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WGL Holdings, Inc. Reports Increased Third Quarter Fiscal Year 2009 Results

  • Consolidated GAAP earnings per share up 5 cents per share for the third quarter and year-to-date over the comparative fiscal year 2008 periods
  • Consolidated non-GAAP operating earnings up 5 cents per share for the third quarter and 11 cents per share year-to-date over the comparative fiscal 2008 periods
  • Retail Energy-Marketing segment adds over 35,600 electric and gas customer accounts (17% increase) in the 3rd quarter as a result of unprecedented market opportunities
  • Earnings Guidance for Fiscal Year 2009 adjusted for higher marketing costs associated with the customer increase in the energy marketing business

Category:

Wednesday, August 5, 2009 5:48 pm EDT

Dateline:

WASHINGTON

Public Company Information:

NYSE:
WGL

WASHINGTON--(BUSINESS WIRE)--WGL Holdings, Inc. (NYSE:WGL):

Consolidated Results

WGL Holdings, Inc. (NYSE:WGL), the parent company of Washington Gas Light Company (Washington Gas) and other energy-related subsidiaries, today reported net income determined in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP) for the quarter ended June 30, 2009 of $1.8 million, or $0.04 per share, an increase of $2.3 million or $0.05 per share, over a net loss of $(492,000), or $(0.01) per share, reported for the quarter ended June 30, 2008.

For the nine months of fiscal year 2009, we reported net income determined in accordance with GAAP of $131.5 million, or $2.61 per share, an increase of $3.8 million, or $0.05 per share, over net income of $127.7 million, or $2.56 per share, reported for the comparative period of fiscal year 2008. Our operations are seasonal and, accordingly, our operating results for the three and nine months ended June 30, 2009, are not indicative of the results expected for the twelve months ending September 30, 2009.

“Our strong third quarter results and outlook for fiscal year 2009 reflects our commitment to long-term, sustainable success measured in benefits for our customers, investors and employees,” said James H. DeGraffenreidt, Jr., chairman and chief executive officer of WGL Holdings. “Everyone in our Company remains focused on achieving our core strategic objectives while also identifying opportunities to leverage the strength of our balance sheet and excellent liquidity position.”

Financial performance is also evaluated based on non-GAAP operating earnings (loss). Non-GAAP operating earnings (loss) excludes the effects of: (i) unrealized mark-to-market gains (losses) on energy-related derivatives; (ii) certain gains and losses associated with optimizing the utility segment’s storage 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, 2009, our non-GAAP operating earnings were $5.6 million, or $0.11 per share, an increase of $2.5 million, or $0.05 per share, over non-GAAP operating earnings of $3.1 million, or $0.06 per share, for the same quarter of the prior fiscal year. For the nine months ended June 30, 2009, our non-GAAP operating earnings were $140.0 million, or $2.78 per share, an increase of $6.9 million, or $0.11 per share, over non-GAAP operating earnings of $133.1 million, or $2.67 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, 2009, our regulated utility segment reported a seasonal net loss of $(2.4) million, or $(0.05) per share, compared to a net loss of $(8.1) million, or $(0.16) per share, reported for the third quarter of the prior fiscal year. After adjustments, non-GAAP operating loss for the regulated utility segment was $(4.4) million, or $(0.09) per share, for the quarter ended June 30, 2009, compared to a non-GAAP operating loss of $(1.4) million, or $(0.03) per share, for the same quarter of the prior fiscal year. For the three month comparisons, non-GAAP operating earnings included: (i) changes in natural gas consumption patterns that benefited the comparative period last year (ii) a decrease in the recovery of carrying costs caused by lower average investment in storage gas inventory (iii) lower asset optimization program margins due primarily to the timing of recognizing realized losses on financial derivatives and (iv) an increase in our accrued liability for the Earnings Sharing Mechanism in Virginia. Partially offsetting these unfavorable trends were a decrease in operation and maintenance expenses and an increase in average active customer meters over the prior period.

