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WGL Holdings, Inc. Reports Second Quarter Fiscal Year 2012 Financial Results; Updates Fiscal Year 2012 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, 2012 of $74.2 million, or $1.44 per share, compared to net income of $79.4 million, or $1.55 per share, reported for the quarter ended March 31, 2011.

For the first six months of fiscal year 2012, we reported net income determined in accordance with GAAP of $124.6 million, or $2.42 per share, compared to net income of $144.7 million, or $2.83 per share, reported for the comparative period of fiscal year 2011. Our operations are seasonal and, accordingly, our operating results for the three and six months ended March 31, 2012, are not indicative of the results expected for the 12 months ending September 30, 2012.

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 this non-GAAP financial measure, as well as reconciliations of net income determined in accordance with GAAP to non-GAAP operating earnings (loss) for both our consolidated and segment results.

For the quarter ended March 31, 2012, non-GAAP operating earnings were $81.3 million, or $1.58 per share, an increase of $3.7 million or $0.07 per share, over non-GAAP operating earnings of $77.6 million, or $1.51 per share, for the same quarter of the prior fiscal year. For the six months ended March 31, 2012, non-GAAP operating earnings were $139.4 million, or $2.70 per share, an increase of $9.2 million, or $0.16 per share, over non-GAAP operating earnings of $130.2 million, or $2.54 per share, for the same period of the prior fiscal year.

"In the second quarter we continued to see improvements in our non-GAAP earnings compared to prior year levels, driven primarily by recent rate cases in Virginia and Maryland," said Terry McCallister, Chairman and Chief Executive Officer of WGL Holdings. "On a year to date basis, we are pleased with the balance of earnings growth from both our utility and non-utility segments, particularly in the face of the warmest winter in our service area's recorded history. While we are generally on track for our 2012 non-GAAP guidance we provided last quarter, we have lowered our guidance by $0.03 to reflect our share of this year's expected expenses of the Commonwealth Pipeline project."

Second Quarter Results by Business Segment

Regulated Utility Segment

For the quarter ended March 31, 2012, the regulated utility segment reported net income of $72.4 million, or $1.40 per share, an increase of $1.6 million, or $0.02 per share, over net income of $70.8 million, or $1.38 per share, reported for the same quarter of the prior fiscal year. After adjustments, non-GAAP operating income for the regulated utility segment was $77.0 million, or $1.49 per share, for the quarter ended March 31, 2012, an increase of $4.5 million, or $0.08 per share, over non-GAAP operating earnings of $72.5 million, or $1.41 per share, for the same quarter of the prior fiscal year.

For the six months ended March 31, 2012, our regulated utility segment reported net income of $116.8 million, or $2.27 per share, an increase of $5.3 million, or $0.09 per share, over net income $111.5 million, or $2.18 per share, reported for the six months ended March 31, 2011. After adjustments, non-GAAP operating earnings for the regulated utility segment were $121.1 million, or $2.35 per share, for the six months ended March 31, 2012, an increase of $4.3 million, or $0.07 per share, compared to non-GAAP operating earnings of $116.8 million, or $2.28 per share, for the same period of the prior fiscal year.

For both the three and six months ended March 31, 2012, higher non-GAAP operating earnings reflect higher revenues from the implementation of new rates in Virginia and Maryland and an increase in average active customer meters, partially offset by: (i) lower margins associated with our asset optimization program; (ii) higher operation and maintenance expenses; (iii) higher depreciation expense due to the growth in, and changes in the asset mix of, our investment in utility and (iv) higher income tax expense due to an increase in the effective tax rate.

Retail Energy-Marketing Segment

For the quarter ended March 31, 2012, the retail energy-marketing segment reported net income of $4.5 million, or $0.09 per share, compared to net income of $9.7 million, or $0.19 per share, reported for the same quarter of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $5.3 million, or $0.10 per share, for the quarter ended March 31, 2012, compared to non-GAAP operating earnings of $8.0 million, or $0.16 per share, for the same quarter of the prior fiscal year.

