  
 
Electricity Sales
Electricity Sales (thousands of kWh) 2,687,887 2,358,017 7,745,297 6,366,231 10,655,268 8,459,259
 
Number of Accounts (end of period)     183,900       141,700       183,900       141,700       183,900       141,700  
 
UTILITY GAS PURCHASED EXPENSE
(excluding asset optimization)  

72.94

¢

 

75.90

¢

 

67.95

¢

 

74.71

¢

 

68.62

¢

 

74.54

¢

 
HEATING DEGREE DAYS                                    
Actual 273 217 3,985 3,825 3,985 3,833
Normal 301 300 3,756 3,751 3,770 3,765
Percent Colder (Warmer) than Normal     (9.3 )%     (27.7 )%    

6.1

%

   

2.0

%

   

5.7

%

   

1.8

%

 
Average Active Customer Meters     1,087,779       1,077,562       1,084,599       1,074,619       1,082,296       1,072,503  
 
 

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)

 
Quarter Ended June 30, 2011
(In thousands, except per share data)  

Regulated Utility

 

Retail Energy-

Marketing

 

Design-Build

Energy Systems

 

Other Activities*

 

Consolidated

GAAP net income (loss) $ (3,931 ) $ 8,387 $ (26 ) $ (1,478 ) $ 2,952
Adjusted for (items shown after-tax):
Unrealized mark-to-market gain on energy-related derivatives (a) (2,946 ) (593 ) - (1,696 ) (5,235 )
Storage optimization program (b) 529 - - - 529
Weather derivative products (d)     (27 )     -       -       -       (27 )
Non-GAAP operating earnings (loss)   $ (6,375 )   $ 7,794     $ (26 )   $ (3,174 )   $ (1,781 )
GAAP diluted earnings (loss) per average common share (51,314 shares) $ (0.08 ) $ 0.16 $ - $ (0.02 ) $ 0.06
Per share effect of non-GAAP adjustments     (0.04 )     (0.01 )     -       (0.04 )     (0.09 )
Non-GAAP operating earnings (loss) per share   $ (0.12 )   $ 0.15     $ -     $ (0.06 )   $ (0.03 )
 
Quarter Ended June 30, 2010
(In thousands, except per share data)  

Regulated Utility

 

Retail Energy-

Marketing

 

Design-Build

Energy Systems

  Other Activities^   Consolidated
GAAP net income (loss) $ (10,476 ) $ 20,743 $ (77 ) $ (509 ) $ 9,681
Adjusted for (items shown after-tax):
Unrealized mark-to-market gain on energy-related derivatives (a) (812 ) (14,778 ) - - (15,590 )
Storage optimization program (b) (498 ) - - - (498 )
Weather derivative products (d) 637 - - - 637
Partial Settlement of the Supplemental Executive Retirement Program (e)     2,140       -       -       -       2,140  
Non-GAAP operating earnings (loss)   $ (9,009 )   $ 5,965     $ (77 )   $ (509 )   $ (3,630 )
GAAP diluted earnings (loss) per average common share (50,918 shares) $ (0.21 ) $ 0.41 $ - $ (0.01 ) $ 0.19
Per share effect of non-GAAP adjustments     0.03       (0.29 )     -       -       (0.26 )
Non-GAAP operating earnings (loss) per share   $ (0.18 )   $ 0.12     $ -     $ (0.01 )   $ (0.07 )
 
Nine Months Ended June 30, 2011
(In thousands, except per share data)  

Regulated Utility

 

Retail Energy-

Marketing

 

Design-Build

Energy Systems

  Other Activities*   Consolidated
GAAP net income (loss) $ 107,596 $ 42,788 $ 162 $ (2,934 ) $ 147,612
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 5,853 (20,402 ) - (1,117 ) (15,666 )
Storage optimization program (b) (1,828 ) - - - (1,828 )
Amortization of derivative contract termination (c) (1,074 ) - - - (1,074 )
Weather derivative products (d)     (151 )     -       -       -       (151 )
Non-GAAP operating earnings (loss)   $ 110,396     $ 22,386     $ 162     $ (4,051 )   $ 128,893  
GAAP diluted earnings (loss) per average common share (51,235 shares) $ 2.10 $ 0.84 $ - $ (0.06 ) $ 2.88
Per share effect of non-GAAP adjustments     0.05       (0.40 )     -       (0.01 )     (0.36 )
Non-GAAP operating earnings (loss) per share   $ 2.15     $ 0.44     $ -     $ (0.07 )   $ 2.52  
 
