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WGL Holdings, Inc. Reports Second Quarter Fiscal Year 2013 Financial Results; Raised Fiscal Year 2013 Non-GAAP 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 March 31, 2013 of $89.5 million, or $1.73 per share, compared to net income of $74.2 million, or $1.44 per share, reported for the quarter ended March 31, 2012.

For the first six months of fiscal year 2013, we reported net income determined in accordance with GAAP of $141.9 million, or $2.74 per share, compared to net income of $124.6 million, or $2.42 per share, reported for the comparative period of fiscal year 2012. Our operations are seasonal and, accordingly, our operating results for the three and six months ended March 31, 2013, are not indicative of the results expected for the 12 months ending September 30, 2013.

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 for our regulated utility and retail energy marketing segments; (ii) certain gains and losses associated with optimizing the utility segment's system capacity assets; (iii) changes in the measured value of our inventory for our wholesale energy solutions segment; (iv) the financial effects of warm or cold weather that exceeds weather protection for our regulated utility segment and (v) 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 non-GAAP operating earnings, 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, 2013, non-GAAP operating earnings were $90.7 million, or $1.75 per share, an increase of $9.4 million, or $0.17 per share, over non-GAAP operating earnings of $81.3 million, or $1.58 per share, for the same quarter of the prior fiscal year. For the six months ended March 31, 2013, non-GAAP operating earnings were $149.6 million, or $2.89 per share, an increase of $10.2 million, or $0.19 per share, over non-GAAP operating earnings of $139.4 million, or $2.70 per share, for the same period of the prior fiscal year.

"I am happy to announce second quarter non-GAAP earnings per share of $1.75, an increase of 11% over the prior year," said Terry McCallister, Chairman and Chief Executive Officer of WGL Holdings. "Earnings improved in both our utility and non-utility businesses for the quarter, reflecting our continued effective execution against our long range goals. For the full year we are increasing our guidance for non-GAAP earnings, primarily driven by lower O&M spending in our utility operations. Another significant event occurred on April 26, as we filed a rate case with the Maryland Public Service Commission requesting a revenue increase of $30.7 million. This request reflects recent increases in our pipeline replacement spending in Maryland as well as higher O&M costs. This action supports our plans to maintain a strong earnings contribution from our utility business as we increase replacement spending to ensure a safe and reliable distribution system."

Second Quarter Results by Business Segment

Regulated Utility

For the quarter ended March 31, 2013, our regulated utility segment reported net income of $77.1 million, or $1.49 per share, an increase of $4.7 million, or $0.09 per share, compared to a net income of $72.4 million, or $1.40 per share, reported for the same quarter of the prior fiscal year. After adjustments, non-GAAP operating earnings for the regulated utility segment were $81.1 million, or $1.57 per share, for the quarter ended March 31, 2013, compared to non-GAAP operating earnings of $77.0 million, or $1.49 per share, for the same quarter of the prior fiscal year.

For the six months ended March 31, 2013, our regulated utility segment reported net income of $115.8 million, or $2.24 per share, compared to net income of $116.8 million, or $2.27 per share, reported for the six months ended March 31, 2012. After adjustments, non-GAAP operating earnings for the regulated utility segment were $125.1 million, or $2.42 per share, for the six months ended March 31, 2013, compared to non-GAAP operating earnings of $121.1 million, or $2.35 per share, for the same period of the prior fiscal year.

For both the three and six months ended March 31, 2013, higher non-GAAP operating earnings reflect: (i) higher revenues due to an increase in average active customer meters; (ii) higher margins associated with our asset optimization program; (iii) favorable effects of changes in natural gas consumption patterns due to shifts in weather patterns; (iv) lower bad debt expense due to a reduction in customer delinquencies and charge-offs and (v) lower income tax expense due to a lower effective tax rate. Partially offsetting these favorable variances were decreases in the recovery of carrying costs on lower average storage gas inventory balances and higher depreciation expense due to the growth in our investment in utility plant. For the six-month period only, non-GAAP earnings were also higher due to higher revenues related to the timing of rate relief in Maryland.

