|
--Consolidated non-GAAP operating earnings up --- $0.08 per share vs. $0.01 per share for the same quarter of the prior year
--Earnings Guidance for fiscal year 2012 affirmed in a range of $2.34 and $2.46 per share for GAAP earnings and affirmed in a range of $2.43 and $2.55 per share for non-GAAP operating earnings
WGL Holdings, Inc. (WGL):
Consolidated Results
WGL Holdings, Inc. (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, 2012 of $7.5 million, or $0.14 per share,
compared to net income of $3.0 million, or $0.06 per share, reported for
the quarter ended June 30, 2011.
For the nine months of fiscal year 2012, we reported net income
determined in accordance with GAAP of $132.1 million, or $2.56 per
share, compared to net income of $147.6 million, or $2.88 per share,
reported for the comparative period of fiscal year 2011. Our operations
are seasonal and, accordingly, our operating results for the three and
nine months ended June 30, 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 June 30, 2012, non-GAAP operating earnings were
$4.0 million, or $0.08 per share, an increase of $3.7 million, or $0.07
per share, over non-GAAP operating earnings of $0.3 million, or $0.01
per share, for the same quarter of the prior fiscal year. For the nine
months ended June 30, 2012, non-GAAP operating earnings were $143.4
million, or $2.78 per share, an increase of $13.0 million, or $0.23 per
share, over non-GAAP operating earnings of $130.4 million, or $2.55 per
share, for the same period of the prior fiscal year.
"In the third quarter we saw earnings growth in both our utility and
non-utility businesses," said Terry McCallister, Chairman and CEO. "Our
regulated utility segment benefited from increased revenues following
the completion of rate cases in Virginia and Maryland, and our
retail-energy marketing segment continued to see steady earnings growth
in spite of the extreme summer temperatures experienced in our
territories. I am pleased with these results and confident that we will
achieve our expectations for 10% growth in non-GAAP earnings per share
this 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, 2012, our regulated utility segment reported a seasonal net
loss of $(5.8) million, or ($0.11) per share, compared to a net loss of
$(3.9) million, or $(0.08) per share, reported for the same quarter of
the prior fiscal year. After adjustments, non-GAAP operating losses for
the regulated utility segment were ($4.1) million, or ($0.08) per share,
for the quarter ended June 30, 2012, compared to non-GAAP operating
losses of $(6.4) million, or $(0.12) per share, for the same quarter of
the prior fiscal year.
For the nine months ended June 30, 2012, our regulated utility segment
reported net income of $110.9 million, or $2.15 per share, an increase
of $3.3 million, or $0.05 per share, over net income of $107.6 million,
or $2.10 per share, reported for the nine months ended June 30, 2011.
After adjustments, non-GAAP operating earnings for the regulated utility
segment were $117.1 million, or $2.27 per share, for the nine months
ended June 30, 2012, an increase of $6.7 million, or $0.12 per share,
over non-GAAP operating earnings of $110.4 million, or $2.15 per share,
for the same period of the prior fiscal year.
The improvement in both the three and nine months ended June 30, 2012
for non-GAAP operating earnings reflect higher revenues from the
implementation of new rates in Virginia and Maryland, an increase in
average active customer meters and lower interest expense, partially
offset by: (i) unfavorable effects of changes in natural gas
consumption patterns in the District of Columbia; (ii) higher
operation and maintenance expenses and (iii) higher depreciation
expense due to the growth in our investment in utility plant. For the
nine month period, favorable variances were also partially offset by lower
realized margins associated with our asset optimization program and
higher income tax expense due to an increase in the effective tax rate.
Retail Energy-Marketing Segment
For the quarter ended June 30, 2012, the retail energy-marketing segment
reported net income of $19.7 million, or $0.38 per share, an increase of
$11.4 million, or $0.22 per share over net income of $8.3 million, or
$0.16 per share, reported for the same quarter of the prior fiscal year.
Non-GAAP operating earnings for the retail energy-marketing segment were
$9.0 million, or $0.17 per share, for the quarter ended June 30, 2012,
an increase of $1.3 million, or $0.02 per share, over non-GAAP operating
earnings of $7.7 million, or $0.15 per share, for the same quarter of
the prior fiscal year.