Nine Months Ended June 30, 2010
(In thousands, except per share data)  

Regulated Utility

 

Retail Energy-

Marketing

 

Design-Build

Energy Systems

  Other Activities^   Consolidated
GAAP net income (loss) $ 121,226 $ 16,813 $ (380 ) $ (1,631 ) $ 136,028
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (8,163 ) 91 - - (8,072 )
Storage optimization program (b) 758 - - - 758
Amortization of derivative contract termination (c) (964 ) - - - (964 )
Weather derivative products (d) (1 ) - - - (1 )
Partial settlement of the Supplemental Executive Retirement Program (e)     2,140       -       -       -       2,140  
Non-GAAP operating earnings (loss)   $ 114,996     $ 16,904     $ (380 )   $ (1,631 )   $ 129,889  
GAAP diluted earnings (loss) per average common share (50,638 shares) $ 2.39 $ 0.33 $ - $ (0.03 ) $ 2.69
Per share effect of non-GAAP adjustments     (0.12 )     -       -       -       (0.12 )
Non-GAAP operating earnings (loss) per share   $ 2.27     $ 0.33     $ -     $ (0.03 )   $ 2.57  

* 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 (f)
(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
GAAP net income $ 65,232 $ 79,428 $ 2,952 $ 147,612
Adjusted for (items shown after-tax):
Unrealized mark-to-market (gain) loss on energy-related derivatives (a) (10,667 ) 236 (5,235 ) (15,666 )
Storage optimization program (b) (1,720 ) (637 ) 529 (1,828 )
Amortization of derivative contract termination (c) (429 ) (645 ) - (1,074 )
Weather derivative products (d)     (182 )     58       (27 )         (151 )
Non-GAAP operating earnings (loss)   $ 52,234     $ 78,440     $ (1,781 )       $ 128,893  
Diluted average common shares outstanding     51,143       51,242       51,314        

 

51,235

 
GAAP diluted earnings per average common share $ 1.28 $ 1.55 $ 0.06

2.88

Per share effect of non-GAAP adjustments     (0.26 )     (0.02 )     (0.09 )        

(0.36

)
Non-GAAP operating earnings (loss) per share   $ 1.02     $ 1.53     $ (0.03 )       $

2.52

 
 
Fiscal Year 2010
    Quarterly Period Ended (f)
(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
GAAP net income $ 47,641 78,706 $ 9,681 $ 136,028
Adjusted for (items shown after-tax):
Unrealized mark-to-market (gain) loss on energy-related derivatives (a) 2,371 5,147 (15,590 ) (8,072 )
Storage optimization program (b) 385 871 (498 ) 758
Amortization of derivative contract termination (c) (385 ) (579 ) - (964 )
Weather derivative products (d) 786 (1,424 ) 637 (1 )
Partial settlement of the Supplemental Executive Retirement Program (e)     -       -       2,140           2,140  
Non-GAAP operating earnings (loss)   $ 50,798     $ 82,721     $ (3,630 )       $ 129,889  
Diluted average common shares outstanding     50,429       50,572       50,918           50,638  
GAAP diluted earnings per average common share $ 0.94 $ 1.56 $ 0.19 $ 2.69
Per share effect of non-GAAP adjustments     0.07       0.08       (0.26 )         (0.12 )
Non-GAAP operating earnings (loss) per share   $ 1.01     $ 1.64     $ (0.07 )       $ 2.57  
 

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 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)

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 $

2.48

$

2.60

Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a)

(0.29

)

(0.29

)
Storage optimization program (b) (0.05 ) (0.05 )
Amortization of derivative contract termination (c)     (0.02 )     (0.02 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 2.12     $ 2.24  
 
 
Regulated Utility Segment
    Low   High
GAAP Earnings Per Share Guidance Range $

1.57

$

1.63

Adjusted for:
Unrealized mark-to-market loss on energy-related derivatives (a)

0.12

0.12

Storage optimization program (b) (0.05 ) (0.05 )
Amortization of derivative contract termination (c)     (0.02 )     (0.02 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 1.62     $ 1.68  
 
 
Unregulated Business Segments
    Low   High
GAAP Earnings Per Share Guidance Range $ 0.91 $ 0.97
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a)     (0.41 )     (0.41 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 0.50     $ 0.56  
 

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)

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.

 

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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