Retail Energy-Marketing

For the quarter ended March 31, 2013, the retail energy-marketing segment reported net income of $21.7 million, or $0.42 per share, an increase of $17.2 million, or $0.33 per share, over net income of $4.5 million, or $0.09 per share, reported for the same quarter of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $11.6 million, or $0.22 per share, for the quarter ended March 31, 2013, an increase of $6.3 million, or $0.12 per share, over non-GAAP operating earnings of $5.3 million, or $0.10 per share, for the same quarter of the prior fiscal year. Non-GAAP operating earnings reflect higher realized electric margins due to increased sales volumes associated with colder winter weather and favorable timing of margin recognition in the current period versus the same quarter of the prior year, partially offset by higher electricity supply charges from the regional power grid operator, PJM. The increase in natural gas sales margins for the quarter was primarily attributable to a more favorable pattern of margin recognition in the current quarter due to higher levels of storage withdrawals at favorable spreads. In addition, gas margins increased due to higher retail sales volumes resulting from colder weather and higher margins on portfolio optimization activities. Operating expenses declined primarily due to lower customer acquisition expenses and lower charges from Maryland and Pennsylvania utilities related to Purchase of Receivables (POR) programs.

For the six months ended March 31, 2013, the retail energy-marketing segment reported net income of $34.7 million, or $0.67 per share, an increase of $29.4 million, or $0.57 per share, over net income of $5.3 million, or $0.10 per share, reported for the same period of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $23.6 million, or $0.46 per share, for the six months ended March 31, 2013, an increase of $5.2 million, or $0.10 per share, over non-GAAP operating earnings of $18.4 million, or $0.36 per share, for the same period of the prior fiscal year. The increase in non-GAAP operating earnings reflects higher realized gas margins attributable to higher sales volumes due to colder weather, higher unit margins on portfolio optimization activity and favorable price and timing conditions in the current period versus the same quarter of the prior year. Realized electric margins were lower on a different pattern of annual margin recognition in the current year vs. the prior year and higher electricity supply charges from PJM, partially offset by higher sales volumes in the current year. Operating expenses in the six-month period declined primarily due to lower customer acquisition expenses and lower charges from Maryland and Pennsylvania utilities related to POR programs.

The pattern of margin recognition that the retail energy-marketing segment realizes in a given quarter varies from year to year.

Commercial Energy Systems

For the quarter ended March 31, 2013, the commercial energy systems segment reported net income of $0.6 million compared to net income of $0.4 million for the same quarter last year. For the six months ended March 31, 2013, the commercial energy systems segment reported net income of $1.7 million, or $0.03 per share, compared to net income of $0.7 million, or $0.01 per share, for the same period last year. Net income was higher primarily due to higher revenue from commercial solar projects and higher returns on investments from our alternative energy assets partially offset by lower project work for government agency customers. There were no non-GAAP adjustments for this segment for any of the periods presented.

Wholesale Energy Solutions

For the quarter ended March 31, 2013, the wholesale energy solutions segment reported a net loss of $(9.4) million, or $(0.18) per share, compared to a net loss of $(2.7) million, or $(0.05) per share, for the same quarter of the prior fiscal year. Non-GAAP net losses for the wholesale energy solutions segment were $(2.1) million, or $(0.04) per share, compared to a loss of $(1.1) million, or $(0.02) per share, for the same period of the prior fiscal year. Non-GAAP operating earnings were lower than prior year primarily due to compressed transportation and storage spreads.

For the six months ended March 31, 2013, the wholesale energy solutions segment reported a net loss of $(8.1) million, or $(0.16) per share, compared to net income of $2.5 million, or $0.05 per share, for the same period of the prior fiscal year. Wholesale energy solutions reported non-GAAP operating earnings of $1.4 million, or $0.03 per share, compared to a non-GAAP operating loss of $(0.1) million for the same period of the prior fiscal year. Non-GAAP operating earnings were higher than in the prior year principally due to an increase in storage margins driven by the segment's ongoing investments in low-cost storage capacity.

Earnings Outlook

We are updating our GAAP earnings estimate for fiscal year 2013 to a range of $2.30 per share to $2.42 per share. This estimate includes projected fiscal year 2013 earnings from our regulated utility segment in a range of $1.65 per share to $1.71 per share and projected fiscal year 2013 earnings from our non-utility business segments in a range of $0.65 per share to $0.71 per share.