For the nine months ended June 30, 2012, the retail energy-marketing
segment reported net income of $25.0 million, or $0.48 per share,
compared to net income of $42.9 million, or $0.84 per share, reported
for the same period of the prior fiscal year. Non-GAAP operating
earnings for the retail energy-marketing segment were $27.3 million, or
$0.53 per share, for the nine months ended June 30, 2012, an increase of
$4.8 million, or $0.09 per share, over non-GAAP operating earnings of
$22.5 million, or $0.44 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 June 30, 2012, non-GAAP operating earnings reflect
higher realized electric margins due to increased sales volumes
resulting from customer growth and favorable price conditions in the
current period versus the same quarter of the prior year. Realized
natural gas margins were lower primarily attributable to a less
favorable pattern of margin recognition in the current quarter versus
the same quarter of the prior year partially offset by higher sales
volumes. The pattern of margin recognition that the retail
energy-marketing segment realizes in a given quarter varies from year to
year.
For the nine months ended June 30, 2012, non-GAAP operating earnings
reflect higher realized electric margins attributable to higher sales
volumes due to customer growth, favorable price conditions and a
different pattern of margin recognition versus the prior year. Realized
natural gas margins are lower primarily due to lower unit 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 nine
month period increased primarily due to higher customer service and bad
debt costs as well as other expenses.
Commercial Energy Systems
For the quarter ended June 30, 2012, the commercial energy systems
segment reported net income of $0.6 million compared to net income of
$45,000 for the same quarter last year. For the nine months ended June
30, 2012, the commercial energy systems segment reported net income of
$1.4 million compared to net income of $25,000 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 timing 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 June 30, 2012, the wholesale energy solutions
segment reported a net loss of $(6.0) million, or $(0.12) per share,
compared to a net loss of $(0.6) million for the same period of the
prior fiscal year. Non-GAAP net losses for the wholesale energy
solutions segment were $(0.5) million, or $(0.01) per share, compared to
a loss of $(0.2) million for the same period of the prior fiscal year.
For the nine months ended June 30, 2012, the wholesale energy solutions
segment reported a net loss of $(3.4) million, or $(0.07) per share,
compared to a net loss of $(0.4) million for the same period of the
prior fiscal year. Wholesale energy solutions had a non-GAAP net loss of
$(0.7) million, compared to net income of $0.1 million for the same
period of the prior fiscal year.
The non-GAAP comparison for the year-to-date period reflects low storage
and transportation spreads due to one of the warmest winters on record
across the country, which affected optimization opportunities. Both the
quarter and year-to-date periods reflect higher operation and
maintenance expense as a result of new storage and optimization
arrangements, as well as costs related to the Commonwealth Pipeline
project.
Earnings Outlook
We are affirming our GAAP earnings estimate for fiscal year 2012 in a
range of $2.34 per share to $2.46 per share. This estimate includes
projected fiscal year 2012 earnings from our regulated utility segment
in a range of $1.74 per share to $1.80 per share and projected fiscal
year 2012 earnings from our unregulated business segments in a range of
$0.60 per share to $0.66 per share.
We are also affirming our consolidated earnings estimate for fiscal year
2012 based on non-GAAP operating earnings in a range of $2.43 per share
to $2.55 per share. 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 August 6,
2012, to discuss our third 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 September 6, 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)
June 30, September 30,
(In thousands) 2012 2011
--------------------------------------------------------- ---------- ----------
ASSETS
Property, Plant and Equipment
At original cost $ 3,715,733 $ 3,575,973
Accumulated depreciation and amortization (1,124,488 ) (1,086,072 )
--------------------------------------------------------- ---------- ---- ---------- -
Net property, plant and equipment 2,591,245 2,489,901
--------------------------------------------------------- ---------- ----------
Current Assets
Cash and cash equivalents 51,519 4,332
Accounts receivable, net 356,033 296,423
Storage gas 236,980 290,394
Other 131,797 133,584
--------------------------------------------------------- ---------- ----------
Total current assets 776,329 724,733
--------------------------------------------------------- ---------- ----------
Deferred Charges and Other Assets 585,461 594,400
--------------------------------------------------------- ---------- ----------
Total Assets $ 3,953,035 $ 3,809,034
--------------------------------------------------------- --- ---------- --- ----------
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders’ equity $ 1,281,869 $ 1,202,715
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt 588,089 587,213
--------------------------------------------------------- ---------- ----------
Total capitalization 1,898,131 1,818,101
--------------------------------------------------------- ---------- ----------
Current Liabilities
Notes payable and current maturities of long-term debt 90,539 116,525
Accounts payable and other accrued liabilities 234,168 279,434
Other 251,891 180,781
--------------------------------------------------------- ---------- ----------
Total current liabilities 576,598 576,740
--------------------------------------------------------- ---------- ----------
Deferred Credits 1,478,306 1,414,193
--------------------------------------------------------- ---------- ----------
Total Capitalization and Liabilities $ 3,953,035 $ 3,809,034
--------------------------------------------------------- --- ---------- --- ----------
WGL Holdings, Inc.