For the nine months ended June 30, 2009, our regulated utility segment reported net income of $126.7 million, or $2.52 per share, an increase of $12.6 million, or $0.23 per share, over net income of $114.1 million, or $2.29 per share, reported for the nine months ended June 30, 2008. After adjustments, non-GAAP operating earnings for the regulated utility segment were $120.1 million, or $2.39 per share, for the nine months ended June 30, 2009, compared to non-GAAP operating earnings of $121.5 million, or $2.44 per share, for the same nine months of the prior fiscal year. For the nine month comparisons, non-GAAP operating earnings were lower due to the prior year beneficial effects for natural gas consumption patterns and for last year’s beneficial impact of the timing of certain rate relief mechanisms in Maryland. Partially offsetting these unfavorable effects are: (i) an increase in average active customer meters over the prior period; (ii) an increase in the recovery of carrying costs on higher average investment in storage gas inventory; (iii) higher margins from our asset optimization program and (iv) lower costs for weather protection products related to our District of Columbia territory.

Retail Energy-Marketing Segment

For the quarter ended June 30, 2009, the retail energy-marketing segment reported net income of $3.9 million or $0.08 per share, compared to net income of $8.1 million, or $0.16 per share, reported for the third quarter of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $9.6 million, or $0.19 per share, for the quarter ended June 30, 2009, an increase of $4.5 million, or $0.09 per share, over non-GAAP operating earnings of $5.1 million, or $0.10 per share, for the same quarter in the prior fiscal year.

For the nine months ended June 30, 2009, the retail energy-marketing segment reported net income of $3.6 million, or $0.07 per share, compared to net income of $15.0 million, or $0.30 per share, reported for the same period of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $18.8 million, or $0.37 per share, for the nine months ended June 30, 2009, an increase of $5.8 million, or $0.11 per share, over non-GAAP operating earnings of $13.0 million, or $0.26 per share, for the same period of the prior fiscal year.

For both the three and nine month comparisons, the increases in non-GAAP operating earnings are primarily due to higher natural gas margins, reflecting a rise in margin per therm sold, as well as higher electricity margins, due to increased electric sales volumes, partially offset by higher operating expenses related to increased marketing initiatives designed to take advantage of unpredictably unique marketing opportunities that arose this quarter. Total promotional, marketing and customer acquisition expense in the quarter on a pre-tax basis was $3.0 million higher than the same quarter in the prior year, and was $4.5 million higher year-to-date than in the prior year. The increase in expense arose primarily from accelerated mass-marketing efforts targeted toward residential and small commercial customers. Similarly, the wholesale electric market also provided exceptional marketing opportunities as the supply costs for electricity fell below the electric utility standard offer rates. Also contributing to the increased expense were sales costs associated with gains in our share of the large commercial electric and gas markets, as weaker competition from alternative suppliers provided greater opportunities. In general, marketing expenses associated with adding customers are recovered through increased margins within a one year period. The difference between GAAP net income and non-GAAP operating earnings is due to adjustments to eliminate unrealized mark-to-market gains and losses primarily attributable to energy supply contracts. These supply contracts are subject to mark-to-market treatment, while the corresponding retail sales commitments are not subject to mark-to-market treatment. There is also a GAAP net income adjustment to non-GAAP operating earnings for certain electric costs attributable to prior-periods that impacts only the year to date comparison.

Design-Build Energy Systems Segment

For the quarter ended June 30, 2009, the design-build energy systems segment reported net income of $834,000, or $0.02 per share, an increase of $533,000, or $0.01 per share, over net income of $301,000, or $0.01 per share, reported for the same quarter of the prior fiscal year. For the nine months ended June 30, 2009, the design-build energy systems segment reported net income of $2.9 million, or $0.06 per share, an increase of $2.1 million, or $0.04 per share, over net income of $825,000, or $0.02 per share, reported for the same period of the prior fiscal year. This increase primarily reflects the growth in the number and in the size and profitability of design-build projects. There were no non-GAAP adjustments for this segment for any of the periods presented.

Earnings Outlook

Our GAAP earnings estimate for the fiscal year 2009 is in a range of $2.33 to $2.45 per share. This estimate includes projected fiscal year 2009 earnings from our regulated utility segment in a range of $2.14 per share to $2.20 per share and projected fiscal year 2009 earnings from our unregulated business segments in a range of $0.19 per share to $0.25 per share.

We are also providing a consolidated earnings estimate for fiscal year 2009 based on non-GAAP operating earnings in a range of $2.39 per share to $2.51 per share which primarily reflects stronger projected margins over fiscal year 2008 for both our retail energy-marketing and design-build energy segments. This estimate includes projected fiscal year 2009 non-GAAP operating earnings from our regulated utility segment in a range of $2.00 per share to $2.06 per share, and projected fiscal year 2009 non-GAAP operating earnings from our unregulated business segments in a range of $0.39 per share to $0.45 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 Web site, www.wglholdings.com.