We are raising our non-GAAP consolidated earnings estimate for fiscal year 2013 to a range of $2.42 per share to $2.54 per share. This estimate includes projected fiscal year 2013 non-GAAP operating earnings from our regulated utility segment in a range of $1.79 per share to $1.85 per share, and projected fiscal year 2013 non-GAAP operating earnings from our non-utility business segments in a range of $0.63 per share to $0.69 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 May 2, 2013, to discuss our second quarter fiscal year 2013 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 June 2, 2013.

Headquartered in Washington, D.C., WGL Holdings, Inc. has four 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; (iii) the commercial energy systems segment which consists of Washington Gas Energy Systems, Inc., a provider of design-build energy efficiency solutions to government and commercial clients, commercial solar projects, and the operations of WGSW, a holding company formed to invest in alternative energy assets and (iv) the wholesale energy solutions segment which consists of Capitol Energy Ventures Corp., an asset optimization business that acquires, manages and optimizes natural gas storage and transportation assets. 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)     2013     2012
ASSETS
Property, Plant and Equipment
At original cost $ 3,900,042 $ 3,807,036
Accumulated depreciation and amortization     (1,174,763 )     (1,139,623 )
Net property, plant and equipment     2,725,279       2,667,413  
Current Assets
Cash and cash equivalents 9,664 10,263
Accounts receivable, net 616,744 369,907
Storage gas 164,871 283,008
Other     114,442       169,583  
Total current assets     905,721       832,761  
Deferred Charges and Other Assets     600,817       610,773  
Total Assets   $ 4,231,817     $ 4,110,947  
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 1,374,033 $ 1,269,556
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt     554,740       589,202  
Total capitalization     1,956,946       1,886,931  
Current Liabilities
Notes payable and current maturities of long-term debt 219,100 247,718
Accounts payable and other accrued liabilities 298,662 270,387
Other     276,233       238,910  
Total current liabilities     793,995       757,015  
Deferred Credits     1,480,876       1,467,001  
Total Capitalization and Liabilities   $ 4,231,817     $ 4,110,947  
 
 
WGL Holdings, Inc.
Consolidated Statements of Income

(Unaudited)

                         
  Three Months Ended   Six Months Ended
      March 31,     March 31,
(In thousands, except per share data)     2013     2012     2013     2012
OPERATING REVENUES    
Utility $ 527,174 $ 460,700 $ 875,107 $ 824,847
Non-utility     364,209       378,744       703,012       742,354  
Total Operating Revenues     891,383       839,444       1,578,119       1,567,201  
OPERATING EXPENSES
Utility cost of gas 244,201 188,475 387,171 343,784
Non-utility cost of energy-related sales 323,740 356,114 622,889 691,976
Operation and maintenance 88,001 85,057 171,503 166,681
Depreciation and amortization 25,544 24,106 52,848 48,346
General taxes and other assessments     54,182       47,281       93,248       84,078  
Total Operating Expenses     735,668       701,033       1,327,659       1,334,865  
OPERATING INCOME 155,715 138,411 250,460 232,336
Other Income — Net 951 1,953 1,496 2,994
Interest Expense     8,951       9,521       18,144       19,343  
INCOME BEFORE INCOME TAXES 147,715 130,843 233,812 215,987
INCOME TAX EXPENSE     57,880       56,334       91,259       90,710  
NET INCOME 89,835 74,509 142,553 125,277
Dividends on Washington Gas Light Company preferred stock     330       330       660       660  
 
NET INCOME APPLICABLE TO COMMON STOCK   $ 89,505     $ 74,179     $ 141,893     $ 124,617  
AVERAGE COMMON SHARES OUTSTANDING
Basic 51,681 51,511 51,657 51,473
Diluted     51,828       51,561       51,759       51,546  
EARNINGS PER AVERAGE COMMON SHARE
Basic $ 1.73 $ 1.44 $ 2.75 $ 2.42
Diluted   $ 1.73     $ 1.44     $ 2.74     $ 2.42  
 