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------- ------------------------------------
(In thousands, except per share data) 2012 2011 2012 2011
------------------------------------------- ------- ------- --------- ---------
OPERATING REVENUES
Utility $ 160,681 $ 178,466 $ 985,528 $ 1,149,057
Non-utility 277,645 311,815 1,019,999 1,154,319
------------------------------------------- ------- ------- --------- ---------
Total Operating Revenues 438,326 490,281 2,005,527 2,303,376
------------------------------------------- ------- ------- --------- ---------
OPERATING EXPENSES
Utility cost of gas 40,926 60,774 384,710 555,964
Non-utility cost of energy-related sales 235,664 281,817 927,640 1,032,935
Operation and maintenance 89,054 80,776 255,735 245,875
Depreciation and amortization 25,184 22,833 73,530 68,124
General taxes and other assessments 26,965 28,840 111,043 123,515
------------------------------------------- ------- ------- --------- ---------
Total Operating Expenses 417,793 475,040 1,752,658 2,026,413
------------------------------------------- ------- ------- --------- ---------
OPERATING INCOME 20,533 15,241 252,869 276,963
Other Income -- Net 1,228 481 4,222 49
Interest Expense
Interest on long-term debt 9,152 10,022 28,244 29,919
AFUDC and other -- net 407 210 658 631
------------------------------------------- ------- ------- --------- ---------
Total Interest Expense 9,559 10,232 28,902 30,550
------------------------------------------- ------- ------- --------- ---------
INCOME BEFORE INCOME TAXES 12,202 5,490 228,189 246,462
INCOME TAX EXPENSE 4,415 2,208 95,125 97,860
------------------------------------------- ------- ------- --------- ---------
NET INCOME 7,787 3,282 133,064 148,602
Dividends on Washington Gas preferred stock 330 330 990 990
------------------------------------------- ------- ------- --------- ---------
NET INCOME APPLICABLE TO COMMON STOCK $ 7,457 $ 2,952 $ 132,074 $ 147,612
------------------------------------------- ---- ------- ---- ------- ---- --------- ---- ---------
AVERAGE COMMON SHARES OUTSTANDING
Basic 51,553 51,243 51,499 51,153
Diluted 51,632 51,314 51,574 51,235
------------------------------------------- ------- ------- --------- ---------
EARNINGS PER AVERAGE COMMON SHARE
Basic $ 0.14 $ 0.06 $ 2.56 $ 2.89
Diluted $ 0.14 $ 0.06 $ 2.56 $ 2.88
------------------------------------------- ---- ------- ---- ------- ---- --------- ---- ---------
Net Income (Loss) Applicable To Common Stock -- By Segment ($000):
Regulated utility $ (5,846 ) $ (3,931 ) $ 110,911 $ 107,596
------------------------------------------- ---- ------- ---- ---- ------- ---- ---- --------- ---- ---------
Non-utility operations:
Retail energy-marketing 19,667 8,316 24,977 42,925
Commercial energy systems 591 45 1,425 25
Wholesale energy solutions (5,958 ) (553 ) (3,443 ) (366 )
Other activities (997 ) (925 ) (1,796 ) (2,568 )
------------------------------------------- ------- ---- ------- ---- --------- ---- --------- ----
Total non-utility 13,303 6,883 21,163 40,016
------------------------------------------- ------- ------- --------- ---------
NET INCOME APPLICABLE TO COMMON STOCK $ 7,457 $ 2,952 $ 132,074 $ 147,612
------------------------------------------- ---- ------- ---- ------- ---- --------- ---- ---------
WGL Holdings, Inc.