For the six months ended March 31, 2012, the retail energy-marketing segment reported net income of $5.3 million, or $0.10 per share, compared to net income of $34.6 million, or $0.68 per share, reported for the same period of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $18.4 million, or $0.36 per share, for the six months ended March 31, 2012, an increase of $3.6 million, or $0.07 per share, over non-GAAP operating earnings of $14.8 million, or $0.29 per share, for the same period of the prior fiscal year.

The differences between GAAP net income and non-GAAP operating earnings are due to adjustments to eliminate unrealized mark-to-market gains and losses attributable to certain wholesale energy supply and retail sales contracts.

For the quarter ended March 31, 2012, non-GAAP operating earnings reflect lower realized natural gas margins primarily attributed to lower margins on portfolio optimization activities, lower retail sales volumes resulting from warm weather, and a less favorable pattern of margin recognition in the current quarter versus the same quarter of the prior year. Realized electric margins were higher due to favorable price conditions, higher sales volumes due to customer growth, and a more favorable pattern of margin recognition in the current period versus the same quarter of the prior year. The pattern of margin recognition that the retail energy-marketing segment realizes in a given quarter varies from year to year. Operating expenses in the current quarter increased primarily due to higher customer acquisition and customer service costs.

For the six months ended March 31, 2012, non-GAAP operating earnings reflect higher realized electric margins that are attributable to favorable price conditions, higher sales volumes due to customer growth and a more favorable pattern of margin recognition in the current period versus the same period of the prior year. Realized natural gas margins are lower primarily due to lower margins on portfolio optimization activities and lower retail sales volumes resulting from warm weather. As noted above, the pattern of margin recognition varies from year to year. Operating expenses in the current period increased primarily due to higher customer service costs and other expenses.

Commercial Energy Systems

For the quarter ended March 31, 2012, the commercial energy systems segment reported net income of $0.5 million compared to a net loss of $(18,000) for the same quarter last year. For the six months ended March 31, 2012, the commercial energy systems segment reported net income of $0.8 million compared to a net loss of $(20,000) for the same period last year. The increase in earnings is primarily due to higher revenue from commercial solar projects in the current period and the commencement of project work for government agency customers that was delayed in the prior year. There were no non-GAAP adjustments for this segment for any of the periods presented.

Wholesale Energy Solutions

For the quarter ended March 31, 2012, the wholesale energy solutions segment reported a net loss of $(2.7) million, or $(0.05) per share, compared to net income of $0.1 million for the same period of the prior fiscal year. Non-GAAP operating losses for the wholesale energy solutions segment were $(1.1) million, or $(0.02) per share, compared to a loss of $(1.7) million, or $(0.03) per share, for the same period of the prior fiscal year.

For the six months ended March 31, 2012, the wholesale energy solutions segment reported net income of $2.5 million, or $0.05 per share, compared to net income of $0.2 million for the same period of the prior fiscal year. Wholesale energy solutions had a non-GAAP operating loss of $(0.1) million, compared to net income of $0.3 million, or $0.01 per share, for the same period of the prior fiscal year.

For both the quarter and year to date periods, non-GAAP operating losses reflect low storage and transportation spreads due to one of the warmest winters on record across the country, which affected optimization opportunities as well as higher operation and maintenance expense as a result of new storage and optimization arrangements.

Earnings Outlook

We are lowering our GAAP earnings estimate for the fiscal year 2012 to a range of $2.40 per share to $2.52 per share. This estimate includes projected fiscal year 2012 earnings from our regulated utility segment in a range of $1.76 per share to $1.82 per share and projected fiscal year 2012 earnings from our unregulated business segments in a range of $0.64 per share to $0.70 per share.

We are also lowering our consolidated earnings estimate for fiscal year 2012 based on non-GAAP operating earnings to a range of $2.43 per share to $2.55 per share to reflect our share of this year's expected expenses of the Commonwealth Pipeline. This estimate includes projected fiscal year 2012 non-GAAP operating earnings from our regulated utility segment in a range of $1.82 per share to $1.88 per share, and projected fiscal year 2012 non-GAAP operating earnings from our unregulated business segments in a range of $0.61 per share to $0.67 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 3, 2012, to discuss our second quarter fiscal year 2012 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 3, 2012.