Net Income (Loss) Applicable To Common Stock — By Segment ($000):
 
Regulated utility   $ 77,140     $ 72,351     $ 115,806     $ 116,757  
 
Non-utility operations:
Retail energy-marketing 21,680 4,464 34,701 5,310
Commercial energy systems 649 431 1,687 729
Wholesale energy solutions (9,401 ) (2,722 ) (8,125 ) 2,515
Other activities     (563 )     (345 )     (2,176 )     (694 )
Total non-utility     12,365       1,828       26,087       7,860  
NET INCOME APPLICABLE TO COMMON STOCK   $ 89,505     $ 74,179     $ 141,893     $ 124,617  
 
 
WGL Holdings, Inc.
Consolidated Financial and Operating Statistics

(Unaudited)

   
FINANCIAL STATISTICS
                           

 

Twelve Months Ended March 31

                               

 

2013

    2012
 
Closing Market Price — end of period $ 44.10 $ 40.70
52-Week Market Price Range

 

 

$

44.30-$35.96

$44.99-$34.71
Price Earnings Ratio 14.5 21.5
Annualized Dividends Per Share $ 1.68 $ 1.60
Dividend Yield 3.8 % 3.9

%

 

Return on Average Common Equity 11.8 % 7.6

%

 

Total Interest Coverage (times) 7.9 5.3
Book Value Per Share — end of period $ 26.58 $ 25.08
Common Shares Outstanding — end of period (thousands)                                 51,703       51,532    
 
UTILITY GAS STATISTICS                                          
Three Months Ended Six Months Ended Twelve Months Ended
      March 31,     March 31,      

 

March 31,

 
(In thousands)     2013   2012     2013     2012      

 

2013

    2012
 
Operating Revenues
Gas Sold and Delivered
Residential — Firm $ 357,800 $ 306,586 $ 579,211 $ 537,736

 

 

$

739,150

$

 

 

698,545
Commercial and Industrial — Firm 81,184 64,670 132,311 116,762 171,079 160,855
Commercial and Industrial — Interruptible 1,320 650 1,809 1,199 2,195 2,075
Electric Generation     275     367       550       550           1,100       1,100    
      440,579     372,273       713,881       656,247           913,524       862,575    
Gas Delivered for Others
Firm 64,654 66,806 118,969 124,313 168,266 177,687
Interruptible 19,059 15,706 33,144 28,650 50,618 46,369
Electric Generation     101     6       182       144           764       484    
      83,814     82,518       152,295       153,107           219,648       224,540    
524,393 454,791 866,176 809,354 1,133,172 1,087,115
Other     2,781     5,909       8,931       15,493           26,442       31,721    
Total   $ 527,174   $ 460,700     $ 875,107     $ 824,847      

 

 

$

1,159,614 $     1,118,836    
                                           
Three Months Ended Six Months Ended Twelve Months Ended
      March 31,     March 31,      

 

March 31,

 
(In thousands of therms)     2013   2012     2013     2012      

 

2013

    2012
 
Gas Sales and Deliveries
Gas Sold and Delivered
Residential — Firm 343,558 259,647 553,050 442,847 650,408 543,476
Commercial and Industrial — Firm 85,461 64,146 140,875 113,643 176,747 150,398
Commercial and Industrial — Interruptible     1,367     777       2,071       1,482           2,632       2,462    
      430,386     324,570       695,996       557,972           829,787       696,336    
Gas Delivered for Others
Firm 212,630 172,168 363,090 312,829 486,959 434,676
Interruptible 101,024 78,393 177,061 150,340 269,752 241,896
Electric Generation     14,355     35,186       65,572       43,013           365,875       160,208    
      328,009     285,747       605,723       506,182           1,122,586       836,780    
Total     758,395     610,317       1,301,719       1,064,154           1,952,373       1,533,116    
 
WASHINGTON GAS ENERGY SERVICES                                          
Natural Gas Sales
Therm Sales (thousands of therms) 320,129 249,627 531,019 432,360 709,079 591,856
 
Number of Customers (end of period)     171,000     179,000       171,000       179,000           171,000       179,000    
 