Consolidated Financial and Operating Statistics
(Unaudited)
FINANCIAL STATISTICS
Twelve Months Ended June 30,
------------------------------------------------------
2012 2011
---------- ----------
Closing Market Price -- end of period $ 39.75 $ 38.49
52-Week Market Price Range $44.99-$34.71 $40.00-$33.32
Price Earnings Ratio 20.2 16.2
Annualized Dividends Per Share $ 1.60 $ 1.55
Dividend Yield 4.0 % 4.0 %
Return on Average Common Equity 8.0 % 9.9 %
Total Interest Coverage (times) 5.5 5.8
Book Value Per Share -- end of period $ 24.86 $ 24.41
Common Shares Outstanding -- end of period (thousands) 51,573 51,293
------------------------------------------------------------------ ---------- ----------
UTILITY GAS STATISTICS
------------------------------------------------------------------
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------------------------ -------------------------------- ---------------------------------------------
(In thousands) 2012 2011 2012 2011 2012 2011
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
Operating Revenues
Gas Sold and Delivered
Residential - Firm $ 93,437 $ 102,919 $ 631,173 $ 757,953 $ 689,063 $ 828,836
Commercial and Industrial - Firm 20,496 26,446 137,258 178,012 154,905 196,396
Commercial and Industrial - Interruptible 199 516 1,398 2,130 1,758 2,637
Electric Generation 275 275 825 825 1,100 1,100
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
114,407 130,156 770,654 938,920 846,826 1,028,969
--------- --------- --------- --------- ---------- ----------
Gas Delivered for Others
Firm 28,663 31,783 152,976 147,536 174,567 168,637
Interruptible 9,606 9,754 38,256 42,608 46,221 50,662
Electric Generation 345 135 489 253 694 532
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
38,614 41,672 191,721 190,397 221,482 219,831
--------- --------- --------- --------- ---------- ----------
153,021 171,828 962,375 1,129,317 1,068,308 1,248,800
Other 7,660 6,638 23,153 19,740 32,743 27,507
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
Total $ 160,681 $ 178,466 $ 985,528 $ 1,149,057 $ 1,101,051 $ 1,276,307
------------------------------------------------------------------ - --------- --- --------- - --------- --- --------- ---- ---------- ---- ----------
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------------------------ -------------------------------- ---------------------------------------------
(In thousands of therms) 2012 2011 2012 2011 2012 2011
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
Gas Sales and Deliveries
Gas Sold and Delivered
Residential - Firm 60,617 70,907 503,464 647,836 533,186 683,951
Commercial and Industrial - Firm 19,322 22,873 132,965 165,325 146,847 179,895
Commercial and Industrial - Interruptible 303 493 1,785 2,086 2,272 2,531
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
80,242 94,273 638,214 815,247 682,305 866,377
--------- --------- --------- --------- ---------- ----------
Gas Delivered for Others
Firm 74,261 82,207 387,090 461,547 426,730 505,662
Interruptible 49,475 47,429 199,815 227,294 243,942 272,667
Electric Generation 188,382 44,042 231,393 67,404 304,546 172,243
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
312,118 173,678 818,298 756,245 975,218 950,572
--------- --------- --------- --------- ---------- ----------
Total 392,360 267,951 1,456,512 1,571,492 1,657,523 1,816,949
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
WASHINGTON GAS ENERGY SERVICES
------------------------------------------------------------------
Natural Gas Sales
Therm Sales (thousands of therms) 96,778 91,344 529,137 610,272 597,289 673,453
Number of Customers (end of period) 180,900 172,100 180,900 172,100 180,900 172,100
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
Electricity Sales
Electricity Sales (thousands of kWhs) 2,991,265 2,687,887 8,400,227 7,745,297 11,447,330 10,655,268
Number of Accounts (end of period) 202,200 183,900 202,200 183,900 202,200 183,900
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
UTILITY GAS PURCHASED EXPENSE
(excluding asset optimization) 53.49 c 72.94 c 60.98 c 67.95 c 62.53 c 68.62 Ac
------------------------------------------------------------------ --------- --- --------- --- --------- --- --------- - ---------- --- ---------- ---
HEATING DEGREE DAYS
------------------------------------------------------------------
Actual 224 273 3,031 3,985 3,045 3,985
Normal 302 301 3,786 3,756 3,778 3,770
Percent Colder (Warmer) than Normal (25.8 ) % (9.3 ) % (19.9 ) % 6.1 % (19.4 ) % 5.7 %
------------------------------------------------------------------ --------- --- --- --------- --- - --------- --- --- --------- - ---------- --- --- ---------- ---
Average Active Customer Meters 1,096,156 1,087,779 1,093,293 1,084,599 1,091,260 1,082,296
------------------------------------------------------------------ --------- --------- --------- --------- ---------- ----------
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 exclude unrealized mark-to-market adjustments for our
energy-related derivatives for our regulated utility and retail
marketing operations to provide a more transparent and accurate view
of the ongoing financial results of our operations and to be
consistent with regulatory sharing requirements. 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. Additionally, for the regulated utility segment, sharing
with customers is based on realized profit, and does not factor in
unrealized gains and losses. 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 most of the corresponding retail sales
contracts are not. With the exception of certain transactions related
to the optimization of system 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 that 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 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. In addition,
losses incurred to terminate long-term contracts affecting
transportation capacity optimization margins of future periods are
included in the reporting period when the transportation capacity
optimization margins earned as a result of the termination are
realized. These adjustments reflect 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 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.