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 and commercial solar projects 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)         2012       2011
ASSETS
Property, Plant and Equipment
At original cost $ 3,664,921 $ 3,575,973
Accumulated depreciation and amortization         (1,117,287 )       (1,086,072 )
Net property, plant and equipment         2,547,634         2,489,901  
 
Current Assets
Cash and cash equivalents 97,200 4,332
Accounts receivable, net 509,785 296,423
Storage gas 175,688 290,394
Other         158,504         133,584  
Total current assets         941,177         724,733  
Deferred Charges and Other Assets         576,201         594,400  
Total Assets       $ 4,065,012       $ 3,809,034  
 
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 1,292,414 $ 1,202,715
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt         585,804         587,213  
Total capitalization         1,906,391         1,818,101  
 
 
Current Liabilities
Notes payable and current maturities of long-term debt 156,961 116,525
Accounts payable and other accrued liabilities 258,818 279,434
Other         289,487         180,781  
Total current liabilities         705,266         576,740  
Deferred Credits         1,453,355         1,414,193  
Total Capitalization and Liabilities       $ 4,065,012       $ 3,809,034  
 
 

WGL Holdings, Inc.

Consolidated Statements of Income

(Unaudited)

 
      Three Months Ended     Six Months Ended
        March 31,     March 31,
(In thousands, except per share data)       2012   2011     2012   2011
OPERATING REVENUES    
Utility $ 460,700 $ 561,297 $ 824,847

$

970,591

Non-utility         378,744       455,924         742,354       842,504  
Total Operating Revenues         839,444       1,017,221         1,567,201       1,813,095  
 
OPERATING EXPENSES
Utility cost of gas 188,475 286,570 343,784 495,190
Non-utility cost of energy-related sales 356,114 422,325 691,976 751,118
Operation and maintenance 85,057 87,531 166,681 165,099
Depreciation and amortization 24,106 22,647 48,346 45,291
General taxes and other assessments         47,281       54,203         84,078       94,675  
Total Operating Expenses         701,033       873,276         1,334,865       1,551,373  
 
OPERATING INCOME 138,411 143,945 232,336 261,722
Other Income (Loss) — Net 1,953 (1,320 ) 2,994 (432 )
Interest Expense
Interest on long-term debt 9,430 10,123 19,092 19,897
AFUDC and other — net         91       249         251       421  
Total Interest Expense         9,521       10,372         19,343       20,318  
INCOME BEFORE INCOME TAXES 130,843 132,253 215,987 240,972
INCOME TAX EXPENSE         56,334       52,495         90,710       95,652  
NET INCOME 74,509 79,758 125,277 145,320
Dividends on Washington Gas preferred stock         330       330         660       660  
 
NET INCOME APPLICABLE TO COMMON STOCK       $ 74,179     $ 79,428       $ 124,617    

$

144,660  
 
AVERAGE COMMON SHARES OUTSTANDING
Basic 51,511 51,143 51,473 51,104
Diluted         51,561       51,242         51,546       51,191  
 
EARNINGS PER AVERAGE COMMON SHARE
Basic $ 1.44 $ 1.55 $ 2.42

$

2.83
Diluted       $ 1.44     $ 1.55       $ 2.42    

$

2.83  
 
Net Income (Loss) Applicable To Common Stock — By Segment ($000):
 
Regulated utility       $ 72,351     $ 70,843       $ 116,757    

$

111,527  
 
Non-utility operations:
Retail energy-marketing 4,465 9,674 5,310 34,609
Commercial energy systems 529 (18 ) 834 (20 )
Wholesale energy solutions (2,722 ) 128 2,515 187
Other activities         (444 )     (1,199 )       (799 )     (1,643 )
Total non-utility         1,828       8,585         7,860       33,133  
NET INCOME APPLICABLE TO COMMON STOCK       $ 74,179     $ 79,428       $ 124,617    

$

144,660  
 
 

WGL Holdings, Inc.

