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WGL Holdings, Inc. Reports Third Quarter Fiscal Year 2010 Earnings; Updates Fiscal Year 2010 Guidance

WASHINGTON, Aug 04, 2010 (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, 2010 of $9.7 million, or $0.19 per share, an increase of $7.9 million, or $0.15 per share, over net income of $1.8 million, or $0.04 per share, reported for the quarter ended June 30, 2009.

For the nine months of fiscal year 2010, we reported net income determined in accordance with GAAP of $136.0 million, or $2.69 per share, compared to net income of $131.5 million, or $2.61 per share, reported for the comparative period of fiscal year 2009. Our operations are seasonal and, accordingly, our operating results for the three and nine months ended June 30, 2010, are not indicative of the results expected for the 12 months ending September 30, 2010.

Commenting on the third quarter and the outlook for the remainder of the year, WGL Holdings' Chairman and CEO Terry McCallister said, "I am pleased to report that during the third quarter of fiscal year 2010, our businesses continue to move forward with achieving the initiatives and strategic objectives put in place early this year. In our updated fiscal year 2010 forecast, the earnings outlook for the utility operations is unchanged while the non-utility businesses have reacted to some temporary challenges."

McCallister further elaborated on the non-utility businesses, "Unusually extreme July weather resulted in higher electric supply costs for our retail energy marketing business and government customer delays dampened recorded revenues in our design-build energy services business. Despite these temporary challenges, our retail energy marketing business is successfully achieving its goal of expanding into Pennsylvania and we continue to grow our committed backlog of signed contracts for our design-build energy services business to the highest level in its history."

Financial performance is 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, 2010, we recorded a non-GAAP operating loss of $(3.6) million, or $(0.07) per share, compared to non-GAAP operating earnings of $5.6 million, or $0.11 per share, for the same quarter of the prior fiscal year. For the nine months ended June 30, 2010, we recorded non-GAAP operating earnings of $129.9 million, or $2.57 per share, compared to non-GAAP operating earnings of $140.0 million, or $2.78 per share, for the same period of the prior fiscal year.

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, 2010, our regulated utility segment reported a seasonal net loss of $(10.5) million, or $(0.21) per share, compared to a net loss of $(2.4) million, or $(0.05) 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 $(9.0) million, or $(0.18) per share, for the quarter ended June 30, 2010, compared to a non-GAAP operating loss of $(4.4) million, or $(0.09) per share, for the same quarter of the prior fiscal year. This three month comparison of non-GAAP operating earnings reflects higher employee benefit expense due to changes in plan asset values and plan valuation assumptions and an increase in the effective tax rate. Partially offsetting these unfavorable trends were reduced uncollectible accounts expense, an increase in average active customer meters and lower interest expense.

For the nine months ended June 30, 2010, our regulated utility segment reported net income of $121.2 million, or $2.39 per share, compared to net income of $126.7 million, or $2.52 per share, reported for the nine months ended June 30, 2009. After adjustments, non-GAAP operating earnings for the regulated utility segment were $115.0 million, or $2.27 per share, for the nine months ended June 30, 2010, compared to non-GAAP operating earnings of $120.1 million, or $2.39 per share, for the same nine months of the prior fiscal year. The nine month comparisons of non-GAAP operating earnings reflected: (i) a decrease in the recovery of inventory carrying costs, reflecting lower average storage gas inventory balances; (ii) a decrease in realized margins associated with our asset optimization program; (iii) higher employee benefit expense due to changes in plan asset values and plan valuation assumptions and (iv) higher property tax expense. Partially offsetting these unfavorable trends were: (i) an increase in average active customer meters from the prior period; (ii) favorable effects of changes in natural gas consumption patterns; (iii) an improvement reflecting lower regulatory obligations for the Virginia Earnings Sharing Mechanism; (iv) lower costs for weather protection products related to the District of Columbia; and (v) lower interest expense related to both lower interest rates and decreased borrowing levels.

Retail Energy-Marketing Segment

For the quarter ended June 30, 2010, the retail energy-marketing segment reported net income of $20.7 million, or $0.41 per share, an increase of $16.8 million, or $0.33 per share, over net income of $3.9 million, or $0.08 per share, reported for the third quarter of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $6.0 million, or $0.12 per share, for the quarter ended June 30, 2010 compared to non-GAAP operating earnings of $9.6 million, or $0.19 per share, for the same quarter of the prior fiscal year. For the nine months ended June 30, 2010, the retail energy-marketing segment reported net income of $16.8 million, or $0.33 per share, an increase of $13.2 million, or $0.26 per share, over net income of $3.6 million, or $0.07 per share, reported for the same period of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $16.9 million, or $0.33 per share, for the nine months ended June 30, 2010, compared to non-GAAP operating earnings of $18.8 million, or $0.37 per share, for the same period of the prior fiscal year.