--
Our non-utility wholesale energy solutions segment owns natural gas
storage inventory in connection with its asset optimization
strategies. Certain of this storage inventory is economically hedged
with physical sales contracts. We adjust the value of that inventory
using the same forward price that is used to calculate the fair value
of the related physical sales contracts under derivative accounting
requirements. The remaining storage optimization inventory is valued
using delivered market prices for the month following the end of the
reporting period. This adjustment also includes the estimated effects
of certain sharing mechanisms on all of our non-GAAP unrealized gains
and losses. Adjusting our storage optimization inventory in this
fashion allows our reported non-GAAP earnings to better align with the
settlement of both our physical and financial transactions and allows
investors and management to better analyze the results of our
non-utility asset optimization strategies.
--
Washington Gas has a weather protection strategy designed to
neutralize the estimated financial effects of weather. To the extent,
however, the financial effects of warm or cold weather exceed our
weather protection, we will exclude these effects from non-GAAP
operating earnings (loss). Utilization of normal weather is an
industry standard, and it is our practice to evaluate our
rate-regulated revenues by utilizing normal weather and to provide
estimates and guidance on the basis of normal weather.
--
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 (LOSS) TO
NON-GAAP OPERATING EARNINGS (LOSS)
(Unaudited)
Three Months Ended June 30, 2012
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) Regulated Retail Energy- Commercial Wholesale Other Consolidated
Utility Marketing Energy Systems Energy Activities*
Solutions
------------------------------------------------------------------- ------------- --------------- -------------- ------------ ------------ ---------------
GAAP net income (loss) $ (5,846 ) $ 19,667 $ 591 $ (5,958 ) $ (997 ) $ 7,457
Adjusted for (items shown after-tax):
Unrealized mark-to-market gain on energy-related derivatives (a) (1,590 ) (10,709 ) - - - (12,299 )
Storage optimization program (b) 93 - - - - 93
Weather derivative products (c) 51 - - - - 51
Change in measured value of inventory (d) - - - 5,421 - 5,421
DC weather impact (e) 221 - - - - 221
Impairment loss on Springfield Operations Center (f) 3,012 - - - - 3,012
------------------------------------------------------------------- ------- ------- ------- ------ ------ -------
Non-GAAP operating earnings (loss) $ (4,059 ) $ 8,958 $ 591 $ (537 ) $ (997 ) $ 3,956
------------------------------------------------------------------- --- ------- --- ---- ------- ------- ------- --- ------ --- --- ------ --- ---- -------
GAAP diluted earnings (loss) per average common share (51,632 $ (0.11 ) $ 0.38 $ 0.01 $ (0.12 ) $ (0.02 ) $ 0.14
shares)
Per share effect of non-GAAP adjustments 0.03 (0.21 ) - 0.11 0.01 (0.06 )
------------------------------------------------------------------- ------- ------- ---- ------- ------ ------ ------- ----
Non-GAAP operating earnings (loss) per share $ (0.08 ) $ 0.17 $ 0.01 $ (0.01 ) $ (0.01 ) $ 0.08
------------------------------------------------------------------- --- ------- --- ---- ------- ------- ------- --- ------ --- --- ------ --- ---- -------
Three Months Ended June 30, 2011 (i)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) Regulated Retail Energy- Commercial Wholesale Other Consolidated
Utility Marketing Energy Systems Energy Activities*
Solutions
------------------------------------------------------------------- ------------- --------------- -------------- ------------ ------------ ---------------
GAAP net income (loss) $ (3,931 ) $ 8,316 $ 45 $ (553 ) $ (925 ) $ 2,952
Adjusted for (items shown after-tax):
Unrealized mark-to-market gain on energy-related derivatives (a) (2,946 ) (593 ) - - - (3,539 )
Storage optimization program (b) 529 - - - - 529
Weather derivative products (c) (27 ) - - - - (27 )
Change in measured value of inventory (d) - - - 355 - 355