Other Information

We will hold a conference call at 10:30 a.m. Eastern time on August 6, 2009, to discuss our third quarter financial results for fiscal year 2009. The live conference call will be available to the public via a link located on the WGL Holdings Web site, 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 Web site through August 31, 2009.

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 Web site, 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 Statements of Income
(Unaudited)
                 
Three Months Ended Nine Months Ended
    June 30,   June 30,
(In thousands, except per share data)     2009       2008       2009       2008  
OPERATING REVENUES
Utility $ 185,958 $ 241,486 $ 1,350,836 $ 1,374,827
Non-utility     241,078       223,163       943,176       861,485  
Total Operating Revenues     427,036       464,649       2,294,012       2,236,312  
 
OPERATING EXPENSES
Utility cost of gas 75,185 137,376 757,112 813,955
Non-utility cost of energy-related sales 222,160 200,473 901,472 809,952
Operation and maintenance 71,448 72,669 220,221 212,354
Depreciation and amortization 23,168 23,610 71,494 71,210
General taxes and other assessments     22,852       21,019       94,534       84,395  
Total Operating Expenses     414,813       455,147       2,044,833       1,991,866  
 
OPERATING INCOME 12,223 9,502 249,179 244,446
Other Income (Expenses)—Net 818 446 1,595 1,594
Interest Expense
Interest on long-term debt 10,422 9,975 30,894 29,931
Other—net     390       475       3,572       5,209  
Total Interest Expense 10,812 10,450 34,466 35,140
Dividends on Washington Gas preferred stock     330       330       990       990  
INCOME (LOSS) BEFORE INCOME TAXES 1,899 (832 ) 215,318 209,910
INCOME TAX EXPENSE (BENEFIT)     92       (340 )     83,816       82,167  
 
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK   $ 1,807     $ (492 )   $ 131,502     $ 127,743  
 
AVERAGE COMMON SHARES OUTSTANDING
Basic 50,141 49,638 50,092 49,515
Diluted     50,435       49,638       50,349       49,832  
 
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
Basic $ 0.04 $ (0.01 ) $ 2.63 $ 2.58
Diluted   $ 0.04     $ (0.01 )   $ 2.61     $ 2.56  
 
Net Income (Loss) Applicable To Common Stock—By Segment ($000):
 
Regulated utility   $ (2,391 )   $ (8,051 )   $ 126,701     $ 114,123  
Non-utility operations:
Retail energy-marketing 3,850 8,118 3,633 14,955
Design-build energy systems 834 301 2,867 825
Other activities     (486 )     (860 )     (1,699 )     (2,160 )
Total non-utility     4,198       7,559       4,801       13,620  
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK   $ 1,807     $ (492 )   $ 131,502     $ 127,743  
 
 
WGL Holdings, Inc.
Consolidated Balance Sheets
(Unaudited)
       
June 30, September 30,
(In thousands)   2009       2008  
ASSETS
Property, Plant and Equipment
At original cost $ 3,249,910 $ 3,184,247
Accumulated depreciation and amortization   (1,006,612 )     (975,945 )
Net property, plant and equipment   2,243,298       2,208,302  
 
Current Assets
Cash and cash equivalents 41,629 6,164
Accounts receivable, net 274,067 250,165
Storage gas—at cost (first-in, first-out) 156,788 406,629
Other   122,292       79,391  
Total current assets   594,776       742,349  
Deferred Charges and Other Assets   318,626       292,892  
Total Assets $ 3,156,700     $ 3,243,543  
 
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 1,131,378 $ 1,047,564
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt   624,090       603,738  
Total capitalization   1,783,641       1,679,475  
 
Current Liabilities
Notes payable and current maturities of long-term debt 104,650 346,949
Accounts payable and other accrued liabilities 202,795 243,123
Other   202,002       158,407  
Total current liabilities   509,447       748,479  
Deferred Credits   863,612       815,589  
Total Capitalization and Liabilities $ 3,156,700     $ 3,243,543  
 
     
WGL Holdings, Inc.
Consolidated Financial and Operating Statistics
(Unaudited)
 