The difference between GAAP net income and non-GAAP operating earnings is due to adjustments to eliminate unrealized mark-to-market gains and losses attributable to certain wholesale energy supply and retail sales contracts. These derivative contracts are subject to mark-to-market accounting treatment. For both the three and nine month comparisons, the decrease in non-GAAP operating earnings reflect lower realized margins from the sale of natural gas partially offset by higher electric margins. Declines in gas sales margins are attributed to warmer weather in the spring of 2010 versus the spring of 2009, and by favorable gas price movements in fiscal year 2009. Electric sales margin improvements primarily reflect higher electric sales associated with customer growth. For the nine month comparison only, non-GAAP operating earnings were lower due to higher operating expenses associated with serving a large customer base.

Design-Build Energy Systems Segment

For the quarter ended June 30, 2010, the design-build energy systems segment reported a net loss of $(77,000), compared to net income of $834,000, or $0.02 per share, reported for the same quarter of the prior fiscal year. For the nine months ended June 30, 2010, the design-build energy systems segment reported a net loss of $(380,000), compared to net income of $2.9 million, or $0.06 per share, reported for the same period of the prior fiscal year. The decrease in earnings for both the three and nine month comparisons, are primarily due to delays in the initiation of certain planned project work for government agency customers. Operating expenses were also higher due to increased labor expense associated with expansion plans. There were no non-GAAP adjustments for this segment for either period.

Earnings Outlook

We are providing an updated consolidated earnings estimate for fiscal year 2010 based on non-GAAP operating earnings in a range of $2.21 per share to $2.33 per share, a decrease of $0.04 per share in the mid-point of the range. This estimate includes projected fiscal year 2010 non-GAAP operating earnings from our regulated utility segment in a range of $1.86 per share to $1.92 per share, and projected fiscal year 2010 non-GAAP operating earnings from our unregulated business segments in a range of $0.35 per share to $0.41 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, wglholdings.com.

Other Information

We will hold a conference call at 10:30 a.m. Eastern time on August 5, 2010 to discuss our third quarter financial results for fiscal year 2010. The live conference call will be available to the public via a link located on the WGL Holdings website, 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 6, 2010.

Headquartered in Washington, D.C., WGL Holdings has three operating segments: (i) the regulated utility segment, which primarily consists of Washington Gas, a natural gas utility that serves over one million customers throughout metropolitan Washington, D.C., and the surrounding region; (ii) the retail energy-marketing segment, which consists of Washington Gas Energy Services, Inc., a third-party marketer that competitively sells natural gas and electricity and (iii) the design-build energy systems segment, which consists of Washington Gas Energy Systems, Inc., a provider of design-build energy efficiency solutions to government and commercial clients. Additional information about WGL Holdings is available on our website, 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 Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
(In thousands, except per share data) 2010 2009 2010 2009
OPERATING REVENUES
Utility $ 168,379 $ 185,958 $ 1,170,536 $ 1,350,836
Non-utility 291,294 241,078 1,073,198 943,176
Total Operating Revenues 459,673 427,036 2,243,734 2,294,012
OPERATING EXPENSES
Utility cost of gas 60,001 75,185 576,200 757,112
Non-utility cost of energy-related sales 243,983 222,160 1,008,971 901,472
Operation and maintenance 79,062 71,448 230,850 220,221
Depreciation and amortization 23,634 23,168 72,032 71,494
General taxes and other assessments 25,752 22,852 100,179 94,534
Total Operating Expenses 432,432 414,813 1,988,232 2,044,833
OPERATING INCOME 27,241 12,223 255,502 249,179
Other Income--Net 280 818 1,144 1,595
Interest Expense
Interest on long-term debt 9,913 10,422 29,816 30,894
AFUDC and other, net 87 390 143 3,572
Total Interest Expense 10,000 10,812 29,959 34,466
INCOME BEFORE INCOME TAXES 17,521 2,229 226,687 216,308
INCOME TAX EXPENSE 7,510 92 89,669 83,816
NET INCOME BEFORE PREFERRED STOCK DIVIDENDS 10,011 2,137 137,018 132,492
Dividends on Washington Gas preferred stock 330 330 990 990
NET INCOME APPLICABLE TO COMMON STOCK $ 9,681 $ 1,807 $ 136,028 $ 131,502
AVERAGE COMMON SHARES OUTSTANDING
Basic 50,664 50,141 50,422 50,092
Diluted 50,918 50,435 50,638 50,349
EARNINGS PER AVERAGE COMMON SHARE
Basic $ 0.19 $ 0.04 $ 2.70 $ 2.63
Diluted $ 0.19 $ 0.04 $ 2.69 $ 2.61
Net Income (Loss) Applicable To Common Stock--By Segment ($000):
Regulated utility $ (10,454 ) $ (2,391 ) $ 121,248 $ 126,701
Non-utility operations:
Retail energy-marketing 20,743 3,850 16,813 3,633
Design-build energy systems (77 ) 834 (380 ) 2,867
Other activities (531 ) (486 ) (1,653 ) (1,699 )
Total non-utility 20,135 4,198 14,780 4,801
NET INCOME APPLICABLE TO COMMON STOCK $ 9,681 $ 1,807 $ 136,028 $ 131,502
WGL Holdings, Inc.
Consolidated Balance Sheets
(Unaudited)
June 30, September 30,
(In thousands) 2010 2009
ASSETS
Property, Plant and Equipment
At original cost $ 3,320,969 $ 3,242,413
Accumulated depreciation and amortization