------------------------------------------------------------------- ------- ------- ------- ------ ------ -------
Non-GAAP operating earnings (loss) $ (6,375 ) $ 7,723 $ 45 $ (198 ) $ (925 ) $ 270
------------------------------------------------------------------- --- ------- --- ---- ------- ------- ------- --- ------ --- --- ------ --- ---- -------
GAAP diluted earnings (loss) per average common share (51,314 $ (0.08 ) $ 0.16 $ - $ (0.01 ) $ (0.01 ) $ 0.06
shares)
Per share effect of non-GAAP adjustments (0.04 ) (0.01 ) - 0.01 (0.01 ) (0.05 )
------------------------------------------------------------------- ------- --- ------- ---- ------- ------ ------ --- ------- ----
Non-GAAP operating earnings (loss) per share $ (0.12 ) $ 0.15 $ - $ - $ (0.02 ) $ 0.01
------------------------------------------------------------------- --- ------- --- ---- ------- ------- ------- --- ------ --- ------ --- ---- -------
Nine Months Ended June 30, 2012
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) Regulated Retail Energy- Commercial Wholesale Other Consolidated
Utility Marketing Energy Systems Energy Activities
Solutions
------------------------------------------------------------------- ------------- --------------- -------------- ------------ ------------ ---------------
GAAP net income (loss) $ 110,911 $ 24,977 $ 1,425 $ (3,443 ) $ (1,796 ) $ 132,074
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (2,475 ) 2,370 - - - (105 )
(a)
Storage optimization program (b) 1,072 - - - - 1,072
Weather derivative products (c) (363 ) - - - - (363 )
Change in measured value of inventory (d) - - - 2,787 - 2,787
DC weather impact (e) 2,078 - - - - 2,078
Impairment loss on Springfield Operations Center (f) 3,012 - - - - 3,012
Regulatory asset write-off - tax effect Medicare Part D (g) 2,827 - - - - 2,827
------------------------------------------------------------------- ------- ------- ------- ------ ------ -------
Non-GAAP operating earnings (loss) $ 117,062 $ 27,347 $ 1,425 $ (656 ) $ (1,796 ) $ 143,382
------------------------------------------------------------------- --- ------- ---- ------- ------- ------- --- ------ --- --- ------ --- ---- -------
GAAP diluted earnings (loss) per average common share (51,574 $ 2.15 $ 0.48 $ 0.03 $ (0.07 ) $ (0.03 ) $ 2.56
shares)
Per share effect of non-GAAP adjustments 0.12 0.05 - 0.06 (0.01 ) 0.22
------------------------------------------------------------------- ------- ------- ------- ------ ------ --- -------
Non-GAAP operating earnings (loss) per share $ 2.27 $ 0.53 $ 0.03 $ (0.01 ) $ (0.04 ) $ 2.78
------------------------------------------------------------------- --- ------- ---- ------- ------- ------- --- ------ --- --- ------ --- ---- -------
Nine Months Ended June 30, 2011 (i)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) Regulated Retail Energy- Commercial Wholesale Other Consolidated
Utility Marketing Energy Systems Energy Activities*
Solutions
------------------------------------------------------------------- ------------- --------------- -------------- ------------ ------------ ---------------
GAAP net income (loss) $ 107,596 $ 42,925 $ 25 $ (366 ) $ (2,568 ) $ 147,612
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives 5,853 (20,402 ) - - - (14,549 )
(a)
Storage optimization program (b) (1,828 ) - - - - (1,828 )
Weather derivative products (c) (151 ) - - - - (151 )
Change in measured value of inventory (d) - - - 426 - 426
Amortization of derivative contract termination (h) (1,074 ) - - - - (1,074 )
------------------------------------------------------------------- ------- --- ------- ------- ------ ------ ------- ----
Non-GAAP operating earnings (loss) $ 110,396 $ 22,523 $ 25 $ 60 $ (2,568 ) $ 130,436
------------------------------------------------------------------- --- ------- ---- ------- ------- ------- --- ------ --- ------ --- ---- -------
GAAP diluted earnings (loss) per average common share (51,235 $ 2.10 $ 0.84 $ - $ (0.01 ) $ (0.05 ) $ 2.88
shares)
Per share effect of non-GAAP adjustments 0.05 (0.40 ) - 0.01 0.01 (0.33 )
------------------------------------------------------------------- ------- ------- ---- ------- ------ ------ ------- ----
