Common use of OPERATING SEGMENT REPORTING Clause in Contracts

OPERATING SEGMENT REPORTING. In fiscal year 1999, the company adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131). SFAS No. 131 introduced a new model, called the “management approach,” to identify and report on the operating segments of a business enterprise. Operating segments comprise revenue-generating components of an enterprise for which it produces separate financial information internally that management regularly uses to make operating decisions and assess performance. The company reports four operating segments: 1) regulated utility; 2) retail energy marketing; 3) HVAC; and 4) consumer financing. With nearly 95 percent of the company’s assets, the regulated utility segment comprises the company’s core business. The regulated utility segment provides regulated gas distribution services, including the purchase and delivery of natural gas, meter reading, ▇▇▇▇ preparation and responding to customer inquiries. The regulated utility segment serves residential, commercial and industrial customers in metropolitan Washington, D.C. and parts of Maryland and Virginia. In addition, the regulated utility segment also includes the operation of an underground natural gas storage facility regulated by the Federal Energy Regulatory Commission. Through the company’s subsidiary, WGEServices, the retail energy marketing segment sells natural gas directly to customers, both inside and outside the company’s traditional service territory, in competition with unregulated gas marketers. WGEServices also began enrolling customers to purchase electricity in Virginia and Maryland beginning in November 2000 and will market electricity to other customers as profitable opportunities develop. Through two wholly owned subsidiaries, ACI and WGESystems, and as a partner in Primary Investors, the HVAC segment designs, renovates and services mechanical heating, ventilating and air conditioning systems for commercial and residential customers. The consumer financing segment provides financing for consumer purchases of natural gas appliances and other energy-related equipment. The same accounting policies as those described in Note 1 apply to the reported segments. While net income or loss is the primary criterion for measuring a segment’s performance, the company also evaluates segments based on other relevant factors, such as penetration into their respective markets. The following table presents operating segment information. (Thousands) Other Operating Expenses(a) 792,907 165,617 40,885 1,532 1,980 210,014 — 1,002,921 Year Ended September 30, 1999 Total Revenues $ 972,120 Operating Expenses $103,851 $31,208 $ 3,779 $ 1,258 $140,096 $ — $ 1,112,216 Depreciation and Amortization 59,940 26 177 — — 203 — 60,143 Other Operating Expenses(a) 772,420 101,492 28,485 790 (1,444) 129,323 — 901,743 Income Tax Expense (Benefit) 38,689 764 885 1,100 1,077 3,826 — 42,515 Total Operating Expenses 871,049 102,282 29,547 1,890 (367) 133,352 — 1,004,401 Equity in Loss of 50% Investment — — (54) — — (54) — (54) Operating Income 101,071 1,569 1,607 1,889 1,625 6,690 — 107,761 Interest Expense—Net 36,297 5 474 150 4 633 41 36,971 Other Non-Operating Inc. (Exp.)(b) — — 57 — — 57 (2,079) (2,022) Net Income (Loss) $ 64,774 $ 1,564 $ 1,190 $ 1,739 $ 1,621 $ 6,114 $ (2,120) $ 68,768 Total Assets $1,698,143 $ 33,872 $20,560 $12,270 $ 239 $ 66,941 $ 10,415 $ 1,775,499 Capital Expenditures/Investments $ 158,190 $ 38 $ 8,005 $ — $ — $ 8,043 $ — $ 166,233 Year Ended September 30, 1998 Total Revenues $1,040,618 $ 83,176 $13,815 $ 3,206 $ 2,637 $102,834 $ — $ 1,143,452 Operating Expenses Depreciation and Amortization 54,875 26 99 — 73 198 — 55,073 Other Operating Expenses(a) 845,758 82,702 14,083 984 (1,533) 96,236 — 941,994 Income Tax Expense (Benefit) 38,▇▇▇ ▇▇▇ (▇▇▇) ▇▇▇ ▇▇▇ ▇,640 — 39,662 Total Operating Expenses 938,655 82,901 14,006 1,787 (620) 98,074 — 1,036,729 Operating Income 101,963 275 (191) 1,419 3,257 4,760 — 106,723 Interest Expense—Net 37,▇▇▇ (▇▇) ▇▇▇ ▇▇▇ ▇▇ ▇▇▇ — 37,719 Other Non-Operating Inc. (Exp.)(b) — — — — — — (375) (375) Net Income (Loss) $ 64,580 $ 288 $ (334) $ 1,270 $ 3,200 $ 4,424 $ (375) $ 68,629 Total Assets $1,649,247 $ 21,355 $ 11,863 $ 3,101 $ 641 $ 36,960 $ (3,774) $ 1,682,433 Capital Expenditures/Investments $ 158,778 $ 34 $ 5,052 $ — $ — $ 5,086 $ — $ 163,864 (a) Includes cost of gas and revenue taxes during all reported periods, a loss on the sale of utility property during the fiscal year ended September 30, 1999, and gains on the sales of non-utility assets during all three fiscal years reported. (b) The amounts reported for Other Non-Operating Income (Expense) are net of applicable income taxes.