Electricity Sales
Electricity Sales (thousands of kWhs) 3,044,866 2,896,382 5,848,583 5,408,962 12,234,493 11,144,647
 
Number of Accounts (end of period)     183,000     197,000       183,000       197,000           183,000       197,000    
 
UTILITY GAS PURCHASED EXPENSE
(excluding asset optimization)     55.43

¢

 

59.06

¢

 

 

53.83

¢

 

 

62.52

¢

 

 

    53.12

¢

    63.75

¢

 

 
HEATING DEGREE DAYS                                          
Actual 2,151 1,613 3,460 2,807 3,689 3,094
Normal 2,115 2,112 3,463 3,462 3,778 3,777
Percent Colder (Warmer) than Normal     1.7

%

 

(23.6 )

%

 

(0.1 )

%

 

(18.9 )

%

 

 

   

(2.4

)

%

  (18.1 ) %
 
Average Active Customer Meters     1,107,004     1,096,571       1,102,917       1,092,337           1,099,352       1,089,657    
 

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 for our regulated utility and retail marketing operations; (ii) certain gains and losses associated with optimizing the utility segment's capacity assets; (iii) changes in the measured value of our inventory for our wholesale energy solutions segment; (iv) the financial effects of warmer-than-normal/colder-than-normal weather that exceeds weather protection for our regulated utility segment and (v) 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, 2013
(In thousands, except per share data)   Regulated Utility  

Retail Energy-
Marketing

 

Commercial
Energy Systems

 

Wholesale
Energy
Solutions

  Other Activities   Consolidated
GAAP net income (loss) $ 77,140 $ 21,680 $ 649 $ (9,401 ) $ (563 ) $ 89,505
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 3,646 (10,407 ) - - - (6,761 )
Storage optimization program (b) 1,152 - - - - 1,152
Weather derivative products (c) (425 ) - - - - (425 )
Change in measured value of inventory (d) - - - 7,272 - 7,272
Competitive service provider imbalance cash settlement (e)     (370 )     369       -     -       -       (1 )
Non-GAAP operating earnings (loss)   $ 81,143     $ 11,642     $ 649   $ (2,129 )   $ (563 )   $ 90,742  
GAAP diluted earnings (loss) per average
common share (51,828 shares) $ 1.49 $ 0.42 $ 0.01 $ (0.18 ) $ (0.01 ) $ 1.73
Per share effect of non-GAAP adjustments     0.08       (0.20 )     -     0.14       -       0.02  
Non-GAAP operating earnings (loss) per share   $ 1.57     $ 0.22     $ 0.01   $ (0.04 )   $ (0.01 )   $ 1.75  
 
Three Months Ended March 31, 2012
(In thousands, except per share data)   Regulated Utility  

Retail Energy-
Marketing

 

Commercial
Energy Systems

 

Wholesale
Energy
Solutions

  Other Activities*   Consolidated
GAAP net income (loss) $ 72,351 $ 4,464 $ 431 $ (2,722 ) $ (345 ) $ 74,179
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (673 ) 870 - - - 197
Storage optimization program (b) 841 - - - - 841
Weather derivative products (c) (186 ) - - - - (186 )
Change in measured value of inventory (d) - - - 1,604 - 1,604
DC weather impact(f) 1,857 - - - - 1,857
Regulatory asset write off - tax effect of Medicare Part D (g)     2,827       -       -     -       -       2,827  
Non-GAAP operating earnings (loss)   $ 77,017     $ 5,334     $ 431   $ (1,118 )   $ (345 )   $ 81,319  
GAAP diluted earnings (loss) per average
common share (51,561 shares) $ 1.40 $ 0.09 $ 0.01 $ (0.05 ) $ (0.01 ) $ 1.44
Per share effect of non-GAAP adjustments     0.09       0.01       -     0.03       0.01       0.14  
Non-GAAP operating earnings (loss) per share   $ 1.49     $ 0.10     $ 0.01   $ (0.02 )   $ -     $ 1.58  
 
 
 
Six Months Ended March 31, 2013
(In thousands, except per share data)   Regulated Utility  

Retail Energy-
Marketing

 

Commercial
Energy Systems

 