Consolidated Financial and Operating Statistics

(Unaudited)

             
FINANCIAL STATISTICS
                                 

 

 

Twelve Months Ended March 31,

                                        2012       2011  
 

Closing Market Price — end of period

$40.70 $39.00
52-Week Market Price Range

 

$44.99-$34.71

 

$40.00-$32.75

Price Earnings Ratio 21.5 15.5
Annualized Dividends Per Share $1.60 $1.55
Dividend Yield 3.9 % 4.0 %
Return on Average Common Equity 7.6 % 10.4 %
Total Interest Coverage (times) 5.3 6.2

Book Value Per Share — end of period

$25.08 $24.70

Common Shares Outstanding — end of period (thousands)

                                      51,532       51,167  
 
UTILITY GAS STATISTICS                                                  
Three Months Ended Six Months Ended Twelve Months Ended
        March 31,       March 31,       March 31,  
(In thousands)       2012       2011       2012       2011       2012       2011  
 
Operating Revenues
Gas Sold and Delivered
Residential - Firm $ 306,586

 

$

383,596

 

$

537,736

 

$

655,034

 

$

698,545

 

$

825,361
Commercial and Industrial - Firm 64,670 86,350 116,762 151,566 160,855 194,647
Commercial and Industrial - Interruptible 650 832 1,199 1,614 2,075 2,497
Electric Generation       367       275       550       550       1,100       1,100  
        372,273       471,053       656,247       808,764       862,575       1,023,605  
Gas Delivered for Others
Firm 66,806 68,434 124,313 115,753 177,687 162,756
Interruptible 15,706 17,957 28,650 32,854 46,369 50,279
Electric Generation       6       48       144       118       484       506  
        82,518       86,439       153,107       148,725       224,540       213,541  
454,791 557,492 809,354 957,489 1,087,115 1,237,146
Other       5,909       3,805       15,493       13,102       31,721       29,074  
Total     $ 460,700

 

 

$

561,297

 

 

$

824,847

 

 

$

970,591

 

 

$

1,118,836

 

 

$

1,266,220  
                                                   
Three Months Ended Six Months Ended Twelve Months Ended
        March 31,       March 31,       March 31,  
(In thousands of therms)       2012       2011       2012       2011       2012       2011  
 
Gas Sales and Deliveries
Gas Sold and Delivered
Residential - Firm 259,647 338,757 442,847 576,929 543,476 669,845
Commercial and Industrial - Firm 64,146 79,413 113,643 142,452 150,398 175,770
Commercial and Industrial - Interruptible       777       801       1,482       1,593       2,462       2,375  
        324,570       418,971       557,972       720,974       696,336       847,990  
Gas Delivered for Others
Firm 172,168 212,528 312,829 379,340 434,676 489,970
Interruptible 78,393 93,536 150,340 179,865 241,896 272,266
Electric Generation       35,186       7,050       43,013       23,362       160,208       172,807  
        285,747       313,114       506,182       582,567       836,780       935,043  
Total       610,317       732,085       1,064,154       1,303,541       1,533,116       1,783,033  
 
WASHINGTON GAS ENERGY SERVICES                                                  
Natural Gas Sales
Therm Sales (thousands of therms) 249,627 302,407 432,360 518,928 591,856 669,309
 
Number of Customers (end of period)       179,000       173,400       179,000       173,400       179,000       173,400  
 
Electricity Sales
Electricity Sales (thousands of kWhs) 2,896,382 2,610,955 5,408,962 5,057,410 11,144,647 10,325,398
 
Number of Accounts (end of period)       197,000       183,700       197,000       183,700       197,000       183,700  
 
UTILITY GAS PURCHASED EXPENSE
(excluding asset optimization)       59.06 ¢     68.54 ¢     62.52 ¢     68.14 ¢     63.75 ¢     69.72 ¢
 