Non-GAAP operating earnings (loss) per share $ 2.15 $ 0.44 $ - $ - $ (0.04 ) $ 2.55
------------------------------------------------------------------- --- ------- ---- ------- ------- ------- --- ------ --- ------ --- ---- -------
* Per share amounts may include adjustments for rounding.
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 (j)
-------------------------------------------------------------------
(In thousands, except per share data) Dec. 31 Mar. 31 Jun. 30 Sept. 30 Fiscal Year
------------------------------------------------------------------- -------------- ------------- -------------- --------- ----------------
GAAP net income $ 50,438 $ 74,179 $ 7,457 $ 132,074
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives 11,997 197 (12,299 ) (105 )
(a)
Storage optimization program (b) 138 841 93 1,072
Weather derivative products (c) (228 ) (186 ) 51 (363 )
Change in measured value of inventory (d) (4,238 ) 1,604 5,421 2,787
DC weather impact (e) - 1,857 221 2,078
Impairment loss on Springfield Operations Center (f) - - 3,012 3,012
Regulatory asset write-off - tax effect Medicare Part D (g) - 2,827 - 2,827
------------------------------------------------------------------- ------- ------ ------- -------
Non-GAAP operating earnings $ 58,107 $ 81,319 $ 3,956 $ 143,382
------------------------------------------------------------------- -- ------- -- ------ -- ------- --- -------
Diluted average common shares outstanding 51,533 51,561 51,632 51,574
------------------------------------------------------------------- ------- ------ ------- -------
GAAP diluted earnings per average common share $ 0.98 $ 1.44 $ 0.14 $ 2.56
Per share effect of non-GAAP adjustments 0.15 0.14 (0.06 ) 0.22
------------------------------------------------------------------- ------- ------ ------- -- -------
Non-GAAP operating earnings per share $ 1.13 $ 1.58 $ 0.08 $ 2.78
------------------------------------------------------------------- -- ------- -- ------ -- ------- --- -------
Fiscal Year 2011 (i)
-------------------------------------------------------------------------------------------------------------------------------------------
Quarterly Period Ended (j)
-------------------------------------------------------------------
(In thousands, except per share data) Dec. 31 Mar. 31 Jun. 30 Sept. 30 Fiscal Year
------------------------------------------------------------------- -------------- ------------- -------------- --------- ----------------
GAAP net income $ 65,232 $ 79,428 $ 2,952 $ 147,612
Adjusted for (items shown after-tax):
Unrealized mark-to-market (gain) loss on energy-related derivatives (12,196 ) 1,186 (3,539 ) (14,549 )
(a)
Storage optimization program (b) (1,720 ) (637 ) 529 (1,828 )
Weather derivative products (c) (182 ) 58 (27 ) (151 )
Change in measured value of inventory (d) 1,878 (1,807 ) 355 426
Amortization of derivative contract termination (h) (429 ) (645 ) - (1,074 )
------------------------------------------------------------------- ------- -- ------ -- ------- ------- ---
Non-GAAP operating earnings $ 52,583 $ 77,583 $ 270 $ 130,436
------------------------------------------------------------------- -- ------- -- ------ -- ------- --- -------
Diluted average common shares outstanding 51,143 51,242 51,314 51,235
------------------------------------------------------------------- ------- ------ ------- -------
GAAP diluted earnings per average common share $ 1.28 $ 1.55 $ 0.06 $ 2.88
Per share effect of non-GAAP adjustments (0.25 ) (0.04 ) (0.05 ) (0.33 )
------------------------------------------------------------------- ------- -- ------ -- ------- -- ------- ---
Non-GAAP operating earnings per share $ 1.03 $ 1.51 $ 0.01 $ 2.55
------------------------------------------------------------------- -- ------- -- ------ -- ------- --- -------
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) During the third quarter of fiscal year 2012, Washington Gas
recorded an impairment charge related to its Springfield
Operations Center. Non-GAAP earnings has been adjusted to reflect
a comparable measure in analyzing period-to-period comparisons.