(1,018,422

)

(973,272 )
Net property, plant and equipment 2,302,547 2,269,141
Current Assets
Cash and cash equivalents 48,283 7,845
Accounts receivable, net 321,914 308,915
Storage gas--at cost (first-in, first-out) 156,885 237,681
Other 138,436 129,073
Total current assets 665,518 683,514
Deferred Charges and Other Assets 460,244 397,235
Total Assets $ 3,428,309 $ 3,349,890
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 1,192,667 $ 1,097,698
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt 591,382 561,830
Total capitalization 1,812,222 1,687,701
Current Liabilities
Notes payable and current maturities of long-term debt 37,159 266,443
Accounts payable and other accrued liabilities 202,197 213,529
Other 168,626 154,644
Total current liabilities 407,982 634,616
Deferred Credits 1,208,105 1,027,573
Total Capitalization and Liabilities $ 3,428,309 $ 3,349,890
WGL Holdings, Inc.
Consolidated Financial and Operating Statistics
(Unaudited)
FINANCIAL STATISTICS
Twelve Months Ended
June 30,
2010 2009

Closing Market Price--end of period

$ 34.03 $ 32.02
52-Week Market Price Range $ 36.57-$30.37 $ 37.08-$22.40
Price Earnings Ratio 13.7 13.3
Annualized Dividends Per Share $ 1.51 $ 1.47
Dividend Yield 4.4 % 4.6 %
Return on Average Common Equity 10.7 % 10.9 %
Total Interest Coverage (times) 6.1 5.1
Book Value Per Share--end of period $ 23.51 $ 22.56
Common Shares Outstanding--end of period (thousands) 50,720 50,141
UTILITY GAS STATISTICS
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
(In thousands) 2010 2009 2010 2009 2010 2009
Operating Revenues
Gas Sold and Delivered

Residential -- Firm

$ 99,444 $ 110,381 $ 793,905 $ 918,036 $ 863,124 $ 1,002,706

Commercial and Industrial -- Firm

24,697 30,451 174,828 240,261 197,879 275,433

Commercial and Industrial -- Interruptible

376 725 3,296 3,540 3,783 4,727
Electric Generation 275 275 825 825 1,100 1,099
124,792 141,832 972,854 1,162,662 1,065,886 1,283,965
Gas Delivered for Others
Firm 25,902 27,882 139,851 124,838 160,011 141,715
Interruptible 9,371 10,204 39,062 40,177 46,584 47,982
Electric Generation 109 56 210 238 329 350
35,382 38,142 179,123 165,253 206,924 190,047
160,174 179,974 1,151,977 1,327,915 1,272,810 1,474,012
Other 8,205 5,984 18,559 22,921 27,979 38,440
Total $ 168,379 $ 185,958 $ 1,170,536 $ 1,350,836 $ 1,300,789 $ 1,512,452
Three Months Ended