FINANCIAL STATISTICS                                  
Twelve Months Ended
                          June 30,  
                            2009       2008    
 
Closing Market Price—end of period $ 32.02 $ 34.74
52-Week Market Price Range $ 37.08-$22.40 $ 36.22-$29.79
Price Earnings Ratio 13.3 15.0
Annualized Dividends Per Share $ 1.47 $ 1.42
Dividend Yield 4.6 % 4.1 %
Return on Average Common Equity 10.9 % 11.0 %
Total Interest Coverage (times) 5.1 4.9
Book Value Per Share—end of period $ 22.56 $ 21.53
Common Shares Outstanding—end of period (thousands)                 50,141       49,912    
 
UTILITY GAS STATISTICS                                  
Three Months Ended Nine Months Ended Twelve Months Ended
          June 30,   June 30,   June 30,  
(In thousands)           2009     2008       2009     2008       2009       2008    
 
Operating Revenues
Gas Sold and Delivered
Residential - Firm $ 110,381 $ 147,099 $ 918,036 $ 919,750 $ 1,002,706 $ 991,331
Commercial and Industrial - Firm 30,451 47,619 240,261 257,101 275,433 280,825
Commercial and Industrial - Interruptible 725 2,233 3,540 7,391 4,727 8,471
Electric Generation           275     275       825     817       1,099       1,100    
            141,832     197,226       1,162,662     1,185,059       1,283,965       1,281,727    
Gas Delivered for Others
Firm 27,882 25,931 124,838 122,354 141,715 139,838
Interruptible 10,204 9,581 40,177 38,402 47,982 46,434
Electric Generation           56     98       238     260       350       354    
            38,142     35,610       165,253     161,016       190,047       186,626    
179,974 232,836 1,327,915 1,346,075 1,474,012 1,468,353
Other           5,984     8,650       22,921     28,752       38,440       40,562    

Total

        $ 185,958   $ 241,486     $ 1,350,836   $ 1,374,827     $ 1,512,452     $ 1,508,915    
                                   
Three Months Ended Nine Months Ended Twelve Months Ended
          June 30,   June 30,   June 30,  
(In thousands of therms)           2009     2008       2009     2008       2009       2008    
 
Gas Sales and Deliveries
Gas Sold and Delivered
Residential - Firm 73,996 76,796 653,211 590,135 690,603 627,339
Commercial and Industrial - Firm 25,230 28,380 185,739 177,647 207,455 196,382
Commercial and Industrial - Interruptible           690     1,564       2,882     5,623       3,802       6,563    
            99,916     106,740       841,832     773,405       901,860       830,284    
Gas Delivered for Others
Firm 68,992 70,856 416,653 389,671 460,973 431,098
Interruptible 55,056 51,177 228,573 211,841 273,358 257,281
Electric Generation           12,458     22,547       58,778     57,577       93,377       124,083    
            136,506     144,580       704,004     659,089       827,708       812,462    
Total           236,422     251,320       1,545,836     1,432,494       1,729,568       1,642,746    
 
WASHINGTON GAS ENERGY SERVICES                                
Natural Gas Sales
Therm Sales (thousands of therms) 102,817 111,755 565,045 562,604 637,479 636,434
 
Number of Customers (end of period)           148,800     138,200       148,800     138,200       148,800     138,200    
 
Electricity Sales
Electricity Sales (thousands of kWhs) 1,293,340 854,263 3,176,253 2,625,336 4,158,536 3,676,641
 
Number of Accounts (end of period)           98,900     63,600       98,900     63,600       98,900       63,600    
 
UTILITY GAS PURCHASED EXPENSE
(excluding asset optimization)           75.34 ¢   119.11   ¢   91.69 ¢   104.52   ¢   93.62   ¢   103.86   ¢
 
HEATING DEGREE DAYS                                  
Actual 343 271 4,203 3,456 4,205 3,466
Normal 302 302 3,759 3,773 3,774 3,789
Percent Colder (Warmer) than Normal           13.6 %   (10.3 ) %   11.8 %   (8.4 ) %   11.4   %   (8.5 ) %
 
Average Active Customer Meters           1,069,189     1,058,527       1,065,925     1,056,183       1,063,037       1,053,901    
 
 