(g) In March 2010, the Patient Protection and Affordable Care Act
(PPACA) eliminated future Medicare Part D tax benefits for
Washington Gas’ tax years beginning after September 30, 2013. The
deferred tax asset related to this benefit was reversed and a
regulatory asset was established to reflect the probable recovery
of higher future tax expense from customers. Based on positions
taken by the Maryland Public Service Commission (PSC of MD) in
Washington Gas’ rate case, the PSC of MD would not permit recovery
of this asset.
(h) 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.
(i) 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.
(j) 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 $ 2.34 $ 2.46
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.09 ) (0.09 )
Storage optimization program (b) 0.02 0.02
Weather derivative products (c) (0.01 ) (0.01 )
Change in measured value of inventory (d) 0.05 0.05
DC weather impact (e) 0.04 0.04
Impairment loss on Springfield Operations Center (f) 0.06 0.06
Regulatory asset write-off - tax effect Medicare Part D (g) 0.05 0.05
Retroactive depreciation expense adjustment (h) (0.03 ) (0.03 )
---------------------------------------------------------------- ----- ---- ----- ----
Non-GAAP Operating Earnings Per Share Guidance Range $ 2.43 $ 2.55
---------------------------------------------------------------- ---- ----- ---- -----
Regulated Utility Segment
---------------------------------------------------------------------------------------------------
Low High
----------- -----------
GAAP Earnings Per Share Guidance Range $ 1.74 $ 1.80
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.05 ) (0.05 )
Storage optimization program (b) 0.02 0.02
Weather derivative products (c) (0.01 ) (0.01 )
DC weather impact (e) 0.04 0.04
Impairment loss on Springfield Operations Center (f) 0.06 0.06
Regulatory asset write-off - tax effect Medicare Part D (g) 0.05 0.05
Retroactive depreciation expense adjustment (h) (0.03 ) (0.03 )
---------------------------------------------------------------- ----- ---- ----- ----
Non-GAAP Operating Earnings Per Share Guidance Range $ 1.82 $ 1.88
---------------------------------------------------------------- ---- ----- ---- -----
Unregulated Business Segments
---------------------------------------------------------------------------------------------------
Low High
----------- -----------
GAAP Earnings Per Share Guidance Range $ 0.60 $ 0.66
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.04 ) (0.04 )
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 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) During the third quarter of fiscal year 2012, Washington Gas
recorded an impairment charge related to its Springfield
Operations Center. Non-GAAP earnings has been adjusted to reflect
a comparable measure in analyzing period-to-period comparisons.
(g) In March 2010, the Patient Protection and Affordable Care Act
(PPACA) eliminated future Medicare Part D tax benefits for
Washington Gas’ tax years beginning after September 30, 2013. The
deferred tax asset related to this benefit was reversed and a
regulatory asset was established to reflect the probable recovery
of higher future tax expense from customers. Based on positions
taken by the Maryland Public Service Commission (PSC of MD) in
Washington Gas’ rate case, the PSC of MD would not permit recovery
of this asset.
(h) Represents an adjustment that reduces depreciation expense
applicable to the period from January 1, 2010 through September
30, 2011. As a result of the Virginia State Corporation Commission
(SCC of VA) decision received on July 24, 2012, this adjustment
will be recorded in the fourth quarter of 2012.
SOURCE: WGL Holdings, Inc.
WGL Holdings, Inc.
News Media
Ruben Rodriguez, 202-624-6620
or
Financial Community
Douglas Bonawitz, 202-624-6129
|