Wholesale
Energy
Solutions

  Other Activities*   Consolidated
GAAP net income (loss) $ 115,806 $ 34,701 $ 1,687 $ (8,125 ) $ (2,176 ) $ 141,893
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 8,851 (11,462 ) - - - (2,611 )
Storage optimization program (b) 1,062 - - - - 1,062
Weather derivative products (c) (282 ) - - - - (282 )
Change in measured value of inventory (d) - - - 9,543 - 9,543
Competitive service provider imbalance cash settlement(e)     (370 )     369       -     -       -       (1 )
Non-GAAP operating earnings (loss)   $ 125,067     $ 23,608     $ 1,687   $ 1,418     $ (2,176 )   $ 149,604  
GAAP diluted earnings (loss) per average
common share (51,759 shares) $ 2.24 $ 0.67 $ 0.03 $ (0.16 ) $ (0.04 ) $ 2.74
Per share effect of non-GAAP adjustments     0.18       (0.21 )     -     0.19       (0.01 )     0.15  
Non-GAAP operating earnings (loss) per share   $ 2.42     $ 0.46     $ 0.03   $ 0.03     $ (0.05 )   $ 2.89  
 
Six Months Ended March 31, 2012
(In thousands, except per share data)   Regulated Utility  

Retail Energy-
Marketing

 

Commercial
Energy Systems

 

Wholesale
Energy
Solutions

  Other Activities*   Consolidated
GAAP net income (loss) $ 116,757 $ 5,310 $ 729 $ 2,515 $ (694 ) $ 124,617
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (885 ) 13,079 - - - 12,194
Storage optimization program (b) 979 - - - - 979
Weather derivative products (c) (414 ) - - - - (414 )
Change in measured value of inventory (d) - - - (2,634 ) - (2,634 )
DC weather impact (f) 1,857 - - - - 1,857
Regulatory asset write off - tax effect of Medicare Part D (g)     2,827       -       -     -       -       2,827  
Non-GAAP operating earnings (loss)   $ 121,121     $ 18,389     $ 729   $ (119 )   $ (694 )   $ 139,426  
GAAP diluted earnings (loss) per average
common share (51,546 shares) $ 2.27 $ 0.10 $ 0.01 $ 0.05 $ (0.01 ) $ 2.42
Per share effect of non-GAAP adjustments     0.08       0.26       -     (0.05 )     (0.01 )     0.28  
Non-GAAP operating earnings (loss) per share   $ 2.35     $ 0.36     $ 0.01   $ -     $ (0.02 )   $ 2.70  
* Per share amounts 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 2013
     

Quarterly Period Ended (h)

(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
GAAP net income  

$

52,388  

$

89,505           $ 141,893
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 4,150 (6,761 ) (2,611 )
Storage optimization program (b) (90 ) 1,152 1,062
Weather derivative products (c) 143 (425 ) (282 )
Change in the measured value of inventory (d) 2,271 7,272 9,543
Competitive service provider imbalance cash settlement (e)     -       (1 )                 (1 )
Non-GAAP operating earnings   $ 58,862    

$

90,742                 $ 149,604  
Diluted average common shares outstanding     51,688       51,828                   51,759  
GAAP diluted earnings per average common share   $ 1.01    

$

1.73                 $ 2.74  
Per share effect of non-GAAP adjustments     0.13       0.02                   0.15  
Non-GAAP operating earnings per share   $ 1.14    

$

1.75                 $ 2.89  
 
Fiscal Year 2012
     

Quarterly Period Ended (h)

(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
GAAP net income $ 50,438

$

74,179 $ 124,617
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss on energy-related derivatives (a) 11,997 197 12,194
Storage optimization program (b) 138 841 979
Weather derivative products (c) (228 ) (186 ) (414 )
Change in the measured value of inventory (d) (4,238 ) 1,604 (2,634 )
DC weather impact (f) - 1,857 1,857
Regulatory asset write-off-- tax effect Medicare Part D(g)     -       2,827                   2,827  
Non-GAAP operating earnings   $ 58,107    

$

81,319                 $ 139,426  
Diluted average common shares outstanding     51,533       51,561                   51,546  
GAAP diluted earnings per average common share   $ 0.98    