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 storage 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:
  • We exclude unrealized mark-to-market adjustments for our energy-related derivatives to provide a more transparent and accurate view of the ongoing financial results of our operations. For our regulated utility segment, we use derivatives to substantially lock-in a future profit. This profit does not change even though the unrealized fair value of the underlying derivatives may change period-to-period, until settlement. For our retail energy-marketing segment, we use derivatives to lock-in a price for energy supplies to match future retail sales commitments. These derivatives are subject to mark-to-market treatment, while the corresponding retail sales commitments are not. With the exception of certain transactions related to the optimization of system storage capacity assets, as discussed below, when these derivatives settle the economic impact is reflected in our non-GAAP operating results, as we are only removing the interim unrealized mark-to-market amounts which are ultimately reversed when the derivatives are settled.
  • We adjust for certain gains and losses associated with the optimization of the regulated utility segment’s storage capacity assets. Transactions to optimize our system storage capacity assets are structured to lock-in a profit that is recognized, for regulatory purposes, as the natural gas is delivered to end-use customers. These transactions may result in gains and losses that consist of: (i) the settlement of physical and financial derivatives related to the management of our storage inventory and (ii) lower-of-cost or market adjustments from the difference between the cost of physical inventory compared to the amount realized through rates when the inventory is ultimately delivered to customers. In our GAAP results, due to timing differences between when the physical and financial transactions settle, and when the natural gas is sold to the end-use customer, gains and losses associated with our storage optimization strategy may be spread across different reporting periods. For purposes of calculating non-GAAP operating earnings (loss), gains and losses associated with these transactions are included in the reporting period when the gas is delivered to the end-use customer and the ultimate profit is realized for regulatory purposes. This reflects a better matching between the economic costs and benefits of the overall optimization strategy.

    We also exclude valuation adjustments to the carrying value of non-system natural gas storage inventory. 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.
  • We exclude certain unusual transactions that may be the result of regulatory or legal decisions, or items that we may deem outside of the ordinary course of business.
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, 2009
(In thousands, except per share data)  

Regulated
Utility

 

Retail Energy-
Marketing

 

Design-Build
Energy
Systems

 

Other
Activities*

  Consolidated
GAAP net income (loss) $ (2,391 ) $ 3,850 $ 834 $ (486 ) $ 1,807
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) 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  
 
Quarter Ended June 30, 2008
(In thousands, except per share data)  

Regulated
Utility

 

Retail Energy-
Marketing

 

Design-Build
Energy
Systems

 

Other
Activities*

  Consolidated
GAAP net income (loss) $ (8,051 ) $ 8,118 $ 301 $ (860 ) $ (492 )
Adjusted for (item shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a)     6,660       (3,020 )     -     -       3,640  
Non-GAAP operating earnings (loss)   $ (1,391 )   $ 5,098     $ 301   $ (860 )   $ 3,148  
GAAP diluted earnings (loss) per average common share (49,638 shares) $ (0.16 ) $ 0.16 $ 0.01 $ (0.02 ) $ (0.01 )
Per share effect of non-GAAP adjustments     0.13       (0.06 )     -     -       0.07  
Non-GAAP operating earnings (loss) per share   $ (0.03 )   $ 0.10     $ 0.01   $ (0.02 )   $ 0.06  
 
 
Nine Months Ended June 30, 2009
(In thousands, except per share data)  

Regulated
Utility

 

Retail Energy-
Marketing

 

Design-Build
Energy
Systems

 

Other
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 (c) (2,781 ) - - - (2,781 )
Reversal of prior period electric costs (d)     -       (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  
 
Nine Months Ended June 30, 2008
(In thousands, except per share data)  

Regulated
Utility

 

Retail Energy-
Marketing

 

Design-Build
Energy
Systems

 

Other
Activities*

  Consolidated
GAAP net income (loss) $ 114,123 $ 14,955 $ 825 $ (2,160 ) $ 127,743
Adjusted for (items shown after-tax):
Reversal of costs related to business process outsourcing (e) (1,139 ) - - - (1,139 )
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) 9,722 (1,974 ) - - 7,748
Other regulatory adjustments (f)     (1,242 )     -       -     -       (1,242 )
Non-GAAP operating earnings (loss)   $ 121,464     $ 12,981     $ 825   $ (2,160 )   $ 133,110  
GAAP diluted earnings (loss) per average common share (49,832 shares) $ 2.29 $ 0.30 $ 0.02 $ (0.05 ) $ 2.56
Per share effect of non-GAAP adjustments     0.15       (0.04 )     -     -       0.11  
Non-GAAP operating earnings (loss) per share   $ 2.44     $ 0.26     $ 0.02   $ (0.05 )   $ 2.67  
* 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 (LOSS)