OPERATING SEGMENT REPORTING. In fiscal year 1999, the company adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131). SFAS No. 131 introduced a new model, called the “management approach,” to identify and report on the operating segments of a business enterprise. Operating segments comprise revenue-generating components of an enterprise for which it produces separate financial information internally that management regularly uses to make operating decisions and assess performance. The company reports four operating segments: 1) regulated utility; 2) retail energy marketing; 3) HVAC; and 4) consumer financing. With nearly 95 percent of the company’s assets, the regulated utility segment comprises the company’s core business. The regulated utility segment provides regulated gas distribution services, including the purchase and delivery of natural gas, meter reading, ▇▇▇▇ preparation and responding to customer inquiries. The regulated utility segment serves residential, commercial and industrial customers in metropolitan Washington, D.C. and parts of Maryland and Virginia. In addition, the regulated utility segment also includes the operation of an underground natural gas storage facility regulated by the Federal Energy Regulatory Commission. Through the company’s subsidiary, WGEServices, the retail energy marketing segment sells natural gas directly to customers, both inside and outside the company’s traditional service territory, in competition with unregulated gas marketers. WGEServices also began enrolling customers to purchase electricity in Virginia and Maryland beginning in November 2000 and will market electricity to other customers as profitable opportunities develop. Through two wholly owned subsidiaries, ACI and WGESystems, and as a partner in Primary Investors, the HVAC segment designs, renovates and services mechanical heating, ventilating and air conditioning systems for commercial and residential customers. The consumer financing segment provides financing for consumer purchases of natural gas appliances and other energy-related equipment. The same accounting policies as those described in Note 1 apply to the reported segments. While net income or loss is the primary criterion for measuring a segment’s performance, the company also evaluates segments based on other relevant factors, such as penetration into their respective markets. The following table presents operating segment information. (Thousands) Other Non-Operating Expenses(aInc. (Exp.)(b) 792,907 165,617 40,885 1,532 1,980 210,014 — 1,002,921 — (10) — — (10) (625) (635) Net Income (Loss) $ 83,220 $ 529 $ 1,442 $ 765 $ 48 $ 2,784 $ (1,430) $ 84,574 Total Assets $ 1,825,760 $ 47,933 $40,932 $11,763 $ 680 $101,308 $ 12,772 $ 1,939,840 Capital Expenditures/Investments $ 122,480 $ 145 $10,999 $ 1,193 $ — $ 12,337 $ — $ 134,817 Year Ended September 30, 1999 Total Revenues $ 972,120 Operating Expenses $103,851 $31,208 $ 3,779 $ 1,258 $140,096 $ — $ 1,112,216 Operating Expenses Depreciation and Amortization 59,940 26 177 — — 203 — 60,143 Other Operating Expenses(a) 772,420 101,492 28,485 790 (1,444) 129,323 — 901,743 Income Tax Expense (Benefit) 38,689 764 885 1,100 1,077 3,826 — 42,515 Total Operating Expenses 871,049 102,282 29,547 1,890 (367) 133,352 — 1,004,401 Equity in Loss of 50% Investment — — (54) — — (54) — (54) Operating Income 101,071 1,569 1,607 1,889 1,625 6,690 — 107,761 Interest Expense—Net 36,297 5 474 150 4 633 41 36,971 Other Non-Operating Inc. (Exp.)(b) — — 57 — — 57 (2,079) (2,022) Net Income (Loss) $ 64,774 $ 1,564 $ 1,190 $ 1,739 $ 1,621 $ 6,114 $ (2,120) $ 68,768 Total Assets $$ 1,698,143 $ 33,872 $20,560 $12,270 $ 239 $ 66,941 $ 10,415 $ 1,775,499 Capital Expenditures/Investments $ 158,190 $ 38 $ 8,005 $ — $ — $ 8,043 $ — $ 166,233 Year Ended September 30, 1998 Total Revenues $$ 1,040,618 $ 83,176 $13,815 $ 3,206 $ 2,637 $102,834 $ — $ 1,143,452 Operating Expenses Depreciation and Amortization 54,875 26 99 — 73 198 — 55,073 Other Operating Expenses(a) 845,758 82,702 14,083 984 (1,533) 96,236 — 941,994 Income Tax Expense (Benefit) 38,▇▇▇ ▇▇▇ (▇▇▇) ▇▇▇ ▇▇▇ ▇,640 — 39,662 Total Operating Expenses 938,655 82,901 14,006 1,787 (620) 98,074 — 1,036,729 Operating Income 101,963 275 (191) 1,419 3,257 4,760 — 106,723 Interest Expense—Net 37,▇▇▇ (▇▇) ▇▇▇ ▇▇▇ ▇▇ ▇▇▇ — 37,719 Other Non-Operating Inc. (Exp.)(b) — — — — — — (375) (375) Net Income (Loss) $ 64,580 $ 288 $ (334) $ 1,270 $ 3,200 $ 4,424 $ (375) $ 68,629 Total Assets $$ 1,649,247 $ 21,355 $ $11,863 $ 3,101 $ 641 $ 36,960 $ (3,774) $ 1,682,433 Capital Expenditures/Investments $ 158,778 $ 34 $ 5,052 $ — $ — $ 5,086 $ — $ 163,864 (a) Includes cost of gas and revenue taxes during all reported periods, a loss on the sale of utility property during the fiscal year ended September 30, 1999, and gains on the sales of non-utility assets during all three fiscal years reported. (b) The amounts reported for Other Non-Operating Income (Expense) are net of applicable income taxes.