Nine Months Ended

Twelve Months Ended
June 30, June 30, June 30,
(In thousands of therms) 2010 2009 2010 2009 2010 2009
Gas Sales and Deliveries
Gas Sold and Delivered

Residential -- Firm

56,801 73,996 626,242 653,211 663,017 690,603

Commercial and Industrial -- Firm

18,748 25,230 155,964 185,739 173,264 207,455

Commercial and Industrial -- Interruptible

337 690 3,204 2,882 3,699 3,802
75,886 99,916 785,410 841,832 839,980 901,860
Gas Delivered for Others
Firm 66,516 68,992 436,984 416,653 482,382 460,973
Interruptible 47,028 55,056 222,450 228,573 267,697 273,358
Electric Generation 44,606 12,458 68,156 58,778 112,137 93,377
158,150 136,506 727,590 704,004 862,216 827,708
Total 234,036 236,422 1,513,000 1,545,836 1,702,196 1,729,568
WASHINGTON GAS ENERGY SERVICES
Natural Gas Sales
Therm Sales (thousands of therms) 87,201 102,817 530,138 565,045 592,521 637,479
Number of Customers (end of period) 160,900 148,800 160,900 148,800 160,900 148,800
Electricity Sales
Electricity Sales (thousands of kWhs) 2,358,017 1,293,340 6,366,231 3,176,253 8,459,259 4,158,536
Number of Accounts (end of period) 141,700 98,900 141,700 98,900 141,700 98,900
UTILITY GAS PURCHASED EXPENSE
(excluding asset optimization) 75.90 ¢ 75.34 ¢ 74.71 ¢ 91.69 ¢ 74.54 ¢ 93.62 ¢
HEATING DEGREE DAYS
Actual 217 343 3,825 4,203 3,833 4,205
Normal 300 302 3,751 3,759 3,765 3,774
Percent Colder (Warmer) than Normal (27.7 ) % 13.6 % 2.0 % 11.8 % 1.8 % 11.4 %
Average Active Customer Meters 1,077,562 1,069,189 1,074,619 1,065,925 1,072,503 1,063,037

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 generally accepted accounting principles in the United States of America (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 TO
NON-GAAP OPERATING EARNINGS (LOSS)

(Unaudited)

Quarter Ended June 30, 2010
Retail Design-Build
Regulated Energy- Energy Other

(In thousands, except per share data)

Utility Marketing Systems Activities* Consolidated
GAAP net income (loss) $ (10,454 ) $ 20,743 $ (77 ) $ (531 ) $ 9,681
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (812 ) (14,778 ) - - (15,590 )
Storage optimization program (b) (498 ) - - - (498 )
Amortization of derivative contract termination (c) - - - - -
Weather derivative products (d) 637 - - - 637
Partial settlement of the Supplemental Executive Retirement Program (e) 2,140 - - - 2,140
Non-GAAP operating earnings (loss) $ (8,987 ) $ 5,965 $ (77 ) $ (531 ) $ (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 )
Quarter Ended June 30, 2009
Retail Design-Build
Regulated Energy- Energy Other

(In thousands, except per share data)

Utility Marketing Systems Activities* Consolidated
GAAP net income (loss) $ (2,391 ) $ 3,850 $ 834 $ (486 ) $ 1,807
Adjusted for (item shown after-tax):
Unrealized mark-to-market loss on energy-related derivatives (a) (1,181 ) 5,773 - - 4,592
Storage optimization program (b) (805 ) - - - (805 )
Non-GAAP operating earnings (loss) $ (4,377 ) $ 9,623 $ 834 $ (486 ) $ 5,594
GAAP diluted earnings (loss) per average common share (50,435 shares) $ (0.05 ) $ 0.08 $ 0.02 $ (0.01 ) $ 0.04
Per share effect of non-GAAP adjustments (0.04 ) 0.11 - - 0.07
Non-GAAP operating earnings (loss) per share $ (0.09 ) $ 0.19 $ 0.02 $ (0.01 ) $ 0.11
Nine Months Ended June 30, 2010
Retail Design-Build
Regulated Energy- Energy Other

(In thousands, except per share data)

Utility Marketing Systems Activities* Consolidated
GAAP net income (loss) $ 121,248 $ 16,813 $ (380 ) $ (1,653 ) $ 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) $ 115,018 $ 16,904 $ (380 ) $ (1,653 ) $ 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
Nine Months Ended June 30, 2009
Retail Design-Build
Regulated Energy- Energy Other