(Unaudited)

         
Fiscal Year 2009
    Quarterly Period Ended (g)
(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 (c) (2,781 ) - - (2,781 )
Reversal of prior period electric costs (d)     -       (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  
 
Fiscal Year 2008
    Quarterly Period Ended (g)
(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Year-To-Date
GAAP net income (loss) $ 47,197 $ 81,038 $ (492 ) $ 127,743
Adjusted for (items shown after-tax):
Reversal of costs related to business process outsourcing (e) (1,139 ) - - (1,139 )
Unrealized mark-to-market loss on energy-related derivatives (a) 2,613 1,495 3,640 7,748
Other regulatory adjustments (f)     (1,242 )     -       -           (1,242 )
Non-GAAP operating earnings   $ 47,429     $ 82,533     $ 3,148         $ 133,110  
Diluted average common shares outstanding     49,645       49,781       49,638           49,832  
GAAP diluted earnings (loss) per average common share $ 0.95 $ 1.63 $ (0.01 ) $ 2.56
Per share effect of non-GAAP adjustments     0.01       0.03    

 

0.07           0.11  
Non-GAAP operating earnings per share   $ 0.96     $ 1.66     $ 0.06         $ 2.67  
 

Footnotes:

 

(a)

 

Represents the change in the unrealized mark-to-market positions of our energy-related derivatives that were recorded to income during the period. For the regulated utility segment, to the extent that our unrealized mark-to-market gains and losses are not shared with customers, these amounts are recorded directly to income. All unrealized mark-to-market gains and losses for the retail energy-marketing segment 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. These storage optimization non-GAAP adjustments which were reported on multiple lines in previous quarters have been combined in this report.

(c)

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. This Order resolved a contingency related to a proposed order issued by a Hearing Examiner of the PSC of MD in fiscal year 2006.

(d)

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

(e)

Represents the reversal of expenses that were incurred in prior fiscal years for initial implementation costs allocable to the District of Columbia associated with our business process outsourcing plan. These costs were recorded to a regulatory asset in the first quarter of fiscal year 2008 upon approval of 10-year amortization accounting by the District of Columbia Public Service Commission in a March 28, 2007 Final Order.

(f)

Represents favorable regulatory adjustments made during the first quarter of fiscal year 2008 applicable to prior fiscal years due to revised treatment for hexane costs in Maryland and certain shared revenues in the District of Columbia.

(g)

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, 2009

(Unaudited)

 
Consolidated
    Low   High
GAAP Earnings Per Share Guidance Range   $ 2.33   $ 2.45
Adjusted for:
Unrealized mark-to-market loss on energy-related derivatives (a) 0.15 0.15
Storage optimization program (b) (0.01 ) (0.01 )
Reversal of reserve for natural gas costs (c) (0.06 ) (0.06 )
Reversal of prior period electric costs (d)     (0.02 )     (0.02 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 2.39     $ 2.51  
 
Regulated Utility Segment
    Low   High
GAAP Earnings Per Share Guidance Range $ 2.14 $ 2.20
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.07 ) (0.07 )
Storage optimization program (b) (0.01 ) (0.01 )
Reversal of reserve for natural gas costs (c)     (0.06 )     (0.06 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 2.00     $ 2.06  
 
Unregulated Business Segments
    Low   High
GAAP Earnings Per Share Guidance Range $ 0.19 $ 0.25
Adjusted for:
Unrealized mark-to-market loss on energy-related derivatives (a) 0.22 0.22
Reversal of prior period electric costs (d)     (0.02 )     (0.02 )
Non-GAAP Operating Earnings Per Share Guidance Range   $ 0.39     $ 0.45  
 

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 2009. 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)

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. These storage optimization non-GAAP adjustments which were reported on multiple lines in previous quarters have been combined in this report.

(c)

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. This Order resolved a contingency related to a proposed order issued by a Hearing Examiner of the PSC of MD in fiscal year 2006.

(d)

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

Contact:

WGL Holdings, Inc.
News Media
Eric Grant, 202-624-6091
or
Financial Community
Robert Dennis, 202-624-6129