HEATING DEGREE DAYS                                                  
Actual 1,613 2,207 2,807 3,712 3,094 3,929
Normal 2,112 2,109 3,462 3,455 3,777 3,769
Percent Colder (Warmer) than Normal       (23.6) %     4.6 %     (18.9) %     7.4 %     (18.1) %     4.2 %
 
Average Active Customer Meters       1,096,571       1,088,647       1,092,337       1,083,555       1,089,657       1,080,292  
 
 

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:

We also exclude valuation adjustments to the carrying value of non-system natural gas storage inventory in our regulated utility segment. This inventory is held solely to support asset optimization transactions. Valuation adjustments to reflect lower-of-cost or market under current accounting standards may not be representative of the margins that will be realized and shared with our utility ratepayers. Non-GAAP earnings reflect actual margins realized based on the unadjusted historical cost in storage when inventory is withdrawn and sold.

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, 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 $ 4,465 $ 529 $ (2,722 ) $ (444 ) $ 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 (e) 1,857 - - - 1,857
Regulatory asset write-off -- tax effect Medicare Part D (f)       2,827       -       -       -       -       2,827  
Non-GAAP operating earnings (loss)     $ 77,017     $ 5,335     $ 529     $ (1,118 )   $ (444 )   $ 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  
 
Three Months Ended March 31, 2011 (h)
(In thousands, except per share data)    

Regulated

Utility

 

Retail Energy-

Marketing

 

Commercial

Energy Systems

 

Wholesale

Energy

Solutions

 

Other

Activities*

  Consolidated
GAAP net income (loss) $ 70,843 $ 9,674 $ (18 ) $ 128 $ (1,199 ) $ 79,428
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 2,869 (1,683 ) - - - 1,186
Storage optimization program (b) (637 ) - - - - (637 )
Weather derivative products (c) 58 - - - - 58
Change in measured value of inventory (d) - - - (1,807 ) - (1,807 )
Amortization of derivative contract termination (g)       (645 )     -       -       -       -       (645 )
Non-GAAP operating earnings (loss)     $ 72,488     $ 7,991     $ (18 )   $ (1,679 )   $ (1,199 )   $ 77,583  
GAAP diluted earnings (loss) per average
common share (51,242 shares) $ 1.38 $ 0.19 $ - $ - $ (0.02 ) $ 1.55
Per share effect of non-GAAP adjustments       0.03       (0.03 )     -       (0.03 )     (0.01 )     (0.04 )
Non-GAAP operating earnings (loss) per share     $ 1.41     $ 0.16     $ -     $ (0.03 )   $ (0.03 )   $ 1.51  
 
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 $ 834 $ 2,515 $ (799 ) $ 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 (e) 1,857 - - - - 1,857
Regulatory asset write-off -- tax effect Medicare Part D (f)       2,827       -       -       -       -       2,827  
Non-GAAP operating earnings (loss)     $ 121,121     $ 18,389     $ 834     $ (119 )   $ (799 )   $ 139,426  
GAAP diluted earnings (loss) per average
common share (51,546 shares) $ 2.27 $ 0.10 $ 0.02 $ 0.05 $ (0.02 ) $ 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     $ 0.02     $ -     $ (0.03 )   $ 2.70  
 
Six Months Ended March 31, 2011 (h)
(In thousands, except per share data)    

Regulated

Utility

 

Retail Energy-

Marketing

 

Commercial

Energy Systems

 

Wholesale

Energy

Solutions

 

Other

Activities*

  Consolidated
GAAP net income (loss) $ 111,527 $ 34,609 $ (20 ) $ 187 $ (1,643 ) $ 144,660
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 8,799 (19,809 ) - - - (11,010 )
Storage optimization program (b) (2,357 ) - - - - (2,357 )
Weather derivative products (c) (124 ) - - - - (124 )
Change in measured value of inventory (d) - - - 71 - 71
Amortization of derivative contract termination (g)       (1,074 )     -       -       -       -       (1,074 )
Non-GAAP operating earnings (loss)     $ 116,771     $ 14,800     $ (20 )   $ 258     $ (1,643 )   $ 130,166  
GAAP diluted earnings (loss) per average
common share (51,191 shares) $ 2.18 $ 0.68 $ - $ - $ (0.03 ) $ 2.83
Per share effect of non-GAAP adjustments       0.10       (0.39 )     -       0.01       (0.01 )     (0.29 )
Non-GAAP operating earnings (loss) per share     $ 2.28     $ 0.29     $ -     $ 0.01     $ (0.04 )   $ 2.54  
* 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 2012
      Quarterly Period Ended (i)
(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 measured value of inventory (d) (4,238 ) 1,604 (2,634 )
DC weather impact (e) - 1,857 1,857
Regulatory asset write-off -- tax effect Medicare Part D (f)       -       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  
 