$

1.44                 $ 2.42  
Per share effect of non-GAAP adjustments     0.15       0.14                   0.28  
Non-GAAP operating earnings per share   $ 1.13    

$

1.58                 $ 2.70  

Footnotes:

(a)

 

Adjustments to eliminate the change in the unrealized mark-to-market positions of our energy-related derivatives for regulated utility and retail energy-marketing that were recorded to income during the period. For the regulated utility segment, the portion of our unrealized mark-to-market gains and losses that are not recognized as being shared with customers are recorded directly to income for GAAP purposes. All unrealized mark-to-market gains and losses for the retail energy-marketing 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)

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.

(d)

Adjustments to reflect storage inventory at market or at a value based on the price used to value the physical forward sales contract that is economically hedging the storage inventory. This adjustment also includes the estimated effects of certain sharing mechanisms on all of our non-GAAP unrealized gains and losses.

(e)

Represents a refund to customers ordered by the Public Service Commission of Maryland (PSC of MD) in September 2011 associated with a cash settlement of gas imbalances with competitive service providers. The order remanded the matter to a hearing examiner to determine the amount of the refund as the difference between charges made to customers and the charges that would have been incurred had the imbalances been made up through volumetric adjustments.

(f)

Represents the financial effects of warm or cold weather that exceeds weather protection for our regulated utility segment.

(g)

In March 2010, the Patient Protection and Affordable Care Act (PPACA) eliminated future Medicare Part D tax benefits for Washington Gas' tax years beginning after September 30, 2013. The deferred tax asset related to this benefit was reversed and a regulatory asset was established to reflect the probable recovery of higher future tax expense from customers. Based on positions taken by the Maryland Public Service Commission (PSC of MD) in Washington Gas' rate case, the PSC of MD would not permit recovery of this asset.

(h)

Quarterly earnings per share may not sum to year-to-date or 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, 2013
Consolidated
      Low   High
GAAP Earnings Per Share Guidance Range   $ 2.30 2.42
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.06 ) (0.06 )
Storage optimization program (b) 0.01 0.01
Change in measured value of inventory (c) 0.18 0.18
Weather derivative products(d)     (0.01 )   (0.01 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 2.42   $ 2.54  
 
Regulated Utility Segment
      Low   High
GAAP Earnings Per Share Guidance Range $ 1.65 $ 1.71
Adjusted for:
Unrealized mark-to-market loss on energy-related derivatives (a) 0.15 0.15
Storage optimization program (b) 0.01 0.01
Weather derivative products(d) (0.01 ) (0.01 )
Competitive service provider imbalance cash settlement- Maryland(e)     (0.01 )   (0.01 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 1.79   $ 1.85  
 
Non-Utility Business Segments
      Low   High
GAAP Earnings Per Share Guidance Range $ 0.65 $ 0.71
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.21 ) (0.21 )
Change in measured value of inventory (c) 0.18 0.18
Competitive service provider imbalance cash settlement- Maryland(e)     0.01     0.01  
Non-GAAP Operating Earnings Per Share Guidance Range   $ 0.63   $ 0.69  
 

Footnotes:

(a)

 

Represents the estimated reversal of certain of our existing unrealized mark-to-market positions related to our energy derivatives for regulated utility and retail energy-marketing that will be recorded to income during fiscal year 2013. For the regulated utility segment, the portion of our unrealized mark-to-market gains and losses that are not recognized as being shared with customers are recorded directly to income for GAAP purposes. All unrealized mark-to-market gains and losses for the retail-energy marketing 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)

Adjustments to reflect storage inventory at market or at a value based on the price used to value the physical forward sales contract that is economically hedging the storage inventory. This adjustment also includes the estimated effects of certain sharing mechanisms on all of our non-GAAP unrealized gains and losses.

(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 a refund to customers ordered by the Public Service Commission of Maryland (PSC of MD) in September 2011 associated with a cash settlement of gas imbalances with competitive service providers. The order remanded the matter to a hearing examiner to determine the amount of the refund as the difference between charges made to customers and the charges that would have been incurred had the imbalances been made up through volumetric adjustments.

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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