(In thousands, except per share data)

Utility Marketing Systems Activities* Consolidated
GAAP net income (loss) $ 126,701 $ 3,633 $ 2,867 $ (1,699 ) $ 131,502
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (6,369 ) 16,408 - - 10,039
Storage optimization program (b) 2,500 - - - 2,500
Reversal of reserve for natural gas costs (f) (2,781 ) - - - (2,781 )
Reversal of prior period electric costs (g) - (1,229 ) - - (1,229 )
Non-GAAP operating earnings (loss) $ 120,051 $ 18,812 $ 2,867 $ (1,699 ) $ 140,031
GAAP diluted earnings (loss) per average common share (50,349 shares) $ 2.52 $ 0.07 $ 0.06 $ (0.04 ) $ 2.61
Per share effect of non-GAAP adjustments (0.13 ) 0.30 - - 0.17
Non-GAAP operating earnings (loss) per share $ 2.39 $ 0.37 $ 0.06 $ (0.04 ) $ 2.78
* Per share amounts for "Other Activities" may include adjustments for rounding
(Footnote references are described on the following page)
WGL HOLDINGS, INC. (Consolidated by Quarter)
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP OPERATING EARNINGS

(Unaudited)

Fiscal Year 2010
Quarterly Period Ended (h)
(In thousands, except per share data) Dec. 31 Mar. 31 Jun. 30 Sept. 30 Year-To-Date
GAAP net income $ 47,641 $ 78,706 $ 9,681 $ 136,028
Adjusted for (items shown after-tax):
Unrealized mark-to-market 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 $ 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 per share $ 1.01 $ 1.64 $ (0.07 ) $ 2.57
Fiscal Year 2009
Quarterly Period Ended (h)
(In thousands, except per share data) Dec. 31 Mar. 31 Jun. 30 Sept. 30 Year-To-Date
GAAP net income $ 54,625 $ 75,070 $ 1,807 $ 131,502
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (960 ) 6,407 4,592 10,039
Storage optimization program (b) 767 2,538 (805 ) 2,500
Reversal of reserve for natural gas costs (f) (2,781 ) - - (2,781 )
Reversal of prior period electric costs (g) - (1,229 ) - (1,229 )
Non-GAAP operating earnings $ 51,651 $ 82,786 $ 5,594 $ 140,031
Diluted average common shares outstanding 50,208 50,420 50,435 50,349
GAAP diluted earnings per average common share $ 1.09 $ 1.49 $ 0.04 $ 2.61
Per share effect of non-GAAP adjustments (0.06 ) 0.16 0.07 0.17
Non-GAAP operating earnings per share $ 1.03 $ 1.65 $ 0.11 $ 2.78

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, the relevant customer sharing percentage for realized asset optimization margins as approved by the regulators is used to allocate our unrealized mark-to-market gains and losses between regulatory assets/liabilities and earnings. 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)

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 as a result of the termination.

(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 are scheduled in 2010.

(f)

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

(g)

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

(h)

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

WGL HOLDINGS, INC.
RECONCILIATION OF GAAP EARNINGS GUIDANCE TO
NON-GAAP EARNINGS GUIDANCE
FISCAL YEAR ENDING SEPTEMBER 30, 2010
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) (0.17 ) (0.17 )
Amortization of derivative contract termination (b) (0.02 ) (0.02 )
Partial settlement of the Supplemental Employee Retirement Program (c) 0.04 0.04
Non-GAAP Operating Earnings Per Share Guidance Range $

2.21

$

2.33

Regulated Utility Segment
Low High
GAAP Earnings Per Share Guidance Range $ 1.99 $ 2.05
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.15 ) (0.15 )
Amortization of derivative contract termination (b) (0.02 ) (0.02 )
Partial settlement of the Supplemental Employee Retirement Program (c) 0.04 0.04
Non-GAAP Operating Earnings Per Share Guidance Range $ 1.86 $ 1.92
Unregulated Business Segments
Low High
GAAP Earnings Per Share Guidance Range $

0.37

$

0.43

Adjusted for:
Unrealized mark-to-market loss on energy-related derivatives (a) (0.02 ) (0.02 )
Non-GAAP Operating Earnings Per Share Guidance Range $

0.35

$

0.41

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 2010. 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 are recorded directly to income.

(b)

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 as a result of the termination.

(c)

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

SOURCE: WGL Holdings, Inc.

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

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