Fiscal Year 2011 (h)
      Quarterly Period Ended (i)
(In thousands, except per share data)     Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
GAAP net income $ 65,232 $ 79,428 $ 144,660
Adjusted for (items shown after-tax):
Unrealized mark-to-market (gain) loss on energy-related derivatives (a) (12,196 ) 1,186 (11,010 )
Storage optimization program (b) (1,720 ) (637 ) (2,357 )
Weather derivative products (c) (182 ) 58 (124 )
Change in measured value of inventory (d) 1,878 (1,807 ) 71
Amortization of derivative contract termination (g)       (429 )     (645 )                 (1,074 )
Non-GAAP operating earnings     $ 52,583     $ 77,583                 $ 130,166  
Diluted average common shares outstanding       51,143       51,242                   51,191  
GAAP diluted earnings per average common share $ 1.28 $ 1.55 $ 2.83
Per share effect of non-GAAP adjustments       (0.25 )     (0.04 )                 (0.29 )
Non-GAAP operating earnings per share     $ 1.03     $ 1.51                 $ 2.54  
 

Footnotes:

(a)

 

Adjustments to eliminate 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 the wholesale energy solutions 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 the financial effects of warm or cold weather that exceeds weather protection for our regulated utility segment.

(f)

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.

(g)

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

(h)

Consolidated non-GAAP earnings have been revised to reflect the change in the non-GAAP adjustment methodology in the wholesale energy solutions segment to include unrealized gains and losses of physical and financial purchase and sales contracts in non-GAAP earnings and to value the storage inventory to market value or to the price used in valuing the physical forward sale economically hedging the storage.

(i)

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, 2012

 
Consolidated
        Low       High
GAAP Earnings Per Share Guidance Range       $ 2.40     $ 2.52
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) - -
Storage optimization program (b) 0.02 0.02
Retroactive depreciation expense adjustment (c) (0.03 ) (0.03 )
Change in measured value of inventory (d) (0.05 ) (0.05 )
DC weather impact (e) 0.04 0.04
Regulatory asset write-off -- tax effect Medicare Part D (f)         0.05         0.05  
Non-GAAP Operating Earnings Per Share Guidance Range       $ 2.43       $ 2.55  
 
 
Regulated Utility Segment
          Low       High
GAAP Earnings Per Share Guidance Range $ 1.76 $ 1.82
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.02 ) (0.02 )
Storage optimization program (b) 0.02 0.02
Retroactive depreciation expense adjustment (c) (0.03 ) (0.03 )
DC weather impact (e) 0.04 0.04
Regulatory asset write-off -- tax effect Medicare Part D (f)         0.05         0.05  
Non-GAAP Operating Earnings Per Share Guidance Range       $ 1.82       $ 1.88  
 
 
Unregulated Business Segments
          Low       High
GAAP Earnings Per Share Guidance Range $ 0.64 $ 0.70
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) 0.02 0.02
Change in measured value of inventory (d)         (0.05 )       (0.05 )
Non-GAAP Operating Earnings Per Share Guidance Range       $ 0.61       $ 0.67  
 

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 2012. 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 the wholesale energy solutions segment 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)

Represents an adjustment that reduces depreciation expense applicable to the period from January 1, 2010 through September 30, 2011. This adjustment will be recorded upon approval of new depreciation rates by the Virginia State Corporation Commission (SCC of VA).

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

(f)

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.

 

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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