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WGL Holdings, Inc. Reports Third Quarter Fiscal Year 2012 Financial Results; Affirms Fiscal Year 2012 Non-GAAP Guidance

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

¢

 

 

72.94

¢

 

 

60.98

¢

 

 

67.95

¢

 

  62.53

¢

 

 

  68.62 ¢
 
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)   RegulatedUtility   Retail Energy-Marketing  

CommercialEnergy Systems

  WholesaleEnergySolutions   OtherActivities*   Consolidated
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 shares)

$ (0.11 ) $ 0.38 $ 0.01 $ (0.12 ) $ (0.02 ) $ 0.14
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)   RegulatedUtility   Retail Energy-Marketing   CommercialEnergy Systems   WholesaleEnergySolutions   OtherActivities*   Consolidated
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 shares)

$ (0.08 ) $ 0.16 $ - $ (0.01 ) $ (0.01 ) $ 0.06
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)   RegulatedUtility   Retail Energy-Marketing   CommercialEnergy Systems   WholesaleEnergySolutions   OtherActivities   Consolidated
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 (a) (2,475 ) 2,370 - - - (105 )
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 shares)

$ 2.15 $ 0.48 $ 0.03 $ (0.07 ) $ (0.03 ) $ 2.56
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)   RegulatedUtility   Retail Energy-Marketing   CommercialEnergy Systems  

WholesaleEnergySolutions

  OtherActivities*   Consolidated
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 (a) 5,853 (20,402 ) - - - (14,549 )
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 shares)

$ 2.10 $ 0.84 $ - $ (0.01 ) $ (0.05 ) $ 2.88
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 (a) 11,997 197 (12,299 ) (105 )
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 (a) (12,196 ) 1,186 (3,539 ) (14,549 )
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.





Stock quotes in this article: WGL 

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